MILLSTREAM MINES LTD.

FINANCIAL STATEMENTS
 
 

AUGUST 31,1998


 



 
 
 
 
 

 
LITVACK, ADELMAN

CHARTERED ACCOUNTANTS

UNIT 1

146 WEST BEAVER CREEK ROAD

RICHMOND HILL, ONT., CANADA L4B 1C2
 
 

TELEPHONE: 905-731-1353 FAX: 905-731-4240


 








Harry Litvack, C.A.

Richard Adelman, C.A.
 
 






AUDITORS REPORT


 



 
 
 
 
 

To the Shareholders of

Millstream Mines Ltd.

 We have audited the Balance Sheet of Millstream Mines Ltd. as at August31, 1998 and August 31, 1997 and the Statements of Income and Deficit and Changes in Financial 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 an audit in accordance with generally accepted auditing standards. Those standards require that we plan end 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 financial statements present fairly, in all material respects, the financial position of the company as at August 31,1998, and as at August 31,1997 and the results of its operations and the changes in its financial position for the years then ended in accordance with generally accepted accounting principles.

 December 21, 1998 Chartered Accountants
 
 






MILLSTREAM MINES LTD.

(INCORPORATED UNDER THE LAWS OF THE PROVINCE OF NEW BRUNSWICK)

BALANCE SHEET

AS AT AUGUST 31,1998


 



 
 
 
 
 

ASSETS
1998
1997
CURRENT    
Bank
$ 5,462
$ 2,824
GST receivable
91,380
  
 
96,842
28,431
OIL AND GAS INTERESTS (Note 1)
1
2
MINING CLAIMS AND DEFERRED EXPLORATION EXPENDITURES (Note 2)
5,306,417
3,803,196
 
5,306,418
3,803,198
 
$ 5,403,260
$ 3,831,629
LIABILITIES    
CURRENT    
Accounts payable and accrued liabilities
$ 12,531
$ 2,774
Due to related parties (Note 3)
1,241,639
1,139,574
Loans payable
___-____
110,000
 
1,254,170
1,252,348
LONG TERM    
Due to related parties (Note 3)
819,763
819,763
 
2.073.933
2,072,111
SHAREHOLDERS' DEFICIENCY    
ISSUED CAPITAL    
Authorized Issued    
Unlimited 22,801,839 Common shares (Note 4)
5,668,576
2,954,815
CONTRIBUTED SURPLUS
123,928
123,928
DEFICIT
(2,463,177)
(1,319,225)
 
3,329,327
1,759,518
 
$ 5,403,260
$ 3,831,629
     
Approved on behalf of the Board:
 
 
  ______Ernest Harrison_________                     _______Marty Martinello______________

Director                                                                         Director
 
 






SEE ACCOMPANYING NOTES
 
 
 
 
 
 

L1TVACK, ADELMAN

CHARTERED ACCOUNTANTS
 
 
 
 

MILLSTREAM MINES LTD.

STATEMENT OF INCOME AND DEFICIT

FOR THE YEAR ENDED AUGUST 31,1998


 



 
 
 

REVENUE
1998
1997
Oil and gas sales (net)
$1,376
$1,546
Interest earned
9
260
 
1,385
1,806
EXPENSES    
Commissions
223,369
-
Corporate services
7,200
7,200
Office and general
3,876
41,100
Operating expenses
569
-
Professional fees
13,343
4,810
Shareholder information
249,430
48,698
Transfer agent fee
8,505
6,812
 
506.092
108,620
LOSS BEFORE DISCONTINUED OPERATIONS
(504,707)
(108,814)
NET LOSS FROM DISCONTINUED OPERATIONS (Note 2a),b))
(639.245)
-
NET LOSS
(1,143,952)
(106,814)
DEFICIT, beginning of year
(1.319,225)
(1,212,411)
DEFICIT, end of year
$(2,463,177)
$(1,319,225)
LOSS per common share
$ .05
$. 01
Fully diluted earnings per share (Note 6)    

 

SEE ACCOMPANYING NOTES
 
 
 
 

MILLSTREAM MINES LTD.

STATEMENT OF CHANGES IN FINANCIAL POSITION

FOR THE YEAR ENDED AUGUST 31,1998


 



 

 
1998
1997
CASH PROVIDED BY (USED FOR)    
OPERATIONS    
Net loss
$ (1,143,952)
$ (106,814)
Net change in operating working capital
(63,950)
266,565
 
(1,207,902)
159,751
FINANCING    
Issued common shares
2,713,761
575,250
INVESTMENT    
Mining claims and deferred exploration
(1,503,221)
(843,197)
INCREASE (DECREASE) IN CASH
2,638
(108,196)
CASH - beginning of year
2,824
111,020
CASH - end of year
$ 5,462
$2,824

 

SEE ACCOMPANYING NOTES
 
 
 
 

MILLSTREAM MINES LTD.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED AUGUST 31, 1998


 






SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 

Nature of Operations  
The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern which presumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business.

The Company is in the process of exploring its resource properties and has not yet determined whether the properties contain economically recoverable reserves. The recovery of the amounts shown for resource properties and the related deferred expenditures is dependent upon the existence of economically recoverable reserves, confirmation of the Company's interest in the underlying mining claims, the ability of the Company to obtain necessary financing to complete the development, upon future profitable production and the support of the Company's trade creditors.

The financial statements do not give effect to any adjustments to the amount of assets and liabilities that might be necessary should the Company be unable to continue as a going concern and therefore, be required to realize its assets and discharge its liabilities in other than the ordinary course of business.

  Mining Claims
 
  Mining claims are carried at cost until they are brought into production at which time they are depleted on a unit-of-production basis.   Exploration expenditures relating to mining claims are deferred until the properties are brought into production at which time they are amortized on a unit-of-production basis.   The cost of claims abandoned or sold and the deferred exploration costs relating to claims abandoned or sold are charged to operations in the current year.   Administrative Expenses

Administrative expenses are charged to operations in the year incurred.

Oil and Gas Interests

The Company follows the successful efforts method of accounting for oil and gas interests whereby all costs relating to the acquisition, exploration and development of petroleum and natural gas reserves are capitalized until their economic status has been evaluated. All costs of successful wells are amortized over their useful lives. 1. OIL AND GAS INTERESTS

The Company holds a 6.25% interest in a producing well in Canadian County, Oklahoma, U.S.A. with royalty interests not exceeding 25%. The well is recorded on the hooks of the Company at the nominal value of $1.


MILLSTREAM MINES LTD.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED AUGUST 31, 1998


 



 
 
 
 
 

  1. MINING CLAIMS AND DEFERRED EXPLORATION EXPENDITURES
 
Opening
Additions
Deletions
Closing
a) Red Bluff Claims, Montana, U.S.A.        
Acquisition $ 133,171 $ -
$(133,171)
 $ -
Exploration
506,848
-
(506,848)
-
b) Ogden and Deloro Townships, Ontario        
Acquisition
1
-
(1)
-
c) Gold properties, Czech Republic        
Acquisition
800,000
-
-
800,000
Exploration
1,581,092
    
1,581,092
d) Potter Mine, Ontario        
Acquisition (i)
-
50,000
-
50,000
Exploration
782,085
1,689,893
  
2,471,978
e) Falconbridge Twp. Airport Property        
Exploration
-
139,011
-
139,011
I)Tamarack, Montana        
Acquisition
-
231,088
-
231,088
Exploration _____-______
33,248
 ____-____
33,248
 
$ 3,803,197
$ 2,143,240
 $(640,020) $5,306,417
a) Red Bluff Claims, Montana, U.S.A. During the year the company abandoned these claims.
  b) Ogden and Deloro Townships, Ontario   The company held a 7.5% interest in a lease on 16 contiguous patented mining claims, subject to a 20% net profits royalty. These claims were abandoned during the year.   c) Gold properties, Czech Republic The company holds a 65% interest in 5 gold properties located in the Czech Republic, formerly part of Czechoslovakia.   d) Potter Mine, Ontario On April 3, 1998 the company purchased subject to requisite approval a 100% interest in the Potter Mine Property for $4,600,000. An officer and shareholder of the company has a declared minority 10% interest in the vending corporation, Harrison Mining & Engineering Corporation Payment was effected by an intention to make a cash payment of $3,000,000 and a $1,600,000 promissory note due to the vending corporation. The vendor retains a 2.5% net smelter return royalty which the company may purchase at any time for $3,000,000. Payment from the vendor for Warrants held to purchase from the company 3,000,000 common shares @ $1 per share was effected by an intention to make a cash payment of $3,000,000. These transactions are being held in escrow until presented to the company shareholders for approval at a future special shareholders meeting.  

(i) Additionally, 100,000 common shares were issued to a third party to vacate any interest in the Potter Mine Property for $50,000.

 e) Falconbridge Twp. Airport Property On September 23, 1997 the company entered into ~n agreement to purchase a 50% interest in the Falconbridge Twp. Airport Property located in Ontario. The property consists of 46 mining claims, The acquisition price of $60,000 is not due until March 31,2000. The company has agreed to: a) pay a 2.5% royalty on all production from this property,   b) fund exploration expenditures of $550,000 by March 31, 2000 and thereafter on a 50/50 basis, and   c) to pay an advance royalty to the other 50% owner of $40,000 per year to a maximum $400,000 or until a production decision is taken, whichever comes first, commencing April 1, 2000.
MILLSTREAM MINES LTD.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED AUGUST 31, 1998


 



 
 
 
 
 

2. MINING CLAIMS AND DEFERRED EXPLORATION EXPENDITURES (continued)

 f) Tamarack, Montana

 
Pursuant to a Memorandum of Understanding dated April 19, 1998, the company acquired a 50.6% undivided interest in the Tamarack property for $161,500 US ($231,088 Cdn). The company has agreed to supply further funding for planned exploration and shall be entitled to 80% of all revenues until funding provided by the company has been recaptured and 50.5% thereafter.


3. RELATED PARTY TRANSACTIONS

An officer and shareholder of the Company is also a shareholder of The Harrison Group of Companies.

                         The Harrison Group of Companies                                        $ 786,639

                        Harrison Mining & Engineering Corp.                                   $ 1,274,763

                                a) Less: short term portion                                                455,000

                                            b) Long term portion                                                                         $ 819,763
 
 

a) This loan is non-interest bearing and due on demand.

b) This loan is interest free until, and Is due, September 1,1999 or one year after production of the Czech Gold Project, whichever occurs first.

 The following related party transaction occurred during the year: - deferred exploration provided by one of The Harrison Group of Companies amounted to $1 ,870,326. 4. COMMON SHARES

During the year:

1) 5,723,200 units were issued for a total of $2,192,120. Each unit is comprised of one (1) common share and one (1) common share purchase warrant.

2) 753,714 common shares were issued for a total of $456,641.

3) 40,000 share options under the company's stock option plan were issued at $0.40 per share for a total of $16,000

4) 80,000 share options under the company's stock option plan were issued at $0.30 per share for a total of $24,000

5) 100,000 share options under the company's stock option plan were issued at $0.13 per share for a total of $13,000

6) 40,000 share options were exercised at $0.30 each for a total of $12,000


Warrants outstanding at August 31, 1998 are as follows:

 
- 3,000,000 @ $1.25 expiring April 1999                     -600,000 @ $0.30 expiring October 2002 -450,000 @ $0.57 expiring December 1998

-730,000 @ $0.75 expiring December 1998

-1,606,600 @ $0.53 expiring December 1998


Options outstanding at August 3191998 are as follows:

                     - 131,495 @ $0.30 expiring December 2002

                    - 902,500 @ $0.30 expiring August 2002

                    - 100,000 @ $0.40 expiring May 2003

                    -150,000 @ $0.40 expiring November 1999

                    -189,390 @ $0.70 set aside but not yet issued

- 50,000 @ $0.40 allotted but not yet issued
 
 
 
 
MILLSTREAM MINES LTD.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED AUGUST 31, 1998


 



 

  5. SUBSEQUENT EVENTS   On September 4, 1998, 1,000,000 options $0.25 were set aside but not yet allotted.   6. FULLY DILUTED EARNINGS PER SHARE  
Fully diluted earnings per share have not been reported, as required by generally accepted accounting principles, for the fiscal years ended August31, 1998 and 1997 because the calculation would result in a decrease in loss per share.
 
L1TVACK, ADELMAN

CHARTERED ACCOUNTANTS