project

ANNUAL   REPORT  

BOREALIS  2018      

TABLE  OF  CONTENTS  

Mission and Vision-----------------------------------------------------------------------------------------1

Corporate Social Responsibility -----------------------------------------------------------------------1

To Our Stockholders----------------------------------------------------------------------------------------2

Past and Present-------------------------------------------------------------------------------------------2

SWOT Analysis -------------------------------------------------------------------------------------------3

Consolidated Financial Statements------------------------------------------------------------------------5

Income Statement (Profits and Losses)----------------------------------------------------------------5

Balance Sheet---------------------------------------------------------------------------------------------6

Statement of Cash Flows--------------------------------------------------------------------------------7

Future Outlook----------------------------------------------------------------------------------------------8

BOREALIS  

Page  1  

   Mission and Vision

We take pride in the services we provide for our customers, employees, shareholders and stakeholders. We provide the lowest priced shoes with great quality and numerous models. Our vision is to keep on moving forward in the four regions, North America, Europe-Africa, Asia-Pacific and Latin America.

Corporate Social Responsibility Both the community and our employees are valuable to our production and efficiency. At Borealis we provide ethics and enforcement training in addition to workforce diversity programs concerning sex, age, and other factors for all our employees.

All of our warehouses in the regions, North America, Asia-Pacific and Latin America were upgraded to increase worker productivity hence reducing the waste and pollution back into the community. In addition, our employees are trained to be energy efficient, turn off the light when done, turn down unused machines and exposure of waste products properly. The beauty of the borealis aurora entails us to maintain a positive image in the community so we strive to maintain a 70 or above for the company image rating.

In years 2014 and 2017 we ranked second for the corporate citizenship award. The world council for Exemplary Corporate Citizenship ranks and presents an award to the company spending the biggest percentage of its revenues for social responsibility and citizenship incentives.

BOREALIS  

Page  2  

To Our Shareholders

We want to thank all our investors for supporting Borealis and joining us on the ongoing journey of moving forward. We will continue to maximize the shareholders wealth and increase stock price and shares in the future by increasing our efficiency in production, keeping our model varieties diverse, and always striving to increase the satisfaction of our customers.

Past and Present Borealis continues to grow and expand each year to meet both the company and investor expectations. There were a few rocky years in the beginning but the company is back on track and heading for the new mover.

In the year 2011, the company had a slight drop in revenues which affected the investor returns like the return on equity, earnings per share and the stock price. In 2012, the risk was greater than the returns due to the aggressive decisions by management. A plant was built in Latin America while working on upgrades on the Asia-Pacific plant at the same time. Return on equity (ROE) and earnings per share (EPS) were below the industry, (-1.3 and -0.21 respectively) for the year 2012 and since the construction was mainly financed by credit, the company’s credit rating dropped to C- . Due to the high interest rate payments from the low credit rating and high default risk, the overall company’s expenses were very high.

The next couple of years a consultant was utilized to help improve and assist management with attaining average returns and striving for better results. In 2014 the company achieved the investor expectations and since then Borealis is now moving forward and continues to expand and grow while balancing the risk with the returns.

One of the main factors is the low price that is advertised for the shoes, with the celebrity endorsements that help boost sales. In addition, the great retail support from the retailers and the various models offered helped increase revenues as well. Today Borealis is up to speed and maintaining the increasing revenues (graph 1 below).

Graph 1- Borealis Net Revenues

BOREALIS  

Page  3  

One plant at a time is upgraded to increase the capacity in order to keep up the increasing demand and sales for the shoes; incentives are in order to help motivate employee to make better shoes hence reducing the reject rate. Overall all the three plants (North America, Asia- Pacific and Latin America) have been upgraded to option A and B which are assembly line upgrade to reduce reject rate by 50% and facilities upgrade to reduce production run setup by 50% which in the end reduce the overall expenses.

In the year 2015 and 2016, our ROE (16.8, 15.8 respectively) and EPS of 4.00 and 4.41 respectively were part of the best in the industry; and the stock price increased as well to $51.29 and $55.97. Our credit rating has improved from a C- to B- and heading for an A+ by 2020.

Currently we are maintaining a 16% to 20% of the market share in both internet and wholesales in all four regions. For the future, we will keep on growing in revenues, market share and unit sales while maintaining our standards, morals and low prices for the customers in internet, wholesale and private-label sales.

SWOT Analysis

Strength • Model Offered- Borealis offers more

models than any other company, a variety selection attracts and retains more customers.

Weakness • No free shipping offered so we lose

some customers and may not intake any new customers.

BOREALIS  

Page  4  

• Lowest prices- due to the high quantity of models offers, we can lower our prices and still obtain profits from the sales.

• Celebrity endorsement- different locations have different interests, the multiple number of different celebrities increase the volume and demand for Borealis footwear.

• Multiple warehouses- the additional location in Latin American decreases the exchanges rate expenses and traffics costs.

• Mail in rebate is offered to the customers.

• Advertising expenses are too high and in order to keep low prices, advertising has to decrease.

• Cost of production is too high in portion to the revenue generated and in order to maintain the low prices, changes in production need to be implemented like less superior materials but while maintaining great quality.

Opportunity • Build a plant in Europe –Africa to

better met the uprising demand and lower the exchange rate expenses and traffic.

• Increase capacity to have left over sales for the private label sales.

• Increase retail support to increase overall sales.

• Focus on celebrity endorsement that will strengthen the weak sales areas.

• Offer free shipping to some of the customers, in order to compete with the competitors’.

Threat • The lower S/Q rating compared to the

competitors decreases the attraction of the retail supporters.

• High operating expenses in comparison to the revenues generation.

• Low price competitive advantage is easily adaptable by both the competitors and any incoming entrants.

• Long delivery time for the customers and on top that no free shipping is offered, there is a potential threat of losing customers to our competitors with less delivery time and or free shipping.

• High competitive market, aggressive decisions have been implemented increasing the company risk and may possibly reducing returns.

BOREALIS  

Page  5  

Financial Statements The past three years, 2015, 2016 and 2017 consolidated financial statement - Income statement, balance sheet and statement of cash flow for the overall totals of all the four regions North America, Europe-Africa, Asia-Pacific and Latin America.

Borealis Consolidated Income statement ($000s)

Year Ended December 31,

2015 2016 2017 Net Revenue-Internet 60,297 85,802 83,623 Wholesale 345,787 393,453 400,690 Private-Label 31,146 0 0 Exchange rate adjustments 2,884 (7,865) (21,608)

Net Revenues from sales 440,114 471,390 462,705

Cost of Pairs Sold 249,699 256,798 263,981

Gross Profit 190,415 214,592 198,724

Operating Expenses

Warehouse Expenses 26,876 32,156 31,807 Marketing Expenses 74,406 92,022 100,840 Administration Expenses 12,287 12,349 12,414 Total Expense 113,569 136,527 145,061

Operating Profit (Loss) 76,846 78,065 53,663

Interest Income(Expense) (20,980) (16,994) (11,463) Pre-tax profit(Loss) 55,866 61,071 42,200 Income Taxes 16,760 18,321 12,660

Net Income 39,106 42,750 29,540

BOREALIS  

Page  6  

Borealis Consolidated Balance Sheet ($000)

December 31,

2015 2016 2017

ASSETS

Cash on Hand 0 0 0 Accounts Receivable 110,029 117,848 115,676 Inventory 27,465 29,310 32,628 Total Current Assets 137,494 147,158 148,304 Property Plant & Equipment

Total Fixed Assets 328,885 304,570 344,605 Total Assets 466,379 451,728 492,909

LIABILITIES

Accounts Payable 16,608 19,801 20,559 Overdraft Loan payable 25,113 4,895 52,280 Current Loan Payable 36,500 36,500 25,000 Total Current Liabilities 78,221 61,196 97,839 Long term Loans Outstanding 136,500 100,000 75,000

Total Liabilities 214,721 161,196 172,839

SHAREHOLDER EQUITY

Common stock 9,775 9,700 9,700 Additional paid in capital 96,470 92,668 92,668 Retained Earnings 145,413 188,164 217,702 Total Shareholder Equity 251,658 290,532 320,070 Total Liabilities & Equity 466,379 451,728 492,909

BOREALIS  

Page  7  

Borealis Consolidated Statement of Cash Flow ($000)

Year Ended December 31,

2015 2016 2017 Beginning cash 0 0 0 OPERATIONS

Cash receipts from sales 429,821 463,572 464,877 Cash paid for

Inventory purchase-material supplies (64,275) (76,011) (81,477)

Production Expenses (143,727) (132,024) (138,059) Warehouse Expense (48,874) (55,256) (54,499) Marketing Expenses (86,693) (104,371) (113,254) Income Taxes (16,760) (18,321) (12,660) Interest Payment- Overdraft (4,047) (3,039) (485) 10-year loan (16,933) (13,955) (10,978) Net Cash Flow from Operations 48,512 60,595 53,465

INVESTING ACTIVITES

Construction of new capacity 0 0 (64,350) Stock Repurchase 0 (3,877) 0 Net Cash Flow from Investing Activities 0 (3,877) (64,350)

FINANCING ACTIVITIES

Loans to cover overdraft 25,113 4,895 52,280 Repayment on Loans

Overdraft (37,125) (25,113) (4,895) 10-year loan (36,500) (36,500) (36,500) Net Cash Flow from Financing Activities (48,512) (56,718) 10,885

Net Cash Balance 0 0 0  

BOREALIS  

Page  8  

3- Year Future Projections

Our future outlook is to maintain the low price and highest model offered competitive advantage over the competitors. With the growing retail support in private, wholesale and internet sales, this will lead to contentious capacity increase each year for the plants depending on the number of insufficiency feedback from the previous year. The other factor is the loan repayment as soon as possible for this will decrease the interest expense and increase the ending cash, and with excess cash there is potential for expansion and upgrades. There will be continuous training for the employees to stay updated with the changing technology, latest sales skills and customer demands. The most important of all is make sure that our investors are receiving the highest returns with low risk, making sure that each decision yields a substantial return.

***Other external factors may affect the overall performance of the company, resulting in different returns from the projections below.

BOREALIS  

Page  9  

BOREALIS  

Page  10  

BOREALIS  

Page  11  

BOREALIS  

Page  12  

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ANNUAL   REPORT  

BOREALIS  2018      

TABLE  OF  CONTENTS  

Mission and Vision-----------------------------------------------------------------------------------------1

Corporate Social Responsibility -----------------------------------------------------------------------1

To Our Stockholders----------------------------------------------------------------------------------------2

Past and Present-------------------------------------------------------------------------------------------2

SWOT Analysis -------------------------------------------------------------------------------------------3

Consolidated Financial Statements------------------------------------------------------------------------5

Income Statement (Profits and Losses)----------------------------------------------------------------5

Balance Sheet---------------------------------------------------------------------------------------------6

Statement of Cash Flows--------------------------------------------------------------------------------7

Future Outlook----------------------------------------------------------------------------------------------8

BOREALIS  

Page  1  

   Mission and Vision

We take pride in the services we provide for our customers, employees, shareholders and stakeholders. We provide the lowest priced shoes with great quality and numerous models. Our vision is to keep on moving forward in the four regions, North America, Europe-Africa, Asia-Pacific and Latin America.

Corporate Social Responsibility Both the community and our employees are valuable to our production and efficiency. At Borealis we provide ethics and enforcement training in addition to workforce diversity programs concerning sex, age, and other factors for all our employees.

All of our warehouses in the regions, North America, Asia-Pacific and Latin America were upgraded to increase worker productivity hence reducing the waste and pollution back into the community. In addition, our employees are trained to be energy efficient, turn off the light when done, turn down unused machines and exposure of waste products properly. The beauty of the borealis aurora entails us to maintain a positive image in the community so we strive to maintain a 70 or above for the company image rating.

In years 2014 and 2017 we ranked second for the corporate citizenship award. The world council for Exemplary Corporate Citizenship ranks and presents an award to the company spending the biggest percentage of its revenues for social responsibility and citizenship incentives.

BOREALIS  

Page  2  

To Our Shareholders

We want to thank all our investors for supporting Borealis and joining us on the ongoing journey of moving forward. We will continue to maximize the shareholders wealth and increase stock price and shares in the future by increasing our efficiency in production, keeping our model varieties diverse, and always striving to increase the satisfaction of our customers.

Past and Present Borealis continues to grow and expand each year to meet both the company and investor expectations. There were a few rocky years in the beginning but the company is back on track and heading for the new mover.

In the year 2011, the company had a slight drop in revenues which affected the investor returns like the return on equity, earnings per share and the stock price. In 2012, the risk was greater than the returns due to the aggressive decisions by management. A plant was built in Latin America while working on upgrades on the Asia-Pacific plant at the same time. Return on equity (ROE) and earnings per share (EPS) were below the industry, (-1.3 and -0.21 respectively) for the year 2012 and since the construction was mainly financed by credit, the company’s credit rating dropped to C- . Due to the high interest rate payments from the low credit rating and high default risk, the overall company’s expenses were very high.

The next couple of years a consultant was utilized to help improve and assist management with attaining average returns and striving for better results. In 2014 the company achieved the investor expectations and since then Borealis is now moving forward and continues to expand and grow while balancing the risk with the returns.

One of the main factors is the low price that is advertised for the shoes, with the celebrity endorsements that help boost sales. In addition, the great retail support from the retailers and the various models offered helped increase revenues as well. Today Borealis is up to speed and maintaining the increasing revenues (graph 1 below).

Graph 1- Borealis Net Revenues

BOREALIS  

Page  3  

One plant at a time is upgraded to increase the capacity in order to keep up the increasing demand and sales for the shoes; incentives are in order to help motivate employee to make better shoes hence reducing the reject rate. Overall all the three plants (North America, Asia- Pacific and Latin America) have been upgraded to option A and B which are assembly line upgrade to reduce reject rate by 50% and facilities upgrade to reduce production run setup by 50% which in the end reduce the overall expenses.

In the year 2015 and 2016, our ROE (16.8, 15.8 respectively) and EPS of 4.00 and 4.41 respectively were part of the best in the industry; and the stock price increased as well to $51.29 and $55.97. Our credit rating has improved from a C- to B- and heading for an A+ by 2020.

Currently we are maintaining a 16% to 20% of the market share in both internet and wholesales in all four regions. For the future, we will keep on growing in revenues, market share and unit sales while maintaining our standards, morals and low prices for the customers in internet, wholesale and private-label sales.

SWOT Analysis

Strength • Model Offered- Borealis offers more

models than any other company, a variety selection attracts and retains more customers.

Weakness • No free shipping offered so we lose

some customers and may not intake any new customers.

BOREALIS  

Page  4  

• Lowest prices- due to the high quantity of models offers, we can lower our prices and still obtain profits from the sales.

• Celebrity endorsement- different locations have different interests, the multiple number of different celebrities increase the volume and demand for Borealis footwear.

• Multiple warehouses- the additional location in Latin American decreases the exchanges rate expenses and traffics costs.

• Mail in rebate is offered to the customers.

• Advertising expenses are too high and in order to keep low prices, advertising has to decrease.

• Cost of production is too high in portion to the revenue generated and in order to maintain the low prices, changes in production need to be implemented like less superior materials but while maintaining great quality.

Opportunity • Build a plant in Europe –Africa to

better met the uprising demand and lower the exchange rate expenses and traffic.

• Increase capacity to have left over sales for the private label sales.

• Increase retail support to increase overall sales.

• Focus on celebrity endorsement that will strengthen the weak sales areas.

• Offer free shipping to some of the customers, in order to compete with the competitors’.

Threat • The lower S/Q rating compared to the

competitors decreases the attraction of the retail supporters.

• High operating expenses in comparison to the revenues generation.

• Low price competitive advantage is easily adaptable by both the competitors and any incoming entrants.

• Long delivery time for the customers and on top that no free shipping is offered, there is a potential threat of losing customers to our competitors with less delivery time and or free shipping.

• High competitive market, aggressive decisions have been implemented increasing the company risk and may possibly reducing returns.

BOREALIS  

Page  5  

Financial Statements The past three years, 2015, 2016 and 2017 consolidated financial statement - Income statement, balance sheet and statement of cash flow for the overall totals of all the four regions North America, Europe-Africa, Asia-Pacific and Latin America.

Borealis Consolidated Income statement ($000s)

Year Ended December 31,

2015 2016 2017 Net Revenue-Internet 60,297 85,802 83,623 Wholesale 345,787 393,453 400,690 Private-Label 31,146 0 0 Exchange rate adjustments 2,884 (7,865) (21,608)

Net Revenues from sales 440,114 471,390 462,705

Cost of Pairs Sold 249,699 256,798 263,981

Gross Profit 190,415 214,592 198,724

Operating Expenses

Warehouse Expenses 26,876 32,156 31,807 Marketing Expenses 74,406 92,022 100,840 Administration Expenses 12,287 12,349 12,414 Total Expense 113,569 136,527 145,061

Operating Profit (Loss) 76,846 78,065 53,663

Interest Income(Expense) (20,980) (16,994) (11,463) Pre-tax profit(Loss) 55,866 61,071 42,200 Income Taxes 16,760 18,321 12,660

Net Income 39,106 42,750 29,540

BOREALIS  

Page  6  

Borealis Consolidated Balance Sheet ($000)

December 31,

2015 2016 2017

ASSETS

Cash on Hand 0 0 0 Accounts Receivable 110,029 117,848 115,676 Inventory 27,465 29,310 32,628 Total Current Assets 137,494 147,158 148,304 Property Plant & Equipment

Total Fixed Assets 328,885 304,570 344,605 Total Assets 466,379 451,728 492,909

LIABILITIES

Accounts Payable 16,608 19,801 20,559 Overdraft Loan payable 25,113 4,895 52,280 Current Loan Payable 36,500 36,500 25,000 Total Current Liabilities 78,221 61,196 97,839 Long term Loans Outstanding 136,500 100,000 75,000

Total Liabilities 214,721 161,196 172,839

SHAREHOLDER EQUITY

Common stock 9,775 9,700 9,700 Additional paid in capital 96,470 92,668 92,668 Retained Earnings 145,413 188,164 217,702 Total Shareholder Equity 251,658 290,532 320,070 Total Liabilities & Equity 466,379 451,728 492,909

BOREALIS  

Page  7  

Borealis Consolidated Statement of Cash Flow ($000)

Year Ended December 31,

2015 2016 2017 Beginning cash 0 0 0 OPERATIONS

Cash receipts from sales 429,821 463,572 464,877 Cash paid for

Inventory purchase-material supplies (64,275) (76,011) (81,477)

Production Expenses (143,727) (132,024) (138,059) Warehouse Expense (48,874) (55,256) (54,499) Marketing Expenses (86,693) (104,371) (113,254) Income Taxes (16,760) (18,321) (12,660) Interest Payment- Overdraft (4,047) (3,039) (485) 10-year loan (16,933) (13,955) (10,978) Net Cash Flow from Operations 48,512 60,595 53,465

INVESTING ACTIVITES

Construction of new capacity 0 0 (64,350) Stock Repurchase 0 (3,877) 0 Net Cash Flow from Investing Activities 0 (3,877) (64,350)

FINANCING ACTIVITIES

Loans to cover overdraft 25,113 4,895 52,280 Repayment on Loans

Overdraft (37,125) (25,113) (4,895) 10-year loan (36,500) (36,500) (36,500) Net Cash Flow from Financing Activities (48,512) (56,718) 10,885

Net Cash Balance 0 0 0  

BOREALIS  

Page  8  

3- Year Future Projections

Our future outlook is to maintain the low price and highest model offered competitive advantage over the competitors. With the growing retail support in private, wholesale and internet sales, this will lead to contentious capacity increase each year for the plants depending on the number of insufficiency feedback from the previous year. The other factor is the loan repayment as soon as possible for this will decrease the interest expense and increase the ending cash, and with excess cash there is potential for expansion and upgrades. There will be continuous training for the employees to stay updated with the changing technology, latest sales skills and customer demands. The most important of all is make sure that our investors are receiving the highest returns with low risk, making sure that each decision yields a substantial return.

***Other external factors may affect the overall performance of the company, resulting in different returns from the projections below.

BOREALIS  

Page  9  

BOREALIS  

Page  10  

BOREALIS  

Page  11  

BOREALIS  

Page  12