financial statements - walton.com yellowhead... · prepaid expenses 333 1,400 ... total liabilities...

FINANCIAL STATEMENTS

Walton Yellowhead Development Corporation For the years ended December 31, 2014 and December 31, 2013

(Expressed in Canadian dollars)

PricewaterhouseCoopers LLP Suite 3100, 111 5 Avenue SW, Calgary, Alberta, Canada T2P 5L3 T: +1 403 509 7500, F: +1 403 781 1825, www.pwc.com/ca “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

March 26, 2015 Independent Auditor’s Report To the Shareholders’ of Walton Yellowhead Development Corporation We have audited the accompanying financial statements of Walton Yellowhead Development Corporation, which comprise the statements of financial position as at December 31, 2014 and December 31, 2013 and the statements of comprehensive income/ (loss), changes in shareholders’ equity and cash flows for the years ended December 31, 2014 and December 31, 2013, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Walton Yellowhead Development Corporation as at December 31, 2014 financial performance and its cash flows for the year ended 2014 in accordance with International Financial Reporting Standards. Emphasis of matter Without qualifying our opinions, we draw attention to note 1 to these financial statements which refers to the intention of management of Walton Yellowhead Development Corporation to liquidate the net assets of the corporation on or about March 31, 2015. These financial statements have therefore been prepared using a liquidation basis of accounting. Chartered Accountants

WALTON YELLOWHEAD DEVELOPMENT CORPORATION

Statements of Financial Position As at December 31, 2014 and December 31, 2013


Nature of Business and basis of presentation – note 1

The accompanying notes to the financial statements are an integral part of these statements

Approved by the Board of Directors

______________________________ Director ______________________________ Director

Clifford H. Fryers Jon N. Hagan

December 31,

2014

$

December 31,

2013

$

ASSETS

Land development inventory (note 4) - 35,275,581

Deferred tax asset (note 9) 5,825 537,634

Prepaid expenses 333 1,400

Other receivable 1,315 1,854

GST recoverable 1,539 8,199

Cash 1,273,306 1,563,717

TOTAL ASSETS 1,282,318 37,388,385

LIABILITIES

Project Debt (note 6) - 5,104,869

Debentures payable (note 5) - 21,217,889

Interest debentures payable (note 5) - 3,321,479

Interest payable (note 5) - 478,623

Due to related parties (note 7) 87,630 1,174,816

Income taxes payable 694,844 -

Accounts payable and accrued liabilities 67,544 492,084

TOTAL LIABILITIES 850,018 31,789,760

SHAREHOLDERS’ EQUITY

Share capital (note 8) 6,824,139 6,857,150

Accumulated deficit (6,391,839) (1,258,525)

TOTAL EQUITY 432,300 5,598,625

TOTAL LIABILITIES & EQUITY 1,282,318 37,388,385


Statements of Comprehensive Income/(Loss) For the years ended December 31, 2014 and December 31, 2013


December 31,

2014

$

December 31,

2013

$

REVENUE

Land development 42,206,782 -

COST OF SALES

Land Development 36,928,231 -

GROSS MARGIN 5,278,551 -

OTHER INCOME/(EXPENSES)

Interest income 30,128 4,795

Management fees (note 7) (177,155) (538,846)

Servicing fees (note 7) (130,550) (130,550)

Office and other expenses (92,872) (59,692)

Debenture interest (75,046) -

Directors fees (note 7) (43,645) (52,129)

Professional fees (32,422) (26,986)

(521,562) (803,408)

NET INCOME/(LOSS) BEFORE TAX 4,756,989 (803,408)

Current income tax expense (note 9) (694,844) -

Deferred income tax (expense)/recovery (note 9) (498,798) 200,852

(1,193,642) 200,852

NET AND COMPREHENSIVE INCOME/(LOSS) 3,563,347 (602,556)

Basic and diluted net earnings/(loss) per share attributable to class B shares (note 8) 1.23 (0.21)


The accompanying notes to the financial statements are an integral part of these statements.


Statements of Changes in Shareholders’ Equity For the years ended December 31, 2014 and December 31, 2013 (Expressed in Canadian dollars)

Class A Voting Common

Shares Class B Non-voting

Common Shares Accumulated

Deficit

Total

# of Shares $ # of Shares $ $ $

JANUARY 1, 2013 100 100 2,889,256 6,857,050 (655,969) 6,201,181

Net and comprehensive loss - - - - (602,556) (602,556)

DECEMBER 31, 2013 100 100 2,889,256 6,857,050 (1,258,525) 5,598,625

Net and comprehensive income - - - - 3,563,347 3,563,347

Dividend - - - - (8,696,661) (8,696,661)

Deferred tax asset reversal - - - (33,011) - (33,011)

DECEMBER 31, 2014 100 100 2,889,256 6,824,039 (6,391,839) 432,300


The accompanying notes to the financial statements are an integral part of these statements.


Statements of Cash Flows For the years ended December 31, 2014 and December 31, 2013


December 31,

2014

$

December 31,

2013

$

CASH PROVIDED BY (USED IN)

OPERATING ACTIVITIES

Net and comprehensive income/(loss) for the year 3,563,347 (602,556)

Adjustments for:

Interest Income (30,128) (4,795)

Debenture interest expense 75,046 -

Items not affecting cash

Deferred income tax expense/(recovery) (note 9) 498,798 (200,852)

Non cash consideration on sale of land (5,528,982) -

Changes in non-cash operating items

Decrease/(increase) in land development inventory (note 4) 36,528,778 (3,402,985)

Decrease in prepaid expenses 1,067 4,822

Decrease in GST recoverable 6,660 1,657

Decrease in accounts payable and accrued liabilities (424,540) (99,528)

Increase in income taxes payable 694,844 -

(Decrease)/increase in due to related parties (note 7) (1,087,186) 645,669

Interest received 30,668 3,193

Interest paid (1,310,819) (39,579)

33,017,553 (3,694,954)

FINANCING ACTIVITIES

Advances from project debt (note 6) 379,597 5,074,393

Repayment of debentures payable (note 5) (21,669,421) -

Decrease in interest debentures payable (note 5) (3,321,479) -

Dividend distribution (8,696,661) -

Advances from related party (note 7) - 551,076

Repayments to related party (note 7) - (551,076)

(33,307,964) 5,074,393

(Decrease)/increase in cash (290,411) 1,379,439

Cash – Beginning of year 1,563,717 184,278

Cash – End of year 1,273,306 1,563,717

Supplemental Cash Flow Information (note 12) Nature of Business and basis of presentation – note 1 The accompanying notes to the financial statements are an integral part of these statements.


Notes to the Financial Statements For the years ended December 31, 2014 and December 31, 2013


1

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Walton Yellowhead Development Corporation (the “Corporation”) was incorporated under the laws of the province

of Alberta on August 24, 2011.

The Corporation was formed to provide investors with the opportunity to participate in the development of the

approximately 133.68-acre “Yellowhead” property located in Edmonton, Alberta (the “Property”) through the

purchase of units in the Corporation. Each unit issued by the Corporation (“Unit”) through its initial public offering

(“IPO”) was comprised of a $7.50 principal amount of offering debenture (“Debenture”) and one Class B non-voting

common share (“Class B share”) at a price of $2.50 per share.

On April 30, 2014 (the “Closing Date”), the Corporation completed the sale of its entire right, title and interest in the

Property for a total cash consideration of $36,677,800 and the assumption of the project debt in the amount of

$5,528,982 for a total of $42,206,782. The Property was purchased by Yellowhead Lands Limited Partnership (the

"Purchaser") which accepted an assignment of the purchase agreement from 1770111 Alberta Ltd., which is 50%

owned by Walton International Group Inc. (“WIGI”), on the Closing Date. The assignment of the purchase agreement

was done once the Purchaser completed the formation of the legal entity. A Canadian pension fund has an 85%

ownership interest in the Purchaser, with the remaining 15% being owned by an entity that is 50% owned by WIGI

and 50% owned by an arm’s length third-party Canadian development company ("DevCo.").

In May 2014, the Corporation used the proceeds from the sale to repay outstanding liabilities including $1,392,433 in

management and servicing fees to Walton Asset Management L.P. (“WAM”), and distributed $34,898,534 which

included the payment in full of debentures of $21,669,421, interest debentures of $3,321,479, accrued interest of

$1,210,973 and a dividend distribution of $8,696,661.

As a result of the sale and the intention to dissolve the entity, the Corporation’s financial statements have been

prepared using a liquidation basis of accounting. No adjustment to the assets or liabilities of the Corporation is

considered necessary as the remaining cash is being held as a reserve by the Corporation to pay for the remaining

liabilities, operating expenses and any unforeseen expenses until the dissolution of the Corporation which is

anticipated to be on or before March 31, 2015, at which time a final distribution will be made by the Corporation.

The registered office and principal place of business is 23rd floor, 605 – 5th Avenue SW, Calgary, Alberta, T2P 3H5.

These financial statements were authorized by issue by the Board of Directors on March 24, 2015.




2

2. BASIS OF PREPARATION

Statement of Compliance

These financial statements, including comparatives, have been prepared in full compliance with International

Financial Reporting Standards (“IFRS”) and using accounting policies that are consistent with IFRS as issued by the

International Accounting Standards Board (“IASB”).

Basis of Presentation

The Corporation’s financial statements have been prepared using a liquidation basis of accounting, as noted in notes

1 and 3. Due to the sale of the Property all assets and liabilities are current in nature and are expected to be settled in

less than twelve months.

Change in Presentation

In the statements of cash flows, the treatment of interest paid/payable has been changed to be consistent with the current period presentation.

3. ACCOUNTING POLICIES

Use of Estimates and Judgements

The preparation of financial statements in conformity with IFRS requires management to make estimates and

assumptions that affect the reported amount of assets, liabilities and equity at the date of the financial statements,

and the reported amounts of revenue and expenses during the year. There were no significant estimates included in

the financial statements at December 31, 2014.

For the year ended December 31, 2013, the estimates and assumptions that had the most significant effect were as

follows:

Deferred tax asset - In assessing the amount of the deferred tax asset to recognize, significant judgment is

required in determining the likelihood, timing and level of future taxable profits. Changes in the timing and

level of future taxable profits could cause the amount of the deferred tax asset recovered to differ materially

from the carrying amount.

Liquidation basis of accounting – In 2013, in assessing the appropriate basis of accounting, management

was required to make judgments with respect to the anticipated date of sale of the Property, the probability

of that sale occurring and the timing of the expected liquidation of the Corporation. In performing this

assessment, the Corporation had determined the carrying values of the assets and liabilities as a result of




3

the anticipated sale which had resulted in the increase in the accretion of the debentures payable due to the

expectation of the amounts being paid out earlier than their due date (note 5). Delays or changes in the

proposed transaction could have caused the carrying value of the Corporation’s assets and liabilities to differ

materially from the carrying amount. The sale transaction occurred during 2014 as expected.

Recoverability of land development inventory - In assessing the recoverability of the land development

inventory, management was required to make estimates and assumptions regarding the sale price for

serviced lots, the costs to service the lots, the timing of lot sales, the completion date for the serviced lots

and the Corporation’s cost of borrowing. Changes in these estimates and assumptions could have caused

the net recoverable value of the land development inventory to differ materially from the carrying amount. As

described in note 1, the land development inventory was sold during 2014.

Land Development Inventory

Land development inventory consists of land held for development and land development costs. Land development

inventory is acquired or constructed for sale in the ordinary course of business and is held as inventory and

measured at the lower of cost and net realizable value. The land is recorded at the acquisition cost, which is based

on the price paid by the Corporation for the Property. All direct costs related to land development are capitalized to

land development inventory. These costs include, but are not limited to, construction costs, consultant costs, project

management fees, property taxes and borrowing (financing) costs such as interest on debt specifically related to

the land development inventory, but exclude general and administrative overhead expenses. Land development

inventory is then relieved through cost of sales proportionately, based on the discounted sale price of each lot.

Where the carrying amount exceeds the net realizable value, the difference is recognized as an impairment loss. If

in a future period, the net realizable value of the land development inventory increases, the impairment is reversed

up to the original cost of the inventory.

Borrowing Costs

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying

assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or

sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended

use or sale. The Corporation considers land development inventory to be a qualifying asset.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on

qualifying assets is deducted from the borrowing costs eligible for capitalization.

Borrowing costs on debt not directly attributable to the acquisition, construction or production of qualifying assets

are expensed.




4

Transaction Costs

Issuance costs of project debt obligations are capitalized against the associated debt and amortized using the effective interest rate method.

Financial Instruments

Financial instruments are any contract that gives rise to a financial asset of one party and a financial liability or equity

instrument of another party. Financial assets and liabilities are recognized when the Corporation becomes a party to

the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows

from the assets have been transferred and the Corporation has transferred substantially all risks and rewards of

ownership. Financial liabilities are derecognized when the obligation specified in the contract is discharged.

Financial instruments are recognized initially at fair value, which is the price that would be received to sell an asset

or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

At each reporting period, the Corporation will assess whether there is any objective evidence that a financial asset,

other than those classified as fair value through profit or loss, is impaired. Impairment, if any, is recorded in net

income.

The following table lists the Corporation’s financial instruments and the method of measurement subsequent to

initial recognition:

Financial Instrument Category Measurement Method

Other receivable Loans and receivables Amortized cost

Cash Loans and receivables Amortized cost

Debentures payable Other financial liabilities Amortized cost

Project debt Other financial liabilities Amortized cost

Interest debenture payable Other financial liabilities Amortized cost

Interest payable Other financial liabilities Amortized cost

Accounts payable and accrued liabilities Other financial liabilities Amortized cost

Due to related parties Other financial liabilities Amortized cost

Debentures Payable

Debentures payable consist of the Corporation’s convertible debentures. As the debentures are convertible at the

sole discretion of the Corporation by dividing the principal amount of the debentures and/or the amount of accrued

and unpaid interest by the current fair value per Class B shares at the time of conversion, the full amount of the

debentures are recorded as a financial liability and are initially recorded at fair value and subsequently carried at

amortized cost using the effective interest rate method.




5

The debentures payable issued by the Corporation are extendable at the option of the Corporation for a period of two

years. This extension feature is considered a loan commitment under International Accounting Standard 39:

Recognition and Measurement (“IAS 39”), and as a result, no embedded derivative has been recognized in respect of

this extension feature.

Cash

Cash consists of amounts in demand deposit at financial institutions.

Share Capital

Class A voting common shares (“Class A shares”) have been classified as equity because they represent residual

assets of the Corporation after the deduction of all its liabilities, and do not provide the holder of the shares with the

right to put the shares back to the Corporation.

Class B non-voting common shares (“Class B shares”) issued by the Corporation have been classified as equity

because the shares represent a residual interest in the Corporation after the payment of all its liabilities, and do not

provide the holder of the shares with the right to put the shares back to the Corporation. Costs directly attributable

to the issuance of such shares are recognized as a deduction from equity, net of tax.

Accumulated Deficit

Accumulated deficit comprises the accumulated balance of income less losses arising from the operation of the

Corporation, after taking into account dividends declared by the Corporation.

Revenue Recognition

Land is sold by way of an agreement of purchase and sale. Revenue is recognized on these sales once the

agreement is duly executed and delivered, the collection of sales proceeds is reasonably assured, the purchaser

can commence construction, and all other material conditions are met, including a deposit of not less than 20%.

Customer deposits received for purchases of lots on which revenue recognition criteria have not been met are

recorded as deferred revenue.

The Corporation recognizes interest income on an accrual basis in the period when it is earned.

Cost of Sales

At the time that revenue recognition criteria are met, the Corporation recognizes cost of sales for the lots sold by

allocating to each lot its proportionate share of land development inventory using the net yield method. Under the net




6

yield method, land development inventory is allocated to each lot sold based on the discounted sales price of the lot

over the estimated total discounted lot sales that will benefit from the land development inventory. This results in

phase specific costs being allocated proportionately based on the net yield of each lot in that phase, general costs

being allocated proportionately based on the net yield of each lot that will benefit from the general costs, and land

held for development being allocated proportionately based on the aggregate net yield of each lot of the Yellowhead

development project (“Project”).

Current and Deferred Income Tax

Income tax expense for the period comprises current and deferred tax. Income tax is recognized in the statement of

comprehensive income except to the extent that it relates to items recognized directly in other comprehensive income

or directly in equity, in which case the income tax is recognized directly in other comprehensive income or equity,

respectively.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively

enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

The deferred income method is used to account for income taxes. Under this method, deferred income taxes are

recognized for the deferred income tax consequences attributable to differences between the financial statement

carrying values and their respective income tax basis. Deferred income tax assets and liabilities are measured

using tax rates that have been enacted, or substantively enacted, by the date of the financial statements and are

expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is

settled. The effect on deferred income tax assets and liabilities of a change in tax rates is included in income in the

period that includes the enactment date. Deferred income tax assets are recognized to the extent they are more

likely than not of being realized.

Current Changes in Accounting Policies

The accounting policies used in the preparation of these financial statements are consistent with those which were

disclosed in the Corporation’s audited financial statements for the year ended December 31, 2013, except as

explained below.

Financial instruments

IAS 32 ‘Financial instruments: Presentation – offsetting financial instruments’ amendment was issued by the IASB in

December 2011, for retrospective application in annual periods beginning on or after January 1, 2014. The

amendment addresses inconsistencies in practice when applying the current criteria for offsetting financial

instruments by clarifying the meaning of ‘currently has a legally enforceable right to set-off’, and clarifying that some

gross settlement systems may be considered equivalent to net settlement. The amendment did not have an impact

on the financial statements of the Corporation.




7

Levies

In May 2013, the IASB issued International Financial Reporting Committee (“IFRIC”) 21 – Levies (“IFRIC 21”), which

provided guidance on when to recognize a liability for a levy imposed by the government, both for levies that are

accounted for in accordance with IAS 37 – Provisions, contingent liabilities and contingent assets, and those where

the timing and the amount of the levy is certain. The Corporation has adopted the interpretation effective January 1,

2014. The adoption of IFRIC 21 did not result in any change to the financial statements.

Future Changes in Accounting Policies

IFRS 9, Financial instruments and IFRS 15, Revenue contracts with customers were issued during the year by the

IASB. Both standards are effective subsequent to the expected dissolution of the Corporation. There are no other

changes expected that would impact the Corporation’s accounting prior to dissolution.

4. LAND DEVELOPMENT INVENTORY

December 31,

2014

$

December 31,

2013

$

BALANCE – BEGINNING OF YEAR 35,275,581 29,403,556

Development costs 1,497,553 5,872,025

Sale of land (36,773,134) -

BALANCE – END OF YEAR - 35,275,581

The total amount of land development inventory was relieved through cost of sales with the sale of the Property.

During the year $801,666 (December 31, 2013 - $1,929,708) of interest was capitalized to development costs.

5. DEBENTURES, INTEREST DEBENTURES AND INTEREST PAYABLE

Debentures payable were comprised of the Debentures which were issued by the Corporation as part of its IPO and

in exchange for WIGI’s ownership interest in the Property.

Interest Debentures were comprised of the Debentures that were issued by the Corporation on December 20, 2012

and December 20, 2013 to settle the 2012 and 2013 interest payments, respectively, on the Debentures and

interest debentures.

On May 15, 2014, the Corporation used the proceeds from the sale of the Property to settle its obligation for the

entire amount outstanding on both the debentures payable and interest debentures payable. The total paid to the




8

Debenture holders was $26,201,873, which consisted of $21,669,421 for the debentures payable, $3,321,479 for the

interest debentures payable, and $1,210,973 of interest accrued on both the debentures and interest debentures.

As at the settlement date, WIGI, a related party of the Corporation, owned approximately 5.2% of the outstanding

Debentures and Interest Debentures of the Corporation. As a result $1,351,734 of the total amount settled noted

above was paid to WIGI.

The following table reconciles the change in debentures payable:

December 31,

2014

$

December 31,

2013

$


Accretion on debentures 451,532 539,332

Repayment of debentures (21,669,421) -

BALANCE – END OF YEAR - 21,217,889

The following table reconciles the change in interest debentures payable:

December 31,

2014

$

December 31,

2013

$


Interest debentures issued - 1,825,458

Repayment of interest debentures (3,321,479)

-

BALANCE – END OF YEAR -

3,321,479




9

The following table reconciles the change in interest payable:

December 31,

2014

$

December 31,

2013

$

BALANCE – BEGINNING OF YEAR 478,623 444,428

Accrued interest on the Debentures 636,428 1,733,554

Accrued interest on the interest debentures 95,922 126,099

Settlement of interest through the issuance of interest debentures - (1,825,458)

Interest repayment (1,210,973)

-


478,623

6. PROJECT DEBT

In October of 2013, the Corporation entered into a $13.7 million non-revolving, Bridge Loan (“Bridge Loan”) with a

Canadian financial institution to help finance the construction of infrastructure in respect of the Property and to

repay a Mezzanine Loan to Walton Finance Ltd.

During 2014, the Purchaser of the Property assumed the total debt of $5,528,982, which consisted of principle of

$5,453,990 and accrued interest of $74,992 and the Bridge Loan has been fully discharged.

The Bridge Loan was fully guaranteed by WIGI, payable on demand, and bore interest at a rate calculated as the

greater of: a) prime + 5.25%; and b) 8.25% per annum. The Bridge Loan was secured by, among other things, all

present and after acquired personal property of the Corporation and a first fixed charge over the Property.

December 31,

2014

$

December 31,

2013

$

BALANCE – BEGINNING OF YEAR 5,104,869

-

Advances on project debt 379,597

5,074,393

Interest accrued 144,362

30,476

Interest paid (99,846)

-

Assumption of debt by Purchaser of Land (5,528,982)

-


5,104,869




10

7. RELATED PARTY TRANSACTIONS

See notes 1, 5, 8, 10, and 11 for additional disclosures relating to certain related parties and other related party

transactions.

WAM, WDM, WIGI and Walton Finance Ltd. (“WFL”) are all considered to be related to the Corporation by virtue of

the fact that they are all controlled by Walton Global Investments Ltd. (”WGIL”). The balances due to these related

parties as at December 31, 2014 and December 31, 2013 are outlined in the table below. With the exception of the

development fee payable to WDM and the amount payable to WAM for servicing fees and management fees, these

amounts are unsecured, due on demand, bear no interest and have no fixed terms of repayment. The development

fee is payable to WDM within 60 days of quarter-end and any amounts that are past due bear interest at a rate of

prime + 3%. The servicing fee is payable to WAM semi-annually and the management fee is payable to WAM

quarterly.

December 31,

2014

$

December 31,

2013

$

Walton Asset Management L.P. (WAM) 87,630

1,172,358

Walton International Group Inc. (WIGI) -

683

Walton Development and Management (Alberta) LP (WDM) -

1,775

TOTAL DUE TO RELATED PARTIES 87,630

1,174,816

Walton Asset Management L.P.

In accordance with the terms of the Management Services Agreement between the Corporation and WAM, WAM

will provide management and administrative services to the Corporation in return for an annual management fee

equal to:

i) From November 18, 2011 until the earlier of the date of termination of the Management Services

Agreement and December 31, 2014, 2% of the aggregate of:

a) the net proceeds raised from the IPO of $26,110,000, calculated as the gross proceeds raised of

$28,000,000, net of agency fees of $1,470,000 and offering costs of $420,000; and

b) the product of the number of Units issued by the Corporation to WIGI in exchange for its interest in

the Property multiplied by $9.325, which was equal to $832,312; and

ii) thereafter, from January 1, 2015 until the termination date of the Management Services Agreement, an

amount equal to 0.5% of the book value of the Property.

In accordance with the Management Services Agreement, commencing on November 18, 2011 and continuing until the earlier of the dissolution of the Corporation and December 31, 2014, the Corporation will pay to WAM a servicing fee equal to 0.50% annually of the net proceeds for each Unit sold under the IPO. WAM is then responsible for




11

paying the servicing fee to the Corporation’s agents in accordance with the Agency Agreements between the Corporation, WAM, WDM and the agents. The servicing fee is calculated from the date of the applicable closing, calculated semi-annually and paid as soon as practicable after that date. During the year ended December 31, 2014, the total servicing fees charged to the Corporation was $130,550 (December 31, 2013 - $130,550). During the year ended December 31, 2014, the total management fees charged to the Corporation was $177,155 (December 31, 2013 - $538,846). At the date of the sale of the Property WAM waived any future management fees to be charged to the Corporation. The total management fee waived was $361,691. The proceeds from the sale of the Property were used to repay the total amount of servicing fees and management fees outstanding. During the year ended December 31, 2014, the total amount paid to WAM for servicing and management fees was $1,392,433 (December 31, 2013 - $nil).

Walton Development and Management (Alberta) LP

In accordance with the terms of the Project Management Agreement between the Corporation and WDM, the fees and

costs for services provided by WDM are divided into the following two categories:

i) WDM will receive a development fee, plus applicable taxes, equal to 2% of certain development costs

incurred in the calendar quarter, payable within 60-days of the end of such quarter; and

ii) WDM will receive a performance fee, plus applicable taxes, equal to 25% of cash distributions after all

investors of Units in the Corporation have received cash payments or distributions equal to $10.00 per

Unit, plus a cumulative compounded priority return of 8% per annum. The priority return is calculated on

that $10 amount per Unit, reduced by any cash payments or distributions by the Corporation.

During the year ended December 31, 2014, the total development fee charged to the Corporation was $5,973

(December 31, 2013 - $73,851), total development fees paid by the Corporation was $7,748 (December 31, 2013 -

$97,546). These costs have been capitalized as part of land development costs.

During the year ended December 31, 2014, the Corporation incurred a total amount payable to WDM of $657

(December 31, 2013 - $171) for day to day expenses that were initially funded by WDM on the Corporation’s behalf.

The total amount paid to WDM for amounts that were incurred on behalf of the Corporation during the year ended

December 31, 2013 was $657 (December 31, 2013 - $390).

No performance fee was incurred by the Corporation during the year ended December 31, 2014 because WDM has

waived the performance fee with the sale of the Property. No further development fees will be incurred by the

Corporation due to the sale of the Property. The total performance fee waived was $193,175.




12

Walton International Group Inc.

As at December 31, 2014, the Corporation owed $nil to WIGI (December 31, 2013 - $683). The balance outstanding

as at December 31, 2013 was comprised of costs that were initially funded by WIGI on behalf of the Corporation but

were reimbursable by the Corporation.

During the year ended December 31, 2014, the Corporation incurred a total amount payable to WIGI of $12,770

(December 31, 2013 - $7,994) in costs initially funded by WIGI on the Corporation’s behalf. The total amount paid to

WIGI for amounts funded on the Corporation’s behalf was $13,453 (December 31, 2013 - $7,808).

During the year, the Corporation paid $8,696,661 as a dividend to shareholders. As WIGI owns approximately 5.2%

of the class B shares, they received $450,344 as a dividend.

Walton Finance Ltd.

The Corporation had a Mezzanine Loan from WFL which provided for borrowing up to $1,000,000. The Mezzanine

Loan was secured by a fixed and specific demand mortgage and charge on the Property, which shall be second in

priority only to the Construction Loan, and by a general security agreement in second position charging all other assets

of the Corporation and bore interest at a rate of 8% per annum, calculated monthly. The loan, plus any accrued

interest was repayable on the earlier of:

i) December 15, 2015;

ii) such earlier date as the Corporation wishes t pay out the loan; or

iii) the date payment is demanded by WFL in writing to the Corporation.

During the year ended December 31, 2013, the Corporation borrowed a total of $592,278 which was comprised of

$571,677 of principal, plus accumulated interest of $20,601. The entire balance was repaid on November 13, 2013

with funds drawn down on the Bridge Loan. No amounts were borrowed in 2014.

Key Management Compensation

Key management personnel are comprised of the Corporation’s directors and executive officers. The total

compensation expense incurred by the Corporation relating to its independent directors was as follows:

December 31,

2014

$

December 31,

2013

$

Directors’ fees 43,645 52,129




13

All services performed for the Corporation by its executive officers and non-independent director are governed by

the Management Services Agreement. The annual management fee that WAM receives under the Management

Services Agreement has been disclosed above.

The compensation of key management does not include the remuneration paid to individuals who are paid directly

by WGIL or WAM. The officers of the Corporation are also officers and directors of numerous entities controlled or

managed by WGIL and it is not practicable to make a reasonable apportionment of their compensation in respect of

each of those entities.

8. SHARE CAPITAL

Authorized

Unlimited Class A voting common shares

Unlimited Class B non-voting common shares

Outstanding December 31, 2014 December 31, 2013

Number of

shares

Amount

$

Number of

shares

Amount

$

Class A voting common shares 100 100 100 100

Class B non-voting common shares 2,800,000 7,000,000 2,800,000 7,000,000

Class B shares issued to WIGI in exchange for

land 89,256 211,425 89,256 211,425

Share issuance costs - (472,500) - (472,500)

Tax effect of share issuance costs - 85,114 - 118,125

2,889,356 6,824,139 2,889,356 6,857,150

All Class A shares of the Corporation are held by 1389211 Alberta Ltd., a wholly owned subsidiary of WIGI. WIGI is

a wholly owned subsidiary of Walton Global. All or substantially all of the shares of WIGI are owned indirectly by

members of the Doherty family, including William K. Doherty, the Chief Executive Officer and director of WIGI.

Per Share Amount

Basic net income/(loss) per share is calculated by dividing the Corporation’s net income/(loss) by the weighted

average number of shares outstanding. Class A shares outstanding have not been included in the weighted

average shares outstanding because the Class A shares do not participate in the profits or losses of the




14

Corporation. The weighted average number of shares outstanding during the years ended December 31, 2014 and

December 31, 2013 was 2,889,256.

As the Corporation has the right to convert any portion of the debentures payable into Class B shares, this

conversion feature could result in potentially dilutive shares in the determination of the weighted average diluted

shares outstanding. For the years ended December 31, 2014 and December 31, 2013, the potentially dilutive

shares were nil because the Corporation generated a net loss during 2013 and settled the debentures payable in

May 2014.

Share Issuance Price

The Class A shares issued and outstanding of the Corporation were issued at a price of $1/share.

The Class B shares issued and outstanding of the Corporation were issued at a price of $2.50/share.

9. INCOME TAXES

The following table reconciles the tax recovery calculated on the Corporation’s net income/(loss) before tax using Corporation’s statutory tax rate to the income tax recovery recognized:

December 31,

2014

$

December 31,

2013

$

Net income/(loss) before tax 4,756,989 (803,408)

Permanent difference:

Accretion not deductible for tax 17,578 -

4,774,567 (803,408)

Statutory tax rate 25% 25%

INCOME TAX EXPENSE/(RECOVERY) 1,193,642 (200,852)

Deferred income tax assets are a result of temporary differences between the carrying amount of assets and liabilities

in the financial statements and their carrying amount for income tax purposes, as well as the recognition of tax losses.




15

When the Corporation begins earning net income, the deferred tax asset is utilized and a liability for taxes payable on

the net income is recognized. The following table reconciles the change in the deferred tax asset:

December 31,

2014

$

December 31,

2013

$

DEFERRED TAX ASSET - BEGINNING OF YEAR 537,634 336,782

Recognition of tax losses from current year - 295,352

Temporary differences as a result of issuance costs - (94,500)

Utilization of deferred tax asset (498,798) -

Deferred tax asset not probable to be recovered (33,011) -

DEFERRED TAX ASSET - END OF YEAR 5,825 537,634

The portion of the deferred tax asset relating to the remaining share issuance costs not yet recognized for tax

purposes after March 31, 2015 is not expected to be recovered prior to the dissolution of the Corporation. Therefore

only the deferred tax asset relating to the share issuance costs not recognized for tax purposes for the first quarter

of 2015 remains.

10. FINANCIAL INSTRUMENTS

The Corporation’s financial instruments consist of other receivable, cash, project debt, debentures payable, interest

debentures payable, interest payable, accounts payable and accrued liabilities, and amounts due to related parties.

During 2014, the project debt, debentures payable and interest debentures payable have been repaid. At

December 31, 2013 the fair value of the debentures payable and interest debentures payable approximates their

carrying value due to the short-term nature of these items. The fair value of project debt approximates its carrying

value because the debt is due on demand and the interest rate on the debt is variable based on the prime lending

rate.

The fair value of debentures payable and interest debentures payable is determined using the income approach,

primarily making use of level 3 (unobservable) inputs. Using the income approach, the expected future cash

commitments arising from these financial liabilities are discounted by the Corporation’s market rate. At December

31, 2014 the debentures payable and interest debentures payable have been repaid. At December 31, 2013, the

fair value of debentures and interest debentures payable approximated the carrying amount because there were




16

not any significant changes in the Corporation’s risk premium or to market interest rates, since the issuance of

these financial liabilities.

The following tables set out the Corporation’s classification and carrying amount of the financial instruments along

with the fair value as at December 31, 2014 and December 31, 2013.

DECEMBER 31, 2014

Fair

Value

Amortized Cost Totals

Through

profit and

loss

Loans and

receivables

Other financial

liabilities Carrying amount Fair Value

$ $ $ $ $

Asset (liability):

Other receivable - 1,315 - 1,315 1,315

Cash - 1,273,306 - 1,273,306 1,273,306

Accounts payable

and accrued

liabilities -

- (67,544) (67,544) (67,544)

Due to related

parties - - (87,630) (87,630) (87,630)

- 1,274,621 (155,174) 1,119,447 1,119,447




17

DECEMBER 31, 2013

Fair

Value

Amortized Cost Totals

Through

profit and

loss

Loans and

receivables

Other financial

liabilities Carrying amount Fair Value

$ $ $ $ $

Asset (liability):

Other receivable - 1,854 - 1,854 1,854

Cash - 1,563,717 - 1,563,717 1,563,717

Project debt - - (5,104,869) (5,104,869) (5,104,869)

Debentures

payable - - (21,217,889) (21,217,889) (21,217,889)

Interest debentures

payable - - (3,321,479) (3,321,479) (3,321,479)

Interest payable - - (478,623) (478,623) (478,623)

Accounts payable

and accrued

liabilities -

- (492,084) (492,084) (492,084)

Due to related

parties - - (1,174,816) (1,174,816) (1,174,816)

- 1,565,571 (31,789,760) (30,224,189) (30,224,189)

i) Risk – overview

The Corporation’s financial instruments and the nature of the risks to which they may be subject are as set

out in the following table:

Risk

Credit Liquidity Interest rate Currency

Other receivable X

Cash X X

Accounts payable and

accrued liabilities X

Due to related parties X




18

ii) Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by

failing to discharge an obligation. Credit risk arises from cash held with banks and other receivable. The

maximum exposure to credit risk is equal to the carrying value of these financial instruments.

Other receivable – The Corporation’s exposure to credit risk associated with the other receivable is

not material because the balance of other receivable is typically not material and is settled monthly.

Cash - Cash is on deposit with a major financial institution, which substantially minimizes its exposure

to credit risk.

iii) Liquidity risk

Liquidity risk arises from the possibility that the Corporation will encounter difficulties in meeting its financial

obligations as they become due. Financial liabilities subject to liquidity risk includes accounts payable and

accrued liabilities, due to related parties, project debt, debentures payable, interest debentures payable and

accrued interest payable. The Corporation manages its liquidity risk by managing cash receipts and

payments.

The future undiscounted obligations of the Corporation are noted below:

2015 2016 2017 2018

2019

thereafter

Due to related parties 87,630 - - - -

Accounts payable and accrued liabilities 67,544 - - - -

155,174 - - - -

As noted in note 1, the Corporation sold the Property and is expected to enter into a wind up of its remaining assets and liabilities. The Corporation will discharge its remaining obligations in an orderly manner.

iv) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of financial instruments will fluctuate

because of changes in market interest rates. The financial instruments of the Corporation which give rise

to interest rate risk are as follows:




19

Cash - Changes in market interest rates will cause fluctuations in the future interest earned on these

balances. Any resulting impact on the Corporation’s financial results would not be considered

material.

v) Currency risk

The Corporation does not engage in foreign currency dominated transactions. As a result, it has no

exposure to currency risk.

11. CAPITAL MANAGEMENT

Prior to the sale of the Property, the Corporation defined capital as total Shareholders’ Equity, Debentures Payable,

Interest Debentures Payable, Project Debt and balances Due to Related Parties. Due to the sale and the settlement

of the majority of liabilities, the Corporation’s capital consists of Shareholders’ Equity. At December 31, 2014 the total

capital managed was $432,300 (December 31, 2013 - $36,417,678).

The Corporation will manage the capital structure by maintaining a reserve to pay for all the remaining liabilities,

operating expenses and any unforeseen expenses incurred until the dissolution of the Corporation.

12. SUPPLEMENTAL INFORMATION TO THE STATEMENTS OF CASH FLOW

December 31,

2014

$

December 31,

2013

$

Accretion related to Debentures payable capitalized to land development

inventory 451,532 539,332

Non-cash interest capitalized to land development inventory 801,666 1,890,129

Assumption of project debt by Purchaser 5,528,982 -

Non-cash issuance of interest debentures - 1,825,458

13. SUBSEQUENT EVENT

On March 24, 2015, the Board approved a final cash distribution of $404,496 to the holders of Class B Shareholders,

in connection with the wind up of the Corporation. A dissolution agreement has been entered into with WAM

pursuant to which the Corporation has assigned to WAM its remaining assets to cover any remaining expenditures.




20

In accordance with this agreement, WAM assumes the Corporation’s obligation to discharge any remaining liabilities

of the Corporation.

financial statements - walton.com yellowhead... · prepaid expenses 333 1,400 ... total liabilities...

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