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Novagold Resources Inc – ‘40-F’ for 11/30/03 – ‘EX-2’

On:  Wednesday, 4/21/04, at 5:11pm ET   ·   For:  11/30/03   ·   Accession #:  1062993-4-569   ·   File #:  1-31913

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/21/04  Novagold Resources Inc            40-F       11/30/03    9:737K                                   Newsfile Corp/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 40-F        Annual Report for the Fiscal Year Ended November    HTML     48K 
                          30, 2003                                               
 2: EX-1        Annual Information Form for the Fiscal Year Ended   HTML    246K 
                          November 30, 2003                                      
 3: EX-2        Audited Consolidated Financial Statements for the   HTML    308K 
                          Year Ended November 30, 2003                           
 4: EX-3        Management Discussion and Analysis for the Year     HTML     34K 
                          Ended November 30, 2003                                
 5: EX-4        Section 302 Certification of CEO                    HTML     10K 
 6: EX-5        Section 302 Certification of CFO                    HTML     10K 
 7: EX-6        Section 906 Certification of CEO                    HTML      8K 
 9: EX-8        Consent of Pricewaterhousecoopers LLP               HTML      7K 
 8: EX-7        Section 906 Certification of CFO                    HTML      8K 

Consolidated Financial Statements
November 30, 2003, 2002 and 2001

Management’s Responsibility for Financial Reporting

To the Shareholders of NovaGold Resources Inc.

The accompanying consolidated financial statements of the Company have been prepared by management in accordance with accounting principles generally accepted in Canada, and within the framework of the summary of significant accounting policies in these consolidated financial statements. Management is responsible for all information in the annual report. All financial and operating data in the annual report is consistent, where appropriate, with that contained in the consolidated financial statements.

A system of internal accounting control is maintained in order to provide reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with management’s authorization. This system includes established policies and procedures, the selection and training of qualified personnel, and an organization providing for appropriate delegation of authority and segregation of responsibilities.

The Audit Committee of the Board of Directors meets periodically with management and the Company’s independent auditors to review the scope and results of their annual audit and to review the consolidated financial statements and related financial reporting matters prior to submitting the consolidated financial statements to the Board of Directors for approval.

The consolidated financial statements have been audited on behalf of the shareholders by the Company’s independent auditors, PricewaterhouseCoopers LLP, in accordance with Canadian generally accepted auditing standards. The auditors’ report outlines the scope of their audit and their opinion on the consolidated financial statements.

Auditors’ Report

To the Shareholders of NovaGold Resources Inc.

We have audited the consolidated balance sheets of NovaGold Resources Inc. as at November 30, 2003 and 2002 and the consolidated statements of operations and deficit and cash flows for the years ended November 30, 2003, 2002 and 2001. 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 conducted our audits in accordance with Canadian 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 consolidated financial statements present fairly, in all material respects, the financial position of the Company as at November 30, 2003 and 2002 and the results of its operations and its cash flows for the years ended November 30, 2003, 2002 and 2001 in accordance with Canadian generally accepted accounting principles.

[signed: PricewaterhouseCoopers LLP]

Chartered Accountants

Vancouver, B.C.
Canada
March 3, 2004

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Consolidated Balance Sheets
As at November 30, 2003 and 2002

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Consolidated Statements of Operations and Deficit
For the years ended at November 30, 2003, 2002 and 2001

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Consolidated Statement of Cash Flows
For the years ended at November 30, 2003, 2002 and 2001

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Notes to Consolidated Statements
For the years ended November 30, 2003, 2002 and 2001

1. Nature of operations

The Company is a natural resource company engaged in the exploration and development of gold properties in North America. Since 1998, the Company has assembled a portfolio of mineral properties in Alaska, British Columbia and the Yukon Territory.

The Company is in the process of exploring its mineral properties and has not yet determined whether these properties contain ore reserves that are economically recoverable. The amounts shown as mineral properties and related deferred costs represent costs net of recoveries to date, less amounts amortized and/or written off, and do not necessarily represent present or future values. The recoverability of amounts shown for mineral properties and related deferred costs is dependent upon the discovery of economically recoverable reserves, securing and maintaining title and beneficial interest in the properties, the ability of the Company to obtain necessary financing to continue operations and to complete the development and upon future profitable production or proceeds from the disposition thereof.

The Company plans to fund its operations and activities in the upcoming year from existing working capital. The Company has ongoing sand and gravel resource revenues and intends to develop and sell its land in the Nome, Alaska area. The Company will periodically have to raise additional funds to complete its exploration and future development and, while it has been successful in doing so in the past, there can be no assurance that it will be able to do so in the future.

2. Accounting policies

Basis of presentation

These consolidated financial statements include the accounts of NovaGold Resources Inc., its controlled subsidiary, SpectrumGold Inc. (SpectrumGold) and its material wholly owned subsidiaries, Alaska Gold Company and NovaGold Resources Alaska, Inc.

The consolidated accounts have been prepared using accounting principles generally accepted in Canada. As described in note 16, these principles differ in certain material respects from accounting principles generally accepted in the United States. All inter-group transactions are eliminated on consolidation.

Revenue recognition

Revenue from land sales is recognized when title passes to the purchaser. Gravel revenue is recognized upon shipment when title passes to the purchaser. Lease and rental revenue is recognized as services are rendered over time. Gold royalties and incidental gold production revenues earned from placer mining activities carried out on the Company’s land and gravel resource properties are recognized as revenue when the amounts are determinable and collectible and title to the gold has transferred.

Cash and cash equivalents

Cash and cash equivalents consist of cash on deposit with banks and highly liquid short-term interest bearing investments with maturities of less than 90 days from the original date of acquisition.

Inventories

Inventories are valued at the lower of average cost and net realizable value.

Property, plant and equipment

Property, plant and equipment are recorded at cost. Amortization of heavy machinery and equipment and office furniture and equipment is calculated on a straightline basis at annual rates of 30% and 20%, respectively.

Investments

The Company accounts for its investments in shares of other resource companies as long-term investments. They are recorded at cost unless an other-than-temporary decline in value has been determined, in which case they are written down to market value.

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Notes to Consolidated Statements
For the years ended November 30, 2003, 2002 and 2001

2. Accounting policies (cont.)

Land and gravel resource

Land is recorded at cost, and at the time of acquisition, cost is allocated to each of the identifiable parcels of land on a pro rata basis in accordance with that parcel’s estimated value as a percentage of the value of the entire parcel acquired. Revenue is recorded upon transfer of title to the purchaser and cost of sales is determined on the basis of the allocated costs. The costs of the remaining unsold parcels of land are reviewed regularly to determine if impairment exists, and if impairment is determined the costs would be written down to recoverable value. To date, there have been no charges for impairment. Property taxes are charged as a current expense in the statement of operations and deficit.

Gravel property is recorded at cost and is being amortized at the straight-line rate of 10% per year, which is estimated to approximate the useful life of the estimated resources.

Mineral properties and related deferred costs

Exploration costs are charged to operations as incurred until a mineral resource is established on a property, from which time exploration expenditures are capitalized. The Company records its interest in mineral properties at cost. Exploration expenditures relating to properties that have resources or significant mineralization requiring additional exploration, as well as interest and costs to finance those expenditures, are deferred and will be amortized against future production following commencement of commercial production, or written off if the properties are sold, allowed to lapse, abandoned, or become impaired.

Management of the Company regularly reviews the net carrying value of each mineral property. Where information is available and conditions suggest impairment, estimated future net cash flows from each property are calculated using estimated future prices, resources, and operating, capital and reclamation costs on an undiscount-ed basis. Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses whether carrying value can be recovered. When it is determined that a mineral property is impaired it is written down to its estimated fair value in accordance with the new Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3063 “Impairment of Long-Lived Assets” which the Company adopted on December 1, 2002. This has not impacted the financial statements.

Management’s estimates of mineral prices, recoverable proven and probable reserves, and operating, capital and reclamation costs are subject to certain risks and uncertainties that may affect the recoverability of mineral property costs. Although management has made its best estimate of these factors, it is possible that changes could occur in the near term, which could adversely affect management’s estimate of the net cash flow to be generated from its properties.

The acquisition of title to mineral properties is a detailed and time-consuming process. The Company has taken steps, in accordance with industry standards, to verify legal title to mineral properties in which it has an interest. Although the Company has taken every precaution to ensure that legal title to its properties is properly recorded in the name of the Company, there can be no assurance that such title will ultimately be secured.

Mineral property option and royalty agreements

Option payments and certain royalties are exercisable at the discretion of the optionee and, accordingly, are accounted for on a cash basis.

Option payments received are treated as a reduction of the carrying value of the related mineral property and deferred costs until the Company’s option and royalty payments received are in excess of costs incurred and are then credited to income.

Reclamation costs

Effective December 1, 2002, the Company adopted the new standard of the CICA relating to asset retirement obligations. Under this new standard, asset retirement obligations are recognized when incurred and recorded as liabilities at fair value. Under the standard the liability is accreted over time through periodic charges to earnings. A corresponding increase to the

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

carrying amount of the related asset is recorded and depreciated over the life of the asset.

The implementation of this standard was not material to the Company.

Income taxes

The Company uses the liability method of accounting for income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes. Future income tax assets are evaluated and if realization is not considered more likely than not, a valuation allowance is provided.

Translation of foreign currencies

Foreign operations are integrated with the parent company and, consequently, the financial statements of foreign subsidiaries are translated into Canadian currency using the temporal method.

Monetary assets and liabilities are translated at the exchange rate in effect at the balance sheet date and non-monetary assets and liabilities at the exchange rates in effect at the time of acquisition or issue. Revenues and expenses are translated at rates approximating exchange rates in effect at the time of the transactions. Exchange gains or losses arising on translation are included in income or loss for the year.

Earnings per share

Loss per common share is calculated based on the weighted average number of common shares outstanding during the year. The Company follows the "treasury stock" method in the calculation of diluted earnings per share for all years presented. The exercise of outstanding stock options, warrants and convertible securities would be anti-dilutive.

Financial instruments

The fair values of the Company’s monetary assets and liabilities approximate their carrying values except for the loan payable and interest accrued to the Province of New Brunswick (note 7), the fair value of which cannot be determined.

Stock option plan

The Company has a stock option plan which is described in note 9(d).

Effective December 1, 2002, the Company adopted the new recommendations for accounting for stock options as required by CICA Handbook Section 3870 Stock-based Compensation and other Stock-based Payments ("CICA 3870"). As permitted by CICA 3870, the Company has elected not to apply fair value accounting and to measure compensation cost using the intrinsic value method for awards of stock options to employees and directors under our stock-based compensation plan. Accordingly, no compensation costs are recognized for employee’s and director’s stock options whose exercise price was equal to the market price on the date of the grant. Options granted to non-employees are recognized as an expense at fair value.

The Company plans to adopt the revised requirements of CICA Handbook Section 3870 on December 1, 2003 whereby the fair value of stock option awards to employees and directors will be recognized as an expense.

Use of estimates

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reported periods. Significant estimates include the recoverable amounts of land and gravel resource, mineral properties and the provision for reclamation costs. Actual results could differ from those reported.

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Notes to Consolidated Statements
For the years ended November 30, 2003, 2002 and 2001

3. Business acquisition

On June 30, 2003, the Company acquired a 42.86% interest in SpectrumGold pursuant to an agreement whereby the Company contributed mineral properties located in the Yukon and cash of $500,000 in exchange for 6,000,000 common shares or 42.86% of SpectrumGold. The Company initially accounted for this investment using the equity method from this date until it acquired a controlling interest on August 12, 2003.

On August 12, 2003, the Company acquired an additional 16.31% for a total of 59.17% interest in SpectrumGold by purchasing 2,284,425 shares for cash of $1,713,000 from Quest Capital Corp. (Quest). This acquisition was accounted for using the purchase method and the results of operations for SpectrumGold are included in the Company’s consolidated financial statements from this date.

On October 8, 2003, the Company acquired an additional 8.17% for a total of 67.34% interest in SpectrumGold by purchasing 3,500,000 shares for cash of $2,625,000 directly from SpectrumGold.

In June 2003, SpectrumGold indirectly completed a special warrant financing for 3,383,500 special warrants at $0.40 per special warrant. The $1,353,400 received from the financing was held in escrow and reflected in SpectrumGold’s financial statements as both a current asset and current liability, subject to release of the funds to SpectrumGold under certain conditions. Among the conditions of financing, the funds would be released to SpectrumGold automatically if SpectrumGold was listed on a Canadian stock exchange by a fixed date. SpectrumGold was listed on the Toronto Stock Exchange on October 27, 2003 and the funds were released at that time and 3,383,500 shares of SpectrumGold were issued to special warrant holders reducing the Company’s interest in SpectrumGold to 56.43%.

On November 21, 2003, SpectrumGold completed a private financing and issued 2,000,000 common shares for proceeds of $5,695,000, net of share issuance costs of $505,000. Contemporaneously, the Company acquired an additional 2,080,000 shares at $3.10 per share and 500,000 shares at $3.45 per share for total cash of $8,173,000 and maintained 56.41% ownership in SpectrumGold.

SpectrumGold has an August 31 year end. The deficit for the period between August 12, 2003 to November 30, 2003 of $319,000 has been consolidated into the Company’s statement of operations and deficit.

The values assigned to the net assets acquired August 12, 2003 are as follows:

Additional investments made in SpectrumGold resulted in an additional net fair value adjustment of $813,000 for a total fair value adjustment of $1,955,000 allocated to the Galore Creek property.

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

4. Property, plant and equipment

At November 30, 2002, the Company held 750,000 shares of TNR with a cost of $162,000 and an additional 250,000 shares of TNR were received during the year. TNR consolidated their shares on a 4:1 basis and changed their name to TNR Gold Corp. The reduction in share price resulted in a permanent write-down of $105,000 to the investment.

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Notes to Consolidated Statements
For the years ended November 30, 2003, 2002 and 2001

5. Investments (cont.)

Included in other investments is an investment of 1,000,000 shares of New Island Resources Inc. with a quoted market value of $120,000 and a carrying value of $40,000.

Also included within other investments is an investment of 126,625 shares (cost - $5,000; market value - $265,000) in Etruscan Resources Incorporated (Etruscan). The Province of New Brunswick holds the Company’s shares of Etruscan pending the settlement of outstanding mining taxes aggregating $366,000 (2002 - $363,000).

6. Mineral properties and related deferred costs

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Notes to Consolidated Statements
For the years ended November 30, 2003, 2002 and 2001

6. Mineral properties and related deferred costs (cont.)

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Notes to Consolidated Statements
For the years ended November 30, 2003, 2002 and 2001

6. Mineral properties and related deferred costs (cont.)

7. Loan payable

A loan with a principal amount of $200,000 (2002 -$200,000) is payable to the Province of New Brunswick and bears interest at a rate of 10.7% per annum. The loan was made to Murray Brook Resources Inc. and is guaranteed by the Company. The loan was repayable in 1993; however, no payments have been made on this loan. As at November 30, 2003, the Company has accrued $468,000 (2002 -$400,000) of interest payable in respect of this loan which is included in accounts payable and accrued liabilities.

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

9. Share capital

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Notes to Consolidated Statements
For the years ended November 30, 2003, 2002 and 2001

9.  Share capital (cont.)

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Share purchase warrants outstanding at November 30, 2003:

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Notes to Consolidated Statements
For the years ended November 30, 2003, 2002 and 2001

9.  Share capital (cont.)

A summary of the Company’s stock option plan at November 30, 2003, 2002 and 2001, and changes during the years ended on those dates, is as follows:

The following table summarizes information about the stock options outstanding and exercisable at November 30, 2003:

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

10. Loss per share

Basic loss per share is calculated on loss available to common shareholders using the weighted average number of common shares outstanding during the period.

Dilute loss per share is calculated using the treasury stock method.

For the years ended November 30, 2003, 2002 and 2001, diluted loss per share is the same as basic loss per share as the exercise of options, warrants and dilutive convertible securities would be anti-dilutive.

11.  Commitments and contingencies

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Notes to Consolidated Statements
For the years ended November 30, 2003, 2002 and 2001

11. Commitments and contingencies (cont.)

12. Related party transactions

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

13. Income taxes

During the year ended November 30, 2003, the Company had a loss of $6,953,000 (2002 - loss of $3,457,000; 2001 - loss of $494,000).

The Company has non-capital loss carry-forwards of approximately C$19,377,000 and US$56,558,000 that may be available for tax purposes.

The losses are in the following countries and expire as follows:

Future utilization of these United States loss carryforwards is subject to certain limitations under provisions of the Internal Revenue Code including limitations subject to Section 382, which relates to a 50 percent change in control over a three-year period, and are further dependent upon the Company attaining profitable operations. An ownership change occured on April 27, 1999 regarding the losses incurred by Alaska Gold Company. Therefore, approxi-matey US$44,000,000 of the losses above are subject to limitation under Section 382. Accordingly, the Company’s ability to utilize these losses may be limited to approximately US$260,000 per year. Furthermore, the Company potentially incurred an ownership change under Section 382 at sometime after April 1999. If so, a significant portion of the US$56,558,000 above will be subject to a similar annual limitation previously discussed.

Due to the net operating limitations and the uncertaintity of future taxable income, all United States deferred tax assets have been fully valued against. For the year ended November 30, 2003, no provision for United States income taxes has been reflected on the statement of operations due to the full valuation allowance.

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Notes to Consolidated Statements
For the years ended November 30, 2003, 2002 and 2001

13. Income taxes (cont.)

In addition, the Company has incurred resource expenditures of approximately $24,812,000 (2002 - $34,423,000; 2001 - $17,900,000) which may be carried forward indefinitely and used to reduce taxable income in future years.

The Company has available temporary differences for tax purposes. The net amount that would give rise to a future income tax asset has not been recognized as realization is not considered more likely than not.

14. Segmented information

The Company’s operating segments include the exploitation of the Company’s land and gravel resources and the exploration and development of mineral resource properties. Segmented information for these operating segments is set out below.

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

The Company’s geographic segments are as follows:

15. Supplemental non-cash financing and investing activities

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Notes to Consolidated Statements
For the years ended November 30, 2003, 2002 and 2001

16. Significant differences from United States accounting principles

Canadian generally accepted accounting principles (Canadian GAAP) vary in certain significant respects from the principles and practices generally accepted in the United States (U.S. GAAP). The effect of the principal measurement differences on the Company’s consolidated financial statements is quantified below and described in the accompanying notes.

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Notes to Consolidated Statements
For the years ended November 30, 2003, 2002 and 2001

16. Significant differences from United States accounting principles (cont.)

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Pro forma information with respect to the impact of the fair value of stock options at the date of grant on reported income for the years presented is as follows:

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

Notes to Consolidated Statements
For the years ended November 30, 2003, 2002 and 2001

16. Significant differences from United States accounting principles (cont.)

NOVAGOLD RESOURCES INC. ANNUAL REPORT 2003

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Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘40-F’ Filing		Date		Other Filings
		5/31/09		6-K
		10/1/08
		7/1/08
		5/30/08
		11/14/07
		10/26/07
		10/26/06		SC TO-T/A
		6/30/06
		5/31/06		6-K
		5/31/05		6-K
		12/31/04
		12/1/04
		11/1/04
		10/26/04		6-K
		5/31/04		6-K
		5/1/04
Filed on:		4/21/04		6-K
		3/20/04
		3/3/04
		1/1/04
		12/1/03		8-A12B
For Period End:		11/30/03		40-F/A
		11/21/03
		10/27/03
		10/19/03
		10/8/03
		10/1/03
		9/18/03
		9/8/03
		8/12/03
		7/31/03
		6/30/03
		5/31/03
		5/1/03
		4/23/03
		2/10/03
		12/1/02
		11/30/02
		11/13/02
		9/19/02
		9/18/02
		8/27/02
		6/1/02
		5/29/02
		5/1/02
		4/18/02
		3/13/02
		2/18/02
		11/30/01
		9/18/01
		8/27/01
		7/14/01
		6/21/01
		11/30/00
		7/13/99
		4/27/99
		3/26/99
		7/2/98
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