We have audited the Balance Sheet of Millstream Mines Ltd. as at August 31, 1995 and August 31, 1994 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 elements based on our audit.
We conducted an 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 financial statements present fairly, in all material respects, the financial position of the company as at August 31, 1995, and as at August 31, 1994 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.
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| CURRENT | |||
| Bank |
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| OIL AND GAS INTERESTS (Note 1) |
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| MINING CLAIMS AND DEFERRED EXPLORATION EXPENDITURES (Note 2) |
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| CURRENT: | |||
| Accounts payable |
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| Due to a related party (Note 3) |
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| ISSUED CAPITAL: | |||
| Authorized Issued | |||
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| Discount on common shares |
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| CONTRIBUTED SURPLUS |
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| DEFICIT |
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Approved on behalf of the Board:
| Director | Director |
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| REVENUE: | ||
| 0il and gas sales (net) |
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| EXPENSES: | ||
| Corporate Services |
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| Office and general |
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| Professional fees |
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| Settlement of debt |
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| Shareholder information |
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| Transfer agent fee |
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| Travel |
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| NET LOSS |
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| DEFICIT, beginning of the year |
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| DEFICIT, end of year |
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| LOSS per common share |
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| CASH PROVIDED BY (USED FOR): |
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| OPERATIONS: | ||
| Net loss |
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| Net change in operating working capital |
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| FlNANCING: | ||
| Issued common shares |
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| INVESTMENT: | ||
| Mining claims and deferred exploration |
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| INCREASE (DECREASE) IN CASH |
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| CASH - beginning of year |
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| CASH - end of year |
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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 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-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.
The Company holds a 6.25% interest in three producing wells in Canadian County, Oklahoma, U.S.A. with royalty interests not exceeding 25%. The wells are recorded on the books of the Company at the nominal value of $1 each.
Continued...
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| Red Bluff Claims, Montana, U.S.A. | |||
| Acquisition |
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| Exploration |
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| Ogden and Deloro Townships, Ontario | |||
| Acquisition |
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| Gold properties. Czech Republic | |||
| Acquisition |
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The Company holds 14 unpatented mining claims located In the State of Montana, U.S.A. The vendor reserved an overriding royalty ranging from 2.5% to 6% depending on the average recovered value per ton of ore.
Ogden and Deloro Townships, Ontario
The Company holds 7.5% Interest in a lease on 16 contiguous patented mining claims, subject to a 20% net profits royalty.
Gold properties, Czech Republic
During the year the company acquired a 65% interest in 5 gold properties located In the Czech Republic, formerly part of Czechoslovakia.
3. RELATED PARTY TRANSACTIONS
An officer and shareholder of the Company is also a shareholder of Patrick Harrison Global Investments Limited who, at August 31, 1995, loaned the Company $7,007. The loan is non-interest bearing and has no fixed terms for repayment.
On May 16, 1995, the company reorganized its share capital as follows:
(i) redesignating the issued and unissued common shares of a par value of $1.00 each as common shares without par value:
(ii) Increasing the authorized capital by creating an unlimited number of common shares without par value
During the year, the following securities were issued:
a) Common shares - 9,500,000 shares @ $0.10 each
b) Warrants - 8,000,000 warrants exercisable as follows:
-3,000,000 @ $1.00 for a three year period immediately following their date of Issue
- 3,000,000 @ $1.25 for a four year period immediately following their date of issue
| CASH PROVIDED BY (USED FOR): |
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| Operating Activities: | ||
| Net loss |
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| Increase in accounts payable |
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| Increase in cash |
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| Cash, beginning of period |
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| Cash, end of period |
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| Revenue: | ||
| Income from sale of oil and gas |
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| Expenses: | ||
| Corporate services and accommodation |
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| Transfer agent's fees and expenses |
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| Production |
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| Miscellaneous |
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| Net loss |
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| Net loss per common share |
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| CASH PROVIDED BY (USED FOR): |
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| Operating Activities: | ||
| Net loss |
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| Increase in non-cash components of working capital |
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| Financing Activities: | ||
| Sale of common shares for cash |
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| Common shares to be issued in consideration of flow through exploration expenditures |
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| Investing Activities: | ||
| Deferred exploration expenditures |
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| Increase in cash |
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| Cash, beginning of period |
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| Cash, end of period |
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| Revenue: | ||
| Income from sale of oil and gas |
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| Interest earned |
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| Expenses: | ||
| Shareholders' information |
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| Transfer agent's fees and expenses |
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| Corporate services and accommodation |
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| Production |
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| Miscellaneous |
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| Operating loss |
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| Gain on settlement of accounts payable |
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| Net loss |
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| Net loss per common share |
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LITVACK, ADELMAN
CHARTERED ACCOUNTANTS
Unit 1 46 WEST BEAVER CREEK ROAD
RICHMOND HILL, ONT., CANADA LAB 1C2
TELEPHONE: 905-731-1353 FAX: 905-731-4240