PRIME AIR, INC.
(A Development Stage Company)
(A Nevada Corporation)
Consolidated Financial Statements
December 31, 1997 and 1996
Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity and Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Rutherford & Company
Chartered Accountants
________________________________________________
9511 Bates Road, Richmond, B.C.
CANADA V7A 1E3
Telephone (604)272-5454 Fax (604)272-5874
AUDITORS' REPORT
To the Shareholders of
Prime Air, Inc. (A Nevada Corporation)
We have audited the consolidated balance sheets of Prime Air, Inc. (A
Development Stage Company) as at December 31, 1997 and 1996 and the
consolidated statements of operations, shareholders' equity and deficit and
cash flows 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 audits.
We have conducted our audits 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 December 31, 1997 and
1996 and the results of its operations and cash flows for the years then ended
in accordance with generally accepted accounting principles.
As reported in Note 1 to these financial statements, the results of
operations and cash flows for the period from the date of inception of this
organization as a development stage company on March 10, 1989 to December 31,
1997 have been compiled from information provided by management. We have not
audited, reviewed or otherwise attempted to verify the accuracy or
completeness of such information. Readers are cautioned that these statements
may not be appropriate for their purposes.
Richmond, Canada
April 4, 1998 Chartered
Accountants
Rutherford & Company
Chartered Accountants
________________________________________________
9511 Bates Road, Richmond, B.C.
CANADA V7A 1E3
Telephone (604)272-5454 Fax (604)272-5874
<PAGE>
Comments by Auditor for U.S. Readers
on Canada-U.S. Reporting Difference
In the United States, reporting standards for auditors require the
addition of an explanatory paragraph (following the opinion paragraph) when
the financial statements are affected by conditions and events that cast
substantial doubt on the company's ability to continue as a going concern,
such as those described in Note 2 to the financial statements. Our report to
the shareholders dated April 4, 1998 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such events and
conditions in the auditors' report when these are adequately disclosed in the
financial statements.
Richmond, Canada
April 4, 1998 Chartered Accountants
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(all figures in US dollars)
December 31 December 31
1997 1996
ASSETS
Current Assets
Cash and short-term
deposits $ 11,388 $ 101,314
Prepaid expenses
and deposit - 12,592
GST recoverable 1,587 51,208
12,975 165,114
Capital Assets (Note 4) 613,516 620,208
$ 626,491 $ 785,322
LIABILITIES
Current Liabilities
Accounts payable
and accruals $ 83,655 $ 158,174
Notes and advances
payable (Note 5) 3,495 9,067
Notes and advances
from related parties
(Note 6) 5,400 25,522
92,550 192,763
SHAREHOLDERS' EQUITY
Capital Stock (Note 7)
Authorized:
50,000,000 common shares with
a stated par value of $.001/share
3,000,000 preferred cumulative
convertible shares with a stated
par value of $.001/share
Issued:
7,140,213 common shares
(1996: 6,556,781) 7,140 6,557
Share subscription receivable (20) (20)
Capital in excess of par value 1,355,740 1,225,244
1,362,860 1,231,781
Accumulated Deficit During
Development Stage (828,919) (639,222)
533,941 592,559
$ 626,491 $ 785,322
Approved on Behalf of the Board:
Director
Director
See Accompanying Notes
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(all figures in US dollars)
Period from
Date of Inception
Year Ended Year Ended on March 10, 1989
December 31 December 31 to December 31
1997 1996 1997
(Unaudited)
(Note 1)
Direct Costs
Flight operations $ - $ 114,720 $ 114,720
Administrative and
General
Audit and accounting 23,826 10,140 50,199
Advertising - 9,017 9,094
Amortization 21,603 21,809 43,718
Automotive - - 19,164
Consulting fees 24,583 7,156 94,368
Insurance 9,240 6,342 15,582
Interest and service
charges 1,769 7,547 9,565
Legal 34,192 25,610 59,802
Management
remuneration - - 77,287
Office and general 10,176 5,728 85,253
Promotion and
entertainment 711 2,702 22,004
Rent 279 2,399 34,603
Telephone and utilities 18,039 14,865 55,561
Transfer agent and
filing fees 13,636 7,149 24,865
Travel 25,464 11,172 55,879
183,518 131,636 656,944
Other Income (Expense)
Gain (loss) on foreign
exchange conversion (10,199) 5,581 14,890
Interest income 4,020 2,359 6,379
(6,179) 7,940 21,269
Net Loss Before
Non-recurring Item (189,697) (238,416) (750,395)
Non-recurring Expense
Consulting costs to
set up US corporation - - (78,524)
Net Loss For Period $ (189,697) $ (238,416) $ (828,919)
Net Loss Per Common
Share $ (0.0275) $ (0.0424)
Weighted Average
Common Shares
Outstanding 6,896,225 5,624,974
See Accompanying Notes
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all figures in US dollars)
Period from
Date of Inception
Year ended Year ended on March 10, 1989
December 31 December 31 to December 31
1997 1996 1997
(Unaudited)
(Note 1)
NET INFLOW (OUTFLOW) OF
CASH RELATED TO THE
FOLLOWING ACTIVITIES:
OPERATING
Net loss $ (189,697) $ (238,416) $ (828,919)
Non-cash charge -
amortization 21,603 21,809 43,721
(168,094) (216,607) (785,198)
Change in non-cash
working capital
balances relating
to operations (12,306) (118,373) 82,068
(180,400) (334,980) (703,130)
FINANCING
Notes and advances
payable (5,572) 5,425 3,495
Notes and advances
from related parties (20,122) (2,822) 5,400
Issue of capital stock 131,079 756,763 1,362,860
105,385 759,366 1,371,755
INVESTING
Acquisition of capital
assets (14,911) (327,647) (657,237)
NET CASH INFLOW (OUTFLOW) (89,926) 96,739 11,388
CASH, BEGINNING OF PERIOD 101,314 4,575 -
CASH, END OF PERIOD $ 11,388 $ 101,314 $ 11,388
See Accompanying Notes
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity and Deficit
(all figures in US dollars)
Capital in Accumulated
Excess of Share Deficit During
Common Shares (Less than) Subscriptions Development
Shares Amount Par Value Receivable Stage
Balance at
Inception on
March 10,
1989 - $ - $ - $ - $ -
Issue of
common
shares for
cash at
$.001/share 630,237 630 - - -
Net loss
for the year
ended
March 31,
1990 - - - - (17,956)
Balance,
March 31,
1990 630,237 630 - - (17,956)
Issue of
common
shares for
cash at
$.001/share 157,559 158 - - -
Net loss
for the
year ended
March 31,
1991 - - - - (49,419)
Balance,
March 31,
1991 787,796 788 - - (67,375)
Net loss
for the
year ended
March 31,
1992 - - - - (10,990)
Balance,
March 31,
1992 787,796 788 - - (78,365)
Issue of
common
shares for
cash at
$.277/share 132,088 132 36,499 - -
at
$.214/share 17,069 17 3,628 - -
Net loss
for the
year ended
March 31,
1993 - - - - (38,426)
Balance,
March 31,
1993 936,953 937 40,127 - (116,791)
Issue of
common
shares
for services
at nominal
value 92,173 92 (92) - -
Issue of
common
shares for
cash
at
$.001/share 300,000 300 - - -
at
$.109/share 3,340 3 361 - -
at
$.154/share 23,634 24 3,619 - -
at
$.280/share 19,401 19 5,400 - -
at
$.330/share 23,161 23 7,624 - -
at
$.463/share 87,445 88 40,330 - -
at
$.694/share 15,756 16 10,907 - -
at
$.925/share 7,878 8 7,274 - -
Net loss
for the
year ended
March 31,
1994 - - - - (36,272)
Balance,
March 31,
1994 1,509,741 $ 1,510 $ 115,550 $ - $ (153,063)
See Accompanying Notes
<PAGE>
PRIME AIR INC.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity and Deficit
(all figures in US dollars)
Capital in Accumulated
Excess of Share Deficit During
Common Shares (Less than) Subscriptions Development
Shares Amount Par Value Receivable Stage
Balance
Forward 1,509,741 $ 1,510 $ 115,550 $ - $ (153,063)
Issue of
common
shares for
services
at nominal
value 937,478 937 (937) - -
Issue of
common
shares for
cash at
$.374/share 248,692 249 92,697 - -
at
$.463/share 304,089 304 140,286 - -
Net loss
for the
period
ended
June 28,
1994 - - - - (40,947)
Balance,
June 28,
1994 3,000,000 3,000 347,596 - (194,010)
Share
subscription
at
$.367/share - - (7,313) (20) -
Net loss
for the
year ended
December 31,
1994 - - - - (135,530)
Balance,
December 31,
1994 3,000,000 3,000 340,283 (20) (329,540)
Issue of
common
shares for
cash
and/or
services at
an average
of
$.234/share 562,550 563 131,192 - -
Net loss
for the
period
ended
December 31,
1995 - - - - (71,266)
Balance,
December 31,
1995 3,562,550 3,563 471,475 (20) (400,806)
Issue of
common
shares for
cash
at
$.500/share 1,510,558 1,511 753,769 - -
Issue of
common
shares for
services
at nominal
value 1,483,673 1,483 - - -
Net loss
for the
period
ended
December 31,
1996 - - - - (238,416)
Balance,
December 31,
1996 6,556,781 6,557 1,225,244 (20) (639,222)
Issue of
common
shares for
services
at nominal
value 328,000 328 - - -
Issue of
common
shares for
debt
settlements:
at
$.500/share 124,252 124 62,001 - -
at
$.504/share 36,380 36 18,303 - -
at
$.530/share 94,800 95 50,192 - -
Net loss
for the
year
ended
December 31,
1997 - - - - (189,697)
Balance,
December 31,
1997 7,140,213 $ 7,140 $ 1,355,740 $ (20) $ (828,919)
See Accompanying Notes
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. Incorporation, Principles of Consolidation and Accounting
Presentation
The Company was incorporated under the laws of the State of Nevada, USA on
November 10, 1996, the purpose of which was to change the domicile of the
Company from the State of Delaware to the State of Nevada. This change was
approved by the shareholders of both corporations on November 26, 1997 and
effected through a "plan and agreement of merger", with the surviving
corporation being Prime Air, Inc. (Nevada). The articles of merger were filed
with the appropriate State authorities on December 15, 1997, which date became
the effective date of the merger.
The Delaware corporation was incorporated on April 4, 1996 and acquired all of
the assets, liabilities and shareholders of a previous Utah corporation of the
same name. The Utah corporation had been reincorporated on August 30, 1993 as
Astro Enterprises, Inc.and on June 28, 1994, pursuant to appropriate
shareholder agreements, acquired all outstanding shares of Prime Air Inc. (a
Canadian corporation) in exchange for shares of its capital stock on a .787796
to 1 basis, thereby providing the shareholders of Prime Air Inc. with 90% of
the outstanding capital stock of Astro Enterprises, Inc. Astro Enterprises,
Inc. then changed its name to Prime Air, Inc. Following incorporation of the
Delaware company, the Utah corporation was dissolved on May 15, 1996.
These consolidated financial statements include the accounts of the Company
and its wholly-owned operating subsidiary, Prime Air Inc. (the Canadian
corporation) and have been prepared in accordance with U.S. GAAP standards.
The results of operations and cash flows for the period from the date of
inception of this organization as a development stage company on March 10,
1989 to December 31, 1997 are presented herein for information purposes only.
These amounts are unaudited and accordingly no audit opinion has been
expressed thereon.
1. Nature of Operations / Going Concern Considerations
The Company is presently in its developmental stage and currently has minimal
sources of revenue to provide incoming cash flows to sustain future
operations. The Company's present activities relate to the construction and
ultimate exclusive operation of an international passenger and cargo air
terminal facility in the Village of Pemberton, British Columbia and the
operation of scheduled flight services between that facility and certain major
centers in Canada and the United States in conjunction with Voyageur Airways
Limited. Terminal building construction was substantially completed in May,
1996. The future successful operation of the Company is dependent upon its
ability to obtain the financing required to complete and operationalize the
terminal facility and to commence operation thereof on an economically viable
basis.
These consolidated financial statements have been prepared on a "going
concern" basis which assumes the Company will be able to realize its assets,
obtain financing as required and discharge its liabilities and commitments in
the normal course of business.
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. Significant Accounting Policies
Reporting Currency
All amounts in these consolidated financial statements are reported in U.S.
funds. Monetary assets and liabilities have been converted from Canadian
funds where applicable utilizing the year-end closing exchange rate of $
1.4305 CDN/$1.00 U.S. Transactions recorded throughout the year in the
accounts of the Canadian subsidiary have been converted to their U.S.
equivalent utilizing the average annual rate as posted by the Internal Revenue
Service of the United States as follows:
$ 1.3844 CDN / $1.00 U.S. (1996: $1.3636 CDN / $1.00 U.S.).
Fair Value of Financial Instruments
In accordance with the requirements of Statement of Financial Accounting
Standards No. 107, "Disclosure About Fair Value Of Financial Instruments", the
carrying amounts reported on the balance sheets for cash and cash equivalents,
namely, "cash and short-term deposits", approximate their fair market value.
Receivables and Prepaid Expenses
All amounts reported as receivables or prepaid expenses and deposits have been
recorded at their original values. There have been no amounts written off as
bad debts or provided for as an allowance against the recovery of these
assets.
Capital Assets
Air Terminal Construction Costs: Expenditures relating directly to the
construction of the air terminal facility and related engineering and design
have been recorded in the accounts of the Company at cost, net of amortization
which is provided on a straight-line basis over the 30-year term of the
property lease.
Furniture and Equipment: Furniture and equipment is stated at cost, net of
amortization which is provided for at the rate of 20% per annum on the
declining balance basis.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
In these financial statements, assets, liabilities and results of operations
involve significant reliance on management's estimates. Actual results could
differ from the use of those estimates.
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
3. Significant Accounting Policies (continued)
Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109,
"Accounting For Income Taxes", in the fiscal year ended December 31, 1997 and
has applied the provisions of that statement on a retroactive basis to the
previous fiscal year which resulted in no significant adjustment.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", requires an asset and liability approach for financial accounting and
reporting for income tax purposes. This statement recognizes (a) the amount
of taxes payable or refundable for the current year and (b) deferred tax
liabilities and assets for future tax consequences of events that have been
recognized in the financial statements or tax returns.
Deferred income taxes result from temporary differences in the recognition of
accounting transactions for income tax and financial reporting purposes.
There were no temporary differences at December 31, 1997 and earlier years and
accordingly, no deferred tax liabilities have been recognized for all years.
The Company has cumulative net operating loss carryforwards of approximately
$830,000 at December 31, 1997 and $ 640,000 at December 31, 1996. No effect
has been shown in the financial statements for these carryforwards as the
likelihood of future tax benefit from such is not presently determinable. The
potential income tax benefits of the net operating loss carryforwards of
approximately $195,000 at December 31, 1997 and $150,000 at December 31, 1996
(based upon current income tax rates) have been offset by valuation reserves
of the same amount. The net operating losses began to expire as of December
31, 1997.
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
4. Capital Assets
Capital assets consist of the following at December 31, 1997 and December 31,
1996:
December 31, 1997
Accumulated Net Book
Cost Amortization Value
Air terminal construction
costs $ 652,083 $ 42,058 $ 610,025
Furniture and equipment 5,154 1,663 3,491
$ 657,237 $ 43,721 $ 613,516
December 31, 1996
Accumulated Net Book
Cost Amortization Value
Air terminal construction
costs $ 639,490 $ 21,304 $ 618,186
Furniture and equipment 2,836 814 2,022
$ 642,326 $ 22,118 $ 620,208
5. Notes and Advances Payable
The notes and advances payable are unsecured, non-interest bearing and are
without specific terms of repayment.
6. Related Party Transactions
During the years ended December 31, 1997 and 1996, the Company paid no
remuneration to any director.
Directors have advanced funds to the Company in the amount of $ 5,400 as of
December 31, 1997 (1996: $25,522). These advances are unsecured, non-interest
bearing and are without specific terms of repayment.
<PAGE>
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
7. Capital Stock
Authorized:
50,000,000 common shares with a
stated par value of $ .001/share
3,000,000 preferred cumulative convertible shares
with a stated par value of $ .001/share
Common Shares Issued:
Number of Shares Consideration
To August 31, 1993
- for cash 300,000 $ 300
Prime Air Inc. share exchange
- June 28, 1994 2,700,000 350,296
During year ended December 31, 1995
- for cash 562,550 131,756
Balance at December 31, 1995 3,562,550 482,352
During year ended December 31, 1996
- for cash 1,510,558 755,279
- consulting and related
services 1,483,673 1,483
2,994,231 756,762
Balance, December 31, 1996 6,556,781 1,239,114
During the year ended December 31, 1997
- shares-for-debt settlements 255,432 130,751
- consulting and related services 328,000 328
583,432 131,079
Balance, December 31, 1997 7,140,213 $ 1,370,193
The directors of the Company have authorized the issue of up to a further
500,000 common shares in the form of a director, officer and employee stock
options at a price to be determined. The granting of these options is subject
to the receipt of regulatory approval.
In July, 1996, management of the Company voluntarily halted trading of its
common shares based upon the conclusion that information concerning the
history of the Company provided by former management may not have been
complete. Adequate information was subsequently provided to the public by
management and trading was recommenced on March 27, 1997. The Company
prepared and filed a registration statement in connection with the change of
domicile (referred to in Note 1) to register all of the outstanding common
shares of capital stock in the Company. This registration has been approved
by the Securities and Exchange Commission and the change of domicile became
effective on December 15, 1997.
PRIME AIR, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
8. Lease Commitment
The Canadian subsidiary corporation has entered into an Airport Lease and
Operating Agreement with The Corporation of The Village of Pemberton in
British Columbia whereby it has been granted an exclusive and irrevocable
lease over the lands and airport facilities associated with the Pemberton
Airport. The term of the Lease and Operating Agreement, including extension
options relating thereto, is for a total of 30 years with terminal rent
payable as follows:
n $100 per annum for the initial six (6) years (1993 through 1998); and
thereafter
n 5% of gross receipts per annum derived from the operation of the
terminal facilities, excluding amounts received in connection with the sale of
airline tickets and other forms of transportation. The lease commitment
amounts for 1999 through 2002 cannot be quantified as the amount of gross
receipts for those years cannot be determined.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,388
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,975
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 626,491
<CURRENT-LIABILITIES> 92,550
<BONDS> 0
0
0
<COMMON> 7,140
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 626,491
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (189,697)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
