8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event) October 20, 2003

Calais Resources, Inc.

(Exact Name of Registrant as Specified in its Charter)

British Columbia	0-29392
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification     No.)

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

(Address of Principal Executive Offices) (Zip Code)

(720) 529-9500

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, If Changed Since Last Report.)

TABLE OF CONTENTS

	Item 7. Financial Statements, Pro-Forma Financial Information and Exhibits
	Item 12. Results of Operations or Financial Condition
SIGNATURE
Exhibit Index
EX-99.1 Analysis of the Financial Statements
EX-99.2 Finanical Statements for Year End 5/31/03

Item 7. Financial Statements, Pro-Forma Financial Information and Exhibits

(c) Exhibits

Exhibit Number	Description
1	President’s letter and management’s discussion and analysis of the financial statements
2	Financial statements for the year ended May 31, 2003, together with the accountant’s report thereon

Item 12. Results of Operations or Financial Condition.

     On October 20, 2003, and as required by Canadian law, Calais Resources, Inc. filed with Canadian authorities and mailed to its shareholders its audited (pursuant to Canadian GAAP) financial statements for the fiscal year ended May 31, 2003, together with a president’s letter and management’s discussion and analysis of the financial statements.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		CALAIS RESOURCES, INC. (Registrant)
October 20, 2003	By:	/s/ Matthew C. Witt
		Matthew C. Witt, Chief Financial Officer

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Exhibit Index

Exhibit Number	Description
1	President’s letter and management’s discussion and analysis of the financial statements
2	Financial statements for the year ended May 31, 2003, together with the accountant’s report thereon

3 EX-99.1 3 d09896exv99w1.htm EX-99.1 ANALYSIS OF THE FINANCIAL STATEMENTS

Calais Resources, Inc.

Presidents Annual Letter to Shareholders

On behalf of the executive officers and board of directors for Calais Resources, I would personally like to thank each and every shareholder for your support over the past year. Calais Resources recently ended its fiscal year on 5-31-2003. As of today, I could not be more proud of our achievements during the fiscal year 2003 and year to date. Five years ago I became President and CEO of Calais Resources after wonderful twenty six year tenure at Hendricks Mining. In 1998 and still today, I believe that Calais Resources is a very special gold exploration company holding the property rights to three world class gold districts.

In this past fiscal year we added hundreds of acres of patented and unpatented mining claims to our all of our three properties located in Colorado, Nevada, and Panama. Along with the addition of new mining claims to our portfolio of properties, we spent a great deal of time and efforts in perfecting all of our claims. We believe that we have never been in a more favorable growth position than we are in today.

With the acquisition of more claims, and the housekeeping of our current claims, we are very excited to say it is now time to start drilling. Core drilling will be our number one focus and will continue to be for the next two years. With a recent loan to Calais Resources of 4.5 million US dollars, and the addition of Matt Witt our new CFO to the executive staff, Calais Resources will become a highly visible mining exploration company in the very near future. All of what is to come is a result of a lot of very hard work and perseverance by every member of the executive staff and board of directors. For that, I want to thank each of you.

As of August 1, 2003 the drilling resumed at the Caribou property in Colorado, and we anticipate drilling to begin at our Nevada property in December. Our new business plans call for three new drills to be purchased or leased in early 2004. With four drills running full time at our Colorado and Nevada properties, we are estimating that we can produce another 250,000 feet of core drilling per year. With an addition of 500,000 feet of core drilling over the next two years to add to our current 150,000 feet of core that we have previously drilled, Calais Resources will be in a very strong position, and we hope that it will attract a lot of industry attention. Our concentration on core drilling is a very significant achievement for Calais Resources and the Calais Resources shareholders.

Again we are very excited with the future of Calais Resources, Inc, and are proud to have each and every one of you as Calais Shareholders.

Calais Resources, Inc.

Enclosed you will find a copy of our Audited Consolidated Financial Statement (in Canadian dollars) and the Management Discussion and Analysis for Fiscal year end 2003. Please read them so you can gain more information about your company. We will be scheduling a shareholders’ meeting for December 2003 when we hope to have more information for you.

Thank you for your continued support.

Thomas S. Hendricks
President and CEO
Calais Resources, Inc

The future conduct of the company’s business and its response to issues raised by third parties are dependent upon a number of factors, and there can be no assurance that the company will be able to conduct its operations as contemplated. Certain statements contained in this letter and the attached management’s discussion and analysis using the terms “may,” “expects to,” “projects,” “estimates,” “plans,” and other terms denoting future possibilities, are forward-looking statements in accordance with the Private Securities Litigation Reform Act of 1995. The accuracy of these statements cannot be guaranteed as they are subject to a variety of risks that are beyond our ability to predict or control and which may cause actual results to differ materially from the projections or estimates contained herein. These risks include, but are not limited to, the risks described in the above press release; those risks set out in the company’s disclosure documents and its annual, quarterly and current reports; and the other risks associated with start-up mineral exploration operations with insufficient liquidity, negative working capital, and no historical profitability. Calais Resources, Inc. disclaims any obligation to update any forward-looking statement made herein.

Calais Resources, Inc.

Management’s Discussion and Analysis

Results of Operations

     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. There is a possibility that we may produce gold from placer operations that we expect to undertake on our Panamanian properties during the fiscal year ending May 31, 2004, but even if we achieve such revenues we anticipate that we will reinvest them in our Panamanian operations, reducing the capital that will be required from our United States operations. It is not likely that any revenues obtained from the anticipated Panamanian placer operations will exceed the cost of those operations until we have the capital necessary to expand the operations beyond the phase that we currently anticipate.

     Although our aggregate expenses have remained approximately constant at about Cdn$600,000 during the last two fiscal years, the components of those expenses have changed significantly. 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 US 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.

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. The company also incurred approximately Cdn$205,000 in financing fees during fiscal 2003, which fees were paid through the issuance of warrants. 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.

Calais Resources, Inc.

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. 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 2004 fiscal year will result in greater operating losses than realized in fiscal 2002 or 2003, since we received US$4,500,000 in mortgage financing from accredited investors in August 2003 and we intend to increase our operations on our Caribou and Panamanian properties. Furthermore, because we lost our status as a foreign private issuer under the United States securities laws, we will incur additional expenses in complying with the duplicative reporting requirements in the United States and Canada. We also have increased our general and administrative expenses by opening our administrative office in Englewood, Colorado and have assumed the administrative costs associated with that office and our new chief financial officer, expenses we had not incurred in previous fiscal years.

Liquidity and Capital Resources

     We have had working capital deficits during each of our last two fiscal years of Cdn$(2,437,000) at May 31, 2003 and Cdn$(2,142,000) at May 31, 2002. These working capital deficits have in part been financed by:

increasing accounts payable (Cdn$975,000 at May 31, 2003 as compared to Cdn$659,000 at May 31, 2002);

a Cdn$96,000 note payable at May 31, 2003 which did not exist at the end of the prior fiscal year; and

     Offsetting these increased short-term liabilities was a Cdn$190,000 reduction in short-term bank indebtedness at May 31, 2003 as compared to May 31, 2002.

     Our working capital deficit during the past two fiscal years (and previously) have adversely affected our ability to carry on our mineral exploration operations. We were also unable to retain professional help needed to fully comply with our reporting obligations in Canada and in the United States, we were required to incur significantly

Calais Resources, Inc.

greater interest and bank charges than would have otherwise been required The Peak National Bank loan was in default as of 5-31-2003. The default was cured subsequent to fiscal year ending. This bank loan was paid in full in August 2003.

     We were actually able to achieve positive cash flow from our operations during fiscal 2003, primarily because of increasing short term liabilities which had a positive effect on cash flow from operations. We also issued shares and warrants in exchange for services, expenses that did not involve the use of our limited cash. During our 2002 fiscal year, we used Cdn$(662,000) cash in our operations.

     We had positive cash flow from financing activities in both 2002 (Cdn$934,000) and 2003 (Cdn$219,000). The 2002 positive cash flow from financing activities was due primarily to a Cdn$1,833,000 bank loan we obtained and used to pay off certain other long-term and short-term obligations. 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 2003 (Cdn$262,000) and fiscal 2002 (Cdn$282,000) years. In both cases, these expenditures related to investment in our mineral properties during the respective fiscal years.

     We expect that we will have positive cash flow during our 2004 fiscal year even though we also anticipate increased negative cash flow from operations and investing activities. Our positive cash flow will be due primarily to the August 2003 investment of US$3,500,000 (net proceeds) received from six accredited investors. 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 properties or in Calais itself to fund our continuing operations. After we have established 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.

EX-99.2 4 d09896exv99w2.htm EX-99.2 FINANICAL STATEMENTS FOR YEAR END 5/31/03

Consolidated Financial Statements of

CALAIS RESOURCES INC.

Years ended May 31, 2003 and 2002

(In Canadian dollars)

1

AUDITORS’ REPORT

To the Shareholders of Calais Resources Inc.

We have audited the consolidated balance sheet of Calais Resources Inc. as at May 31, 2003 and 2002 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. 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, 2003 and 2002 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. As required by the Company Act (British Columbia), we report that, in our opinion, these principles have been applied, after giving retroactive effect to the adjustments explained in Note 3 to the financial statements, on a basis consistent with that of the preceding year.

                 “signed KPMG LLP”

Chartered Accountants

Chilliwack, British Columbia

October 9, 2003

2

CALAIS RESOURCES INC.

Consolidated Balance Sheet

May 31, 2003 and 2002

		2003			2002
					(Restated – Note 3)
Assets
Current assets:
	Restricted cash (Note 7)	$	—		$	67,415
	Inventories		283,301			283,301
	Prepaid expenses and deposits		—			7,612
			283,301			358,328
Capital assets (Note 4)			94,846			126,216
Mineral properties (Note 5)			13,206,552			12,709,871
		$	13,584,699		$	13,194,415
Liabilities and Shareholders’ Equity
Current liabilities:
	Bank overdraft	$	7,586		$	9,399
	Accounts payable and accrued liabilities		974,816			659,154
	Note payable (Note 6)		95,795			—
	Bank loan (Note 7)		1,642,200			1,832,616
			2,720,397			2,501,169
Long-term debt (Note 8)			4,624,916			4,573,136
Advances from shareholders, without interest or fixed terms of repayment; unsecured			697,573			546,138
Shareholders’ equity:
	Share capital (Note 9)		23,457,480			22,897,780
	Deficit		(17,915,667	)		(17,323,808	)
			5,541,813			5,573,972
Future operations (Note 1)
Contingency (Note 12)
Commitments (Note 15)
Subsequent events (Note 16)
		$	13,584,699		$	13,194,415

On behalf of the Board:
	“T. Hendricks”	Director
	“A. Daher”	Director

See accompanying notes to consolidated financial statements.

3

CALAIS RESOURCES INC.

Consolidated Statement of Operations and Deficit

Years ended May 31, 3 and 2002

		2003			2002
					(Restated – Note 3)
Revenues		$	—		$	—
Expenses:
	Advertising		3,846			1,947
	Amortization		5,433			7,043
	Consulting fees		44,789			91,500
	Filing fees, licenses, permits		1,044			2,586
	Foreign exchange loss (gain)		(249,440	)		4,699
	Insurance		451			2,591
	Interest and bank charges		624,073			318,553
	Office and general		18,314			8,889
	Professional fees		99,681			128,478
	Rent		13,503			19,800
	Telephone		12,750			13,997
	Transfer agent fees		3,939			2,521
	Travel		2,649			2,001
	Utilities		12,360			10,820
			593,392			615,425
Loss before the undernoted			(593,392	)		(615,425	)
Other income:
	Gain on sale of capital assets		—			7,142
	Interest income		600			3,092
	Rental income		933			2,978
			1,533			13,212
Loss for the year			(591,859	)		(602,213	)
Deficit, beginning of year (Note 3)			(17,323,808	)		(16,721,595	)
Deficit, end of year		$	(17,915,667	)	$	(17,323,808	)
Net loss per common share, basic and diluted		$	(0.05	)	$	(0.06	)
Weighted average common shares outstanding, basic and diluted			10,962,795			10,334,635

See accompanying notes to consolidated financial statements.

4

CALAIS RESOURCES INC.

Consolidated Statement of Cash Flows

Years ended May 31, 2003 and 2002

				2003			2002
							(Restated – Note 3)
Cash provided by (used in):
Operations:
		Loss for the year		$	(591,859	)	$	(602,213	)
		Items not involving cash:
			Accretion expense		51,780			51,204
			Amortization		5,433			7,043
			Shares issued for services		143,234			141,300
			Warrants issued for services		205,645			—
			Gain on sale of capital assets		—			(7,142	)
			Loss on settlement of accounts payable and accrued liabilities with issuance of shares		1,911			—
			Foreign exchange loss (gain)		(249,440	)		4,699
Change in non-cash operating working capital:
		Restricted cash			67,415			(67,415	)
		Other receivables			—			818
		Prepaid expenses and deposits			7,612			—
		Accounts payable and accrued liabilities			307,499			(190,411	)
		Note payable			95,795			—
					45,025			(662,117	)
Financing:
		Bank loan			—			1,832,616
		Advances from (to) shareholders			129,184			(274,755	)
		Long term debt			—			(623,575	)
		Issue of capital stock			90,021			—
					219,205			934,286
Investments:
		Mineral properties			(262,030	)		(289,106	)
		Proceeds from disposal of capital assets			—			7,412
		Net additions to capital assets			(387	)		(506	)
					(262,417	)		(282,200	)
Increase (decrease) in cash					1,813			(10,031	)
Cash (bank overdraft), beginning of year					(9,399	)		632
Bank overdraft, end of year				$	(7,586	)	$	(9,399	)
Supplementary cash flow information:
	Interest paid			$	107,790		$	195,877
	Income taxes paid			$	—		$	—
	Interest received			$	600		$	3,092
	Non cash transactions:
		Shares issued to settle accounts payable and accrued liabilities		$	38,800		$	—
		Shares issued for mineral property development		$	82,000		$	30,000
		Amortization capitalized to mineral properties		$	26,324		$	36,645
		Accrued costs capitalized to mineral properties		$	126,327		$	28,418
		Shares issued for repayment of shareholder advances		$	—		$	75,000
		Advances receivable allocated to mineral properties		$	—		$	122,806

See accompanying notes to consolidated financial statements.

5

CALAIS RESOURCES INC.
Notes to Consolidated Financial Statements
Years ended May 31, 2003 and 2002

1	General and future operations:
	Calais Resources Inc. (the “Company”) was incorporated under the laws of the Province of British Columbia on December 30, 1986. The Company is currently in the process of exploring and developing various mineral properties to determine whether these properties contain ore reserves that are economically recoverable. The recoverability of the amounts shown for the mineral properties and related deferred costs is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete their development and upon future profitable production.
	These 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 2003 and 2002 and has experienced negative cash flow from operations over a number of years. In addition, the Company was in default on its US $1,200,000 bank loan as of May 31, 2003. (See Notes 7 and 16)
	Subsequent to the year end, the Company acquired US $4,500,000 in financing to repay the bank loan, trade creditors and provide operating funds (as described in Note 16). The Company is actively pursuing various additional options with potential lenders and investors which, if accepted, will in management’s view, enable the Company to achieve its business plans. No agreements with potential lenders or investors have been reached yet and there can be no assurance that such agreements will be reached.
	The ability of the Company to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities when due is dependent on the successful completion of the actions taken or planned, 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, 2004.
	The financial statements do not reflect adjustments that would be necessary if the “going concern” assumption were not appropriate. If the “going concern” basis was not appropriate for these financial statements, then adjustments would be necessary in the carrying value of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.
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.

6

(b)	Use of estimates:
	The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.
(c)	Cash equivalents:
	Cash equivalents consist of short-term deposits with maturity of ninety days or less.
(d)	Financial instruments:
	The Company’s financial instruments consist of cash, accounts receivable, 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)	Inventories:
	Inventories consist of mining equipment held for resale. Inventories are recorded at the lower of cost or net realizable value.
(f)	Mineral properties:
	The Company is engaged in the acquisition, exploration and development of mineral properties. All acquisition, exploration and related direct overhead expenditures are deferred and will be depleted over the estimated life of the property. The estimated life of a property depends on whether the property contains economically recoverable reserves that can be brought into production. The costs relating to a property abandoned are written off when the decision to abandon is made.
	The total amount recorded for mineral properties and deferred exploration expenditures represents costs incurred to date and does not reflect present or future values.
	Proceeds from disposition of mineral properties are normally credited to the capitalized costs with no gain or loss being recognized unless the sale is significant to the capitalized property costs. For such significant dispositions, a gain or loss would be recognized.
(g)	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 is capitalized as a mineral property cost.
(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.

7

(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, 2003 and 2002, basic and diluted net loss per share are the same.
(k)	Stock based compensation:
	The Company has stock based compensation plans. 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.
3	Prior period adjustments:
	During the year, it was determined that the following had not been recorded in previously issued financial statements:
(a)	Beneficial conversion option related to the convertible debentures as described in Note 8.
(b)	Payable to a director for services related to the companies mineral properties.
(c)	Costs related to a previously abandoned mineral property.
	Accordingly, the prior year’s figures have been retroactively restated.
	The impact on previously reported amounts is as follows:

	2002						2002
	previously						as
	reported			Adjustment			restated
Mineral properties	$	12,681,453		$	28,418		$	12,709,871
Accounts payable and accrued liabilities	$	595,238		$	63,916		$	659,154
Long-term debt	$	5,097,105		$	(523,969	)	$	4,573,136
Share capital	$	22,322,607		$	575,173		$	22,897,780
Deficit, end of year	$	(17,237,106	)	$	(86,702	)	$	(17,323,808	)
Interest and bank charges	$	267,349		$	51,204		$	318,553
Loss for year	$	551,009		$	51,204		$	602,213
Net loss per common share, basic and diluted	$	(0.05	)				$	(0.06	)

8

4 Capital assets:

		2003		2002
Cost
	Land	$	8,215	$	8,215
	Furniture		10,947		10,947
	Computer equipment		37,494		37,494
	Automotive equipment		57,331		57,331
	Exploration/mining equipment		498,988		498,988
	Software		6,647		6,260
			619,622		619,235
Accumulated depreciation
	Furniture		7,783		7,065
	Computer equipment		32,378		30,502
	Automotive equipment		50,172		47,506
	Exploration/mining equipment		428,149		401,825
	Software		6,294		6,121
			524,776		493,019
Net book value		$	94,846	$	126,216

	Amortization of $26,324 (2002 - $36,645) related to exploration equipment was capitalized to mineral properties during the year.
5	Mineral properties:

	2003		2002
			(Note 3)
Nevada U.S.A.	$	3,449,004	$	3,297,789
Colorado, U.S.A.		9,466,230		9,268,024
Panama, Central America		291,318		144,058
	$	13,206,552	$	12,709,871

	Title to mining properties involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristics of many mining properties. The Company has investigated title to all of its mineral properties and, to the best of its knowledge, title to all of its properties are in good standing. The majority of the properties in which the Company has committed to earn an interest are located outside Canada. The Company is therefore relying on title opinions by legal counsel who are basing such opinions on the laws of the respective country.
(a)	Nevada, U.S.A.:
	In December 1994, the Company acquired a 51% interest in certain patented and unpatented claims located in Nevada from a company controlled by directors for $1,176,000 US plus a 5% net smelter royalty. The Company can also acquire a 100% interest in a further 89 claims in this property under this agreement.

9

	The Company entered into an agreement and settlement dated September 7, 2000 with Nevada Manhattan Mining Incorporated to settle and purchase Nevada Manhattan Mining Incorporated’s 24.5% interest in the property. The Company agreed to make four annual payments of US $75,000 each for a total of US $300,000. During the term of the agreement the Company has agreed to pay Nevada Manhattan Mining Incorporated a 2% net smelter return royalty. The Company can purchase the entire Nevada Manhattan Mining Incorporated interest and royalty at any time over a thirty-year period for US $7,500,000, which would include production royalties. The Company also holds a 100% interest in 42 unpatented claims in the Manhattan Mining district by staking.
(b)	Colorado, U.S.A.
	Included in the Colorado properties is a 100% working interest in the Consolidated Caribou-Cross-Comstock-Panadora district mine area which the Company acquired in 1997 for US $4,000,000 in stock, cash and final property payments. After acquisition of 100% working interest the seller retains a 2% net smelter royalty interest in the property. The Company has the right to buy back half of the net smelter royalty (1%) for US $750,000. The seller has not sold any of the issued shares for this acquisition through May 31, 2002. During 2000, the Company acquired 100% ownership of 10 patented claims that are continuations of the historic Boulder County and Cardinal vein systems. The Colorado properties contain a well-documented mineral resource of 424,500 ounces of gold and 11,725,000 ounces of silver.
(c)	Panama, Central America:
	The Company owns hard rock mining concessions to 61,000 acres (24,686 hectares) in the eastern Veraguas District of Panama in Central America in 2001. The acquisition was made through a five-year agreement with Panama Mining of Golden Cycle Incorporated, the seller. The Company issued 100,000 shares of stock to the seller. The Company is obligated to pay the seller a 2% net smelter return on any hard rock mineral production. The Company can purchase the concessions from the seller at any time up to August 31, 2004 for US $2,500,000 (the “early purchase”). Upon completion of the early purchase the 2% net smelter return is reduced to 0.5%. The Company is obligated to pay the annual taxes and holding fees.
	The Company is also obligated to pay the seller a 6% gross royalty (“GSR”) on all placer gold mining production to a maximum GSR fee of US $5,000,000. Upon the total payment under the GSR reaching US $5,000,000, the GSR percentage is reduced to 1% for the balance of the life of placer production. The Company acquired additional hard rock mining concessions of 13,590 acres (5,500 hectares) in the above-mentioned location in 2003. The acquisition was made through a new ten-year agreement with the seller, which replaces or amends the above-mentioned five-year agreement. Under this new agreement, the Company issued an additional 100,000 shares of stock, paid US $10,000 in cash and assumed US $15,750 of payables from the seller. The Company is also required to spend US $500,000 on exploration by February 28, 2004, under the terms of this new agreement.
6	Note payable:
	Note payable, to a director for US $70,000 (2002 - $nil) plus interest at 12% per annum due May 22, 2003; secured by inventories, convertible to 116,667 shares at US $0.60 per share. As consideration for note, the director was also provided with 82,500 stock options with an exercise price of $1.26.
	Subsequent to May 31, 2003, the note was repaid in full.

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7	Bank loan:
	Loan payable with interest only payments at 10.5% per annum. Principal of US $1,200,000 due in full on December 16, 2002; secured by deed of trust over mineral properties. At May 31, 2003 the Company was in default with respect to this loan and, as a result, the interest rate on the loan was increased to 24% per annum.
	Subsequent to May 31, 2003, the Company reached an agreement with the bank, and paid all arrears interest and a US $120,000 principal repayment. As a result of this agreement the due date of the loan was extended to December 16, 2003 and the interest rate reduced to 10.5% from 24%.
	During August 2003, the balance outstanding on the loan of US $1,080,000 plus accrued interest was repaid in full (see Note 16). Cash of $nil (2002 - $67,415) is held in an escrow account for monthly interest payments.
8	Long-term debt:

	2003			2002
				(Note 3)
Debentures payable, without interest, due May 2011, convertible to common shares at an exercise price of $1.23 at holders discretion; unsecured	$	5,097,105		$	5,097,105
Less: Cumulative beneficial conversion option		(472,189	)		(523,969	)
	$	4,624,916		$	4,573,136

	Accretion expense on the beneficial conversion of $51,780 (2002 - $51,204) 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.
9	Share capital:
(a)	Authorized: 100,000,000 Common shares without par value
(b)	Issued and outstanding shares:

			2003				2002
	Number				Number		(Note 3)
	of shares		Amount		of shares		Amount
Balance, beginning of year		10,676,718	$	22,897,780		9,855,718	$	22,651,480
Issued to settle debt		62,500		38,800		250,000		75,000
Issued for cash		62,500		78,771		—		—
Issued on exercise of options		25,000		11,250		—		—
Issued for services		261,667		143,234		471,000		141,300
Issued for acquisition of mineral properties		100,000		82,000		100,000		30,000
Warrants issued for services		—		205,645		—		—
Balance, end of year		11,188,385	$	23,457,480		10,676,718	$	22,897,780

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	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.
(c)	Stock options:

				Weighted
				average
				exercise price
Date	Number			per share
Issued and outstanding, May 31, 2001		965,250		$	0.45
Issued in the year		60,000			0.77
Issued and outstanding, May 31, 2002		10,025,250			0.47
Issued in the year		82,500			1.26
Issued in the year		15,000			0.45
Exercised in the year		(25,000	)		(0.45	)
Expired in the year		(116,250	)		(0.45	)
Balance, May 31, 2003		981,500		$	0.54

Options outstanding at May 31, 2003 are as follows:

			Exercise price			Weighted average
	Number		per share		Expiry date	remaining life
Other		60,000	$	0.77	June 2003	0.1 years
Director and employee options		684,000	$	0.45	October 2003	0.4 years (i)
Director options		82,500	$	1.26	November 2004	1.5 years
Director and employee options		155,000	$	0.45	August 2005	2.3 years (ii)
		981,500				0.8 years

	All outstanding options are exercisable when issued.
	(i)  185,000 of these options were exercised subsequent to year-end.
	(ii) 5,000 of these options were exercised subsequent to year-end.
(d)	Warrants:

			Weighted average
			exercise price
	Number		per share
Issued and outstanding, May 31, 2001 and May 31, 2002		—	$	—
Issued in the year		548,803	US $	0.81
Balance, May 31, 2003		548,803	US $	0.81

Warrants outstanding at May 31, 2003 are as follows:

		Exercise			Weighted
		price per		Expiry	average
Number		warrant		date	remaining life
	62,500	US $	0.80	September 2003	0.3 years (i)
	486,303	US $	0.81	October 2004	1.4 years
	548,803	US $	0.81		1.3 years

(i) These warrants were exercised subsequent to year-end.

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10	Income taxes:
	The Company has income tax loss carryforwards of approximately $2,828,000 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.		Total
2004	$	547,000	$	—	$	547,000
2005		13,000		—		13,000
2006		105,000		—		105,000
2007		222,000		—		222,000
2008		150,000		—		150,000
2009		259,000		—		259,000
2010		210,000		—		210,000
2018		—		444,000		444,000
2019		—		160,000		160,000
2020		—		76,000		76,000
2021		—		356,000		356,000
2022		—		259,000		259,000
2023		—		27,000		27,000
	$	1,506,000	$	1,322,000	$	2,828,000

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.

		2003			2002
Future tax assets:
	Operating loss carryforwards	$	1,120,000		$	1,186,000
	Capital assets		—			27,000
			1,120,000			1,213,000
Valuation allowance for future tax assets			(1,109,000	)		(1,213,000	)
			11,000			—
Future tax liabilities:
	Capital assets		(11,000	)		—
Net future tax assets		$	—		$	—

11	Related party transactions:
	During the year, the Company paid, through the issuance of common stock, $21,400 (2002 - $82,500) to a director for various services provided to the Company throughout the year. The Company also paid a director $12,000 in stock (2002 - $30,000) 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.
	Subsequent to year-end, a director obtained a personal mortgage (the “interim mortgage” – see Note 16(a)) in the amount of $587,680 in order to meet certain obligations of the Company. The interim mortgage was subsequently repaid by the Company (see Note 16(b)).

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12	Contingency:
	The Company is negotiating with a shareholder and director of the Company for claims of past wages, salary remuneration and expenses in the approximate amount of US $544,700 ($745,400 Cdn). Included in advances from shareholders is $343,400 Cdn provided for this claim. The claim is under negotiation, the outcome of which is undeterminable. Accordingly, no additional provision has been recorded. Additional amounts, if any, will be recorded in the period the claim is settled.
13	Segmented information:
	The Company operates principally in the mining industry segment.
	The Company’s operations are in the following geographical locations:

		2003		2002
Net loss for the year:
	Canada	$	468,604	$	312,347
	United States		123,255		289,866
		$	591,859	$	602,213
Identifiable assets at end of year:
	Canada	$	290,092	$	291,949
	United States		13,294,607		12,902,466
		$	13,584,699	$	13,194,415

14	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.
15	Commitments:
(a)	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.
(b)	On October 23, 2002, the Company entered into a one year advisory services agreement with a financial consulting firm. Under the terms of this agreement, the Company issued 150,000 shares that were restricted from trading for one year and provided a warrant for 486,303 shares at an exercise price of US $0.81.

14

	A director of the Company also transferred 91,667 free-trading, non-encumbered shares to be held as collateral against 12 monthly payments of US $5,000 in consulting fees for a total of US $60,000. The Company replaced the directors free-trading shares with a new allotment of 91,667 shares that are restricted from trading for a one year period.
16	Subsequent events:
(a)	In June 2003, a director obtained a personal mortgage for US $587,680 to pay various liabilities on behalf of the Company. Prepaid interest and fees of US $87,680 were withheld, providing net cash funding of US $500,000 to the Company (the “interim mortgage”).
	The interim mortgage was used in part to rectify the default under the Company’s bank loan (Note 7). The interim mortgage was repaid in full with the proceeds of the financing described in Note 16(b).
(b)	In August 2003, the Company obtained US $4,500,000 in financing by way of a first mortgage on the Colorado, USA mineral properties. The total amount includes two years prepaid interest at a rate of 12.9% per annum or approximately US $1,000,000 providing net cash funding to the Company of approximately $3,500,000.
	The net cash proceeds of US $3,500,000 were used as follows:

Repayment of remaining bank loan (Note 7)	$	1,080,000
Repayment of interim mortgage (Note 16(a))		588,000
Repayment of trade payables		700,000
Working capital		1,037,000
Financing costs		95,000
	$	3,500,000

	As consideration for this financing, the Company also issued 8,181,818 shares of stock at a deemed price of US $0.55 per share for a total financing fee of US $4,500,000. The financing fee will be recorded in the first quarter of fiscal 2004. 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.
17	Comparative figures:
	Certain balances in the preceding period have been reclassified or restated (Note 3) to conform with the current year’s financial statement presentation.

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