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Walton Westphalia Development Corporation • Washington, D.C. area
Walton Westphalia Development Corporation
Q2 REPORTFor the three months ended June 30, 2012 and the period January 4, 2012 to June 30, 2012
Q2 R
EPOR
T
Phoenix-Tucson
Atlanta
Austin-San Antonio
Dallas-Fort Worth
Washington D.C.
Niagara
Ottawa
Brant County
Simcoe County
Calgary
Edmonton
Charlotte
22012 Q2 Report • Walton Westphalia Development Corporation
CONTENTS
CEO Message to Shareholders
Management’s Discussion and Analysis
Unaudited Interim Financial Statements
Walton Group of Companies
Register for Our Website
Walton Westphalia Development Corporation • Washington, D.C. area
32012 Q2 Report • Walton Westphalia Development Corporation
CEO Message to ShareholdersWe are pleased to present the second quarter 2012 report for Walton Westphalia Development Corporation (the “Corporation”). Launched in 2012, the Corporation owns a planned three-phase mixed-use development of the approximately 310-acre Westphalia Property located in Prince George’s County, Maryland, USA (the “Property”).
Highlights for the Second Quarter• Submission of a detailed site plan for Phase 1 infrastructure;• Meetings with county officials and agencies to ensure continual progress towards the end goal of issuing permits
for the project; and• Subsequent to the quarter, the Corporation refined and updated its preliminary development plan for the project to better
align the development plan with current and future market opportunities. These changes are not expected to have a material impact on the project or the ability of the Corporation to achieve its investment objectives.
During the second quarter of 2012, the main priority of the Corporation was to raise capital through the previously announced private placement offering to help the Corporation carry out its investment strategy. Since the commencement of the private placement, a total of 975,543 units have been issued for gross proceeds of $9,755,430. Subsequent to the second quarter, the Corporation’s wholly-owned subsidiary, Walton Westphalia Development (USA), LLC (the “US Subsidiary”) entered into assignment and co-ownership agreements with Walton Maryland, LLC (“Walton MD”) and Walton Westphalia Europe, LP (“WWE LP”), an entity managed by the Walton Group of companies. Under the agreements, WWE LP will acquire from the US Subsidiary up to a 30.67% undivided interest in the Property. WWE LP has since acquired 11.3% undivided interest in the Property.
The proceeds raised under both the private placement and the funds from the sale were utilized by the Corporation to repay the related party loan. The Corporation anticipates the private placement and the remaining sale of undivided interest to WWE, LP will both be completed in the fourth quarter.
From a timing perspective, the project is proceeding as anticipated and management expects that the project will be completed within the approximate seven-year time frame disclosed in the prospectus and offering memorandum
Market EnvironmentThe Washington D.C. region’s housing market continues to recover as sales activity improves and home prices rise. As of April 2012, inventory was at the lowest point since the fourth quarter of 2005, which was the peak of the last housing cycle.1 Through the first five months of 2012, 18,783 housing permits were issued, for a 5,618 increase over the first five months of 2011.2 The Washington D.C. retail market is in a broad-based recovery. A rise in tenant demand reduced vacancy rates to 5.5% in the second quarter of 2012 from 5.9% in the first quarter of 2012. On a year-over-year basis, rent in the retail sector is anticipated to increase 1.3% to $26.06 per square foot, which is the first annual advance since 2008.3
Market fundamentals remain robust in the Washington D.C. region, as the May 2012 unemployment rate of 5.3% was among the lowest relative to other metropolitan areas. Further, year-over-year job growth was 47,000 as of May 2012. Personal income in Washington is projected to increase by 27.7% from 2012 to 2016, and Walton believes that improving economic activity will be positive for the Westphalia project.4
Walton maintains a positive outlook for our managed real estate investments and developments in the Washington D.C. region. Our investment team is working collaboratively with local authorities to create successful, smart-growth communities that realize the highest and best use of our lands, ultimately achieving your and our investment goals. Our experience is that, with expert management and Walton’s carefully crafted approach, quality investments prevail.
Thank you for your investment in the Corporation, and thank you for your support and confidence in the Walton Group of Companies.
Best regards,
Bill DohertyChief Executive OfficerWalton Westphalia Development Corporation
1 Delta Associates, Washington Metro Area Housing Outlook, April 20122 Metrosearch USA, Filtered Economic Variables, May 20123 Marcus and Millichap, Retail Research Market Overview Washington D.C., Q2 20124 Moody’s Analytics, Precis U.S. Metro, Northeast, May 2012
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Management’s Discussion & Analysis
For the three months ended June 30, 2012 and the period from January 4, 2012 to June 30, 2012
August 22, 2012
The following management’s discussion and analysis (“MD&A”) is a review of the consolidated financial condition and consolidated results of operations of Walton Westphalia Development Corporation (the “Corporation”) for the three months ended June 30, 2012 and the period from January 4, 2012 to June 30, 2012. The MD&A should be read in conjunction with the Corporation’s condensed interim consolidated financial statements for the three months ended June 30, 2012 and the period from January 4, 2012 to June 30, 2012, and the prospectus (“Prospectus”) of the Corporation dated February 27, 2012, which includes the Corporation’s audited financial statements as at and for the period ended January 4, 2012.
All financial information is reported in Canadian dollars and has been prepared in accordance with IAS 34: Interim Financial Reporting and using accounting policies that are consistent with International Financial Reporting Standards ("IFRS”) as issued by the International Accounting Standards Board. As this is the first year of operations of the Corporation, the condensed consolidated financial statements have also been prepared in accordance with IFRS 1: First-‐time Adoption of International Financial Reporting Standards. In limited situations, IFRS has not issued rules and guidance applicable to the real estate investment and development industry. In such instances, the Corporation has followed guidance issued by the Real Property Association of Canada to the extent that these do not conflict with the requirements under IFRS or the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the IFRS framework.
Additional information about the Corporation is available on SEDAR at www.sedar.com.
Critical Accounting Estimates
The preparation of financial information 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 amount of revenues and expenses during the period. The estimates and assumptions that have the most significant affect on the amounts recognized in the Corporation’s consolidated financial statements are related to the recoverability of land held for development and land development costs, and the recognition of future tax assets. In assessing the recoverability of land held for development and land development costs, management is 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 capital. In assessing the amount of deferred tax assets that can be recognized, management is required to make estimates and assumptions regarding the likelihood, timing and level of future taxable profits. Changes in these estimates and assumptions could cause actual results to differ materially from those reported.
42012 Q2 Report • Walton Westphalia Development Corporation • Management’s Discussion & Analysis
Management’s Discussion & Analysis
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Forward-looking Statements
Certain information set forth in this material, including the disclosure of the anticipated completion dates of key project milestones, are based on the Corporation’s current expectations, intentions, plans and beliefs, which are based on experience and the Corporation’s assessment of historical and future trends. Such forward-‐looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond management’s control. These risks and uncertainties include, but are not limited to, the timing of approval by municipalities, the estimated time required for construction and the business and general economic environment. These uncertainties may cause the Corporation’s actual performance, as well as financial results in future periods, to differ materially from any projections of future performance or results expressed or implied by such forward-‐looking statements. Investors are cautioned against attributing undue certainty to forward-‐looking statements as actual results could differ materially from management’s targets, expectations or estimates.
Responsibility of Management
This MD&A has been prepared by, and is the responsibility of, the management of the Corporation.
Approval by the Board of Directors
The MD&A was authorized for issue by the board of directors on August 22, 2012.
Business Overview
The Corporation, which is managed by Walton Asset Management L.P. ("WAM"), was established on January 4, 2012 under the laws of the province of Alberta. The wholly-‐owned subsidiary of the Corporation (“US Subsidiary”), Walton Westphalia Development (USA), LLC., is a limited liability company organized under the laws of the state of Maryland on January 6, 2012. The Corporation and the US Subsidiary were formed for the purpose and objective of providing investors with the opportunity to participate in the acquisition and development of the approximately 310 acre “Westphalia” property located in Prince George’s County in Maryland, U.S.A. (the “Property”), approximately 7 miles southeast of the District of Columbia.
The Property is located along the north side of Maryland State Route 4 directly across from Joint Base Andrews, approximately 1.5 miles east of the Capital Beltway. The Capital Beltway is the 64 mile long ring road that encompasses Washington D.C. and its inner suburbs in Maryland and Virginia. The southern edge of the Property runs parallel to Pennsylvania Avenue with over 1.5 miles of frontage. Pennsylvania Avenue is a major commuter route, which runs 13.5 miles from the Property all the way to the U.S. Capitol Hill, the site of the White House, the National Mall and the U.S. Capitol Building.
The preliminary development plan that has been prepared by Walton Development and Management (USA), Inc. (“WDM”), the manager of the project, includes three phases over an estimated seven-‐year time horizon. When completed, it is anticipated that the project will provide approximately 66 single family homes, 779 townhomes, 884 rental apartments, 533,759 square feet of retail space, 2,240,000 square feet of office space and 600 hotel rooms.
In order to raise sufficient capital for the acquisition and development of the Property, the Corporation completed an initial public offering (“IPO”) in March 2012. The completion of the IPO was followed by several private placement offerings (“Private Placements”) which were completed under the offering memorandum (“Offering Memorandum”) dated March 26, 2012. The final Private Placement is expected to take place in October 2012. Each unit issued by the Corporation (“Unit”) through the IPO or Private Placements (collectively, the “Offerings”) were comprised of a $5.00 principal amount of unsecured, subordinated, convertible, extendable debenture bearing simple interest at a rate of 8% (“Debenture”) and one class B non-‐voting common share (“Class B share”) having a price of $5.00.
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The Corporation’s investment objectives are to:
i.) preserve the capital investment of the purchasers in the Units; ii.) make annual cash distributions on the Units beginning in June of 2013 until the final distribution of funds from the
project, which is anticipated to be in March of 2019; and iii.) achieve a net internal rate of return of 15.0% on the $10.00 purchase price of the Units.
The Corporation intends to preserve the capital investment of the purchasers of Units in the Corporation and provide cash distributions on the Units by executing the following four-‐step investment strategy:
i.) acquire the Westphalia Property through the US Subsidiary; ii.) obtain letters of intent or expressions of interest from vertical developers and other end users to purchase lots and
parcels to be serviced in each of the three planned phases of the development of the Property before construction commences on that phase;
iii.) construct municipal services infrastructure on the Property in phases to provide a controlled supply of serviced lots and parcels to the marketplace; and
iv.) use the revenue from the sale of the serviced lots and parcels to repay construction loans and other obligations of the Corporation and the US subsidiary and then pay the remainder to the holders of the Debentures and Class B shares by paying the interest and principal on the Debentures and by declaring a dividend or dividends on the Class B shares through the life of the investment in the Property and/or winding up the Corporation and distributing its assets to the holders of the Class B shares.
Although management expects that the execution of the investment strategy will allow the Corporation to pay distributions on the Units, distributions by the Corporation are neither guaranteed nor will they be paid in a steady or stable stream. The amount and timing of any distributions will be at the sole discretion of the Corporation and only after the Corporation has paid or reserved funds for its expenses, liabilities and commitments (other than with respect to the Debentures), including (i) the fees payable to WAM and WDM (including the performance fee), and (ii) any amounts outstanding, on a phase by phase basis, under the construction loans required to develop the Property. The performance fee is only payable provided that the investors of Units in the Corporation have received cash payments on the Debentures or cash distributions on the Class B shares equal to $10.00 per Unit, plus a cumulative compounded priority return thereon, equal to 8% per annum.
The registered office and principal place of business is 23rd floor, 605 – 5th Avenue SW, Calgary, Alberta, T2P 3H5.
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Second Quarter Consolidated Financial Data
1 – Weighted average shares outstanding exclude the 100 Class A voting common shares issued. Based on the Corporation’s articles of incorporation, Class A shareholders are not entitled to
participate in any dividends declared by the Corporation, or the distributions of any part of the assets of the Corporation.
As at
June 30, 2012
Total assets ($) 30,780,363
Total non-‐current liabilities ($) 11,080,800
Total liabilities ($) 20,225,813
Total Equity ($) 10,554,550
Class B shares outstanding – end of period 2,347,555
Review of Operations
Summary
During the second quarter of 2012, the main priority of the Corporation was to raise capital through the Private Placements to help the Corporation carry out its investment strategy through the offering memorandum dated March 26, 2012. In working towards this objective, the Corporation completed several Private Placements during the second quarter, which resulted in the issuance of a total of 905,255 Units for gross proceeds of $9,052,550. The last Private Placement is expected to take place during the third quarter of 2012.
The Corporation also undertook certain planning activities during the second quarter of 2012. The following activities were undertaken by the Corporation during the second quarter:
• Submission of a detailed site plan for Phase 1 infrastructure; • Submission of the hydraulic planning and analysis amendment to the Washington Suburban Sanitary Commission; and • Meetings with county officials and agencies to ensure continual progress towards the end goal of issuing permits for
the project.
From a timing perspective, the project is proceeding as anticipated and management expects that the project will be completed within the approximate seven-‐year time frame disclosed in the Prospectus and Offering Memorandum (collectively, the “Offering Documents”).
Three months ended
June 30, 2012
For the period from January 4, 2012 to
June 30, 2012
Total revenues ($) 13,199 15,785
Total expenses ($) 288,244 537,615
Net loss and comprehensive loss ($) 275,045 521,830
Weighted average shares outstanding1 1,722,655 969,814
Basic and diluted earnings per share ($) 0.16 0.54
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During the second quarter of 2012, the Corporation generated total revenues of $13,199, total expenses of $288,244 and a net loss and comprehensive loss of $275,045. The revenues earned by the Corporation were comprised of interest earned on the Corporation’s cash on hand. The expenses during the second quarter primarily consisted of $135,788 in costs incurred for the Private Placement and $79,741 in costs incurred for the management of the Corporation. The nature and amount of the expenses incurred by the Corporation during the second quarter of 2012 were consistent with management’s expectations. The net loss incurred by the Corporation during the second quarter of 2012 was also consistent with management’s expectations because the Corporation is not expected to generate significant revenue, except during periods when the sale of lots is completed.
On a year-‐to-‐date basis, the Corporation generated total revenues of $15,785, total expenses of $537,615, and a net loss and comprehensive loss of $521,830. The revenues earned by the Corporation during the period from January 4, 2012 to June 30, 2012 were comprised of interest earned on the Corporation’s cash on hand. The expenses for the year-‐to-‐date period primarily consisted of $352,133 in costs incurred for the preparation of the IPO and Private Placements (collectively, the “Offerings”) and $87,825 in costs for the management of the Corporation. The nature and amount of the expenses incurred by the Corporation for the year-‐to-‐date period were consistent with management’s expectations for the period. The net loss incurred by the Corporation for the year-‐to-‐date period was also consistent with management’s expectations because the Corporation is not expected to generate significant revenue, except during periods when the sale of lots is completed.
Given that the project remains on track both financially and from a timing perspective, management believes that the project remains on track for achieving its investment objectives.
Analysis of Financial Condition
As at June 30, 2012, the Corporation had total assets of $30,780,363, total liabilities of $20,225,813 and total shareholders’ equity of $10,554,550. The most significant assets of the Corporation as at June 30, 2012 were land held for development of $25,692,656 and cash of $4,751,162. The most significant liabilities of the Corporation as at June 30, 2012 were debentures payable of $11,080,800 and a loan due to a related party of $8,842,066.
As at June 30, 2012, the Corporation was highly leveraged with a debt to equity ratio of 1.92 and a current ratio of 0.52. This is expected to decrease in the short-‐term as the Corporation uses the proceeds from the Private Placement to repay the related party loan. Although the final Private Placement is not expected to be completed until the third quarter of 2012, management does not expect for all remaining Units offered under the Offering Memorandum to be taken up. As a result, the Corporation plans to complete a partial sale of the Property to Walton Westphalia Europe, LP (“WWE”), which will co-‐develop of the Property with the Corporation. The proceeds received from the partial sale of the Property will be used by the Corporation to repay the remainder of the related party loan, with the balance set aside as working capital to fund the ongoing administrative and operating expenses, management fees, development fees, pre-‐development costs, construction costs and other expenses of the Corporation, until such time that the Corporation enters into a construction loan for Phase 1 of the project. The remainder of the liabilities of the Corporation as well as the balances outstanding from the construction loan will be funded through the sale of serviced lots by the Corporation.
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Initial Public Offering and Private Placement
On February 27, 2012, the Corporation commenced the IPO of 3,450,000 Units of the Corporation at a price of $10 per Unit. The IPO of the Corporation was completed on March 20, 2012 and resulted in the issuance of 1,442,300 Units of the Corporation for gross proceeds of $14,423,000. The closing of the IPO was followed by the commencement of the Private Placements on March 26, 2012, which offered a maximum of 2,007,700 Units for a maximum of $20,077,000. As at June 30, 2012, the Corporation has issued 905,255 Units of the Corporation for gross proceeds of $9,052,550 through the Private Placements. The final Private Placement is expected to occur during the third quarter of 2012. In total, the Offerings have raised gross proceeds of $23,475,550, of which $11,737,775 was paid as consideration for the debenture payable and $11,737,775 was paid as consideration for the Class B shares. The total costs incurred to date by the Corporation in respect of the Offerings were $1,675,125. This amount was comprised of commissions paid to agents of $1,232,466, work fees of $90,526 and costs associated with the preparation of the Offering Documents of $352,133. The commissions and work fees have been allocated equally to the debenture and share component based on their proportionate share of the gross proceeds raised. The costs associated with the preparation the Offering Documents have been expensed by the Corporation and totalled $135,788 for the three months ended June 30, 2012 and $352,133 for the year-‐to-‐date period.
Although the number of Units issued to-‐date through the Offering, plus the number of additional Units that the Corporation expects to issue through the Private Placements during the third quarter is less than the number of Units that management had hoped to issue through the Offerings, this possibility was contemplated by management in preparation for the IPO. As a result, management formed a contingency plan for the partial sale and co-‐development of the Property with a related party of the Corporation. This party has now been identified and will be Walton Westphalia Europe, LP, which is related to the Corporation by virtue of common management. As a co-‐owner of the Property, all revenues and expenses incurred for the development of the Property will be allocated proportionately based on each party’s ownership interest in the Property, which is not expected to impact either the ability of the Corporation to achieve its investment objectives.
Acquisition of the Property
On October 26, 2011, Walton Maryland entered into a Purchase and Sale Agreement for an aggregate of 479 acres of real property, located in Prince George’s County, Maryland. The purchase price payable under the Agreement of Purchase and sale was denominated in U.S. dollars. On February 6, 2012, the Corporation entered into an Assignment Option Agreement with Walton Maryland, for the assignment of Walton Maryland’s rights under the Purchase and Sale Agreement to the Corporation. In order to fix the cost of the Property in Canadian dollars, the Corporation entered into two forward contracts to exchange an aggregate of CDN $25,643,390 in return for U.S. $25,300,000.
On February 14, 2012, the Corporation exercised its rights under the Assignment Option Agreement for 310 of the 479 acres of Property, leaving the remaining 169 acres unexercised. The purchase price of the Property was U.S. $23,714,149 ($23,692,806 CDN), plus closing costs of U.S. $1,496,975 ($1,496,963 CDN). These closing costs include a realized loss on the two forward contracts of U.S. $339,099 ($339,550 CDN).
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The carrying amount of land held for development as at June 30, 2012 was comprised of the following:
As at June 30, 2012
$
Cost of the property 23,692,806 Closing costs 1,496,963 Effect of changes in foreign exchange rates 502,887 Total – land development costs 25,692,656
Land Development Costs
Land development costs can be divided into two primary categories: hard construction costs, which are the costs related to the physical improvement of the land, and soft costs, which include but are not limited to, costs associated with architectural control consultants, financing fees for establishing construction loans, interest on the construction loan and debentures payable, legal fees, municipal taxes and construction management, and appraisal fees.
The following table provides a breakdown of the amounts capitalized to land development costs. Planning and financing costs are comprised of soft costs associated with the project.
As at June 30, 2012
$
Financing 612,201
Planning 171,375
Effect of changes in foreign exchange rates (452,178)
Total – land development costs 331,398
The total development costs incurred during the period from January 4, 2012 to June 30, 2012 were consistent with the amounts anticipated by management for the work completed during that period.
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Management Fees
On February 27, 2012, the Corporation and WAM entered into a Management Services Agreement. In accordance with the terms of the Management Services Agreement, WAM will provide management and administrative services to the Corporation in return for an annual management fee equal to:
i.) from March 20, 2012 until the earlier of the date of termination of the Management Services Agreement and March 31, 2019, 2% of the aggregate of:
a.) the net proceeds raised from the IPO of $13,449,548, calculated as the gross proceeds raised of $14,423,101, net of selling commissions of $757,208 and organizational costs of $216,345;
b.) the net proceeds raised from any follow-‐on the Private Placement; and c.) the amount of the servicing fee (see below), which will be distributed by WAM on behalf of the Corporation;
and ii.) thereafter, from April 1, 2019 until the termination date of the Management Services Agreement, an amount equal to
2% of the book value of the Properties.
During the second quarter of 2012 and the period from January 4, 2012 to June 30, 2012, the Corporation incurred total management fees of $79,741 and $87,825, respectively. The total management fees incurred for both the second quarter and on a year-‐to-‐date basis was consistent with both the terms of the Management Services Agreement and management’s expected use of funds.
Servicing Fees
Under the terms of the Agency Agreements between the Corporation, WAM, and the Corporation’s agents, the Corporation has servicing fees payable to WAM (which it will then pay to the agents on behalf of the Corporation) equal to 0.5% of the net proceeds raised from the initial public offering and any follow-‐on Private Placement, until the earlier of the dissolution of the Corporation and December 31, 2018.
During the second quarter of 2012 and the period from January 4, 2012 to June 30, 2012, the Corporation incurred total servicing fees of $19,935 and $21,956, respectively. The total servicing fees incurred for both the second quarter and on a year-‐to-‐date basis was consistent with both the terms of the Agency Agreements and management’s expected use of funds.
Transactions with Related Parties
Walton Maryland LLC, WAM, WIGI, WDM, Walton Westphalia Europe LLC and 1389211 Alberta Ltd. are all related to the Corporation by virtue of common management. All transactions entered into between the related parties during the three months ended June 30, 2012 and during the period from January 4, 2012 to June 30, 2012 were under terms and conditions agreed upon between the parties. With the exception of the loan due to WIGI, the amounts payable to WAM for the management and servicing fee and the amounts payable to WDM for the development fee, all amounts receivable from related parties and payable to related parties are unsecured, due on demand, bear no interest and have no fixed terms of repayment.
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The balance due to the related party as at June 30, 2012 is outlined in the table below.
As at June 30, 2012
$
Walton International Group Inc. 1,825
Total – Due to related party 1,825
The balance due from the related party as at June 30, 2012 is outlined in the table below.
As at June 30, 2012
$
Walton Asset Management L.P. 130
Total – Due from related party 130
The balance of the loan payable and interest payable to related parties as at June 30, 2012 is outlined in the table below.
As at June 30, 2012
$
Loan payable to Walton International Group Inc. 8,842,066
Interest on loan payable to Walton International Group Inc. 2,657
Total 8,844,723
The following transactions entered into between the related parties were under terms and conditions agreed upon between the parties.
Walton Maryland, LLC
On February 6, 2012, Walton Maryland, the U.S. Subsidiary and the Corporation entered into a loan agreement whereunder Walton Maryland agreed to loan the amount of U.S. $12,000,000 to the U.S. Subsidiary at an interest rate of the U.S. “base rate” of HSBC Bank Canada, from time to time, plus 1.75%. The purpose of the loan was to provide the U.S. Subsidiary with cash to acquire an interest in the Property. On March 23, 2012, the U.S. Subsidiary repaid the full amount of the loan, plus accrued interest, through the U.S. dollars provided to the U.S. Subsidiary by the Corporation. The funds were provided to the U.S. Subsidiary from the net proceeds received from the IPO. All interest incurred on this loan has been capitalized to land development costs (note 4) because the loan was entered into for the purpose of acquiring the Property.
Walton Asset Management L.P.
In accordance with the Management Services Agreement between the Corporation and WAM, the Corporation incurred total management fees during the second quarter of 2012 of $79,741. The total management fees incurred on a year-‐to-‐date basis were $87,825.
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In accordance with the Agency Agreements between the Corporation and its agents, the Corporation incurred total servicing fees during the second quarter of 2012 of $19,935. The total servicing fees incurred on a year-‐to date basis were $21,956. The servicing fees are payable to WAM, which is responsible for the distribution of the servicing fees to the agents.
Walton International Group Inc.
The Corporation entered into a loan agreement dated February 6, 2012, as amended February 27, 2012, with WIGI whereunder WIGI agreed to provide the Corporation with a loan in the maximum amount of Cdn $23,100,000 bearing an interest rate of the U.S. “base rate” of HSBC Bank of Canada, from time to time, plus 1.75%.
The loan is secured by security over the assets of the Corporation and the U.S. Subsidiary, including over the Property. All available funds from the Offerings, other than amounts placed into working capital, will be utilized by the Corporation to pay down the amounts owing under the loan within ten business days of receipt of the available funds. Any outstanding principle balance and accrued interest on the loan must be repaid by the Corporation to WIGI on, or before October 31, 2012.
As at June 30, 2012, the total amount owing under this loan was $8,842,066. For the period of January 4, 2012 to June 30, 2012, $281,255 in interest has been accrued on the loan and $278,598 has been paid, leaving an outstanding interest accrual in the amount of $2,657 as of June 30, 2012. All interest incurred on the loan has been capitalized to land development costs because the proceeds of the loan were used to finance the acquisition of the Property.
Walton Development and Management L.P.
In accordance with 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.
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 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 period from January 4, 2012 to June 30, 2012, the total development fee charged to the Corporation was $nil because the development costs incurred by the Corporation during the period were not subject to the development fee.
No performance fee was incurred by the Corporation during the period because the $10 per Unit amount and the cumulative compounded priority return has not been received by the investors of Units in the Corporation.
1389211 Alberta Ltd.
On January 4, 2012, the Corporation issued 100 Class A shares to 1389211 Alberta Ltd. for total consideration of $100.
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Key Management Compensation
Key management personnel are comprised of the Corporation’s directors and executive officers. The independent directors are paid a fixed amount of compensation for the life of the Corporation, which is payable quarterly in advance. The amount of compensation expense incurred by the Corporation relating to its independent directors was as follows:
Three months ended
June 30, 2012 $
For the period from January 4, 2012 to
June 30, 2012 $
Director fees 13,032 26,064
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.
Non-Financial Indicators
The amount of revenues generated by the Corporation is not expected to be significant, until the sale of lots commences. As a result, the financial statements alone are not a good indicator of the progress of the Corporation toward its investment objectives. The Corporation makes use of the following non-‐financial indicator in evaluating its performance.
Key Milestones
For Phase 1 of the project, the key milestones used by management include those presented in the Offering Documents. The Corporation’s progress toward these milestones has been summarized in the following table.
Walton Westphalia Development Corporation – Key Project Milestones for Phase 1
Anticipated steps to completion Anticipated completion date as
per the Prospectus Status
Obtain detailed site plan approval September 2012 Unchanged from Prospectus Negotiate final terms of bank financing for construction loan and obtain lender commitment
September 2012 Unchanged from Prospectus
Recorded Plan of Subdivision November 2012 Unchanged from Prospectus Obtain building permits February 2013 Unchanged from Prospectus Close construction loan February 2013 Unchanged from Prospectus Commence Phase 1 construction February 2013 Unchanged from Prospectus Deliver finished lots to builders January 2014 Unchanged from Prospectus
Grand Opening March 2014 Unchanged from Prospectus
The Detailed Site Plan has been submitted to Prince George’s County. There is a process by which the County reviews the submittal before it is technically accepted. Upon acceptance, they have limits on the time taken to review the
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plans. Based on these timelines and commission meeting schedules, the Detailed Site Plan Approval may be approved in late September or early October. We would not expect this variance to materially impact the schedule going forward.
Phases 2 and 3
The steps to complete Phases 2 and 3 of the project are substantially the same as the milestones for Phase 1. The commencement dates for Phase 2 and 3 have not yet been determined, and the expected completion dates of their key milestones will be determined closer to the commencement of those phases.
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Summary of Quarterly Results
A summary of operating results for the past two quarters is as follows:
1 -‐ 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 Corporation.
2 – The Corporation was formed on January 4, 2012. As a result, the period ended March 31, 2012 was from January 4, 2012 – June 30, 2012.
During the first and second quarters of 2012, the main focus of the Corporation was to raise sufficient capital to enable the Corporation to execute its investment strategy. This was accomplished through the successful completion of the IPO during the first quarter of 2012 and the closing of several Private Placements during the second quarter of 2012. In total, the Offerings completed during the first and second quarters of 2012 raised gross proceeds of $23,475,550, of which $11,737,775 was paid as consideration for the debenture payable and $11,737,775 was paid as consideration for the Class B shares. The total costs incurred for the first and second quarter Offerings was $1,675,125. This amount was comprised of commissions paid to agents of $1,232,466, work fees of $90,526 and costs associated with the preparation of the Offering Documents of $352,133. The commissions and work fees have been allocated equally to the debenture and share component based on their proportionate share of the gross proceeds raised. The costs associated with the preparation the Offering Documents have been expensed by the Corporation.
Having successfully completed the IPO in March of 2012, the Corporation began to generate substantially more interest income during the second quarter of 2012 compared to the first quarter of 2012. The total expenses during the second quarter of 2012 were also higher than the total expenses incurred during the first quarter of 2012. This was a result of management fees and servicing fees which commenced upon the completion of the IPO. Since the IPO was completed in March of 2012, these fees were charged for the entire second quarter of 2012, but were only incurred for a portion of the first quarter of 2012. The increase in these expenses was mostly offset by a decrease in costs associated with the preparation of the offering documents. These costs were lower during the second quarter because the size of the aggregate size of the Private Placements was smaller than the size of the IPO.
Three months ended
June 30, 2012 March 31, 20122
Total assets ($) 30,780,363 29,799,092
Total liabilities ($) 20,225,813 23,212,881
Total equity/(deficit) ($) 10,554,550 29,799,092
Total revenue ($) 13,199 2,586
Total expenses ($) 288,244 249,371
Net income (loss) and comprehensive income (loss) ($) 275,045 246,785
Weighted average shares outstanding1 1,722,655 182,360
Basic and diluted net income (loss) per share1 ($) 0.16 1.35
Class B shares issued during the period 905,255 1,442,300
Class B shares outstanding – end of period 2,347,555 1,442,300
162012 Q2 Report • Walton Westphalia Development Corporation • Management’s Discussion & Analysis
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Subsequent Event
On July 31, 2012, the Corporation announced that it had refined and updated its preliminary development plan for the Property to better align the development plan with current and future market opportunities.
The significant changes to the Phase 1 development plan are as follows:
-‐ increase in the number of townhomes from 300 units to 347 units; -‐ approximately 250,000 square feet of retail will be accelerated from Phase 2 to Phase 1; and -‐ the Phase 1 portion of the office component will be shifted to Phase 2.
Overall, these changes are not expected to have a material impact on the project or the ability of the Corporation to achieve its investment objectives.
On August 20, 2012, U.S. Subsidiary received USD$2,917,420 (CAD$2,882,119) from WWE from the funds raised through WWE’s private placement offering. This sale of the Property represents approximately 11.3% of undivided interest in the land held for development and the funds were used by the Corporation for repayment of the loan payable to related parties (note 8) and interest thereon.
Supplemental Information
Liquidity and Capital Resources
As at June 30, 2012, the Corporation’s capital resources consisted of cash which the Corporation raised through the Offerings. Out of the net proceeds raised through the Offerings, $4.7 million of cash remains. The cash on hand, as well as any additional proceeds raised through the Private Placements, will be used by the Corporation to repay a portion of the loan from WIGI, and to pay for the ongoing administrative and operating expenses, management fees, development fees, pre-‐development costs, grading costs, construction costs and other expenses of the Corporation.
Management regularly reviews the levels of its capital resources to determine if sufficient capital is available to fund the ongoing costs of the Corporation over the next twelve months. As at June 30, 2012, sufficient capital exists to fund the Corporation’s activities for at least the next 12 months.
Off-Balance Sheet Arrangements
There were no off-‐balance sheet arrangements as at June 30, 2012.
Financial Instruments
The Corporation’s financial instruments consist of accounts receivable, due from related party, cash, debentures payable, debenture interest payable, loan payable, loan interest payable, accounts payable and accrued liabilities, other liabilities and amounts due to related party. Accounts receivable, due from related party and cash are classified as loans and receivables, and are carried at amortized cost using the effective interest rate method. Debentures payable, debenture interest payable, loan payable, loan interest payable, accounts payable and accrued liabilities, other receivable and amounts due to the related party have been classified as other financial liabilities, and are carried at amortized cost using the effective interest rate method. With the exception of debentures payable and the loan payable, the fair value of these financial instruments approximate their carrying value due to the short-‐term nature of these items. The fair value of debentures payable and loan payable approximates
172012 Q2 Report • Walton Westphalia Development Corporation • Management’s Discussion & Analysis
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the carrying amount of these liabilities because the interest rate on these liabilities approximates the interest rate on debt issued by comparable entities.
Financial instruments often expose an entity to liquidity, credit, currency or interest rate risk. While it is management’s opinion that the financial instruments of the Corporation do not give rise to significant liquidity or credit risk, the Corporation is exposed to significant interest rate risk and currency risk.
Exposure to interest rate risk arises from the Corporation’s loan outstanding with a related party, which incurs interest at the U.S base rate plus a 1.75% fixed rate. Changes in market interest rates will cause fluctuations in the interest expense incurred on any loan. Management plans to repay the loan using the proceeds from the Private Placement. Given the anticipated near-‐term settlement of this liability, no additional risk management activities are being undertaken by the Corporation at this time. The Corporation’s exposure to interest rate risk, assuming that the balance of the loan payable remains unchanged from June 30, 2012, and that the change in the interest rate was effective from January 4, 2012, is detailed in the table below:
Rate Analysis – January 4, 2012 to June 30, 2012 + 0.5 % + 1.0 % - 0.5 % - 1.0 %
Capitalized interest on loan 18,275 36,550 (18,275) (36,550)
The Corporation is exposed to foreign exchange risk because the operations, development expenditures and loans are denominated in currencies other than in the Canadian dollar, primarily being the U.S. dollar. A change in the exchange rate between the Canadian and U.S. dollar would have impacted the net asset of the Corporation as follows:
Rate Analysis – January 4, 2012 to June 30, 2012 Carrying Amount
of Assets 5% increase in
US$ 5% decrease in
US$ $ $ $
Net assets exposed to currency risk (CDN) 26,779,446 1,338,972 (1,338,972)
To manage this risk, the Corporation monitors changes in foreign exchange rates to determine if and when U.S. dollars should be converted to Canadian dollars. During the period of January 4, 2012 to June 30, 2012, the Corporation entered into foreign exchange forward contracts to fix the purchase price of the Property. These contracts were settled during the first quarter of 2012.
As at June 30, 2012, the Corporation did not have any outstanding foreign currency forward contracts.
Outstanding Shares
As of the date of this MD&A, the Corporation had 100 Class A shares outstanding and 2,417,843 Class B shares outstanding.
Outstanding Debentures
As of the date of this MD&A, the Corporation had 2,417,843 debentures payable outstanding with a principal value of $12.1 million. The Corporation may in its sole discretion, convert all or any principal amount of the debentures payable into a variable number of Class B shares, based on the fair market value per Class B share on the date of the conversion.
182012 Q2 Report • Walton Westphalia Development Corporation • Management’s Discussion & Analysis
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Commitments
The following table presents future commitments of the Corporation under the Management Services Agreement and the Agency Agreements over the next five years. It does not include the WDM’s performance fee under the Project Management Agreement, which is calculated based on the amount of distributions paid by the Corporation. These commitments will be funded through future revenues generated by the Corporation and the capital resources available to the Corporation.
Servicing fee
$
Management fee
$
Total $
2012 54,799 219,196 273,995 2013 109,002 436,009 545,011 2014 109,002 436,009 545,011 2015 109,002 436,009 545,011 2016 and thereafter 327,006 1,415,534 1,742,540 Total 708,811 2,942,757 3,651,568
The commitment for the management fee will extend for the length of the project, however, after March 31, 2019, it is calculated based on the book value of the Properties at the end of the previous calendar quarter. As a result, the commitments after 2016 do not include the Corporation’s commitment for the management fees beyond March 31, 2019.
Future Changes in Accounting Policies
Financial instruments
IFRS 9: Financial Instruments (“IFRS 9”) was issued in November 2009 and addresses classification and measurement of financial assets. It replaces the multiple category and measurement models in International Accounting Standard 39 (“IAS 39”) for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. Requirements for financial liabilities were added to IFRS 9 in October 2010 and they largely carried forward existing requirements in IAS 39, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss are generally recorded in other comprehensive income.
IFRS 9 is effective for annual periods beginning after January 1, 2015, with early adoption permitted. The Corporation will adopt IFRS 9 for the annual year beginning on January 1, 2015. The adoption of IFRS 9 will result in a change in the classification of the Corporation’s financial assets from amortized cost to fair value through profit or loss, this change is not expected to result in a material change to the carrying amount of these financial assets. IFRS 9 is not expected to result in any changes to the classification or carrying amount the Corporation’s financial liabilities.
192012 Q2 Report • Walton Westphalia Development Corporation • Management’s Discussion & Analysis
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Consolidated financial statements
IFRS 10: Consolidated Financial Statements (“IFRS 10”), requires an entity to consolidate an investee when it has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-‐12: Consolidation -‐ Special Purpose Entities and parts of IAS 27: Consolidated and Separate Financial Statements.
IFRS 10 is effective for annual periods beginning after January 1, 2013, with early adoption permitted. The Corporation will adopt IFRS 13 for the annual year beginning on January 1, 2013. The Corporation has assessed the impact that IFRS 10 will have on the consolidated financial statements of the Corporation, and concluded that the accounting for the Corporation’s 100% interest in the US Subsidiary will be unaffected by the adoption of IFRS 10.
Joint Arrangements
IFRS 11: Joint Arrangements (“IFRS 11”), requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31: Interests in Joint Ventures, and SIC-‐13: Jointly Controlled Entities—Non-‐monetary Contributions by Venturers.
IFRS 11 is effective for annual periods beginning after January 1, 2013, with early adoption permitted. The Corporation will adopt IFRS 11 for the annual year beginning on January 1, 2013. Although the Corporation had not entered into any joint arrangements as at June 30, 2012, the Corporation may enter into such arrangements during the 2012 year. Management will evaluate the implications of IFRS 11 on the financial statements of the Corporation if circumstances change.
Disclosure of interests in other entities
IFRS 12: Disclosure of Interests in Other Entities (“IFRS 12”), establishes disclosure requirements for interests in other entities, such as subsidiaries, joint arrangements, associates, and unconsolidated structured entities. The standard carries forward existing disclosures and also introduces significant additional disclosure that address the nature of, and risks associated with, an entity’s interests in other entities.
IFRS 12 is effective for annual periods beginning after January 1, 2013, with early adoption permitted. The Corporation will adopt IFRS 12 for the annual year beginning on January 1, 2013 and prepare financial statement note disclosures in full compliance with IFRS 12 beginning for the first quarter of 2013.
202012 Q2 Report • Walton Westphalia Development Corporation • Management’s Discussion & Analysis
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Fair value measurement
IFRS 13: Fair Value Measurement (“IFRS 13”) is a comprehensive standard for fair value measurement and disclosure for use across all IFRS standards. The new standard clarifies that fair value 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. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and does not always reflect a clear measurement basis or consistent disclosures.
IFRS 13 is effective for annual periods beginning after January 1, 2013, with early adoption permitted. The Corporation will adopt IFRS 13 for the annual year beginning on January 1, 2013. As outlined in note 3, all financial instruments of the Corporation are initially recognized at fair value and subsequently carried at amortized cost. The Corporation also discloses the fair value of land and financial instruments in the notes to the financial statements. The adoption of IFRS 13 is not expected to result in any changes to the measurement and disclosure of the fair value of land or its financial instruments.
Presentation of other comprehensive income
IAS 1: Presentation of Financial Statements (“IAS 1”), has been amended to require entities to separate items presented in OCL into two groups, based on whether or not items may be recycled in the future. Entities that choose to present OCL items before tax will be required to show the amount of tax related to the two groups separately.
The amendment is effective for annual periods beginning after July 1, 2012, with early adoption permitted. The Corporation will adopt IAS 1 for the annual year beginning on January 1, 2013. The Corporation has assessed the impact that IAS 1 will have on the consolidated financial statements of the Corporation. The amendments to IAS 1 will result in the disclosure of other comprehensive loss generated on the foreign currency translation of the US Subsidiary as an item which may be recycled into net income in the future.
212012 Q2 Report • Walton Westphalia Development Corporation • Management’s Discussion & Analysis
Unaudited Interim Condensed Consolidated Financial Statements
Walton Westphalia Development Corporation
For the three months ended June 30, 2012 and the period January 4, 2012 to June 30, 2012
(Expressed in Canadian dollars)
NOTICE OF NO AUDITOR REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Section 4.3(3) of National Instrument 51-‐102, Continuous Disclosure Obligations, provides that if an auditor has not performed a review of the interim consolidated financial statements, the interim consolidated financial statements must be accompanied by a notice indicating that the consolidated financial statements have not been reviewed by an auditor. The Corporation’s external auditors have not performed a review of these interim consolidated financial statements of Walton Westphalia Development Corporation.
222012 Q2 Report • Walton Westphalia Development Corporation • Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Consolidated Statement of Financial Position UNAUDITED
AS AT JUNE 30, 2012 (expressed in Canadian dollars)
June 30, 2012
$
ASSETS
Land development costs (note 4)
331,398
Land held for development (note 5)
25,692,656
Accounts receivable
4,580
GST recoverable
437
Due from related party (note 8)
130
Cash
4,751,162
TOTAL ASSETS
30,780,363
LIABILITIES
Debentures payable (note 6) 11,080,800
Debenture interest payable (note 6) 191,228
Loan payable to related parties (note 8) 8,842,066
Loan interest payable to related parties (note 8) 2,657
Accounts payable and accrued liabilities 26,237
Other liabilities (note 9) 81,000
Due to related party (note 8) 1,825
TOTAL LIABILITIES
20,225,813
SHAREHOLDERS’ EQUITY
Share capital (note 10) 11,076,380
Accumulated deficit (521,830)
TOTAL EQUITY
10,554,550
TOTAL LIABILITIES & EQUITY
30,780,363
The accompanying notes to the interim consolidated financial statements are an integral part of these statements.
232012 Q2 Report • Walton Westphalia Development Corporation • Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Consolidated Statements of Comprehensive Loss UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD OF JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
Three months ended June 30,
2012 $
For the period January 4, 2012 to
June 30, 2012 $
REVENUE
Interest Income 13,199 15,785
EXPENSES
Organizational costs 135,788 352,133
Management fees (note 8) 79,741 87,825
Realized foreign exchange loss/(gain) 24,720 24,720
Professional fees 21,197 25,822
Servicing fees (note 8) 19,935 21,956
Director fees (note 8) 13,032 26,064
Office and other expenses 6,032 11,206
Unrealized foreign exchange loss/(gain) (12,201) (12,111)
288,244 537,615
NET LOSS AND COMPREHENSIVE LOSS 275,045 521,830
Basic and diluted net loss per share (note 10) 0.16 0.54 The accompanying notes to the interim consolidated financial statements are an integral part of these statements.
242012 Q2 Report • Walton Westphalia Development Corporation • Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Consolidated Statement of Changes in Shareholders’ Equity UNAUDITED FOR THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
Class A Voting
Common Shares Class B Non-voting Common Shares
Accumulated Deficit Total
# of Shares Amount
$ # of Shares Amount
$ Amount
$ Amount
$
Balance – January 4, 2012 100 100 -‐ -‐ -‐
100
Shares issued for cash -‐ -‐ 2,347,555 11,737,776 -‐
11,737,776
Share issuance costs -‐ -‐ -‐ (661,496) -‐
(661,496)
Net loss and comprehensive loss for the period -‐ -‐ -‐ -‐ (521,830)
(521,830)
Balance – June 30, 2012 100 100 2,347,555 11,076,280 (521,830)
10,554,550
The accompanying notes to the interim consolidated financial statements are an integral part of these statements.
252012 Q2 Report • Walton Westphalia Development Corporation • Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Consolidated Statements of Cash Flows UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD OF JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
Three months ended June 30,
2012 $
For the period January 4, 2012 to
June 30, 2012 $
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss for the period (275,045) (521,830)
Items not affecting cash
Unrealized foreign exchange loss/(gain) (12,201) (12,112)
Changes in non-‐cash working capital items
Acquisition of land held for development (note 6) -‐ (25,189,769)
Increase in land development costs (note 4) (403,782) (780,595)
Increase in trade receivables (2,051) (4,580)
Increase in GST recoverable (437) (437)
Increase in due from related party (note 8) (130) (130)
Increase in interest payable 173,842 191,229
Increase/(decrease) in accounts payable and accrued liabilities 3,445 26,237
Increase/(decrease) in due to related party (note 8) (869,995) 4,482
Increase/(decrease) in loan interest payable (96,083) -‐
(1,482,437) (26,287,505)
INVESTING ACTIVITIES
Contributions from investors – Units not yet issued (note 9) 81,000 81,000
FINANCING ACTIVITIES
Issuance of Class A voting common shares -‐ 100 Issuance of Class B non-‐voting common shares, net of issuance costs (note 10) 4,243,384 11,076,279
Issuance of debentures, net of issuance costs (note 6) 4,243,383 11,076,279
(Decrease)/Increase in loan payable (6,534,092) 8,842,066
1,952,675 30,994,724
Effect of exchange rate on cash 30,119 (37,057)
Increase in cash 581,357 4,751,162
Cash – Beginning of period 4,169,805 -‐
Cash – End of period 4,751,162 4,751,162
SUPPLEMENTAL INFORMATION
Cash interest received 11,149 11,206
Excluded from the change in land development costs is capitalized non-‐cash interest on the debentures (note 6)
The accompanying notes to the interim consolidated financial statements are an integral part of these statements.
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐1-‐
1. Nature of Business
Walton Westphalia Development Corporation (the “Corporation”) was incorporated under the laws of the province of Alberta on January 4, 2012. The wholly-‐owned subsidiary of the Corporation, Walton Westphalia Development Corporation (USA), LLC (“U.S. Subsidiary”) was incorporated under the laws of the state of Maryland on January 6, 2012.
The Corporation and the U.S. Subsidiary were formed to provide subscribers with the opportunity to participate in the development of the approximately 310 acre “Westphalia” property located in Prince George’s County, Maryland, U.S.A. (the “Property”) through the purchase of units in the Corporation. Each unit issued by the Corporation (“Unit”) through its initial public offering (“IPO”) and private placements (“Private Placements”) was comprised of a $5.00 principal amount of offering debenture (“Debenture”) and one Class B non-‐voting share (“Class B Shares”) at a price of $5.00 per share.
The Corporation intends to preserve the capital investment of the purchasers of Units in the Corporation, and provide cash distributions on the Units by executing the following four step strategy:
a) acquire the Property; b) obtain letters of intent or expressions of interest from vertical developers and other end users to purchase lots and
parcels to be serviced in each of the three planned phases of the development of the Property before construction commences on that phase;
c) construct municipal services infrastructure on the Property in phases to provide a controlled supply of serviced lots to the marketplace; and
d) use the revenue from the sale of the serviced lots and parcels to repay construction loans and other obligations of the Corporation and the U.S. Subsidiary and then pay the remainder to the holders of the Debentures and Class B Shares by paying the interest and principal on the Debentures and by declaring a dividend or dividends on the Class B Shares and/or winding up the Corporation and distributing its assets to the holders of the Class B Shares.
Distributions by the Corporation are neither guaranteed nor will they be paid in a steady or stable stream. The amount and timing of any distributions will be at the sole discretion of the Corporation and only after the Corporation has paid or reserved funds for its expenses, liabilities and commitments (other than with respect to the Debentures), including (i) the fees payable to Walton Asset Management L.P. (“WAM”) and Walton Development & Management (USA), Inc. (“WDM”) (including the performance fee), and (ii) any amounts outstanding, on a phase by phase basis, under the construction loans required to develop the Property. The performance fee is only payable provided that the investors of Units in the Corporation have received distributions equal to their invested capital of $10.00 per Unit plus a cumulative compounded priority return thereon equal to 8% per annum.
The address of the registered office is 23rd Floor, 605 – 5th Avenue SW, Calgary, Alberta, T2P 3H5.
These consolidated financial statements were authorized for issue by the board of directors on August 22, 2012. The board of directors have the power to amend and reissue the consolidated financial statements.
262012 Q2 Report • Walton Westphalia Development Corporation • Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐1-‐
1. Nature of Business
Walton Westphalia Development Corporation (the “Corporation”) was incorporated under the laws of the province of Alberta on January 4, 2012. The wholly-‐owned subsidiary of the Corporation, Walton Westphalia Development Corporation (USA), LLC (“U.S. Subsidiary”) was incorporated under the laws of the state of Maryland on January 6, 2012.
The Corporation and the U.S. Subsidiary were formed to provide subscribers with the opportunity to participate in the development of the approximately 310 acre “Westphalia” property located in Prince George’s County, Maryland, U.S.A. (the “Property”) through the purchase of units in the Corporation. Each unit issued by the Corporation (“Unit”) through its initial public offering (“IPO”) and private placements (“Private Placements”) was comprised of a $5.00 principal amount of offering debenture (“Debenture”) and one Class B non-‐voting share (“Class B Shares”) at a price of $5.00 per share.
The Corporation intends to preserve the capital investment of the purchasers of Units in the Corporation, and provide cash distributions on the Units by executing the following four step strategy:
a) acquire the Property; b) obtain letters of intent or expressions of interest from vertical developers and other end users to purchase lots and
parcels to be serviced in each of the three planned phases of the development of the Property before construction commences on that phase;
c) construct municipal services infrastructure on the Property in phases to provide a controlled supply of serviced lots to the marketplace; and
d) use the revenue from the sale of the serviced lots and parcels to repay construction loans and other obligations of the Corporation and the U.S. Subsidiary and then pay the remainder to the holders of the Debentures and Class B Shares by paying the interest and principal on the Debentures and by declaring a dividend or dividends on the Class B Shares and/or winding up the Corporation and distributing its assets to the holders of the Class B Shares.
Distributions by the Corporation are neither guaranteed nor will they be paid in a steady or stable stream. The amount and timing of any distributions will be at the sole discretion of the Corporation and only after the Corporation has paid or reserved funds for its expenses, liabilities and commitments (other than with respect to the Debentures), including (i) the fees payable to Walton Asset Management L.P. (“WAM”) and Walton Development & Management (USA), Inc. (“WDM”) (including the performance fee), and (ii) any amounts outstanding, on a phase by phase basis, under the construction loans required to develop the Property. The performance fee is only payable provided that the investors of Units in the Corporation have received distributions equal to their invested capital of $10.00 per Unit plus a cumulative compounded priority return thereon equal to 8% per annum.
The address of the registered office is 23rd Floor, 605 – 5th Avenue SW, Calgary, Alberta, T2P 3H5.
These consolidated financial statements were authorized for issue by the board of directors on August 22, 2012. The board of directors have the power to amend and reissue the consolidated financial statements.
272012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐2-‐
2. Basis of Preparation
These interim condensed consolidated financial statements have been prepared in accordance with IAS 34: Interim Financial Reporting and using accounting policies that are consistent with IFRS as issued by the International Accounting Standards Board. As this is the first year of operations of the Corporation, these interim financial statements have also been prepared in accordance with IFRS 1 First-‐time Adoption of International Financial Reporting Standards. They do not include all of the information required for full annual financial statements and should be read in conjunction with the Corporation’s audited financial statements as at and for the period ended January 4, 2012, which are included in the Prospectus (“Prospectus”) of the Corporation dated February 27, 2012.
The Corporation’s interim condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments which are initially measured at fair value as explained in the accounting policies set out in note 3.
The statement of financial position has been prepared using a liquidity based presentation because the operating cycle of the Corporation revolves around the sale of land, the timing of which is uncertain. As a result, presentation based on liquidity is considered by management to provide information that is more reliable and relevant to the users of the consolidated financial statements. With the exception of land development costs (note 4), land held for development (note 5) and debentures payable (note 6), all assets and liabilities are current in nature and are expected to be settled in less than twelve months.
3. Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity and contingencies at the date of the financial statements, and the reported amounts of revenue and expenses during the period. The estimates and assumptions that have the most significant effect on the amounts recognized in the Corporation’s consolidated financial statements are as follows:
Recoverability of land development costs and land held for development
In assessing the recoverability of the land development costs and land held for development, management is 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 capital. Changes in these estimates and assumptions could cause the amount of the recovery of land development costs and land held for development to differ materially from the carrying amount of those assets.
282012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐3-‐
Deferred tax asset
In assessing the amount of deferred tax assets to recognize, significant judgment is required in estimating 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 assets to be recovered to differ materially from the carrying amount.
Consolidation
The consolidated interim financial statements include the accounts of the Corporation and its U.S. Subsidiary from the date of acquisition of January 6, 2012. The date of acquisition is the date on which the Corporation obtained control of U.S. Subsidiary through the Corporation’s acquisition of all outstanding voting rights. Control exists on this date as the Corporation has the ongoing ability to directly control the operating, investing and financing activities of U.S. Subsidiary. The consolidation is accounted for in accordance with IAS 27: Consolidated and Separate Financial Statements and IFRS 3: Business Combinations. All inter-‐company transactions and balances have been eliminated.
Foreign Currency Translation
The Corporation accounts for foreign exchange translation in accordance with IFRS 21: Effects of Changes in Foreign Exchange Rates. Items included in the consolidated financial statements of the Corporation and its U.S. Subsidiary are measured using the currency of the primary economic environment in which the individual entity operates (the “Functional Currency”). The Corporation’s Functional Currency is the Canadian dollar while the U.S. Subsidiary’s Functional Currency is the U.S. dollar. Significant judgment was used by management in determining the Functional Currency of the Corporation. Management’s selection of a Canadian dollar Functional Currency was based on the currency which influences the costs of the Corporation, the currency of the Corporation’s financing and the currency in which dividends are received from the U.S. subsidiary. The Corporation has selected a presentation currency of Canadian dollars for the consolidated financial statements.
(a) Foreign Currency Transactions
Transactions completed in a currency other the Functional Currency are translated into the Functional Currency using the foreign currency exchange rate prevailing at the time of the transaction. Each reporting period, monetary assets and liabilities denominated in foreign currencies are translated in the statement of financial position at the foreign currency exchange rates prevailing at the reporting date. Non-‐monetary assets and liabilities denominated in foreign currencies are translated at the historical foreign currency exchange rate at the date of the transaction. Foreign exchange gains and losses on the translation of monetary assets and liabilities are included in net income as unrealized gains and losses until the item has been settled, at which point the Corporation records them as realized gains and losses.
292012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐4-‐
(b) Translation to the Presentation Currency
The U.S. Subsidiary’s Functional Currency is the U.S. dollar, however, the presentation currency for the consolidated financial statements is the Canadian dollar. As a result, the financial statements of the U.S. Subsidiary are required to be translated into the Canadian dollar presentation currency before they can be consolidated with the Corporation’s Canadian dollar financial statements. The financial statements of the U.S. Subsidiary are translated into the Canadian dollar using the following procedures:
(i) revenues and expenses for each statement of comprehensive income is translated using the average foreign currency exchange rate for the period;
(ii) assets and liabilities for each statement of financial position is translated using the foreign currency exchange rate prevailing at the reporting date; and
(iii) all resulting exchange differences are recognized in other comprehensive income.
Land Development Costs
Land development costs are allocated to the land to which they relate. The Corporation capitalizes all direct costs related to land development. These costs include borrowing (financing) costs such as interest on debt specifically related to the development and property taxes, but exclude general and administrative overhead expenses. At the time sales are recognized, the Corporation will also capitalize the estimated unexpended portion of costs relating to the lots that are sold. Land development costs are then relieved through cost of land sold on a per acre basis.
Land development costs are assessed for indicators of impairment quarterly. When indicators of impairment exist, the aggregate of the carrying value of land development costs and land held for development is compared against the net realizable value. Where the carrying amount exceeds the net realizable value, the difference is recognized as an impairment loss. If the impairment to the land development costs subsequently decreases, the recovery is capitalized to land held for development to the extent of the improvement.
Land Held for Development
Land held for development has been designated by management as inventory property because it is the intention of the Corporation to service the Property, and to construct municipal services infrastructure on the Property, for eventual sale in the ordinary course of business. As inventory property, land held for development is carried at acquisition cost, which is based on the price paid by the Corporation for the Property plus other direct purchase expenses. Land held for development is relieved through cost of land sold on a per acre basis as sales are recognized.
302012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐5-‐
Land held for development is assessed for indicators of impairment quarterly. When indicators of impairment exist, the aggregate of the carrying value of land development costs and land held for development is compared against the net realizable value. Where the carrying amount exceeds the net realizable value, the difference is recognized as an impairment loss. If the impairment to the land held for development subsequently decreases, the recovery is capitalized to land held for development to the extent of the improvement.
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 costs and land held for development to be qualifying assets. 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.
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 amount of consideration that would be agreed upon in an arm’s length transaction between willing parties. Subsequent measurement depends on how the financial instrument has been classified. Accounts receivable, due from related party and cash have been classified as loans and receivables, and are carried at amortized cost using the effective interest rate method. Debentures payable, debenture interest payable, loan payable, loan interest payable, accounts payable and accrued liabilities, and due to related parties have been classified as other financial liabilities, and are carried at amortized cost using the effective interest rate method. All forward contracts entered into by the Corporation are classified as fair value through profit or loss and are carried at fair value. Changes in fair value flow through the statement of comprehensive income unless the hedge relates to a qualifying asset of the Corporation.
Debentures Payable
Debentures payable are financial liabilities of the Corporation and are carried at amortized cost using the effective interest rate method. Since the debentures payable were initially recognized at a discount, the effective interest rate on the debentures payable exceeds the stated interest rate on the debentures. Interest is calculated on the carrying amount of the debentures using the effective interest rate and is allocated to interest payable based on the stated interest rate, with the balance being allocated to debentures payable.
312012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐6-‐
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 a loan commitment under International Accounting Standard 39: Recognition and Measurement (“IAS 39”), and, as a result, no asset or liability has been recognized is respect of this option.
Cash
Cash consists of amounts on deposit with banks.
Share Capital
Class A voting common shares (“Class A shares”) have been classified as equity because they represent residual assets of the entity 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 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 liabilities of the Corporation, 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.
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.
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.
Organizational costs
Organizational costs represent legal, accounting, audit, printing, filing, transfer agent and other costs incurred by the Corporation associated with the preparation of the IPO and Private Placements (collectively, the “Offerings”). These costs are expensed as incurred.
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.
322012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐7-‐
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.
Deferred income tax is recognized using the liability method, recognized in respect of temporary differences between the tax basis of assets and liabilities and their carrying amounts. Deferred income tax is determined using tax rates that have been enacted, or substantially 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. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences and unused tax losses can be utilized.
Comprehensive Loss
Comprehensive loss consists of net loss and other comprehensive loss (“OCL”). OCL represents changes in shareholders’ equity during a period arising from transactions and other events with non-‐owner sources, and includes, but is not limited to, exchange differences on the translation of financial statements into the presentation currency, and changes in the fair value of the effective portion of the cash flow hedging instruments.
Future Changes in Accounting Policy
Financial instruments
IFRS 9: Financial Instruments (“IFRS 9”) was issued in November 2009 and addresses classification and measurement of financial assets. It replaces the multiple category and measurement models in International Accounting Standard 39 (“IAS 39”) for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. Requirements for financial liabilities were added to IFRS 9 in October 2010 and they largely carried forward existing requirements in IAS 39, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss are generally recorded in other comprehensive income.
IFRS 9 is effective for annual periods beginning after January 1, 2015, with early adoption permitted. The Corporation will adopt IFRS 9 for the annual year beginning on January 1, 2015. The adoption of IFRS 9 will result in a change in the classification of the Corporation’s financial assets from amortized cost to fair value through profit or loss, this change is not expected to result in a material change to the carrying amount of these financial assets. IFRS 9 is not expected to result in any changes to the classification or carrying amount the Corporation’s financial liabilities.
Consolidated financial statements
IFRS 10: Consolidated Financial Statements (“IFRS 10”), requires an entity to consolidate an investee when it has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-‐12: Consolidation -‐ Special Purpose Entities and parts of IAS 27: Consolidated and Separate Financial Statements.
332012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐8-‐
IFRS 10 is effective for annual periods beginning after January 1, 2013, with early adoption permitted. The Corporation will adopt IFRS 10 for the annual year beginning on January 1, 2013. The Corporation has assessed the impact that IFRS 10 will have on the consolidated financial statements of the Corporation, and concluded that the accounting for the Corporation’s 100% interest in the U.S. Subsidiary will be unaffected by the adoption of IFRS 10.
Joint Arrangements
IFRS 11: Joint Arrangements (“IFRS 11”), requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31: Interests in Joint Ventures, and SIC-‐13: Jointly Controlled Entities—Non-‐monetary Contributions by Venturers.
IFRS 11 is effective for annual periods beginning after January 1, 2013, with early adoption permitted. The Corporation will adopt IFRS 11 for the annual year beginning on January 1, 2013. Although the Corporation had not entered into any joint arrangements as at June 30, 2012, the Corporation may enter into such arrangements during the 2012 year. Management will evaluate the implications of IFRS 11 on the financial statements of the Corporation if circumstances change.
Disclosure of interests in other entities
IFRS 12: Disclosure of Interests in Other Entities (“IFRS 12”), establishes disclosure requirements for interests in other entities, such as subsidiaries, joint arrangements, associates, and unconsolidated structured entities. The standard carries forward existing disclosures and also introduces significant additional disclosure that address the nature of, and risks associated with, an entity’s interests in other entities.
IFRS 12 is effective for annual periods beginning after January 1, 2013, with early adoption permitted. The Corporation will adopt IFRS 12 for the annual year beginning on January 1, 2013 and prepare financial statement note disclosures in full compliance with IFRS 12 beginning for the first quarter of 2013.
Fair value measurement
IFRS 13: Fair Value Measurement (“IFRS 13”) is a comprehensive standard for fair value measurement and disclosure for use across all IFRS standards. The new standard clarifies that fair value 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. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and does not always reflect a clear measurement basis or consistent disclosures.
IFRS 13 is effective for annual periods beginning after January 1, 2013, with early adoption permitted. The Corporation will adopt IFRS 13 for the annual year beginning on January 1, 2013. As outlined in note 3, all financial instruments of the Corporation are initially recognized at fair value and subsequently carried at amortized cost. The Corporation also discloses the fair value of financial instruments in the notes to the financial statements. The adoption of IFRS 13 is not expected to result in any changes to the measurement and disclosure of the fair value of land or its financial instruments.
342012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐9-‐
Presentation of other comprehensive income
IAS 1: Presentation of Financial Statements (“IAS 1”), has been amended to require entities to separate items presented in OCL into two groups, based on whether or not items may be recycled in the future. Entities that choose to present OCL items before tax will be required to show the amount of tax related to the two groups separately.
The amendment is effective for annual periods beginning after July 1, 2012, with early adoption permitted. The Corporation will adopt IAS 1 for the annual year beginning on January 1, 2013. The Corporation has assessed the impact that IAS 1 will have on the consolidated financial statements of the Corporation. The amendments to IAS 1 will result in the disclosure of other comprehensive loss generated on the foreign currency translation of the U.S. Subsidiary as an item which may be recycled into net income in the future.
4. Land Development Costs
The following table provides a breakdown of costs capitalized to land development costs by nature as at June 30, 2012:
January 4, 2012 to June 30, 2012
$
BALANCE – BEGINNING OF PERIOD -‐
Financing 612,201
Planning 171,375
Effect of changes in foreign exchange rates (452,178)
BALANCE – END OF PERIOD 331,398
Land development costs are relieved through cost of goods sold at the time that revenue from lot sales is recognized. The timing of revenue recognition from the sale of lots is uncertain because it is dictated by the timing of cash receipts by the Corporation, which is influenced by factors that are beyond the control of management, such as market demand and the timing of cash flows of our customers. As a result, while a portion of land development costs could be current in nature, it is not possible for management to reasonably estimate the portion that will be realized within the next twelve months.
352012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐10-‐
5. Land Held for Development
Land held for development consists of the U.S. Subsidiary’s 100% interest in the Property which was acquired on February 14, 2012. The carrying amount of land held for development as at June 30, 2012 was comprised of the following:
January 4, 2012 to June 30, 2012
$
BALANCE – BEGINNING OF PERIOD -‐
Purchase of land 23,692,806
Closing costs 1,496,963
Effect of changes in foreign exchange rates 502,887
BALANCE – END OF PERIOD 25,692,656
Land held for development is relieved through cost of goods sold at the time that revenue from lot sales is recognized. The timing of revenue recognition from the sale of lots is uncertain because it is dictated by the timing of cash receipts by the Corporation, which is influenced by factors that are beyond the control of management, such as market demand and the timing of cash flows of our customers. As a result, while a portion of land held for development could be current in nature, it is not possible for management to reasonably estimate the portion that will be realized within the next twelve months.
6. Debentures Payable and Interest Payable
As of June 30, 2012, the Corporation has issued a total of 2,347,555 debentures as part of the Offerings. The debentures are unsecured and bear interest at a rate of 8%. Interest on the debentures is calculated based on the face value of the debentures on March 31, and is payable annually on June 30, commencing in the year 2013. The debentures mature on March 31, 2019 at a face value of $5.00, although the maturity date can be extended by the Corporation at its sole discretion until March 31, 2021. The Corporation may also, in its sole discretion, (i) repay all or any portion of the principal amount of, or interest under, the debentures payable through the issuance of Class B shares, (ii) evidence its obligation to pay all or any portion of the interest under the debentures through the issuance of Interest debentures, and/or (iii) convert all or any principal amount of the offering debentures into Class B shares.
362012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐11-‐
The following table reconciles the change in debentures payable during the period:
January 4, 2012 to June 30, 2012
$
BALANCE – BEGINNING OF PERIOD -‐
Debentures issued through the IPO & Private Placements 11,737,775
Debenture issue costs (661,496)
Non-‐cash interest on the debentures 4,521
BALANCE – END OF PERIOD 11,080,800
The debentures payable that were issued by the Corporation bear interest at a rate of 8% per annum. Interest is calculated based on the face value of the debentures payable as at March 31 of each year, and is payable on June 30. The following table reconciles the change in interest payable during the period:
January 4, 2012 to June 30, 2012
$
BALANCE – BEGINNING OF PERIOD -‐
Accrued interest on the debentures payable 191,228
BALANCE – END OF PERIOD 191,228 As at June 30, 3012, WIGI owned 172,500 of the outstanding Units of the Corporation. As a Unitholder, the balance of debenture payable and interest on debentures payable which was related to WIGI at June 30, 2012 was $817,654 and $19,418 respectively.
7. Financial Instruments
The Corporation’s financial instruments consist of accounts receivable, due from related party, cash, debentures payable, debenture interest payable, loan payable, loan interest payable, accounts payable and accrued liabilities, other liabilities and amounts due to related parties. Accounts receivable, due from related party and cash are classified as loans and receivables, and are carried at amortized cost using the effective interest rate method. Debentures payable, debenture interest payable, loan payable, loan interest payable, accounts payable and accrued liabilities, other liabilities and amounts due to related have been classified as other financial liabilities, and are carried at amortized cost using the effective interest rate method. With the exception of debentures payable and the loan payable, the fair value of these financial instruments approximate their carrying value due to the short-‐term nature of these items. The fair value of debentures payable and loan payable approximates the carrying amount of these liabilities because the interest rate on these liabilities approximates the interest rate on debt issued by comparable entities.
372012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐12-‐
a.) 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 MEASURED AT COST OR AMORTIZED COST
Cash X X X
Accounts receivable X Due from related party X Debentures payable X X
Debenture interest payable X
Accounts payable and accrued liabilities
X
Other liabilities X Due to related party X Loan payable X X Loan interest payable X
b.) 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, accounts receivable and due from related party. While the maximum exposure to credit risk is equal to the carrying value of these financial instruments, management believes the Corporation’s exposure to credit risk is minimal for the following reasons:
Cash, due from related party and accounts receivable -‐ Cash is on deposit with a major financial institution which substantially minimizes the exposure of cash to credit risk. The balance of other receivable is comprised of interest receivable from cash on deposit with the bank. The interest is received within a week after the quarter end which reduces the credit risk significantly. The balance of due from related party is typically not material and is settled in accordance with the terms of the contract with the related party, and as a result, the Corporation’s exposure to credit risk from due from related party is also not significant.
382012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐13-‐
c.) Liquidity risk
Liquidity risk arises from the possibility that the Corporation will encounter difficulties in meeting its financial obligations as they become due. The Corporation manages its liquidity risk by continuously monitoring the adequacy of its capital resources (see note 12) and by managing cash receipts and payments. The liabilities which expose the Corporation to liquidity risk are as follows:
Accounts payable and accrued liabilities, other liabilities and due to related party -‐ These liabilities are a result of the normal operations of the Corporation and are current in nature. Management considers exposure to liquidity risk from these financial instruments to be minimal because the balances owing at June 30, 2012 will be funded by cash held by the Corporation. The obligations relating to such future commitments will be funded through a combination of future revenues generated by the Corporation, and the capital resources available to the Corporation, as disclosed in note 12.
Debentures payable and debenture interest payable -‐ The Corporation manages the liquidity risk associated with the debentures payable by continuously monitoring its working capital to ensure it has sufficient capital to fund the annual interest payments due on the debentures payable. Such capital is derived from a combination of future revenues generated by the Corporation, and the capital resources available to the Corporation. The Corporation intends to repay the debentures payable through future revenues generated by the Corporation.
Loan payable and loan interest payable -‐ The Corporation manages the liquidity risk connected with its loan from WIGI (note 7) through corporate planning and cash flow management. The Corporation anticipates that it will repay its note payable to WIGI by the maturity date of October 31, 2012 through the proceeds raised from the Private Placements and a partial sale of land held for development to Walton Westphalia Europe, LP (note 8).
Maturity Analysis of liabilities – As at June 30, 2012
Less than 90 days
Between 91 days and 1
year Greater than 1 year
Total
Debentures payable ($) -‐ -‐ 11,080,800 11,080,800 Debenture interest payable ($)
-‐ 191,228 -‐ 191,228
Loan payable ($) -‐ 8,842,066 -‐ 8,842,066 Loan interest payable ($) 2,657 -‐ -‐ 2,657 Trade payables and accrued liabilities ($)
5,892 20,345 -‐ 26,237
Other liabilities ($) 81,000 81,000 Due to related party ($) 1,825 -‐ -‐ 1,825
392012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐14-‐
d.) 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:
Cash -‐ Changes in market interest rates will cause fluctuations in the future interest earned on cash balances. Any resulting impact on the Corporation’s financial results would not be considered material.
Debentures interest payable -‐ The debentures payable have a fixed 8% interest rate and, as a result, do not expose the Corporation to any interest rate risk.
Loan interest payable – The loan interest is calculated based on the principal amount of the loan outstanding during the year at the HSBC Bank Canada U.S. base rate plus a 1.75% fixed rate. The HSBC Bank Canada U.S. base rate is subject to change which exposes the Corporation interest risk. Assuming that the balance of the loan payable remains unchanged from June 30, 2012, and that the change in the interest rate was effective from January 4, 2012, a change in the U.S. base rate would have impacted the total interest capitalized as follows:
Rate Analysis – January 4, 2012 to June 30, 2012 + 0.5 % + 1.0 % - 0.5 % - 1.0 % $ $ $ $ Capitalized interest on loan 21,501 43,002 (21,501) (43,002)
e.) Foreign Currency risk
Foreign exchange risk arises when future recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency.
The Corporation is exposed to foreign exchange risk because the operations, development expenditures and construction loans are denominated in currencies other than in the Canadian dollar, primarily being the U.S. dollar. A change in the exchange rate between the Canadian and U.S. dollar would have impacted the net asset of the Corporation as follows:
Rate Analysis – January 4, 2012 to June 30, 2012
Carrying Amount of
Assets 5% increase in US$ 5% decrease in US$ $ $ $ Net assets exposed to currency risk (CDN) 26,779,446 1,338,972 (1,338,972)
402012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐15-‐
To manage this risk, the Corporation monitors changes in foreign exchange rates to determine if and when U.S. dollars should be converted to Canadian dollars. During the period of January 4, 2012 to June 30, 2012, the Corporation entered into foreign exchange forward contracts to fix the purchase price of the Property. These contracts were settled during the first quarter of 2012. As part of the Corporation’s on-‐going risk management strategy, US construction funding will be used for US denominated expenditures to further mitigate foreign currency risk exposure.
As at June 30, 2012, the Corporation did not have any outstanding foreign currency forward contracts.
8. Related Party Transactions
WAM, Walton International Group Inc. (“WIGI”), WDM, 1389211 Alberta Ltd., Walton Maryland, LLC (“Walton Maryland”), and Walton Westphalia Europe, LP (“WWE”) are all related to the Corporation by virtue of common management. All transactions entered into between the related parties during the period of January 4, 2012 to June 30, 2012 were under terms and conditions agreed upon between the parties. With the exception of the loan due to WIGI, the amounts payable to WAM for the management and servicing fee and the amounts payable to WDM for the development fee, all amounts receivable from related parties and payable to related parties are unsecured, due on demand, bear no interest and have no fixed terms of repayment.
Loan and Interest Payable
The Corporation entered into a loan agreement dated February 6, 2012, as amended February 27, 2012, with WIGI whereunder WIGI agreed to provide the Corporation with a loan in the maximum amount of Cdn $23,100,000 bearing an interest rate of the U.S. “base rate” of HSBC Bank of Canada, from time to time, plus 1.75%.
The loan is secured by security over the assets of the Corporation and the U.S. Subsidiary, including over the Property. All available funds from the Offerings, other than amounts placed into working capital, will be utilized by the Corporation to pay down the amounts owing under the loan within ten business days of receipt of the available funds. Any outstanding principle balance and accrued interest on the loan must be repaid by the Corporation to WIGI on, or before October 31, 2012.
As at June 30, 2012, the total amount owing under this loan was $8,842,066. For the period of January 4, 2012 to June 30, 2012, $281,255 in interest has been accrued on the loan and $278,598 has been paid, leaving an outstanding interest accrual in the amount of $2,657 as of June 30, 2012. All interest incurred on the loan has been capitalized to land development costs because the proceeds of the loan were used to finance the acquisition of the Property.
412012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐16-‐
Due from/to Related Parties
The balance due from the related party as at June 30, 2012 is outlined in the table below.
June 30, 2012
$
WAM 130
Total 130
The balance due to the related party as at June 30, 2012 is outlined in the table below.
June 30, 2012
$
WIGI 1,825
Total 1,825
Walton Maryland, LLC
On February 6, 2012, Walton Maryland, the U.S. Subsidiary and the Corporation entered into a loan agreement whereunder Walton Maryland agreed to loan the amount of U.S. $12,000,000 to the U.S. Subsidiary at an interest rate of the U.S. “base rate” of HSBC Bank Canada, from time to time, plus 1.75%. The purpose of the loan was to provide the U.S. Subsidiary with cash to acquire an interest in the Property. On March 23, 2012, the U.S. Subsidiary repaid the full amount of the loan, plus accrued interest, through the U.S. dollars provided to the U.S. Subsidiary by the Corporation. The funds were provided to the U.S. Subsidiary from the net proceeds received from the IPO. All interest incurred on this loan has been capitalized to land development costs (note 4) because the loan was entered into for the purpose of acquiring the Property.
422012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐17-‐
Walton Development and Management L.P.
On February 14, 2012, U.S. Subsidiary, WDM, Walton Maryland and the Corporation entered into a Project Management Agreement. In accordance with the terms of the Project Management Agreement, 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.
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 an cash payments or other distributions equal to $10.00 per Unit, plus an 8% priority return. The priority return is calculated on that $10.00 amount, reduced by any cash payments or distributions by the Corporation.
During both the three months ended June 30, 2011 and the period January 4, 2012 to June 30, 2012, the Corporation had incurred $nil in relation to the development fees and performance fee.
Walton Asset Management L.P.
On February 27, 2012, the Corporation and WAM entered into a Management Services Agreement whereunder WAM will provide certain management related services to the Corporation in return for a management fee. The fee shall consist of the following:
i. from March 20, 2012 until the earlier of the date of termination of the Management Services Agreement and March 31, 2019, an amount equal to 2% annually of the aggregate of the net proceeds raised from the Offerings, paid quarterly at the end of each fiscal calendar quarter; and
ii. for each calendar quarter after April 1, 2019 until the date of the termination of the Management Services Agreement, an amount to be paid on the last day of the quarter equal to 0.5% of the book value of the Property at the end of the previous fiscal quarter:
Also in accordance with the Management Services Agreement, commencing on June 30, 2012 and continuing until the earlier of the dissolution of the Corporation and December 31, 2018, the Corporation will pay to WAM a servicing fee equal to 0.50% annually of the net proceeds for each Unit sold under the Offerings. WAM is then responsible for paying the servicing fee to the Corporation’s 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 three months ended June 30, 2012, the Corporation incurred $79,740 in management fees, and $19,935 in servicing fees. For the period of January 4, 2012 to June 30, 2012, the Corporation incurred $87,825 in management fees, and $21,956 in servicing fees. These fees are paid in full as at June 30, 2012.
432012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
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Walton Westphalia Europe, LP
The U.S. Subsidiary will enter into a co-‐ownership agreement with WWE where it will sell up to 30.67% interest in the Property. The amount of the Property to be sold to WWE will be determined based on the amount of funds that it raises through its private placement. Funds received from the partial sale of the Property will be used to retire debt. As at June 30, 2012, there have been no transactions entered into pursuant to the co-‐ownership agreement (note 14).
1389211 Alberta Ltd.
On January 4, 2012, the Corporation issued 100 Class A shares to 1389211 Alberta Ltd. for total consideration of $100.
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 during the period was as follows:
Three months ended June 30, 2012
$
For the period January 4, 2012 to
June 30, 2012 $
Director fees 13,032 26,064
All services performed for the Corporation by its executive officers and its 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. As at June 30, 2012, the directors’ fees are paid in full to the directors of the Corporation.
9. Other Liabilities
As at June 30, 2012 there was $81,000 collected by the Corporation from investors under the Private Placement. These funds will be used to repay the WIGI loan at the next security closings.
442012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐19-‐
10. Share Capital Authorized Unlimited Class A voting common shares Unlimited Class B non-‐voting common shares Outstanding
June 30, 2012
# of
shares Amount
$
-‐ -‐
Class A voting common shares
100 100
Class B non-‐voting common shares
2,347,555 11,737,776
Share issuance costs
-‐ (661,496)
2,347,655 11,076,380
During the period of January 4, 2012 to June 30, 2012, the Corporation issued 100 Class A voting common shares for gross proceeds of $100, and 2,347,555 Class B non-‐voting common shares were issued for gross proceeds of $11,737,775 less issuance costs of $661,496.
All Class A shares of the Corporation are held by 1389211 Alberta Ltd., which is a related party of the Corporation by virtue of common management.
Initial Public Offering and Private Placements
On February 27, 2012, the Corporation filed the Prospectus for the IPO of its Units. The IPO was successfully completed on March 20, 2012 and resulted in the issuance of 1,442,300 Class B shares for gross proceeds of $7,211,500, and the issuance of 1,442,300 debentures for gross proceeds of $7,211,500.
The completion of the IPO was followed by several Private offerings which were completed under the offering memorandum dated March 26, 2012. As of June 30, 2012, the Corporation has issued 905,255 Class B shares and 905,255 debentures through the Private Placements for gross proceeds of $9,052,550. Final closing of the Private Placements is anticipated to take place in October 2012.
452012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐20-‐
The total costs incurred to date by the Corporation in respect of the Offerings were $1,675,125. This amount was comprised of commissions paid to agents of $1,232,466, work fees of $90,526 and costs associated with the preparation of the prospectus and offering memorandum (collectively, the “Offering Documents”) of $352,133. The commissions and work fees have been allocated equally to the debenture and share component based on their proportionate share of the gross proceeds raised. The costs associated with the preparation the Offering Documents have been expensed by the Corporation.
Per Share Amount
Basic net loss per share is calculated by dividing the Corporation’s net 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 Corporation. The weighted average number of shares outstanding during three months ended June 30, 2012 was 1,722,655. The weighted average number of shares outstanding during the period January 4, 2012 to June 30, 2012 was 969,814.
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. During both the three month ended June 30, 2012 and the period from January 4, 2012 to June 30, 2012, the potentially dilutive shares were nil because the Corporation generated a net loss during those periods.
Share Issuance Price
The Class A shares issued and outstanding of the Corporation were issued at a price of $1.00/share.
The Class B shares issued and outstanding of the Corporation were issued at a price of $5.00/share.
11. Income Taxes
The Corporation’s temporary differences include non-‐capital loss carry forwards of $62,793 and deductible temporary differences of $1,120,533 arising from differences in debt and share issuance costs, interest and organizational costs. These temporary differences result in a future income tax asset of $295,832 which has been fully offset by a valuation allowance. The unused non-‐capital losses of $62,793 expire in the year 2031.
462012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
Walton Westphalia Development Corporation Notes to Consolidated Financial Statements UNAUDITED FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND THE PERIOD JANUARY 4, 2012 TO JUNE 30, 2012 (expressed in Canadian dollars)
-‐21-‐
12. Commitments
The following table presents future commitments of the Corporation under the Management Services Agreement (note 8). It does not include the performance fee payable to WAM under the Management Services Agreement, which is determined at the time land sales are completed.
Servicing fee Management fee Total $ $ $
2012 54,799 219,196 273,995 2013 109,002 436,009 545,011 2014 109,002 436,009 545,011 2015 109,002 436,009 545,011 2016, thereafter 327,006 1,415,534 1,742,540
708,811 2,942,757 3,651,568
The commitment for the management fee will extend for the length of the project, however, after April 1, 2019, it is calculated based on the book value of the Property at the end of the previous calendar quarter, which cannot be reasonably estimated at this time.
13. Capital Management
As at June 30, 2012, the Corporation’s capital resources consisted of cash which the Corporation raised through the Offerings. Out of the net proceeds raised through the Offerings, $4.7 million of cash remains. The cash on hand, as well as any additional proceeds raised through the Private Placements, will be used by the Corporation to repay a portion of the loan from WIGI, and to pay for the ongoing administrative and operating expenses, management fees, development fees, pre-‐development costs, grading costs, construction costs and other expenses of the Corporation.
Management regularly reviews the levels of its capital resources to determine if sufficient capital is available to fund the ongoing costs of the Corporation over the next twelve months. As at June 30, 2012, sufficient capital exists to fund the Corporation’s activities for at least the next 12 months.
14. Subsequent Event
On August 20, 2012, U.S. Subsidiary received USD$2,917,420 (CAD$2,882,119) from WWE from the funds raised through WWE’s private placement offering. This sale of the Property represents approximately 11.3% of undivided interest in the land held for development and the funds were used by the Corporation for repayment of the loan payable to related parties (note 8) and interest thereon.
472012 Q2 Report • Walton Westphalia Development Corporation • Notes to Unaudited Interim Financial Statements
482012 Q2 Report • Walton Westphalia Development Corporation
The Walton Group of Companies is a multinational group of real estate investment and development companies headquartered in Calgary, Alberta, Canada. Walton’s expertise is the research, acquisition, management and development of strategically located land in major North American growth corridors. With over 68,000 acres of land under management, the Walton Group is one of North America’s premier land asset managers. Walton manages and/or owns land assets in Phoenix, Austin, Dallas, Atlanta, Charlotte, the Washington D.C. region, Ottawa, Toronto, Edmonton and Calgary.
The following members of the Walton Group of Companies are involved in the Walton Westphalia Development Corporation:
Walton Asset Management L.P. is the manager of the Walton Westphalia Development Corporation.
Walton Development & Management (USA), Inc.is the project manager for Walton Westphalia Development Corporation.
Walton International Group Inc.is a shareholder in the Walton Westphalia Development Corporation, with a minority interest.
Walton Capital Management Inc.is a registered exempt market securities dealer which distributed units for Walton Westphalia Development Corporation.
Walton Global Investments Ltd.is the parent company of the Walton Group of Companies.
Walton Group of Companies
492012 Q2 Report • Walton Westphalia Development Corporation
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