FOR AGE ORBIT INC. NOTES TO THE CONSOLID A TED FINANCIAL ST A TEMENTS Y ears ended January 31, 2007 and 2006 1. DESCRIPTION OF THE BUSINES S F orage Orbit Inc. (the ‘‘company’’), incorporated under the Canada Business Corporations A ct, operates mainly a diamond drillin g business and manufactures drilling equipment. The company has operations in Canada and Central and South America. On January 31, 2007, F orages Garant & F r ` eres Inc. acquired all issued and outstanding shares of the company. On F ebruary 1, 2007, the company sold, pursuant to an asset purchase agreement, all assets and liabilities to Garant Bros. Dril ling, a General P artnership. The company was then wound-up into F orages Garant & F r ` eres Inc. 2. BUSINES S ACQUISITION Acquisition of 9053-9271 Qu ? ebec Inc. On March 16, 2006, the company acquired all issued and outstanding shares of 9053-9271 Qu ? ebec Inc., a company manufacturing drilling equipment in Canada. 9053-9271 Qu ? ebec Inc. was wound-up into the company on June 30, 2006. The purchase price of the above transaction was allocated to the net assets acquired on the basis of their estimated fair value s as follows: $ Current assets (including $300 in cash) ..................................................... 259,286 Capital assets ..................................................................... 56,375 Goodwill ........................................................................ 227,480 Current liabilities .................................................................. (43,141) Purchase price .................................................................... 500,000 Goodwill recorded in the amount of $227,480 is not tax deductible. Consideration Cash .......................................................................... 500,000 3. ACCOUNTING POLICIES The financial statements have been prepared in accordance with Canadian generally accepted accounting principles and includes t he following significant accounting policies: P rinciples of consolidation These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include the accounts of the company and its subsidiary, 9116-9300 Qu ? ebec Inc. All significant inter-company balances and transactions have been eliminated upon consolidation. Cash and cash equivalents Cash and cash equivalents include cash and bank overdraft of which the balance often fluctuates between the available cash amou nt and the indebtedness. Inventories The company maintains an inventory of operating supplies, drill rods and drill bits. Inventories are valued at the lower of cos t and replacement cost. Cost is determined on the first-in, first-out basis. Used inventories and inventories on jobs are valued at 5 0% of cost. Investments Investments in companies over which the company exercices significant influence are accounted for using the equity method. The company’s share of income from these companies is presented distinctively in the consolidated statement of earnings. Other inve stments are accounted for at cost. F-33