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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
  
 FORM 10-KSB
 (Mark One) [X]
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
 For the fiscal year ended May 31, 2004
 [   ]
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
 For the transition period from _______ to ______
 Commission file number: 0-29392 CALAIS RESOURCES INC.
  British Columbia
(State or other jurisdiction of
incorporation or organization)
    
    98-0434111
(IRS Employer
Identification No.)8400 East Crescent Parkway, #675
Greenwood Village, Colorado
(Address of principal executive offices)
    
    80111
(Zip Code)
 Issuers telephone number: (720) 529-9500 Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Act:
Common Shares, no par value  Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve (12) months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [   ] Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. Yes [X] No [   ] Registrants revenues for the fiscal year ended May 31, 2004 were $nil. The aggregate market value of the voting stock held by non-affiliates of
the Registrant based on the average bid and asked prices of the Registrants
Common Stock on July 31, 2004 was US$8,150,719. Excludes 10,828,346 shares of
common stock held by Directors, Officers and holders of 5% or more of the
Registrants outstanding Common Stock on that date. Exclusion of shares held
by any person should not be construed to indicate that such person possesses
the power, direct or indirect, to direct or cause the direction of the
management or policies of the Registrant, or that such person is controlled by
or under common control with the Registrant. There is no non-voting common
equity of the Registrant. The number of shares outstanding of the Registrants Common Stock, no par
value, as of July 31, 2004 was 20,143,453 shares. The following document is incorporated by reference into Part III of this
Form 10-KSB: None. Transitional
Small Business Disclosure Format (check one): Yes [   ] No [X]




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERSITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATIONITEM 7. FINANCIAL STATEMENTSITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 8A. CONTROLS AND PROCEDURES.PART IIIITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACTITEM 10. EXECUTIVE COMPENSATIONITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESSIGNATURESEXHIBIT INDEXCertification Pursuant to Rule 13a-14(a)Certification Pursuant to Rule 13a-14(a)Certification Pursuant to 18 U.S.C. Section 1350    Table of Contents  
 PART I Calais Resources, Inc. is organized under the laws of British Columbia,
Canada. In this Annual Report, the Company, Calais, we, our, and us,
refer to Calais Resources, Inc. and its subsidiaries (unless the context
otherwise requires). Summary discussions of documents referred to in this
Annual Report may not be complete, and we refer you to the actual documents for
more complete information. Our principal corporate offices are located at 8400
East Crescent Parkway, #675, Greenwood Village, CO 80111; our telephone number
is 720-529-9500. 
 ITEM 1. BUSINESS Because we want to provide you with more meaningful and useful
information, thisForm 10-KSBcontains certain forward-looking statements (as
such term is defined in section 21E of the Securities Exchange Act of 1934, as
amended). These statements reflect our current expectations regarding our
possible future results of operations, performance and achievements. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 and applicable common law
and SEC rule. Whenever possible, we have tried to identify these forward-looking
statements by using words such as anticipate, believe, estimate,
expect, plan, intend and similar expressions. These statements reflect
our current beliefs and are based on information currently available to us.
Accordingly, these statements are subject to certain risks, uncertainties and
contingencies, which could cause our actual results, performance or
achievements to differ materially from those expressed in, or implied by, such
statements. We have described these risks, uncertainties and contingencies
under Risk Factors and Managements Discussion and Analysis of Financial
Condition or Plan of Operation. We have no obligation to update or revise any such forward-looking
statements that may be made to reflect events or circumstances after the date
of this report. (a) Business Development General Information We are a mineral exploration company engaged directly and indirectly
through subsidiaries, in the acquisition and exploration of mineral interests.
Our primary property is the Caribou prospect (exploration stage) located in
Nederland, Colorado. We have reported the existence of measured, indicated and
inferred mineral resources on our Caribou prospect (as described in more detail
in Item 2 below). We have calculated these resources in accordance with the
requirements of National Instrument 43-101  Standards of Disclosure of Mineral
Projectsissued by the Canadian Securities Commission, but we will not know
that a commercially viable mineral deposit or a reserve exists in the Caribou
prospect until a sufficient and appropriate exploration work is done and a
comprehensive evaluation of such work concludes economic and legal feasibility.
United States investors are advised that while terms such as measured,
indicated and inferred mineral resources are recognized and required by
Canadian regulations, the United States Securities and Exchange Commission (the
SEC) does not recognize them. Mineral resources have a great amount of
uncertainty as to their existence, and great uncertainty as to their economic
and legal feasibility. It cannot be assumed that all or any part of a mineral
resource will ever be upgraded to a higher category. Under Canadian rules,
estimates of inferred mineral resources may not form the basis of feasibility
or other economic studies. United States investors are cautioned not to assume
that all or any part of mineral resources will ever be converted into mineral
reserves or ever recovered profitably, if at all. 2




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Calais Resources, Inc also has interests in exploration prospects in
Nevada and Panama, as described in more detail in Item 2, below. The address of our principal executive offices and our telephone and
facsimile numbers at that address are: Calais Resources, Inc.
8400 East Crescent Parkway, #675
Greenwood Village, Colorado 80111
Telephone No.: (720) 529-9500
Facsimile No.: (720) 529-9747 Our legal name is Calais Resources Inc. We were incorporated under the
laws of British Columbia, Canada, on December 30, 1986 under the name
Millenium Resources Inc. We changed our name to Calais Resources, Inc. on
March 19, 1992. We are engaged in the exploration of natural resource
prospects. To date our activities have not included development or mining
operations. Our primary mineral interests are the Caribou prospect in
Colorado, the Manhattan prospect in Nevada, and mineral concessions in the
Panama. Our principal executive office has moved to the United States and is now
located at 8400 East Crescent Parkway, #675, Greenwood Village, CO 80111;(tel:
720-529-9500; fax: 720-529-9747) and the contact person at that address is
Matthew C. Witt. Previously it was located at 9482 Williams St., Chilliwack,
British Columbia, Canada V2P 5G1 (tel (604) 795-3383; fax (604) 792-3676). Our
registered office in British Columbia is 9482 Williams St., Chilliwack, British
Columbia, Canada V2P 5G1 (tel (604) 795-3383; fax (604) 792-3676). Our Common Shares trade on the OTC Bulletin Board under trading symbol
CAAUF. Our fiscal year ends May 31st. The Companys consolidated financial
statements are stated in Canadian Dollars (Cdn$) and are prepared in accordance
with generally accepted accounting principles as they are applied in Canada
(Canadian GAAP); nevertheless, the consolidated financial statements conform
in all material respects with generally accepted accounting principles as
applied in the United States (US GAAP) except as disclosed in footnotes to
the consolidated financial statements. We are a small business issuer as that term is defined in Rule 405 under
the Securities Act of 1933 and Rule 12b-2 under the Securities Act of 1934. In this report, all references to $ and Cdn$ refer to Canadian Dollars
and all references to US$ refer to United States Dollars. Unless otherwise
specified, all dollar amounts are expressed in Canadian Dollars (Cdn$). All
references to Common Shares refer to shares of our common stock (without par
value) unless otherwise indicated. The following table sets forth the high and
low rate of exchange for the Canadian Dollar to the U.S. Dollar at the end of
each of the five most recent fiscal years ended May 31st, the average rates for
the year, and the range of high and low rates for each month in the last six
months ended June 30, 2004. For purposes of this table, the rate of exchange means the noon buying
rate in New York City for cable transfers in foreign currencies as certified
for customs purposes by the Federal Reserve Bank of New York. The table sets
forth the number of Canadian Dollars required under that formula to buy one
U.S. Dollar. The average rate means the average of the exchange rates on the
last day of each month during the period. The rate of exchange on May 31, 2004
was Cdn$1.36, meaning that at that date Cdn$1.36 would purchase US$1.00, or
US$0.73 would purchase Cdn$1.00. 3




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Month ended
    
    High
    
    LowJune 30, 2004
    
    $
    1.38
    
    
    $
    1.34May 31, 2004
    
    $
    1.40
    
    
    $
    1.36April 30, 2004
    
    $
    1.37
    
    
    $
    1.31March 31, 2004
    
    $
    1.35
    
    
    $
    1.31February 29, 2004
    
    $
    1.34
    
    
    $
    1.31January 31, 2004
    
    $
    1.33
    
    
    $
    1.27
 Year ended May 31
    
    Average
    
    High
    
    Low2004
    
    $
    1.34
    
    
    $
    1.41
    
    
    $
    1.252003
    
    $
    1.46
    
    
    $
    1.59
    
    
    $
    1.332002
    
    $
    1.57
    
    
    $
    1.60
    
    
    $
    1.522001
    
    $
    1.52
    
    
    $
    1.58
    
    
    $
    1.472000
    
    $
    1.47
    
    
    $
    1.51
    
    
    $
    1.441999
    
    $
    1.51
    
    
    $
    1.58
    
    
    $
    1.45
 Corporate Structure Our authorized capital is 100,000,000 Common Shares without par value of
which 20,143,453 shares were outstanding as of May 31, 2004. All of our
authorized Common Shares are of the same class and, once issued, rank equally
as to dividends, voting powers, and participation in assets. Holders of Common
Shares are entitled to one vote for each share held of record in all matters to
be acted upon by the shareholders. Holders of Common Shares are entitled to
receive such dividends as may be declared from time to time by the Board of
Directors, in its discretion, out of funds legally available therefore. Our
articles of association do not permit us to authorize any class or series of
preferred stock. Upon liquidation, dissolution or winding up, holders of our Common Shares
are entitled to receive pro rata our assets, if any, remaining after payments
of all debts and liabilities. No shares have been issued subject to call or
assessment. There are no pre-emptive or conversion rights and no provisions
for redemption or purchase for cancellation, surrender, or sinking or purchase
funds. We are not aware of any restrictions or limitations on the rights of
non-resident or foreign owners to hold, vote, or receive remittance on our
securities, other than those discussed in Exchange Controls and Other
Limitations Affecting Security Holders. Although our articles of association provide for no restrictions on our
ability to repurchase or redeem our Common Shares while there is any arrearage
in the payment of dividends or sinking fund installments. Our loan agreement
with the Broadway investors prohibits the redemption of any shares until
Calais repays this loan in full. Provisions as to the modification, amendment or variation of such
shareholder rights or provisions are contained in the Company Act of British
Columbia. Unless the Company Act or our Articles or bylaws otherwise provide,
any action to be taken by a resolution of the members may be taken by an
ordinary resolution or by a vote of a majority or more of the shares
represented at the shareholders meeting. Our Articles and the British Columbia Business Corporations Act contain
provisions, which require a special resolution for effecting certain
corporate actions. Such a special resolution requires a three-quarters vote
of shareholders rather than a simple majority for passage. The principle
corporate actions that require a special resolution include: 4




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a.
    
    Transferring Companys jurisdiction from British Columbia to another
jurisdiction;b.
    
    Giving material financial assistance to executive officers and/or
directors;c.
    
    Material conflicts of interest by Directors;d.
    
    Disposing of all or substantially all of our assets;e.
    
    Removing a director before the expiration of his term of office;f.
    
    Certain alterations of share capital, including:  (1)
    
    increasing the number of authorized shares;(2)
    
    subdivision, consolidation and/or changes in shares;(3)
    
    reduction in capital;  g.
    
    Changing our name;h.
    
    Altering any restrictions on our business; andi.
    
    Amalgamations with another company. Subsidiaries Calais Resources Colorado, Inc., a Nevada corporation qualified to do
business in Colorado, owns our Caribou prospect. We own 100% of the
outstanding capital stock of Calais Resources Colorado, Inc. Those shares are
owned through Calais International Inc. and Calais International Colorado Inc.
(both Barbados, West Indies corporations which Calais recently reinstated under
Barbadan law). Calais Resources Nevada, Inc., a Nevada corporation, claims an interest in
mineral prospects in Nevada (the Manhattan prospect). We own 100% of the
outstanding capital stock of Calais Resources Nevada, Inc. As is the case with
our Colorado subsidiary, we own those shares through Calais International Inc.
and Calais International Nevada Inc. (both Barbados, West Indies corporations
which Calais recently reinstated under Barbadan law). (b) Business of Calais We are in the business of researching, acquiring, exploring and, if
warranted, developing mineral prospects. Our corporate philosophy has been to
seek out and acquire other potential gold prospects. If we identify prospects, we endeavor to acquire the rights to the
prospect and surrounding claims. During the acquisition process, we also
proceed through a due diligence period to the commencement of a full scientific
analysis of the district, followed by an exploration program and (if ever
warranted) a development program. Suitable results at each step in the process
are a prerequisite to further exploration. Upon suitable identification of a
mineral deposit and reserve (of which there can be no assurance), we will then
make the decision to either proceed with the mining thereof, to joint venture
with a major mining company, or to sell outright. Exploration of mineral resources can be expensive. Through the years, we
have been accomplishing limited exploration activities with funds provided
through debt and equity investment. We have been using, and expect to continue
to use, the net proceeds from the August 2003 financing and subsequent capital
raising activities to expand our drilling operations on our Caribou prospect
and to commence exploration operations on our concession in Panama. We have
also performed an investigation of title to the mineral interests in Nevada in
which we own contractual interests. We do not expect to expend significant
proceeds on the Nevada prospect, until we are satisfied with the title to our
patented and unpatented mining claims. See Item 12, below. If we reach the development and mining stages for any of our prospects
(which cannot be assured), we plan to seek industry partners as well as other
sources of capital, and we may have to sell an interest in our prospects, enter
into joint venture or other arrangements, or otherwise dilute our interest in
our mineral interests in order to attract third party financing. We will
likely only be able to attract interest in our mineral
prospects on commercially-reasonable terms if we are able to show positive
results from our exploration programs and our other work (such as mapping)
sufficient to attract third-party financing or industry participants. 5




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Our activities on our three mineral interests are not affected by
seasonality, although during the rainy season (November through March,
annually) access to our Panamanian properties is more difficult. The raw materials that we need for our mineral exploration activities
consist of readily available consumables such as fuel and equipment. We also
contract with third parties for some of these activities, such as the drilling
that is currently proceeding. At this time, there is no shortage of these
materials or contractors at reasonable prices, and we do not believe that the
prices of these materials or services are volatile  with the possible
exception of fuel prices which fluctuate based on global market conditions. Since we have not yet produced any gold or silver for sale, we have not
developed any marketing channels. If we do produce precious metals (which
cannot be assured), there are numerous outlets for the sale of our production. Our operations and our prospective operations are not dependent on any
intellectual property patents or licenses, industrial, commercial, or financial
contracts, or new manufacturing processes. Government Regulations and Rules The prospects which we are exploring are subject to various federal, state
and local laws and regulations governing prospecting, exploration, development,
production, labor standards, occupational health, mine safety, control of toxic
substances, and other matters involving environmental protection and taxation.
U.S. and foreign environmental protection laws address, among other things, the
maintenance of air and water quality standards, the preservation of threatened
and endangered species of wildlife and vegetation, the preservation of certain
archaeological sites, reclamation, and limitations on the generation,
transportation, storage and disposal of solid and hazardous wastes. There can
be no assurance that all the required permits and governmental approvals
necessary for any mining project with which we may be associated can be
obtained on a timely basis, or maintained as required by the operator of the
project. We have spent a significant amount of money complying with the
environmental laws in the United States, Colorado and Boulder County in
connection with our operations on the Caribou prospect. We estimate that the
cost of environmental compliance for our Caribou prospect in fiscal 2004 was
approximately US$100,000. We can expect similar expenses in subsequent years,
and additional expenses for environmental compliance should we undertake any
significant activities on our Nevada or Panama prospects. The Company is not aware of any proposed or existing United States or
Panamanian regulations pertaining to environmental matters which might have a
material impact on our future financial performance. Nevertheless, the
applicable governmental bodies can change the current rules and regulations in
accordance with their procedural requirements, and certain governmental
employees may interpret existing rules and regulations in a manner that we do
not believe is consistent with the intent of those rules or regulations.
Should the regulations or their interpretation change, the changes may have a
material adverse impact on our operations. Competition There are a large number of other companies in the United States and
abroad that are engaged in the exploration and development of prospects for
gold and silver. Many of these companies have achieved production and
therefore have cash flow and have financial strength that exceeds our financial
strength. Nevertheless, the market for our possible future production of minerals
tends to be commodity oriented, rather than company oriented. Accordingly, we
expect to compete by keeping our production costs
low through judicious selection of which portions of the property to
develop (if development is warranted) and by keeping overhead charges within
industry standards. 6




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Capital Raising Activities At the end of the 2004 fiscal year, we had positive working capital of
approximately Cdn$877,000. During the 2003 fiscal year and subsequently, we
engaged in discussions with a large number of potential financing sources. On
August 1, 2003, we completed a financing with several accredited investors who
loaned US$4,500,000 to us and took a security interest in the Caribou prospect
to collateralize our repayment obligation. We also issued 8,181,818 shares of
our common stock to Broadway Mortgage Corp. as a loan origination fee valued at
US$0.55 per share. Matt Witt is now our chief financial officer and was
appointed to that position as a result of the transaction. Prior to his
appointment, Broadway had assigned to Mr. Witt 1,600,000 shares of Calais
common stock Another one of the accredited investors, Stephen Angelo Benaske,
agreed to an informal escrow arrangement that if our common stock price
exceeded US$3.00 per share, he would sell up to 1,500,000 shares of the
original 8,181,818 shares for our benefit to repay the loan in full. He will
only be able to sell the shares to the extent that a registration statement for
the sale is effective or an exemption from registration is available. The
US$4,500,000 loan to us (bearing interest at 12.9% and due July 31, 2005 or
upon the sale of 1,500,000 shares of common stock by Mr. Angelo Benaske if the
stock price reaches US$3.00) was used for the following: Prepayment of two-years interest to the lender
    
    US$
    1,161,000Repayment of remaining amounts due to bank
    
    US$
    1,080,000Repayment of interim mortgage due to Thomas S. Hendricks for
funds he advanced
    
    US$
    587,680Repayment of trade payables
    
    US$
    700,000Repayment of accrued compensation
    
    US$
    223,822Financing costs
    
    US$
    95,000
 As a result, following the financing and the use of proceeds as described
above, we had US$652,498 remaining for working capital, which we used for
exploration of our mineral interests at Caribou and in Panama, and for general
and administrative purposes. To secure the loan, we pledged our Caribou
prospect as collateral. From August, 2003 through May 2004, we raised an additional Cdn$1,096,824
cash from the sale of our restricted common stock and warrants to accredited
investors and to option holders upon exercise of options held by them. We have
also issued 247,750 shares of our restricted stock to five accredited investors
(including officers) for services rendered to Calais or for property purchased
by Calais  in both cases permitting us to preserve working capital for other
purposes. Subsequent to May 31, 2004, we have raised additional funds from the sale
of our restricted common stock and warrants. In May and June, 2004, we
approved the following three transactions (although the documentation sent to
Ober, Garvey, Duffy, and Dufy has not been received back as of this filing; the
following disclosure assumes that the documentation will be completed as agreed
to in writing and as approved by the Board):  1.
    
    Duane and Glenn Duffy, holders of a US$2,000,000 lien on the Caribou
prospect (as part of the Broadway mortgage) agreed to release US$1,677,390
of their first mortgage lien and pay to us US$117,390 in prepaid interest
in exchange for a US$1,560,000 private placement. The terms of the
private placement provide US$1,560,000 buying shares at US$.75 equaling
2,080,000 shares. In addition, the investors will receive two sets of
warrants: one for 2,080,000 at US$1.25 through December 31, 2005 and one
for 2,080,000 shares at US$1.75 through December 31, 2006;2.
    
    Private placement by James Ober and Luke Garvey under the following
terms: US$75,000 to Calais (received on June 16, 2004) to buy 100,000
shares at US$.75. Two sets of warrants will
accompany the private placement: one for 100,000 shares at US$1.25
through December 31, 2005 and one for 100,000 shares at US$1.75 through
December 31, 2006. 7




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3.
    
    An investment by James Ober and Luke Garvey of US$166,000 with Calais
(received in June 2004),to be collateralized by the first mortgage on the
Caribou prospect in favor of the Broadway investors. The term of the
investment is 14 months and interest will be at a rate of 15% per annum.
There is a balloon date of July 31, 2005. Property Exploration and Maintenance Activities After receiving the August 2003 investment from the accredited investors,
we commenced a drilling program on our Caribou prospect which is intended to
expand the mineral resources we have already identified on this property and
which were announced publicly in January 2004. During September and October
2003 we drilled two core holes at a cost of about US$250,000, and subsequently
drilled an additional four holes at a cost of approximately US$500,000. We
also have updated all of the geologic information about the Caribou prospect in
a three-dimensional program which we expect will assist us in determining
future exploration activities, whether development drilling is warranted, and
have identified and reported mineral resources on our Caribou prospect as
required by Canadian securities regulation under Canadian National Instrument
43-101  Standards of Disclosure of Mineral Projects. We have not identified
any reserves or determined whether commencement of commercial production is
warranted. We have also sent a team to Panama (including the brother of our
president) to explore our Panamanian mineral concessions in the Faja de Oro
District. In this process we have extended certain obligations we undertook,
and to complete a $250,000 exploration program for lode deposits by September
25, 2004, and an additional $250,000 program to explore for placer gold
deposits and install a pilot placer operation. As of July 31, 2004, we have
not met these performance obligations and we can offer no assurance that we
will be able to do so. We are negotiating with our contractual partner for the
Panama prospect for a restructuring of our contractual relationship, although
we cannot offer any assurance that we will be able to achieve any agreement for
a restructuring During fiscal 2004, we have accomplished no additional exploration work on
our Nevada prospect, but we have done a significant amount of work to ascertain
the status of title to the Nevada prospect. Furthermore, we obtained an
agreement from Marlowe Harvey (a significant shareholder, previously an officer
and director of, and the person who has agreed to transfer a significant
portion of the Manhattan prospect to Calais) pursuant to which he recognized
his responsibility to provide us evidence of good title to the mineral
interests in Nevada. Mr. Harvey and certain affiliates have assigned the title
they hold in the Nevada properties to us, but there are other title conflict
issues that must be resolved. At the present time, although we believe we have
enforceable contractual rights to acquire title to the mineral interests in
Nevada, issues remain. The Company has been assigned only portions of the
ownership interest in these properties, and has located 56 of its own
unpatented claims in the area. The Company has placed notice of its joint
venture agreement concerning the prospect, and its Settlement Agreement with
Argus, NMMI and Moran Holdings, Ltd., of record in Nye County, Nevada. Because of working capital shortages, we did not perform any significant
drilling on our mineral interests during fiscal 2003 (ended May 31, 2003). Title of Mining Claims in the United States It has been our practice to obtain policies of title insurance upon our
patented mining claims as they have been acquired. However, title insurance
has generally been acquired in the amount of the purchase price of the mineral
interests acquired. Such coverage would not afford adequate protection against
the loss of mineral values, or the expenditure of funds on exploration should a
title defect create a loss. If commercial mineral deposits were discovered on
our patented mining claims, the value of such deposits would almost certainly
greatly exceed the original purchase price of those mineral interests, as the
purchase price which was often predicated on then current surface values. Title
insurance coverage
would almost certainly be inadequate to compensate for the loss of such
values. The value of land surface in the area of our patented mineral claims
has tended to increase substantially with time, making it more difficult to
establish a loss should a defect to title be discovered. 8




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Calais, its predecessors and their joint venture partners, have
periodically dedicated substantial time and effort to detect and to cure any
title problems which have been identified concerning the patented mining
claims. These past efforts have included full record title searches on key
prospects. These searches have focused, however, on the Caribou Mine interests
and the Cross Mine interests, which were the subject of past or historical
mining activity. The Company has now received a litigation title commitment on
the patented properties which are a part of the Manhattan prospect, and initial
title reports, on the unpatented claims, from a qualified Nevada landman. These
reports have been utilized in the initiation of the first stages of title
curative work. The Caribou prospects compromise by area approximately 30% of
the patented mineral acreage owned or controlled by Calais. We have relied
upon title insurance as to the remaining Caribou acreage, and upon title
searches focusing on the period 1974 to date, and/or updating information
contained in the title policies as issued or re-issued. As described in more detail in Item 2, below, we cannot offer any
assurance that we can obtain a full and complete title to the 28 patented
mining claims included in the Manhattan Prospect. However, the Company has
received a record title to a percentage of such patented claims, and, has
recorded a Settlement Agreement granting it the right to purchase NMMIs
interest in the claims, and its 24.5% venture interest, and granting exclusive
operational rights. Additional title curative work must still be completed to
justify a significant expenditure on exploration of the property. As described in more detail in Item 2, below, we cannot offer any
assurance that we can obtain good title to the 28 patented mining claims that
constitute a portion of the Manhattan prospect. Of the 105 unpatented claims in the Caribou prospect, 90 were located by
Calais predecessor HMC, ten were acquired during the acquisition of patented
and unpatented lands of the Aquarius Mining Company, and five were recently
located by Calais. We recently located five claims and we are in the process
of recording the title documents for these prospects. The record title to
these mineral interests is believed to be secure, as the title chains running
to Calais are exceedingly short. Our title to the 147 unpatented mining claims included in the Manhattan
prospect is (as described below) much less certain. Calais has recently
located 56 additional claims to which its title is unquestioned. There are
unavoidable risks in holding unpatented mining claims located under the General
Mining Law, including potential challenges to the validity of any claimed
discovery, a challenge as to whether claimed discoveries would satisfy the
prudent man rule, potential errors in location or recording, and the risk of
changes in the law or regulations. Claims upon which no actual discovery exists
are held by virtue of the doctrine of pedis possessio, which involves the
occupation of claimed mining ground while engaged in a diligent search for a
discovery of valuable minerals. There can be no guarantee that pedis possessio
rights would be recognized as to any or all of our unpatented mining claims in
Colorado or Nevada if challenged by a third party. There can be no guarantee
that any claimed discovery on unpatented grounds would survive challenge by the
federal government, if the government sought to challenge our title or right to
occupy the ground. No challenges are currently outstanding either by adverse
locators, or by the Federal government. Exploration Expenditures We have spent exploration and property maintenance funds as follows in
each of the last three years and our budget for fiscal 2005 is as follows: Proposed 2005(Estimated)
    
    Actual 2004
    
    Actual 2003
    
    Actual 2002Manhattan prospect
    
    Cdn$
    3,500,000
    
    
    Cdn$
    192,239
    
    
    Cdn$
    151,215
    
    
    Cdn$
    292,886Colorado prospect
    
    Cdn$
    6,000,000
    
    
    Cdn$
    1,079,066
    
    
    Cdn$
    198,206
    
    
    Cdn$
    120,601Panama prospect
    
    Cdn$
    500,000
    
    
    Cdn$
    266,823
    
    
    Cdn$
    147,260
    
    
    Cdn$
    65,070
 9




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##### Table of Contents



As discussed below in Item 2, we are seeking the financing necessary for
our budgeted programs on our Colorado, Nevada, and Panama prospects. We cannot
offer any assurance that we will be able to obtain the necessary debt or equity
financing, on reasonable terms, if at all. Employees As of the end of our 2004 fiscal year, we had seven employees including
Thomas Hendricks, our president, and Matt Witt, our chief financial officer.
Of the remaining employees, two are involved in our operations at our Caribou
prospect and three constitute our administrative staff. As of the end of each
of our 2002 and 2003 fiscal years, we had one employee, Tom Hendricks. We have
used and continue to use independent contractors for our mineral operations, as
necessary. 
 ITEM 2. PROPERTIES Executive Offices On August 1, 2003 we opened a U.S. corporate office in Greenwood Village
Colorado in an office we have rented on a month-to-month basis for rent of
approximately US$6,000 per month. We are looking for more permanent space. We
closed our Canadian offices in November 2003. We also have operational offices
on our Caribou prospect for which we pay no rent (since we own the property). Caribou prospect, Colorado, USA: Gold/Silver Exploration Acquisition Details The Caribou Consolidated District, located near Nederland, Colorado, is a
3.5 square mile consolidated precious metals district accessible all year
(except occasionally during the winter as the result of extremely heavy
snowfall) through paved and maintained gravel roads. Historic production in
the district dates back to 1869. Production between 1977 and 1985 totaled $5
million through exploration work and old mine dump reclamation. The district
consists of three modern surface plants, roads, and power lines. Calais has
the following permits which it believes are sufficient for its contemplated
operations:  1.
    
    Mined Land Reclamation Permit #M-1977-410 issued by the
Colorado Department of Natural Resources;2.
    
    Water Discharge Permit #CO-0032751 issued by the Water
Quality Control Division (WQCD-PE-B2) of the Colorado Department of
Public Health and Environment;3.
    
    Explosives permit Number 3, Mine Number 17, issued by the
Colorado Division of Minerals and Geology of the Colorado Department
of Natural Resources;4.
    
    MSHA Permit number 0502730 issued by the federal Mine Safety
and Health Administration; and5.
    
    Permits issued by the Boulder County Land Use Office. These permits, when taken together, allow mining at the Cross Mine located
within our Caribou prospect, as well as exploration activities on the property.
These permits do not allow milling. It should be noted that there is no mill
on the property. We have completed 150,000 feet of core drilling through May 31, 2004 (and
no additional drilling through July 31, 2004), and we have a modern core
library. All data is in the Vulcan/Maptek program and has an extensive
database. The Cross Mine has high grade vein widths from 3 feet to 50 feet,
going to significant depths and significant strike lengths. The Caribou
district has recorded production dating back to 1869 of 300,000 oz. gold and
20,000,000 oz. silver. We owe royalty obligations to related and to unrelated
parties as described below under Royalty Obligations on Caribou Prospect. 10




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We have acquired interests in additional, neighboring prospects since the
original acquisition in 1998. In all cases, these additional prospects were
acquired from unaffiliated third parties. The property we own includes 128
patented and 105 unpatented mining claims. The unpatented mining claims are
located on federal lands and are subject to federal as well as state
jurisdiction, and the requirements of the U.S. General Mining Law. Of the 128 patented claims in our land position, six claims represent
fractional ownership, and an additional eight claims represent ownership of the
subsurface minerals only, together with either a partial interest in the
surface, and/or a mining easement in favor of the Company. Four of the 128
mining claims are leased interests. Calais and an affiliated company, Aardvark
Agencies, Inc. (AAI) has fee ownership of approximately 400 net surface
acres, and approximately 570 net mineral acres. Approximately 12.5 acres of
these mineral lands are leased lands. The difference between the net mineral
acres and net surface acres represents lands where the Company owns the
subsurface and a mining easement upon the surface, but not the entire surface
interest. AAI is controlled by Calais previous chairman, Marlowe Harvey.
Following a series of transactions between AAI, Mr. Harvey, Calais, and Mr.
Hendricks which resulted in litigation brought by Mr. Hendricks against Mr.
Harvey, Mr. Harvey, AAI, Mr. Hendricks and Calais entered into a mutual release
and settlement agreement effective July 18, 2000. This agreement (which was
modified in 2004) provides that Calais has the right to reacquire the claims
held by AAI for a debenture (which Calais has already paid to AAI) and for a
payment from Calais to AAI equal to pay the capital gains triggered by the
reconveyance of the property to Calais. (The cash payment will be deducted
from the debenture.) In March 2004, Mr. Harvey and his affiliates entered into a settlement
agreement with Calais which, among other things, included a more precise
definition of Calais right (which expires August 31, 2011) to repurchase the
interest of AAI in the Caribou prospect, including the price payable for the
reacquisition (a total of Cdn$747,728 which is included in the debentures in
our financial statements) and AAIs right to convert that debenture before it
is paid. That agreement also defined Calais right to borrow against, enter in
and upon the mineral interests in the Caribou prospect owned by AAI, construct
buildings and mines on those prospects, and remove and sell minerals from
Caribou for Calais own account. Calais and its predecessors located the 105 unpatented claims under the
general mining laws of the United States. Each of these claims is generally 20
acres in size, less any overlaps and area attributable to previously patented
lands lying within their boundaries. The net acreage controlled by these
unpatented claims is approximately 1,525 additional acres. We are engaged in
the location of additional unpatented mining claims. There is no guarantee that
additional federal lands will remain open to location, or that the General
Mining Law will not be repealed or amended. The vast majority of exploration to date on Calais lands has taken place
on patented claims. Under the General Mining Law, as amended, unpatented claims
may only be validly located by the making of a discovery, within the meaning of
that law, upon open lands within the exterior boundaries of the claims. Though
mineralization has been encountered on some of the unpatented claims, there can
be no guarantee that there is a valid discovery on any of those claims. The
patenting of mining claims, done with relative ease during the period
1872-1920, is now very difficult, and most patent applications are either
suspended or prohibited from being filed. Thus, there is no likelihood for the
acquisition of a fee title to any of the unpatented lands, and unpatented
claims now held are held subject to potentially adverse changes in laws and
regulations governing them. Royalty Obligations on the Caribou Prospect The majority of the mineral interests that Calais acquired from the former
Hendricks Mining Co. (HMC) in 1998, or acquired within five years thereafter,
are subject to net smelter return royalties in amounts varying from 2.0% to
0.5% of net smelter returns in favor of the former shareholders of 11




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##### Table of Contents



Hendricks Mining Co. (which include Thomas S. Hendricks (as to 85.354%), Mr.
Hendricks mother (10.101%), and Mr. Hendricks attorney (4.545%) who has
continued as attorney for Calais. The period for which Calais was obligated to
make further royalty grants as to new acquisitions expired in April, 2003. The
royalty grants now outstanding and of record are effective for a period of 20
years after the date of the grants, with expiration of the royalties beginning
in March 2018, and ending in April 2023. These individuals own the net smelter
return royalty covering substantially the entire Caribou prospect. (The net
smelter return does not include mineral interests acquired since April 2003.) The royalty grants to the former HMC shareholders are subject to a partial
buyout option exercisable by the Company at any time during the term of the
grants. The buyout option gives the Company the right to buy out and retire 1%
out of the 2% royalty grants (being 50% of the outstanding grants) for an
exercise price of US$750,000. Whether or not the exercise of the buyout option
would be advantageous to the Company cannot be determined from information
currently available to the Company. Several of the mineral interests acquired by the Company or AAI are
subject to royalty reservations in favor of prior owners of those interests. A
total of nine of the patented mining claims bear net smelter return royalties
in amounts varying from 1.325% to 3.5% of net smelter returns. The terms of
these royalties vary from perpetual to a lifetime interest only. To date,
Calais has not made any attempt to negotiate the re-acquisition of any of these
outstanding royalty interests, all of which are held by parties not affiliated
with Calais. The payment of royalties upon production, if it occurs, can negatively
affect the economics of a prospective mining operation, and may hinder the
ability of Calais to finance such operations. As no production decision has
been reached as to Calais mineral interests at Caribou, the impact of existing
royalty agreements upon Calais ability to develop any mineralization
discovered has not been determined. Property Description/Location/Access/Climate/Plant and Equipment The Caribou prospect includes the Cross Gold Mine, the Potosi Mine and
several other district prospects. The prospect is on the east flank of the
Front Range Mountains, approximately 25 miles west of Boulder, Colorado. It is
reached by a five-mile all-weather graded gravel road from the small town of
Nederland, which connects with Boulder via paved State Highway 119. The
prospect area encompasses claims with additional Federal claims on public lands
north and west of the Cross Mine. Gold and silver mineralization occurs in a
broad, west-northwest trending zone that includes the Cross Mine and extends
about 2,500 feet on the prospect. Three-phase power, sufficient to service a 500 tpd (tons per day) mine and
mill complex, is installed and active on the Caribou prospect. An 18-gauge
rail haulage system and equipment, hoisting equipment, compressed air, water
and ventilation services are installed and maintained in good working condition
in the Cross Mine. Mine water treatment facilities are currently operating in
compliance and were upgraded in recent years. The Cross Mine is fully permitted through the Colorado State Health
Department, the Colorado Division of Mines, Mine Safety and Health
Administration, and the Colorado Mined Land Reclamation Division. Permitting
includes a water discharge permit. There are three sheet metal buildings located on the Caribou prospect.
Calais uses these buildings for its mine offices, warehouse space, laboratory,
and a garage for some of its vehicles. Other mining equipment includes a bulldozer, a back-hoe, a front-end
loader, water trucks, several other trucks, a Boart Longyear diamond-tipped
core drill and three smaller drills as well as other equipment and inventory
used in the operations at the Caribou property. 12




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All of the buildings, equipment and vehicles are in operational condition
and are maintained regularly. We believe that the building, equipment and
vehicles are sufficient to continue our exploration program on the Caribou
prospect. Geological Setting. The Caribou prospect is situated in the northeast end of the
northeast-trending Colorado mineral belt, a regional trend of mineralization
extending across Colorado resulting from deep-seated crustal structures. The
prospect area includes metamorphic rocks of Precambrian age that are intruded
by multi-phase Tertiary rocks, and are predominately monzonite in character. A
system of northeast striking veins which cut east-west striking veins has been
the source of past gold and silver production in the prospect area. Of
greatest length are the northeast trending veins which parallel the Colorado
mineral belt and follow an ancient zone of structural weakness. The northeast
striking No Name vein and the Caribou Peak breccia zone are mineralized shear
components of the Colorado mineral belt with strike slip movement. Both the No
Name and Caribou Peak zones were probably conduits for fluids which mineralized
numerous east-west striking veins and the Pegmatite Reef zone. In the vein
systems, late phase gold mineralization over-prints earlier mesothermal silver,
lead, zinc and copper mineralization. A deep-test core hole documents strong
gold mineralization persisting 2,000 feet below the surface. From the results of core holes we have drilled, surface exploration,
geological reconnaissance, and other analysis, we believe the No Name vein
system is at least 1,800 feet in length or strike. We interpret the surface
expressions, outcroppings, assay results, and other analysis to indicate that
the No Name pierces the surface for a significant distance. Based on prior
studies, we believe that the vertical depth of the No Name vein at the Caribou
Mine is approximately 1,400 feet. Geology and mineralogy studies suggest that
the gold/ silver vein systems extend to great depth below the deepest level of
the known mine workings. The No Name vein outcropped the surface at the
Caribou Mine and was mined from the surface to 1,400 feet down and was mined
for 500 feet on the strike. The No Name vein ranged up to 30 feet true width
at the Caribou Mine and measured 43 feet with hole 97-104, however there were
also widths encountered as small as 1 foot wide. As is the case with mineral
veins in general, widths of the No Name vein pinch and swell in size throughout
its strike and depth. While we have a significant amount of information, we
are continuing to assemble data about the dimensions of the NoName vein system. The No Name is a large gold vein system, but it is only one of many gold
vein systems previously identified at the Consolidated Caribou Gold and Silver
District. There are many large veins that need further exploration to fully
identify their size and potential including: Anaconda Vein, Rare Metals Vein,
Caribou Park Zone, Apache Vein, Postosi Vein, East and West Nelson Veins,
Golconda Vein, and the Pegmatite Reef. Individual veins range in width from
inches to tens of feet, but generally average between two to ten feet, and
consist of sheared zones containing quartz and disseminated sulfides. Altered
host rock within and adjacent to veins shows limited sulfide mineralization,
due to lesser amount of rock fracturing. Primary sulfides include fine grained
pyrite, galena, chalcopyrite and sphalerite in a quartz and carbonate gangue.
The gold and silver are generally microscopic and are associated with the
sulfide minerals. Mine Structure The Cross Mine is an underground mine with 4 levels of tunnels. Drilling
depths are 2,180 feet below the surface. The Cross and Caribou Mines are
located 25 miles west of the city of Boulder, in Boulder County, Colorado. The
property consists of approximately 3,000 acres of patented and unpatented
mining claims situated in the Grand Island Mining District. The Caribou Mine
was the largest historical producer in the district, having produced 20,000,000
ounces of silver, with lesser production of gold and silver from the Cross
Mine. Pine forested mountain slopes predominate the area, with elevations
ranging from 9,500 to 10,500 feet above sea level. 13




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At the Cross Mine gold and silver mineralization is contained within a
series of veins occurring near the contact between biotite gneiss of the
Precambrian age Idaho Springs Formation and quartz monzonite of an early
Tertiary age intrusive stock. The veins are hosted by both rocks types and
pass undisrupted across the contact. The Cross Mine occurs largely within the
gneiss and is dominated by gold mineralization, while the Caribou Mine occurs
in the monzonite and is dominated by silver mineralization. Precious metal grades in the Cross Mine typically run 0.05 to 1.0 ounces
of gold per ton and 0.1 to 30.0 ounces of silver per ton, while in the Caribou
Mine they run .22 to 1.7 ounces of gold per ton and .11 to 71.78 ounces of
silver per ton. Surface weathering has partially oxidized sulfide minerals to
depths of approximately 100 feet below the surface. Exploration Work During 2003 and 2004 Because of working capital shortages, we performed no exploration work on
the Caribou prospect during our 2003 or 2004 fiscal years prior to August 2003. After receiving the funds from the August 2003 financing, we commenced a
drilling and exploration program on the Caribou prospect which resulted in the
drilling of six exploration holes (totaling approximately 13,500 vertical feet)
at a cost of US$750,000. Resource Estimation We have mapped all of our exploration work in a three dimensional program
which has also allowed us to estimate mineral resources in accordance with the
requirements of Canadian National Instrument 43-101  Standards of Disclosure
of Mineral Projects. As a result, although we have not identified any mineral
reserves, we have identified mineral resources as described below. United
States investors are advised that while terms such as measured, indicated
and inferred mineral resources are recognized and required by Canadian
regulations, the United States Securities and Exchange Commission (the SEC)
does not recognize them. Mineral resources have a great amount of
uncertainty as to their existence, and great uncertainty as to their economic
and legal feasibility. It cannot be assumed that all or any part of a mineral
resource will ever be upgraded to a higher category. Under Canadian rules,
estimates of inferred mineral resources may not form the basis of feasibility
or other economic studies. United States investors are cautioned not to assume
that all or any part of mineral resources will ever be converted into mineral
reserves or ever recovered profitably, if at all. The international consulting firm of Pincock Allen Holt of Lakewood,
Colorado, believes it is appropriate to refer to the estimated mineralization
in the Caribou prospect as a mineral resource (as that term is defined in
Canadian regulations) in that no particular economic parameters or cutoff
grades had been applied to identify economically mineable area. Pincock Allen
Holt concluded that Calais mineral resource estimates contained in a report
prepared by the Companys vice president, Robert Akright, represented
reasonable estimations for the eight project veins being considered and that
the manual procedures used in the calculations are were in accordance with
standard engineering practice. Original mineral resource estimates were made using hand drawn polygons on
longitudinal sections in the planes of the veins. The longitudinal sections
were generated on the 3-D Vulcan computer. Vein widths were measured also
using the Vulcan computer by viewing the veins from several perspectives in
3-D. Mineral resources were classified as either measured, indicated, or
inferred, in order of increasing geological confidence, depending on
projections from data points. An inferred mineral resource has a lower level of
confidence than that applied to an indicated mineral resource. An indicated
mineral resource has a higher level of confidence than an inferred mineral
resource but has a lower level of confidence than a measured mineral resource.
Measured mineral resources were estimated using hand drawn polygons on the
longitudinal sections with an area of approximately 50 feet beyond data points. 14




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##### Table of Contents



Indicated mineral resources were estimated by making modest projections
beyond the measured mineral resource blocks, generally a distant of
approximately 50 feet. Inferred mineral resources were based on modest
geological projections beyond the measured mineral resource areas in the planes
of the veins. Areas used in volume calculations were measured on the
longitudinal sections using a K & E hand operated compensating planimeter.
Tons were calculated using a factor of 12.0 cubic per short ton base on the
density of the host rock and information from past underground mining
information. Assay data used in the study were from conventional fire assays
produced in commercial laboratories and reported in ounces of gold and silver
per ton avoirdupois. Mineral resource estimates are not precise calculations,
being dependent on the interpretation of limited information on the location,
shape and continuity of the occurrence and on the available sampling results.
Reporting of tonnage and grade figures as reported in this News Release have
been rounded off to what the Companys geologist considers to be appropriately
significant figures to reflect the order of accuracy given the imprecise nature
of a mineral resource estimate. Table 1 below summarizes the mineral resource estimate contained in the original reports. Table 1
Calais Resources, Inc.
Cross/Caribou Mines, Colorado
Mineral Resources Aug 2002 Measured Mineral Resource
    
    Indicated Mineral Resource
    
    Inferred Mineral ResourceGold
    
    Silver
    
    
    
    
    
    Gold
    
    Silver
    
    
    
    
    
    Gold
    
    SilverVein
    
    Tons
    
    (opt)
    
    (opt)
    
    Tons
    
    (opt)
    
    (opt)
    
    Tons
    
    (opt)
    
    (opt)Juliet
    
    
    19,000
    
    
    
    0.18
    
    
    
    0.67
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Rare Metals
    
    
    98,000
    
    
    
    0.40
    
    
    
    2.58
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    92,000
    
    
    
    0.40
    
    
    
    2.58Apache
    
    
    41,000
    
    
    
    0.35
    
    
    
    8.57
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    27,000
    
    
    
    0.35
    
    
    
    8.57Potosi
    
    
    8,000
    
    
    
    0.22
    
    
    
    10.84
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    7,000
    
    
    
    0.22
    
    
    
    10.84Anaconda
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    35,000
    
    
    
    0.51
    
    
    
    1.15
    
    
    
    30,000
    
    
    
    0.51
    
    
    
    1.15No Name
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    133,000
    
    
    
    0.25
    
    
    
    9.67
    
    
    
    423,000
    
    
    
    0.25
    
    
    
    8.88E. Nelson
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    30,000
    
    
    
    0.11
    
    
    
    13.32
    
    
    
    0
    
    
    
    0
    
    
    
    0W. Nelson
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    79,000
    
    
    
    1.78
    
    
    
    71.78
    
    
    
    0
    
    
    
    0
    
    
    
    0166,000
    
    
    
    0.35
    
    
    
    4.24
    
    
    
    277,000
    
    
    
    0.45
    
    
    
    18.65
    
    
    
    578,000
    
    
    
    0.30
    
    
    
    7.48
 Notes:  (1)
    
    No cutoff grade or dilution factor was applied for resource tabulation.(2)
    
    The resource for the Juliet and Rare Metals veins in the Cross Mine area
are only those that occur below the lowest workings (Fourth level
 9515
feet).(3)
    
    The resource for the East Nelson and West Nelson veins in the Caribou
Mine area are only those that occur below the lowest workings (1239 Level
  8951 feet).(4)
    
    The resource for the No Name veins in the Caribou Mine area includes
unstoped areas as well as areas that occur below the lowest workings (1239
Level  8951 feet). Pincock Allen Holt believed it was appropriate to refer to the estimated
mineralization as a mineral resource in that no particular economic parameters
or cutoff grades had been applied to identify economically mineable area and
concluded that Calais mineral resource estimates contained in the Akright
report represented reasonable estimations for the eight project veins being
considered and that the manual procedures used in the calculations are in
accordance with standard engineering practice. 15




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Subsequent to the 1998 report prepared by Pincock Allen Holt, the Company
added an indicated mineral resource estimate with respect to the Cross Mine
using data from the mines historical operations (using level four of the Cross
Mine to the surface ground) taken from a report entitled Project Status and
Recommendations for Continued Evaluation  Cross Mine prepared by geologists
Larry Barrett and William Schuiling in June, 1988. Table 2 summarizes the
additional indicated mineral resource estimate with respect to the specified
areas of the Cross Mine. Table 2

Calais Resources, Inc.
Cross Mine, Colorado
Mineral Resources Aug 2002 Measured Mineral Resource
    
    Indicated Mineral Resource
    
    Inferred Mineral ResourceGold
    
    Silver
    
    
    
    
    
    Gold
    
    Silver
    
    
    
    
    
    Gold
    
    SilverVein
    
    Tons
    
    (opt)
    
    (opt)
    
    Tons
    
    (opt)
    
    (opt)
    
    Tons
    
    (opt)
    
    (opt)Cross Mine
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    37,000
    
    
    
    0.32
    
    
    
    3.96
    
    
    
    0
    
    
    
    0
    
    
    
    0Total/ Avg.
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    37,000
    
    
    
    0.32
    
    
    
    3.96
    
    
    
    0
    
    
    
    0
    
    
    
    0
 The Company believes the subsequent indicated mineral resource represent a
reasonable estimate of the designated areas of the Cross Mine based on
historical data determined while the Cross Mine was in production and
subsequently obtained by the Company. All references to mineral resources or inferred mineral resources set out
in the original reports by Akright and Pincock Allen Holt or reported by the
Company that are not mineral reserves do not have demonstrated economic
viability. Due to the uncertainty that may attach to categories of mineral
resources, the Company advises that there is no assurance that mineral
resources will be upgraded to proven and probable mineral reserves as a result
of continued exploration. The development (if warranted) of a commercially
productive mineral reserves and the marketability of any minerals discovered
are also affected by numerous factors which are beyond the Companys control
and which cannot be predicted, such as the potential for further financing and
environmental, permitting, legal, title, taxation, socio-political, marketing,
or other relevant issues. Previous work Silver ore was discovered in the region in 1869. A wagon road was
completed in 1870 and mining developed rapidly over the next few years with the
highest production coming from the Caribou and No-Name veins. The Cross ore
deposit was discovered in 1873 and had minor intermittent production until
1939. HMC began the task of reopening the Mine in 1974. Between 1977 and 1985,
HMC produced 27,000 short tons of material with gold and silver mineralization
from four mine levels. HMC explored the property by drifting, drilling from
both the surface and underground and by mapping and sampling. The mine
workings in the Cross Mine have been expanded. Proposed Work (fiscal 2005) for the Caribou Prospect We plan to conduct further drilling and other exploration activities and
scoping studies, depending on the availability of financing. Although we
believe that we will be able to obtain the necessary financing on reasonable
terms, we cannot offer any assurance that we will be able to do so. 16




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##### Table of Contents



Manhattan Prospect; Nevada, USA: Gold Exploration Acquisition Details The Manhattan prospect is located around the old mining town of Manhattan,
Nevada, USA. Manhattan is 15 miles southeast of Round Mountain, Nevada,
located on Highway 376, 20 miles from Carvers, Nevada, and 43 miles from
Tonopah, Nevada. The prospect covers approximately 4,600 acres of patented and
unpatented Bureau of Land Management (BLM) and U.S. Forest Service (USFS)
land. In December 1994, we paid Marlowe Harvey US$1,176,000 for a 51% interest
in various mineral interests known as the Manhattan prospect. Mr. Harvey
claims that he retained a royalty interest in these properties, which claim has
not yet been substantiated with documentation. It now appears that, at the
time of the acquisition, Mr. Harvey owned (with others) a claimed joint venture
interest, and did not own any part of the record title to any patented and
unpatented claims which were a part of the Manhattan prospect. Mr. Harveys
claim of a right to purchase some of the joint venture properties appear now to
have been contractual in nature and not a direct interest in the properties,
and the parties had not (and in some cases still have not) completed their
contractual obligations. We are attempting to determine title to these the
joint venture interests, to acquire other of the joint venture interests, and
to take steps to cure title to the Manhattan prospect, and to determine whether
Mr. Harveys claimed royalty interest exists. To this end, beginning in
October 2003 we received title information relating to these prospects which
consist of 28 patented mining claims and some 147 unpatented mining claims,
including title reports on the unpatented claims and a litigation title
guaranty on the patented claims. In July 2004, and acting in accordance with a settlement agreement between
the parties, Marlowe and Judy Harvey and their affiliated companies (Argus
Resources, Inc., White Cap Mines, Inc., and Moran Holdings, Inc.) conveyed
their respective interests in these properties to Calais Resources Nevada, Inc.
These deeds are in the process of recordation. Mr. Harvey has not yet
presented recordable evidence of his authority to act on behalf of the named
entities in executing the conveyances. The litigation guarantee and the title
reports indicate that the title obtained is not yet a marketable title. Of the
properties conveyed, including the 147 unpatented claims, at least 20 of the
claims are believed to be titled in third parties not affiliated with the
joint venture; 15 of the claims were titled in Argus and NMMI (of which the
Company has now received the 60% record title of Argus); 14 of the claims were
titled in Argus (of which the Company has now received record title); 42 of the
claims were titled in White Caps Mines, Inc. (of which the Company has now
received record title); 56 of the claims are still titled in either or both of
or one or more of the following (collectively the Manhattan Parties):  Nevada Manhattan Group, Inc. (formerly known as Nevada Manhattan Mining,
Inc., a publicly-held Nevada corporation which appears not to have filed
any reports with the Securities and Exchange Commission since April 10,
2000 and is believed to be currently subject to an SEC enforcement action
as a result of its failure to file reports); andAn individual named Anthony Selig (Las Vegas, Nevada) and various
entities owned by Mr. Selig (the Selig Entities). Initial investigation has disclosed that the Selig entities are currently
holding a deed to any and all interest of Selig and the Selig entities in and
to the patented and unpatented properties listed in a 1997 agreement with NMMI,
in favor of NMMI. Selig has stated to Calais that he is prepared to tender the
deed either to NMMI, or, to the Nye County District Court, if properly
directed. As NMMI placed liens on its interest in the properties, including,
in at least one instance, any after-acquired title of NMMI, Calais is concerned
about possible recordation of a deed to NMMI not accompanied by a Court order
referencing the Settlement Agreement with NMMI. Calais is also attempting to
determine the status of the so-called Silenus lien, disclosed in the litigation
title guarantee for the 28 patented properties. Management is evaluating its
options for a continuation of the curative work needed to secure title to the
Manhattan prospect. 17




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We entered into an agreement and settlement dated September 7, 2000 with
Nevada Manhattan Mining Incorporated (NMMI) to settle and purchase its
interest in the property. (NMMI is not affiliated with us.) We agreed to make
four annual payments of US$75,000. During the term of the agreement the Company
has agreed to pay NMMI a 2% net smelter return royalty. The Company can
purchase the entire NMMI interest and royalty for US$7.5 million, payable over
30 years. The total amount payable would be reduced by any production
royalties paid. We have been unable to make the most recent payments because
NMMI no longer has an address. We are considering petitioning the Nevada court
to hold the funds for NMMI so that Calais can prove compliance with the
settlement agreement and obtain court assistance in obtaining title to any
interest claimed by NMMI. In its last (2000) report filed with the SEC, NMMI
described its ownership of certain of the mineral interests included within the
Manhattan prospect that Calais claims as follows:  In March 1997, the Company [NMMI in this and the following paragraph]
entered into a Sale and Purchase Agreement with the Selig Entities. The
Selig Entities were the original owners of the patented and unpatented
mining claims comprising the Nevada prospect, having perfected their
rights to ownership pursuant to Federal and local law. Under the terms of
this agreement, the Selig Entities agreed to sell to the Company one
hundred percent (100%) of their interests in a certain promissory note
(the Nevada Note), the Deed of Trust and the Nevada prospect for the
sum of Three Hundred Seventy Five Thousand Dollars ($375,000) payable as
follows: One Hundred Thousand Dollars $100,000) in March 1997 and the
balance plus all accrued and unpaid interest (calculated at the rate of
5.25%) on or before February 6, 1999. The Company in fact paid the first
installment of One Hundred Thousand Dollars ($100,000) in March 1997 and
prepaid the remaining balance in June 1997. As a result, all obligations
to the Selig Entities have been fulfilled by the Company and the original
note and deed of trust have been delivered by the Selig Entities to the
Company. The agreement also acknowledges that the Company is the only
person or entity legally entitled to conduct mineral operations on the
Nevada prospect. The Company is also required to pay all U.S. Bureau of
Land Management annual maintenance fees associated with the claims
comprising the Nevada prospect. Such fees have been paid by the Company
through August 2000.The Company [NMMI] entered into a Subscription Agreement with Silenus
Limited on April 14, 1997 (the Subscription Agreement). The
Subscription Agreement required the Company to grant to Silenus Limited a
$2,000,000 deed of trust encompassing the Nevada prospect until the
Debentures issued to Silenus are converted, redeemed or paid in full. The
Company has neither delivered nor recorded this deed. Our title investigation has determined that the Silenus deed of trust,
executed by NMMI, has been recorded in Nye County, and that it does purport to
encumber any after-acquired title of NMMI. Our litigation against NMMI was
resolved after the events described in the NMMI report and we believe that we
can enforce our contractual rights against NMMI. We believe that our rights to
the 75.5% of the joint venture and properties, at minimum, are superior to the
rights of Silenus, although we cannot offer any assurance that a court will
accept our arguments and positions we might proffer. Management is evaluating
its options for dealing with the purported Silenus lien and other liens
attaching to the NMMI interest. (The Silenus and other liens purport to have
attached prior to, or during, a period when NMMI and Selig were claiming that
Harvey/Calais had been defaulted out of certain purchase contracts, and,
further, claiming that they (NMMI/Selig) could contract to dispose of venture
properties to the exclusion of joint venture partners, a position later
rejected by the Nye County court prior to execution of the Settlement
Agreement). The existence and status of the Silenus lien, and whether it
attaches to any venture properties, is a material concern regarding title to
the Manhattan Prospect. Notwithstanding Calais then lack of any direct ownership interest in
those prospects and entirely in reliance on its claimed contractual rights,
Calais has continued to maintain those prospects for several years by paying
property taxes on the patented mining claims, the assessment work obligations
on the unpatented claims (US$14,700 per year) and the annual payments made to
NMMI under the settlement agreement 18




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(US$151,215 through fiscal 2004). In some years, we have received a small
refund for fees paid on 20 claims titled in Selig in which third parties claim
separate contractual rights running from Selig. We have discussed a compromise
of those claims, and a possible re-acquisition by the Company, with Selig.
These discussions have not yet been completed. Management is engaged in a
discussion of its options concerning the other Selig properties. On March 8, 2004, we entered into an agreement (the Harvey Settlement)
with Marlowe Harvey and his related entities by which Mr. Harvey and his
related entities agreed to assign their interests in the Manhattan prospect to
Calais and agreed to convey to Calais (not later than December 31, 2005) the
entire right, title and interest in the Manhattan prospect from all parties
(marketable title). Upon receipt of the marketable title, Calais will pay
one of Mr. Harveys related entities 250,000 shares of Calais restricted stock.
Calais agreed to undertake certain drilling obligations after receiving good
title, and to issue 2,500,000 shares of common stock to Argus Resources, Inc.,
one of Mr. Harveys related entities if Calais identifies gold or gold
equivalent mineral resources (as determined in accordance with Canadian
standards) exceeding 2,000,000 ounces. To our knowledge, Mr. Harvey has not
attempted the curative measures necessary to provide marketable title to the
mineral interests to Calais and, even if he commences this work, we cannot
offer any assurance that he will be able to do so. Based on a preliminary review of this information and assignments that
Calais received in July 2004 from Mr. and Mrs. Harvey and certain affiliated
companies as a part of the Harvey Settlement (which assignments Calais has
recorded in the Nye County, Nevada records), it appears that the record
ownership of the various prospects is as follows:  The 28 patented mining claims appear to be owned by Calais (which
received assignment of these claims from Argus Resources, Inc. in July
2004) as to a 60% undivided interest, and by NMMI as to a 40% undivided
interest;42
    unpatented mining claims appear to be owned by Calais (which received
assignment of these claims from White Cap Mines, Inc. (owned by Mr.
Harvey) in July 2004);57
    unpatented mining claims appear to be owned by Mr. Selig or entities
associated with Mr. Selig; andThe remaining claims appear to be owned by Calais or by Calais and NMMI
in the 60-40 ratio described above for the patented claims. Calais
ownership of these claims was received by a July 2004 assignment from
Argus Resources. In July 2004 we also received assignment of their interests in the Nevada
mineral properties from Mr. and Mrs. Harvey directly and from other entities
they control (Argus Mines, Inc. and Moran Holdings, Inc. Mr. Selig has denied any obligation to convey any portion of the claims
directly to Calais, but, has admitted an obligation to convey his interest in
claims described in the 1997 agreement between Selig and NMMI to NMMI. Selig is
fully aware of the outcome of the Calais/NMMI litigation, and he and his
counsel have indicated a willingness to tender the NMMI deed to the District
Court in and for Nye County if properly directed to do so. We believe that the
settlement of the NMMI litigation results in NMMI being obligated to convey its
interests in the prospects to Calais, subject to the terms of the Settlement
Agreement, including payment of royalties to NMMI from production. We are
currently unable to locate any person with authority to act for NMMI;
management is evaluating the possible invocation of the jurisdiction of the
District Court to accept the Selig deed on behalf of the joint venture, and
subject to the terms of the recorded Settlement Agreement. As indicated above, we have only recently been able to commence any title
review of the property. The record title consists of a number of inconsistent
and incompatible documents. Consequently there can be no assurance that the
preliminary conclusions reached above are accurate or complete, and we cannot
offer 19




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any assurance that we will be able to obtain legal title to the mineral
interests that we believed we acquired in December 1994. We do not intend to
expend any funds on exploration of this property until the title situation has
been resolved to our satisfaction. Geological Setting; No Significant Exploration Work We have not accomplished a significant amount of exploration work on the
prospects constituting the Manhattan prospect. Based on work performed by
others on these prospects and in the district, we believe that the prospects
may contain gold and silver resources. Geology, structure, and ore mineralogy
determined from other properties in the district suggests a potential for a
system of high-grade feeder veins and/or replacement gold deposits at depth.
The oldest rocks in the Manhattan prospect are phyllite, schist, quartzite and
limestone units of the Cambrian Gold Hill formation. Of these, the White caps
limestone has been the most productive mineralized unit in the district. Until
we obtain greater assurances as to title to our mineral interests in the
Manhattan prospect, however, we do not intend to perform any exploration work
to confirm the geology or locate any such mineralization. Previous Work The historic mining in the area extends from 1866 to present with the
major activity taking place in the late 1860s, between 1906 and 1921, and from
the 1960s until present. Placer and lode mining took place principally in the
Reliance, White Caps, Union Amalgamated, Manhattan Consolidated, Earle, Big
Four, and April Fool Mines. There has been significant production in recent
years from adjoining property. Proposed Work (fiscal 2005) As discussed above, we do not intend to perform any significant work on
the mineral interests constituting the Manhattan prospect until (if ever) the
uncertainties relating to the title to those mineral interests are resolved.
Consequently we have not allocated an exploration budget for those prospects in
our 2005 fiscal year subject to available financing. Panama Prospect: Gold Exploration Acquisition Details Pursuant to an agreement dated October 6, 2000, we received an option to
purchase a 40,000 acre mineral concession in an historic gold producing
district of Panama with Panama Mining of Golden Cycle of Panama Incorporated
(PMGC). We acquired concessions to 61,000 acres in the eastern Veraguas
district of Panama in 2001 through a five-year lease agreement with PMGC and a
related company, Golden Cycle of Panama, Inc. (GCP). The prior agreements
were cancelled in a new agreement we entered into on February 28, 2003 entitled
a Purchase Option Agreement. As consideration for the Purchase Option
Agreement, we paid the following:  200,000 shares of stock issued to the two owners of PMGC and GCP (Mr.
and Mrs. Gary Zook as to 50% and Herbert Hendricks as to 50%) (including
100,000 shares initially issued in 2000);
US$10,000 total amount paid to the two owners of PMGC and GCP; and
Assumed US$15,750 of the sellers payables to third parties. We also committed to perform certain work on the prospects. As a result
of an extension agreement entered into on January 31, 2004, we have an
obligation to complete a $250,000 exploration program for lode deposits by
September 25, 2004, and an additional $250,000 program to explore for placer
gold deposits and install a pilot placer operation. We also hired a shareholder
of the sellers, Herbert Hendricks, to oversee the project, and we paid him
US$3,500 per month through June 2004 (when we terminated the contract) to do
so. Herbert Hendricks is the brother of our president, Thomas Hendricks, but
they do not share the same home, they make independent business decisions, and
are not otherwise affiliated. We believe that we have 20




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completed our hard rock (lode) obligations which are due by September 25,
2004, but we have not completed our placer obligations, and we cannot offer any
assurance that we will be able to do so. We may seek an extension of the
September 25, 2004 date, but as yet we have not obtained any extension. To exercise the option and acquire the lode prospect or the placer
prospect, we must commence production of gold from the respective prospect.
The terms of acquisition for the two prospects are different:  To acquire the lode prospect, we must pay the sellers a royalty equal to
2% net smelter return from all lode minerals produced from the concession
until the sellers have received a total of US$5,000,000. At that time,
we will have acquired the concession and the net smelter return will be
terminated. Alternatively, prior to August 28, 2004, Calais may purchase
the concession from the sellers for a $2,500,000 cash payment and a
continuing 0.5% net smelter return.To acquire the placer prospect, we must pay the sellers a royalty equal
to 6% of the gross revenues from placer mineral production until the
sellers have received a total of US$5,000,000. Thereafter, the royalty
will be reduced to 1% for the life of the placer production. In the Purchase Option Agreement, we agreed to keep all mineral interests
in good and clean standard, to pay all taxes, and to comply with other
governmental requirements. In the extension agreement, the sellers warranted
that they had taken all necessary steps to properly register, document or
record the Purchase Option Agreement and that they will take such steps with
respect to the extension. Although we have made a request to the sellers for
these documents, we have not yet received them and, consequently, we have no
independent confirmation of their title to the two prospects included within
the Purchase Option Agreement. We do not intend to expend any significant
funds for the exploration of these prospects until we have obtained the
necessary assurances that they have good title to convey to us and that our
interest in the prospects is protected under Panamanian law. If we default on our obligations, the Purchase Option Agreement gives the
sellers the right to give us 30 days notice of our right to cure the default
and, if we fail to cure the default or contest the default, the agreement will
be terminated. We are negotiating with our contractual partner for the Panama
prospect for a restructuring of our contractual relationship, although we
cannot offer any assurance that we will be able to achieve any agreement for a
restructuring Geological Setting We have done no exploration work on our Panamanian concession except
limited surface sampling and some geological mapping. We have reviewed
literature about the area and prior production from the Margaja and Cocuyo
Mines and a report on the area prepared in 1969 for the United Nations, and we
have obtained an airborne geophysical survey made for another company that is
no longer active in Panama. The steep, hilly, mountainous terrain of the
project area is covered with dense tropical rain forest. Some rain can be
expected every month of the year with annual rainfall estimated as high as 200
inches. Heaviest rain typically occurs from November through March. The
driest months are from April through June, and September and October. The Rio
Concepcion, Rio Veraguas, and Rio Belen flow north to the Caribbean from the
east-west trending continental divide in the project area. Detailed geologic mapping or exploration of our concessions in Panama is
lacking. In general, the area is characterized by a package of Miocene to
Pliocene volcanic rocks, primarily andesites, basalts, volcanic breccias,
agglomerates, and ignimbrites. Previous work has identified diorate and
granodiorite intrusives in the area. Deep weathering of bedrock and oxidation
and leaching of sulfide minerals would be normal in a wet, tropical environment
like Panama. Rapid erosion of the mountainous terrain in the project area may
have locally stripped away soil, weathered bedrock, thereby exposing unaltered
bedrock and sulfide minerals, especially along ridge lines. 21




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Alluvial gold occurs in the three rivers, river terrace deposits,
paleo-channels covered by volcanic flows, beaches along the Mosquito coast, and
marine deltaic deposits. Gold in these alluvial environments appears to have
its origin in a gold vein trend roughly parallel to the Mosquito coast. In
some literature, this gold vein trend is referred to as the Faja de Oro. Previous Work Gold has been produced by primitive methods from streams and high-grade
veins in the region since the time of Columbus. There has been no modern day
systematic gold exploration to evaluate the resource potential of the veins on
the concession. We have not performed any exploration or other work on this
property. Proposed Work (fiscal 2005) We hired a geologist familiar with our property, and hired an operations
manager. We have also hired five local workers to work on the property. There
was a base camp built for accommodations. We are required by our property
leasehold to expand into hard rock exploration in 2004, and have committed to a
$250,000 initial hard rock exploration budget during calendar year 2004. We
are engaged in discussions with other parties for the financing necessary to
meet this obligation, although we cannot offer any assurance that the required
financing will be available to us. If we are able to restructure the agreement
for the Panama prospect, we expect to be able to restructure all Panama project
obligations. Subject to adequate financing, we expect to spend up to
Cdn$500,000 on the Panama prospect in fiscal 2005. Access to Panama Concession Access to our Panamanian properties is by boat (about a nine hour ride) or
helicopter (about a 30 minute ride) from Colon, Panama. Once on the property,
there are dirt roads that allow good transportation throughout the property
except during the rainy season (approximately November to March, annually).
During the rainy season, access is more difficult but can be accomplished using
tracked vehicles instead of four-wheel drive vehicles. Title to the Panamanian Property. The Panamanian property (including both the lode prospects and the
prospects for placer production) is a government concession originally granted
to Paul Zook. When Mr. Zooks concessions expired, his son Gary Zook acquired
3,000 hectares of the original concessions under the name of Golden Cycle of
Panama. Gary Zook later acquired an additional 21,000 hectares under the name
of Panama Mining of Golden Cycle. Panama Mining of Golden Cycle also has an
agreement with Golden Cycle of Panama for the original 3,000 hectares. The
total concession now consists of approximately 24,000 hectares, and includes
river marine placer, off shore marine placer, and hard rock prospects located
in the eastern Veraguas district of Panama. 
 ITEM 3. LEGAL PROCEEDINGS In 2000, Thomas Hendricks brought litigation against Marlowe Harvey,
Aardvark, and Calais relating to certain information allegedly not disclosed to
Mr. Hendricks at the time that his company, HMC, was acquired by Calais.
Generally, Mr. Hendricks allegations related to interests that Calais had in
property in Mexico and the lack of funding for continuing exploration of the
Caribou prospect. The parties resolved this litigation shortly after it was
commenced by entering into a mutual release and settlement agreement. As a
result of the agreement, 22




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a.
    
    Mr. Harvey paid certain funds to Mr. Hendricks;b.
    
    Mr. Harveys wife transferred a Cdn$984,000 debenture (which
had been issued to her by Calais) to Mr. Hendricks (which as a
result of a March 2004 settlement agreement Mr. Hendricks has
reassigned to Mrs. Harvey, subject to her demonstration that the
reassignment is in compliance with applicable securities laws);c.
    
    Calais reimbursed Mr. Hendricks for one-half of his legal
expenses incurred in bringing the litigation;d.
    
    Calais agreed to sell its interest in the mining equipment
located in Mexico and apply the funds to repayment of Calais
obligations;e.
    
    Aardvark agreed to transfer its interest in the Caribou
prospect to Calais as described above;f.
    
    Calais agreed to honor the royalties granted to the former
HMC shareholders;g.
    
    Mr. Harvey agreed to resign as president and chief executive
officer of Calais and Mr. Hendricks agreed to accept appointment to
those positions; andh.
    
    Mr. Hendricks has a right to approve financing for Calais
exploration of the Caribou prospect. Calais believes that the parties have resolved their issues in the March
8, 2004 Settlement Agreement discussed below. SeeSettlement Agreement with
Mr. and Mrs. Harvey and their affiliates, in Item 12, below. Other than discussed below, we know of no material, active or pending or
(to our knowledge) threatened legal proceedings against them. Other than
discussed below, we are not involved as a plaintiff in any material proceeding
or pending litigation. A Writ of Summons and Statement of Claim was filed in Supreme Court of
British Columbia on May 21, 2002 regarding monies owing and payable to Devlin
Jensen for services provided in the amount of $63,368 plus interest and costs
incurred therein. This debt has been fully paid and Devlin Jensen has released
its claims. A Claim was made in Alberta by BDO Dunwoody for services provided during
in the amount of $48,864 plus interest and costs incurred therein. This amount
has been paid. In November 2002 Calais entered into an agreement with National Capital
Companies for the performance of investor relations services. Included in the
consideration we paid National Capital at the time were 480,000 common stock
purchase warrants and 150,000 shares of restricted stock. We did not believe
that National Capital performed on their obligations. As a result of
settlement discussions with National Capital, in October 2003 we agreed to
allow National Capital to retain 37,500 of the originally-issued 150,000 shares
and agreed to issue to National Capital an additional 25,000 restricted shares.
National Capital agreed to return the remaining 112,500 shares and the
warrants for cancellation. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 23




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PART II 
 ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information Our Common Shares were approved for trading on the OTC Bulletin Board in
the United States, under the symbol CAAUF on February 1, 1999. The high and low sales prices on the OTC Bulletin Board for actual trades
of the Companys Common Shares from date of listing is as follows and
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions: Quarter Ended2004 fiscal year
    
    Aug 31, 2003
    
    Nov 30, 2003
    
    Feb 28, 2004
    
    May 31, 2004Common StockHigh
    
    US$
    2.50
    
    
    US$
    2.00
    
    
    US$
    2.00
    
    
    US$
    1.70Low
    
    US$
    0.28
    
    
    US$
    1.25
    
    
    US$
    1.45
    
    
    US$
    0.92
 Quarter Ended2003 fiscal year
    
    Aug 31, 2002
    
    Nov 30, 2002
    
    Feb 28, 2003
    
    May 31, 2003Common StockHigh
    
    US$
    1.00
    
    
    US$
    0.70
    
    
    US$
    0.85
    
    
    US$
    0.53Low
    
    US$
    0.20
    
    
    US$
    0.25
    
    
    US$
    0.20
    
    
    US$
    0.20
 The Companys Common Shares are issued in registered form and the
following information is taken from the records of Pacific Corporate Trust
Company, located in Vancouver, British Columbia, Canada, the registrar and
transfer agent for the Common Shares. The Companys Common Shares are not registered to trade in the United
States in the form of American Depository Receipts (ADRs) or similar
certificates. (b) Holders of Common Equity On May 31, 2004, the shareholders list for the Companys Common Shares
showed 344 registered shareholders and 20,143,453 Common Shares outstanding. 62
of these shareholders were U.S. residents, holding 10,401,525 shares
representing 52% of the issued and outstanding Common Shares. (c) Dividends We have not declared any dividends since incorporation and we do not
anticipate that we will declare any dividends in the foreseeable future. Our
present policy is to retain future earnings (if any) for use in our operations
and the expansion of our business. Because of our outstanding lending arrangement with the accredited
investors entered into in August 2003, we are prohibited from declaring or
paying any dividends until the loan has been repaid in full. There are no
other restrictions on our ability to pay dividends. 24




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(d) Securities Authorized for Issuance Under Equity Compensation Plans. Although we have not adopted a formal equity compensation plan, see Item
10 below for information on compensation. (e) Recent Sales of
Unregistered Securities  Item 701 Disclosure. 1. Issuance to Accredited Investors 1.a After the end of our fiscal year, we issued 100,000 shares of our
common stock and two sets of warrants (described below) to two accredited
investors, James Ober and Luke Garvey, in exchange for US$75,000. (The
documentation from Ober and Garvey for this transaction has not yet been
returned to the company. The following disclosure describes the transaction
assuming that the documentation is completed.) (i) The transaction was intended to be effective June 16, 2004. (ii) No underwriters were involved in the transaction. The only persons
who received securities from us in this transaction were Messrs. Ober and
Garvey. (iii) The securities were sold for cash, and Calais received US$75,000. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided Messrs. Ober and
Garvey with disclosure of all aspects of our business as they requested. Based
on our investigation, we believe that the accredited investors obtained all
information regarding Calais Resources they requested, received answers to all
questions they posed, and otherwise understood the risks of accepting our
securities. (v) There are no conversion rights or exchange rights associated with the
shares. The warrants are exercisable as follows: Warrants to purchase 100,000
shares of our common stock are exercisable at US$1.25 through December 31,
2005, and warrants to purchase 100,000 shares of our common stock are
exercisable at US$1.75 through December 31, 2006. The warrants are only
exercisable provided there is an exemption from registration available at the
time of exercise, or if the exercise is registered under applicable securities
laws. (vi) We received US$75,000 from the issuance of the shares and used the
funds provided for working capital purposes. 1.b In June 2004, we received US$166,000 from two accredited investors,
Messrs. Ober and Garvey and intend to issue to them a promissory note in
exchange for their investment of that amount, and to collateralize the
repayment obligation by including itin the Broadway financing transaction.
The promissory note will bear interest at 15% per annum and will be due on July
31, 2005. Because this transaction is secured by real estate, we do not
believe that it involves the offer and sale of a security, and including this
transaction in this section does not constitute an admission that it does
involve an offer or sale of a security. The following disclosure assumes that
the documentation provided to Ober, Garvey, Duffy, and Duffy is returned to the
company as agreed to in writing and as approved by the board. 25




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(i) The transaction is to be effective June 16, 2004. (ii) No underwriters were involved in the transaction. The only persons
who received securities from us in this transaction were Messrs. Ober and
Garvey. (iii) The securities were sold for cash, and Calais received US$166,000. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided Messrs. Ober and
Garvey with disclosure of all aspects of our business as they requested. Based
on our investigation, we believe that the accredited investors obtained all
information regarding Calais Resources they requested, received answers to all
questions they posed, and otherwise understood the risks of accepting our
promissory note. (v) There are no conversion rights or exchange rights associated with the
promissory note. (vi) We received US$166,000 from the issuance of the promissory note and
used the funds provided for working capital purposes. 1.c Messrs. Duane Duffy and Glenn Duffy, accredited investors and holders
of US$1,560,000 of long-term indebtedness (which was a part of the Broadway
transaction), have agreed to convert that debt to 2,080,000 shares of our
restricted common stock. In addition, the holders have agreed to allow
US$117,390 in prepaid interest to be refunded to Calais. As part of this
transaction, Calais will issue to them 4,160,000 warrants as described in
paragraph 1(c)(v), below. When the transaction has been completed, this
indebtedness will remain outstanding, held by Broadway. Broadway will agree in
writing to cancel that indebtedness upon Calais written request. The
cancellation of that indebtedness will reduce our outstanding liabilities by
that amount (less any amounts resold to other accredited investors, including
the Duffys as described in paragraph 1(b), above). The following disclosure
assumes that the documentation provided to Ober, Garvey, Duffy, and Duffy is
returned to the company as agreed to in writing and as approved by the board. (i) The transaction is to be effective May 26, 2004. (ii) No underwriters were involved in the transaction. The only persons
who received securities from us in this transaction were Mr. Duffy. (iii) The securities were sold for a return of indebtedness and repayment
to Calais of prepaid, but unearned interest of US$117,390. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided Mr. Duffy with
disclosure of all aspects of our business as he requested. Based on our
investigation, we believe that the accredited investors obtained all
information regarding Calais 26




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Resources he requested, received answers to all questions they posed, and
otherwise understood the risks of accepting our securities. (v) There are no conversion rights or exchange rights associated with the
shares. Warrants to purchase 2,080,000 shares of our common stock are
exercisable at US$1.25 through December 31, 2005, and warrants to purchase
2,080,000 shares of our common stock are exercisable at US$1.75 through
December 31, 2006. The warrants are only exercisable provided there is an
exemption from registration available at the time of exercise, or if the
exercise is registered under applicable securities laws. (vi) We have not received any cash from this transaction, but have
received US$117,390 as a credit against interest expense. 1.d We issued 586,666 shares of our common stock and three sets of
warrants (described below) to two accredited investors, Duane and Glenn Duffy,
in exchange for US$440,000. (i) The transaction was effective May 26, 2004. (ii) No underwriters were involved in the transaction. The only person who
received securities from us in this transaction were Messrs. Duffy. (iii) The securities were sold for cash, and Calais received US$440,000. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided Messrs. Duffy
with disclosure of all aspects of our business as they requested. Based on our
investigation, we believe that the accredited investors obtained all
information regarding Calais Resources they requested, received answers to all
questions they posed, and otherwise understood the risks of accepting our
securities. (v) There are no conversion rights or exchange rights associated with the
shares. The warrants are exercisable as follows: Warrants to purchase 586,666
shares of our common stock are exercisable at US$1.25 through December 31,
2005; warrants to purchase 586,666 shares of our common stock are exercisable
at US$1.75 through December 31, 2006; and warrants to purchase 559,130 shares
of our common stock are exercisable at US$3.00 through December 31, 2007. The
warrants are only exercisable provided there is an exemption from registration
available at the time of exercise, or if the exercise is registered under
applicable securities laws. (vi) We received US$440,000 from the issuance of the shares and used the
funds provided for working capital purposes. 1.e. In January 2004, Calais issued 5,000 shares of its restricted common
stock to Michael Haws, an accredited investor, for consulting services in
connection with the design of our website. (i) The transaction was effective January 15, 2004. 27




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(ii) No underwriters were involved in the transaction. The only person who
received securities from us in this transaction was Mr. Haws. (iii) The securities were not sold for cash, but rather for services
rendered. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided Mr. Haws with
disclosure of all aspects of our business as he requested. Based on our
investigation, we believe that the accredited investor obtained all information
regarding Calais Resources he requested, received answers to all questions he
posed, and otherwise understood the risks of accepting our securities. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received no cash proceeds from the issuance of the shares and,
therefore, cannot report any use of proceeds. 1.f. In April 2004, Calais received a total of US$75,000 from Joanna
Gozdek and Paul Scutt, each an accredited investor, in exchange for the
issuance to them of an aggregate of 75,000 shares of restricted Calais common
stock and warrants to purchase 75,000 shares which are exercisable at US$1.50
per share through April 6, 2005 and (if not exercised) are exercisable at
US$2.00 per share after April 6, 2005 through April 6, 2006. (i) The transaction was effective April 2, 2004. (ii) No underwriters were involved in the transaction. The only persons
who received securities from us in this transaction were the four accredited
investors. (iii) The securities were sold for cash, and Calais received US$75,000. (iv) The issuance of the shares and the warrants was accomplished pursuant
to the exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided each of the
accredited investors with disclosure of all aspects of our business as they
requested. Based on our investigation, we believe that the accredited investors
obtained all information regarding Calais Resources requested, received answers
to all questions posed, and otherwise understood the risks of accepting our
securities. (v) There are no conversion rights or exchange rights associated with the
shares. The warrants are exercisable as described above. The warrants are only
exercisable provided there is an exemption from registration available at the
time of exercise, or if the exercise is registered under applicable securities
laws. (vi) We received US$75,000 from the issuance of the shares and used the
funds provided for working capital purposes. 1.g. In April 2004, Calais received a total of US$50,000 from Michael Haws
and Suntex Reserves, each an accredited investor, in exchange for the issuance
to them of an aggregate of 50,000 shares of restricted Calais common stock and
warrants to purchase 100,000
shares of which 50,000 are exercisable at US$1.50 per share through April 6,
2005 and 50,000 are exercisable at US$2.50 per share through April 6, 2006. 28




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(i) The transaction was effective April 2, 2004. (ii) No underwriters were involved in the transaction. The only persons
who received securities from us in this transaction were the four accredited
investors. (iii) The securities were sold for cash, and Calais received US$50,000. (iv) The issuance of the shares and the warrants was accomplished pursuant
to the exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided each of the
accredited investors with disclosure of all aspects of our business as they
requested. Based on our investigation, we believe that the accredited investors
obtained all information regarding Calais Resources requested, received answers
to all questions posed, and otherwise understood the risks of accepting our
securities. (v) There are no conversion rights or exchange rights associated with the
shares. The warrants are exercisable as described above. The warrants are only
exercisable provided there is an exemption from registration available at the
time of exercise, or if the exercise is registered under applicable securities
laws. (vi) We received US$50,000 from the issuance of the shares and used the
funds provided for working capital purposes. 1.h. In November 2003, Calais received US$93,600 from Paul Scutt, an
accredited investor, in exchange for the issuance to him of 80,000 shares of
restricted Calais common stock and 80,000 warrants (exercisable at US$1.50
through November 1, 2004, and US$2.00 thereafter through October 31, 2005). (i) The transaction was effective November 2003. (ii) No underwriters were involved in the transaction. The only person who
received securities from us in this transaction was Mr. Scutt. (iii) The securities were sold for cash, and Calais received US$93,600. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided Mr. Scutt with
disclosure of all aspects of our business as he requested. Based on our
investigation, we believe that the accredited investor obtained all information
regarding Calais Resources he requested, received answers to all questions he
posed, and otherwise understood the risks of accepting our securities. (v) There are no conversion rights or exchange rights associated with the
shares. The warrants are exercisable as described above. The warrants are
only exercisable provided there is an exemption from registration available at
the time of exercise, or if the exercise is registered under applicable
securities laws. 29




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(vi) We received US$93,600 from the issuance of the shares and used the
funds provided for working capital purposes. 1.i. In November 2003, Calais issued 25,000 shares of its restricted
common stock to Patrick McLeery, an accredited investor, for consulting
services for a one year period. (i) The transaction was effective November 2003. (ii) No underwriters were involved in the transaction. The only person who
received securities from us in this transaction was Mr. McLeery. (iii) The securities were not sold for cash, but rather as consideration
for consulting services. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided Mr. McLeery with
disclosure of all aspects of our business as he requested. Based on our
investigation, we believe that the accredited investor obtained all information
regarding Calais Resources he requested, received answers to all questions he
posed, and otherwise understood the risks of accepting our securities. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received no cash proceeds from the issuance of the shares and,
therefore, cannot report any use of proceeds. 1.j. On February 12, 2004, we issued 2,000 shares of our restricted common
stock to Dirk Larsen as partial consideration for acquisition of mineral
properties in Boulder County, Colorado (valued at Cdn$4,900). (i) The transaction was effective February 12, 2004. (ii) No underwriters were involved in the transaction. The only person
who received securities was Mr. Larsen. (iii) The securities were not sold for cash, but were sold in partial
consideration for the acquisition of mineral properties. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided Mr. Larsen with
disclosure of all aspects of our business as he requested. Based on our
investigation, we believe that the accredited investor obtained all information
regarding Calais Resources he requested, received answers to all questions he
posed, and otherwise understood the risks of accepting our securities. (v) There are no conversion rights associated with the shares. 30




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(vi) We received no cash from the sale of the shares and, therefore, there
is no use of proceeds. 2. Employee and Director Stock Bonuses 2.a. In December 2003 (but effective upon their acceptance and, when
required, filing of the appropriate Forms), Calais issued 215,750 shares of its
restricted common stock to certain employees as stock bonuses, which
transactions were not deemed to be sales for the purposes of the Securities
Act of 1933. (i) The transactions were approved by the Board of Directors on December
13, 2003, but are only effective upon acceptance by the employees, consultants,
and directors, and (when required) filing of the appropriate individual reports
under the Securities Exchange Act of 1934. (ii) No underwriters were involved in the transaction. The only person who
received securities from us in this transaction were seven employees,
directors, and consultants. (iii) The securities were not sold, but rather were granted as stock
bonuses. (iv) The issuance of the shares was not considered to be a sale since it
was intended to compensate for past services. We did not engage in any public
advertising or general solicitation in connection with this transaction. We
provided the directors, employees, and consultants with disclosure of all
aspects of our business as they requested. Based on our investigation, we
believe that the recipients obtained all information regarding Calais Resources
they requested, received answers to all questions they posed, and otherwise
understood the risks of accepting our securities. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received no cash proceeds from the issuance of the shares and,
therefore, cannot report any use of proceeds. 3. August 2003 financing 3.a. On August 1, 2003, we completed a financing with a lender (Broadway)
who loaned US$4,500,000 to us and took a security interest in the Caribou
prospect to collateralize our repayment obligation. We also issued 8,181,818
shares of our common stock to the lender as a loan origination fee valued at
US$0.55 per share. (i) The transaction was effective August 1, 2003. (ii) No underwriters were involved in the transaction. The only entity who
received securities from us in this transaction was Broadway who distributed
the securities to six accredited investors. (iii) The securities were not sold for cash. The securities were issued to
Broadway as a financing fee in connection with their making the US$4,500,000
loan. 31




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(iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided Broadway and the
accredited investors with disclosure of all aspects of our business as they
requested. Based on our investigation, we believe that Broadway and the
accredited investors obtained all information regarding Calais Resources they
requested, received answers to all questions they posed, and otherwise
understood the risks of accepting our securities in exchange for services to be
provided. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received no proceeds from the issuance of the shares and,
therefore, we have no use of proceeds. 4. Option Exercises 4.a. On August 29, 2003, Thomas S. Hendricks, president and chairman of
the board of directors of Calais Resources, exercised an option to acquire
100,000 shares of common stock for the payment of Cdn$45,000 (Cdn$0.45 per
share). On October 24, 2003, Arthur Daher, secretary and a member of the board
of directors of Calais Resources, exercised an option to acquire 50,000 shares
of common stock for the payment of Cdn$22,500 (Cdn$0.45 per share). In both
cases, the options had been outstanding for more than two years. (i) The transactions were effective August 29, 2003 (in the case of Mr.
Hendricks) and October 24, 2003 (in the case of Mr. Daher). (ii) No underwriters were involved in the transaction. (iii) The securities were sold for cash payment of the option exercise
price (in both cases, Cdn$0.45 per share). (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933 inasmuch as both of the persons acquiring shares
pursuant to option exercise were executive officers and directors of Calais
Resources. We did not engage in any public advertising or general solicitation
in connection with this transaction. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received Cdn$67,500 from the issuance of the shares and the funds
were used for working capital purposes. 4.b. During the first quarter (ended August 31, 2003), three holders
exercised options to acquire 90,000 shares of common stock for the payment of
Cdn$0.45 per share. In all cases, the options had been outstanding for more
than two years. (i) The transactions were effective in August 2003. (ii) No underwriters were involved in the transaction. 32




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(iii) The securities were sold for cash payment of the option exercise
price (in all cases, Cdn$0.45 per share). (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933 inasmuch as both of the persons acquiring shares
pursuant to option exercise were executive officers and directors of Calais
Resources. We did not engage in any public advertising or general solicitation
in connection with this transaction. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received Cdn$40,500 from the issuance of the shares and the funds
were used for working capital purposes. 4.c. During the third quarter (ended February 29, 2004), Thomas Patton,
formerly a director of Calais, exercised options to acquire 100,000 shares of
common stock for the payment of Cdn$0.45 per share. In all cases, the options
had been outstanding for more than two years. (i) The transactions were effective during February 2004. (ii) No underwriters were involved in the transaction. (iii) The securities were sold for cash payment of the option exercise
price (in all cases, Cdn$0.45 per share). (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933 inasmuch as Mr. Patton was formerly a director of Calais
Resources and is an accredited investor. We did not engage in any public
advertising or general solicitation in connection with this transaction. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received Cdn$45,000 from the issuance of the shares and the funds
were used for working capital purposes. 5. Option Grants 2.a. In July 2004 (after the end of our fiscal year, but effective upon
their acceptance and, when required, filing of the appropriate Forms which
occurred in July 2004), Calais issued an option to purchase 3,000,000 shares of
its restricted common stock to its president, Thomas S. Hendricks. We also
paid to Mr. Hendricks a US$250,000 bonus in the form of a $250,000 debenture
convertible into common stock at US$0.85 per share that vests at the rate of
US$50,000 per year (US$50,000 vested on July 8, 2004). The option is
exercisable and the debenture is convertible as described below. (i) The transaction was approved by the Board of Directors on July 8,
2004, but was only effective upon acceptance by Mr. Hendricks and (when
required) filing of the appropriate individual reports under the Securities
Exchange Act of 1934. 33




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(ii) No underwriters were involved in the transaction. The only person who
received securities from us in this transaction was Mr. Hendricks. (iii) The securities were not sold to Mr. Hendricks, but rather were
granted to him. (iv) The issuance of the option and the grant of the debenture were not
considered to be a sale since it was intended to compensate for past services.
We did not engage in any public advertising or general solicitation in
connection with this transaction. We provided Mr. Hendricks with disclosure of
all aspects of our business as he requested. Based on our investigation, we
believe that he obtained all information regarding Calais Resources he
requested, received answers to all questions they posed, and otherwise
understood the risks of accepting our securities. (v) The options are exercisable by Mr. Hendricks for US$0.85 per share
through July 8, 2014. The US$250,000 debenture is convertible by Mr.
Hendricks at the rate of US$0.85 per share to the extent of the remaining
principal balance at the time of conversion. The options are only exercisable
provided there is an exemption from registration available at the time of
exercise, or if the exercise is registered under applicable securities laws. (vi) We received no cash proceeds from the issuance of the option or the
grant of the debenture and, therefore, cannot report any use of proceeds. 5.b. On August 11, 2003, we granted an option to purchase 1,000,000 shares
of our common stock to Matthew C. Witt in connection with his agreement to
become Calais Resources chief financial officer. Of these options, 500,000
are exercisable at US$3.00 per share, and the remaining are exercisable at
US$5.00 per share, in both cases through August 11, 2013, subject to Mr. Witt
entering into an appropriate option agreement. The following sets forth the
information required by Item 701 in connection with that transaction: (i) The transaction was effective August 11, 2003. We issued options to
acquire 1,000,000 shares of common stock. (ii) No underwriters were involved in the transaction. The only entity who
received securities from us in this transaction was Mr. Witt. (iii) The securities were not sold for cash. The securities were issued to
Mr. Witt as part of the consideration for him becoming employed by Calais
Resources as its chief financial officer. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. Mr. Witt was one of the
accredited investors involved in the August financing discussed above, and we
believe that he obtained all information regarding Calais Resources that he
requested, received answers to all questions he posed, and otherwise understood
the risks of accepting our securities in exchange for services to be provided. (v) There are no conversion rights or exchange rights associated with the
option. Subject to Mr. Witt entering into an option agreement as described
above, the option is exercisable to purchase shares of our common stock until
August 11, 2013 at US$3.00 per share 34




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(for 500,000 shares) and US$5.00 per share (for 500,000 shares). The
options are only exercisable provided there is an exemption from registration
available at the time of exercise, or if the exercise is registered under
applicable securities laws. (vi) We received no proceeds from the issuance of these options and,
therefore, we have no use of proceeds. 5.c. Effective August 11, 2003, we granted an option to purchase 100,000
shares of our common stock to Robert Akright, vice president of the Company,
exercisable through August 11, 2013 at US$.32 per share, subject to Mr. Akright
entering into an appropriate option agreement. The following sets forth the
information required by Item 701 in connection with that transaction: (i) The transaction was effective August 11, 2003. We issued options to
acquire 100,000 shares of common stock. (ii) No underwriters were involved in the transaction. The only entity who
received securities from us in this transaction was Mr. Akright. (iii) The securities were not sold for cash. The securities were issued to
Mr. Akright as part of the consideration for his continuing employment as
Calais vice president. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. Mr. Akright has been vice
president of the Company for more than the past three years, and at the time of
the grant was a director of the Company. We believe that he obtained all
information regarding Calais Resources that he requested, received answers to
all questions he posed, and otherwise understood the risks of accepting our
securities in exchange for services to be provided. (v) There are no conversion rights or exchange rights associated with the
option. The option is exercisable to purchase shares of our common stock until
August 11, 2013 at US$.32 per share. The options are only exercisable provided
there is an exemption from registration available at the time of exercise, or
if the exercise is registered under applicable securities laws. (vi) We received no proceeds from the issuance of these options and,
therefore, we have no use of proceeds. (d) No information is required pursuant to Rule 463 adopted under the
Securities Act of 1933. (e) We did not make any repurchases of any securities during the period
included in this report. Consequently there is no disclosure required under
Item 703 of Regulation S-B. 35




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ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION The statements contained in this report that are not purely historical are
forward-looking statements. Forward looking statements include statements
regarding our expectations, hopes, intentions or strategies regarding the
future. Forward looking statements include: statements regarding future
products or products or product development; statements regarding future
selling, general and administrative costs and research and development
spending; and our product development strategy; statements regarding future
capital expenditures and financing requirements; and similar forward looking
statements. It is important to note that our actual results could differ
materially from those in such forward-looking statements. (a) Plan of Operation During the last five fiscal years we have not achieved any revenues from
operations and we do not expect to receive any such revenues in the near future
until such time, if ever, we produce precious metals which we can market. We
are offering certain of our capital assets for sale (amounting to approximately
Cdn$300,000), but we cannot offer any assurance that we will find a buyer for
them. These funds (if received) will be used for our working capital. Our contemplated operations on our Caribou prospect, our Nevada prospect,
and our Panama prospect require a significant amount of financing which is not
currently available to us. Thus, our plan of operations  to explore our
mineral prospects  is entirely dependent on our ability to obtain additional
financing from equity or debt placements. At the present time, we have no
commitment from any person to provide any portion of such financing, and we
cannot offer any assurance that we will be able to obtain such financing on
reasonable terms, if at all. As discussed below, we have a contractual commitment to commence
small-scale placer production by September 25, 2004, although our ability to
meet this obligation is dependent on additional financing and we cannot offer
any assurance that we will be able to obtain such financing. We are
negotiating with our contractual partner for the Panama prospect for a
restructuring of our contractual relationship, although we cannot offer any
assurance that we will be able to achieve any agreement for a restructuring. At the present time, we have cash resources for approximately three months
of operations at our current rate of expenditure. We are seeking additional
debt or equity financing involving industry partners or accredited investors.
We have the ability to reduce our operations if necessary to extend our cash
resources, and we will do so if necessary. We do not anticipate purchasing any new equipment or expand the number of
our employees unless we first obtain adequate financing. As described above,
we have proposed an exploration budget of approximately Cdn$10,000,000 for
fiscal 2005, but we will only be able to commence those programs on our Caribou
prospect (up to Cdn$6,000,000), our Nevada prospect (up to Cdn$3,500,000), and
our Panama prospect (up to Cdn$500,000) if we first obtain adequate financing
(of which there can be no assurance). Although we are engaged in discussions
with various parties who have expressed an interest in providing some type of
financing to us, we have not negotiated the terms of any such arrangement. (b) Managements Discussion and Analysis of Financial Condition. Results of Operations We have not achieved any revenues from our operations during the past
three fiscal years (including the 2004 fiscal year), and we do not expect to
receive any significant revenues from operations during our 2005 fiscal year. 36




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During our 2004 fiscal year, our expenses increased significantly to
Cdn$4,705,898 as compared to expenses of approximately Cdn$600,000 during the
2003 and 2002 fiscal years. Our expenses were so much greater during the 2004
fiscal year because we had significantly more working capital available to us
for our corporate operations, including exploration drilling (which are
capitalized for Canadian GAAP purposes) and for general and administrative
expenses. Our additional working capital derived primarily from the August
2003 loan received from accredited investors of US$4,500,000 (resulting in a
net of US$652,498 after payment of prepaid interest, bank loan, financing costs
and pre-existing obligations). The following discuss the more significant
changes between fiscal 2004 and fiscal 2003: We incurred interest and bank charges during fiscal 2004 of Cdn$3,229,267
which includes Cdn$3,120,581 in non-cash amortization of deferred
financing and prepaid fees net of recovered amounts and includes
Cdn$52,360 in non-cash accretion expense on our debentures. Total cash
paid for interest and bank charges in fiscal 2004 was Cdn$56,326. In
fiscal 2003 our interest and bank charges were Cdn$624,073 and included
non-cash accretion expense of Cdn$51,280 and accrued interest on our
loans. Interest in fiscal 2003 resulted primarily from the Peak National
Bank loan which was repaid in early fiscal 2004 with funds provided by
the Broadway financing. Total cash paid for interest in fiscal 2003 was
Cdn$107,790. Our foreign currency gain during the 2004 fiscal year reduced to about
Cdn$162,000 as compared to a gain of approximately Cdn$250,000 during the
2003 fiscal year. We incurred consulting fees of approximately Cdn$548,000 during fiscal
2004 as compared to Cdn$45,000 during fiscal 2003. During fiscal 2003 we
had been unable to undertake any significant activities because of a lack
of financing available to Calais. During fiscal 2004 we incurred professional fees (legal, accounting, and
audit) of about Cdn$585,000 as compared to similar expenses incurred in
fiscal 2003 of Cdn$100,000. This increased expense in this category was
the result of expenses incurred in completing the August 2003 loan
financing, expenses incurred in bringing our Canadian and United States
reporting obligations up to date, expenses incurred in investigating
title to our properties (especially in Nevada), expenses incurred in
connection with settlement negotiations with our former chairman and
president, Marlowe Harvey, expenses incurred in connection with
additional financing obtained, and other expenses. During fiscal 2004 we also incurred compensation expenses of
approximately Cdn$289,000 as compared to compensation expenses of Cdn$nil
during the prior fiscal year. We incurred these increased expenses
during fiscal 2004 because of the increased administrative staff that we
hired to deal with Calais increased administrative requirements
resulting from the completion of the August 2003 financing and the loss
of Calais status as a foreign private issuer under the United States
securities laws. During our 2003 and 2002 fiscal years, the components of our expenses
changed. The following discuss the more significant changes: Consulting fees reduced by about Cdn$45,000 because we had less working
capital available and consequently less ability to retain and pay for
consultants in our operations. We had a gain on foreign currency of approximately Cdn$250,000 during the
2003 fiscal year as compared to a loss of about Cdn$5,000 in the 2002
fiscal year. This gain was based on conversion between United States and
Canadian currency because most of our operations occur in U.S. dollars
while our financial statements are set forth in Canadian dollars.
Consequently this is not a gain we can anticipate recurring in the future
and it provides no additional capital to us. 37




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Interest and bank charges increased from about Cdn$319,000 during fiscal
2002 to Cdn$624,000 during fiscal 2003. These costs increased by almost
double because we had to finance our operations during fiscal 2003
through the use of debt, in part with high-interest credit cards and a
default rate of 24% per annum on our bank loan, while we were seeking
more cost-effective financing. While we had to finance our operations
with debt during fiscal 2002 as well, the total amount of debt
outstanding (and therefore the interest charges) were Cdn$400,000 greater
during fiscal 2003. We were able to reduce our professional fees and expenses by about
Cdn$30,000 during fiscal 2003 as compared to fiscal 2002 because we were
unable to retain and utilize professionals because we had no resources
from which to pay them for their services. As a result of these factors, our loss for the 2003 fiscal year was about
the same as our loss for the 2002 fiscal year (Cdn$592,000 loss in 2003 as
compared to Cdn$602,000 loss in 2002). Had we not realized the Cdn$250,000
gain on foreign currency during 2003, our actual loss would have been
significantly greater during 2003 than during 2002. We anticipate that the 2005 and 2006 fiscal years will continue to result
in greater operating losses than realized in fiscal 2002 or 2003, and may be
similar to the loss realized in fiscal 2004. Our activities during fiscal 2005
(and thus our expenditures) will be dependent on the amount of financing
available to fund our activities. We cannot offer any assurance that we will
be able to obtain the financing necessary to continue our activities at the
pace set in fiscal 2004 or at any specific level. In the next twelve months, we plan to conduct further drilling and other
exploration activities and scoping studies on the Caribou prospect, depending
on the availability of financing. We may also assist in performing title
curative work on our Nevada properties, although that, too, depends on the
availability of financing. Although we believe that we will be able to obtain
the necessary financing on reasonable terms, we cannot offer any assurance that
we will be able to do so. As discussed above, we do not intend to perform any significant work on
the mineral interests constituting the Manhattan prospect until (if ever) the
uncertainties relating to the title to those mineral interests are resolved.
Consequently we have not allocated an exploration budget for those prospects in
our 2005 fiscal year subject to available financing. We also hope to hire permanent employees in order to assist with
administrative duties at our principal place of business in Colorado. Prior to
that time, we hope to institute a health insurance plan for employees, as well
as other benefit plans, such as life insurance, retirement plans, profit
sharing plans, bonus and other plans. Liquidity and Capital Resources We have had working capital deficits in the years prior to the 2004 fiscal
year (Cdn$(3,135,000) at at May 31, 2003), while we had working capital at May
31, 2004 of Cdn$563,000. (It should be noted that a substantial portion of our
current assets, leading to the positive working capital at May 31, 2004,
included Cdn$1,066,508 of prepaid financing fees, which current asset is not
available for our use). Without including that amount, we had a working
capital deficit of Cdn$(189,508), more accurately reflecting the funds
available for our use as compared to our current liabilities. In any event, we
expect that our working capital will decrease through fiscal 2005 except to the
extent that we are able to increase our working capital through long-term debt
or equity placements (which must be accomplished in accordance with applicable
securities laws and regulations, and of which there can be no assurance). Our
working capital and working capital deficits have derived from: Cash of Cdn$606,461 at May 31, 2004, as compared to a bank overdraft of
Cdn$7,586 at May 31, 2003); 38




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Decreasing accounts payable and other current obligations in the amount
of Cdn$286,000 (Cdn$763,000 at May 31, 2004 as compared to Cdn$1,079,000
at May 31, 2003); A payout of the May 31, 2003 bank loan bank loan balance of Cdn$1,642,000
with long-term debt; and A repayment of advances due to shareholders of Cdn$354,824 to reduce the
balance owing to Cdn$342,749 at May 31, 2004 as compared to Cdn$697,573
at May 31, 2003. Our working capital deficit in the past, and our lack of liquidity has
adversely affected our ability to carry on our property acquisition and mineral
exploration operations. We did receive a significant investment in August 2003
which permitted us to accomplish exploration activity and to comply with our
public company reporting obligations in Canada and in the United States, but
those expenses substantially depleted the capital made available by the August
2003 financing and subsequent financing activities we undertook. As a result of our increased activity during fiscal 2004, we used
Cdn$1,512,000 in cash flow from our operations during fiscal 2004, We had positive cash flow from financing activities in both 2004
(Cdn$3,770,000) and 2003 (Cdn$219,000). The 2004 positive cash flow from
financing activities was due primarily to a Cdn$4,698,000 in new loan
financing, and Cdn$1,097,000 in funds received from the issuance of our capital
stock, offset in part by loan repayments of Cdn$1,997,000. The 2003 positive
cash flow from financing activities was due to the issuance of capital stock
and loans received from certain of our shareholders. Our positive cash flow
from financing activities allowed us to finance our negative cash flow from
operations and investing activities. As noted, we also had negative cash flows from investing activities in
both our fiscal 2004 (Cdn$1,644,000) and fiscal 2003 (Cdn$262,000) years. In
both cases, these expenditures related to investment in our mineral prospects
and other capital assets during the respective fiscal years. We expect that we will continue to have negative cash flow from operations
and investing activities during our 2005 fiscal year, and the amount of such
negative cash flow will depend on our ability to obtain the necessary financing
(which, if obtained, would likely result in a positive cash flow from financing
activities). In the future we expect that we will continue to be dependent on our
financing activities to finance anticipated continuing negative cash flows from
operating and investing activities. Alternatively we will have to find joint
venture partners or industry partners who are willing to invest funds in our
mineral interests or in Calais itself to fund our continuing operations. If we
are able to establish mineralization or reserves through our exploration
activities, we may be able to attract joint venture partners, industry
partners, or other investors who will be willing to provide us the necessary
capital on commercially-reasonable terms. 39




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Material Capital Commitments/Significant Uncertainties Tabular disclosure of contractual obligations as of May 31, 2004. Payment due by period (Canadian dollars (Cdn$))Less than 1
    
    
    
    
    
    
    
    
    
    More than 5Contractual obligations
    
    Total
    
    year
    
    1-3 years
    
    3-5 years
    
    yearsLong-term debt obligations
    
    $
    10,784,000
    
    
    $
    
    
    
    $
    6,135,000
    
    
    $
    
    
    
    $
    4,649,000Capital (Finance) lease
obligations
    
    $
    64,000
    
    
    $
    13,000
    
    
    $
    28,000
    
    
    $
    23,000
    
    
    $
    Operating lease obligations
    
    $
    0
    
    
    $
    0
    
    
    $
    
    
    
    $
    
    
    
    $
    Purchase obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Other long-term
liabilities reflected on
our balance sheet under
the GAAP of the primary
financial statement
    
    $
    343,000
    
    
    $
    343,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Total
    
    $
    11,191,000
    
    
    $
    356,000
    
    
    $
    6,163,000
    
    
    $
    23,000
    
    
    $
    4,649,000
 Material Contracts Calais material contracts described throughout this report can be
summarized as follows:  
    
    Loan to Calais from Peak National Bank, in default as of May 31,
2003, repaid in full in August 2003;
    
    Loan to Calais from Messrs. Ober and Garvey;
    
    Loan to Calais from accredited investors;
    
    Royalty Agreements with Mr. Hendricks and others;
    
    Contractual rights with respect to the interest of Aardvark
Enterprises (an affiliate of Mr. Harvey) in the Caribou prospect;
    
    Acquisition of the Panama prospect and possible amendment thereto;
    
    Employment agreement with Matthew C. Witt;
    
    Mutual Release effective July 18, 2000, between Marlowe Harvey,
Aarvark Agencies, Inc., Calais Resources Colorado, Inc., Calais
Resources, Inc., on the one part, and Thomas S. Hendricks as amened by
the Settlement Agreement dated March 8, 2004;
    
    Convertible debentures dated May 11, 2001; and
    
    Convertible debenture payable to Mr. Hendricks. Capital Obligations. We are a party to a lease for temporary office trailer at the Caribou Mine
site at a cost of US$317.50 per month for approximately one and a half more
years At May 31, 2003, we were the borrower from Peak National Bank in the
amount of US$1,081,000. We paid this loan in full on August 1, 2003 and no
amounts remain due or owing. There is a US$4,500,000 first mortgage lien taken on the Caribou prospect
as of August 4, 2003. This loan is due July 31, 2005. We also have outstanding debentures by which we are indebted to certain
affiliates in the total amount of Cdn$4,649,000 as explained in more detail in
note 7 of the financial statements. These debentures are convertible into our
common stock at the rate of Cdn$1.23 per share and are not repayable until May
2011. After the end of the fiscal year, we issued an additional US$250,000
debenture to 40




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Thomas Hendricks, convertible into our common stock at the rate of US$0.85
per share. By a March 2004 agreement with Marlowe and Judy Harvey (the owners
of the vast majority of the outstanding debentures) Calais has agreed to submit
for shareholder approval a reduction on the conversion price of the debentures
from the existing Cdn$1.23 to US$0.55. We have an employment agreement with Matt Witt, our chief financial
officer through August 2005. This employment agreement provides for
compensation to Mr. Witt of US$130,000 annually. We have a contract with Panama Mining of Golden Cycle to spend US$250,000
on placer exploration or production, and an additional US$250,000 of hard rock
exploration per calendar year on our Panama prospect. We have an obligation to
spend US$250,000 before the end of September 2005 or we will risk losing our
interest in the Panama concession. As discussed above, we are attempting to
restructure our arrangement for the Panama concession and cannot predict
whether we will be able to do so or (if we are able to do so) whether our
commitments will change. We intend to expend approximately Cdn$10,000,000 for the exploration of
the Caribou prospect , the Manhattan prospect, and the Panama prospect in our
2005 fiscal year, subject to available financing. We will continue to incur significant expenses for compliance and general
and administrative expenses (not including bank charges and interest expense). Critical Accounting Estimates The Companys discussion and analysis of its financial condition and
results of operations, including the discussion on liquidity and capital
resources, are based on its consolidated financial statements that have been
prepared in accordance with Canadian generally accepted accounting principles.
The preparation of these financial statements requires management to make
estimates and judgments that affect reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, management re-evaluates its estimates and
judgments, particularly those related to the determination of the impairment of
long-lived assets. Management bases its estimates and judgments on historical
experience, contractual arrangements and commitments and on various other
assumptions that it believes are reasonable in the circumstances. Changes in
these estimates and judgments will impact the amounts recognized in the
consolidated financial statements, and the impact may be material. Management
believes the following critical accounting policies require more significant
estimates and judgments in the preparation of the consolidated financial
statements. The consolidated financial statements have been prepared on the going
concern basis, which assumes the realization of assets and liquidation of
liabilities in the normal course of operations. If the Company was not to
continue as a going concern, it would likely not be able to realize on its
assets at values comparable to the carrying value or the fair value estimates
reflected in the balances set out in the preparation of the consolidated
financial statements. As described elsewhere in this report, at May 31, 2004,
there were certain conditions that currently exist which raise substantial
doubt about the validity of this assumption. The Company anticipates the need
to raise additional private placement debt or equity funds or through joint
venture arrangements to accomplish its budgeted expenditures. These private
placements are not assured. Failure to raise additional funds may result in the
Company being unable to complete its planned programs, to comply with its
obligations relating to its Panamanian concession, curtailing operations or
writing down its assets. For Canadian GAAP purposes, the Company capitalizes exploration costs
incurred. The recoverability of the capitalized costs includes considerations
primarily of managements exploration and holding plans and expectations with
respect to the property, potential mineralization, costs to recovery, commodity
prices and the potential for third party agreements on development. Certain of
these factors are beyond the Companys control. Other factors, such as
managements plans and expectations, while
supporting continued capitalization at this time may change and that
change may be material to the financial statements. For U.S. GAAP purposes,
the Company expenses exploration costs as incurred. 41




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For Canadian GAAP purposes, the Company capitalizes exploration costs
incurred as property, plant and equipment (tangible assets) pursuant to CICA
3061, EIC-126 and related guidance. Due to certain inconsistencies in the
CICA Handbook, there are opposing views that exploration costs should be
considered to be intangible assets. As intangible assets, they would be
amortized over the term of the mineral interest. In the United States, in
Abstract 04-2 the Emerging Issue Task Force reached a consensus that interests
in mineral properties are tangible assets. The Emerging Issues Committee in
Canada is currently reviewing the application of EITF 04-2 to Canadian GAAP. Effect of New Accounting Pronouncements In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. FASB No. 4 required all gains or losses from the retirement of
debt to be classified as extraordinary items net of income taxes. The standard
requires that gains and losses from the retirement of debt be classified as
ordinary items unless they are unusual or infrequent or meet the specific
criteria for treatment as an extraordinary item. This statement is effective
January 1, 2003. The adoption of this statement has been reflected in our
consolidated financial statements. In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities. This Statement requires recognition of a liability for a cost
associated with an exit or disposal activity when the liability is incurred, as
opposed to when the entity commits to an exit plan. This statement is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. As we have had no exit or disposal activities subsequent to December
31, 2002, the adoption of this statement has had no impact on our consolidated
financial statements. As originally issued, FASB Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,
would have been effective for financial instruments entered into or modified
after May 31, 2003, and otherwise are effective at the beginning of the first
interim period beginning after June 15, 2003 except for mandatorily redeemable
financial instruments of a non-public entity. Statement 150 is to be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before May 15, 2003 and still
existing at the beginning of the interim period of adoption. Restatement is
not permitted. This Statement may impact Calais in the future if the existing
convertible debentures are modified. FASB Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Entities, (FIN 46(R)) addresses how a business enterprise
should evaluate whether it has a controlling financial interest in an entity
through means other than voting rights and accordingly should consolidate the
entity. The interpretation effectively functions as a gateway through which
all consolidation evaluations must past (that is, FIN 46(R) must first be
applied to determine whether other consolidation literature applies). FIN
46(R) is effective for Calais which is a small business issuer no later than
the end of the first interim or annual period ending after December 15, 2004.
We do not expect a material change upon the adoption of FIN 46(R). CICA Section 3870, Stock-based compensation and other stock-based
payments, was amended to require public enterprises to adopt the fair value
based method for purposes of recognition and measurement in fiscal years
commencing after January 1, 2004. Public enterprises which had not previously
adopted the fair value based method for purposes of recognition and measurement
must apply the method to awards granted on or after January 1, 2002, with or
without restatement. Calais plans on adopting this statement by adopting the
new policy on a prospective basis which will result in no restatement of prior
period comparative figures. The net impact of prior income statement expense
are 42




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charged through retained earnings/deficit Because Section 3870 previously
applied to certain other types of awards (non-employee awards and employee
awards that settle net for cash, other assets or equity instruments, or direct
awards of stock), the real effect of this amendment is to require companies to
expense employee stock options. The adoption of Section 3870 in our 2005
fiscal year will increase our financial statement deficit and increase share
capital by Cdn$1,314,000 under Canadian GAAP reflecting the new standard.
There will be no net change in opening equity. This will result in a
Canadian/US GAAP difference should fair value accounting not be adopted under
US GAAP. Exchange Controls and Other Limitations Affecting Security Holders 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. There is no limitation imposed by Canadian law or by our Articles of
Incorporation or our other charter documents on the right of a non-resident to
hold or vote shares of our common stock, 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. An investment in our Common Shares 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 Calais and the value of our assets
equalled or exceeded $218 million, the threshold established for 2001, as
indicated on our financial statements for our 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 our Common Shares 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 Calais and the value of the assets were $5.0
million or more, as indicated on our financial statements for our fiscal year
immediately preceding the implementation of the investment. A non-Canadian, whether a WTO investor or otherwise, would acquire control
of Calais for the purposes of the Investment Act if he, she or it acquired a
majority of our Common Shares or acquired all or substantially all of the
assets used in our business. The acquisition of less than a majority, but
one-third or more of our Common Shares would be presumed to be an acquisition
of control of Calais unless it could be established that Calais 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
shares of our common stock, including:  (a)
    
    an acquisition of shares of our common stock 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 Calais 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 43




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(c)
    
    an acquisition of control of Calais by reason of an
amalgamation, merger, consolidation or corporate reorganization
following which the ultimate direct or indirect control in fact of
Calais, through the ownership of voting interests, remains
unchanged. Taxation The following summary of the material Canadian federal income tax
consequences generally applicable in respect of the common stock reflects the
opinion of our management. We have not received any opinion about these issues
from any tax professional in the United States or Canada. The tax
consequences to any particular holder of common stock will vary according to
the status of that holder as an individual, trust, corporation or member of a
partnership, the jurisdiction in which that holder is subject to taxation, the
place where that holder is resident and, generally, according to that holders
particular circumstances. This summary is applicable only to holders who are
residents in the United States, have never been residents of Canada, deal at
arms length with us, hold their common stock as capital property and who will
not use or hold the common stock in carrying on business in Canada. Special
rules, which are not discussed in this summary, may apply to a United States
holder that is an issuer that carries on business in Canada and elsewhere. This summary is based upon the provisions of the Income Tax Act of Canada
and the regulations thereunder (collectively, the Tax Act or ITA) and the
Canada-United States Tax Convention (the Tax Convention) as at the date
hereof and the current administrative practices of Canada Customs and Revenue
Agency. This summary does not take into account provincial income tax
consequences. Management urges each holder to consult his own tax advisor with respect to the
income tax consequences applicable to him in his own particular circumstances. Canadian Federal Income Tax Considerations The summary below is restricted to the case of a holder (a Holder) of
one or more Common Shares (Common Shares) who for the purposes of the Tax Act
is a non-resident of Canada, holds his Common Shares as capital property and
deals at arms length with us. Dividends. A Holder will be subject to Canadian withholding tax (Part
XIII Tax) equal to 25%, or such lower rates as may be available under an
applicable tax treaty, of the gross amount of any dividend paid or deemed to be
paid on his Common Shares. Under the Tax Convention, the rate of Part XIII Tax
applicable to a dividend on Common Shares paid to a Holder who is a resident of
the United States is, if the Holder is a company that beneficially owns at
least 10% of the voting stock of the Company, 5% and, in any other case, 15% of
the gross amount of the dividend. The Company will be required to withhold the
applicable amount of Part XIII Tax from each dividend so paid and remit the
withheld amount directly to the Receiver General for Canada for the account of
the Holder. Disposition of Common Shares. A Holder who disposes of Common Shares,
including by deemed disposition on death, will not be subject to Canadian tax
on any capital gain thereby realized unless the common Share constituted
taxable Canadian property as defined by the Tax Act. Generally, a common
share of a public corporation will not constitute taxable Canadian property of
a Holder unless he held the common share as capital property used by him
carrying on a business in Canada, or he or persons with whom he did not deal at
arms length alone or together held or held options to acquire, at any time
within the 60 months preceding the disposition, 25% or more of the issued
shares of any class of the capital stock of the Company. A Holder who is a resident of the United States and realizes a capital
gain on disposition of Common Shares that was taxable Canadian property will
nevertheless, by virtue of the Treaty, generally be exempt from Canadian tax
thereon unless (a) more than 50% of the value of the Common Shares is derived
from, or from an interest in, Canadian real estate, including Canadian mineral
resources 44




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prospects, (b) the Common Shares formed part of the business property of a
permanent establishment that the Holder has or had in Canada within the 12
months preceding disposition, or (c) the Holder (i) was a resident of Canada at
any time within the ten years immediately preceding the disposition, and for a
total of 120 months during any period of 20 consecutive years, preceding the
disposition, and (ii) owned the Common Shares when he ceased to be resident in
Canada. After October 18, 2000, a Holder who is subject to Canadian tax in respect
of a capital gain realized on disposition of Common Shares must include one
half of the capital gain (taxable capital gain) in computing his taxable
income earned in Canada. The Holder may, subject to certain limitations, deduct
one half of any capital loss (allowable capital loss) arising on disposition
of taxable Canadian property from taxable capital gains realized in the year of
disposition in respect to taxable Canadian property and, to the extent not so
deductible, from such taxable capital gains of any of the three preceding years
or any subsequent year. United States Taxation The following is a discussion of material United States Federal income tax
consequences, under the law, generally applicable to a U.S. Holder (as defined
below) of Common Shares of the Company. This discussion does not cover any
state, local or foreign tax consequences. The following discussion is based
upon the sections of the Internal Revenue Code of 1986, as amended (the
Code), Treasury Regulations, published Internal Revenue Service (IRS)
rulings, published administrative positions of the IRS and court decisions that
are currently applicable, any or all of which could be materially and adversely
changed, possible on a retroactive basis, at any time. In addition, the
discussion does not consider the potential effects, both adverse and
beneficial, or recently proposed legislation, which, if enacted, could be
applied, possibly on a retroactive basis, at any time. The discussion is for
general information only and it is not intended to be, nor should it be
construed to be, legal or tax advice to any holder or prospective holder of
Common Shares of the Company and no opinion or representation with respect to
the U.S. federal income tax consequences to any such holder or prospective
holder is made. Management urges holders and prospective holders of our Common
Shares to consult their own tax advisors about the federal, state, local, and
foreign tax consequences of purchasing, owning and disposing of our Common
Shares. U.S. Holders. As used herein, a U.S. Holder includes a holder of Common
Shares of the Company who is a citizen or resident of the United States, a
corporation created or organized in or under the laws of the United States or
of any political subdivision thereof, an estate whose income is taxable in the
United States irrespective of source or a trust subject to the primary
supervision of a court within the United States and control of a United States
fiduciary as described in Section 7701(a)(30) of the Code. This summary does
not address the tax consequences to, and U.S. Holder does not include, persons
subject to special provisions of Federal income tax law, such as tax-exempt
organizations, qualified retirement plans, financial institutions, insurance
companies, real estate investment trusts, regulated investment companies,
broker-dealers, non-resident alien individuals, persons or entities that have a
functional currency other than the U.S. dollar, shareholders who hold Common
Shares as part of a straddle, hedging or conversion transaction, and
shareholders who acquired their Common Shares through the exercise of employee
stock options or otherwise as compensation for services. This summary is
limited to U.S. Holders who own Common Shares as capital assets. This summary
does not address the consequences to a person or entity holding an interest in
a shareholder or the consequences to a person of the ownership, exercise or
disposition of any options, warrants or other rights to acquire Common Shares. Distribution on Our Common Shares. U.S. Holders receiving dividend
distributions (including constructive dividends) with respect to our Common
Shares are required to include in gross income for United States Federal income
tax purposes the gross amount of such distributions equal to the U.S. dollar
value of such distributions on the date of receipt (based on the exchange rate
on such date), to the extent that we have current or accumulated earnings and
profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain 45




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limitations, against the U.S. Holders United States Federal Income tax
liability or, alternatively, individuals may be deducted in computing the U.S.
Holders United States Federal taxable income by those individuals who itemize
deductions. (See more detailed discussion at Foreign Tax Credit below). To
the extent that distributions exceed current or accumulated earnings and
profits of the Company, they will be treated first as a return of capital up to
the U.S. Holders adjusted basis in the Common Shares and thereafter as gain
from the sale or exchange of the Common Shares. Dividend income will be taxed
at marginal tax rates applicable to ordinary income or at preferential rates
applicable to dividends. Preferential tax rates for long-term capital gains
are applicable to a U.S. Holder which is an individual, estate or trust. There
are currently no preferential tax rates for a U.S. Holder, which is a
corporation. In the case of foreign currency received as a dividend that is not
converted by the recipient into U.S. dollars on the date of receipt, a U.S.
Holder will have a tax basis in the foreign currency equal to its U.S. dollar
value on the date of receipt. Generally any gain or loss recognized upon a
subsequent sale of other disposition of the foreign currency, including the
exchange for U.S. dollars, will be ordinary income or loss. Dividends paid on our Common Shares will not generally be eligible for the
dividends received deduction provided to corporations receiving dividends from
certain United States corporations. A U.S. Holder which is a corporation may,
under certain circumstances, be entitled to a 70% deduction of the United
States source portion of dividends received from Calais (unless we qualify as a
foreign personal holding company or a passive foreign investment company,
as defined below) if such U.S. Holder owns shares representing at least 10% of
the voting power and value of the Company. The availability of this deduction
is subject to several complex limitations, which are beyond the scope of this
discussion. Under current Treasury Regulations, dividends paid on our Common Shares,
if any, generally will not be subject to U.S. information reporting, and
generally will not be subject to U.S. backup withholding tax. However,
dividends and the proceeds from a sale of our Common Shares paid in the U.S.
through a U.S. or U.S. related paying agent (including a broker) will be
subject to U.S. information reporting requirements and may also be subject to
the 31% U.S. backup withholding tax, unless the paying agent is furnished with
a duly completed and signed Form W-9. Any amounts withheld under the U.S.
backup withholding tax rules will be allowed as a refund or a credit against
the U.S. Holders U.S. federal income tax liability, provided the required
information is furnished to the IRS. Foreign Tax Credit. For individuals whose entire income from sources
outside the United States consists of qualified passive income, the total
amount of creditable foreign taxes paid or accrued during the taxable year does
not exceed $300 ($600 in the case of a joint return) and an election is made
under Code section 904(j), the limitation on credit does not apply. A U.S. Holder who pays (or has withheld from distributions) Canadian
income tax with respect to the ownership of our Common Shares may be entitled,
at the option of the U.S. Holder, to either a deduction or a tax credit for
such foreign tax paid or withheld. Generally, it will be more advantageous to
claim a credit because a credit reduces United States Federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayers income
subject to tax. This election is made on a year-by-year basis and applies to
all foreign income taxes (or taxes in lieu of income tax) paid by (or withheld
from) the U.S. Holder during the year. There are significant and complex
limitations which apply to the credit, among which is the general limitation
that the credit cannot exceed the proportionate share of the U.S. Holders
United States income tax liability that the U.S. Holders foreign source income
bears to his/her or its worldwide taxable income in the determination of the
application of this limitation. The various items of income and deduction must
be classified into foreign and domestic sources. Complex rules govern this
classification process. In addition, this limitation is calculated separately
with respect to specific classes of income such as passive income, high
withholding tax interest, financial services income, shipping income, and
certain other classifications of income. Dividends (if any) that we distribute
will generally constitute passive income or, in the case of certain U.S.
Holders, financial services income for these purposes. The availability of
the foreign tax credit and the application of the 46




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limitations on the credit are fact specific and management urges holders
and prospective holders of our Common Shares to consult their own tax advisors
regarding their individual circumstances. Other Considerations In the following circumstances, the above sections of the discussion may
not describe the United States Federal income tax consequences resulting from
the holding and disposition of our Common Shares. Foreign Personal Holding Company. If at any time during a taxable year
more than 50% of the total combined voting power or the total value of our
outstanding shares is owned, actually or constructively, by five or fewer
individuals who are citizens or residents of the United States and 60% (50%
after the first tax year) or more of our gross income for such year was derived
from certain passive sources (e.g. from interest income received from its
subsidiaries), we would be treated as a foreign personal holding company.
In that event, U.S. Holders that hold our Common Shares would be required to
include in gross income for such year their allocable portions of such passive
income to the extent we do not actually distribute such income. We do not believe that the Company currently has the status of a foreign
personal holding company. However, there can be no assurance that we will not
be considered a foreign personal holding company for the current or any future
taxable year. Foreign Investment Company. If 50% or more of the combined voting power
or total value of our outstanding shares are held, actually or constructively,
by citizens or residents of the United States, United States domestic
partnerships or corporations, or estates or trusts other than foreign estates
or trusts (as defined by the Code Section 7701(a)(31), and we are found to be
engaged primarily in the business of investing, reinvesting, or trading in
securities, commodities, or any interest therein, it is possible that we might
be treated as a foreign investment company as defined in Section 1246 of the
Code, causing all or part of any gain realized by a U.S. Holder selling or
exchanging our Common Shares to be treated as ordinary income rather than
capital gains. We do not believe that the Company has the status of a foreign investment
company. However, there can be no assurance that we will not be considered a
foreign investment company for the current or any future taxable year. Passive Foreign Investment Company. As a foreign corporation with U.S.
Holders, we could potentially be treated as a passive foreign investment
company (PFIC), as defined in Section 1297 of the Code, depending upon the
percentage of our income which is passive, or the percentage of our assets
which is held for the purpose of producing passive income. Management believes that we are not a PFIC. Additionally, we believe that
the anticipated progress of our business would not include any activities,
which would cause us to fall under the criteria of a Passive Foreign Investment
Company. However, there can be no assurance that our determination concerning
its PFIC status will not be challenged by the IRS, or that it will be able to
satisfy record-keeping requirements, which will be imposed on Qualified
Electing Funds (QEFs). Certain United States income tax legislation contains rules governing
PFICs which can have significant tax effects on U.S. shareholders of foreign
corporations. These rules do not apply to non-U.S. shareholders. Section 1297
(a) of the Code defines a PFIC as a corporation that is not formed in the
United States and, for any taxable year, either  (i)
    
    75% or more of its gross income is passive income, which
includes interest, dividends and certain rents and royalties or 47




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(ii)
    
    the average percentage, by fair market value (or, if the
company is a controlled foreign corporation or makes an election, by
adjusted tax basis), of its assets that produce or are held for the
production of passive income is 50% or more. The taxation of a U.S. shareholder who owns stock in a PFIC is extremely
complex and is therefore beyond the scope of this discussion. Management urges
U.S. persons to consult with their own tax advisors with regards to the impact
of these rules. Controlled Foreign Corporation. A Controlled Foreign Corporation (CFC)
is a foreign corporation more than 50% of whose stock by vote or value is, on
any day in the corporations tax year, owned (directly or indirectly) by U.S.
Shareholders. If more than 50% of the voting power of all classes of stock
entitled to vote is owned, actually or constructively, by citizens or residents
of the United States, United States domestic partnerships and corporations or
estates or trusts other than foreign estates or trusts, each of whom own
actually or constructively 10% or more of the total combined voting power of
all classes of our stock could be treated as a controlled foreign corporation
under Subpart F of the Code. This classification would effect many complex
results, one of which is the inclusion of certain income of a CFC which is
subject to current U.S. tax. The United States generally taxes United States Shareholders of a CFC
currently on their pro rata shares of the Subpart F income of the CFC. Such
United States Shareholders are generally treated as having received a current
distribution out of the CFCs Subpart F income and are also subject to current
U.S. tax on their pro rata shares of the CFCs earnings invested in U.S.
property. The foreign tax credit described above may reduce the U.S. tax on
these amounts. In addition, under Section 1248 of the Code, gain from the sale
or exchange of shares by a U.S. Holder of Common Shares of the Corporation
which is or was a United States Shareholder at any time during the five-year
period ending with the sale or exchange is treated as ordinary income to the
extent of our earnings and profits (accumulated in corporate tax years
beginning after 1962, but only while the shares were held and while the Company
was controlled) attributable to the shares sold or exchanged. If a foreign
corporation is both a PFIC and a CFC, the foreign corporation generally will
not be treated as a PFIC with respect to the United States Shareholders of the
CFC. This rule generally will be effective for taxable years of United States
Shareholders beginning after 1997 and for taxable years of foreign corporations
ending with or within such taxable years of United States Shareholders. The
PFIC provisions continue to apply in the case of PFIC that is also a CFC with
respect to the U.S. Holders that are less than 10% shareholders. Because of the
complexity of Subpart F, a more detailed review of these rules is outside of
the scope of this discussion. The amount of any backup withholding will not constitute additional tax
and will be allowed as a credit against the U.S. Holders federal income tax
liability. Filing Information Returns. Under a number of circumstances, United
States Investor acquiring our Common Shares may be required to file an
information return with the Internal Revenue Service Center where they are
required to file their tax returns with a duplicate copy to the Internal
Revenue Service Center, Philadelphia, PA 19255. In particular, any United
States Investor who becomes the owner, directly or indirectly, of 10% or more
of the shares of the Company will be required to file such a return. Other
filing requirements may apply, and management urges United States Investors to
consult their own tax advisors concerning these requirements. Risk factors An investment in and ownership of our common stock is one of high risk.
You should carefully consider the risks described below before deciding whether
to invest in or continue to hold our common stock. If any of the contingencies
discussed in the following paragraphs or other materially adverse events
actually occurs, the business, financial condition and results of operations
could be materially and
adversely affected. In such case, the trading price of our common stock could
decline, and you could lose all or part of your investment. 48




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Risks Associated With Our Financial Results and Capitalization: Our consolidated financial statements raise doubt about our ability to continue
as a going concern because of our financial condition and continuing losses. Note 1 to our consolidated financial statements for the year ended May 31,
2004, included herein expresses the following concerns about our ability to
continue as a going concern even following the US$4,500,000 loan we received in
August 2003: The Company has experienced losses in the fiscal years of 2004 and 2003
and prior years and has experienced negative cash flow from operations
over a number of years. The Company is actively pursuing various options
with potential lenders and investors which, if accepted, will in
managements view, enable the Company to achieve its business plans. No
agreements with potential lenders or investors have been reached yet, and
there can be no assurance that such agreements will be reached. The ability of the Company to continue as a going concern and to realize
the carrying value of its assets and discharge its liabilities when due
is dependent on the successful completion of the actions taken or planned
which management believes will mitigate the adverse conditions and events
which raise doubt about the validity of the going concern assumption
used in preparing these financial statements. As is common with
companies with negative cash flows and losses, there is no certainty that
these and other strategies will be sufficient to permit the Company to
continue beyond May 31, 2005. The financial statements do not reflect adjustments that would be
necessary if the going concern assumption were not appropriate. If the
going concern basis was not appropriate for these financial statements,
then adjustments would be necessary in the carrying value of assets and
liabilities, the reported revenues and expenses, and the balance sheet
classifications used. We expect that these losses will continue for the foreseeable future. In
view of the matters described in the preceding paragraphs, recoverability of a
major portion of the recorded asset amounts shown in our consolidated financial
statements is dependent upon our continued operations, which in turn is
dependent upon our ability to meet our financing requirements on a continuing
basis, to maintain present financing, and to succeed in our future operations.
The auditors report on our fiscal 2004 financial statements includes
additional comments for U.S. readers that sttes that conditions and events
exist that cast substantial doubt on our ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary should we be
unable to continue in existence. We have had a significant decrease in working capital from August 3, 2003
through year end, May 31, 2004 and significant working capital shortages during
the past years and we anticipate a need for a additional funding to finalize
our exploration plans. Until we completed financing with accredited investors in August 2003, we
incurred significant working capital shortages, with negative working capital
at May 31, 2003 of approximately Cdn$(3,135,000). While the August financing
made approximately US$3,500,000 net proceeds available to us, it is not likely
that this funding will be sufficient to achieve our business goals. As of May
31, 2004, our working capital had increased to Cdn$876,543, but it is expected
to decrease subsequently. We need a significant amount of additional funding
within the next three to six months in order to carry out our business plan,
and we cannot offer any assurance that such funding will be available on
reasonable terms when required, if any funding is
available at all. We also need to obtain more than Cdn$5,300,000 to repay
indebtedness due on or before July 31, 2005. 49




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Our ability to exploit our mineral interests will be dependent upon our
ability to obtain financing through the joint venturing of projects, conveying
an interest in our mineral prospects to persons who will further explore,
define, and (if warranted) develop those prospects, obtaining investment from
industry partners who want to develop the prospects through Calais, debt
financing, equity financing or other means. If we are unable to obtain such
financing on reasonable terms, our ability to exploit our mineral prospects may
be delayed or indefinitely postponed. Although our goal is to continue
exploration for mineral resources, ultimately if we are unable to finance
future exploration, we may lose our interest in these prospects. Our balance sheet reflects a significant investment in mineral prospects as
permitted by Canadian accounting principles, all of which is expensed for
United States accounting purposes. Our financial statements reflect an investment in our mineral prospects of
Cdn$14,744,000 at May 31, 2004 and Cdn$13,207,000 at May 31, 2003 under
generally accepted accounting principles in effect in Canada. United States
GAAP requires us to expense all of our mineral prospect expenses and,
therefore, we carry the prospects on our balance sheet at a zero cost for
United States reporting purposes. As a result, our shareholders equity under Canadian accounting principals
becomes a shareholder deficiency under United States principals, as reflected
in the following table: Shareholders equity under
    
    Shareholders deficiencyCanadian GAAP
    
    under U.S. GAAPMay 31, 2004
    
    Cdn$8,634,000
    
    Cdn$(6,530,000)May 31, 2003
    
    Cdn$5,541,000
    
    Cdn$(8,136,000)
 These significant differences reflects the questions as to recoverability
of our balance sheet values which are treated differently in the United States
and Canada, and there can be no assurance that we will be able to recover our
investment in our mineral interests or that either the United States accounting
treatment or the Canadian accounting treatment accurately reflect the value of
our mineral interests. There is a risk that Calais may lose its interest in its Caribou prospects if
it does not meet its obligations to a lender holding those prospects as
collateral. We have pledged our interest in our Caribou prospect to collateralize the
August 2003 loan of US$4,500,000. Although there are no material covenants
with respect to the loan and no payments are due until July 31, 2005, if we are
unable to repay the loan when due, our creditors will have the right to
foreclose against the Caribou prospect and acquire it from Calais. This would
result in the loss of our most significant asset. At the present time, we do
not have the necessary resources with which to repay the amount due. One of
our focuses during the next year is to obtain the financing necessary to repay
this loan or negotiate with our creditors to extend the term of the loan. We
cannot offer any assurance that we will be able to accomplish either. There is a risk that Calais may lose its interest in its prospects in Panama if
it does not meet its contractual obligations. When we acquired our prospects in Panama, we committed to perform certain
work on the prospects, including: to complete a US$250,000 exploration program for lode deposits by
September 25, 2004, and
by the same date, to complete an additional US$250,000 program to explore
for placer gold deposits and install a pilot placer operation. 50




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We believe we have met our contractual commitments on the hard rock
obligations, but we have not met our contractual commitments on the placer
obligations, and we can offer no assurance that we will be able to do so by
September 25, 2004. As discussed above, we are attempting to restructure our
arrangement for the Panama concession and cannot predict whether we will be
able to do so or (if we are able to do so) whether our commitments will change.
If we are unable to meet these commitments or to extend the obligation, the
persons who conveyed the Panama prospects to us will have the right to give us
notice and reacquire the prospects from us. There is a risk that we will not obtain good title to our Manhattan prospect. As noted above, there are many issues relating to the title to the
Manhattan prospect. As a result of Mr. and Mrs. Harvey and certain of their
affiliates conveying title to us in July 2004, certain of those issues have
been resolved. Under the March 2004 settlement agreement, Mr. Harvey has the
obligation to convey marketable title to the Manhattan prospect to us by not
later than December 31, 2005. To our knowledge, he has not commenced the
actions that Calais believes is necessary to convey to us good title, and we
cannot offer any assurance that even if he did commence those actions he could
or would complete them in a manner that resulted in good title to Calais.
Consequently, we cannot offer any assurance that we will ever acquire title to
the Manhattan prospect that is sufficient for us to expend the funds necessary
for exploration work (assuming, without assurance, that we had such funds
available). The volatility and low trading volume of our common stock in the public market
and the general condition of the public market itself may adversely affect our
ability to raise additional capital. In recent years, the securities markets in the United States and Canada
have experienced a high level of price and volume volatility, and the market
price of securities of many companies, particularly small-capitalization
companies such as Calais, has experienced wide price fluctuations that have not
necessarily been related to the operations, performances, underlying asset
values, or prospects of such companies. For these reasons, you can anticipate
that our Common Shares will continue to be subject to volatility resulting from
market forces over which Calais will have no control. We have historically had very little trading volume in our common stock.
The lack of trading volume of our shares reduces the liquidity of an investment
in our shares. The limited daily trading activity in our stock can make it
difficult for investors to readily sell their shares in the open market. There is no assurance that we will be able to achieve any production. As described below and even though we have identified mineral resources in
accordance with Canadian National Instrument 43-101  Standards of Disclosure
of Mineral Projects, we cannot offer any assurance that we will be able to
achieve production of valuable minerals from any of our prospects. Unless we
are able to achieve such production within a reasonable period of time and in a
manner that results in revenues greater than the expenses incurred, we will not
be able to continue to finance our operations, and we will likely not be able
to attract further equity or debt investment when necessary. We have raised capital and issued shares during the years ended May 31, 2004
and 2003 and subsequently, which has resulted in dilution to our existing
shareholders. This was necessary in order to provide necessary working capital
or obtain assets and services, and we will likely issue more shares at prices
below our share market price to raise additional capital or to obtain other
services or assets, any of which may result in additional dilution. During the course of the last two fiscal years and subsequently, we have
been required to raise in excess of $5,000,000 of net working capital (after
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acquisitions. We have raised this capital by issuing shares of common
stock and warrants to accredited investors, secured loan, unsecured loans, and
by issuing convertible debentures to certain insiders. During this same period
of time, we have issued common stock warrants and shares of common stock to
several persons in exchange for their promises to perform services for us. In
many cases, we have issued shares of common stock and warrants and options
exercisable for shares of common stock at prices below the then-current market
price for our common stock as reported on the OTC Bulletin Board. It is our
experience that persons purchasing shares in these capital raising transactions
will not purchase shares unless the shares are issued at discounts from the
price of our common stock as reported in the market at the time of the
transaction. If we are successful in raising additional working capital, we will likely
have to issue additional shares of our common stock and common stock purchase
warrants at prices that may dilute the interests of our existing shareholders. Our outstanding shareholders may incur a dilution of their ownership interest
through future issuances of shares to our employees, directors, and
consultants. Because we anticipate that our success will be highly dependent upon our
employees and consultants, we may in the future grant to some or all of our key
employees, directors and consultants options to purchase Common Shares as
non-cash incentives. To the extent that significant numbers of such options
may be granted and exercised, the interests of the other shareholders of the
Company may be diluted. Furthermore, the exercise of our existing outstanding options, the
conversion of our convertible debentures, and the number of shares available
for future issuance may dilute the value of our Common Shares and the interest
of our shareholders. We have 100,000,000 shares of our common stock authorized, of which
20,143,453 shares were outstanding as of May 31, 2004 and 11,193,385 were
outstanding as of May 31, 2003. In addition, as of May 31, 2004 we have
reserved an additional: 1,232,500 shares for issuance upon the exercise of options; 255,000 shares for issuance upon exercise of warrants that were
outstanding; and 4,121,293 shares for issuance upon conversion of outstanding convertible
debentures. In addition, subsequent to the fiscal year end, we issued: an option to purchase 3,000,000 shares to Tom Hendricks in June 2004; warrants to purchase 6,092,462 shares under various financings; and 2,080,000 shares to certain persons who were among the original
accredited investors in the August 2003 transaction with Broadway in
consideration for their return of that indebtedness to Broadway which is
holding the debt for the benefit of Calais. On a fully diluted basis, there is a potential for the issuance of a total
36,924,708 shares of our common stock. Although our Board of Directors has no present intention to do so, it has
the authority, without action by the shareholders, to issue authorized and
unissued shares of common stock and shares of preferred stock. Any series of
preferred stock, if and when established and issued, could also have rights
superior to shares of our common stock, particularly in regard to voting, the
payment of dividends and upon liquidation of Calais. 52




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Broker-dealers may be discouraged from effecting transactions in our Common
Shares because they are considered penny stocks and are subject to the penny
stock rules. Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of
1934, as amended, impose sales practice and disclosure requirements on NASD
broker-dealers who make a market in a penny stock. A penny stock generally
includes any non-Nasdaq equity security that has a market price of less than
US$5.00 per share. Our shares are quoted on the OTC Bulletin Board and as a
result are considered to be penny stocks subject to these rules. The
additional sales practice and disclosure requirements imposed upon
broker-dealers may discourage broker-dealers from effecting transactions in our
shares, which could severely limit the market liquidity of the shares and
impede the sale of our shares in the secondary market. Under the penny stock regulations, a broker-dealer selling penny stock to
anyone other than an established customer or accredited investor (generally,
an individual with net worth in excess of US$1,000,000 or an annual income
exceeding US$200,000, or US$300,000 together with his or her spouse) must make
a special suitability determination for the purchaser and must receive the
purchasers written consent to the transaction prior to sale, unless the
broker-dealer or the transaction is otherwise exempt. In addition, the penny stock regulations require the broker-dealer to
deliver, prior to any transaction involving a penny stock, a disclosure
schedule prepared by the U.S. Securities and Exchange Commission relating to
the penny stock market, unless the broker-dealer or the transaction is
otherwise exempt. A broker-dealer is also required to disclose commissions
payable to the broker-dealer and the registered representative and current
quotations for the securities. Finally, a broker-dealer is required to send
monthly statements disclosing recent price information with respect to the
penny stock held in a customers account and information with respect to the
limited market in penny stocks. Foreign operations are subject to many risks. We are exploring mineral interests in the Republic of Panama and in the
past have focused on interests in Mexico. Foreign activities are subject to
the risks normally associated with conducting business in foreign countries,
including exchange controls and currency fluctuations, limitations on
repatriation of earnings, foreign taxation, foreign environmental law and its
enforcement, labor practices and disputes, and uncertain political and economic
environments, as well as risks of war and civil disturbances, or other risks
that could cause exploration difficulties or stoppages, restrict the movement
of funds or result in the deprivation or loss of contract rights or the taking
of property by nationalization or expropriation, without fair compensation.
Foreign operations could also be adversely impacted by laws and policies of the
United States affecting foreign trade, investment and taxation. Risks Associated with our Management and Principal Shareholders We are dependent upon the continued availability of the services of our
President and Chief Executive Officer, our most significant key management
employee. While engaged in the business of exploiting mineral interests, the nature
of our business, our ability to continue planned exploration of our mineral
prospects, and to develop a competitive edge in the marketplace, depends, in
large part, on our ability to attract and maintain qualified key management
personnel. Competition for such personnel is intense and the Company may not
be able to attract and retain such personnel. The Companys growth will depend
primarily on the efforts of its President and Chief Executive Officer Thomas S.
Hendricks. Loss of Mr. Hendricks services would have a material adverse
effect on our ability to continue operations. We do not have any key-man life
insurance and no written employment or consulting agreements with Mr. Hendricks
or with any other member of our management except with Mr. Matt Witt, with whom
we have a two-year employment agreement expiring in October 2005. We are controlled by a limited number of our shareholders, and as a result
the public holders of our outstanding shares will have little ability to
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Our management, directors, and greater-than-5% stockholders (and their
affiliates), acting together, have the ability to control substantially all
matters submitted to the Companys stockholders for approval (including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of our assets) and to control our management and affairs.
Accordingly, this concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of the Company, impeding a merger,
consolidation, takeover or other business combination involving the Company or
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of Calais which in turn could materially adversely
affect the market price of our stock. U.S. investors may not be able to enforce their civil liabilities against
Calais or against certain of our directors and officers. We are incorporated in the province of British Columbia under the British
Columbia Business Corporations Act. As a result, it may be difficult for U.S.
holders of our Common Shares to effect service of process on these persons
within the United States or to realize in the United States upon judgments
rendered against them. In addition, a shareholder should not assume that the
courts of Canada (i) would enforce judgments of U.S. courts obtained in actions
against us or such persons predicated upon the civil liability provisions of
the U.S. federal securities laws or other laws of the United States, or (ii)
would enforce, in original actions, liabilities against us or such persons
predicated upon the U.S. federal securities laws or other laws of the United
States. When we first became subject to the reporting requirements of the
Securities Exchange Act of 1934 as a foreign private issuer, we became liable
for filing annual reports with the Securities and Exchange Commission on Form
20-F and other reports on Form 6-K as we filed reports with Canadian
authorities or issued press releases or proxy statements. While we have filed
our annual reports on Form 20-F, prior to our 2003 Form 20-F (filed in November
2003 and as amended in July 2004), the reports were not reviewed by legal
counsel and, as a result, do not know whether there are any deficiencies.
Furthermore, we did not file any Forms 6-K which were required by the
Securities and Exchange Commissions rules. Consequently, we may be subject to
enforcement action from the Securities and Exchange Commission or possible
civil action from investors who may have relied on reports that are
subsequently judged to be incomplete or inaccurate in any material respect. If
any person or regulatory agency brings any action against us, it will involve a
significant amount of time and cost and will distract our management from
pursuing our business plan as described herein. We are no longer considered a foreign private issuer and, therefore, we
become subject to additional regulation under the Securities Exchange Act of
1934, and possible duplicative regulation and reporting requirements under
British Columbia and Canadian law. As a result of completing a significant financing in August 2003, we no
longer meet the definition of a foreign private issuer under the Securities
Exchange Act of 1934. As a result, we are required to file reports with the
Securities and Exchange Commission on Form 10-KSB (due within 90 days after the
completion of each fiscal year), Form 10-QSB (due within 45 days after the
completion of the first three fiscal quarters) and Form 8-K (due upon the
occurrence of certain defined and other material events). As a result of
losing foreign private issuer status, all of our financial information will
now have to be reconciled to U.S. GAAP under Item 18 instead of under Item 17.
We will also be subject to regulation under the proxy rules (SEC Regulation
14A). These requirements in the United States are in addition to similar
reporting obligations in Canada where the financial information will have to be
set forth in Canadian GAAP. As a result, we may incur additional expenses in
complying with the possible duplicative reporting requirements. 54




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Risks Associated With Our Business And Operations We are subject to all of the operational risks of the mining industry. Our operations are and will continue to be subject to all of the hazards
and risks normally associated with exploring for mineral resources. These risks
include finding insufficient ore reserves (if any), fluctuations in production
costs that may make the mineral interests unattractive for further exploration
or subsequent activities; significant environmental and other regulatory
restrictions; labor disputes; geological problems; pit-walls or tailings dam
failures; force majeureevents; and the risk of injury to persons, property or
the environment. Operating cost increases can have a negative effect on the
value of and ability to finance our mineral exploration activities and may
require that we cease operations on or abandon some interests. The mining industry is subject to environmental risks. Mineral exploration operations are subject to potential risks and
liabilities associated with pollution of the environment and the disposal of
waste products occurring as a result of mineral exploration and production.
Insurance against environmental risks (including potential liability for
pollution or other hazards as a result of the disposal of waste products
occurring from exploration and production) is not generally available to the
companies within the mining industry, such as the operators of the mines in
which we hold a royalty interest, at a reasonable price. To the extent that we
become subject to environmental liabilities, the satisfaction of any such
liabilities would reduce funds otherwise available to us and could have a
material adverse effect on our financial condition and operations. Laws and
regulations intended to ensure the protection of the environment are constantly
changing, and are generally becoming more restrictive and costly. We take
great pride in being proactive with all environmental laws and concerns, and
will continue to comply with any additional requirements that may be imposed in
the future to the best of its ability. Federal, state and local governmental regulations. The current operations of the Company, involves exploration activities on
its mineral interests. These activities require permits from federal, state and
local governmental authorities in the United States. While we believe that we
have all permits that are necessary to perform our activities as currently
underway, laws change and there can be no assurance that any future permits
which we may require will be obtainable on reasonable terms or that such laws
and regulations, or that new legislation or modifications to existing
legislation, would not have an adverse effect on any exploration project which
we might undertake. Failure to comply with applicable laws, regulations and permitting
requirements may result in enforcement actions there under, including orders
issued by regulatory or judicial authorities causing operations to cease or be
curtailed, and may include corrective measures requiring capital expenditures,
installation of additional equipment or remedial actions. Parties engaged in
exploration operations may be required to compensate those suffering loss or
damage by reason of the exploration activities and may have civil or criminal
fines or penalties imposed for violation of applicable laws or regulations. Amendments to current laws, regulations and permits governing operations
and activities of exploration companies, or more stringent implementation
thereof, could have a material adverse impact on us and our operations and
cause increases in capital expenditures or require abandonment or delays in the
exploration of new prospects. There is no guarantee of clear title to any of our mineral prospects. Title to mineral interests is complex and involves many issues (not all of
which are of record with the local clerk and recorders office). We have
performed a large amount of work to provide us the greatest assurance that we
have good title to the patented and unpatented mining claims included within
our Caribou prospect. The mineral interests in Nevada are generally unpatented mining claims,
and such claims are subject to greater uncertainties than are associated with
patented mineral interests. Furthermore we do not own title of record to the
Nevada prospect, although we are seeking to acquire record title in accordance
with our earlier agreements. We cannot offer any assurance that we will be
able to cause our predecessors in title to 55




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transfer their title to us, notwithstanding what we believe is their
contractual obligations. If we are unable to obtain good title to the Nevada
prospect, we will not explore those prospects and we will not be able to
benefit from the monies we have expended on them to date. Our mineral interests in Panama are made up completely of concessions from
the government of Panama. Based on our review of the interests we acquired in
Panama, and although the concessions are not registered in our name, we believe
that we have the right to explore and benefit from those concessions under
Panamanian law. We have no proven reserves on any of our mineral interests. Although we have performed a significant amount of exploration work on our
Caribou prospect and we have identified a significant amount of mineral
resources in the Caribou prospect, we have not identified any mineral reserves
as that term is defined by the U.S. Securities and Exchange Commission. Our
mineral interests in Nevada and Panama are in the exploration stage and we have
not identified any mineral reserves on those mineral interests, either.
Prospects on which mineral reserves are not found will have to be discarded
which will require that we write each respective property off, thus sustaining
an expense for accounting purposes. As is discussed above, we have identified mineral resources on our Caribou
prospect in accordance with the requirements of Canadian National Instrument
43-101  Standards of Disclosure of Mineral Projects. United States investors
are advised that while terms such as measured, indicated and inferred
mineral resources are recognized and required by Canadian regulations, the
United States Securities and Exchange Commission (the SEC) does not recognize
them. Mineral resources have a great amount of uncertainty as to their
existence, and great uncertainty as to their economic and legal feasibility.
It cannot be assumed that all or any part of a mineral resource will ever be
upgraded to a higher category. Under Canadian rules, estimates of inferred
mineral resources may not form the basis of feasibility or other economic
studies. United States investors are cautioned not to assume that all or any
part of our mineral resources will ever be converted into mineral reserves or
ever recovered profitably, if at all. Unsuccessful exploration efforts could
have a significant negative impact on our financial condition and operations. If we are unable to identify mineralization that can be commercially
extracted, beneficiated, and sold, we will have spent a significant amount of
money with no return to our shareholders. Fluctuation in the price of gold and silver could have material adverse impacts
on our operations. Our primary exploration targets are gold and silver. Market prices for
commodities such as gold and silver have historically fluctuated and
occasionally have fluctuated widely. The market price of precious metals
fluctuates widely and is affected by numerous factors beyond the control of any
person. These factors include industrial and jewelry fabrication demand,
expectations with respect to the rate of inflation, the relative strength of
the U.S. dollar and other currencies, interest rates, gold sales and loans by
central banks, forward sales by gold producers, global or regional political,
economic or financial crises, and a number of other factors. The global price
for these precious metals and the volatility of the price may adversely impact
our ability to raise the necessary financing and, if we engage in production
operations, may adversely impact our revenues from operations. Forward-looking statements may prove to be inaccurate. In our effort to make the information in this report more meaningful, this
report contains both historical and forward-looking statements. All statements
other than statements of historical fact are forward-looking statements within
the meanings of Section 27A of the Securities Act of 1933, and Section 21E of
the Securities Exchange Act of 1934. Forward-looking statements in this report
are not based on historical facts, but rather reflect the current expectations
of our management concerning future results and events. 56




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The forward-looking statements generally can be identified by the use of
terms such as believe, expect, anticipate, intend, plan, foresee,
likely, will or other similar words or phrases. Furthermore, statements
that describe our objectives, plans, or goals are, or may be, forward-looking
statements. Forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or
achievements to be different from any future results, performance and
achievements expressed or implied by these statements. These factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in the
forward-looking statements in this prospectus. Other unknown or unpredictable
factors also could have material adverse effects on our future results. (c) Off-balance sheet arrangements. Not applicable inasmuch as we do not have off-balance sheet arrangements. 
 ITEM 7. FINANCIAL STATEMENTS Our consolidated financial statements are stated in Canadian Dollars
(Cdn$) and are prepared in accordance with Canadian GAAP, the application of
which, in our case, conforms in all material respects for the periods presented
with U.S. GAAP, except as disclosed in footnotes to the financial statements. There are several differences in determining expenses and net loss between
Canadian GAAP and U.S. GAAP. Revenues remain the same at nil under both
Canadian and U.S. GAAP. These differences are explained in much greater detail
in the notes to the consolidated financial statements attached to this report. The information required by this item begins on page F-1 of Part III of
this Report on Form 10-KSB and is incorporated into this part by reference. 
 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 8A. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15 under the Securities Exchange Act of 1934,
within the 90 days prior to the filing date of this report, our management
carried out an evaluation of the effectiveness of the design and operation of
its disclosure controls and procedures. This evaluation was carried out under
the supervision and with the participation of our principal executive officer
as well as our principal financial officer, who concluded that our disclosure
controls and procedures are effective. Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities
and Exchange Commissions rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under 57




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the Exchange Act is accumulated and communicated to management, including
our principal executive officer and our principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure. (b) Changes in Internal Controls. There were no changes in our internal controls or in other factors that
could significantly affect the internal controls subsequent to the date of
their evaluation. 
 PART III 
 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT (a) Executive Officers The following table lists, as of May 31, 2004, the names of all of our
directors and senior management. Our directors generally serve in their
respective capacities from their election on the day of our Annual General
Meeting (last held on December 18, 2003) and will serve until the next Annual
General Meeting or until a successor is duly elected, unless the office is
vacated in accordance with our Articles. Interim vacancies on the Board of Directors are filled by the remaining
directors and the persons filling those vacancies hold office until the next
Annual General Meeting at which time they may be re-elected or replaced. Our
senior management (executive officers) are appointed by the Board of Directors
and hold office indefinitely at the pleasure of the Board of Directors. Date first electedName
    
    Age
    
    Positions held
    
    or appointedThomas S. Hendricks
    
    
    55
    
    
    Director, president, chief executive officer
    
    
    1998Art Daher
    
    
    71
    
    
    Director, Secretary
    
    
    1995Robert Akright
    
    
    79
    
    
    Vice President
    
    
    1998Matt Witt
    
    
    36
    
    
    Chief Financial Officer
    
    
    2003Melvin Martin
    
    
    63
    
    
    Director
    
    
    1992
 No director or executive officer has been the subject of any order,
judgment, or decree of any governmental agency or administrator or of any court
or competent jurisdiction, revoking or suspending for cause any license, permit
or other authority of such person or of any corporation of which he is director
or executive officer, to engage in the securities business or in the sale of a
particular security or temporarily or permanently restraining or enjoining any
such person or any corporation of which he is an officer or director from
engaging in or continuing any conduct, practice, or employment in connection
with the purchase or sale of securities, or convicting such person of any
felony or misdemeanor involving a security or any aspect of the securities
business or of theft or of any felony. While some of our directors and executive officers are involved in other
business ventures and do not spend full time on our business and affairs, we
believe that each devotes as much time to our business and affairs as are
required to satisfactorily carry out their duty. Thomas S. Hendricks has been one of our directors since we acquired the
assets of Hendricks Mining Company (HMC) in 1998, a company that Mr.
Hendricks formed and operated in 1974 for the purpose of acquiring and
operating the Cross Mine and neighboring mineral interests. Mr. Hendricks has
been engaged in exploring and limited mining operations at the Cross Mine and
neighboring mineral interests (now referred 58




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to as the Caribou prospect) on a full time basis since 1975. Mr.
Hendricks is not an officer or a director of any other company whose shares are
registered under the Securities Exchange Act of 1934, as amended. Mr. Daher has been secretary and a director of Calais Resources since
1995. Mr. Daher is retired. Mr. Daher sold his Real Estate Company in
September of 1996, a company he had owned and operated since May of 1983. Mr.
Daher is not an officer or a director of any other company whose shares are
registered under the Securities Exchange Act of 1934, as amended. Robert Akright has been a geologist for several companies in the mineral
industry for his entire professional life. He has worked with Calais Resources
since 1998. Mr. Akright has been working as a self-employed consulting
geologist for more than the past five years from his office in Littleton,
Colorado. Mr. Akright is not an officer or a director of any other company
whose shares are registered under the Securities Exchange Act of 1934, as
amended. Mr. Witt joined Calais Resources as its chief financial officer in August
2003. Before joining Calais Resources, Mr. Witt was a vice president of
operations for two privately-held mortgage bankers specializing in commercial
and residential mortgages. These were Broadway Mortgage (from April 2003 until
joining Calais in August 2003) and Professional Mortgage Alliance (mid-2000
until April 2003). From 1996 through mid 2000, Mr. Witt was an account
executive at Cendant Mortgage. Mr. Witt is not an officer or a director of any
other company whose shares are registered under the Securities Exchange Act of
1934, as amended. Mr. Martin has been a member of Calais Resources Board of Directors since
1992. Mr. Martin is currently retired. Mr. Martin retired in 1998 as a school
teacher in Vancouver, British Columbia, a position he held for 30 years. Mr.
Martin is not an officer or a director of any other company whose shares are
registered under the Securities Exchange Act of 1934, as amended. (b) Significant Employees We have no significant employees other than our officers described above. (c) Family Relationships There are no family relationships between any two or more directors and
executive officers. There are no arrangements or understandings between any
two or more directors and executive officers pursuant to which he was selected
as a director or executive officer except that Matt Witt became chief financial
officer following and as a result of the August 2003 investment by six
accredited investors. (e) Audit Committee Financial Expert Not yet required. (f) Audit Committee Calais does not have a formal audit committee and, therefore, its Board of
Directors serves as its audit committee. (g) Procedures by which security holders may recommend nominees to the board of
directors The board of directors has not adopted procedures by which security
holders may recommend nominees to the board of directors. 59




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(h) Section 16(a) Beneficial Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 (the 1934 Act)
requires our directors, executive officers and persons who own more than 10% of
a registered class of our equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of Calais. Officers, directors and greater than 10%
shareholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file. To our knowledge, based upon a review of the copies of such reports
furnished to us and based upon written representations that no other reports
were required, all Section 16(a) filing requirements applicable to Calais
officers, directors and greater than ten percent beneficial owners were
complied with during the fiscal year ended May 31, 2004 except for those listed
below. To our knowledge, none of the named persons below have completed
transactions subsequent to May 31, 2004, except as described below, and,
therefore, we do not believe that any additional reports are due.  
    
    Mr. Hendricks filed a Form 3 on September 25, 2003, which was
due on September 3, 2003. As such, he filed that report late. Such
report failed to take into account four separate sales of stock,
and, therefore, Mr. Hendricks beneficial ownership was incorrectly
stated. The most recently filed Form 4 corrects that error. In
addition, Mr. Hendricks reporting the July 2004 grant of the option
within the required time period, but inadvertently omitted inclusion
of his convertible debenture in that report. An amended Form 4 was
filed. As such, he filed a second report late.  
    
    Mr. Witt filed a Form 3 on September 26, 2003, which was due
on September 3, 2003. As such, he filed one report late.  
    
    Mr. Harveys Form 3 was due on September 3, 2003 and has not
yet been filed. In addition, we have received information that Mr.
Harvey has sold shares on September 3, 4, 8, 9, and 15 (45,700
shares in September), and October 6 and 14 (21,700 shares), and
November 6 (58,000 shares). Mr. Harvey has not reported any of
these transactions on Form 4 and, therefore, eight Form 4s have not
been filed. Mr. Harvey or persons affiliated with him may have sold
additional shares of our common stock without the knowledge of
Calais for which he has not filed a Form 4. Mr. Hendricks assigned
his convertible debenture to Mrs. Harvey on June 25, 2004, although
she has not accepted that assignment and she has not filed a Form 4
reflecting the additional beneficial interest.  
    
    Mr. Dahers Form 3 was due on September 3, 2003 and was filed
on December 8, 2003. Mr. Daher sold some shares of our common stock
in October 2003 for which he filed a Form 4 on December 8, 2003. In
addition, Mr. Daher made two sales of our common stock in February,
2004, for which he filed late Form 4s and sold additional shares in
June 2004, for which he filed a late Form 4. Numerous amendments
have been filed in order to account for errors in calculating Mr.
Dahers beneficial ownership.  
    
    Mr. Akrights Form 3 was due on September 3, 2003 and was
filed on November 12, 2003. Furthermore, he sold some shares of our
common stock in September and October 2003, for which Form 4s were
filed late. In addition, a Form 4 was filed in April, 2004 for the
acquisition of shares of common stock in February, 2004. In
November 2003, Mr. Akright received an option to purchase 100,000
shares of common stock that was not reported until September 2004.  
    
    Mr. Martins Form 3 was due on September 3, 2003 and was
filed in December 2003. Mr. Martin received shares of our common
stock as a stock bonus in February 2004 and filed a Form 4
reflecting those shares in June 2004.  
    
    Mr. Angelo Benaske filed a Form 3 on September 29, 2003,
which was due on September 3, 2003. As such, he filed one report
late. 60




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In addition, certain persons were required to file a Schedule 13D, when
Calais began filing 1934 Act reports in approximately March 1998 or upon
becoming a beneficial owner of greater than 5% of the outstanding stock. Mr.
Harvey is the only person known to us who has been obligated to, but who has
failed to, file a Schedule 13D as of the date of this report. (i) Code of Ethics We have not yet adopted a code of ethics that applies to our principal
executive officer, principal financial officer, controller, or persons
performing similar functions. We have not done so because of the press of
other business activities. We expect that the Board of Directors will consider
such a code in the future. 
 ITEM 10. EXECUTIVE COMPENSATION (a) and (b) Summary Compensation Table The following chart (in Cdn$) sets forth information regarding the
compensation paid to our chief executive officer and our other executive
officers during the most recent three fiscal years ended May 31, 2004, 2003,
and 2002. This includes all compensation paid to each by Calais and any
subsidiary: Long-termAnnual compensation
    
    Compensation AwardsAwards
    
    PayoutSecurities(Cdn$)
    
    UnderlyingName and
    
    Fiscal
    
    (Cdn$)
    
    (Cdn$)
    
    (Cdn$)
    
    Restricted
    
    Options &
    
    
    
    
    
    All OtherPrincipal Position
    
    Year
    
    Salary
    
    Bonus
    
    Other
    
    Awards
    
    SARs (#)
    
    LTIP
    
    CompensationThomas S.
Hendricks,
President and CEO(a)
Matt Witt, CFO (b)
    
    
    2002
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02003
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02004
    
    
    
    114,662
    
    
    
    172,856
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02004
    
    
    
    63,319
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,000,000
    
    
    
    0
    
    
    
    0
  (a)
    
    A portion of the salary payments to Mr. Hendricks (Cdn$228,103)
included salary due to him from prior years, but paid in fiscal 2004.
At May 31, 2004, Calais had not paid Mr. Hendricks his full salary and
still owed him Cdn$30,676 for services performed during fiscal 2004.
That amount remains outstanding as of July 31, 2004. The bonus
reflects the dollar amount of a 75,000 stock bonus that Calais granted
to Mr. Hendricks during fiscal 2004.(b)
    
    At May 31, 2004, Calais had not paid Mr. Witt his full salary and
still owed him Cdn$78,186 for services performed during fiscal 2004.
That amount remains outstanding as of July 31, 2004. We did not pay any salary to Mr. Hendricks for the 2001, 2002 or 2003
fiscal years because we did not have the cash to do so. We accrued his salary
at the rate of US$50,000 per year for 42 months until we were able to pay him
the past due salary in August 2003  when Mr. Hendricks received a payment of
US$163,690. For the current fiscal year (ending May 31, 2005), we plan to pay salaries
to our president (US$150,000 per year), chief financial officer (US$130,000 per
year), together with discretionary bonuses and other compensation as the Board
of Directors may determine. We also plan to discuss employment agreements,
benefits, and other forms of compensation for these individuals in addition to
the two year employment agreement with our chief financial officer which
provides for his salary as stated above. 61




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(c) Options/SAR Grants Options to purchase securities from registrant or subsidiaries We are authorized to grant options to purchase shares of our common stock
to our directors, executive officers, and employees on terms and conditions
acceptable to the regulatory authorities in Canada, notably the Canadian
Venture Exchange and the British Columbia Securities Commission. We have no
formal written stock option plan. Under the applicable rules, we may grant stock options for up to 10% of
the number of issued and outstanding Common Shares provided that stock options
in favor of any one individual may not exceed 5% of the issued and outstanding
Common Shares. No stock option granted under the stock option program is
transferable by the optionee other than by will or the laws of
descent/distribution and each stock option is exercisable during the lifetime
of the optionee only by such optionee. Furthermore, the exercise price of all
stock options granted under the stock option program must be at least equal to
the fair market value (subject to regulated discounts) of such Common Shares on
the date of grant, and the maximum term of each stock option may not exceed
five years. The exercise prices for stock options are determined in accordance with
OTC Bulletin Board (OTCBB) guidelines and reflect the average closing price
of our Common Shares for the ten trading days on the OTCBB immediately
preceding the day on which the directors grant and publicly announce the stock
options (subject to a regulatory-acceptable discount), but no less than $0.45
exercise price per share. Warrants and convertible securities that are outstanding We have no outstanding warrants to purchase our common stock held by our
officers or directors. We have issued warrants to purchase our common stock to
an investment banker that we expected to provide certain services to us. At
May 31, 2003, there were warrants held by that investment banker to purchase
486,303 shares of our common stock at an average exercise price of Cdn$0.81.
We reached a settlement with that investment banker (described below in Item
8.A(7) Legal Proceedings) which resulted in the issuance of additional shares
and the cancellation of the warrants. In July 2000, we issued convertible debentures to Judy Harvey, Argus
Resources, and Aardvark Agencies in the total amount of Cdn$5,442,018. We
reissued those convertible debentures in May 2001, and it is the May 2001
debentures that are currently outstanding. Judy Harvey is Marlowe Harveys
wife; Mr. Harvey controls both Argus Resources and Aardvark Agencies. The
debentures are all non-interest bearing and are due May 11, 2011. The
debentures are convertible into Common Shares at Cdn$1.23 per share. (By a
March 2004 agreement with Marlowe and Judy Harvey, Calais has agreed to submit
for shareholder approval a reduction on the conversion price of the debentures
from the existing Cdn$1.23 to US$0.55.) The following chart sets forth the
beneficial owners of the convertible debentures and the number of shares
underlying such debentures as of May 31, 2003. To our knowledge, there have
been no further transfers of any debentures during the fiscal year ended May
31, 2003 or subsequently. No person has converted any of the debentures into
common stock. During fiscal 2002, Cdn$344,913 of the debentures were repaid to
Mrs. Harvey. Original PrincipalName
    
    amount
    
    Accrued Interest
    
    Underlying sharesMarlowe Harvey(a)
    
    Cdn$4,113,105
    
    $
    0
    
    
    
    3,343,988Thomas S. Hendricks (b)
    
    Cdn$984,000
    
    $
    0
    
    
    
    1,306,036Melvin Martin(c)
    
    Cdn$1,103,214
    
    $
    0
    
    
    
    896,922
  (a)
    
    Owned of record by Mr. Harveys wife, Judy Harvey and entities affiliated
with or controlled by Mr. Harvey. Of these debentures, Mrs. Harvey is
holding Cdn$1,103,214 for the benefit of Mr. Martin. Mrs. Harvey
disclaims any interest in the debentures (or the shares underlying the
debentures) she is holding for Mr. Martin but, to date, she has failed to
comply with her obligations in the March 9,
2004, Settlement Agreement to assign the debenture to Mr. Martin. See
also note (b), below, which describes Mr. Hendricks reassignment to Mrs.
Harvey of the Cdn$984,000 debenture. 62




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(b)
    
    Mr. Hendricks acquired these debentures from Mrs. Harvey in settlement of
litigation he had brought against Mr. Harvey, not sure if it was against
Calais Resources or Harvey. Mr. Hendricks has agreed to assign this
debenture to Mrs. Harvey based on the March 2004 settlement agreement
involving Mr. and Mrs. Harvey and Mr. Hendricks has executed an assignment
to do so. Mr. and Mrs. Harvey have not yet accepted assignment of the
debenture. Consequently, Calais still has the Cdn$984,000 debenture
registered in Mr. Hendricks name.(c)
    
    Mrs. Harvey is holding debentures in this amount for the benefit of Mr.
Martin. Mr. Martin disclaims any affiliation with Mrs. Harvey, Mr.
Harvey, or entities they control. Options/SAR Grants in Last Fiscal Year We granted stock options to the executive officers named in the
compensation table (above) during the fiscal years ended May 31, 2004 and 2003
or during the current fiscal year. We did not grant any stock appreciation
rights to any person during fiscal years 2003, 2004 or subsequently. Name
    
    Number of Options
    
    Exercise Price
    
    TermFiscal 2003 grantsMarlowe Harvey
    
    
    82,500
    
    
    Cdn$
    1.26
    
    
    November 15, 2004Fiscal 2004 grantsMatt Witt
    
    
    500,000
    *
    
    US$
    3.00
    
    
    August 11, 2013500,000
    *
    
    US$
    5.00
    
    
    August 11, 2013Robert Akright
    
    
    100,000
    
    
    Cdn$
    0.45
    
    
    August 1, 2008Fiscal 2005 grantsTom Hendricks
    
    
    3,000,000
    
    
    US$
    0.85
    
    
    July 8, 2014Tom Hendricks
(debenture)**
    
    
    294,117
    
    
    US$
    0.85
    
    
    Variable
  *
    
    Mr. Witts grant was in connection with his employment at Calais as our
chief financial officer (in August 2003).**
    
    The board granted Mr. Hendricks a bonus, paid as a US$250,000 debenture
convertible into common stock at US$0.85 per share, although only
US$50,000 is currently due or convertible The remaining amount becomes
due on demand and convertible at the rate of US$50,000 per year commencing
on July 8, 2005. (d) Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values Fiscal year end values No officer exercised employee stock options during the fiscal year ended
May 31, 2003. No officer exercised employee stock options during the fiscal
year ended May 31, 2004, except as set forth in the following table: 63




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Number ofUnexercised
    
    Value ofsecurities
    
    unexercised in theunderlying
    
    money options/SARsoptions/SARs at
    
    at 5/31/2004 (Cdn$)5/31/2004 (#)
    
    (a)Shares acquired on
    
    Value realized ($)
    
    Exercisable/
    
    Exercisable/Name
    
    exercise (#)
    
    (a)
    
    unexercisable
    
    unexercisableThomas S. Hendricks
    
    
    100,000
    
    
    $
    233,403
    
    
    
    0(b)/0
    
    
    $0/$0Art Daher
    
    
    50,000
    
    
    $
    62,448
    
    
    
    50,000(c)/0
    
    
    $37,000/$0Robert Akright
    
    
    0
    
    
    $
    0
    
    
    
    100,000(d)/0
    
    
    $76,590/$0Mel Martin
    
    
    75,000
    
    
    $
    (2,409
    )
    
    
    0
    
    
    $0/$0Matt Witt
    
    
    0
    
    
    $
    0
    
    
    
    1,000,000(e)/0
    
    
    $0/$0Persons who are
neither officers
nor directors but
who are providing
services to us
    
    
    0
    
    
    $
    0
    
    
    
    0/0
    
    
    0/0
  (a)
    
    Value realized is equal to the market price less the exercise price
times the number of shares acquired. At May 31, 2004, the market price
for our common stock was US$1.01 per share (Cdn$1.38).(b)
    
    Not including an option to purchase 3,000,000 shares at US$0.85
(exercisable through July 8, 2014) granted to Mr. Hendricks in July 2004.
Also not including a bonus paid to Mr. Hendricks after fiscal 2004 year
end in the form of a US$250,000 debenture convertible into common stock at
US$0.85.(c)
    
    Mr. Dahers 50,000 options have an exercise price of Cdn$.45 per share
and expire on August 11, 2005.(d)
    
    Mr. Akrights options are exercisable at US$0.32 per share and expire on
August 1, 2008.(e)
    
    Mr. Witts options are exercisable at US$3.00 (as to 500,000 shares) and
US$5.00 (as to the remaining 500,000 shares) through August 11, 2013. Subsequent exercises No officer exercised employee stock options after the end of the fiscal
year ended May 31, 2004. (e) Long Term Incentive Compensation Plans and Defined Benefit and Actuarial
Plans None. (f) Compensation of Directors We have no formal plan for compensating our directors for their service in
their capacity as directors. Directors are entitled to reimbursement for
reasonable travel and other out-of-pocket expenses incurred in connection with
attendance at meetings of the Board of Directors. The Board of Directors may
award special remuneration to any director undertaking any special services on
our behalf other than services ordinarily required of a director. Other than
indicated below no director received any compensation for his services as a
director, including committee participation and/or special assignments. We are in the process of instituting a health insurance plan for our
employees. We may consider other benefit plans, such as life insurance,
retirement plans, profit sharing plans, bonus and other plans as the
circumstances warrant. 64




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(g) Employment Agreements, Termination of Employment and Change in Control
Agreements We have previously had no plans or arrangements in respect of remuneration
received or that may be received by any person employed by us to compensate
such person in the event of termination of employment (as a result of
resignation, retirement, change of control) or a change of responsibilities
following a change of control. (h) Report on Repricing of Options/SARs None 
 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. (a) and(b) Ownership of Certain Beneficial Owners and Managers The following table sets forth information regarding the ownership of our
common stock as of May 31, 2004 by: (i) each director or nominee for director;
(ii) each of the executive officers named in the Summary Compensation Table;
(iii) all executive officers and directors of the Company as a group; and (iv)
all those known by us to be beneficial owners of more than 5% of our common
stock based on the total of 20,143,453 shares outstanding as of July 31, 2004. Beneficial OwnershipBeneficial Owner
    
    Number of Shares
    
    Percent of TotalThomas S. Hendricks(2)
    
    
    4,262,982
    
    
    
    21.2
    %Art Daher(3)
    
    
    415,750
    
    
    
    2.1
    %Robert Akright(4)
    
    
    241,368
    
    
    
    1.2
    %Matt Witt(5)
    
    
    2,600,000
    
    
    
    12.9
    %Melvin Martin (6)
    
    
    1,487,831
    
    
    
    7.4
    %All executive officers and directors as a group (5
persons). The address for all of the above directors
and executives officers is:
8400 E Crescent Parkway #675 Greenwood Village CO 80111
    
    
    8,987,931
    
    
    
    44.6
    %Stephen
Angelo Benaske (8)
1625 Larimer Street, Suite 2407
Denver, CO 80202
    
    
    5,415,455
    
    
    
    26.9
    %Marlowe
Harvey (1)
47015 Extrom Road
Chilliwack, B.C. V2R-4V1 Canada
    
    
    5,992,488
    
    
    
    29.7
    %
 (1) Mr. Harvey owns options to acquire 82,500 shares of Calais common stock,
exercisable through November 15, 2004 at Cdn$1.26 per share. Mr. Harveys
beneficial ownership includes 1,766,000 shares of our common stock as well as
convertible debentures (as follows), each of which are convertible into common
stock at the conversion price of Cdn$1.23 through May 11, 2011: Name of Holder(relationship to Mr. Harvey)
    
    Amount (Cdn$)
    
    Underlying sharesJudy Harvey (wife)
    
    $
    3,149,955
    
    
    
    2,560,939Argus Resources, Inc.
    
    $
    215,422
    
    
    
    175,140Aardvark Agencies, Inc.
    
    $
    747,728
    
    
    
    607,909Thomas Hendricks (see note 2)
    
    $
    984,000
    
    
    
    800,000
 65




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(By a March 2004 agreement with Marlowe and Judy Harvey, Calais has agreed to
submit for shareholder approval a reduction on the conversion price of the
debentures from the existing Cdn$1.23 to US$0.55.) Except as disclosed in the
preceding table, no other member of Mr. Harveys family owns any shares or
rights to acquire shares. Of the debentures owned by Mrs. Harvey, she is
holding Cdn$1,103,214 for Melvin Martin and disclaims any interest in
debentures in that amount and the underlying shares. (2) Mr. Hendricks beneficial ownership does not include 800,000 shares of
common stock underlying a convertible debenture that he has assigned to Mrs.
Judy Harvey in accordance with an agreement reached with Mr. Harvey. Mrs.
Harvey has not yet accepted the assignment, but Mr. Hendricks disclaims any
interest in the debenture. Mr. Hendricks beneficial ownership does include an
option to purchase 3,000,000 of Calais common stock for US$0.85 per share,
exercisable through July 8, 2014 granted to him in July 2004. Mr. Hendricks
beneficial ownership also includes 294,118 shares underlying a US$250,000
convertible debenture granted to him as bonus compensation in July 2004. The
debenture vests as to US$50,000 on each of July 8, 2004 (which vesting has
occurred), 2005, 2006, 2007 and 2008). On and after each of those dates, Mr.
Hendricks may demand payment of the vested amount, or may convert the vested
amount into common stock at the rate of US$0.85 per share. He has not made any
demand with respect to the amount vested to date. No other member of Mr.
Hendricks family owns any shares or rights to acquire shares. (3) Mr. Dahers ownership includes options to acquire 50,000 shares exercisable
at Cdn$.45 per share through August 11, 2005. No other member of Mr. Dahers
family owns any shares or rights to acquire shares. (4) Mr. Akrights beneficial ownership includes 141,368 shares of stock and
options to acquire 100,000 shares of Calais common stock, exercisable at
Cdn$.45 per share through August 1, 2008. (5) Mr. Witts beneficial ownership includes 1,600,000 shares of stock and
options to acquire 1,000,000 shares (of which 500,000 are exercisable at
US$3.00 and the remaining are exercisable at US$5.00 per share through August
11, 2013) which the Board of Directors granted to him in connection with his
employment as our chief financial officer. No other member of Mr. Witts
family owns any shares or rights to acquire shares. (6) Mr. Martins beneficial ownership includes 590,909 shares of stock owned by
his wife, a company owned by Mr. and Mrs. Martin, and ownership of convertible
debentures in the total amount of Cdn$1,103,214 which is held in the name of
Mrs. Harvey, and which is convertible into 896,922 shares of common stock at
Cdn$1.23 per share through May 11, 2011. (See Note 1, above, for the
possibility that these debentures may be repriced.) No other member of Mr.
Martins family owns any shares or rights to acquire shares. Mr. Martin
disclaims any affiliation with Mr. or Mrs. Harvey and with the entities they
control. (8) Mr. Angelo Bensakes beneficial ownership includes 1,500,000 shares which
he owns, but which he has committed to sell for the benefit of and on behalf of
Calais to repay the US$4,500,000 debt that Calais owes to certain accredited
investors (including Mr. Angelo Benaske) who loaned us money in August 2003.
Mr. Angelo Benaske may only sell the shares if a registration statement
permitting the sale of those shares is effective or if there is an exemption
for the transaction available, and if our common stock is trading at an average
price of US$3.00 per share over an average of five business days. (c) No Change of Control Arrangements. We know of no plans or arrangements that will result in a change of
control at Calais. (d) Equity Compensation Plan Information Calais has no formal equity compensation plan. See Item 10 for additional
information. 66




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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS. The following are the only transactions since June 1, 2001, or proposed
transactions, which have materially affected or will materially affect us in
which any director, executive officer, or beneficial holder of more that 10% of
the outstanding Common Shares, or any of their respective relatives, spouses,
associates or affiliates has had or will have any direct or indirect interest.
Our Board of Directors believes the transactions referenced below were on terms
at least as favorable to us as we could have obtained from unaffiliated
parties. Resignation of Marlowe Harvey On November 11, 2003, Mr. Harvey resigned as an officer and director of
Calais, demanding a return of the Cdn$984,000 debenture Mrs. Harvey assigned to
Mr. Hendricks and also advising Calais that he intends to enter into an
agreement to vend the Nevada prospect, or a portion thereof, to third parties.
In the March 2004 settlement agreement, Mr. Hendricks agreed to return the
debenture to Mr. Harvey, subject to compliance with applicable securities laws.
Mr. Hendricks has executed the assignment to return the debenture to Mrs.
Harvey (as directed by Mr. Harvey), but Mrs. Harvey has yet to show compliance
with securities laws and, therefore, the debenture is still registered on
Calais books in Mr. Hendricks name. Purchases of Common Shares by Officers/Directors The following chart describes purchases of our common stock by our
officers, directors, and their affiliates during fiscal 2003, 2004 and
subsequently: Subsequent to fiscal 2004
    
    fiscal 2004
    
    Fiscal 2003# of shares
    
    US$ value
    
    # of shares
    
    Cdn$ value
    
    # of shares
    
    Cdn$ valueThomas S.
Hendricks(a,b)
    
    
    3,294,117
    
    
    $
    2,800,000
    
    
    
    100,000
    
    
    $
    45,000
    
    
    
    91,667
    
    
    $
    40,333(c)
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    $
    172,856Art Daher(c)
    
    
    
    
    
    
    
    
    
    
    55,000
    
    
    $
    126,761
    
    
    
    20,000
    
    
    $
    21,400(b)
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    22,500Robert Akright(c)
    
    
    
    
    
    
    
    
    
    
    60,000
    
    
    $
    138,285
    
    
    
    
    
    
    
    Melvin Martin(c)
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    $
    23,048
    
    
    
    
    
    
    
    (b)
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    $
    33,750
    
    
    
    
    
    
    
    
  (a)
    
    In July 2004, Calais issued to Mr. Hendricks: (i) an option to
purchase 3,000,000 shares exercisable at US$0.85 per share through July
8, 2014, and a US$250,000 debenture convertible at US$0.85 per share.  (b)
    
    Exercise of options for Cdn$0.45 per share in September (Mr.
Hendricks) and October (Mr. Daher and Mr. Martin) 2003.  (c)
    
    Bonus shares granted to Messrs. Hendricks, Daher, Martin and
Akright in December 2003. Loans to Calais Resources Directors, their family members, or companies controlled by our directors
have lent the company funds on various terms and conditions over the last three
years as follows:  
    
    the convertible debentures described above 67




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
    
    Cdn$70,000 payable (with interest at 12%) to Mr. Harvey for a
loan made by him to Calais for working capital purposes in 2003
which was due May 22, 2003 (paid in August 2003), and which was
secured by our assets held for sale and was convertible into our
common stock at Cdn$0.60 per share. As consideration to Mr. Harvey
for making this loan, we provided him with options to purchase
82,500 shares of stock at an exercise price of Cdn$1.26, exercisable
through November, 2004.  
    
    In June 2003, Thomas S. Hendricks obtained a personal
mortgage from a bank using his personal collateral in the amount of
US$587,680 in order to permit Calais to meet certain of its
obligations. The amount advanced included prepaid interest and fees
to the lender of US$87,680, providing a net of US$500,000 funding to
Calais. Proceeds of the August 2003 financing were used to repay
this amount and to reimburse Mr. Hendricks for his expenses in
obtaining this loan. Mr. Hendricks provided this credit facility to
us at no cost.  
    
    From time-to-time during fiscal years ending May 31, 2003 and
2002, and previously, Mr. Hendricks used his personal credit cards
to advance funds to Calais as necessary for Calais working capital
purposes. The amounts outstanding that are attributed to Mr.
Hendricks at May 31, 2003 and 2002 reflect those amounts together
with interest accrued to the credit card issuers. Mr. Hendricks did
require Calais to pay his interest expense, but did not charge
Calais any other costs or receive any compensation for advancing
this credit.  
    
    This loan and in the following table (which table does not
include amounts owed pursuant to the convertible debentures). Amount owed by Calais onName
    
    Interest rate
    
    May 31, 2004
    
    May 31, 2003
    
    May 31, 2002Tom Hendricks
    
    
    0
    %
    
    $nil
    
    US$
    94,281
    
    
    
    U.S.$28,987Marlowe and Judy
Harvey
    
    
    12
    %
    
    $nil
    
    Cdn$
    70,000
    
    
    $
    0
 Royalty Interests. Mr. Harvey claims that he retained a royalty interest in these properties,
which claim has not yet been substantiated with documentation. It now appears
that, at the time of the acquisition, Mr. Harvey owned (with others) a claimed
joint venture interest, and did not own any part of the record title to any
patented and unpatented claims which were a part of the Manhattan prospect.
Mr. Harveys claim of a right to purchase some of the joint venture properties
appear now to have been purely contractual in nature. We are attempting to
determine title to these the joint venture interests, to acquire other of the
joint venture interests, and to take steps to cure title to the Manhattan
prospect. To this end, beginning in October 2003 we received title information
relating to these prospects which consist of 28 patented mining claims and some
147 unpatented mining claims, including title reports on the unpatented claims
and a litigation title guaranty on the patented claims. The majority of the mineral interests that Calais acquired from the former
Hendricks Mining Co. (HMC) in 1998, or acquired within five years thereafter,
are subject to net smelter return royalties in amounts varying from 2.0% to
0.5% of net smelter returns in favor of the former shareholders of HMC (which
include Thomas S. Hendricks (as to 85.354%), Mr. Hendricks mother (10.101%),
and Mr. Hendricks attorney (4.545%) who has continued as attorney for Calais.
The period for which Calais was obligated to make further royalty grants as to
new acquisitions expired in April, 2003. The royalty grants now outstanding
and of record are effective for a period of 20 years after the date of the
grants, with expiration of the royalties beginning in March 2018, and ending in
April 2023. These individuals own the net smelter return royalty covering
substantially all of the Caribou prospect. (The net smelter return does not
include mineral interests acquired since April 2003.) Calais, and Mr. Harvey
acknowledged the validity of these royalties in the July 2000 settlement of the
litigation Mr. Hendricks brought against Mr. Harvey and Aardvark. See further
discussion above in Item 2, above. 68




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Aardvark Enterprises, Inc. Aardvark Enterprises, Inc. is a Washington corporation primarily engaged
in the real estate business in Denver and elsewhere. Aardvark is controlled by
Marlowe Harvey and his wife, Judy Harvey. Shortly after the acquisition of the
HMC assets by Calais in 1998, Calais encountered a cash shortfall which would
have prevented it from exercising an advantageous option to acquire the Caribou
Mine prospect, and to continue its drilling program at the Caribou prospect. The necessary funds were advanced by Aardvark from Aardvarks sale of
unrelated real estate, including $500,000 plus costs to acquire the Caribou
prospect and additional funds to continue the drilling programs. Aardvark
completed the sales and the acquisition of its interest in the Caribou prospect
in a tax-deferred §1031 exchange. The entire Aardvark interest in the Caribou
prospect is subject to exploration and mining concessions in favor of Calais,
and a contractual right held by Calais to re-acquire the mineral interests on
terms described in a July 2000 agreement reached to settle litigation brought
by Mr. Hendricks against Mr. Harvey and Aardvark. (Originally the transaction
was structured differently, including a promissory note from Aardvark to Calais
in the amount of US$2,300,000, a deed of trust securing Calais interest in the
Aardvark ownership, and other relationships between Calais and Aardvark. The
settlement agreement clarified these relationships and provides that Calais has
the right to reacquire the claims held by Aardvark for a debenture (which
Calais has already paid to Aardvark) and for a payment from Calais to Aardvark
in an amount equal to pay the capital gains triggered by the reconveyance of
the property to Calais. (The cash payment will be deducted from the
debenture.) Although the original agreement estimated the payment to be about
US$750,000, currently the parties estimate the tax obligation (which would
arise as a result of the deferred capital gains as a result of the §1031
exchange) to be about US$500,000. The settlement agreement provides that
Calais will have an unlimited time to exercise its option for transfer. The terms of the repurchase were modified in the March 8, 2004, Settlement
Agreement to which Aardvark was a party. As described below in Settlement
Agreement with Mr. and Mrs. Harvey and their affiliates. Litigation As discussed in Item 3, in 2000, Thomas Hendricks brought litigation
against Marlowe Harvey, Aardvark, and Calais relating to certain information
allegedly not disclosed to Mr. Hendricks at the time that his company, HMC, was
acquired by Calais. Generally the complaints related to interests that Calais
had in property in Mexico and the lack of funding for continuing exploration of
the Caribou prospect. The parties resolved this litigation shortly after it
was commenced by entering into a mutual release and settlement agreement. As a
result of the agreement,  a.
    
    Mr. Harvey paid certain funds to Mr. Hendricks;b.
    
    Mr. Harveys wife transferred a Cdn$984,000 debenture (which
had been issued to her by Calais) to Mr. Hendricks (which as a
result of a March 2004 settlement agreement Mr. Hendricks has
reassigned to Mrs. Harvey, subject to her demonstration that the
reassignment is in compliance with applicable securities laws);c.
    
    Calais reimbursed Mr. Hendricks for one-half of his legal
expenses incurred in bringing the litigation;d.
    
    Calais agreed to sell its interest in the mining equipment
located in Mexico and apply the funds to repayment of Calais
obligations;e.
    
    Aardvark agreed to transfer its interest in the Caribou
prospect to Calais as described above;f.
    
    Calais agreed to honor the royalties granted to the former
HMC shareholders;g.
    
    Mr. Harvey agreed to resign as president and chief executive
officer of Calais and Mr. Hendricks agreed to accept appointment to
those positions; and 69




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h.
    
    Mr. Hendricks has a right to approve financing for Calais
exploration of the Caribou prospect. Settlement Agreement with Mr. and Mrs. Harvey and their affiliates On March 8, 2004, we entered into an agreement with Marlowe Harvey, his
wife Judy Harvey, and several related entities by which Calais and Mr. and Mrs.
Harvey resolved a number of issues that have arisen between them, some of which
have been previously discussed in Calais Form 20-F and other reports. Under
the agreement,  
    
    Mr. Harvey and Calais agreed on a more precise definition of
Calais right (which expires August 31, 2011) to repurchase the
interest of Aardvark Agencies, Inc. (AAI) in the Caribou properties,
including the price payable for the reacquisition (a total of
Cdn$747,728 which is included in the debentures in our financial
statements) and AAIs right to convert that debenture before it is
paid;  
    
    Further defining Calais right to borrow against, enter in and upon
those properties, construct buildings and mines on those properties,
and remove and sell minerals from those properties for Calais own
account;  
    
    Mr. Harvey and his related entities agreed to assign their
interests in the Manhattan prospect to Calais and completed this
assignment in July 2004. In addition, Mr. Harvey and his related
entities also agreed to convey to Calais (not later than December 31,
2005) the entire right, title and interest in the Manhattan prospect
from all parties (marketable title). Mr. Harvey and his related
entities have not (to Calais knowledge) commenced the work necessary
to obtain marketable title. Upon receipt of marketable title, Calais
will pay one of Mr. Harveys related entities 250,000 shares of Calais
restricted stock. Calais agreed to undertake certain drilling
obligations after receiving good title, and to issue 2,500,000 shares
of common stock to Argus Resources, Inc., one of Mr. Harveys related
entities, if Calais identifies gold or gold equivalent mineral
resources (as determined in accordance with Canadian standards)
exceeding 2,000,000 ounces.  
    
    Mr. Harvey and his related entities agreed to comply with their
shareholder filing obligations in the United States and Canada (if any)
not later than April 30, 2004.  Mr. Harvey also agreed to return a stock
option agreement to Calais which defines the option to acquire 82,500
shares of Calais common stock granted to him in November 2002 which he
continues to hold. That option expires (unless exercised) on November
15, 2004, and has an exercise price of US$0.80 per share.
Mr. Harvey has not complied with this obligation.  
    
    Calais agreed to propose to its shareholders at its next
shareholder meeting that the conversion price of the debentures be
repriced from Cdn$1.23 to US$.55.  
    
    Calais agreed to retain Mr. Harvey as a consultant for one year at
US$3,000 per month. Mr. Harvey resigned as a consultant as of June 1,
2004. To facilitate the settlement, Thomas S. Hendricks agreed to transfer to
Mr. Harvey a debenture he holds for Cdn$984,000 that Mrs. Harvey assigned to
him in 2000. Mr. Hendricks has executed the assignment of this debenture and
has delivered both the original debenture and the assignment to Calais to hold
pending Mrs. Harveys acceptance of that debenture in a manner that complies
with applicable securities laws. To date, Mrs. Harvey has refused to return to
Calais documents that Calais believes is necessary to show compliance with
securities laws, and Mrs. Harvey has not proposed any alternative procedure.
Consequently the debenture is still registered in Mr. Hendricks name and will
remain so
registered until Mrs. Harvey provides Calais with sufficient evidence of
compliance with applicable securities laws. 70




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In addition, Calais, Mr. Harvey, and his related entities entered into
mutual releases. Calais has previously announced that it does not intend to
expend any significant exploration dollars on the Manhattan prospect until such
time as it has received further assurances as to title. At the present time, we have no evidence that Mr. Harvey or his related
entities have complied with their obligations under the settlement agreement
(other than tendering certain assignments to Calais of certain portions of the
Manhattan project), or that they have commenced doing the work necessary to
deliver marketable title to the Manhattan project, both as required by the
settlement agreement. Interests of Experts and Counsel John Henderson, Esq., a partner of the law firm Vranesh & Raisch, LLP, was
a 4.515% owner of HMC at the time Calais acquired the Consolidated
Caribou-Cross-Comstock-Pandora district mine area from HMC. As a result, he
owns 4.515% of the net smelter royalty (ranging from 0.5% to 2.0%) that HMC
retained in the transaction. Vranesh & Raisch, LLP continues to serve as legal
counsel to Calais and Vranesh & Raisch, LLP bills Calais for its legal services
and expenses advanced at its normal hourly rates. None of the other experts or legal counsel to Calais have engaged in
related party transactions with Calais. Corporate Loans to Officers Calais has not made any loans to corporate officers or directors. 
 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Pursuant to Item 601 of Regulation S-B: ExhibitNumber
    
    Title3.01a
    
    
    Memorandum3.02a
    
    
    Articles of Incorporation3.03a
    
    
    Special Resolution filed March 19, 199210.01a
    
    
    Loan agreement dated August 1, 2003 with accredited investors10.02a
    
    
    Mutual Release effective July 18, 2000, between Marlowe
Harvey, Aarvark Agencies, Inc., Calais Resources Colorado,
Inc., Calais Resources, Inc., on the one part, and Thomas S.
Hendricks10.03a
    
    
    Form of convertible debentures10.04a
    
    
    Purchase Option Agreement dated February 28, 2003 by and
between Calais Resources, Inc. and Golden Cycle of Panama,
Inc. and Panama Mining of Golden Cycle, Inc.10.05a
    
    
    Grant of Royalty Interest For Fixed Term, Modification of
Prior Royalty Grants and Assignment of Royalty Buyout Rights
Under Prior Grants dated March 1998 by Calais Resources
Colorado, Inc. in favor of Thomas S. Hendricks, Marjorie J.
Hendricks, and John R. Henderson.10.06a
    
    
    Right to Redeem and Re-Acquire Agreement dated March 26, 1999
between Aardvark Agencies, Inc. and Calais Resources
Colorado, Inc.10.07a
    
    
    Right to Redeem and Re-Acquire Agreement dated July 20, 2000
between Aardvark Agencies, Inc. and Calais Resources
Colorado, Inc.
 71




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##### Table of Contents



ExhibitNumber
    
    Title10.08a
    
    
    Grant of Royalty Interest For Fixed Term by Calais Resources
Colorado, Inc. and Aardvark Agencies, Inc. dated July 2000 by
Calais Resources Colorado, Inc. in favor of Thomas S.
Hendricks, Marjorie J. Hendricks, and John R. Henderson10.09a
    
    
    Employment Agreement with Matthew C. Witt10.10b
    
    
    Settlement Agreement and General Mutual Releases between
Calais Resources, Inc., Marlowe Harvey, and others, dated
March 8, 200410.11b
    
    
    Purchase Option Agreement between Calais Resources, Inc. and
Golden Cycle of Panama, Inc. and Panama Mining of Golden
Cycle, Inc., dated February 28, 200310.12b
    
    
    Extension of Purchase Option Agreement and Partial
Acknowledgement of Performance, dated January 31, 2004,
relating to Exhibit 10.1121a
    
    
    List of subsidiaries.31.1+
    
    
    Certification pursuant to Rule 13a-14(a)31.2+
    
    
    Certification pursuant to Rule 13a-14(a)32+
    
    
    Certification pursuant to 18 U.S.C. §1350
  +
    
    Filed herewith.a
    
    Incorporated by reference from exhibits filed with the
original filing on Form 20-F for the year ended May 31, 2003, as
amended.b.
    
    Incorporated by reference from exhibits filed with quarterly
report on Form 10-QSB for the quarter ended February 29, 2004 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES (a) Audit Fees. Our principal accountant, KPMG LLP, billed us aggregate fees in the amount
of approximately Cdn$96,000 for the fiscal year ended May 31, 2004 and
approximately Cdn$25,000 for the fiscal year ended May 31, 2003. These amounts
were billed for professional services that KPMG LLP provided for the audit of
our annual financial statements, review of the financial statements included in
our report on Form 20-F, review of the financial information contained in our
filings made pursuant to Canadian regulatory requirements, and other services
typically provided by an accountant in connection with statutory and regulatory
filings or engagements for those fiscal years. (b) Audit-Related Fees. KPMG LLP billed us no fees for the fiscal years ended May 31, 2004 and
2003 for assurance and related services that were reasonably related to the
performance of the audit or review of our financial statements. (c) Tax Fees. KPMG LLP billed us aggregate fees in the amount of approximately
Cdn$10,000 for the fiscal year ended May 31, 2004 and approximately Cdn$7,000
for the fiscal year ended May 31, 2003, for tax compliance, tax advice, and tax
planning. (d) All Other Fees. KPMG LLP billed us no fees for the fiscal years ended May 31, 2004 and
2003 for other fees. (e) Audit Committees Pre-Approval Practice Section 10A(i) of the Securities Exchange Act of 1934 prohibits our
auditors from performing audit services for us as well as any services not
considered to be audit services unless such services are pre-approved by the
audit committee of the Board of Directors, or unless the services meet certain
de minimis
standards. The audit committee does not have a charter and consequently
has not adopted a formal pre-approval policy. The audit committee has
pre-approved KPMGs audit and audit-related services for fiscal 2005. 72




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The percentage of the fees for audit, audit-related, tax and other
services were as set forth in the following table: Percentage of total fees paid to KPMGFiscal Year 2003
    
    Fiscal Year 2004Audit fees
    
    
    78.2
    
    
    
    90.6Audit-related fees
    
    
    0.0
    
    
    
    0.0Tax fees
    
    
    21.8
    
    
    
    9.4All other fees
    
    
    0.0
    
    
    
    0.0
 73




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SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized. September 13, 2004 CALAIS RESOURCES, INC.,
a Canadian Corporation By:  
  Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated: Date
    
    Name and Title
    
    SignatureSeptember 13, 2004
    
    Thomas S. Hendricks,
President, Chief Executive
Officer, and Director
    
    /s/ Thomas S. HendricksSeptember 13, 2004
    
    Arthur Daher, Director
    
    /s/ Arthur DaherSeptember 13, 2004
    
    Melvin Martin, Director
    
    /s/ Melvin MartinSeptember 13, 2004
    
    Matthew Witt, Chief and
Principal Financial Officer
    
    /s/ Matthew Witt
 74




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##### Table of Contents



Consolidated Financial Statements of CALAIS RESOURCES INC. Years ended May 31, 2004 and 2003
(In Canadian dollars)




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##### Table of Contents



MANAGEMENTS STATEMENT OF RESPONSIBILITY Management of Calais Resources Inc. is responsible for the preparation of the
accompanying consolidated financial statements and the preparation of all
information in the annual report and for their integrity and objectivity. The
consolidated statements have been prepared in accordance with Canadian
generally
accepted accounting principles and are considered by management to present
fairly the financial position and operating results of the Company. The
significant accounting policies followed are described in the notes to the
consolidated financial statements. Management has established internal control systems to provide reliable
accounting records and safeguard Company assets. The consolidated financial
statements have been audited by the independent auditors KPMG LLP, Chartered
Accountants, whose report outlines the scope of their examination and their
opinion on the consolidated financial statements. The Companys independent auditors have full rights to meet separately with the
Audit Committee to discuss the results of their examination. The Audit Committee of the Company reports their finding to the Board of
Directors for its consideration in approving the financial statements for
issuance. /s/ Thomas S. Hendricks
Director, Calais Resources Inc.
Denver, Colorado September 9, 2004




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##### Table of Contents



AUDITORS REPORT TO THE DIRECTORS We have audited the consolidated balance sheets of Calais Resources Inc. as at
May 31, 2004 and 2003 and the consolidated statements of operations and deficit
and cash flows for the years then ended. 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 audit in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at May 31, 2004 and
2003 and the results of its operations and its cash flows for each of the years
in the two year period ended May 31, 2004 in accordance with Canadian generally
accepted accounting principles. /s/ KPMG LLP
Chartered Accountants Chilliwack, British Columbia September 9, 2004




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##### Table of Contents



COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S.
REPORTING DIFFERENCE In the United States, reporting standards require the addition of an
explanatory
paragraph (following the opinion paragraph) when the financial statements are
affected by conditions and events that cast substantial doubt on the Companys
ability to continue as a going concern, such as those described in Note 1 to
the
consolidated financial statements. Our report to the directors dated September
9, 2004 is expressed in accordance with Canadian reporting standards which does
not permit a reference to such events and conditions in the auditors report
when these are adequately disclosed in the financial statements. /s/ KPMG LLP
Chartered Accountants Chilliwack, Canada September 9, 2004




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##### Table of Contents



CALAIS RESOURCES INC. 
 May 31, 2004 and 2003 2004
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    606,461
    
    
    $
    Prepaid financing fees (Note 3)
    
    
    1,066,508
    
    
    
    Assets held for sale
    
    
    
    
    
    
    283,301Prepaid expenses and deposits
    
    
    39,350
    
    
    
    1,712,319
    
    
    
    283,301Deferred and prepaid financing fees (Note 3)
    
    
    3,663,713
    
    
    
    Capital assets (Note 4)
    
    
    366,853
    
    
    
    94,846Mineral interests (Note 5)
    
    
    14,744,680
    
    
    
    13,206,552$
    20,487,565
    
    
    $
    13,584,699Liabilities and Shareholders EquityCurrent liabilities:Bank overdraft
    
    $
    
    
    
    $
    7,586Accounts payable and accrued liabilities
    
    
    793,993
    
    
    
    974,816Note payable
    
    
    
    
    
    
    95,795Current portion of long-term debt (Note 6)
    
    
    13,011
    
    
    
    1,642,200Advances from shareholders, without
interest or fixed terms of
repayment; unsecured
    
    
    342,749
    
    
    
    697,5731,149,753
    
    
    
    3,417,970Long-term debt (Note 6)
    
    
    6,186,655
    
    
    
    Debentures (Note 7)
    
    
    4,649,362
    
    
    
    4,624,916Shareholders equity:Share capital (Note 8)
    
    
    31,154,036
    
    
    
    23,457,480Deficit
    
    
    (22,652,241
    )
    
    
    (17,915,667
    )8,501,795
    
    
    
    5,541,813Future operations (Note 1)Contingency (Note 11)Commitments (Note 14)Subsequent events (Note 15)
    
    $
    20,487,565
    
    
    $
    13,584,699
 On behalf of the Board: /s/ Thomas S. Hendricks Director /s/ Art Daher Director See accompanying notes to consolidated financial statements. 1




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##### Table of Contents



CALAIS RESOURCES
INC.

Consolidated Statements of Operations and Deficit
Expressed in Canadian Dollars Years ended May 31, 2004 and 2003 2004
    
    2003Revenues
    
    $
    
    
    
    $
    Expenses:Advertising
    
    
    35,993
    
    
    
    3,846Amortization
    
    
    122,419
    
    
    
    5,433Consulting fees
    
    
    548,203
    
    
    
    44,789Filing fees, licenses, permits
    
    
    497
    
    
    
    1,044Foreign exchange gain
    
    
    (162,153
    )
    
    
    (249,440
    )Gain on settlement of debts
    
    
    (129,141
    )
    
    
    Insurance
    
    
    
    
    
    
    451Interest and bank charges
    
    
    3,229,267
    
    
    
    624,073Office and general
    
    
    65,584
    
    
    
    18,314Professional fees
    
    
    584,948
    
    
    
    99,681Rent
    
    
    33,855
    
    
    
    13,503Telephone and internet
    
    
    34,083
    
    
    
    12,750Transfer agent fees
    
    
    4,921
    
    
    
    3,939Travel
    
    
    53,700
    
    
    
    2,649Utilities
    
    
    
    
    
    
    12,360Wages and benefits
    
    
    319,880
    
    
    
    4,742,056
    
    
    
    593,392Loss from operations
    
    
    (4,742,056
    )
    
    
    (593,392
    )Other income:Miscellaneous income
    
    
    4,909
    
    
    
    Interest income
    
    
    573
    
    
    
    600Rental income
    
    
    
    
    
    
    9335,482
    
    
    
    1,533Loss for the year
    
    
    (4,736,574
    )
    
    
    (591,859
    )Deficit, beginning of year
    
    
    (17,915,667
    )
    
    
    (17,323,808
    )Deficit, end of year
    
    $
    (22,652,241
    )
    
    $
    (17,915,667
    )Net loss per common share, basic and
diluted
    
    $
    (0.26
    )
    
    $
    (0.05
    )Weighted average common shares
outstanding, basic and diluted
    
    
    18,309,608
    
    
    
    10,812,795
 See accompanying notes to consolidated financial statements. 2




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##### Table of Contents



CALAIS RESOURCES INC. 
 2004
    
    2003Cash provided by (used in):Operations:Loss for the year
    
    $
    (4,736,574
    )
    
    $
    (591,859
    )Items not involving cash:Accretion expense
    
    
    52,360
    
    
    
    51,780Amortization  capital assets
    
    
    122,419
    
    
    
    5,433Amortization of deferred and prepaid financing fees
    
    
    3,364,506
    
    
    
    Gain on settlement of debts
    
    
    (129,141
    )
    
    
    Shares issued for services
    
    
    520,235
    
    
    
    143,234Warrants issued (cancelled) for services
    
    
    (205,645
    )
    
    
    205,645Loss on settlement of accounts payable and accrued
liabilities with issuance of shares
    
    
    
    
    
    
    1,911Foreign exchange gain
    
    
    (162,153
    )
    
    
    (249,440
    )Change in non-cash operating working capital:Restricted cash
    
    
    
    
    
    
    67,415Prepaid expenses and deposits
    
    
    (39,350
    )
    
    
    7,612Accounts payable, accrued liabilities and foreign
exchange adjustments
    
    
    (202,769
    )
    
    
    307,499Note payable
    
    
    (95,795
    )
    
    
    95,795(1,511,907
    )
    
    
    45,025Financing:Bank loan repayment
    
    
    (1,642,200
    )
    
    
    Advances from (to) shareholders
    
    
    (354,824
    )
    
    
    129,184Issue of capital stock
    
    
    1,096,824
    
    
    
    90,021Interim loan proceeds
    
    
    700,000
    
    
    
    Repayment of interim loan
    
    
    (700,000
    )
    
    
    Long-term debt proceeds
    
    
    4,698,421
    
    
    
    Debenture repayment
    
    
    (27,914
    )
    
    
    3,770,307
    
    
    
    219,205Investments:Mineral interests
    
    
    (1,508,218
    )
    
    
    (262,030
    )Net additions to capital assets
    
    
    (136,135
    )
    
    
    (387
    )(1,644,353
    )
    
    
    (262,417
    )Increase in cash
    
    
    614,047
    
    
    
    1,813Bank overdraft, beginning of year
    
    
    (7,586
    )
    
    
    (9,399
    )Cash (bank overdraft), end of year
    
    $
    606,461
    
    
    $
    (7,586
    )Supplementary cash flow information:Interest paid
    
    $
    56,326
    
    
    $
    107,790Income taxes paid
    
    
    
    
    
    
    Interest received
    
    
    573
    
    
    
    600Non cash transactions:Shares issued to settle accounts payable and
accrued liabilities
    
    $
    
    
    
    $
    38,800Shares issued for mineral interest exploration
    
    
    4,900
    
    
    
    82,000Amortization capitalized to mineral interests
    
    
    25,010
    
    
    
    26,324Accrued costs capitalized to mineral interests
    
    
    
    
    
    
    126,327Shares issued for financing fee
    
    
    6,280,242
    
    
    
    Assets held for sale transferred to capital assets
    
    
    238,301
    
    
    
    
 See accompanying notes to consolidated financial statements. 3




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##### Table of Contents



CALAIS RESOURCES INC.
Notes to Consolidated Financial Statements
Expressed in Canadian Dollars
Years ended May 31, 2004 and 2003  1.
    
    General and future operations: Calais Resources Inc. (the Company) was
incorporated under the laws of the Province of
British Columbia on December 30, 1986. The Company
is currently in the process of exploring various
mineral interests to determine whether these
interests contain ore reserves that are economically
recoverable. The recoverability of the amounts
shown for the mineral interests and related deferred
costs is dependent upon the existence of
economically recoverable reserves, the ability of
the Company to obtain necessary financing to
complete their exploration and upon future
profitable production. These consolidated financial statements have been
prepared on a going concern basis in accordance with
Canadian generally accepted accounting principles.
The going concern basis of presentation assumes that
the Company will continue in operation for the
foreseeable future and be able to realize its assets
and discharge its liabilities and commitments in the
normal course of business. There is doubt about the
appropriateness of the use of the going concern
assumption because the Company experienced losses in
2004 and 2003 and has experienced negative cash flow
from operations over a number of years. During the year, the Company acquired US $4,500,000
in financing to repay the bank loan, trade creditors
and provide operating funds (as described in Note
6(b)). Subsequent to the year end, the Company also
arranged further financing of US $241,000 as
described in Note 15. The Company is actively
pursuing various additional options with potential
lenders and investors which, if accepted, will in
managements view, enable the Company to achieve its
business plans. No further agreements with
potential lenders or investors have been reached yet
and there can be no assurance that such agreements
will be reached. The ability of the Company to continue as a going
concern and to realize the carrying value of its
assets and discharge its liabilities when due is
dependent on the successful completion of the
actions taken or planned, some of which are
described above, which management believes will
mitigate the adverse conditions and events which
raise doubt about the validity of the going
concern assumption used in preparing these
financial statements. As is common with companies
with negative cash flows and losses, there is no
certainty that these and other strategies will be
sufficient to permit the Company to continue beyond
May 31, 2005. The financial statements do not reflect adjustments
that would be necessary if the going concern
assumption were not appropriate. If the going
concern basis was not appropriate for these
financial statements, then adjustments would be
necessary in the carrying value of assets and
liabilities, the reported revenues and expenses, and
the balance sheet classifications used. 4




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##### Table of Contents



2.
    
    Significant accounting policies:  (a)
    
    Basis of consolidation: These financial statements include the accounts of the Company and its wholly-owned subsidiaries, Calais
International Inc., Calais Resources Nevada Inc., and Calais Resources Colorado Inc. All material
inter-company transactions and balances have been eliminated.  (b)
    
    Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the year. Significant areas requiring the use of
management estimates relate to the determination of the net recoverable value of assets, including the
valuation of assets held for resale, asset impairment and provisions for contingencies. Actual results
could differ from those estimates.  (c)
    
    Cash equivalents: Cash equivalents consist of short-term deposits with terms to maturity of ninety days or less when acquired.  (d)
    
    Financial instruments: The Companys financial instruments consist of cash, accounts payable, note payable, bank loans, long-term
debt and advances from shareholders. Unless otherwise noted, it is managements opinion that the Company
is not exposed to significant interest, currency or credit risks arising from these financial instruments.
The fair values of these financial instruments approximate their carrying values, unless otherwise noted.  (e)
    
    Assets held for sale: Assets held for sale consist of used mining equipment held for sale. Assets held for sale are recorded at
the lower of cost or net realizable value.  (f)
    
    Mineral interests: The Company is engaged in the acquisition and exploration of mineral interests. All acquisition,
exploration and related direct overhead expenditures are deferred and will be depleted over the estimated
life of the interest. The estimated life of an interest depends on whether the interest contains
economically recoverable reserves that can be brought into production. The costs relating to an interest
abandoned are written off when the decision to abandon is made. The total amount recorded for mineral interests and deferred exploration expenditures represents costs
incurred to date and does not reflect present or future values. Proceeds from disposition of mineral interests are normally credited to the capitalized costs with no gain
or loss being recognized unless the sale is significant to the capitalized costs. For such significant
dispositions, a gain or loss would be recognized. 5




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In March 2000, the Accounting Standards Board of the Canadian
Institute of Chartered Accountants (CICA) issued Accounting Guideline
No. 11 entitled Enterprises in the Development Stage - (AcG 11). The
guideline addresses three distinct issues: (i) capitalization of
costs/expenditures, (ii) impairment and (iii) disclosure. Prior to
its issuance, development stage entities were exempt from following
certain aspects of Canadian GAAP. AcG 11 requires that all companies
account for transactions based on the underlying characteristics of
the transaction rather than the maturity of the enterprise. In
addition, AcG 11 requires disclosure of specific information by
development stage companies. In March 2002, the Emerging Issues Committee of the CICA issued
EIC-126  Accounting by Mining Enterprises for Exploration Costs
which interprets how AcG 11 affects mining companies with respect to
the deferral of exploration costs. EIC-126 refers to CICA Handbook
Section 3061 Property, Plant and Equipment, paragraph .21, which
states that for a mining property, the cost of the asset includes
exploration costs if the enterprise considers that such costs have the
characteristics of property, plant and equipment. EIC-126 then states
that a mining enterprise that has not established mineral reserves
objectively, and therefore does not have a basis for preparing a
projection of the estimated cash flow from the property is not
precluded from considering the exploration costs to have the
characteristics of property, plant and equipment. EIC-126 also sets
forth the Committees consensus that a mining enterprise in the
development stage is not required to consider the conditions in AcG 11
regarding impairment in determining whether exploration costs may be
initially capitalized. With respect to impairment of capitalized
exploration costs, EIC-126 sets forth the Committees consensus that a
mining enterprise in the development stage that has not established
mineral reserves objectively, and therefore does not have a basis for
preparing a projection of the estimated cash flow from the property is
not obliged to conclude that capitalized costs have been impaired.
However, such an enterprise should consider the conditions set forth
in AcG 11 and CICA Handbook Section 3061 in determining whether
subsequent write-down of capitalized exploration costs related to
mining properties is required. The Company considers that exploration costs have the characteristics
of property, plant and equipment, and, accordingly, defers such costs.
Furthermore, pursuant to EIC-126, deferred exploration costs would not
automatically be subject to regular assessment of recoverability,
unless conditions, such as those discussed in AcG 11 exist.
AcG 11 also provides guidance on measuring impairment of pre-operating
costs which have been deferred. While this guidance is applicable,
the Company does not believe its application will result in
impairment. For Canadian GAAP purposes, the Company capitalizes exploration costs
incurred as property, plant and equipment (tangible assets) pursuant
to CICA 3061, EIC-126 and related guidance. Due to certain
inconsistencies in the CICA Handbook, there are opposing views that
exploration costs should be considered to be intangible assets. As
intangible assets, they would be amortized over the term of the
interest. In the United States, in Abstract 04-2 the Emerging Issues
Task Force reached a consensus that such interests are tangible
assets. The Emerging Issues Committee in Canada is currently
reviewing the application of EITF 04-2 to Canadian GAAP.  (g)
    
    Capital assets and amortization: Capital assets are recorded at cost and are amortized
over the estimated useful life on the declining
balance method at rates of 20% to 30% per annum.
Amortization related to exploration and mining
equipment used in operations is capitalized as a
mineral interest cost. 6




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##### Table of Contents



(h)
    
    Foreign currency: Monetary items denominated in foreign currency are
translated to Canadian dollars at exchange rates in
effect at the balance sheet date and non-monetary
items are translated at rates of exchange in effect
when the assets were acquired or obligations incurred.
Revenues and expenses are translated at rates in
effect at the time of the transactions. Foreign
exchange gains and losses are included in income.  (i)
    
    Income taxes: The Company follows the asset and liability method of
accounting for income taxes. Under this method,
current taxes are recognized for the estimated income
taxes payable for the current period. Future income
taxes are provided based on the estimated future tax
effects of temporary differences between financial
statement carrying amounts of existing assets and
liabilities and their respective tax bases as well as
the benefit of losses available to be carried forward
to future years for tax purposes.
Future tax assets and liabilities are measured using
enacted or substantively enacted tax rates that are
expected to apply to taxable income in the years in
which those temporary differences are expected to be
recovered or settled. The effect on future tax assets
and liabilities of a change in tax rates is recognized
in operations in the period that includes the
enactment or substantive enactment date. A valuation
allowance is recorded for future tax assets when it is
not more likely than not that such future tax assets
will be realized.  (j)
    
    Net loss per share: Basic net loss per share is computed using the
weighted average number of common shares outstanding
during the year. Diluted loss per share is computed
using the weighted average number of common shares and
potentially dilutive common shares outstanding during
the year. As the Company has a net loss in the years
ending May 31, 2004 and 2003, basic and diluted net
loss per share are the same.  (k)
    
    Stock-based compensation: The Company has no formal stock-based compensation
plans. Prior to April 1, 2002 the Company applied the
settlement method for all stock-based compensation
awards. Under the settlement method, no compensation
expense is recognized for these plans when stock or
stock options are issued to employees. Consideration
paid by employees on the exercise of stock options is
credited to common shares. For consideration paid to
an employee for the repurchase of stock options, the
excess of the consideration paid over the carrying
amount of the stock option cancelled is charged to
retained earnings. Effective April 1, 2002, the Company adopted new CICA
section 3870, Stock-Based Compensation and Other
Stock-Based Payments. This section establishes
standards for the recognition, measurement and
disclosure of stock-based compensation and other
stock-based payments made in exchange for goods and
services. The standard requires the fair value based
method of accounting for certain, but not all,
stock-based transactions. The standard permits, and
the Company has elected, for stock option grants to
employees and directors to continue to be accounted
for using the settlement method. 7




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##### Table of Contents



2.
    
    Significant accounting policies:(k)
    
    Stock-based compensation (continued): The fair value of options granted to employees for the year ended May 31, 2004 was $1.17 (2003  $0.31) per share. Pro forma net loss and pro forma net loss per share after consideration of fair market value of share options granted is as follows: 2004
    
    2003Net loss, as reported
    
    $
    (4,736,574
    )
    
    $
    (591,859
    )Add:Stock-based employee compensation expense included in net loss, net of related tax
effects
    
    
    
    
    
    
    Deduct:Total stock-based employee compensation expense determined under fair value based
method for all awards, net of tax
    
    
    (1,288,200
    )
    
    
    (25,375
    )Pro forma loss
    
    $
    (6,024,774
    )
    
    $
    (617,234
    )Pro forma loss per share, basic and diluted
    
    $
    (0.33
    )
    
    $
    (0.06
    )Stock-based compensation is calculated based upon the following weighted average assumptions:
 2004
    
    2003Expected life of options
    
    4.7 years
    
    2.0 yearsExpected stock price volatility
    
    
    298
    %
    
    
    329
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Risk free interest rate
    
    
    4.83
    %
    
    
    3.55
    %
  3.
    
    Deferred and prepaid financing fees: 2004
    
    2003Deferred and prepaid financing fees consist of the following:Deferred financing fee
    
    $
    6,280,242
    
    
    $
    Prepaid interest (Note 6(b))
    
    
    1,814,485
    
    
    
    8,094,727
    
    
    
    Less: Accumulated amortization
    
    
    (3,364,506
    )
    
    
    4,730,221
    
    
    
    Less: Current portion
    
    
    (1,066,508
    )
    
    
    $
    3,663,713
    
    
    $
    
 Deferred and prepaid financing fees is being amortized on a straight line basis over two years, the term of the related debt.  4.
    
    Capital assets: 8




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##### Table of Contents



2004
    
    2003Cost:Land
    
    $
    8,215
    
    
    $
    8,215Furniture
    
    
    16,611
    
    
    
    10,947Computer equipment
    
    
    49,885
    
    
    
    37,494Automotive equipment
    
    
    123,043
    
    
    
    57,331Exploration/mining equipment
    
    
    833,737
    
    
    
    498,988Software
    
    
    7,567
    
    
    
    6,6471,039,058
    
    
    
    619,622Accumulated depreciation:Furniture
    
    
    9,298
    
    
    
    7,783Computer equipment
    
    
    35,596
    
    
    
    32,378Automotive equipment
    
    
    62,616
    
    
    
    50,172Exploration/mining equipment
    
    
    557,753
    
    
    
    428,149Software
    
    
    6,942
    
    
    
    6,294672,205
    
    
    
    524,776Net book value
    
    $
    366,853
    
    
    $
    94,846
 Amortization
of $25,010 (2003 - $26,324) related to exploration equipment was capitalized to mineral interests during the year.  5.
    
    Mineral interests: 2004
    
    2003Nevada U.S.A.
    
    $
    3,641,243
    
    
    $
    3,449,004Colorado, U.S.A.
    
    
    10,545,296
    
    
    
    9,466,230Panama, Central America
    
    
    558,141
    
    
    
    291,318$
    14,744,680
    
    
    $
    13,206,552
 Title to mining interests involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems
arising from the frequently ambiguous conveyancing history characteristics of many mining interests. The Company has investigated title to all of its mineral interests
and, to the best of its knowledge, title to all of its interests are in good standing as described below. All of the interests in which the Company owns or has
committed to earn an interest are located outside Canada. The Company is therefore relying on title opinions by legal counsel who are basing such opinions on the laws
of the respective country. 9




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##### Table of Contents



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




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##### Table of Contents



In March 2004, the Company entered into a settlement agreement (the
Harvey Settlement) by which Mr. Harvey and his related entities
agreed to convey all of their interests in the Manhattan project to
the Company. The Manhattan Parties also agreed to convey, help to
convey, or cause others to convey the Manhattan project to the Company
so that the Company will receive title to the entire right, title and
interest and  marketable title (a 100% interest) in the Manhattan
project. The Manhattan Parties agreed to complete this by December
31, 2005. The Company agreed to issue 250,000 shares to the Manhattan
Parties upon accomplishment of the transference of marketable title,
and an additional 2,500,000 shares should the Companys work on the
property establish at least 2,000,000 ounces of Indicated or Measured
Mineral Resources as determined by a Qualified Person in accordance
with Canadian standards. The Company agreed to perform certain
exploration work upon the receipt of marketable title. The Company has continued to maintain those properties for several
years by paying property taxes on the patented mining claims, the
assessment work obligations on the unpatented claims and has made the
required annual payments to NMMI under the NMMI Settlement agreement.  (b)
    
    Colorado, U.S.A.: Included in the Colorado interests is a 100% working interest in the
Consolidated Caribou-Cross-Comstock-Panadora district mine area which
the Company acquired in 1997 for US $4,000,000 in stock, cash and
final property payments. After acquisition of 100% working interest
the seller retains a 2% net smelter royalty interest in the property.
The Company has the right to buy back half of the net smelter royalty
(1%) for US $750,000. The seller has not sold any of the issued
shares for this acquisition through May 31, 2004. During 2000, the
Company acquired 100% ownership of 10 patented claims that are
continuations of the historic Boulder County and Cardinal vein
systems. The Colorado interests contain a well-documented mineral
resource of 424,500 ounces of gold and 11,725,000 ounces of silver. As a result of agreements entered into in 2000 to provide financing to
the Company, Aardvark Agencies, Inc. (AAI) owns a portion of the
Caribou property. The parties clarified the earlier agreements in
March 2004, and as a result the Company may repurchase (through August
31, 2011) by repaying the Cdn$747,728 debenture (included in the
debentures described in Note 7) that AAI holds (subject to the
holders right to convert the debenture into Company common stock in
accordance with the terms of the debenture). During the period of
time that Aardvark owns the property, the Company may enter upon the
property, explore for minerals, use the Aardvark properties as
collateral, and produce any minerals found for the Companys own
account. If the Company fails to exercise the option to reacquire the
property interest held by AAI by August 31, 2011, the parties have
agreed to extend the purchase option an additional ten years if the
Company also extends the debenture held by Aardvark during the same
period. 11




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##### Table of Contents



(c)
    
    Panama, Central America: Pursuant to an agreement dated October 6, 2000, the Company received
an option to purchase a 40,000 acre mineral concession in an historic
gold producing district of Panama with Panama Mining of Golden Cycle
of Panama Incorporated (PMGC). The Company acquired concessions to
61,000 acres in the eastern Veraguas district of Panama in 2001
through a five-year lease agreement with PMGC and a related company,
Golden Cycle of Panama, Inc. (GCP). The prior agreements were
cancelled in a new agreement the Company entered into on February 28,
2003 entitled a Purchase Option Agreement. As consideration for the
Purchase Option Agreement, the Company paid the following: - 200,000 shares of stock issued to the two owners of PMGC and GCP
(including 100,000 shares initially issued in 2000), - US$10,000 paid to the two owners; and - assumed US$15,750 of the sellers payables to third parties. The Company is committed to perform certain work on the properties.
As a result of an extension agreement entered into on January 31,
2004, the Company has an obligation to complete a $250,000 exploration
program for lode deposits by September 25, 2004, and an additional
$250,000 program to explore for placer gold deposits and install a
pilot placer operation. The Company also hired a shareholder of the
sellers, Herbert Hendricks, to oversee the project, and has been
paying him US$3,500 per month to do so. Herbert Hendricks is the
brother of our president, Thomas Hendricks, but they do not share the
same home, they make independent business decisions, and are not
otherwise affiliated. To exercise the option and acquire the lode prospect or the placer
prospect, the Company must commence production of gold from the
respective prospect. The terms of acquisition for the two prospects
are different: - to acquire the lode prospect, the Company must pay the sellers a
royalty equal to 2% net smelter return from all lode minerals produced
from the properties until the sellers have received a total of
US$5,000,000. At that time, the Company will have acquired the
properties and the net smelter return will be terminated.
Alternatively, prior to August 28, 2004, Calais may purchase the
properties from the sellers for a $2,500,000 cash payment and a
continuing 0.5% net smelter return. - to acquire the placer prospect, the Company must pay the sellers a
royalty equal to 6% of the gross revenues from placer mineral
production until the sellers have received a total of US$5,000,000.
Thereafter, the royalty will be reduced to 1% for the life of the
placer production. In the Purchase Option Agreement, the Company agreed to keep all
properties in good and clean standing, to pay all taxes, and to comply
with other governmental requirements. In the extension agreement, the
sellers warranted that they had taken all necessary steps to properly
register, document or record the Purchase Option Agreement and that
they will take such steps with respect to the extension. If the
Company defaults on its obligations, the Purchase Option Agreement
gives the sellers the right to provide 30 days notice of the Companys
right to cure the default and, if the Company fails to cure the
default or contests the default, the agreement will be terminated. 12




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##### Table of Contents



6.
    
    Long-term debt: The loan balances are as follows: 2004
    
    2003Peak National Bank, US $1,200,000 loan (a)
    
    $
    
    
    
    $
    1,642,200Broadway Mortgage LLC, US $4,500,000 mortgage (b)
    
    
    6,135,300
    
    
    
    Finance contracts (c)
    
    
    64,366
    
    
    
    6,199,666
    
    
    
    1,642,200Less: current portion
    
    
    (13,011
    )
    
    
    (1,642,200
    )$
    6,186,655
    
    
    $
    
 Principal payments due on long-term debt over the next five years is approximately as follows: 2005
    
    $
    13,0002006
    
    
    6,149,0002007
    
    
    15,0002008
    
    
    15,0002009
    
    
    8,000
  (a)
    
    Peak National Bank: Loan payable with interest only payments at 10.5% per annum.
Principal of US $1,200,000 due in full on December 16, 2002; secured by
deed of trust over mineral properties. At May 31, 2003 the Company was
in default with respect to this loan and, as a result, the bank had the
option to increase the interest rate on the loan to 24% per annum. During the 2004 fiscal year, the Company reached an agreement with the
bank, and paid all arrears interest and a US $120,000 principal
repayment. As a result of this payment the due date of the loan was
extended to December 16, 2003 and the bank waived its right to the 24%
interest rate. During August 2003, the balance outstanding on the loan of US
$1,080,000 plus accrued interest was repaid in full. 13




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##### Table of Contents



(b)
    
    Broadway Mortgage LLC: In August 2003, the Company obtained US $4,500,000 in financing by way of a first mortgage on the Colorado, U.S.A.
mineral interests. The total amount includes two years prepaid interest at a rate of 12.9% per annum or
approximately US $1,161,000 providing net cash funding to the Company of approximately US $3,339,000. The net cash proceeds of US $3,339,000 were used as follows: Repayment of remaining bank loan (Note 6(a))
    
    $US
    
    
    1,080,000Repayment of interim mortgage (Note 10)
    
    
    
    
    
    
    588,000Repayment of trade payables
    
    
    
    
    
    
    700,000Working capital
    
    
    
    
    
    
    876,000Financing costs
    
    
    
    
    
    
    95,000$US
    
    
    3,339,000
 As consideration for this financing, the Company also issued 8,181,818 shares of stock valued at the fair value of common shares on the date
of agreement requiring the issuance of vested common shares of US $0.55 per share for a total financing fee of US $4,500,000 (or $6,280,242).
1,500,000 of these shares are to be placed in escrow by the lender and are to be used to satisfy the debt if and when the Companys average
share price reaches US $3.00 per share. The loan, if not repaid from the sale of escrowed shares, is due in full on July 31, 2005.  (c)
    
    Finance Contracts: Finance contracts payable in monthly instalments of US $971 plus interest at 4.48% to
5.75%; secured by specific equipment. 7. Debentures: 2004
    
    2003Debentures payable, without interest, due May 2011, convertible to common shares at
an conversion price of $1.23 per share at holders discretion; unsecured
    
    $
    5,069,191
    
    
    $
    5,097,105Less: Cumulative accretion remaining
    
    
    (419,829
    )
    
    
    (472,189
    )$
    4,649,362
    
    
    $
    4,624,916
 Accretion expense to the face value of the debt of $52,360 (2003 - $51,780) has been included in interest and bank charges for the
year. All debentures are held by companies or persons related to a shareholder and director. It is not practicable to determine the fair
value of the debentures and advances from shareholders due to their related party nature and the absence of a secondary market for
such instruments. 14




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##### Table of Contents



In a March 2004 agreement, the Company agreed to present to its shareholders the question of whether the conversion price of the debentures should be repriced from Cdn$1.23 to US$0.55. If
approved by the disinterested shareholders of the Company, the repricing will be effective immediately. Calais has not yet scheduled the meeting, and any proxy solicitation for such meeting will
be done in accordance with applicable US and Canadian law. If the shareholders approve the repricing of the conversion price of the debentures, an additional beneficial conversion feature may
arise.  8.
    
    Share capital:  (a)
    
    Authorized: 100,000,000 Common shares without par value(b)
    
    Issued and outstanding shares: Numberof shares
    
    AmountBalance, May 31, 2002
    
    
    10,676,718
    
    
    $
    22,897,780Issued to settle debt
    
    
    67,500
    
    
    
    38,800Issued for cash
    
    
    62,500
    
    
    
    78,771Issued on exercise of options
    
    
    25,000
    
    
    
    11,250Issued for services
    
    
    261,667
    
    
    
    143,234Issued for acquisition of
mineral interests
    
    
    100,000
    
    
    
    82,000Warrants issued for services
    
    
    
    
    
    
    205,645Balance, May 31, 2003
    
    
    11,193,385
    
    
    
    23,457,480Issued for financing fee
(Note 6(b))
    
    
    8,181,818
    
    
    
    6,280,242Issued for services
    
    
    245,750
    
    
    
    558,515Issued for cash
    
    
    205,000
    
    
    
    289,191Issued for acquisition of
mineral interests
    
    
    2,000
    
    
    
    4,900Issued on exercise of warrants
    
    
    62,500
    
    
    
    69,785Issued on exercise of options
    
    
    340,000
    
    
    
    153,000Cancelled shares previously
issued for services
    
    
    (87,000
    )
    
    
    (38,280
    )Cancelled warrants previously
issued for services
    
    
    
    
    
    
    (205,645
    )Share subscription (i)
    
    
    
    
    
    
    584,848Balance, May 31, 2004
    
    
    20,143,453
    
    
    $
    31,154,036
 15




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##### Table of Contents



(i)
    
    During the year the Company received $584,848 for subscription of shares as part of a subscription agreement. The share subscription has been approved by the Company and the
participants; however, the Company has not yet received all of the signed documentation relating to this transaction. Upon receipt of the signed documentation, the following
transactions are expected to be completed in accordance with the terms of subscription agreement:  a)
    
    the Company will issue 586,666 shares in satisfaction of the $584,848 proceeds receivedb)
    
    the Company will issue 100,000 shares and 100,000 warrants for additional cash consideration of US$75,000 that was received on June 16, 2004.c)
    
    the holders of US$1,560,000 of long-term debt described in note 6(b) have agreed to convert that debt to 2,080,000 shares and the debt holder will also allow US$117,390 in
prepaid interest to be refunded to the Company. The Company, as part of the transaction, will issue 4,160,000 warrants exercisable at US$1.25 to US $1.75 per warrant.d)
    
    the Company will also issue a further 1,732,462 warrants to buy stock in the shares of the Company at prices ranging from US$0.75 to US$3.00.Included in issued and outstanding capital stock are 150,000 contingently cancelable shares that are held in escrow and may not be traded without regulatory approval and 1,500,000
shares held in escrow to repay bank loans (Note 6(b)).During the year, the Company settled an advisory services agreement with a financial consulting firm and cancelled 87,000 shares and 486,303 warrants that had previously been issued
for the services.  (c)
    
    Stock options: Weighted averageexercise priceDate
    
    Number
    
    per shareIssued and outstanding, May 31, 2002
    
    
    1,025,250
    
    
    $
    0.47Issued in the year
    
    
    82,500
    
    
    
    1.26Issued in the year
    
    
    15,000
    
    
    
    0.45Exercised in the year
    
    
    (25,000
    )
    
    
    (0.45
    )Expired in the year
    
    
    (116,250
    )
    
    
    (0.45
    )Issued and outstanding, May 31, 2003
    
    
    981,500
    
    
    
    CDN 0.54Exercised in the year
    
    
    (340,000
    )
    
    
    CDN (0.45
    )Expired in the year
    
    
    (509,000
    )
    
    
    CDN (0.49
    )Issued in the year- to a director
    
    
    100,000
    
    
    
    US 0.32- to an employee
    
    
    500,000
    
    
    
    US 3.00- to an employee
    
    
    500,000
    
    
    
    US 5.00Balance, May 31, 2004
    
    
    1,232,500
    
    
    $
    CDN 4.48
 16




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##### Table of Contents



Options outstanding at May 31, 2004 are as follows: Weighted averageExercise price
    
    
    
    
    
    remainingNumber
    
    per share
    
    Expiry date
    
    contractual lifeDirector options
    
    
    82,500
    
    
    $CDN 1.26
    
    November 2004
    
    0.5 yearsDirector options
    
    
    50,000
    
    
    $CDN 0.45
    
    August     2005
    
    1.3 yearsDirector options
    
    
    100,000
    
    
    $US    0.32
    
    August     2008
    
    4.3 yearsEmployee options
    
    
    500,000
    
    
    $US    3.00
    
    August     2013
    
    9.3 yearsEmployee options
    
    
    500,000
    
    
    $US    5.00
    
    August     2013
    
    9.3 years1,232,500
    
    
    
    
    
    
    
    
    
    
    8.0 years
 All outstanding options are exercisable when issued. Subsequent to year-end, an additional 3,000,000 options were issued to a director within exercise price of $US0.85 and expire on July 8, 2014.  (d)
    
    Warrants: Weighted averageexercise priceNumber
    
    per shareIssued and outstanding, May 31, 2002
    
    
    
    
    
    $
    Issued in the year for services
    
    
    548,803
    
    
    US
    0.81Issued and outstanding, May 31, 2003
    
    
    548,803
    
    
    US
    0.81Exercised in the year
    
    
    (62,500
    )
    
    US
    (0.80
    )Cancelled in the year (Note 8(b))
    
    
    (486,303
    )
    
    US
    (0.81
    )Issued in the year
    
    
    255,000
    
    
    US
    1.60Balance, May 31, 2004
    
    
    255,000
    
    
    US$
    1.60Warrants outstanding at May 31, 2004 are as follows:
 Exercise
    
    
    
    
    
    Weightedprice per
    
    Expiry
    
    average remainingNumber
    
    warrant
    
    date
    
    contractual life80,000
    
    US $1.50(i)
    
    October 2005
    
    1.4 years75,000
    
    US $1.50(ii)
    
    April     2006
    
    1.9 years50,000
    
    US $1.50
    
    April     2005
    
    0.9 years50,000
    
    US $2.00
    
    April     2006
    
    1.9 years255,000
    
    
    
    
    
    
    
    
    
    1.6 years
  (i)
    
    In accordance with the warrant agreement, the exercise price increases to US $2.00 per share if warrants are not exercised before November
1, 2004.(ii)
    
    In accordance with the warrant agreement, the exercise price increases to US $2.00 per share if warrants are not exercised before April 6,
2005. 17




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##### Table of Contents



9.
    
    Income taxes:The Company has income tax loss carryforwards of approximately $12,610,000 which are available to reduce future taxable income. The
benefits of the losses have not been recognized in the financial statements. The losses will expire as follows: Canada
    
    U.S.
    
    Total2005
    
    $
    13,000
    
    
    $
    
    
    
    $
    13,0002006
    
    
    105,000
    
    
    
    
    
    
    
    105,0002007
    
    
    222,000
    
    
    
    
    
    
    
    222,0002008
    
    
    150,000
    
    
    
    
    
    
    
    150,0002009
    
    
    259,000
    
    
    
    
    
    
    
    259,0002010
    
    
    210,000
    
    
    
    
    
    
    
    210,0002011
    
    
    120,000
    
    
    
    
    
    
    
    120,0002018
    
    
    
    
    
    
    443,000
    
    
    
    443,0002019
    
    
    
    
    
    
    159,000
    
    
    
    159,0002020
    
    
    
    
    
    
    75,000
    
    
    
    75,0002021
    
    
    
    
    
    
    355,000
    
    
    
    355,0002022
    
    
    
    
    
    
    258,000
    
    
    
    258,0002023
    
    
    
    
    
    
    716,000
    
    
    
    716,0002024
    
    
    
    
    
    
    9,525,000
    
    
    
    9,525,000$
    1,079,000
    
    
    $
    11,531,000
    
    
    $
    12,610,000
  Significant components of the Companys future tax assets are shown below. A valuation allowance has been recognized to fully offset the
net future tax assets as realization of such net assets is uncertain. 2004
    
    2003Future tax assets:Operating loss carryforwards
    
    $
    4,446,000
    
    
    $
    1,120,000Valuation allowance for future tax assets
    
    
    (2,746,000
    )
    
    
    (1,109,000
    )1,700,000
    
    
    
    11,000Future tax liabilities:Deferred and prepaid
financing fees
    
    
    (1,681,000
    )
    
    
    Capital assets
    
    
    (19,000
    )
    
    
    (11,000
    )(1,700,000
    )
    
    
    (11,000
    )Net future tax assets
    
    $
    
    
    
    $
    
  10.
    
    Related party transactions:During the year, the Company paid, through the issuance of
common stock, $460,950 (2003 - $21,400) to directors for various services
provided to the Company throughout the year. The Company also paid a
director $nil (2003 - $12,000) for office rent.These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties. 18




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##### Table of Contents



During the year a director obtained a personal mortgage in the amount of US $587,680 and lent the funds to the Company in order to assist
the Company to meet certain obligations (the interim loan). Prepaid interest and fees of US $87,680 were withheld, providing net cash
funding of US $500,000 to the Company. The interim loan was repaid by the Company during the period upon receipt of the bank loan proceeds
described in Note 6(b).During the year, as described in Note 5(a), on March 8, 2004, the Company entered into an agreement with the Marlowe and Judy Harvey and
their affiliated companies (the Harvey Parties) by which the Company and the Harvey Parties resolved a number of issues that have arisen
between them some of which have been previously discussed in the Companys 2003 Form 20-F and other reports. Under the agreement:  -
    
    the Harvey Parties and the Company agreed on a more precise definition of the Companys right (which expires August 31, 2011) to
repurchase the interest of AAI in the Caribou properties, including the price payable for the reacquisition (a total of Cdn$747,728 which is
included in the debentures in Note 7) and AAIs right to convert that debenture before it is paid;-
    
    further defining the Companys right to borrow against, enter in and upon those properties, construct buildings and mines on those
properties, and remove and sell minerals from those properties for the Companys own account;-
    
    the Harvey Parties have agreed to assign their interests in the Manhattan project to the Company and completed this agreement in July
2004. In addition, the Harvey Parties also agreed to help to convey, or cause others to convey the Manhattan project to the Company so that
the Company will receive title to the entire right, title and interest (a 100% interest) in the Manhattan project (no later than December
31, 2005) from the Manhattan Parties. Upon receipt of marketable title, the Company will pay Argus Resources, Inc. 250,000 shares of the
Companys restricted stock. The Company agreed to undertake certain drilling obligations after receiving good title, and to issue the
greater of 5% of the then outstanding or 2,500,000 shares of common stock to Argus Resources, Inc., if the Company identifies gold or gold
equivalent mineral resources (as determined in accordance with Canadian standards) exceeding 2,000,000 ounces.-
    
    the Harvey Parties agreed to comply with their shareholder filing obligations in the United States and Canada (if any) not later than
April 30, 2004. Mr. Harvey has also returned a stock option agreement to the Company which defines the option to acquire 82,500 shares of
the Companys common stock granted to him in November 2002 which he continues to hold. That option expires on November 15, 2004, and has an
exercise price of US$0.80 per share (see Note 8(c)).-
    
    The Company agreed to propose to its shareholders at its next shareholder meeting that the conversion price of the debentures be repriced
from Cdn$1.23 to US$.55.-
    
    The Company agreed to retain Mr. Harvey as a consultant for one year at US$3,000 per month. Mr. Harvey resigned as a consultant as of
June 1, 2004.  In addition, the Company, and the Harvey Parties entered into mutual releases. The Company has previously announced that it does not intend
to expend any significant exploration dollars on the Manhattan property until such time as it has received further assurances as to title. 19




---



##### Table of Contents



11.
    
    Contingency:The Company has stopped negotiating with a shareholder and former director of the Company
for claims of past wages, salary remuneration and expenses in the approximate amount of US
$544,700 ($745,400 Cdn). Included in advances from shareholders is $343,400 Cdn previously
provided for this claim. With new documentation received, the company believes this claim
is fully without merit and has denied the claim in full. The final outcome of the claim is
undeterminable. Accordingly, no additional provision has been recorded. Additional
amounts or a reduction the claim, if any, will be recorded in the period the claim is
finalized and/or settled.12.
    
    Segmented information:The Company operates principally in the mining industry segment.The Companys operations are in the following geographical locations: 2004
    
    2003Net (income) loss for the year:Canada
    
    $
    (37,988
    )
    
    $
    468,604United States
    
    
    4,641,888
    
    
    
    123,255$
    4,603,900
    
    
    $
    591,859Identifiable assets at end of year:Canada
    
    $
    288,454
    
    
    $
    290,092United States
    
    
    20,301,109
    
    
    
    13,294,607$
    20,589,563
    
    
    $
    13,584,699
  13.
    
    Financial instruments:The Company holds various forms of financial instruments. The nature of these instruments
and the Companys operations expose the Company to foreign currency risk, interest rate
risk and industry credit risk.  (a)
    
    Foreign currency risk:A significant portion of the Companys operations are located in
the United States and the Company manages its exposure to foreign
currency fluctuations by maintaining U.S. currency bank accounts
and denominates its commitments and contracts in U.S. dollar
equivalents.(b)
    
    Credit risk:The Companys receivables are mainly for cost recoveries from
related parties. The Company has no significant credit risk as it
has the ability to net amounts receivable against accounts payable
for services rendered by these parties. 20




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##### Table of Contents



14.
    
    Commitments:The Company is committed under option and lease agreements to expend on exploration
expenditures and property option payments amounts as disclosed in Notes 5 (a), (b), and
(c) in the form of cash and/or stock as detailed therein.15.
    
    Subsequent events:  (a)
    
    On June 16, 2004 the Company received subscription
proceeds of US$75,000 for 100,000 shares and
100,000 warrants. The shares and warrants have
not yet been issued.(b)
    
    On July 8, 2004 the Company granted 3,000,000
stock options at $US 0.85 and a deferred cash
bonus of US $250,000 to the president of the
Company. This transaction will result in
compensation expense of approximately US
$2,653,000 to be recorded in the first quarter of
fiscal 2005.(c)
    
    In June 2004 the Company received loan proceeds of
US $166,000. Interest only at 15% per annum is
due on the loan. The loan is due in full on July
31, 2005.  16.
    
    Reconciliation with United States Generally Accepted Accounting Principles:Generally accepted accounting principles (GAAP) and practices in the United States of America (U.S.
GAAP) differ in certain respects from Canadian GAAP. Differences which may materially affect these
consolidated financial statements are:  (a)
    
    Mineral interest exploration expenditures:Statement of Financial Accounting Standards No. 144 (SFAS 144),
Accounting for the Impairment or Disposal of Long-Lived Assets in
the U.S. requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing
the review for recoverability, the Company is to estimate the future
cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is measured, equal to the
excess of the carrying amount over the fair value of the assets. A
common interpretation of SFAS 144 is that it requires mineral
interest exploration costs to be expensed as incurred until
commercially minable deposits are determined to exist within a
particular property as cash flows cannot be reasonably estimated
prior to such determination.Accordingly, for all periods presented, the Company has expensed
exploration costs incurred for U.S. GAAP purposes. Once proved and
probable reserves are established, capitalization of related costs
would commence. This is significantly different from the accounting
policy under Canadian GAAP, as detailed in the mineral interests
significant accounting policy note.Under U.S. GAAP, additional exploration costs for mineral interests
that would be written off are as follows: 2004
    
    2003Mineral exploration costs
    
    $
    1,538,128
    
    
    $
    496,681
 21




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##### Table of Contents



(b)
    
    Stock-based compensation:Statement of Financial Accounting Standards No. 123 (SFAS 123) requires that stock-based
compensation be accounted for based on a fair value methodology, although it allows the effects to
be disclosed in the notes to the financial statements rather than in the statement of operations for
employee awards. SFAS 123 allows an entity to continue to measure compensation costs for employee
stock-based compensation plans using the intrinsic value based method of accounting as prescribed by
APB Opinion No. 25 (APB 25) and related interpretations. The Company has elected to measure
compensation cost for those employee plans using APB 25. As such, compensation expense under fixed
plans is recorded only if the market value of the underlying stock at the date of granting exceeds
the exercise price. If the exercise price of a fixed option award is reduced, the award is
accounted for as a variable award from the date of modification to the final measurement date upon
which the award is exercised, is forfeited, or expires unexercised. Compensation cost is adjusted
in subsequent periods up to the measurement date for changes in the quoted market price. The
Company follows the settlement method under Canadian GAAP and as a result no compensation expense is
recognized for employee awards.Compensation expense recognized for employee fixed and variable awards after applying the intrinsic
value method and the fair value of non-employee awards for the year ended May 31, 2004 would be
$573,575 (2003 - $90,473) under U.S. GAAP.Pro forma net loss and pro forma net loss per share after consideration of fair market value of
share options granted under U.S. GAAP is as follows: 2004
    
    2003Net loss under U.S. GAAP
    
    $
    (6,795,917
    )
    
    $
    (1,127,233
    )Add:Stock-based employee compensation expense
included in net loss, net of related tax
effects
    
    
    573,575
    
    
    
    90,473Deduct:Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax
    
    
    (1,288,200
    )
    
    
    (25,375
    )Pro forma loss under U.S. GAAP
    
    $
    (7,510,542
    )
    
    $
    (1,062,135
    )Pro forma loss per share, basic and diluted
    
    $
    (0.41
    )
    
    $
    (0.10
    )Stock-based compensation is calculated
based upon the following weighted average
assumptions:
 2004
    
    2003Expected life of options
    
    4.7 years
    
    2.0 yearsExpected stock price volatility
    
    
    298
    %
    
    
    329
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Risk free interest rate
    
    
    4.83
    %
    
    
    3.55
    %
 22




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##### Table of Contents



(c)
    
    The Company has 150,000 common shares held in escrow. The release of the shares is contingent on certain performance conditions. Compensation
under U.S. GAAP, if any, is recognized when the contingency is resolved and the shares are released from escrow based upon value of the shares as
they become releasable. As at May 31, 2004, no shares are releasable from escrow. No similar compensation expense would be recognized under
Canadian GAAP. These shares are excluded from earnings per share calculations for both Canadian and U.S. GAAP.(d)
    
    Fair value conversion option:Under Canadian GAAP a fair value conversion option is recorded for all convertible debentures. Under U.S. GAAP, a beneficial conversion option
is only recorded if the option is in the money at the date of the transaction.(e)
    
    Under Canadian GAAP, future tax assets and liabilities are recorded at substantially enacted tax rates. Under U.S. GAAP, deferred tax assets and
liabilities are recorded at enacted tax rates. Recording Canadian deferred tax assets and liabilities at enacted tax rates would not change
recorded net assets or shareholders equity under U.S. GAAP.(f)
    
    The following table presents the consolidated balance sheet, statement of operations and deficit, and cash flows under U.S. GAAP:Balance Sheet 2004
    
    2003Total assets under Canadian GAAP
    
    $
    20,487,565
    
    
    $
    13,584,699Adjustments to mineral interest exploration
expenditures (a)
    
    
    (14,744,680
    )
    
    
    (13,206,552
    )Total assets under U.S. GAAP
    
    $
    5,742,885
    
    
    $
    378,147Total liabilities under Canadian GAAP
    
    $
    11,985,770
    
    
    $
    8,042,886Fair value conversion option (d)
    
    
    419,829
    
    
    
    472,189Total liabilities under U.S. GAAP
    
    
    12,405,599
    
    
    
    8,515,075Share capital, Canadian GAAP
    
    
    31,154,036
    
    
    
    23,457,480Stock-based compensation (b)
    
    
    973,044
    
    
    
    399,469Fair value conversion option (d)
    
    
    (575,173
    )
    
    
    (575,173
    )Share capital, U.S. GAAP
    
    
    31,551,907
    
    
    
    23,281,776Accumulated deficit, U.S. GAAP
    
    
    (38,214,621
    )
    
    
    (31,418,704
    )Shareholders deficiency, U.S. GAAP
    
    
    (6,662,714
    )
    
    
    (8,136,928
    )Shareholders deficiency and liabilities under U.S. GAAP
    
    $
    5,742,885
    
    
    $
    378,147
 23




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##### Table of Contents



Statement of Operations and Deficit Cumulative
    
    Year
    
    Yearfrom
    
    ended
    
    endedInception to
    
    May 31,
    
    May 31,May 31, 2004
    
    2004
    
    2003Net loss under Canadian GAAP
    
    $
    (22,652,241
    )
    
    $
    (4,736,574
    )
    
    $
    (591,859
    )Adjustments:Mineral interest
exploration
expenditures
    
    
    (14,744,680
    )
    
    
    (1,538,128
    )
    
    
    (496,681
    )Stock-based compensation
    
    
    (973,044
    )
    
    
    (573,575
    )
    
    
    (90,473
    )Fair value conversion option
    
    
    155,344
    
    
    
    52,360
    
    
    
    51,780Net loss, being comprehensive loss, under U.S.
GAAP
    
    
    (38,214,621
    )
    
    
    (6,795,917
    )
    
    
    (1,127,233
    )Accumulated opening deficit under U.S. GAAP
    
    
    
    
    
    
    (31,418,704
    )
    
    
    (30,291,471
    )Ending deficit, U.S. GAAP
    
    $
    (38,214,621
    )
    
    $
    (38,214,621
    )
    
    $
    (31,418,704
    )Net loss per share, basic and diluted, U.S.
GAAP
    
    
    
    
    
    $
    (0.37
    )
    
    $
    (0.09
    )
  (g)
    
    Statement of cash flows:For Canadian GAAP, cash flows relating to mineral interest exploration expenditures are reported as investing activities. For U.S. GAAP purposes, these
costs would be characterized as operating activities. Under U.S. GAAP financing activities would include financing through the Companys bank overdraft.
Accordingly, the effect of these differences on the statements of cash flows are summarized as follows: 2004
    
    2003Cash provided by (used in) operations under Canadian GAAP
    
    $
    (1,511,907
    )
    
    $
    45,025Adjustment for mineral exploration costs
    
    
    (1,508,218
    )
    
    
    (262,030
    )Cash used in operations under U.S. GAAP
    
    
    (3,020,125
    )
    
    
    (217,005
    )Cash used in investments under
Canadian GAAP
    
    
    (1,644,353
    )
    
    
    (262,417
    )Adjustment for mineral exploration costs
    
    
    1,508,218
    
    
    
    262,030Cash used in investments under U.S. GAAP
    
    
    (136,135
    )
    
    
    (387
    )Financing activities under Canadian GAAP
    
    
    3,770,307
    
    
    
    219,205Decrease in bank overdraft
    
    
    (7,586
    )
    
    
    (1,813
    )Financing activities under U.S. GAAP
    
    
    3,762,721
    
    
    
    217,392Increase in cash under Canadian GAAP
    
    
    614,047
    
    
    
    1,831Additional bank overdraft repayment
    
    
    (7,586
    )
    
    
    (1,831
    )Increase in cash under U.S. GAAP
    
    
    606,461
    
    
    
    Cash, beginning of year, U.S. GAAP
    
    
    
    
    
    
    Cash, end of year, U.S. GAAP
    
    $
    606,461
    
    
    $
    
 24




---



##### Table of Contents



(h)
    
    Development stage enterprise:The Company meets the definition of a Development stage enterprises under FAS No. 7. The following additional disclosures would be required under U.S. GAAP.Consolidated statements of operations and deficit (U.S. GAAP) Cumulativefrom inceptionDec 30, 1986 toMay 31, 2004Operating, exploration and administrative expenses
    
    $
    (29,740,406
    )Loss on disposition of subsidiary
    
    
    (12,537,072
    )Other income
    
    
    4,062,857Net loss for the period since inception to May 31, 2004
    
    $
    (38,214,621
    )
  Consolidated statements of cash flows: Cumulativefrom inceptionDec 30, 1986 toMay 31, 2004Operating activities
    
    $
    (13,478,360
    )Investing activities
    
    
    (5,591,032
    )Financing activities
    
    
    19,675,853Net cash inflows from inception to May 31, 2004
    
    $
    606,461
 25




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##### Table of Contents



Additional shareholders equity disclosures required under FAS No. 7 would include: DeficitCommon shares

    
    accumulatedNumber
    
    Amount
    
    since inceptionBalance at inception
    
    
    
    
    
    $
    Issued for cash:December 1986
    
    
    1
    
    
    
    1January 1987
    
    
    80,000
    
    
    
    100,000April 1987
    
    
    150,000
    
    
    
    7,500Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    $
    (108,647
    )Balance, May 31, 1987
    
    
    230,001
    
    
    
    107,501
    
    
    
    (108,647
    )Issued for cash:September 1987
    
    
    11,600
    
    
    
    14,500March 1988
    
    
    100,000
    
    
    
    150,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (42,412
    )Balance, May 31, 1988
    
    
    341,601
    
    
    
    272,001
    
    
    
    (151,059
    )Issued for cash:August 1988
    
    
    31,000
    
    
    
    54,250Issued upon exercise of warrants:August 1988
    
    
    20,000
    
    
    
    40,000March 1989
    
    
    5,000
    
    
    
    10,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (185,968
    )Balance, May 31, 1989
    
    
    397,601
    
    
    
    376,251
    
    
    
    (337,027
    )Issued for cash:July 1989
    
    
    40,000
    
    
    
    136,000Issued upon exercise of options:August 1989
    
    
    20,000
    
    
    
    75,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (54,515
    )Balance, May 31, 1990
    
    
    457,601
    
    
    
    587,251
    
    
    
    391,542Acquisition of Cineonix Limited:July 1989
    
    
    1,000,000
    
    
    
    750,000Issued for finders fee
    
    
    30,000
    
    
    
    90,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (1,179,904
    )Balance, May 31, 1991
    
    
    1,487,601
    
    
    
    1,427,251
    
    
    
    (1,571,446
    )Issued for mineral interests:April 1992
    
    
    50,000
    
    
    
    20,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (71,702
    )Balance, May 31, 1992
    
    
    1,537,601
    
    
    
    1,447,251
    
    
    
    (1,643,148
    )Issued for cash:July 1992
    
    
    1,000,000
    
    
    
    150,000March 1993
    
    
    600,000
    
    
    
    132,000Issued for debt settlement:August 1992
    
    
    115,468
    
    
    
    23,094Issued for finders fee
    
    
    30,000
    
    
    
    26,100Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (118,136
    )
 26




---



##### Table of Contents



DeficitCommon shares

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




---



##### Table of Contents



DeficitCommon shares

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




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##### Table of Contents



DeficitCommon shares
    

    accumulatedNumber
    
    Amount
    
    since inceptionBalance, May 31, 2002
    
    
    10,676,718
    
    
    
    22,631,603
    
    
    
    (30,291,471
    )Issued for debt settlement:June 2002 and August 2002
    
    
    67,500
    
    
    
    38,800Issued under settlement of services:October 2002 and January 2003
    
    
    261,667
    
    
    
    143,234Issued for mineral interests:February 2003
    
    
    100,000
    
    
    
    82,000Issued under exercise of options:January 2003
    
    
    25,000
    
    
    
    11,250Issued for cash
October 2002
    
    
    62,500
    
    
    
    78,771Warrants issued under settlement of services:October 2002
    
    
    
    
    
    
    205,645Stock based compensation
    
    
    
    
    
    
    90,473Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (1,127,233
    )Balance, May 31, 2003
    
    
    11,193,385
    
    
    $
    23,281,776
    
    
    $
    (31,418,704
    )Issued under exercise of warrants:August 2003
    
    
    62,500
    
    
    
    69,785Issued under exercise of options:July 2003, August 2003, October 2003 and
January 2004
    
    
    340,000
    
    
    
    153,000Issued for financing:August 2003
    
    
    8,181,818
    
    
    
    6,280,242Issued for services:November 2003 and
December 2003
    
    
    245,750
    
    
    
    558,515Issued for cash
    
    
    80,000
    
    
    
    124,741November 2003
    
    
    80,000
    
    
    
    124,741April 2004
    
    
    125,000
    
    
    
    164,450Subscription received
    
    
    
    
    
    
    584,848Issued for mineral properties:December 2003
    
    
    2,000
    
    
    
    4,900Cancelled shares previously issued for services:January 2004
    
    
    (87,000
    )
    
    
    (38,280
    )Cancelled warrants
previously issued
for services
    
    
    
    
    
    
    (205,645
    )Stock based compensation
    
    
    
    
    
    
    573,575Net loss for the period under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (6,795,917
    )Balance, May 31, 2004
    
    
    20,143,453
    
    
    $
    31,551,907
    
    
    $
    (38,214,621
    )
 All of the above transactions have been included on a post-consolidation basis. 29




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##### Table of Contents



EXHIBIT INDEX ExhibitNumber
    
    Title3.01a
    
    
    Memorandum3.02a
    
    
    Articles of Incorporation3.03a
    
    
    Special Resolution filed March 19, 199210.01a
    
    
    Loan agreement dated August 1, 2003 with accredited investors10.02a
    
    
    Mutual Release effective July 18, 2000, between Marlowe
Harvey, Aarvark Agencies, Inc., Calais Resources Colorado,
Inc., Calais Resources, Inc., on the one part, and Thomas S.
Hendricks10.03a
    
    
    Form of convertible debentures10.04a
    
    
    Purchase Option Agreement dated February 28, 2003 by and
between Calais Resources, Inc. and Golden Cycle of Panama,
Inc. and Panama Mining of Golden Cycle, Inc.10.05a
    
    
    Grant of Royalty Interest For Fixed Term, Modification of
Prior Royalty Grants and Assignment of Royalty Buyout Rights
Under Prior Grants dated March 1998 by Calais Resources
Colorado, Inc. in favor of Thomas S. Hendricks, Marjorie J.
Hendricks, and John R. Henderson.10.06a
    
    
    Right to Redeem and Re-Acquire Agreement dated March 26, 1999
between Aardvark Agencies, Inc. and Calais Resources
Colorado, Inc.10.07a
    
    
    Right to Redeem and Re-Acquire Agreement dated July 20, 2000
between Aardvark Agencies, Inc. and Calais Resources
Colorado, Inc.10.08a
    
    
    Grant of Royalty Interest For Fixed Term by Calais Resources
Colorado, Inc. and Aardvark Agencies, Inc. dated July 2000 by
Calais Resources Colorado, Inc. in favor of Thomas S.
Hendricks, Marjorie J. Hendricks, and John R. Henderson10.09a
    
    
    Employment Agreement with Matthew C. Witt10.10b
    
    
    Settlement Agreement and General Mutual Releases between
Calais Resources, Inc., Marlowe Harvey, and others, dated
March 8, 200410.11b
    
    
    Purchase Option Agreement between Calais Resources, Inc. and
Golden Cycle of Panama, Inc. and Panama Mining of Golden
Cycle, Inc., dated February 28, 200310.12b
    
    
    Extension of Purchase Option Agreement and Partial
Acknowledgement of Performance, dated January 31, 2004,
relating to Exhibit 10.1121a
    
    
    List of subsidiaries.31.1+
    
    
    Certification pursuant to Rule 13a-14(a)31.2+
    
    
    Certification pursuant to Rule 13a-14(a)32+
    
    
    Certification pursuant to 18 U.S.C. §1350
  +
    
    Filed herewith.a
    
    Incorporated by reference from exhibits filed with the
original filing on Form 20-F for the year ended May 31, 2003, as
amended.b.
    
    Incorporated by reference from exhibits filed with quarterly
report on Form 10-QSB for the quarter ended February 29, 2004