FINANCIAL STATEMENTS. Walton Edgemont Development Corporation For the years ended December 31, 2016 and December 31, 2015

Transcription

1 FINANCIAL STATEMENTS Walton Edgemont Development Corporation For the years ended and

2 May 1, 2017 Independent Auditor s Report To the Shareholders of Walton Edgemont Development Corporation We have audited the accompanying financial statements of Walton Edgemont Development Corporation, which comprise the statements of financial position as at and and the statements of comprehensive loss, changes in shareholders equity and cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Walton Edgemont Development Corporation as at and and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers LLP th Avenue S.W. Calgary Alberta T2P 3L5 T: , F: PwC refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

3 Emphasis of matter Without qualifying our opinion, we draw attention to note 1 in the financial statements which describes matters and conditions that indicate the existence of a material uncertainty that may cast significant doubt about Walton Edgemont Development Corporation s ability to continue as a going concern. Chartered Professional Accountants

4 Statements of Financial Position As at and ASSETS $ $ Land development inventory (note 3) 43,596,986 43,853,981 Recoverable costs receivable (note 4) 1,158,450 37,535 Deferred tax asset (note 14) - 1,318,170 Restricted cash (note 7) 4,616,500 4,576,500 Prepaid expenses 343 1,000 Other receivable (note 6) 260, ,496 GST recoverable 11,981 - Cash 2,520,489 2,942,671 TOTAL ASSETS 52,165,666 52,912,353 LIABILITIES Debentures payable (note 8) - 23,041,324 Interest debentures payable (note 8) - 5,993,790 Project debt (note 9) 11,566,027 10,063,857 Interest payable (note10) - 1,172,070 Deferred recoverable costs (note 5) 1,570,941 2,076,448 Provision for land development costs (note 11) 566,072 1,958,434 GST payable - 10,186 Builder deposits 96,000 96,000 Due to related parties (note 12) 3,200,385 2,447,604 Accounts payable and accrued liabilities 222,318 1,831,944 TOTAL LIABILITIES 17,221,743 48,691,657 SHAREHOLDERS EQUITY Shareholders capital (note 13) 39,694,699 7,397,067 Accumulated deficit (4,750,776) (3,176,371) TOTAL EQUITY 34,943,923 4,220,696 TOTAL LIABILITIES AND EQUITY 52,165,666 52,912,353 Commitments (note 16) Going Concern (note 1) The accompanying notes to the financial statements are an integral part of these statements. Approved by the Board of Directors: (signed) William K. Doherty Director William K. Doherty (signed) Jon Hagan Director Jon N. Hagan

5 Statements of Comprehensive Loss For the years ended and OTHER INCOME/(EXPENSES) $ $ Phase 1 specific cost savings (note 11) Interest income Management fees (note 12) Directors fees (note 12) Servicing fees (note 12) Professional fees Office and other expenses Marketing expenses 679,769-50,940 53,614 (715,956) (581,060) (102,302) (71,240) (69,450) (139,664) (66,634) (58,558) (26,196) (55,996) (6,406) (23,285) NET LOSS BEFORE TAXES (256,235) (876,189) Deferred income tax (expense)/recovery (note 14) (1,318,170) 316,678 NET AND COMPREHENSIVE LOSS (1,574,405) (559,511) Basic and diluted net loss per share attributable to class B shares (note 13) (0.12) (0.18) The accompanying notes to the financial statements are an integral part of these statements.

6 Statements of Changes in Shareholders Equity For the years ended and Class A Voting Common Shares Class B Non-voting Common Shares Accumulated Deficit Total # of Shares $ # of Shares $ $ $ JANUARY 1, ,120,140 7, 396,967 (2,616,860) 4,780,207 Net and Comprehensive loss (559,511) (559,511) DECEMBER 31, ,120,140 7, 396,967 (3,176,371) 4,220,696 Net and Comprehensive loss (1,574,405) (1,574,405) Conversion of debentures (note 13) ,350,643 32,297,632-32,297,632 DECEMBER 31, ,470,783 39,694,599 (4,750,776) 34,943,923 The accompanying notes to the financial statements are an integral part of these statements.

7 Statements of Cash Flows For the years ended and $ $ CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net and Comprehensive loss for the year (1,574,405) (559,511) Adjustments for: Interest income (50,940) (53,614) Items not affecting cash: Deferred tax expense/(recovery) 1,318,170 (316,678) Changes in non-cash operating items: Decrease/(increase) in land development inventory 2,388,362 (3,506,171) (Increase)/decrease in recoverable costs receivable (1,120,915) 1,607,389 Increase in other receivable (53,831) (152,602) Decrease in prepaid expense (Increase)/decrease in GST recoverable (11,981) 300,819 (Decrease)/increase in deferred recoverable costs (505,507) 1,673,941 Decrease in provision for land development costs (917,868) (1,843,414) (Decrease)/increase in GST payable (10,186) 10,186 Increase in due to related parties 752, ,258 Decrease in accounts payable and accrued liabilities (1,609,626) (6,486,263) Interest received 26,350 25,940 Interest paid (379,478) (263,494) (1,748,417) (9,155,214) INVESTING ACTIVITIES (Increase)/decrease in restricted cash (40,000) 810 (40,000) 810 FINANCING ACTIVITIES Advances from project debt, net of transaction costs 1,366,235 9,868,357 1,366,235 9,868,357 (Decrease)/increase in cash (422,182) 713,953 Cash Beginning of year 2,942,671 2,228,718 Cash End of year 2,520,489 2,942,671 SUPPLEMENTAL INFORMATION (note 18) The accompanying notes to the financial statements are an integral part of these statements.

8 For the years ended and 1. NATURE OF BUSINESS, COMPANIES CREDITOR ARRANGEMENT ACT ANNOUNCEMENT, GOING CONCERN & BASIS OF PREPARATION Nature of Business Walton Edgemont Development Corporation (the Corporation ) was incorporated under the laws of the Province of Alberta on May 5, The Corporation was formed to provide investors with the opportunity to participate in the development of the approximately acre Edgemont properties located in Edmonton, Alberta (the Properties ) through the purchase of units in the Corporation. Each unit issued by the Corporation ( Unit ) through its initial public offering ( IPO ) and private placement offering ( Private Placement ) was comprised of a $7.50 principal amount of offering debenture ( Debenture ) and one class B non-voting common share ( Class B share ) at a price of $2.50 per share. The Debentures were converted to Class B shares on September 30, (note 13). The Corporation intends to preserve the capital investment of the holders ( shareholders ) of shares in the Corporation and provide cash distributions to the shareholders (the Distribution ) by executing the following three step strategy: i) obtain contractual commitments from homebuilders to purchase lots to be serviced in each of the remaining phases of the development of the Properties before construction commences on that phase; ii) construct municipal services infrastructure on the Properties in phases to provide a controlled supply of serviced lots to the marketplace; and iii) use the revenue from the sale of the serviced lots to repay construction loans and other obligations of the Corporation and then make Distributions to the shareholders. 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 ), the manager of the Corporation, (ii) Walton Development and Management LP ( WDM ) (including the performance fee note 12), the project manager, and (iii) any amounts outstanding, on a phase by phase basis, under the construction loans required to develop the Properties. The performance fee is only payable if the investors of Class B shares in the Corporation have received cash payments or distributions 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 25 th floor, nd Street SW, Calgary, Alberta, T2P 1M4. These financial statements were authorized by the Board of Directors on May 1, The Board of Directors has the power to amend the financial statements after they are issued. Companies Creditors Arrangement Act ( CCAA ) Announcement On April 28, 2017, the Corporation, Walton International Group Inc. ( WIGI ), and certain affiliates ( CCAA Entities ), including the general partner of WDM and the general partner of WAM voluntarily filed and obtained creditor protection under the Companies Creditors Arrangement Act ( CCAA ) pursuant to an order (the Initial Order ) granted by the Court of Queen s Bench of Alberta (the Court ). The Initial Order authorizes the CCAA Entities to begin a court-supervised restructuring and provides for a broad stay of proceedings against the CCAA Entities in order to provide the opportunity to finalize and present a CCAA plan to creditors for approval. While WDM and WAM are not CCAA Entities, they are covered by the stay of proceedings. 1

9 For the years ended and The stay of proceedings are currently in place until May 26, Under the terms of the Initial Order, Ernst & Young Inc. will serve as the Court-appointed monitor (the Monitor ) of the CCAA Entities. The Corporation, WIGI and their advisors, in consultation with the Monitor, are currently assessing the best course forward for the CCAA Entities. This includes an extensive review and evaluation of potential restructuring alternatives that will maximize value for all stakeholders of the CCAA entities, including potentially implementing a sale and investment solicitation process (the SISP ) to identify one or more purchasers and/or investors in the Corporation s business and/or property ( Restructuring Plan ). Associated with the Restructuring Plan, an administrative charge may be incurred to finance the CCAA proceedings, including the SISP. A comeback hearing is currently scheduled for May 9 th, If the stay period and any subsequent extensions, if granted, are not sufficient to develop and present the Restructuring Plan, including a SISP, or should the Restructuring Plan not be accepted by the affected creditors and, the Corporation loses the protection of the stay of the proceedings, in that case, substantially all debt obligations of the Corporation will then be due and payable immediately, or subject to acceleration, creating an immediate liquidity situation which in all likelihood will force the Corporation into receivership and require liquidation of the Corporation s assets. Going Concern These financial statements have been prepared on a going concern basis in conformity with International Financial Reporting Standards ( IFRS ) and using accounting policies that are consistent with IFRS as issued by the International Accounting Standards Board ( IASB ). The going concern basis of presentation assumes that the Corporation will continue to operate for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business as they become due. For the year ended,, the Corporation reported a loss of $1,574,405 ( - $559,511), an accumulated deficit of $4,750,776 ( - $3,176,371) and negative operating cash flows of $1,748,417 ( - $9,155,214) at that date. In addition to its working capital requirements, the Corporation must secure sufficient funding for existing commitments including the repayment of $11,530,092 owing under the Interim Bridge Facility by May 1, The monthly interest payments on the Interim Bridge Facility (defined below) is expected to be $40,000 and will be financed from existing working capital. The working capital is sufficient to cover the interest expenses for the fiscal year ended If the lender of the Interim Bridge Facility was to demand repayment of the loan, the Corporation does not have sufficient working capital to repay the Interim Bridge Facility, nor does WIGI, as the guarantor, have sufficient working capital to make the principal repayment on behalf of the Corporation. In addition, the Corporation is in breach of certain bank covenants and reporting requirements under the Interim Bridge Facility as described in note 9. Management of the Corporation has been in discussions with the lender to obtain a $41.0 million Phase 2 Facility (the Phase 2 Facility ). The proceeds from the Phase 2 Facility would be used to repay amounts outstanding on the Interim Bridge Facility and construction costs of Phase 2 on the Project. There is no assurance the lender will commit to the Phase 2 Facility or provide forbearance on the Interim Bridge Loan. Without obtaining the Phase 2 Facility, the Corporation does not have the ability to repay the Interim Bridge Facility or to complete the requirements under the Phase 2A lot purchase and sale agreements. As the Phase 2 Facility has not been executed, and the Corporation does not have alternative financing to repay the Interim Bridge Facility on May 1, 2017, the Corporation has filed for a stay (described above) under the CCAA Entities Application for CCAA protection. These conditions lend significant doubt as to the ability of the Corporation to meet its obligations as they come due and accordingly, the appropriateness of the use of accounting principles applicable to a going concern. 2

10 For the years ended and As part of the Initial Order, a stay has been granted on the Corporation s assets and liabilities, as well as the other CCAA Entities assets and liabilities, including WIGI, the guarantor of the Interim Bridge Facility. Future operations are dependent on the Corporation s ability to restructure its balance sheet to provide the potential to generate positive cash flows from operations; maintain existing operations; and discharge obligations as they come due. The risks and uncertainties associated with a potential asset sale, corporate sale, and/or implementation of a balance sheet restructuring, cast significant doubt about the Corporation s ability to continue as a going concern. Management is currently developing a Restructuring Plan under creditor protection as discussed above and expects to continue operations under the constraints of the Initial Order. It is not possible to predict the outcome of these matters and there is no assurance that these initiatives will be successful. These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses that would be necessary if the Corporation were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. If the Corporation were unable to operate in the normal course of operations, the adjustments required could be material. During the periods while the Corporation is under creditor protection, the Corporation will reclassify certain amounts within its financial statements to reflect the financial evolution of the operations during the proceedings to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Basis of Presentation The Corporation s 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 2. The statements of financial position have 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 financial statements. With the exception of land development inventory (note 3), recoverable costs receivable (note 4), and deferred tax asset (note 14), all assets and liabilities are current in nature and are expected to be settled in less than twelve months. Change in Presentation The Statements of Financial Position have been adjusted to move interest earned from restricted cash to cash and builder deposits have been separated from accounts payable and accrued liabilities to its own line. The respective changes were also made on the Statements of Cash Flows. 2. ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS Use of Estimates and Judgments The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity at the date of the financial statements, and the reported amounts of revenue and expenses during the year. The estimates and assumptions that have the most significant effect on the amounts recognized in the Corporation s financial statements are as follows: Recoverability of land development inventory - In assessing the recoverability of the land development inventory, management is required to make estimates and assumptions regarding the sale price for serviced 3

11 For the years ended and lots, the costs to service the lots, the timing of lot sales, the completion date for the serviced lots and the Corporation s cost of borrowing. Changes in these estimates and assumptions could cause the net recoverable value of land development inventory to differ significantly from the carrying amount. If under the Restructuring Plan, the court was to approve a SISP, material adjustments may be required on the land development inventory, as the SISP would have an impact on the net realizable value expected on the Inventory. Under a SISP, the Property may be sold on an as is basis. Under this approach, the expected proceeds from the SISP would be at market value, which assumes the use of a market approach which uses comparable market transactions adjusted for factors specific to the Corporation s property including sales date, property rights conveyed, financing terms, conditions of sale, location, site area, site utility, and planning and development timeframe. Capitalization of borrowing costs - The Corporation capitalizes borrowing costs to qualifying assets by determining if borrowings are general or specific to the Properties. The Edgemont development project ( Project ) will be active throughout the period of capitalization and will take a substantial period of time to prepare the Properties for its intended use or sale. The Corporation considers a substantial period of time to be a period that is greater than one year. Deferred tax asset - In assessing the amount of the deferred tax asset to recognize, significant judgment is required in determining the likelihood, timing and level of future taxable profits. Changes in the timing and level of future taxable profits could cause the amount of the deferred tax asset recovered to differ significantly from the carrying amount. Provision for land development costs - In estimating the amount of the provision to be recognized for land development costs, significant judgment is required in estimating the costs required to complete the development of lots for which revenue has been recognized. These estimates are based on internal cost budgets prepared for each phase of development, which are reviewed regularly to determine what adjustments are needed to the provision for land development costs. The provision for land development costs includes, but is not limited to, construction costs, consulting costs, project management fees and financing costs. Changes in these estimates and assumptions could cause the total costs required to satisfy the obligations to differ significantly from the amount of this provision. Revenue recognition - In assessing when to recognize revenue, significant judgement is required in estimating when a purchaser can commence construction and when collection of sales proceeds are reasonably assured. Changes in the market and the economy or the credit worthiness of the purchaser may impact the amount of deposit required prior to recognizing revenues, which would impact the timing of revenue recognition. Cost of sales - In determining the amount of cost of sales to recognize in respect of completed lot sales, significant judgment is required in estimating each lot s proportionate share of land development inventory, as well as any remaining costs to complete the development of the lots sold. Changes in these estimates and assumptions could cause the actual cost of each lot sold to differ significantly from the cost of sales recognized at the time that revenue was recognized. Land Development Inventory Land development inventory consists of land held for development and land development costs. Land development inventory is acquired or constructed for sale in the ordinary course of business and is held as inventory and measured at the lower of cost and net realizable value. The land is recorded at the acquisition cost, which is based on the price paid by the Corporation for the Properties. All direct costs related to land development are capitalized to land 4

12 For the years ended and development inventory. These costs include, but are not limited to, construction costs, consultant costs, project management fees, property taxes and borrowing (financing) costs such as interest on debt specifically related to the land development inventory, but excludes marketing and general and administrative overhead expenses. Land development inventory is then relieved through cost of sales proportionately, based on the discounted sale price of each lot. Where the carrying amount exceeds the net realizable value, the difference is recognized as an impairment loss. If in a future period the net realizable value of the land development inventory increases, the impairment is reversed up to the original cost of the inventory. Recoverable Costs Receivable and Deferred Recoverable Costs Recoverable costs receivable are costs incurred in excess of recoveries received from the City of Edmonton, EPCOR and ATCO associated with the development agreement with the City of Edmonton. Deferred recoverable costs represent recoveries received in advance of expenditures being incurred. Deferred recoverable costs are reduced as associated costs are incurred. Borrowing Costs General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. The Corporation considers land development inventory to be a qualifying asset. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Borrowing costs on debt not directly attributable to the acquisition, construction or production of qualifying assets are expensed. Transaction Costs Issuance costs of project debt obligations are capitalized against the associated debt and amortized using the effective interest rate method. Financial Instruments Financial instruments are any contract that gives rise to a financial asset of one party and a financial liability or equity instrument of another party. Financial assets and liabilities are recognized when the Corporation becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have been transferred and the Corporation has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when the obligation specified in the contract is discharged. Financial instruments are recognized initially at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. At each reporting period, the Corporation will assess whether there is any objective evidence that a financial asset, other than those classified as fair value through profit or loss, is impaired. Impairment, if any, is recorded in net income. 5

13 For the years ended and The following table lists the Corporation s financial instruments and the method of measurement subsequent to initial recognition: Financial Instrument Category Measurement Method Recoverable costs receivable Loans and receivables Amortized cost Restricted cash Loans and receivables Amortized cost Other receivable Loans and receivables Amortized cost Cash Loans and receivables Amortized cost Debentures payable Other financial liabilities Amortized cost Interest Debentures payable Other financial liabilities Amortized cost Project debt Other financial liabilities Amortized cost Interest payable Other financial liabilities Amortized cost Builders deposits Other financial liabilities Amortized cost Due to related parties Other financial liabilities Amortized cost Accounts payable and accrued liabilities Other financial liabilities Amortized cost Debentures Payable Debentures payable consist of the Corporation s Debentures. As the Debentures were convertible at the option of the Corporation, the full amount of the Debentures were recorded as a financial liability and were initially recorded at fair value and subsequently at amortized cost using the effective interest rate method. On conversion, the Debentures were transferred to share capital at its carrying value at the date of conversion. Cash Cash consists of amounts in demand deposit at financial institutions. Provision for Land Development Costs The provision for land development costs is comprised of the estimated costs to complete the development of lots for which revenue has been recognized. These amounts have not been discounted as the majority of the costs are expected to be utilized within one year. Share Capital Class A voting common shares ( Class A shares ) have been classified as equity because they represent residual assets of the Corporation after the deduction of all its liabilities, and do not provide the holder of the shares with the right to put the shares back to the Corporation. Class B shares issued by the Corporation have been classified as equity because the shares represent a residual interest in the Corporation after the payment of all its liabilities, and do not provide the holder of the shares with the right to put the shares back to the Corporation. Costs directly attributable to the issuance of such shares are recognized as a deduction from equity. 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, the collection of sales proceeds is reasonably assured, the purchaser can commence construction, and all other significant conditions, if any, are met. Management has determined that these conditions are generally 6

14 For the years ended and met upon the receipt of a deposit of not less than 20%. Final payment is typically due within one year from the receipt of the 20% deposit. If the final payment date extends beyond one year, the revenue is discounted and amortized to finance income over the term of the purchase and sale agreement. Customer deposits received for purchases of lots on which revenue recognition criteria have not been met are recorded as deferred revenue. The Corporation recognizes interest income on an accrual basis in the period when it is earned. Cost of Sales At the time that revenue recognition criteria are met, the Corporation recognizes cost of sales for the lots sold by allocating to each lot its proportionate share of land development inventory using the net yield method. Under the net yield method, land development inventory is allocated to each lot sold based on the discounted sales price of the lot over the estimated total discounted lot sales that will benefit from the land development inventory. This results in estimated phase specific costs being allocated proportionately based on the net yield of each lot in that phase, estimated general costs being allocated proportionately based on the net yield of each lot that will benefit from the general costs, and land held for development being allocated proportionately based on the aggregate net yield of each lot of the Project. Included in the cost of sales recognized is the costs incurred to date and the related provision for land development costs for costs to complete the development of lots for which revenue is recognized. Earnings per Share The earnings per share are based on the weighted average number of Class B shares outstanding during the year. Diluted earnings per share are calculated to reflect the dilutive effect, if any, of the Debentures and Interest Debentures being converted into Class B shares of the Corporation. Current and Deferred Income Tax Income tax expense for the period comprises current and deferred tax. Income tax is recognized in the statement of comprehensive income except to the extent that it relates to items recognized directly in other comprehensive income or directly in equity, in which case the income tax is recognized directly in other comprehensive income or equity, respectively. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years. The deferred income tax method is used to account for income taxes. Under this method, deferred income taxes are recognized for the deferred income tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis. Deferred income tax assets and liabilities are measured using tax rates that have been enacted, or substantively enacted, by the date of the financial statements and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. The effect on deferred income tax assets and liabilities of a change in tax rates is included in income in the period that includes the enactment date. Deferred income tax assets are recognized to the extent they are more likely than not of being realized. 7

15 For the years ended and Future Changes in Accounting Policies Financial instruments IFRS 9 Financial Instruments ( IFRS 9 ) (July 2014) replaces earlier versions of IFRS 9 that had not yet been adopted by the Corporation and supersedes IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new models for classification and measurement of financial instruments, hedge accounting and impairment of financial assets and is mandatorily effective for periods beginning on or after January 1, The Corporation continues to review the standard as it is updated and monitor its impact on the Corporation s financial statements. Revenue from contracts with customers IFRS 15, Revenue from Contracts with Customers ( IFRS 15 ), was issued in May 2014 by the IASB and supersedes IAS 18, Revenue, IAS 11, Construction Contracts and other interpretive guidance associated with revenue recognition. IFRS 15 provides a single model to determine how and when an entity should recognize revenue, as well as requiring entities to provide more informative, relevant disclosures in respect of its revenue recognition criteria. IFRS 15 is to be applied retrospectively or through the recognition of the cumulative effect to opening retained earnings and is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. The Corporation is currently in the process of evaluating the impact that IFRS 15 may have on the financial statements. 3. LAND DEVELOPMENT INVENTORY $ $ BALANCE BEGINNING OF YEAR 43,853,981 37,975,359 Development costs 3,662,537 7,830,429 Costs to be recovered through development agreement (note 4) (1,823,118) (1,804,271) Phase 2 recoveries (note 6) (2,096,414) (147,536) BALANCE END OF YEAR 43,596,986 43,853,981 Phase 2 recoveries is comprised of invoices issued to developers in accordance with the ownership cost share agreement. The Phase 2 development agreement has not yet been entered into with the City of Edmonton. Once the Phase 2 development agreement is executed, the development costs to be recovered relating to the agreement will be transferred to recoverable costs receivable. Land development inventory is relieved through cost of sales at the time that revenue from lot sales is recognized. It is not possible for management to reasonably estimate the portion of land development inventory that will be realized within the next twelve months, as the timing of lot sales is subject to uncertainty based on market demand. If under the Restructuring Plan, the court was to approve a SISP, material adjustments may be required on the land development inventory, as the market value obtained through a SISP may be less than the underlying carrying value of the land development inventory recorded at. Under a SISP, the Property may be sold on an as is basis. Under this approach, the expected proceeds from the SISP would be at market value, which assumes the use of a market approach which uses comparable market transactions adjusted for factors specific to the Corporation s property including sales date, property rights conveyed, financing terms, conditions of sale, location, site area, site utility, and planning and development timeframe. 8

16 For the years ended and 4. RECOVERABLE COSTS RECEIVABLE The table below reconciles the change in recoverable costs receivable: $ $ BALANCE BEGINNING OF YEAR 37,535 1,644,924 Cost incurred to be recovered 1,823,118 1,804,271 Recoveries received (702,203) (3,411,660) BALANCE END OF YEAR 1,158,450 37,535 Recoverable costs receivable are collected from the City of Edmonton. These are in relation to the construction of infrastructure required as part of the development agreement with the City of Edmonton. The City of Edmonton will reimburse the Corporation for the proportionate share related to future developers. Future reimbursement will only be made as other developers sign their respective development agreements with the City of Edmonton. There is no guarantee as to the expected timing of when other developers may enter into their respective development agreements. Upon completion and acceptance by the City of Edmonton of the infrastructure, the recoverable costs accrue interest at the lower of a rate equal to the bank prime +1% or the Construction Price Index Variation, which is defined as the percentage change in the Edmonton Non-Residential Construction Price Index published by Statistics Canada. As these rates are representative of a risk-free interest rate, the recoverable costs are not discounted as the carrying value approximates the fair value at initial recognition. A portion of recoverable costs receivable included within the development agreement will be paid directly by EPCOR or ATCO. As at, the recoverable costs receivable relates to the Phase 1 servicing agreement. 5. DEFERRED RECOVERABLE COSTS The table below reconciles the change in deferred recoverable costs: $ $ BALANCE BEGINNING OF YEAR 2,076, ,507 Recoveries received in advance of costs incurred 45,572 2,048,996 Costs incurred (551,079) (375,055) BALANCE END OF YEAR 1,570,941 2,076, OTHER RECEIVABLE As at, the other receivable balance of $260,917 ( - $182,496) is comprised of invoices issued and outstanding to developers in accordance with the ownership cost share agreement of $226,286 ( - $147,536), builder chargebacks of $32,425 ( - $32,426) and interest income of $2,206 ( - $2,534). Of the $2,096,414 (note 3) invoiced under the Ownership Cost Share Agreement, $215,510 is outstanding. 9

17 For the years ended and 7. RESTRICTED CASH Restricted cash includes funds pledged as security for the Letters of Credit and interest accruing on these funds issued on costs to complete for Phase 1 lot sales previously recognized. As at, the restricted cash balance is $4,616,500 ( - $4,576,500). 8. DEBENTURES PAYABLE AND INTEREST DEBENTURES PAYABLE Debentures payable were comprised of the Debentures which were issued by the Corporation as part of its IPO, Private Placement and in exchange for Walton International Group Inc. s ( WIGI ) ownership interest in the Properties. The Debentures and Interest Debentures were unsecured and bore interest at a rate of 8% per annum. Interest on the Debentures and Interest Debentures was calculated annually based on the principal amount of the Debentures and Interest Debentures on June 30, and was payable annually on September 30. The Corporation could, in its sole discretion, (i) repay all or any portion of the principal amount of, or interest under, the Debentures or Interest Debentures through the issuance of Class B shares, (ii) evidence its obligation to pay all or any portion of the interest under the Debentures or Interest Debentures through the issuance of Interest Debentures, and/or (iii) convert all or any principal amount of, or interest under, the Debentures or Interest Debentures into Class B shares. The Corporation elected to exercise its right to convert the Debentures, Interest Debentures and accrued interest on the Debentures and Interest Debentures into Class B shares on September 30, (note 13). Any unpaid accrued interest to September 29, was also converted to Class B shares (note 10). The total number of Debentures outstanding as at was nil ( 3,120,140). During, $nil ( - $2,140,354) of Interest Debentures ( Interest Debentures ) were issued to holders of the Debentures and Interest Debentures to settle the interest payable due as at June 30th. The following table reconciles the change in Debentures payable: $ $ BALANCE BEGINNING OF YEAR 23,041,324 22,716,930 Accretion on Debentures 359, ,394 Conversion of Debentures to Class B shares (23,401,050) - BALANCE END OF YEAR - 23,041,324 The following table reconciles the change in interest debentures payable: $ $ BALANCE BEGINNING OF YEAR 5,993,790 3,853,436 Interest Debentures issued - 2,140,354 Conversion of Interest Debentures to Class B shares (5,993,790) - BALANCE END OF YEAR - 5,993,790 10

18 For the years ended and 9. PROJECT DEBT The table below reconciles the change in the Project debt balance: Interim Bridge Facility Transaction Costs Total $ $ $ BALANCE JANUARY 1, Advances 10,063,857 (195,500) 9,868,357 Interest incurred 263, ,494 Interest paid through interest reserve (263,494) - (263,494) Accretion - 195, ,500 BALANCE DECEMBER 31, 10,063,857-10,063,857 Advances 1,466,235 (100,000) 1,366,235 Interest incurred 415, ,413 Interest paid through interest reserve (136,506) - (136,506) Interest paid through cash (242,972) - (242,972) Accretion - 100, ,000 BALANCE DECEMBER 31, 11,566,027-11,566,027 The following table provides a summary of the Project debt balances outstanding at and December 31, : $ $ Principal, net of transaction costs 11,530,092 10,063,857 Interest payable 35,935 - BALANCE 11,566,027 10,063,857 Interim Bridge Facility The Corporation has a $17.70 million Phase 2 Interim Bridge Facility ( Interim Bridge Facility ) with a Canadian financial institution. The Interim Bridge Facility consists of a $13.0 million non-revolving demand loan and a $4.70 million letter of credit facility. Included in the non-revolving demand loan is an interest reserve of $400,000. The nonrevolving loan bears interest at a rate of bank prime +1% and the letters of credit bear interest at a rate of bank prime +1% per annum for all drawn amounts. Subsequent to year end, the Interim Bridge Facility was amended to extend the maturity date to May 1, There was $nil remaining of the interest reserve as of ( - $136,506). Interest incurred was capitalized to land development inventory. As at, $4.62 million in letters of credit ( - $4.58 million) have been issued on the facility and are cash secured with the restricted cash (note 7). 11

19 For the years ended and The Interim Bridge Facility is secured by a first charge demand collateral mortgage in the amount of $50 million on all present and after acquired property of the Corporation. The Interim Bridge Facility is partially guaranteed by WIGI, an affiliate of the Corporation, through a limited liability guarantee in the amount of $4 million, including a guarantee that the Corporation will complete the development of the Project and fund all cost overruns. On April 30, 2017, due to material adverse changes occurring in WIGI, the guarantor of the Interim Bridge Facility, which includes WIGI filing for creditor protection under the CCAA and due to the Corporation not delivering audited consolidated financial statements of WGI, by April 30, 2017 to the lender, the Corporation was in default under the terms of the Interim Bridge Facility. The Corporation has requested a waiver for the breach and a forbearance agreement from the lender, but have not received a waiver or forbearance from the lender at the date these statements were approved. As the Corporation was unable to secure the Phase 2 Facility, in addition, to the defaults to the loan agreements, the Corporation made a decision to file for CCAA protection. On April 28, 2017, the Corporation obtained creditor protection under the CCAA. The Initial Order granted by the Court generally stays actions against the Corporation, including steps to collect indebtedness incurred by the Corporation prior to the filing date, actions to exercise control over the Corporation s property and actions for breach of contractual or other obligations, subject to certain exceptions described below. The stay of proceedings granted are currently in place until May 26, There is no change in the classification of the loan, as the loan was and continues to be demand in nature. Should the stay period and any subsequent extensions, if granted, not be sufficient to develop and present the Restructuring Plan, including a SISP, or should the Restructuring Plan not be accepted by the affected creditors and, in any such case, the Corporation loses the protection of the stay of the proceedings, substantially all debt obligations will then be due and payable immediately, or subject to acceleration, creating an immediate liquidity crisis which would in all likelihood force the Corporation into receivership and require liquidation of the Corporation s assets. 12

20 For the years ended and Interest Incurred The following table provides a breakdown of interest costs incurred for the year ended : Interest Interest Capitalized Through Provision Total $ $ $ Interest incurred on Interim Bridge Facility 415, ,413 Accrued interest on the Debentures (note 10) 1,025, ,765 1,401,520 Accrued interest on the Interest Debentures (note 10) 329, ,202 TOTAL INTEREST 1,770, ,765 2,146,135 Accretion on Interim Bridge Facility 100, ,000 Accretion on Debentures (note 8) 260,997 98, ,726 TOTAL INTEREST AND FINANCING COSTS 2,131, ,494 2,605,861 The following table provides a breakdown of interest costs incurred for the year ended : Interest Interest Capitalized Through Provision Total $ $ $ Interest incurred on Interim Bridge Facility 263, ,494 Accrued interest on the Debentures (note 10) 1,355, ,265 1,872,084 Accrued interest on the Interest Debentures (note 10) 322,276 49, ,563 TOTAL INTEREST 1,941, ,552 2,507,141 Accretion on Interim Bridge Facility 195, ,500 Accretion on Debentures (note 8) 235,362 89, ,394 TOTAL INTEREST AND FINANCING COSTS 2,372, ,584 3,027,035 13

21 For the years ended and 10. INTEREST PAYABLE Interest payable is comprised of accrued interest on the Debentures Payable and Interest Debentures Payable (note 8). The following table reconciles the change in interest payable: $ $ BALANCE BEGINNING OF YEAR 1,172,070 1,068,777 Accrued interest on the Debentures 1,401,520 1,872,084 Accrued interest on the Interest Debentures 329, ,563 Settlement of interest through the issuance of Interest Debentures (note 8) - (2,140,354) Conversion of accrued interest on Debentures and Interest Debentures to class B shares (2,902,792) - BALANCE END OF YEAR - 1,172,070 As at, WIGI owned approximately 5.1% of the outstanding Units of the Corporation. As a result, approximately 5.1% of the balance of interest payable was payable to WIGI. The Corporation elected to exercise its right to convert the Debentures, Interest Debentures and accrued interest on the Debentures and Interest Debentures into Class B shares on September 30,. Any unpaid accrued interest to September 29, was converted to Class B shares (note 13). 11. PROVISION FOR LAND DEVELOPMENT COSTS The following table reconciles the change of the provision for land development costs: $ $ BALANCE - BEGINNING OF YEAR 1,958,434 4,456,432 Adjustment to provision for Phase 1 costs (679,769) - Less actual costs incurred during the year (712,593) (2,497,998) BALANCE END OF YEAR 566,072 1,958,434 The provision for land development costs includes accrued costs based on the estimated costs to complete for the land development projects for which revenue has been recognized. These amounts have not been discounted as the majority are expected to be utilized within one year. The adjustment to the provision relates to savings expected on Phase 1 specific costs. Phase 1 lots have been fully recognized in previous year s revenues and therefore any change in Phase 1 specific cost estimates to complete construction will result in an adjustment recorded in the statement of comprehensive loss. 14

22 For the years ended and 12. RELATED PARTY TRANSACTIONS See notes 1, 8, 9, 10, 13, 15, and 17 for additional disclosures relating to certain related parties and other related party transactions. WAM, WDM and WIGI are considered to be related to the Corporation by virtue of the fact that they are subsidiaries of WGI. As described under note 1, on April 28, 2017, WIGI, the general partner of WDM and the general partner of WAM applied for and received CCAA protection from the Court, which included a stay of proceedings on WDM and WAM. The balances due to these related parties as at and are outlined in the table below. With the exception of the development fee payable to WDM and any amounts payable to WAM for the servicing fee and management fee, these amounts are unsecured, due on demand, bear no interest and have no fixed terms of repayment. The development fees are payable to WDM within 60 days of quarter-end and any amounts that are past due bear interest at a rate of bank prime + 3%. The servicing fee is payable to WAM semi-annually and the management fee is payable to WAM quarterly. Any balances due to related parties may be secured by a debenture recorded against the titles of the Properties. At, the amounts due to WDM and WAM are not secured by a debenture. $ $ Walton Asset Management L.P. 3,198,576 2,413,170 Walton Development and Management LP 1,809 27,888 Walton International Group Inc. - 6,546 TOTAL DUE TO RELATED PARTIES 3,200,385 2,447,604 Walton Asset Management L.P. In accordance with the terms of the Management Services Agreement between the Corporation and WAM, WAM will provide management and administrative services to the Corporation in return for an annual management fee equal to: i) from July 15, 2011 until the earlier of the date of termination of the Management Services Agreement and June 30,, 2% of the aggregate of: a) the net proceeds raised from the IPO of $24,032,390, calculated as the gross proceeds raise of $25,772,000, net of selling commissions of $1,353,030 and organizational costs of $386,580; b) the net proceeds raised from the Private Placement of $3,900,330, calculated as the gross proceeds raised of $4,228,000, net of selling commissions of $221,970, work fees of $42,280, and organizational costs of $63,420; and c) the product of the number of Units issued by the Corporation to WIGI in exchange for its interest in the Properties multiplied by $9.325, which was equal to $1,120,306; and ii) thereafter, from July 1, until the termination date of the Management Services Agreement, an amount equal to 0.5% of the book value of the Properties. In accordance with the Management Services Agreement, servicing fees are no longer incurred after June 30,. Prior to June 30,, the Corporation paid WAM a servicing fee equal to 0.50% annually of the net proceeds for each Unit sold under the IPO and Private Placement. WAM is then responsible for paying servicing fee to the Corporation s agents in accordance with the Agency Agreements between the agents under the IPO and Private Placement, WAM, 15