To the Shareholders of Borealis Exploration Limited:
We have audited the consolidated balance sheets of Borealis Exploration Limited as at March 31, 1997 and 1996 and the consolidated statements of loss and deficit, contributed surplus and changes in cash position 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 audit.
We conducted our audit in accordance with 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 March 31, 1997 and 1996 and the results of
its operations and the changes in its cash position for the years
then ended in accordance with generally accepted accounting principles.
August 7, 1997
|$ 13,632||$ -|
|Bank indebtedness||$ --||$ 410|
|Accounts payable (Note 6)||2,652,160||2,692,058|
|Deposits on share issue (Note 7)||939,959|
|Loans payable (Note 8)||57,736||419,047|
|Due to shareholders||755,076||1,145,251|
|Royalty payable (Note 9)||2,595,300||2,547,871|
|Contingencies (Note 10)|
|Subsequent event (Note 13)|
|Share capital (Note 11)||24,886,715||23,000,531|
|$ 5,406,258||$ 5,364,601|
Approved by the Board:
|Contributed surplus, beginning of year||$4,786,726||$4,881,660|
|Decrease arising on the disposition of nil (1996 - 23,917) shares held by subsidiaries at proceeds less than the average paid-up capital||-||(94,934)|
|Contributed surplus, end of year||$4,786,726||$4,786,726|
|Salaries and fees for services||$2,034,129||$1,040,984|
|Office, travel and miscellaneous||301,453||238,365|
|Legal and accounting||158,167||49,071|
|Foreign exchange loss (gain)||(71,513)||50,499|
|Write-down of mineral properties||--||2,825,967|
|Gain on settlement of debts||443,785||227,978|
|Foreign exchange gain (loss) on royalty payable||(47,429)||75,081|
|Deficit, beginning of year||(29,227,293)||(25,246,771)|
|Deficit, end of year||$ (31,267,414)||$ (29,227,293)|
|Basic loss per share||$ (0.54)||$ (1.24)|
|Items not involving cash|
|Write-down of mineral properties||--||2,825,967|
|Foreign exchange (gain) loss on royalty payable||47,429||(75,081)|
|Changes in non-cash working capital balances|
|Proceeds on issuance of shares and options||1,886,184||--|
|Deposits on share issue||939,959||--|
|Advances (to) from shareholders||(390,175)||477,851|
|Reductions of loans payable||(361,311)||(11,499)|
|Proceeds from sale of shares of Borealis Exploration Limited||--||75,833|
|Proceeds on disposal of marketable securities||--||3,640|
|Additions to royalty payable||--||3,125|
|Deferred exploration and development costs||(38,691)||(41,608)|
|Increase (decrease) in cash||14,042||(3,753)|
|Cash (bank indebtedness), beginning of year||(410)||3,343|
|Cash (bank indebtedness), end of year||$13,632||$(410)|
1. Nature of Operations
The Company has changed its focus from developing its mining properties
to conducting research in several technological areas for which
it has patents issued or pending. The Company intends on retaining
its remaining mining properties for future development.
Substantially all of the Company's expenses relate to its research
2. Continued Operations
These consolidated financial statements have been prepared in
accordance with generally accepted accounting principles with
the assumption that the Company will be able to realize its assets
and discharge its liabilities in the normal course of business
rather than through a process of forced liquidation. As of March
31, 1997, the Company had a deficit of $31,267,414 (1996
$29,227,293) and a working capital deficiency of $4,391,299 (1996
$4,256,766). The operations of the Company were primarily
funded by increased accounts payable and loans from shareholders.
The continued operation of the Company is dependent on its ability
to receive continued financial support from shareholders, complete
sufficient equity financing or generate profitable operations
in the future.
3. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Borealis Exploration Limited and its subsidiaries, Borealis Exploration Incorporated, Borealis Gold Limited, Borealis Technical Incorporated Limited, Borealis Cool Manufacturing Limited and Borealis Power Manufacturing Limited.
The Company is in the exploration stage with respect to its mineral
properties and accordingly follows the practice of capitalizing
all costs related to exploration projects, until such time as
the projects are put into commercial production, sold, abandoned
or management determines that a writedown to net realizable
value is required. If commercial production commences, these capitalized
costs will be amortized on a unitofproduction basis.
Exploration costs renounced due to "flowthrough"
share subscription agreements remain capitalized, however, for
income tax purposes, the Company has no right to these expenses
nor the related depletion allowance. Under Canadian income tax
legislation, the Company has previously entered into share subscription
agreements for "flowthrough" shares whereby the
Company agreed to incur a certain dollar amount of qualifying
Canadian exploration costs and renounced these costs to the shareholders.
Property examination costs that do not result in the successful acquisition of an interest in or an agreement on a mineral property are expensed in the year incurred.
3. Significant Accounting Policies (continued)
Valuation of Mineral Properties
Mineral properties are valued at the lower of cost and net recoverable
The values for the mineral properties represent costs to date
net of any writedowns and are not intended to reflect present
or future values.
Capital assets are amortized using the declining balance method
at the following rates:
Mining and geological equipment 30%
Other equipment 20%
Patents are amortized on the straightline method at a rate
of 4% per year.
Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange in effect at the balance sheet date. Other assets, liabilities, and items affecting earnings are translated into Canadian dollars at rates of exchange in effect at the date of the transaction. Gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the year.
Research and Development Costs
The Company is incurring costs related to research and development
of new technologies. These costs are expensed as incurred.
4. Mineral Properties
|Roche Bay Magnetite Project|
|Beginning of year||$4,635,017||$4,582,622|
|Additions during year||28,025||52,395|
|End of year||4,663,042||4,635,017|
|Freuchen Bay Property|
|Beginning of year||729,584||729,584|
|Net change during year||--||--|
|End of year||729,584||729,584|
|Fat Lake Property|
|Beginning of year||--||2,351,933|
|Write-down during year||--||(2,351,933)|
|End of year||--||--|
|Beginning of year||--||384,513|
|Write-down during year||--||(384,513)|
|End of year||--||--|
|Beginning of year||--||102,622|
|Write-down during year||--||(102,622)|
|End of year||--||--|
Roche Bay Magnetite Project
In 1968, the Company acquired mineral rights, by permit, which
have been converted to a 100% interest in various mineral leases
and claims located near Roche Bay. These leases expire in 1998
and 2000. The Company is in the process of renewing the leases
for another 21 year period.
The leases and claims are located in the Baffin Mining District
of the Northwest Territories.
By agreement dated March 1, 1979, the Company granted a royalty
interest to a corporation based on 5% of the crown royalty interest
on 10,973 acres of mining leases currently held by the Company.
On March 6, 1979, the Company granted two royalties both based on 18.75% of the crown royalty. One of the royalty agreements was repurchased on September 26, 1984.
4. Mineral Properties (continued)
Freuchen Bay Property
In 1989, the Company acquired permits in the Freuchen Bay Area
of the Keewatin Mining District of the Northwest Territories.
Claims were staked on these permits in 1992. The Company retains
a 100% interest in the FB 1 through FB 6 claims. The claims expire
On July 24, 1995, the Attorney General of Canada filed a Notice
of Seizure of Goods relating to these mineral properties due to
the Company's failure to pay $150,000 in fines and penalties related
to the Company's failure to clean up the Fat Lake mine site. Approximately
$108,000 of the fine has been paid to date, and the remaining
fine and an estimate of the clean up costs of $25,811 have been
recorded as liabilities in these financial statements. The Company
has made arrangements to complete payment of the fine and ensure
the site is cleaned up. When this has been completed the Seizure
Notice will be lifted.
5. Mining and Other Equipment
|Mining and geological equipment||$ 613,330||$ 599,341||$ 613,330||$ 594,334|
|$ 1,101,986||$ 964,725||$ 1,070,175||$ 937,890|
The net book value of mining and other equipment is included with
the respective mineral properties in the financial statements.
6. Accounts Payable
In 1992, the Company issued 112,199 shares to some creditors in
an attempt to settle debts. Certain creditors refused to accept
the shares as full settlement of their outstanding accounts and
returned the shares to the Company. The Company then held the
shares until the market price reached a point where the creditors
would accept them in full payment of the outstanding amount.
At March 31, 1997, 10,200 shares related to outstanding accounts
payable of $22,950 have not been accepted by creditors.
7. Deposits on Share Issue
During the year, the company received deposits for the issue of
shares of its wholly owned subsidiaries Borealis Cool Manufacturing
Limited and Borealis Power Manufacturing Limited. The deposits
represent purchase of approximately 14% of each company. These
shares have not been issued.
8. Loans Payable
The loans are unsecured and bear interest at 3%.
9. Royalty Payable
In 1993, the Company renegotiated its loan with Mr. G. Gillet,
which had been assigned to Boston Safe Deposit & Trust Company.
Under the terms of the agreement with Boston Safe Deposit &
Trust Company the loan was converted into 10,000 common shares
of Borealis Exploration Limited and a $1,875,000 U.S. royalty.
The royalty is to be paid from 25% of the net proceeds from the
lease, sale or other disposition, or production on or from its
real property. As security for payment of the Royalty the Company
gave an assignment of all receivables derived from its real property.
To date, $2,625 U.S. has been paid to Boston Safe Deposit &
Trust Company. In 1995, Boston Safe Deposit & Trust Company
assigned its interest to its nominee Mitlock Limited Partnership.
Certain creditors have initiated legal proceedings to receive
payment for amounts which have been recorded in these financial
statements. In conjunction with this action, the creditors have
had liens registered against certain of the Company's mineral
In 1996, statements of claim were filed by the Attorney General of Canada, the Kilvalliq Inuit Association and the Baffin Region Inuit Associational for failure to clean up sites in Fat Lake, Roche Bay and near
Naguak Lake. At the present time, the result of these claims and
any potential cost to the Company is not determined and no liability
for this has been recorded in these financial statements.
11. Share Capital
5,000,000 common shares without par value
|Number of Shares||Amount||Number of Shares||Amount|
|Balance, beginning of year||3,232,498||$23,084,059||3,232,498||$23,084,059|
|Issued during the year|
|- Shares issued during the year||915,847||2,261,932||--||--|
|- Shares cancelled during the year||(133,692)||(375,748)||--||--|
|Less - Shares held by the Company||4,014,653||24,970,243||3,232,498||23,084,059|
|Balance, end of year||(17,395)||(83,528)||(17,395)||(83,528)|
As at March 31, 1997, Borealis Gold Limited owned 16,895 shares (1996 16,895 shares) of Borealis Exploration Limited and Borealis Exploration Limited owned 500 shares (1996 500 shares) of itself.
By authorization of the Company, the president, at his sole discretion,
can authorize the issue of up to 12,000 shares in aggregate per
annum to any individual as compensation for work done for or on
behalf of the Company.
The Company has granted options expiring March 29, 2002 to a director
and an officer to acquire a total of 200,000 shares of the Company
for a price of $5.00 per share.
12. Related Party Transactions
During the year ended March 31, 1997:
Management fees totalling $234,144 (1996 $218,110) have
been paid to a Partnership controlled by the President of the
Travel, promotion, rent, and other expenses totalling $109,653
(1996 $108,850) have been reimbursed to the President and
a Partnership controlled by the President of the Company.
13. Subsequent Event
On June 25, 1997, the Company issued 429,726 common shares totalling
$1,289,178 as payment to various creditors. Included in this issue,
were 225,000 shares issued to officers in payment for services
for $675,000. These shares plus another 30,000, to total 255,000
shares, are to be held in trust for one year before being delivered
to the officers and creditors.
14. Fair Value Disclosure
The fair value of all the Company's financial assets and liabilities approximates their carrying value.