Securities and Exchange Commission







FORM 20-F







[ ]

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934.



OR



[X]

ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



For the fiscal year ended August 31, 2004.

....



OR



[ ]

TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



For the transition period from .....





Commission File Number: 0-29976







CRYSTAL GRAPHITE CORPORATION



________________________________________________________________________

(Exact name of registrant as specified in its charter)



Not Applicable

(Translation of registrants name into English)



British Columbia, Canada

(Jurisdiction of incorporation or organization)



Suite 1750  999 W. Hastings St., Vancouver, British Columbia, Canada, V6C 2W2

(Address of principal executive offices)

__________







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II





Securities to be registered pursuant to Section 12(b) of the Act.



None.



Securities to be registered pursuant to Section 12(g) of the Act.



Common shares without par value.

(Title of Class)



Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.



None.



Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report.



44,383,681 common shares (as at the financial year ended August 31, 2004)



44,421,671 common shares (as at February 22, 2005)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes:

Not applicable.

No:

Not applicable.



Indicate by checkmark which financial statement item the registrant has elected to follow:



Item 17:ü.

Item 18:   __.





__________





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i

FORM 20-F INDEX





Item

Page No.



GLOSSARY

1



FORWARD LOOKING STATEMENTS

2



PART I

2



ITEM 1  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND

ADVISERS

2



ITEM 2  OFFER STATISTICS AND EXPECTED TIMETABLE

2

A.

Offer Statistics

2

B.

Method and Expected Timetable

2



ITEM 3  KEY INFORMATION

2

A.

Selected Financial Information

2

Exchange Rates

3

B.

Capitalization and Indebtedness

4

C.

Reasons for the Offer and Use of Proceeds

4

D.

Risk Factors

4



ITEM 4  INFORMATION ON THE COMPANY

9

A.

History and Development of the Company

9

B.

Business Overview

12

Cash Resources and Liquidity

13

Stated Business Objectives

13

Principal Products

27

Environmental Regulation

33

C.

Organizational Structure

34

D.

Property, Plants and Equipment

34

Office Space

34

Mineral Property

34

Plants

37

Equipment

37



ITEM 5  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

38

A.

U.S. and Canadian GAAP differences

38

B.

The Company

38



ITEM 6  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

50

A.

Directors and Senior Management

50

Aggregate Ownership of Securities

54

Other Reporting Issuers

54

Individual Bankruptcies

54

Conflicts of Interest

54

Other Information

55







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ii

Item

Page No.





B.

Compensation

55

The Companys Executive Compensation

55

Compensation of the Companys Directors

59

C.

Board Practices

60

The Company

60

D.

Employees

60

E.

Share Ownership

62

Directors and Officers

62

Public and Insider Ownership

63



ITEM 7  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

63

A.

Major Shareholders

63

B.

Related Party Transactions

64

C.

Interests of Experts and Counsel

67



ITEM 8  FINANCIAL INFORMATION

67

A.

Consolidated Statements and other Financial Information

67

B.

Significant Changes

67



ITEM 9  THE OFFERING AND LISTING

67

A.

Offer and Listing Details

67

B.

Plan of Distribution

68

C.

Markets

68

D.

Selling Shareholders

68

E.

Dilution

69

F.

Expenses of the Issue

69



ITEM 10  ADDITIONAL INFORMATION

69

A.

Share Capital

69

B.

Memorandum and Articles of Association

69

Disclosure of Interest of Directors or Officers

69

Shareholdings of Directors

69

Rights, Preferences and Restrictions attaching to each class of

shares

70

Changing the Rights of Holders of the Companys Stock

70

Annual General Meetings and Extraordinary General Meetings

70

Annual General Meeting

70

Notice

70

Quorum

71

Limitations on the rights to own securities

71

C.

Material Contracts

71

D.

Exchange Controls

73

E.

Taxation

74

F.

Dividends and Paying Agents

75

G.

Statement by Experts

75

H.

Documents on Display

75

I.

Subsidiary Information

75





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Item

Page No.





ITEM 11  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT

MARKET RISK

76



ITEM 12  DESCRIPTION OF SECURITIES OTHER THAN EQUITY

SECURITIES

76

A.

Debt Securities

76

B.

Warrants and Rights

76

C.

Other Securities

76

D.

American Depositary Shares

76



PART II

76



ITEM 13  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

76



ITEM 14  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY

HOLDERS AND USE OF PROCEEDS

76



ITEM 17  FINANCIAL STATEMENTS

76



ITEM 18  FINANCIAL STATEMENTS

77



ITEM 19  EXHIBITS

77

(A)

Financial Statements

77

(B)

Exhibits

78



SIGNATURES

108



EXHIBIT INDEX

109

__________





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GLOSSARY





Unless other stated, in this Annual Report the following terms shall have the following meanings:



Graphite is a natural form of carbon and is the final metamorphic stage of all carbon minerals. Natural graphite is a non-metallic (industrial) mineral, which is relatively soft (1-2 on the Mohs hardness scale), opaque, flexible, moderately light (SG=2.36), and occurs principally in a small flake form.  Three types of graphite occur in nature; flake, crystalline, and a microcrystalline form known as amorphus.  Graphite is an excellent conductor of heat and electricity and has a high melting temperature of 3500 degrees Celcius.  In addition, it is resistant to corrosion, chemically inert, sectile (cuts smoothly) and is highly refractorive.  Graphite is also artificially manufactured from petroleum but is physically inferior to natural graphite because of its porosity, small flakes, and less desirable carbon.



Bi-polar plate  a bi-polar plate is a graphite-polymer composite either molded or milled which separates the fuel and widening agent in a PEM type fuel cell.



Industrial Mineral a rock or mineral of a non-metallic nature and of which is not a fuel.



Regolith the loose, incoherent mantle of rock fragments, soil, brown sands, etc. which rest on solid rock.



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2



FORWARD LOOKING STATEMENTS



Crystal Graphite Corporation (the Company) cautions readers that certain important factors (including, without limitation, those set forth in this Form 20-F) may affect the Companys actual results and could cause such results to differ materially from any forward-looking statements that may be deemed to have been made in this Form 20-F annual report (the Annual Report), or that are otherwise made by or on behalf of the Company.  For this purpose any statements contained in this Annual Report that are not statements of historical fact may be deemed to be forward-looking statements.  Without limiting the generality of the foregoing, words such as may, except, believe, anticipate, intend, could, estimate or continue, or the negative or other variations of comparable terminology, are intended to identify forward-looking statements.





PART 1





ITEM 1  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS



Not Applicable





ITEM 2  OFFER STATISTICS AND EXPECTED TIMETABLE



Not Applicable



A.

Offer Statistics



This Annual Report does not relate to any offering of the Companys shares.  Therefore, this section is not applicable to the Company.



B.

Method and Expected Timetable



This Annual Report does not relate to any offering of the Companys shares.  Therefore, this section is not applicable to the Company.





ITEM 3  KEY INFORMATION





A.

Selected Financial Information



The following summarizes certain selected financial information with respect to the Company and is qualified in its entirety by reference to the financial statements of the Company and the Notes thereto; a copy of which is attached to this Annual Report:

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|                                              | Year Ended Aug 31/04 | Year Ended
Aug. 31/03 | Year Ended
Aug. 31/02 | Year Ended
Aug. 31/01 | Year Ended
Aug. 31/00
|--------------------------------------------- | -------------------- | --------------------- | --------------------- | --------------------- | ---------------------
|Net Sales                                     | $449,427             | $ -                   | $ -                   | $ -                   | $ -                  
|Net Loss from Continuing Operations          
|Canadian GAAP                                 | $ (2,991,438)        | $ (1,446,929)         | $ (1,913,120)         | $ (2,379,069)         | $ (273,947)          
|US GAAP                                       | $ (12,222,567)       | $ (2,198,021)         | $ (2,791,524)         | $ (4,655,285)         | $ (722,375)          
|Net Loss from Continuing Operations per Share
|Canadian GAAP(1)                              | $ (0.09)             | $ (0.06)              | $ (0.09)              | $ (0.11)              | $ (0.03)             
|US GAAP                                       | $ (0.38)             | $ (0.08)              | $ (0.12)              | $ (0.21)              | $ (0.10)             
|Total Assets                                 
|Canadian GAAP                                 | $ 19,283,957         | $ 8,700,127           | $ 8,862,973           | $ 11,056,070          | $12,491,178          
|US GAAP                                       | $ 3,042,885          | $ 1,690,184           | $ 2,604,122           | $ 6,061,698           | $ 9,773,022          
|Long Term Obligations                        
|Convertible Debentures                        | $ -                  | $ 68,333              | $ -                   | $ -                   | $ 31,641             
|Long-term Debt                                | $ 10,525             |                       |                       |                       |                      
|Asset Retirement
Obligations                  | $ 159,500            | $ -                   | $ -                   | $ -                   | $ -                  
|Weighted Average Common Shares Outstanding   
|Canadian GAAP                                 | 32,500,491           | 22,839,098            | 22,354,714            | 21,895,908            | 7,323,277            
|US GAAP                                       | 32,500,491           | 22,839,098            | 22,354,714            | 21,895,908            | 7,323,277            





Notes:

(1)

Net Loss per share is calculated based on the weighted average number of shares outstanding during the year.  Fully diluted loss per share has not been disclosed as it is anti-dilutive.



Exchange Rates



In this Annual Report, unless otherwise specified, all dollar amounts are expressed in Canadian dollars.  Since June 1, 1970 the Government of Canada has permitted a floating exchange rate to determine the value of the Canadian dollar against the U.S. dollar.  The high and low exchange rates, the average rates (average of the exchange rates on the last day of each month during the period) and the end of the period rates for Canadian dollars, expressed in U.S. dollars, from September 1, 2000 to August 31, 2004, based on the noon buying rate in New York City for cable transfers payable in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York, were as follows:



U.S. Dollars per $1.00 (CDN.)

Year ended August 31

|              | 2004  | 2003  | 2002  | 2001  | 2000 
|------------- | ----- | ----- | ----- | ----- | -----
|High          | .7880 | .7492 | .6619 | .6783 | .6969
|Low           | .7158 | .6272 | .6200 | .6333 | .6629
|Average       | .7518 | .6770 | .6354 | .6537 | .6805
|End of Period | .7595 | .7220 | .6416 | .6461 | .6793





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|     | February 15, 2005 | January 2005 | Dec. 2004 | Nov. 2004 | Oct. 2004 | Sept.
2004 | August 2004
|---- | ----------------- | ------------ | --------- | --------- | --------- | ---------- | -----------
|High |                   | .8346        | .8435     | .8493     | .8201     | .7906      | .7714      
|Low  |                   | .8050        | .8064     | .8155     | .7858     | ,7651      | .7506      
|     | .8106             |              |           |           |           |            |            





Conversion Table



For ease of reference the following conversion factors are provided:



1 mile = 1.6093 kilometres1 metric ton = 2,205 pounds1 foot = 0.305 metres1 troy ounce = 31.103 grams1 acre = 0.4047 hectare1 imperial gallon = 4.546 litres1 long ton = 2,240 pounds1 imperial gallon = 1.2010 U.S. gallons






B.

Capitalization and Indebtedness



This is an Annual Report, and therefore, this information is not applicable.



C.

Reasons for the Offer and Use of Proceeds



This Annual Report does not relate to any offering of the Companys shares.  Therefore, this section is not applicable to the Company.



D.

Risk Factors



The following risk factors are those concerned with the business of the Company.



Graphite and Pumice Prices



The profitability of the mining operation in which the Company has an interest will be significantly affected by changes in the price of graphite and volcanic aggregate.  Graphite and pumice prices can fluctuate and are affected by numerous factors beyond the Companys control.  The level of interest rates, the rate of inflation, world supply of graphite and pumice and the stability of exchange rates, among other factors, can cause significant fluctuations in graphite and pumice prices.  Such external factors are in turn influenced by changes in international investment patterns and monetary systems and political developments.



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5

Cash Flow and Requirements for New Capital



The Companys current operation is not generating a positive cash flow.  Although it is anticipated that positive cash flow will be generated in the future, there can be no assurance that this will occur.  The leases and licenses which the Company holds, as well as shareholder and joint venture agreements to which the Company is a party to, impose financial obligations on the Company which may utilize capital to maintain.  There can be no assurance that additional funding will be available to allow the Company to fulfil such obligations.



Further exploration and development of the various mineral properties in which the Company holds an interest depends upon the Companys ability to obtain financing through the joint venturing of projects, debt financing, equity financing or other means.   Failure to obtain additional financing on a timely basis could cause the Company to forfeit all or parts of its interests in some or all of its properties or joint ventures and reduce or terminate its operations.



Exploration Risks



Exploration for graphite is speculative in nature, involves many risks and is frequently unsuccessful.  Any graphite exploration program entails risks relating to the location of economic ore deposits, development of appropriate beneficiation processes, receipt of necessary governmental approvals and construction of mining and processing facilities at any site chosen for mining.  The commercial viability of a mineral deposit is dependent on a number of factors including the price of graphite, exchange rates, the particular attributes of the deposit, such as its size, grade and proximity to infrastructure, as well as other factors including financing costs, taxation, royalties, land tenure, land use, water use, power use, importing and exporting graphite and environmental protection.  The effect of these factors cannot be accurately predicted. Only a portion of the Black Crystal Project has either a measured, inferred or indicated resource (as per the AMEC Technical Report).



Lack of Operating History and Operational Control



The Company has only a small source of revenue and its ultimate success will depend on its ability to generate profits from its properties.  The Company currently has only a minor producing property primarily in the development stage and operates at a loss.  The Companys commercial viability is largely dependent on the successful commercial development of its properties. While all indicators are that this will be a significant industry, the Company has no control over when the graphite requirements will have reasonable growth.



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6

Political Regulatory Risks



Any changes in government policy may result in changes to laws affecting ownership of assets, mining policies, taxation, rates of exchange, environmental regulations, labour relations, repatriation of income and return on capital.  This may affect both the Companys ability to undertake exploration and development activities in respect of present and future properties in the manner currently contemplated, as well as its ability to continue to explore, develop and operate those properties in which it has an interest or in respect of which it has obtained exploration and development rights to date.  The possibility that future governments may adopt substantially different policies, which might extend to expropriation of assets, cannot be ruled out.



Calculation of Resources and Recovery



There is a degree of uncertainty attributable to the calculation of reserves, resources and corresponding grades being dedicated to future production.  Until resources or reserves are actually mined and processed, the quantity of resources or reserves and grades must be considered as estimates only.  In addition, the quantity of reserves or resources may vary depending on graphite prices.  Any material change in the quantity of reserves, resource grade or stripping ratio may affect the economic viability of the Companys properties.  In addition, there can be no assurance that mineral recoveries in small scale laboratory tests will be duplicated in large tests under on-site conditions or during production.



Dependence on Key Personnel



The Company is dependent on a relatively small number of key personnel, the loss of any one of whom could have an adverse affect on the Company.  In addition, while certain of the Companys officers and directors have experience in the exploration and operation of mineral producing properties, the Company will remain highly dependent upon contractors and third parties in the performance of its exploration, development and production activities.  There can be no guarantee that such contractors and third parties will be available to carry out such activities on behalf of the Company or be available upon commercially acceptable terms.



Title Matters



The Company has investigated its rights to explore, exploit and develop its various properties and, to the best of its knowledge, those rights are in good standing.  No assurance can be given that such exploration and mining authorities will not be challenged or impugned by third parties.  In addition, there can be no assurance that the properties in which the Company has an interest are not subject to prior unregistered agreements, transfers or claims and title may be affected by such undetected defects.



Currency Risk



Currency fluctuations may affect the cash flow, which the Company may realize from its operations, since graphite is sold in a world market in U.S. dollars.  The Companys costs are incurred primarily in Canadian dollars and secondly in U.S. dollars.



Tax



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7



Amendments to the current taxation laws and regulations that alter tax rates and/or capital allowances could have a material adverse impact on the Company.



Lack of Mineral Exchange for Graphite and Pumice



Industrial minerals such as graphite as well as pumice/volcanic aggregate, as opposed to commodity minerals such as copper, gold or silver, do not have a metals exchange or an open market upon which to trade and therefore prices are not set in an open market or publicly traded market.  As prices are set with private buyers it is difficult to predict what market prices may be at the time of sale of the graphite or aggregate.  Companies selling graphite or aggregate, as the case may be, must negotiate prices with individual buyers and therefore must convince the buyers to purchase the companys product over other products, taking into consideration quality, quantity, time sufficiency and longevity and therefore a company may have marketing problems unless it can convince buyers that its products are equal or superior to other similar products.  There can be no guarantees that the Company will be able to sell its product in a profitable manner.  With respect to graphite, due to the lack of available high purity graphite, prices currently are high and it is anticipated that prices will remain high yet stable for the foreseeable future.



Need to Hire Employees



The Company depends upon recruiting and maintaining other multi-skilled qualified personnel to staff its operations.  The Company has recruited and believes that other such personnel currently are available at reasonable salaries and wages in the geographic area in which the Company intends to operate.  There can be no assurance, however, that such personnel will always be available in the future.  In addition, it cannot be predicted whether the labour staffing at any of the Companys projects will be unionized, resulting in potentially higher operating costs.



The Company is subject to Government Regulations and Environmental Matters



The Companys activities are subject to extensive federal, provincial and local laws and regulations controlling not only the mining of and exploration for mineral properties, but also the possible effects of such activities upon the environment.  Permits from a variety of regulatory authorities are required for many aspects of quarry and plant operation and reclamation (see Environmental Regulations under Item 4  Information on the Company  Property, plants and equipment).  Future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development of the Companys property, the extent of which cannot be predicted.  In the context of environmental permitting, the Company must comply with known standards, existing laws and regulations, which may entail greater or lesser costs and delays depending on the nature of the activity to be permitted and how stringently the regulations are implemented by the permitting authority.  While it is possible that the costs and delays associated with the compliance of such laws, regulations and permits could become such that the Company would not proceed with the development or operations of a quarry, the Company is not aware of any material environmental constraint affecting it that would preclude the economic development or operation of the Companys property.



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8

Exploration and Development Liability Insurance



The Company currently has liability insurance.  The Company may become subject to liability for pollution or hazards against which it cannot insure or against which it may elect not to insure because of high premium costs or other reasons.  The payment of such liabilities would reduce funds available for exploration and development and would have a material, adverse effect on the Companys financial position.  The directors of the Company know of no such liability pending or otherwise at this time.





Reserves and Production Risk



No assurances can be given that the intended production schedules or the estimated direct operating cash costs will be achieved.  In addition to engineering, operating and capital cost factors, production from the Plant will depend on the success and the extent to which operating and expansion plans are achieved.



Any figures for resource and ore reserves presented in this annual report are estimates and no assurance can be given that the anticipated tonnages and grades will be achieved or that the indicated level of recovery will be realized.  Market fluctuations in the price of graphite may render ore reserves uneconomical.  Moreover, short-term operating factors relating to the ore reserves, such as the need for orderly development of the ore bodies or the processing of new or different ore grades, may cause a mining operation to be unprofitable in any particular accounting period.



Competitive Risk



The graphite business is competitive.  The Company still faces competition from existing companies, which are capable of mining and producing graphite and graphite materials.  Many of these companies are larger companies with greater financial resources than the Company, which companies are more able to withstand price volatility, should the price of graphite significantly decrease.



Risk of Penny Stock



The Companys common shares may be deemed to be penny stock as that term is defined in Regulation Section 240.3a51-1 of the Securities and Exchange Commission (the SEC).  Penny stocks are stocks: (a) with a price of less than U.S. $5.00 per share; (b) that are not traded on a recognized national exchange; (c) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ - where listed stocks must still meet requirement (a) above); or (d) in issuers with net tangible assets of less than U.S. $2,000,000 (if the issuer has been in continuous operation for at least three years) or U.S. $5,000,000 (if in continuous operation for less than three years), or with average revenues of less than U.S. $6,000,000 for the last three years.



Section 15(g) of the United States Securities Exchange Act of 1934, as amended, and Regulation Section 240.15g(c)2 of the SEC require broker dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investors account.  Potential investors in the Companys common shares are urged to obtain and read such



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9

disclosure carefully before purchasing any common shares that are deemed to be penny stock..



Moreover, Regulation Section 240.15g-9 of the SEC requires broker dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor.  This procedure requires the broker dealer to: (a) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (b) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (c) provide the investor with a written statement setting forth the basis on which the broker dealer made the determination in (ii) above; and (d) receive a signed and dated copy of such statement from the investor confirming that it accurately reflects the investors financial situation, investment experience and investment objectives.  Compliance with these requirements may make it more difficult for investors in the Companys common shares to resell their common shares to third parties or to otherwise dispose of them.



Potential Product Liability  CPCs Products



A risk of product liability claims and related negative publicity is inherent in the development of products for commercial use and Canada Pumice Corporation (CPC), our wholly owned subsidiary, faces business level uncertainties related to its products.  Personal liability insurance is expensive, its availability is limited, and may not be available on terms acceptable to CPC, if at all.  The commercialization of its potential products could be inhibited or prevented by an inability to maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims.  A product liability claim against CPC or the Company or the withdrawal of a product from the market could have a material adverse effect upon it and its financial condition.  A claim against the Company or recall or withdrawal of a product from the market could have a material adverse effect on the Companys reputation and financial condition.





ITEM 4  INFORMATION ON THE COMPANY





A.

History and Development of the Company





Incorporation



Crystal Graphite Corporation (the Company) was incorporated on November 27, 1979, under the laws of the Province of British Columbia under the name Bear Ridge Investments Inc.  On July 2, 1980, the Company changed its name to Gamin Resources Inc. and on May 23, 1989, the Company changed its name to Mineral Park Mining Corp.  On March 2, 1994, the Company consolidated its shares on a 4.5 old shares to 1 new share basis, increased its authorized capital to 25,000,000 common shares and changed its name to I.M.P. Industrial Mineral Park Mining Corp.  In October, 2000 the Company held an Extraordinary Meeting and the shareholders approved the name change to Crystal Graphite Corporation and increased authorized capitalization

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10

from 25,000,000 to 250,000,000 common shares.  Effective on November 06, 2000 the Companys name was changed to Crystal Graphite Corporation.



Corporate Information



The Companys business address and executive offices are located at Suite 1750  999 W. Hastings St., Vancouver, British Columbia, V6C 2W2.  The Companys telephone number is (604) 681-3060 and the Companys fax number is (604) 682-4886.  The Companys agent for service in Canada is Devlin Jensen, Barristers & Solicitors, who are located at Suite 2550, 555 West Hastings Street, Vancouver, British Columbia, V6B 4N5, and who can be contacted at (604) 684-2550 or via facsimile at (604) 684-0916.



The Companys common shares trade on the Canadian National Quotation System (the CNQ) under the symbol CYTG, and on the Over-the-Counter Bulletin Board (the OTCBB) under the symbol CYTGF.



Black Crystal Property



Pursuant to an earning option agreement dated January 10, 1995, as amended on September 24, 1995, entered into between the Company and Black Crystal Resources Ltd. (BCRL) (a private company wholly owned by Paul Schiller, the President and a director of the Company at that time), the Company has acquired a 50% interest in and to the following mineral claims located in the Slocan Mining Division of the Province of British Columbia in consideration for expending an aggregate of $3,063,400 on the mineral claims and issuing 800,000 common shares of the Company to BCRL:



Claim NameTenure NumberClaim TypeUnitsNumber of
HectaresMolly 13051452POST125Molly 23051462POST125Molly 33051472POST125Molly 43051482POST125PB - 1318625GRID20400PB  2318626GRID20500PB  3318627GRID20500PB  4318628GRID20500




which claims are commonly referred to as the Black Crystal Property.



Pursuant to an option agreement dated May 17, 2000, between the Company and BCRL, BCRL granted the Company the option to acquire the remaining 50% interest in the Black Crystal Property in consideration of the payment of $200,000 CDN within ten (10) business days of August 23, 2000 (the First Payment), the payment of $100,000 CDN on or before the first anniversary of the First Payment, and an amount of twenty (20%) percent of gross profit (the Royalty) derived from all timber, water, ores, gravel, sand, soils, metals and minerals sales of the Black Crystal Property for a period of ten (10) years commencing the date of the First Payment to a maximum of $1,700,000 CDN.



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11

According to the option agreement, the Company has the option to prepay the Royalty at any time.



See Item 4  Information on the Company  Property, plants and equipment below for further information on the Black Crystal Property.  See also Figure 1  Location Map.





Acquisition of Canada Pumice Corporation



On April 28, 2004, the Company completed a two-phased acquisition of Canada Pumice Corporation (CPC), which is now a wholly-owned subsidiary of the Company by the purchase of 100% of the issued shares of CPC from Mr. Brian Wear in consideration for the issuance of an aggregate of 15,345,000 common shares of the Company.  At the time of acquisition, CPC had two wholly-owned inactive subsidiaries, Volcanic & Industrial Minerals Inc. and Cariboo Lava Corp.  As a result of the acquisition, the Company owns certain mineral rights and tenures within properties known as the Klara claims comprising approximately 3,000 acres (48 units) including and surrounding an extinct volcano referred to as the Nazko Cone, located in the proximity of Quesnel, British Columbia.  In conjunction with these claims, the Company holds two 30-year renewable mine leases with a quarry permit for the life of the quarry  which allows it to extract up to 100,000 metric tons of volcanic aggregate per year from the Nazko Cone deposit.





Mineral Property Agreement  DeSheng Graphite Plant and Property



On August 18, 2004, the Company signed a mineral property agreement with Bao Zi Wan (BZW), a local county government under the laws of the Peoples Republic of China, pursuant to which the Company acquired the right to mine, process and market all graphite and tailings at the Da Tong DeSheng graphite plant and property, which is in production (and has been since 1938) and is located 23 kilometres north of the City of Da Tong in northern Shanxi Province, China.  A formal lease agreement is subject to satisfactory due diligence and Board approval of the Company.  If a formal lease agreement is entered into between the parties, such lease shall be for a term of 30 years with an option to renew for another 30 years.



Due diligence work was commenced in October 2004 and is expected to be completed by November 30, 2005.  In order to facilitate its due diligence work in China, the Company has opened a regional office in Beijing and has obtained a registration certificate from the Chinese government, which allows the Company to conduct business in China.  This registration certificate is valid for three years.  The Company is using its British Columbia operations to test the DeSheng concentrates.



Agreements in Principle



On October 29, 2004, the Company entered into an Agreement in Principle with Beijing Xinlong Corporation (Xinlong) of Room 610, Tower C, Soho Newtown, Jianguo Road, Chaoyang District, Beijing, P.R. China, to be effective November 1, 2004, for the proposed marketing of Xinlongs geofabric products by CPC to Canadian, United States, Mexican and European markets.  Xinlong has agreed to allow CPC to be the

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exclusive and sole distributor of all its products into the North American and European markets.  Under this Agreement in Principle, CPC shall have each of Xinlongs products sample tested by an independent Canadian laboratory and shall supply Xinlong with the certified analyses.  Furthermore, CPC is willing to appoint Xinlong as its sole supplier for industrial geotextiles for the constructions and landscape industry contingent on competitive pricing and the product meeting applicable specifications.  A firm agreement for the exclusive and sole distributorship for North America is to be finalized within 90 days of the signing of this agreement.



On October 29, 2004, the Company entered into an Agreement in Principle with Clay Industrial Minerals, Ltd. (Clay) of JianPing, Qingfengshan, Jianping County, Liaoning Province, P.R. China, to be effective November 1, 2004, for the proposed marketing of Clays VOLROCK (bentonite) products by CPC to Canadian and United States markets.  Clay has agreed to allow CPC to be the exclusive and sole distributor of all its bentonite products into the North American market.  In addition, Clay would also give CPC a first option in any business arrangement for production expansion.  Under this Agreement in Principle, CPC shall have each of Clays products sample tested by an independent Canadian laboratory and shall supply Clay with the certified analyses.  CPC has agreed to bear research and development costs for new products resulting from material combinations of VOLROCK and CPCs products, and shall supply Clay with all technical results.  A firm agreement for the exclusive and sole distributorship for North America is to be finalized within 90 days of the signing of this agreement.



On October 29, 2004, the Company entered into an Agreement in Principle with Tri-star Activated Carbon Corporation (Tri-star) of East of Sha Ling County, DaTong City, Shanxi Province, P.R. China  037004, to be effective November 1, 2004, whereby Tri-star agrees: (i) to allow CPC to be the exclusive and sole distributor of all its activated carbon products into the Canadian market, and (ii) to exclusively allow CPC to market its products into the United States market via Canada.  Under this Agreement in Principle, CPC shall have each of Tri-stars products sample tested by an independent Canadian laboratory and shall supply Tri-star with the certified analyses.  CPC has agreed to bear research and development costs for blending and combinations of Tri-star activated carbon and CPC volcanic material products, and shall supply Tri-star with all technical results.  A firm agreement for the exclusive and sole distributorship is to be finalized within 90 days of the signing of this agreement.





B.

Business Overview



The Company is an industrial mineral exploration and development company based in Vancouver, British Columbia, Canada, with a regional office in Beijing, China.  From 1994 to present, the Company has been principally engaged in the exploration and development for production of mineral properties.  The Company owns the Black Crystal Property which is located near the City of Nelson in southeastern British Columbia and the Companys wholly-owned subsidiary, CPC, owns the Klara claims, known as the Nazko Cone Property, located near Quesnel, British Columbia.  In addition, the Company has an option to acquire the right to mine, process and market all graphite and tailings at the DeSheng graphite plant and property located near Da Tong, Shanxi Province, China.



The Companys first priority is developing and expanding its pumice and graphite operations on the Nazko Cone Property and the Black Crystal Property, respectively.



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Concurrent with this, the Company is completing due diligence work with respect to the DeSheng project in China.



On July 4, 2002, the Company received Mining Permit No. M-211 from the British Columbia Ministry of Energy and Mines, which was issued pursuant to Section 10 of the Mines Act R.S.B.C. 1996, c293.  This permit contains the requirements of the Ministry of Energy and Mines for the work systems and reclamation, and is compatible with the requirements of other provincial ministries.  The implementation of the Mining Permit allows the Company to process flake graphite products at its Koch Creek plant to a maximum feed rate of 250,000 tonnes per year.  During fiscal 2004 the Company commenced production of high purity flake graphite and has developed three marketable graphite products ranging in prutiy from 96.0% to 99.5% graphitic carbon.  Shipments are being processed on a continuous basis to fuel cell bi-polar plate manufacturers.



CPCs priority is the continued production of volcanic aggregate and the continued manufacturing of pumice products for commercial sales.  CPC was granted a controlled water license (No. 102300) in 1993, which allows for the removal of 13,500 litres of water per day; an environmental assessment (EA) approval certificate was issued in 1996 (No. M96-01) which limits production to 100,000 tonnes per year; and a full permit was issued for the Nazko quarry on April 6, 1998.  Accordingly, production was ongoing on CPCs property at the time that the Company acquired CPC.  CPC produces and markets pumice or volcanic aggregate for commercial use.  In addition, CPC manufactures products made from its volcanic aggregate and sells these products for commercial use.



Cash Resources and Liquidity



As of August 31, 2004, the Company had cash and term deposits of $20,898 and a working capital deficiency of $3,355,621.



Stated Business Objectives



The overall strategic mission of the Company is threefold:



(i)

to establish a low cost, high performance operating company processing high purity flake graphite products, primarily for the international fuel cell bi-polar plate market, from its Black Crystal deposit located near Nelson, British Columbia.



(ii)

the production of various pumice products from CPCs Nazko Cone property located in the proximity of Quesnel, British Columbia.



(iii)

the completion of due diligence on the DeSheng project in China.





High quality health, safety and environmental performances are priorities for the Company, followed by quality control and productivity, while focusing on the potential contained in by products and maximizing added value.



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The following represents the Companys shortterm objectives (i.e., the next 12 months) for exploration, development and marketing.





Development Objectives



The Companys Black Crystal Property includes an open pittable flake graphite deposit and a processing plant with a capacity to process 4,100 tonnes of graphitic plant feed material per year.  The Company currently produces high purity graphite with fixed carbon content in the range of 97.0% to 99.5%.  The plant requires phased development to increase the feed material.  The Companys five-phased production expansion is as follows:



Phased Production Program




PhaseRaw Material FeedCapex Cost($Cdn)Planned
Completion DatePhase I4,100 tonnes$97,000Dec 2003 (done)Phase II25,000 tonnes$776,388late spring 2005Phase III(a)100,000 tonnes$250,000mid-2006Phase III(b)90,000 tonnes$100,000early-2007Phase IV180,000 tonnes$1,000,000early-2008Phase V250,000 tonnes$250,000early-2009




Note:  Phase  II requires an additional Cdn$250,000 operating capital.



The Company has now completed the Phase I expansion whereby it feeds graphite material to the plant at a designed rate of 4,100 tonnes per year.  The Company anticipates that its property will operate as a graphitic sand quarry for approximately the first five years before shifting to a hard rock simplified drill and blast operation.  During the next 12 months, the Company anticipates completing Phase II of its production expansion program.





Exploration Objectives



Black Crystal Property



The Company plans to proceed with further exploration work to define the extent of a promising flake graphite discovery made in year 2001.  The discovery is located in close proximity to the processing plant.  Although this discovery and other promising new occurrences are at a preliminary stage of evaluation, they do represent the potential to reduce haulage operating costs because of their proximity to the processing facilities.  Moreover, the new discovery is located at a lower elevation relative to the main resource area (1,800 metres ASL), which opens up the possibility of year-round quarrying activities thus enhancing the potential production of high purity graphite throughout the year.

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Klara Property



Exploration is not anticipated on the historical Klara Claims as they are well documented and the resource and reserve identified.  However, a geological report for exploration and development is planned to be prepared in 2005 on six new mineral claims that were staked adjacent to the CPCs Nazko Cone Property and the Klara claims.  These six new mineral claims are south  and southwest of CPCs Klara Claims and cover a total area of approximately 2,438.14 hectares (6,024.64 acres).



DeSheng Option



During the next 12 months, the Company intends to complete its due diligence on the DeSheng project in order to determine whether to proceed with negotiating a formal lease of the project.  A formal agreement is subject to satisfactory due diligence and approval of the Companys Board of Directors.





Marketing Objectives



Graphite Sales



The Company has determined that its deposit consists of high purity crystalline flake graphite, therefore the marketing strategy has been to determine the market for high purity crystalline flakegraphite.  The target market has been determined to be the high technology sector which includes bi-polar plate-manufacturing, which is an integral component of the fuel cell industry.  85% of the Companys production is planned to be directed to the high technology industry and the balance to be directed to the, carbon brush, and friction plate industries.



There are no open markets to facilitate the trading of graphite products and accordingly the market for graphite operates on a contractual basis between supplier and end-user.  Accordingly, the Company is required to develop a market in advance of production.  The Company has produced material for several orders for fuel cell plate production and has shipped several samples to various end users testing the product. Companies using or testing the Companys product include Graftec, Dupont Canada, and T.D.M. (who supply numerous companies with bi-polar plates).  Throughout 2002 and 2003, the Company has supplied graphite samples to North American and European customers for production runs and end-user testing.



The Company is continuing with its marketing research into graphite markets.  The Company is in advanced discussions with several potential strategic partners that manufacture graphite products in the advanced energy sector.  The Companys goal is to work in partnership with several manufacturers in the fuel cell sector.





Pumice/Volcanic Aggregate Product Sales



Volcanic aggregate is used in many products which are produced and sold by CPC (see Principal Resources and Products below for a description of same).  CPC already has a loyal customer base for these products.  To expand the market share of CPC the Company is participating in trade shows and seminars where end users and specifiers



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attend.  The shows are geared toward the horticulture, agriculture and landscape industry. The Company is also networking with distributors whose product lines compliment CPC products.  CPC has made inroads with these groups and currently has sales and orders from them.  CPC will pursue the big box stores for its retail products and the large nursery chain store groups for its bulk business.  For CPCs construction and industrial products the Company has found its best success to sales by dealing with the engineering community and specifiers, putting on seminars and giving presentations.  This ultimately has allowed CPC to be recognized and placed on an accepted suppliers list which CPC is specified in tender documents as the supplier of its product.  In addition, CPC continues to expand its membership in the different trade group associations where it advertises and is provided with full membership contacts where CPC then sends out its literature and brochures, and where CPC receives many leads and sales.  Furthermore, the Company receives many new customers and sales from word of mouth and referrals.





Description of the Business



(1)

Black Crystal Property



The Company has a 100% undivided interest in the Black Crystal Project located near Nelson in southeastern British Columbia, Canada.  The Black Crystal Project is an advanced project that includes an open pittable flake graphite deposit and a processing plant with a capacity to process 4,100 tonnes of graphitic plant feed material per year.  The Company is planning to expand the processing capacity of the plant once the demand dictates a further expansion (see Development Objectives above).



The Company is currently producing high purity graphite on a continual basis under its mining permit.  The Companys mining permit, which was received in July 2002, allows it to process 250,000 tonnes of graphitic material per year (this equates to an annual in-situ extraction rate of 300,000 in-situ tonnes per year).   An application can be made to the Provincial Government to increase this permitted tonnage annual rate. The Company has developed three marketable graphite products ranging in purity from 97.0% to 99.5% graphitic carbon and intends to continue producing graphite in the high purity range.



Development Plan



Since obtaining its mining permit, the Company has been producing high purity graphite for the fuel cell industry and is currently specified into production models at several different fuel cell manufacturers. Producers within the fuel cell sector have reported favourably on the graphite supplied to date.



The processing plant requires phased development to increase the feed material and the Companys five-phased production expansion is set out above under Development Objectives



At a design capacity of 250,000 plant feed tonnes per year, the plant will have the potential to produce approximately 6,375 tonnes of high purity graphite (assuming a recovery of 85% and a long term feed grade of 3.0% graphitic graphite).



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With the issuance of the mining permit the Company has taken the next steps towards advancing the project into full production.  Recently, the Company has successfully completed the Phase I expansion whereby it will be feeding graphitic material to the plant at a designed rate of 4,100 tonnes per year.  It is anticipated that the Black Crystal Project will operate as a graphitic sand quarry for approximately the first 5 years before shifting to a hard rock simplified drill and blast operation (identical to Chinese graphite operations) in the sixth year.  Selective underground mining using roadreaders and ramcars is considered within 10 years.  The shallow dip or geometry of the deposit approximates the slope of the mountain side thus making it advantageous to directly remove the mineralized material to a depth of approximately 30 metres rather than developing a conventional open pit.  Quarrying, screening, and haul services will be done under contract with local operators and the quarry will be operated on a seasonal/market demand basis.



The Company plans to proceed with further exploration work to define the extent of a promising flake graphite discovery made in year 2001.  The discovery is located in close proximity to the processing plant.  Although this discovery and other promising new occurrences are at a preliminary stage of evaluation, they do represent the potential to reduce haulage operating costs because of their proximity to the processing facilities.  Moreover, the new discovery is located at a lower elevation relative to the main resource area (1,800 metres ASL), which opens up the possibility of year-round quarrying activities thus enhancing the potential production of high purity graphite throughout the year.  The discovery has been exposed for study purposes by the Companys equipment during the year 2003.



The Company has produced material for several orders for fuel cell plate production and has shipped several samples to various end users testing the product.  Throughout 2002 and 2003, the Company has supplied graphite samples to North American and European customers for production runs and end-user testing.





Mining



The Black Crystal Property will be mined by open pit quarry methods in the first several years of the project.  For the most part, the Regolith Zone is deeply weathered and not expected to require blasting.  The material will be ripped and loaded using excavators into 40-tonne capacity truck & trailer units then transported 29 kilometres to the plant site.  Quarrying, haulage, crushing and screening will continue to be done under contract.  Quarrying activities will be restricted to a maximum 150-day period commencing in June and ending in October for the Black Crystal location.  With processing capacity of 250,000 tonnes of graphitic material per year, as limited by its mining permit, nominal rates of quarrying will be 2,000 tonnes per day assuming that the Black Crystal deposit is the only mineralized zone that the Company produces from.



Under the current mine plan, as the quarrying resources near depletion, the Company will shift to an underground mining method at the Black Crystal location.  Based on information to date, a selective room and pillar retreat mining method appears most suitable given the configuration of the deposit.  The Company plans to use trackless mechanized equipment and road headers for mining.  The room and pillar method should provide for selective mining, thereby optimizing the plant feed grade. During the underground mining phase, it may be possible to operate year-round.





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Processing



The processing plant at the Black Crystal Property is operating and has recently completed Phase One Expansion increasing plant capacity feed rate to approximately 4100 tonnes per year.  The process initially sizes and sorts the unconsolidated material using screens and separators.  The material is pumped in a slurry form to a bank of standard flotation cells, after being conditioned with an organic reagent (pine oil), in order to separate the graphite from fine non-graphite material.  Graphite has excellent flotation characteristics and floats on the top of the slurry where it is skimmed and removed from the circuit for later additional processing and drying.



The Companys processing system has produced 4 tonnes of product per day at 96% graphitic carbon grade concentrate.  The system becomes slow and complex for grades at +96% graphitic carbon.



To increase processing plant feed material during the First Quarter, an additional 1,300 tonnes of graphitic sands were excavated at the Hoder Creek Black Crystal Deposit and transported to the Companys stockpile area adjacent to the processing plant.  There are approximately 10,000 tonnes of material in inventory at the end of the Second Quarter.  The graphitic deposit adjacent to the plant was also stripped of overburden and the Company has a permit to extract 10,000 tonnes from this exposure.  The Company also has 75 tonnes of product bagged or in super-sacs waiting for final processing.



Research and Development continued at the Company laboratory and processing plant with emphasis on recycling waste heat from the dryers for decreasing hydrochoric acid leach time from eight to two hours.  The Company is presently trying to determine how to increase graphitic carbon content of the fines from 96 to 98%.





Plant Addition



For the Companys project to increase its production to a profitable level, an addition to the existing plant is required.   This addition is needed for: 1) drying, 2) screening, 3) bagging, 4) product heated storage 5) chemical storage, 6) sample preparation area, 7) weather protection for existing equipment and structures, and 8) production expansion capabilities.



The plant addition would be a pre-engineered structure eventually being 532 square metres attached at the northeast end of the existing plant.  It would have a sloped roof, which would cover the existing buildings (laboratory & geology office) with central columns separating the drying, screening and bagging from the storage & sample prep areas.  For Phase II, a two room 235 square metre additions is planned with the remaining 297 square metres being added during Phase IV.  One of the rooms will be dedicated to dry screening, bagging and storage at such a controlled temperature, which will ensure the graphite product is bone-dry before shipping.



A prototype electric vertical rotary disk dryer has been designed and constructed, and tested by the Company employees with excellent success to ensure a required bone-

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dry product.  A three-metre long diesel fired pre-heat rotary dryer has been added for Phase One.



The current hydrochloric acid leach circuit has a capacity of 1.5 tonnes per eight hours. The Phase Two expansion, which will be in the existing plant area, will require four leach tanks (the Company presently owns one). The tanks will be closed plastic water/sewage tanks with built in agitators. The major purchase for Phase Four is a $625,000 substation along with a feed grinding circuit and the remaining building addition.  Phase V costs are primarily for a flotation section addition and another thickener.



Production Rates for Phased Development



On December 31, 2003, the Company completed a capital expenditure of $97,000, thereby raising the high purity product to a production level of 0.75 tonnes per day (known as Phase I Upgrade).  Phase II Expansion is based upon a production product rate of 4 tonnes per day of which approximately 3.4 tonnes are of high purity graphite and 0.6 tonnes of fine graphite (-150 mesh).   Four 12-hour shifts are planned per week with one weekday down for maintenance and two days for the weekend.  The other 12 hours in a day are reserved for future expansion based on market conditions; this is known as Phase III (a) for a 24 hour 4 day per week operation and Phase III (b) for a 24 hour 7 day per week operation.



On an annual basis, Phase II capital expansion results in a theoretical feed requirement of 27,726 tonnes.  In reality there will be unscheduled delays (breakdowns, power outage, weather, etc.) estimated at a worst case of 10% of the time, which results in a level of 24,960 tonnes of feed per year.  The amount of product would be 748.8 tonnes per year of which 636.5 tonnes would be of high purity fuel cell type grade.



The plant would then be in position for Phase III (a) & (b) expansion which would be a continuous operation.  The production level could then reach 87,360 tonnes of feed per year at a product level of 2,620.8 tonnes of which 2,227.7 tonnes would be of high purity fuel cell type grade.  Unit costs at this production level would also take a major drop plus capital is not required for this expansion.



Phase IV expansion would be to increase the feed rate to 180,000 tonnes of feed per year(5040 tonnes of product) followed by a Phase V at 250,000 tonnes of feed per year(6250 tonnes of product).  The proposed new addition to the plant could handle the drying, screening, packaging and storage to the Phase V production level.



Property Description and Location



The Black Crystal Graphite Property is located within the Slocan Mining Division in British Columbia.  The area of greatest interest on the property is roughly centred at UTM coordinates 5513800N, and 444700E.  It is found approximately 51 kilometres north of Castlegar, or approximately 27.5 kilometres northwest of the village of Passmore.  The property is located in the Valhalla Range of the southern Selkirk Mountains, and is displayed on NTS map 82F/13, or Trim maps 082F071, 072 and 082.  The processing plant and quarry site are accessible by road and less than a 50 minute drive from the City of Nelson, which has a regional population of 26,000 people.

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The Black Crystal Graphite Property consists of 81 square kilometres (20,032 acres) of claims held by the Company in the regional deposit area. The deposit of present focus (Molly 1 to 4) is located approximately three kilometres south of the Valhalla Wilderness Provincial Park boundary and between Arrow Lake and Slocan Lake.



The Company has finalized tenure for a two square kilometre 30-year mineral lease where its graphite material beneficiation (flotation) plant, office, and related structures are located. This location is near the boundary of Koch Creek and the Little Slocan River; 14 kilometres west from Provincial Highway 6 on a maintained two-lane gravel forest service road. The Hoder Creek deposit is a further 29 kilometres to the north also accessed on a well maintained forestry service road. The nearest settlement on Highway 6 of any size is Slocan Park, which is 4 kilometres to the south from the intersection. The cities of Nelson and Castlegar are within a 50-minute drive from the plant site.  On 4 July 2002, the Company received its Mining Permit (No. M-211) for the Black Crystal deposit, which meets the requirements of the BC Ministry of Energy & Mines. The project presently has all of its permits in place to operate the quarry and processing plant.



The property consists of groups of claims that are non-contiguous.  The claim group to the north covers the area of graphite mineralization and the group to the south holds exploration claims and the plant site infrastructure.  The north block of claims has four two-post mineral claims, and six four-post mineral claims for a total of 10 claims.  This block of claims contains 114 claim units.  The four twopost mineral claims are entirely enveloped by one of the overlying Modified Grid four-post mineral claims.  The block of claims to the south has ten two-post and twelve four-post mineral claims for a total of twenty two claims.  This block of claims contains an internal set of claims (330607 & 330606) that are not part of the Companys land package.   The southern claim block contains a total of 200 claim units.  The office and plant facilities are covered with the Mill #1 and Mill #2 claims (now on the two square kilometre 30-year mineral lease  No. 392322), which also includes a deposit of graphitic mineralization.



The Company holds a 100% interest in all of these claims.  An application was made to the Crown to convert all of the four twopost mineral claims, which cover the deposit area, to mining lease; this was approved in July 2002 (No. 390937).



A registered legal surveyor has surveyed the twopost mineral claims, and the position of the common Legal Corner Post for the PB1, 2, 3, and 4 claims.  All of the claims can be found on B.C. Energy and Minerals Division, Mineral Titles Branch, Mineral Titles Reference Maps 082F071, 082F072, and 082F082.



All of the claims are presently in good standing, and the pertinent data is provided in the table in Item 4  Property, Plants, and Equipment  Mineral Property.



In the past three years the Company has commissioned reports to study the area covered by the proposed quarry operation.  The nature of these studies has involved environmental, First Nations and archaeological concerns, water availability for the project area, terrain stability, road transportation, ground water, flora and fauna and socio-economic impact.  Copies of some of these reports are available for viewing at www.crystalgraphite.com/private.





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Timber harvesting on the two operations areas is covered by a license from the Ministry of Forests.  This license was issued in 2002 and expires in 2007.



The Company has also received a bulk sample permit to allow extraction of a 10,000 tonne sample of graphitic material discovered adjacent to the plant facilities.



There is a 20% gross profit royalty for a period of 10 years on Molly claims #1 through #4 and PB claims #1 through #6, ending August 2010 to a maximum of $1.7 million.   The royalty is defined as 20% of the gross receipts from sales received from the product of the property, less direct operating costs.



The Black Crystal Graphite project is not subject to any environmental liabilities.  There is a potential for acid generation from the quartz unit; however, because it is the footwall to the graphite mineralization, excessive exposure of the quartz unit will be minimized through mine planning.



Since the graphite deposit is regional, which is typical for this type of deposit; graphite mineralization is observed in numerous locations within the claims.  The primary area of interest is the large outcrop at Hoder Creek on Molly 1 to 4 claims (now a mineral lease), and the recently discovered mineralization adjacent to the processing plant.



There is tailings storage in a dry form within 50 metres of the processing plant.  Most tailings have been used as road building material and concrete additive. The waste from quarrying has been used for in-pit dumping resulting in only very temporary waste dumps.



The climate at the processing plant area is mild with annual temperatures varying from 15 to +40 degrees Celsius.  Annual snowfall averages a depth of approximately 0.5 metres with 600 mm of annual rainfall.   Because the Hoder Creek deposit area receives an annual average snowfall of three metres, quarry production is only scheduled as a five-month operation thereby producing in excess of twice the tonnage rate than the plant throughput.  The short summers can be somewhat rainy, although conditions are normally quite favourable for performing geological fieldwork and quarrying during this time.



Power for processing is obtained from a 63kv power line 500 metres from the plant.  This power line is entirely dedicated for the Companys use and is fed directly from a dam on the Kootenay River.  The Company also has diesel generated back-up power.  Power and water supply are not necessary for the quarry site.  The plant site has two wells and a spring for supply water plus a water use permit for the pumping of water from the nearby Koch Creek.  Skilled and semi-skilled personnel have been available locally with all contractors, consultants, and employees residing within 70 travel minutes of the plant.  The Company uses contractors for quarrying and hauling material.  The plant site has telephone communication with Telus via repeaters, global satellite telephones, and satellite internet services.



The potential tailings storage area has a capacity of 125 years operating at 250,000 tonnes of tailings per year.





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The Black Crystal Graphite Deposit is located in an area of complex granitic and metamorphic rocks known as the Valhalla Range of the southern Selkirk Mountains.  The Valhalla Range consists of high, steep-walled, serrated, east-west trending ridges.  Local relief varies from 535 to 2800 metres in elevation with mountain valley relief from 1000 to 1500 metres.  There is a succession of inward-facing cliffs rising steeply to gently curving ridges.  Each successive cliff is followed by long, gentle, outward slopes that are succeeded in turn by more inward facing cliffs.



The vegetation at the Black Crystal deposit is classified as sub-alpine.  Immature Engleman Spruce, Alpine Fir and abundant slide alder cover the area of investigation.  Mature pine, cedar, and fir grow in the plant site lease area.



History



The Black Crystal area has been the focus of considerable exploration work, especially within the past several years.  The property was originally staked in the 60s by Mr. Steve Paszty of Castlegar, BC, but was allowed to lapse before long.  The property lay dormant until 1992, when it was restaked by Mr. Paszty, who subsequently optioned it in July 1993 to Industrial Mineral Park Mining Corporation (IMP).  Immediately after optioning the property, four modified grid four-post claims were staked, which enveloped the four original two-post mineral claims.  Two modified grid four-post claims were eventually staked to further increase IMPs holdings in the immediate area.  In November of that year, DDH Geomanagement Ltd. conducted a preliminary sampling/assessment program in the area of the main Black Crystal showing.  Two samples of unknown quantity were submitted to Process Research Associates Ltd. of Vancouver for initial bench flotation scoping tests and size distribution studies, while a further 25 samples were taken from four discrete locations.



In 1994 a six-hole reverse circulation (RC) drilling program totalling 250 metres of 4.5" borehole was conducted by DDH Geomanagement Ltd. on the property.  During the same period, some preliminary surficial geological mapping was done, and a 440 kg bulk sample was extracted in the vicinity of the RC-94-1 collar.  The unconsolidated material from this bulk sample was subjected to flotation testing.



In 1995, a 13-hole diamond drilling program was conducted on the property by D.A. Howard of DDH Geomanagement Ltd.  All holes were logged by L. Demczuk.  In total, 577 metres of NQ diameter drill hole were drilled between March 29th and April 22ndof that year.  These holes were drilled in two strings: one which ran along the bottom access road from the Hoder Creek valley floor, and the other, which ran along the road to the present day pit area.  The depths for these holes ranged between 29.6 and 92.0 metres.  In the fall of 1995, a 3,000-tonne bulk sample was excavated from the same general area as the 1993 bulk sample and hauled to the Koch Creek plant site for eventual beneficiation.



To determine the optimum method of drilling and sample analysis, a comparison was made using the data from the 1994 reverse circulation drill program and diamond drill holes from 1995, which twinned some of the 1993 RC holes.  A comparison was also made between the results obtained utilizing the Leco method, versus those obtained using the  Double Loss on Ignition (DLOI) method.  DDH Geomanagement Ltd. concluded that diamond drilling produced the most reliable data.

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No formal surveying was completed on the location of the drill hole collars from either the 1994 or 1995 drill programs.  The collar locations were reported on the drill log relative to (1) the intersection of the road they occurred on, and (2) the northern boundary of the Molly claims.  These locations were likely measured using a hip chain.



Some metallurgical work was conducted on area samples by Process Research Associates Ltd. of Vancouver and by Quinto Technology Inc.s (a related company) metallurgical facility in Lumby, BC.



A further diamond drilling campaign was undertaken in 1997, under the direction of G. Addie.  Twenty-seven NQ diameter holes were drilled, for a total of 913.8 metres.  The core produced from this work was split and bagged, but only four of the samples produced were analyzed.  While several of the holes drilled in this program replicated locations that were drilled during the 1995 program, a number of new locations were tested.  All drill collars were surveyed by Timberland Consultants Ltd. of Nelson, BC using a differentially-capable GPS with a reported accuracy to within one metre.  Elevations of collars were taken from a map provided by Timberland.



In 1998, J. Snell conducted a scoping study on the property and used field observations to outline the surface trace of the calc-silicate host horizon and calculate the underlying resource.  In addition to this resource definition work, a bulk sample of unknown size was taken from an exposure of friable graphite mineralized calc-silicate material located on the main access road immediately above the Hoder Creek Valley.  Also, a handheld auger drilling program was reportedly undertaken in which 90 holes (or 675 metres) were drilled on a 100 x 100 foot grid in the main area of previous investigation.  The material taken from this drilling was composited and submitted as one sample for flotation testing, along with the bulk sample mentioned previously, to International Metallurgical and Environmental Inc. in Kelowna, BC.



The Black Crystal graphite deposit originated in geological time in an island arc, marine basin environment where limestone, calcareous argillites and intermittent volcanics, all of which contained carbon to a high degree, were deposited over a long period of geologic time in the Triassic-Jurassic Period (approx. 225 million years ago).  During the late Jurassic Period (approx. 150 million years ago) there was the intrusion of batholithic granites.  This resulted in great heat and pressure, which metamorphosed the sedimentary carbon within the intruded marine assemblage to crystalline graphite of inferred economic grade.  The host rocks were metamorphosed primarily from limestone to marble of other limey metasediments.  The granites within the batholith were metamorphosed to hybrid or mixed gneisses.  This calc-silicate metasediment is regional (typical of flake graphite deposits) with numerous occurrences graphite exposed in the Hoder Creek and Little Slocan River Valleys.



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24

(2)

Klara Claims



Through the acquisition of CPC, the Company acquired certain mineral rights and tenures within properties known as the Klara claims comprising approximately 3,000 acres (48 units), including and surrounding an extinct volcano referred to as the Nazko Cone, located in the proximity of Quesnel, British Columbia.  In May,2004, the Company announced that its wholly owned subsidiary CPC was expanding its production equipment at its quarries in both Nazko and Quesnel, British Columbia.  CPC is currently quarrying the Nazko Cone volcanic rock and shipping the product to various markets with 42 tonne capacity Super B-train trucks.



On January 14, 2005, CPC acquired six large mineral claims adjacent to its Nazko Cone Property and Klara Claims and its active mineral leases located 100 kilometres west of Quesnel, British Columbia.  These six new mineral claims are south and southwest of CPCs Klara Claims with a new total area of approximately 2.438.14 hectares (6,024.64 acres) or 24.3814 square kilometres.  Adding this new claim area to the Klara Claims property gives a total of 3,368.14 hectares (9,095.36 acres).



Property Description and Location



The Klara claims are located near Nazko in central British Columbia, about 110 kilometres west of the City of Quesnel.  The claims are located approximately at latitude 52°56N and longitude 123°43W on the National Topographic Series 93B/13.  The property consists of twelve contiguous mineral claims with a total area of 1200 hectares.



The Klara claims can be accessed from Quesnel by heading west on the asphalt paved road to the Nazko General Store (approximately 10 km south-southeast of Nazko), then taking 3900 Road for 9.5 kilometres and turning on 4000 Road and driving for 4.5 kilometres.  The road from the Nazko General Store to the quarry is a gravel road that is maintained year-round and does not require a 4WD vehicle unless adverse weather conditions prevail.  The nearby City of Quesnel has a population of approximately 11,000 people and is located on Highway 97 between the cities of Prince George and Williams Lake.



The volcano property is held under two leases and ten claims.  The Schedule of Mining Leases and Claims notes that the two leases, Klara 1C (#316265) and Klara 1B (#329933) are both 30 year terms with an annual rental of $2,000 each.  Klara 1C requires renewal in 2023 and Klara 1B in 2025.  The ten mining claims are all two-year tenures with a work value of $400 per unit and a recording fee of $20 per unit.  Eight of the claims are each one unit and two are each 20 units, resulting in work values of $8,000 each and recording fees of $400 each.  During the original mining operations, Mining Permit MX-10-115 was granted and $24,500 was posted as the security bond.  In 1998, the MX permit was upgraded to a new 30 year Ministry of Energy and Mines permit Q-205.  The bonding was simply transferred to the new permit as there was no material change in the operation at that time.  Any environmental issues would be dealt with under the terms of the EA permit and Q-205 bonding.  Currently, the Klara claims are not subject to any environmental liabilities.  There are no royalty issues or back in rights, payments or other agreements and encumbrances on the property.  All of the claims are presently in good standing.



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Full permitting for the Nazko quarry has been in place since April 6, 1998.  This includes a 30 year renewable mine permit (Permit No. Q-205); a full environmental assessment (EA) approval certificate (No. M96-01), issued in 1996; and a Controlled Water License (No. 102300) granted in 1993 allowing for the removal of 13,500 litres of water per day.  The existing surface rights are suitable for present and proposed expansion of quarry operations.  The EA and Mines permits allow for all manner of activities associated with the current operations of the mine.  Power is still portable and water consumption is reportedly well below permitted values.  Extra mining personnel will be added to the quarry site as required, but that total has not yet been determined.  There are no tailings at the quarry site as all materials can be used in products.  A new processing plant will be built in Quesnel and as such does not fall under the concerns of the quarry license.



The area has a continental climate with severe, snowy winters and relatively warm, moist, short summers.  The average annual snowfall is 166 cm/year, while the average annual rainfall is 36 cm/year.  The average temperature is typically below 0°C for four to five months of the year, and above 10°C for two to five months.  Long-term data suggest that total precipitation ranges from 440 to 990 mm per year of which approximately 25% to 50% is snow.  To date, the quarry operating season is twelve months per year for stock pile removal.  All processing is limited to spring, summer and fall.



Located in the Interior Plateau of British Columbia, the northern section of the Klara claims area is gently rolling and has large areas of undissected uplands.  A large part of the plateau is underlain by flat or gently dipping late Miocene or Pliocene olivine basalt flows.  Covering the majority of the plateau is glacial till.  With a bio-geoclimatic zone of Sub-Boreal Spruce, the majority of the claim area was logged and has since re-vegetated with second growth trees.



The Klara Claims area encompasses a volcanic rock and ash deposit.  These deposits include three distinct units and are Quaternary in age.  The deposit consists of a composite pyroclastic cone that includes a subaerial basalt flow, subaqueous tuff breccia and quenched basalt, and a subaerial pyroclastic cone.  Bounding the deposit is glacial till strata.





Mining



The Nazko Quarry is being mined by open pit quarry methods.  There are currently two main active production sites, one in the black tephra deposit and one in the red and brown tuff breccia.  The black tephra is mined in a fashion similar to a standard dry gravel pit with free caving materials.  No explosives are necessary in the current mining process.  Most of the stripping and stockpiling of thin cover was accomplished during the opening of the quarry.  This material is being sold as topsoil.  The tuff breccia volcanic products are well exposed on the open working faces of the quarry and blasting is not required since this reddish tone scoriacious material is simply ripped using caterpillar equipment and pushed a vertical distance of 150 metres down the outer flank or slope of the cone.  The products are then dry screened and stockpiled on the quarry floor by commodity type.

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26

CPC is presently permitted to produce up to 100,000 tonnes of plant feed materials each year.  CPC is licensed to remove 13,500 litres of water per day, but this exceeds present requirements as the screening and stockpile operations use no water.  Excavation and processing activities are best left for spring, summer and fall operations, but the shipment of stockpiled materials presently occurs year round.  CPC is intending to reach the 100,000 tonne threshold by next year but this will be dictated by market demands.



Processing



The processing of CPCs volcanic aggregate products is through simple ripping and/or excavation.  The sizing and development of product lines is accomplished only with a standard screening circuit.  Larger custom selected pieces are collected and crated by hand for direct shipment to landscape supply facilities.



No water is required for the production of the materials and all products are chemically inert.  No specialized health and safety requirements need to be instituted and any potential wind borne transfer of material from the quarry site is actually beneficial to the surrounding areas as it enhances plant growth.  (Tephra products are used in soil replacement mediums in greenhouse operations and as aquarium gravels.)



History



The volcanic deposits covered by the Klara claims were originally staked in early 1986 by Mr. Brian Wear, President of the Companys wholly-owned subsidiary, CPC.  Mr. Wear also conducted and/or contracted out bulk sampling, preliminary marketing and quality testing in that same year.  The Klara claim boundaries were surveyed for LRC Reserves Ltd. (LRC) of Vancouver, British Columbia, by Hickman & Gook (British Columbia Land Surveyors) in 1987.  LRC had an interest in purchasing and developing the present claim area in 1987; however, an agreement with Mr. Brian Wear/CPC was not attained.



An investigation of the study site was conducted in 1987 by G. Salazar & Associates Ltd. (GSSAL).  The objectives of GSSAL investigation were to evaluate the chemical environment and the potential size of volcanic deposit.  Estimates of the potential size of volcanic deposit were based on aerial photographs, a site visit and the average specific gravity of the deposits.  Potential reserves were calculated by estimating the aerial coverage of the deposits and using an average specific gravity of 1.4 for the ash (tephra) and 1.84 for the scoria (tuff breccia) to convert volumes into metric tonnes of potential reserves.  GSSAL estimated the scoria flows near Lava Lake to be at least 5 metres above pre-flow terrain and the ash deposits to be at least 3 metres deep.  This resulted in 14,705,280 tonnes of scoria and 3,874,500 tonnes of ash.  Considering the morphology of the area, it was noted that the thickness of the deposits may be much greater and that the tonnage estimates were likely conservative.  Although no direct indication was made in their report, it is believed that the weathered mantle of the deposit was included in the volumetric estimate of ash (tephra).  This weathered material (the uppermost layer of tephra deposit), ranging in thickness from 0.1 to 0.5 metres, is reportedly currently being removed and stockpiled for future sales as topsoil.



In 1987, Souther et al. described the geology of Nazko Cone and provided detailed information on petrography, chemistry, age of the units, quaternary

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27

environments, regional geology and petrogenesis.  They identified at least three periods of Quaternary volcanic activity.  A whole rock K-Ar date of 0.34 ± 0.03 million was obtained for basalt associated with the oldest volcanic activity.  Radiocarbon dating on the peat deposit immediately below and above the tephra deposit, associated with the most recent volcanic activity, yielded a result of about 7,200 years before present (BP).



Between May 6 and May 10, 1997, test pits in the tephra deposit were excavated using backhoes and shovels.  Between February 17 and 24, 1998, a geophysical survey by Geotronics Surveys Ltd. (GSL) of Vancouver, British Columbia was undertaken.  Between February 17 and February 20, 1998, a topographical survey by R. Gook & Associates Ltd. (RGAL) of Quesnel, British Columbia was undertaken.





Principal Resources and Products





(1)

Flake Graphite



The Company's material graphite product is an industrial mineral known as "flake graphite".  The graphite was formed by carbon-containing limestone, which was deposited in shallow waters, which ultimately became buried many kilometres below surface(1).  Heat, pressure and time caused the re-crystallization of the carbon into coarse graphite flakes contained within limestone-now metamorphosed into marble and calc-silicate gneiss.  Geological forces eventually pushed the graphite containing formations back to the surface where they are today exposed.  Substantial drilling over a limited area has defined several million tonnes with much more obviously exposed at surface.  It is expected that little over-burden will have to be removed in order to quarry the initial graphite containing ore.  For the initial years of quarrying, drilling and blasting will not be required as the marble and calc-silicate has been decrepitated for many metres below surface by erosional forces and can be easily loaded into trucks by excavators.



For usage and marketing, graphite is divided into amorphous or microcrystalline, crystalline vein, and crystalline flake.  These are distinctions only on the size and packing of the crystals.  Very high purity graphite can compete with artificial graphite for high-end usage.



Graphite is essential for modern industry.  The largest use of natural graphite is in the following refractory uses: bricks, crucibles, shrouds, parts, and plastic.  It is a dry lubricant that has high electrical and heat conductivity, which is slow to burn and retains its strength at high temperatures.



Technology impacts the graphite market in three areas.  First, traditional uses require higher-grade graphite to either increase product life span or quality.  Second, engineering is allowing for the use of finer, higher-grade graphite to replace the large, less pure graphite.  Finally, the markets for products that require high-grade graphite are themselves increasing.

___________________

(1)

Barrett E.G. Sleeman, E.M., P.Eng., Memorandum Re Summary - Black Crystal Graphite, July 13, 1998.



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[crystal20f002.gif]

Figure 1

Crystal Graphite Corporation

Black Crystal Project Location



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The end product quality is becoming critical for many graphite uses including steel, refractory bricks, and other traditional consumers.  This has caused a recent trend toward the use of higher quality graphite.  Contaminates in graphite added to steel as a carbon source play significant roles in the quality of that steel.  This has forced premium steel producers to use higher carbon content graphite.  The same is true for electrodes and batteries.  The higher graphite contents last longer and have better thermal and electrical conductivity.



Recently, a high-pressure technique has been developed that allows the use of smaller graphite flake for the production of many graphite parts such as electrodes.  However, these flakes must be of high quality in terms of grade and expandability.  Since these smaller flakes have traditionally been cheaper refractory blocks, longer life can be made for the same cost as the larger, more impure graphite and with longer life spans.



With respect to competition from artificially manufactured graphite, because the starting point for this product is petroleum, the final product is inherently more costly.  In addition, the final product, while chemically fairly pure, is a great deal inferior physically despite extensive research to alleviate the problem.  Artificially manufactured graphite is more porous, has smaller flakes and contains considerable undesirable non-graphite carbon.  Products which use this material suffer accordingly in quality, and thus it is expected that major consumers of the end product would readily switch to natural high physical and chemical quality graphite if it were available, which it is currently not, in any sizable quantity.



There has been much work done on the metallurgy of the Company's deposit utilizing part of the bulk sample taken in the years 1997, 2000, and 2001 at a pilot plant located 150 kilometres from the site, at Kelowna, B.C., at the IME laboratory at Kelowna, B.C., and at the Companys pilot plant.  A very pure (plus 97%) product has been produced of coarsely crystalline flake graphite, which indicates that a highly marketable product can be produced with off-the-shelf plant equipment.  Even higher purities (98.5% and 99.5%) have been achieved.



In summary, the extensive work to date gives the Company a degree of confidence that with the quarrying of a relatively small 180,000 tonnes per year of graphitic material, the plant, once fully equipped, should initially produce approximately 5400 tonnes per year of high quality graphite product.  The processing plant has been designed for phased production levels so that the produced product matches the marketing demand thus reducing the Companys capital risk.





(2)

Graphite Salt and Graphite Foil



Graphite salt is a simple acidification or alkalising of coarse flake graphite with either mineral acid or sodium hydroxide chemically introduced water molecules between the molecular layers of graphite to form graphite salt.  This change in molecular structure allows the graphite to exfoliate, i.e., the layers expand voluminously on heating due to the vaporization, expansion and expulsion of the inter-layered water.



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Graphite salt expands like popcorn when exposed to heat, which makes it an excellent fire retardant due to its rapid expansion when exposed to heat.  This actually inhibits the spread of fire.  It can be added to paints and can replace asbestos.



The exfoliated graphite has exceptional insulating properties as is and furthermore, it can be recompressed to form graphite sheet or foil for use as gaskets, with insulating and high temperature high tech applications.





(3)

Pumice - Volcanic Aggregate



Pumice is the common name for a very lightweight rock, or volcanic aggregate, that displays a lower specific gravity than water.  Compared to traditional materials such as sand and gravel used for many geotechnical and construction applications, volcanic aggregate is a natural, lightweight, low density product ideal for trench-fill, back-fill, road base, concrete and other construction applications.





(4)

Tephralite Products



While maintaining the support and strength of traditional materials, the Nazko volcanic aggregate is lighter with greater insulation and drainage characteristics while requiring minimum compaction.  These characteristics make it ideal for use in poor soil conditions and where cold weather causes traditional materials to expand and contract which, in turn, causes roadways to heave and sidewalks to crack.  The insulation properties of volcanic aggregate mitigate these actions while increasing insulation.  CPC markets these products as Tephralite.  Applications include masonry concrete, lightweight concrete for high-rise buildings, pre-cast and pre-stressed concrete, bulkheads and retaining walls, backfill for ground conditions that have poor bearing characteristics, bridge decks, a variety of road bases, waterfront structures, enveloping underground conduits and pipelines (trench fill), and land fill drainage systems, to name a few.  The key characteristics of materials for this market are products that are structurally strong, stable, durable and inert, yet also lightweight and insulating.  The Nazko deposit is a naturally occurring source of lightweight aggregate.  CPC has registered the trade name Tephralite for this line of products.  CPC has made in-roads into a number of these markets, and as the advantage of Tephralite over traditional lightweight materials is established, it is projected this market will grow at more than 200 percent annually.  Direct marketing to engineering firms has already begun and met with favourable results.  This is expected to dramatically increase sales of the bulk products as it is specified by the consulting engineer groups.  Other uses of Tephralite include use as a fire retardant and for noise reduction when used as a remedial exposed concrete covering or in new concrete construction.



An additional benefit of significant weight reduction is realized when volcanic aggregate is used in cement or cinder block construction.  Not only is this an advantage in handling, it is critical for construction in earthquake prone areas, or where foundation conditions have poor bearing characteristics.  Similar benefits can be achieved only through the use of expanded clay aggregates, a manmade product with a complex manufacturing process that increases cost and is a less environmentally pure alternative with inferior durability and reactivity properties.



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(5)

Tephrago Products



The lightweight and low-density nature of volcanic aggregate is proving beneficial in horticulture and agriculture as a replacement for traditional soil amendment, growing mediums and filtration mediums.  These volcanic type products have been used in Holland for years.  CPCs Tephragro products have been tested in Holland by one of the worlds leading testing laboratories with positive results.





(6)

Tephrafilter Products



The Nazko volcanic aggregate, under the trade name of Tephrafilter, can be used for water, fuel and oil filtration, wet land sewage treatment, municipal effluent ponds, and industrial sludge settling ponds.  It has properties common to known filter media such as activated carbon, silica sand, diatomite and perlite.  Advantages of volcanic aggregate include neutral pH weather and chemical resistance, compaction resistance, and a natural ability to absorb odours.  A singular use is with residential and industrial solid waste where it has demonstrated ability as a support medium, allowing methane gas to flow horizontally through landfill sites regulating pressure where it is drawn off and used either as an energy source or safely flared off.  This product also removes the unpleasant odour when incorporated with a bio-filter and potential fire or explosion hazards inherent in landfill sites.  As the number of landfill sites grows, so will the market for this product.  Tephrafilter demonstrates advantages as a filtration medium for re-circulating irrigation water used in large hydroponic vegetable growing operations and green houses.  It also allows engineers to design filtering ponds using a uniform lateral flow method that cannot be achieved in any other medium.  Similar characteristics make it an environmentally friendly material for absorbing oil, gas and other liquid spills as well as being resistant to chemicals.



(7)

Anti-Slip



Volcanic aggregates offer long lasting abrasive characteristics, ideal where longwearing, high traction surfaces are required.  Applications include use as an environmentally friendly winter abrasive and an alternative to a salt and sand mixture.  The aggregate does not destroy roadside vegetation, is easier to handle than sand and salt mixtures, and does not attract wild life.  This reduces the growing concern of road kill and its attendant dangers to drivers.  There is also a substantial saving to the public in windshield and headlight damage (estimated by the Insurance Corporation of British Columbia to be approximately fifty million dollars per year in claims).  The aggregate does not have the same damaging ballistic characteristics as regular road gravel due to its lower mass.  This product is marketed by CPC under the trade name Anti slip.  The market for this product includes bulk commercial use for highways and in the large retail consumer market as a bagged product sold through retail chains.  It is also being sold in bags directly to school districts, care homes, feed stores, airports, hospitals, building management groups and other commercial/retail markets.



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(8)

Landscaping Products - Lavascape



Volcanic rock has been used for ground cover for many years.  It is harder, more durable and more colourful than its competition.  The Nazko deposit naturally occurs in a number of colours (red, black, grey, purple, calico and rainbow).  It is very clean, available in a variety of sizes, retains its natural colour, does not bleed or fade, does not deteriorate and requires low to no maintenance once in place.  The largest market is for the home and garden landscaping market, which desires bags of the products as opposed to bulk purchases.  Many large retail chains offer a variety of landscaping products, including lava rock, and some CPC customers now carry wash colour of the product.  Distribution agreements with these chains offer a lucrative annuity.  The main driver is price and dependability in service of the source.  CPC has trademarked Lavascape and has already established a loyal market presence.  Landscape uses include: decorative coloured rock for landscaping and groundcover, larger rocks for gardens, ponds, rock walls and feature rocks in Japanese gardens, pathways and driveways, and rooftop landscaping.





(9)

Ceramic Briquettes  Lava King



CPC is also planning to manufacture its own ceramic briquettes.  This market is for a bagged product distributed through large retains chains.  Price and dependability of product are the two major determining factors of successful sales of the product.  CPC has trademarked Lava King and has already established a loyal market presence.





(10)

Lava King Sand



CPC has acquired the rights to a unique binding agent that, when combined with the fine volcanic aggregate from the Nazko deposit (Lava King infield sand), results in an extremely versatile and durable playing surface.  CPC has developed industry-leading expertise in this field and has a number of successful projects, including show rings and riding arenas for equestrian events at the Pacific National Exposition (PNE).  CPC has provided its Lava King red infield sand to the premiere North American baseball facility SoftBall City in Surrey, B.C.  CPC currently provides material to many facilities hosting the annual summer games, a large number of municipalities and schools, professional track and field facilities, and other private sports facilities.  This is a large and growing market.  To date, sales have been through word of mouth and referrals from loyal user groups whose maintenance managers and groundskeepers network at workshops and field days for turf and recreational facility suppliers.  CPC currently works closely with a sport architect who has specified Lava King sands into a number of projects.





(11)

Industrial Ceramics



The inherent characteristics of volcanic aggregate suggest it is an ideal product for the development of industrial ceramics, particularly where highly inert and non-conductive products are required.  The creation of these products requires a sophisticated production process.  As well as providing the raw material, the Nazko deposit is located in a resource rich area with abundant hydropower, low cost land and labour.  This line of



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products will require significant additional capital and offers long term potential for worldwide markets.  A joint venture program with CPC, NRC and AGRA is underway to evaluate this industry.





Environmental Regulation



The Company is subject to the following environmental regulations set out by the Ministry of Energy, Mines and Petroleum Resources, Land Management and Policy Branch  Kootenay Division:





Mass Wastings & Surface Erosion



Roads & Bridges



Slope and terrain stability



Northern Goshawk Nesting Site



Deer Winter Range



Impact on Bears



Traffic Management



Environmental Monitoring



Reclamation Program



Re-vegetation and Use of Suitable Growth Medium



Watercourses



Trenches



Drilling & Major Excavations



Disposal of Fuels & Toxic Chemicals



Safety Provisions



Monitoring Programs set in place to ensure that the above regulations are being met



The Company was required to meet the above criteria before being issued a Mineral Exploration Reclamation Permit on June 15, 1995.  The Company remains in compliance of the relevant environmental regulations.



The Companys future operations may be affected from time to time in varying degree by changes in environmental regulations, including those for future removal and site restoration costs.  The Company is unable to predict the likelihood of new regulations and their overall effect on the Company.  The Companys policy is to meet those standards set out by relevant legislation by application of technically proven and economically feasible measures.



Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against earnings as incurred or capitalized and amortized depending on their future economic benefits.  Estimated future removal and site restoration costs, when the ultimate liability is reasonably determinable, are charged against earnings over the estimated remaining life of the related business operation, net of expected recoveries.



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CPCs operations and activities are covered by mine leases and an approved permit for work system and reclamation programs signed by the Minister of Mines and the Chief Inspector of mines at that time.  In addition, CPC has a Project Approval Certificate from the Environmental Assessment office.  CPC follows the criteria as set out in these permits as well as adhering to the Mines Act (British Columbia).  Inspectors from these agencies perform periodical inspections and CPC has received numerous safety awards for its safe working record at its operations as well as never having any disputes or letters of problems from the governing ministries that oversee its activities.





C.

Organizational Structure



On April 28, 2004, the Company purchased a British Columbia company named Canada Pumice Corporation (CPC) and its two inactive subsidiaries, Volcanic & Industrial Minerals Inc. and Cariboo Lava Corporation.  CPC is now a wholly owned subsidiary of the Company by the acquisition of 100% of the issued and outstanding shares of CPC in exchange for 15,345,000 shares of the Company.





D.

Property, Plants and Equipment





Office Space



The Company utilizes about 1,441 square feet of office space in Vancouver, British Columbia, under an office lease for a term expiring on November 13, 2006.  The landlord is Bank Vontobel AG.  The Companys monthly rent in 2003 was $4,847.89.  In addition, the company has a 580 square foot operations office adjacent to its pilot plant site.



In addition, the Company has opened an office in Beijing, P.R. China.  This office space is approximately 159 square meters located at Suite 12056, Building 2, Jianwai Soho, 39 Dongsanhuan Zhonglu Road, Chaoyang District, Beijing, P.R. China  100022.  The Company has entered into a lease agreement for this office space for a term of three (3) years expiring on August 31, 2007, and having a rental deposit of approximately US$6,209 and a monthly rental payment of approximately US$2,070.



Mineral Property



Black Crystal Graphite Project



The Black Crystal Graphite Project consists of 7,900 hectares (19,520.9 acres) of claims held by the Company in the regional deposit area. The deposit of present focus (Molly 1 to 4) is located approximately three kilometres south of the Valhalla Wilderness Provincial Park boundary and between Arrow Lake and Slocan Lake northwest of the City of Nelson in the West Kootenay District in the Province of British Columbia.



The Company has finalizing tenure for a two square kilometre mineral lease where its graphite material beneficiation (flotation) plant, office, and related structures



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are located. This location is near the boundary of Koch Creek and the Little Slocan River, 29 kilometres from the Black Crystal Property and 14 kilometres from Provincial Highway 6 and the nearest settlement of Passmore.  The Company has gone through the application stages for converting the Molly 1 to 4 claims into a mineral lease.  Both mineral leases were issued during June 2002.



The following table lists all current claims held by the Company:



Claim NameTenure NumberClaim TypeUnitsNumber of
HectaresMolly 13051452POST125Molly 23051462POST125Molly 33051472POST125Molly 43051482POST125PB - 13186254POST20500PB  23186264POST20500PB  33186274POST20500PB  43186284POST20500PB - 53716704POST20500PB - 63716714POST20500PLANT #13875884POST4100PLANT #23875894POST4100PLANT #33887584POST5150MILL  #103844442 POST125MILL  #123844462 POST125MILL  #133844472 POST125MILL  #143844482 POST125MILL  #153844492 POST125MILL #163844502 POST125MILL #173856622 POST125MILL #183856632 POST125MILL #193879694POST20500MILL #203859704POST20500MILL #213859714POST20500MILL #223859724POST16400MILL #233859734POST20500MILL #243859744POST18450MILL #253887594POST20500MILL #263887604POST20500MILL #273887614POST14350MILL 9R3897372POST125MILL 11R3897382POST125




With respect to government regulation, the Companys activities are subject to extensive federal, provincial and local laws and regulations controlling not only the

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mining of and exploration for mineral properties, but also the possible effects of such activities upon the environment.  However, the Company is not aware of any material environmental constraint affecting it that would preclude the economic development or operation of the Companys property.





Klara Claims on the Nazko Volcanic Cone



The Klara property near Nazko, British Columbia consists of twelve contiguous mineral claims with a total area of 1,200 hectares.  Mr. Brian C. Wear (Owner No. 139409) is the registered owner of the Klara claims and is the President of CPC, the Companys wholly owned subsidiary.  Full permitting for the Nazko quarry has been in place since April 6, 1998.  This includes a 30-year renewable mine permit (Permit No. Q-205), a full environmental assessment (EA approval certificate No. M96-01 issued in 1996, and a controlled water license (No. 102300) granted in 1993 allowing for the removal of 13,500 litres of water per day.  The Klara claims have been calculated to contain a total of 44,974,000 tonnes of volcanic deposits (tephra, tuff breccia and basalts).  These include:



29,265,000 tonnes of proven reserves

8,898,000 tonnes of probable reserves

6,811,000 tonnes of inferred reserves



At current license production totals of 100,000 tonnes per year, the proven component of the deposit would be in operation for roughly 290 years.  The deposit taken as a whole would be in operation for roughly 450 years.



The following table lists all current claims held by the Company:



Tenure No.Claim NameWork Recorded toStatusMining DivisionArea207382KLARA II2006.04.19Good Standing 2006.04.19Cariboo20 un207384KLARA IV2006.04.19Good Standing 2006.04.19Cariboo1 un207385KLARA V2006.04.19Good Standing 2006.04.19Cariboo1 un207386KLARA VI2006.04.19Good Standing 2006.04.19Cariboo1 un207387KLARA VII2006.04.19Good Standing 2006.04.19Cariboo1 un207388KLARA VIII2006.04.18Good Standing 2006.04.18Cariboo1 un207389KLARA IX2006.04.19Good Standing 2006.04.19Cariboo1 un207390KLARA X2006.04.19Good Standing 2006.04.19Cariboo1 un207391KLARA XI2006.04.19Good Standing 2006.04.19Cariboo1 un3162652004.08.20Good Standing 2004.08.20Cariboo200 ha3299332004.09.20Good Standing 2004.09.20Cariboo200 ha368857KLARA 11A2006.05.05Good Standing 2006.05.05Cariboo20 un5035422006.01.14Good Standing 2006.01.14Cariboo234 ha


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5035432006.01.14Good Standing 2006.01.14Cariboo488 ha5035442006.01.14Good Standing 2006.01.14Cariboo292 ha5035462006.01.14Good Standing 2006.01.14Cariboo488 ha5035482006.01.14Good Standing 2006.01.14Cariboo468 ha5035502006.01.14Good Standing 2006.01.14Cariboo468 ha






Plants



Graphite Processing Plant

As of August 31, 2001 a 4000 square metre pilot plant with flotation equipment and related in-place infrastructure was producing graphite concentrate.  This plant has been upgraded to produce a 98% to 99% fixed carbon graphite at various size fractions.  The plant includes product standard and column flotation cells, a large rod mill, leach tank, filtering system, dryers, large table, storage hoppers, and a bagging machine.  With the addition of more personnel, dryers, leach tanks, building expansion, and continuous shifts, the plant is estimated to reach a maximum production rate of 180,000 tonnes per annum.  A laboratory has been operational since June 30, 2001.  Adjacent to the plant is a settlement pond and a tailings disposal area, which have received the appropriate permits for the project. To date, most tailings have been used for road material and concrete.



As of August 31, 2003, all infrastructure is operational which includes:



1)

upgraded 14 km access road from the Provincial Highway 6;

2)

spring and well water;

3)

electrical power from a 63 kv powerline with diesel generated backup power;

4)

radio and telephone communications; and

5)

first-aid, showering, septic systems, office and lunchroom facilities.



The plant feed stockpile has been increased from August 31, 2000 to November 30, 2002 from 6000 tonnes to 23,000 tonnes.  This feed has been screened into three size fractions: +6 inch, -6 inch +1/4 inch; and  1/4 inch and is located adjacent to the plant.  To date, 2850 tonnes of feed has been processed.



In addition to the quarry operation and beneficiation plant, the Company, through its subsidiary CPC, owns a rail siding and bulk loading facility in Quesnel, where it has easy access to the Port of Prince Rupert and the Port of Vancouver.  CPC has experience in shipping bulk by rail to its customer base.  Through its distributor and its network of warehousing throughout Canada, CPC is presently shipping custom bagged product to its distribution centres in BC, Alberta, Saskatchewan, Manitoba and Ontario where they are then forwarded to retail and industrial outlets.





Equipment



The Companys mobile fleet includes:

1 - Caterpillar 235C excavator

1 - Caterpillar 980 front end loader

1
- Caterpillar D8K crawler tractor



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1  Caterpillar D9H crawler tractor

1  966D Wheel loader

1  Turbo Chieftain Power Screen

2  M-60 conveyors

2  custom built Super B Raglan aluminum trailers

1 - Ambulance

1 - Ford 150 4x4

1 - GMC Suburban

1 - Ford loader

1 - Industrial forklift

1 GMC 15ton capacity dump truck

1 - Sand truck

1  Product forklift

1  screen for sifting and sizing graphite



The Company presently has its required equipment for the first two years of operation.



The Companys plant contained 100% of the equipment needed as a pilot plant as of August 31, 2002.  The Company is modifying the process system to improve productivity.





ITEM 5  OPERATING AND FINANCIAL REVIEW AND PROSPECTS



A.

U.S. and Canadian GAAP Differences



The financial statements have been prepared in accordance with Canadian GAAP, which conform in all material respects with those of the U.S., except as disclosed in Note 18 to the audited financial statements of the Company for the years ended August 31, 2004 and 2003.



B.

The Company



Acquisition of Canada Pumice Corporation



On April 28, 2004 the Company purchased a British Columbia company named Canada Pumice Corporation (CPC), and its two inactive subsidiaries, Volcanic & Industrial Minerals Inc. (VIMI) and Cariboo Lava Corporation (Cariboo Lava).  CPC is now a wholly owned subsidiary of the Company by the acquisition of 100% of the issued and outstanding shares of CPC from Mr. Brian Wear in exchange for 15,345,000 shares of the Company.  A finders fee of 155,000 common shares was paid to an unrelated party on this acquisition.



The purchase method of accounting has been applied with the shares issued as consideration being recorded at $6,905,250, that being the value of the shares given up after considering price fluctuations, liquidity issues and exchange rates.  In addition, all legal, financing, accounting and consulting fees relating to the acquisition have been added as part of the purchase cost.



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Details are as follows:



|Shares issued to the vendor    | $ | 6,905,250
|------------------------------ | - | ---------
|Shares issued for financing    |   | 900,000  
|Shares issued for finders fee |   | 93,000   
|Legal fees                     |   | 77,419   
|Financing fees                 |   | 57,517   
|Accounting fees                |   | 37,175   
|Consulting fees                |   | 17,945   
|                               | $ | 8,088,306



At the date of the acquisition, the value of the identifiable net assets of CPC was as follows:



|ASSETS                                           |   |          
|------------------------------------------------ | - | ---------
|Cash                                             | $ | 4,745    
|Accounts receivable                              |   | 135,316  
|Inventory                                        |   | 434,602  
|                                                 |   | 574,663  
|Mineral property costs                           |   | 8,502,438
|Property, plant and equipment, at net book value |   | 115,742  
|Reclamation deposit                              |   | 24,500   
|                                                 | $ | 9,217,343
|LIABILITIES                                      |   |          
|Bank overdraft                                   | $ | 368,173  
|Accounts payable and accrued liabilities         |   | 78,963   
|Employee deductions payable                      |   | 62,143   
|Line of credit                                   |   | 81,706   
|Due to related parties                           |   | 486,828  
|Current portion of long-term debt                |   | 13,446   
|                                                 |   | 1,091,259
|Long-term debt                                   |   | 13,278   
|Asset retirement obligation                      |   | 24,500   
|                                                 | $ | 1,129,037
|                                                 |   |          
|Total Purchase Price                             | $ | 8,088,306



The excess value of the consideration given up has been allocated to mineral property costs.



In the Companys unaudited interim consolidated financial statements for the nine months ended May 31, 2004, the Company reported the acquisition (Acquisition Agreement) of CPC in consideration of 15,345,000 common shares of the Company valued in accordance with managements best valuation based upon traditional valuation indices of market price of the Companys shares (then trading at about $0.55US) and

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valuation reports of the assets of CPC resulting in managements best agreement with the vendor of a deemed value of $0.74CDN per share.



Upon recent review of the CPC acquisition with its auditors and guidance from the Canadian Institute of Chartered Accountants (CICA) Handbook Section (HB) 1581, Business Combinations, management has accepted suggestions to reconsider the pricing mechanism and has determined that the transaction should be valued at $0.45CDN per share, this being arrived at through a CICA calculation process of considering a number of factors including price fluctuations, liquidity issues and projected three year time based discount values.



Concurrently with the acquisition of CPC, Brian Wear was engaged as Senior Vice-President and COO of the Company under contract and with a grant of 2,000,000 stock options (Stock Option) to be priced at the deemed value of the value of the shares issued for the acquisition of CPC.



The above changes have been reflected in the audited consolidated financial statements for the current year ended August 31, 2004.



The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, CPC and CPCs wholly-owned inactive subsidiaries, VIMI and Cariboo Lava.  Results of operation are included from the date of acquisition.





Adoption of Accounting Policies



During the year ended August 31, 2004, the Company adopted the following significant accounting policies:



Effective September 1, 2003, the Company prospectively adopted the CICA HB 3063 Impairment of Long-Lived Assets, which requires that an impairment loss be recognized if the carrying value of a long-lived asset exceeds its fair market value.  An estimate of fair market value is undertaken annually and the impairment loss, if any, is charged to earnings. There were no impairment losses recorded during fiscal 2004. Managements estimates of resources, inventories and reclamation costs are subject to risks and uncertainties that may affect its assessment of the recoverability of mineral property costs.



Effective September 1, 2003, the Company elected early implementation of CICA HB 3110 Asset Retirement Obligations, whereby the Company prospectively recognizes asset retirement obligations in the period in which they are incurred, if a reasonable estimate of fair market value can be made.  The asset retirement costs are capitalized as part of the carrying amount of the long-term asset to be amortized over the estimated remaining useful life of the asset and the associated liability is recorded until settlement of the obligation.  As a result of the adoption of this accounting standard, the carrying value of the Black Crystal property and the corresponding asset retirement obligation was increased by $135,000 during the year ended August 31, 2004.  The estimated closure costs of $24,500 associated with the Nazko Cone property at the time of acquisition was recognized in full as part of the acquisition cost.

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The Company has adopted the recommendations of CICA HB 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 new standard requires that all stock-based awards made to employees and non-employees be measured and recognized using a fair value based method.  In prior years, stock-based compensation expense was only recognized when stock-based compensation awards were made to non-employees, while pro forma disclosure was acceptable for awards made to employees.



As encouraged by CICA HB 3870, the Company has enacted prospectively early adoption of the fair value based method of accounting for awards issued to employees for the current fiscal year beginning September 1, 2003.





Year ended August 31, 2004 compared with the year ended August 31, 2003



Liquidity and Capital Resources



During the current year, the cash position increased by $35,036 resulting in a cash balance of $20,898 at August 31, 2004 compared with a negative balance of $18,883 at August 31, 2003.  As part of the acquisition of CPC, the Company also acquired $4,745 of cash on April 28, 2004, which is included in the cash position at August 31, 2004.



The Company used $1,981,650 for operating activities during the current year compared with $207,398 in the prior year.  The major increase of cash used is due to the higher level of operating expenses incurred in the year combined with the payment of large accounts payable balances.



The Company used $1,041,780 for investing activities during the current year compared with $545,750 in the prior year.  After adjusting for amortization expense and asset retirement costs, the Company incurred $445,629 on mineral property costs compared with $539,099 in the prior year.  Of the current year total, $435,341 relates to the Black Crystal property and $10,288 relates to prepaid expenditures made in relation to a mineral property agreement in China.  The full amount of the prior year balance relates to the Black Crystal property.  The cash expenditures that were added to the carrying amount of the CPC acquisition totalled $190,056.  As mentioned hereinbelow in the Results of Deferred Exploration Expenditures section, the Company focused on testing and refinement of the plant processes in the current year whereas the prior year was spent making modifications to the plant, bulk sampling and preparing technical reports.  The Company spent $406,095 on property, plant and equipment purchases during the year compared with $6,651 in the prior year.  Black Crystal equipment purchases totalled $93,739 while Nazko Cone equipment purchases totalled $312,356.



The cash resources provided by financing activities during the year was $3,058,466 compared with $563,083 in the prior year.  The bulk of this financing came as a result of debt financing obtained as part of the CPC acquisition.



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By a loan agreement dated 25 September 2003, the Company secured financing in the form of a demand debenture for an amount of $1,000,000 from an unrelated party, (who subsequently became a director of the Company), of which $150,000 was set up as an interest reserve to service the monthly interest instalments.  The debenture bore interest at a rate of 15% per annum, compounded monthly, and was repayable on 26 September 2004.  The Company paid a non-refundable application fee of $10,000 and issued 500,000 common shares of the Company valued at $135,500 to the lender as a non-refundable commitment and funding fee.



By a loan agreement dated 7 May 2004, the Company secured additional financing in the form of a demand debenture by cancelling the first debenture for a new debenture in the amount of $4,000,000, from a company controlled by a director, of which $600,000 was set up as an interest reserve to service the monthly interest instalments.  The debenture bears interest at a rate of 15% per annum, compounded monthly, and is repayable on 7 May 2005.  The Company paid a non-refundable application fee of $20,000 and issued 1,500,000 common shares of the Company valued at $900,000 to the lender as a non-refundable commitment and funding fee for the new debenture.  The Company also paid a three-month interest penalty of $37,500 as a result of the early redemption of the first debenture.  The new debenture provides for a first registered charge on the land and a general first floating charge on all other assets of the Company.  The application fee, the commitment and funding fee and the interest penalty have been recorded towards the acquisition of CPC as it was this funding that enabled the acquisition to complete.



Details of the demand debenture and interest reserve account as at 31 August 2004 are as follows:



|Proceeds from demand debenture                 | $ | 4,000,000
|---------------------------------------------- | - | ---------
|Balance of interest reserve held by the lender |   | (410,640)
|                                               | $ | 3,589,360



The Company may elect to extend the term of the debenture for a further twelve months at the option of the Lender.  The Company can pay off the debenture prior to the due date, in whole or part, subject to a three-month interest penalty.  If the Company secures new financing, 25% of the net proceeds shall be applied to the debenture.



During the year the Company paid $284,679 in interest on the two debentures in addition to the fees and penalties mentioned above.  During the same period the Company earned $4,522 on the monies held in the interest reserve account.



A portion of the above financing in the amount of $368,173 was used to pay down bank indebtedness acquired on the acquisition of CPC.  In the same manner, shareholder loans in the amount of $449,222 acquired on the acquisition were paid down with the financing received in the year.



On 28 April 2004 in conjunction with the CPC acquisition, the Company loaned the former principal of CPC and current director of the Company $263,000.  The loan is non-interest bearing, secured by 355,500 escrow shares of the Company and due after 1 October 2005.  If there is a default on the loan, the Companys only recourse is to keep

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43

the shares held in escrow.  As at 31 August 2004, the market value of the escrow shares is $202,635.



Proceeds from share capital issued for cash during the year was $588,367 as compared with only $148,250 in the prior year.



During the year, the company issued 780,045 units to two directors and a relative of a director by private placement for gross proceeds of $211,392.  Each unit consists of one common share and one share purchase warrant.  Each warrant entitles the holder to purchase one additional common share of the company at a purchase price of US$0.25 for a two-year period expiring 20 October 2005.



During the year, the company issued 1,355,000 common shares to employees, directors, officers and consultants as a result of stock option exercises for gross proceeds of $371,808.



During the year, the company issued 15,990 common shares as a result of warrant exercises for gross proceeds of $5,167.



During the period, the company paid out $16,667 plus interest to certain debenture holders and issued 236,776 units to the remaining holders.  One unit was issued for each $0.271 of outstanding debenture.  Each unit consists of one share and one share purchase warrant.  Each warrant entitles the holder to purchase one additional common share of the company at a purchase price of US$0.25 for a two-year period expiring 20 October 2005. 79,950 shares were issued to an officer and a relative of a director.



During the period, 57,144 common shares originally issued to certain debenture holders were returned to the company in exchange for the original principal amount of $20,000 plus accrued interest.



At August 31, 2004, the Company had a working capital deficiency of $3,355,621.  In the short term, the Company expects to rely on external debenture financing and private placement equity financing to fund its cash requirements.



Results of Operation



Please refer to the Companys Statement of Loss included in the audited consolidated financial statements for the fiscal year ended August 31, 2004 (current year) for a complete breakdown of the Companys activities during the fiscal year.  Following is a summary of the highlights during the current fiscal year with comparative information presented for the prior fiscal year ended August 31, 2003 (prior year).



The Company generated sales in the amount of $449,427 during the current year.  All of the sales were generated from the Companys newly acquired subsidiary, CPC and its pumice operations and represent operations from April 29, 2004 through August 31, 2004.  The cost of goods sold associated with the products sold was $336,788 leaving a gross profit of $112,639.  Crystal Graphite reported no sales in the prior year.



Operating expenses totalled $2,585,634 in the current year compared with $1,321,068 in the prior year.  This is an increase of $1,264,566.  Operating expenses are



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44

made up of wages, benefits and payments to contractors of $1,635,448 (which includes stock-based compensation expense in the amount of $964,684 booked for stock options granted to employees, directors and officers), marketing costs of $229,202 (which includes stock-based compensation expense in the amount of $7,409 booked for stock options granted to consultants), shareholder information and investor relations of $149,457, general and administrative of $129,820, legal fees of $95,842, occupancy costs of $76,720, travel of $65,928 and various other smaller expenses all under $50,000 each.



The increase in the operating expenses of $1,264,566 over the prior year is mainly attributable to an increase in stock compensation expense during the year as well as increased activity in the Company due to the acquisition of CPC as well as including the operations of CPC for the four months from the date of acquisition.  The key operating expense items that increased over the prior year were an increase in wages, benefits and subcontractors of $1,271,491 (stock compensation expense was $964,684 in the current year compared to $nil in the prior year), increase in general and administrative of $64,753, increase in legal fees of $40,712, increase in transfer agent fees of $36,070, increase in amortization of $28,328, increase in research and development of $25,492 and an increase in listing and filing fees of $6,891.  The increase of these key items was offset by decreases over the prior year in marketing of $228,808 (stock compensation expense was $nil in the current year compared to $245,900 in the prior year), decrease in shareholder information and investor relations of $16,236 and travel of $10,059.  Product marketing is currently the main focus of the company as management is searching for potential purchasers of graphite as well as pumice products and therefore reflects a large increase in cost.  Wages have increased due to the adding of two new full time staff persons in the Vancouver office and the addition of the CPC staff for the 4 months from the date of acquisition.  General and administration expenses increased due to the activity of acquiring CPC, obtaining financing and including 4 months of activity from the CPC operations.  Legal fees were higher due to the acquisition of CPC, the various financing that occurred in the period as well as applying for the listing on the CNQ.  Listing and filing fees were up significantly due to the company applying for and being listed on the Canadian Trading and Quotation System Inc (CNQ).



Other key expense items shown separately from operating expenses were interest on loans and debentures of $302,689 (which includes $12,500 of accrued interest recorded on the conversion into 236,776 shares and a reversal of $1,509 of accrued interest on the return of shares exchanged for cash) and financing fees relating to the convertible debentures and demand debenture of $195,321.  The financing fees relate directly to the demand debenture and convertible debenture funds received during the period.  There were no financing fees in the prior year and interest on debentures only amounted to $43,589.  In the prior year there were finders fees paid in the amount of $62,250.  No such fees were paid in the current year.



Overall, the Company incurred a loss of $2,991,438 for the year ended August 31, 2004 compared with a loss of $1,446,929 for the comparative period ended August 31, 2003, which represents an increase of $1,544,509 over the prior year.  The loss per share (Basic and Diluted) was $0.09 in the current year compared to $0.06 in the prior year.



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Results of Deferred Exploration Expenditures



Please refer to the Companys Schedule of Mineral Property Costs included in the audited consolidated financial statements for the fiscal year ended August 31, 2004 for a complete breakdown of the Companys mineral exploration activities during the fiscal year.  Following is a summary of the highlights during the current fiscal year with comparative information presented for prior fiscal year ended August 31, 2003.



The Company incurred expenditures on its Black Crystal Graphite Project of $728,691 for the current year compared with $751,092 for the prior year, which represents a decrease of $22,401 over the prior year.  The deferred exploration costs consisted of amortization expense of $158,350, wages, benefits and subcontractors of $159,374, asset retirement costs of $135,000, field and general of $121,912, repairs and maintenance of $50,598, transportation and hauling of $37,337 and various other smaller expenditures all under $30,000 each.



During the year, due to the Company adopting CICA HB 3110 regarding asset retirement obligations, $135,000 has been recorded to the carrying value of the property, that being managements estimate of future mine closure costs for the Black Crystal property.



The decrease in expenditures of $22,401 (plus the one time entry of $135,000 for asset retirement costs) over the prior year is mainly attributable to the fact that the Company has changed its focus to marketing over last year and due to the shortage of funding for further property development.  The current year property activities consisted of testing and experimental work on the beneficiation plant and equipment as well as testing of the laboratory and graphite quality processes.



As described above, the Company acquired CPC on April 28, 2004.  CPCs main asset is its Nazko Cone property in Quesnel, B.C.  The portion of the acquisition cost relating to the Nazko Cone property in the amount of $8,502,438 has been capitalized to mineral property costs.  As the Nazko Cone property is in production, the capitalized costs will be amortized on a unit-of-production method based on the estimated life of the proven and probable pumice reserves.  No amortization has been booked in the current year as the production in the four months from the date of acquisition compared with the proven and probable reserves results in an immaterial balance.



Risks and Uncertainties



Crystal Graphite Corporation has developed high purity graphite that is primarily targeted to the high technology sector such as bi-polar plate manufacturing for the fuel cell industry.  While all indicators are that this is expected to be a significant industry, CGC has no control over when the graphite requirements may have reasonable growth.



Crystal Graphite has limited financial resources and no assurances sufficient funding will be available to conduct further development and marketing of its product.



Currency fluctuations may affect the cash flow that the company may realize from its operations, since graphite is sold in the world market denominated in U.S. dollars.  The company's costs are incurred in Canadian and U.S. currencies.  Unless otherwise



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46

noted, it is managements opinion that the company is not exposed to significant interest, currency or credit risks arising from the financial instruments.



Research and Development, Patents and Licenses, etc.



For the year ended August 31, 2004 and up to January 31, 2005 collectively, the Company did not incur any expenditures relating to either patent and/or license development or filings.





Year ended August 31, 2003 compared with the year ended August 31, 2002



Liquidity and Capital Resources



During the year, the cash position decreased by $190,065 resulting in a negative cash balance of $18,883 consisting of cash and term deposits of $16,091 offset by cheques written in excess of funds on deposit at $34,974 at August 31, 2003 compared with $171,182 at August 31, 2002.



The Company used $207,398 for operating activities during the year compared with $2,117,225 in the prior year.  The major decrease is due to the lower level of expenses incurred in the year combined with the collection of significant Goods and Services Tax (GST) and British Columbia Mineral Exploration Tax Credit (BC METC) receivable balances and the large build-up of accounts payable at year-end.



The Company used $545,750 for investing activities during the year compared with $1,769,443 in the prior year.  After adjusting for amortization expense, the Company incurred $539,099 on mineral property costs compared with $1,040,447 in the prior year.  As mentioned in the Results of Exploration Expenditures section, the Company focused on testing and refinement of the plant processes in the current year whereas the prior year was spent making major modifications to the plant, bulk sampling and preparing technical reports.  A similar reduction in expenditures occurred with capital acquisitions.  The Company spent $6,651 on capital asset purchases during the year compared with $382,323 in the prior year.  In the prior year, the Company was obligated to put up a reclamation bond in connection with the mining permit and therefore invested $390,000 in a term deposit while recovering $46,023 from prior reclamation bonds for a net outlay of $343,977.  There was no such expenditure in the current year.



The cash resources provided by financing activities during the year were $563,083 compared with $118,262 in the prior year.



In December 2002, the Company completed a convertible debenture private placement of 350,000 debenture units at a price of $0.50 per unit for total proceeds of $175,000.  Each debenture unit consists of one redeemable common share and one-tenth of a non-redeemable common share.  During the year, 213,333 redeemable shares were redeemed for $106,667 plus interest.  The redeemable shares are secured by a registerable debenture, which bear interest after 1 April 2003 at a rate of 1% per month.



In March 2003, the Company completed a private placement of convertible debentures for total proceeds of $415,000.  The debentures bear interest at 8% per annum



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and have a one-year term with a due date of 31 March 2004.  The Company has the option to pre-pay (in cash or shares) the debenture after three months with a 2% prepayment bonus if paying in cash.  The debentures are convertible into one common share of the Company for each $0.35 of principal, but only if the shares of the Company are trading in excess of US $0.50.



During August 2003, the Company repaid $68,500 of this debenture in cash.  The balance of $346,500 plus imputed interest of $26,100 was converted into 990,004 common shares.  Financing fees in the amount of $62,250 were paid to unrelated parties in connection with this convertible debenture private placement.



During the third quarter, 1,000,000 options were granted to consultants of the Company and subsequently exercised for proceeds of $148,250 (US $100,000).  The Company recorded $245,900 as stock-based compensation in connection with the stock options granted.  The stock compensation expense is included with marketing in the financial statements.



The prior year financing balance was a repayment of related party loans.  There were no loans in the current year.



At August 31, 2003, the Company had a working capital deficiency of $550,322.  In the short term, the Company will rely on external debenture financing and private placement equity financing to fund its cash requirements.



Results of Operation



The Company incurred a net loss of $1,446,929 for the year ended August 31, 2003, as compared to a net loss of $1,913,120 for the year ended August 31, 2002, which represents a decrease of 24% or $466,191 over the prior year.  The loss for the year consists of an operating loss of $1,321,068 and other items such as write-down of investments of $3,613, finders fees relating to the convertible debentures of $62,250, interest on debentures of $43,589 (which includes $26,100 of accrued interest recorded on the conversion of 990,004 shares), net interest and bank charges of $2,027, capital tax of $3,553 and a loss on foreign exchange of $10,829.   The operating loss is made up of wages, benefits and payments to contractors of $363,957, marketing costs of $458,010 (which includes stock-based compensation expense in the amount of $245,900 booked for stock options granted to consultants), shareholder information and investor relations of $165,693, travel of $75,987, general and administrative of $65,067, occupancy costs of $59,477, legal fees of $55,130, audit and accounting fees of $44,700 and various other smaller expenses all under $10,000 each, totalling $33,047.



The decrease in the loss of $466,191 is mainly attributable to a decrease in operating costs of $157,039 and lower write-down over the prior year of $477,796 offset by a net increase in expenses of other items in the amount of $168,644.  The key operating expense items that decreased over the prior year were a decrease in legal fees of $295,060, decrease in travel of $60,392, decrease in wages, benefits and subcontractors of $46,730, decrease in audit and accounting fees of $44,132, decrease in transfer agent fees of $28,163 and a decrease in general and administrative of $21,353.  The decrease of these key items was offset by increases over the prior year in marketing of $48,409 plus the stock compensation expense of $245,900, and shareholder information and investor relations of $43,091.  The net fluctuation of the other operating



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48

expenses was an increase of $1,391.  Legal fees, travel costs, audit fees and transfer agent fees all returned to normal levels after several years of inflated costs due to the lawsuit brought against the Company in 2001 and the related issues with KAK Investments Inc.  Please refer to Note 11 in the Companys audited financial statements for the year ended August 31, 2003 for further details.  The other decreases were due to the Company attempting to keep operating costs down as a result of decreased financial resources.  The increases in marketing and investor relations were due to the Company attempting to establish markets for its high purity flake graphite and to promote investment in the Company.  The finders fees relate directly to the convertible debenture funds received during the year.



The write-down of investments in the amount of $481,409 for the year ended August 31, 2002 was the result of the recording certain U.S. marketable securities at their market value and recording the Companys investment in an Alberta company involved in the oil and gas sector at $1.00.  These investments are not expected to reflect value for several years.  See Note 4 in the Companys audited financial statements for the year ended August 31, 2003 for further details.



Research and Development, Patents and Licenses, etc.



For the year ended August 31, 2003 and up to January 31, 2004 collectively, the Company did not incur any expenditures relating to either patent and/or license development or filings.



Trend Information



An International Marketing Team was initiated to determine:

- The range of graphite able to be produced from the deposit
- The demand for graphite in the markets of Japan, USA and Asia
- The range of graphite purchased, the sources of supply and quality demanded for each grade of graphite
- The likely prices of each grade of graphite
- Competitor analysis
- A marketing matrix



The demand for graphite is growing, especially in the aerospace industry and the automobile industry where the advent of fuel cells should dramatically increase the demand for graphite.



Most of the projected increase in demand for graphite will be in the high tech sector where high purity and stringent specifications are required.





Year ended August 31, 2002 compared with the year ended August 31, 2001



Liquidity and Capital Resources



Cash decreased by $3,768,406 in the fiscal year 2002 and resulted in a cash balance of $171,182 at August 31, 2002, as compared to $3,939,588 at August 31, 2001.  The August 31, 2002 cash balance does not include the following: GST and other tax



---

49

recoverable in the amount of $233,763 (subsequently received), BC METC receivable in the amount of $323,087 (subsequently requested), or the cash amount of $390,000 invested in a term deposit and pledged in a Safekeeping Agreement with the Ministry of Employment and Investment, Energy and Minerals Division for a reclamation bond.



There were no financing activities, share purchase warrants or incentive stock options exercised during the 2002 fiscal period.



Investing activities in fiscal 2002 required $2,459,514 as compared to $5,220,702 in fiscal 2001.  Expenditures in 2002 included $1,264,479 in mineral property costs, as compared to $4,112,993 for fiscal 2001, and capital assets in the amount of $382,323 for fiscal 2002 as compared to $1,086,822 for fiscal 2001.  The major portion of expenditures spent in fiscal year 2001 were due to the construction of the processing plant and further exploration on the project.  The fiscal year 2002 costs were considerably less where the major expenditures were due to the ongoing maintenance and modifications to the processing plant.



Results of Operation



The Company incurred a net loss of $1,913,120 for the year ended August 31, 2002, as compared to a net loss of $2,379,069 for the year ended August 31, 2001.  The loss was a result of the capital development of the Black Crystal Project and the costs incurred in legal and audit fees which substantially increased because of the legal action in the U.S. and the resulting difficulty with the TSX Venture Exchange.  Legal expenses were $350,190 for the year ended August 31, 2002, as compared to $161,883 for the year ended August 31, 2001.  Accounting and audit fees were $88,832 for the year ended August 31, 2002, as compared to $8,187 for the year ended August 31, 2001.



A one time expenditure of $115,164 was paid to AMEC E&C Services Limited for a technical report on our Black Crystal Project which is capitalized in Mining Engineering and Planning in the Schedule of Mineral Property Costs.  This project was originally commissioned to assist the Company in verifying the project and development to the TSX Venture Exchange.  Subsequent, events have proven that the report did not assist our relationship with the TSX Venture Exchange, although it has proven valuable when dealing with knowledgeable readers in the industry and complies to the National Instrument 43-101 disclosure rules introduced in February 2001 by the Canadian Securities Administrators.



The Company was also compelled to invest $390,000 cash in a reclamation bond as a requirement of our mining permit.



Research and Development, Patents and Licenses, etc.



For the year ended August 31, 2002 and up to January 31, 2003 collectively, the Company did not incur any expenditures relating to either patent and/or license development or filings.



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50

Trend Information



An International Marketing Team was initiated to determine:

- The range of graphite able to be produced from the deposit
- The demand for graphite in the markets of Japan, USA and Asia
- The range of graphite purchased, the sources of supply and quality demanded for each grade of graphite
- The likely prices of each grade of graphite
- Competitor analysis
- A marketing matrix



The demand for graphite is growing, especially in the aerospace industry and the automobile industry where the advent of fuel cells should dramatically increase the demand for graphite.



Most of the projected increase in demand for graphite will be in the high tech sector where high purity and stringent specifications are required.



Prices ranging from US$1,000-US$4,000/tonne can be expected for high purity graphite (99% purity and -50 to +150 mesh flake size).



Most of the marketing efforts are now being directed to resolving the future of graphite in bi-polar plates and to researching the alternatives now being considered.  To this end, fuel cell manufacturers and bi-polar plate manufacturers are continually visited to ascertain the demand of natural graphite polar plates.



A similar approach is being taken with a Japanese manufacturer of lithium ion batteries, who is researching alternatives to graphite based anode materials.



The continuing operations of the Company are to commence profitable operations during year 2004.





ITEM 6  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES



A.

Directors and Senior Management



The names, municipality of residence and principal occupations in which each of the Directors, Executive Officers and other members of management of the Company have been engaged during the immediately preceding five years are as follows:

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51

|Name, Municipality of Residence and Positions, if any, held with theCompany                       | Principal Occupation or Employment during the Past FiveYears                                              | Director/
Officer of the Company Since                      | Number of Shares of the Company Beneficially Owned, Controlled orDirected(1)
|------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ----------------------------------------------------------------------------
|Gordon J. Sales
Vancouver, British Columbia, Canada

President, CEO and a Director of the Company | Businessman, Self-Employed

Investor                                                                      | President since
December 1999

Director since October, 1998 | 876,658                                                                     
|                                                                                                  | Brian C. Wear
Abbotsford, British Columbia, Canada

Sr. Vice President, COO and a Director of the Company | Businessman, Self Employed                                  | April 29, 2004                                                              
|Richard J. Ivy
Pittsburg, PA
USA

Director of the Company                                         | Self-Employed
Businessman                                                                                 | July 04, 2000                                               | Nil                                                                         
|Geoffrey R. Caine
Vancouver, British Columbia, Canada

Director of the Company                    | Retired
Businessman                                                                                       | January 18, 1996                                            | 358,187                                                                     
|Alexander Cox
Vancouver, British Columbia, Canada

Director of the Company                        | Chartered Accountant, Real Estate Developer, Self Employed                                                | February 24, 2004                                           | 2,000,000                                                                   

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52

|Edward J. Nunn
Nelson, British
Columbia, Canada

Vice President - Operations | Professional Mining
Engineer                                                                  | General Manager
July 1, 2000


Vice President Operations September 30, 2003 | 44,975
|---------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------
|Bernie Zacharias
Langley, British Columbia

Chief Financial Officer          | Chartered Accountant and Vice President of Avisar (formerly Tonelli & Associates)             | January 13, 2004                                                            | Nil   
|Lana Bea Turner
Vancouver, British Columbia, Canada

Corporate Secretary     | Administration

Previously held Secretary (Officer) with Promax Energy Inc. from 1993 to 2000 | March 3, 2000                                                               | 66,665



|Notes: |                                          
|------ | -----------------------------------------
|(1)    | These figures are as of February 18, 2005



The following are brief profiles of the Directors and Executive Officers of the Company:





Mr. Gordon Sales(age 67) is the President, CEO and a Director of the Company devoting 100% of his time to the business of the Company.  Mr. Sales has a strong background in the wholesale/retail industry, building supply operations, distributor and dealer of truck parts, wood chips export and commercial real estate development with budgets ranging from $10-180 million.





Mr. Brian C. Wear (age 50) is Sr. Vice President, Chief Operating Officer and a Director of the Company as well as the President of the Companys subsidiary, Canada Pumice Corporation devoting 100% of his time to the business of the Company.  Mr. Wear comes to the mining world from the marine industry.  He worked for 15 years in the merchant marine and is a commercial/research diver.  During his time in the merchant marine he earned his Canadian Masters Certificate and additional Foreign Going Officers Certificates.  He has acted as First Officer and Master on a host of ships from the Caribbean to the Arctic, shipping a variety of commodities.  Mr. Wear developed insight into the workings of the construction aggregate and cement products market during his shipping duties.  In 1986, he discovered the Nazko Volcanic Cone and quickly

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53

determined its potential significance in the world market.  As a result, Canada Pumice Corporation (CPC) was incorporated in 1990.





Mr. Geoffrey R. Caine(age 83) is a Director of the Company.   Mr. Caine was involved in the lumber industry for 50 years and retired in 1997.







Mr. Richard Ivy(age 57) is a Director of the Company.  Mr. Ivy has approximately 25 years in management and operations of sales of noble alloys, ferroalloys and other processed minerals.  From 1989 to 1996, he occupied senior positions with BHP Trading Inc. and Placer Sales, Inc. and from 1995 to the present has been President and owner of United Mineral Resources Inc. which had revenues of $13,000,000 in the latest year through presentation of major producers specializing in such products as vanadium pentoxide, ferrovanadium, molybdenum oxide and other specialty products.





Mr. Alexander Cox(age 66) is a Director of the Company.  Mr. Cox is a resident of Vancouver and is a successful real estate developer, developing properties in Whistler, Victoria and the lower mainland of B.C.  Mr. Cox graduated from McGill University, 1961 Bachelor of Accounting, 1963 Licentiate in Accounting and 1963 Chartered Accountant.  Mr. Cox was engaged in public practice with the National Accounting Firm of Clarkson, Gordon (now Ernst & Young) for over 20 years.  Mr. Cox was a client handling partner responsible for co-ordinating the performance of audit, accounting tax and a variety of other special work for a wide range of clients in both the public and private sector.





Mr. Edward J. Nunn (age 58) is the Vice President - Operations of the Company.  Mr. Nunn was appointed as an officer of the Company on January 9th, 2002 devoting 100% of his time to the business of the Company.  Mr. Nunn has worked around the globe for several other mining companies, staying several years at each project.





Mr. Bernie Zacharias(age 31)is Chief Financial Officer of the Company and was appointed on January 13, 2004.  He is also Vice President of Avisar, Chartered Accountants.  Bernie received his Chartered Accounting designation in 2000 by examination in 1998.  Over the past seven years, Mr. Zacharias has worked extensively with mineral exploration and development stage companies on the TSX Venture Exchange as well as Foreign Private Issuers reporting to the Securities and Exchange Commission.





Ms. Lana B. Turner(age 50) is the Secretary and CFO of the Company.   Ms. Turner was appointed Secretary of the Company on March 3, 2000, devoting 100% of her time to the business of the Company.  Ms. Turner was appointed Chief Financial Officer of the Company on July 19, 2002 and resigned from such position on January 13, 2004.  Ms. Turner worked part-time for the Company since June 1999 and was awarded a full time contract on July 1, 2000.  Ms. Turner has worked as an accountant and did corporate filings for several reporting companies over the past twenty years.

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54

Aggregate Ownership of Securities



There are presently an aggregate of 19,027,985 common shares of the Company owned by all of the Directors, Officers and promoters of the Company representing 42.87% of the total issued and outstanding common shares of the Company.





Other Reporting Issuers



The following Directors, Officers, promoters or other members of management of the Company have held a position as a director, officer, promoter or other member of management of other reporting issuers within five years prior to the date of this Annual Report:



|Member            | Position with Other Reporting Issuer                                                                      
|----------------- | ----------------------------------------------------------------------------------------------------------
|Gordon J. Sales   | BGR Corporation  Director since August 22, 2003                                                          
|Lana Bea Turner   | Secretary of Jet Gold Inc. since December 2003
Secretary of Promax Energy Inc.  resigned in March of 2000
|R. Geoffrey Caine | Served as a Director of Quinto Mining Corporation from 1994 to 1998.                                      
|Richard Ivy       | Nil                                                                                                       
|Alexander Cox     | Nil                                                                                                       
|Bernie Zacharias  | Nil                                                                                                       
|Edward Nunn       | Nil                                                                                                       





Individual Bankruptcies



Except for Mr. James Conroy who resigned as a Director of the Company on July 4, 2001, none of the Directors, Officers, promoters or members of management of the Company have, within the five years prior to the date of this Annual Report, been declared bankrupt or made a voluntary assignment in bankruptcy, made a proposal under any legislation relating to bankruptcy or insolvency, or been subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of that individual.





Conflicts of Interest



Some of the Directors and Officers of the Company also serve as directors and/or officers of other companies and may be presented from time to time with situations or opportunities which give rise to apparent conflicts of interest which cannot be resolved





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55

by arms length negotiations but only through exercise by the Directors and Officers of such judgement as is consistent with their fiduciary duties to the Company which arise under British Columbia and Canadian corporate law, especially insofar as taking advantage, directly or indirectly, of information or opportunities acquired in their capacities as Directors or Officers of the Company.  All conflicts of interest will be resolved in accordance with the appropriate business corporation statute.  Any transactions with Directors and Officers will be on terms consistent with industry standards and sound business practices in accordance with the fiduciary duties of those persons to the Company and, depending upon the magnitude of the transactions and the absence of any disinterested board members, may be submitted to the shareholders for their approval.



Other Information



There are no family relationships between any of the Directors or Officers of the Company.  The approximate percentage of business time that each Director and Officer will devote to the Companys business is as follows:





|Name              | Percentage of Time
|----------------- | ------------------
|Gordon Sales      | 100%              
|Brian Wear        | 100%              
|Geoffrey R. Caine | 5%                
|Richard Ivy       | 25%               
|Alexander Cox     | 10%               
|Edward Nunn       | 100%              
|Lana Bea Turner   | 100%              
|Bernie Zacharias  | 25%               





B.

Compensation



The Companys Executive Compensation



The Companys fiscal year end is the 31st day of August.



Pursuant to Form 41 of the Securities Rules(British Columbia), the Company is a small business issuer, which is defined as a company that:

- had revenues of less than $25,000,000 in its last completed financial year;
- is not a non-redeemable investment fund or mutual fund;
- has a public float of less than $25,000,000; and
- if it is a subsidiary of another company, that other company is also a small business issuer.



The Company has created eight Executive Offices, namely that of President, Secretary, CEO, Sr. Vice President, Chief Operating Officer, Vice President  Operations, Vice President  Corporate Development and Chief Financial Officer.  In this

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56

regard the Companys named Executive Officers (collectively, the Named Executive Officers) are as follows:



Gordon Sales  Mr. Sales was appointed the President and CEO of the Company on December 9, 1999 and served as a Director since October, 1998.



Brian C. Wear  Mr. Wear was appointed Sr. Vice President and COO of the Company on April 29, 2004 and joined the board on the same date.



Edward Nunn  Mr. Nunn was appointed the Vice President  Operations of the Company on September 30, 2003.



Lana Bea Turner  Ms. Turner was appointed the Secretary of the Company on March 3, 2000 and appointed the Chief Financial Officer of the Company on July 19, 2002 and resigned from this position on January 13, 2004.



Bernie Zacharias  Mr. Zacharias was appointed the Chief Financial Officer of the Company on January 13, 2004.



For the purpose of this Annual Report, except as otherwise expressly provided or unless the context otherwise requires, the following words and phrases shall have the following meanings:



Equity security means securities of a company that carry a residual right to participate in earnings of that company and, upon liquidation or winding up of that company, its assets;



Option means all options, share purchase warrants and rights granted by a company or any of its subsidiaries (if any) as compensation for services rendered or otherwise in connection with office or employment;



LTIP means a long-term incentive plan, which is any plan providing compensation intended to serve as incentive for performance to occur over a period longer than one financial year, whether the performance is measured by reference to financial performance of the company or an affiliate of the company, the price for the companys securities, or any other measure, but does not include Option or SAR plans or plans for compensation through restricted shares or restricted share units; and



SAR means stock appreciation right, which is a right granted by a company or any of its subsidiaries (if any) as condensation for services rendered or otherwise in connection with office or employment to receive a payment of cash or an issue or transfer of securities based wholly or in part on changes in the trading price of publicly traded securities.



The following table details the compensation paid to the Companys Named Executive Officers during the fiscal year ended August 31, 2004:



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57



|Summary Compensation Table

Annual Compensation
Long-Term Compensation
|----------------------------------------------------------------------
|Name and Principal Position(1)                                        
|Gordon Sales
President, CEO and a Director                            
|Brian Wear
Sr. Vice President, COO and a Director (2)                 
|Lana Bea Turner
Secretary                                             
|Edward Nunn
Vice President  Operations(3)                            
|Bernie Zacharias
Chief Financial Officer (4)                          



|Notes: |                                                                                                                                                                                                                                                                                                                      
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)    | Refer to the disclosure found above the Summary Compensation Table hereinabove for a detailed description of the Companys Named Executive Officers.                                                                                                                                                                 
|(2)    | Mr. Brian Wear was appointed as the Sr. Vice President, COO and a Director on April 29, 2004                                                                                                                                                                                                                        
|(3)    | Mr. Edward Nunn was appointed as the Vice President  Operations on September 30, 2003.                                                                                                                                                                                                                              
|(4)    | Mr. Bernie Zacharias was appointed the Chief Financial Officer on January 13, 2004.                                                                                                                                                                                                                                  
|(5)    | During the fiscal year ended Aug. 31, 2004, Avisar, Chartered Accountants, a company which Mr. Bernie Zacharias is part owner, was paid or accrued $43,175 by the Company.  This figure includes all accounting, tax and consulting work performed by Avisar, including the CFO functions as required by the Company.



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58

The Company anticipates that compensation will be provided by the Company during the Companys next financial year to certain of the Named Executive Officers of the Company and in conjunction with certain management and administrative services to be provided to the Company by such Named Executive Officers.



Long-term Incentive Plans  Awards in most recently completed Financial Year



During its most recently completed financial year, and for the two previously completed financial years, the Company has not awarded or instituted any LTIPs in favour of its Named Executive Officers.



Options/SAR Grants during the most recently completed Financial Year



As of January 31, 2005, the Company had granted the following options to purchase common stock of the Company and which still remain outstanding as follows:



|Name of Optionee | Position   | Number
Of
Optioned
Shares (1) | Exercise
Price | Date
Granted | Expiry
Date
|---------------- | ---------- | ----------------------------- | -------------- | ------------ | -----------
|Gordon J. Sales  | Off/Dir    | 400,000                       | CDN$0.68       | Oct 29/01    | Oct 29/06  
|Gordon J. Sales  | Off/Dir    | 400,000                       | US$0.20        | Sep30/03     | Sep18/08   
|Lana Bea Turner  | Officer    | 90,000                        | CDN$0.68       | Oct 29/01    | Oct 29/06  
|Geoffrey Caine   | Director   | 100,000                       | CDN$0.68       | Oct 29/01    | Oct 29/06  
|Geoffrey Caine   | Director   | 200,000                       | US$0.20        | Sep30/03     | Sep18/08   
|Richard J. Ivy   | Director   | 50,000                        | CDN$0.68       | Oct 29/01    | Oct 29/06  
|Richard J. Ivy   | Director   | 50,000                        | CDN$1.08       | Oct 29/01    | Aug13/06   
|Richard J. Ivy   | Director   | 300,000                       | US$0.20        | Sep30/03     | Sep18/08   
|Edward J. Nunn   | Officer    | 150,000                       | CDN$0.68       | Oct 29/01    | Oct 29/06  
|Edward J. Nunn   | Officer    | 300,000                       | US$0.20        | Sep30/03     | Sep18/08   
|Paul Boucher     | Consultant | 25,000                        | CDN$0.68       | Oct 29/01    | Oct 29/06  
|Vic Learmonth    | Employee   | 50,000                        | CDN$0.68       | Oct 29/01    | Oct 29/06  
|Vic Learmonth    | Employee   | 190,000                       | US$0.20        | Sep30/03     | Sep18/08   
|Sheila Street    | Employee   | 50,000                        | CDN$0.68       | Oct 29/01    | Oct 29/06  



Notes:

(1)

These figures do not include options that have been exercised prior to January 31, 2005.



The following persons exercised options during the fiscal year ended August 31, 2004:



|Name             | Amount of Options Exercised | Proceeds to the Company | Date of Exercise
|---------------- | --------------------------- | ----------------------- | ----------------
|Pro Matrix Corp. | 100,000                     | US$20,000               | 12/18/03        
|John Geisler     | 100,000                     | US$20,000               | 01/09/04        
|Gordon Sales     | 200,000                     | US$40,000               | 02/06/04        
|Lana Turner      | 100,000                     | US$20,000               | 02/06/04        



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59

|John Geisler              | 300,000   | US$60,000   | 02/06/04
|------------------------- | --------- | ----------- | --------
|Edward Nunn               | 50,000    | CDN$34,000  | 02/18/04
|Gordon Sales              | 150,000   | US$30,000   | 02/18/04
|Ernest Resources Ltd. (1) | 25,000    | US$5,000    | 02/24/04
|Ernest Resources Ltd. (1) | 75,000    | US$15,000   | 03/03/04
|Gordon Sales              | 150,000   | US$30,000   | 04/21/04
|Brian Wear                | 2,000,000 | (2)         | 07/09/04
|Pro Matrix Corp.          | 100,000   | US$20,000   | 08/17/04
|Pro Matrix Corp.          | 55,000    | US$1,000(3) | 08/25/04
|Victor Learmonth          | 10,000    | US$2,000    | 09/24/04



(1)

Ernst Resources Ltd. is controlled by Mr. Barrett Sleeman, a former director of the Company who resigned on February 24, 2004.  All of the other options that were held by Ernest Resources Ltd. have now expired in accordance with the terms of the stock option agreement.

(2)

Mr. Brian Wear decided to use the alternative payment method in his stock option agreement which allowed him to surrender for cancellation and return to treasury 2,000,000 restricted shares of common stock of the Company as payment for the 2,000,000 shares received from the exercise of options.

(3)

Pro Matrix Corp. decided to use the net exercise provision in its stock option agreement which allowed it to surrender 50,000 stock options in order to receive 50,000 shares from the exercise of a total of 100,000 stock options.  In addition, Pro Matrix Corp. paid $1,000 for the exercise of an additional 5,000 stock options to receive 5,000 shares.



As at January 31, 2005, there were a total of 2,355,000 shares issuable pursuant to stock options outstanding.



Defined Benefit Plans



The Company does not have, and at no time during its most recently completed financial year had, any defined benefit or actuarial plans in respect of which any of its Named Executive Officers were eligible to participate.





Compensation of the Companys Directors



For the Companys most recently completed fiscal year:



(a)

no compensation of any kind was accrued, owing or paid to any of the Companys current Directors for acting in their capacity as such;



(b)

no arrangements of any kind existed with respect to the payment of compensation of any kind to any of the Companys current Directors for acting in their capacity as such;



(c)

no compensation of any kind was accrued, owing or paid to any of the Companys current Directors for services rendered to the Company as consultants or experts;

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60

(d)

no arrangements of any kind existed with respect to the payment of compensation of any kind to any of the Companys current Directors for services rendered, or proposed to be rendered, to the Company as consultants or experts;



(e)

no SARs or LTIPs were outstanding or in effect in favour of any of the Companys Directors; and



(f)

there were Options which were outstanding and in favour of certain Directors of the Company who are not also Named Executive Officers of the Company as set out in the options table above.



No directors have received any compensation other than option grants and travelling expenses.





C.

Board Practices



The Board of Directors meet quarterly to set policy and review the progress as well as review and approve budgets and expenditures.



The Company



The following is a list of the appointment dates of the current Directors and Executive Officers of the Company:



|Director and Officer | Position with the Company                                                                                     
|-------------------- | --------------------------------------------------------------------------------------------------------------
|Gordon Sales         | President, CEO and a Director appointed on December 9, 2000 as President and October 18, 1998 as Director.    
|Brian Wear           | Senior Vice President, COO and a Director appointed on April 29, 2004                                         
|Geoffrey R. Caine    | Director appointed on January 18, 1996.                                                                       
|Alexander Cox        | Director appointed on February 24, 2004                                                                       
|Richard Ivy          | Director appointed on July 4, 2001.                                                                           
|Edward J. Nunn       | Vice President  Operations appointed on September 30, 2003                                                   
|Lana Bea Turner      | Secretary appointed on March 3, 2000 and CFO appointed on July 19, 2002.  Resigned as CFO on January 31, 2004.
|Bernie Zacharias     | CFO appointed on January 13, 2004                                                                             



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61

The Directors of the Company are elected by the shareholders at each annual general meeting of the Company, or, in the event of a vacancy, they are appointed by the Board of Directors then in office, to serve until the next annual general meeting of the Company or until their successors are elected and ratified.



The Companys executive officers are appointed by the Board of Directors and serve at the discretion of the Board of Directors.





D.

Employees



The Company has the following eight full-time employees as of August 31, 2004:



Mr. Gordon J. Salesis the Companys President, CEO and a Director and is responsible for the overall management and administration of the Company.



Mr. Brian C. Wearis the Companys Sr. Vice President, COO and a Director and is responsible for the overall management and administration of the Companys subsidiary, Canada Pumice Corporation.



Mr. Edward J. Nunnis the Companys Vice President  Operations and General Manager and  is responsible for the production of the quarry and plant on our graphite deposit as well as assist the President in the overall management, administration, and growth of the Company.



Mr. John H.P. Geisler, is responsible for corporate marketing functions, including all aspects of strategic planning, acquisitions, and working with the financial community.



Ms. Lana Bea Turner, is the Companys Office Manager, Bookkeeper and is in charge of corporate filings and receptionist services for the Company.



Mr. Victor B. Learmonth, is the Surface Superintendent who is responsible as the front-line supervision to the labourers and contractors.  Mr. Learmonth is a qualified automotive technician, equipment operator, welder and machinist with over 25 years of experience in his own businesses.  Mr. Learmonth oversees the operations at the graphite beneficiation plant and the quarry site and is directly involved in the construction and logistical design of all surface operations.



Sheila Street, B.Sc is the Supervisor of Environment, Quality Control & TechnicalServices.  Ms. Street has overseen the environmental assessment of the Black Crystal Graphite Project and is in charge of graphite quality and product control.  She is also responsible for regulatory permitting and certification for the project.  Ms. Street has been involved in many mine assessment and remediation projects and worked closely with First Nations, Community and Regulatory groups.  Past experience includes environmental consulting work for the Diavik and Ekati diamond mines in the NWT.  She is presently on maternity leave and works on an on-call basis.



Steve Cameron is the Surface Superintendent for Canada Pumice Corporation.  Mr. Cameron is a qualified Heavy Equipment Operator and Class 1 Truck Driver,



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62

with over 27 years of experience in heavy industry as an employee and being self-employed.  Mr. Cameron, who has seven years supervisory experience, oversees the operations at the CPC Nazko and Quesnel quarry sites.



In addition to these employees, the Company also has a metallurgist and geologist engineer that it regularly uses as consultants on an as needed basis.



E.

Share Ownership



Directors and Officers



The share ownership in the Company held directly or indirectly by the Directors and Executive Officers of the Company are as indicated in the table below:

|Name              | Office                                               | Number of
Shares (1)
|----------------- | ---------------------------------------------------- | --------------------
|Gordon Sales      | President, CEO and a Director                        | 1,213,158           
|Brian Wear        | Vice President, Chief Operating Officer and Director | 15,345,000          
|Geoffrey R. Caine | Director                                             | 358,187             
|Alexander Cox     | Director                                             | 2,000,000           
|Richard Ivy       | Director                                             | Nil                 
|Lana Bea Turner   | Secretary                                            | 66,665              
|Bernie Zacharias  | CFO                                                  | Nil                 
|Edward Nunn       | General Manager
Vice President  Operations          | 44,975              



Note:

|(1) | These figures are as of February 18, 2004.
|--- | ------------------------------------------



As a group the Directors and Executive Officers of the Company hold 19,027,985 common shares; which is 42.87% of the total amount of issued and outstanding common shares of the Company (see the section captioned Options hereinbelow for a detailed



---

63

description of any and all Options held by the Directors and Executive Officers in and to the Company.)





Public and Insider Ownership



As at August 31, 2004, the Directors, Officers and insiders of the Company hold an aggregate of 19,027,985 common shares of the Company on a non-fully diluted basis, being 42.87% of the then issued and outstanding common shares of the Company, as opposed to the public owning an aggregate of 25,355,696 common shares of the Company, or 57.13% of the then issued and outstanding common shares of the Company, assuming that no outstanding Warrants to acquire common shares of the Company are exercised.



ITEM 7  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS



A.

Major Shareholders



To the knowledge of management of the Company, as at August 31, 2004 the following beneficially own directly or indirectly, or exercise control or direction, over common shares carrying 5% or more of the voting rights attached to any class of voting securities of the Company:



|Member                      | Number of Common Shares | Percentage of CommonShares
|--------------------------- | ----------------------- | --------------------------
|Brian Wear                  | 15,345,000              | 34,55%                    
|CDS & Co.(1)                | 12,583,047(2)           | 28.33%                    
|KAK Investments Inc. (2)(3) | 11,365,541              | 25.59%                    



Notes:



(1)

The Company is informed that this shareholder is a share depository, the beneficial ownership of which is unknown to the Company.

(2)

This information was supplied to the Company by the Companys registrar and transfer agent, Pacific Corporate Trust Company.

(3)

As of November 4, 2002, the trustee in bankruptcy for Evergreen Securities Ltd. became the legal and beneficial owner of the shares of common stock of the Company held in the name of KAK Investments, Inc.



All the shareholders of the Company have the same voting rights.



To the best of the Companys knowledge, the Company is not owned or controlled, directly or indirectly, by another corporation or by any foreign government.

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64

To the best of the Companys knowledge, there are no arrangements, the operation of which at a subsequent date will result in a change in control of the Company other than as stated in this Annual Report.



As at January 14, 2005, there were 167 registered shareholders of record, of which 81 registered shareholders were resident of the United States.



B.

Related Party Transactions



Demand Debenture



By a loan agreement dated 25 September 2003, the Company secured financing in the form of a demand debenture for an amount of $1,000,000 from an Alexander Cox, (who subsequently became a director of the Company on 24 February 2004), of which $150,000 was set up as an interest reserve to service the monthly interest instalments.  The debenture bore interest at a rate of 15% per annum, compounded monthly, and was repayable on 26 September 2004.  The Company paid a non-refundable application fee of $10,000 and issued 500,000 common shares of the Company valued at $135,500 to the lender as a non-refundable commitment and funding fee.



By a loan agreement dated 7 May 2004, the Company secured additional financing in the form of a demand debenture by cancelling the first debenture for a new debenture in the amount of $4,000,000, from Alexander Cox, of which $600,000 was set up as an interest reserve to service the monthly interest instalments.  The debenture bears interest at a rate of 15% per annum, compounded monthly, and is repayable on 7 May 2005.  The Company paid a non-refundable application fee of $20,000 and issued 1,500,000 common shares of the Company valued at $900,000 to the lender as a non-refundable commitment and funding fee for the new debenture.  The Company also paid a three-month interest penalty of $37,500 as a result of the early redemption of the first debenture.  The new debenture provides for a first registered charge on the land and a general first floating charge on all other assets of the Company.  The application fee, the commitment and funding fee and the interest penalty have been recorded towards the acquisition of CPC as it was this funding that enabled the acquisition to complete.



Details of the demand debenture and interest reserve account as at 31 August 2004 are as follows:



|Proceeds from demand debenture                 | $ | 4,000,000
|---------------------------------------------- | - | ---------
|Balance of interest reserve held by the lender |   | (410,640)
|                                               | $ | 3,589,360



The Company may elect to extend the term of the debenture for a further twelve months at the option of the Lender.  The Company can pay off the debenture prior to the due date, in whole or part, subject to a three-month interest penalty.  If the Company secures new financing, 25% of the net proceeds shall be applied to the debenture.



During the year the Company paid $284,679 in interest on the two debentures in addition to the fees and penalties mentioned above.  During the same period the Company earned $4,522 on the monies held in the interest reserve account.



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65

Convertible Debenture



During the year, the Company issued 5,000 bonus shares to Edward Nunn and 5,000 bonus shares to Colleen Sales, a relative of a director, for loan arrangements with the Company at a price of $0.271 per share.



During the year, 39,975 units were issued to Edward Nunn and 39,975 units were issued to Colleen Sales for conversion of debentures.



Private Placement



Effective 30 September 2003, the Company issued 256,458 units to Gordon Sales, 357,535 units to Geoffrey Caine and 166,052 to Colleen Sales by private placement for gross proceeds of $211,392.  Each unit consists of one common share and one share purchase warrant.  Each warrant entitles the holder to purchase one additional common share of the Company at a purchase price of US$0.25 for a two-year period expiring 20 October 2005.



Stock Options



On 18 September 2003, the Company granted 2,575,000 share-purchase stock options to directors, officers and employees and are exercisable at a price of US$0.20 per share for a 5-year period expiring 18 September 2008.  For employees and directors, the stock option grant results in a compensation expense of $226,598, which has been recorded in wages and benefits.



On 28 April 2004, the Company granted 2,000,000 share-purchase stock options to Brian Wear, the former principal of CPC, as part of the new management agreement.  The options granted are exercisable at a price of $0.45 per share for a 5-year period expiring 28 April 2009.  The stock option grant results in a compensation expense of $738,086, which has been recorded in wages and benefits.



Amounts due from Related Parties



On 28 April 2004 in conjunction with the CPC acquisition, the Company loaned Brian Wear $263,000.  The loan is non-interest bearing, secured by 355,500 escrow shares of the Company and due after 1 October 2005.  If there is a default on the loan, the Companys only recourse is to keep the shares held in escrow.  As at 31 August 2004, the market value of the escrow shares is $202,635.



Amounts due to Related Parties



As at 31 August 2004, $37,606 (2003  $nil) is payable to Brian Wear.  The amounts are non-interest bearing, unsecured and due on demand.



During the year, the Company utilized certain personal credit cards of Brian Wear for a source of additional short term financing.  The Company has disclosed the balance owing from cash advances as at 31 August 2004 in the amount of $54,543 as line of credit under current assets.  The interest rates range from 3.99% to 14.25%.  The monthly minimum repayments range from approximately 1% of principal plus interest to 2% of principal plus interest.

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66



Expenditures paid to Related Parties



During the year, fees for marketing services in the amount of $43,307 (2003 - $93,864; 2002 - $91,621) were paid to United Mineral Resources, a company controlled by Richard Ivy, a director of the Company.



During the year, rent in the amount of $35,500 (2003 - $nil; 2002 - $nil) was paid to Brian Wear or a company controlled by Brian Wear, in respect of the CPC operations.



During the year, management wages were paid or accrued to directors and officers as follows:



Gordon Sales132,000Lana Turner49,920Edward Nunn104,000Brian Wear60,000




During the year, wages of $120,000 (2003 - $15,000; 2002 - $nil) were paid or accrued to John Geisler for corporate development.



During the year, interest of
$2,500 was paid or accrued to Edward Nunn and $2,500 was paid or accrued to Colleen Sales.



Commitments



a)

By agreement dated 30 April 2004, the Company entered into a ten-year Ground and Equipment Lease with 530526 BC Ltd., a company controlled by Brian Wear.  The annual minimum basic rent payments are $82,500 triple net, payable in equal monthly installments of $6,875.  This agreement is renewable for three additional terms of ten years with mutual consent on the same terms and conditions as the original term, except for the amount of annual basic rent payable, which will be adjusted to fair market value.



In addition to the basic rent, the Company is responsible for its proportionate share of property taxes and operating costs.



b)

By agreement dated 28 April 2004, the Company entered into a five-year Management Agreement with Brian Wear.  Compensation is a base fee of $15,000 per month plus incentive fees as determined by the board.  The Company is also required to obtain disability and life insurance as outlined in the agreement.  This agreement will renew automatically for subsequent two-year periods on the same terms and conditions as the original term.  The Company may terminate the agreement at the end of a term with 90 days notice.  Commencing on the first anniversary of this agreement, if the agreement is terminated, there shall be a termination fee equal to the sum of:



-

extension of any outstanding stock options for a period of one year after termination; plus

-

the greater of:

i.

the aggregate remaining base fee for the unexpired remainder of the term; or



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67

ii.

Six months of base fee plus one month of base fee for each year, or portion thereof served.





C.

Interests of Experts and Counsel



This section is not applicable to the Company.



ITEM 8  FINANCIAL INFORMATION



A.

Financial Statements and other Financial Information



The audited financial statements for the Company for the fiscal years ending August 31, 2004, and 2003 form a material part of this Annual Report.  See Item 19 hereinbelow.



B.

Significant Changes



On April 28, 2004, the Company finalized the acquisition of Canada Pumice Corporation (CPC), initially announced as under negotiation by the news release dated March 8, 2004.  CPC is now a wholly owned subsidiary of the Company by the acquisition of 100% of the issued and outstanding shares of CPC from Mr. Brian Wear in exchange for 15,345,000 shares of the Company.  As a result of the acquisition, the Company is now in the market for various pumice products mined from its Nazko Cone property located in the proximity of Quesnel, British Columbia.



ITEM 9  THE OFFERING AND LISTING



A.

Offer and Listing Details



This Annual Report does not relate to any offering of the Companys shares.



The following table indicates the annual high and low market prices for the five most recent financial years:



|Year    | Annual High   | Annual Low   
|------- | ------------- | -------------
|2004    | US$0.65       | US$0.32      
|2003(1) | US$0.70       | US$0.14      
|2002(2) | Not Available | Not Available
|2001    | $1.70         | $0.85        
|2000    | $1.85         | $0.25        



|Notes: |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)    | The Company commenced trading on the OTCBB on March 31, 2003, and commenced trading on the CNQ on February 9, 2004.                                                                                                                                                                                                                                                                                                                                                              
|(2)    | The Companys shares were cease traded by the British Columbia Securities Commission on January 25, 2002, for failure to timely file its financial statements.  At the Companys annual general meeting on April 25, 2002, the shareholders agreed to not seek reinstatement of the Companys shares on the TSX Venture Exchange at the Board of Directors discretion.  Effective on October 18, 2002, the Company voluntarily delisted its shares from the TSX Venture Exchange.

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The following table indicates the high and low market prices for each full financial quarter for the two most recent full financial years:



|Quarter
Ended    | High          | Low          
|---------------- | ------------- | -------------
|Aug. 31, 2004(1) | US$0.55       | US$0.42      
|May 31, 2004(1)  | US$0.53       | US$0.42      
|Feb. 29, 2004(1) | US$0.58       | US$0.40      
|Nov. 30, 2003(1) | US$0.49       | US$0.40      
|Aug. 31, 2003(1) | US$0.50       | US$0.15      
|May 31, 2003(1)  | US$0.70       | US$0.20      
|Feb. 28, 2003    | Not Available | Not Available
|Nov. 30, 2002    | Not Available | Not Available



|Notes: |                                                                                                                    
|------ | -------------------------------------------------------------------------------------------------------------------
|(1)    | The Company commenced trading on the OTCBB on March 31, 2003, and commenced trading on the CNQ on February 9, 2004.



The Companys shares have been listed and posted for trading on the OTCBB since March 31, 2003.



B.

Plan of Distribution



This Annual Report does not relate to any offering of the Companys shares.  Therefore, this section is not applicable to the Company.



C.

Markets



The Companys securities have been trading on the U.S. OTC Bulletin Board since March 31, 2003, and on the CNQ since February 9, 2004. The Companys shares were traded on the TSX Venture Exchange (the TSX-V) until January 25, 2002, at which time the Companys securities were cease traded from the TSX-V for failure to timely file its financial statements.  At the Companys annual general meeting on April 25, 2002, the shareholders agreed to not seek reinstatement of the Companys shares on the TSX-V at the Board of Directors discretion.  Effective on October 18, 2002, the Company voluntarily delisted its shares from the TSX-V.  In addition, the Companys share were listed for trading on the OTC Bulletin Board from March 21, 2000 to April 5, 2001 at which time the securities were delisted from the OTC Bulletin Board for failure to comply with the SEC reporting requirements due to the Companys failure to timely file its Annual Report for the fiscal year ending August 31, 2000.



D.

Selling Shareholders



This Annual Report does not relate to any offering of the Companys shares.  Therefore, this section is not applicable to the Company.

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69

E.

Dilution



This Annual Report does not relate to any offering of the Companys shares.  Therefore, this section is not applicable to the Company.



F.

Expenses of the Issue



This Annual Report does not relate to any offering of the Companys shares.  Therefore, this section is not applicable to the Company.



ITEM 10  ADDITIONAL INFORMATION



A.

Share Capital



This section is not applicable to the Company as this is an Annual Report.



B.

Memorandum and Articles of Association



Disclosure of Interest of Directors



A Director of the Company who is a party to a material contract or proposed material contract with the Company, or is a director of, or has a material interest in, any person who is a party to a material contract or proposed material contract with the Company shall disclose the nature and extent of his interest at the time and in the manner provided in the Company Act(British Columbia) (herein, only, the Act).  Except as provided in the Act, no such Director or Officer of the Company shall vote on any resolution to approve such contracts but each such director may be counted to determine the presence of a quorum at the meeting of Directors where such vote is being taken if provided for in the Articles of Association.



The Companys Articles of Association provide as follows:



11.5

A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract or transaction with the Company shall disclose the nature and extent of his interest at a meeting of the directors in accordance with the provisions of the Companies Act.  A director may vote in respect of any such contract or transaction with the Company in which he is interested and he shall be counted in the quorum present at the meeting at which such vote is taken if he attends such meeting whether or nor he votes.



Shareholdings of Directors



The Companys Articles of Association provide as follows:



11.3

A director shall not be required to have any share qualification but any person not being a member of the Company who becomes a director shall be deemed to have agreed to be bound by the provisions of the Articles to the same extent as if he were a member of the Company.



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Rights, Preferences and Restrictions attaching to each class of shares



The common shares of the Company contain all the rights which include:



(a)

the right to vote at any meeting of shareholders;



(b)

the right to receive any dividend declared by the Company; and



(c)

the right to receive the remaining property of the Company on dissolution.



There are no restrictions on the transfer of the Companys common shares.



Changing the Rights of Holders of the Companys Stock



In order to change the rights of holders of the Companys stock, the shareholders of that class of the Companys stock must pass a special resolution by a majority of not less than three-quarters (3/4s) of the votes cast by the shareholders who voted in respect of that resolution or signed by all the shareholders entitled to vote on that resolution.



Annual General Meetings and Extraordinary General Meetings



Annual General Meeting



Subject to the provisions of Section 146 of the Act, the annual general meeting of the shareholders shall be held on such day in each year and at such time as the Board of Directors may determine at any place within British Columbia, or at a place out of British Columbia the Registrar of Companies for British Columbia, on application made to the Registrar of Companies by a company, approves.



Notice



Subject to the provisions of Sections 143 of the Act, the Companys Articles of Association provide as follows:



8.3

Not less than 21 days notice of any general meeting specifying the time and place of meeting and in case of special business, the general nature of that business shall be given in the manner mentioned in Part 18 hereof, or in such other manner, if any, as may be prescribed by ordinary resolution whether previous notice thereof has been given or not, to any person as may by law or under these Articles or other regulations of the Company entitled to receive such notice from the Company.  But the accidental omission to give notice of any meeting to, or the non-receipt of any such notice by, any of such persons shall not invalidate any proceedings at that meeting.



8.4

Persons entitled to notice of a general meeting may waive or reduce the period of notice convening the meeting by unanimous consent in writing, and may give such waiver before, during or after the meeting.



8.5

Where any special business includes the presenting, considering, approving, ratifying or authorizing of the execution of any document, then the portion of any notice relating to such document shall be sufficient if the same



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71

states that a copy of the document or proposed document is or will be available for inspection by members at a place in the Province of British Columbia specified in such notice during specified business hours in any specified working day or days prior to the date of the meeting.



Quorum



Subject to the provisions of Section 144 of the Act, the Companys Articles of Association provide as follows:



9.2

Save as otherwise herein provided a quorum for a general meeting shall be one member or a proxyholder representing one member personally present at the commencement of the meeting and holding or representing by proxy not less than one of the issued shares of a class of shares the holders of which are entitled to attend and to vote at such meeting."



Limitations on the right to own securities



There are no limits on the rights of non-residents or foreign shareholders to hold or exercise voting rights on the securities.



C.

Material Contracts



During the preceding two years, the Company entered into the following material contracts:



1.

Share Purchase Agreement  Phase I  dated March 3, 2004 among the Company, Canada Pumice Corporation (CPC) and Brian C. Wear (Wear), pursuant to which the Company acquired 92 of the 2000 issued shares of CPC, which 92 shares are owned by Wear, in consideration for $522,514 which was fully satisfied and paid by the delivery by the Company to Wear of 706,100 common shares of the Company (each at a deemed price of CDN$0.74/share).  The purchase and sale of these shares was completed on April 28, 2004.



2.

Share Purchase Agreement  Phase II  dated March 3, 2004 among the Company, CPC and Wear, pursuant to which the Company acquired 1908 of the 2000 issued shares of CPC, which 1908 shares are owned by Wear, in consideration for $10,832,786 which was fully satisfied and paid by the delivery by the Company to Wear of 14,638,900 common shares of the Company (each at a deemed price of CDN$0.74/share).  The purchase and sale of these shares was completed on April 29, 2004.



Upon completion of the Phase II agreement, the Company became the 100% owner of CPC.



3.

Loan, Pledge and Share Escrow Agreement dated April 28, 2004 between Wear (being the pledgor) and the Company (being the lender), pursuant to which the Company lent Wear $263,000 on a limited recourse loan, with the only recourse being against 355,500 shares of the Company owned by





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72

Wear which Wear delivered into escrow and pledged to the Company a security interest in the said shares as to all and any interest, residual, option or otherwise in the said shares.  The loan is due on demand after 4:00 pm on October 1, 2005, with such date being accelerate din the event of default of the agreement by Wear.  The loan does not bear interest.  In the event Wear does not make payment of the loan, the Companys only recourse for recovery is to exercise the pledge, take ownership of the shares related thereto and to realize proceeds from the sale of the shares.



4.

Management Agreement dated April 28, 2004, between the Company and Wear, pursuant to which the Company employed Wear as Vice-President and Chief Operating Officer of the Company for a term of five years commencing April 28, 2004 and terminating April 28, 2009.  The contract may be renewed automatically for subsequent two-year periods if not specifically terminated prior thereto.  Compensation payable to Wear is a base fee of $15,000 per month.  Wear will be reimbursed for expenses incurred on behalf of the Company.  Additional payment in the way of bonuses or other compensation may be paid at the absolute discretion of the Company.  The base fee will be reviewed on each anniversary date of the agreement.  In addition, Wear will receive an incentive fee which will be established by the Board of Directors.  Pursuant to the agreement, Wear is entitled to participate in and receive benefits from all life insurance, pension plans, medical insurance and similar benefits made available generally to staff of the Company.  The Company has agreed to purchase and pay the costs of full disability and life insurance policies for Wear.  On execution of the agreement, Wear also received options for 2,000,000 shares of the Company, which options are exercisable for the term of the management agreement.  Commencing on April 28, 2005, if the agreement is terminated for other than cause or failure to cure a breach of the agreement, a termination fee will be payable to Wear in such amount as is the greater of: (i)  the aggregate remaining base fee for the unexpired remainder of the term; or (ii) six months of base fee plus one month of base fee for each year, or portion thereof served.  In addition, the expiry period for any outstanding stock options will be extended for a period of one year after termination.



5.

Ground and Equipment Lease dated April 30, 2004, between the Company and 530526 BC Ltd., a company controlled by a director and officer, pursuant to which the Company is leasing land and equipment for annual minimum basic rent payments are $82,500 triple net, payable in equal monthly instalments of $6,875.  This agreement is renewable for three additional terms of ten years with mutual consent on the same terms and conditions as the original term, except for the amount of annual basic rent payable.  In addition to the basic rent, the Company is responsible for its proportionate share of property taxes and operating costs.



6.

Graphite Mineral Property Agreement dated August 18, 2004, between Bao Zi Wan County Government and the Company, pursuant to which the Company acquired the right to mine, process and market all graphite and tailings at the Da Tong DeSheng graphite plant and property.  A formal



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lease agreement is subject to satisfactory due diligence and Board approval of the Company.



7.

Agreement in Principle dated November 1, 2004, between the Company and Beijing XinLong Corporation for the proposed marketing of XinLongs geofabric products y CPC to Canadian, United States, Mexican and European markets.



8.

Agreement in Principle dated November 1, 2004, between the Company and Clay Industiral Minerals, Ltd. for the proposed marketing of Clays VOLROCK (bentonite) products by CPC to Canadian and United States markets.



9.

Agreement in Principle dated November 1, 2004, between the Company and Tri-star Activated Carbon Corporation whereby Tri-star agrees: (i) to allow CPC to be the exclusive and sole distributor of all its activated carbon products into the Canadian market, and (ii) to exclusively allow CPC to market its products into the Untied States market via Canada.



10.

Amended Share Purchase Agreement  Phase I  dated December 30, 2004 and having an effective date of March 3, 2004, among the Company, CPC and Wear, pursuant to which the original agreement was amended to reflect a deemed issuance price per share of CDN$0.45 instead of CDN$0.74.



11.

Amended Share Purchase Agreement  Phase II  dated December 30, 2004 and having an effective date of March 3, 2004, among the Company, CPC and Wear, pursuant to which the original agreement was amended to reflect a deemed issuance price per share of CDN$0.45 instead of CDN$0.74.





D.

Exchange Controls



There is no law or government decree of regulation in Canada that restricts the export or import of capital, or that affects the remittance of dividends, interest or other payments to a non-resident holder of common shares, other than withholding tax requirements.  See the section captioned Taxation hereinbelow.



There is no limitation imposed by Canadian law or by the Articles of Association or other charter documents of the Company on the right of a non-resident to hold or vote common shares of the Company, other than as provided in the Investment Canada Act (Canada), as amended (the Investment Act).



The Investment Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is a non-Canadian as defined in the Investment Act, unless, after review the Minister responsible for the Investment Act is satisfied that the investment is likely to be of net benefit to Canada.  If an investment by a non-Canadian is not a reviewable investment, it nevertheless requires the filing of a short notice which may be given at any time up to 30 days after the implementation of the investment.



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74



An investment in common shares of the Company by a non-Canadian that is a WTO investor (an individual or other entity that is a national of, or has the right of permanent residence in, a member of the World Trade Organization, current members of which include the European Community, Germany, Japan, Mexico, the United Kingdom and the United States, or a WTO investor-controlled entity, as defined in the Investment Act) would be reviewable under the Investment Act if it were an investment to acquire direct control, through a purchase of assets or voting interests, of the Company and the value of the assets of the Company equalled or exceeded $218 million, the threshold established for 2001, as indicated on the financial statements of the Company for its fiscal year immediately preceding the implementation of the investment. In subsequent years, such threshold amount may be increased or decreased in accordance with the provisions of the Investment Act.



An investment in common shares of the Company by a non-Canadian, other than a WTO investor, would be reviewable under the Investment Act if it were an investment to acquire direct control of the Company and the value of the assets were $5.0 million or more, as indicated on the financial statements of the Company for its fiscal year immediately preceding the implementation of the investment.



A non-Canadian, whether a WTO investor or otherwise, would acquire control of the Company for the purposes of the Investment Act if he, she or it acquired a majority of the common shares of the Company or acquired all or substantially all of the assets used in conjunction with the Companys business. The acquisition of less than a majority, but one-third or more of the common shares of the Company, would be presumed to be an acquisition of control of the Company unless it could be established that the Company was not controlled in fact by the acquirer through the ownership of the common shares.



The Investment Act would not apply to certain transactions in relation to common shares of the Company, including:



(a)

an acquisition of common shares of the Company by any person if the acquisition were made in the ordinary course of that persons business as a trader or dealer in securities;



(b)

an acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Act; and



(c)

an acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Company, through the ownership of voting interests, remains unchanged.



E.

Taxation



The following comments summarize the material Canadian Federal Income Tax consequences for a shareholder of the Company who is a non-resident of Canada and was not previously a resident of Canada and who is a resident of the United States for income tax purposes.  These comments are intended to provide only a brief outline and are not a



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75

substitute for advice from a shareholders own tax advisor for the specific tax consequences to them as a result of their individual circumstances.  They do not anticipate statutory or regulatory amendments.



The provisions of the Income Tax Act (Canada), as amended (the Tax Act) are subject to income tax treaties to which Canada is a party, including the Canada-United States Income Tax Convention, 1980 (the Convention).



Under Article X of the Convention, dividends paid by Canadian corporations to non-resident U.S. shareholders are subject to a withholding tax of 15%.  The rate of withholding tax on dividends is reduced to 5% if the beneficial owner is a U.S. company, which owns at least 10% of the voting stock of the company paying the dividend.



A U.S. shareholder is not subject to tax under the Tax Act in respect of a capital gain realized on the disposition of a common share in the open market unless the share is taxable Canadian property to the shareholder thereof and the U.S. shareholder is not entitled to relief under the Convention.



A common share will be taxable Canadian property to a U.S. shareholder if, at any time during the 60 month period ending at the time of disposition, the U.S. shareholder or persons with whom the U.S. shareholder did not deal at arms length owned, or had options, warrants or other rights to acquire, 25% or more of the Registrants issued shares of any class or series.  In the case of a U.S. shareholder to whom common shares represent taxable Canadian property, tax under the Tax Act may be payable on a capital gain realized on a disposition of such shares in the open market.



The Convention gives protection to United States residents from Canadian tax on certain benefits derived from the alienation of property.  There is no protection for a gain on a disposition of shares the value of which is derived principally from real property in Canada.  The Companys operations are such that the Company does not intend to hold real property in Canada.



Revenue Canada has indicated that it considers the protection of the Convention with respect to capital gains extend to a deemed disposition under the Tax Act, including the deemed disposition arising from the death of a taxpayer.



The reader should be aware that the Company could be considered as a passive foreign investment company for United States federal income tax purposes.  Under section 1296 of the Internal Revenue Code of the United States, a foreign corporation is treated as a passive foreign investment company (a PFIC) if it earns 75% or more of its gross income from passive sources or if 50% or more of the value of its assets produce passive income.



Because the Company may have been a PFIC for its year ending August 31, 2002, and may have been a PFIC for some of its fiscal years ending before that date, each U.S. shareholder of the Company should consult a tax advisor with respect to how the PFIC rules may affect such shareholders tax situation.  In particular, a U.S. shareholder should determine whether such shareholder should elect to have the Company be treated as a Qualified Electing Fund in the event the Company is a PFIC.  This might avoid adverse U.S. federal income tax consequences that may otherwise result from the Company should it be treated as a PFIC.

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F.

Dividends and Paying Agents



This section is not applicable to the Company as this is an Annual Report.



G.

Statement by Experts



This section is not applicable to the Company as this is an Annual Report.



H.

Documents on Display



The above contracts respecting the Company may be inspected at the registered and records offices for the Company in the Province of British Columbia, located at Suite 2550, 555 West Hastings Street, Vancouver, British Columbia, V6B 4N5 for a period of 30 days following the filing of this Annual Report.



I.

Subsidiary Information



On April 28, 2004, the Company acquired Canada Pumice Corporation (CPC) and its two inactive subsidiaries, Volcanic & Industrial Minerals Inc. and Cariboo Lava Corp., which resulted in CPC becoming a wholly owned subsidiary of the Company.





ITEM 11  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK



The Company currently has no revenues.  All of the Companys expenditures are in Canada, and accordingly the Canadian dollar is the functional currency.  The Companys financial instruments are comprised of trade accounts receivables and payables which are subject to normal credit risks.





ITEM 12  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES



A.

Debt Securities



This section is not applicable to the Company as this is an Annual Report.



B.

Warrants and Rights



This section is not applicable to the Company as this is an Annual Report.



C.

Other Securities



This section is not applicable to the Company as this is an Annual Report.



D.

American Depositary Shares



This section is not applicable to the Company as this is an Annual Report.





---

77



PART II



ITEM 13  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES



Not applicable.



ITEM 14  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS



This Annual Report does not relate to any offering of the Companys securities.  Therefore, this section is not applicable to the Company.



ITEM 17  FINANCIAL STATEMENTS



Differences Between United States and Canadian Generally Accepted Accounting Principles (GAAP)



These financial statements are prepared in accordance with accounting principles generally accepted in Canada.  Except as set out below, these financial statements comply, in all material aspects, with accounting principles generally accepted in the United States and the rules and regulations of the Securities Exchange Commission.  The significant differences between Canadian and U.S. GAAP are as follows:



(i)

Under Canadian GAAP, the mineral properties are carried at cost and written off or written down if the properties are abandoned, sold or if management decides not to pursue the properties. Under U.S. GAAP, the company would periodically review and obtain independent reports in determining adjustments to the mineral properties and record properties at net realizable value. The company has not yet obtained an independent report for U.S. GAAP purposes, therefore, the companys mineral property costs have been written off in this note to the financial statements.



(ii)

Under Canadian GAAP, the company was not required to record the effect of non-employee stock option based compensation expense in the financial statements until 1 September 2002.  Under U.S. GAAP, stock compensation expense is recorded for non-employees based upon the fair market value at the date the option granted.  The effect of this difference for the year ended 31 August 2002 and prior is noted below.  Commencing on 1 September 2002, Canadian GAAP treatment is consistent with U.S. GAAP.



(iii)

Under U.S. GAAP, investments held for re-sale are recorded at market value.  The difference between the market value and the cost of the investment is recorded as a separate shareholder equity category named comprehensive income.  Once the investment is sold, the comprehensive income for that investment is cleared out to income.  Under Canadian GAAP, investments held for re-sale are recorded at the lower of cost or market.  There is no comprehensive income category in Canada.



---

78

The audited balance sheet of the Company as at August 31, 2004 and 2003, the statements of shareholders equity, loss and cash flows for the three years ended August 31, 2004, 2003 and 2002 and cumulative from date of reorganization (August 31, 1994) to August 31, 2004, are attached hereto and form a material part of this Annual Report.



ITEM 18  FINANCIAL STATEMENTS



Not applicable.



ITEM 19  EXHIBITS



A.

Financial Statements



This Annual Report contains the following financial statements and information respecting the Company:



1.

Auditors Report for the Companys consolidated financial statements for the period ended August 31, 2004 dated December 8, 2004.



2.

Consolidated Balance Sheet for the Company dated August 31, 2004 and 2003.



3.

Consolidated Statement of Shareholders Equity for the Company for the years ended August 31, 2004, 2003 and 2002.



4.

Consolidated Statement of Loss for the Company for the years ended August 31, 2004, 2003 and 2002, and cumulative from date of reorganization (August 31, 1994) to August 31, 2004.



5.

Consolidated Statement of Cash Flows for the Company for the years ended August 31, 2004, 2003, and 2002, and cumulative from date of reorganization (August 31, 1994) to August 31, 2004.



6.

Notes to the Consolidated Financial Statements for the Company dated August 31, 2004 and 2003.





B.

Exhibits



This Annual Report contains the following Exhibits respecting the Company:



Additional Exhibits:



10.1

Loan Agreement entered into between the Company and Alexander Cox, dated September 25, 2003, for an amount of $1,000,000.



10.2

Share Purchase Agreement  Phase I  dated March 3, 2004 among the Company, CPC and Brian Wear.



10.3

Share Purchase Agreement  Phase II  dated March 3, 2004 among the Company, CPC and Brian Wear.



---

79

10.4

Loan, Pledge and Share Escrow Agreement, dated April 28, 2004, between Brian Wear and the Company.



10.5

Management Agreement, dated April 28, 2004, between the Company and Brian Wear.



10.6

Ground and Equipment Lease, dated April 30, 2004, between the Company and 530526 B.C. Ltd.



10.7

Loan Agreement entered into between the Company and Alexander Cox, dated May 7, 2004, for an amount of $4,000,000.



10.8

Graphite Mineral Property Agreement dated August 18, 2004, between Bao Zi Wan County Government and the Company.



10.9

Agreement in Principle dated November 1, 2004, between the Company and Beijing XinLong Corporation.



10.10

Agreement in Principle dated November 1, 2004, between the Company and Clay Industiral Minerals, Ltd.



10.11

Agreement in Principle dated November 1, 2004, between the Company and Tri-star Activated Carbon Corporation.



10.12

Amended Share Purchase Agreement  Phase I  dated December 30, 2004 and having an effective date of March 3, 2004, among the Company, CPC and Brian Wear.



10.13

Amended Share Purchase Agreement  Phase II  dated December 30, 2004 and having an effective date of March 3, 2004, among the Company, CPC and Brian Wear.



31.1

Certification of Disclosure in Crystal Graphite Corporation's Annual Report by Gordon Sales.



31.2

Certification of Disclosure in Crystal Graphite Corporation's Annual Report by Bernie Zacharias.



32.1

Certification of Gordon Sales pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



32.2

Certification of Bernie Zacharias pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



---











CRYSTAL
GRAPHITE

CORPORATION



(An Exploration
Stage Company)



CONSOLIDATED
FINANCIAL STATEMENTS



31 August 2004 and
2003



























STALEY, OKADA &
PARTNERS



Chartered Accountants





---

| | [fins001.jpg] | Suite
        400 - 889 West Pender Street
        Vancouver,
        BC Canada  V6C 3B2
        Tel604 694-6070
        Fax604 585-3800
        info@staleyokada.com
        www.staleyokada.com
| | ------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------









Report
  of Independent Registered Public Accounting Firm





To
  the Shareholders of Crystal Graphite Corporation



We
  have audited the accompanying consolidated balance sheets of Crystal Graphite
  Corporation (the "Company") as at 31 August 2004 and 2003 and the related
  consolidated statements of operations, shareholders' equity, and cash flows
  for each of the years ended 31 August 2004, 2003 and 2002.  These
  financial statements are the responsibility of the Company's management.
   Our responsibility is to express an opinion on these financial
  statements based on our audits.

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

In
  our opinion, the consolidated financial statements referred to above present
  fairly, in all material respects, the financial position of the Company as at
  31 August 2004 and 2003, and the results of its operations and its cash flows
  for each of the years ended 31 August 2004, 2003 and 2002, in conformity with
  Canadian generally accepted accounting principles.







"Staley,
  Okada & Partners"





|Vancouver, B.C. | STALEY, OKADA
        & PARTNERS
|--------------- | --------------------------------
|8 December 2004 | CHARTERED
        ACCOUNTANTS   





[fins002.jpg]





---











MANAGEMENT'S
  RESPONSIBILITY FOR THE FINANCIAL STATEMENTS





The
  preparation and presentation of the Company's financial statements is the
  responsibility of management.  The financial statements have been
  prepared in accordance with Canadian generally accepted accounting principles
  and necessarily include estimates which are based on management's best
  judgements.  Information contained elsewhere in the Annual Report is
  consistent, where applicable, with that contained in the financial statements.



Management
  is also responsible for installing and maintaining a system of internal
  controls to provide reasonable assurance that assets are safeguarded and that
  reliable financial information is produced for preparation of financial
  statements.



Staley,
  Okada & Partners, a firm of chartered accountants, were appointed by the
  shareholders as external auditors to conduct an independent examination and
  express their opinion on the financial statements.  The Auditors'
  Report outlines the auditors' opinion and the scope of their examination.



The
  Board of Directors is responsible for ensuring that management fulfills its
  responsibilities for financial reporting and internal control.  The Board
  exercises these responsibilities with the assistance of the Audit Committee of
  the Board.















---



Crystal Graphite
          Corporation
        
        
        
        Statement 1(An
          Exploration Stage Company)Consolidated
          Balance SheetAs at 31 AugustCanadian
          FundsASSETS
        
        2004
        
        2003CurrentCash and
          term deposits
        $
        20,898
        $
        16,091GST
          recoverable
        
        54,061
        
        19,257Accounts
          receivable
        
        257,097
        
        -Due from
          related parties (Note 11a)
        
        263,000
        
        -Inventory
        
        421,005
        
        -Prepaid
          expenses, advances and deposits
        
        27,861
        
        19,1261,043,922
        
        54,474Investments
        
        3,263
        
        3,263Prepaid Mineral Property
          Costs
        
        10,288
        
        -Mineral Property Costs- Schedule (Note 5)
        
        16,241,072
        
        7,009,943Property, Plant and
          Equipment (Note 6)
        
        1,570,912
        
        1,242,447Reclamation Bonds
        
        414,500
        
        390,000$
        19,283,957
        $
        8,700,127LIABILITIESCurrentCheques
          issued in excess of funds on deposit
        $
        -
        $
        34,974Accounts
          payable and accrued liabilities
        
        593,899
        
        569,822Employee
          deductions payable
        
        115,135
        
        -Line of
          credit (Note 11c)
        
        54,543
        
        -Demand
          debenture (Note 7)
        
        3,589,360
        
        -Due to
          Related Party(Note 11b)
        
        37,606
        
        -Current
          portion of long-term debt
        
        9,000
        
        -4,399,543
        
        604,796Convertible Debentures(Note
          9)
        
        -
        
        68,333Long-term Debt(Note
          8)
        
        10,525
        
        -Asset Retirement
          Obligations
        
        159,500
        
        -Continued Operations (Note
          1)Commitments (Note
          12)SHAREHOLDERS' EQUITYShare Capital-
          Statement 2 (Note 10)
        
        28,340,361
        
        18,661,532Deficit- Statement
          2
        
        (13,625,972)
        
        (10,634,534)14,714,389
        
        8,026,998$
        19,283,957
        $
        8,700,127ON BEHALF OF
          THE BOARD:"Gordon
          Sales",
          Director"Brian
          Wear",
          Director




- See
  Accompanying Notes -

---



|Crystal Graphite Corporation                           |               |   |             |   |              |   | Statement 2
|------------------------------------------------------ | ------------- | - | ----------- | - | ------------ | - | -----------
|(An
        Exploration Stage Company)                 |               |   |             |   |              |   |            
|Consolidated
        Statement of Shareholders' Equity |               |  
|Canadian
        Funds                                 |               |   |             |   |              |   |            
|                                                       |               |   |             |   |              |   |            
|                                                       |               |   |             |   |              |   |            
|                                                       |               |   |             |   |              |   |            
|                                                       |               |   |             |   |              |   |            
|                                                       | Common Shares |   | Accumulated |   |              |   |            
|                                                       | Shares        |   | Amount      |   | Deficit      |   | Total      
|Balance - 31 August 2001                               | 22,354,714    | $ | 17,894,782  | $ | (7,274,485)  | $ | 10,620,297 
|Loss for the
        year- Statement 3                 | -             |   | -           |   | (1,913,120)  |   | (1,913,120)
|Balance - 31 August 2002                               | 22,354,714    |   | 17,894,782  |   | (9,187,605)  |   | 8,707,177  
|Issuance of
        shares for:                        |               |   |             |   |              |   |            
|Exercise of
        options                            | 1,000,000     |   | 148,250     |   | -            |   | 148,250    
|Conversion
        of debentures                       | 990,004       |   | 372,600     |   | -            |   | 372,600    
|Stock
        compensation equity                      | -             |   | 245,900     |   | -            |   | 245,900    
|Loss for the
        year- Statement 3                 | -             |   | -           |   | (1,446,929)  |   | (1,446,929)
|Balance - 31 August 2003                               | 24,344,718    |   | 18,661,532  |   | (10,634,534) |   | 8,026,998  
|Issuance of
        shares for:                        |               |   |             |   |              |   |            
|Acquisition
        of Canada                          |               |   |             |   |              |   |            
|Pumice
        Corporation ("CPC")                     |               |   |             |   |              |   |            
|-
        Shares issued to vendor                      | 15,345,000    |   | 6,905,250   |   | -            |   | 6,905,250  
|-
        Commitment fees on                           |               |   |             |   |              |   |            
|acquisition
        financing                          | 1,500,000     |   | 900,000     |   | -            |   | 900,000    
|-
        Finders fee on acquisition                   | 155,000       |   | 93,000      |   | -            |   | 93,000     
|Commitment
        fees on financing                   | 500,000       |   | 135,500     |   | -            |   | 135,500    
|Conversion
        of debentures                       | 251,062       |   | 69,543      |   | -            |   | 69,543     
|Exercise of
        options                            | 3,455,000     |   | 1,298,044   |   | -            |   | 1,298,044  
|Exercise of
        warrants                           | 15,990        |   | 5,167       |   | -            |   | 5,167      
|Loan
        arrangements                              | 85,000        |   | 16,260      |   | -            |   | 16,260     
|Private
        placements                             | 780,045       |   | 211,392     |   | -            |   | 211,392    
|Settlement
        of debt                             | 75,000        |   | 20,325      |   | -            |   | 20,325     
|Shares
        repurchased and                         |               |   |             |   |              |   |            
|returned
        to treasury                           | (2,107,144)   |   | (947,745)   |   | -            |   | (947,745)  
|Stock
        compensation equity                      | -             |   | 972,093     |   | -            |   | 972,093    
|Loss for the
        year- Statement 3                 | -             |   | -           |   | (2,991,438)  |   | (2,991,438)
|Balance - 31 August 2004                               | 44,399,671    | $ | 28,340,361  | $ | (13,625,972) | $ | 14,714,389 



- See
  Accompanying Notes -

---



|Crystal
        Graphite Corporation                             |                          |                      |   |             |   |             |   | Statement 3
|---------------------------------------------------------------- | ------------------------ | -------------------- | - | ----------- | - | ----------- | - | -----------
|(An
        Exploration Stage Company)                           |                          |                      |   |             |   |             |   |            
|Consolidated
        Statement of Operations                     |                          |                      |   |            
|For the
        Years Ended 31 August                            |                          |                      |   |             |   |             |   |            
|Canadian
        Funds                                           |                          |                      |   |             |   |             |   |            
|                                                                 |                          | Cumulative           |   |             |   |             |   |            
|                                                                 |                          | From
        Date of |   |             |   |             |   |            
|                                                                 | Reorganization           |                      |   |             |   |             |  
|                                                                 | (31
        August 1994) |                      |   |             |   |             |  
|to
        31 August 2004                                        |                          | 2004                 |   | 2003        |   | 2002       
|Sales                                                            | $                        | 449,427              | $ | 449,427     | $ | -           | $ | -          
|Cost
        of Sales                                            |                          | 336,788              |   | 336,788     |   | -           |   | -          
|Gross
        Margin                                             |                          | 112,639              |   | 112,639     |   | -           |   | -          
|Expenses                                                         |                          |                      |   |             |   |             |   |            
|Accounting
        and audit                                     |                          | 219,247              |   | 42,269      |   | 44,700      |   | 88,832     
|Advertising
        and promotion                                |                          | 38,604               |   | 17,535      |   | 2,344       |   | 6,507      
|Amortization                                                     |                          | 366,065              |   | 35,022      |   | 6,694       |   | 8,506      
|Automobile                                                       |                          | 78,479               |   | 16,182      |   | 5,912       |   | 485        
|Bad
        debt (recovery)                                      |                          | (2,657)              |   | (2,657)     |   | -           |   | -          
|Consulting                                                       |                          | 129,914              |   | 10,000      |   | 1,684       |   | 400        
|General
        and administrative                               |                          | 472,133              |   | 129,820     |   | 65,067      |   | 86,420     
|Legal                                                            |                          | 798,273              |   | 95,842      |   | 55,130      |   | 350,190    
|Listing
        and filing                                       |                          | 103,648              |   | 14,613      |   | 7,722       |   | 6,456      
|Marketing                                                        |                          | 1,040,218            |   | 229,202     |   | 458,010     |   | 163,701    
|Occupancy
        costs                                          |                          | 314,538              |   | 76,720      |   | 59,477      |   | 60,088     
|Research
        and development                                 |                          | 25,492               |   | 25,492      |   | -           |   | -          
|Shareholders'
        information and                            |                          |                      |   |             |   |             |   |            
|investor
        relations                                       |                          | 577,929              |   | 149,457     |   | 165,693     |   | 122,602    
|Transfer
        agent                                           |                          | 126,497              |   | 44,761      |   | 8,691       |   | 36,854     
|Travel                                                           |                          | 424,652              |   | 65,928      |   | 75,987      |   | 136,379    
|Wages,
        benefits and subcontractors                       |                          | 3,040,851            |   | 1,635,448   |   | 363,957     |   | 410,687    
|                                                                 |                          | 7,753,883            |   | 2,585,634   |   | 1,321,068   |   | 1,478,107  
|Loss
        Before the Following                                |                          | (7,641,244)          |   | (2,472,995) |   | (1,321,068) |   | (1,478,107)
|                                                                 |                          |                      |   |             |   |             |   |            
|Other
        Income (Expenses)                                  |                          |                      |   |             |   |             |   |            
|Write-down
        of investments                                |                          | (485,022)            |   | -           |   | (3,613)     |   | (481,409)  
|Write-off
        of exploration costs on outside properties and |                          |                      |   |             |   |             |   |            
|properties
        abandoned                                     |                          | (1,836,777)          |   | -           |   | -           |   | -          
|Gain
        (loss) on disposition of property,                  |                          |                      |   |             |   |             |   |            
|plant
        and equipment                                      |                          | (17,362)             |   | -           |   | -           |   | 3,949      
|Financing
        fees                                           |                          | (195,321)            |   | (195,321)   |   | -           |   | -          
|Finders
        fees                                             |                          | (62,250)             |   | -           |   | (62,250)    |   | -          
|Interest
        on loans and debentures                         |                          | (346,278)            |   | (302,689)   |   | (43,589)    |   | -          
|Interest
        on long-term debt                               |                          | (1,986)              |   | (1,986)     |   | -           |   | -          
|Interest
        and bank charges, net                           |                          | 155,280              |   | (6,971)     |   | (2,027)     |   | 52,262     
|Capital
        tax                                              |                          | (36,934)             |   | -           |   | (3,553)     |   | (19,028)   
|Gain
        (loss) on foreign exchange                          |                          | 183,697              |   | (11,476)    |   | (10,829)    |   | 9,213      
|Loss
        for the Period                                      | $                        | (10,284,197)         | $ | (2,991,438) | $ | (1,446,929) | $ | (1,913,120)
|                                                                 |                          |                      |   |             |   |             |   |            
|Loss
        per Share - Basic and Diluted                       |                          |                      | $ | (0.09)      | $ | (0.06)      | $ | (0.09)     
|Weighted
        Average Number of Shares                        |                          |                      |   | 32,500,491  |   | 22,839,098  |   | 22,354,714 



- See
  Accompanying Notes -

---

|Crystal
        Graphite Corporation                             |                          |                           |   |             |   |             |   | Statement 4
|---------------------------------------------------------------- | ------------------------ | ------------------------- | - | ----------- | - | ----------- | - | -----------
|(An
        Exploration Stage Company)                           |                          |                           |   |             |   |             |   |            
|Consolidated
        Statement of Cash Flows                     |                          |                           |   |            
|For the Years Ended 31
        August                            |                          |                           |   |             |   |             |   |            
|Canadian
        Funds                                           |                          |                           |   |             |   |             |   |            
|                                                                 |                          |                           |   |             |   |             |   |            
|                                                                 |                          | Cumulative                |   |             |   |             |   |            
|                                                                 |                          | From
        Date of      |   |             |   |             |   |            
|                                                                 |                          | Reorganization            |   |             |   |             |   |            
|                                                                 | (31
        August 1994) |                           |   |             |   |             |  
|Cash
        Resources Provided By (Used In)                     |                          | to
        31 August 2004 |   | 2004        |   | 2003        |   | 2002       
|Operating
        Activities                                     |                          |                           |   |             |   |             |   |            
|Loss
        for the period                                      | $                        | (10,284,197)              | $ | (2,991,438) | $ | (1,446,929) | $ | (1,913,120)
|Item
        not affecting cash                                  |                          |                           |   |             |   |             |   |            
|Write-down
        of investments                                |                          | 485,022                   |   | -           |   | 3,613       |   | 481,409    
|Write-off
        of exploration costs on outside properties and |                          |                           |   |             |   |             |   |            
|properties
        abandoned                                     |                          | 1,836,777                 |   | -           |   | -           |   | -          
|Accrued
        interest on debenture, net                       |                          | 37,468                    |   | 11,368      |   | 26,100      |   | -          
|Gain
        (loss) on disposition of property,                  |                          |                           |   |             |   |             |   |            
|plant
        and equipment                                      |                          | 17,362                    |   | -           |   | -           |   | (3,949)    
|                                                                 |                          |                           |   |             |   |             |   |            
|Amortization                                                     |                          | 366,065                   |   | 35,022      |   | 6,694       |   | 8,506      
|Financing
        fees paid in shares                            |                          | 151,760                   |   | 151,760     |   | -           |   | -          
|Stock
        compensation expense                               |                          | 1,217,993                 |   | 972,093     |   | 245,900     |   | -          
|Changes
        in non-cash working capital                      |                          | 366,709                   |   | (160,455)   |   | 957,224     |   | (690,071)  
|                                                                 |                          | (5,805,041)               |   | (1,981,650) |   | (207,398)   |   | (2,117,225)
|Investing
        Activities                                     |                          |                           |   |             |   |             |   |            
|Mineral
        property costs                                   |                          | (7,610,636)               |   | (445,629)   |   | (539,099)   |   | (1,040,447)
|CPC
        acquisition costs                                    |                          | (190,056)                 |   | (190,056)   |   | -           |   | -          
|Promissory
        notes receivable                              |                          | (88,285)                  |   | -           |   | -           |   | (6,645)    
|Long-term
        investments                                    |                          | (400,000)                 |   | -           |   | -           |   | -          
|Purchase
        of property, plant and equipment                |                          | (3,390,756)               |   | (406,095)   |   | (6,651)     |   | (382,323)  
|Proceeds
        on sale of equipment                            |                          | 46,097                    |   | -           |   | -           |   | 3,949      
|Purchase
        of reclamation deposit                          |                          | (390,000)                 |   | -           |   | -           |   | (343,977)  
|                                                                 |                          | (12,023,636)              |   | (1,041,780) |   | (545,750)   |   | (1,769,443)
|Financing
        Activities                                     |                          |                           |   |             |   |             |   |            
|Repayment
        of bank indebtedness                           |                          | (368,173)                 |   | (368,173)   |   |             |   | -          
|Proceeds
        from demand debenture, net                      |                          | 3,689,360                 |   | 3,589,360   |   |             |   | -          
|Proceeds
        from convertible debentures                     |                          | 1,100,186                 |   | 5,000       |   | 590,000     |   | -          
|Convertible
        debentures repaid                            |                          | (211,834)                 |   | (36,667)    |   | (175,167)   |   | -          
|Long-term
        debt                                           |                          | (7,199)                   |   | (7,199)     |   | -           |   | -          
|Advances
        to related parties, net                         |                          | (712,222)                 |   | (712,222)   |   | -           |   | 118,262    
|Share
        capital issued for cash                            |                          | 14,193,568                |   | 588,367     |   | 148,250     |   | -          
|                                                                 |                          | 17,683,686                |   | 3,058,466   |   | 563,083     |   | 118,262    
|Net
        Increase (Decrease) Cash                             |                          | (144,991)                 |   | 35,036      |   | (190,065)   |   | (3,768,406)
|                                                                 |                          |                           |   |             |   |             |   |            
|Cash
        acquired on CPC acquisition                         |                          | 4,745                     |   | 4,745       |   | -           |   | -          
|Cash
        position - Beginning of period                      |                          | 161,144                   |   | (18,883)    |   | 171,182     |   | 3,939,588  
|Cash
        Position - End of period                            | $                        | 20,898                    | $ | 20,898      | $ | (18,883)    | $ | 171,182    



- See
  Accompanying Notes -



---

|Crystal
        Graphite Corporation                    |                          |                           |   |           |   |          |   | Statement 4 -Continued
|------------------------------------------------------- | ------------------------ | ------------------------- | - | --------- | - | -------- | - | ----------------------
|(An
        Exploration Stage Company)                  |                          |                           |   |           |   |          |   |                       
|Consolidated
        Statement of Cash Flows- Continued |                          |                           |   |          
|For the Years Ended 31
        August                   |                          |                           |   |           |   |          |   |                       
|Canadian
        Funds                                  |                          |                           |   |           |   |          |   |                       
|                                                        |                          |                           |   |           |   |          |   |                       
|                                                        |                          |                           |   |           |   |          |   |                       
|                                                        |                          | Cumulative                |   |           |   |          |   |                       
|                                                        |                          | From
        Date of      |   |           |   |          |   |                       
|                                                        |                          | Reorganization            |   |           |   |          |   |                       
|                                                        | (31
        August 1994) |                           |   |           |   |          |  
|Cash
        Resources Provided By (Used In)            |                          | to
        31 August 2004 |   | 2004      |   | 2003     |   | 2002                  
|                                                        |                          |                           |   |           |   |          |   |                       
|Cash
        Consists of:                               |                          |                           |   |           |   |          |   |                       
|Cash
        and term deposits                          | $                        | 20,898                    | $ | 20,898    | $ | 16,091   | $ | 171,182               
|Cheques
        issued in excess of funds on deposit    |                          | -                         |   | -         |   | (34,974) |   | -                     
|                                                        | $                        | 20,898                    | $ | 20,898    | $ | (18,883) | $ | 171,182               
|                                                        |                          |                           |   |           |   |          |   |                       
|Supplemental
        Schedule of Non-Cash Consideration |                          |                           |   |           |   |         
|Asset
        retirement costs                          | $                        | 159,500                   | $ | 159,500   | $ | -        | $ | -                     
|Shares
        issued for property and equipment        | $                        | 284,000                   | $ | -         | $ | -        | $ | -                     
|Shares
        issued for acquisition of CPC            | $                        | 7,898,250                 | $ | 7,898,250 | $ | -        | $ | -                     
|Shares
        issued for convertible debentures        | $                        | 420,634                   | $ | 48,034    | $ | 372,600  | $ | -                     
|Shares
        issued for settlement of debt            | $                        | 575,511                   | $ | 20,325    | $ | -        | $ | -                     
|Shares
        received for settlement of debt          | $                        | 88,285                    | $ | -         | $ | -        | $ | 88,285                
|Shares
        issued for financing fees                | $                        | 151,760                   | $ | 151,760   | $ | -        | $ | -                     
|Stock
        compensation                              | $                        | 1,223,326                 | $ | 972,093   | $ | 245,900  | $ | -                     







- See
  Accompanying Notes -



---



|Crystal
        Graphite Corporation                    |   |            |   | Schedule 
|------------------------------------------------------- | - | ---------- | - | ---------
|(An
        Exploration Stage Company)                  |   |            |   |          
|Consolidated
        Schedule of Mineral Property Costs |   |           
|For the
        Years Ended 31 August                   |   |            |   |          
|Canadian
        Funds                                  |   |            |   |          
|                                                        |   |            |   |          
|                                                        |   |            |   |          
|                                                        |   |            |   |          
|                                                        |   |            |   |          
|                                                        |   |            |   |          
|                                                        |   |            |   |          
|                                                        |   | 2004       |   | 2003     
|Direct
        - Mineral                                |   |            |   |          
|Black
        Crystal Property, Nelson, B.C.            |   |            |   |          
|Deferred
        exploration costs                      |   |            |   |          
|Amortization                                            | $ | 158,350    | $ | 210,884  
|Asset
        retirement costs                          |   | 135,000    |   | -        
|B.C.
        Mineral Exploration Tax Credit             |   | -          |   | 13,584   
|Bulk
        sampling recovery                          |   | -          |   | (13,866) 
|Crushing,
        screening and grinding                |   | 1,436      |   | 29,616   
|Environmental
        engineering                       |   | 5,407      |   | 11,328   
|Field
        and general                               |   | 121,912    |   | 161,577  
|Freight                                                 |   | 7,439      |   | 2,616    
|Health
        and safety                               |   | 2,099      |   | 3,083    
|Laboratory
        and assay                            |   | -          |   | 11,643   
|Mine
        administration                             |   | 15,310     |   | 3,476    
|Repairs
        and maintenance                         |   | 50,598     |   | 72,879   
|Telecommunications                                      |   | 7,865      |   | 4,888    
|Transportation
        and hauling                      |   | 37,337     |   | 43,904   
|Travel,
        meals and accommodation                 |   | 26,564     |   | 21,937   
|Wages,
        benefits and subcontractors              |   | 159,374    |   | 173,543  
|                                                        |   |            |   |          
|                                                        |   | 728,691    |   | 751,092  
|Nazko
        Cone Property, Quesnel, B.C.              |   |            |   |          
|Acquisition
        costs                               |   | 8,502,438  |   | -        
|                                                        |   |            |   |          
|Costs
        for the Period                            |   | 9,231,129  |   | 751,092  
|                                                        |   |            |   |          
|Balance
        - Beginning of period                   |   | 7,009,943  |   | 6,258,851
|                                                        |   |            |   |          
|Balance
        - End of Period                         | $ | 16,241,072 | $ | 7,009,943

- See
  Accompanying Notes -

---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





1.

Continued
  Operations



These
  consolidated financial statements have been prepared on the basis of
  accounting principles applicable to a going concern which assumes that the
  Company will be able to continue in operation for the foreseeable future and
  will be able to realize its assets and discharge its liabilities in the normal
  course of business.



Several
  adverse conditions cast doubt on the validity of this assumption.  The
  Company has incurred significant operating losses over the past several fiscal
  years, is currently unable to self-finance operations, and has a working
  capital deficiency of $3,355,621 and a deficit of $13,625,972.



These
  financial statements do not reflect adjustments that would be necessary if the
  going concern assumption were not appropriate because management believes that
  the actions already taken or planned will mitigate the adverse conditions and
  events that raise doubts about the validity of the going concern assumption
  used in preparing these financial statements.



The
  Company is planning to meet its current obligations by raising funds via
  private placements, and/or securing further debt financing. The Company's
  continued existence is dependent upon its ability to obtain additional
  financing and continued support of its debtors and/or achieve profitable
  operations.



If
  the going concern assumption were not appropriate for these financial
  statements then adjustments would be necessary in the carrying value of assets
  and liabilities, the reported revenue and expenses and the balance sheet
  classifications used.





2.

Significant
  Accounting Policies



a)

Basis
  of Consolidation



These
  consolidated financial statements include the accounts of the Company and its
  wholly-owned Canadian subsidiaries as follows:



a)

Canada
  Pumice Corporation ("CPC"), which was acquired by the Company on 28 April
  2004 (Note 4) and CPC's wholly-owned inactive subsidiaries, Volcanic
  & Industrial Minerals Inc. and Cariboo Lava Corp.  Results of
  operation are included from the date of acquisition.



These
  investments have been accounted for using the purchase method.



b)

Cash
  and Short-Term Investments



For
  purposes of reporting cash flows, the company considers cash and short-term
  investments to include amounts held in banks and highly liquid investments
  with remaining maturities at point of purchase of three months or less.
   The company places its cash and cash investments with institutions of
  high-credit worthiness.  At times, such investments may be in excess of
  federal insurance limits.



c)

Inventory



Inventory,
  consisting primarily of stockpiled lava rock processed to various stages, is
  stated at the lower of average production cost and net realizable value.

---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





2.

Significant
  Accounting Policies - Continued



d)

Investments



Investments,
  in which the company has less than a 20% interest and where the company has no
  significant influence, are recorded at the lower of cost or market value.
   Investments are written down to market value when the decline in market
  value is deemed to be other than temporary.



e)

Mineral
  - Change in Accounting Policy



The
  company is in the process of exploring and developing its mineral properties.



Mineral
  exploration, development costs and amortization on mining equipment and
  on-site buildings are capitalized on an individual prospect basis until such
  time as an economic ore body is defined or the prospect is abandoned.
   Costs for a producing prospect are amortized on a unit-of-production
  method based on the estimated life of the proven and probable ore reserves,
  while those costs for the prospects abandoned are written off.



The
  recoverability of the amounts capitalized for the undeveloped mineral
  properties is dependent upon the determination of economically recoverable ore
  reserves, confirmation of the company's interest in the underlying mineral
  claims, the ability to obtain the necessary financing to complete their
  development, and future profitable production or proceeds from the disposition
  thereof.



Title
  to mineral properties involves certain inherent risks due to the difficulties
  of determining the validity of certain claims as well as the potential for
  problems arising from the frequently ambiguous conveyancing history
  characteristic of many mineral properties.  The company has investigated
  title to all of its mineral properties and, to the best of its knowledge;
  title to all of its properties is in good standing.



Effective
  1 September 2003, the Company prospectively adopted the Canadian Institute of
  Chartered Accountants ("CICA") Handbook Section ("HB") 3063 "Impairment
  of Long-Lived Assets", which requires that an impairment loss be recognized
  if the carrying value of a long-lived asset exceeds its fair market value.
   An estimate of fair market value is undertaken annually and the
  impairment loss, if any, is charged to earnings. There were no impairment
  losses recorded during fiscal 2004. Management's estimates of resources,
  inventories and reclamation costs are subject to risks and uncertainties that
  may affect its assessment of the recoverability of mineral property costs.



f)

Environmental
  Expenditures and Closure Costs - Change in Accounting Policy



The
  operations of the company may in the future be affected from time to time in
  varying degree by changes in environmental regulations, including those for
  future removal and site restoration costs.  Both the likelihood of new
  regulations and their overall effect upon the company vary greatly and are not
  predictable.  The company's policy is to meet or, if possible, surpass
  standards set by relevant legislation, by application of technically proven
  and economically feasible measures.



Environmental
  expenditures that relate to ongoing environmental and reclamation programs are
  charged against earnings as incurred or capitalized and amortized depending on
  their future economic benefits.  Estimated future removal and site
  restoration costs, when the ultimate liability is reasonably determinable, are
  charged against earnings over the estimated remaining life of the related
  business operation, net of expected recoveries.



---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 







2.

Significant
  Accounting Policies - Continued



f)

Environmental
  Expenditures and Closure Costs - Continued



Effective
  1 September 2003, the Company elected early implementation of CICA HB 3110 "Asset
  Retirement Obligations", whereby the Company prospectively recognizes asset
  retirement obligations in the period in which they are incurred, if a
  reasonable estimate of fair market value can be made.  The asset
  retirement costs are capitalized as part of the carrying amount of the
  long-term asset to be amortized over the estimated remaining useful life of
  the asset and the associated liability is recorded until settlement of the
  obligation.  As a result of the adoption of this accounting standard, the
  carrying value of the Black Crystal property and the corresponding asset
  retirement obligation was increased by $135,000 during the year ended
  31 August 2004.  The estimated closure costs of $24,500 associated
  with the Nazko Cone property at the time of acquisition was recognized in full
  as part of the acquisition cost.



g)

Property,
  Plant and Equipment and Amortization



Property,
  Plant and Equipment is valued at cost less accumulated amortization.  The
  company provided for amortization on the declining balance method as follows:

- Beneficiation
      Plant - 30%
- Bagging
      Plant - 30%
- Machinery
      and equipment - 30%
- Buildings
      - 30%
- Technical
      instruments - 30%
- Concrete
      forms - 20 years straight-line
- Office
      furniture - 20%
- Computer
      hardware - 30%
- Vehicle
      - 30%
- Computer
      software - 100%



One-half
  of the above rate is taken in the year of acquisition.



h)

Income
  Taxes



Income
  taxes are accounted for using the asset and liability method.  Future
  taxes are recognized for the tax consequences of "temporary differences"
  by applying enacted or substantively enacted statutory tax rates applicable to
  future years to differences between the financial statement carrying amounts
  and tax basis of existing assets and liabilities.  The effect on deferred
  taxes for a change in tax rates is recognized in income in the period that
  includes the date of enactment or substantive enactment.  In addition,
  the method requires the recognition of future tax benefits to the extent that
  realization of such benefits is more likely than not.



i)

Share
  Capital



Proceeds
  from the exercise of stock options, warrants and escrow shares are recorded as
  share capital in the amount for which the option, warrant or escrow share
  enabled the holder to purchase a share in the Company.



Share
  capital issued for non-monetary consideration is recorded at an amount based
  on estimated fair market value.



---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





2.

Significant
  Accounting Policies - Continued



j)

Stock-Based
  Compensation - Change in Accounting Policy



The
  Company has adopted the recommendations of CICA HB 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
  new standard requires that all stock-based awards made to employees and
  non-employees be measured and recognized using a fair value based method.
   In prior years, stock-based compensation expense was only recognized
  when stock-based compensation awards were made to non-employees, while pro
  forma disclosure was acceptable for awards made to employees.



As
  encouraged by CICA HB 3870, the Company has enacted prospectively early
  adoption of the fair value based method of accounting for awards issued to
  employees for the current fiscal year beginning 1 September 2003.



k)

Foreign
  Exchange



Transaction
  amounts denominated in foreign currencies are translated into their Canadian
  dollar equivalents at exchange rates prevailing at the transaction date.
   Carrying values of monetary assets and liabilities are adjusted at each
  balance sheet date to reflect exchange rates prevailing at that date.
   Gains and losses arising from restatement of foreign currency monetary
  assets and liabilities at each year-end are included in earnings.



l)

Revenue
  Recognition



Revenue
  is recorded once there is persuasive evidence that an arrangement exists;
  product has been transferred to the purchaser; the selling price is fixed and
  determinable; and collectability is reasonably assured.



m)

Loss
  per Share



Basic
  earnings per share is computed by dividing income available to common
  shareholders by the weighted average number of common shares outstanding
  during the year.  The computation of diluted earnings per share assumes
  the conversion, exercise or contingent issuance of securities only when such
  conversion, exercise or issuance would have a dilutive effect on earnings per
  share.  The dilutive effect of convertible securities is reflected in
  diluted earnings per share by application of the "if converted"
  method.  The dilutive effect of outstanding options and warrants and
  their equivalents is reflected in diluted earnings per share by application of
  the treasury stock method.



n)

Management's
  Estimates



The
  preparation of financial statements in conformity with Canadian 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 dates of the financial
  statements and the reported amounts of revenues and expenses during the
  reported periods.  Actual results could differ from those estimates.



o)

Cumulative
  Figures



The
  figures provided for cumulative purposes represents the figures from the date
  of the company's reorganization (31 August 1994) to 31 August 2004.





|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





3.

Fair
  Value of Financial Instruments



The
  company's financial instruments consist of cash and term deposits, GST
  recoverable, accounts receivable and advances, amounts due to/from related
  parties, accounts payable, employee deductions payable, line of credit, demand
  debenture and long-term debt.  Currency fluctuations may affect the cash
  flow that the company may realize from its operations, since graphite is sold
  in the world market denominated in U.S. dollars, while the company's costs are
  incurred in Canadian and U.S. currencies.  Unless otherwise noted, it is
  management's opinion that the company is not exposed to significant
  interest, currency or credit risks arising from the financial instruments.
   The fair value of these financial instruments approximates their
  carrying value due to their short-term maturity or capacity of prompt
  liquidation.





4.

Acquisition
  of Subsidiary



On
  April 28, 2004 the Company purchased a British Columbia company named Canada
  Pumice Corporation ("CPC"), and its two inactive subsidiaries, Volcanic
  & Industrial Minerals Inc. and Cariboo Lava Corporation.  CPC
  produces volcanic rock material including pumice and scoria at its Nazko Cone
  quarry near Quesnel, British Columbia.  CPC is now a wholly owned
  subsidiary of the Company by the acquisition of 100% of the issued and
  outstanding shares of CPC in exchange for 15,345,000 shares of the Company.
   A finder's fee of 155,000 common shares was paid to an unrelated party
  on this acquisition.



The
  purchase method of accounting has been applied with the shares issued as
  consideration being recorded at $6,905,250, that being the value of the shares
  given up after considering price fluctuations, liquidity issues and exchange
  rates.  In addition, all legal, financing, accounting and consulting fees
  relating to the acquisition have been added as part of the purchase cost.



Details
  are as follows:



|Shares
        issued to the vendor    | $ | 6,905,250
|-------------------------------------- | - | ---------
|Shares
        issued for financing    |   | 900,000  
|Shares
        issued for finder's fee |   | 93,000   
|Legal
        fees                     |   | 77,419   
|Financing
        fees                 |   | 57,517   
|Accounting
        fees                |   | 37,175   
|Consulting
        fees                |   | 17,945   
|                                       | $ | 8,088,306





---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





4.

Acquisition
  of Subsidiary - Continued



At
  the date of the acquisition, the value of the identifiable net assets of CPC
  was as follows:



|ASSETS                                                   |   |          
|-------------------------------------------------------- | - | ---------
|Cash                                                     | $ | 4,745    
|Accounts
        receivable                              |   | 135,316  
|Inventory                                                |   | 434,602  
|                                                         |   | 574,663  
|Mineral
        property costs                           |   | 8,502,438
|Property,
        plant and equipment, at net book value |   | 115,742  
|Reclamation
        deposit                              |   | 24,500   
|                                                         | $ | 9,217,343
|LIABILITIES                                              |   |          
|Bank
        overdraft                                   | $ | 368,173  
|Accounts
        payable and accrued liabilities         |   | 78,963   
|Employee
        deductions payable                      |   | 62,143   
|Line
        of credit                                   |   | 81,706   
|Due
        to related parties                           |   | 486,828  
|Current
        portion of long-term debt                |   | 13,446   
|                                                         |   | 1,091,259
|Long-term
        debt                                   |   | 13,278   
|Asset
        retirement obligation                      |   | 24,500   
|                                                         | $ | 1,129,037
|                                                         |   |          
|Total
        Purchase Price                             | $ | 8,088,306



The
  excess value of the consideration given up has been allocated to mineral
  property costs.



---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





5.

Mineral
  Property Costs



a)

Details
  are as follows:

|                                             |   | 2004       |   | 2003     
|-------------------------------------------- | - | ---------- | - | ---------
|Black Crystal Property, Nelson,
        B.C. |   |            |   |          
|Acquisition
        costs                    | $ | 618,927    | $ | 618,927  
|Exploration
        costs                    |   | 7,119,707  |   | 6,391,016
|                                             |   | 7,738,634  |   | 7,009,943
|Nazko Cone Property, Quesnel,
        B.C.   |   |            |   |          
|Acquisition
        costs                    |   | 8,502,438  |   | -        
|                                             | $ | 16,241,072 | $ | 7,009,943





b)

Black
  Crystal Property



The
  Company has a 100% interest in certain mineral claims known as the Black
  Crystal property, located in the Slocan Mining Division in British Columbia.



The
  property is subject to a 20% gross profit royalty for a period up until 25
  August 2010 to a maximum of $1,700,000.  The royalty is defined as 20% of
  the gross receipts from sales received from the product of the property less
  direct operating costs.



During
  the year, due to the Company adopting CICA HB 3110 (Note 2f) regarding asset
  retirement obligations, $135,000 has been recorded to the carrying value of
  the property, that being management's estimate of future mine closure costs
  for the Black Crystal property.



The
  Black Crystal property is in the preproduction stage as there have been no
  material sales to date.



b)

Nazko
  Cone Property



The
  Company, through its wholly-owned subsidiary, owns certain mineral rights and
  tenures within properties known as the Klara claims comprising approximately
  3,000 acres (48 units) including and surrounding an extinct volcano referred
  to as the Nazko Cone, located in the proximity of Quesnel, British Columbia.
   In conjunction with these claims, the Company holds two 30 year,
  renewable mine leases with a quarry permit for the life of the quarry.
   At current licensing, this allows the Company to extract up to 100,000
  metric tons of volcanic aggregate per year from the Nazko Cone deposit.



The
  Nazko Cone property is a producing property.  All of the Company's
  revenue in the current year is from the Nazko Cone property operations.





---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





6.

Property,
  Plant and Equipment



Property,
  Plant and Equipment is recorded at cost.  Details are as follows:



|                                          | Cost | Accumulated
        Amortization | 2004
        Net Book Value | 2003
        Net Book Value
|----------------------------------------- | ---- | -------------------------------- | --------------------------- | ---------------------------
|Beneficiation plant                       | $    | 1,410,352                        | $                           | 683,885                    
|Bagging plant- under
        construction |      | 21,722                           |                             | -                          
|Machinery and equipment                   |      | 1,805,660                        |                             | 1,212,539                  
|Buildings                                 |      | 191,286                          |                             | 133,858                    
|Technical instruments                     |      | 156,024                          |                             | 104,175                    
|Concrete forms                            |      | 11,525                           |                             | 97                         
|Office furniture                          |      | 64,811                           |                             | 44,439                     
|Computer hardware                         |      | 47,802                           |                             | 29,807                     
|Vehicles                                  |      | 225,859                          |                             | 156,345                    
|Computer software                         |      | 14,013                           |                             | 12,997                     
|                                          | $    | 3,949,054                        | $                           | 2,378,142                  





7.

Demand
  Debenture



By
  a loan agreement dated 25 September 2003, the Company secured financing in the
  form of a demand debenture for an amount of $1,000,000 from an unrelated
  party, (who subsequently became a director of the Company), of which $150,000
  was set up as an interest reserve to service the monthly interest instalments.
   The debenture bore interest at a rate of 15% per annum, compounded
  monthly, and was repayable on 26 September 2004.  The Company paid a
  non-refundable application fee of $10,000 and issued 500,000 common shares of
  the Company valued at $135,500 to the lender as a non-refundable commitment
  and funding fee.



By
  a loan agreement dated 7 May 2004, the Company secured additional financing in
  the form of a demand debenture by cancelling the first debenture for a new
  debenture in the amount of $4,000,000, from a company controlled by a
  director, of which $600,000 was set up as an interest reserve to service the
  monthly interest instalments.  The debenture bears interest at a rate of
  15% per annum, compounded monthly, and is repayable on 7 May 2005.
   The Company paid a non-refundable application fee of $20,000 and issued
  1,500,000 common shares of the Company valued at $900,000 to the lender as a
  non-refundable commitment and funding fee for the new debenture.  The
  Company also paid a three-month interest penalty of $37,500 as a result of the
  early redemption of the first debenture.  The new debenture provides for
  a first registered charge on the land and a general first floating charge on
  all other assets of the Company.  The application fee, the commitment and
  funding fee and the interest penalty have been recorded towards the
  acquisition of CPC as it was this funding that enabled the acquisition to
  complete.



Details
  of the demand debenture and interest reserve account as at 31 August 2004 are
  as follows:



|Proceeds
        from demand debenture                 | $ | 4,000,000
|------------------------------------------------------ | - | ---------
|Balance
        of interest reserve held by the lender |   | (410,640)
|                                                       | $ | 3,589,360



---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





7.

Demand
  Debenture - Continued



The
  Company may elect to extend the term of the debenture for a further twelve
  months at the option of the Lender.  The Company can pay off the
  debenture prior to the due date, in whole or part, subject to a three-month
  interest penalty.  If the Company secures new financing, 25% of the net
  proceeds shall be applied to the debenture.



During
  the year the Company paid $284,679 in interest on the two debentures in
  addition to the fees and penalties mentioned above.  During the same
  period the Company earned $4,522 on the monies held in the interest reserve
  account.





8.

Long-term
  Debt



The
  Company has an automobile loan, payable at $876 per month including interest;
  secured by specific automobile equipment.



Details
  are as follows:



|GMAC
        financing        | $ | 19,525 
|----------------------------- | - | -------
|Less:
        current portion |   | (9,000)
|                              | $ | 10,525 





9.

Convertible
  Debentures



a)

In
  December 2002, the Company completed a convertible debenture private placement
  of 350,000 debenture units at a price of $0.50 per unit for total proceeds of
  $175,000.  The debenture bore interest after 1 April 2003 at a rate of 1%
  per month.  Related parties subscribed for 100,000 units.



During
  the year, the Company issued 35,000 bonus shares to certain debenture holders
  for loan arrangements with the Company at a price of $0.271 per share.
   10,000 shares were issued to an officer and a relative of a director.



During
  the year, the Company paid out $16,666 plus interest to certain debenture
  holders in cash.  The balance of $51,667 plus accrued interest of $12,500
  was settled by issuing 236,776 units to the remaining holders.  An
  additional 14,286 units were issued to another debenture subscriber for $5,000
  plus interest under the same terms as the original private placement.
   One unit was issued for each $0.271 of outstanding debenture.  Each
  unit consists of one share and one share purchase warrant.  Each warrant
  entitles the holder to purchase one additional common share of the Company at
  a purchase price of US$0.25 for a two-year period expiring 20 October 2005.
  79,950 shares were issued to an officer and a relative of a director.



b)

In
  March 2003, the Company completed a private placement of convertible
  debentures for total proceeds of $415,000.  The debentures bore interest
  at 8% per annum.



During
  August 2003, the Company repaid $68,500 plus accrued interest of this
  debenture in cash.  The balance of $346,500 plus imputed interest of
  $26,100 was converted into 990,004 common shares.  Financing fees in the
  amount of $62,250 were paid to unrelated parties in connection with this
  convertible debenture private placement during the prior fiscal year.



During
  the year, 57,144 common shares were returned to the Company in exchange for
  the original principal amount of $20,000 plus accrued interest.





|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





10.

Share
  Capital



a)

Authorized
  Share Capital



The
  Company's authorized share capital consists of 250,000,000 common shares
  without par value.



b)

Private
  Placement



During
  the year, the Company issued 780,045 units to two directors and a relative of
  a director by private placement for gross proceeds of $211,392.  Each
  unit consists of one common share and one share purchase warrant.  Each
  warrant entitles the holder to purchase one additional common share of the
  Company at a purchase price of US$0.25 for a two-year period expiring
  20 October 2005.



c)

Shares
  for Debt



During
  the year, the Company issued 75,000 units in settlement of certain trade
  payables in the amount of $20,325.  Each unit consists of one common
  share and one share purchase warrant.  Each warrant entitles the holder
  to purchase one additional common share of the Company at a purchase price of
  US$0.25 for a two-year period expiring 20 October 2005.



d)

Bonus
  Shares



During
  the year, the Company issued 50,000 bonus shares to a third party for
  arranging loans for the Company at a price of US$0.10.  35,000 bonus
  shares were also issued to debenture holders (Note 9a).



e)

Cancelled
  Shares



During
  the year, the Company repurchased 2,107,144 of its common shares for a value
  of $947,745.  The repurchased shares were subsequently cancelled.



f)

Share
  Purchase Options



As
  at 31 August 2004, the following share purchase options were outstanding:



|        | Shares    |  | Exercise Price     | Expiry Date              
|------- | --------- |  | ------------------ | -------------------------
|Options | 25,000    |  | CDN
        $ 0.68 | 18 March 2006            
|        | 25,000    |  | CDN
        $ 0.81 | 23 May 2006              
|        | 50,000    |  | CDN
        $ 1.08 | 13 August 2006           
|        | 570,000   |  | CDN
        $ 0.68 | 29 October 2006          
|        | 545,000   |  | CDN
        $ 0.68 | 29 October 2006          
|        | 1,475,000 |  | US
        $ 0.20  | 18 September
        2008
|        | 2,690,000 |  |                    |                          



g)

Share
  Purchase Warrants



As
  at 31 August 2004, the following share purchase warrants were outstanding:



|         | Shares    |  | Exercise Price    | Expiry Date              
|-------- | --------- |  | ----------------- | -------------------------
|Warrants | 1,075,831 |  | US
        $ 0.25 | 30 September
        2005



---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





10.

Share
  Capital - Continued



h)

Stock-Based
  Compensation



On
  18 September 2003, the Company granted 2,880,000 share-purchase stock options
  to directors, officers, employees and a consultant.  Of the options
  granted, 2,575,000 options were granted to directors, officers and employees
  and are exercisable at a price of US$0.20 per share for a 5 year period
  expiring 18 September 2008.  The remaining 305,000 options were granted
  to a consultant and are exercisable at a price of US$0.20 per share for a
  one-year period expiring 18 September 2004.



For
  non-employees, the stock option grant results in a compensation expense of
  $7,409, which has been recorded in marketing fees.  For employees and
  directors, the stock option grant results in a compensation expense of
  $226,598, which has been recorded in wages and benefits.  The offsetting
  entries are to share capital.



The
  fair value of each option grant is estimated using the Black-Scholes Option
  Pricing Model with the following weighted average assumptions:



|Risk-free
        interest rate         |  | 3.59%            
|--------------------------------------- |  | -----------------
|Expected
        dividend yield         |  | Nil              
|Expected
        stock price volatility |  | 72%              
|Expected
        life of options        |  | 4.6
        years



On
  28 April 2004, the Company granted 2,000,000 share-purchase stock options to
  the former principal of CPC as part of the new management agreement (Note
  12d).  The options granted are exercisable at a price of $0.45 per
  share for a 5-year period expiring 28 April 2009.



The
  stock option grant results in a compensation expense of $738,086, which has
  been recorded in wages and benefits.  The offsetting entry is to share
  capital.



The
  fair value of the option grant is estimated using the Black-Scholes Option
  Pricing Model with the following assumptions:



|Risk-free
        interest rate         |  | 3.81
        %
|--------------------------------------- |  | --------------
|Expected
        dividend yield         |  | Nil           
|Expected
        stock price volatility |  | 131%          
|Expected
        life of options        |  | 1
        year



Option
  pricing models require the input of highly subjective assumptions including
  the expected price volatility.  Changes in the subjective input
  assumptions can materially affect the fair value estimate, and therefore the
  existing models do not necessarily provide a reliable single measure of the
  fair value of the Company's stock options.







---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





11.

Related
  Party Transactions



Except
  as disclosed elsewhere in these financial statements, related party
  transactions are as follows:



a)

On
  28 April 2004 in conjunction with the CPC acquisition, the Company loaned the
  former principal of CPC and current director of the Company $263,000.
   The loan is non-interest bearing, secured by 355,500 escrow shares of
  the Company and due after 1 October 2005.  If there is a default on the
  loan, the Company's only recourse is to keep the shares held in escrow.
   As at 31 August 2004, the market value of the escrow shares is $202,635.



b)

As
  at 31 August 2004, $37,606 (2003 - $nil) is payable to a director or a
  company controlled by a director.  The amounts are non-interest bearing,
  unsecured and due on demand.



c)

During
  the year, the Company utilized certain personal credit cards of a director for
  a source of additional short term financing.  The Company has disclosed
  the balance owing from cash advances as at 31 August 2004 in the amount of
  $54,543 as line of credit under current assets.  The interest rates range
  from 3.99% to 14.25%.  The monthly minimum repayments range from
  approximately 1% of principal plus interest to 2% of principal plus interest.



d)

During
  the year, fees for marketing services in the amount of $43,307 (2003 -
  $93,864; 2002 - $91,621) were paid to a company controlled by a director of
  the Company.



e)

During
  the year, rent in the amount of $35,500 (2003 - $nil; 2002 - $nil) was paid to
  a director or a company controlled by a director of the Company, in respect of
  the CPC operations.



f)

During
  the year, management wages of $345,920 (2003 - $317,339; 2002 - $314,420)
  were paid or accrued to directors and officers.



g)

During
  the year, wages of $120,000 (2003 - $15,000; 2002 - $nil) were paid or accrued
  to an officer of the Company for corporate development.



h)

During
  the year, interest of $5,000 (2003 - $10,334; 2002 - $nil) was paid or accrued
  to a director and officer and a relative of a director.



The
  above transactions, occurring in the normal course of operations, are measured
  at the exchange amount, which is the amount of consideration established and
  agreed to by the related parties.





12.

Commitments



a)

The
  Company has a lease for premises expiring 13 November 2004.



Minimum
  basic rent is as follows:



|     |   | Amount
|---- | - | ------
|2005 | $ | 11,649



In
  addition to the basic rent, the Company is responsible for its proportionate
  share of property taxes and operating costs.



---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





12.

Commitments
  -Continued



a)

The
  Company has lease agreements for office equipment and automotive equipment
  with terms ranging up to 42 months.  Minimum basic charges are as
  follows:



|     |   | Amount 
|---- | - | -------
|2005 | $ | 96,548 
|2006 |   | 93,356 
|2007 |   | 91,079 
|2008 |   | 22,307 
|2009 |   | 7,181  
|     | $ | 310,471



b)

By
  agreement dated 30 April 2004, the Company entered into a ten-year Ground and
  Equipment Lease with a company controlled by a director and officer.  The
  annual minimum basic rent payments are $82,500 triple net, payable in equal
  monthly installments of $6,875.  This agreement is renewable for three
  additional terms of ten years with mutual consent on the same terms and
  conditions as the original term, except for the amount of annual basic rent
  payable, which will be adjusted to fair market value.



In
  addition to the basic rent, the Company is responsible for its proportionate
  share of property taxes and operating costs.



c)

By
  agreement dated 28 April 2004, the Company entered into a five-year Management
  Agreement with a director and officer of the Company.  Compensation is a
  base fee of $15,000 per month plus incentive fees as determined by the board.
   The Company is also required to obtain disability and life insurance as
  outlined in the agreement.  This agreement will renew automatically for
  subsequent two-year periods on the same terms and conditions as the original
  term.  The Company may terminate the agreement at the end of a term with
  90 days notice.  Commencing on the first anniversary of this agreement,
  if the agreement is terminated, there shall be a termination fee equal to the
  sum of:



-

extension
  of any outstanding stock options for a period of one year after termination;
  plus

-

the
  greater of:

i.

the
  aggregate remaining base fee for the unexpired remainder of the term; or

ii.

Six
  months of base fee plus one month of base fee for each year, or portion
  thereof served.





13.

Supplemental
  Information to the Statement of Cash Flows



Details
  are as follows:



|              |   | 2004    |   | 2003   |   | 2002 
|------------- | - | ------- | - | ------ | - | -----
|Interest paid | $ | 291,321 | $ | 17,489 | $ | 1,395
|Taxes paid    | $ | Nil     | $ | Nil    | $ | Nil  





---

|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





14.

Income
  Taxes



The
  company has incurred non-capital losses of approximately $4,226,420 that may
  be carried forward and used to reduce taxable income in future years.



The
  company has incurred certain resource-related expenditures of approximately
  $8,816,000 that may be carried forward indefinitely and used to reduce
  prescribed taxable income in future years.



The
  resource deductions have no expiry date whereas the non-capital losses carried
  forward expire as follows:



|     |   | Amount   
|---- | - | ---------
|2009 | $ | 1,427,154
|2010 |   | 1,152,463
|2011 |   | 1,646,803
|     | $ | 4,226,420



The
  potential future tax benefits of these non-capital losses and the resource
  expenditures have not been reflected in the accounts of the company.





15.

Comparative
  Figures



Certain
  of the prior years figures, shown for comparative purposes, have been
  reclassified to conform with the presentation used in the current year.





16.

Subsequent
  Events



a)

On
  6 October 2004, the Company completed a debenture financing of $300,000 at an
  interest rate of 1% per month calculated and payable monthly in arrears.
   The principal will be due and payable by the Company to the Lender in
  full on demand on or after the one-year anniversary date (the "Due Date")
  or on any acceleration of the Due Date.  In addition, the Company has
  agreed that on or before ten (10) days following receipt of funds from a
  senior funder, that the Company shall fully repay, regardless of whether such
  shall be prior to the Due Date, the principal and interest from such senior
  funding.  Furthermore, the Company guarantees a minimum of three months
  of interest and accordingly a payment of principal prior to the third month
  anniversary shall include additional interest sufficient to provide for a
  three (3%) percent aggregate interest payment.  As a bonus at an agreed
  aggregate value of $100 effective 6 October 2004, the Company granted the
  Lender 100,000 five (5) year non-transferable warrants which entitles the
  Lender to acquire up to 100,000 common shares of the Company at an exercise
  price of USD$0.50 as to 50,000 warrants and USD$0.75 as to 50,000 warrants.





On
  18 November 2004, the Company completed a second debenture financing with the
  same lender in the amount of $200,000 with the same terms and conditions as
  the above loan.  As a bonus at an agreed aggregate value of $100
  effective 18 November 2004, the Company granted the Lender 66,668 five (5)
  year non-transferable warrants which entitles the Lender to acquire up to
  66,668 common shares of the Company at an exercise price of USD$0.46 as to
  33,334 warrants and USD$0.71 as to 33,334 warrants.



---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





16. Subsequent
  Events -Continued



b)

On
  15 November 2004 the Company entered into a Project Funding Agreement ("Agreement")
  with a Syndicated Trading Trust in Australia.  Under the terms of the
  Agreement, the Company will receive US$10,000,000 ("Project Sum") which
  will be used to repay existing short term debt, further develop its two
  properties and for additional working capital as defined in the Agreement.
   The loan will bear interest at 4.5% to 6.5% according to the Agreement
  and will be repayable in 10 years from the drawdown date.  The Company
  must reimburse the lender 0.25% of the Project Sum for reimbursement of legal,
  administrative and accounting fees as well as 0.10% of the Project Sum for
  reimbursement for bank fees or charges payable under the facility.  Prior
  to receiving the Project Sum the Company must arrange a Finance Guarantee
  Bond, Standby Letter of Credit, Bank Guarantee or other security ("the
  Collateral Security") in the amount of 5% of the Project Sum.
   Subsequent to year-end, the Company has paid US$30,000 to cover
  administration costs to secure the Collateral Security and US$25,000 for legal
  fees relating to the preparation of the Agreement.  Management expects
  that the funding will be in place within 30 days from the date these financial
  statements are filed.



c)

Subsequent
  to the year-end, the Company purchased two pieces of equipment for a total of
  $385,000 plus GST for use in the Company's pumice operations.  The
  purchases have been financed over three and four years respectively at a rate
  of bank prime plus 1.75%.  The initial financed balance is $393,450.
   The underlying equipment is held as security on the finance contracts.





17.

Segmented
  Information



Details
  are as follows:



|                            |   | Graphite
        Operations |   | Pumice
        Operations |   | Consolidated
|--------------------------- | - | --------------------------- | - | ------------------------- | - | ------------
|31 August 2004              |   |                             |   |                           |   |             
|Segmented
        revenue   | $ | -                           | $ | 449,427                   | $ | 449,427     
|Segmented
        loss      | $ | 2,821,136                   | $ | 170,302                   | $ | 2,991,438   
|Identifiable
        assets | $ | 10,802,570                  | $ | 8,481,387                 | $ | 19,283,957  



During
  the years ended 31 August 2003 and 2002 all financial information relates to
  the Company's graphite operations.





---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





18.

Differences
  Between United States and Canadian Generally Accepted

Accounting
  Principles "GAAP"



a)

Accounting
  Policy Differences



These
  financial statements are prepared in accordance with accounting principles
  generally accepted in Canada.  Except as set out below, these financial
  statements comply, in all material aspects, with accounting principles
  generally accepted in the United States and the rules and regulations of the
  Securities Exchange Commission.  The significant differences between
  Canadian and U.S. GAAP are as follows:



(i)

Under
  Canadian GAAP, the mineral properties are carried at cost and written off or
  written down if the properties are abandoned, sold or if management decides
  not to pursue the properties. Under U.S. GAAP, the company would periodically
  review and obtain independent reports in determining adjustments to the
  mineral properties and record properties at net realizable value. The company
  has not yet obtained an independent report for U.S. GAAP purposes, therefore,
  the company's mineral property costs have been written off in this note to
  the financial statements.



(ii)

Under
  Canadian GAAP, the company was not required to record the effect of
  non-employee stock option based compensation expense in the financial
  statements until 1 September 2002.  Under U.S. GAAP, stock
  compensation expense is recorded for non-employees based upon the fair market
  value at the date the option granted.  The effect of this difference for
  the year ended 31 August 2002 and prior is noted below.  Commencing on 1
  September 2002, Canadian GAAP treatment is consistent with U.S. GAAP.



(iii)

Under
  U.S. GAAP, investments held for re-sale are recorded at market value.
   The difference between the market value and the cost of the investment
  is recorded as a separate shareholder equity category named comprehensive
  income.  Once the investment is sold, the comprehensive income for that
  investment is cleared out to income.  Under Canadian GAAP, investments
  held for re-sale are recorded at the lower of cost or market.  There is
  no comprehensive income category in Canada.



---

|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





18.

Differences
  Between United States and Canadian GAAP- Continued



b)

Statement
  Reconciliation



i)

The
  impact of the above differences between Canadian and U.S. GAAP on the loss and
  loss per share is as follows:



|                                                                              | 2004 | 2003         | 2002
|----------------------------------------------------------------------------- | ---- | ------------ | ----
|Net
        Loss - Canadian Basis                                             | $    | (2,991,438)  | $   
|Write-down
        of investments                                             |      | -            |     
|Write-off
        of mineral property costs                                   |      | (9,231,129)  |     
|Compensation
        expense on common stock options granted to non-employees |      | -            |     
|Net Loss - U.S.
        Basis                                                 | $    | (12,222,567) | $   
|Other
        Comprehensive Income (Loss)                                     |      |              |     
|Unrealized
        (loss) on investments                                      | $    | -            | $   
|                                                                              | $    | -            | $   
|Net Loss per
        Share - Basic and Diluted - U.S. Basis                   | $    | (0.38)       | $   



ii)

A
  reconciliation of certain balance sheet accounts from Canadian presentation to
  U.S. presentation is as follows:



|                                                                                    | 2004 | 2003         | 2002
|----------------------------------------------------------------------------------- | ---- | ------------ | ----
|Deficit
        - Canadian Basis                                                    | $    | (13,625,972) | $   
|Write-down
        of investments                                                   |      | 399,999      |     
|Write-off
        of mineral property costs - current                               |      | (9,231,129)  |     
|Write-off of
        mineral property costs - prior years                           |      | (7,009,943)  |     
|Stock
        compensation expense on common stock options granted to non-employees |      | (13,924)     |     
|Deficit - U.S.
        Basis                                                        | $    | (29,480,969) | $   



|                                                                                    | 2004 | 2003       | 2002
|----------------------------------------------------------------------------------- | ---- | ---------- | ----
|Share
        Capital- Canadian Basis                                               | $    | 28,340,361 | $   
|Stock
        compensation expense on common stock options granted to non-employees |      | 13,924     |     
|Share Capital -
        U.S. Basis                                                  | $    | 28,354,285 | $   





---



|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





18.

Differences
  Between United States and Canadian GAAP- Continued



c)

Disclosure
  Reconciliation



A
  reconciliation of certain of the disclosure items from Canadian presentation
  to U.S. presentation is a follows:



Prior
  to the year ended 31 August 2003, under Canadian GAAP, the Company was not
  required to disclose the pro forma effect of employee stock option-based
  compensation in the notes to the financial statements.  Under U.S. GAAP,
  SFAS No. 123 establishes financial accounting and reporting standards for
  stock-based employee compensation plans.  The statement encourages all
  entities to adopt a fair value based method of accounting, but allows an
  entity to continue to measure compensation cost for those plans using the
  intrinsic value based method of accounting prescribed by APB Opinion No. 25,
  "Accounting for Stock Issued to Employees".  The company adopted only
  the disclosure provisions of SFAS No. 123 as follows:



|                                                                          |  |  |   | 2002     
|------------------------------------------------------------------------- |  |  | - | ---------
|Net Loss                                                                  |  |  |   |          
|As
        reported - U.S. Basis                                          |  |  | $ | 2,791,524
|Compensation
        expense on common stock options granted to employees |  |  |   | 556,958  
|Pro forma                                                                 |  |  | $ | 3,348,482
|Net Loss                                                                  |  |  |   |          
|As
        reported - U.S. Basis                                          |  |  | $ | 0.12     
|Pro forma                                                                 |  |  | $ | 0.15     



The
  fair value of each option grant is estimated on the date of grant using the
  Black-Scholes option-pricing model with the following weighted average
  assumptions:



|                                |  |  |  | 2002   
|------------------------------- |  |  |  | -------
|Expected dividend yield         |  |  |  | 0.00%  
|Expected stock price volatility |  |  |  | 61.0%  
|Risk-free interest rate         |  |  |  | 4.08%  
|Expected Life of options        |  |  |  | 5 years



The
  weighted average grant-date fair value of employee options granted in 2002 was
  $0.56 respectively.



Option
  pricing models require the input of highly subjective assumptions including
  the expected price volatility.  Changes in the subjective input
  assumptions can materially affect the fair value estimate, and therefore the
  existing models do not necessarily provide a reliable single measure of the
  fair value of the company's stock options.



Commencing
  on 1 September 2003, the Company adopted the new recommendations of CICA HB
  3870, which mirrors, in all material respects, SFAS No. 123, therefore the
  Canadian GAAP treatment is now consistent with United States GAAP.



---

|Crystal Graphite Corporation
        (An
        Exploration Stage Company) | 
|--------------------------------------------------------------------------- | 
|Notes
        to Consolidated Financial Statements                         
|31 August
        2004 and 2003                                             | 
|Canadian
        Funds                                                      | 





18.

Differences
  Between United States and Canadian GAAP- Continued



d)

Recently
  Adopted United States Accounting Standards



In
  December 2002, the Financial Accounting Standards Board ("FASB") issued
  SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition
  and Disclosure".  SFAS 148 amends SFAS No. 123, to provide
  alternative methods of transition for a voluntary change to the fair value
  based method of accounting for stock-based employee compensation. In addition,
  SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent
  disclosures in both annual and interim financial statements about the method
  of accounting for stock-based employee compensation and the effect of the
  method used on reported results. SFAS 148 is effective for fiscal years
  beginning after 15 December 2002. The interim disclosure provisions are
  effective for financial reports containing financial statements for interim
  periods beginning after 15 December 2002.  The Company adopted SFAS No.
  148, as required, with no material impact on its financial statements.



Recent
  accounting pronouncements that are listed below did and/or are not currently
  expected to have a material effect on the Company's financial statements.



FASB
  Statements:



In
  April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
  Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
  Corrections";



In
  June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
  with Exit or Disposal Activities";



On
  30 April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
  on Derivative Instruments and Hedging Activities";



In
  May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
  Instruments with Characteristics of both Liabilities and Equity";



In
  November 2004, the FASB issued SFAS 151, "Inventory Costs";



In
  December 2004, the FASB issued SFAS 152, "Accounting for Real Estate
  Time-Sharing Transactions";



In
  December 2004, the FASB issued SFAS 123, "Share-Based Payment".



FASB
  Interpretations:



In
  January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation
  of Variable Interest Entities, an Interpretation of ARB No. 51".







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108

SIGNATURES





The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.





ON BEHALF OF THE COMPANY, CRYSTAL GRAPHITE CORPORATION



Per:







/s/ Gordon Sales

Gordon Sales

President, CEO and a Director

Authorized Signatory*





Date:  March 10, 2005





*

Print the name and title of the signing officer under the signature.

__________





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109





EXHIBIT INDEX





Exhibit #Description of ExhibitPage No.10.1Loan Agreement entered into between the Company and Alexander Cox, dated September 25, 2003, for an amount of $1,000,000.10.2Share Purchase Agreement  Phase I  dated March 3, 2004 among the Company, CPC and Brian Wear.10.3Share Purchase Agreement  Phase II  dated March 3, 2004 among the Company, CPC and Brian Wear.10.4Loan, Pledge and Share Escrow Agreement, dated April 28, 2004, between Brian Wear and the Company.10.5Management Agreement, dated April 28, 2004, between the Company and Brian Wear.10.6Ground and Equipment Lease, dated April 30, 2004, between the Company and 530526 B.C. Ltd.10.7Loan Agreement entered into between the Company and Alexander Cox, dated May 7, 2004, for an amount of $4,000,000.10.8Graphite Mineral Property Agreement dated August 18, 2004, between Bao Zi Wan County Government and the Company.10.9Agreement in Principle dated November 1, 2004, between the Company and Beijing XinLong Corporation.10.10Agreement in Principle dated November 1, 2004, between the Company and Clay Industiral Minerals, Ltd.10.11Agreement in Principle dated November 1, 2004, between the Company and Tri-star Activated Carbon Corporation.10.12Amended Share Purchase Agreement  Phase I  dated December 30, 2004 and having an effective date of March 3, 2004, among the Company, CPC and Brian Wear.10.13Amended Share Purchase Agreement  Phase II  dated December 30, 2004 and having an effective date of March 3, 2004, among the Company, CPC and Brian Wear.31.1Certification of Disclosure in Crystal Graphite Corporations Annual Report by Gordon Sales.31.2Certification of Disclosure in Crystal Graphite Corporations Annual Report by Bernie Zacharias.32.1Certification of Gordon Sales pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2Certification of Bernie Zacharias pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.






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EXHIBIT 10.1







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Loan Agreement entered into between the Company and Alexander Cox, dated September 25, 2003, for an amount of $1,000,000





LOAN
AGREEMENT



This
AGREEMENT is dated for reference September 25, 2003



BETWEEN
:



CRYSTAL
GRAPHITE CORPORATION (Inc. No. 200650), with its registered office at P.O.
Box 12077, 2550 - 555 West Hastings Street, Vancouver, British Columbia V6B
4N5.



(the
"Borrower")



AND:



ALEXANDER
W. COX, Businessman, of 428 - 755 Burrard Street, Vancouver, B.C. V6Z 1X6



(the
"Lender")



WITNESSES
THAT:



WHEREAS
the Borrower has requested and the Lender has agreed to make the Loan on the
terms and conditions of this Agreement and to be secured by the Security and
Supporting Documents;



In
consideration of the premises and other good and valuable consideration, the
Borrower covenants and agrees with or warrants and represents to the Lender as
follows:



ARTICLE
l

INTERPRETATION



1.1

Definitions:
The following terms used in this Agreement shall have the following meanings and
all singular definitions may be used in the plural to mean more than one of the
term defined and vice-versa:

"Advance"
means the advance of funds on the Loan, by the Lender to or for the benefit of
the Borrower;

"Application
Fee" means the sum of Ten Thousand ($10,000.00) Dollars as described in
Paragraph 2.4;

"Associate"
means any "associate" or "affiliate" or "insider of a corporation"
of any of the Borrowing Group including controlled and subsidiary companies, all
as determined or defined from time to time in the Company Act of British
Columbia;

"Borrower's
Liabilities" means the amount of all Advances, the unpaid portions, if any, of
the Application Fee, the Commitment and Financing Fee, Expenses and all costs
and damages suffered or incurred by the Lender arising from a breach or default
under any of the





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2



Security
and Supporting Documents, all interest from time to time accruing thereon, and
all liabilities and indebtedness now or hereafter owing, arising, due or payable
from the Borrower to the Lender whether under this Agreement or the other
Security and Supporting Documents;

"Commitment
and Funding Fee" means the fee described in Paragraph 2.10.

"Commitment
Letter" means the letter dated September 12, 2003 and executed by both
parties;

"Debenture"
means a demand debenture and all supplementals thereto in the principal amount
of One Million ($1,000,000.00) Dollars bearing interest at the Interest Rate
executed by the Borrower and delivered to the Lender providing for a first
registered, fixed and specific mortgage, pledge and charge on the Land and a
general first floating charge on all other assets (both present and future) of
the Borrower described therein, subject only to Permitted Encumbrances;

"Draw
Request" means the form of request for an Advance as may be specified by the
Lender from time to time including the certificates attached thereto and all
necessary supporting documents, declarations and information;

"Event
of Default" means any of the following:

(a)
a default or a breach of covenant or agreement by the Borrower any of the
Security and Supporting Documents or under any contract the benefits of which
has been absolutely or conditionally assigned to the Lender; or

(b)
if any warranty or representation by the Borrower is or becomes untrue or
incorrect, under any of the Security and Supporting Documents; or

(c)
if at any time there is or has been any material discrepancy or inaccuracy in
any written information, statements or representations heretofore or hereafter
made or furnished to the Lender by or on behalf of the Borrower concerning the
Land, the Security and Supporting Documents or the Borrowers assets, financial
condition, voting control, management or responsibilities; or

(d)
if at any time there is or has been any material adverse change in any of the
assets, financial condition, voting control, management or responsibilities of
the Borrower;

"Expenses"
means all costs and expenses incurred by the Lender relating to the Loan
including, but without limitation, the legal costs of the Lender on a
solicitor-client basis including legal costs related to syndication, the
Lender's insurance consultant and all other out-of-pocket costs and expenses
incurred in the approval and making of the Loan and the preparation, execution,
delivery , registration and discharge of the Security and Supporting Documents
(including the cost of delivering copies of any documents required by law to be
given to the Borrower or any other party;





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Page
3



"Insurance
Policies" means all policies of hazard and liability insurance, for full
insurable value with first loss payable to the Lender and required to be
delivered to the Lender pursuant to the terms of the Debenture;

"Interest
Rate" means the rate of 15% per annum, compounded monthly on the outstanding
balance hereunder;

"Interest
Reserve" means moneys in the amount of not less than $150,000 to be deposited
by the Lender and maintained by the Borrower pursuant to Article 3 together with
interest earned thereon from time to time;

"IR
Account" means an account maintained by the Lender for the Interest Reserve in
accordance with Article 3.

"Land"
means the land described in Schedule "A" and such additional lands as may be
charged by the Debenture or any extension thereof;

"Loan"
means an amount of One Million ($1,000,000.00) Dollars being from the Lender to
the Borrower;

"Loan
Advance" means the advance of the Loan funds to the Borrower from the Lender;

"Loan
Expiry Date" means the date twelve (12) months after the Loan Advance;

"Permitted
Encumbrances" means easements, rights of way, restrictive covenants and
similar charges on the Land and defined or described as such in the Debenture or
as approved by the Lender and their solicitors in writing and attached hereto as
Schedule "B";

"PPSA
Financing Statements" means financing statements under the British Columbia
Personal Property Security Act made for a period of three (3) years;

"Security
and Supporting Documents" includes:

this
Agreement and all documents supplemental hereto;

the
Debenture;

Draw
Request;

all
Insurance Policies;

the
PPSA Financing Statements;

and
such other security and supporting documents as may be required by the Lender.

1.2

Currency:
All references to money amounts herein are, unless specifically otherwise
stated, references to Canadian currency payable in Canada.

1.3

Incorporation
of Preambles, Recitals and Schedules: The Preambles and Recitals set forth
herein are a part of this Agreement and the Security and Supporting Documents
and Schedules hereto are incorporated by reference and made a part of this
Agreement.





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Page
4



1.4

Bona
Fides: Any reference in this Agreement to a sale, lease or contract to which the
Borrower is a party shall be interpreted to mean that it is bona fide
arms-length unless otherwise specifically stated.



ARTICLE
2

THE
LOAN, INTEREST AND PAYMENT THEREOF

2.1

Draw
Requests: The Borrower shall make a Draw Request for the Loan Advance forthwith
on being entitled to do so.

2.2

Agreement
to Lend: Subject to compliance by the Borrower with the terms and conditions of
this Agreement and until the Loan Expiry Date, the Lender agrees to make the
Loan Advance, following receipt of a fully and accurately completed Draw
Request.

2.3

Method
of Making the Loan Advance: The Lender may, at his election, make the Loan
Advance either with or without a Draw Request, directly, through his legal
counsel or any third party, to the Borrower.

2.4

Application
Fee: The total Application Fee for the Loan shall be Ten Thousand ($10,000.00)
Dollars which shall be deemed to have been fully earned by the Lender upon
acceptance of the Commitment Letter by the Borrower.  The Application Fee
is consideration to the Lender for their consideration of the application for
the Loan and shall not be refundable under any circumstances.

2.5

Commitment
and Funding Fee: The total Commitment and Funding Fee for the Loan shall be Five
Hundred Thousand fully paid and non-assessable shares of the Borrower to be
delivered to the Lender concurrently with the funding of the Loan.  The
Commitment and Funding Fee is consideration to the Lender for their agreement to
make the Loan and shall not be refundable under any circumstances.  The
parties agree that even if no Advance is made or if the full amount of the Loan
is not advanced, the Lender is absolutely entitled to the Commitment and Funding
Fee as partial compensation for the risk to the Lender of delivering this
Agreement, making any Advance on the Loan and as consideration for the value to
the Borrower of this Agreement and the time and effort spent and expense
incurred by the Lender and its employees and agents in the review and study of
the documents pertaining to the transactions relating to the Loan, review of
appraisals, credit reports and financial statements, physical inspection of the
Lands, and loss of opportunity to make other loans.

2.6

Interest:
The Borrower shall pay interest on Borrower's Liabilities at the Interest Rate
calculated and payable at the same time, in the same manner and subject to all
the same covenants, terms and conditions and as determined and adjusted in the
Debenture.

2.7

Repayment
of Borrower's Liabilities: The Borrower shall:



(a)
repay the entire balance outstanding on the Loan without notice on the Loan
Expiry Date;  The

Lender agrees not to make demand pursuant to the Debenture provided that no
event of default

under the Debenture or hereunder has occurred;







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Page
5



(b)
pay the Application Fee;



(c)
pay the Commitment and Financing Fee as provided herein;



(d)
pay all other portions of the Borrower's Liabilities on demand without notice
other than

demand.

2.8

The
Borrower shall pay all accrued and unpaid interest on the first day of the
month.

2.9

The
Borrower's Liabilities may be prepaid, in whole or in part, prior to the Loan
Expiry Date, by paying the Lender a bonus of three months interest on the amount
prepaid.

2.10

At
any time during the period between July 1, 2004 and August 31, 2004, the
Borrower may elect to extend the term of the loan for a further twelve (12)
months from the Loan Expiry Date if:



(a)

the
Loan is in good standing;



(b)

the
Borrower is reasonably pursuing its business plan of June 12, 2003 as the
same may be amended by the board of directors from time to time; and



(c)

all
payments under the Loan have been made when due.

2.11

Security
for Borrower's Liabilities: All Borrower's Liabilities shall be deemed to be
secured by all the Security and Supporting Documents as of the date hereof
notwithstanding the date Borrower's Liabilities may be advanced or incurred.

2.12

Realization
Proceedings: The Lender may commence realization proceedings, either judicial or
extra judicial, under or in respect of the whole or any portion of the Security
and Supporting Documents, immediately and without notice other than demand for
immediate payment if an Event of Default has occurred.



ARTICLE
3

INTEREST
RESERVE

3.1

The
Lender shall establish the Interest Reserve by depositing the sum of $150,000 to
the IR Account from the proceeds of the Loan Advance.

3.2

The
Interest Reserve, including interest thereon, shall be invested in the name of
the Lender for the account of the Borrower in the IR Account.  The Lender
will apply funds from theIR Account towards servicing the monthly payments of
Interest of section 2.6 and 2.8 under the Loan.  In the event of default in
payment or performance as required under the Loan Agreement, the Lender shall
have the right to reduce the Deposit by the amount due to the Lender at any time
in its sole discretion if it deems fit.  The Lender, in the event of a
default under the Loan Agreement may at its option apply the full balance held
pursuant to this Agreement to the Loan Agreement account.  Provided, that
in the event the Lender applies the full amount of the deposit to the balance
owing pursuant to the Loan Agreement, the application





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6



of
these funds shall not remedy the default under the Loan Agreement and the Lender
may exercise all its remedies under the Loan Agreement.

3.3

Pledge
of Interest Reserve: The Interest Reserve and IR Account are hereby pledged by
the Borrower to the Lender as collateral security for the payment of Borrower's
Liabilities. So long as any Event of Default is outstanding the Lender may, in
their discretion and in addition to the payment of interest due to the Lender,
use all or any portion of the Interest Reserve to pay all or some of other
Borrower's Liabilities then due.

3.4

Repayment
of Interest Reserve: After repayment in full of Borrower's Liabilities, any
remaining balance in the IR Account shall be paid to the Borrower.

ARTICLE
4

TERMS
AND CONDITIONS APPLICABLE TO ADVANCES

4.1

Conditions
Precedent for Loan Advance: The Lender shall not be obliged to make the Initial
Advance or any Advance unless and until, in the opinion of the Lender, the
following conditions, which only the Lender may waive, have been and continue to
be satisfied, namely that, prior to the date of the Loan Advance, the following
documents and assurances, all in form, substance, parties and execution
acceptable to the Lender, has been delivered to the Lender and, where in the
Lender's opinion necessary or advisable, filed or registered and, where required
by the Lender, prepared or approved by their solicitors:



(i)

signed
current financial statements of the Borrower including satisfactory verification
of

assets
and values;



(ii)

each
of the Security and Supporting Documents;



(iii)

corporate
documents, namely:



A.

copies
duly certified by its secretary of resolutions of its directors authorizing

the
borrowing or guaranteeing of the Loan as the case may be and the

execution
and delivery of the Security and Supporting Documents; and



B.

an
officer's certificate and certificate of incumbency setting forth specimen

signatures
of its officers and directors authorized to execute the Security and

Supporting
Documents;



(iv)
an opinion of:

A.
the independent counsel of the Borrower addressed to the Lender and their
counsel: as to the due incorporation, organization, valid existence and good
standing with respect to filing annual reports, of such member and the due
formation and existence of such member under the laws of British Columbia and/or
the jurisdiction of its incorporation and/or any other jurisdiction in which it
is registered to carry on business and that such member has all such corporate
powers and authorizations as are necessary to enable it to own and operate or





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7



develop
the Lands, to borrow the Loan, as the case may be, and to execute, deliver and
carry out its obligations under the Security and Supporting Documents and that
the Security and Supporting Documents which has been delivered has been duly
authorized, executed and delivered by such member; such opinion shall also
confirm that the shares  forming the Commitment and Funding Fee have been
duly and validly created, allotted and issued as fully paid and non-assessable.

B.
the Lender's counsel on title to the Land and the priority, enforceability and
effectiveness of the Security and Supporting Documents which has been delivered;
and

C.
the Lender's insurance consultant as to the apparent validity and enforceability
of all Insurance Policies;

4.2

Conditions
Precedent for all Advances: The Lender shall not be obliged to make any Advance
subsequent to the Loan Advance unless in the opinion of the Lender the terms and
conditions applicable to all previous Advances has and continue to be satisfied,
all of which  shall, at the Lender's discretion, be re-applicable as of the
date of such Advance.

ARTICLE
5

ADDITIONAL
COVENANTS

5.1

Title
to Assets: The Company lawfully owns or is entitled to become the lawful owner
of the Land with which it carries on its business (whether such ownership be
legal or beneficial) and on registration of the Debenture with the Ministry of
Energy, Mines and Petroleum Resources will be and until the release of the
Debenture will remain the lawful owner of and lawfully possessed and seized of
all of the Land and will have good title thereto free from all liens, charges
and encumbrances whatsoever except Permitted Encumbrances and has good right and
lawful authority to grant, convey, sell, bargain, assign, transfer, mortgage,
pledge and charge the Land.  The Borrower covenants that it does not, at
the date hereof and shall not hold the Land or any portion thereof in trust for
any other party;

5.2

Due
Incorporation and Registration: The Borrower is duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and is duly registered and in good standing under the laws of each
jurisdiction in which the Land is situate and has all powers, government
permits, authorizations and such other powers and authorizations as are
necessary to enable it to carry on its business and to execute, deliver and
carry out its obligations under this Loan Agreement and all security collateral
to this Loan Agreement;

5.3

Due
Authorization: This Loan Agreement is issued and all security collateral to this
Loan Agreement is executed and delivered in accordance with resolutions of the
directors of the Borrower and all other matters and things have been done and
performed so as to authorize and make the execution, creation, issuance and
delivery of this Loan Agreement and such collateral security legal and valid and
in accordance with the





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Page
8



requirements
of the laws relating to the Borrower and all other statutes and laws in that
behalf;

5.4

Financial
Statements: If required by the Lender, the Borrower shall within 90 days
following the end of its fiscal years, deliver to the Lender then current
financial and operating statements for the Borrower. Such financial and
operating statements shall be prepared by a chartered accountant in good
standing and shall include balance sheets and income and expense statements in
such detail and with such schedules as the Lender may require. The Borrower
shall keep adequate records and books of account in accordance with generally
accepted accounting practice and will permit the Lender, by their agents,
accountants and solicitors, to visit and examine their records and books of
account and to discuss their affairs, finances and accounts with their officers,
at such times as may be requested by the Lender. Throughout the term of the
Loan, the Borrower shall promptly deliver to the Lender such other information
with respect to the Borrower as the Lender may request from time to time. All
financial statements shall be prepared in accordance with generally accepted
accounting principles, and shall be accompanied by the certificate of a
principal financial or accounting officer dated within five days of the delivery
of such statements to the Lender, stating that he knows of no material adverse
change in the financial position of the relevant entity since the date of such
financial statements and, in the case of the Borrower, stating that he knows of
no defaults under this Loan Agreement.  All financial statements and other
documents  and information delivered by the Company in connection with the
Company's application for the Loan are true and accurate and fairly represent
the financial condition of the Company;

5.5

Not
in Default: The Company is not in default under any agreement or instrument to
which it is a party nor is it party to or bound by any contract or agreement
which could materially affect its business, property, assets or financial
condition;

5.6

Further
Fundings:  The Borrower shall apply 25% of the net proceeds from any
financing received by the Borrower to the Loan.  It is acknowledged by the
Lender that this clause shall not apply to stock options or the exercise of
warrants;

5.7

Solicitors
Opinion:  The Borrower covenants and agrees that, except for bona fide
legal reasons, the Borrower will cause to be issued, at the Borrower's expense
and at the request of the Lender at such time as it may lawfully be made, a
legal opinion (as required under relevant Canadian or US law and practise)
permitting the removal of the legend requiring a 1-year hold in relation to the
500,000 shares of the Borrower, which shares are being issued as further
consideration for the making of the Loan.  The Lender acknowledges that it
take such shares in accordance with restrictions in law required by regulators
from time to time and the Lender represents and warrants that it is an
accredited investor, is eligible to subscribe for and receive the shares
pursuant to the relevant laws of BC and the USA and is acquiring the same for
investment purposes.





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Page
9



ARTICLE
6

MISCELLANEOUS

6.1

Assignment:

(a)

The
Lender may, without consent, assign, grant security interests in, negotiate,
pledge or otherwise dispose of Borrower's Liabilities and the Security and
Supporting Documents and of their rights and security thereunder in whole or in
part to any bank, person, firm, body corporate, company or other entity and all
rights and remedies of the Lender in connection with the interest so assigned
shall be enforceable against the Borrower and other parties thereto by such
assignee as the same would has been by the Lender but for such assignment. The
Lender may in connection with such transactions release any information or
documents in their control in connection with the Loan and the Borrower to any
assignee or intended assignee.

(b)

The
Borrower shall not assign or encumber its rights and obligations under this
Agreement, the Loan or the whole or any part of any Advance to be made
hereunder, without the prior written consent of the Lender.

6.2

Survival
of Terms: All covenants, agreements, representations and warranties made herein
shall survive the execution and delivery to the Lender of the Security and
Supporting Documents and the making of all Advances.

6.3

Any
notice required to be given hereunder shall be in writing addressed to the party
to whom it is given and shall be delivered to the address stated on the first
page hereof or to such other address in British Columbia as the party to whom it
is given shall has previously specified by written notice.

6.4

Payment:
The Borrower shall pay in lawful money of Canada in funds payable at par at
Vancouver, British Columbia the principal sum, interest and all other Borrower's
Liabilities as provided in this Agreement. Any moneys paid after 12:00 noon
Vancouver time on the Loan Expiry Date shall be deemed to has been paid on the
next following day that the Lender's solicitors at that time shall be open for
business.

6.5

Time
of Essence: Time is of the essence of this Agreement and the other Security and
Supporting Documents.

6.6

Governing
Law: The Security and Supporting Documents shall in all respects be governed by
and construed in accordance with the laws of British Columbia.

6.7

Execution
in Counterparts: This Agreement may be executed in several counterparts each of
which when so executed shall be deemed to be an original and all such
counterparts taken together shall constitute one and the same agreement.

6.8

Whole
Agreement and Amendment or Modification: The rights and obligations of the
parties hereto with respect to the Loan and the Project are wholly contained in
this Agreement and the other Security and Supporting Documents and all
commitment letters and





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Page
10



prior
agreements are merged therein. The Security and Supporting Documents cannot be
added to, amended or waived in whole or in part, or any collateral agreement
thereto created orally, by letter, telex, or other written communication or by
any course of conduct of the Lender, their employees or agents and there are no
implied terms, covenants, agreements or conditions between the parties. No
amendment, waiver or modification of this Agreement or the other Security and
Supporting Documents in whole or in part or any collateral agreement shall be
enforceable against the Lender unless it is by a formal instrument in writing
expressed to be a modification of this Agreement or the other Security and
Supporting Documents as the case may be and executed in the same fashion as this
Agreement.

6.09

Waivers
of Performance by the Lender: The Lender may in their absolute discretion waive,
modify or not enforce any condition or requirement hereunder or under any of the
Security and Supporting Documents and any such waiver, modification, failure to
enforce or the failure at any time by the Lender to require strict performance
by the Borrower or any other party of any of the terms of this Agreement or of
the terms of the other Security and Supporting Documents shall not release or
diminish the obligations of the Borrower under any of the Security and
Supporting Documents or affect any right of the Lender thereafter to demand
strict performance therewith and any waiver of any Event of Default shall not
waive or affect any similar or other Event of Default.

6.10

Incorporation
of Debenture Clauses: The warranties, representations, covenants, terms,
conditions and agreements in the Debenture are incorporated herein and made a
part hereof and are applicable hereto as if fully reproduced in this Agreement
and are in addition to and enlarge and are not in substitution for those set out
in this Agreement. In the event of a direct conflict between this Agreement and
any of the other Security and Supporting Documents, this Agreement shall
prevail. Notwithstanding that the Debenture is expressed to be payable on
demand, the Lender shall not be entitled to make demand thereunder unless an
Event of Default has occurred and is continuing.

6.11

No
Judicial Review: The Borrower acknowledges that this Agreement is entered into
on the express condition that the Lender's opinions, approvals, consents,
requirements, determinations and decisions and what is satisfactory or not
satisfactory to them is in their sole and absolute discretion and is not subject
to judicial review as to their reasonableness.

6.12

Collateral
Security: Each item in the Security and Supporting Documents is, will or has
been taken by way of additional security only and neither the taking of such
item nor anything done in pursuance hereof or thereof shall in any way prejudice
or limit the rights of the Lender or the obligations of the Borrower under any
other part of the Security and Supporting Documents. The rights and remedies
given to the Lender hereunder and under each item of the Security and Supporting
Documents shall be in addition to and not in substitution for and shall not in
any way derogate from or delay or prejudice any rights or remedies to which the
Lender may be entitled under any other item of the Security and Supporting
Documents, any other agreement or security, or by law or in equity and such
rights and remedies may be exercised consecutively or concurrently and from time
to time, all as the Lender in their absolute discretion from time to time
determine.





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Page
11



6.13

Severability:
If any provision of the Security and Supporting Documents shall be held invalid
or unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
such provision in any other jurisdiction or any other provision of the Security
and Supporting Documents in any jurisdiction.

6.14

Enurement:
This Agreement shall be binding on and enure to the benefit of the Borrower and
the Lender as well as their successors and permitted assigns.



IN
WITNESS WHEREOF the Borrower has executed this Agreement.



|SIGNED
      on behalf of CRYSTAL GRAPHITE CORPORATION. by its authorized
      signatory(ies):
      
      /s/
      Gordon
      Sales
      
      Authorized
      Signatory
      
      
      
      Authorized
      Signatory | )
      )
      )
      )
      )
      )
      )
      )
      )
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------











---





SCHEDULE
"A"



THE
LAND CHARGED BY THIS DEBENTURE



1.

Mining
Lease: 390937

Map
No. 082F072

Mining
Division: SLOCAN

Land
District: KOOTENAY



Claim
Names: MOLLY 1, 2, 3 and 4

Title
Nos: 305145, 305146, 305147, 305148

Lot
No: 17073



Dated:
June 25, 2002



2.

Mining
Lease: 392322

Map
No. 082F052, 082F062

Mining
Division: SLOCAN

Land
District: KOOTENAY



Claim
Names: Plant #1, Plant #2

Title
Nos: 387588, 387589

Lot
No: 17069, 17074



Dated:
June 25, 2002









---





SCHEDULE
"B"



PERMITTED
ENCUMBRANCES ON THE LAND



NIL







---





SCHEDULE
"C"



CONFIDENTIAL
BUSINESS PLAN OF THE BORROWER







End of Exhibit 10.1







---

EXHIBIT 10.2







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Share Purchase Agreement  Phase I  dated March 3, 2004 among the Company, CPC and Brian Wear





SHARE
PURCHASE AGREEMENT



PHASE
I



THIS
SHARE PURCHASE AGREEMENT is dated for reference the 29th day of April, 2004.





AMONG:



CRYSTAL
GRAPHITE CORPORATION., a corporation incorporated under the laws of the
Province of British Columbia and having its business office located at Suite
1750 - 999 West Hastings Street, Vancouver, BC, V6C 2W2



the
Purchaser



(OF
THE FIRST PART)



AND:



CANADA
PUMICE CORPORATION a corporation incorporated under the laws of the Province
of British Columbia and having its business office located at Unit 6, 2009
Abbotsford Way, Abbotsford, BC V2S 4N7





the
"Corporation"



(OF
THE SECOND PART)



AND:



BRIAN
C. WEAR, businessman and sole stockholder of the Corporation and having his
address at that of the Corporation above



Shareholder



(OF
THE THIRD PART)





WHEREAS:



A.

The
Corporation, directly or by subsidiaries, is an owner of land and claims and
processing facilities in the region of Quesnel, BC on or adjacent to which the
Corporation

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-
2 -





conducts
active quarrying, processing and sales business of pumice and other minerals
under the name of the Corporation and its wholly owned subsidiaries, Volcanic
 Industrial Minerals Inc "Volcanic" and Cariboo Lava Corporation
"Cariboo";



B.

The
Shareholder owns all of the issued, issuable and outstanding shares of the
Corporation the Corporation Shares;



C.

The
Shareholder desires to sell and the Purchaser desires to purchase that amount of
Corporation Shares as set forth in this Agreement;



D.

The
respective boards of directors of the Purchaser and Corporation each deem it
advisable and in the best interests of their respective companies and
shareholders to combine their respective businesses by the Purchaser acquiring
all of the Corporation Shares pursuant to the terms of this Agreement: and



E.

The
respective boards of directors of the Purchaser and Corporation and the
Shareholder have approved and adopted this Agreement as a transfer or sale and
receipt of shares pursuant to section 85 1 of the Income Tax Act Canada the Tax
Act.





NOW
THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the within
premises, the mutual representations, warranties, covenants and agreements
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:





ARTICLE
1

DEFINITIONS



1.01

Definitions.
 The following terms, as used herein, have the following meanings:



Affiliate
means, with respect to any Person, any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with such
other Person.



Agreement
means this Share Purchase Agreement and all schedules which is entered into by
and among the Purchaser, the Corporation and the Shareholder.



Applicable
Law means, with respect to any Person, any United States whether federal,
territorial, state, municipal or local, Canadian whether federal, territorial,
provincial, municipal or local or foreign statute, law, ordinance, rule,
administrative interpretation, regulation, order, writ, injunction, directive,
judgement, decree or other requirement, all as in effect as of the Closing, of
any Governmental Authority applicable to such Person or any of its Affiliates or
any of their respective properties, assets, officers, directors, employees,
consultants or agents in connection with such officers, directors, employees,
consultants or agents activities on behalf of such Person or any of its
Affiliates.

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-
3 -







Associate
means with respect to any Person a any other Person of which such Person is an
officer or partner or is, directly or indirectly, the beneficial owner of ten
percent 10 or more of any class of equity securities issued by such other
Person, b any trust or other estate in which such Person has a ten percent 10 or
more beneficial interest or as to which such Person serves as trustee or in a
similar fiduciary capacity, and c any relative or spouse of such Person, or any
relative of such spouse who has the same home as such Person or who is a
director or officer of such Person or any Affiliate thereof.



Business
Day means a day other than a Saturday, Sunday or other day on which
commercial banks in Vancouver, British Columbia are authorised or required by
law to close.



Corporations
Balance Sheet and "Corporation's Financials"means the
referenced financial statements of the Corporation as set forth in section 4.07.



"Corporation
Business" means the business as heretofore or currently conducted by the
Corporation as generally described in the preamble hereto and as described in
the Corporation's Balance Sheet and due diligence materials presented to the
Purchaser.



"Corporation
Contracts" means all contracts, agreements, options, leases, licences,
sales and purchase orders, commitments and other instruments of any kind,
whether written or oral, to which the Corporation or any Person on behalf of the
Corporation is a party on the Closing Date.



"Corporation
Permitted Liens" means, with respect to the Corporation, i Liens for Taxes
or governmental assessments, charges or claims the payment of which is not yet
due, or for Taxes the validity of which is being contested in good faith by
appropriate proceedings; ii statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, material men and other similar Persons and other liens
imposed by Applicable Law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith; iii Liens relating to
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or to
secure the performance of leases, trade contracts or other similar agreements iv
Liens and Corporation Encumbrances specifically identified in the Corporation's
Balance Sheet included in the Corporation Financials; v Liens securing executory
obligations under any lease that constitute an "operating lease" under
Canadian GAAP; provided, however, that, with respect to each of clauses i
through v, to the extent that any such encumbrance or Lien arose prior to the
date of the Corporation's Balance Sheet included in the Corporation's
Financials and relates to, or secures the payment of, a Liability that is
required to be accrued under Canadian GAAP, such encumbrance or Lien shall not
be a Corporation Permitted Lien unless adequate accruals for such Liability have
been established therefor on such Corporation's Balance Sheet in conformity
with Canadian GAAP.



"Corporation
Shares" means all of the issued, issuable and outstanding shares of the
Corporation.



---

-
4 -





"Governmental
Authority" means any United States whether federal, territorial, state,
municipal or local, Canadian whether federal, territorial, provincial, municipal
or local or foreign government, governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organisation,
commission, tribunal or organisation or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.



"Interim
Period" means the period from and including the date of this Agreement to
and including the Closing Date and also includes the time to the Second Closing.



"Liability"
means, with respect to any Person, any liability or obligation of such Person of
any kind, character or description, whether known or unknown, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated, secured or
unsecured, joint or several, due or to become due, vested or unvested,
determined, determinable or otherwise and whether or not the same is required to
be accrued on the financial statements of such Person.



"Lien"
means, with respect to any asset, any mortgage, assignment, trust or deemed
trust whether contractual, statutory or otherwise arising, title defect or
objection, lien, pledge, charge, security interest, hypothecation, restriction,
encumbrance or charge of any kind in respect of such assets.



"Material
Adverse Effect" means a change in, or effect on, the operations, affairs,
prospects, financial condition, -results of operations, assets, Liabilities,
reserves or any other aspect of a party to this Agreement or to its business
that results in a material adverse effect on, or a material adverse change in,
any such aspect of the party or to its business.



"Purchaser's
Balance Sheet" and "Purchaser's Financials"means the
referenced financial statements of the Purchaser as set forth in section 5.07.



"Person"
includes an individual, body corporate, partnership, company, unincorporated
syndicate or organisation, trust, trustee, executor, administrator and other
legal representative.



"Purchaser
Business" means the business as heretofore or currently conducted by the
Purchaser.



"Purchaser
Contracts" means all contracts, agreements, options, leases, licences,
sales and purchase orders, commitments and other instruments of any kind,
whether written or oral, to which the Purchaser, directly or indirectly, is a
party on the Closing Date.



"SEC"
means the United States Securities and Exchange Commission.



"Second
Acquisition Agreement" means an agreement between the Parties to acquire the
remaining Corporation Shares as set forth in section 9.01 hereof.



"Second
Closing" means the Closing provided in the Second Acquisition Agreement.



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-
5 -





"Subsidiary"
means, with respect to any Person, i any corporation as to which 50 or more of
the outstanding shares having ordinary voting rights or power and excluding
shares having voting rights only upon the occurrence of a contingency unless and
until such contingency occurs and such rights may be exercised is owned or
controlled, directly or indirectly, by such Person and/or by one or more of such
Person's Subsidiaries, and ii any partnership, joint venture or other similar
relationship between such Person or any Subsidiary thereof and any other Person
whether pursuant to a written agreement or otherwise which results in control by
such Person.



"Tax"
means all taxes imposed of any nature including any United States whether
federal, territorial, state or local, Canadian whether federal, territorial,
provincial or local or foreign income tax, alternative or add-on minimum tax,
profits or excess profits tax, franchise tax, gross income, adjusted gross
income or gross receipts tax, employment related tax including employee
withholding or employer payroll tax or employer health tax, capital tax, real or
personal property tax or ad valorem tax, sales or use tax, excise tax, stamp tax
or duty, any withholding or back up withholding tax, value added tax, GST,
severance tax, prohibited tax, premiums tax, occupation tax, customs and import
duties, together with any interest or any penalty, addition to tax or additional
amount imposed by any Governmental Authority responsible for the imposition of
any such tax or in respect of or pursuant to any United States whether federal,
territorial, state or local, Canadian whether federal, territorial, provincial
or local or other Applicable Law.



"Tax
Return" means all returns, reports, forms or other information required to
be filed with respect to any Tax.



"33
Act" means the United States Securities Act of 1933 and all amendments
thereto.



"34
Act" means the United States Securities Act of 1934 and all amendments
thereto.



1.02

Currency
Used.  All references herein to dollars or the use of the symbol ""
shall be deemed to refer to Canadian dollars unless such reference is prefaced
by "US" in which case the reference will be to United States dollars.



1.03

Canadian
Generally Accepted Accounting Principles.  Where the Canadian Institute
of Chartered Accountants or any successor thereto includes a statement in its
handbook or any successor thereto on a method or alternative methods of
accounting or on a standard or standards of auditing, such statement shall be
regarded as the only generally accepted accounting principle or principles or
generally accepted auditing standard or standards "Canadian GAAP" applicable
to the circumstances that it covers, and references herein to "generally
accepted accounting principles" shall be interpreted accordingly.  All
accounting and financial terms used herein with respect to the Corporation or
Purchaser, unless specifically provided to the contrary, shall be interpreted
and applied in accordance with Canadian GAAP.



1.04

American
Generally Accepted Accounting Principles.  Where the American Institute
of Certified Public Accountants or any successor thereto includes a statement in
its handbook or any successor thereto on a method or alternative methods of
accounting or on a standard or standards of auditing, such statement shall be
regarded as the only generally accepted accounting

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-
6 -





principle
or principles or generally accepted auditing standard or standards "American
GAAP" applicable to the circumstances that it covers, and references herein to
"generally accepted accounting principles" shall be interpreted accordingly.
 All accounting and financial terms used herein with respect to the
Purchaser for US reporting purposes, unless specifically provided to the
contrary, shall be interpreted and applied in accordance with American GAAP.





ARTICLE
2

PURCHASE
AND SALE



2.01

Purchase
of Corporation Shares.  On the terms and subject to the conditions set
forth herein, the Shareholder hereby agrees to sell, transfer, convey, assign
and deliver to the Purchaser, free and clear of all Corporation Share
Encumbrances as defined in paragraph 3.01.1, and the Purchaser hereby agrees to
purchase, acquire and accept from the Shareholder, ninety-two 92 Corporation
Shares "Purchased Corporation Shares" having an agreed value of five
hundred and twenty-two thousand five hundred and fourteen dollars 522,514.
 At Closing, the Shareholder will deliver to the Purchaser certificates
evidencing all of the Purchased Corporation Shares duly endorsed for transfer
and such other instruments as have been reasonably requested by the Purchaser to
transfer full legal and beneficial ownership of the Purchased Corporation Shares
to the Purchaser, free and clear of all Corporation Share Encumbrances and the
Corporation agrees to enter the Purchaser on the books of the Corporation as the
holder of the Purchased Corporation Shares and to issue one or more replacement
share certificates representing the Purchased Corporation Shares to the
Purchaser or the Purchaser's nominee.  The Purchaser shall pay the
Purchase Price for the Purchased Corporation Shares in accordance with the terms
of Section 2.02 of this Agreement.



2.02

Purchase
Price for Purchased Corporation Shares.  The aggregate purchase price
to be paid by the Purchaser to the Shareholder or his designees for the
Purchased Corporation Shares at Closing will be the sum of CDN522,514 the "Purchase
Price" which shall be fully satisfied and paid by the delivery of
 seven hundred and six thousand one hundred 706,100 common shares the "Purchase
Price shares" of the Purchaser at the deemed price of CDN0.74 based upon a
conversion formula of, at or about March 3 to April 15, 2004, an average market
price of 0.55US employing an exchange rate of 1.3445 per Purchase Price share.
 The 706,100 Purchase Price shares, represented by one or several
certificates as requested by the Shareholder and if no request is made five days
or more prior to Closing then by one certificate, of the Purchaser constituting
the Purchase Price to be delivered to the Shareholder at Closing shall be issued
from treasury of the Purchaser as validly and lawfully issued and fully paid and
non-assessable without lien or encumbrance of any nature whatsoever, excepting
only restrictions as may be imposed by generally Applicable Law and the
Shareholder acknowledges that the Purchase Price shares shall be subject to
restrictions as to disposition consequent upon Applicable Law and the
certificates shall therefor have imprinted upon them restrictive language
generally as follows:



"The
securities represented by this certificate have not been registered under the
Securities Act of 1933 or the laws of any state and have been issued

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-
7 -





pursuant
to an exemption from registration pertaining to such securities and pursuant to
a representation by the security holder named hereon that said securities have
been acquired for purposes of investment and not for purposes of distribution.
 These securities may not be offered, sold, transferred, pledged or
hypothecated in the absence of registration, or the availability of an exemption
from such registration. Furthermore, no offer, sale, transfer, pledge or
hypothecation is to take place without the prior written approval of counsel to
the issuer being affixed to this certificate.  The stock transfer agent has
been ordered to effectuate transfers of this certificate only in accordance with
the above instructions."



"Unless
permitted under securities legislation in British Columbia or Alberta, the
holder of the securities shall not trade the securities before the earlier of i
the date that is 12 months and a day after the date the issuer first became a
reporting issuer in any of Alberta, British Columbia, Manitoba, Nova Scotia,
Ontario, Quebec and Saskatchewan, if the issuer is a SEDAR filer; and ii the
date that is 12 months and a day after the later of A the distribution date, and
B the date the issuer became a reporting issuer in the local jurisdiction of the
purchaser of the securities that are the subject of the trade."



Furthermore,
as the Corporation is a company whose securities are or may be subject to US
law, the Shareholder hereby agrees, represents and warrants to the Corporation
as follows:



(i)

Shareholder
i is not a U.S. Person as defined in Rule 902 of Regulation S "Regulation S"
under the United States Securities Act of 1933 the "1933 Act", which
definition includes, but is not limited to, any natural person resident in the
United States, any corporation or partnership incorporated or organized under
the laws of the United States, or any estate or trust of which any executor,
administrator or trustee is a U.S. Person; ii is not purchasing any of the
Securities for the account or benefit of any U.S. Person or for offering, resale
or delivery for the account or benefit of any U.S. Person or for the account of
any person in any jurisdiction other than the jurisdiction set out in the name
and address of Shareholder below; and iii was not offered any Securities in the
United States and was outside the United States at the time of execution and
delivery of this Agreement.



(ii)

Shareholder
acknowledges that the Securities have not been registered under the 1933 Act and
the Company has no obligation or present intention of filing a registration
statement under the 1933 Act in respect of the Securities.  The Shareholder
agrees to resell the Securities only in accordance with the provisions of
Regulation S and any other applicable securities laws, pursuant to a
registration under the 1933 Act, or pursuant to an available exemption from such
registration, and that hedging transactions involving the Securities may not be
conducted unless in compliance with the 1933 Act.  The Shareholder
understands that any certificate representing the Securities will bear a legend
setting forth the foregoing restrictions.  The Shareholder understands that
the Securities are restricted securities within the meaning of Rule 144
promulgated under the 1933 Act; that the exemption from

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-
8 -





registration
under Rule 144 will not be available in any event for at least one year from the
date of purchase and payment of the Securities by the Shareholder, and other
terms and conditions of Rule 144 are complied with; and that any sale of the
Securities may be made by the Investor only in limited amounts in accordance
with such terms and conditions.



(iii)

No
U.S. Person, either directly or indirectly, has any beneficial interest in any
of the Securities acquired by Shareholder hereunder, nor does Shareholder have
any agreement or understanding written or oral with any U.S. Person respecting:



(a)

the
transfer or any assignment of any rights or interest in any of the Securities;



(b)

the
division of profits, losses, fees, commissions or any financial stake in
connection with this subscription; or



(c)

the
voting of the Securities.



2.03

Closing.
 The closing the "Closing" of the transactions contemplated by this
Agreement shall take place at the offices of Devlin Jensen, 2550-555 West
Hastings Street, Vancouver, BC on or before April 26, 2004 or such other date as
the parties hereto may mutually agree the "Closing Date".  In the event
that Closing shall not occur on or before July 30, 2004 then either Party, so
long as the electing Party is not in default, may elect to terminate and abandon
this Agreement without prejudice to claim for damages if default of the other
Party if it gives notice of a time and place and its preparedness to Close
within 15 days of such notice to the other Party and the other Party fails to
attend for Closing or, if attending, is not willing or able to Close in
accordance with this Agreement.



2.04

Roll-Over
Election.  For the purposes of the Tax Act the Purchaser and the
Shareholder hereby covenant and agree to elect jointly under Subsection 85 1 of
the Income Tax Act "Tax Act", by completing and filing with the
Canada Revenue Agency the prescribed form within the prescribed time for the
purposes of the Tax Act with respect to the sale by the Shareholder to the
Purchaser of the Purchased Corporation Shares and further agree to transfer the
Purchased Corporation Shares at an agreed amount the "Elected Amount" of
520,000. However, if at any time after the Closing Date the Shareholder
determines that either:



(a)

it
is necessary or desirable to change the Elected Amount; or



(b)

the
Tax Act deems the Elected Amount to be an amount which is different than the
amount agreed upon between the Shareholder and the Purchaser;



then
the Shareholder and the Purchaser shall do all things reasonably necessary to
reflect such change.



The
Parties hereto acknowledge and agree that the transaction contemplated by this
Agreement is to be carried out in accordance with the provisions of Section 85 1
of the Income Tax Act

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-
9 -





Canada,
S.C. 1979-71, -72. Ch. 63 as amended. The Parties agree and hereby confirm that
they will jointly elect pursuant to Section 85 1 of the Tax Act in the
prescribed form and within the time referred to in Section 85 6 of the Tax Act
so that, for income tax purposes, the agreed election amount as set out in the
first paragraph hereof in respect of the Purchase Price and the Purchase Price
shares becomes and is deemed to be the Shareholder's proceeds of disposition
of the Purchased Corporation Shares and the Purchaser's cost of the Purchase
Price shares so that the transaction does not give rise to any income tax
liability whatsoever other than Alternative Minimum Tax and any income tax
liability deferred as a result of the election under Section 85 1 of the Act
shall be for the account of the Purchaser.





ARTICLE
3

REPRESENTATIONS
AND WARRANTIES OF SHAREHOLDER



As
an inducement to the Purchaser to enter into this Agreement and to consummate
the transactions provided for herein, the Shareholder, as to the Corporation,
himself and as to the Corporation Shares owned by him, represents and warrants
to the Purchaser as follows and confirms that the Purchaser is relying upon the
accuracy of each of such representations and warranties in connection with the
purchase of the Corporation Shares and the completion of the transactions set
out herein:



3.01

Representations
Regarding the Corporation Shares.



3.01.1

The
Shareholder has sole and exclusive and good and marketable title in and to the
Corporation Shares, free and clear of any and all covenants, conditions,
restrictions, voting trust arrangements, rights of first refusal, options, Liens
and adverse claims and rights whatsoever collectively, the "Corporation Share
Encumbrances", and on the Closing Date, the Shareholder will deliver to the
Purchaser, good and marketable title to the Purchased Corporation Shares free
and clear of any and all Corporation Share Encumbrances;



3.01.2

The
Shareholder has full right, power and authority to enter into this Agreement and
has the full right, power and authority to transfer, convey and sell to the
Purchaser at the Closing the Purchased Corporation Shares and upon delivery by
the Shareholder the Purchaser will acquire from the Shareholder sole and
exclusive and good and marketable title to the Purchased Corporation Shares free
and clear of all Corporation Share Encumbrances; and



3.01.3

The
Shareholder is not a party to, subject to or bound by, nor is any pending or
likely to his reasonable knowledge, any agreement, judgement, order, writ,
prohibition, injunction or decree of any court or other Governmental Authority
that would prevent the delivery to the Purchaser of the Purchased Corporation
Shares or the consummation of the transactions under this Agreement in
accordance with the terms of this Agreement.



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10 -





3.02

Authorisation.
 The execution, delivery and performance of this Agreement, and the
consummation of the transactions provided for herein are within the powers of
the Shareholder and have been duly authorised by all necessary action.
 This Agreement has been duly and validly executed by the Shareholder and
constitutes a legal, valid and binding agreement of the Shareholder enforceable
in accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganisation, moratorium or similar laws affecting creditors'
rights and subject to general principles of equity, none of which are applicable
or will be applicable to the reasonable best of the Shareholder's knowledge at
Closing.



3.03

Non-Contravention.
The execution, delivery and performance of this Agreement, and the consummation
of the transactions provided for herein do not i contravene or conflict with or
constitute a material violation of any provision of any Applicable Law binding
upon or applicable to the Shareholder or the Corporation Shares or ii result in
the creation or imposition of any Lien.



3.04

Residency.
 The Shareholder is a resident of Canada as defined in the Income Tax Act
Canada.



3.05

Good
Faith.  The Shareholder will employ good faith, due diligence, and best
efforts to perform its obligations of this Agreement and will do such acts and
enter into such additional or collateral agreements as may be reasonably
required by the Purchaser to effect and complete the objects and intent of this
Agreement.



3.06

Corporation
Performance.  The Shareholder will diligently, proactively and in good
faith effect all such acts as a shareholder and director of the Corporation as
are available to it at law to cause the Corporation to fully, completely and
diligently to effect this Agreement and to effect Closing.



3.07

Corporation
Warranties.  The Shareholder warrants that to the best of his
reasonably informed knowledge all of the warranties of the Corporation of this
Agreement are true.





ARTICLE
4

REPRESENTATIONS
AND WARRANTIES OF THE CORPORATION



As
an inducement to the Purchaser to enter into this Agreement and to consummate
the transactions provided for herein, the Corporation, represents and warrants
to the Purchaser as follows:



4.01

Existence
and Power.  The Corporation is a corporation duly incorporated,
organised and validly existing under the laws of the Province of British
Columbia and has all corporate power and all governmental licences,
authorisations, permits, consents and approvals required to carry on the
Corporation Business as now conducted and to own and operate the Corporation
Business as now owned and operated.  The Corporation is not required to be
qualified to conduct business in any jurisdiction where the failure to be so
qualified, whether individually or in the aggregate, would have a Material
Adverse Effect.  No Corporation proceedings have been taken

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-
11 -





or
authorised by the Corporation or any Shareholder or, to the knowledge of the
Corporation, by any other Person, with respect to nor is such contemplated the
bankruptcy, insolvency, liquidation, dissolution or winding-up of the
Corporation or with respect to any amalgamation, merger, consolidation,
arrangement or reorganisation relating to the Corporation.



4.02

Authorisation.
 The execution, delivery and performance by the Corporation of this
Agreement and the consummation thereby of the transactions provided for herein
are within the Corporation's powers and have been duly authorised by all
necessary action on its part.  This Agreement has been duly and validly
executed by the Corporation and constitutes a legal, valid and binding agreement
of the Corporation enforceable against it in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganisation,
moratorium or similar laws affecting creditors' rights and subject to general
principles of equity, none of which are applicable or will be applicable to the
reasonable best of the Corporation's knowledge at Closing. The execution and
Closing of this Agreement will not create a Material Adverse Effect on the
Corporation or any Corporation Contract or Corporation Asset nor will it
negatively impact any Governmental Authority permit, license or other authority
or permission.



4.03

Capital
Stock.



4.03.1

The
authorised capital stock of the Corporation consists solely of 10,000,000 common
shares without par value, of which 2,000 common shares are issued and
outstanding and are held by the Shareholder the "Corporation Shares" and
such constitute 100 of the issued, issuable or possibly issuable equity capital
of the Corporation.



4.03.2

All
such issued and outstanding Corporation Shares have been duly and validly
authorised and issued and are fully paid and non-assessable. There are not
outstanding i any options, warrants, rights of first refusal or other rights to
purchase any shares of or from the Corporation or the Corporation Shares, nor ii
any securities or contracts convertible into or exchangeable for shares nor iii
any other commitments of any kind for the issuance of shares of the Corporation
or options, warrants or other securities of the Corporation.



4.03.3

Prior
to or at the date of this Agreement and up to and including the Closing Date the
Corporation has not and has not committed itself to:



(i)

redeem
or acquire any shares;



(ii)

declare
or pay any dividend;



(iii)

make
any reduction in or otherwise make any payment on account of capital; or



(iv)

effect
any subdivision, consolidation or reclassification of any capital;



4.04

Subsidiaries.
 The Corporation has no Subsidiaries other than Volcanic  Industrial
Minerals Inc and Cariboo Lava Corporation which are wholly owned by the
Corporation without any interest by any other party therein.  The
Corporation has no investment or ownership of

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shares
or other interests in other companies, partnerships or businesses except as are
disclosed in the Corporation's Balance Sheet;



4.05

Governmental
Authorisation.  The execution, delivery and performance by the
Corporation of this Agreement requires no action by, consent or approval of, or
filing with, any Governmental Authority other than as expressly referred to in
this Agreement.



4.06

Non-Contravention.
 The execution, delivery and performance of this Agreement by the
Corporation, and the consummation by it of the transactions provided for herein,
do not and will not a contravene or conflict with the articles or bylaws of the
Corporation; b contravene or conflict with or constitute a material violation of
any provision of any Applicable Law binding upon or applicable to the
Corporation, the Corporation Business or the Corporation Shares and would not,
individually or in the aggregate have a Material Adverse Effect; c constitute a
default under or give rise to any right of termination, cancellation or
acceleration of, or to a loss of any benefit to which the Corporation is
entitled, under any of the Corporation Contracts or any permit or similar
authorisation relating to the Corporation, the Corporation Business or the
Corporation Shares by which the Corporation, the Corporation Business or the
Corporation Shares may be bound or affected; or d result in the creation or
imposition of any Lien.



4.07

Financial
Statements:



4.07.1

Attached
hereto as Schedule "A" are true and complete copies of the Corporation's
Balance Sheet composed of unaudited statements as of December 31, 2002 and
management produced statements at December 31, 2003 and the related statements
of income and retained earnings and changes of financial position for the years
covered collectively, the "Corporation's Financials".



4.07.2

The
Corporation's Financials: i have been prepared on a consistent basis and are
based on the books and records of the Corporation in accordance with Canadian
GAAP and present fairly the financial position, results of operations and
statements of changes in the Corporation's financial position as of the dates
indicated or the periods indicated; ii contain and reflect all necessary
adjustments and accruals for a fair presentation of its financial position and
the results of its operations for the periods covered by said financial
statements; iii contain and reflect adequate provisions for all reasonably
anticipated Liabilities including Taxes with respect to the periods then ended
and all prior periods; and iv with respect to the Corporation Contracts and
commitments for the sale of goods or the provision of services by the
Corporation, contain and reflect adequate reserves for all reasonably
anticipated material losses and costs and expenses in excess of expected
receipts.



4.07.3

To
the best of the knowledge of the Corporation, there are no Liabilities of the
Corporation other than: i any Liabilities accrued as Liabilities on the
Corporation's Balance Sheet; ii Liabilities incurred since the date of the
Corporation's Balance Sheet that do not, and could not, individually or in the
aggregate have a Material Adverse

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Effect;
and iii other Liabilities disclosed in this Agreement or in any schedules
attached hereto.



4.07.4

To
the best of the knowledge of the Corporation, there is no basis for any material
in excess of 50,000 restatement of the Corporation's Financials



4.08

Absence
of Certain Changes. During and since the dates of the Corporation's
Financials, the Corporation Business has been conducted in the ordinary course,
and there has not been, except as disclosed in the Corporation's Financials or
Schedule "B" or elsewhere in this Agreement:



(a)

any
event, occurrence, state of circumstances, or facts or change in the Corporation
or in the Corporation Business that has had, or which the Corporation, after
reasonable inquiry, expect to have, either individually or in the aggregate, a
Material Adverse Effect;



(b)

i
any change in any Liabilities of the Corporation that has had, or which the
Corporation may, after reasonable inquiry, expect to have, a Material Adverse
Effect or ii any incurrence, assumption or guarantee of any indebtedness for
borrowed money by the Corporation in connection with the Corporation Business or
otherwise;



(c)

any
i payments by the Corporation in respect of any indebtedness of the Corporation
for borrowed money or in satisfaction of any Liabilities of the Corporation
related to the Corporation Business, other than in the ordinary course of
business or the guarantee by the Corporation of any of the indebtedness of any
other Person or ii creation, assumption or sufferance of whether by action or
omission the existence of any Lien on any assets reflected on the Corporation's
Balance Sheet, other than Corporation Permitted Liens;



(d)

any
transaction or commitment made, or any Corporation Contract entered into or any
waiver, amendment, termination or cancellation of any of the Corporation
Contracts, or any relinquishment of any rights thereunder by the Corporation or
of any other right or debt owed to the Corporation, other than, in each such
case, actions taken in the ordinary course of business consistent with past
practice;



(e)

any
i grant of any severance, continuation or termination pay to any director,
officer, stockholder or employee of the Corporation or any Affiliate of the
Corporation, ii entering into of any employment, deferred compensation or other
similar agreement or any amendment to any such existing agreement with any
director, officer, stockholder or employee of the Corporation or any Affiliate
of the Corporation, iii increase in benefits payable or potentially payable
under any severance, continuation or termination pay policies or employment
agreements with any director, officer, stockholder or employee of the
Corporation or any Affiliate of the Corporation, iv increase in compensation,
bonus or other benefits

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payable
or potentially payable to directors, officers, stockholders or employees of the
Corporation or any Affiliate of the Corporation other than in the normal course
of business, v change in the terms of any bonus, pension, insurance, health or
other benefit plan of the Corporation or vi representation of the Corporation to
any employee or former employee of the Corporation that the Purchaser promised
to continue any Corporation benefit plan after the Closing Date,



(f)

any
change by the Corporation in its accounting principles, methods or practices or
in the manner it keeps its books and records;



(g)

any
distribution, dividend, bonus, management fee or other payment by the
Corporation, other than normal year-end tax planning, to any officer, director,
stockholder or Affiliate of the Corporation or any of their respective
Affiliates or Associates; or



(h)

any
i material single expenditure or commitment, or any group of related
expenditures or commitments, or ii sale, assignment, transfer, lease or other
disposition of or agreement to sell, assign, transfer, lease or otherwise
dispose of any Corporation's Asset as defined below other than in the ordinary
course of business.



4.09

Corporation's
Assets and Liabilities.



4.09.1

The
Corporation owns, leases, rents or has rights to property and assets as set
forth in detail in Schedule "B" hereto or in the Corporation's Financials
of Schedule "A" and which includes, without limitation, fee simple
disclosure, leases, mineral claims, any other rights in land, buildings, plant,
and any other realty or infrastructure and any rights in any of the same, any
material chattels or other assets having a value in excess of 10,000 and any
other assets, tangible or intangible, having a value in excess of 10,000 and
including, without limitation, contracts, inventories, receivables, investments,
rights, and any other matters of such value of the Corporation's Business
collectively the "Corporation's Assets".



4.09.2

The
Corporation holds title to each of the Corporation's Assets free and clear of
all Liens, adverse claims, easements, rights of way, servitude's, zoning or
building restrictions or any other rights of others or other adverse interests
of any kind, including leases, chattel mortgages, conditional sales contracts,
collateral security arrangements and other title or interest retention
arrangements except Corporation Permitted Liens or as detailed in Schedule "B"
or the Corporation's Financials collectively, "Corporation Encumbrances".



4.09.3

All
of the Corporation's Assets on the Corporation's Balance Sheet or Schedule
"B" are in all material respects fit for the purposes for which they are
used and are in good operating condition and repair and are adequate for the
uses to which they are put, and no material properties or assets necessary for
the conduct of the Corporation Business in

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substantially
the same manner as the Corporation Business has heretofore been conducted are in
need of replacement, maintenance or repair except for routine replacement,
maintenance and repair.



4.09.4

Save
and except for those matters which are disclosed in Schedule "B" or the
Corporation's Financials there are no material liabilities, contingent or
otherwise, existing on the date hereof in respect of which the Corporation may
be liable on or after the completion of the transactions contemplated by this
Agreement other than:



(i)

liabilities
disclosed or referred to in this Agreement;



(ii)

liabilities
incurred in the ordinary course of business, none of which are materially
adverse to the respective businesses, operations, affairs or financial
conditions of the Corporation; and



(iii)

present
liabilities do not exceed 900,000CDN in aggregate of which approximately 400,000
is a Shareholder loan to the Corporation;



4.09.5

There
are no Corporation Assets material to the operation of the Corporation Business
which, to the reasonably informed knowledge of the Corporation, would be lost or
suffer a Material Adverse Effect as a consequence of this Agreement or Closing
or otherwise is contemplated to be lost or materially damaged.



4.09.6

Attached
to this Agreement as Schedule "C" is a business plan of the Corporation,
produced by the Corporation. The Purchaser has also produced an "Overview
Report for a proposed merger between Crystal Graphite Corporation and Canada
Pumice Corporation" dated February 20, 2004 produced by Edward Nunn of the
Purchaser which the Corporation has reviewed. Both reports are reasonable
descriptions of the Corporation's Business and Corporation Assets and there
are no material errors or material omissions therein, to the Corporation's
reasonable knowledge, which error or omission would make such reports materially
misleading.  It is acknowledged by the Parties however that the Shareholder
and the Corporation do not warrant the future performance of the Corporation.



4.10

Affiliates.
Other than as disclosed in this Agreement, there are no Corporation Contracts
which have been entered into within the past five years or are currently in
force and effect between the Corporation and any Shareholder, or any Affiliate
or Associate of any Shareholder.  The Corporation is not indebted to any
Shareholder except as disclosed in this Agreement.



4.11

Litigation.
 There are no material proceedings pending or, to the knowledge of the
Corporation, threatened against or affecting the Corporation or the Corporation
Business or that seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement and ii there is no existing order, judgement or
decree of any Governmental Authority naming the Corporation as an affected party
which has not been paid or discharged in full.



4.12

Material
Contracts. All Corporation Contracts are in good standing and are legal,
valid and binding obligations of the Corporation and each other Person who is a
party thereto,

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16 -





enforceable
against the Corporation and each such Person in accordance with its terms, and
none are subject to any material default thereunder.  All Corporation
Contracts are adequately disclosed in Schedule "B".  There are no
Corporation Contracts which cannot be cancelled with not more than 30 days
notice or payment of not more than 10,000 except as disclosed in Schedule "B".
There are no Corporation Contracts material to the operation of the Corporation
Business which, to the reasonably informed knowledge of the Corporation, would
be lost or suffer a Material Adverse Effect as a consequence of this Agreement
or Closing or otherwise is contemplated to be lost.



4.13

Required
Consents.  There are no governmental or other registrations, filings,
applications, notices, transfers, Consents, approvals, orders, qualifications or
waivers required under Applicable Law or otherwise required to be obtained or
made with any Governmental Authority to be obtained by the Corporation or any
Shareholder by virtue of the execution and delivery of this Agreement and the
consummation of the transactions provided for herein for any reason; nor are
there any Corporation Contracts with respect to which the consent of the other
party or parties thereto must be obtained by the Corporation or any Shareholder
by virtue of the execution and delivery of this Agreement and the consummation
of the transactions provided for herein the "Required Consents".



4.14

Corporation
Intellectual Property.



4.14.1

Schedule
"B" sets forth a complete and correct list of each patent, patent
application and invention, trademark, trade name, trademark or trade name
registration or application, copyright or copyright registration or application
for copyright registration, and each licence or licensing agreement, for any of
the foregoing relating to the Corporation Business as conducted by the
Corporation or held by the Corporation the "Corporation Intellectual Property
Rights".  Corporation Intellectual Property Rights also include any trade
secrets that are material to the conduct of the Corporation Business in the
manner that the Corporation Business has heretofore been conducted.



4.14.2

The
Corporation has not during the three years preceding the date of this Agreement
been a party to any proceeding, nor to the knowledge of the Corporation, is any
proceeding threatened as to which there is a reasonable possibility of a
determination adverse to the Corporation, involving a claim of infringement by
any Person including any Governmental Authority of any Corporation Intellectual
Property Right.  No Corporation Intellectual Property Right is subject to
any outstanding order, judgement, decree, stipulation or agreement restricting
the use thereof by the Corporation or restricting the licensing thereof by the
Corporation to any Person.  The Corporation has no knowledge that would
cause such Person to believe that the use of the Corporation Intellectual
Property Rights or the conduct of the Corporation Business conflicts with,
infringes upon or violates any patent, patent licence, patent application,
trademark, trade name, trademark or trade name registration, copyright,
copyright registration, service mark, brand mark or brand name or any pending
application relating thereto, or any trade secret, know-how, programs or
processes, or any similar rights, of any Person.



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17 -





4.14.3

To
the knowledge of the Corporation, the Corporation either owns the entire right,
title and interest in Corporation Intellectual Property Rights or has acquired
an exclusive licence to use, any and all patents, trademarks, trade names, brand
names and copyrights that are material to the conduct of the Corporation
Business in the manner that the Corporation Business has heretofore, been
conducted.  The Corporation Intellectual Property Rights are in full force
and effect and have not been used or enforced or failed to be used or enforced
in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Corporation Intellectual Property Rights.
 All registrations and filings necessary to preserve the rights of the
Corporation in and to the Corporation Intellectual Property Rights have been
made.

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4.15

Tax
Matters.



4.15.1

The
Corporation is a taxable Canadian corporation, as that term is defined in the
Tax Act. The Corporation has prepared and filed all Tax Returns on time with all
appropriate Governmental Authorities which were required to be filed on or prior
to the Closing Date.  Each such Tax Return was correct and complete.
 True copies of all Tax Returns prepared and filed by the Corporation
during the past three years and that the Purchaser has requested have been given
to the Purchaser on or before the date of this Agreement.



4.15.2

The
Corporation has paid all Taxes due and payable by it and has paid all
assessments and reassessments it has received in respect of Taxes.  The
Corporation has paid all Tax instalments due and payable by it as at its last
fiscal year.



4.15.3

The
Corporation has withheld from each payment made to any of its present or former
employees, officers and directors, and including to all persons who are
non-residents of Canada for the purposes of the Income Tax Act Canada all
amounts required by Applicable Law and has remitted such withheld amounts within
the prescribed periods to the appropriate Governmental Authority.  The
Corporation has remitted all Canada Pension Plan contributions, employment
insurance premiums, employer health taxes and other Taxes payable by it in
respect of its employees and has remitted such amounts to the proper
Governmental Authority within the time required by Applicable Law.  The
Corporation has charged, collected and remitted on a timely basis all Taxes as
required by Applicable Law on any service, sale, supply or delivery whatsoever,
made by the Corporation.



4.15.4

The
Corporation Business is the only business ever conducted by the Corporation.
 The non-capital losses as defined in the Tax Act and any applicable
provincial taxing statute were incurred by the Corporation only in carrying on
the Corporation Business.  The Corporation is not prevented by virtue of
any amalgamation or dissolution from carrying back against income earned by it
prior to the Closing Date, any losses incurred by it after the Closing Date.



4.15.5

The
Corporation has paid all Taxes imposed by applicable legislation in the province
of British Columbia on the acquisition or maintenance of its realty and tangible
personal property as defined in applicable legislation in the province of
British Columbia, including GST, PST, municipal taxes and any other transfer or
maintenance or service tax..  The foregoing is accurate, mutatis mutandis,
with respect to all sales or transfer Taxes imposed under comparable legislation
of other provinces.



4.15.6

The
Corporation has never acquired or had the use of any of its assets from a Person
a "Related Person" with whom the Corporation was not dealing at arm's
length, within the meaning of the Tax Act.  The Corporation has never
disposed of any asset to a Related Person for proceeds less than the fair market
value of that asset.  Except as disclosed in this Agreement, the
Corporation is not a party to or bound by any agreement with, is not

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indebted
to, and no amount is owing to the Corporation by any Related Person, not dealing
at arm's length, within the meaning of the Tax Act, with the Corporation.



4.16

Securities
Legislation.  The Corporation is a private issuer within the meaning of
the Securities Act British Columbia and the sale of the Corporation Shares by
the Shareholder to the Purchaser is made in compliance with the exempt
take-over-bid provisions of such Act.



4.17

Full
Disclosure.  The information contained in the documents, certificates
and written statements including this Agreement and the schedules and exhibits
hereto furnished to the Purchaser by or on behalf of the Corporation with
respect to the Corporation including the Corporation Business and the results of
operations, financial condition and prospects of the Corporation for use in
connection with this Agreement or the transactions contemplated by this
Agreement is true and complete in all material respects and does not, to the
best of the knowledge of the Corporation after conducting an inquiry which a
reasonably prudent person would make under the circumstances, omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.  There is no fact
known to the Corporation the Corporation that has not been disclosed to the
Purchaser by the Corporation in writing that has had a Material Adverse Effect
on or, so far as the Corporation can now foresee, could be reasonably likely to
have a Material Adverse Effect on the Corporation including the Corporation
Business and the results of operations, financial condition or prospects of the
Corporation.



4.18

Compliance
with Applicable Laws.  The operation of the Corporation Business i has
not violated or infringed, except for violations or infringements that have been
cured and the prior existence of which could not, individually or in the
aggregate, reasonably be expected to have an adverse effect on the Corporation
and ii does not in any material respect violate or infringe any Applicable Law,
the terms of any permit or any order, writ, injunction or decree of any
Governmental Authority.



4.19

Corporation
Employment Agreements and Employee Benefits.



4.19.1

There
are no employment, consulting, severance pay, continuation pay, termination pay,
indemnification agreements, collective agreements, employee benefit plans or
other similar agreements of any nature whatsoever affecting the Corporation
which could not be terminated on 30 days notice or pay in lieu. The Corporation
does not maintain or contribute to, or has maintained or contributed to any,
employee pension or welfare benefit plans.The Corporation is not subject to any
collective bargaining agreements or any other union contracts nor is any
contemplated.



4.19.2

The
Corporation and its Affiliates have complied and are currently complying, in
respect of all contracts with employees of the Corporation and its Affiliates,
with all Applicable Laws respecting employment and employment practices and the
protection of the health and safety of employees, except for such instances
which are not, in the aggregate, material.



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4.20

Good
Faith.  The Corporation will employ good faith, due diligence, and best
efforts to perform its obligations of this Agreement and will do such acts and
enter into such additional or collateral agreements or sureties as may be
reasonably required by the Purchaser to effect and complete the objects and
intent of this Agreement.





ARTICLE
5

REPRESENTATIONS
AND WARRANTIES OF THE PURCHASER



As
an inducement to the Corporation and the Shareholder to enter into this
Agreement and to consummate the transactions provided for herein, the Purchaser
represents and warrants to the Corporation and the Shareholder that:



5.01

Existence
and Power.  The Purchaser is a corporation duly incorporated, organised
and validly existing under the laws of the Province of British Columbia, is
listed in good standing on the NASD governed OTCBB and on the Canadian Trading
and Quotation System, and is a British Columbia and Alberta reporting issuer and
a foreign reporting issuer 20F filer in the US in good standing. The Purchaser
has all corporate power and all governmental licences, authorisations, permits,
consents and approvals required to carry on the Purchaser Business as now
conducted and to own and operate the businesses as now owned and operated.
 The Purchaser is not required to be qualified to conduct business in any
jurisdiction where the failure to be so qualified would have a Material Adverse
Effect.  No proceedings have been taken or authorised by the Purchaser or,
to the knowledge of the Purchaser, by any other Person with respect to the
bankruptcy, insolvency, liquidation, dissolution or winding-up of the Purchaser
or with respect to any amalgamation, merger, consolidation, arrangement or
reorganisation relating to the Purchaser.  The Corporation and the
Shareholder are aware of a Petition brought on by a shareholder of the Purchaser
seeking to interfere with management decision on a number of matters, including
this Agreement.  This disclosure is a continuing disclosure regarding all
warranties hereof.



5.02

Authorisation.
 The execution, delivery and performance by the Purchaser of this Agreement
and the consummation thereby of the transactions provided for herein are within
the powers of the Purchaser and have been duly authorised by all necessary
action on its part.  This Agreement has been duly and validly executed by
the Purchaser and constitutes a legal, valid and binding agreement of the
Purchaser enforceable against it in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganisation, moratorium or
similar laws affecting creditors' rights and subject to general principles of
equity, none of which are applicable or will be applicable to the reasonable
best of the Purchaser's knowledge at Closing. The execution and Closing of
this Agreement will not create a Material Adverse Effect on the Purchaser or any
Purchaser Contract or Purchaser Asset nor will it negatively impact any
Governmental Authority permit, license or other authority or permission.



5.03

Capital
Stock of the Purchaser.



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21 -





5.03.1

The
authorised capital stock of the Purchaser consists of 250,000,000 common shares,
no par value, of which approximately 26,989,395 common shares are issued and
outstanding on the date hereof.  All issued and outstanding common shares
of the Purchaser have been lawfully and validly authorised and issued and are
fully paid and non-assessable.



5.03.2

Attached
as Schedule "D" is a list at the date hereof of i any options, warrants,
rights of first refusal or other rights to purchase any shares of or from the
Corporation or the Corporation Shares, and ii any securities or contracts
convertible into or exchangeable for shares and iii any other commitments of any
kind for the issuance of shares of the Corporation or options, warrants or other
securities of the Corporation.  Such Schedule "D" constitutes a
materially complete and accurate list of the same at the date hereof.



5.03.3

Prior
to or at the date of this Agreement and up to and including the Closing Date the
Corporation has not and has not committed itself to:



(i)

redeem
or acquire any shares;



(ii)

declare
or pay any dividend;



(iii)

make
any reduction in or otherwise make any payment on account of capital; or



(iv)

effect
any subdivision, consolidation or reclassification of any capital;



5.04

Subsidiaries.
 The Purchaser has no Subsidiaries.



5.05

Governmental
Authorisation.  The execution, delivery and performance by the
Purchaser of this Agreement requires no action by, consent or approval of any
Governmental Authority other than as expressly referred to in this Agreement.
 The Purchaser is required to make disclosure filings with the Governmental
Authorities with which it is a reporting issuer or in which it is incorporated
to disclose the transactions hereof and nay material changes resulting
therefrom, all in the normal course and in accordance with generally prevailing
law and regulation.



5.06

Non-Contravention.
The execution, delivery and performance of this Agreement by the Purchaser, and
the consummation by it of the transactions provided for herein, do not and will
not a contravene or conflict with the respective articles or bylaws of the
Purchaser; b contravene or conflict with or constitute a material violation of
any provision of any Applicable Law binding upon or applicable to the Purchaser,
the Purchaser Business or the outstanding shares in its capital stock and will
not, individually or in the aggregate, have a Material Adverse Effect; c
constitute a default under or give rise to any right of termination,
cancellation or acceleration of, or to a loss of any benefit to which the
Purchaser is entitled under any Purchaser Contract or any Permit or similar
authorisation relating to the Purchaser, the Purchaser Business or the
outstanding shares of its capital stock, or d result in the creation or
imposition of any Lien.



5.07

Financial
Statements.

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5.07.1

Attached
hereto as Schedule "E" are true and complete copies of the Purchaser's
audited financial statements as of August 31, 2003 and the related statements of
income and retained earnings and changes of financial position, prepared on a
consolidated basis, for such year end together with the quarterly unaudited
financial statements for the period ending November 30, 2003 collectively, the
"Purchaser's Financials" prepared on a consolidated basis and prepared
appropriately in accordance with Canadian GAAP and American GAAP.



5.07.2

The
Purchaser's Financials: i have been prepared on a consistent basis and are
based on the books and records of the Purchaser in accordance with Canadian GAAP
and American GAAP and present fairly the financial position, results of
operations and statements of changes in the Purchaser's financial position as
of the dates indicated or the periods indicated; ii contain and reflect all
necessary adjustments and accruals for a fair presentation of its financial
position and the results of its operations for the periods covered by said
financial statements; iii contain and reflect adequate provisions for all
reasonably anticipated liabilities including Taxes with respect to the periods
then ended and all prior periods; and iv with respect to Purchaser Contracts and
commitments for the sale of goods or the provision of services by the Purchaser,
contain and reflect adequate reserves for all reasonably anticipated material
losses and costs and expenses in excess of expected receipts.



5.07.3

To
the best of the knowledge of the Purchaser, there are no Liabilities of the
Purchaser other than: i any Liabilities accrued as Liabilities on the Purchaser's
Balance Sheet; ii Liabilities incurred since the date of the Purchaser's
Balance Sheet that do not, and could not, individually or in the aggregate have
a Material Adverse Effect; iii other Liabilities disclosed in this Agreement or
in any schedules attached hereto.



5.07.4

To
the best of the knowledge of the Purchaser, there is no basis for any material
in excess of 50,000 restatement of the Purchaser's Financials



5.08

Absence
of Certain Changes. During and since the dates of the Purchaser's
Financials, the Purchaser Business has been conducted in the ordinary course,
and there has not been, except as disclosed in the Purchaser's Financials or
elsewhere in this Agreement:



(a)

any
event, occurrence, state of circumstances, or facts or change in the Purchaser
or in the Purchaser Business that has had or which the Purchaser expects to
have, either individually or in the aggregate, a Material Adverse Effect;



(b)

i
any change in any Liabilities of the Purchaser that has had, or which the
Purchaser expects to have, a Material Adverse Effect or ii any incurrence,
assumption or guarantee of any indebtedness for borrowed money by the Purchaser
in connection with the Purchaser Business or otherwise;



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(c)

any
i payments by the Purchaser in respect of any indebtedness of the Purchaser for
borrowed money or in satisfaction of any Liabilities of the Purchaser related to
the Purchaser Business, other than in the ordinary course of business or the
guarantee by the Purchaser of any of the indebtedness of any other Person or ii
creation, assumption or sufferance of whether by action or omission the
existence of any Lien on any assets reflected on the Purchaser's Balance
Sheet, other than Purchaser Permitted Liens;



(d)

any
transaction or commitment made, or any Purchaser Contract entered into, by the
Purchaser, any waiver, amendment, termination or cancellation of any Purchaser
Contract, or any relinquishment of any rights thereunder by the Purchaser or of
any other right or debt owed to the Purchaser, other than, in each such case,
actions taken in the ordinary course of business consistent with past practice;



(e)

any
i grant of any severance, continuation or termination pay to any director,
officer, stockholder or employee of the Purchaser or any Affiliate of the
Purchaser, ii entering into of any employment, deferred compensation or other
similar agreement or any amendment to any such existing agreement with any
director, officer, stockholder or employee of the Purchaser or any Affiliate of
the Purchaser, iii increase in benefits payable or potentially payable under any
severance, continuation or termination pay policies or employment agreements
with any director, officer, stockholder or employee of the Purchaser or any
Affiliate of the Purchaser, iv increase in compensation, bonus or other benefits
payable or potentially payable to directors, officers, stockholders or employees
of the Purchaser or any .Affiliate of the Purchaser, v change in the terms of
any bonus, pension, insurance, health or other benefit plan of the Purchaser or
vi representation of the Purchaser to any employee or former employee of the
Purchaser that the Purchaser promised to continue any benefit plan after the
Closing Date,



(f)

any
change by the Purchaser in its accounting principles, methods or practices or in
the manner it keeps its books and records;



(g)

any
distribution, dividend, bonus, management fee or other payment by the Purchaser
to any of their respective officers, directors, stockholders or Affiliates of
the Purchaser or any of their respective Affiliates or Associates; and



(h)

any
i material single expenditure or commitment, or any group of related
expenditures or commitments or ii material sale, assignment, transfer, lease or
other disposition of or agreement to sell, assign, transfer, lease or otherwise
dispose of any asset or property of the Purchaser other than in the ordinary
course of business.



5.09

Purchaser's
Assets and Liabilities.

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5.09.1

The
Purchaser owns, leases, rents or has rights to property and assets as set forth
in detail in Schedule "F" hereto or in the Purchaser's Financials and
which includes, without limitation, fee simple disclosure, leases, mineral
claims, any other rights in land, buildings, plant, and any other realty or
infrastructure and any rights in any of the same, any material chattels or other
assets having a value in excess of 10,000 and any other assets, tangible or
intangible, having a value in excess of 10,000 and including, without
limitation, contracts, inventories, receivables, investments, rights, and any
other matters of such value of the Purchaser's Business collectively the "Purchaser's
Assets".



5.09.2

The
Purchaser holds title to each of the Purchaser's Assets free and clear of all
Liens, adverse claims, easements, rights of way, servitude's, zoning or
building restrictions or any other rights of others or other adverse interests
of any kind, including leases, chattel mortgages, conditional sales contracts,
collateral security arrangements and other title or interest retention
arrangements except Purchaser Permitted Liens or as detailed in Schedule "F"
or the Purchaser's Financials collectively, " Purchaser Encumbrances".



5.09.3

All
of the Purchaser's Assets on the Purchaser 's Balance Sheet or Schedule "F"
are in all material respects fit for the purposes for which they are used and
are in good operating condition and repair and are adequate for the uses to
which they are put, and no material properties or assets necessary for the
conduct of the Purchaser Business in substantially the same manner as the
Purchaser Business has heretofore been conducted are in need of replacement,
maintenance or repair except for routine replacement, maintenance and repair.



5.09.4

Save
and except for those matters which are disclosed in Schedule "F" or the
Purchaser's Financials there are no material liabilities, contingent or
otherwise, existing on the date hereof in respect of which the Purchaser may be
liable on or after the completion of the transactions contemplated by this
Agreement other than:



(i)

liabilities
disclosed or referred to in this Agreement;



(ii)

liabilities
incurred in the ordinary course of business, none of which are materially
adverse to the respective businesses, operations, affairs or financial
conditions of the Purchaser; and



(iii)

present
liabilities do not exceed approximately 1,200,000CDN in aggregate of which
approximately 1,000,000 is a director loan to the Purchaser;



5.09.5

There
are no Purchaser Assets material to the operation of the Purchaser Business
which, to the reasonably informed knowledge of the Purchaser, would be lost or
suffer a Material Adverse Effect as a consequence of this Agreement or Closing
or otherwise is contemplated to be lost or materially damaged.



5.10

Affiliates.
Other than as disclosed in this Agreement, there are no Purchaser Contracts
which are currently in force and effect between the Purchaser and any
shareholder, or any

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Affiliate
or Associate of any shareholder except for an agreement between the Purchaser
and the receiver for Evergreen Trust, the largest shareholder of the Purchaser,
of which the Corporation has knowledge.  The Purchaser is not indebted to
any shareholder except as disclosed in this Agreement.



5.11

Litigation.
 There is no proceeding pending or, to the knowledge of the Purchaser,
threatened against or affecting the Purchaser or the Purchaser Business or that
seeks to prevent, enjoin, alter or delay the transactions contemplated by this
Agreement, and there is no existing order, judgement or decree of any
Governmental Authority naming the Purchaser as an affected party which has not
been paid or discharged in full.



5.12

Material
Contracts. All Purchaser Contracts are in good standing and are legal, valid
and binding obligations of the Purchaser and each other Person who is a party
thereto, enforceable against the Purchaser and each such Person in accordance
with its terms, and none are subject to any material default thereunder.
 All Purchaser Contracts are adequately disclosed in Schedule "F".
 There are no Purchaser Contracts which cannot be cancelled with not more
than 30 days notice or payment of not more than 10,000 except as disclosed in
Schedule "F". There are no Purchaser Contracts material to the operation of
the Purchaser Business which, to the reasonably informed knowledge of the
Purchaser, would be lost or suffer a Material Adverse Effect as a consequence of
this Agreement or Closing or otherwise is contemplated to be lost.



5.13

Compliance
with Applicable Laws.  The operation of the Purchaser Business i has
not violated or infringed, except for violations or infringements that have been
cured and the prior existence of which could not, individually or in the
aggregate, reasonably be expected to have an adverse effect on the Purchaser and
ii does not in any material respect violate or infringe any Applicable Law, the
terms of any permit or any order, writ, injunction or decree of any Governmental
Authority.



5.14

Purchaser
Employment Agreements and Employee Benefits.



5.14.1

There
are no employment, consulting, severance pay, continuation pay, termination pay,
indemnification agreements, collective agreements, employee benefit plans or
other similar agreements of any nature whatsoever affecting the Purchaser which
could not be terminated on 30 days notice or pay in lieu except as disclosed in
this Agreement. The Purchaser does not maintain or contribute to, or has
maintained or contributed to any, employee pension or welfare benefit plans. The
Purchaser is not subject to any collective bargaining agreements or any other
union contracts nor is any contemplated.



5.14.2

The
Purchaser and its Affiliates have complied and are currently complying, in
respect of all employees of the Purchaser and its Affiliates, with all
Applicable Laws respecting employment and employment practices and the
protection of the health and safety of employees, except for such instances
which are not, in the aggregate, material.



5.15

Purchaser
Intellectual Property.



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5.15.1

Schedule
"F" sets forth a complete and correct list of each patent, patent
application and invention, trademark, trade name, trademark or trade name
registration or application, copyright or copyright registration or application
for copyright registration, and each licence or licensing agreement, for any of
the foregoing relating to the Purchaser Business as conducted by the Purchaser
or held by the Purchaser the " Purchaser Intellectual Property Rights".
Purchaser Intellectual Property Rights also include any trade secrets that are
material to the conduct of the Purchaser Business in the manner that the
Purchaser Business has heretofore been conducted.



5.15.2

The
Purchaser has not during the three years preceding the date of this Agreement
been a party to any proceeding, nor to the knowledge of the Purchaser, is any
proceeding threatened as to which there is a reasonable possibility of a
determination adverse to the Purchaser, involving a claim of infringement by any
Person including any Governmental Authority of any Purchaser Intellectual
Property Right.  No Purchaser Intellectual Property Right is subject to any
outstanding order, judgement, decree, stipulation or agreement restricting the
use thereof by the Purchaser or restricting the licensing thereof by the
Purchaser to any Person.  The Purchaser has no knowledge that would cause
such Person to believe that the use of the Purchaser Intellectual Property
Rights or the conduct of the Purchaser Business conflicts with, infringes upon
or violates any patent, patent licence, patent application, trademark, trade
name, trademark or trade name registration, copyright, copyright registration,
service mark, brand mark or brand name or any pending application relating
thereto, or any trade secret, know-how, programs or processes, or any similar
rights, of any Person.



5.15.3

To
the knowledge of the Purchaser, the Purchaser either owns the entire right,
title and interest in Purchaser Intellectual Property Rights or has acquired an
exclusive licence to use, any and all patents, trademarks, trade names, brand
names and copyrights that are material to the conduct of the Purchaser Business
in the manner that the Purchaser Business has heretofore, been conducted.
 The Purchaser Intellectual Property Rights are in full force and effect
and have not been used or enforced or failed to be used or enforced in a manner
that would result in the abandonment, cancellation or unenforceability of any of
the Purchaser Intellectual Property Rights.  All registrations and filings
necessary to preserve the rights of the Purchaser in and to the Purchaser
Intellectual Property Rights have been made.



5.16

Required
Consents.  There are no governmental or other registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications or
waivers required under Applicable Law or otherwise required to be obtained or
made with any Governmental Authority to be obtained by the Purchaser or any
shareholder by virtue of the execution and delivery of this Agreement and the
consummation of the transactions provided for herein for any reason; nor are
there any Purchaser Contracts with respect to which the consent of the other
party or parties thereto must be obtained by the Purchaser or any shareholder by
virtue of the execution and delivery of this Agreement and the consummation of
the transactions provided for herein the "Required Consents" except only a
requirement to consult with the receiver for Evergreen Trust pursuant to
agreement.  The Purchaser is required to effect required filings disclosing
the

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material
elements of these transaction in the US and Canada at such time as matters
become material or Closing occurs in accordance with prevailing securities laws
and regulation.



5.17

Tax
Matters.



5.17.1

The
Purchaser is a taxable Canadian corporation, as that term is defined in the Tax
Act. The Purchaser has prepared and filed all Tax Returns on time with all
appropriate Governmental Authorities which were required to be filed on or prior
to the Closing Date.  Each such Tax Return was correct and complete.
 True copies of all Tax Returns prepared and filed by the Purchaser during
the past three years and that the Corporation has requested have been given to
the Corporation on or before the date of this Agreement.



5.17.2

The
Purchaser has paid all Taxes due and payable by it and has paid all assessments
and reassessments it has received in respect of Taxes.  The Purchaser has
paid all Tax instalments due and payable by it as at its last fiscal year.



5.17.3

The
Purchaser has withheld from each payment made to any of its present or former
employees, officers and directors, and including to all persons who are
non-residents of Canada for the purposes of the Income Tax Act Canada all
amounts required by Applicable Law and has remitted such withheld amounts within
the prescribed periods to the appropriate Governmental Authority.  The
Purchaser has remitted all Canada Pension Plan contributions, employment
insurance premiums, employer health taxes and other Taxes payable by it in
respect of its employees and has remitted such amounts to the proper
Governmental Authority within the time required by Applicable Law.  The
Purchaser has charged, collected and remitted on a timely basis all Taxes as
required by Applicable Law on any service, sale, supply or delivery whatsoever,
made by the Purchaser.



5.17.4

The
Purchaser Business is the only business conducted by the Purchaser during the
last five years.  The non-capital losses as defined in the Tax Act and any
applicable provincial taxing statute were incurred by the Purchaser only in
carrying on the Purchaser Business.  The Purchaser is not prevented by
virtue of any amalgamation or dissolution from carrying back against income
earned by it prior to the Closing Date, any losses incurred by it after the
Closing Date.



5.17.5

The
Purchaser has paid all Taxes imposed by applicable legislation in the province
of British Columbia on the acquisition or maintenance of its realty and tangible
personal property as defined in applicable legislation in the province of
British Columbia, including GST, PST, municipal taxes and any other transfer or
maintenance or service tax. The foregoing is accurate, mutatis mutandis, with
respect to all sales or transfer Taxes imposed under comparable legislation of
other provinces.



5.17.6

The
Purchaser has never acquired or had the use of any of its assets from a Person a
"Related Person" with whom the Purchaser was not dealing at arm's length,
within the meaning of the Tax Act.  The Purchaser has never disposed of any
asset to a Related

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Person
for proceeds less than the fair market value of that asset.  Except as
disclosed in this Agreement, the Purchaser is not a party to or bound by any
agreement with, is not indebted to, and no amount is owing to the Purchaser by
any Related Person, not dealing at arm's length, within the meaning of the Tax
Act, with the Purchaser.



5.18

Issuance
of Shares.The issuance of the Purchaser Price by the Purchaser, and
the terms and provisions of the Purchaser Price shares, will not violate any
provisions of the Purchaser's articles or bylaws or any Applicable Law.
 The Purchase Price shares will be issued lawfully and as fully paid and
non-assessable.



5.19

Continuing
Public Status.  The Purchaser warrants that until Closing it will
effect all reasonable endevours to maintain its reporting and listing
requirements in good standing and will maintain its listing on the NASD governed
OTCBB and on the CNQ.



5.20

Full
Disclosure.  The information contained in the documents, certificates
and written statements (including this Agreement and the schedules and exhibits
hereto) furnished to the Shareholder and Corporation by or on behalf of the
Purchaser with respect to the Purchaser (including the Purchaser Business and
the respective results of operations, financial condition and prospects of the
Purchaser) for use in connection with this Agreement or the transactions
contemplated by this Agreement is true and complete in all material respects and
does not, to the best of the knowledge of the Purchaser after conducting an
inquiry which a reasonably prudent person would make under the circumstances,
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  There is no fact known to the Purchaser that has not been
disclosed to the Corporation by the Purchaser in writing that has had a Material
Adverse Effect on or, so far as the Purchaser can now foresee, could be
reasonably likely to have a Material Adverse Effect on the Purchaser (including
the Purchaser Business and the respective results of operations, financial
condition or prospects of the Purchaser).



5.21

Good
Faith.  The Purchaser will employ good faith, due diligence, and best
efforts to perform its obligations of this Agreement and will do such acts and
enter into such additional or collateral agreements or sureties as may be
reasonably required by the Corporation to effect and complete the objects and
intent of this Agreement.





ARTICLE
6

COVENANTS
OF THE CORPORATION AND SHAREHOLDER



6.01

Conduct
of the Business.  During the Interim Period, other than with the
express written approval of the Purchaser, the Corporation shall conduct the
Corporation Business in the ordinary course consistent with past practice and
shall use its best efforts to preserve intact the organization, relationships
with third parties, the Corporation Assets, minimise Liabilities and Liens, and
maintain goodwill of the Corporation and keep available the services of the
present officers, employees, agents and other personnel of the Corporation
Business.  The corporate structure of the Corporation, the Corporate status
and the share structure of the Corporation shall

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not
be altered or affected in any manner and the Shareholder shall not in any manner
permit any assignment or other disposition of any interest in the Corporation
Shares nor permit a Lien in respect to the same.



6.01.1

Without
limiting in any way the importance of the foregoing, during the Interim Period,
other than with the express written approval of the Purchaser, the Corporation
shall not, and the Shareholder shall not cause the Corporation to and shall
employ every reasonable effort to prevent:



(a)

adopt
any material change in any method of accounting or accounting practice used by
the Corporation other than by reason of a concurrent change in generally
accepted accounting principles;



(b)

amend
its articles or bylaws;



(c)

sell,
mortgage, pledge or otherwise dispose of any assets or properties of the
Corporation Business and the Corporation Assets, other than in the ordinary
course of business;



(d)

declare,
set aside or pay any management fee or dividend or make any other distribution
with respect to the capital stock of the Corporation or otherwise make a
distribution or payment to any Shareholder, other than in the course of normal
year-end tax planning;



(e)

amalgamate,
merge or consolidate with or agree to amalgamate, merge or consolidate with, or
purchase or agree to purchase all or substantially all of the assets of, or
otherwise acquire, any corporation, partnership or other business organization
or division thereof;



(f)

authorize
for issuance, issue, sell or deliver any additional shares of its capital stock
of any class or any securities or obligations convertible into shares of its
capital stock of any class or commit to doing any of the foregoing it being
acknowledged that the Corporation authorised, effective December 31, 2003, the
issuance of 1000 Corporation Shares to the Shareholder in consideration of the
acquisition of Volcanic and Cariboo and that the said 1000 Corporation Shares
constitute part of the aggregate 2000 Corporation Shares owned by the
Shareholder and reflected in warranty section 4.03.1;



(g)

split,
combine or reclassify any shares of the capital stock of any class of the
Corporation or redeem or otherwise acquire, directly or indirectly, any shares
of such capital stock;



(h)

incur
or agree to incur any debt or guarantee any debt for borrowed money, including
any debt to any Shareholder, or to any Affiliate or Associate of any

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Shareholder,
except debt incurred in the ordinary course of business consistent with past
practice;



(i)

make
any loan, advance or capital contribution to or investment in any person other
than loans, advances and capital contributions to or investments in joint
ventures or other similar arrangements in which the Corporation has an equity
interest in the ordinary course of business and travel advances made in the
ordinary course of business by the Corporation to its employees to meet business
expenses expected to be incurred by such employees;



(j)

enter
into any settlement with respect to any proceeding or consent to any order,
decree or judgement relating to or arising out of any such Proceeding;



(k)

take
any action to terminate, dismiss or cause the retirement of any key employee of
the Corporation;



(1)

fail
in any material respect to comply with any Applicable Laws; or



(m)

make,
or make any commitments for, capital expenditures exceeding 25,000 for any
individual 'commitment or  100,000 for all such commitments taken in the
aggregate.  It is understood by the Parties that the Corporation is
acquiring two tractors costing approximately 130,000 each and is disposing of a
D-8 bulldozer.



6.01.2

During
the Interim Period, other than with the express written approval of the
Purchaser, the Corporation shall:



(a)

file
all Canadian, United States, foreign, federal, state, provincial and local Tax
Returns required to be filed and make timely payment of all applicable Taxes
when due;



(b)

promptly
notify the Purchaser in writing of any action or circumstance that results in,
or could reasonably be expected to result in, a Material Adverse Effect or the
occurrence of any breach by the Corporation or the Shareholder of any
representation or warranty, or any covenant or agreement contained in this
Agreement; and



(c)

promptly
notify the Purchaser in writing of the commencement of any proceeding or the
threat thereof by or against the Corporation or any Shareholder.



6.02

Maintenance
of Corporation Insurance Policies.  Prior to and on and after the
Closing Date, the Corporation shall not take or fail to take any action if such
action or inaction would adversely affect the applicability of any insurance in
effect on the date hereof that covers all or any material part of the assets of
the Corporation or the Business.



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6.03

Tax
Election.  The Corporation shall not file any election or other filing
pursuant to the Tax Act or any equivalent provincial provision except for Tax
returns and the election under section 85 of the Tax Act in respect of the
transfer by the Shareholder to the Corporation of his shares of Volcanic and
Cariboo.





ARTICLE
7

COVENANTS
OF THE PURCHASER



7.01

Conduct
of Business.  During the Interim Period, except with the written
consent of the Corporation, the Purchaser will conduct the Purchaser Business in
the ordinary course consistent with past practice and shall use its best efforts
to preserve intact the organization, relationships with third parties and
goodwill of the Purchaser and keep available the services of the present
officers, directors, employees, agents and other personnel of the Purchaser
Business; and without limiting in any way the importance of the foregoing, the
Purchaser shall not undertake any of those matters referred to in sections
6.01.1 and 6.01.2, 6.02 and 6.03 and all such clauses thereof shall apply
mutatis mutandis to the Purchaser.





ARTICLE
8

ACKNOWLEDGMENTS
AND COVENANTS OF ALL PARTIES



8.01

Further
Assurances.  Each party hereto agrees to execute and deliver such other
documents, certificates, agreements and other writings and to take such other
actions as may be reasonably necessary or desirable including obtaining all
required consents in order to evidence the consummation or implementation of the
transactions provided for under this Agreement.



8.02

Certain
Filings.  The parties hereto shall cooperate with one another in
determining whether any action by or in respect of, or filing with, any
Governmental Authority is required or reasonably appropriate, or any action,
consent, approval or waiver from any party to any Contract is required or
reasonably appropriate, in connection with the consummation of the transactions
contemplated by this Agreement.  Subject to the terms and conditions of
this Agreement, in taking such actions or making any such filings, the parties
hereto shall furnish information required in connection therewith and seek
timely to obtain any such actions, consents, approvals or waivers.



8.03

Registration.
 All parties acknowledge and agree that the Purchaser is a reporting issuer
in Canada and the United States, and that the Parties will and must cooperate in
the filing of any necessary or advisable documentation with Governmental
Authorities.





ARTICLE
9

PRE-CLOSING
MATTERS AND CONDITIONS TO CLOSING



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9.01

Pre-Closing
Matters.  At Closing the Parties shall enter into a Subsequent
Acquisition Agreement for the Purchaser to acquire all of the remaining
Corporation Shares from the Shareholder, on substantially the same terms as this
Agreement, which Subsequent Acquisition Agreement is to be closed "Second
Closing" under such Subsequent Acquisition Agreement within five 5 business
days of the Closing of this Agreement. The Parties shall effect best efforts to
conclude principal terms or to execute prior to or at Second Closing the
following:



(a)

the
Purchaser shall have acquired financial facilities of not less than 2,000,000CDN
gross before costs or terms of acquiring the funds, which shall be available for
completion at Second Closing and subject to Second Closing and for funding
within five 5 business days of Second Closing for disbursement to the Purchaser
for use by the Purchaser and within 30 days thereof such funds shall be advanced
to the Corporation for use as follows:



(i)

payment
of shareholder loans "Shareholder Loans" of the Corporation owing to the
Shareholder of approximately 400,000 on or within 30 days of Second Closing;



(ii)

the
grant of a loan the "Loan" in the amount of 263,000, by the Purchaser or its
subsidiary in accordance with advice of counsel and KPMG, to the Shareholder and
having the general terms of a draft Loan and pledge agreement of Schedule "G"
hereof; and



(iii)

the
remainder for working capital for development of the Corporation's Business.



(b)

to
complete a lease between the Purchaser or Corporation as the Parties determine
in accordance with tax advice and 530526 BC Ltd, owned by the Shareholder and
his family, on reasonable commercial terms for the location of a pumice bagging
plant, and executed and filed within 30 days of Second Closing unless if
required by the financier of the above finance, then within five 5 business days
of Second Closing on the terms set forth in Schedule "H" and the Shareholder
warrants to cause 530526 BC Ltd to enter into such lease on such terms;



(c)

within
30 days of Second Closing to effect reasonable best efforts to complete a mining
rights and extraction agreement between the Purchaser or Corporation as the
Parties determine in accordance with tax advice and the Shareholder, on
reasonable commercial royalty terms, of an additional 200 acres of surface and
sub-surface rights of land located in the town of Quesnel on the general terms
of Schedule "I"; and



(d)

to
complete a management agreement between the Purchaser and the Shareholder as a
senior officer of the Purchaser on the terms of the draft agreement of Schedule
"J" hereto.

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Where
there is uncertainty as to 'standard' or 'commercial' terms the
reference source shall be the forms and practise of the Purchaser and its
attorneys.



9.02

Conditions
to Obligation of the Purchaser.  The obligations of the Purchaser to
consummate the Closing are subject to the satisfaction of each of the following
conditions:



(a)

(i)
the Corporation and the Shareholder shall have performed and satisfied each of
their respective obligations of this Agreement required to be performed and
satisfied by them on or prior to the Closing Date, (ii) each of the
representations and warranties of the Corporation and the Shareholder contained
herein shall have been true and correct and contained no misstatement or
omission that would make any such representation or warranty misleading when
made and shall be true and correct and contain no misstatement or omission that
would make any such representation or warranty misleading at and as of the
Closing with the same force and effect as if made as of the Closing, and (iii)
the Purchaser shall have received certificates signed by the Shareholder as a
duly authorized executive officer of the Corporation to the foregoing effect and
to the effect that the conditions specified within this Section 9.02 (a) have
been satisfied.



(b)

All
required or advisable consents, if any, for the transactions contemplated by
this Agreement shall have been obtained without the imposition of any conditions
that are or would become applicable to the Corporation, the Business, the
Corporation Shares or the Purchaser or any of its Affiliates or Associates after
the Closing that would be materially burdensome upon the Corporation, the
Business, the Corporation Shares or the Purchaser or any of its Affiliates or
Associates or their respective businesses substantially as such businesses have
been conducted prior to the Closing Date or as said businesses, as of the date
hereof, would be reasonably expected to be conducted after the Closing Date.
 All such approvals shall be in effect, and no proceedings shall have been
instituted or threatened by any Governmental Authority or other Person with
respect thereto as to which there is a material risk of a determination that
would terminate the effectiveness of, or otherwise materially and adversely
modify the terms of, any such approval; all applicable waiting periods with
respect to such approvals shall have expired; and all conditions and
requirements prescribed by Applicable Law or by such approvals to be satisfied
on or prior to the Closing Date shall have been satisfied to the extent
necessary such that all such approvals are, and will remain, in full force and
effect assuming continued compliance with the terms thereof after the Closing.



(c)

The
transactions contemplated by this Agreement and the consummation of the Closing
shall not violate any Applicable Law.  The operation of the Business shall
not have violated or infringed, or be in violation or infringement of any
Applicable Law or any order, writ, injunction or decree of any Governmental
Authority, where such violations and infringements, individually or in
aggregate,

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have
resulted in, or could reasonably be expected to result in a Material Adverse
Effect.



(d)

Since
the date hereof, there shall not have been any event, occurrence, development or
state of circumstances or facts or change in the Corporation or the Corporation
Business, including any damage, destruction or other casualty loss affecting the
Corporation or the Corporation Business that has had or that may be reasonably
expected to have, either alone or together with all such events, occurrences,
developments, states of circumstances or facts or changes, a Material Adverse
Effect on the Corporation.



9.03

Conditions
to Obligations of Shareholder and Corporation.  The obligations of the
Shareholder and Corporation to consummate the Closing are subject to the
satisfaction of each of the following conditions:



(a)

(i)
the Purchaser shall have performed and satisfied each of its obligations of this
Agreement required to be performed and satisfied by it on or prior to the
Closing Date; (ii) each of the representations and warranties of the Purchaser
contained herein shall have been true and correct and contained no misstatement
or omission that would make any such representation or warranty misleading when
made and shall be true and correct and contain no misstatement or omission that
would make any such representation or warranty misleading at and as of the
Closing with the same force and effect as if made as of the Closing and (iii)
the Corporation and Shareholder shall have received a certificate signed by a
duly authorized executive officer of the Purchaser to the foregoing effect and
to the effect that the conditions specified within this Section 9.03 a have been
satisfied.



(b)

All
required or advisable consents for the transactions contemplated by this
Agreement shall have been obtained without the imposition of any conditions that
are or would become applicable to any Shareholder or any of their respective
Affiliates or Associates after the Closing that would be materially burdensome
upon any such Person.  All such approvals shall be in effect, and no
Proceedings shall have been instituted or threatened by any Governmental
Authority with respect thereto as to which there is a material risk of a
determination that would terminate the effectiveness of, or otherwise materially
and adversely modify the terms of, any such approval.  All applicable
waiting periods shall have expired, and all conditions and requirements such
approvals to be satisfied on or prior to the Closing extent necessary such that
all such approvals are, and will remain, in full force and effect assuming
continued compliance with the terms thereof after the Closing.



(c)

The
transactions contemplated by this Agreement and the consummation of the Closing
shall not violate any Applicable Law.  No temporary restraining order,
preliminary or permanent injunction, cease and desist order or other order
issued by any court of competent jurisdiction or any competent Governmental
Authority

---

-
35 -





or
any other legal restraint or prohibition preventing the transfer and exchange
contemplated hereby or the consummation of the Closing, or imposing Damages in
respect thereto, shall be in effect, and there shall be no pending actions or
proceedings by any Governmental Authority or determinations by any Governmental
Authority or by any other Person challenging or seeking to materially restrict
or prohibit the transfer and exchange contemplated hereby or the consummation of
the Closing.



(d)

Since
the date hereof, there shall not have been any event, occurrence, development or
state of circumstances or facts or change in the Purchaser or the Purchaser
Business, including any damage, destruction or other casualty loss affecting the
Purchaser or the Purchaser Business that has had or that may be reasonably
expected to have, either alone or together with all such events, occurrences,
developments, states of circumstances or facts or changes, a Material Adverse
Effect on the Purchaser.



9.04

Additional
Matters of the Interim Period.  The Parties shall conduct themselves
with good faith and diligence to achieve the objects and intent of this
Agreement and to achieve Closing on the terms contemplated and therefore shall
conduct themselves cooperatively and with open disclosure, access and veracity
and to such intent shall, inter alia:



(a)

delivery
by the Parties to each other, on a confidential basis, of the following
documentation and information:



(i)

a
copy of all material contracts, agreements, reports and title information of any
nature respecting each of the Parties and their assets; and



(ii)

details
of any lawsuits, claims or potential claims relating to any of the Parties;



(b)

during
normal business hours, to:



(i)

make
available for inspection by the solicitors, auditors and representatives of the
Parties, at such location as is appropriate, all of the other Partie's books,
records, contracts, documents, correspondence and other written materials, and
afford such persons every reasonable opportunity to make copies thereof and take
extracts therefrom at their sole cost, provided such persons do not unduly
interfere in the respective operations of the Companies;



(ii)

authorize
and permit such persons at the risk and the sole cost of the relevant Party, and
only if such persons do not unduly interfere in the respective operations, to
attend at all of their respective places of business and operations to observe
the conduct of their respective businesses and operations, inspect their
respective properties and assets and make physical counts of their respective
inventories, shipments and deliveries; and



(iii)

require
the Parties' respective management personnel to respond fully and with
veracity to all reasonable inquiries concerning the Parties' respective

---

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36 -





business
assets or the conduct of their respective businesses relating to their
respective liabilities and obligations;



9.04

Waiver
of Conditions Precedent.   The conditions precedent set forth in
sections 9.02 and 9.03 hereinabove are for the exclusive benefit of the stated
Party and may be waived by the stated Party in writing and in whole or in part
at any time prior to the Closing Date.





Article
10



CLOSING
AND POST CLOSING MATTERS





10.01

Closing
and Closing Date.   The Closing shall take place at the date and
place set forth in section 2.03



10.02

Documents
to be delivered by the Corporation and Shareholder.  Prior to or at
Closing, or Second Closing as noted, the Corporation and Shareholder shall
deliver to the Purchaser, unless waived by the Purchaser or agreed to be
delivered at a subsequent time,  the following:



(a)

on
or before Second Closing certificates representing the Purchased Corporation
Shares duly endorsed for transfer, director's resolutions authorising the
transfer to the Purchaser and directing alteration of the Corporation share
registry and all other documentation as may be necessary and as may be required
by the solicitors for the Purchaser, acting reasonably, to ensure that all of
the Purchased Corporation Shares have been transferred, assigned and are
registerable in the name of and for the benefit of the Purchaser;



(b)

on
or before Second Closing a copy of all corporate records and books of account of
the Corporation including, without limiting the generality of the foregoing, a
copy of all minute books, share register books, share certificate books and
annual reports;



(c)

all
necessary consents and approvals in writing to the completion of the
transactions contemplated herein;



(d)

on
or before Second Closing execution of the required agreements not waived of
section 9.01 for delivery to the Purchaser for execution;



(e)

on
or before Second Closing a certificate of an officer of the Corporation, dated
as of the Second Closing Date, acceptable in form to the solicitors for the
Purchaser, acting reasonably, certifying that the warranties, representations,
covenants and agreements of the Corporation contained in this Agreement are true
and correct as of the Closing Date;



(f)

if
required by the Purchaser, an opinion of counsel to the Corporation, dated as at
the Closing Date or Second Closing date, and addressed to the Purchaser and its
counsel, in form and substance satisfactory to the Purchaser's counsel, acting
reasonably, respecting the due transfer of the Purchased Corporation Shares and
that the same are validly issued and fully paid and non-assessable;



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(g)

execution
of the Subsequent Acquisition Agreement by the Corporation and the Shareholder;
and



(h)

all
such other documents and instruments as the Purchaser's solicitors may
reasonably require.



10.03

Documents
to be delivered by the Purchaser.  Prior to or at Closing, or Second
Closing as noted, the Purchaser shall deliver to the Corporation and Shareholder
at Closing , unless waived by the Corporation or agreed to be delivered at a
subsequent time, the following:



(a)

on
or before Second Clsoing certificates in the name of the Shareholder or such
designees as he may direct representing the Purchase Price, director's
resolutions authorising the issuance and all other documentation as may be
necessary and as may be required by the solicitors for the Corporation and
Shareholder, acting reasonably, to provide comfort that the same have been
lawfully and validly issued and are fully paid and non-assessable;



(b)

all
necessary consents, including Purchaser board resolutions, and approvals in
writing to the completion of the transactions contemplated herein;



(c)

on
or before Second Closing execution and delivery of the required agreements of
section 9.01 and comfort, as reasonably required by the Corporation and
Shareholder, that the finance facility of section 9.01 is available at or within
the stated time following of the Second Closing;



(d)

execution
of the Subsequent Acquisition Agreement by the Purchaser;



(e)

on
or before Second Closing a certificate of an officer of the Purchaser, dated as
of the Closing Date, acceptable in form to the solicitors for the Corporation
and Shareholder, acting reasonably, certifying that the warranties,
representations, covenants and agreements of the Purchaser contained in this
Agreement are true and correct as of the Closing Date;



(f)

if
required by the Corporation and Shareholder, an opinion of counsel to the
Purchaser, dated as at the Closing Date, and addressed to the Corporation and
Shareholder and its counsel, in form and substance satisfactory to the
Corporation and Shareholder's counsel, acting reasonably, respecting the due
issuance of the Purchase Price and that the same are validly issued and fully
paid and non-assessable; and



(g)

all
such other documents and instruments as the Purchaser's solicitors may
reasonably require.



10.04

Post-Closing.
 As soon as reasonably possible after the Second Closing, the Purchaser
shall effect best efforts to cause the Shareholder to be removed from all
guarantees to the Corporation.  The Shareholder, as a then senior officer,
may, at his election, conduct such endevours on behalf of the Purchaser.





Article
11



NON-DISCLOSURE
AND PROPRIETARY INFORMATION





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-
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11.01

Non-disclosure.
  The Parties, for themselves, their officers, directors,
shareholders, consultants, employees and agents agree that they each will not
disseminate or disclose, or knowingly allow, permit or cause others to
disseminate or disclose to third parties who are not subject to express or
implied covenants of confidentiality, without the other Party's express
written consent, either: i the fact or existence of this Agreement or
discussions and/or negotiations between them involving, inter alia,
possible business transactions; ii the possible substance or content of those
discussions; iii the possible terms and conditions of any proposed transaction;
iv any statements or representations whether verbal or written made by either
Party in the course of or in connection with those discussions; or v any written
material generated by or on behalf of any Party and such contacts, other than
such disclosure as may be required under applicable securities legislation or
regulations, pursuant to any order of a court or on a "need to know" basis
to each of the Parties respective professional advisors.  Notwithstanding
the provisions of this section, the Parties agree to make such public
announcements of this Agreement promptly upon its execution in accordance with
the requirements of applicable securities legislation and regulations.





11.02

Confidential
Information.   Each Party acknowledges that any and all
information which a Party may obtain from, or have disclosed to it, about the
other Party constitutes valuable trade secrets and proprietary confidential
information of the other Party collectively, the "Confidential Information".
 No such Confidential Information shall be published by any Party without
the prior written consent of the other Party hereto, however, such consent in
respect of the reporting of factual data shall not be unreasonably withheld, and
shall not be withheld in respect of information required to be publicly
disclosed pursuant to applicable securities or corporation laws.
  Furthermore, each Party hereto undertakes not to disclose the
Confidential Information to any third party without the prior written approval
of the other Party hereto and to ensure that any third party to which the
Confidential Information is disclosed shall execute an agreement and undertaking
on the same terms as contained herein.





11.03

Impact
of Breach of Confidentiality.   The Parties hereto acknowledge
that the Confidential Information is important to the respective businesses of
each of the Parties hereto and that, in the event of disclosure of the
Confidential Information, except as authorized hereunder, the damage to each of
the Parties hereto, or to either of them, may be irreparable.  For the
purposes of the foregoing sections the Parties hereto recognize and hereby
agrees that a breach by any of the Parties of any of the covenants therein
contained would result in irreparable harm and significant damage to each of the
other Parties hereto that would not be adequately compensated for by monetary
award.  Accordingly, the Parties hereto agree that in the event of any such
breach, in addition to being entitled as a matter of right to apply to a court
of competent equitable jurisdiction for relief by way of restraining order,
injunction, decree or otherwise as may be appropriate to ensure compliance with
the provisions hereof, any such Party will also be liable to the other Party, as
liquidated damages, for an amount equal to the amount received and earned by
such Party as a result of and with respect to any such breach.  The Parties
hereto also acknowledge and agree that if any of the aforesaid restrictions,
activities, obligations or periods are considered by a court of competent
jurisdiction as being unreasonable, the Parties agree that said court shall have
authority to limit such restrictions, activities or periods as the court deems
proper in the circumstances.   In addition, the Parties hereto further
acknowledge and agree that all restrictions or obligations in this Agreement are
necessary and fundamental to the protection of the respective businesses of each
of the Parties hereto and are reasonable and valid, and all defenses to the
strict enforcement thereof by either of the Parties hereto are hereby waived by
the other Parties.





Article
12

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-
39 -







ASSIGNMENT





12.01

Assignment.
  No Party may sell, assign, pledge or mortgage or otherwise encumber
all or any part of its interest herein without the prior written consent of the
other Party; provided that any Party may at any time at its sole discretion and
without the prior approval of the other Party assign and transfer a received or
receivable interest herein to any wholly owned subsidiary without relieving the
Party of its obligations of this Agreement, subject at all times to the
requirement that any such subsidiary remain wholly owned by the Party hereto
failing which any such interest must be immediately transferred back to such
Party hereto; and provided further that any transfer of all or any part of a
Party's interest herein to its wholly owned subsidiary shall be accompanied by
the written agreement of any such subsidiary to assume the obligations of such
Party hereunder and to be bound by the terms and conditions hereof.



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-
40 -







Article
13



FORCE
MAJEURE





13.01

Events.
  If any Party hereto is at any time prevented or delayed in complying
with any provisions of this Agreement by reason of strikes, walk-outs, labour
shortages, power shortages, fires, wars, acts of God, earthquakes, storms,
floods, explosions, accidents, protests or demonstrations by environmental
lobbyists or native rights groups, delays in transportation, breakdown of
machinery, inability to obtain necessary materials in the open market,
unavailability of equipment, governmental regulations restricting normal
operations, shipping delays or any other reason or reasons beyond the control of
that Party, then the time limited for the performance by that Party of its
respective obligations hereunder shall be extended by a period of time equal in
length to the period of each such prevention or delay.  Should such delay
extend beyond 60 days then a non-defaulting Party force majeure will not make a
Party a defaulting Party may elect to abandon this Agreement with 15 days notice
without damage or accountability for such abandonment.





13.02

Notice.
  A Party shall, within seven calendar days, give notice to the other
Party of each event of force majeure under section 13.01 hereinabove, and
upon cessation of such event shall furnish the other Party with notice of that
event together with particulars of the number of days by which the obligations
of that Party hereunder have been extended by virtue of such event of force
majeure and all preceding events of force majeure.



Article
14



DEFAULT
AND TERMINATION





14.01

Default.
  The Parties hereto agree that if any Party hereto is in default with
respect to any of the provisions of this Agreement herein called the "Defaulting
Party", the non-defaulting Party herein called the "Non-Defaulting
Party" shall give notice to the Defaulting Party designating such default,
and within 20 calendar days after its receipt of such notice, the Defaulting
Party shall either:



(a)

cure
such default, or commence proceedings to cure such default and prosecute the
same to completion without undue delay; or



(b)

give
the Non-Defaulting Party notice that it denies that such default has occurred.



14.02

Dispute.
  If default is disputed, a Party shall not be deemed in default until
the matter shall have been determined finally by appropriate tribunal.



14.03

Curing
the Default.   If:



(a)

the
default is not so cured or the Defaulting Party does not commence or diligently
proceed to cure the default; or



(b)

court
resolution is not sought; or



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-
44 -



(c)

the
Defaulting Party is found in proceedings to be in default, and fails to cure it
within five calendar days after the rendering of the award,



the
Non-Defaulting Party may, by written notice given to the Defaulting Party at any
time while the default continues, terminate the interest of the Defaulting Party
in and to this Agreement and seek damages.



14.04

Termination.
  In addition to the foregoing it is hereby acknowledged and agreed by
the Parties hereto that this Agreement may be terminated by a Party, not in
default whether declared or undeclared, in the event that:



(a)

by
agreement of the Corporation, Shareholder and the Purchaser, in writing;



(b)

at
a Party'e election if Closing has not occurred as provided or default has not
been cured in the time provided; or



(c)

by
any other provision of this Agreement specifically permitting termination;





and
in such event of such election by a non-defaulting Party, this Agreement may be
terminated and be of no further force and effect other than the confidentiality
obligations hereinabove and without prejudice to any claims or remedies for
default arising from this Agreement and the operation of law.





ARTICLE
15

MISCELLANEOUS



15.01

Notices.
 All notices, requests, demands, claims and other communications hereunder
shall be in writing.  Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given i if personally delivered,
when so delivered, ii if mailed, five Business Days after having been sent by
registered or certified mail, return receipt requested, postage prepaid and
addressed to the intended recipient as set forth below, iii if given by
facsimile or telecopier or e-mail, once such notice or other communication is
transmitted to the number specified below and the appropriate electronic
confirmation is received:



If
to the Corporation:

Unit
6, 2009 Abbotsford Way, Abbotsford, BC V2S 4N7





If
to the Purchaser:    Suite 1750 - 999 West Hastings Street,
Vancouver, BC, V6C 2W2



If
to the Shareholder:

Unit
6, 2009 Abbotsford Way, Abbotsford, BC V2S 4N7





Any
party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other parties
notice in the manner set forth above.



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15.02

Amendments;
No Waivers.



(a)

Any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
all parties hereto, or in the case of a waiver, by the party against whom the
waiver is to be effective.



(b)

No
waiver by a party of any default, misrepresentation or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent occurrence.  No failure or delay by a party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.  The rights
and remedies herein provided shall be cumulative and not exclusive of any rights
or remedies provided by law.



15.03

Survival
of Representation, Warranties and Covenants.  All representations,
warranties, covenants, agreements and obligations of each Party shall survive
the Closing and shall expire one year following the Closing Date.



15.04

Legal
Representation.   The Corporation and the Shareholder hereby
acknowledge that i Purchaser is represented by Devlin Jensen as its Canadian
legal counsel in connection with this Agreement, ii Devlin Jensen has not
represented the Corporation or the Shareholder with respect to any matter and
iii the Corporation and the Shareholder have been encouraged to obtain their own
legal and tax counsel with respect to this Agreement and the transactions
contemplated by this Agreement.



15.05

Expenses.
 Each Party shall bear their own costs and expenses incurred in connection
with this Agreement.



15.06

Successors
and Assigns.  This Agreement shall be binding upon and enure to the
benefit, of the Parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and permitted assigns.
 No Party hereto may assign either this Agreement or any of its rights,
interests or obligations hereunder without the prior written approval of each
other Party, which approval shall not be unreasonably withheld.



15.07

Governing
Law.  This Agreement shall be governed by, and interpreted and enforced
in accordance with, the laws in force in the Province of British Columbia and
the laws of Canada applicable therein excluding any conflict of laws rule or
principle that might refer such interpretation to the laws of another
jurisdiction.  Each Party irrevocably and exclusively submits to the
jurisdiction of the courts of British Columbia with respect to any matter
arising hereunder or related hereto.



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15.08

Counterparts
and Effectiveness.  This Agreement and the documents relating to the
transactions contemplated by this Agreement may be signed in any number of
counterparts and the signatures delivered by telecopy, each of which shall be
deemed to be an original, with the same effect as if the signatures thereto were
upon the same instrument and delivered in person.  This Agreement and such
documents shall become effective when each Party thereto shall have received a
counterpart thereof signed by the other Parties thereto.  In the case of
delivery by telecopy by any Party, that Party shall forthwith deliver a manually
executed original to each of the other Parties.



15.09

Entire
Agreement.  This Agreement including the Schedules referred to herein,
which are hereby incorporated by reference constitutes the entire agreement
between the Parties with respect to the subject matter hereof and supersedes all
prior agreements, understandings and negotiations, both written and oral,
between the Parties with respect to the subject matter of this Agreement.
 Neither this Agreement nor any provision hereof is intended to confer upon
any Person other than the Parties hereto any rights or remedies hereunder.



15.10

Severability.
 If any provision of this Agreement, or the application thereof to any
Person, place or circumstance, shall be held by a court of competent
jurisdiction to be invalid, unenforceable or void, the remainder of this
Agreement and such provisions as applied to other Persons, places and
circumstances shall remain in full force and effect only if, after excluding the
portion deemed to be unenforceable, the remaining terms shall provide for the
consummation of the transactions contemplated hereby in substantially the same
manner as originally set forth at the later of the date this Agreement was
executed or last amended.



15.11

Cumulative
Remedies.  The rights, remedies, powers and privileges herein provided
are cumulative and not exclusive of any rights, remedies. Powers and privileges
provided by law.





















[the
remainder of this space purposely left blank]



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44 -



15.12

Third
Party Beneficiaries.  No provision of this Agreement shall create any
third party beneficiary rights in any Person, including any employee or former
employee of the Corporation or any Affiliate or Associate thereof including any
beneficiary or dependent thereof.



IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.



|     | CRYSTAL
      GRAPHITE CORPORATION       | ) |          
|---- | ---------------------------------------- | - | ---------
|     |                                          |   | )        
|Per: | /s/
      Gordon Sales                   |   | )        
|     | Authorized
      Signatory               |   | )
      )
|     |                                          |   |          
|     |                                          |   |          
|     | CANADA PUMICE CORPORATION                |   | )        
|     |                                          |   | )        
|Per: | /s/
      Brian Wear                     |   | )        
|     | Authorized
      Signatory               |   | )
      )
|     |                                          |   |          
|     |                                          |   |          
|     | SIGNED, SEALED AND DELIVERED             | ) |          
|     | by
      BRIAN WEAR in the               | ) |          
|     | presence
      of:                       | ) |          
|     | /s/ Ronald Downe                         | ) |          
|     | Signature of Witness                     | ) |          
|     | Ronald Downe, Barrister
       Solicitor | ) |          
|     | Name
      of Witness                    | ) |          
|     | 33695 South Fraser Way,
      Abbotsford | ) |          
|     | Address
      of Witness                 | ) |          
|     | B.C.,
      Canada, V2S 2C1              | ) |          
|     |                                          |   |          
|     |                                          |   |          









---

-
45 -







SCHEDULE
"A"



CORPORATION
FINANCIAL STATEMENTS

---

-
46 -





SCHEDULE
B



CORPORATION
ASSETS, INTELLECTUAL PROPERTY AND ENCUMBRANCES





---

-
47 -





SCHEDULE
C



CORPORATION
BUSINESS PLAN



---

-
48 -





SCHEDULE
"D"



PURCHASER
OPTIONS, WARRANTS AND OTHER RIGHTS



---

-
49 -



SCHEDULE
E



PURCHASER
FINANCIALS



---

-
50 -







SCHEDULE
F



PURCHASER
ASSETS, INTELLECTUAL PROPERTY AND ENCUMBRANCES





---

-
51 -







SCHEDULE
G



LOAN
TERMS TO SHAREHOLDER



---

-
52 -



SCHEDULE
H



LEASE
TERMS WITH 530526 BC LTD.



---

-
53 -







Lease
terms as follows:



1.

Term
- 10 years with three ten-year renewal options



2.

Rate
- 6875 per month triple net



3.

Reclamation
bond of 25,000 to be posted by Purchaser



4.

All
leasehold improvements responsibility of Purchaser



5.

Purchaser
has 60 day right of first refusal on any published sale



6.

Property
- District Lot 48, Cariboo District, Plan 26589 plus all improvements



---

-
54 -





SCHEDULE
I



MINING
RIGHT TERMS FROM SHAREHOLDER



---

-
55 -





Mining
Right terms for District Lot 222;





Minerals
- exclusive right to all minerals extant on standard industry terms but as to
pozzolanic shale extraction the following terms:



1.

Royalty
payable on the stated products as follows:



(a)

for
bulk material - 10 royalty per metric ton



(b)

for
fine micron or value added sizes - royalty of 25 of FOB price



(c)

for
all other forms of pozzolanic shale products - 25 NSR



2.

All
development and processing and all other costs for the sole account of the
Purchaser



3.

Purchaser
to post a 24,500 reclamation bond



4.

Purchaser
to pay all property costs, triple net



5.

Purchaser
to have 60 day right of first refusal on property sale.





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56 -









SCHEDULE
J



MANAGEMENT
AGREEMENT









End of Exhibit 10.2





---

EXHIBIT 10.3







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Share Purchase Agreement  Phase II  dated March 3, 2004 among the Company, CPC and Brian Wear







SHARE
PURCHASE AGREEMENT



PHASE
II



THIS SHARE
PURCHASE AGREEMENT is dated for reference the 3rd day of May, 2004.





AMONG:



CRYSTAL
GRAPHITE CORPORATION., a corporation incorporated under the laws of the
Province of British Columbia and having its business office located at Suite
1750 - 999 West Hastings Street, Vancouver, BC, V6C 2W2



(the
"Purchaser")



(OF
THE FIRST PART)



AND:



CANADA
PUMICE CORPORATION a corporation incorporated under the laws of the Province
of British Columbia and having its business office located at Unit 6, 2009
Abbotsford Way, Abbotsford, BC V2S 4N7





(the
"Corporation")



(OF
THE SECOND PART)



AND:



BRIAN
C. WEAR, businessman and sole stockholder of the Corporation and having his
address at that of the Corporation above



("Shareholder")



(OF
THE THIRD PART)





WHEREAS:



A.

The
Corporation, directly or by subsidiaries, is an owner of land and claims and
processing facilities in the region of Quesnel, BC on or adjacent to which the
Corporation

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-
2 -





conducts
active quarrying, processing and sales business of pumice and other minerals
under the name of the Corporation and its wholly owned subsidiaries, Volcanic
& Industrial Minerals Inc ("Volcanic") and Cariboo Lava
Corporation ("Cariboo");



B.

The
Shareholder owns 1908 shares of the 2000 shares issued of the issued, issuable
and outstanding shares of the Corporation (the "Corporation Shares")
and the Purchaser owns 92 shares of the Corporation, having acquired such shares
from the Shareholder previous to this Agreement
 by a Phase I Share Acquisition Agreement
 ;



C.

The
Shareholder desires to sell and the Purchaser desires to purchase that amount of
Corporation Shares as set forth in this Agreement;



D.

The
respective boards of directors of the Purchaser and Corporation each deem it
advisable and in the best interests of their respective companies and
shareholders to combine their respective businesses by the Purchaser acquiring
all of the Corporation Shares pursuant to the terms of this Agreement: and



E.

The
respective boards of directors of the Purchaser and Corporation and the
Shareholder have approved and adopted this Agreement as a transfer or sale and
receipt of shares pursuant to section 85(1) of the Income Tax Act (Canada) (the
"Tax Act").





NOW
THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the within
premises, the mutual representations, warranties, covenants and agreements
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:





ARTICLE
1

DEFINITIONS



1.01

Definitions.
 The following terms, as used herein, have the following meanings:



"Affiliate"
means, with respect to any Person, any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with such
other Person.



"Agreement"
means this Share Purchase Agreement and all schedules which is entered into by
and among the Purchaser, the Corporation and the Shareholder.



"Applicable
Law" means, with respect to any Person, any United States (whether
federal, territorial, state, municipal or local), Canadian (whether federal,
territorial, provincial, municipal or local) or foreign statute, law, ordinance,
rule, administrative interpretation, regulation, order, writ, injunction,
directive, judgement, decree or other requirement, all as in effect as of the
Closing, of any Governmental Authority applicable to such Person or any of its
Affiliates or any of their respective properties, assets, officers, directors,

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3 -





employees,
consultants or agents (in connection with such officer's, director's,
employee's, consultant's or agent's activities on behalf of such Person or any
of its Affiliates).



"Associate"
means with respect to any Person (a) any other Person of which such Person is an
officer or partner or is, directly or indirectly, the beneficial owner of ten
percent (10%) or more of any class of equity securities issued by such other
Person, (b) any trust or other estate in which such Person has a ten percent
(10%) or more beneficial interest or as to which such Person serves as trustee
or in a similar fiduciary capacity, and (c) any relative or spouse of such
Person, or any relative of such spouse who has the same home as such Person or
who is a director or officer of such Person or any Affiliate thereof.



"Business
Day" means a day other than a Saturday, Sunday or other day on which
commercial banks in Vancouver, British Columbia are authorized or required by
law to close.



"Corporation's
Balance Sheet" and "Corporation's Financials"means the
referenced financial statements of the Corporation as set forth in section 4.7.



"Corporation
Business" means the business as heretofore or currently conducted by
the Corporation as generally described in the preamble hereto and as described
in the Corporation's Balance Sheet and due diligence materials presented to
the Purchaser.



"Corporation
Contracts" means all contracts, agreements, options, leases, licences,
sales and purchase orders, commitments and other instruments of any kind,
whether written or oral, to which the Corporation or any Person on behalf of the
Corporation is a party on the Closing Date.



"Corporation
Permitted Liens" means, with respect to the Corporation, (i) Liens for
Taxes or governmental assessments, charges or claims the payment of which is not
yet due, or for Taxes the validity of which is being contested in good faith by
appropriate proceedings; (ii) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, material men and other similar Persons and
other liens imposed by Applicable Law incurred in the ordinary course of
business for sums not yet delinquent or being contested in good faith; (iii)
Liens relating to deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security or to secure the performance of leases, trade contracts or other
similar agreements (iv) Liens and Corporation Encumbrances specifically
identified in the Corporation's Balance Sheet included in the Corporation
Financials; (v) Liens securing executory obligations under any lease that
constitute an "operating lease" under Canadian GAAP; provided,
however, that, with respect to each of clauses (i) through (v), to the extent
that any such encumbrance or Lien arose prior to the date of the Corporation's
Balance Sheet included in the Corporation's Financials and relates to, or
secures the payment of, a Liability that is required to be accrued under
Canadian GAAP, such encumbrance or Lien shall not be a Corporation Permitted
Lien unless adequate accruals

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-
4 -





for
such Liability have been established therefor on such Corporation's Balance
Sheet in conformity with Canadian GAAP.



"Corporation
Shares" means all of the issued, issuable and outstanding shares of the
Corporation.



"Governmental
Authority" means any United States (whether federal, territorial,
state, municipal or local), Canadian (whether federal, territorial, provincial,
municipal or local) or foreign government, governmental authority,
quasi-governmental authority, instrumentality, court, government or
self-regulatory organization, commission, tribunal or organization or any
regulatory, administrative or other agency, or any political or other
subdivision, department or branch of any of the foregoing.



"Interim
Period" means the period from and including the date of this Agreement
to and including the Closing Date.



"Liability"
means, with respect to any Person, any liability or obligation of such Person of
any kind, character or description, whether known or unknown, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated, secured or
unsecured, joint or several, due or to become due, vested or unvested,
determined, determinable or otherwise and whether or not the same is required to
be accrued on the financial statements of such Person.



"Lien"
means, with respect to any asset, any mortgage, assignment, trust or deemed
trust (whether contractual, statutory or otherwise arising), title defect or
objection, lien, pledge, charge, security interest, hypothecation, restriction,
encumbrance or charge of any kind in respect of such assets.



"Material
Adverse Effect" means a change in, or effect on, the operations,
affairs, prospects, financial condition, -results of operations, assets,
Liabilities, reserves or any other aspect of a party to this Agreement or to its
business that results in a material adverse effect on, or a material adverse
change in, any such aspect of the party or to its business.



"Purchaser's
Balance Sheet" and "Purchaser's Financials"means the
referenced financial statements of the Purchaser as set forth in section 5.07.



"Person"
includes an individual, body corporate, partnership, company, unincorporated
syndicate or organization, trust, trustee, executor, administrator and other
legal representative.



"Purchaser
Business" means the business as heretofore or currently conducted by
the Purchaser.



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5 -





"Purchaser
Contracts" means all contracts, agreements, options, leases, licences,
sales and purchase orders, commitments and other instruments of any kind,
whether written or oral, to which the Purchaser, directly or indirectly, is a
party on the Closing Date.



"SEC"
means the United States Securities and Exchange Commission.



"Subsidiary"
means, with respect to any Person, (i) any corporation as to which 50% or more
of the outstanding shares having ordinary voting rights or power (and excluding
shares having voting rights only upon the occurrence of a contingency unless and
until such contingency occurs and such rights may be exercised) is owned or
controlled, directly or indirectly, by such Person and/or by one or more of such
Person's Subsidiaries, and (ii) any partnership, joint venture or other similar
relationship between such Person (or any Subsidiary thereof) and any other
Person (whether pursuant to a written agreement or otherwise) which results in
control by such Person.



"Tax"
means all taxes imposed of any nature including any United States (whether
federal, territorial, state or local), Canadian (whether federal, territorial,
provincial or local) or foreign income tax, alternative or add-on minimum tax,
profits or excess profits tax, franchise tax, gross income, adjusted gross
income or gross receipts tax, employment related tax (including employee
withholding or employer payroll tax or employer health tax), capital tax, real
or personal property tax or ad valorem tax, sales or use tax, excise tax, stamp
tax or duty, any withholding or back up withholding tax, value added tax, GST,
severance tax, prohibited tax, premiums tax, occupation tax, customs and import
duties, together with any interest or any penalty, addition to tax or additional
amount imposed by any Governmental Authority responsible for the imposition of
any such tax or in respect of or pursuant to any United States (whether federal,
territorial, state or local), Canadian (whether federal, territorial, provincial
or local) or other Applicable Law.



"Tax
Return" means all returns, reports, forms or other information required
to be filed with respect to any Tax.



"33
Act" means the United States Securities Act of 1933 and all amendments
thereto.



"34
Act" means the United States Securities Act of 1934 and all amendments
thereto.



1.02

Currency
Used.  All references herein to dollars or the use of the symbol
"$" shall be deemed to refer to Canadian dollars unless such reference
is prefaced by "US" in which case the reference will be to United
States dollars.



1.03

Canadian
Generally Accepted Accounting Principles.  Where the Canadian Institute
of Chartered Accountants or any successor thereto includes a statement in its
handbook or any successor thereto on a method or alternative methods of
accounting or on a standard or standards of auditing, such statement shall be
regarded as the only generally accepted accounting principle or principles or
generally accepted auditing standard or standards ("Canadian GAAP")
applicable to the circumstances that it covers, and references herein

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-
6 -





to
"generally accepted accounting principles" shall be interpreted
accordingly.  All accounting and financial terms used herein with respect
to the Corporation or Purchaser, unless specifically provided to the contrary,
shall be interpreted and applied in accordance with Canadian GAAP.



1.04

American
Generally Accepted Accounting Principles.  Where the American Institute
of Certified Public Accountants or any successor thereto includes a statement in
its handbook or any successor thereto on a method or alternative methods of
accounting or on a standard or standards of auditing, such statement shall be
regarded as the only generally accepted accounting principle or principles or
generally accepted auditing standard or standards ("American GAAP")
applicable to the circumstances that it covers, and references herein to
"generally accepted accounting principles" shall be interpreted
accordingly.  All accounting and financial terms used herein with respect
to the Purchaser for US reporting purposes, unless specifically provided to the
contrary, shall be interpreted and applied in accordance with American GAAP.





ARTICLE
2

PURCHASE
AND SALE



2.01

Purchase
of Corporation Shares.  On the terms and subject to the conditions set
forth herein, the Shareholder hereby agrees to sell, transfer, convey, assign
and deliver to the Purchaser, free and clear of all Corporation Share
Encumbrances (as defined in paragraph 3.01.1), and the Purchaser hereby agrees
to purchase, acquire and accept from the Shareholder, one thousand and ninety-
eight
 (190
8
 ) Corporation Shares ("Purchased Corporation Shares"), being all of
the remaining issued Corporation Shares, having an agreed value of ten million
eight hundred and thirty-
two
 thousand seven hundred and eighty-six

 dollars ($
10,832,
 786).  At Closing, the Shareholder will deliver to the Purchaser
certificates evidencing all of the Purchased Corporation Shares duly endorsed
for transfer and such other instruments as have been reasonably requested by the
Purchaser to transfer full legal and beneficial ownership of the Purchased
Corporation Shares to the Purchaser, free and clear of all Corporation Share
Encumbrances and the Corporation agrees to enter the Purchaser on the books of
the Corporation as the holder of the Purchased Corporation Shares and to issue
one or more replacement share certificates representing the Purchased
Corporation Shares to the Purchaser or the Purchaser's nominee.  The
Purchaser shall pay the Purchase Price for the Purchased Corporation Shares in
accordance with the terms of Section 2.02 of this Agreement.



2.02

Purchase
Price for Purchased Corporation Shares.  The aggregate purchase price
to be paid by the Purchaser to the Shareholder (or his designees) for the
Purchased Corporation Shares at Closing will be the sum of CDN$10,832,786 which
shall be fully satisfied and paid by the delivery of fourteen million six
hundred and
thirty-eight
 thousand and nine

 hundred (
14,638,
 9
00
 )

 common shares (the "Purchase Price") of the Purchaser at the deemed
price of CDN$0.74 (based upon a

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conversion
formula of, at or about March 3 to April 15, 2004, an average market price of
$0.55US employing an exchange rate of 1.3445) per Purchaser common share.
 The
14,638,
 9
00
 Purchase Price common shares, represented by one or several certificates as
requested by the Shareholder (and if no request is made five days or more prior
to Closing then by one certificate), of the Purchaser constituting the Purchase
Price to be delivered to the Shareholder at Closing shall be issued from
treasury of the Purchaser as validly and lawfully issued and fully paid and
non-assessable without lien or encumbrance of any nature whatsoever, excepting
only restrictions as may be imposed by generally Applicable Law and the
Shareholder acknowledges that the Purchase Price shares shall be subject to
restrictions as to disposition consequent upon Applicable Law and the
certificates shall therefor have imprinted upon them restrictive language
generally as follows:



"The
securities represented by this certificate have not been registered under the
Securities Act of 1933 or the laws of any state and have been issued pursuant to
an exemption from registration pertaining to such securities and pursuant to a
representation by the security holder named hereon that said securities have
been acquired for purposes of investment and not for purposes of distribution.
 These securities may not be offered, sold, transferred, pledged or
hypothecated in the absence of registration, or the availability of an exemption
from such registration. Furthermore, no offer, sale, transfer, pledge or
hypothecation is to take place without the prior written approval of counsel to
the issuer being affixed to this certificate.  The stock transfer agent has
been ordered to effectuate transfers of this certificate only in accordance with
the above instructions."



"Unless
permitted under securities legislation in British Columbia or Alberta, the
holder of the securities shall not trade the securities before the earlier of
(i) the date that is 12 months and a day after the date the issuer first became
a reporting issuer in any of Alberta, British Columbia, Manitoba, Nova Scotia,
Ontario, Quebec and Saskatchewan, if the issuer is a SEDAR filer; and (ii) the
date that is 12 months and a day after the later of (A) the distribution date,
and (B) the date the issuer became a reporting issuer in the local jurisdiction
of the purchaser of the securities that are the subject of the trade."



Furthermore,
as the Corporation is a company whose securities are or may be subject to US
law, the Shareholder hereby agrees, represents and warrants to the Corporation
as follows:



(i)

Shareholder
(i) is not a U.S. Person (as defined in Rule 902 of Regulation S ("Regulation
S") under the United States Securities Act of 1933 (the "1933 Act")),
which definition includes, but is not limited to, any natural person resident in
the United States, any corporation or partnership incorporated or organized
under the laws of the United States, or any estate or trust of which any
executor, administrator or trustee is a U.S. Person); (ii) is not purchasing any
of the Securities for the account or benefit of any U.S. Person or for offering,

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8 -





resale
or delivery for the account or benefit of any U.S. Person or for the account of
any person in any jurisdiction other than the jurisdiction set out in the name
and address of Shareholder below; and (iii) was not offered any Securities in
the United States and was outside the United States at the time of execution and
delivery of this Agreement.



(ii)

Shareholder
acknowledges that the Securities have not been registered under the 1933 Act and
the Company has no obligation or present intention of filing a registration
statement under the 1933 Act in respect of the Securities.  The Shareholder
agrees to resell the Securities only in accordance with the provisions of
Regulation S and any other applicable securities laws, pursuant to a
registration under the 1933 Act, or pursuant to an available exemption from such
registration, and that hedging transactions involving the Securities may not be
conducted unless in compliance with the 1933 Act.  The Shareholder
understands that any certificate representing the Securities will bear a legend
setting forth the foregoing restrictions.  The Shareholder understands that
the Securities are restricted securities within the meaning of Rule 144
promulgated under the 1933 Act; that the exemption from registration under Rule
144 will not be available in any event for at least one year from the date of
purchase and payment of the Securities by the Shareholder, and other terms and
conditions of Rule 144 are complied with; and that any sale of the Securities
may be made by the Investor only in limited amounts in accordance with such
terms and conditions.



(iii)

No
U.S. Person, either directly or indirectly, has any beneficial interest in any
of the Securities acquired by Shareholder hereunder, nor does Shareholder have
any agreement or understanding (written or oral) with any U.S. Person
respecting:



(a)

the
transfer or any assignment of any rights or interest in any of the Securities;



(b)

the
division of profits, losses, fees, commissions or any financial stake in
connection with this subscription; or



(c)

the
voting of the Securities.



2.03

Closing.
 The closing (the "Closing") of the transactions contemplated by
this Agreement shall take place at the offices of Devlin Jensen, 2550-555 West
Hastings Street, Vancouver, BC on or before April 30, 2004 or such other date as
the parties hereto may mutually agree (the "Closing Date").  In
the event that Closing shall not occur on or before July 30, 2004 then either
Party, so long as the electing Party is not in default, may elect to terminate
and abandon this Agreement (without prejudice to claim for damages if default of
the other Party) if it gives notice of a time and place and its preparedness to
Close within 15 days of such notice to the other Party and the other Party fails
to attend for Closing or, if attending, is not willing or able to Close in
accordance with this Agreement.



2.04

Roll-Over
Election.  For the purposes of the Tax Act the Purchaser and the
Shareholder hereby covenant and agree to elect jointly under Subsection 85(1) of
the  Income Tax Act

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9 -





("Tax
Act"), by completing and filing with the Canada Revenue Agency the
prescribed form within the prescribed time for the purposes of the Tax Act with
respect to the sale by the Shareholder to the Purchaser of the Purchased
Corporation Shares and further agree to transfer the Purchased Corporation
Shares at an agreed amount (the "Elected Amount") of $10,83
2
 ,786. However, if at any time after the Closing Date the Shareholder determines
that either:



(a)

it
is necessary or desirable to change the Elected Amount; or



(b)

the
Tax Act deems the Elected Amount to be an amount which is different than the
amount agreed upon between the Shareholder and the Purchaser;



then
the Shareholder and the Purchaser shall do all things reasonably necessary to
reflect such change.



The
Parties hereto acknowledge and agree that the transaction contemplated by this
Agreement is to be carried out in accordance with the provisions of Section
85(1) of the Income Tax Act (Canada), S.C. 1979-71, -72. Ch. 63 as
amended (herein called the "Act") The Parties agree and hereby confirm that
they will jointly elect pursuant to Section 85(1) of the Act in the prescribed
form and within the time referred to in Section 85(6) of the Act so that, for
income tax purposes, the agreed election amount as set out in the first
paragraph hereof in respect of the Purchase Price shares becomes and is deemed
to be the Shareholder's proceeds of disposition of shares and the Purchaser's
cost of the Purchase Price shares so that the transaction does not give rise to
any income tax liability whatsoever and any income tax liability deferred as a
result of the election under Section 85(1) of the Act shall be for the account
of the Purchaser.





ARTICLE
3

REPRESENTATIONS
AND WARRANTIES OF SHAREHOLDER



As
an inducement to the Purchaser to enter into this Agreement and to consummate
the transactions provided for herein, the Shareholder, as to the Corporation,
himself and as to the Corporation Shares owned by him, represents and warrants
to the Purchaser as follows and confirms that the Purchaser is relying upon the
accuracy of each of such representations and warranties in connection with the
purchase of the Corporation Shares and the completion of the transactions set
out herein:



3.01

Representations
Regarding the Corporation Shares.



3.01.1

The
Shareholder has sole and exclusive and good and marketable title in and to the
Corporation Shares, free and clear of any and all covenants, conditions,
restrictions, voting trust arrangements, rights of first refusal, options, Liens
and adverse claims and rights whatsoever (collectively, the "Corporation
Share Encumbrances"), and on the Closing Date, the Shareholder will deliver
to the Purchaser, good and marketable title to

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-
10 -





the
Purchased Corporation Shares free and clear of any and all Corporation Share
Encumbrances;



3.01.2

The
Shareholder has full right, power and authority to enter into this Agreement and
has the full right, power and authority to transfer, convey and sell to the
Purchaser at the Closing the Purchased Corporation Shares and upon delivery by
the Shareholder the Purchaser will acquire from the Shareholder sole and
exclusive and good and marketable title to the Purchased Corporation Shares free
and clear of all Corporation Share Encumbrances; and



3.01.3

The
Shareholder is not a party to, subject to or bound by, nor is any pending or
likely to his reasonable knowledge, any agreement, judgement, order, writ,
prohibition, injunction or decree of any court or other Governmental Authority
that would prevent the delivery to the Purchaser of the Purchased Corporation
Shares or the consummation of the transactions under this Agreement in
accordance with the terms of this Agreement.



3.02

Authorization.
 The execution, delivery and performance of this Agreement, and the
consummation of the transactions provided for herein are within the powers of
the Shareholder and have been duly authorized by all necessary action.
 This Agreement has been duly and validly executed by the Shareholder and
constitutes a legal, valid and binding agreement of the Shareholder enforceable
in accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights and subject to general principles of equity, none of which are applicable
or will be applicable to the reasonable best of the Shareholder's knowledge at
Closing.



3.03

Non-Contravention.
The execution, delivery and performance of this Agreement, and the consummation
of the transactions provided for herein do not (i) contravene or conflict with
or constitute a material violation of any provision of any Applicable Law
binding upon or applicable to the Shareholder or the Corporation Shares or (ii)
result in the creation or imposition of any Lien.



3.04

Residency.
 The Shareholder is a resident of Canada as defined in the Income Tax Act
(Canada).



3.05

Good
Faith.  The Shareholder will employ good faith, due diligence, and best
efforts to perform its obligations of this Agreement and will do such acts and
enter into such additional or collateral agreements as may be reasonably
required by the Purchaser to effect and complete the objects and intent of this
Agreement.



3.06

Corporation
Performance.  The Shareholder will diligently, proactively and in good
faith effect all such acts as a shareholder and director of the Corporation as
are available to it at law to cause the Corporation to fully, completely and
diligently to effect this Agreement and to effect Closing.



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11 -





3.07

Corporation
Warranties.  The Shareholder warrants that to the best of his
reasonably informed knowledge all of the warranties of the Corporation of this
Agreement are true.





ARTICLE
4

REPRESENTATIONS
AND WARRANTIES OF THE CORPORATION



As
an inducement to the Purchaser to enter into this Agreement and to consummate
the transactions provided for herein, the Corporation, represents and warrants
to the Purchaser as follows:



4.01

Existence
and Power.  The Corporation is a corporation duly incorporated,
organized and validly existing under the laws of the Province of British
Columbia and has all corporate power and all governmental licences,
authorizations, permits, consents and approvals required to carry on the
Corporation Business as now conducted and to own and operate the Corporation
Business as now owned and operated.  The Corporation is not required to be
qualified to conduct business in any jurisdiction where the failure to be so
qualified, whether individually or in the aggregate, would have a Material
Adverse Effect.  No Corporation proceedings have been taken or authorized
by the Corporation or any Shareholder or, to the knowledge of the Corporation,
by any other Person, with respect to (nor is such contemplated) the bankruptcy,
insolvency, liquidation, dissolution or winding-up of the Corporation or with
respect to any amalgamation, merger, consolidation, arrangement or
reorganization relating to the Corporation.



4.02

Authorization.
 The execution, delivery and performance by the Corporation of this
Agreement and the consummation thereby of the transactions provided for herein
are within the Corporation's powers and have been duly authorized by all
necessary action on its part.  This Agreement has been duly and validly
executed by the Corporation and constitutes a legal, valid and binding agreement
of the Corporation enforceable against it in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights and subject to general
principles of equity, none of which are applicable or will be applicable to the
reasonable best of the Corporation's knowledge at Closing. The execution and
Closing of this Agreement will not create a Material Adverse Effect on the
Corporation or any Corporation Contract or Corporation Asset nor will it
negatively impact any Governmental Authority permit, license or other authority
or permission.



4.03

Capital
Stock.



4.03.1

The
authorized capital stock of the Corporation consists solely of 10,000,000 common
shares without par value, of which 2,000 common shares are issued and
outstanding and 1908 are held by the Shareholder (the "Corporation
Shares") and such, together with the 92 Corporation Shares previously
purchased by the Purchaser from the Shareholder, constitute 100% of the issued,
issuable or possibly issuable equity capital of the Corporation.

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12 -







4.03.2

All
such issued and outstanding Corporation Shares have been duly and validly
authorized and issued and are fully paid and non-assessable. There are not
outstanding (i) any options, warrants, rights of first refusal or other rights
to purchase any shares of or from the Corporation or the Corporation Shares, nor
(ii) any securities or contracts convertible into or exchangeable for shares nor
(iii) any other commitments of any kind for the issuance of shares of the
Corporation or options, warrants or other securities of the Corporation.



4.03.3

Prior
to or at the date of this Agreement and up to and including the Closing Date the
Corporation has not and has not committed itself to:



(i)

redeem
or acquire any shares;



(ii)

declare
or pay any dividend;



(iii)

make
any reduction in or otherwise make any payment on account of capital; or



(iv)

effect
any subdivision, consolidation or reclassification of any capital;



4.04

Subsidiaries.
 The Corporation has no Subsidiaries other than Volcanic & Industrial
Minerals Inc and Cariboo Lava Corporation which are wholly owned by the
Corporation without interest by any party therein.  The Corporation has no
investment or ownership of shares or other interests in other companies,
partnerships or businesses except as are disclosed in the Corporation's
Balance Sheet;



4.05

Governmental
Authorization.  The execution, delivery and performance by the
Corporation of this Agreement requires no action by, consent or approval of, or
filing with, any Governmental Authority other than as expressly referred to in
this Agreement.



4.06

Non-Contravention.
 The execution, delivery and performance of this Agreement by the
Corporation, and the consummation by it of the transactions provided for herein,
do not and will not (a) contravene or conflict with the articles or bylaws of
the Corporation; (b) contravene or conflict with or constitute a material
violation of any provision of any Applicable Law binding upon or applicable to
the Corporation, the Corporation Business or the Corporation Shares and would
not, individually or in the aggregate have a Material Adverse Effect; (c)
constitute a default under or give rise to any right of termination,
cancellation or acceleration of, or to a loss of any benefit to which the
Corporation is entitled, under any of the Corporation Contracts or any permit or
similar authorization relating to the Corporation, the Corporation Business or
the Corporation Shares by which the Corporation, the Corporation Business or the
Corporation Shares may be bound or affected; or (d) result in the creation or
imposition of any Lien.



4.07

Financial
Statements:



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13 -





4.07.1

Attached
hereto as Schedule "A" are true and complete copies of the
Corporation's Balance Sheet (composed of unaudited statements as of December 31,
2002 and management produced statements at December 31, 2003) and the related
statements of income and retained earnings and changes of financial position for
the years covered (collectively, the "Corporation's Financials").



4.07.2

The
Corporation's Financials: (i) have been prepared on a consistent basis and are
based on the books and records of the Corporation in accordance with Canadian
GAAP and present fairly the financial position, results of operations and
statements of changes in the Corporation's financial position as of the dates
indicated or the periods indicated; (ii) contain and reflect all necessary
adjustments and accruals for a fair presentation of its financial position and
the results of its operations for the periods covered by said financial
statements; (iii) contain and reflect adequate provisions for all reasonably
anticipated Liabilities (including Taxes) with respect to the periods then ended
and all prior periods; and (iv) with respect to the Corporation Contracts and
commitments for the sale of goods or the provision of services by the
Corporation, contain and reflect adequate reserves for all reasonably
anticipated material losses and costs and expenses in excess of expected
receipts.



4.07.3

To
the best of the knowledge of the Corporation, there are no Liabilities of the
Corporation other than: (i) any Liabilities accrued as Liabilities on the
Corporation's Balance Sheet; (ii) Liabilities incurred since the date of the
Corporation's Balance Sheet that do not, and could not, individually or in the
aggregate have a Material Adverse Effect; and (iii) other Liabilities disclosed
in this Agreement or in any schedules attached hereto.



4.07.4

To
the best of the knowledge of the Corporation, there is no basis for any material
(in excess of $50,000) restatement of the Corporation's Financials



4.08

Absence
of Certain Changes. During and since the dates of the Corporation's
Financials, the Corporation Business has been conducted in the ordinary course,
and there has not been, except as disclosed in the Corporation's Financials or
Schedule "B" or elsewhere in this Agreement:



(a)

any
event, occurrence, state of circumstances, or facts or change in the Corporation
or in the Corporation Business that has had, or which the Corporation, after
reasonable inquiry, expect to have, either individually or in the aggregate, a
Material Adverse Effect;



(b)

(i)
any change in any Liabilities of the Corporation that has had, or which the
Corporation may, after reasonable inquiry, expect to have, a Material Adverse
Effect or (ii) any incurrence, assumption or guarantee of any indebtedness for
borrowed money by the Corporation in connection with the Corporation Business or
otherwise;



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(c)

any
(i) payments by the Corporation in respect of any indebtedness of the
Corporation for borrowed money or in satisfaction of any Liabilities of the
Corporation related to the Corporation Business, other than in the ordinary
course of business or the guarantee by the Corporation of any of the
indebtedness of any other Person or (ii) creation, assumption or sufferance of
(whether by action or omission) the existence of any Lien on any assets
reflected on the Corporation's Balance Sheet, other than Corporation Permitted
Liens;



(d)

any
transaction or commitment made, or any Corporation Contract entered into or any
waiver, amendment, termination or cancellation of any of the Corporation
Contracts, or any relinquishment of any rights thereunder by the Corporation or
of any other right or debt owed to the Corporation, other than, in each such
case, actions taken in the ordinary course of business consistent with past
practice;



(e)

any
(i) grant of any severance, continuation or termination pay to any director,
officer, stockholder or employee of the Corporation or any Affiliate of the
Corporation, (ii) entering into of any employment, deferred compensation or
other similar agreement (or any amendment to any such existing agreement) with
any director, officer, stockholder or employee of the Corporation or any
Affiliate of the Corporation, (iii) increase in benefits payable or potentially
payable under any severance, continuation or termination pay policies or
employment agreements with any director, officer, stockholder or employee of the
Corporation or any Affiliate of the Corporation, (iv) increase in compensation,
bonus or other benefits payable or potentially payable to directors, officers,
stockholders or employees of the Corporation or any Affiliate of the Corporation
other than in the normal course of business, (v) change in the terms of any
bonus, pension, insurance, health or other benefit plan of the Corporation or
(vi) representation of the Corporation to any employee or former employee of the
Corporation that the Purchaser promised to continue any Corporation benefit plan
after the Closing Date,



(f)

any
change by the Corporation in its accounting principles, methods or practices or
in the manner it keeps its books and records;



(g)

any
distribution, dividend, bonus, management fee or other payment by the
Corporation, other than normal year-end tax planning, to any officer, director,
stockholder or Affiliate of the Corporation or any of their respective
Affiliates or Associates; or



(h)

any
(i) material single expenditure or commitment, or any group of related
expenditures or commitments, or (ii) sale, assignment, transfer, lease or other
disposition of or agreement to sell, assign, transfer, lease or otherwise
dispose of any Corporation's Asset (as defined below) other than in the
ordinary course of business.



4.09

Corporation's
Assets and Liabilities.

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4.09.1

The
Corporation owns, leases, rents or has rights to property and assets as set
forth in detail in Schedule "B" hereto or in the Corporation's Financials
of Schedule "A" and which includes, without limitation, fee simple
disclosure, leases, mineral claims, any other rights in land, buildings, plant,
and any other realty or infrastructure and any rights in any of the same, any
material chattels or other assets having a value in excess of $10,000 and any
other assets, tangible or intangible, having a value in excess of $10,000 and
including, without limitation, contracts, inventories, receivables, investments,
rights, and any other matters of such value of the Corporation's Business
(collectively the "Corporation's Assets").



4.09.2

The
Corporation holds title to each of the Corporation's Assets free and clear of
all Liens, adverse claims, easements, rights of way, servitude's, zoning or
building restrictions or any other rights of others or other adverse interests
of any kind, including leases, chattel mortgages, conditional sales contracts,
collateral security arrangements and other title or interest retention
arrangements except Corporation Permitted Liens or as detailed in Schedule "B"
or the Corporation's Financials (collectively, "Corporation
Encumbrances").



4.09.3

All
of the Corporation's Assets on the Corporation's Balance Sheet or Schedule "B"
are in all material respects fit for the purposes for which they are used and
are in good operating condition and repair and are adequate for the uses to
which they are put, and no material properties or assets necessary for the
conduct of the Corporation Business in substantially the same manner as the
Corporation Business has heretofore been conducted are in need of replacement,
maintenance or repair except for routine replacement, maintenance and repair.



4.09.4

Save
and except for those matters which are disclosed in Schedule "B" or the
Corporation's Financials there are no material liabilities, contingent or
otherwise, existing on the date hereof in respect of which the Corporation may
be liable on or after the completion of the transactions contemplated by this
Agreement other than:



(i)

liabilities
disclosed or referred to in this Agreement;



(ii)

liabilities
incurred in the ordinary course of business, none of which are materially
adverse to the respective businesses, operations, affairs or financial
conditions of the Corporation; and



(iii)

present
liabilities do not exceed $900,000CDN in aggregate of which approximately
$400,000 is a Shareholder loan to the Corporation;



4.09.5

There
are no Corporation Assets material to the operation of the Corporation Business
which, to the reasonably informed knowledge of the Corporation, would be lost or
suffer a Material Adverse Effect as a consequence of this Agreement or Closing
or otherwise is contemplated to be lost or materially damaged.



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4.09.6

Attached
to this Agreement as Schedule "C" is a business plan of the Corporation,
produced by the Corporation. The Purchaser has also produced an "Overview
Report for a proposed merger between Crystal Graphite Corporation and Canada
Pumice Corporation" dated February 20, 2004 (produced by Edward Nunn of the
Purchaser) which the Corporation has reviewed. Both reports are reasonable
descriptions of the Corporation's Business and Corporation Assets and there
are no material errors or material omissions therein, to the Corporation's
reasonable knowledge, which error or omission would make such reports materially
misleading.  It is acknowledged by the Parties however that the Shareholder
and the Corporation do not warrant the future performance of the Corporation.



4.10

Affiliates.
Other than as disclosed in this Agreement, there are no Corporation Contracts
which have been entered into within the past five years or are currently in
force and effect between the Corporation and any Shareholder, or any Affiliate
or Associate of any Shareholder.  The Corporation is not indebted to any
Shareholder except as disclosed in this Agreement.



4.11

Litigation.
 There are no material proceedings pending or, to the knowledge of the
Corporation, threatened against or affecting the Corporation or the Corporation
Business or that seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement and (ii) there is no existing order, judgement or
decree of any Governmental Authority naming the Corporation as an affected party
which has not been paid or discharged in full.



4.12

Material
Contracts. All Corporation Contracts are in good standing and are legal,
valid and binding obligations of the Corporation and each other Person who is a
party thereto, enforceable against the Corporation and each such Person in
accordance with its terms, and none are subject to any material default
thereunder.  All Corporation Contracts are adequately disclosed in Schedule
"B".  There are no Corporation Contracts which cannot be cancelled with
not more than 30 days notice or payment of not more than $10,000 except as
disclosed in Schedule "B". There are no Corporation Contracts material to
the operation of the Corporation Business which, to the reasonably informed
knowledge of the Corporation, would be lost or suffer a Material Adverse Effect
as a consequence of this Agreement or Closing or otherwise is contemplated to be
lost.



4.13

Required
Consents.  There are no governmental or other registrations, filings,
applications, notices, transfers, Consents, approvals, orders, qualifications or
waivers required under Applicable Law or otherwise required to be obtained or
made with any Governmental Authority to be obtained by the Corporation or any
Shareholder by virtue of the execution and delivery of this Agreement and the
consummation of the transactions provided for herein for any reason; nor are
there any Corporation Contracts with respect to which the consent of the other
party or parties thereto must be obtained by the Corporation or any Shareholder
by virtue of the execution and delivery of this Agreement and the consummation
of the transactions provided for herein (the "Required Consents").



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4.14

Corporation
Intellectual Property.



4.14.1

Schedule
"B" sets forth a complete and correct list of each patent, patent
application and invention, trademark, trade name, trademark or trade name
registration or application, copyright or copyright registration or application
for copyright registration, and each licence or licensing agreement, for any of
the foregoing relating to the Corporation Business as conducted by the
Corporation or held by the Corporation (the "Corporation Intellectual
Property Rights").  Corporation Intellectual Property Rights also
include any trade secrets that are material to the conduct of the Corporation
Business in the manner that the Corporation Business has heretofore been
conducted.



4.14.2

The
Corporation has not during the three years preceding the date of this Agreement
been a party to any proceeding, nor to the knowledge of the Corporation, is any
proceeding threatened as to which there is a reasonable possibility of a
determination adverse to the Corporation, involving a claim of infringement by
any Person (including any Governmental Authority) of any Corporation
Intellectual Property Right.  No Corporation Intellectual Property Right is
subject to any outstanding order, judgement, decree, stipulation or agreement
restricting the use thereof by the Corporation or restricting the licensing
thereof by the Corporation to any Person.  The Corporation has no knowledge
that would cause such Person to believe that the use of the Corporation
Intellectual Property Rights or the conduct of the Corporation Business
conflicts with, infringes upon or violates any patent, patent licence, patent
application, trademark, trade name, trademark or trade name registration,
copyright, copyright registration, service mark, brand mark or brand name or any
pending application relating thereto, or any trade secret, know-how, programs or
processes, or any similar rights, of any Person.



4.14.3

To
the knowledge of the Corporation, the Corporation either owns the entire right,
title and interest in Corporation Intellectual Property Rights or has acquired
an exclusive licence to use, any and all patents, trademarks, trade names, brand
names and copyrights that are material to the conduct of the Corporation
Business in the manner that the Corporation Business has heretofore, been
conducted.  The Corporation Intellectual Property Rights are in full force
and effect and have not been used or enforced or failed to be used or enforced
in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Corporation Intellectual Property Rights.
 All registrations and filings necessary to preserve the rights of the
Corporation in and to the Corporation Intellectual Property Rights have been
made.



4.15

Tax
Matters.



4.15.1

The
Corporation is a taxable Canadian corporation, as that term is defined in the
Tax Act. The Corporation has prepared and filed all Tax Returns on time with all
appropriate Governmental Authorities which were required to be filed on or prior
to the Closing Date.  Each such Tax Return was correct and complete.
 True copies of all Tax Returns prepared and filed by the Corporation
during the past three years and that the Purchaser has requested have been given
to the Purchaser on or before the date of this Agreement.

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4.15.2

The
Corporation has paid all Taxes due and payable by it and has paid all
assessments and reassessments it has received in respect of Taxes.  The
Corporation has paid all Tax instalments due and payable by it as at its last
fiscal year.



4.15.3

The
Corporation has withheld from each payment made to any of its present or former
employees, officers and directors, and including to all persons who are
non-residents of Canada for the purposes of the Income Tax Act (Canada) all
amounts required by Applicable Law and has remitted such withheld amounts within
the prescribed periods to the appropriate Governmental Authority.  The
Corporation has remitted all Canada Pension Plan contributions, employment
insurance premiums, employer health taxes and other Taxes payable by it in
respect of its employees and has remitted such amounts to the proper
Governmental Authority within the time required by Applicable Law.  The
Corporation has charged, collected and remitted on a timely basis all Taxes as
required by Applicable Law on any service, sale, supply or delivery whatsoever,
made by the Corporation.



4.15.4

The
Corporation Business is the only business ever conducted by the Corporation.
 The non-capital losses (as defined in the Tax Act and any applicable
provincial taxing statute) were incurred by the Corporation only in carrying on
the Corporation Business.  The Corporation is not prevented by virtue of
any amalgamation or dissolution from carrying back against income earned by it
prior to the Closing Date, any losses incurred by it after the Closing Date.



4.15.5

The
Corporation has paid all Taxes imposed by applicable legislation in the province
of British Columbia on the acquisition or maintenance of its realty and tangible
personal property as defined in applicable legislation in the province of
British Columbia, including GST, PST, municipal taxes and any other transfer or
maintenance or service tax..  The foregoing is accurate, mutatis mutandis,
with respect to all sales or transfer Taxes imposed under comparable legislation
of other provinces.



4.15.6

The
Corporation has never acquired or had the use of any of its assets from a Person
(a "Related Person") with whom the Corporation was not dealing at
arm's length, within the meaning of the Tax Act.  The Corporation has never
disposed of any asset to a Related Person for proceeds less than the fair market
value of that asset.  Except as disclosed in this Agreement, the
Corporation is not a party to or bound by any agreement with, is not indebted
to, and no amount is owing to the Corporation by any Related Person, not dealing
at arm's length, within the meaning of the Tax Act, with the Corporation.



4.16

Securities
Legislation.  The Corporation is a private issuer within the meaning of
the Securities Act (British Columbia) and the sale of the Corporation Shares by
the Shareholder to the Purchaser is made in compliance with the exempt
take-over-bid provisions of such Act.



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4.17

Full
Disclosure.  The information contained in the documents, certificates
and written statements (including this Agreement and the schedules and exhibits
hereto) furnished to the Purchaser by or on behalf of the Corporation with
respect to the Corporation (including the Corporation Business and the results
of operations, financial condition and prospects of the Corporation) for use in
connection with this Agreement or the transactions contemplated by this
Agreement is true and complete in all material respects and does not, to the
best of the knowledge of the Corporation after conducting an inquiry which a
reasonably prudent person would make under the circumstances, omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.  There is no fact
known to the Corporation the Corporation that has not been disclosed to the
Purchaser by the Corporation in writing that has had a Material Adverse Effect
on or, so far as the Corporation can now foresee, could be reasonably likely to
have a Material Adverse Effect on the Corporation (including the Corporation
Business and the results of operations, financial condition or prospects of the
Corporation).



4.18

Compliance
with Applicable Laws.  The operation of the Corporation Business (i)
has not violated or infringed, except for violations or infringements that have
been cured and the prior existence of which could not, individually or in the
aggregate, reasonably be expected to have an adverse effect on the Corporation
and (ii) does not in any material respect violate or infringe any Applicable
Law, the terms of any permit or any order, writ, injunction or decree of any
Governmental Authority.



4.19

Corporation
Employment Agreements and Employee Benefits.



4.19.1

There
are no employment, consulting, severance pay, continuation pay, termination pay,
indemnification agreements, collective agreements, employee benefit plans or
other similar agreements of any nature whatsoever affecting the Corporation
which could not be terminated on 30 days notice or pay in lieu. The Corporation
does not maintain or contribute to, or has maintained or contributed to any,
employee pension or welfare benefit plans.The Corporation is not subject to any
collective bargaining agreements or any other union contracts nor is any
contemplated.



4.19.2

The
Corporation and its Affiliates have complied and are currently complying, in
respect of all contracts with employees of the Corporation and its Affiliates,
with all Applicable Laws respecting employment and employment practices and the
protection of the health and safety of employees, except for such instances
which are not, in the aggregate, material.



4.20

Good
Faith.  The Corporation will employ good faith, due diligence, and best
efforts to perform its obligations of this Agreement and will do such acts and
enter into such additional or collateral agreements or sureties as may be
reasonably required by the Purchaser to effect and complete the objects and
intent of this Agreement.



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ARTICLE
5

REPRESENTATIONS
AND WARRANTIES OF THE PURCHASER



As
an inducement to the Corporation and the Shareholder to enter into this
Agreement and to consummate the transactions provided for herein, the Purchaser
represents and warrants to the Corporation and the Shareholder that:



5.01

Existence
and Power.  The Purchaser is a corporation duly incorporated, organized
and validly existing under the laws of the Province of British Columbia, is
listed in good standing on the NASD governed OTCBB and on the Canadian Trading
and Quotation System, and is a British Columbia and Alberta reporting issuer and
a foreign reporting issuer (20F filer) in the US in good standing. The Purchaser
has all corporate power and all governmental licences, authorizations, permits,
consents and approvals required to carry on the Purchaser Business as now
conducted and to own and operate the businesses as now owned and operated.
 The Purchaser is not required to be qualified to conduct business in any
jurisdiction where the failure to be so qualified would have a Material Adverse
Effect.  No proceedings have been taken or authorized by the Purchaser or,
to the knowledge of the Purchaser, by any other Person with respect to the
bankruptcy, insolvency, liquidation, dissolution or winding-up of the Purchaser
or with respect to any amalgamation, merger, consolidation, arrangement or
reorganization relating to the Purchaser. .  The Corporation and the
Shareholder are aware of a Petition brought on by a shareholder of the Purchaser
seeking to interfere with management decisions on a number of matters, including
this Agreement.  This disclosure is a continuing disclosure and exception
regarding all warranties hereof.



5.02

Authorization.
 The execution, delivery and performance by the Purchaser of this Agreement
and the consummation thereby of the transactions provided for herein are within
the powers of the Purchaser and have been duly authorized by all necessary
action on its part.  This Agreement has been duly and validly executed by
the Purchaser and constitutes a legal, valid and binding agreement of the
Purchaser enforceable against it in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights and subject to general principles of
equity, none of which are applicable or will be applicable to the reasonable
best of the Purchaser's knowledge at Closing. The execution and Closing of
this Agreement will not create a Material Adverse Effect on the Purchaser or any
Purchaser Contract or Purchaser Asset nor will it negatively impact any
Governmental Authority permit, license or other authority or permission.



5.03

Capital
Stock of the Purchaser.



5.03.1

The
authorized capital stock of the Purchaser consists of 250,000,000 common shares,
no par value, of which approximately 26,989,395 common shares are issued and
outstanding on the date hereof.  All issued and outstanding common shares
of the Purchaser have been lawfully and validly authorised and issued and are
fully paid and non-assessable.



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5.03.2

Attached
as Schedule "D" is a list at the date hereof of (i) any options, warrants,
rights of first refusal or other rights to purchase any shares of or from the
Corporation or the Corporation Shares, and (ii) any securities or contracts
convertible into or exchangeable for shares and (iii) any other commitments of
any kind for the issuance of shares of the Corporation or options, warrants or
other securities of the Corporation.  Such Schedule "D" constitutes a
materially complete and accurate list of the same at the date hereof.



5.03.3

Prior
to or at the date of this Agreement and up to and including the Closing Date the
Corporation has not and has not committed itself to:



(i)

redeem
or acquire any shares;



(ii)

declare
or pay any dividend;



(iii)

make
any reduction in or otherwise make any payment on account of capital; or



(iv)

effect
any subdivision, consolidation or reclassification of any capital;



5.04

Subsidiaries.
 The Purchaser has no Subsidiaries.



5.05

Governmental
Authorization.  The execution, delivery and performance by the
Purchaser of this Agreement requires no action by, consent or approval of any
Governmental Authority other than as expressly referred to in this Agreement.
 The Purchaser is required to make disclosure filings with the Governmental
Authorities with which it is a reporting issuer or in which it is incorporated
to disclose the transactions hereof and nay material changes resulting
therefrom, all in the normal course and in accordance with generally prevailing
law and regulation.



5.06

Non-Contravention.
The execution, delivery and performance of this Agreement by the Purchaser, and
the consummation by it of the transactions provided for herein, do not and will
not (a) contravene or conflict with the respective articles or bylaws of the
Purchaser; (b) contravene or conflict with or constitute a material violation of
any provision of any Applicable Law binding upon or applicable to the Purchaser,
the Purchaser Business or the outstanding shares in its capital stock and will
not, individually or in the aggregate, have a Material Adverse Effect; (c)
constitute a default under or give rise to any right of termination,
cancellation or acceleration of, or to a loss of any benefit to which the
Purchaser is entitled under any Purchaser Contract or any Permit or similar
authorization relating to the Purchaser, the Purchaser Business or the
outstanding shares of its capital stock, or (d) result in the creation or
imposition of any Lien.



5.07

Financial
Statements.



5.07.1

Attached
hereto as Schedule "E" are true and complete copies of the Purchaser's
audited financial statements as of August 31, 2003 and the related statements of
income and retained earnings and changes of financial position, prepared on a
consolidated basis, for such year end together with the quarterly unaudited
financial statements for the period

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ending
November 30, 2003 (collectively, the "Purchaser's Financials")
prepared on a consolidated basis and prepared appropriately in accordance with
Canadian GAAP and American GAAP.



5.07.2

The
Purchaser's Financials: (i) have been prepared on a consistent basis and are
based on the books and records of the Purchaser in accordance with Canadian GAAP
and American GAAP and present fairly the financial position, results of
operations and statements of changes in the Purchaser's financial position as of
the dates indicated or the periods indicated; (ii) contain and reflect all
necessary adjustments and accruals for a fair presentation of its financial
position and the results of its operations for the periods covered by said
financial statements; (iii) contain and reflect adequate provisions for all
reasonably anticipated liabilities (including Taxes) with respect to the periods
then ended and all prior periods; and (iv) with respect to Purchaser Contracts
and commitments for the sale of goods or the provision of services by the
Purchaser, contain and reflect adequate reserves for all reasonably anticipated
material losses and costs and expenses in excess of expected receipts.



5.07.3

To
the best of the knowledge of the Purchaser, there are no Liabilities of the
Purchaser other than: (i) any Liabilities accrued as Liabilities on the
Purchaser's Balance Sheet; (ii) Liabilities incurred since the date of the
Purchaser's Balance Sheet that do not, and could not, individually or in the
aggregate have a Material Adverse Effect; (iii) other Liabilities disclosed in
this Agreement or in any schedules attached hereto.



5.07.4

To
the best of the knowledge of the Purchaser, there is no basis for any material
(in excess of $50,000) restatement of the Purchaser's Financials



5.08

Absence
of Certain Changes. During and since the dates of the Purchaser's
Financials, the Purchaser Business has been conducted in the ordinary course,
and there has not been, except as disclosed in the Purchaser's Financials or
elsewhere in this Agreement:



(a)

any
event, occurrence, state of circumstances, or facts or change in the Purchaser
or in the Purchaser Business that has had or which the Purchaser expects to
have, either individually or in the aggregate, a Material Adverse Effect;



(b)

(i)
any change in any Liabilities of the Purchaser that has had, or which the
Purchaser expects to have, a Material Adverse Effect or (ii) any incurrence,
assumption or guarantee of any indebtedness for borrowed money by the Purchaser
in connection with the Purchaser Business or otherwise;



(c)

any
(i) payments by the Purchaser in respect of any indebtedness of the Purchaser
for borrowed money or in satisfaction of any Liabilities of the Purchaser
related to the Purchaser Business, other than in the ordinary course of business
or the guarantee by the Purchaser of any of the indebtedness of any other Person
or (ii) creation, assumption or sufferance of (whether by action or omission)
the

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existence
of any Lien on any assets reflected on the Purchaser's Balance Sheet, other than
Purchaser Permitted Liens;



(d)

any
transaction or commitment made, or any Purchaser Contract entered into, by the
Purchaser, any waiver, amendment, termination or cancellation of any Purchaser
Contract, or any relinquishment of any rights thereunder by the Purchaser or of
any other right or debt owed to the Purchaser, other than, in each such case,
actions taken in the ordinary course of business consistent with past practice;



(e)

any
(i) grant of any severance, continuation or termination pay to any director,
officer, stockholder or employee of the Purchaser or any Affiliate of the
Purchaser, (ii) entering into of any employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
director, officer, stockholder or employee of the Purchaser or any Affiliate of
the Purchaser, (iii) increase in benefits payable or potentially payable under
any severance, continuation or termination pay policies or employment agreements
with any director, officer, stockholder or employee of the Purchaser or any
Affiliate of the Purchaser, (iv) increase in compensation, bonus or other
benefits payable or potentially payable to directors, officers, stockholders or
employees of the Purchaser or any .Affiliate of the Purchaser, (v) change in the
terms of any bonus, pension, insurance, health or other benefit plan of the
Purchaser or (vi) representation of the Purchaser to any employee or former
employee of the Purchaser that the Purchaser promised to continue any benefit
plan after the Closing Date,



(f)

any
change by the Purchaser in its accounting principles, methods or practices or in
the manner it keeps its books and records;



(g)

any
distribution, dividend, bonus, management fee or other payment by the Purchaser
to any of their respective officers, directors, stockholders or Affiliates of
the Purchaser or any of their respective Affiliates or Associates; and



(h)

any
(i) material single expenditure or commitment, or any group of related
expenditures or commitments or (ii) material sale, assignment, transfer, lease
or other disposition of or agreement to sell, assign, transfer, lease or
otherwise dispose of any asset or property of the Purchaser other than in the
ordinary course of business.



5.09

Purchaser's
Assets and Liabilities.



5.09.1

The
Purchaser owns, leases, rents or has rights to property and assets as set forth
in detail in Schedule "F" hereto or in the Purchaser's Financials and
which includes, without limitation, fee simple disclosure, leases, mineral
claims, any other rights in land, buildings, plant, and any other realty or
infrastructure and any rights in any of the same,

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any
material chattels or other assets having a value in excess of $10,000 and any
other assets, tangible or intangible, having a value in excess of $10,000 and
including, without limitation, contracts, inventories, receivables, investments,
rights, and any other matters of such value of the Purchaser's Business
(collectively the "Purchaser's Assets").



5.09.2

The
Purchaser holds title to each of the Purchaser's Assets free and clear of all
Liens, adverse claims, easements, rights of way, servitude's, zoning or
building restrictions or any other rights of others or other adverse interests
of any kind, including leases, chattel mortgages, conditional sales contracts,
collateral security arrangements and other title or interest retention
arrangements except Purchaser Permitted Liens or as detailed in Schedule "F"
or the Purchaser's Financials (collectively, " Purchaser
Encumbrances").



5.09.3

All
of the Purchaser's Assets on the Purchaser 's Balance Sheet or Schedule "F"
are in all material respects fit for the purposes for which they are used and
are in good operating condition and repair and are adequate for the uses to
which they are put, and no material properties or assets necessary for the
conduct of the Purchaser Business in substantially the same manner as the
Purchaser Business has heretofore been conducted are in need of replacement,
maintenance or repair except for routine replacement, maintenance and repair.



5.09.4

Save
and except for those matters which are disclosed in Schedule "F" or the
Purchaser's Financials there are no material liabilities, contingent or
otherwise, existing on the date hereof in respect of which the Purchaser may be
liable on or after the completion of the transactions contemplated by this
Agreement other than:



(i)

liabilities
disclosed or referred to in this Agreement;



(ii)

liabilities
incurred in the ordinary course of business, none of which are materially
adverse to the respective businesses, operations, affairs or financial
conditions of the Purchaser; and



(iii)

present
liabilities do not exceed approximately $1,200,000CDN in aggregate of which
approximately $1,000,000 is a director loan to the Purchaser;



5.09.5

There
are no Purchaser Assets material to the operation of the Purchaser Business
which, to the reasonably informed knowledge of the Purchaser, would be lost or
suffer a Material Adverse Effect as a consequence of this Agreement or Closing
or otherwise is contemplated to be lost or materially damaged.



5.10

Affiliates.
Other than as disclosed in this Agreement, there are no Purchaser Contracts
which are currently in force and effect between the Purchaser and any
shareholder, or any Affiliate or Associate of any shareholder except for an
agreement between the Purchaser and the receiver for Evergreen Trust, the
largest shareholder of the Purchaser, of which the Corporation has knowledge.
 The Purchaser is not indebted to any shareholder except as disclosed in
this Agreement.



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5.11

Litigation.
 Other than the action referenced in section 5.01, there is no proceeding
pending or, to the knowledge of the Purchaser, threatened against or affecting
the Purchaser or the Purchaser Business or that seeks to prevent, enjoin, alter
or delay the transactions contemplated by this Agreement, and there is no
existing order, judgement or decree of any Governmental Authority naming the
Purchaser as an affected party which has not been paid or discharged in full.



5.12

Material
Contracts. All Purchaser Contracts are in good standing and are legal, valid
and binding obligations of the Purchaser and each other Person who is a party
thereto, enforceable against the Purchaser and each such Person in accordance
with its terms, and none are subject to any material default thereunder.
 All Purchaser Contracts are adequately disclosed in Schedule "F".
 There are no Purchaser Contracts which cannot be cancelled with not more
than 30 days notice or payment of not more than $10,000 except as disclosed in
Schedule "F". There are no Purchaser Contracts material to the operation of
the Purchaser Business which, to the reasonably informed knowledge of the
Purchaser, would be lost or suffer a Material Adverse Effect as a consequence of
this Agreement or Closing or otherwise is contemplated to be lost.



5.13

Compliance
with Applicable Laws.  The operation of the Purchaser Business (i) has
not violated or infringed, except for violations or infringements that have been
cured and the prior existence of which could not, individually or in the
aggregate, reasonably be expected to have an adverse effect on the Purchaser and
(ii) does not in any material respect violate or infringe any Applicable Law,
the terms of any permit or any order, writ, injunction or decree of any
Governmental Authority.

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5.14

Purchaser
Employment Agreements and Employee Benefits.



5.14.1

There
are no employment, consulting, severance pay, continuation pay, termination pay,
indemnification agreements, collective agreements, employee benefit plans or
other similar agreements of any nature whatsoever affecting the Purchaser which
could not be terminated on 30 days notice or pay in lieu except as disclosed in
this Agreement. The Purchaser does not maintain or contribute to, or has
maintained or contributed to any, employee pension or welfare benefit plans. The
Purchaser is not subject to any collective bargaining agreements or any other
union contracts nor is any contemplated.



5.14.2

The
Purchaser and its Affiliates have complied and are currently complying, in
respect of all employees of the Purchaser and its Affiliates, with all
Applicable Laws respecting employment and employment practices and the
protection of the health and safety of employees, except for such instances
which are not, in the aggregate, material.



5.15

Purchaser
Intellectual Property.



5.15.1

Schedule
"F" sets forth a complete and correct list of each patent, patent
application and invention, trademark, trade name, trademark or trade name
registration or application, copyright or copyright registration or application
for copyright registration, and each licence or licensing agreement, for any of
the foregoing relating to the Purchaser Business as conducted by the Purchaser
or held by the Purchaser (the " Purchaser Intellectual Property
Rights"). Purchaser Intellectual Property Rights also include any trade
secrets that are material to the conduct of the Purchaser Business in the manner
that the Purchaser Business has heretofore been conducted.



5.15.2

The
Purchaser has not during the three years preceding the date of this Agreement
been a party to any proceeding, nor to the knowledge of the Purchaser, is any
proceeding threatened as to which there is a reasonable possibility of a
determination adverse to the Purchaser, involving a claim of infringement by any
Person (including any Governmental Authority) of any Purchaser Intellectual
Property Right.  No Purchaser Intellectual Property Right is subject to any
outstanding order, judgement, decree, stipulation or agreement restricting the
use thereof by the Purchaser or restricting the licensing thereof by the
Purchaser to any Person.  The Purchaser has no knowledge that would cause
such Person to believe that the use of the Purchaser Intellectual Property
Rights or the conduct of the Purchaser Business conflicts with, infringes upon
or violates any patent, patent licence, patent application, trademark, trade
name, trademark or trade name registration, copyright, copyright registration,
service mark, brand mark or brand name or any pending application relating
thereto, or any trade secret, know-how, programs or processes, or any similar
rights, of any Person.



5.15.3

To
the knowledge of the Purchaser, the Purchaser either owns the entire right,
title and interest in Purchaser Intellectual Property Rights or has acquired an
exclusive licence to use, any and all patents, trademarks, trade names, brand
names and copyrights that are

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material
to the conduct of the Purchaser Business in the manner that the Purchaser
Business has heretofore, been conducted.  The Purchaser Intellectual
Property Rights are in full force and effect and have not been used or enforced
or failed to be used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of any of the Purchaser
Intellectual Property Rights.  All registrations and filings necessary to
preserve the rights of the Purchaser in and to the Purchaser Intellectual
Property Rights have been made.



5.16

Required
Consents.  There are no governmental or other registrations, filings,
applications, notices, transfers, consents, approvals, orders, qualifications or
waivers required under Applicable Law or otherwise required to be obtained or
made with any Governmental Authority to be obtained by the Purchaser or any
shareholder by virtue of the execution and delivery of this Agreement and the
consummation of the transactions provided for herein for any reason; nor are
there any Purchaser Contracts with respect to which the consent of the other
party or parties thereto must be obtained by the Purchaser or any shareholder by
virtue of the execution and delivery of this Agreement and the consummation of
the transactions provided for herein (the "Required Consents") except
only a requirement to consult with the receiver for Evergreen Trust pursuant to
agreement.  The Purchaser is required to effect required filings disclosing
the material elements of these transaction in the US and Canada at such time as
matters become material or Closing occurs in accordance with prevailing
securities laws and regulation.



5.17

Tax
Matters.



5.17.1

The
Purchaser is a taxable Canadian corporation, as that term is defined in the Tax
Act. The Purchaser has prepared and filed all Tax Returns on time with all
appropriate Governmental Authorities which were required to be filed on or prior
to the Closing Date.  Each such Tax Return was correct and complete.
 True copies of all Tax Returns prepared and filed by the Purchaser during
the past three years and that the Corporation has requested have been given to
the Corporation on or before the date of this Agreement.



5.17.2

The
Purchaser has paid all Taxes due and payable by it and has paid all assessments
and reassessments it has received in respect of Taxes.  The Purchaser has
paid all Tax instalments due and payable by it as at its last fiscal year.



5.17.3

The
Purchaser has withheld from each payment made to any of its present or former
employees, officers and directors, and including to all persons who are
non-residents of Canada for the purposes of the Income Tax Act (Canada) all
amounts required by Applicable Law and has remitted such withheld amounts within
the prescribed periods to the appropriate Governmental Authority.  The
Purchaser has remitted all Canada Pension Plan contributions, employment
insurance premiums, employer health taxes and other Taxes payable by it in
respect of its employees and has remitted such amounts to the proper
Governmental Authority within the time required by Applicable Law.  The
Purchaser has charged, collected and remitted on a timely basis all Taxes as
required by Applicable Law on any service, sale, supply or delivery whatsoever,
made by the Purchaser.



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5.17.4

The
Purchaser Business is the only business conducted by the Purchaser during the
last five years.  The non-capital losses (as defined in the Tax Act and any
applicable provincial taxing statute) were incurred by the Purchaser only in
carrying on the Purchaser Business.  The Purchaser is not prevented by
virtue of any amalgamation or dissolution from carrying back against income
earned by it prior to the Closing Date, any losses incurred by it after the
Closing Date.



5.17.5

The
Purchaser has paid all Taxes imposed by applicable legislation in the province
of British Columbia on the acquisition or maintenance of its realty and tangible
personal property as defined in applicable legislation in the province of
British Columbia, including GST, PST, municipal taxes and any other transfer or
maintenance or service tax. The foregoing is accurate, mutatis mutandis, with
respect to all sales or transfer Taxes imposed under comparable legislation of
other provinces.



5.17.6

The
Purchaser has never acquired or had the use of any of its assets from a Person
(a "Related Person") with whom the Purchaser was not dealing at arm's
length, within the meaning of the Tax Act.  The Purchaser has never
disposed of any asset to a Related Person for proceeds less than the fair market
value of that asset.  Except as disclosed in this Agreement, the Purchaser
is not a party to or bound by any agreement with, is not indebted to, and no
amount is owing to the Purchaser by any Related Person, not dealing at arm's
length, within the meaning of the Tax Act, with the Purchaser.



5.18

Issuance
of Shares.The issuance of the Purchaser Price by the Purchaser, and
the terms and provisions of the Purchaser Price shares, will not violate any
provisions of the Purchaser's articles or bylaws or any Applicable Law.
 The Purchase Price shares will be issued lawfully and as fully paid and
non-assessable.



5.19

Continuing
Public Status.  The Purchaser warrants that until Closing it will
effect all reasonable endevours to maintain its reporting and listing
requirements in good standing and will maintain its listing on the NASD governed
OTCBB and on the CNQ.



5.20

Full
Disclosure.  The information contained in the documents, certificates
and written statements (including this Agreement and the schedules and exhibits
hereto) furnished to the Shareholder and Corporation by or on behalf of the
Purchaser with respect to the Purchaser (including the Purchaser Business and
the respective results of operations, financial condition and prospects of the
Purchaser) for use in connection with this Agreement or the transactions
contemplated by this Agreement is true and complete in all material respects and
does not, to the best of the knowledge of the Purchaser after conducting an
inquiry which a reasonably prudent person would make under the circumstances,
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  There is no fact known to the Purchaser that has not been
disclosed to the Corporation by the Purchaser in writing that has had a Material
Adverse Effect on or, so far as the Purchaser can now foresee, could be
reasonably likely to have a Material Adverse Effect on the Purchaser (including
the Purchaser Business and the respective results of operations, financial
condition or prospects of the Purchaser).

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5.21

Good
Faith.  The Purchaser will employ good faith, due diligence, and best
efforts to perform its obligations of this Agreement and will do such acts and
enter into such additional or collateral agreements or sureties as may be
reasonably required by the Corporation to effect and complete the objects and
intent of this Agreement.





ARTICLE
6

COVENANTS
OF THE CORPORATION AND SHAREHOLDER



6.01

Conduct
of the Business.  During the Interim Period, other than with the
express written approval of the Purchaser, the Corporation shall conduct the
Corporation Business in the ordinary course consistent with past practice and
shall use its best efforts to preserve intact the organization, relationships
with third parties, the Corporation Assets, minimise Liabilities and Liens, and
maintain goodwill of the Corporation and keep available the services of the
present officers, employees, agents and other personnel of the Corporation
Business.  The corporate structure of the Corporation, the Corporate status
and the share structure of the Corporation shall not be altered or affected in
any manner and the Shareholder shall not in any manner permit any assignment or
other disposition of any interest in the Corporation Shares nor permit a Lien in
respect to the same.



6.01.1

Without
limiting in any way the importance of the foregoing, during the Interim Period,
other than with the express written approval of the Purchaser, the Corporation
shall not, and the Shareholder shall not cause the Corporation to and shall
employ every reasonable effort to prevent:



(a)

adopt
any material change in any method of accounting or accounting practice used by
the Corporation other than by reason of a concurrent change in generally
accepted accounting principles;



(b)

amend
its articles or bylaws;



(c)

sell,
mortgage, pledge or otherwise dispose of any assets or properties of the
Corporation Business and the Corporation Assets, other than in the ordinary
course of business;



(d)

declare,
set aside or pay any management fee or dividend or make any other distribution
with respect to the capital stock of the Corporation or otherwise make a
distribution or payment to any Shareholder, other than in the course of normal
year-end planning;

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(e)

amalgamate,
merge or consolidate with or agree to amalgamate, merge or consolidate with, or
purchase or agree to purchase all or substantially all of the assets of, or
otherwise acquire, any corporation, partnership or other business organization
or division thereof;



(f)

authorize
for issuance, issue, sell or deliver any additional shares of its capital stock
of any class or any securities or obligations convertible into shares of its
capital stock of any class or commit to doing any of the foregoing (it being
acknowledged that the Corporation authorised, effective December 31, 2003, the
issuance of 1000 Corporation Shares to the Shareholder in consideration of the
acquisition of Volcanic and Cariboo and that the said 1000 Corporation Shares
constitute part of the aggregate 2000 Corporation Shares owned by the
Shareholder and reflected in warranty section 4.03.1;



(g)

split,
combine or reclassify any shares of the capital stock of any class of the
Corporation or redeem or otherwise acquire, directly or indirectly, any shares
of such capital stock;



(h)

incur
or agree to incur any debt or guarantee any debt for borrowed money, including
any debt to any Shareholder, or to any Affiliate or Associate of any
Shareholder, except debt incurred in the ordinary course of business consistent
with past practice;



(i)

make
any loan, advance or capital contribution to or investment in any person other
than loans, advances and capital contributions to or investments in joint
ventures or other similar arrangements in which the Corporation has an equity
interest in the ordinary course of business and travel advances made in the
ordinary course of business by the Corporation to its employees to meet business
expenses expected to be incurred by such employees;



(j)

enter
into any settlement with respect to any proceeding or consent to any order,
decree or judgement relating to or arising out of any such Proceeding;



(k)

take
any action to terminate, dismiss or cause the retirement of any key employee of
the Corporation;



(1)

fail
in any material respect to comply with any Applicable Laws; or



(m)

make,
or make any commitments for, capital expenditures exceeding $25,000 for any
individual 'commitment or $ 100,000 for all such commitments taken in the
aggregate.  It is understood by the Parties that the Corporation is
acquiring two tractors costing approximately $130,000 each and is disposing of a
D-8 bulldozer.



6.01.2

During
the Interim Period, other than with the express written approval of the
Purchaser, the Corporation shall:

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(a)

file
all Canadian, United States, foreign, federal, state, provincial and local Tax
Returns required to be filed and make timely payment of all applicable Taxes
when due;



(b)

promptly
notify the Purchaser in writing of any action or circumstance that results in,
or could reasonably be expected to result in, a Material Adverse Effect or the
occurrence of any breach by the Corporation or the Shareholder of any
representation or warranty, or any covenant or agreement contained in this
Agreement; and



(c)

promptly
notify the Purchaser in writing of the commencement of any proceeding or the
threat thereof by or against the Corporation or any Shareholder.



6.02

Maintenance
of Corporation Insurance Policies.  Prior to and on and after the
Closing Date, the Corporation shall not take or fail to take any action if such
action or inaction would adversely affect the applicability of any insurance in
effect on the date hereof that covers all or any material part of the assets of
the Corporation or the Business.



6.03

Tax
Election.  The Corporation shall not file any election or other filing
pursuant to the Income Tax Act (Canada) or any equivalent provincial provision
except for Tax returns and the election under section 85 of the Tax Act in
respect of the transfer by the Shareholder to the Corporation of his shares of
Volcanic and Cariboo.





ARTICLE
7

COVENANTS
OF THE PURCHASER



7.01

Conduct
of Business.  During the Interim Period, except with the written
consent of the Corporation, the Purchaser will conduct the Purchaser Business in
the ordinary course consistent with past practice and shall use its best efforts
to preserve intact the organization, relationships with third parties and
goodwill of the Purchaser and keep available the services of the present
officers, directors, employees, agents and other personnel of the Purchaser
Business; and without limiting in any way the importance of the foregoing, the
Purchaser shall not undertake any of those matters referred to in sections
6.01.1 and 6.01.2, 6.02 and 6.03 and all such clauses thereof shall apply
mutatis mutandis to the Purchaser.





ARTICLE
8

ACKNOWLEDGMENTS
AND COVENANTS OF ALL PARTIES



8.01

Further
Assurances.  Each party hereto agrees to execute and deliver such other
documents, certificates, agreements and other writings and to take such other
actions as may be reasonably necessary or desirable (including obtaining all
required consents) in order to evidence the consummation or implementation of
the transactions provided for under this Agreement.

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8.02

Certain
Filings.  The parties hereto shall cooperate with one another in
determining whether any action by or in respect of, or filing with, any
Governmental Authority is required or reasonably appropriate, or any action,
consent, approval or waiver from any party to any Contract is required or
reasonably appropriate, in connection with the consummation of the transactions
contemplated by this Agreement.  Subject to the terms and conditions of
this Agreement, in taking such actions or making any such filings, the parties
hereto shall furnish information required in connection therewith and seek
timely to obtain any such actions, consents, approvals or waivers.



8.03

Registration.
 All parties acknowledge and agree that the Purchaser is a reporting issuer
in Canada and the United States, and that the Parties will and must cooperate in
the filing of any necessary or advisable documentation with Governmental
Authorities.





ARTICLE
9

PRE-CLOSING
MATTERS AND CONDITIONS TO CLOSING



9.01

Pre-Closing
Matters.  The Parties shall effect best efforts to conclude the
following prior to Closing for presentation at Closing (unless waived in
writing) for execution:



(a)

the
Purchaser shall have acquired financial facilities of not less than
$2,000,000CDN (gross before costs or terms of acquiring the funds), which shall
be available for commitment at Closing (and subject to Closing) and for funding
within
ten
 (
10
 ) business days of Closing for disbursement to the Purchaser for use by the
Purchaser within 30 days thereof, such funds shall be advanced to the
Corporation for use as follows:



(i)

payment
of shareholder loans of the Corporation owing to the Shareholder of
approximately $400,000 on or within 30 days of Closing;



(ii)

the
grant of a loan (the "Loan") in the amount of $263,000, by the Purchaser or
its subsidiary in accordance with advice of counsel and KPMG, to the Shareholder
and having the general terms of a draft Loan and pledge agreement of Schedule
"G" hereof; and



(iii)

the
remainder for working capital for development of the Corporation's Business.



(b)

to
complete a lease between the Purchaser or Corporation (as the Parties determine
in accordance with tax advice) and 530526 BC Ltd, owned by the Shareholder and
his family, on reasonable commercial terms for the location of a pumice bagging
plant, and executed and filed within 30 days of Closing (unless if required by
the financier of the above finance, then within five (5) business days of
Closing) on the terms set forth in Schedule "H" and the Shareholder warrants
to cause 530526 BC Ltd to enter into such lease on such terms;;

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(c)

within
30 days of Closing to effect reasonable best efforts to complete a mining rights
and extraction agreement between the Purchaser or Corporation (as the Parties
determine in accordance with tax advice) and the Shareholder, on reasonable
commercial royalty terms, of an additional 200 acres of surface and sub-surface
rights of land located in the town of Quesnel on the general terms of Schedule
"I"; and



(d)

to
complete a management agreement between the Purchaser and the Shareholder as a
senior officer of the Purchaser on the terms of the draft agreement of Schedule
"J" hereto.



Where
there is uncertainty as to 'standard terms' or 'commercial terms' the
reference source shall be the forms and practise of the Purchaser and its
attorneys.



9.02

Conditions
to Obligation of the Purchaser.  The obligations of the Purchaser to
consummate the Closing are subject to the satisfaction of each of the following
conditions:



(a)

(i)
the Corporation and the Shareholder shall have performed and satisfied each of
their respective obligations of this Agreement required to be performed and
satisfied by them on or prior to the Closing Date, (ii) each of the
representations and warranties of the Corporation and the Shareholder contained
herein shall have been true and correct and contained no misstatement or
omission that would make any such representation or warranty misleading when
made and shall be true and correct and contain no misstatement or omission that
would make any such representation or warranty misleading at and as of the
Closing with the same force and effect as if made as of the Closing, and (iii)
the Purchaser shall have received certificates signed by the Shareholder as a
duly authorized executive officer of the Corporation to the foregoing effect and
to the effect that the conditions specified within this Section 9.02(a) have
been satisfied.



(b)

All
required or advisable consents, if any, for the transactions contemplated by
this Agreement shall have been obtained without the imposition of any conditions
that are or would become applicable to the Corporation, the Business, the
Corporation Shares or the Purchaser (or any of its Affiliates or Associates)
after the Closing that would be materially burdensome upon the Corporation, the
Business, the Corporation Shares or the Purchaser (or any of its Affiliates or
Associates) or their respective businesses substantially as such businesses have
been conducted prior to the Closing Date or as said businesses, as of the date
hereof, would be reasonably expected to be conducted after the Closing Date.
 All such approvals shall be in effect, and no proceedings shall have been
instituted or threatened by any Governmental Authority or other Person with
respect thereto as to which there is a material risk of a determination that
would terminate the effectiveness of, or otherwise materially and adversely
modify the terms of, any such approval; all applicable waiting periods with
respect to such approvals shall have expired; and all conditions and
requirements prescribed by Applicable Law or by such approvals to be satisfied
on or prior to the Closing Date shall have been satisfied to the extent
necessary such that all such approvals are, and will remain, in full force and
effect assuming continued compliance with the terms thereof after the Closing.

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(c)

The
transactions contemplated by this Agreement and the consummation of the Closing
shall not violate any Applicable Law.  The operation of the Business shall
not have violated or infringed, or be in violation or infringement of any
Applicable Law or any order, writ, injunction or decree of any Governmental
Authority, where such violations and infringements, individually or in
aggregate, have resulted in, or could reasonably be expected to result in a
Material Adverse Effect.



(d)

Since
the date hereof, there shall not have been any event, occurrence, development or
state of circumstances or facts or change in the Corporation or the Corporation
Business, including any damage, destruction or other casualty loss affecting the
Corporation or the Corporation Business that has had or that may be reasonably
expected to have, either alone or together with all such events, occurrences,
developments, states of circumstances or facts or changes, a Material Adverse
Effect on the Corporation.



9.03

Conditions
to Obligations of Shareholder and Corporation.  The obligations of the
Shareholder and Corporation to consummate the Closing are subject to the
satisfaction of each of the following conditions:



(a)

(i)
the Purchaser shall have performed and satisfied each of its obligations of this
Agreement required to be performed and satisfied by it on or prior to the
Closing Date; (ii) each of the representations and warranties of the Purchaser
contained herein shall have been true and correct and contained no misstatement
or omission that would make any such representation or warranty misleading when
made and shall be true and correct and contain no misstatement or omission that
would make any such representation or warranty misleading at and as of the
Closing with the same force and effect as if made as of the Closing and (iii)
the Corporation and Shareholder shall have received a certificate signed by a
duly authorized executive officer of the Purchaser to the foregoing effect and
to the effect that the conditions specified within this Section 9.03(a) have
been satisfied.



(b)

All
required or advisable consents for the transactions contemplated by this
Agreement shall have been obtained without the imposition of any conditions that
are or would become applicable to any Shareholder (or any of their respective
Affiliates or Associates) after the Closing that would be materially burdensome
upon any such Person.  All such approvals shall be in effect, and no

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Proceedings
shall have been instituted or threatened by any Governmental Authority with
respect thereto as to which there is a material risk of a determination that
would terminate the effectiveness of, or otherwise materially and adversely
modify the terms of, any such approval.  All applicable waiting periods
shall have expired, and all conditions and requirements such approvals to be
satisfied on or prior to the Closing extent necessary such that all such
approvals are, and will remain, in full force and effect assuming continued
compliance with the terms thereof after the Closing.



(c)

The
transactions contemplated by this Agreement and the consummation of the Closing
shall not violate any Applicable Law.  No temporary restraining order,
preliminary or permanent injunction, cease and desist order or other order
issued by any court of competent jurisdiction or any competent Governmental
Authority or any other legal restraint or prohibition preventing the transfer
and exchange contemplated hereby or the consummation of the Closing, or imposing
Damages in respect thereto, shall be in effect, and there shall be no pending
actions or proceedings by any Governmental Authority (or determinations by any
Governmental Authority) or by any other Person challenging or seeking to
materially restrict or prohibit the transfer and exchange contemplated hereby or
the consummation of the Closing.



(d)

Since
the date hereof, there shall not have been any event, occurrence, development or
state of circumstances or facts or change in the Purchaser or the Purchaser
Business, including any damage, destruction or other casualty loss affecting the
Purchaser or the Purchaser Business that has had or that may be reasonably
expected to have, either alone or together with all such events, occurrences,
developments, states of circumstances or facts or changes, a Material Adverse
Effect on the Purchaser.



9.04

Additional
Matters of the Interim Period.  The Parties shall conduct themselves
with good faith and diligence to achieve the objects and intent of this
Agreement and to achieve Closing on the terms contemplated and therefore shall
conduct themselves cooperatively and with open disclosure, access and veracity
and to such intent shall, inter alia:



(a)

delivery
by the Parties to each other, on a confidential basis, of the following
documentation and information:



(i)

a
copy of all material contracts, agreements, reports and title information of any
nature respecting each of the Parties and their assets; and



(ii)

details
of any lawsuits, claims or potential claims relating to any of the Parties;



(b)

during
normal business hours, to:



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(i)

make
available for inspection by the solicitors, auditors and representatives of the
Parties, at such location as is appropriate, all of the other Partie's books,
records, contracts, documents, correspondence and other written materials, and
afford such persons every reasonable opportunity to make copies thereof and take
extracts therefrom at their sole cost, provided such persons do not unduly
interfere in the respective operations of the Companies;



(ii)

authorize
and permit such persons at the risk and the sole cost of the relevant Party, and
only if such persons do not unduly interfere in the respective operations, to
attend at all of their respective places of business and operations to observe
the conduct of their respective businesses and operations, inspect their
respective properties and assets and make physical counts of their respective
inventories, shipments and deliveries; and



(iii)

require
the Parties' respective management personnel to respond fully and with
veracity to all reasonable inquiries concerning the Parties' respective
business assets or the conduct of their respective businesses relating to their
respective liabilities and obligations;



9.04

Waiver
of Conditions Precedent.   The conditions precedent set forth in
sections 9.02 and 9.03 hereinabove are for the exclusive benefit of the stated
Party and may be waived by the stated Party in writing and in whole or in part
at any time prior to the Closing Date.





Article
10



CLOSING
AND POST CLOSING MATTERS





10.01

Closing
and Closing Date.   The Closing shall take place at the date and
place set forth in section 2.03



10.02

Documents
to be delivered by the Corporation and Shareholder.  Prior to or at
Closing the Corporation and Shareholder shall deliver to the Purchaser at
Closing:



(a)

certificates
representing the Corporation Shares duly endorsed for transfer, director's
resolutions authorising the transfer to the Purchaser and directing alteration
of the Corporation share registry and all other documentation as may be
necessary and as may be required by the solicitors for the Purchaser, acting
reasonably, to ensure that all of the Corporation Shares have been transferred,
assigned and are registerable in the name of and for the benefit of the
Purchaser;



(b)

a
copy of all corporate records and books of account of the Corporation including,
without limiting the generality of the foregoing, a copy of all minute books,
share register books, share certificate books and annual reports;



(c)

all
necessary consents and approvals in writing to the completion of the
transactions contemplated herein;



(d)

execution
of the agreements concluded and not waived of sub-sections 9.01 (b) to (d) for
delivery to the Purchaser for execution;



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37 -





(e)

a
certificate of an officer of the Corporation, dated as of the Closing Date,
acceptable in form to the solicitors for the Purchaser, acting reasonably,
certifying that the warranties, representations, covenants and agreements of the
Corporation contained in this Agreement are true and correct as of the Closing
Date;



(f)

if
required by the Purchaser, an opinion of counsel to the Corporation, dated as at
the Closing Date, and addressed to the Purchaser and its counsel, in form and
substance satisfactory to the Purchaser's counsel, acting reasonably,
respecting the due transfer of the Corporation Shares and that the same are
validly issued and fully paid and non-assessable;



(g)

consents
to act or such other documents as may be required in connection with the
appointment of the Shareholder to the Board of Directors of the Purchaser;



(h)

resolution
of the board of the Corporation to appoint Gordon Sales to the board of the
Corporation; and



(j)

all
such other documents and instruments as the Purchaser's solicitors may
reasonably require.



10.03

Documents
to be delivered by the Purchaser.  Prior to or at Closing the Purchaser
shall deliver to the Corporation and Shareholder at Closing:



(a)

certificates
in the name of the Shareholder (or such designees as he may direct) representing
the Purchase Price, director's resolutions authorising the issuance and all
other documentation as may be necessary and as may be required by the solicitors
for the Corporation and Shareholder, acting reasonably, to provide comfort that
the same have been lawfully and validly issued and are fully paid and
non-assessable;



(b)

all
necessary consents and approvals, including board approval, in writing to the
completion of the transactions contemplated herein;



(c)

execution
and delivery of the agreements concluded and not waived of section 9.01 and
comfort, as reasonably required by the Corporation and Shareholder, that the
finance facility of section 9.01 is available at or within the stated time after
Closing;



(d)

a
loan agreement in the form of Schedule "G" in favour of the Shareholder
providing that the Purchaser shall advance the Shareholder a loan of $263,000
within 30 days of Closing;



(e)

a
certificate of an officer of the Purchaser, dated as of the Closing Date,
acceptable in form to the solicitors for the Corporation and Shareholder, acting
reasonably, certifying that the warranties, representations, covenants and
agreements of the Purchaser contained in this Agreement are true and correct as
of the Closing Date;



(f)

if
required by the Corporation and Shareholder, an opinion of counsel to the
Purchaser, dated as at the Closing Date, and addressed to the Corporation and
Shareholder and its counsel, in form and substance satisfactory to the
Corporation and Shareholder's counsel, acting reasonably, respecting the due
issuance of the Purchase Price and that the same are validly issued and fully
paid and non-assessable;



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(g)

directors
resolutions or such other documents as may be required in connection with the
appointment of the Shareholder to the Board of Directors of the Purchaser; and



(h)

all
such other documents and instruments as the Purchaser's solicitors may
reasonably require.



10.04

Post-Closing.
 As soon as reasonably possible after Closing, the Purchaser shall effect
best efforts to cause the Shareholder to be removed from all guarantees to the
Corporation.  The Shareholder, as a then senior officer, may, at his
election, conduct such endevours on behalf of the Purchaser.





Article
11



NON-DISCLOSURE
AND PROPRIETARY INFORMATION





11.01

Non-disclosure.
  The Parties, for themselves, their officers, directors,
shareholders, consultants, employees and agents agree that they each will not
disseminate or disclose, or knowingly allow, permit or cause others to
disseminate or disclose to third parties who are not subject to express or
implied covenants of confidentiality, without the other Party's express
written consent, either: (i) the fact or existence of this Agreement or
discussions and/or negotiations between them involving, inter alia,
possible business transactions; (ii) the possible substance or content of those
discussions; (iii) the possible terms and conditions of any proposed
transaction; (iv) any statements or representations (whether verbal or written)
made by either Party in the course of or in connection with those discussions;
or (v) any written material generated by or on behalf of any Party and such
contacts, other than such disclosure as may be required under applicable
securities legislation or regulations, pursuant to any order of a court or on a
"need to know" basis to each of the Parties respective professional
advisors.  Notwithstanding the provisions of this section, the Parties
agree to make such public announcements of this Agreement promptly upon its
execution in accordance with the requirements of applicable securities
legislation and regulations.



11.02

Confidential
Information.   Each Party acknowledges that any and all
information which a Party may obtain from, or have disclosed to it, about the
other Party constitutes valuable trade secrets and proprietary confidential
information of the other Party (collectively, the "Confidential Information").
 No such Confidential Information shall be published by any Party without
the prior written consent of the other Party hereto, however, such consent in
respect of the reporting of factual data shall not be unreasonably withheld, and
shall not be withheld in respect of information required to be publicly
disclosed pursuant to applicable securities or corporation laws.
  Furthermore, each Party hereto undertakes not to disclose the
Confidential Information to any third party without the prior written approval
of the other Party hereto and to ensure that any third party to which the
Confidential Information is disclosed shall execute an agreement and undertaking
on the same terms as contained herein.



11.03

Impact
of Breach of Confidentiality.   The Parties hereto acknowledge
that the Confidential Information is important to the respective businesses of
each of the Parties hereto and that, in the event of disclosure of the
Confidential Information, except as authorized hereunder, the damage to each of
the Parties hereto, or to either of them, may be irreparable.  For the
purposes of the foregoing sections the Parties hereto

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39 -





recognize
and hereby agrees that a breach by any of the Parties of any of the covenants
therein contained would result in irreparable harm and significant damage to
each of the other Parties hereto that would not be adequately compensated for by
monetary award.  Accordingly, the Parties hereto agree that in the event of
any such breach, in addition to being entitled as a matter of right to apply to
a court of competent equitable jurisdiction for relief by way of restraining
order, injunction, decree or otherwise as may be appropriate to ensure
compliance with the provisions hereof, any such Party will also be liable to the
other Party, as liquidated damages, for an amount equal to the amount received
and earned by such Party as a result of and with respect to any such breach.
 The Parties hereto also acknowledge and agree that if any of the aforesaid
restrictions, activities, obligations or periods are considered by a court of
competent jurisdiction as being unreasonable, the Parties agree that said court
shall have authority to limit such restrictions, activities or periods as the
court deems proper in the circumstances.   In addition, the Parties
hereto further acknowledge and agree that all restrictions or obligations in
this Agreement are necessary and fundamental to the protection of the respective
businesses of each of the Parties hereto and are reasonable and valid, and all
defenses to the strict enforcement thereof by either of the Parties hereto are
hereby waived by the other Parties.





Article
12



ASSIGNMENT





12.01

Assignment.
  No Party may sell, assign, pledge or mortgage or otherwise encumber
all or any part of its interest herein without the prior written consent of the
other Party; provided that any Party may at any time at its sole discretion and
without the prior approval of the other Party assign and transfer a received or
receivable interest herein to any wholly owned subsidiary (without relieving the
Party of its obligations of this Agreement), subject at all times to the
requirement that any such subsidiary remain wholly owned by the Party hereto
failing which any such interest must be immediately transferred back to such
Party hereto; and provided further that any transfer of all or any part of a
Party's interest herein to its wholly owned subsidiary shall be accompanied by
the written agreement of any such subsidiary to assume the obligations of such
Party hereunder and to be bound by the terms and conditions hereof.





Article
13



FORCE
MAJEURE





13.01

Events.
  If any Party hereto is at any time prevented or delayed in complying
with any provisions of this Agreement by reason of strikes, walk-outs, labour
shortages, power shortages, fires, wars, acts of God, earthquakes, storms,
floods, explosions, accidents, protests or demonstrations by environmental
lobbyists or native rights groups, delays in transportation, breakdown of
machinery, inability to obtain necessary materials in the open market,
unavailability of equipment, governmental regulations restricting normal
operations, shipping delays or any other reason or reasons beyond the control of
that Party, then the time limited for the performance by that Party of its
respective obligations hereunder shall be extended by a period of time equal in
length to the period of each such prevention or delay.  Should such delay
extend beyond 60 days then a non-defaulting Party (force majeure will not make a
Party a defaulting Party) may elect to abandon this Agreement with 15 days
notice without damage or accountability for such abandonment.

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40 -







13.02

Notice.
  A Party shall, within seven calendar days, give notice to the other
Party of each event of force majeure under section 13.01 hereinabove, and
upon cessation of such event shall furnish the other Party with notice of that
event together with particulars of the number of days by which the obligations
of that Party hereunder have been extended by virtue of such event of force
majeure and all preceding events of force majeure.

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41 -







Article
14



DEFAULT
AND TERMINATION





14.01

Default.
  The Parties hereto agree that if any Party hereto is in default with
respect to any of the provisions of this Agreement (herein called the "Defaulting
Party"), the non-defaulting Party (herein called the "Non-Defaulting
Party") shall give notice to the Defaulting Party designating such
default, and within 20 calendar days after its receipt of such notice, the
Defaulting Party shall either:



(a)

cure
such default, or commence proceedings to cure such default and prosecute the
same to completion without undue delay; or



(b)

give
the Non-Defaulting Party notice that it denies that such default has occurred.



14.02

Dispute.
  If default is disputed, a Party shall not be deemed in default until
the matter shall have been determined finally by appropriate tribunal.



14.03

Curing
the Default.   If:



(a)

the
default is not so cured or the Defaulting Party does not commence or diligently
proceed to cure the default; or



(b)

court
resolution is not sought; or



(c)

the
Defaulting Party is found in proceedings to be in default, and fails to cure it
within five calendar days after the rendering of the award,



the
Non-Defaulting Party may, by written notice given to the Defaulting Party at any
time while the default continues, terminate the interest of the Defaulting Party
in and to this Agreement and seek damages.



14.04

Termination.
  In addition to the foregoing it is hereby acknowledged and agreed by
the Parties hereto that this Agreement may be terminated by a Party, not in
default whether declared or undeclared, in the event that:



(a)

by
agreement of the Corporation, Shareholder and the Purchaser, in writing;



(b)

at
a Party'e election if Closing has not occurred as provided or default has not
been cured in the time provided; or



(c)

by
any other provision of this Agreement specifically permitting termination;





and
in such event of such election by a non-defaulting Party, this Agreement may be
terminated and be of no further force and effect other than the confidentiality
obligations hereinabove and without prejudice to any claims or remedies for
default arising from this Agreement and the operation of law.



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ARTICLE
15

MISCELLANEOUS



15.01

Notices.
 All notices, requests, demands, claims and other communications hereunder
shall be in writing.  Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given (i) if personally delivered,
when so delivered, (ii) if mailed, five Business Days after having been sent by
registered or certified mail, return receipt requested, postage prepaid and
addressed to the intended recipient as set forth below, (iii) if given by
facsimile or telecopier or e-mail, once such notice or other communication is
transmitted to the number specified below and the appropriate electronic
confirmation is received:



If
to the Corporation:

Unit
6, 2009 Abbotsford Way, Abbotsford, BC V2S 4N7



If
to the Purchaser:    Suite 1750 - 999 West Hastings Street,
Vancouver, BC, V6C 2W2



If
to the Shareholder:

Unit
6, 2009 Abbotsford Way, Abbotsford, BC V2S 4N7



Any
party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other parties
notice in the manner set forth above.



15.02

Amendments;
No Waivers.



(a)

Any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
all parties hereto, or in the case of a waiver, by the party against whom the
waiver is to be effective.



(b)

No
waiver by a party of any default, misrepresentation or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent occurrence.  No failure or delay by a party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.  The rights
and remedies herein provided shall be cumulative and not exclusive of any rights
or remedies provided by law.



15.03

Survival
of Representation, Warranties and Covenants.  All representations,
warranties, covenants, agreements and obligations of each Party shall survive
the Closing and shall expire one year following the Closing Date.

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44 -







15.04

Legal
Representation.   The Corporation and the Shareholder hereby
acknowledge that (i) Purchaser is represented by Devlin Jensen as its Canadian
legal counsel in connection with this Agreement, (ii) Devlin Jensen has not
represented the Corporation or the Shareholder with respect to any matter and
(iii) the Corporation and the Shareholder have been encouraged to obtain their
own legal and tax counsel with respect to this Agreement and the transactions
contemplated by this Agreement.



15.05

Expenses.
 Each Party shall bear their own costs and expenses incurred in connection
with this Agreement.



15.06

Successors
and Assigns.  This Agreement shall be binding upon and enure to the
benefit, of the Parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and permitted assigns.
 No Party hereto may assign either this Agreement or any of its rights,
interests or obligations hereunder without the prior written approval of each
other Party, which approval shall not be unreasonably withheld.



15.07

Governing
Law.  This Agreement shall be governed by, and interpreted and enforced
in accordance with, the laws in force in the Province of British Columbia and
the laws of Canada applicable therein (excluding any conflict of laws rule or
principle that might refer such interpretation to the laws of another
jurisdiction).  Each Party irrevocably and exclusively submits to the
jurisdiction of the courts of British Columbia with respect to any matter
arising hereunder or related hereto.



15.08

Counterparts
and Effectiveness.  This Agreement and the documents relating to the
transactions contemplated by this Agreement may be signed in any number of
counterparts and the signatures delivered by telecopy, each of which shall be
deemed to be an original, with the same effect as if the signatures thereto were
upon the same instrument and delivered in person.  This Agreement and such
documents shall become effective when each Party thereto shall have received a
counterpart thereof signed by the other Parties thereto.  In the case of
delivery by telecopy by any Party, that Party shall forthwith deliver a manually
executed original to each of the other Parties.



15.09

Entire
Agreement.  This Agreement (including the Schedules referred to herein,
which are hereby incorporated by reference) constitutes the entire agreement
between the Parties with respect to the subject matter hereof and supersedes all
prior agreements, understandings and negotiations, both written and oral,
between the Parties with respect to the subject matter of this Agreement.
 Neither this Agreement nor any provision hereof is intended to confer upon
any Person other than the Parties hereto any rights or remedies hereunder.



15.10

Severability.
 If any provision of this Agreement, or the application thereof to any
Person, place or circumstance, shall be held by a court of competent
jurisdiction to be invalid, unenforceable or void, the remainder of this
Agreement and such provisions as applied to other Persons, places and
circumstances shall remain in full force and effect only if, after excluding the
portion deemed to be unenforceable, the remaining terms shall provide for the
consummation of the transactions contemplated hereby in substantially the same
manner as originally set forth at the later of the date this Agreement was
executed or last amended.



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45 -





15.11

Cumulative
Remedies.  The rights, remedies, powers and privileges herein provided
are cumulative and not exclusive of any rights, remedies. powers and privileges
provided by law.



15.12

Third
Party Beneficiaries.  No provision of this Agreement shall create any
third party beneficiary rights in any Person, including any employee or former
employee of the Corporation or any Affiliate or Associate thereof (including any
beneficiary or dependent thereof).



15.16

Fees
and Commissions.  The Purchaser shall pay within 30 days of Closing a
finder's fee of 155,000 shares of the Purchaser to Cathayne Holdings Inc. It
is also agreed that should financing for the Purchaser be acquired through
Trinity Trust Financial Services Inc., a source provided by the Shareholder as a
possible funding source and made known to the Purchaser prior to the Closing and
the appointment of the Shareholder to the board of the Purchaser, that should
such source provide funding to the Purchaser during the next twelve months that
a 2% finders fee shall be paid to the Shareholder. .





IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.





CRYSTAL
GRAPHITE CORORATION

)

)

)

Per:

/s/
Gordon Sales

)

Authorized
Signatory

)





CANADA
PUMICE CORPORATION

)

)

)

Per:

/s/
Brian Wear

)

Authorized
Signatory

)



SIGNED,
SEALED AND DELIVERED

)

by
BRIAN WEAR in the

)

presence
of:

)

)

/s/
Vicky Allinson

)

Signature
of Witness

)

/s/
Brian Wear



Vicky
Allinson

)

BRIAN
WEAR

Name
of Witness

)

33695
South Fraser Way, Abbotsford

)

Address
of Witness

)

B.C.,
Canada, V2S 2C1

)

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-
46 -







SCHEDULE
"A"



CORPORATION
FINANCIAL STATEMENTS



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-
47 -





SCHEDULE
"B"



CORPORATION
ASSETS, INTELLECTUAL PROPERTY AND ENCUMBRANCES







---

-
48 -





SCHEDULE
"C"



CORPORATION
BUSINESS PLAN





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-
49 -





SCHEDULE
"D"



PURCHASER
OPTIONS, WARRANTS AND OTHER RIGHTS



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-
50 -





SCHEDULE
"E"



PURCHASER
FINANCIALS







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-
51 -





SCHEDULE
"F"



PURCHASER
ASSETS, INTELLECTUAL PROPERTY AND ENCUMBRANCES









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52 -





SCHEDULE
"G"



LOAN
TERMS TO SHAREHOLDER



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-
53 -







SCHEDULE
"H"



LEASE
TERMS WITH 530526 BC LTD.



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-
54 -









Lease
terms as follows:



1.

Term
- 10 years with three ten-year renewal options



2.

Rate
- $6875 per month triple net



3.

Reclamation
bond of $25,000 to be posted by Purchaser



4.

All
leasehold improvements responsibility of Purchaser



5.

Purchaser
has 60 day right of first refusal on any published sale



6.

Property
- District Lot 48, Cariboo District, Plan 26589 plus all improvements





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55 -





SCHEDULE
"I"



MINING
RIGHT TERMS FROM SHAREHOLDER





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-
56 -





Mining
Right terms for District Lot 222;





Minerals
- exclusive right to all minerals extant on standard industry terms but as to
pozzolanic shale extraction the following terms:



1.

Royalty
payable on the stated products as follows:



(a)

for
bulk material - $10 royalty per metric ton



(b)

for
fine micron or value added sizes - royalty of 25% of FOB price



(c)

for
all other forms of pozzolanic shale products - 25% NSR



2.

All
development and processing and all other costs for the sole account of the
Purchaser



3.

Purchaser
to post a $24,500 reclamation bond



4.

Purchaser
to pay all property costs, triple net



5.

Purchaser
to have 60 day right of first refusal on property sale.











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57 -





SCHEDULE
"J"



MANAGEMENT
AGREEMENT







End of Exhibit 10.3







---

EXHIBIT 10.4







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Loan, Pledge and Share Escrow Agreement, dated April 28, 2004, between Brian Wear and the Company



LOAN,
PLEDGE AND SHARE ESCROW AGREEMENT





THIS
LOAN, PLEDGE AND SHARE ESCROW AGREEMENT ("Agreement" or "Pledge
Agreement") is made and entered into as of April 28, 2004 by Brian Wear
(the "Pledgor"), having his address for notice at Unit 6, 2009 Abbotsford
Way, Abbotsford, BC V2S 4N7 in favour of Crystal Graphite Corporation (or its
appointed subsidiary) ("Lender"), having its address for notice at
Suite 1750 - 999 West Hastings Street, Vancouver, BC V6C 2W2



WITNESSETH
THAT:



WHEREAS,
Pledgor and Crystal Graphite Corporation ("CGC") have entered into a
Share Purchase Agreement ("SPA") whereby CGC has acquired Canada Pumice
Corporation in consideration of shares of the CGC and a term of the SPA is that
the CGC loan, or cause a subsidiary to loan, to the Pledgor $263,000CDN (the "Loan")
on a limited recourse loan, the only recourse being against shares pledged
herewith;



WHEREAS,
Pledgor has agreed to place into escrow and pledge herewith 355,500 shares (the
"Shares") of Crystal Graphite Corporation (also the "Issuer") and to
grant a pledge of all Pledgor's existing or residual interests or rights in
such Shares;



WHEREAS,
Lender has agreed to loan the sum of the $263,000 Loan to the Pledgor on the
condition that Pledgor (i) deliver the Shares and transfer authorities into
escrow by the terms of this Agreement, (ii) pledge to Lender, and grant to
Lender, herewith a security interest in the Shares as to all and any interests,
residual, option, or otherwise, in the Shares, and (iii) execute and deliver
this Agreement in order to secure the payment and performance by Pledgor of the
Loan;



NOW,
THEREFORE, in consideration of the premises and in order to induce Lender to
make the Loan, Pledgor hereby agrees with Lender as follows:



SECTION
1.  LOAN.  Pledgor hereby promises to pay to the Lender or
his designated agent, the sum of two hundred and sixty-three thousand Canadian
dollars (CDN$ $263,000) on the following terms:



(a)

the
Loan shall be due on demand after 4:00 P.M. October 1st 2005 ("Maturity").
 Maturity shall be accelerated in the event of default of this Agreement by
the Pledgor which has not been remedied within ten days of notice or upon the
insolvency of the Pledgor or upon any other event which would render, in the
Lender's sole judgement, the Pledge herein insecure;



(b)

the
Loan shall not bear interest; and



---

(c)

in
the event the Pledgor does not make payment of the Loan the Lender's only
recourse for recovery shall be exercise of this pledge to take ownership of the
Shares and to realise proceeds therefrom.



SECTION
2.  SHARE ESCROW.  Pledgor hereby places into escrow with
the Escrow Agent (as defined in the attached Schedule "A" Escrow Agreement)
the Shares and all and every of its interest therein, and Pledgor shall
immediately upon execution hereof deliver to the Escrow Agent:



(a)

the
certificates representing the Shares duly executed and guaranteed as to
signature on the certificate(s) representing the shares or with duly executed
and guaranteed stock powers of attorney ("Transfer Documents"); and



(b)

if
received by Pledgor prior to or after escrow of the Shares herewith and before
payment of the Loan or after realisation by the Lender of the Shares in
execution of its recourses to recover the Loan, all additional shares of stock
of, or equity interest in, Issuer from time to time acquired by Pledgor in any
manner arising by share dividend, stock split, or otherwise relating to the
Shares, and the certificates representing such additional shares (any such
additional shares or interests shall constitute part of the Shares under and as
defined in this Agreement), and all products and proceeds of any of such
additional Shares, including, without limitation, all dividends, cash,
instruments, subscriptions, warrants and any other rights and options and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any and all of such additional Shares.



SECTION
3.  PLEDGE.  Pledgor hereby pledges to Lender, and grants
to Lender a continuing first priority, and perfected security interest in, the
following (the "Pledged Collateral"):



(a)

the
Shares, the certificates representing the Shares and the Transfer Documents and
all interest of the Pledgor therein (and extinguishment of Pledgor's interest
upon exercise of the Pledge) and all products and proceeds of any of the Shares
including, without limitation, all dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Shares; and



(b)

all
additional shares of stock of, or equity interest in, Issuer from time to time
acquired by Pledgor in respect to the Shares in any manner arising by share
dividend, stock split, or otherwise of the Shares, and the certificates
representing such additional shares (any such additional shares shall constitute
part of the Shares under and as defined in this Agreement), and all products and
proceeds of any of such additional Shares, including, without limitation, all
dividends, cash, instruments, subscriptions, warrants and any other rights and
options and other property from time to time received,

---

receivable
or otherwise distributed in respect of or in exchange for any and all of such
additional Shares.



SECTION
4.  SECURITY FOR OBLIGATIONS.  This Agreement secures (i)
the due and punctual payment in full (and not merely the collectibility) of the
Loan, in each case when due and payable, according to the terms of the Loan,
whether at stated maturity, by reason of acceleration or otherwise; (ii) the due
and punctual payment in full (and not merely the collectibility) of the
obligations, liabilities, indebtedness and all other sums and charges which may
at any time be due and payable in accordance with the terms of the Loan, whether
at stated maturity, by reason of acceleration or otherwise; (iii) the due and
punctual payment (and not merely the collectibility), performance and observance
of all of this Pledge Agreement and the other obligations, terms, covenants and
conditions, whether now or hereafter existing, contained in any other collateral
Loan documents (collectively, and together with the Loan, "Loan
Documents") and to be performed or observed by Pledgor; (iv) the accuracy
of the representations and warranties made by Pledgor in all Loan Documents to
which it is a party (all of the foregoing are collectively hereinafter called
the "Obligations"); (the Obligations and all such obligations
of Pledgor now or hereafter existing under this Agreement being referred to
herein as the "Liabilities").



SECTION
5.  DELIVERY OF SHARES.  All certificates or instruments
representing or evidencing the Shares and all necessary transfer documents in
blank of the Shares, shall be delivered to the Escrow Agent pursuant hereto and
shall be in suitable form for transfer by delivery, or shall be accompanied by
duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Lender.



SECTION
6.  REPRESENTATIONS AND WARRANTIES.  Pledgor represents and
warrants as follows:



(a)

The
Shares have been duly authorised and validly issued and are fully paid and
non-assessable.



(b)

Pledgor
is the legal and beneficial owner of the Pledged Collateral, free and clear of
any lien, encumbrance or challenge on the Pledged Collateral.



(c)

Upon
the delivery to Escrow Agent of the Shares and the  Transfer Documents, the
transfer of the Shares pursuant to this Agreement creates a valid and perfected
transfer of the Shares to the Lender with the caveat that the Shares are subject
to such hold period as may be stated on the certificate and, further, that the
Lender may not be permitted by the Issuer to receive a certificate in its own
name until such hold period has expired.



(d)

Upon
the delivery to Lender of the Pledged Collateral, the pledge of the Pledged
Collateral pursuant to this Agreement creates a valid and perfected first
priority

---

interest
in the Pledged Collateral securing the payment of the Liabilities for the
benefit of Lender.



(e)

No
authorisation, approval, or other action by, and no notice to or filing with,
any governmental authority or regulatory body or the Issuer is required (i) for
the pledge by Pledgor of the Pledged Collateral pursuant to this Agreement or
for the execution, delivery or performance of this Agreement by Pledgor or (ii)
for the transfer herein provided or (iii) for the exercise by Lender of the
rights provided for in this Agreement or the remedies in respect of the Pledged
Collateral pursuant to this Agreement.



(f)

Pledgor
has full power and authority to enter into this Agreement and has the right to
vote, pledge and grant a security interest in the Shares as provided by this
Agreement.



(g)

This
Agreement has been duly authorised, executed and delivered by Pledgor and
constitutes a legal, valid and binding obligation of Pledgor, enforceable
against Pledgor in accordance with its terms, except as such enforceability may
be limited by the effect of any applicable bankruptcy, insolvency,
reorganisation, moratorium or other similar laws.



SECTION
7.  FURTHER ASSISTANCE.  Pledgor agrees that at any time
and from time to time, at the expense of Pledgor, Pledgor will promptly execute
and deliver, or cause to be executed and delivered, all stock powers, proxies,
assignments, instruments and documents and take all further action, that is
reasonably necessary, at Lender's request, in order to perfect any transfer or
security interest granted or purported to be granted hereby or to enable Lender
to exercise and enforce its rights and remedies hereunder with respect to any
Pledged Collateral and to carry out the provisions and purposes hereof.



SECTION
8.  TRANSFER OF SHARES  Pledgor hereby authorises Lender at
any time to cause the Shares to be transferred and registered to the Lender or
any other party the Lender may determine for the purpose of realising on the
Shares to acquire proceeds to pay the Loan.



SECTION
9.  TRANSFERS AND OTHER LIENS.  Except for the purpose of
securing proceeds to retire the Loan, Pledgor agrees that it will not (i) sell
or otherwise dispose of, or grant any option with respect to, any of the Shares
until the Loan comes due , except with the written permission of the Pledgor,
which shall not be unreasonably with held, or (ii) create or permit to exist any
lien upon or with respect to any of the Pledged Collateral, except for the
security interest granted under this Agreement.



SECTION
10.  LENDER APPOINTED ATTORNEY-IN-FACT.  In addition to all
of the powers granted to Lender pursuant to the Loan, Pledgor hereby appoints
Lender Pledgor's attorney-in-fact, with full authority in the place and stead of
Pledgor and in the name of Pledgor or otherwise, from time to time in Lender's
discretion to take any action and to execute any

---

instrument
which Lender may deem necessary or advisable to further perfect and protect the
security interest granted hereby, including, without limitation, to receive,
endorse and collect all instruments made payable to Pledgor representing any
dividend, interest or principal payment or other distribution in respect of the
Pledged Collateral or any part thereof and to give full discharge for the same.



SECTION
11.  LENDER MAY PERFORM.  If Pledgor fails to perform any
agreement contained herein, Lender may itself perform, or cause performance of,
such agreement, and the reasonable expenses of Lender incurred in connection
therewith shall be payable by Pledgor.



SECTION
12.  NO ASSUMPTION OF DUTIES; REASONABLE CARE.  The rights
and powers granted to Lender hereunder of the Pledge are being granted in order
to preserve and protect Lender's security interest in and to the Pledged
Collateral granted hereby and shall not be interpreted to, and shall not, impose
any duties on Lender in connection therewith.  Lender shall be deemed to
have exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which Lender accords its own property, it being
understood that Lender shall not have any responsibility for (i) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relative to any Pledged Collateral, whether or not Lender has
or is deemed to have knowledge of such matters, or (ii) taking any necessary
steps to preserve rights against any parties with respect to any Pledged
Collateral.



SECTION
13.  SUBSEQUENT CHANGES AFFECTING COLLATERAL.  Pledgor
represents to Lender that Pledgor has made its own arrangements for keeping
informed of changes or potential changes affecting the Pledged Collateral
(including, but not limited to, rights to convert, rights to subscribe, payment
of dividends, payments of interest and/or principal, reorganisation or other
exchanges, tender offers and voting rights), and Pledgor agrees that Lender
shall have no responsibility or liability for informing Pledgor of any such
changes or potential changes or for taking any action or omitting to take any
action with respect thereto.  Pledgor covenants that it will not, without
the prior written consent of Lender, sell or otherwise dispose of, or grant any
option with respect to, any of the Pledged Collateral or create or permit to
exist any lien upon or with respect of any of the Pledged Collateral.



SECTION
14.  REMEDIES UPON DEFAULT.  If any Event of Default shall
have occurred and be continuing, Lender shall, in addition to all other rights
given by law or by this Agreement or otherwise, have all the rights and remedies
with respect to the Pledged Collateral of a secured party under the laws of
British Columbia and Lender may, without notice and at its option, transfer or
register, and Pledgor shall register or cause to be registered upon request
therefore by Lender, the Pledged Collateral or any part thereof on the books of
Issuer into the name of Lender or Lender's nominee(s), indicating that such
Pledged Collateral is subject to the security interest hereunder.  In
addition, with respect to any Pledged Collateral which shall then be in or shall
thereafter come into the possession or custody of Lender, Lender may sell or
cause the same to be sold at any broker's board or at public or private sale, in
one or more sales or lots, at such price or prices as Lender may deem best, for
cash or on credit or for future delivery,

---

without
assumption of any credit risk, all in accordance with the terms and provisions
of the Loan and this Agreement, or may exercise such other remedies as may be
provided under law.  The purchaser of any or all Pledged Collateral so sold
shall thereafter hold the same absolutely free from any claim, encumbrance or
Pledgor right of any kind whatsoever.  Any sale of the Pledged Collateral
shall be conducted by Lender without any notice requirement and as full owner
thereof and Lender is not required to conduct the same in conformity with
commercial practices of banks, insurance companies, commercial finance
companies, or other financial institutions disposing of property similar tothe
Pledged Collateral.  Any requirement of notice, demand or advertisement for
sale is, to the extent permitted by law, waived.  All expenses (including
court costs and reasonable attorneys' fees, expenses and disbursements) of, or
incident to, the enforcement of any of the provisions hereof shall be
recoverable from the proceeds of the sale or other disposition of the Pledged
Collateral.



SECTION
15.  EXPENSES.  Pledgor will upon demand pay to Lender, and
such costs shall be also deducted from the Pledged Collateral the amount of any
and all reasonable expenses, including, without limitation, the reasonable fees,
expenses and disbursements of its counsel (and, upon the occurrence and during
the continuance of an Event of Default, the fees, expenses and disbursements of
any investment banking firm, business broker or other selling agent and any
other experts and agents retained by Lender), which Lender may incur in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realisation upon, any
of the Pledged Collateral, (iii) the exercise or enforcement of any of the
rights of Lender hereunder or (iv) the failure by Pledgor to perform or observe
any of the provisions hereof.



SECTION
16.  SECURITY INTEREST ABSOLUTE.  All rights of Lender and
security interests hereunder, and all obligations of Pledgor hereunder, shall be
absolute and unconditional irrespective of:



(a)

any
lack of validity or enforceability of the Loan or any other agreement or
instrument relating thereto;



(b)

any
change in the time, manner or place of payment of, or in any other term of, all
or any of the Liabilities, or any other amendment or waiver of or any consent to
any departure from the Loan;



(c)

any
exchange, surrender, release or non-perfection of any other collateral, or any
release or amendment or waiver of or consent to departure from any guaranty, for
all or any of the Liabilities; or



(d)

any
other circumstances which might otherwise constitute a defence available to, or
a discharge of, Pledgor in respect to the Liabilities or of this Agreement.





SECTION
17.  MISCELLANEOUS PROVISIONS.

---



SECTION
17.1  Notices.All notices, approvals, consents orother
communications required or desired to be given hereunder shall be delivered to
each of the parties hereto at their respective addresses set forth first herein.
 All notices mailed shall be deemed received on the third business day and
all electronic or delivered notices shall be delivered on the day of delivery.



SECTION
17.2  Headings.  The headings in this Agreement are for
purposes of reference only and shall not affect the meaning or construction of
any provision of this Agreement.



SECTION
17.3  Severability.  The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.



SECTION
17.4  Amendments, Waivers andConsents.Any
amendment or waiver of any provision of this Agreement and any consent to any
departure by a Party from any provision of this Agreement shall be effective
only if made or given in writing.



SECTION
17.5  Continuing Security Interest.This Agreement shall
create a continuing security interest in the Pledged Collateral and shall (i)
remain in full force and effect until payment in full (including after the date
for final payment) of the Obligations and of the Loan and any other Loan
Documents, (ii) be binding upon Pledgor, its successors and assigns, and (iii)
enure, together with the rights and remedies of Lender hereunder, to the benefit
of Lender and its successors, transferees and assigns.



SECTION
17.6  Reinstatement.To the extent permitted by law, this
Agreement shall continue to be effective or be reinstated if at any time any
amount received by Lender in respect of the Obligations is rescinded or must
otherwise be restored or returned by Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganisation of Pledgor or upon the appointment of
any receiver, intervenor, conservator, trustee or similar official for Pledgor
or any substantial part of its assets, or otherwise, all as though such payments
had not been made.



SECTION
17.7   Survival of Provisions.  All
representations, warranties and covenants of Pledgor contained herein shall
survive the execution and delivery of this Agreement, and shall terminate only
upon the full and final payment and performance by Pledgor of the Obligations
secured hereby and termination of the Loan and any other Loan Documents.



SECTION
17.8  Waiver of Demand.  Pledgor waives presentment and
demand for payment of any of the Liabilities, protest and notice of dishonour or
default with respect to any of the Liabilities, and all other notices to which
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein.

---



SECTION
17.9 Authority of Lender.Lender shall have and be
entitled to exercise all powers hereunder which are specifically granted to
Lender by the terms hereof, together with such powers as are reasonably incident
thereto.  Lender may perform any of its duties hereunder or in connection
with the Pledged Collateral by or through agents or employees and shall be
entitled to retain counsel and to act in reliance upon the advice of counsel
concerning all such matters.  Neither Lender nor any  officer,
employee, attorney or agent of Lender shall be liable to Pledgor for any action
taken or omitted to be taken by it or them hereunder, except for its or their
own gross negligence or wilful misconduct, nor shall Lender be responsible for
the validity, effectiveness or sufficiency hereof or of any document or security
furnished pursuant hereto.  Lender and its officers, employees, attorneys
and agents shall be entitled to rely on any communication, instrument or
document reasonably believed by it or them to be genuine and correct and to have
been signed or sent by the proper person or persons.  Pledgor agrees to
indemnify and hold harmless Lender and any person of  the Lender from and
against any and all costs, expenses (including reasonable fees, expenses and
disbursements of attorneys and paralegals), claims and liabilities incurred by
Lender or such person hereunder, unless such claim or liability shall be due to
wilful misconduct or gross negligence on the part of Lender or such person.



SECTION
17.10 Release; Termination of Agreement.  Subject to the
provisions of Section 17.6 hereof, this Agreement shall terminate upon full and
final payment and performance of all the' Obligations.



SECTION
17.11  Counterparts.  This Agreement may be executed in
one or more counterparts and may be executed by facsimile, each of which shall
be deemed an original but all of which shall together constitute one and the
same agreement.



SECTION
17.14  Governing Law; Submission to Jurisdiction;Counsel



(a)

This
Agreement shall be governed by and interpreted under the laws of the Province of
British Columbia and any dispute arising out of, connected with, related to, or
incidental to the relationship established between Pledgor and Lender in
connection with this Agreement, and whether arising in contract, tort, equity or
otherwise, shall be resolved exclusively in British Columbia, Canada



(b)

Pledgor
(i) agrees that Lender shall not have any liability to Pledgor (whether sounding
in tort, contract or otherwise) for losses suffered by Pledgor in connection
with, arising out of, or in any way related to, the transactions contemplated
and the relationship established by this Agreement, or any act, omission or
event occurring in connection therewith, unless it is determined by a judgement
of a court that is binding on Lender (which judgement shall be final and not
subject to review on appeal) that such losses were the result of acts or
omissions on the part of Lender constituting gross negligence or wilful
misconduct and (ii) waives, releases and agrees not to sue upon any claim
against Lender (whether sounding in tort, contract or otherwise), except a claim
based upon gross negligence or wilful misconduct.

---

Whether
or not such damages are related to a claim that is subject to the waiver
effected above and whether or not such waiver is effective, Lender shall not
have any liability with respect to, and Pledgor hereby waives, releases and
agrees not to sue upon any claim for, any special, indirect, consequential or
punitive damages suffered by Pledgor in connection with, arising out of, or in
any way related to the transactions contemplated or the relationship established
by this Agreement, or any act, omission or event occurring in connection
therewith, unless it is determined by a judgement of a court that is binding on
Lender (which judgement shall be final and not subject to review on appeal),
that such damages were the result of acts or omissions on the part of Lender
constituting wilful misconduct.



(c)

Pledgor
and Lender acknowledges that for the purpose of this Agreement and the security
contemplated herein that Devlin Jensen acts for the Lender, Pledgor and Lender
release Devlin Jensen from any conflict with the Escrow Agent duties which have
been requested of Devlin Jensen, Pledgor and Lender subscribe to and endorse the
Escrow Agent provisions of Schedule "A" following their initial signatures
hereto, and Pledgor has been advised to seek its own counsel and has taken its
own counsel for this purpose.



(d)

Pledgor
waives the posting of any bond otherwise required of Lender in connection with
any judicial process or proceeding to enforce any judgement or other court order
entered in favour of Lender, or to enforce by specific performance, temporary
restraining order or preliminary or permanent injunction this Agreement or any
other Agreement or document between Pledgor and Lender.





IN
WITNESS WHEREOF, Pledgor and Lender have each caused this Agreement to be duly
executed and delivered as of the date first above written.



| | PLEDGOR:                                                                                                      
| | --------------------------------------------------------------------------------------------------------------
| | Brian
      C. Wear                                                                                           
| | By: __/s/
      Brian Wear___________________                                                                 
| | Name:
          Brian Wear                                                                                    
| |                                                                                                               
| |                                                                                                               
| | LENDER:                                                                                                       
| | Crystal
      Graphite Corporation or designated subsidiary being:
      
      Cariboo
      Lava Corporation
| |                                                                                                               
| | By: __/s/
      Gordon Sales_________________                                                                 
| | Authorised
      Signatory                                                                                    

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SCHEDULE
"A"



ESCROW
AGREEMENT





THIS
ESCROW AGREEMENT is made and dated effective (the "Effective Date")
as of the 28th day of April, 2004 and is a collateral agreement and
attached as a document to the above LOAN, PLEDGE AND SHARE ESCROW AGREEMENT ("Pledge
Agreement").





BETWEEN:



Crystal
Graphite Corporation



(hereinafter
referred to as the "Lender" and as the "Issuer"
and also a "Party");



OF
THE FIRST PART

AND:



Brian
C. Wear



(hereinafter
referred to as "Pledgor")



OF
THE SECOND PART



(the
foregoing hereinafter also singularly referred to as a "Party"
and collectively referred to as the "Parties" as the context so
requires).



AND:



Devlin
Jensen or such escrow agent as the Parties may subsequently appoint or such
escrow agent as subsequently may be appointed by Devlin Jensen or a court of
competent jurisdiction, of 2550-555 West Hastings Street, Vancouver, BC
V6B 4N5



(hereinafter
referred to as the "Escrow Agent" but not a "Party");



OF
THE THIRD PART



WHEREAS:



A.

The
Parties have requested that the Escrow Agent act as escrow holder of the Shares
of the Pledge Agreement and the Escrow Agent has agreed subject to the below
terms;



B.

All
definitions of the Pledge Agreement are herein incorporated by reference but
none of the terms or obligations of the Pledge Agreement are incorporated herein
in respect to the

---

Escrow
Agent and the Escrow Agent is not imposed with any obligations other than those
specifically stated of this Escrow Agreement;





NOW
THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises
and consideration now provided by each of the Parties and the Escrow Agent
hereto, each to the other (the receipt whereof is hereby acknowledged), and in
further consideration of the mutual covenants and conditions hereinafter
contained, the Parties each with the other and with the Escrow Agent hereto
agree as follows:





1.

The
Lender and Pledgor hereby agree to the deposit of the Shares and Transfer
Documents (collectively hereafter the "Shares") with and that the
same shall be immediately delivered to the Escrow Agent to be held in accordance
with this Agreement.



2.

The
Escrow Agent hereby agrees to accept delivery and custody of the Shares for the
purposes of this Agreement on the following specific agreements and
understanding by the Lender and Pledgor and such Parties warrant irrevocably to
abide by and that they are bound by such provisions:



(a)

the
Escrow Agent is counsel for Lender, such is recognized by the Parties, all
Parties waive conflict thereof, the Pledgor has received actual and specific
legal counsel from its separate counsel in regard to this matter, and the
Pledgor is executing this Agreement without any reliance or expectation whatever
of the Escrow Agent except as escrow holder as specifically required by the
terms of the escrow of this Agreement.  Lender has also been advised to
seek separate counsel for this matter and has done so in the event that there
may be any possible implication of conflict;

(b)

this
agreement constitutes covenants only and there is no trust hereof and should any
trust be implied hereof for any purpose unknown at this time (which would be
contrary to the intention of this Agreement) then such is a limited trust
specifically for the purposes of this Agreement and for no other purpose, shall
be interpreted strictly and with limitation and not by inferential
interpretation and not widely and generously;

(c)

the
Escrow Agent may resign at any time and tender the Shares to court or appoint an
alternate escrow agent and tender the Shares to the alternate and immediately
upon such tendering the Escrow Agent shall be relieved of all and any
accountability thereafter;

(d)

the
duty of the Escrow Agent is solely that of good faith and normal care merely to
preserve the Shares and communicate adequately with the Parties and the Escrow
Agent shall have no duty or obligation to determine any rights between the
Parties, to interpret this Agreement or the Pledge Agreement, or to take any
other act other than to preserve the Shares.  In the event of conflict in
respect to the Shares the Escrow Agent may determine to retain possession of the
Shares without liability whatsoever until instructed by mutual direction of the
Parties or until directed by a court of competent jurisdiction.  In the
event that the Escrow Agent has communicated any matter to a Party notifying of
an act or an understanding or an interpretation or an intention to deliver or
receipt of a matter or any other matter for which the Escrow Agent is giving
information or notice or requesting response then a Party shall not complain and
shall have waived all right to complain for the matters disclosed therein if the
Party has not objected

---

within
five business days thereof and if the Escrow Agent is requesting response then a
Party shall answer within such time frame.  The Escrow Agent shall be
absolutely entitled to rely upon the veracity, truthfulness, authenticity, and
integrity of communication by the Parties and shall not be obliged to inquire as
to their bona fides or assume any defect therein and should a Party effect false
communications or should a third party employ instruments of the Parties to
effect false or deceptive acts then the Escrow Agent shall have no liability
therefore.  In the event the Shares are lost or destroyed while in the
possession of the Escrow Agent, the Parties agree that such is a non-actionable
accident without cost or recourse to the Escrow Agent and the Parties warrant to
effect all matters as shall be required to cancel the lost certificate and
replace a new certificate into the possession of the Escrow Agent;

(e)

the
Parties waive any and all claims against the Escrow Agent for any acts conducted
pursuant hereto except only where the Escrow Agent acts in fraud or overt bad
faith for personal profit (and for such purpose error, negligence, confusion or
mistake of interpretation, force majeure, act of third party, employee error and
the like shall not be extended to be interpreted as bad faith but bad faith
shall mean its normal and extreme meaning of an act taken with the objective
intent of effecting a wrong purpose) and any claim in respect to the same shall
be consequent upon actual and observable and documented default of such nature
and not inferential or interpretive or speculative and in the interpretation of
such matters the onus and burden of proof (whether at trial or on a motion,
inter alia, by the Escrow Agent to dismiss for insufficient evidence) shall be
on the claimant making claim against the Escrow Agent and shall be on a level of
beyond a reasonable doubt.  A Party making complaint against the Escrow
Agent for default based upon inferential, speculative or interpretive claims
shall be deemed irrevocably to be acting in bad faith and maliciously or for
collateral improper purposes (in this latter case such shall be inferred if the
facts reasonably illustrate that such claim is made in whole or in part to exert
a leverage) and such a claiming Party shall be liable for the maximal damages
and costs allowable in the appropriate jurisdiction;

(f)

the
Parties, jointly and severally (and a contributing Party shall have a right of
claim from the non-contributing Parties), do hereby warrant and agree from time
to time and at all times hereafter well and truly to save, defend and keep
harmless and fully indemnify the Escrow Agent, its successors and assigns, from
and against all loss, costs, charges, damages and expenses which the Escrow
Agent, its successors or assigns, may at any time hereafter bear, sustain,
suffer or be put to for or by reason or on account of its acting as Escrow Agent
pursuant to this Agreement except only in the event of bad faith or fraud, which
shall not be assumed or employed as a plea to defeat a claim for indemnity
unless such has first been adjudged by a court of competent jurisdiction.
 Unless a claimant shall first have received approval of a court of
competent jurisdiction, pursuant to motion duly served and replied in the
ordinary course (and not ex parte or expedited), and unless such court has found
on a balance of probabilities on the evidence served by both parties that the
Escrow Agent did probably commit fraud or bad faith, then failure to pay
indemnity or advance costs shall be a fundamental default of this Agreement and
shall be irrevocably deemed to be an act of bad faith and malice and the claim
of the claimant shall be dismissed completely with prejudice for such matter
alone. The Escrow Agent may, at it sole election, require that one or either
Parties pre-advance any costs or fees to which the Escrow Agent may be put upon
delivering to such Party estimates, quotes, or bills

---

of
the relevant professionals and the Parties shall pay such and attorn to
immediate collection proceedings (including garnishment) if not paid within ten
business days of demand and all and any action taken by any Party shall be
suspended until the Escrow Agent shall receive actual payment of such costs or
fees and, further, any action suspended for four weeks or more for such reason
may be dismissed with prejudice by the Escrow Agent and the issuing Party
attorns absolutely to such dismissal; and

(g)

in
case proceedings should hereafter be taken in any court respecting the Shares
hereby escrowed or respecting the Escrow Agent and its duties and acts (or
allegations of misdeeds), the Escrow Agent shall not be obliged to defend any
such action or submit its rights to the court until it shall have been
indemnified by good and sufficient security or advance of expected costs in
addition to the indemnity given against its costs of such proceedings and in the
event that a Party or Parties refuses or neglects to provide indemnity or
otherwise violates the terms of this section then the Escrow Agent shall have,
as a matter of right, the election to enjoin and suspend the proceedings until
the Parties provide proper and sufficient indemnity and until the actions and
pleadings of the Parties are consistent with and compliant with the obligations
and restrictions of this section and the preceding section and in the event that
a pleading Party does not so conform its actions and provide indemnity then the
Escrow Agent shall have the right, and the pleading Party waives all defenses,
to have any actions dismissed with prejudice as a consequence of such default of
the pleading Party.





3.

The
Shares shall be delivered into possession of the Escrow Agent to be held and
delivered by the Escrow Agent as follows in accordance with the following
circumstances:



(a)

the
Shares shall be delivered to the Lender in the event that the Lender shall give
written notice of non-payment after the Maturity date or of unremedied default
of the Agreement or Collateral Documents and, upon the Escrow Agent giving the
Pledgor five business days notice, the Pledgor has not provided documentary
proof materially contravening the Lender's notice; or



(b)

the Shares shall be delivered to the Pledgor in the event the Pledgor gives the
Escrow Agent

notice of payment of Loan and the Lender has not objected within five business
days of notice; or



(c)

in
the event that if neither Party has given notice as to delivery of the Shares to
the Escrow Agent within six months of the Maturity date the Escrow Agent may
determine, after five business days notice, to deliver the Shares to the Pledgor
or, failing ability to deliver to Pledgor for reason of inability to (which
shall be deemed after two efforts at the last notified address) locate the
Pledgor or estate or representative, deliver to the Issuer.



Instructions
to the Escrow Agent as to the forgoing shall be given by written copy to the
Escrow Agent with copies to the Parties.  In all matters in respect to the
forgoing the Escrow Agent shall

---

copy
each Party with all correspondence.  At the time of intention to deliver
the Shares as above if no objection is taken then the Parties shall have no
complaint and the Escrow Agent shall be fully and completely discharged of all
duties, accountabilities or claims and this Agreement shall terminate but that
the provisions of section 2 hereof shall continue for the benefit of the Escrow
Agent for a period of ten years.





4.

The
Lender and Pledgor agrees that the Shares are issued pursuant to exemptions from
prospectus requirements, the Parties are exempt persons who do not require
qualification, filing, notice, or other qualifying act in their jurisdiction and
the Lender agrees and acknowledges that the Shares are or may be subject to
restrictions under prevailing securities laws and that the certificate for the
same will be impressed with the appropriate legends advised by counsel.





5.

The
Lender shall be entitled to a letter or receipt from the Escrow Agent stating
the Shares are held by the Escrow Agent subject to the terms of this Agreement;
but such letter or receipt shall not be assignable.  The cost of this
Agreement shall be borne by the Lender.





6.

This
Agreement shall enure to the benefit of and be binding upon the Parties and the
Escrow Agent hereto, their and each of their heirs, executors, administrators,
successors and permitted assigns.





7.

All
notices shall be delivered to the Parties at the addresses set forth in the
Pledge Agreement and the Agreement or to the e-mails set forth below and
delivery thereto shall be considered absolute regardless of whether an occupant
is present.  All addresses for notice shall be changed only with delivery
of notice of change.





8.

This
Agreement may be executed in several parts in the same form and such part as so
executed shall together constitute one original agreement and such parts, if
more than one, shall be read together and construed as if all the signing
Parties hereto had executed one copy of this Agreement.  This Agreement and
executions may be exchanged by fax and such faxed copies shall be irrevocably
deemed originals.





9.

This
Agreement shall be subject to the exclusive jurisdiction of British Columbia and
the courts thereof.



---

10.

The
Lender and Pledgor warrant that regardless of any defect, actual or alleged, in
any Transfer Documents of the Shares that the Parties will take and act upon and
conclude, without debate, the requests of the Escrow Agent to transfer the
Shares to the Lender at such time as the Lender may take the same in accordance
with this Pledge Agreement.





IN
WITNESS WHEREOF the Parties and Escrow Agent have executed these
presents as and from the day and year above written.





DEVLIN
JENSEN

)

)

E-Mail
Address:pjensen@devlinjensen.com

)

/s/
Peter Jensen

)



Per:
Authorized Signatory



CARIBOO
LAVA CORPORATION

)

)

E-Mail
Address:cgc@crystalgraphite.com

)

/s/
Gordon Sales

)

Per:
Authorized Signatory

)





Brian
Wear

)

)

E-Mail
Address:lavaking@telus.net

)

/s/
Brian Wear

)

Brian
Wear Signature









End of Exhibit 10.4





---

EXHIBIT 10.5







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Management Agreement, dated April 28, 2004, between the Company

and Brian Wear





MANAGEMENT
AGREEMENT





THIS
AGREEMENT is made and dated for reference effective as of the
28th day of April, 2004



BETWEEN:



CRYSTAL
GRAPHITE CORPORATION, a corporation incorporated under the laws of the
Province of British Columbia and having its business office located at Suite
1750 - 999 West Hastings Street, Vancouver, BC, V6C 2W2



(the
"Company");



OF
THE FIRST PART



AND:

BRIAN
WEAR, businessman, having his office for delivery located at Unit 6, 2009
Abbotsford Way, Abbotsford, BC V2S 4N7



("Brian");



OF
THE SECOND PART





(the
Company and Brian, being hereinafter singularly also referred to as a "Party"
and collectively referred to as the "Parties" as the context so
requires).





WHEREAS:



A.

The
Company is a reporting company duly incorporated in British Columbia and is in
the business of graphite and pumice production and sales;



B.

The
Company has acquired Canada Pumice Corporation from Brian in consideration of
15,345,000 shares and wishes to employ Brian as Vice-President and Chief
Operating Officer ("COO") of the Company;



C.

Brian
has determined to accept the engagement by the Company on the terms of this
Agreement;





NOW
THEREFORE THIS AGREEMENT WITNESSETHthat in consideration of the mutual
covenants and provisos herein contained,THE PARTIES HERETO AGREE AS
FOLLOWS:

---



-
2 -





Article
I



INTERPRETATION



1.1

Definitions.
  For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the following words and
phrases shall have the following meanings:



(a)

"Agreement"
means this Agreement as from time to time supplemented or amended;



(b)

"Base
Fee" means that compensation set forth in section "4.1" below;



(c)

"Board
of Directors" or "Board" means the Board of Directors of the Company,
or any successor to the Company, as duly constituted from time to time;



(d)

"Effective
Date" has the meaning ascribed to it in section "3.1"
hereinbelow;



(e)

"Indemnified
Party" has the meaning ascribed to it in section "7.1"
hereinbelow;



(f)

"Non-Renewal
Notice" has the meaning ascribed to it in section "3.2"
hereinbelow;



(g)

"Term"
has the meaning ascribed to it in section "3.1" hereinbelow; and



(h)

"Termination
Fee" has the meaning ascribed to it in section "3.4 below.



1.2

Interpretation.For the purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:



(a)

the
words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, section or other subdivision of this Agreement;



(b)

the
headings are for convenience only and do not form a part of this Agreement nor
are they intended to interpret, define or limit the scope or extent of this or
any provision of this Agreement;



(c)

any
reference to an entity shall include and shall be deemed to be a reference to
any entity that is a successor to such entity; and



(d)

words
in the singular include the plural and words in the masculine gender include the
feminine and neuter genders, and vice versa.





Article
II



SERVICES
AND DUTIES OF BRIAN



2.1

General
Services.   During the Term (as hereinafter defined) of this
Agreement Brian will provide the Company with such general corporate,
administrative, technical, operating and management services as is consistent
with industry practice and considered necessary or advisable within the normal
duties of the Senior Vice-President and COO of a company such as the Company
(collectively, the"Services").



---

-
3 -



2.2

Specific
Services.   Without limiting the generality of the Services to
be provided as set forth in section "2.1" hereinabove, it is hereby
acknowledged and agreed that Brian will provide the following specific services:



(a)

supervision
of the hiring of competent personnel as are required for the efficient marketing
and operation of the Company's business;



(b)

the
management and supervision of the performance of personnel and of the operation
of various business enterprises of the Company;



(c)

specific
responsibility for the operations of Canada Pumice;



(d)

the
identification of business opportunities for the Company, the conduct of due
diligence, and assistance in the negotiation and conclusion of contracts for
such opportunities;



(e)

assistance
in the coordination and administration of all development programs of the
Company;



(f)

assistance
with capital funding projects and resources which are necessarily incidental
thereto, and the coordination of the processes of seeking and maintaining public
listings and offerings;



(g)

assistance
in the coordination and the preparation and dissemination of business plans and
reports for the Company;



(h)

assistance
in the liaison with and the setting up of corporate alliances for the Company
with other mining companies, marketers and financial groups, the Company's
auditors, the Company's solicitors and the Company's affiliated companies
and business partners; and



(i)

such
other activities as are necessary or incidental to the above from time to time.



2.3

Officer
Positions.   Brian agrees to serve as Senior Vice-President
and COO of the Company at the pleasure of the Board, but that the board shall
not dismiss except for material default, or until he reasonably determines that
he cannot adequately fulfill the role and determines to resign in favour of a
more capable individual or until he determines that the Company is reasonably
incapable of continuing as a viable or reputable business enterprise.
  It is agreed that the board may determine to promote Brian to the
Position of President of the Company during the term of this Agreement.
 Should the Board determine to appoint Brian President, and should he
accept, then such appointment shall take effect for an additional $1.00 per year
in the event that the Parties disagree on other arrangements.



2.4

Company
Support. The Company shall reasonably make available all such resources
as shall be required for Brian to perform the Services and otherwise to fulfill
the requirements of this Agreement.  The Company covenants it shall provide
Brian with all such reasonable resources, financial and otherwise, as Brian
shall require to fulfill his reasonable goals as determined by the Board and
this Agreement.



---

-
4 -





Article
III



TERM,
RENEWAL AND TERMINATION



3.1

Term.
  The Term of this Agreement (the "Term") is for a period
of approximately five (5) years commencing on April 28, 2004 (the "Effective
Date") and terminating April 28, 2009.



3.2

Renewal.
  This Agreement shall renew automatically for subsequent two-year
periods if not specifically terminated in accordance with the following
provisions. Renewal shall be on the same terms and conditions contained herein,
unless modified and agreed to in writing by the Parties, and this Agreement
shall remain in full force and effect (with any collateral written amendments)
without the necessity to execute a new document. A Party hereto determining not
to renew agrees to notify the other Parties hereto in writing at least 90
calendar days prior to the end of the Term of its intent not to renew this
Agreement (the "Non-Renewal Notice") and such non-renewal shall be
subject to the Termination Fee provisions of sec. 3.4.



3.3

Termination.
  Notwithstanding any other provision of this Agreement, this
Agreement may be terminated by a Party upon written notice if:



(a)

the
other Party fails to cure a material breach of any provision of this Agreement
within 30 calendar days from its receipt of written notice from said Party
(unless such breach cannot be reasonably cured within said 30 calendar days and
the other Party is actively pursuing curing of said breach); or



(b)

the
other Party commits fraud or serious neglect or misconduct or illegal act and is
convicted in a court of law in the discharge of its respective duties hereunder
or under the law; or



(c)

the
other Party becomes adjudged bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy, and where any such petition is
not dismissed.



3.4

Termination
Fee.   Commencing on the first anniversary of this Agreement,
in the event that this Agreement is terminated for any other reason not provided
by section 3.3 above (by act or constructively), or fails to renew due to
failure of agreement after the issuance of a Non-Renewal Notice, or otherwise at
the termination of this Agreement, Brian shall receive a termination fee (the "Termination
Fee") equal to the sum of:



(a)

extension
of any outstanding stock options for a period of one (1) year after termination
or, at the optionee's election, the immediate vesting and exercise of all
granted options and the immediate right to employ 'net exercise' privileges;
plus



(b)

the
greater of:



(i)

the
aggregate remaining Base Fee for the unexpired remainder of the Term; or



(ii)

Six
months of Base Fee (Base Fee multiplied by six) plus one month of Base Fee for
each year, or portion thereof, served after the Effective Date;



but
that such aggregate sum of this section 3.4(b) shall not exceed the Base Fee
multiplied by 12 (this sec. 3.4(b) is called the "Non-Option Termination Fee"
as a sub-component of the Termination Fee).



---

-
5 -



At the Company's
election (such election to be made within 15 days of the effective date of
termination, as defined hereafter) the Non-Option Termination Fee may be paid in
12 equal monthly installments commencing with the first payment 15 days after
the effective date of termination (being the earlier of the expiry of Agreement
after a non-Renewal Notice or otherwise the date of notice (or constructive
notice) of termination or the expiration of notice of default of section 3.3
above).  In the event of failure to elect or any dispute as to quantum of
the Termination Fee (any claimed set-off or counter-claim shall not be deducted
from the Termination Fee but shall only be recovered after any judgement),
payment thereof shall not be delayed or deferred but shall be made in full
immediately at an amount established by Brian's selected accountant (if Brian
fails to appoint an accountant within ten days of Company demand, then the
quantum shall be established by an accountant selected by the Company). The
amount of such Termination Fee as determined by the accountant shall be
irrevocably deemed an amount due and certain and immediately exigible and
payable and the Company waives all defenses to immediate payment of the same and
any counterclaims or deductions or set-offs or other allegations of any nature
shall not affect the immediate collectibility of the total Termination Fee.
 If the Company fails to pay or disputes the quantum of the Termination Fee
as determined by the accountant then Brian may acquire summary judgement for the
same to which the Company concurs and attorns.. Any claims by the Company
against Brian shall not interrupt payment of the Termination Fee and any Company
claims shall be paid by Brian only when and in accordance with judgement if a
court should find against Brian.



3.5

Disability.
  If Brian is unable to continue an employment, whether through
disability or otherwise, and Brian consequently is unable to provide the
Services adequately, then the Company shall fund a disability plan which shall
continue for a period of twelve (12) months at seventy five (75%) percent of the
average Base Fee and Incentive Fee of the two years preceding termination ("Disability
Fund Sum"). If physically capable, Brian shall be made available for
consultation for up to ten (10) hours per week, non-cumulative, at no cost to
the Company.  For additional hours per week, Brian shall be paid at a per
diem rate (any time spent in a day shall be deemed to be a full day) equal to
the per annum Disability Fund Sum divided by 260.



3.6

Death.
  In the event that Brian is unable to provide the Services due to
death then the Company shall terminate this Agreement as a without fault
termination and the Termination Fee shall be payable in accordance with section
3.4 to Brian's estate.





Article
IV



COMPENSATION
OF BRIAN



4.1

Base
Fee.   For all Services rendered by Brian under this
Agreement, the Company shall pay Brian a fee (the "Base Fee") of fifteen
thousand ($15,000) dollars per month.  In addition to the Base Fee, the
Company may, in its absolute discretion, consider paying bonuses or other
compensation at intervals through the Term (the aggregate of all compensation
collectively called the "Fee").  All Fees paid hereunder shall be
subject to such withholding deductions as may be required by law.



The
Base Fee shall be reviewed on each anniversary date of this Agreement for
amendment of quantum, including any benefits such as insurance, medical and
dental plans, and the like.  In the event that the parties cannot agree
within thirty (30) days to amendment, the Base Fee shall be automatically
increased by the Cost of Living Index for the City of Vancouver, as published by
the Canadian federal government, and all other Fees shall remain discretionary
with the Company's Board.



4.2

Incentive
Fee.   In addition to the Base Fee, Brian shall also receive
an incentive fee (the "Incentive Fee") which shall be no less than that
established by the Board for other management.  The incentive fee shall be
based on the following examples, but not limited to, equity raised, industry

---

-
6 -



financing
of projects, milestones of project developments (i.e. resource calculations,
scoping studies, feasibility studies, project financings, sales targets),
mergers with other companies, listing the company in other jurisdictions and
other company milestones.



4.3

Benefits.
   As Brian becomes eligible therefore, the Company shall provide
Brian with the right to participate in and to receive benefits from all life
insurance, pension plans, medical insurance and all similar benefits made
available generally to staff of the Company.  The Company agrees to
purchase and pay the costs (or, at the election of Brian increase the Fee to
cover the cost) of full disability and life insurance policies for Brian.
 Subject to availability and costs, the disability insurance shall be for a
benefit equal to ten thousand dollars per month ($10,000) and the life insurance
shall be term insurance for a minimum of five hundred thousand dollars
($500,000.00) and a maximum of two million dollars ($2,000,000).  Brian
shall also receive all such other benefits as are generally available to senior
officers including car allowances and travel benefits.



4.4

Options.
  On execution hereof Brian shall receive an option for 2,000,000
shares vested immediately, exercisable for the term of this Agreement,
exercisable at $0.74 per share and having the benefit of 'net exercise' and
the right to be paid employing other stock of Brian at a 1:1 ratio.
 Options shall be qualified by filing of an S-8 registration.  As
future stock options become available in the Company, and for which Brian is
eligible, he shall have the right to receive additional options.



4.5

Vacation
and Sick Time.   Exclusive of any Company holidays established
by the Board, Brian shall be entitled to six (6) weeks (exclusive of Saturdays,
Sundays and statutory holidays) of vacation per year with full pay.  If
Brian is unable for any reason to take the total amount of vacation time
authorized herein in any year, he may take double salary in lieu thereof or he
may carry over two weeks of that time and add it to his authorized vacation time
for the immediately following year only, or he may take a combination thereof.
 Brian shall be entitled to be absent due to illness twenty (20) days per
year with full pay.  If at the end of the year Brian has any unused leave
for illness, such unused leave shall be carried over to the succeeding year
only.



4.6

Reimbursement
of Expenses.   In the event Brian incurs costs for the Company
then he shall be reimbursed within five (5) days of submission of invoice and
support therefor.





Article
V



ADDITIONAL
OBLIGATIONS OF BRIAN



5.1

Confidentiality.
  Brian will not, except as authorized or required by Brian's duties
hereunder, reveal or divulge to any person or companies any information
concerning the organization, business, finances, transactions or other affairs
of the Company, or of any of its subsidiaries, which may come to Brian's
knowledge during the continuance of this Agreement.



5.2

Compliance
with Applicable Laws.   Brian will comply with all Canadian
and foreign laws, whether federal, provincial or state, applicable to Brian's
duties hereunder and, in addition, hereby represents and warrants that any
information which Brian may provide to any person or company hereunder will be
accurate and complete in all material respects and not misleading, and will not
omit to state any fact or information which would be material to such person or
company.



5.3

Reporting.
  So often as may be required by the Board of Directors, Brian will
provide to the Board of Directors of the Company such information concerning the
results of Brian's Services and activities hereunder as the Board of Directors
of the Company may reasonably require.  Brian will

---

-
7 -



present
his reports in written form or on a oral basis to the board, as they may request
and at the reasonable times they request.





Article
VI



INDEMNIFICATION
AND LEGAL PROCEEDINGS



6.1

Indemnification.
  The Company shall effect reasonable best efforts to maintain
appropriate liability insurance for its officers, directors, and personnel. The
Company shall make Brian party to all liability insurance policies, to the full
extent permitted by such policies, which may be acquired for the benefit of all
or any of the Company's board or management.  Brian (the "Indemnified
Party") shall be indemnified and funded on a current basis for all losses,
damages, legal expenses, and any other expenses or costs of any nature which may
be occasioned by his service with the Company.  Inter alia, this indemnity
shall apply to all manner of actions, proceedings, or prosecutions, whether
civil, regulatory, or criminal, to which the Indemnified Party may be subject
due in whole or in part to the Services provided herein or by virtue of any
office held. This indemnity shall apply both during and after its Term for all
matters arising during the Term, and any extension, until any limitation period
has expired in respect to any action which might be contemplated.  The
Company shall not refuse coverage for any purpose or reason and a strict
presumption of innocence shall be applied and the Company may only seek refund
of any coverage in the case of finding of fraud or criminal culpability, after
exhaustion of all appeals.  The Company shall not be entitled to be
reimbursed any costs or expenses in the event of settlement or of any finding of
civil fault or liability except where fraud has been found and all appeals
exhausted. The Company shall diligently seek and support any court approvals for
the within indemnity as the Indemnified Party may require.  The Company
shall pay all such retainers and trust requirements as counsel for the
Indemnified Party may require and shall pay all accounts of counsel as they come
due and such accounts shall be rendered in the name of the Company and, further,
should the Company fail to pay any reasonable account, it shall attorn to all
such actions, summary judgments, and garnishing orders as such counsel may
consider fit to enforce and receive payment of its account. The Company shall
not seek to settle or compromise any action without the approval of the
Indemnified Party.  The Company warrants it shall employ due diligence and
good faith and seek the best interests of the Indemnified Party as defendant in
any action or prosecution. The Indemnified Party shall permit the Company to
consult with their counsel and to be informed of any matters thereof, subject
only to any requirements for legal privilege purposes.



6.2

Claim
of Indemnification.   The Parties hereto agree to waive any
right they might have of first requiring the Indemnified Party to proceed
against or enforce any other right, power, remedy, security or claim payment
from any other person before claiming this indemnity.



6.3

Notice
of Claim.   In case any action is brought against an
Indemnified Party in respect of which indemnity may be sought, the Indemnified
Party will give the Company prompt written notice of any such action of which
the Indemnified Party has knowledge.  Failure by the Indemnified Party to
so notify shall not relieve the Company of its obligation of indemnification
hereunder unless (and only to the extent that) such failure results in a
forfeiture of substantive rights or defenses.





Article
VII



FORCE
MAJEURE



7.1

Events.
  If either Party hereto is at any time either during this Agreement
or thereafter prevented or delayed in complying with any provisions of this
Agreement by reason of strikes, walk-outs, labour shortages, power shortages,
fires, wars, acts of God, earthquakes, storms, floods, explosions, accidents,
protests or demonstrations by environmental lobbyists or native rights groups,

---

-
8 -



delays
in transportation, breakdown of machinery, inability to obtain necessary
materials in the open market, unavailability of equipment, governmental
regulations restricting normal operations, shipping delays or any other reason
or reasons beyond the control of that Party, then the time limited for the
performance by that Party of its respective obligations hereunder shall be
extended by a period of time equal in length to the period of each such
prevention or delay.



7.2

Notice.
  A Party shall within seven calendar days give notice to the other
Party of each event of force majeure under section "7.1"
hereinabove, and upon cessation of such event shall furnish the other Party with
notice of that event together with particulars of the number of days by which
the obligations of that Party hereunder have been extended by virtue of such
event of force majeure and all preceding events of force majeure.





Article
VIII



NOTICE



8.1

Notice.
  Each notice, demand or other communication required or permitted to
be given under this Agreement shall be in writing and shall be sent by prepaid
registered mail to the Party, or delivered to such Party, at the address for
such Party specified on the front page of this Agreement.  The date of
receipt of such notice, demand or other communication shall be the date of
delivery thereof if delivered, or, if given by registered mail as aforesaid,
shall be deemed conclusively to be the third day after the same shall have been
so mailed, except in the case of interruption of postal services for any reason
whatsoever, in which case the date of receipt shall be the date on which the
notice, demand or other communication is actually received by the addressee.



8.2

Change
of Address.   Either Party may at any time and from time to
time notify the other Party in writing of a change of address and the new
address to which notice shall be given to it thereafter until further change.



Article
IX



GENERAL
PROVISIONS



9.1

Entire
Agreement.   This Agreement constitutes the entire agreement
to date between the Parties hereto and supersedes every previous agreement,
expectation, negotiation, representation or understanding, whether oral or
written, express or implied, statutory or otherwise, between the Parties with
respect to the subject matter of this Agreement.



9.2

No
Assignment.   This Agreement may not be assigned by either
Party except with the prior written consent of the other Party.



9.3

Warranty
of Good Faith.   The Parties hereto warrant each to the other
to conduct their duties and obligations hereof in good faith and with due
diligence and to employ all reasonable endevours to fully comply with and
conduct the terms and conditions of this Agreement.



9.4

Further
Assurances.   The Parties will from time to time after the
execution of this Agreement make, do, execute or cause or permit to be made,
done or executed, all such further and other acts, deeds, things, devices and
assurances in law whatsoever as may be required to carry out the true intention
and to give full force and effect to this Agreement.



9.5

Applicable
Law.   The situs of this Agreement is Vancouver, British
Columbia, and for all purposes this Agreement will be governed exclusively by
and construed and enforced in accordance

---

-
9 -



with
the laws prevailing in the Province of British Columbia.  This Agreement
shall be exclusively litigated in British Columbia unless the Parties
voluntarily consent otherwise in writing.



9.6

Severability
and Construction.   Each Article, section, paragraph, term and
provision of this Agreement, and any portion thereof, shall be considered
severable, and if, for any reason, any portion of this Agreement is determined
to be invalid, contrary to or in conflict with any applicable present or future
law, rule or regulation in a final unappealable ruling issued by any court,
agency or tribunal with valid jurisdiction in a proceeding to which any Party
hereto is a party, that ruling shall not impair the operation of, or have any
other effect upon, such other portions of this Agreement as may remain otherwise
intelligible (all of which shall remain binding on the Parties and continue to
be given full force and effect as of the date upon which the ruling becomes
final).



9.7

Consents
and Waivers.   No consent or waiver expressed or implied by
either Party in respect of any breach or default by the other in the performance
by such other of its obligations hereunder shall:



(a)

be
valid unless it is in writing and stated to be a consent or waiver pursuant to
this section;



(b)

be
relied upon as a consent to or waiver of any other breach or default of the same
or any other obligation or constitute a general waiver under this Agreement; or



(c)

eliminate
or modify the need for a specific consent or waiver pursuant to this section in
any other or subsequent instance.





IN
WITNESS WHEREOF the Parties hereto have hereunto set their respective
hands and seals in the presence of their duly authorized signatories effective
as at the date first above written.





The
CORPORATE SEAL of

)

CRYSTAL
GRAPHITE CORPORATION

)

was
hereunto affixed in the presence of:

)

)

/s/
Gordon Sales

)

(C/S)

Authorized
Signatory

)









SIGNED,
SEALED and DELIVERED by

)

BRIAN
WEAR

)

in
the presence of:

)

)

/s/
Vicky Allinson

)

Witness
Signature

)

)

/s/
Brian Wear



)

BRIAN
WEAR













End of Exhibit 10.5





---

EXHIBIT 10.6







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Ground and Equipment Lease, dated April 30, 2004, between the Company and 530526 B.C. Ltd.











Ground
and Equipment Lease





530526
BC Ltd





AND:





CRYSTAL
GRAPHITE CORPORATION





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2







TABLE
OF CONTENTS

1.
      DEFINITIONS...
      
      
      
      
      
      61.1
      Definitions
      
      
      
      
      
      62.
      INTENT,
        INTERPRETATION AND CONDITIONS
      
      
      
      102.1
      Net Lease
      
      
      
      
      
      102.2
      Entire Agreement
      
      
      
      
      
      112.3
      General Matters of
        Interpretation
      
      
      
      113.
      DEMISE AND TERM
      
      
      
      
      
      123.1
      Demise of Lands
      
      
      
      
      
      123.2
      Term
      
      
      
      
      
      124.
      OCCUPANCY AND
        POSSESSION
      
      
      
      124.1
      Possession
      
      
      
      
      
      124.2
      No Early Access
      
      
      
      
      
      124.3
      Landlord's Option
        to Terminate
      
      
      
      124.4
      Unavoidable Delays
      
      
      
      
      
      124.5
      Disputes
      
      
      
      
      
      134.6
      Continuous Occupancy
      
      
      
      
      
      135.
      RENT
      
      
      
      
      
      135.1
      Basic Rent
      
      
      
      
      
      135.2
      Percentage Rent
      
      
      
      
      
      135.3
      Reports of Gross
        Revenue
      
      
      
      
      
      135.4
      Tenant's Records
      
      
      
      
      
      145.5
      Right to Examine
        Books
      
      
      
      
      
      145.6
      Audit
      
      
      
      
      
      146.
      TAXES
      
      
      
      
      
      146.1
      Taxes and Tenant's
        Taxes
      
      
      
      
      
      146.2
      Tenant's
        Responsibility
      
      
      
      
      
      146.3
      Sales Taxes.
      
      
      
      
      
      146.4
      Alternative
        Allocation Basis
      
      
      
      
      157.
      UTILITIES
      
      
      
      
      
      157.1
      Services From Third
        Parties
      
      
      
      
      
      157.2
      Utilities
      
      
      
      
      
      157.3
      No Liability..
      
      
      
      
      
      158.
      USE AND
        DEVELOPMENT OF LANDS
      
      
      
      168.1
      Use
      
      
      
      
      
      168.2
      Suitability of Lands
      ...
      
      
      
      
      168.3
      No
        Nuisance or Interference
      
      
      
      
      168.4
      Development of Lands
      
      
      
      
      
      168.5
      Construction on
        Lands
      
      
      
      
      
      168.6
      Utility
        Systems and Ancillary Facilities
      
      
      
      178.7
      Maintenance
        of Security on Lands
      
      
      
      178.8
      Fire
        and Liability Insurance During Construction of Buildings
      
      
      178.9
      Tenant's
        Acknowledgements
      
      
      
      
      l8




---

3



9.
      OWNERSHIP
        OF BUILDINGS AND FIXTURES
      189.1
      Property of Tenant
      
      189.2
      Removal of Equipment
      
      l810.
      MAINTENANCE,
        REPAIRS AND ALTERATIONS
      1810.1
      Signs
      
      1810.2
      Surrender
      
      1910.3
      Repairs
      
      19l0.4
      Waste
      
      1910.5
      Gravel and Top Soil.
      
      1910.6
      Use,
        Maintenance and Repair of Landlord's Equipment
      1910.7
      Compliance with Laws
      
      2010.8
      Tenant's
        Representations and Warranties
      2010.9
      Condition of
        Lands...
      
      2110.10
      Use of Contaminants
      
      2110.11
      Compliance with
        Environmental Laws
      
      2110.12
      Evidence of
        Compliance
      
      2110.13
      Confidentiality
        of Environmental Reports
      2210.14
      Records
      
      2210.15
      Access by Landlord
      
      2210.16
      Notices ...
      
      2210.17
      Removal of
        Contaminants
      
      2310.18
      Ownership of
        Contaminants
      
      2310.19
      Indemnity
      
      2310.20
      Survival of Tenant's
        Obligations
      
      2410.21
      Builders' and Other
        Liens
      
      2410.22
      Contest of Liens
      
      2410.23
      Notices
      
      2511.
      INSURANCE AND
        INDEMNITY
      
      2511.1
      Tenant's Insurance
      
      2511.2
      Full Insurable Value
      
      2711.3
      Cancellation of
        Insurance
      
      2711.4
      Waiver
      
      2711.5
      Payment of Insurance
        Proceeds
      
      2711.6
      Limit of Liability
        for Landlord...
      
      2811.7
      Tenant to Defend
      
      2811.8
      Indemnification
      
      2811.9
      Workers'
        Compensation Coverage.
      
      2912.
      DAMAGE,
        DESTRUCTION AND EXPROPRIATION
      3012.1
      Rent not to Abate
      
      3012.2
      Tenant's
        Obligations when the Project is Damagedor Partially
        Destroyed
      
      3012.3
      Tenant's
        Obligations when the Project is Completelyor Substantially
        Destroyed
      
      3012.4
      Replacement,
        Repair or Reconstruction to be CarriedOut in Compliance
        with Article 8
      
      3012.5
      Expropriation
      
      30




---

4



12.6
      Payment of Insurance
        Proceeds
      
      3112.7
      Insufficient
        Proceeds
      
      3112.8
      Landlord's
        Right of Termination when Project isCompletely or
        Substantially Destroyed
      
      3113.
      ASSIGNMENT AND
        SUBLETTING
      
      3113.1
      Consent Required
      
      .3113.2
      Landlord's Consent
      
      3213.3
      Consent to Transfer
      
      3213.4
      Corporate Ownership
      
      3313.5
      Mortgaging by Tenant
      
      3413.6
      Tenant
        to Comply with all of its Obligations
      3413.7
      Assignment by the
        Landlord
      
      3413.8
      Extinguishment of
        Subleases
      
      3514.
      LANDLORD'S
        SPECIAL RIGHTS, ACCESS AND RESERVATIONS .3514.1
      Easements and
        Statutory Rights-of-way
      
      3514.2
      Reservations.
      
      3514.3
      Inspection of Lands
      
      3514.4
      Tenant may Accompany
      
      3615.
      STATUS
        STATEMENT, ATTORNMENT AND SUBORDINATION
      3615.1
      Status Statement
      
      3615.2
      Subordination and
        Attornment
      
      3616.
      QUIET ENJ0YMENT
      
      3716.1
      Quiet Enjoyment
      
      3716.2
      Exception
      
      3717.
      LANDLORD'S
        AND TENANT'S ADDITIONAL OBLIGATIONS
      3817.1
      Landlord's
        Obligations
      
      3817.2
      Tenant's Obligations
      
      3818.
      DEFAULT,
        TERMINATI0N AND EXPIRY
      3818.1
      Default, Termination
        and Expiry
      
      3818.2
      Adjustment of Notice
        Period
      
      3818.3
      Deemed Breach
      
      3918.4
      Re-Entry
      
      4018.5
      Liability and
        Indemnity to Continue
      
      4018.6
      Prospective Damages
      
      4118.7
      Waiver by Tenant
      
      4118.8
      Interest
      
      4118.9
      All Amounts
        Constitute Rent
      
      4118.10
      Right to Distrain
      
      4118.11
      Landlord May Cure
      
      4118.12
      Injunctive Relief
      
      4213 18
      Remedies Cumulative
      
      4218..14
      Tenant May Not
        Terminate
      
      42




---

5





19.
      M0RTGAGING
      
      
      4219.1
      Rights of Mortgagee
      
      
      4219.2
      Notice to and
        Remedies of Mortgagee
      
      
      4319.3
      Mortgage Subject to
        Landlord's Rights Under Lease
      
      
      4519.4
      Protection of
        Mortgagee
      
      
      4520.
      MISCELLANEOUS
      
      
      4520.1
      Registration
      
      
      4520.2
      Waiver
      
      
      4520.3
      Legal Contests
      
      
      4620.4
      Labour Disputes
      
      
      4620.5
      Notices
      
      
      4620.6
      Further Acts
      
      
      4620.7
      Successors and
        Assigns
      
      
      4620.8
      Overholding
      
      
      4620.9
      Documentation and
        Administration Fees
      
      
      4721.
      ARBITRATION
      
      
      4721.1
      Arbitration
      
      
      4722.
      ADDITI0NAL
        PROVISIONS
      
      
      4722.1
      Renewal
      
      
      4722.2
      Option to Purchase
      
      
      4822.3
      Option to Purchase
        the Lands
      
      
      4822.4
      Right of First
        Refusal
      
      
      48SCHEDULE
        A - LEGAL DESCRIPTIONS OF THE LANDSSCHEDULE
        B - EASEMENTS AND STATUTORY RIGHTS-OF-WAY
        AND LANDLORD'S EQUIPMENT LIST


---

6







GROUND
AND EQUIPMENT LEASE



THIS
LEASE dated for reference and made as of the 30thday of April, 2004



BETWEEN:



530526
BC LTD., a British Columbia corporation, having its business
address at Unit 6, 2009 Abbotsford Way, Abbotsford, BC V2S 4N7



(the
"Landlord")



OF
THE FIRST PART

AND:



CRYSTAL
GRAPHITE CORPORATION, a British Columbia corporation, having its
registered office at Suite 2550, 555 West Hastings Street, Vancouver, British
Columbia, V6B 4N5



(the
"Tenant")



OF
THE SECOND PART



WITNESSES
THAT IN CONSIDERATION of the premises, the covenants contained in this Lease,
and other good and valuable consideration (the receipt and sufficiency of which
is hereby acknowledged by each of the parties), the parties covenant and agree
as follows:





1.

DEFINITIONS



1.1

Definitions



In
this Lease the following words and phrases shall have the meanings ascribed to
them in this Section unless the context otherwise requires:



(a)

"Affiliate"
has the meaning ascribed to it in the Business Corporations Actof
British Columbia as at the date of this Lease;



(b)

"Arbitration
Notice" has the meaning set out in Section 21.1;



(c)

"Basic
Rent" means the amounts set out in Section 5.1;

(d)

"Commencement
Date" means April 30, 2004;

(e)

"Disturbance
Exceptions" has the meaning set out in Section 16.2;



(f)

"Encumbrances"
has the meaning set out in Section 15.2;



(g)

"Environment"
includes the air (including all layers of the atmosphere), land (including soil,
sediment deposited on land, fill and lands submerged under water)

---

7







and
water (including oceans, lakes, rivers, streams, groundwater and surface water);



(h)

"Environmental
Contaminants" or "Contaminants" means any radioactive
materials, asbestos materials, urea formaldehyde, underground or aboveground
tanks, pollutants, contaminants, deleterious substances, dangerous substances or
goods, hazardous, corrosive or toxic substances, special waste or waste of any
kind or any other substance the storage, manufacture, disposal, treatment,
generation, use, transport, remediation or Release into the Environment of which
is now or hereafter prohibited, controlled or regulated under Environmental
Laws, unless permitted by governmental permit;



(i)

"Environmental
Laws" means any and all statutes, laws, regulations, orders, bylaws,
standards, guidelines, permits and other lawful requirements of any federal,
provincial, municipal or other governmental authority having jurisdiction over
the Lands, now or hereafter in force with respect in any way to the Environment,
health, occupational health and safety, product liability or transportation of
dangerous goods, including the principles of common law and equity;

(j)

"Excavated
Material" has the meaning set out in Section 10.5;

(k)

"Fair
Market Rental Value" [intentionally  deleted];



(l)

"Full
Insurable Value" has the meaning set out in Section 11.2;

(m)

"Gross
Revenue" [intentionally  deleted];



(n)

"Landlord"
means the party of the first part;



(o)

"Landlord's
Equipment" means the machinery and equipment listed in Schedule B and
located and left on the Lands for the use of the Tenant as set forth in Section
10.6;



(p)

"Lands"
means those lands legally and more particularly described in Schedule A

attached
hereto, together with existing buildings and improvements situate thereon at the
commencement date of this Agreement (as described in Schedule A attached
hereto);



(q)

"Lease
Year" means a 12 month period commencing on the first day of the Term
or on any anniversary of that day;



(r)

"Market
Value of the Lands" [intentionally deleted];



(s)

"Mortgage"
means a mortgage or mortgages upon or in respect of and specifically charging
the leasehold interest of the Tenant in the Lands and the Project or any part
thereof and includes any debenture or deed of trust and mortgage to secure any
bonds or debentures issued thereunder, and any

---

8







assignment
of rents made to the Mortgagee as security;

(t)

"Mortgagee"
means a mortgagee or mortgagees under a Mortgage;

(u)

"Percentage
Rent" [intentionally  deleted];



(v)

"Person"
or "person" includes an individual, firm, corporation,
partnership, group of individuals, or any combination of them, and the personal
or other legal representatives of such person to whom the context can apply at
law;



(w)

"Prime
Rate" means the rate of interest per annum (regardless of how or when
calculated) designated from time to time by the Bank of Montreal (the
"Bank") as being the prime commercial lending rate (now commonly known
as the Bank's prime rate) charged by the Bank for demand loans in Canadian funds
made at the main branch of the Bank in Vancouver, British Columbia (and if at
any time there is more than one prime commercial lending rate of the Bank then
the Prime Rate shall be the highest prime commercial lending rate of the Bank);



(x)

"Project"
means the use of the Lands for any use permitted by the applicable zoning for
the Lands, as such zoning may vary from time to time, and as consented to by the
Landlord, acting reasonably. In this regard, it is understood and agreed that
the Tenant may, without Landlord approval, employ the Lands so as to permit the
Lands, and all Tenant improvements thereon, to be used as a facility for ore and
material processing, bagging, storage and transport. In connection with such
proposed use and provided all applicable governmental laws, bylaws, rules and
regulations are complied with, the Tenant shall be permitted to construct and
operate on the Lands such roads, green spaces, buildings, and other improvements
in pursuit of the proposed use, or such other uses permitted by the applicable
zoning for the Lands and, as to the latter, as consented to by the Landlord
acting reasonably, all in accordance with plans and specifications approved by
the Landlord, acting reasonably;



(y)

"Release"
includes, but is not limited to, any release, spill, leak, pumping, pouring,
emission, emptying, discharge, injection, escape, leaching, migration, disposal
or dumping;

(z)

"Renewal
Term" has the meaning set out in Section 22.1;



(z1)

"Rent"
means Basic Rent and all other moneys payable by the Tenant under this

Lease
whether or not designated as "Rent";



(aa)

"Sales
Taxes" means any and all taxes, fees, levies, charges, assessments,
rates, duties and excises (whether characterized as sales taxes, purchase taxes,
value-added taxes, goods and services taxes or any other form of tax) which are
imposed on the Landlord or which the Landlord is liable to pay, and which are
levied, rated or assessed on the act of entering into this Lease or otherwise on
account of this Lease, on the use or the occupancy of the Lands or any portion
of the Lands, on the Rent or any portion of the Rent payable under this Lease or
in

---

9





connection
with the business of renting the Lands or any portion of the Lands. Provided
that if the Sales Taxes are reduced by reason of any exemption or deduction to
which the Landlord is entitled by virtue of:



(i)

the
payment of any taxes, fees, levies, charges, assessments, rates, duties or
excises upon the purchase price of any lands or of any interest in such lands
whether before, concurrently with or after the execution and delivery of this
Lease; or





(ii)

the
payment of any taxes, fees, levies, charges, assessments, rates, duties or
excises with respect to rents, additional rents and any other amounts payable by
the Landlord as a tenant under any lease whether such lease is now existing or
arises after the date of execution and delivery of this Lease, then the Sales
Taxes shall be deemed to be the amount which would have been imposed on the
Landlord with respect to the Rent payable by the Tenant to the Landlord under
this Lease had no such exemption or deduction been permitted. The Landlord shall
have the right, in its sole discretion, to allocate any exemption or deduction
to which the Landlord is entitled: (i) in such a way as to reduce the Sales
Taxes to the extent and in such proportion as the Landlord may in its sole
discretion determine, or (ii) in such a way as not to reduce the Sales Taxes at
all. Provided however, Sales Taxes shall exclude all of the following: (i)
income tax under Part I of the Income Tax Actof Canada, (ii) the
Tenant's Taxes, and (iii) the Taxes;



(bb)

"Share
Transfer" has the meaning set out in Section 13.4;



(cc)

"Taxes"
means all taxes, fees, levies, charges, assessments, rates, duties and excises
which are now or may hereafter be levied, imposed, rated or assessed upon or
with respect to the Lands or any part of the Lands and the Project or any part
of the Project, whether levied, imposed, rated or assessed by the Government of
Canada, the Government of British Columbia, or any political subdivision,
political corporation, district, municipality, city or other political or public
entity, and whether or not now customary or in the contemplation of the parties
on the date of this Lease. Without restricting the generality of the foregoing,
Taxes shall include all:



(i)

real
property taxes, general and special assessments and capital taxes;



(ii)

taxes,
fees, levies, charges, assessments, rates, duties and excises for transit,
housing, schools, police, fire or other governmental services or for purported
benefits to the Lands;



(iii)

local
improvement taxes, service payments in lieu of taxes, and taxes, fees, levies,
charges, assessments, rates, duties and excises, however described, that may be
levied, rated or assessed as a substitute for, or as an addition to, in whole or
in part, any property taxes or local taxes; and

---

10





(iv)

costs
and expenses including legal and other professional fees and interest and
penalties on deferred payments, incurred by the Landlord in contesting or
appealing any taxes, assessments, rates, levies, duties, excises, charges or
other amounts as aforesaid, but Taxes shall exclude all of the following: (i)
income tax under Part I of the Income Tax Actof Canada, (ii) the
Tenant's Taxes, (iii) the Sales Taxes; and (iv) provincial capital tax and
federal large corporation capital tax assessed against the Landlord;



(dd)

"Tenant"
means the party of the second part;



(ee)

"Tenant's
Taxes" means all taxes, fees, levies, charges, assessments, rates,
duties and excises which are now or may hereafter be levied, imposed, rated or
assessed by any lawful authority relating to or in respect of the business of
the Tenant or a subtenant or relating to or in respect of personal property and
all business and trade fixtures, machinery and equipment, cabinet work,
furniture and movable partitions owned or installed by the Tenant or being the
property of the Tenant, or relating to or in respect of improvements to the
Lands built, made or installed by the Tenant, on behalf of the Tenant or at the
Tenant's request (including without limitation, the Project) whether any such
amounts are payable by law by the Tenant or by the Landlord and whether such
amounts are included by the taxing authority in the Taxes;



(ff)

"Term"
means the period of ten (10) years commencing on the Commencement Date, and
includes any Renewal Term;

(gg)

"Transfer"
has the meaning set out in Section 13.1; and

(hh)

"Transferee"
has the meaning set out in Section 13.1.



2.

INTENT,
INTERPRETATION AND CONDITIONS



2.1

Net
Lease



This
Lease is intended to be a lease which is absolutely net to the Landlord so that,
save as otherwise expressly provided in this Lease, the Landlord shall incur no
cost with respect to the Lands or the development, use, operation or occupation
of the Lands or with respect to the use, maintenance and repair of the Landlord's
Equipment during the Term. Accordingly, in addition to the Basic Rent payable
pursuant to Section 5.1 , the Tenant shall pay as the same become due, and shall
indemnify the Landlord against, every cost which relates to or arises from the
Lands or the development, use, operation or occupation of the Lands or with
respect to the use, maintenance and repair of the Landlord's Equipment,
whether such cost is of a capital or operating nature, whether incurred in
respect of activities carried on by the Tenant, or any other Person on the Lands
or by a Tenant of the Lands or a portion of the Lands, and whether or not such
cost is presently within the contemplation of the parties. Notwithstanding the
foregoing this Section shall not be interpreted to make the Tenant responsible
for the Landlord's income tax under Part I of the Income Tax Actof
Canada, and provincial capital tax and federal large corporation capital tax
assessed against the Landlord..

---

11







2.2

Entire
Agreement



This Lease
includes the Schedules attached to it. This Lease supersedes all negotiations
and agreements between theLandlord and the Tenant that precede the
date of this Lease for the use and occupation of the Lands. There are no
covenants, promises, agreements, conditions, representations, warranties or
understandings, either oral or written, between the parties concerning this
Lease or the Lands or any matter related to either of them except those that are
set out in this Lease. No alteration, amendment, change or addition to this
Lease is binding upon the Landlord unless it is in writing and signed by the
Tenant and two authorized representatives of the Landlord.



2.3

General
Matters of Interpretation

(a)

Each
obligation under this Lease is a covenant of the party having such obligation.



(b)

The
captions, section numbers, article numbers and Table of Contents (if any) do not
define, limit, construe or describe the scope or intent of the Sections or
articles, and are for convenience of reference only.



(c)

Whenever
the context so requires, the neuter gender shall include the masculine, the
feminine and the body corporate, and the singular number shall include the
plural, and vice versa.



(d)

The
language in all parts of this Lease shall in all cases be construed as a whole
and not strictly for nor against the Landlord or the Tenant.



(e)

If
a part of this Lease or the application of it to a Person or circumstance, is to
any extent held or rendered invalid, unenforceable or illegal, that part:



(i)

is
independent of the remainder of the Lease and is severable from it, and its
invalidity, unenforceability or illegality does not affect, impair or invalidate
the remainder of this Lease; and



(ii)

continues
to be applicable to and enforceable to the fullest extent permitted by law
against any Person and circumstances except those as to which it has been held
or rendered invalid, unenforceable or illegal.



(f)

No
part of this Lease shall be enforced against a Person, if, or to the extent that
by doing so, the Person is made to breach a law, rule, regulation or enactment.



(g)

This
Lease shall be construed in accordance with the laws of Canada and the Province
of British Columbia.



(h)

Time
is of the essence of this Lease.

---

12







3.

DEMISE
AND TERM



3.1

Demise
of Lands and Equipment



The
Landlord leases to the Tenant and the Tenant leases from the Landlord the Lands
and the Landlord's Equipment for the Term and upon and subject to the terms,
conditions, covenants and provisions set out in this Lease.



3.2

Term



The
Tenant shall have and hold the Lands and the Landlord's Equipment for the
Term, unless earlier terminated pursuant to the provisions of this Lease.



4.

OCCUPANCY
AND POSSESSION



4.1

Possession



The
Landlord shall deliver vacant possession and use of the Lands and the Landlord's
Equipment to the Tenant on the first day of the Term.



4.2

No
Early Access



[Intentionally
Deleted]



4.3

Landlord's
Option to Terminate



If
the Project is damaged or destroyed and was to have been restored or
rehabilitated by the Tenant pursuant to Article 12 and such restoration and
rehabilitation is not completed within the period of 24 months immediately
following such date of damage or destruction, then the Landlord shall be
entitled to terminate this Lease, by giving written notice of termination to the
Tenant following the expiry of such 24-month period and such termination shall
take effect 60 business days following receipt of such notice.



4.4

Unavoidable
Delays



If
the Tenant is actually and necessarily delayed in commencing or completing the
construction of the buildings or improvements comprising the Project by fire,
earthquake, acts of God, the elements, war or civil disturbance, strikes or
other labour disturbances, economic controls making it impossible to obtain the
necessary labour or materials, or other matters or conditions beyond the control
of the Tenant (but excluding the financial condition of the party delayed or

any
matter or condition that is the fault of the party delayed), a period equal to
the duration of such delay, but in no event exceeding 24 months, shall be added
to the 24-month period referred to in Section 4.3. The onus of establishing that
such a delay has occurred shall be upon the Tenant.

---

13







4.5

Disputes



Any
dispute as to:



(a)

the
interpretation and application within this Article 4 of the definitions
contained in Section 1.1;



(b)

whether
restoration or rehabilitation of the Project has taken place within the time
prescribed by Section 4.3; or



(c)

the
length of the period of extension under Section 4.4,



shall
be determined by arbitration pursuant to Section 21.1.



4.6

Continuous
Occupancy



The
Tenant will, throughout the Term, use and develop the Lands and employ the
Landlord's Equipment for the business purpose set out in Section 8.1 and will
then continuously and actively conduct the business set out in Section 8.1.





5.

RENT



5.1

Basic
Rent



The
Tenant shall during the Term pay to the Landlord in lawful money of Canada,
without any set-off, abatement or deduction whatsoever annual Basic Rent as
follows:



(a)

during
the Term, $82,500 per year payable in advance in equal monthly installments of
$6875 commencing on the Commencement Date and continuing until the last month of
the Term;



(b)

during
any Renewal Term, the amount determined in accordance with section  22.1;



To
the extent that the Landlord grants to the Tenant any rights of access over
other lands owned by the Landlord, which rights shall be on terms and conditions
acceptable to the Landlord and be appurtenant to the Lease, the Tenant shall be
obligated to pay annual rent to the Landlord in respect thereof in addition to
the rent paid by the Tenant for the Lands.



5.2

Percentage
Rent



[intentionally
 deleted]



5.3

Reports
of Gross Revenue



[intentionally
 deleted]



---

14





5.4

Tenant's
Records



[intentionally
 deleted]



5.5

Right
to Examine Books



[intentionally
 deleted]



5.6

Audit



[intentionally
 deleted]





6.

TAXES



6.1

Taxes
and Tenant's Taxes



From
and after the Commencement Date and during the Term, the Tenant shall pay to the
appropriate tax authority, or to the Landlord, as the Landlord directs, before
delinquency, all Taxes and Tenant's Taxes. All Taxes which relate to a fiscal
year during which the Term commences or terminates shall be prorated between the
Landlord and the Tenant.



6.2

Tenant's
Responsibility



The
Tenant shall, at the Landlord's request, promptly deliver to the Landlord
receipts for payment of all Taxes and Tenant's Taxes payable by the Tenant,
notices of any assessments for Taxes or Tenant's Taxes or other assessments
received by the Tenant that relate to the Lands and the Project, and whatever
other information relating to Taxes or Tenant's Taxes the Landlord reasonably
requests from time to time. The Tenant shall deliver to the Landlord, at least
10 business days before the last date for filing appeals, notice of any appeal
or contestation that the Tenant intends to institute with respect to Taxes or
Tenant's Taxes payable by the Tenant and obtain the prior written consent of the
Landlord for the appeal or contestation, which consent shall not be unreasonably
withheld. If the Tenant obtains the Landlord's consent and does not pay the
Taxes or Tenant's Taxes before the appeal or contestation, the Tenant shall
deliver to the Landlord whatever security for the payment of the Taxes or
Tenant's Taxes the Landlord reasonably requires, promptly and diligently
prosecute the appeal or contestation, and keep the Landlord informed on all
aspects of it. The Tenant shall indemnify and save the Landlord harmless from
all loss, cost, charges and expenses arising from Taxes or Tenant's Taxes as
well as any taxes, rates, levies and assessments that may be levied or imposed
in place of Taxes or Tenant's Taxes, whether against the Landlord or the Tenant
including, but not limited to, increases in Taxes or Tenant's Taxes arising out
of an appeal or contestation by the Tenant. The Tenant shall deliver to the
Landlord any security for such an increase in Taxes or Tenant's Taxes or any
other taxes that the Landlord reasonably requires.



6.3

Sales
Taxes



The
Tenant shall pay to the Landlord an amount equal to any and all Sales Taxes, it
being the intention of the parties that the Landlord shall be fully reimbursed
by the Tenant in respect of any and all Sales Taxes payable by the Landlord. The
amount of the Sales Taxes so payable by the Tenant shall be calculated by the
Landlord in accordance with the applicable legislation and shall be paid to the
Landlord at the same time as the amounts to which such Sales Taxes apply are
payable to the Landlord under the terms of this Lease or upon demand at such
other time or times as the Landlord from time to time determines.
Notwithstanding anything in this Lease to

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15





the
contrary, the amounts payable by the Tenant under this Section 6.3 shall be
deemed not to be Rent, but the Landlord shall have all of the same rights and
remedies for the recovery of such amounts as it has for recovery of Rent under
this Lease.



6.4

Alternative
Allocation Basis



If
any taxing authority fails to make anyone or more of the allocations necessary
in order to determine any amount payable by the Tenant in respect of Taxes or
Tenant's Taxes herein, the

Landlord
shall make such allocations using then current established principles of
assessment (if any) used by such taxing authority or on such other basis as the
Landlord shall in its reasonable judgment established and such allocation shall
be binding upon the Tenant.



7.

UTILITIES



7.1

Services
From Third Parties



The
Tenant may obtain, at its sole cost and expense, services from independent third
parties, including fire and ambulance services, police services, natural gas
services, telephone services and other service and utility suppliers.



7.2

Utilities



The
Tenant shall promptly pay all charges for water, gas, electricity, scavenging,
salvage, telephone, power and other utilities and services used on or in respect
of the Lands, or any part of the Lands, and the Project, together with all costs
and charges for all fittings, machines, apparatus, meters and any other thing
leased or supplied in respect of such utilities and services and all costs and
charges for all work and services performed by any Person in respect of such
utilities and services in respect of the Lands and the Project. The Landlord
shall not be requested to provide any facilities for utility services to the
Lands and the Project. Notwithstanding the foregoing, in the event the Landlord
has adjacent facilities with services and in order to facilitate the Project use
of the Lands herein contemplated and provided the District consents thereto and
the Landlord is of the opinion that it will not be adversely affected, the
Landlord will allow the Tenant to share existing municipal services which
currently service the Landlord's property and such services will be separately
metered ( by meters installed at the expense of the Tenant) or otherwise
appropriately and fairly apportioned between the Landlord and the Tenant
according to their respective usage of such services.



7.3

No
Liability



The
Landlord shall not be liable for any injury to the Tenant, its employees or
agents or to any property of them or for consequential damages or for any other
costs, losses or damages of whatsoever kind caused by or arising out of any
interruption or failure in the supply of any utility or service to the Lands and
the Project, and the Landlord shall assign to the Tenant any rights of the
Landlord against independent third parties for such interruption or failure.

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16







8.

USE
AND DEVELOPMENT OF LANDS



8.1

Use



The
Lands and the Landlord's Equipment are leased hereby to the Tenant in
consideration of the Rent for the construction and operation of the Project and
the Tenant shall not use the Lands nor allow the Lands to be used for any other
use, nor in any manner inconsistent with such use and occupancy, except for such
other uses as are permitted in writing by the Landlord, such permission not to
be unreasonably with held.



8.2

Suitability
of Lands



The
Tenant has satisfied itself that the Lands are suitable for uses as described in
Section 8.1.



8.3

No
Nuisance or Interference



The
Tenant shall not without the prior written approval of the Landlord use or
permit any Person to use any portion of the Lands for any purpose which
constitutes a nuisance or which endangers or interferes with the operations or
activities of the Landlord on lands adjacent to the Lands or of any other person
lawfully entitled to conduct operations or activities on the Lands or adjacent
lands. Upon written notice to the Tenant from the Landlord or from any lawful
authority having jurisdiction requiring the abatement of any nuisance caused by
the Tenant or arising directly or indirectly out of the operations carried on
upon the Lands, the Tenant shall immediately abate or cause to be abated such
nuisance or contravention accordingly.



8.4

Development
of Lands



The
Tenant shall diligently and in a good and workmanlike manner develop the Project
on the Lands in accordance with plans and specifications approved by the
Landlord (and, in all cases in this Agreement, if the Landlord or a
representative is engaged in the process with the Tenant on an on-going basis or
supervisory or official position then approval is deemed to have occurred) and
all applicable laws and, where necessary, adopt procedures or regulations to
deal with environmental and ecological concerns as agreed between the Landlord
and the Tenant, and in the event of disagreement either party may, upon 30
business days' notice to the other party, request that such disagreement be
determined by arbitration pursuant to Section 21.1.



8.5

Construction
on Lands



The
Tenant is hereby granted permission, and shall at its sole cost and expense,
diligently and in a good and workmanlike manner construct or cause to be
constructed in accordance with plans and specifications approved by the Landlord
and all applicable laws, and shall operate upon the Lands, any and all
buildings, improvements and facilities necessary for the operation of the
Project. Prior to commencing construction of any buildings or improvement, the
Tenant shall submit working drawings to the Landlord in reasonable detail and
the Tenant shall first obtain written consent of the Landlord before commencing
such construction, such confirmation not to be unreasonably delayed or withheld.
Any dispute in respect of a building or improvement, or construction of a
building or improvement which is not resolved by the parties within 30 business
days of receipt of notice from one party to the other shall be determined by
arbitration pursuant to Section 21.1.

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17







8.6

Utility
Systems and Ancillary Facilities



Contemporaneously
with the completion of construction of the Project on the Lands, the Tenant
shall complete the installation of utility systems and ancillary facilities such
as paved access roadways, paved parking areas, lighting and other improvements
necessary for the use of the Lands as described in Section 8.1.



8.7

Maintenance
of Security on Lands



The
Tenant shall provide reasonable security in respect of buildings and
improvements on the Lands having regard to the nature of such buildings and
improvements and the uses and contents thereof, and shall co-operate in all
reasonable ways with the security personnel (if any) engaged by the Landlord.



8.8

Fire
and Liability Insurance During Construction of Buildings



(a)

The
Tenant shall effect or shall cause its contractor or contractors to effect prior
to the commencement of construction of the Project, or any portion thereof, and
shall maintain and keep in force until the insurance required under Article 11
shall have been effected, insurance:



(i)

protecting
both the Tenant and the Landlord and the Landlord's servants and agents (without
any rights of cross claim or subrogation against the Landlord) against claims
for personal injury, death, or property damage, or other third-party or public
liability claims arising from any accident or occurrence upon, in, or about the
Lands and from any cause, including the risks occasioned by the construction of
the Project, and to an amount reasonably satisfactory to the Landlord, for any
personal injury, death, property, or other claims in respect of anyone accident
or occurrence; and



(ii)

protecting
both the Tenant and the Landlord and the Landlord's servants and agents from
loss or damage (without any rights of cross claim or subrogation against the
Landlord) to the Project and all fixtures, equipment, improvements, and building
materials on the Lands from time to time both during and after construction (but
which may be by policies effected from time to time covering the risk during
different phases of construction of the Project) against fire, earthquake and
all other perils from time to time customarily included in the usual all-risks
builders' risk form of policy applicable to similar properties during
construction and effected in the Province of British Columbia by prudent owners,
and such other perils as the Landlord may reasonably require to be insured
against to the full insurable value thereof at all times and in any event in the
amount sufficient to prevent the Landlord or the Tenant being deemed
co-insurer;





(b)

The
proceeds of insurance which may become payable under any policy of insurance
effected pursuant to this Section 8.8 shall be payable to the Tenant only and
shall be available to finance repair and reconstruction of the Project; and



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18





(c)

All
of the provisions of Article 11 respecting insurance which are of general



application
shall apply to the insurance coverage which is effected during construction of
the Project as required by this Section 8.8.



8.9

Tenant's
Acknowledgements



The
Tenant acknowledges and agrees that the Landlord has no obligations whatsoever
to perform any work either on, at or near the Lands so as to get the Lands
"ready" for the Tenant's proposed use or development thereof or in
respect of "bringing" or "providing" municipal services to
the lot lines of the Lands, including any "road" works.





9.

OWNERSHIP
OF BUILDINGS AND FIXTURES



9.1

Property
of Tenant



All
buildings and improvements, including without limitation, the Project, situated
upon the Lands shall, at the commencement of the Term and during the Term, be
the property of the Tenant. Whenever the Tenant builds, repairs, reconstructs,
alters, restores, rehabilitates or demolishes any building or improvement as
permitted or required by this Lease, the salvage from such demolition and excess
material may be used or sold by the Tenant, as the case may be, without payment
to the Landlord.



9.2

Removal
of Equipment



At
any time when the Tenant is not in default of this Lease, and upon the
termination or expiry of this Lease or any part of this Lease and for a period
of 45 days after such termination or expiration, the Tenant may, subject to the
Landlord's right of distress, remove from the Lands (or the applicable portion
of the Lands to which this Lease is terminated) any building, improvement, or
equipment installed by the Tenant on the Lands or in buildings on the Lands
whether or not such building, improvement or equipment is fastened to the Lands,
buildings or to other improvements located upon the Lands, and regardless of the
manner in which any such building, improvement or equipment is so fastened,
provided however that under no circumstances shall any building, improvement or
equipment be removed prior to termination of the Term if such building,
improvement or equipment is fundamental to the operation of the Project, unless
the same is being replaced or unless the Landlord has given its prior written
consent. The Tenant shall fully repair any damage occasioned by the removal of
any such building,improvement or equipment and shall leave the
Lands and the buildings and improvements on the Lands, including without
limitation, the Project, in good, clean and neat condition.



10.

MAINTENANCE,
REPAIRS AND ALTERATIONS



10.1

Signs



The
Tenant shall be permitted to install such signage on the Lands as is reasonably
required for identification of the Lands and the Tenant's use thereof. The
design, construction and installation of any such signage shall be solely at the
Tenant's expense.  All such signage shall comply with all applicable laws.

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19







10.2

Surrender



The
Tenant shall at the expiration or sooner termination of the Term in respect of
all or any portion of the Lands, peaceably and quietly quit and surrender to the
Landlord the Lands or relevant portion of the Lands in the manner required by
the provisions of this Lease.



10.3

Repairs



The
Tenant shall throughout the Term, at its own cost and expense, and without any
cost or expense to the Landlord, keep and maintain all buildings, grounds,
sidewalks, roads, parking areas and other improvements on the Lands, and all
appurtenances, in good, neat and clean order and repair, to the best standards
for similar businesses as that of the Project, ordinary wear and tear excepted.
The Landlord shall not be obligated to make any repairs, improvements,
replacements or renewals of any kind whatsoever to the Lands or any buildings or
improvements on the Lands, including without limitation, the Project.



l0.4

Waste



The
Tenant shall not consent to nor permit waste upon the Lands other than to the
extent necessary for the development and operation of the Project.



10.5

Gravel
and Top Soil



[Intentionally
deleted]



10.6

Use,
Maintenance and Repair of Landlord's Equipment



(a)

The
Tenant shall:



(i)

ensure
that the Landlord's Equipment is operated by competent personnel and in
accordance with proper operating procedures specified by the manufacturer of the
Landlord's Equipment;



(ii)

operate
the Landlord's Equipment in accordance with all applicable laws;



(iii)

pay
all costs incurred as operating expenses of the Landlord's Equipment incurred
including, without limitation, all fuels, oil and other liquids consumed and all
repairs, maintenance, parts, supplies; and



(iv)

at
its sole expense maintain the Landlord's Equipment in good operating order,
repair and condition; but



(v)

at
such time as any unit of the Landlord's Equipment has reached its useful life,
whereby it is no longer cost effective to maintain the same, the Tenant shall
return the same to the Landlord (unless he otherwise instructs) and neither the
Tenant nor Landlord shall have an obligation to replace the same nor shall the
Basic Rent be abated by any amount on account of such return. If the Tenant
wishes to return a unit of the Landlord's equipment then the Tenant shall do
so in good working order to the level of the unit's functionality (unless it
is a write-off, which status the Landlord has reasonably agreed with) and the
Basic Rent shall not abate.



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20





(b)

The
Tenant shall not sublet any of the Landlord's Equipment in whole or in part
nor assign or transfer its interest in the lease of equipment without the prior
consent of the Landlord, not to be unreasonably with held.



(c)

The
Tenant shall not permit any lien or encumbrance to affect any of the Landlord's
Equipment and if any lien or encumbrance shall affect same (not the fault of the
Landlord), the tenant shall promptly cause the same to be removed and
discharged, absent contest in good faith.  In the event a third party
asserts any right as against the Landlord's Equipment (not the fault of the
Landlord), the Tenant agrees and hereby indemnifies the Landlord and shall save
the Landlord harmless of and from any costs, charges, expenses and damages,
including legal expenses on a solicitor-client basis, which the Landlord may
incur in recovering possession of such Landlord's Equipment.



(d)

The
Tenant agrees to indemnify and save harmless the Landlord, during the Term
hereof, of and from any damage or injury suffered by the Landlord or any third
party as a result of the operation, use or transport of the Landlord's
Equipment while in possession or control of the Tenant.



(e)

The
Tenant shall at its own expense maintain public liability and property and fire
and risk insurance (to full recovery) to protect the Landlord, the Landlord's
Equipment and the Tenant against claims or damage to property or persons to
reasonable industry standard.  The Landlord and Tenant shall be named as
loss payees for the Landlord's Equipment under all insurance policies.



10.7

Compliance
with Laws



The
Tenant shall comply with and abide by:



(a)

all
federal, provincial, municipal and other governmental statutes, ordinances, laws
and regulations affecting the Lands, the buildings and improvements on the Lands
and the Landlord's Equipment, including without limitation, the Project, and
any and all activity on, or condition of, the Lands; and



(b)

the
requirements of all policies of insurance (and the insurers under such policies
and the underwriters of such policies) from time to time in force with respect
to the Project, any other buildings or improvements or operations on, or any
condition, use or occupation of, the Lands or to any liability which might arise
therefrom.



10.8

Tenant's
Representations and Warranties



The
Tenant represents and warrants to the Landlord, and acknowledges that the
Landlord is relying on such representations and warranties in entering into this
Lease, that as of the date of this Lease:



(a)

except
as disclosed to the Landlord in writing, the Tenant is not, and has never been,
subject to any charge, conviction, notice of defect or non-compliance, work
order, pollution abatement order, remediation order or any other order or
proceeding under any Environmental Laws; and



(b)

except
as disclosed to and approved in writing by the Landlord, the Tenant's

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21





business
to be conducted on the Lands does not involve the sale, storage, manufacture,
disposal, handling, treatment, generation, use, transport, refinement,
processing, production, remediation, Release into the Environment of, or any
other dealing with, any Contaminants.



If
any of the representations and warranties contained in this Section are untrue
or incorrect in any material respect, the same shall constitute a breach of this
Lease by the Tenant and shall be subject to the provisions of Section 18.1 of
this Lease.



10.9

Condition
of Lands



The
Tenant acknowledges and agrees that the Landlord has made no representations or
warranties with respect to the environmental condition of the Lands and is
leasing the Lands to the Tenant under this Lease on an "as is, where
is" basis with respect to their environmental condition. Prior to taking
possession of the Lands under this Lease, the Tenant has performed such
investigations of the Lands as it considered appropriate and is satisfied as to
the environmental condition of the Lands.  The Landlord covenants and
agrees to forthwith, upon request, deliver to the Purchaser a copy of any
environmental reports (the "Environmental Reports") in respect of the
Premises which are in the possession and control of the Landlord.



10.10

Use
of Contaminants



The
Tenant shall not use or permit to be used on all or any part of the Lands for
the sale, storage, manufacture, disposal, handling, treatment, generation, use,
transport, refinement, processing, production, remediation, Release into the
Environment of, or any other dealing with, any Contaminants, without the prior
written consent of the Landlord, which consent may be unreasonably and
arbitrarily withheld. Without limiting the generality of the foregoing, the
Tenant shall in no event use, and does not plan or intend to use, the Lands to
dispose of, handle or treat any Contaminants in a manner that, in whole or in
part, would cause the Lands, or any adjacent property to become a contaminated
site under Environmental Laws.



10.11

Compliance
with Environmental Laws



The
Tenant shall promptly and strictly comply, and cause any person for whom it is
in law responsible to comply, with all Environmental Laws regarding the use and
occupancy of the Lands under or pursuant to this Lease, including without
limitation obtaining all required permits or other authorizations.



10.12
Evidence of Compliance



The
Tenant shall promptly provide to the Landlord a copy of any environmental site
investigation, assessment, audit or report relating to the Lands conducted by or
for the Tenant at any time before, during or after the Tenn. The Tenant shall,
at its own cost at the Landlord's request from time to time (including without
limitation prior to any assignment of this Lease), obtain from an independent
environmental consultant approved by the Landlord an environmental site
assessment of the Lands or an environmental audit of the Project and the
operations at the Lands, the scope of which shall be satisfactory to the
Landlord and shall include any additional investigations that the environmental
consultant may recommend. The Tenant hereby waives the requirement for the
Landlord to provide a site profile for the Lands under the Waste Management
Actor any regulations pursuant thereto. The Tenant shall, at the Landlord's
request from time to time, provide the Landlord with a certificate of a senior
officer

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22





of
the Tenant certifying that the Tenant is in compliance with all Environmental
Laws and that no adverse environmental occurrences have taken place at the
Project or on the Lands, other than as disclosed in writing to the Landlord.



10.13
Confidentiality of Environmental Reports



The
Tenant shall maintain all environmental site investigations, assessments, audits
and reports relating to the Project and the Lands in strict confidence and shall
not disclose their terms or existence to any third party (including without
limitation, any governmental authority) except as required by law, to the
Tenant's professional advisers and lenders on a need to know basis or with the
prior written consent of the Landlord, which consent may be unreasonably
withheld.



10.14
Records



The
Tenant shall maintain at the Project all environmental and operating documents
and records, including permits, licences, orders, approvals, certificates,
authorizations, registrations and other such records, relating to the Project
and the operations at the Lands, which may be reviewed by the Landlord at any
time during the Term on twenty-four (24) hours' prior written notice, except in
the case of an emergency, when no prior notice shall be required.



10.15
Access by Landlord



Without
relieving the Tenant of any of its obligations under this Lease, the Tenant
shall, at such reasonable times as the Landlord requires, permit the Landlord to
enter and inspect the Project, the Lands and the operations at the Lands, to
conduct tests and environmental investigations, to remove samples from the
Lands, to examine and make copies of any documents or records relating to the
Project and the Lands, to interview the Tenant's employees and to take such
steps as the Landlord deems necessary for the safety and preservation of the
Lands.



10.16
Notices



The
Tenant shall promptly notify the Landlord in writing of:



(a)

any
Release of a Contaminant or any other occurrence or condition at the Lands or
any adjacent property which could subject the Tenant, the Landlord or the Lands
to any fines, penalties, orders or proceedings under Environmental Laws;



(b)

any
charge, order, investigation or notice of violation or non-compliance issued
against the Tenant or relating to the Project or the operations at the Lands
under any Environmental Laws; and



(c)

any
notice, claim, action or other proceeding by any third party against the Tenant
or in respect of the Project or the Lands concerning the Release or alleged
Release of Contaminants at or from the Lands.



The
Tenant shall notify the appropriate regulatory authorities of any Release of any
Contaminants at or from the Project or the Lands in accordance with
Environmental Laws and failure by the Tenant to do so shall authorize, but not
obligate, the Landlord to notify the regulatory authorities. The Tenant
covenants and agrees to, at its sole cost and expense, use all

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23





best
efforts to ensure that the Landlord is not a party to or named on any charge
order, investigation or notice issued against the Tenant or relating to the
Project or the operations at the Lands by any appropriate authority under
Environmental Laws.



10.17
Removal of Contaminants



Prior
to the expiry or earlier termination of this Lease or at any time if requested
by the Landlord or required by any governmental authority pursuant to
Environmental Laws, the Tenant shall, promptly at its own cost and in accordance
with Environmental Laws, remove from the Lands any and all Contaminants, and
remediate any contamination of the Lands or any adjacent property resulting from
Contaminants, in either case brought onto, used at or Released from the Lands by
the Tenant or any person for whom it is in law responsible after the
Commencement Date. For greater certainty, the foregoing obligations of the
Tenant shall include, without limitation, the treatment of water (including
surface and groundwater) and the remediation by removal of any soils containing
Contaminants at levels exceeding the standards set as acceptable at the time of
remediation by the applicable governmental authority, being with respect to
soils, the standard applicable to property used for commercial purposes and with
respect to water, as determined by the governmental authority given the
character and use of water in the area of the Lands. Any soil so removed shall
be promptly replaced by soil free of Contaminants at concentrations at or better
than the standard described in the preceding sentence. The Tenant shall provide
to the Landlord full information with respect to any remedial work performed
pursuant to this Section and shall comply with the Landlord's requirements with
respect to such work. The Tenant shall use a qualified environmental consultant
approved by the Landlord to perform the remediation. The Tenant shall, at its
own cost, obtain such approvals and certificates from the B.C. Ministry of
Water, Land and Air Protection (or its successor Ministry) in respect of the
remediation as are required under Environmental Laws or required by the
Landlord, including without limitation a certificate of compliance evidencing
completion of the remediation satisfactory to the Ministry. The Tenant agrees
that if the Landlord reasonably determines that the Landlord, its property, its
reputation or the Lands is placed in any jeopardy by the requirement for any
such remedial work, the Landlord may, but shall be under no obligation to,
undertake itself such work or any part thereof at the cost of the Tenant.



10.18
Ownership of Contaminants



Notwithstanding
any rule of law to the contrary, any Contaminants or materials or goods
containing Contaminants brought onto, used at or Released from the Lands by the
Tenant or any person for whom it is in law responsible after the Commencement
Date or any top soil, earth of other material containing Contaminants removed
from the Lands by the Tenant or any person for whom it is in law responsible
after the Commencement Date shall be and remain the sole and exclusive property
and responsibility of the Tenant and shall not become the property of the
Landlord, notwithstanding the degree of their affixation to the Lands and
notwithstanding the expiry or earlier termination of this Lease. This Section
supersedes any other provision of this Lease to the contrary.



10.19
Indemnity



The
Tenant shall indemnify and save harmless the Landlord, its Affiliates and their
respective directors, officers, shareholders, employees, agents, successors and
assigns, from any and all liabilities, actions, damages, claims, remediation
cost recovery claims, losses, costs, orders,

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24





fines,
penalties and expenses whatsoever (including without limitation, the full amount
of all consulting and legal fees and expenses on a solicitor-client basis and
the costs of removal, treatment, storage and disposal of Contaminants and
remediation of the Lands and any adjacent property) which may be paid by,
incurred by or asserted against the Landlord, its Affiliates and their
respective directors, officers, shareholders, employees, agents, successors or
assigns, during or after the Term, arising from or in connection with any breach
of or non-compliance with the provisions of Sections 10.7 to 10.19 by the Tenant
or arising from or in connection with:



(a)

any
legal or administrative action, proceeding, investigation, demand, claim or
notice of any third party, including without limitation any governmental
authority, against anyone or more of them pursuant to or under Environmental
Laws; or



(b)

any
Release or alleged Release of any Contaminants at or from the Lands into the
Environment,



related
to or as a result of the use and occupation of the Lands by the Tenant or those
for whom it is in law responsible or any act or omission of the Tenant or any
person for whom it is in law responsible.



10.20
Survival of Tenant's Obligations



The
obligations of the Tenant under Sections 10.7 to 10.18 (including, without
limitation, the Tenant's indemnity, its obligation to remove and remediate
Contaminants and its covenant of confidentiality) shall survive the expiry or
earlier termination of this Lease.



10.21
Builders' and Other Liens



Subject
to Section 10.21 , the Tenant shall keep all of the Lands, the Project and all
buildings and other improvements on the Lands free and clear of any and all
builders' and other liens and claims of every kind whatsoever, and the Tenant
shall promptly and fully pay and discharge any and all claims upon which any
such lien or claim is or could be based to the extent such claims are proper,
and shall save and hold harmless the Landlord and all of the Lands, the Project
and all buildings and improvements on the Lands from any and all such liens and
claims of liens and suits and other proceedings pertaining thereto.



10.22
Contest of Liens



If
the Tenant bona fide intends to contest any lien or claim of the nature
described in Section 10.20, the Tenant shall notify the Landlord of such
intention within 10 business days after the Tenant learns of such lien or claim
and, if the Landlord so requires, shall promptly provide security in favour of
either the Landlord or the claimant for the payment of such lien or claim which
is reasonable and satisfactory to the Landlord. The Landlord shall be entitled
to take, and to require the Tenant to take or cause to be taken, all steps
available to cause any lien or claim of lien filed against the title to the
Lands or any portion of the Lands to be discharged provided that such steps do
not materially prejudice or unreasonably interfere with the Tenant's position in
the dispute. If the Tenant complies with the provisions of this Section 10.21 it
shall not be in default of this Lease and the Landlord shall not satisfy,
discharge or pay, or cause the Tenant to satisfy, discharge or pay such lien or
claim until the same becomes legally due and payable and is required to be paid
by statute or by order of a court or other competent tribunal, in which case the

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25





Tenant
shall satisfy and discharge, or cause to be satisfied or discharged, such lien
or claim and all penalties, interest and costs in connection with such lien or
claim. The satisfaction and discharge of any such lien or claim shall be made
before execution is had upon any judgment rendered on such lien or claim and
before commencement of any proceeding on account of such lien or claim
subsequent to judgment to sell any part of the Lands or any interest in or any
improvement on any part of the Lands. In the event of any such contest,
execution or proceeding, the Tenant shall protect and indemnify the Landlord
against all resulting loss, cost, expense and damage.



10.23
Notices



It
is agreed by the Tenant that the Landlord shall not be responsible for claims of
builders liens filed by persons claiming through the Tenant or persons for whom
the Tenant is in law responsible. The Tenant acknowledges and agrees that any
and all improvements to be made to the Lands as herein contemplated are made at
the Tenant's request solely for the benefit of the Tenant and those for whom the
Tenant is in law responsible. The Landlord hereby advises the Tenant that the
Landlord may decide to file in the Land Title Office at any time, a notice of
interest pursuant to s. 3 of the Builders Lien Act,S.B.C. 1997, c. 45,
that the Landlord's interest in the Lands is not bound by a lien claimed under
such Act in respect of an improvement to the Lands unless that improvement is
undertaken at the express request of the Landlord.



11.

INSURANCE
AND INDEMNITY



11.1

Tenant's
Insurance



(a)

Without
expense to the Landlord, the Tenant shall obtain and keep in force or cause to
be obtained and kept in force throughout the Term and any period when the Tenant
is in possession of the Lands or any part thereof, the following Insurance
coverage:



(i)

all
risks property insurance (including flood and earthquake if required by the
Landlord, acting reasonably) for the Full Insurable Value in amounts insuring
all buildings, improvements and equipment that are built or placed on the Lands,
and the basis of the indemnity under such insurance shall be the replacement
cost of the buildings, improvements, equipment and other property insured;



(ii)

broad
form boiler and machinery insurance on such terms and conditions as the
Landlord, acting reasonably, may require;



(iii)

business
interruption insurance on such terms and conditions as the Landlord, acting
reasonably, may require; and



(iv)

any
other form of insurance and with such limits, in such form, in amounts and for
risks as the Landlord, acting reasonably, may require from time to time,
including without limitation, insurance in respect of any environmental
contamination risk.



(b)

Without
expense to the Landlord, the Tenant shall obtain and keep in force

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26





throughout
the Term and any period when the Tenant is in possession of the Lands or any
part thereof, comprehensive general liability insurance fully insuring against
liability of the Tenant with respect to the Lands or arising out of the
maintenance, use or occupation of the Lands, non-owned automobile liability
insurance and such other types of insurance as the Landlord, acting reasonably,
may require with coverage including the activities and operations conducted by
the Tenant, and any other Person on the Lands and by the Tenant and any Person
performing work on behalf of the Tenant and those for whom the Tenant is in law
responsible. Those policies shall:



(i)

be
written on a comprehensive basis in such amounts and on such terms as the
Landlord may reasonably require;



(ii)

contain
a severability of interests clause and cross-liability clause; and



(iii)

name
the Landlord as an additional insured.



(c)

The
policies specified under subsections 11.1(a) and 11.1(b) shall name the Landlord
as an additional insured and shall contain a waiver of any subrogation rights
which the Tenant's insurers may have against the Landlord and those for whom the
Landlord is in law responsible, whether the damage is caused by its act,
omission or negligence.



(d)

All
policies of insurance required under subsections 11.1(a) and 11.1(b) shall:



(i)

be
issued by such reputable and duly qualified insurers and be in a form, as are
approved by the Landlord, such approval not to be unreasonably withheld;



(ii)

be
non-contributing with and shall apply only as primary and not excess to any
other insurance available to the Landlord;



(iii)

not
be invalidated as respects the interests of the Landlord by reason of any breach
or violation of warranties, representations, declarations or conditions
contained in the policies; and



(iv)

contain
an undertaking by the insurers to notify the Landlord and any mortgagee of the
Landlord's interest in the Lands in writing not less than thirty (30) business
days before any material change, cancellation or termination.



(e)

Upon
the issue of and upon every renewal, each policy or a certified duplicate of
each policy of insurance or other satisfactory evidence of adequate insurance
shall be delivered to the Landlord. Upon request by the Landlord, the Tenant
shall deliver, proof of payment of premiums for insurance required to be
effected pursuant to this Article 11. No review or approval of any insurance
certificate or insurance policy by the Landlord derogates from or diminishes the
Landlord's rights under this Lease.



(f)

Any
of the policies of insurance referred to in subsections 11.1 (a) and 11.1 (b)



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27



may,
with the approval of the Landlord, which approval shall not be unreasonably
withheld, provide that the amount payable in the event of any loss shall be
reduced by a deductible amount designated by the Tenant and approved by the
Landlord, such approval not to be unreasonably withheld. The Tenant shall be a
co-insurer to the extent of the amount deducted from the insurance moneys paid
in the event of any loss, and the said amount shall, for the purposes of this
Lease, be included as part of the insurance moneys payable and paid.



(g)

If
any of the policies of insurance referred to in subsections 11.1 (a) and 11.1
(b) contain any co-insurance clauses, the Tenant shall maintain at all times a
sufficient amount of insurance to meet the requirements of such co-insurance
clause so as to prevent the Landlord or the Tenant from becoming a co-insurer
under the terms of such policy or policies and to permit full recovery from the
insurer in the event of loss.



11.2

Full
Insurable Value



For
the purposes of Section 11.1, "Full Insurable Value" of any building,
improvement, equipment or other property shall be determined by the Tenant at
the time the insurance is initially taken out and thereafter at least once every
12 months, and the Tenant shall promptly notify the Landlord in writing of each
such determination, provided that the Landlord may at any time (but not more
frequently than once in any 12 month period), by written notice to the Tenant,
require the full insurable value of any building, improvement, equipment or
other property to be redetermined by an independent qualified valuator
designated by the insurer's agent. Such redetermination shall be made promptly
and the results of such redetermination communicated in writing to the Tenant
and the Landlord.



11.3

Cancellation
of Insurance



The
Tenant shall comply promptly with the requirements of all insurers, pertaining
to the Lands and the Project. The Tenant shall not do or permit anything to be
done that results in the cancellation or threatened cancellation or the
reduction of coverage or threatened reduction of coverage under any insurance
policy on the Lands, or any part of the Lands, or on the Project, or any part of
the Project.



11.4

Waiver



Without
limiting the generality of Section 11.6 , the Tenant waives as against the
Landlord, each claim and demand of every nature whatsoever for damage, loss or
injury to the buildings, improvements and equipment upon the Lands, including
without limitation, the Project, and to the property of the Tenant in, upon or
about the Lands and the Project, which shall be caused by or result from fire or
other perils, events or happenings which ought to have been covered by insurance
pursuant to Section 11.1 whether or not such claim or demand is covered by
insurance.



11.5

Payment
of Insurance Proceeds



The
policies of insurance provided for in Sections 11.1(a)(i), (ii), (iii) and (iv)
shall name the Landlord as an additional insured and shall be payable to the
Tenant, and any loss adjustment shall require the written consent of any party
with an interest in such policy (unless the

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28





disposition
of such proceeds is otherwise agreed by them). The Landlord agrees that its
share of any loss adjustment shall be made available and be paid to the Tenant
if any buildings or improvements on the Lands in respect of which the loss
adjustment is made is restored or rehabilitated pursuant to Section 12.1 .



11.6

Limit
of Liability for Landlord



The
Landlord shall not at any time or to any extent whatsoever be liable,
responsible or in any way accountable for any loss, injury, death or damage to
any person or property which may be suffered or incurred by reason of this
Lease, the exercise of any right under this Lease, or the condition, use or
occupation of the Lands or any portion of the Lands, or any buildings or
improvements on the Lands, including without limitation, the Project, or
contents of any such buildings or improvements, whether suffered or incurred by
the Tenant, or any other person or property on or off the Lands and whether or
not the same is caused by or in any way results from or arises out of any act or
omission of the Tenant, or any other person or any other matter or thing, except
to the extent that the same arises by reason of the negligent act or negligent
omission of the Landlord and is not covered by insurance which the Tenant has
effected or is required to effect pursuant to this Lease, and the Tenant:

(a)

covenants
to indemnify and save harmless the Landlord against and from; and



(b)

waives
all claims, counterclaims, and rights of set-off against the Landlord in respect
of,



each
claim, action, proceeding and liability, whatsoever on account or in respect of
any such loss, injury, death or damage.



11.7

Tenant
to Defend



If
any claim, action or proceeding described in Section 11.6 is made or commenced
against the Landlord then at the request of the Landlord the Tenant shall at the
Tenant's expense vigorously

resist
and defend the same with counsel satisfactory to the Landlord. The obligation of
indemnity in Section 11.6 shall apply to all costs and fees which the Landlord
may incur in connection with each such claim, action and proceeding.



11.8

Indemnification



Except
as otherwise expressly limited by any other provision of this Lease, the Tenant
shall indemnify and save harmless the Landlord and those for whom the Landlord
is in law responsible from and against any and all liabilities, damages
(including loss of all Rent payable by the Tenant), costs, expenses, causes of
actions, claims, suits and judgments which the Landlord may incur or suffer or
be put to by reason of or in connection with or arising from:



(a)

any
breach, violation or non-performance by the Tenant of any obligation contained
in this Lease to be observed or performed by the Tenant;



(b)

any
damage to the property of the Tenant or any person claiming through or under the
Tenant or damage to any other property howsoever occasioned by the condition,
use, occupation, repair or maintenance of the Lands or any portion;



(c)

any
injury to any person, including death resulting at any time therefrom,



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29



occurring
in or about the Lands; or



(d)

any
wrongful act or neglect of the Tenant, or those for whom the Tenant is at law
responsible, in and about the Project and the Lands,



including
without limitation, the full amount of all legal fees, costs, charges and
expenses and the costs of removal, treatment, storage and disposal of any
Environmental Contaminants and remediation of the Lands which may be paid,
incurred or asserted against the Landlord for, with respect to, or as a direct
or indirect result of, the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission or release from, the Lands or into or
upon any other land, the atmosphere or any water works, body of water or wetland
of any Environmental Contaminants. Should the Landlord, without fault on its
part, be made a part to any litigation commenced by or against the Tenant, then
the Tenant shall protect, indemnify and hold the Landlord harmless and shall
promptly pay all costs, expenses and legal fees, on a solicitor-client basis,
incurred or paid by the Landlord in connection with such litigation as
additional rent upon demand. The Tenant shall also promptly pay as additional
rent upon demand all costs, expenses and legal fees that may be incurred or paid
by the Landlord in enforcing the terms, covenants and conditions in this Lease,
unless a Court shall decide otherwise.



11.9

Workers'
Compensation Coverage



(a)

At
all times during the Term, the Tenant shall at its own expense procure and
carry, or cause to be procured and carried and paid for, full workers'
compensation coverage in respect of all workmen, employees, servants, and others
engaged in any work on the Lands, non-payment of which would create a lien on
the Lands or the Project.



(b)

The
Tenant shall immediately notify the Landlord of any dispute involving third
parties which may arise in connection with obtaining and maintaining the
workers' compensation coverage required under this Lease if such dispute results
in the requisite coverage not being in place, and the Tenant shall take all
reasonable steps to ensure the resolution of such dispute forthwith. At all
times the Tenant shall indemnify and save harmless the Landlord, its servants
and agents from and against all damages, costs, claims, suits, judgments and
demands which the Landlord may incur or suffer as a result of any default by the
Tenant of its obligations under this Section 11.9 to ensure that the said full
workers' compensation coverage is maintained. The Tenant shall further ensure
that no amount of the said workers' compensation coverage is left unpaid so as
to create a lien on the Lands or the Project. If the workers' compensation
coverage required by this Section 11.9 is not in place within 60 days of the
date of the notice to the Landlord hereinbefore mentioned, the Landlord shall be
entitled to have recourse to the remedies of the Landlord specified in this
Lease or available at law or equity.



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30







12.

DAMAGE,
DESTRUCTION AND EXPROPRIATION



12.1

Rent
not to Abate



The
partial destruction or damage or complete destruction by fire or other casualty
of the Project shall not terminate this Lease or entitle the Tenant to surrender
possession of the Lands or the Project or to demand any abatement or reduction
of the Rent or other charges payable under this Lease.



12.2

Tenant's
Obligations when the Project is Damaged or Partially Destroyed



The
Tenant covenants and agrees with the Landlord that in the event of damage to or
partial destruction of the Project, the Tenant, subject to the regulations and
requirements of any

applicable
governmental authority having jurisdiction, shall repair, replace, or restore
any part of the Project so destroyed.



12.3

Tenant's
Obligations when the Project is Completely or Substantially Destroyed



In
the event of complete or substantially complete destruction of the Project such
that the Project cannot be replaced or repaired with reasonable diligence within
240 days from the happening such event of damage or destruction, the Tenant may
either:



(a)

subject
to the Landlord's right of termination as set forth in Section 12.8, and subject
to the regulations and requirements of any applicable governmental authority
having jurisdiction, repair, replace, or restore any part of the Project so
destroyed; or



(b)

within
sixty (60) days of such event of damage or destruction, terminate this Lease by
giving the Landlord notice in writing of such termination, in which event this

Lease
and the Term hereby demised shall cease and be at an end as at the date of such
damage or destruction and all Rent shall be apportioned to the date of notice of
termination.



12.4

Replacement,
Repair or Reconstruction to be Carried Out in Compliance with Article 8



Any
replacement, repair, or reconstruction of the Project or any part thereof
pursuant to the provisions of Sections 12.2 or 12.3 shall be made or done in
compliance with the provisions of Article 8.



12.5

Expropriation



If
the Lands or any portion of the Lands are expropriated or condemned at any time
during the

Term
the Landlord shall have no liability to the Tenant for the Landlord's inability
to fulfil any of its covenants in this Lease, but in each such event the
Landlord and the Tenant may seek compensation separately from the expropriating
authority but shall co-operate in seeking such compensation, and if a joint
award of compensation is made, it shall be divided as agreed between the
Landlord and the Tenant and failing agreement within 90 days of the award, as
determined by arbitration pursuant to Section 21.1.

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31







12.6

Payment
of Insurance Proceeds



Forthwith
after the occurrence of any damage or destruction, the Landlord will appoint a
Trustee and will deliver notice of such appointment to the Tenant. The Landlord
and the Tenant will

instruct
the insurer that all insurance proceeds are to be paid to the Trustee forthwith
on behalf of the Landlord and the Tenant on such terms as the Trustee may
reasonably require including any requirement that the Tenant indemnify and save
harmless the Trustee from and against all actions, claims, demands, loss,
damage, liability, costs, and expense the Trustee may suffer or incur or be put
to arising from the carrying out of its duties as set out in this Lease. The
Landlord and the Tenant will irrevocably authorize and instruct the Trustee to
pay to the Tenant from time to time out of the insurance proceeds such sums as
the Tenant may require for the repair or rebuilding of the Project.



12.7

Insufficient
Proceeds



The
Tenant's obligation to repair or rebuild will not be affected by insufficient
insurance proceeds and the Tenant will ensure that it has sufficient funds over
and above the insurance proceeds to so repair or rebuild.



12.8

Landlord's
Right of Termination when Project is Completely or Substantially Destroyed



In
the event of complete or substantially complete destruction of the Project such
that the Project cannot be replaced or repaired with reasonable diligence within
320 days from the happening such event of damage or destruction, the Landlord
may within sixty (60) days of such

event
of damage or destruction, terminate this Lease by giving the Tenant notice in
writing of such termination, in which event this Lease and the Term hereby
demised shall cease and be at an end as at the date of such damage or
destruction and all Rent shall be apportioned to the date of the notice of
termination.



13.

ASSIGNMENT
AND SUBLETTING



13.1

Consent
Required



The
Tenant may assign this Lease in whole or in part, sublet all or any part of the
lease of the Lands or the Project, mortgage, charge or otherwise encumber
(including without limitation, by way of floating charge debenture) this Lease
or the Project, of the Lands or any part thereof, or permit the occupation of,
or part with or share possession, of all or any part of the Lease of the Lands
or the Project, by any Person (all of the foregoing being hereinafter
collectively referred to as a "Transfer"), with the prior written
consent of the Landlord in each instance, which consent will not be unreasonably
withheld or delayed. The consent by the Landlord to any Transfer, if granted,
shall not constitute a waiver of the necessity for such consent to any
subsequent Transfer. This prohibition against a Transfer without consent is to
be construed so as to include a prohibition against any Transfer by operation of
law and no Transfer shall take place by reason of a failure by the Landlord to
give notice to the Tenant within thirty (30) business days as required by
Section 13.2.  Unless there is an assignment in full by the Tenant of all
the Lease hereby created and such assignment is approved by the Landlord with
sufficient surety, the Tenant shall not be released from its obligations hereof
for any other sublet, assignment or other disposition.



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32



If
there is a permitted Transfer of this entire Lease, the Landlord may collect
Rent from the assignee, subtenant or occupant (all of the foregoing being
hereinafter collectively referred to as the "Transferee"), and apply
the net amount collected to the Rent required to be paid pursuant to this Lease.
Any document or consent evidencing such Transfer of this Lease if permitted or
consented to by the Landlord shall be prepared by the Landlord or its
solicitors, and all legal costs with respect thereto shall be paid by the Tenant
to the Landlord forthwith upon demand. Any consent by the Landlord shall be
subject to the Tenant causing any such Transferee to promptly execute an
agreement directly with the Landlord agreeing to be bound by all of the terms,
covenants and conditions contained in this Lease as if such Transferee had
originally executed this Lease as Tenant. Unless approved by the Landlord, no
assignment nor sublet under this Article shall relieve the Tenant of its
obligations under this Lease.



13.2

Landlord's
Consent



If
the Tenant intends to effect a Transfer of all or any part of the Lands, the
Project or this Lease, in whole or in part, or any estate or interest hereunder,
then and so often as such event shall occur, the Tenant shall give prior written
notice to the Landlord of such intent, specifying therein the proposed
Transferee and providing such information with respect thereto, including
without limitation, information concerning the principals thereof and such
credit, financial or business information relating to the proposed Transferee as
the Landlord requires, and the Landlord shall, within thirty (30) business days
thereafter, notify the Tenant in writing that it consents or does not consent in
accordance with the provisions and qualifications in this Article 13, to the
Transfer.



13.3

Consent
to Transfer



(a)

In
considering whether to grant consent to a Transfer or a Share Transfer (as
herein defined), in addition to any other statutory or common law conditions or
tests in respect of the withholding of consent, the Landlord may refuse to give
its consent if:



(i)

the
proposed transferee or shareholder:



(A)

does
not have a history of successful business operation in the business conducted
from the Lands;

(B)

does
not have a good credit rating and a substantial net worth; or



(C)

is
not able to finance the acquisition of its interest in the Project and the Lands
or its interest in the shares of the Tenant and the

Tenant's
operations at the Lands without a material risk of defaulting under this Lease
and in a manner that will enable it or the Tenant to carry on business
successfully from the Lands throughout the Term;



(ii)

there
is a history of defaults under commercial leases by the proposed transferee or
shareholder or by companies or partnerships that the proposed transferee or
shareholder was a principal shareholder of or partner in at the time of the
defaults;



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33





(iii)

the
length of time since the previous Transfer or Share Transfer is less than
twenty-four (24) months; or





(iv)

the
Landlord does not receive sufficient information from the Tenant or the proposed
transferee or shareholder to enable it to make a determination concerning the
matters set out above;



and
the Landlord shall not be liable for any claims, actions, damages, liabilities
or expenses of the Tenant or any proposed transferee or shareholder arising out
of the Landlord unreasonably withholding its consent to such Transfer or Share
Transfer and the Tenant's only recourse shall be to bring an application for a
declaration that the Landlord shall grant its consent to such Transfer or Share
Transfer.



(b)

The
Landlord shall have a period of thirty (30) business days following receipt of
sufficient information to make a determination concerning the matters set forth
in Section 11.3(a) to notify the Tenant in writing that the Landlord either
gives or refuses to give its consent to the proposed Transfer or Share Transfer.



13.4

Corporate
Ownership



(a)

If
the Tenant is a corporation or the Landlord has consented to a Transfer of this
Lease to a corporation, then any transfer or issue by sale, assignment, bequest,
inheritance, operation of law or other disposition, or by subscription, from
time to time of all or any part of the corporate shares of the Tenant or of any
parent or subsidiary corporation of the Tenant or any corporation which is an
associate or affiliate of the Tenant (as those terms are defined pursuant to the
Canada Business Corporations Actor the British Columbia Business
Corporations Act,whichever is applicable and amendments thereto), which
results in any change in the present effective voting control of the Tenant by
the Person holding such voting control at the date of execution of this Lease
(or at the date a Transfer of this Lease to a corporation is permitted) (all of
the foregoing being hereinafter referred to as a "Share Transfer") and
which does not receive the prior written consent of the Landlord in each
instance (which consent shall not be unreasonably withheld or delayed) entitles
the Landlord to terminate this Lease upon five (5) business days' written notice
to the Tenant.



(b)

The
Tenant shall make available to the Landlord, or to its lawful representatives,
all corporate books and records of the Tenant for inspection at all reasonable
times, in order to ascertain whether there has been any change in control of the
Tenant corporation.



(c)

Notwithstanding
the foregoing, this Section 13.4 shall not apply to:



(i)

a
Share Transfer that occurs as a result of the death of the transferor; or



(ii)

if
and so long as:



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34





(A)

the
Tenant is a public corporation whose shares are traded and listed on any
recognized stock exchange in Canada or the United States; or



(B)

the
Tenant is a private corporation but is controlled by a public corporation
defined as aforesaid.



13.5

Mortgaging
by Tenant



The
Tenant may mortgage its leasehold interest under this Lease and its interest in
the Lands and the Project with the written consent of the Landlord, consent not
to be unreasonably with held, except that the Tenant may mortgage (whether by
assignment or sublease) its leasehold interest under this Lease and its interest
in the Lands and the Project without the consent of the Landlord for the purpose
of financing the Tenant.



13.6

Tenant
to Comply with all of its Obligations



The
Tenant shall observe and perform all of its obligations incurred in respect of
assignments, subleases, agreements for lease, and Mortgages of its leasehold
interest in the Lands and the Project, and shall not suffer or allow any such
obligations to be in default; and if any such default

shall
occur, the Landlord may, but shall not be obliged to, rectify such default for
the account of the Tenant, and any amount paid by the Landlord in so doing,
together with all costs and expenses of the Landlord, shall be reimbursed to the
Landlord by the Tenant on demand plus an administration fee of 15% together with
interest at the rate set forth in Section 18.8.



13.7

Assignment
by the Landlord



If
the Landlord sells, leases or otherwise disposes of the Lands or any part
thereof, or if the Landlord assigns this Lease or any interest of the Landlord
hereunder, and to the extent that the purchaser, tenant under such lease or
assignee of this Lease has assumed the covenants and obligations of the Landlord
hereunder, including, without limitation, the options to purchase and right of
first refusal herein contained, the Landlord shall, thereupon without further
agreement, be released and relieved of all liability with respect to such
covenants and obligations.



The
Landlord shall cause such above referenced purchaser or transferee, as the case
may be, to enter into an agreement with the Tenant under which such purchaser or
transferee covenants that so long as it retains an interest in the Lands, it
shall perform the obligations of the Landlord hereunder and be bound by all of
the provisions of this Lease, including, without limitation, the right of first
refusal herein contained and this provision as to sales and transfers which
shall apply to each and every subsequent sale or transfer of the Lands.



The
Landlord and the Tenant have executed these presents upon the understanding that
a short form of the Lease, including without limitation the right of first
refusal herein contained, may be registered on the title to the Lands in
priority to all mortgages, financial liens, charges or encumbrances which may
affect the rights and interest of the Tenant under the Lease, and
notwithstanding anything else contained herein, the Tenant will not be required
to subordinate or give priority to any chargeholder if the Tenant determines
that such charge will affect the rights and interest of the Tenant under the
Lease.



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35





13.8

Extinguishment
of Subleases



Upon
the termination, forfeiture or acceptance of a surrender of this Lease as to all
or any portion of the Lands prior to the expiry of the Term, all subleases and
other interests created by the Tenant in respect of all or such portion of the
Lands and the rights of all persons claiming thereunder shall be extinguished.



14.

LANDLORD'S
SPECIAL RIGHTS, ACCESS AND RESERVATIONS



14.1

Easements
and Statutory Rights-of-way



The
Landlord expressly reserves unto itself, and the demise of the Lands is subject
to the easements and statutory rights-of-way described in Schedule B attached to
this Lease for utilities and facilities and systems on or under the Lands and to
any future easements and rights-of-way which may be registered against title to
the Lands, provided that such future easements and rights-of-way shall not
materially adversely affect the Tenant's use and enjoyment of the Lands. The
full description of such existing easements and statutory rights-of-way and a
plan indicating their location shall be provided by the Landlord to the Tenant.
If during the Term the Landlord



reasonably
requires the expansion of any existing easements or statutory rights-of-way, and
such does not unreasonably restrict the Tenant's use of the Lands, the Tenant
shall grant such addition to such easement or statutory right-of-way or pay to
the Landlord the cost of constructing the utilities, facilities and systems
through an alternate route. To maintain and replace the works within the
easements and statutory rights-of-way the Landlord may as a licence only enter
the Lands alongside the easements and statutory rights-of-way as may be
reasonably necessary.



14.2

Reservations



The
Landlord expressly reserves all oil, gas, hydrocarbons and other minerals of
every type whatsoever in and under the Lands and the right with the written
consent of the Tenant to enter by its servants, agents and licensees upon the
Lands to conduct the activities of exploring for, mining, extracting and
removing the same without payment therefor to the Tenant. Prior to such entry
the Landlord shall give to the Tenant written notice describing in reasonable
detail the activities which the Landlord proposes to undertake and the Tenant
shall not unreasonably withhold its consent to such entry or activities. No
activity conducted pursuant to this Section shall interfere with the Tenant's
use of the Lands or the Project, or the stability of any building or improvement
constructed on the Lands. No operations for such exploration, mining,
extraction, or removal on or from the Lands shall be conducted from the surface
of the Lands but only at a depth beneath the surface as will ensure no
interference with the use of the Lands as an Project or the stability of any
building or improvement constructed on the Lands.





14.3

Inspection
of Lands



The
Landlord, it's servants, agents, contractors and representatives shall be
entitled at all reasonable times to go and enter upon the Lands and the Project
and each building and other improvement on the Lands for any of the following
purposes:



(a)

inspecting
the same, including the environmental condition of the Lands;

---

36





(b)

inspecting
the performance by the Tenant of the terms, covenants, agreements and conditions
of this Lease;



(c)

posting
and keeping posted thereon notices as required or permitted by any law;



(d)

during
the last 2 years of the Term, exhibiting the Lands to prospective tenants and
purchasers of the Lands or any portion of the Lands; or



(e)

any
other reasonable purpose.



14.4

Tenant
may Accompany



The
Tenant shall have the right to accompany any person conducting an inspection or
entering upon the Lands or the Project pursuant to subsections 14.3(a), (b) or
(e).



15.

STATUS
STATEMENT, ATTORNMENT AND SUBORDINATION



15.1

Status
Statement



Within
ten (10) business days after the Landlord requests it from the Tenant, the
Tenant shall deliver to the Landlord, on a form supplied by the Landlord, a
status statement or certificate to any proposed mortgagee, purchaser, or other
disposition of part or all of the Lands and to the Landlord, stating:



(a)

that
this Lease is in full force and effect, except only for any modifications that
are set out in the statement or certificate;



(b)

the
commencement and expiry dates of the Lease;



(c)

the
date to which Rent has been paid under this Lease and the amount of any prepaid
Rent or any deposits held by the Landlord;



(d)

that
there is not any uncured default on the part of the Landlord or if there is a
default, the certificate shall state the particulars;



(e)

whether
there are any set-offs, defence or counter-claim against enforcement of the
obligations to be performed by the Tenant under this Lease;



(f)

with
reasonable particularity, details concerning the Tenant's and any indemnifier's
financial standing and corporate organizations; and



(g)

any
other information or statement that a proposed mortagee, purchaser, or dispose
may reasonably require.



15.2

Subordination
and Attornment



The
Landlord shall not mortgage, charge, or otherwise encumber the Lands, without
the prior

---

37





consent
of the Tenant, which consent shall not be withheld in any case where no right or
interestof the Tenant under this Lease could be materially jeopardized
as a result of giving such consent. Upon the written request of the Tenant, the
Landlord shall use its reasonable efforts to obtain at the Tenant's expense an
agreement from any permanent financing mortgagee of the Lands to the effect that
upon the execution and delivery by the Tenant to the Landlord of the Lease, and
notwithstanding any default of the Landlord under any such mortgage, charge or
encumbrance, if the Tenant shall pay the Rent and comply with all of the terms
and conditions contained in the Lease and attorn to the permanent financing
mortgagee, the Tenant shall be permitted to remain in quiet possession of the
Lands without interruption or disturbance from the permanent financing
mortgagee; or, at the option of the permanent financing mortgagee, shall be
entitled to obtain a new lease for the unexpired Term of the Lease, on the same
terms and conditions as contained in the Lease. The Tenant shall:



(i)

promptly
execute such documents as may be required by the Landlord to give effect to the
foregoing; and



(ii)

indemnify
the Landlord from and against all costs including legal costs incurred by the
Landlord in connection with obtaining and preparing any such documents.





16.

QUIET
ENJOYMENT



16.1

Quiet
Enjoyment



If
the Tenant without default pays the Rent and other amounts at the times and in
the manner provided in this Lease and keeps and performs all the terms,
covenants, agreements and conditions of this Lease on the Tenant's part to be
kept and performed, the Tenant may possess and enjoy the Lands for the Term
without disturbance or interruption by the Landlord or by any person claiming
by, through or under the Landlord, subject to the terms and conditions of this
Lease.



16.2

Exception



If
during the Term the Tenant is disturbed in its quiet enjoyment of the Lands or
any part of the Lands, it shall not be entitled to call upon the Landlord to
defend or warrant it against such disturbance unless the disturbance is caused
by the negligent act or negligent omission of the Landlord, its agents or
employees, the default of the Landlord under this Lease, or by proceedings
involving a defect in title of the Landlord to the Lands or any portion of the
Lands (collectively the "Disturbance Exceptions"). In the event of
such disturbance the Tenant shall, until evicted from the Lands, abide by and
fulfil each of its obligations under this Lease in the same manner as if such
disturbance had not taken place but shall be entitled to exercise any right of
set-off it may have against the Landlord in respect of a disturbance caused by
any of the Disturbance Exceptions. If the Tenant is evicted the Landlord shall
indemnify the Tenant for each loss, cost and liability it suffers as a result of
such eviction but only if such eviction is caused by any of the Disturbance
Exceptions.  Proceedings related to or arising out of any expropriation of
the Lands or any portion of the Lands, shall be deemed not to involve lack of
title of the Landlord thereto.

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38







17.

LANDLORD'S
AND TENANT'S ADDITIONAL OBLIGATIONS



17.1

Landlord's
Obligations



The
Landlord shall, upon written request, advise the Tenant of the location of all
easements and rights of ways on the Lands.





17.2

Tenant's
Obligations



(a)

The
Tenant shall be required to prepare working drawings of any proposed work to be
done or improvements to be constructed on the Lands and the Tenant shall obtain
the written consent of the Landlord to any such work or improvements prior to
the commencement of any such work or construction of any such improvements.



(b)

The
Tenant shall be responsible for securing any and all necessary building permits
and approvals required by any applicable regulatory authorities for all work to
be performed or improvements to be constructed by the Tenant on the Lands.





18.

DEFAULT,
TERMINATION AND EXPIRY



18.1

Default,
Termination and Expiry



If
the Tenant:



(a)

fails
or neglects to make any payment due to the Landlord or any other Person under
this Lease within 5 business days after the Landlord gives to the Tenant written
notice that the payment is overdue; or



(b)

fails
or neglects to cure any default of any of the other terms, covenants, agreements
or conditions in this Lease on its part to be observed, kept or performed,
within 15 business days after the Landlord gives to the Tenant written notice of
such default,



then
in each such event the Landlord may, by written notice to the Tenant, forthwith
terminate this Lease as to all or any portion of the Lands without entry thereon
and all rights of the Tenant thereto shall then cease.





18.2

Adjustment
of Notice Period



Notwithstanding
the 15 day period set out in subsection 18.1 (b):



(a)

whenever
the health or safety of any person or property, whether on or off the Lands, is
in jeopardy or the Landlord's or Tenant's interest in the Lands or any portion
of the Lands is in jeopardy or made liable to any lien or charge which the
Tenant is required to discharge, the Landlord may in the notice of default given
pursuant to subsection 18.1(b) require that the default be cured within any
period not less than 5 business days but shorter than 15 business days, and in
such case

---

39





subsection
18 .1 (b) shall be deemed to refer to such shorter period; and



(b)

if
a default in respect of which notice is given pursuant to subsection 18.1(b)
cannot with due diligence be cured within 15 business days or such shorter
period as the Landlord may have specified in the notice (the onus of proving the
same being upon the Tenant), and the Tenant:



(i)

within
5 business days after receipt of such notice, notifies the Landlord of such
inability and of the schedule for curing the default which the Tenant proposes
to follow, including an estimated completion date;



(ii)

immediately
commences and diligently carries out to completion all acts necessary to cure
such default; and



(iii)

keeps
the Landlord informed of each delay anticipated or experienced by the Tenant
which is likely to further delay the cure of such default,



then
the Landlord shall refrain from exercising its rights under Section 18.1 in
respect of such default.



18.3

Deemed
Breach



If:



(a)

any
proceedings under the Bankruptcy and Insolvency Actof Canada, or other
statute of similar purport are commenced against the Tenant, and such
proceedings are not dismissed before an adjudication of bankruptcy, the
appointment of a trustee, or the confirmation of a composition, arrangement or
plan of reorganization;



(b)

the
Tenant is adjudged insolvent or makes an assignment for the benefit of its
creditors or otherwise takes the benefit of any statute for the benefit of
insolvent debtors;



(c)

a
writ of attachment or execution is levied on the leasehold estate hereby created
or any property of the Tenant upon the Lands and is not released or satisfied
within 30 days thereafter;



(d)

a
receiver, trustee, sequestrator or liquidator is appointed in any proceeding or
action with authority to take possession or control of the leasehold interest of
the Tenant under this Lease, any portion of the Lands or the business conducted
thereon by the Tenant, and such appointee is not discharged within a period of
30

days
after his appointment;

(e)

the
Tenant abandons the Lands;



(f)

any
sale, transfer, assignment, sublease or parting with possession which is
contrary to Article 13 occurs or purports to occur and is not remedied within 30
days after its occurrence; or

---

40





(g)

any
resolution is passed or other step taken for the winding-up, liquidation or
other termination of the corporate existence of the Tenant and such winding-up,
liquidation or termination occurs;



each
such event shall be deemed to constitute a breach of this Lease by the Tenant
and the Landlord may by written notice, but without entry or other action of the
Landlord and subject to the provisions of Part 19, terminate this Lease
immediately upon the sending of such notice and all rights of the Tenant under
this Lease and all rights of any persons claiming under the Tenant, shall
thereupon cease and all Rent then due plus Rent for the next following three
months shall forthwith become due and be payable to the Landlord.



18.4

Re-Entry



Upon
the termination or forfeiture of this Lease or if a surrender of this Lease is
accepted, the Tenant at the request of the Landlord, immediately shall do any or
all of the following acts:



(a)

execute
and deliver to the Landlord a deed or other document in form satisfactory to the
Landlord conveying and surrendering to the Landlord all right, title and
interest of the Tenant to and in the Lands;



(b)

deliver
vacant possession of the Lands to the Landlord in neat and clean condition with
the buildings, improvements and equipment not required to be demolished and
removed therefrom, in the same condition in which they are required to be
maintained under; and



(c)

subject
to Section 18.6:



(i)

demolish
such buildings and improvements thereon and remove such material and equipment
therefrom as may be specified by the Landlord; and



(ii)

restore
such portion as nearly as possible to the condition which existed prior to
construction of any buildings or improvements thereon,



and
the Landlord without further notice to the Tenant shall have the right
immediately to enter such portion of the Lands and the buildings and
improvements thereon, to take possession thereof with or without process of law,
to remove all personal property therefrom and all persons occupying such portion
of the Lands, to use all necessary force therefor, and in all respects to take
the actual, full and exclusive possession of such portion of the Lands as of the
Landlord's original estate, without incurring any liability to the Tenant or to
any Person occupying or using such portion of the Lands for any damage caused or
sustained by reason of such termination, forfeiture, surrender, entry, removal,
use or taking, and without limiting Section 11.6, the Tenant covenants to
indemnify and save harmless the Landlord against and from all costs, loss and
damage whatsoever arising from or occasioned by any of the foregoing.



18.5

Liability
and Indemnity to Continue



Notwithstanding
any termination, forfeiture or surrender of this Lease as to all or a portion of
the Lands, the provisions of Article 11 shall continue in effect and all rights
of the Landlord



---

41



with
respect to any event occurring or circumstance existing up to the date of
delivery up of possession of such portion as required under this Lease, shall be
fully preserved.



18.6

Prospective
Damages



Notwithstanding
termination or forfeiture of this Lease as to all or any portion of the Lands
the Tenant shall be liable to the Landlord for the amount of Rent and other
charges and interest on such Rent payable by the Tenant for the balance of the
Term as if such termination or forfeiture had not occurred, less the actual
amount of Rent and payments on account of such charges and interest hereafter
received by the Landlord in respect of that portion and applicable to the
balance of the Term following deduction by the Landlord of costs of re-entry,
making such portion leasable, and renting the same.



18.7

Waiver
by Tenant



[Intentionally
Deleted]



18.8

Interest



If
the Tenant defaults in making any payment due to the Landlord under this Lease,
the Tenant shall pay to the Landlord from the date the payment was due until the
date payment is actually made to the Landlord, interest on the amount due at the
rate which is the aggregate of 5% per annum plus the Prime Rate, calculated
monthly, not in advance. It is agreed that if the Prime Rate changes, and so
often as the same occurs at any time the rate of interest charged under this
Lease shall change on the same day and in the same amount as the Prime Rate
changed. Acceptance of any late payment without interest shall not constitute a
waiver of the Landlord's right to require interest on the amount due.



18.9

All
Amounts Constitute Rent



All
amounts other than Rent payable by the Tenant to the Landlord under this Lease
shall be recoverable in the ways permitted for the recovery of Rent in arrears
as though such amounts constituted Rent in arrears.



18.10

Right
to Distrain



In
the event of default in payment of any amount payable to the Landlord under this
Lease, the Landlord may seize and sell the Tenant's property on the Lands and
apply the proceeds of such sale first to the costs of the seizure and sale, then
to interest payable on unpaid amounts, and then to payment of the unpaid
amounts. If the Tenant vacates the Lands leaving any Rent or other amount
payable under this Lease unpaid, the Landlord, in addition to any remedy
otherwise provided by law, may seize and sell the property of the Tenant removed
from the Lands at any place to which the Tenant or any other person may have
removed such property in the same manner as if such property had remained upon
the Lands.



18.11
Landlord May Cure



If
the Tenant makes a default under this Lease (other than failing to make a
payment to the Landlord), then notwithstanding that the Landlord may have given
the Tenant notice of such default or that the Tenant may be purporting to cure
such default, the Landlord may, but shall not be required to, cure the default
and may enter upon the Lands for such purpose. The

---

42





Landlord
shall not be liable or in any way responsible for any loss, expense,
inconvenience, annoyance or damage resulting to the Tenant or any other person
on account thereof and without limiting Section 11.6, the Tenant shall indemnify
and save harmless the Landlord against and from all cost, loss and damage
whatsoever arising or occasioned thereby and shall repay to the Landlord upon
demand the entire cost and expense thereof, including compensation for the
efforts of the servants and agents of the Landlord in respect thereof No action
taken by the Landlord pursuant to this Section shall be, or be construed to be,
a waiver of any default by the Tenant, or as a waiver of any other rights of the
Landlord under this Lease.



18.12

Injunctive
Relief



In
addition to any other remedies provided in this Lease the Landlord shall be
entitled to restrain by injunction any violation or attempted or threatened
violation by the Tenant of any of the Tenant's covenants or obligations
contained in this Lease. In particular, but without limiting the generality of
the foregoing, the Tenant acknowledges that the covenants and obligations of the
Tenant are designed for the benefit of the Landlord, to facilitate the
establishment of the on the Lands and to achieve the objectives of both the
Landlord and the Tenant. If the Tenant shall be in breach of any covenant or
obligation, including without limiting the generality of the foregoing, the
restrictions upon use of the Lands, or shall fail to observe or perform any of
the same then without prejudice to any other right or remedy which the Landlord
may have under the terms of this Lease and at law, the Landlord shall have the
right to bring an action in any Court of competent jurisdiction against the
Tenant for an injunction or order directing the Tenant to remedy such default or
obligation and for damages.



18.13

Remedies
Cumulative



The
remedies of the Landlord set out in this Lease are in addition to those
permitted or conferred by law and the Landlord may exercise all of its rights
and adopt all such remedies separately or cumulatively as it sees fit. No such
remedy shall be deemed to be exclusive of any other remedy or to preclude
exercise of any right.



18.14

Tenant
May Not Terminate



[Intentionally
Deleted]



19.

MORTAGING



19.1

Rights
of Mortgagee



The
Mortgagee under any Mortage referred to in Section 13.5 may enforce such
Mortgage and acquire title to the Tenant's leasehold estate in any lawful way
and, by its representative or by a receiver, as the case may be, take possession
of and manage the Lands, and upon foreclosure of such mortgage may sell or
assign the leasehold estate; and the purchaser or assignee of the leasehold
estate shall be liable to perform the obligations imposed upon the Tenant by
this Lease only so long as such purchaser or assignee has ownership or
possession of such leasehold estate.

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43







19.2

Notice
to and Remedies of Mortagee



(a)

No
re-entry, termination, acceptance or surrender, disclaimer, or forfeiture of
this Lease by the Landlord or by a receiver, interim receiver, receiver-manager,
liquidator, custodian, or trustee shall be valid against the Mortagee who has
executed and delivered to the Landlord an agreement of mortgage unless the
Landlord shall first have given the Mortgagee notice of the default entitling
the Landlord to re-enter, terminate, or forfeit this Lease, specifying the
nature of the default and stating the Landlord's intention to take such
proceedings and requiring the Mortgagee:



(i)

to
cure the default specified in the notice within a period of 60 days from the
date of receipt of that notice by the Mortagee; or



(ii)

if
the default is other than the failure to pay Rent or any others sums required to
be paid by the Tenant pursuant to any provisions of this Lease and if the
default cannot reasonable be cured within such 60 day period, then to
immediately commence to cure the same and to diligently prosecute to conclusion
all acts necessary to cure the default, and the Landlord hereby grants the
Mortgagee access to the Lands and the Project for that purpose.



(b)

If
the default is cured within the period specified, the Mortgagee shall be
entitled to become tenant of the Lands and the Project for the balance of the
Term remaining at the date of the notice of default, providing that the Mortagee
attorns as tenant to the Landlord and undertakes to be bound by and to perform
the covenants and agreements of the Tenant under this Lease for so long as it
remains tenant and has not assigned the balance of the Term. If there is more
than one Mortgage and more than one Mortgagee wishes to cure the default
specified in the notice referred to in subsection 19.2(a), then the Landlord
agrees to permit the curing of the default or contingency specified in such
notice and the assumption of the balance of the Term by that Mortgagee whose
Mortgage ranks higher in priority; but if any Mortgagee whose Mortgage ranks
higher in priority; but if any Mortgagee has commence a foreclosure action, the
provisions of subsection 19.2(c) shall apply.



(c)

(i)

If
the Mortgagee commences foreclosure proceedings against the Tenant, whether or
not the Tenant is in default of the performance of its covenants and agreements
with the Landlord under this Lease at the time such foreclosure proceedings are
commenced, the Landlord shall not re-enter, terminate, or forfeit this Lease
after the commencement of foreclosure proceedings on the ground of any default
or contingency entitling the Landlord to re-enter, terminate, or forfeit this
Lease if the Mortgagee:

(A)

first
gives notice to the Landlord of the foreclosure proceedings;

(B)

is
actively prosecuting the foreclosure proceedings without undue delay;

(C)

cures
the default within a period of 60 days from the date of receipt of notice from
the

---

44



Landlord
specifying the nature of the default, or if the



default
is other than the failure to pay Rent or any other sums required to be paid by
the Tenant pursuant to any provisions of this Lease and if such default cannot
reasonably be cured within such 60 day period, immediately commences to cure the
same and to diligently prosecute to conclusion all acts necessary to cure the
default; and



(D)

performs
and observes all of the Tenant's covenants and agreements under this Lease and
without undue delay diligently prosecutes to a conclusion the foreclosure
proceedings commenced by the Mortgagee.



(ii)

If
the Mortgagee acquires title to the Tenant's interest in the Lands and the
Project pursuant to the foreclosure proceedings, the Mortgagee shall thereupon
become subrogated to the rights of the Tenant under this Lease, provided it
attorns to the Landlord as tenant and undertakes to be bound by and to perform
the covenants and agreements of the Tenant under this

Lease
for so long as it remains tenant and has not assigned the balance of the Term.
If there is more than one Mortgage and more than one Mortgagee commences
foreclosure proceedings the right to cure any default granted by this subsection
19.2( c) to a foreclosing Mortgagee shall be granted to the Mortgagee whose
Mortgage ranks higher in priority.



(d)

If
this Lease shall be subject to termination or forfeiture pursuant to Article 18
by reason of the bankruptcy or insolvency of the Tenant and the Mortgagee has
filed with the Landlord notice of Mortgage in favour of the Mortgagee and
specified an address for notice, the Landlord shall give to the Mortgagee notice
of the bankruptcy or insolvency of the Tenant entitling the Landlord to
terminate or forfeit this Lease, and stating the Landlord's intention to take
such proceedings, and requiring the Mortgagee to cure any other default of the
Tenant; and the Tenant's other default shall be deemed to have been sufficiently
cured if the Mortgagee:



(i)

commences
foreclosure proceedings against the Tenant as more particularly set out in
subsection 19.2(c);



(ii)

takes
possession and control of the Lands and the Project, or causes a receiver to be
appointed, under the terms of the Mortgage or by a court of competent
jurisdiction, who takes possession and control of the Lands and the Project, and
the Landlord hereby grants the Mortgagee or such receiver access to the Lands
and the Project for that purpose;



(iii)

cures
every default within a period of 60 days from the date of receipt by the
Mortgagee of the notice from the Landlord of the bankruptcy or insolvency of the
Tenant, or if such default or defaults are other than the failure to pay Rent or
any other sums required to be paid by the Tenant pursuant to any provisions of
this Lease and if such default or defaults cannot reasonably be cured within
such 60 day period, immediately commences to cure the same and to diligently
prosecute to conclusion all acts necessary to cure the default or defaults; and



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45



(iv)

attorns
as tenant to the Landlord and undertakes to be bound by and to perform the
covenants and agreements of the Tenant under this Lease for so long as it
remains tenant and has not assigned the balance of the Tenn.



If
there is more than one Mortgagee, the right to take possession and control to
cure any default and to assume the Lease shall be granted to the Mortgagee who
wants to do so and whose Mortgage ranks higher in priority.



(e)

Any
re-entry termination, or forfeiture of this Lease made in accordance with the
provisions of this Lease as against the Tenant shall be valid and effectual
against the Tenant even though made subject to the rights of any Mortgagee to
cure any default of the Tenant and to continue as tenant under this Lease.





(f)

No
entry upon the Lands or the Project by the Mortgagee pursuant to this Section
19.2 for the purpose of curing any default or defaults of the Tenant shall
release or impair the continuing obligations of the Tenant.



19.3

Mortgage
Subject to Landlord's Rights Under Lease



Subject
to the provisions of Section 19.2, every Mortgage shall be made expressly
subject to the rights of the Landlord under this Lease.



19.4

Protection
of Mortgagee



The
Landlord and the Tenant agree that the obligations of the Landlord under Section
19.2 are subject to the Mortgagee at such time entering into an agreement
whereby the Mortgagee covenants and agrees that if it acquires title to the
Tenant's interest in this Lease, but only for so long as it holds such title, it
shall perform and observe the covenants and agreements required of the Tenant to
be performed and observed, if not performed or observed by the Tenant, whether
or not the Landlord has taken any steps to enforce performance or observance of
any of the covenants and agreements in this Lease to be performed or observed by
the Tenant.



20.

MISCELLANEOUS



20.1

Registration



The
Tenant shall, at the Tenant's sole cost and expense, be entitled to register a
short form of this Lease, including without limitation, the right of first
refusal herein contained in the applicable Land Title Office, in a form
satisfactory to both the Landlord and the Tenant, acting reasonably.



20.2

Waiver



None
of the terms, covenants, agreements or conditions of this Lease shall be or be
deemed or construed to be waived by the Landlord except by the written consent
of the Landlord and that if the Landlord fails or neglects for any reason to
take advantage of any of the terms in this Lease permitting the termination or
forfeiture of this Lease in whole or in part, or any other remedy or action by
the Landlord, any such failure or neglect of the Landlord shall not be, nor be
deemed nor construed to be, a waiver of any right subsequently arising to
terminate or forfeit this Lease, to seek a remedy or take such action, or as a
waiver of the right to require observance and performance of any of the
obligations of the Tenant under this Lease.



---

46



20.3

Legal
Contests



If
any action or court proceeding is brought to recover any Rent or other amount
payable under this Lease, or in respect of any of the terms, covenants,
agreements or conditions of this Lease, or for the recovery of possession of all
or any portion of the Lands, the Landlord shall be entitled to recover from the
Tenant all costs reasonably incurred in connection therewith including legal
fees on a solicitor-client basis.



20.4

Labour
Disputes



The
Landlord and the Tenant shall co-operate with each other in minimizing the
effect of any labour dispute which either party may have upon the operations of
the other party. The Tenant covenants that in the event of a labour dispute
involving the Tenant, the Tenant shall take all appropriate steps to protect the
Landlord from interference with its operations used by the dispute and without
limiting the generality of the foregoing to eliminate picketing which may cause
such interference. Such steps shall be taken at the expense of the Tenant and
the Landlord shall have the right to retain counsel at its own expense to
recommend to the Tenant appropriate action to protect the Landlord. The Tenant
shall give due consideration to the recommendation of counsel for the Landlord.



20.5

Notices



All
notices, demands, requests and other writing which may or are required to be
given, made or sent pursuant to this Lease shall be in writing and shall be
sufficiently given if delivered personally to the party or an officer of the
party for whom it is intended, or mailed prepaid and registered to the
respective addresses first hereinbefore specified in this Lease, or such other
addresses as the parties may from time to time advise by notice in writing. The
date of receipt of any such notice, demand, request or other writing shall be
deemed to be the date of delivery of such notice, demand, request or other
writing if delivered, or if mailed as aforesaid it shall be deemed to be on the
third day next following the date of such mailing (excluding Saturdays, Sundays
and statutory holidays in British Columbia), unless there is between the date of
mailing and actual receipt a mail strike or other labour dispute which adversely
affects mail service in British Columbia, in which case the party giving the
notice, demand, request or other writing shall deliver such notice, demand,
request or other writing by an alternative method, and the time of giving such
notice, demand, request or other writing shall be the time of actual receipt of
such notice, demand, request or other writing. No other form of delivery or
giving of written notice, demand, request or other writing is precluded by this
Section 20.5.



20.6

Further
Acts



Each
of the parties agrees to do all acts and sign such documents as may be requested
by any of the other parties in order to give effect to the terms and intentions
expressed in this Lease.



20.7

Successors
and Assigns



This
Lease shall enure to the benefit of be binding upon and apply to the respective
successors and permitted assigns of the Landlord and the Tenant.



20.8

Overholding



If
the Tenant remains in possession of the Lands or any portion of the Lands after
the Term with the consent of the Landlord but without executing a new lease,
there shall be no tacit renewal of

---

47





this
Lease despite any statutory provision or legal presumption to the contrary, and
the Tenant shall occupy the Lands as a tenant from month to month and the Tenant
shall comply with the same terms, covenants and conditions as are in this Lease
as far as they apply to a monthly tenancy including payment of Rent.



20.9

Documentation
and Administration Fees



The
Tenant shall pay the appropriate documentation and administration fees and
reasonable legal fees and disbursements of the Landlord for, but not limited to,
the preparation of the Lease, modifications to the Lease, registration of the
Lease, consents required for financing, subleasing and/or assigning the Lease,
and such other similar matters requested by the Tenant.



21.

ARBITRATION



21.1

Arbitration



Any
dispute required by this Lease to be determined by arbitration shall be
determined by a single arbitrator if the Landlord and Tenant can agree on a
single arbitrator within 7 business days of receipt of notice to arbitrate (the
"Arbitration Notice") given by either the Landlord or the Tenant to
the other and if the Landlord and the Tenant cannot agree on a single arbitrator
within such period such dispute shall be determined by the decision of the
majority of three arbitrators, one to be appointed by each of the parties within
14 business days of the receipt of the Arbitration Notice and the third
arbitrator to be appointed by such two arbitrators within 28 business days of
receipt of the Arbitration Notice. The third arbitrator shall be the chairman of
the arbitration. The arbitration shall be initiated and conducted in accordance
with the provisions of the Commercial Arbitration Actof British
Columbia, as amended from time to time. The award of the arbitration shall be in
writing, shall be binding upon the parties and may contain an order as to the
costs of the arbitration. If there is no order as to the costs of the
arbitration, each party shall bear its own costs and one-half of the common
costs of the arbitration including the costs of the third arbitrator.



22.

ADDITIONAL
PROVISIONS



22.1

Renewal



Provided
the Tenant has duly and regularly performed its obligations under this Lease,
the Tenant shall have the option to renew this Lease for three (3) additional
terms of ten (10) years (each a "Renewal Term") on the same terms and
conditions as are contained in this Lease, except for the amount of annual Basic
Rent payable and except for this right of renewal which shall diminish on each
Renewal Term by one.



The
Renewal Term shall commence on the day immediately succeeding the expiry of the
Term. The Tenant may only exercise such option to renew this Lease by giving
notice in writing to the Landlord at least six (6) months but no greater than
nine (9) months prior to the date on which the Renewal Term would commence.



If
the Tenant gives such notice to the Landlord and if the Tenant has performed its
obligations under this Lease as aforesaid up to the last day on which notice
would be validly given hereunder to exercise the option for a Renewal Term, this
Lease shall automatically be extended for the Renewal Term and the annual Basic
Rent shall be 10% of the market value of the Lands,

---

48





to
their then use and zoning, determined immediately prior to the Renewal Term and
excluding the value of all improvements effected by the Tenant.



Any
dispute between the parties as to annual Basic Rent payable during the Renewal
Term shall be settled in the following manner. The parties shall endeavour to
agree on the then current Market Value of the Lands not later than ninety (90)
business days preceding the date on which the new annual Basic Rent will apply.
If the Landlord and the Tenant are unable to agree on the Market Value of the
Lands, the matter shall be determined by arbitration pursuant to Section 21.1.
The expense of the arbitration shall be borne equally by the Landlord and the
Tenant.



22.2

Option
to Purchase



[intentionally
 deleted];



22.3

Option
to Purchase the Lands



[Intentionally
deleted].



22.4

Right
of First Refusal



So
long as the Tenant is not in default under this Lease, the Landlord covenants
and agrees that during the Term and any Renewal Term it will not sell, agree to
sell, transfer or in any manner dispose of or agree to dispose of the Lands or
any part thereof except pursuant to a bona fidearm's length offer (the
"Third Party Offer") which is unconditional and for cash consideration
only and in accordance with the following procedure:



(a)

if
the Landlord receives a Third Party Offer which it is prepared to accept, the
Landlord shall send a notice of its intention to accept such Third Party Offer
together with a duplicate copy of such Third Party Offer to the Tenant;



(b)

the
notice and other documents sent to the Tenant pursuant to sub-paragraph (a)
above shall constitute an offer (the "Offer") to the Tenant to sell to
the Tenant the Lands on exactly the same terms and conditions as set forth in
the Third Party Offer except for the purchase price in the Offer to the Tenant
which shall be 15% greater than the Purchase Price in the Third Party Offer;



(c)

the
Offer shall be open for acceptance by the Tenant for a period of 15 days from
the date the Offer is made to the Tenant;



(d)

if
the Tenant accepts the Offer in accordance with sub-paragraph (b) above within
the time limit specified in sub-paragraph (c) above then there shall be a
binding agreement of purchase and sale for the Lands between the Tenant and the
Landlord on the terms and conditions of the Offer pursuant to sub-paragraph (b)
above;



(e)

if
the Tenant does not accept the Offer within the time limit specified in
sub-paragraph (c) above then the Landlord may accept the Third Party Offer and
may complete the sale and purchase contemplated therein and the Tenant shall
provide the Landlord with the necessary release of the right of first refusal
contained in this Section 22.4; and



---

49



(f)

if
the sale and purchase pursuant to the agreement constituted by the acceptance of
the Third Party Offer shall not complete on the intended closing date then the
right of first refusal shall continue to be binding between the parties hereto.



IN
WITNESS WHEREOF the parties have executed this Lease as of the day and year
first above written.





CRYSTAL
GRAPHITE CORPORATION





Per:



/s/
Gordon Sales



Authorized
Signatory





530526
B.C. LTD.





Per:





/s/
Brian Wear



Authorized
Signatory







---

50









SCHEDULE
A



LEGAL
DESCRIPTIONS OF THE LAND



Lot
1 District Lot 48, Cariboo District, Plan 26589 except plan PGP 35843

And

Lot,
District Lot 222, Cariboo District, Plan 5054













---

51











SCHEDULE
B



EASEMENTS
AND STATUTORY RIGHTS-OF-WAY



AND
LANDLORD'S EQUIPMENT LIST





Easements
and Rights of Way - Nil



Equipment
- to be subsequently provided by mutually agreed list







End of Exhibit 10.6





---

EXHIBIT 10.7







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Loan Agreement entered into between the Company and Alexander Cox, dated May 7, 2004, for an amount of $4,000,000



BETWEEN
:



CRYSTAL
GRAPHITE CORPORATION(Inc. No. 200650), with its registered office at P.O.
Box 12077, 2550 - 555 West Hastings Street, Vancouver, British Columbia V6B
4N5.



(the
"Borrower")

AND:



ALEXANDERW. COX, Businessman, of 428 - 755 Burrard Street, Vancouver, B.C. V6Z 1X6



(the
"Lender") WITNESSES THAT:



WHEREAS
the Borrower has requested and the Lender has, agreed to make the Loan on the
terms and conditions of this Agreement and to be secured by the Security and
Supporting Documents;



In
consideration of the premises and other good and valuable consideration, the
Borrower covenants and agrees with or warrants and represents to the Lender as
follows:



ARTICLEIINTERPRETATION



1.1
Definitions: The following terms used in this Agreement shall have the following
meanings and all singular definitions maybe used in the plural to mean more than
one of the term defined and vice-versa:



"Advance"
means the advance of funds on the Loan, by the Lender to or for the benefit of
the Borrower;



"Application
Fee" means the sum of Twenty Thousand ($20,000.00) Dollars as described in
Paragraph 2.4;



"Associate"
means any "associate" or "affiliate" or "insider of a
corporation" of any of the Borrowing Group including controlled and
subsidiary companies, all as determined or defined from time to time in the
Company Act of British Columbia;

LOAN
AGREEMENT

This
AGREEMENT is dated for reference May 7, 2004.

---

Page
2

"Borrower's
Liabilities" means the amount of all Advances, the unpaid portions, if any,
of the Application Fee, the Commitment and Financing Fee, Expenses and all costs
and damages suffered or incurred by the Lender arising from a breach or default
under any of the Security and Supporting Documents, all interest from time to
time accruing thereon, and all liabilities and indebtedness now or hereafter
owing, arising, due or payable from the Borrower to the Lender whether under
this Agreement or the other Security and Supporting Documents;

"Commitment
and Funding Fee" means the fee described in Paragraph 2.10.
"Commitment Letter" means the letter dated March 3, 2004 and executed
by both parties;



"Debenture"
means a demand debenture and all supplementals thereto in the principal amount
of Four Million ($4,000,000.00) Dollars bearing interest at the Interest Rate
executed by the Borrower and delivered to the Lender providing for a first
registered, fixed and specific mortgage, pledge and charge on the Land and a
general first floating charge on all other assets (both present and future) of
the Borrower described therein, subject only to Permitted Encumbrances;



"Draw
Request" means the form of request for an Advance as may be specified by
the Lender from time to time including the certificates attached thereto and all
necessary supporting documents, declarations and information;



"Event
of Default" means any of the following:



(a)

a
default or a breach of covenant or agreement by the Borrower any of the Security
and Supporting Documents or under any contract the benefits of which has been
absolutely or conditionally assigned to the Lender; or



(b)

if
any warranty or representation by the Borrower is or becomes untrue or
incorrect, under any of the Security and Supporting Documents; or



(c)

if
at any time there is or has been any material discrepancy or inaccuracy in any
written information, statements or representations heretofore or hereafter made
or furnished to the Lender by or on behalf of the Borrower concerning the Land,
the Security and Supporting Documents or the Borrowers assets, financial
condition, voting control, management or responsibilities; or



(d)

if
at any time there is or has been any material adverse change in any of the
assets, financial condition, voting control, management or responsibilities of
the Borrower;



"Expenses"
means all costs and expenses incurred by the Lender relating to the Loan
including, but without limitation, the legal costs of the Lender on a
solicitor-client basis including legal costs related to syndication, the
Lender's insurance consultant and all other out-of-pocket costs and expenses
incurred in the approval and making of the Loan and the preparation, execution,
delivery , registration and discharge of the Security and Supporting

---

Page
3





Documents
(including the cost of delivering copies of any documents required by law to be
given to the Borrower or any other party;

"Insurance
Policies" means all policies of hazard and liability insurance, for full
insurable value with first loss payable to the Lender and required to be
delivered to the Lender pursuant to the terms of the Debenture;

"Interest
Rate" means the rate of 15% per annum, compounded monthly on the
outstanding balance hereunder;

"Interest
Reserve" means moneys in the amount of not less than $600,000.00 to be
deposited by the Lender and maintained by the Borrower pursuant to Article 3
together with interest earned thereon from time to time;

"IR
Account" means an account maintained by the Lender for the Interest Reserve
in accordance with Article 3.

"Land"
means the mineral tenures and land described in Schedule "A" and such
additional mineral tenures and lands as may be charged by the Debenture or any
extension thereof;

"Loan"
means an amount of Four Million ($4,000,000.00) Dollars being from the Lender to
the Borrower;

"Loan
Advance" means the advance of the Loan funds to the Borrower from the
Lender; "Loan Expiry Date" means the date twelve (12) months after the
Loan Advance;

"Mortgage
of Lease" means the mortgage to be granted on the same date as this
Debenture to be secured against the Borrower's leasehold interest in the lands
set out in Schedule "B";

"Permitted
Encumbrances" means easements, rights of way, restrictive covenants and
similar charges on the Land and defined or described as such in the Debenture or
as approved by the Lender and their solicitors in writing and attached hereto as
Schedule "B";

"PPSA
Financing Statements" means financing statements under the British Columbia
Personal Property Security Act made for a period of three (3) years;

"Security
and Supporting Documents" includes:

this
Agreement and all documents supplemental hereto; the Debenture;

the
Mortgage of Lease;

all
Insurance Policies;

---

Page
4

the
PPSA Financing Statements;



the
Guarantee of Canada Pumice Corporation;



and
such other security and supporting documents as may be required by the Lender.



1.2

Currency:
All references to money amounts herein are, unless specifically otherwise
stated, references to Canadian currency payable in Canada.



1.3
Incorporation of Preambles, Recitals and Schedules: The Preambles and Recitals
set forth herein are a part of this Agreement and the Security and Supporting
Documents and Schedules hereto are incorporated by reference and made a part of
this Agreement.



1.4
Bona Fides: Any reference in this Agreement to a sale, lease or contract to
which the Borrower is a party shall be interpreted to mean that it is bona fide
arms-length unless otherwise specifically stated.



ARTICLE2THE LOAN, INTEREST AND PAYMENT THEREOF

2.1

Draw
Requests: The Borrower shall make a Draw Request for the Loan Advance
forthwith on being entitled to do so.



2.2
Agreement to Lend: Subject to compliance by the Borrower with the terms and
conditions of this Agreement and until the Loan Expiry Date, the Lender agrees
to make the Loan Advance, following receipt of a fully and accurately completed
Draw Request.

2.3
Method of Making the Loan Advance: The Lender may, at his election, make the
Loan Advance either with or without a Draw Request, directly, through his legal
counsel or any third party, to the Borrower.

2.4
Application Fee: The total Application Fee for the Loan shall be Twenty Thousand
($20,000.00) Dollars which shall be deemed to have been fully earned by the
Lender upon acceptance of the Commitment Letter by the Borrower. The Application
Fee is consideration to the Lender for their consideration of the application
for the Loan and shall not be refundable under any circumstances.

2.5
Commitment and Funding Fee: The total Commitment and Funding Fee for the Loan
shall be One Million Five Hundred Thousand fully paid and non-assessable shares
of the Borrower to be delivered to the Lender concurrently with the funding of
the Loan. The Commitment and Funding Fee is consideration to the Lender for
their agreement to make the Loan and shall not be refundable under any
circumstances. The parties agree that even if no Advance is made or if the full
amount of the Loan is not advanced, the Lender is absolutely entitled to the
Commitment and Funding Fee as partial compensation for the risk to the Lender of
delivering this Agreement, making any Advance on the Loan and as consideration
for the value to the Borrower of this Agreement and the time and effort spent
and expense incurred by the Lender and its employees and agents in the review
and study of the

---

Page
5

documents
pertaining to the transactions relating to the Loan, review of appraisals,
credit reports and financial statements, physical inspection of the Lands, and
loss of opportunity to make other loans. It is agreed for the purpose of this
loan and for the purpose of calculating the cost of borrowing that these shares
have a value of 60 cents per share.



2.6
Interest: The Borrower shall pay interest on Borrower's Liabilities at the
Interest Rate calculated and payable at the same time, in the same manner and
subject to all the same covenants, terms and conditions and as determined and
adjusted in the Debenture.



2.7

Repayment
of Borrower's Liabilities: The Borrower shall:



(a)

repay
the entire balance outstanding on the Loan on the Loan Expiry Date; The Lender
agrees not to make demand pursuant to the Debenture prior to the Loan Expiry
Date provided that no event of default under the Debenture or hereunder has
occurred;



(b)

pay
all other portions of the Borrower's Liabilities on demand without notice other
than demand.



2.8

The
Borrower shall pay all accrued and unpaid interest on the first day of the
month.



2.9

The
Borrower's Liabilities may be prepaid, in whole or in part, prior to the Loan
Expiry Date, by paying the Lender a bonus of three months interest on the amount
prepaid.



2.10
At any time during the period between March 1, 2005 and April 30, 2005, the
Borrower may elect to extend the term of the loan for a further twelve (12)
months from the Loan Expiry Date if:



(a)

the
Loan is in good standing;



(b)

the
Borrower is reasonably pursuing its business plan as the same may be amended by
the board of directors from time to time; and



(c)

all
payments under the Loan have been made when due.



2.11
Security for Borrower's Liabilities: All Borrower's Liabilities shall be deemed
to be secured by all the Security and Supporting Documents as of the date hereof
notwithstanding the date Borrower's Liabilities may be advanced or incurred.



2.12
Realization Proceedings: The Lender may commence realization proceedings, either
judicial or extra judicial, under or in respect of the whole or any portion of
the Security and Supporting Documents, immediately and without notice other than
demand for immediate payment if an Event of Default has occurred.

---

Page
6

ARTICLE3INTEREST RESERVE

3.1

The
Lender shall establish the Interest Reserve by depositing the sum of
$600,000.00 to the IR Account from the proceeds of the Loan Advance.



3.2
The Interest Reserve, including interest thereon, shall be invested in the name
of the Lender for the account of the Borrower in the IR Account. The Lender will
apply funds from the IR Account towards servicing the monthly payments of
Interest of section 2.6 and 2.8 under the Loan. In the event of default in
payment or performance as required under the Loan Agreement, the Lender shall
have the right to reduce the Deposit by the amount due to the Lender at any time
in its sole discretion if it deems fit. The Lender, in the event of a default
under the Loan Agreement may at its option apply the full balance held pursuant
to this Agreement to the Loan Agreement account. Provided, that in the event the
Lender applies the full amount of the deposit to the balance owing pursuant to
the Loan Agreement, the application of these funds shall not remedy the default
under the Loan Agreement and the Lender may exercise all its remedies under the
Loan Agreement.



3.3
Pledge of Interest Reserve: The Interest Reserve and IR Account are hereby
pledged by the Borrower to the Lender as collateral security for the payment of
Borrower's Liabilities. So long as any Event of Default is outstanding the
Lender may, in their discretion and in addition to the payment of interest due
to the Lender, use all or any portion of the Interest Reserve to pay all or some
of other Borrower's Liabilities then due.



3.4

Repayment
of Interest Reserve: After repayment in full of Borrower's Liabilities,
any remaining balance in the IR Account shall be paid to the Borrower.



ARTICLE4TERMS AND CONDITIONS APPLICABLE TO ADVANCES

4.1
Conditions Precedent for Loan Advance: The Lender shall not be obliged to make
the Initial Advance or any Advance unless and until, in the opinion of the
Lender, the following conditions, which only the Lender may waive, have been and
continue to be satisfied, namely that, prior to the date of the Loan Advance,
the following documents and assurances, all in form, substance, parties and
execution acceptable to the Lender, has been delivered to the Lender and, where
in the Lender's opinion necessary or advisable, filed or registered and, where
required by the Lender, prepared or approved by their solicitors:



(i)

signed
current financial statements of the Borrower including satisfactory verification
of assets and values;



(ii)

each
of the Security and Supporting Documents;



(iii)

corporate
documents, namely:



A.

copies
duly certified by its secretary of resolutions of its directors
authorizing the borrowing or guaranteeing of the Loan as the case

---

Page
7

may
be and the execution and delivery of the Security and Supporting Documents; and



B.
an officer's certificate and certificate of incumbency setting forth specimen
signatures of its officers and directors authorized to execute the Security and
Supporting Documents;

(iv)
an opinion of:



A.

the
independent counsel of the Borrower addressed to the Lender and their counsel:
as to the due incorporation, organization, valid existence and good standing
with respect to filing annual reports, of such member and the due formation and
existence of such member under the laws of British Columbia and/or the
jurisdiction of its incorporation and/or any other jurisdiction in which it is
registered to carry on business and that such member has all such corporate
powers and authorizations as are necessary to enable it to own and operate or
develop the Lands, to borrow the Loan, as the case may be, and to execute,
deliver and carry out its obligations under the Security and Supporting
Documents and that the Security and Supporting Documents which has been
delivered has been duly authorized, executed and delivered by such member; such
opinion shall also confirm that the shares forming the Commitment and Funding
Fee have been duly and validly created, allotted and issued as fully paid and
non-assessable.



B.

the
Lender's counsel on title to the Land and the priority, enforceability and
effectiveness of the Security and Supporting Documents which has been delivered;
and



C.

the
Lender's insurance consultant as to the apparent validity and enforceability of
all Insurance Policies;



4.2
Conditions Precedent for all Advances: The Lender shall not be obliged to make
any Advance subsequent to the Loan Advance unless in the opinion of the Lender
The terms and conditions applicable to all previous Advances has and continue to
be satisfied, all of which shall, at the Lender's discretion, be re-applicable
as of the date of such Advance.



ARTICLE
5ADDITIONAL COVENANTS

5.1
Title to Assets: The Company lawfully owns or is entitled to become the lawful
owner of the Land with which it carries on its business (whether such ownership
be legal or beneficial) and on registration of the Debenture with the Ministry
of Energy, Mines and Petroleum Resources will be and until the release of the
Debenture will remain the lawful owner of and lawfully possessed and seized of
all of the Land and will have good title thereto free from all liens, charges
and encumbrances whatsoever except Permitted Encumbrances and has good right and
lawful authority to grant, convey, sell, bargain, assign, transfer, mortgage,
pledge and charge the Land. The Borrower covenants that it does not, at the date
hereof and shall not hold the Land or any portion thereof in trust for any other
party;

---

Page
8

5.2
Due Incorporation and Registration: The Borrower is duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and is duly registered and in good standing under the laws of each
jurisdiction in which the Land is situate and has all powers, government
permits, authorizations and such other powers and authorizations as are
necessary to enable it to carry on its business and to execute, deliver and
carry out its obligations under this Loan Agreement and all security collateral
to this Loan Agreement;



5.3
Due Authorization: This Loan Agreement is issued and all security collateral to
this Loan Agreement is executed and delivered in accordance with resolutions of
the directors of the Borrower and all other matters and things have been done
and performed so as to authorize and make the execution, creation, issuance and
delivery of this Loan Agreement and such collateral security legal and valid and
in accordance with the requirements of the laws relating to the Borrower and all
other statutes and laws in that behalf;



5.4
Financial Statements: If required by the Lender, the Borrower shall within 90
days following the end of its fiscal years, deliver to the Lender then current
financial and operating statements for the Borrower. Such financial and
operating statements shall be prepared by a chartered accountant in good
standing and shall include balance sheets and income and expense statements in
such detail and with such schedules as the Lender may require. The Borrower
shall keep adequate records and books of account in accordance with generally
accepted accounting practice and will permit the Lender, by their agents,
accountants and solicitors, to visit and examine their records and books of
account and to discuss their affairs, finances and accounts with their officers,
at such times as may be requested by the Lender. Throughout the term of the
Loan, the Borrower shall promptly deliver to the Lender such other information
with respect to the Borrower as the Lender may request from time to time. All
financial statements shall be prepared in accordance with generally accepted
accounting principles, and shall be accompanied by the certificate of a
principal fmancial or accounting officer dated within five days of the delivery
of such statements to the Lender, stating that he knows of no material adverse
change in the financial position of the relevant entity since the date of such
financial statements and, in the case of the Borrower, staling that he knows of
no defaults under this Loan Agreement. All financial statements and other
documents and information delivered by the Company in connection with the
Company's application for the Loan are true and accurate and fairly represent
the financial condition of the Company;



5.5
Not in Default: The Company is not in default under any agreement or instrument
to which it is a party nor is it party to or bound by any contract or agreement
which could materially affect its business, property, assets or financial
condition;



5.6
Further Fundings: The Borrower shall apply 25% of the net proceeds from any
financing received by the Borrower to the Loan. It is acknowledged by the Lender
that this clause shall not apply to stock options or the exercise of warrants;



5.7

Solicitors
Opinion: The Borrower covenants and agrees that, except for bona fide
legal reasons, the Borrower will cause to be issued, at the Borrower's expense
and at the

---

Page
9

request
of the Lender at such time as it may lawfully be made, a legal opinion (as
required under relevant Canadian or US law and practise) permitting the removal
of the legend requiring a four months hold in relation to the 1,500,000 shares
of the Borrower, which shares are being issued as further consideration for the
making of the Loan. The Lender aclmowledges that it take such shares in
accordance with restrictions in law required by regulators from time to time and
the Lender represents and warrants that it is an accredited investor, is
eligible to subscribe for and receive the shares pursuant to the relevant laws
of BC and the USA and is acquiring the same for investment purposes.



ARTICLE
6
MISCELLANEOUS

6.1
Assignment:



(a)
The Lender may, without consent, assign, grant security interests in, negotiate,
pledge or otherwise dispose of Borrower's Liabilities and the Security and
Supporting Documents and of their rights and security thereunder in whole or in
part to any bank, person, firm, body corporate, company or other entity and all
rights and remedies of the Lender in connection with the interest so assigned
shall be enforceable against the Borrower and other parties thereto by such
assignee as the same would has been by the Lender but for such assignment. The
Lender may in connection with such transactions release any information or
documents in their control in connection with the Loan and the Borrower
to any assignee or intended assignee.



(b)

The
Borrower shall not assign or encumber its rights and obligations under this
Agreement, the Loan or the whole or any part of any Advance to be made
hereunder, without the prior written consent of the Lender.



(c)

In
no event shall the payment to the Lender for interest, fees or otherwise, exceed
the maximum payment permitted under Section 347 of the Criminal Code (Canada) or
successor sections ("Section 347"). The interest payable on the credit
advanced under the Mortgage (as interest and credit advanced are defined in
Section 347) shall not exceed an effective annual rate of interest of sixty
(60%) percent calculated in accordance with generally accepted accounting and
actuarial practices and principles. In the event that the Borrower would, but
for this clause, be obligated to pay interest on the credit advanced under the
Facility Letter at a criminal rate (as interest, credit advanced and criminal
rate are defined in Section 347), the interest payable on the credit advanced
hereunder shall be reduced to an effective annual rate of sixty (60%) percent,
calculated in accordance with generally accepted accounting and actuarial
practices and principles, firstly by reducing to the extent necessary the amount
of any fees or other compensation or consideration other than interest payable,
and secondly (if required) by reducing to the extent necessary the interest
rate. In the event that the Borrower has paid to the Lender interest at a
criminal rate on the credit advanced under the Mortgage (as interest, credit
advanced and criminal rate are defined in Section 347), the Lender shall, at the
request of the Borrower, refund to the Borrower an amount

---

Page
10

equal
to the amount by which such interest received by the Lender exceeds the criminal
rate.

6.2
Survival of Terms: All covenants, agreements, representations and warranties
made herein shall survive the execution and delivery to the Lender of the
Security and Supporting Documents and the making of all Advances.



6.3

Any
notice required to be given hereunder shall be in writing addressed to the party
to whom it is given and shall be delivered to the address stated on the first
page hereof

or
to such other address in British Columbia as the party to whom it is given shall
has previously specified by written notice.

6.4
Payment: The Borrower shall pay in lawful money of Canada in funds payable at
par at Vancouver, British Columbia the principal sum, interest and all other
Borrower's Liabilities as provided in this Agreement. Any moneys paid after
12:00 noon Vancouver time on the Loan Expiry Date shall be deemed to has been
paid on the next following day that the Lender's solicitors at that time shall
be open for business.



6.5

Time
of Essence: Time is of the essence of this Agreement and the other Security and
Supporting Documents.



6.6

Governing
Law: The Security and Supporting Documents shall in all respects be governed by
and construed in accordance with the laws of British Columbia.

6.7
Execution in Counterparts: This Agreement may be executed in several
counterparts each of which when so executed shall be deemed to be an original
and all such counterparts taken together shall constitute one and the same
agreement.



6.8

Whole
Agreement and Amendment or Modification: The rights and obligations of the
parties hereto with respect to the Loan and the Project are wholly contained in
thisAgreement and the other Security and Supporting Documents and all commitment
letters and prior agreements are merged therein. The Security and Supporting
Documents cannot be added to, amended or waived in whole or in part, or any
collateral agreement thereto created orally, by letter, telex, or other written
communication or by anycourse of conduct of the Lender, their employees
or agents and there are no implied terms, covenants, agreements or conditions
between the parties. No amendment, waiver or modification of this Agreement or
the other Security and Supporting Documents in whole or in part or any
collateral agreement shall be enforceable against the Lender unless it is by a
formal instrument in writing expressed to be a modification of this Agreement or
the other Security and Supporting Documents as the case may be and executed in
the same fashion as this Agreement.

6.09
Waivers of Performance by the Lender: The Lender may in their absolute
discretion waive, modify or not enforce any condition or requirement hereunder
or under any of the Security and Supporting Documents and any such waiver,
modification, failure to enforce or the failure at any time by the Lender to
require strict performance by the Borrower or any other party of any of the
terms of this Agreement or of the terms of the other Security and Supporting
Documents shall not release or diminish the obligations of the Borrower under
any of the Security and Supporting Documents or affect any right of the Lender

---

Page
11

thereafter
to demand strict performance therewith and any waiver of any Event of Default
shall not waive or affect any similar or other Event of Default.



6.10
Incorporation of Debenture Clauses: The warranties, representations, covenants,
terms, conditions and agreements in the Debenture are incorporated herein and
made a part hereof and are applicable hereto as if fully reproduced in this
Agreement and are in addition to and enlarge and are not in substitution for
those set out in this Agreement. In the event of a direct conflict between this
Agreement and any of the other Security and Supporting Documents, this Agreement
shall prevail. Notwithstanding that the Debenture is expressed to be payable on
demand, the Lender shall not be entitled to make demand thereunder unless an
Event of Default has occurred and is continuing.



6.11
No Judicial Review: The Borrower acknowledges that this Agreement is entered
into on the express condition that the Lender's opinions Gordon Sales

,
approvals, consents, requirements, determinations and decisions and what is
satisfactory or not satisfactory to them is in their sole and absolute
discretion and is not subject to judicial review as to their reasonableness.



6.12
Collateral Security: Each item in the Security and Supporting Documents is, will
or has been taken by way of additional security only and neither the taking of
such item nor anything done in pursuance hereof or thereof shall in any way
prejudice or limit the rights of the Lender or the obligations of the Borrower
under any other part of the Security and Supporting Documents. The rights and
remedies given to the Lender hereunder and under each item of the Security and
Supporting Documents shall be in addition to and not in substitution for and
shall not in any way derogate from or delay or prejudice any rights or remedies
to which the Lender may be entitled under any other item of the Security and
Supporting Documents, any other agreement or security, or by law or in equity
and such rights and remedies may be exercised. consecutively or concurrently and
from time to time, all as the Lender in their absolute discretion from time to
time determine.



6.13
Severability: If any provision of the Security and Supporting Documents shall be
held invalid or unenforceable, such invalidity or unenforceability shall attach
only to such provision and shall not in any manner affect or render invalid or
unenforceable such provision in any other jurisdiction or any other provision of
the Security and Supporting Documents in any jurisdiction.

---



6.14
Enurement: This Agreement shall be binding on and enure to the benefit of the
Borrower and the Lender as well as their successors and permitted assigns.



IN
WITNESS WHEREOF the Borrower has executed this Agreement.





Officer
Signature(s)

Execution
Date

Mortgagor(s)

Signature(s)



/s/
Peter Jensen

May
7, 2004

CRYSTAL
GRAHPITE

CORPORATION

Peter
K. Jensen

by
its authorized

Devlin
Jensen

signatory(ies)

Barristers
& Solicitors

P.O.
Box 12077

Suite
2550 - 555 W. Hastings St.

/s/
Gordon Sales

Vancouver,
B.C.  V6B 4N5

Gordon
Sales, President





____________________________________________________________________________

OFFICER
CERTIFICATION:

Your
signature constitutes a representation that you are a solicitor, notary public
or other person authorized by the Evidence Act R.S.B.C. 1996, c. 124, to take
affidavits for use in British Columbia and certifies the matters set out in Part
5 of the Land Title Act as they pertain to the execution of this instrument.

---

SCHEDULE
"A"THE LAND CHARGED BY THIS DEBENTURE



1.

Mining
Lease: 390937

Map
No. 082F072

Mining
Division: SLOCAN Land District: KOOTENAY



Claim
Names: MOLLY 1, 2, 3 and 4

Title
Nos: 305145, 305146, 305147, 305148 Lot No: 17073



Dated:
June 25, 2002



2.

Mining
Lease: 392322

Map
No. 082F052, 082F062 Mining Division: SLOCAN Land District: KOOTENAY



Claim
Names: Plant #1, Plant #2 Title Nos: 387588, 387589 Lot No: 17069, 17074



Dated:
June 25, 2002

---

SCHEDULE
"B"
PERMITTED ENCUMBRANCES ON THE LAND



NIL







End of Exhibit 10.7



---

EXHIBIT 10.8







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Graphite Mineral Property Agreement dated August 18, 2004, between Bao Zi Wan County Government and the Company







Graphite
Mineral Property Agreement





Bao
Zi Wan County Government





and







Crystal
Graphite Corporation

---



THIS
MINERAL PROPERTY AGREEMENT is dated and made for reference effective as of the
18th day of August, 2004.



BETWEEN:





BAO
ZI WAN,a local county government

under
the laws of the Peoples' Republic of China,

having
an office located at Bao Zi

Wan
Government, DaTong, Shanxi,

Peoples'
Republic of China, 037002



Telephone
& fax: 8603523167008



("BZW")





AND:

OF
THE FIRST PART







CRYSTAL
GRAPIDTE CORPORATION,a company

incorporated
under the laws of British Columbia, having an

office
located at Suite 1750 - 999 West Hastings St.,

Vancouver,
B.C., Canada,

V6C
2W2





Telephone:    
1-604-681-3060

Fax:    
1-604-682-4886



("CGC')



OF
THE SECOND PART



Article
1



WHEREAS:





A.

That
BZW is the recorded and beneficial owners of a 100% interest of the DaTong
DeSheng graphite deposit, plant and related infrastructure.



B.

That
CGC is the recorded and beneficial owner of a 100% interest in mineral tenures,
plant and graphite mining operation located in the Slocan Mining District of the
Province of British Columbia, Canada.



---



C

BZW
wish to grant CGC to have the right to mine, extract and process all graphite
and tailings at the Da Tong DeSheng graphite plant and property.



Article
2



Type
of Agreement.This Mineral Property Agreement is a Conditional Contract
which allows CGC to explore the Da Tong DeSheng graphite plant and property so
that due diligence work and a Technical Report, as required by the British
Columbia Security Commission, can be completed and disclosed. If the Da Tong
DeSheng Project is proven economic, once CGC Board of Director approval is
obtained, CGC and BZW shall negotiate the formal Lease Agreement between the two
Parties. Terms and conditions will be given in the Lease Agreement. This Lease
Agreement though shall be of a 30-year term with a first option to renew a
further 30 years.

.





Article
3



CGC
Business Plan.CGC has included the development capital and high
technology graphite production for the DaTong DeSheng graphite project in its
Business Plan. The relevant section of the Business Plan and associated
schedules make up the Appendix of this Mineral Property Agreement. All costs and
production data in the Business Plan are Order of Magnitude (+/- 30%) estimates
and are therefore subject to change. The Business Plan estimates a commitment of
$2,700,000 Canadian dollars (16,605,000 rmb) over a period of three fiscal
years.



Article
4



Covenants.



Article
4.1This Mineral Property Agreement can be terminated by CGC if one of the
following occurs:

1.
CGC fails to obtain the Due-Diligence phase financing for the project within
three

months
after the date this agreement is signed.

2.
lf the DaTong DeSheng graphite project proves uneconomic as determined from

the
due diligence work and Technical Report.

3.
If complex local political and taxation problems become a major issue.

4.
If there proves to be metallurgical problems with the graphitic material that
limits

the
final product from producing +98% graphitic carbon grade for +40% of product
size.



---

Article
4.2 This Mineral Property Agreement can be terminated by BZW if one of the
following occurs:





1.
IfCGC fails to follow the laws and regulations of the Peoples' Republic of
China, and after CGC is aware of problem, and it remains unresolved after a
reasonable period of time, this agreement can be terminated by BZW.

2.
A Lease Agreement is not finalized by 30 November 2005.





Article
5



Guarantee.In order to exercise the Mineral Property Agreement, to acquire the interest
and to explore the property, CGC will advance $10,000 Canadian Dollars (61,500
rmb) by way of certified cheque(s) to BZW, as deposit which will be a part of
future lease payments to BZW. If CGC terminates the agreement, BZW will not be
required to return the advance. If BZW terminates the agreement it shall return
the Cdn$1 0,000 to CGC within three months of a written notice of termination.
During the Due-diligence and Technical Report period, BZW shall not negotiate
with other Parties for a business arrangement to acquire the DaTong DeSheng
graphite deposit, mine, plant or infrastructure, nor will BZW enter into a long
term supply agreement without the expressed written approval from CGC; and
without written approval of BZW, CGC shall not negotiate with other parties for
a business arrangement to develop, mine or process graphite in the Peoples'
Republic of China .





Article
6



Confidential
Information.The Parties agree to treat all information acquired
under this Agreement as confidential and not to use the name of any Party in any
document or press release or disclose any information that may be obtained under
this Agreement to third parties or to the public without first having obtained
the written consent of such Party as to the form and content of any such
disclosure or release, however, such consent in respect of the reporting of
factual data shall not be unreasonably withheld, and shall not be withheld in
respect of information required to be publicly disclosed pursuant to applicable
securities or corporation laws. The Parties further agree not to use, sell,
give, disclose or otherwise make available to third parties or to the public at
any time any knowledge or information that the Parties may obtain relating to
internal proprietary techniques and methods used by any of the Parties without
the prior written consent of the other Parties.





Article
7

Fiscal
Year.The Parties agree that all years mentioned in this agreement are
CGC's

fiscal
year, which begins on 1 September to 31 August.  Year 2004 is therefore 1

September
2004 to 31 August 2005.

---



Article
8



Project
Schedule.The DaTong DeSheng Graphite Project schedule forecast
is given below:



Year
2004 (1 September 2004to 31 August 2005):



CGC
creates administrative system for project Technical and governmental meetings

Preliminary
"due-diligence" engineering and marketing.



Year
2005 (1 September 2005 to 31 August 2006):





Consulting,
budgeting and designing resource, plant, infrastructure, and mine.

Exploration
and geological resource modelling.

Technical
Report.

Marketing
Studies

Formal
Lease Agreement (November 2005)

Overseas
procurement

Initial
plant construction.



Year
2006 (1 September 2006 to 31 August 2007):



Plant
construction completion in fall of2006. Plant debugging

and
initial production of graphite for lower end markets followed

by
growth into higher end quality markets.



Year
2007(1 September 2007 to 31 August 2008):



Project
produces 570 tonnes of high purity graphite,

1000
tonnes or more will be produced for other markets.



Before
a Lease Agreement is finalized BZW shall continue operating the DaTong DeSheng
graphite mine and plant in its usual business manner, but agrees to cooperate
with CGC in activities which will assist in the due diligence process. Once the
Lease Agreement is finalized, CGC will assume the operation of these facilities
once it has paid its first lease payment. CGC will make every effort to reduce
the project schedule timing for an earlier Lease Agreement completion.





Article
9



Force
Majeure.  The Project Schedule shall be extended for a period of
time equivalent to the period or periods of force majeure.  The term
"force majeure" as used in this Agreement includes any cause of any
kind or nature whatsoever beyond CGC's reasonable control including, but not
being limited to, laws, ordinances, governmental regulations, restraint or court
order; inability to obtain equipment, material, power or fuel,

---



or
unusual delays in obtaining permits; labour shortages, labour disturbances, and
other industrial disturbances to the extent that it or they are beyond the
control of CGC; failure of carriers to transport or furnish facilities for
transportation; acts of God, acts of the public enemy, war, blockage, riot,
insurrection, lightning, fire, storm, flood, inclement weather, washout,
explosion and breakage; or accident of machinery or facilities.





Article
10



Management.CGC would maintain a management representative in Beijing who would
assist in coordinating the project. Technical and construction personnel from
CGC would be seconded for the project on an as-needed basis. BZW will supply
suitable accommodation for CGC personnel near the site. BZW will select a
liaison person to work with the two Parties and to represent BZW. CGC shall
select the Project Manager.





Article
11



Marketing:.CGC or a subsidiary company is responsible for marketing the graphite
products and other products from the DaTong DeSheng Graphite mineral property.
BZW shall assist CGC in identifying markets in China from past and current
operating experience. Once the final lease agreement is formalized, CGC will
begin to market all products both within and outside China. CGC has scheduled
570 tonnes of high purity DaTong graphite to be shipped to Canada for its
marketing needs but has the right to divert shipments to other markets. CGC will
require assistance from BZW for testing international markets during the period
of this agreement. CGC agrees to pay current market prices for the graphite used
in the test marketing program along with any additional costs which may occur in
this preparation and packaging.





Article
12



Permits.CGC understands that BZW may make efforts to obtain permits and other

authorization
of every kind and nature whatsoever from governmental or private entities

as
may be necessary to conduct exploration activities.  While BZW shall be
solely

responsible
in these efforts, CGC agrees to assist and cooperate fully with BZW in any

and
all such endeavours upon the BZW s' request.

---

IN
WITNESS WHEREOFthe Parties hereto have hereunto set their respective
hands and seals in the presence of their duly' authorized signatories effective
on the day and year first above written.





[ex108004.gif]





















[ex108006.gif][ex108008.gif]





End of Exhibit 10.8



---

EXHIBIT 10.9







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Agreement in Principle dated November 1, 2004, between the Company and Beijing XinLong Corporation



Agreement
in Principle



|Crystal
      Graphite Corporation 1750-999
      West
      Hastings Street Vancouver, British
      Columbia,
      V6C2W2 Canada | Beijing
      XinLong Corporation
      Room
      610, Tower C, SOHO Newtown
      Jianguo
      Road, Chaoyang District
      Beijing,
      P. R. China
|----------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------





29
October 2004



Project
Title:                               
Marketing Beijing XinLong Corporation Geofabrics



Project
Commencement:            
1 November 2004



Summary
of Proposal:





The
reasons for the proposed marketing of Beijing XinLong Corporation geofabric
products by Crystal Graphite Corporation's wholly owned subsidiary Canada Pumice
Corporation is to introduce Beijing XinLong Corporation industrial and
commercial products directly into the Canadian, United States, Mexican and
European markets.

Beijing
XinLong Corporation agrees to allow Canada Pumice Corporation to be the
exclusive and sole distributor of all its products into the North American and
European markets.



Beijing
XinLong Corporation shall supply all necessary requested samples from its Hainan
operations along with brochures, technical specifications, and copies of all
necessary ISO certifications.



Canada
Pumice Corporation shall have each product sample tested by an independent
Canadian laboratory and shall supply Beijing XinLong Corporation with the
certified analyses.



Canada
Pumice Corporation is willing to appoint Beijing XinLong Corporation as its sole
supplier for industrial geotextiles for the construction and landscape industry
contingent on competitive pricing and the product meeting applicable
specifications.



A
firm agreement for the exclusive and sole distributorship for North America is
to be finalized within 90 days of the signing of this agreement. This final
agreement shall include pricing and conditions of all products and details of
shipping costs and arrangements.



|/s/
      Brian Wear
      Mr.
      Brian Wear
      Chief
      Operating Officer
      &
      Senior Vice President | /s/
      Ms. Klair Guo
      Ms.
      Klair Guo
      Expert
      Manager, Beijing XinLong Corp.
|----------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------
|                                                                                                                        |                                                                                                    











End of Exhibit 10.9



---

EXHIBIT 10.10







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Agreement in Principle dated November 1, 2004, between the Company and Clay Industiral Minerals, Ltd.





Agreement
in Principle



|Crystal
      Graphite Corporation 1750-999
      West
      Hastings Street Vancouver, British
      Columbia
      V6C2W2 Canada | Clay
      Industrial Minerals., Ltd. of JianPing
      Qingfengshan,
      Jianping County Liaoning
      Province,
      P. R. China
|---------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------







29
October 2004





Project
Title:                                
Marketing Clay Industrial Minerals Co. Products



Project
Commencement:             
1 November 2004



Summary
of Proposal:



The
reasons for the proposed marketing of Clay Industrial Minerals Corporation
(CIMCO) VOLROCK products by Crystal Graphite Corporation's wholly owned
subsidiary Canada Pumice Corporation is to introduce CIMCO bentonite products
directly into the Canadian and United States markets.



As
per CIMCO and Crystal Graphite Corporation discussions on 27 October 2004 in
Jianping, Liaoning Province, P. R. of Chin~ CIMCO agrees to allow Canada Pumice
Corporation to be the exclusive and sole distributor of all bentonite products
into the North American market. CIMCO would also give Canada Pumice Corporation
first option in any business arrangement for production expansion.



CIMCO
shall supply all necessary samples of their Jian Ping Operations bentonite along
with brochures, technical specifications, and copies of all ISO certifications.



Canada
Pumice Corporation shall have each product sample tested by an independent
Canadian laboratory and shall supply CIMCO with the certified analyses. Canada
Pumice Corporation also agrees to bear research and development costs for new
products resulting from material combinations of VOL ROCK and Canada Pumice
Corporation's products, and shall supply CIMCO with all technical results.



A
firm agreement for the exclusive and sole distributorship for North America is
to be formalized within 90 days after signing of this agreement. This formal
agreement shall include pricing and conditions of all products and details of
shipping costs and arrangements.





|/s/ Brian Wear
      Mr. Brian Wear
      Chief
      Operating Officer
      &
      Senior Vice President | /s/
      Jin Lei Jing
      Mr.
      Jin Lei Jing
      General
      Manager
|----------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------







End of Exhibit 10.10



---

EXHIBIT 10.11







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Agreement in Principle dated November 1, 2004, between the Company and Tri-star Activated Carbon Corporation





Agreement
in Principle



|Crystal
      Graphite Corporation 1750-999
      West
      Hastings Street Vancouver, British
      Columbia,
      V6C2W2 Canada | Tri-star
      Activated Carbon Corporation
      East
      of Sha Ling County
      Da
      Tong City, Shanxi Province
      P.
      R. China 037004
|----------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------





29
October 2004



Project
Title:                           
Marketing Tri-star Activated Carbon



Project
Commencement:         1
November 2004





Summary
of Proposal:



The
reasons for the proposed marketing of Tri-star Activated Carbon Corporation by
Crystal Graphite Corporation's wholly owned subsidiary Canada Pumice Corporation
is to introduce Tri-star's activated carbon products directly into the Canadian
market and indirectly into United States markets.



As
per Tri-star and Crystal Graphite Corporation discussions on 27 October 2004 in
Da Tong, Shanxi province, P. R. of China, Tri-star agrees: 1) to allow Canada
Pumice Corporation to be the exclusive and sole distributor of all its activated
carbon products into the Canadian market, and 2) to exclusively allow Canada
Pumice Corporation to market its product into the United States market via
Canada.



Tri-star
shall supply all necessary samples of their Da Tong Operations activated carbon
along with brochures, all technical specifications, and copies of all ISO
certifications.

Canada Pumice Corporation shall have each product sample tested by an
independent Canadian laboratory and shall supply Tri-star with the certified
analyses. Canada Pumice also agrees to bear research and development costs for
blending and combinations of Tri-star activated carbon and Canada Pumice
Corporation's volcanic material products, and shall supply Tri-star with all
technical results.



A
firm agreement for the exclusive and sole distributorship is to be
finalized within 90 days of the signing of this agreement. This final agreement
shall include pricing and conditions of all products and details of shipping
costs and arrangements.



|/s/
      Brian Wear
      Mr.
      Brian Wear
      Chief
      Operating Officer
      &
      Senior Vice President | /s/
      Jin Lei Gang
      Mr.
      Jin Lei Gang
      General
      Manager
|----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------





End of Exhibit 10.11



---

EXHIBIT 10.12







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Amended Share Purchase Agreement  Phase I  dated December 30, 2004 and having an effective date of March 3, 2004 among the Company, CPC and Brian Wear





AMENDED SHARE PURCHASE AGREEMENT



PHASE I



THIS SHARE PURCHASE AGREEMEN
T is dated for reference the 3rd day of March, 2004 ('

Effective Date

") as amended December 30, 2004.





AMONG

:



CRYSTAL GRAPHITE CORPORATION,
 a corporation incorporated under the laws of the Province of British Columbia
and having its business office located at Suite 1750 - 999 West Hastings
Street, Vancouver, BC, V6C 2W2



(the "Purchaser")



(

OF THE FIRST PART

)



AND

:



CANADA PUMICE CORPORATION

 a corporation incorporated under the laws of the Province of British Columbia
and having its business office located at Unit 6, 2009 Abbotsford Way,
Abbotsford, BC V2S 4N7





(the "Corporation")



(

OF THE SECOND PART

)



AND

:



BRIAN C. WEAR
, businessman and sole stockholder of the Corporation and having his address at
that of the Corporation above



("Shareholder")



(

OF THE THIRD PART

)



---

- 2 -







WHEREAS:



A.

The Corporation, directly or by subsidiaries, is an owner of land and claims and
processing facilities in the region of Quesnel, BC on or adjacent to which the
Corporation conducts active quarrying, processing and sales business of pumice
and other minerals under the name of the Corporation and its wholly owned
subsidiaries, Volcanic & Industrial Minerals Inc ("

Volcanic

") and Cariboo Lava Corporation ("

Cariboo")

;



B.

By Phase I agreement (the "

Agreement

") dated March 3, 2004 the Shareholder, owner of all of the issued, issuable
and outstanding shares of the Corporation (the "

Corporation Shares

"), sold 92 Corporation Shares to the Purchaser for common shares of the
Purchaser and which common shares were valued at a deemed price $0.74 per share;



C.

The Parties, inter alia, in consultation with their auditors have determined to
amend the deemed price and to make consequent alterations and amendments to the
Agreement;



D.

The respective boards of directors of the Purchaser and Corporation each deem it
advisable and in the best interests of their respective companies to amend the
terms of the Agreement: and



E.

The respective boards of directors of the Purchaser and Corporation and the
Shareholder have also approved and adopted this amendment to the Agreement as a
transfer or sale and receipt of shares pursuant to section 85(1) of the Income
Tax Act (Canada) (the "Tax Act").





NOW THEREFORE THIS AGREEMENT WITNESSES

 that, in consideration of valuable consideration and pursuant to sections 2.04
and 15.02 of the Agreement, the Parties do hereby agree to alter and amend the
Agreement as follows:



Section 2.01 of the Agreement is hereby altered and amended to provide as
follows:



"2.01

Purchase of Corporation Shares

..  On the terms and subject to the conditions set forth herein, the
Shareholder hereby agrees to sell, transfer, convey, assign and deliver to the
Purchaser, free and clear of all Corporation Share Encumbrances (as defined in
paragraph 3.01.1), and the Purchaser hereby agrees to purchase, acquire and
accept from the Shareholder, one hundred and fifty-one (151) Corporation Shares
("

Purchased Corporation Shares

") having an agreed value of five hundred and twenty-one thousand five hundred
and sixteen dollars and twenty-five cents ($521,516.25).  At Closing, the
Shareholder will deliver to the Purchaser certificates evidencing all of the
Purchased Corporation Shares duly endorsed for transfer and such other
instruments as have been reasonably requested by the Purchaser to transfer full
legal and beneficial ownership of the Purchased Corporation Shares to the
Purchaser, free and clear of all Corporation Share Encumbrances and the
Corporation agrees to enter the Purchaser on the books of the Corporation as the
holder of the Purchased Corporation Shares and to issue one or more replacement
share certificates representing the Purchased Corporation Shares to the
Purchaser or the Purchaser's nominee.  The Purchaser shall pay the
Purchase Price for the Purchased Corporation Shares in accordance with the terms
of Section 2.02 of this Agreement."

---

- 3 -





Section 2.02 of the Agreement is hereby altered and amended to provide as
follows:



"2.02

Purchase Price for Purchased Corporation Share

s.  The aggregate purchase price to be paid by the Purchaser to the
Shareholder (or his designees) for the Purchased Corporation Shares at Closing
will be the sum of CDN$521,516.25 (the "

Purchase Price

") which shall be fully satisfied and paid by the delivery of one million one
hundred and fifty-eight thousand nine hundred and twenty-five (1,158,925) common
shares (the "

Purchase Price shares

") of the Purchaser at the deemed price of CDN$0.45 per common share.
 The 1,158,925 Purchase Price shares, represented by one or several
certificates as requested by the Shareholder (and if no request is made five
days or more prior to Closing then by one certificate), of the Purchaser
constituting the Purchase Price to be delivered to the Shareholder at Closing
shall be issued from treasury of the Purchaser as validly and lawfully issued
and fully paid and non-assessable without lien or encumbrance of any nature
whatsoever, excepting only restrictions as may be imposed by generally
Applicable Law and the Shareholder acknowledges that the Purchase Price shares
shall be subject to restrictions as to disposition consequent upon Applicable
Law and the certificates shall therefor have imprinted upon them restrictive
language generally as follows:



"The securities represented by this certificate have not been registered under
the Securities Act of 1933 or the laws of any state and have been issued
pursuant to an exemption from registration pertaining to such securities and
pursuant to a representation by the security holder named hereon that said
securities have been acquired for purposes of investment and not for purposes of
distribution.  These securities may not be offered, sold, transferred,
pledged or hypothecated in the absence of registration, or the availability of
an exemption from such registration. Furthermore, no offer, sale, transfer,
pledge or hypothecation is to take place without the prior written approval of
counsel to the issuer being affixed to this certificate.  The stock
transfer agent has been ordered to effectuate transfers of this certificate only
in accordance with the above instructions."



"Unless permitted under securities legislation in British Columbia or Alberta,
the holder of the securities shall not trade the securities before the earlier
of (i) the date that is 12 months and a day after the date the issuer first
became a reporting issuer in any of Alberta, British Columbia, Manitoba, Nova
Scotia, Ontario, Quebec and Saskatchewan, if the issuer is a SEDAR filer; and
(ii) the date that is 12 months and a day after the later of (A) the
distribution date, and (B) the date the issuer became a reporting issuer in the
local jurisdiction of the purchaser of the securities that are the subject of
the trade."



Furthermore, as the Corporation is a company whose securities are or may be
subject to US law, the Shareholder hereby agrees, represents and warrants to the
Corporation as follows:



---

- 4 -



(i)

Shareholder (i) is not a U.S. Person (as defined in Rule 902 of Regulation S ("Regulation
S") under the United States Securities Act of 1933 (the "1933 Act")),
which definition includes, but is not limited to, any natural person resident in
the United States, any corporation or partnership incorporated or organized
under the laws of the United States, or any estate or trust of which any
executor, administrator or trustee is a U.S. Person); (ii) is not purchasing any
of the Securities for the account or benefit of any U.S. Person or for offering,
resale or delivery for the account or benefit of any U.S. Person or for the
account of any person in any jurisdiction other than the jurisdiction set out in
the name and address of Shareholder below; and (iii) was not offered any
Securities in the United States and was outside the United States at the time of
execution and delivery of this Agreement.



(ii)

Shareholder acknowledges that the Securities have not been registered under the
1933 Act and the Company has no obligation or present intention of filing a
registration statement under the 1933 Act in respect of the Securities.
 The Shareholder agrees to resell the Securities only in accordance with
the provisions of Regulation S and any other applicable securities laws,
pursuant to a registration under the 1933 Act, or pursuant to an available
exemption from such registration, and that hedging transactions involving the
Securities may not be conducted unless in compliance with the 1933 Act.
 The Shareholder understands that any certificate representing the
Securities will bear a legend setting forth the foregoing restrictions.
 The Shareholder understands that the Securities are restricted securities
within the meaning of Rule 144 promulgated under the 1933 Act; that the
exemption from registration under Rule 144 will not be available in any event
for at least one year from the date of purchase and payment of the Securities by
the Shareholder, and other terms and conditions of Rule 144 are complied with;
and that any sale of the Securities may be made by the Investor only in limited
amounts in accordance with such terms and conditions.



(iii)

No U.S. Person, either directly or indirectly, has any beneficial interest in
any of the Securities acquired by Shareholder hereunder, nor does Shareholder
have any agreement or understanding (written or oral) with any U.S. Person
respecting:



(a)

the transfer or any assignment of any rights or interest in any of the
Securities;



(b)

the division of profits, losses, fees, commissions or any financial stake in
connection with this subscription; or



(c)

the voting of the Securities."





The Parties agree that all other terms of the Agreement shall remain in full
force and effect unaltered and the forgoing amended provisions are inserted and
substituted for the referenced sections in the Agreement as if made ab initio at
the time of execution.  The Parties agree to make any consequential changes
as shall be required or advisable consequent upon the foregoing amendments.



---

- 5 -





IN WITNESS WHEREOF, the parties hereto have caused this amendment to Agreement
to be duly executed by their respective authorized officers effective as of the
Effective Date.





CRYSTAL GRAPHITE CORORATION

)

)

)

Per:

/s/ Gordon Sales

)

Authorized Signatory

)





CANADA PUMICE CORPORATION

)

)

)

Per:

/s/ Brian Wear

)

Authorized Signatory

)





SIGNED, SEALED AND DELIVERED

by

BRIAN WEAR

 in the

)

presence of:

)

)

/s/ Diana
Fell

)

Signature of Witness



)

/s/ Brian Wear





Diana
Fell

)

BRIAN WEAR

Name of Witness



)

34741 - 1st
Ave.

)

Address of Witness



)

Abbotsford,
B.C.

)







End of Exhibit 10.12



---

EXHIBIT 10.13







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Amended Share Purchase Agreement  Phase II  dated December 30, 2004 and having an effective date of March 3, 2004 among the Company, CPC and Brian Wear







AMENDED SHARE PURCHASE AGREEMENT



PHASE II



THIS SHARE PURCHASE AGREEMEN
T is dated for reference the 3rd day of March, 2004 ('

Effective Date

") as amended December 30, 2004.





AMONG

:



CRYSTAL GRAPHITE CORPORATION,a corporation incorporated under the laws of the Province of British
Columbia and having its business office located at Suite 1750 - 999 West
Hastings Street, Vancouver, BC, V6C 2W2



(the "Purchaser")



(

OF THE FIRST PART

)



AND

:



CANADA PUMICE CORPORATION
 a corporation incorporated under the laws of the Province of British Columbia
and having its business office located at Unit 6, 2009 Abbotsford Way,
Abbotsford, BC V2S 4N7





(the "Corporation")



(

OF THE SECOND PART

)



AND

:



BRIAN C. WEAR

, businessman and sole stockholder of the Corporation and having his address
at that of the Corporation above



("Shareholder")



(

OF THE THIRD PART

)



---

- 2 -







WHEREAS:



A.

The Corporation, directly or by subsidiaries, is an owner of land and claims and
processing facilities in the region of Quesnel, BC on or adjacent to which the
Corporation conducts active quarrying, processing and sales business of pumice
and other minerals under the name of the Corporation and its wholly owned
subsidiaries, Volcanic & Industrial Minerals Inc ("

Volcanic

") and Cariboo Lava Corporation ("

Cariboo")

;



B.

By Phase I agreement dated March 3, 2004 the Shareholder, owner of all of the
issued, issuable and outstanding shares of the Corporation (the "

Corporation Shares

"), initially agreed to sell 92 Corporation Shares but amended subsequently
(but effective the Effective Date) sold 151 Corporation Shares to the Purchaser
for common shares of the Purchaser and which common shares were initially valued
at a deemed price of $0.74 per share and thereafter (but effective the Effective
Date) valued at a deemed value of $0.45 per Purchaser common share;



C.

Consequent upon the Phase I agreement sale as amended, the Shareholder owned
1849 shares of the 2000 shares issued of the issued, issuable and outstanding
shares of the Corporation (the "

Corporation Shares

") and the Purchaser owned 151 shares of the Corporation;



D.

By Phase II agreement (the "

Agreement

"), dated March 3, 2004, the Purchaser agreed to purchase the remaining
Corporation Shares but consequent upon the amendments to the Phase I agreement
and the Parties agreement to amend the deemed value of the Purchaser common
shares to $0.45 and to diminish the deemed value of the sale such that the
number of aggregate shares payable of Purchaser common shares remains unaltered,
the Parties have agreed to effect the within amendments to the Agreement;



E.

The respective boards of directors of the Purchaser and Corporation each deem it
advisable and in the best interests of their respective companies to amend the
terms of the Agreement: and



F.

The respective boards of directors of the Purchaser and Corporation and the
Shareholder have also approved and adopted this amendment to the Agreement as a
transfer or sale and receipt of shares pursuant to section 85(1) of the Income
Tax Act (Canada) (the "Tax Act").





NOW THEREFORE THIS AGREEMENT WITNESSES

 that, in consideration of valuable consideration and pursuant to sections 2.04
and 15.02 of the Agreement, the Parties do hereby agree to alter and amend the
Agreement as follows:



Section 2.01 of the Agreement is hereby altered and amended to provide as
follows:



"2.01 
Purchase of Corporation Shares
..  On the terms and subject to the conditions set forth herein, the
Shareholder hereby agrees to sell, transfer, convey, assign and deliver to the
Purchaser, free and clear of all Corporation Share Encumbrances (as defined in
paragraph 3.01.1), and the Purchaser hereby agrees to purchase, acquire and
accept from the Shareholder, one thousand eight hundred and forty-nine (1849)
Corporation Shares ("

Purchased Corporation Shares

"), being all of the remaining issued Corporation Shares, having an agreed
value of six million three hundred and eighty-three thousand seven hundred and
thirty three dollars and eighty cents ($6,383,733.80).  At Closing, the
Shareholder will deliver to the Purchaser certificates evidencing all of the
Purchased Corporation Shares duly endorsed for transfer and such other
instruments as have been reasonably requested by the Purchaser to transfer full
legal and beneficial ownership of the Purchased Corporation Shares to the
Purchaser, free and clear of all Corporation Share Encumbrances and the
Corporation agrees to enter the Purchaser on the books of the Corporation as the
holder of the Purchased Corporation Shares and to issue one or more replacement
share certificates representing the Purchased Corporation Shares to the
Purchaser or the Purchaser's nominee.  The Purchaser shall pay the Purchase
Price for the Purchased Corporation Shares in accordance with the terms of
Section 2.02 of this Agreement."



---

- 2 -



Section 2.02 of the Agreement is hereby altered and amended to provide as
follows:



"2.02

Purchase Price for Purchased Corporation Share
s.  The aggregate purchase price to be paid by the Purchaser to the
Shareholder (or his designees) for the Purchased Corporation Shares at Closing
will be the sum of CDN$6,383,733.80 (the "

Purchase Price

") which shall be fully satisfied and paid by the delivery of fourteen million
one hundred and eighty-six thousand and seventy-five (14,186,075) common shares
(the "

Purchase Price shares

") of the Purchaser at the deemed price of CDN$0.45 per share.  The
14,186,075 Purchase Price shares, represented by one or several certificates as
requested by the Shareholder (and if no request is made five days or more prior
to Closing then by one certificate), of the Purchaser constituting the Purchase
Price to be delivered to the Shareholder at Closing shall be issued from
treasury of the Purchaser as validly and lawfully issued and fully paid and
non-assessable without lien or encumbrance of any nature whatsoever, excepting
only restrictions as may be imposed by generally Applicable Law and the
Shareholder acknowledges that the Purchase Price shares shall be subject to
restrictions as to disposition consequent upon Applicable Law and the
certificates shall therefor have imprinted upon them restrictive language
generally as follows:



"The securities represented by this certificate have not been registered under
the Securities Act of 1933 or the laws of any state and have been issued
pursuant to an exemption from registration pertaining to such securities and
pursuant to a representation by the security holder named hereon that said
securities have been acquired for purposes of investment and not for purposes of
distribution.  These securities may not be offered, sold, transferred,
pledged or hypothecated in the absence of registration, or the availability of
an exemption from such registration. Furthermore, no offer, sale, transfer,
pledge or hypothecation is to take place without the prior written approval of
counsel to the issuer being affixed to this certificate.  The stock
transfer agent has been ordered to effectuate transfers of this certificate only
in accordance with the above instructions."



"Unless permitted under securities legislation in British Columbia or Alberta,
the holder of the securities shall not trade the securities before the earlier
of (i) the date that is 12 months and a day after the date the issuer first
became a reporting issuer in any of Alberta, British Columbia, Manitoba, Nova
Scotia, Ontario, Quebec and Saskatchewan, if the issuer is a SEDAR filer; and
(ii) the date that is 12 months and a day after the later of (A) the
distribution date, and (B) the date the issuer became a reporting issuer in the
local jurisdiction of the purchaser of the securities that are the subject of
the trade."



Furthermore, as the Corporation is a company whose securities are or may be
subject to US law, the Shareholder hereby agrees, represents and warrants to the
Corporation as follows:

---

- 4 -





(i)

Shareholder (i) is not a U.S. Person (as defined in Rule 902 of Regulation S ("Regulation
S") under the United States Securities Act of 1933 (the "1933 Act")),
which definition includes, but is not limited to, any natural person resident in
the United States, any corporation or partnership incorporated or organized
under the laws of the United States, or any estate or trust of which any
executor, administrator or trustee is a U.S. Person); (ii) is not purchasing any
of the Securities for the account or benefit of any U.S. Person or for offering,
resale or delivery for the account or benefit of any U.S. Person or for the
account of any person in any jurisdiction other than the jurisdiction set out in
the name and address of Shareholder below; and (iii) was not offered any
Securities in the United States and was outside the United States at the time of
execution and delivery of this Agreement.



(ii)

Shareholder acknowledges that the Securities have not been registered under the
1933 Act and the Company has no obligation or present intention of filing a
registration statement under the 1933 Act in respect of the Securities.
 The Shareholder agrees to resell the Securities only in accordance with
the provisions of Regulation S and any other applicable securities laws,
pursuant to a registration under the 1933 Act, or pursuant to an available
exemption from such registration, and that hedging transactions involving the
Securities may not be conducted unless in compliance with the 1933 Act.
 The Shareholder understands that any certificate representing the
Securities will bear a legend setting forth the foregoing restrictions.
 The Shareholder understands that the Securities are restricted securities
within the meaning of Rule 144 promulgated under the 1933 Act; that the
exemption from registration under Rule 144 will not be available in any event
for at least one year from the date of purchase and payment of the Securities by
the Shareholder, and other terms and conditions of Rule 144 are complied with;
and that any sale of the Securities may be made by the Investor only in limited
amounts in accordance with such terms and conditions.



(iii)

No U.S. Person, either directly or indirectly, has any beneficial interest in
any of the Securities acquired by Shareholder hereunder, nor does Shareholder
have any agreement or understanding (written or oral) with any U.S. Person
respecting:



(a)

the transfer or any assignment of any rights or interest in any of the
Securities;



(b)

the division of profits, losses, fees, commissions or any financial stake in
connection with this subscription; or



(c)

the voting of the Securities."



The Parties agree that all other terms of the Agreement shall remain in full
force and effect unaltered and the forgoing amended provisions are inserted and
substituted for the referenced sections in the Agreement as if made ab initio at
the time of execution.  The Parties agree to make any consequential changes
as shall be required or advisable consequent upon the foregoing amendments.



---

- 2 -



IN WITNESS WHEREOF, the parties hereto have caused this amendment to Agreement
to be duly executed by their respective authorized officers effective as of the
Effective Date.





CRYSTAL GRAPHITE CORORATION

)

)

)

Per:

/s/ Gordon Sales

)

Authorized Signatory

)





CANADA PUMICE CORPORATION

)

)

)

Per:

/s/ Brian Wear

)

Authorized Signatory

)





SIGNED, SEALED AND DELIVERED

by

BRIAN WEAR

 in the

)

presence of:

)

)

/s/ Diana
Fell

)

Signature of Witness



)

/s/ Brian Wear





Diana
Fell

)

BRIAN WEAR

Name of Witness



)

34741 - 1st
Ave.

)

Address of Witness



)

Abbotsford,
B.C.

)







End of Exhibit 10.13



---



EXHIBIT 31.1







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Certification of Disclosure in Crystal Graphite Corporations Annual Report by Gordon Sales





End of Exhibit 31.1





---

Certification of Disclosure in

Crystal Graphite Corporations Annual Report



I, Gordon Sales, certify that:



1.

I have reviewed and read this annual report on Form 20-F of Crystal Graphite Corporation;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;



4.

The companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:



(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c)

evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d)

disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered y the annual report that has materially affected, or is reasonable likely to materially affect, the companys internal control over financial reporting; and







---

5.

The companys other certifying officer and I have disclosed, based on our most recent evaluations of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions):



(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and



(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting.





Dated: March 10, 2005

/s/ Gordon Sales



Gordon Sales, President, CEO and Director.





---

EXHIBIT 31.2







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation.





Attached find the following materials:





Certification of Disclosure in Crystal Graphite Corporations Annual Report by Bernie Zacharias





End of Exhibit 31.2



---

Certification of Disclosure in

Crystal Graphite Corporations Annual Report



I, Bernie Zacharias, certify that:



1.

I have reviewed and read this annual report on Form 20-F of Crystal Graphite Corporation;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;



3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;



4.

The companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:



(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



(c)

evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(d)

disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered y the annual report that has materially affected, or is reasonable likely to materially affect, the companys internal control over financial reporting; and





---



5.

The companys other certifying officer and I have disclosed, based on our most recent evaluations of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions):



(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and



(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting.





Dated: March 10, 2005

/s/ Bernie Zacharias



Bernie Zacharias, Chief Financial Officer (Principal Accounting Officer)





---

EXHIBIT 32.1







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Certification of Gordon Sales pursuant to Section 906

of the Sarbanes-Oxley Act of 2002





End of Exhibit 32.1



---

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report on Form 20-F for fiscal year ended August 31, 2004 of Crystal Graphite Corporation, a British Columbia, Canada corporation (the Company), as filed with the Securities and Exchange Commission on the date hereof (the Annual Report), I, Gordon Sales, President and Chief Executive Officer of the Company certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:



1.

The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and



2.

The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.





Dated: March 10, 2005

/s/ Gordon Sales



Gordon Sales, President, CEO and Director







---

EXHIBIT 32.2







This is an Exhibit to the Form 20-F of Crystal Graphite Corporation





Attached find the following materials:





Certification of Bernie Zacharias pursuant to Section 906

of the Sarbanes-Oxley Act of 2002





End of Exhibit 32.2



---

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report on Form 20-F for fiscal year ended August 31, 2004 of Crystal Graphite Corporation, a British Columbia, Canada corporation (the Company), as filed with the Securities and Exchange Commission on the date hereof (the Annual Report), I, Bernie Zacharias, Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:



1.

The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and



2.

The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.





Dated: March 10, 2005

/s/ Bernie Zacharias

Bernie
Zacharias, Chief Financial Officer (Principal Accounting Officer)