NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the year ended October 31, 1998
(expressed in Candian dollars)

1. Nature of operations

   The Company is in the process of exploring its resource properties and has not determined whether these properties contain ore reserves that are economically recoverable.

   The recoverability of amounts shown for resource properties is dependent upon the discovery of economically recoverable ore reserves, securing and maintaining title and beneficial interest in the properties, the ability of the Company to obtain necessary financing to complete exploration and development, and upon future profitable production from the properties or proceeds from disposition. The Company will periodically have to raise additional funds to complete exploration and development, and while it has been successful in the past, there can be no assurance that it will be able to do so in the future.

   
   

2. Significant accounting policies

   Generally accepted accounting principles

   The consolidated financial statements are presented in accordance with generally accepted accounting principles (GAAP) applicable in Canada and have been reconciled to GAAP applicable in the United States as disclosed in note 10.

   Principles of consolidation

   These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Madison Enterprises (PNG) Pty. Ltd., a Papua New Guinea corporation; Madison Enterprises (BVI) Inc., a British Virgin Island corporation; Madison Enterprises (Latin American), S.A., a Panamanian corporation; and Madison Resources (New Mexico), Inc., a New Mexico corporation. All significant intercompany transactions and balances have been eliminated.

   Joint venture

   The Company has entered into a joint venture agreement for the purpose of exploring the Mt. Kare property in Papua New Guinea. The joint venture is accounted for on a proportionate consolidation basis and each venturer bears an agreed share of the expenses incurred. The sole asset of the joint venture is the Mt. Kare property in Papua New Guinea and the Company's share of the asset is disclosed in note 3.

   Cash and term deposits

   Cash and term deposits include cash and deposits maturing within 90 days from the original date of acquisition. To limit its exposure, the Company diversifies its selection of counterparties for short-term deposits. Fair value of cash balances approximates the amounts reflected on the consolidated balance sheet.

   Foreign currency translation

   Foreign operations are integrated and translated using the temporal method. Under this method, monetary assets and liabilities are translated at the year-end exchange rate, non-monetary assets and liabilities are translated at rates prevailing at the respective transaction dates, and revenue and expenses, except for depreciation, are translated at the average rate of exchange during the year. Translation gains and losses are reflected in the loss for the year.

   Foreign currency denominated monetary accounts of the Company are translated at the year-end exchange rate. Exchange gains and losses on translation are recognized as a gain or loss in the year they arise.

   Resource properties

   Acquisition costs of resource properties together with direct exploration and development expenditures thereon are deferred in the accounts. When production is attained, these costs will be charged to operations using the unit-of-production method based on estimated proven and probable recoverable reserves. Costs relating to properties abandoned are written off when the decision to abandon is made.

   The Company regularly reviews the carrying values of its resource properties by referring to the project economies, including the timing of the exploration and/or development work, the work programs, and the exploration results experienced by the Company and others. The review of the carrying value of any producing property will be made by referring to the estimated future operating results and net cash flows. When the carrying value of a property exceeds its estimated net recoverable amount, a provision is made for the decline in value.

   Capital assets

   Capital assets are recorded at cost and depreciation is provided using the declining balance method at the following rates:

   • Computer equipment – 30%
   • Furniture and fixtures – 20%
   • Office equipment – 20%
   • Leasehold improvements – life of lease

   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 amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those reported.

   Loss per share

   Loss per share is calculated based on the weighted average number of shares issued and outstanding during the year.

   Financial instruments

   The carrying values of cash, joint venturer's cash and term deposits, accounts receivable, and accounts payable and accrued liabilities approximate their fair values.

3. Resource properties

   1998 1997 Belencillo, Panama 2,268,022 2,265,125 Mt. Kare, Paupa New Guinea 20,525,660 12,792,986   22,793,682 15,058,111

   
   Acquisition costs and exploration expenditures incurred during the years ended October 31, 1997 and 1998 are as follows:

   Belencillo, Panama Mt. Kare, Paupa New Guinea Copper Dick, New Mexico Aro Grande, Panama Total Balance - November 1, 1996 2,154,950 1,811,025 602,432 36,301 4,604,708 Acquision costs 50,000 - 21,978 - 71,978 Assays 6,214 637,950 47,505 - 691,669 Camp costs 19,477 3,479,048 13,292 - 3,511,817 Consulting fees 19,233 2,823,427 127,711 - 2,970,371 Drilling - 3,352,631 94,880 - 3,447,511 Engineers' report and mapping - 39,562 4,555 - 44,117 Community relations - 203,426 - - 203,426 Transportation and travel 7,402 359,595 7,070 - 374,067 Management fees 7,849 86,322 - - 94,171 Write-down            -            - (919,423) (36,301) (955,724) Balance - October 31, 1997 (carried forward) 2,265,125 12,792,986 - - 15,058,111 Acquisition costs - 446,969 - - 446,969 Assays - 382,194 - - 382,194 Camp costs 2,897 1,265,760 - - 1,268,657 Helicopter - 1,227,673 - - 1,227,673 Community relations - 1,217,818 - - 1,217,818 Contractors - 773,575 - - 773,575 Drilling - 1,573,657 - - 1,573,657 Evaluation of alluvial resource - 32,094 - - 32,094 Geological supplies and equipment - 18,701 - - 18,701 Land and legal - 381,537 - - 381,537 Licenses - 17,472 - - 17,472 Port Moresby office - 143,383 - - 143,383 Technical reports, printing and copying - 9,682 - - 9,682 Travel and accomodation            - 242,159            -            - 242,159 Balance - October 31, 1998 2,268,022 20,525,660 NIL NIL 22,793,682

   
   

1. Mt. Kare, Papua New Guinea

1. During the year ended October 31, 1996, the Company was granted an option to earn up to a 72.22% interest in an exploration licence covering the Mt. Kare property, located in Papua New Guinea. To fully exercise its option, the Company paid U.S. $320,000 and had to incur exploration expenditures of U.S. $8,000,000 by August 31, 2001.

   Pursuant to the option agreement, the Company had incurred exploration expenditures in excess of U.S. $8,000,000 during the year ended October 31, 1997.

   On March 10, 1998, the Company entered into a joint venture agreement with Matu Mining Pty. Ltd. (Matu), a company incorporated in Papua New Guinea, a wholly owned subsidiary of Carpenter Pacific Resources NL (Carpenter), a company incorporated in New South Wales, Australia, and with Kare-Puga Development Corporation Pty. Ltd. (KDC), a company incorporated in Papua New Guinea. The purpose of the joint venture is to explore the Mt. Kare property and, if deemed warranted, undertake development and production operations. The agreement was effective upon the Company incurring U.S. $8,000,000 in exploration expenditures pursuant to the option agreement described above. The joint venture agreement was approved by the Papua New Guinea government on April 17, 1998.

   The initial percentage interests of the Company and Matu in the Mt. Kare property are 72.22% and 27.78% respectively, subject to 10% held in trust for the landowners at Mt. Kare through KDC. This interest is to be transferred to KDC upon compliance by KDC with certain conditions. KDC was established to administer the terms of the Mt. Kare Landowners Community Trust Deed.

   The venturers acknowledge that their respective percentage interests, including those options held in trust for KDC, are subject to a back-in right of 30% by the government of Papua New Guinea.

   The exploration licence described above expired August 29, 1998 and is subject to renewal for a further two years. An application has been made to extend the term of the license for a further two-year period; however, approval by the government of Papua New Guinea for the extension has not yet been received. Holders of exploration licences retain their title until such determination is made.

2. As at October 31, 1998, the Company has incurred exploration expenditures of $19,479,922.

3. During the year ended October 31, 1998, the Company was advanced monies from Matu to continue exploration of the Mt. Kare property. The Company has billed back to Matu its joint venture share of the exploration expenses incurred during the year, such that $988,914 representing the net amounts advanced by Matu remains outstanding at year end.

2. Belencillo, Panama
1. The Company had an option, granted by a company currently related by directors in common, to acquire a 50% interest in the Belencillo exploration concession located in the Republic of Panama. To earn this interest, the Company paid $250,000, issued 200,000 shares at a value of $459,500, and was to incur exploration and development expenditures of $2,500,000 by August 31, 1998. In addition, the Company must issue an additional 100,000 shares on the commencement of commercial production. As at October 31, 1998, the Company was in default of the option agreement, having only incurred $1,558,522 of exploration expenditures.

2. On January 18, 1999, the Company amended the above mentioned option agreement such that the Company was deemed to have relinquished its right to acquire a 50% interest in the property and, instead, to have acquired a 31.12% interest in the property by virtue of the payments, share issuances, and incurrence of expenditures made to date.

3. Copper Dick, New Mexico

   During the year ended October 31, 1996, the Company acquired through staking certain claims located in New Mexico. As at October 31, 1996, the Company has incurred staking and exploration expenditures of $434,432.

   In addition, the Company issued 60,000 shares at a deemed value of $168,000 as a finder's fee on this property.

   During the year ended October 31, 1997, the Company incurred staking and exploration expenditures of $316,991 prior to allowing the claims to lapse.

4. Aro Grande, Panama

   The Company and a company related by directors in common had each staked a 50% interest in the Aro Grande concessions in the Republic of Panama. As at October 31, 1996, the Company had incurred staking and exploration expenditures of $36,301 prior to abandoning the property.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the year ended October 31, 1998
(expressed in Candian dollars)




4. Capital assets

1998   Cost Accumulated depreciation Net Computer equipment 99,273 28,291 70,982 Furniture and fixtures 34,885 3,363 31,522 Office equipment 25,026 2,976 22,050 Leasehold improvements 72,082            - 72,082                1997   Cost Accumulated depreciation Net Computer equipment 58,648 11,546 47,102 Furniture and fixtures 7,237 1,231 6,006 Office equipment 5,826 1,377 4,449   71,711 14,154 57,577


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the year ended October 31, 1998
(expressed in Candian dollars)




5. Capital stock
1. Changes in issued capital stock during the years ended October 31 were as follows:

1998           1997           1996   Number of Shares Amount Number of shares Amount Number of shares Amount Issued - beginning of year 16,577,900 26,779,932 6,209,925 7,258,380 5,034,767 6,190,128 Issued on the exercise of of special warrants (note 6) - - 7,975,000 15,839,309 - - Issued for cash pursuant to a private placement (b) 5,264,037 9,338,078 - - 706,000 536,560 Issued for cash on the exercise of stock options 330,000 660,000 340,475 210,623 185,000 86,950 Issued for cash on the exercise of warrants 294,000 258,720 2,052,500 3,371,620 - - Issued for resource property - - - - 100,000 265,000 Issued for finder's fees on resource properties (d) 496,632 446,969            -            - 184,158 279,742 Issued - end of year 22,962,569 37,483,699 16,577,900 26,779,932 6,209,925 7,358,380

2. During the year ended October 31, 1998, the Company issued 5,264,037 units at a price of $1.90 per unit, generating proceeds of $9,338,078 (net of $663,592 in commissions and issuance costs). Each unit consists of one common share and one transferable share purchase warrant. Each warrant entitles the purchase of one additional share of the Company at a price of $2.30 until March 2, 1999. After March 2, 1999, if the warrants have not been exercised, they will still entitle the purchase of an additional share of the Company at a price of $2.30 for a further nine-month period; however, two warrants will be required to purchase one additional share. In addition, the Company granted underwriter warrants entitling the underwriter to acquire an additional 526,400 common shares at $3.00 per share until June 2, 1999. At October 31, 1998, all of the share purchase warrants and underwriter warrants were outstanding.
3. During the year ended October 31, 1998, the shareholders approved an incentive share option plan for eligible persons. Under the plan, 3,315,580 shares have been reserved for issuance pursuant to options granted. Total shares reserved for issuance under the plan may be increased from time to time subject to approval by the shareholders.
4. During the year ended October 31, 1998, pursuant to an agreement related to obtaining an option on the Mt. Kare property, the Company issued 496,632 common shares at a deemed value of $0.90 per share to a director of the company pursuant to the assignment of a finder's fee.
5. As at October 31, 1998, outstanding director and employee stock options were as follows:

Number of shares Exercise price Expiry date 186,601 2.00 July 23, 2001 377,500 2.00 August 23, 2001 445,000 2.00 January 2, 2002 100,000 2.00 April 28, 2002 40,000 2.00 May 15, 2002 618,399 2.00 December 18, 2002 50,000 2.00 December 19, 2002 1,000,000 1.90 October 21, 2003

6. During the year ended October 31, 1996, the Company issued 706,000 shares for cash of $536,560 pursuant to a private placement. In addition, the investors received non-transferable warrants to purchase 706,000 shares at $0.76 per share until May 9, 1997 and at $0.88 per share from May 10, 1997 to May 9, 1998. During the year ended October 31, 1997, 412,000 warrants were exercised, with the balance of 294,000 warrants being exercised during the year ended October 31, 1998.
7. During the year ended October 31, 1998, the shareholders adopted a shareholder rights plan (the Plan), creating the potential for substantial dilution of an acquirer's position except with respect to a "permitted bid." The rights issuable to shareholders under the Plan entitle their holders to purchase an additional share, upon the occurrence of certain triggering events, such as the acquisition of 20% or more of the common shares of the Company by an individual or several persons acting in concert in a transaction not approved by the board of directors, to purchase common shares of the Company, other than the acquiring person, at $20 per share (subject to adjustment from time to time as provided by the Plan) The Plan has a 10-year term and expires on March 5, 2008.

   A permitted bid, which is in effect a takeover bid made to all shareholders by way of a takeover bid circular, must remain outstanding for 60 days and is supported by more than 50% of shareholders independent of the bidder. At any time before the rights become exercisable, the board of directors may redeem them at a price of $0.0001 per right.

8. During the year ended October 31, 1998, the board of directors voted to reduce to $2.00 per share the exercise price on 1,312,500 stock options with prices ranging from $3.01 to $6.04 per share.
6. Special warrants

1998                   1997   Number of Warrants Amount Number of Warrants Amount Issued - beginning of year - - 7,975,000 15,839,309 Exchanged for units - - (7,975,000) (15,839,309) Issued - end of year NIL NIL NIL

1. During the year ended October 31, 1996, the Company issued 3,000,000 special warrants for net proceeds of $2,651,533 (net of issue costs of $48,467). Each special warrant was exchangeable at no additional cost into one unit, each unit consisting of one common share and one-half of a non-transferable share purchase warrant. Each whole share purchase warrant entitled the holder to purchase one additional common share at a price of $1.80 on or before August 15, 1997 with respect to the purchase of 1,440,000 shares, or before August 21, 1997 with respect to the purchase of 60,000 shares.

   During the year ended October 31, 1997, all of the special warrants were converted into units and 1,480,000 share purchase warrants were exercised, with 20,000 share purchase warrants expiring unexercised.

   In addition, the agent received a commission of 225,000 special warrants with the same terms as those described above and a warrant expiry date of August 15, 1997. During the year ended October 31, 1997, the agent exchanged the units and 112,500 share purchase warrants were exercised. The remaining units expired unexercised.

2. During the year ended October 31, 1996, the Company issued 4,750,000 special warrants for proceeds of $13,187,776, of which $6,626,250 (net of commissions of $498,750), representing the issuance of 2,375,000 special warrants, was held in escrow. The balance, or proceeds of $6,561,526 (net of commissions and issue costs of $563,474), representing the issuance of 2,375,000 special warrants, was released to the Company. During the year ended October 31, 1997, the funds held in escrow were released to the Company.

   Each special warrant was exchangeable at no additional cost into one unit, each unit consisting of one common share and one-half of a non-transferable share purchase warrant. Each whole warrant entitled the holder to purchase one additional common share at a price of $4.00 on or before April 28, 1998.

   During the year ended October 31, 1997, all of the special warrants were converted into units and 48,000 share purchase warrants were exercised. The balance of 2,327,000 share purchase warrants expired unexercised during the year ended October 31, 1998.

7. Commitments

The Company has lease commitments for the rental of office space as follows:

	$
1999	101,465
2000	33,819

8. Related party transactions
1. The Company incurred the following expenses with directors and a company related by directors in common:

	1998	1997	1996
Consulting fees	66,000	63,000	-
Exploration management and other fees	125,145	70,342	47,242
Legal fees	39,746	51,835	24,677
Administration and accounting fees	-	8,863	7,125
Office and rent	13,450	34,140	600
Debt forgiven	-	-	3,299

2. As at October 31, 1998, accounts payable include $24,830 (1997 – $17,500) due to officers of the Company.
3. As at October 31, 1998, accounts receivable include $5,914 (1997 – $14,825) due from companies related by way of directors in common.
4. As at October 31, 1998, the Company was reimbursed $20,500 for rental of office space from companies related by way of directors in common.
5. Other related party transactions are disclosed elsewhere in these consolidated financial statements.
9. Income taxes

The Company has Canadian non-capital losses of approximately $3,260,000. These losses expire between 1999 and 2005. The tax effect of the loss carryforwards has not been recorded in these consolidated financial statements.

The losses will expire as follows:

	$
1999	29,000
2000	137,000
2001	127,000
2002	70,000
2003	468,000
2004	599,000
2005	1,830,000

10. The effect of applying accounting principals generally accepted in the United States

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (GAAP) in Canada. Significant differences between GAAP in Canada and in the United States that would have an effect on these consolidated financial statements are as follows:

	1998	1997	1996
Loss for the year following Canadian GAAP	(1,850,603)	(1,325,630)	(194,594)
Adjustment for compensation expense (a)	-	274,223	(744,967)
Loss for the year following United States GAAP	(1,850,603)	(1,051,407)	(939,561)
Primary loss per common share following United States GAAP (b)	(0.10)	(0.08)	(0.17)

	1998	1997
Shareholder's equity
Deficit - Canadian GAAP	(7,261,035)	(5,410,432)
Compensation expense (a)	(875,979)	(875,979)
	(8,137,014)	(6,286,411)
Paid-in capital (a)	875,979	875,979
Total stockholder's equity U.S.GAAP	(7,261,035)	(5,410,432)

1. Under U.S. GAAP, shares issued pursuant to an escrow agreement are presumed to be compensatory in nature. Compensation is provided for in accordance with FIN 28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans," whereby the Company records compensation expense for the amount of equity instruments granted to officers and employees. If an equity award is forfeited, the Company adjusts compensation expense recorded in previous periods in the period of forfeiture. Under Canadian GAAP, such escrow shares are not considered compensatory and no provision is required.
2. The adoption of Statement of Financial Accounting Standards (SFAS) No. 128 by the Company has not materially changed the amounts disclosed as basic loss per share. The exercise of options and share purchase warrants would be anti-dilutive.
3. For financial statement disclosure purposes, the Company follows the recommendation of Accounting Principles Board Opinion (APB) 25 in accounting for stock options.
4. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from non-owner sources, and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas, and major customers. Adoption of these statements will not have a significant impact on the Company's consolidated financial position, results of operations or cash flows.

   In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which standardizes the accounting for derivative instruments. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. The Company is currently assessing the impact of SFAS No. 133 on its consolidated financial statements and has not yet determined what, if any, changes will be necessary.

11. Segmented information

The Company's business is the exploration and development of mineral properties. Details of geographic segments are as follows:

1998 1997 1996 Loss for the year - Canada 1,850,603 369,906 194,594 Latin America - 36,301 - Papua New Guinea - - - British Virgin Islands - - - USA            - 919,423            - 1,850,603 1,325,630 194,594 Assets - Canada 15,181,694 19,368,386   Latin America 2,268,022 2,265,125   Papua New Guinea 8,378,750 461,863   British Virgin Islands 6,284,961 -   USA            -            -     32,113,427 22,095,374

12. Uncertainty due to the Year 2000 Issue

The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. The effects of the Year 2000 Issue may be experienced before, on, or after January 1, 2000, and, if not addressed, the impact on operations and financial reporting may range from minor errors to significant systems failure which could affect an entity's ability to conduct normal business operations. It is not possible to be certain that all aspects of the Year 2000 Issue affecting the Company, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved.