TANIZUL TIMBER LTD. FINANCIAL STATEMENTS March 31, 2013
RHB SCHMITZ de GRACE Chartered Accountants
RHB SCHMITZ de GRACE Chartered Accountants Partners Lynn Ross CA Norm Hildebrandt BBA, CA Allison Beswick BComm, CA
1116 Sixth Avenue Prince George, BC, V2L 3M6 Tel. (250) 564-2515 Fax (250) 562-8722 E-mail:
[email protected]
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, 2013, 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, 2013 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 Partners Lynn Ross CA Norm Hildebrandt BBA, CA Allison Beswick BComm, CA
1116 Sixth Avenue Prince George, BC, V2L 3M6 Tel. (250) 564-2515 Fax (250) 562-8722 E-mail:
[email protected]
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 October 28, 2013
Chartered Accountants
TANIZUL TIMBER LTD. STATEMENT OF OPERATIONS AND DEFICIT For the year ended March 31, 2013
2013 INCOME FROM FORESTRY OPERATIONS (Schedule 1) GENERAL AND ADMINSTRATIVE EXPENSES Management wages Professional services Director honorarium Donations Interest and bank charges Rent Office and sundry Utilities Membership, licences and permits Advertising Insurance Travel Property taxes Amortization - property and equipment
INCOME BEFORE OTHER ITEMS OTHER ITEMS Interest and other income Loss on sale of cutting permits Impairment loss on deferred costs
NET INCOME FOR THE YEAR
$
413,662
2012 $
317,416
90,000 12,352 12,000 8,500 6,606 4,500 4,339 3,517 1,502 1,288 1,030 709 513 8,180
90,000 11,436 11,950 1,100 10,236 3,259 4,334 1,680 165 1,313 544 18,032
155,036
154,049
258,626
163,367
1,676 -
6,908 (17,984) (42,994)
1,676
(54,070)
260,302
DEFICIT AT BEGINNING OF THE YEAR DEFICIT AT END OF THE YEAR
109,297
(1,836,118)
(1,945,415)
$ (1,575,816)
$ (1,836,118)
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, 2013
2013 OPERATING ACTIVITIES Net income for the year Items not involving cash: Loss on sale of cutting permits Impairment loss on deferred costs Amortization - property and equipment Amortization - cutting permits Reforestation adjustment
$
Changes in non-cash working capital items (Note 12) Cash from operations INVESTING ACTIVITIES Acquisition of equipment Proceeds on sale of cutting permits
INCREASE (DECREASE) IN CASH FOR THE YEAR CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR
$
260,302
2012
$
109,297
8,180 2,697 (141,800)
17,984 42,994 18,032 2,697 (140,081)
129,379
50,923
(80,842)
(144,743)
48,537
(93,820)
(792) -
(29,484) 11,255
(792)
(18,229)
47,745
(112,049)
181,064
293,113
228,809
$
181,064
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, 2013
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. Accrual Basis of Accounting These financial statements are prepared using the accrual basis of accounting. 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, 2013
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 Measurement of Financial Instruments The company initially measures its financial assets and financial liabilities at fair value, except for certain non-arm’s length transactions. The company subsequently measures all its financial assets and financial liabilities at cost. Financial assets measured at cost include cash, and accounts receivable. Financial liabilities measured at cost include accounts payable and accrued liabilities, and accrued reforestation obligation. Impairment Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income.
RHB SCHMITZ de GRACE Chartered Accountants
TANIZUL TIMBER LTD. NOTES TO THE FINANCIAL STATEMENTS For the year ended March 31, 2013
3.
SIGNIFICANT ACCOUNTING POLICIES, continued Financial Instruments, continued Transaction Costs The company recognizes its transaction costs in net income in the period incurred. However, the carrying amount of the financial instruments that will not be subsequently measured at fair value is reflected in the transaction costs that are directly attributable to their origination, issuance or assumption.
4.
PROPERTY AND EQUIPMENT 2013 Accumulated Amortization
Cost Forestry equipment Computer equipment Motor vehicles Leasehold improvements
5.
2012 Net Book Value
Net Book Value
$
84,578 27,604 36,664 25,974
$
80,613 26,626 21,562 25,974
$
3,965 978 15,102 -
$
4,463 1,398 21,574 -
$
174,820
$
154,775
$
20,045
$
27,435
DEFERRED COSTS 2013
Cost Cutting permits
6.
$
26,966
Accumulated Amortization $
15,313
2012 Net Book Value $
11,653
Net Book Value $
14,349
ACCRUED REFORESTATION OBLIGATION The future cost of reforesting the cut blocks is estimated to be $1,880,000. The estimate is revalued annually as new pricing comes 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 $430,000.
RHB SCHMITZ de GRACE Chartered Accountants
TANIZUL TIMBER LTD. NOTES TO THE FINANCIAL STATEMENTS For the year ended March 31, 2013
7.
RELATED PARTY TRANSACTIONS During the year, the company paid Tl’az’ten Nation $6,000 for rent from June 2012 to May 2013. 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, 2013, the company owed the Tl’az’ten Nation $ nil (2012 - $49,364). 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.
8.
SHARE CAPITAL The eight shares issued are held in trust on behalf of the members of Tl’azt’en Nation.
9.
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.
10.
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.
11.
FINANCIAL RISKS AND CONCENTRATION OF RISK The company is exposed to various risks through its financial instruments. The following analysis provides a measure of the company’s risk exposure and concentrations as at March 31, 2013. Credit Risk Credit risk refers to the risk that a customer may default on its contractual obligations resulting in a financial loss. As substantially all of the company’s revenues are generated from sales to a few forest industry customers, management has determined that credit risk is moderate. There has been no change to the risk exposure from 2012.
RHB SCHMITZ de GRACE Chartered Accountants
TANIZUL TIMBER LTD. NOTES TO THE FINANCIAL STATEMENTS For the year ended March 31, 2013
11.
FINANCIAL RISKS AND CONCENTRATION OF RISK, continued Liquidity Risk Liquidity risk is the risk that the company will not be able to meet its financial obligations associated with financial liabilities. Cash flow from operations provides a substantial portion of the company’s cash requirements. Management is of the opinion that liquidity risk is not a significant risk and there has been no change to risk exposures from 2012.
12.
CHANGES IN NON-CASH WORKING CAPITAL ITEMS 2013 Accounts receivable Prepaid expenses Accounts payable and accrued liabilities Due to related party (Note 7)
13.
2012
$
4,410 (2,512) (33,376) (49,364)
$
(108,820) (937) (84,350) 49,364
$
(80,842)
$
(144,743)
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, 2013
2013 REVENUE Log sales Consulting services Contracting services
$
DIRECT COSTS Consultants Wages and benefits Annual rental Supplies Vehicle fuel, oil and grease Vehicle insurance Vehicle repair and maintenance Equipment rental Equipment - other Stumpage (recovery) Equipment repair and maintenance Reforestation adjustment (recovery) Amortization - cutting permits
INCOME FROM FORESTRY OPERATIONS
$
599,902 -
2012
$
308,164 27,000 1,825
599,902
336,989
113,366 103,451 56,489 46,364 3,854 1,420 139 137 100 23 (141,800) 2,697
18,820 56,767 56,489 20,393 1,388 441 2,434 333 (381) 273 (140,081) 2,697
186,240
19,573
413,662
$
317,416
RHB SCHMITZ de GRACE Chartered Accountants
See notes to the financial statements.