TANIZUL TIMBER LTD. FINANCIAL STATEMENTS March 31, 2014
RHB SCHMITZ de GRACE Chartered Accountants
RHB SCHMITZ de GRACE Chartered Accountants 10 – 556 North Nechako Rd Prince George, BC, V2K 1A1 Tel. (250) 564-2515 Fax (250) 562-8722 E-mail:
[email protected]
Partners Lynn Ross, CPA, CA Norm Hildebrandt, CPA, CA Allison Beswick, CPA, CA Denotes professional corporation
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors of Tanizul Timber Ltd. We have audited the accompanying financial statements of Tanizul Timber Ltd., which comprise the balance sheet as at March 31, 2014, the statements of operations and deficit, and cash flow for the year then ended, summary of significant accounting policies and other explanatory information. The financial statements have been prepared by management based on financial reporting provisions described in note 2 of the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the basis of accounting described in note 2 of the financial statements, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Tanizul Timber Ltd. as at March 31, 2014 and its financial performance for the year then ended in accordance with basis of accounting described in note 2 of the financial statements.
RHB SCHMITZ de GRACE Chartered Accountants 10 – 556 North Nechako Rd Prince George, BC, V2K 1A1 Tel. (250) 564-2515 Fax (250) 562-8722 E-mail:
[email protected]
Partners Lynn Ross, CPA, CA Norm Hildebrandt, CPA, CA Allison Beswick, CPA, CA Denotes professional corporation
INDEPENDENT AUDITORS’ REPORT, continued
Basis of Accounting Without modifying our opinion, we draw attention to note 2 to the financial statements which describes the basis of accounting. The financial statements are prepared using a framework appropriate for a commercial operation, although the company, strictly speaking, operates in the public sector. As a result, the financial statements may not be suitable for all purposes.
Prince George, BC September 30, 2014
Chartered Accountants
TANIZUL TIMBER LTD. STATEMENT OF OPERATIONS AND DEFICIT For the year ended March 31, 2014
2014 INCOME FROM FORESTRY OPERATIONS (Schedule 1)
$ 1,157,401
GENERAL AND ADMINSTRATIVE EXPENSES Management wages Rent Professional services Director honorarium Meetings and conferences Utilities Donations Office and sundry Insurance Membership, licences and permits Property taxes Interest and bank charges Advertising Travel Amortization - property and equipment (Note 2)
INCOME BEFORE OTHER ITEM OTHER ITEM Interest and other income NET INCOME FOR THE YEAR DEFICIT AT BEGINNING OF THE YEAR DEFICIT AT END OF THE YEAR
$
2013 $
413,662
84,808 17,500 12,890 12,200 8,868 3,964 3,900 3,580 2,139 1,728 557 311 35 5,934
90,000 4,500 12,352 12,000 709 3,517 8,500 4,339 1,030 1,502 513 6,606 1,288 8,180
158,414
155,036
998,987
258,626
9,912
1,676
1,008,899
260,302
(1,575,816)
(1,836,118)
(566,917)
$ (1,575,816)
RHB SCHMITZ de GRACE See notes to the financial statements.
Chartered Accountants
TANIZUL TIMBER LTD. BALANCE SHEET March 31, 2014
ASSETS 2014 CURRENT ASSETS Cash Accounts receivable Prepaid expenses
2013
$ 1,515,145 289,403 3,841
PROPERTY AND EQUIPMENT (Note 3) DEFERRED COSTS (Note 4)
$
228,809 113,083 3,449
1,808,389
345,341
14,111
20,045
-
11,653
$ 1,822,500
$
377,039
$
$
72,847 430,000 -
LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities Current portion of accrued reforestation obligation (Note 5) Due to related party (Note 6)
ACCRUED REFORESTATION OBLIGATION (Note 5)
242,720 715,000 22,689 980,409
502,847
1,409,000
1,450,000
2,389,409
1,952,847
8
8
SHARE CAPITAL AND DEFICIT SHARE CAPITAL (Note 7) DEFICIT
(566,917)
(1,575,816)
(566,909)
(1,575,808)
$ 1,822,500
$
377,039
Approved by the Directors: _________________________ Director _________________________ Director
RHB SCHMITZ de GRACE See notes to the financial statements.
Chartered Accountants
TANIZUL TIMBER LTD. STATEMENT OF CASH FLOW For the year ended March 31, 2014
2014 OPERATING ACTIVITIES Net income for the year Items not involving cash: Amortization - property and equipment Amortization - cutting permits Reforestation adjustment
2013
$ 1,008,899
$
5,934 11,653 244,000
8,180 2,697 (141,800)
1,270,486 Changes in non-cash working capital items (Note 11) Cash from operations
129,379
15,850
(80,842)
1,286,336
INVESTING ACTIVITIES Acquisition of equipment
260,302
48,537
-
(792)
INCREASE IN CASH FOR THE YEAR
1,286,336
47,745
CASH AT BEGINNING OF THE YEAR
228,809
181,064
CASH AT END OF THE YEAR
$ 1,515,145
$
228,809
RHB SCHMITZ de GRACE See notes to the financial statements.
Chartered Accountants
TANIZUL TIMBER LTD. NOTES TO THE FINANCIAL STATEMENTS For the year ended March 31, 2014
1.
DESCRIPTION OF BUSINESS Tanizul Timber Ltd. was incorporated on March 11, 1981. Prior to November 2009, the company held a Tree Farm License near Tache, British Columbia. In November 2009, the company surrendered this Tree Farm License and entered into a Community Forest Agreement with the Province of British Columbia. The company now manages the forest from silviculture to harvest under the new agreement. Any surpluses generated from operations are used for activities which are benevolent to the members of Tl’azt’en Nation.
2.
SIGNIFICANT ACCOUNTING POLICIES As the company’s operations are effectively controlled by members representing the Tl’azt’en Nation, generally accepted accounting principles dictate that its financial statements be prepared using the framework stipulated by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. The company’s activities, however, are essentially commercial in nature, and it is, therefore, management’s opinion that the framework set out in the Canadian accounting standards for private enterprise (ASPE) would be more appropriate in the circumstances. Consequently, ASPE has been used in the preparation of these financial statements. Revenue Recognition Revenue generated by log sales are recognized upon delivery and scaling. Cash and Cash Equivalents The company considers all highly liquid investments with a maturity of twelve months or less at acquisition to be cash equivalents. Inventory Inventory is recorded at the lower of cost or net realizable value using the specific identification method. Property, Equipment and Amortization Property and equipment are recorded at cost. Amortization is based on their estimated useful lives using the declining-balance method at the following annual rates: Forestry equipment Computer equipment Motor vehicles
20% 30% 30%
RHB SCHMITZ de GRACE Chartered Accountants
TANIZUL TIMBER LTD. NOTES TO THE FINANCIAL STATEMENTS For the year ended March 31, 2014
2.
SIGNIFICANT ACCOUNTING POLICIES, continued Deferred Costs Amortization of deferred costs is based on their estimated useful lives using the straight-line method at the following annual rate: Cutting permits
10%
Accrued Reforestation Obligation The company manages the forest in accordance with the provisions of the Community Forest Agreement. Estimated future reforestation and silviculture obligations are accrued at cost and charged to production costs as each area is harvested. The liability is adjusted to estimated fair value at the end of the fiscal period. Measurement Uncertainty The preparation of financial statements in accordance with Canadian accounting standards for private enterprises requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the year. Actual results could differ from management’s best estimates as additional information becomes available in the future. Significant estimates include the accrued reforestation obligation and the useful life of property, equipment and cutting permits. Financial Instruments The Society classifies its financial instruments as either fair value or amortized cost. Society’s accounting policy for each is as follows:
The
Fair value This category includes cash and accounts receivable. They are initially measured at cost and subsequently carried at fair value. Unrealized and realized changes in fair value are recognized in the statement of operations in the period they occur. Transaction costs are expensed as incurred. Amortized cost This category includes accounts payable and accrued liabilities and accrued reforestation liability. They are initially recognized at cost and subsequently carried at amortized cost using the effective interest method, less any impairment losses in financial assets. Transaction costs are added to the carrying value of the instrument. Write-downs of financial assets are recognized when the amount of the loss is known with sufficient precision and there is no realistic prospect of recovery. Financial assets are written down to net recoverable value with the write-down being recognized in the statement of operations in the period the write-down occurred.
RHB SCHMITZ de GRACE Chartered Accountants
TANIZUL TIMBER LTD. NOTES TO THE FINANCIAL STATEMENTS For the year ended March 31, 2014
3.
PROPERTY AND EQUIPMENT 2014 Accumulated Amortization
Cost Forestry equipment Computer equipment Motor vehicles Leasehold improvements
4.
2013 Net Book Value
Net Book Value
$
84,578 27,604 36,664 25,974
$
81,721 26,920 26,094 25,974
$
2,857 684 10,570 -
$
3,965 978 15,102 -
$
174,820
$
160,709
$
14,111
$
20,045
DEFERRED COSTS
Cost Cutting permits
$
26,966
2014 Accumulated Amortization $
26,966
2013 Net Book Value
Net Book Value $
-
$
11,653
Cutting permits have been fully expensed during the year, as they no longer hold any value. The industry regulations have changed and these specific cutting permits are no longer required for operations. 5.
ACCRUED REFORESTATION OBLIGATION The future cost of reforesting the cut blocks is estimated to be $2,124,000. The estimate is based on costs to bring the cut block back to the free to grow stage. Amounts are reviewed annually as new pricing becomes available. The current portion of this obligation is based on an estimate of reforestation activities to be performed in the subsequent year, which management has budgeted to be $715,000.
6.
RELATED PARTY TRANSACTIONS During the year, the company paid Tl’az’ten Nation $17,500 for rent from April 2013 to March 2014. During the year, the company performed forest management activities on behalf of the Tl’az’ten Nation. In the course of performing these activities, the company collected cash and paid costs on behalf of the Nation. As at March 31, 2014, the company owed the Tl’az’ten Nation $22,689 (2013 - $ nil). These transactions were made in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
RHB SCHMITZ de GRACE Chartered Accountants
TANIZUL TIMBER LTD. NOTES TO THE FINANCIAL STATEMENTS For the year ended March 31, 2014
7.
SHARE CAPITAL The eight shares issued are held in trust on behalf of the members of Tl’azt’en Nation.
8.
RESTRICTION ON DISTRIBUTION OF ASSETS In accordance with the provisions of its incorporation, and as one of the conditions of qualifying for tax-exempt status, the company may at no time declare or authorize payment of any dividend. No part of the company’s income shall be paid, or otherwise made payable to or available for the personal benefit of any shareholder of the company.
9.
INCOME TAXES The company has been established for benevolent and not-for-profit purposes whereby it is prevented from paying dividends to shareholders or distributing assets to shareholders upon the wind-up or amalgamation of the company. As a result, it may qualify as being exempt from income tax pursuant to paragraph 149 1(1) of the Income Tax Act of Canada. Management is of the opinion that the company has met all requirements in order for it to continue to qualify as being exempt from income tax. If it is subsequently determined that the company is subject to income taxation, the amount of corporate taxes assessed, if any, would be accounted for as a current item in the year of assessment.
10.
FINANCIAL RISKS AND CONCENTRATION OF RISK Risks and Concentrations The Company is exposed to various risks through its financial instruments, without being exposed to concentrations of risk. The following analysis provides a measure of the company’s risk exposure as at March 31, 2014. Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to this risk mainly in respect of its accounts payable and accrued liabilities, due to related party and accrued reforestation obligation. 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. The Company’s main credit risks relate to its accounts receivable. The Company provides credit to its client in the normal course of operations. Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.
RHB SCHMITZ de GRACE Chartered Accountants
TANIZUL TIMBER LTD. NOTES TO THE FINANCIAL STATEMENTS For the year ended March 31, 2014
10.
FINANCIAL RISKS AND CONCENTRATION OF RISK, continued Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company has no significant transactions completed in foreign currencies. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates. The Company is not exposed to interest rate risk. Other price risk Other price risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether these changes are caused by factors specific to the financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The Company is not exposed to significant other price risk
11.
CHANGES IN NON-CASH WORKING CAPITAL ITEMS 2014 Accounts receivable Prepaid expenses Accounts payable and accrued liabilities Due to related party (Note 7)
12.
2013
$
(176,320) (392) 169,873 22,689
$
4,410 (2,512) (33,376) (49,364)
$
15,850
$
(80,842)
ECONOMIC DEPENDENCE The company’s ability to continue operations is dependent upon the continuing existence of the Community Forest Agreement between the Province of British Columbia and Tanizul Timber Ltd. (operating on behalf of members of the Tl’az’ten Nation).
RHB SCHMITZ de GRACE Chartered Accountants
Schedule 1
TANIZUL TIMBER LTD. SCHEDULE OF FORESTRY OPERATIONS For the year ended March 31, 2014
2014 REVENUE Log sales
$ 2,072,507
DIRECT COSTS Consultants Reforestation adjustment (recovery) Supplies Wages and benefits Annual rental Vehicle fuel, oil and grease Vehicle repair and maintenance Vehicle insurance Equipment - other Stumpage Equipment rental Amortization - cutting permits (Note 2)
INCOME FROM FORESTRY OPERATIONS
2013 $
599,902
256,147 244,000 233,859 104,409 56,703 4,099 2,654 1,426 134 22 11,653
113,366 (141,800) 46,364 103,451 56,489 3,854 139 1,420 100 23 137 2,697
915,106
186,240
$ 1,157,401
$
413,662
RHB SCHMITZ de GRACE Chartered Accountants
See notes to the financial statements.