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 woundup into F orages Garant F r eres Inc 2 BUSINES S ACQUISITION Acquisition of 90539271 Qu ebec Inc On March 16 2006 the company acquired all issued and outstanding shares of 90539271 Qu ebec Inc a company manufacturing drilling equipment in Canada 90539271 Qu ebec Inc was woundup 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 259286 Capital assets 56375 Goodwill 227480 Current liabilities 43141 Purchase price 500000 Goodwill recorded in the amount of 227480 is not tax deductible Consideration Cash 500000 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 91169300 Qu ebec Inc All significant intercompany 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 firstin firstout 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 companys share of income from these companies is presented distinctively in the consolidated statement of earnings Other inve stments are accounted for at cost F33