TANIZUL TIMBER LTD. Financial Statements March 31, 2016
TANIZUL TIMBER LTD. INDEX TO THE FINANCIAL STATEMENTS MARCH 31, 2016
Page Independent Auditors' report
2-3
Financial Statements - Operations and Deficit
4
- Balance Sheet
5
- Cash flow
6
- Notes to financial statements - Schedule of Forestry Operations
7-11 12
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, 2016, the statements of operations and deficit, and cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the basis of accounting described in note 2 to 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, 2016 and its financial performance for the year then ended in accordance with basis of accounting described in note 2 to the financial statements.
2
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. Other Matter The financial statements of Tanizul Timber for the year ended March 31, 2015 were audited by another auditor who expressed an unmodified opinion on those statements on September 18, 2015.
Prince George, BC October 7, 2016
Chartered Professional Accountants
3
TANIZUL TIMBER LTD. STATEMENT OF OPERATIONS AND DEFICIT For the year ended March 31, 2016
2016 (LOSS) INCOME FROM FORESTRY OPERATIONS (Schedule)
$
GENERAL AND ADMINSTRATIVE EXPENSES Donations Management wages Professional services Director honorariums Rent Office and sundry Meetings and conferences Utilities Insurance Membership, licences and permits Property taxes Interest and bank charges Advertising Amortization of property and equipment
(LOSS) INCOME BEFORE OTHER ITEM OTHER ITEM Interest and other income NET (LOSS) INCOME FOR THE YEAR RETAINED EARNINGS (DEFICIT) AT BEGINNING OF THE YEAR (DEFICIT) RETAINED EARNINGS AT END OF THE YEAR
$
(82,977)
2015 $ 1,039,861
139,944 41,538 14,623 14,100 11,000 9,460 5,441 4,730 2,911 1,780 642 264 9,387
29,181 72,692 12,945 13,200 12,075 3,956 2,210 4,510 1,884 1,382 616 264 1,735 4,015
255,820
160,665
(338,797)
879,196
14,071
13,169
(324,726)
892,365
270,997
(621,368)
(53,729)
$
270,997
See notes to the financial statements. 4
TANIZUL TIMBER LTD. BALANCE SHEET March 31, 2016
ASSETS
CURRENT ASSETS Cash Accounts receivable Prepaid expenses
2016
2015
$ 1,446,676 184,135 4,988
$ 2,330,307 483,824 4,053
1,635,799
2,818,184
44,165
10,546
$ 1,679,964
$ 2,828,730
$
$
PROPERTY AND EQUIPMENT (Note 3)
LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities (Note 4) Current portion of accrued reforestation obligation (Note 5) Due to related party (Note 6)
ACCRUED REFORESTATION OBLIGATION (Note 5)
23,265 901,750 -
78,698 1,379,650 36,027
925,015
1,494,375
808,670
1,063,350
1,733,685
2,557,725
8
8
SHARE CAPITAL AND DEFICIT SHARE CAPITAL (Note 7) (DEFICIT) RETAINED EARNINGS
(53,729)
270,997
(53,721)
271,005
$ 1,679,964
$ 2,828,730
Approved by the Directors: _________________________ Director _________________________ Director
See notes to the financial statements. 5
TANIZUL TIMBER LTD. STATEMENT OF CASH FLOW For the year ended March 31, 2016
2016 OPERATING ACTIVITIES Net (loss) income for the year Items not involving cash: Amortization - property and equipment Reforestation adjustment
Changes in non-cash working capital items (Note 11) Cash (to) from operations
$ (324,726)
2015
$
892,365
9,387 (732,580)
4,015 319,000
(1,047,919)
1,215,380
243,322
(413,106)
(804,597)
802,274
INVESTING ACTIVITIES Acquisition of property and equipment
(43,007)
FINANCING ACTIVITIES Due to related party
(36,027)
13,338
(883,631)
815,162
(DECREASE) INCREASE IN CASH FOR THE YEAR CASH AT BEGINNING OF THE YEAR CASH AT END OF THE YEAR
(450)
2,330,307
1,515,145
$ 1,446,676
$ 2,330,307
See notes to the financial statements. 6
TANIZUL TIMBER LTD. NOTES TO THE FINANCIAL STATEMENTS For the year ended March 31, 2016
1.
DESCRIPTION OF BUSINESS Tanizul Timber Ltd. (the “Company”) 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, these financial statements have been prepared in accordance with ASPE and include the following significant accounting policies: Revenue Recognition Revenues generated by log sales are recognized upon delivery and scaling. Interest revenue is recognized in the period it is earned. Market bonus revenue is recognized as at the invoice date. Cash and Cash Equivalents The Company considers cash to include cash on hand, cash on deposit net of cheques issued and outstanding at the reporting date, and all highly liquid investments with a maturity of twelve months or less at acquisition to be cash equivalents. Property and Equipment 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%
7
TANIZUL TIMBER LTD. NOTES TO THE FINANCIAL STATEMENTS For the year ended March 31, 2016
2.
SIGNIFICANT ACCOUNTING POLICIES, continued 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 the basis of accounting as described in note 2 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 and equipment. 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 amounts due to related party. 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. 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.
8
TANIZUL TIMBER LTD. NOTES TO THE FINANCIAL STATEMENTS For the year ended March 31, 2016
3.
PROPERTY AND EQUIPMENT
Cost
Forestry equipment Computer equipment Motor vehicles Leasehold improvements
4.
2016 Accumulated Amortization
2015 Net Book Value
Net Book Value
$
84,578 29,700 78,024 25,974
$
82,749 27,700 37,688 25,974
$
1,829 2,000 40,336 -
$
2,286 862 7,398 -
$
218,276
$
174,111
$
44,165
$
10,546
ACCOUNTS PAYABLE 2016
Trade payables Government remittances payable (GST, WCB)
5.
2015
$
19,306 3,959
$
62,977 15,721
$
23,265
$
78,698
ACCRUED REFORESTATION OBLIGATION The future cost of reforesting the cut blocks is estimated to be $1,710,420 (2015 - $2,443,000). The estimate is based on costs to bring the cut block back to the free to grow stage. Amounts are reviewed annually as new information 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 $901,750 (2015 - $1,379,650). 2016
Accrued reforestation obligation Less: current portion
2015
$
1,710,420 901,750
$
2,443,000 1,379,650
$
808,670
$
1,063,350
9
TANIZUL TIMBER LTD. NOTES TO THE FINANCIAL STATEMENTS For the year ended March 31, 2016
6.
RELATED PARTY TRANSACTIONS During the year, the Company paid the shareholder, Tl’az’ten Nation, $11,000 for rent (2015 $12,075). 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, 2016, the Company owed the Tl’az’ten Nation $nil (2015 - $36,027). 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. The amount owed to Tl’az’ten Nation is unsecured, non-interest bearing with no specific terms of repayment.
7.
SHARE CAPITAL There are 8 common 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, 2016: 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. 10
TANIZUL TIMBER LTD. NOTES TO THE FINANCIAL STATEMENTS For the year ended March 31, 2016
10.
FINANCIAL RISKS AND CONCENTRATION OF RISK, continued 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. The Company is only exposed to interest risk relating to its GIC investment, which management deems to be low.
11.
CHANGES IN NON-CASH WORKING CAPITAL ITEMS 2016 Accounts receivable Prepaid expenses Accounts payable and accrued liabilities
12.
2015
$
299,689 (934) (55,433)
$
(251,595) (212) (161,299)
$
243,322
$
(413,106)
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). Tanizul Timber Ltd. entered into the 25 year agreement on November 1, 2009.
13.
COMPARATIVE FIGURES Certain prior year figures, presented for comparative purposes, have been reclassified to conform to the current year’s financial statement presentation.
11
Schedule
TANIZUL TIMBER LTD. SCHEDULE OF FORESTRY OPERATIONS For the year ended March 31, 2016
2016 REVENUE Log sales Market bonus
$
517,699 19,944
$ 2,173,629 19,944
$
537,643
2,193,573
DIRECT COSTS Consultants Supplies Wages and benefits Annual forest licence rental Sub-contracts Reforestation and roads Equipment - rentals and costs Vehicle fuel, oil and grease Vehicle repair and maintenance Vehicle insurance Equipment - repairs and maintenance Equipment - other Reforestation adjustment
830,570 189,197 150,434 56,891 55,970 45,217 9,332 6,699 5,622 1,694 1,510 64 (732,580) 620,620
(LOSS) INCOME FROM FORESTRY OPERATIONS
See notes to the financial statements.
2015
$
(82,977)
350,324 200,443 117,878 57,167 102,213 4,661 589 1,370 67 319,000 1,153,712 $ 1,019,917
12
