Alberta Crop Industry Development Fund Limited. Audited Financial Statements #16 Fiscal

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1 Alberta Crop Industry Development Fund Limited Audited Financial Statements #16 Fiscal March

3 Financial Statements For the year ended March 31, 2017 Contents Independent Auditor's Report 2 Financial Statements Statement of Financial Position 3 Statement of Changes in Net Assets 4 Statement of Operations 5 Statement of Cash Flows 6 Notes to the Financial Statements 7-15

Tel: 403 782 3361 Fax: 403 782 3070 www.bdo.ca BDO Canada LLP 5820B Highway 2A Lacombe AB T4L 2G5 Canada Independent Auditor's Report To the Members of Alberta Crop Industry Development Fund Ltd.

4 Tel: Fax: BDO Canada LLP 5820B Highway 2A Lacombe AB T4L 2G5 Canada Independent Auditor's Report To the Members of Alberta Crop Industry Development Fund Ltd. We have audited the accompanying financial statements of Alberta Crop Industry Development Fund Ltd., which comprise the statement of financial position as at March 31, 2017, and the statements of changes in net assets, operations and cash flows 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 Canadian accounting standards for not-for-profit organizations, 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 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 Organization'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 Organization'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 Alberta Crop Industry Development Fund Ltd. as at March 31, 2017, and the results of its operations and its cash flows for the year then ended in accordance with Canadian accounting standards for not-for-profit organizations. Chartered Professional Accountants Lacombe, Alberta May 31,

5 Statement of Financial Position March (restated - Note 2) Assets Current Cash $ 148,681 $ 376,040 Accounts receivable 40,092 2,257, ,773 2,633,301 Long-term investments (Note 4) 7,927,217 12,658,174 Capital assets (Note 5) 266, ,975 Assets under construction (Note 6) - 3,602,138 Liabilities and Fund Balances $ 8,382,370 $ 19,226,588 Current Accounts payable and accrued liabilities (Note 7) $ 16,547 $ 573,247 Funds held in trust (Note 8) 39,234 26,870 55, ,117 Equity in capital assets and assets under construction - 3,602,138 55,781 4,202,255 Fund balances Fund ,368 2,415,677 Fund ,526,325 2,919,229 Royalty Fund 882,558 1,018,501 Fund ,596,338 8,670,926 8,326,589 15,024,333 $ 8,382,370 $ 19,226,588 Approved on behalf of the board:, Chairperson, Secretary-Treasurer The accompanying notes are an integral part of these financial statements. 3

6 2012 Royalty Fund Fund Revenue Interest (paid) and dividend income $ 201,069 $ 26,917 Grant funding received (returned) 1,500, ,334 Realized gain (loss) on sale of investments 1,126,213 (3,746) Unrealized gain (loss) on investments (346,532) 24,219 2,480, ,724 Project grant expenditures (refunds) 5,073, ,667 General and administrative expenditures Amortization - - Bank charges Consortium support Insurance 1,146 - Meeting expenses 34,666 - Office expenses 15,459 - Professional fees 28,305 - Project review and technical consulting 8,925 - Salaries and benefits: - Directors 24, Management 144, Staff 191,080 - Special project - communications 16,631 - Sponsorships 10,000 - Telecommunications 6,788 - Training and professional dues ,986 - Excess (deficiency) of revenue over expenditures (3,074,587) (135,943) Fund balance - beginning of year, as previously stated 8,670,926 1,018,501 Prior period adjustment - Note Fund balance - beginning of year, restated 8,670,926 1,018,501 Repayable to the Province of Alberta - - Fund balance - end of year $ 5,596,339 $ 882,558 The accompanying notes are an integral part of these financial statements. 4

7 Statement of Operations and Fund Balances For the year ended March 31, Total Total Fund Fund (restated - Note 2) $ 137,809 $ (10,717) $ 355,078 $ 543, ,651, ,542 (15,802) - 1,106,665 (552,524) - - (322,313) (1,165,142) 122,007 (10,717) 2,790,764 (1,048,333) 1,495,311 1,902,230 8,805,559 8,186,060-66,595 66,595 83,244 - (25) 151 2, ,087 2,292 2,292 5,730 5, ,739 66,975-4,149 19,608 12,258 3,803-32,108 28, ,925 13,636-9,350 33,953 57,567 6,239 35, , ,456 6,754 63, , , ,631 20, ,000 10, ,667 8, , , , ,610 (1,392,905) (2,094,310) (6,697,745) (9,943,003) 2,919,229 2,082,703 # 14,691,359 24,849, , , ,219 2,919,229 2,415,678 15,024,334 25,265, (298,017) $ 1,526,324 $ 321,368 $ 8,326,589 $ 15,024,334 The accompanying notes are an integral part of these financial statements. 5

8 Statement of Cash Flows For the year ended March (restated - Note 2) Cash flows from operating activities Change in non-cash working capital items Decrease (increase) in accounts receivable $ 2,217,169 $ (74,590) Increase (decrease) in accounts payable and accrued liabilities (556,700) 552,411 Increase in funds held in trust 12,364 16,870 1,672, ,691 Cash flows from investing activity (Increase) Decrease in long-term investments 4,730,958 9,766,677 Net change in fund balances Amortization 66,595 83,244 Excess of revenues over (expenditures) (6,697,745) (9,943,003) Fund balances repayable to the Province of Alberta - (298,017) (6,631,150) (10,157,776) Increase (decrease) in cash during the year (227,359) 103,592 Cash, beginning of year 376, ,448 Cash, end of year $ 148,681 $ 376,040 The accompanying notes are an integral part of these financial statements. 6

9 Notes to the Financial Statements March 31, 2017 Nature of operations Alberta Crop Industry Development Fund Ltd. (the "corporation") was incorporated under the Alberta Business Corporations Act as a Part 9 non-profit corporation on April 30, The purpose of the corporation is to promote and enhance the competitiveness of the crop industry in Alberta through leadership in industry, research, innovation and marketing initiatives. The corporation's Board works on behalf of 13 signatory crop industry organizations. The corporation files as a non-profit organization under section 149(1)(l) of the Canadian Income Tax Act with Canada Revenue Agency, and as such, no tax is payable on income earned. 1. Summary of significant accounting policies The financial statements are prepared by management in accordance with Canadian accounting standards for not-for-profit organizations. The significant accounting policies used are as follows: Funding agreements The corporation disburses project grants in accordance with the following funding agreements: (i) Biopolymer Fund The corporation negotiated an agreement with the Province of Alberta for one-time funding relating to a Biopolymer Research Program in the amount of $1,000,000. This fund may be used to purchase capital equipment for the purposes of the Biopolymer Program. This equipment may be used, at the corporation's discretion, by appropriate applicants. On termination, or at a time agreeable to both parties, all capital equipment shall be transferred to the Minister for the benefit of the industry. (ii) Fund 2005 In 2005, the corporation negotiated an agreement with the Province of Alberta to allow the corporation to administer a one-time provincial grant of $23,000,000. The corporation's Board oversees the approval process, through specific criteria, regarding project funding related to goals outlined in the agreement. The term of this agreement expires on March 31, 2018, at which time all unexpended funds are returned to the Province of Alberta. This agreement can be terminated at any time, without reason or cause, by giving six months' written notice, or immediately in the event of default as described in the agreement. Unexpended funds would then be required to be returned to the Province of Alberta. 7

10 Notes to the Financial Statements March 31, Summary of significant accounting policies (continued) (iii) Fund 2006 In 2006, the corporation negotiated an agreement with the Province of Alberta to allow the corporation to administer a provincial grant of $18,000,000. The corporation's Board oversees the approval process, through specific criteria, regarding project funding related to goals outlined in the amending agreement. The term of this agreement expires on March 31, 2018, at which time all unexpended funds are returned to the Province of Alberta. This agreement can be terminated at any time, without reason or cause, by giving six months' written notice, or immediately in the event of default as described in the amending agreement. Unexpended funds would then be required to be returned to the Province of Alberta. (iv) Royalty Fund In 2008, the corporation negotiated an agreement with the Province of Alberta to allow the corporation to administer provincial grants which consist of Barley Development Agreement and Triticale Development Agreement royalties. The corporation's Board oversees the approval process, through specific criteria, regarding project funding related to goals outlines in the agreement. The term of this agreement expires on March 31, 2018, at which time all unexpended funds are returned to the Province of Alberta. This agreement can be terminated at any time, without reason or cause, by giving six months' written notice, or immediately in the event of default as described in the agreement. Unexpended funds would then be required to be returned to the Province of Alberta. During the current year, additional funding was received relating to both barley and triticale royalties. 8

11 Notes to the Financial Statements March 31, Summary of significant accounting policies (continued) (v) Fund 2012 In 2012, the corporation negotiated an agreement with the Province of Alberta to allow the corporation to administer a provincial grant of $12,000,000. The corporation's Board oversees the approval process, through specific criteria, regarding project funding related to goals outlined in the agreement. The term of this agreement expires on March 31, 2018, at which time all unexpended funds are returned to the Province of Alberta. This agreement can be terminated at any time, without reason or cause, by giving six months' written notice, or immediately in the event of default as described in the agreement. Unexpended funds would then be required to be returned to the Province of Alberta. The agreement was amended effective March 31, 2016 to increase grant funding for the Grain Crop Protection and Research Initiative for $1,000,000 and the Crop Pest Response Fund for $500,000. The corporation's obligation to repay grant funds received is guaranteed by a security interest, in all present and after acquired property, which is provided to the Minister. Fund accounting Revenue recognition The corporation follows the restricted fund method of accounting for contributions. Each fund accounts for its program delivery and administrative activities. Restricted contributions are recognized as revenue in the appropriate fund during the year in which they are received. Investment revenue is recognized as it is earned. Gains and losses are categorized into realized and unrealized, where realized gains and losses are those that occurred upon sales during the year, and unrealized gains and losses are those applicable to investments not yet sold on March 31, Cash Project grants Cash is held for the purposes of funding immediate project commitments and operating expenditures. Project grant disbursements are expensed as occurred. Project grant expenditures of approved projects payable in future years will be recognized in that future period. 9

12 Notes to the Financial Statements March 31, Summary of significant accounting policies (continued) Capital assets Capital assets are recorded at cost. The Corporation provides for amortization using the following methods at rates designed to amortize the cost of the capital assets over their estimated useful lives. The annual amortization rates and methods are as follows: Asset Method Rate Cereals processing equipment Declining balance 20% Leasehold improvements Straight-line 8 years Leasehold improvements are amortized on a straight-line basis over the term of the lease. Financial instruments The Corporation initially measures its financial assets and liabilities at fair value adjusted by, in the case of a financial instrument that will not be measured subsequently at fair value, the amount of transaction costs directly attributable to the instrument. Amounts due to and from related parties are measured at the exchange amount, being the amount agreed to by the related parties. The Corporation subsequently measures its financial assets and financial liabilities at amortized cost, except for derivatives and equity securities quoted in an active market, which are subsequently measured at fair value. Changes in fair value are recognized in net income. Financial assets measured at amortized cost are tested for impairment when there are indicators of possible impairment. When a significant adverse change has occurred during the period in the expected timing or amount of future cash flows from the financial asset or group of assets, a write-down is recognized in net income. Accounting estimates Investments The preparation of financial statements in accordance with Canadian accounting standards for not-for-profit organizations requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenditures during the reported period. These estimates are reviewed periodically and are reported in earnings in the period in which they become known. Actual results could differ from these estimates. Long-term investments are measured at market value. Fair values have been determined through comparison to published market values and rates in effect at March 31,

13 Notes to the Financial Statements March 31, Prior period adjustment A portion of the equipment acquired as part of the cereals processing project originally reported as assets under construction was leased to the University of Alberta and was therefore in use since The leased portion of the assets was to be amortized over their estimated useful life and the related grant funding was to be amortized over the same term. The adjustment to correct the opening balance as at April 1, 2015 is to decrease assets under construction by $812,926 and increase cereals processing equipment by $812,926, to decrease equity in capital by $416,218 and increase deferred grant revenue by $416,218. The adjustment to correct the March 31, 2016 comparative balance is to increase amortization expense by $83,244, increase grant revenues by $83,244, increase accumulated amortization by $83,244 and decrease deferred grant revenues by $83, Allocated expenses Administration costs applicable to the operations of the entire corporation are allocated to the fund accounts based on the type of expenditure and the appropriate criteria determined annually by management. 4. Long-term investments 2017 Fair value 2017 Cost 2016 Fair value 2016 Cost Fund 2005 Bonds, strips, and coupons yielding effective annual rate of 2.7% $ - $ - $ 322,517 $ 304,314 Common stock and trust units , ,561 Money market funds , ,598 Fund 2006 Bonds, strips, and coupons yielding effective annual rates of 2.61% to 4.00% , ,575 Common stock and trust units - - 1,338,418 1,984,400 Money market funds ,392 25, ,078,642 2,713,142 Fund 2008 Bonds, strips, and coupons yielding effective annual rate of 4.00% , ,000 Common stock and trust units , ,876 Money market funds , ,945 11

14 Notes to the Financial Statements March 31, Long-term investments (continued) Barley and Triticale Royalty Funds Bonds, strips, and coupons yielding effective annual rates of 2.81% to 3.25% 621, , , ,660 Common stock and trust units 140, , , ,020 Money market funds 395, ,849 25,568 25,568 Outstanding transfer to Fund 2012 (305,541) (305,541) , , , ,248 Feeding Initiative Fund Bonds, strips, and coupons yielding effective annual rate of 2.15% , ,450 Common stock and trust units , ,260 Money market funds ,123 1,107,790 Fund 2012 Bonds, strips, and coupons yielding effective annual rate of 2.15% 2,453,900 2,390,289 4,791,156 4,656,387 Common stock and trust units 4,315,078 6,269,747 3,329,180 5,006,567 Money market funds ,879 62,879 Outstanding transfer from Royalty Funds 305, , ,074,588 8,965,646 8,183,215 9,725,833 $ 7,927,217 $ 9,812,166 $ 12,658,174 $ 15,693,556 During the year, investments from investment accounts related to Fund 2005, Fund 2006 and Fund 2008 were pooled into the investment account for Fund 2012 to allow for better tracking and management of the remaining investment portfolio. As all funds for Fund 2005, Fund 2006 and Fund 2008 have been committed, any future investment income earned will be attributed for Fund

15 Notes to the Financial Statements March 31, Capital assets Cost (restated - Note 2) Accumulated Accumulated Amortization Cost Amortization Cereals processing equipment $ 812,926 $ 546,546 $ 812,926 $ 479,951 Leasehold improvements 13,639 13,639 13,639 13,639 Biopolymer equipment 1,533,330 1,533,330 1,533,330 1,533,330 2,359,895 2,093,515 2,359,895 2,026,920 Net book value $ 266,380 $ 332,975 Biopolymer equipment relates to a specific project funded by the government to supply equipment for a pilot plant located on University of Alberta property. The lease agreement with the Governors of the University of Alberta has expired. The equipment is to be transferred to the Provincial Government after year end. Cereals processing equipment relates to a specific project funded by the government to supply equipment for laboratory facilities located on University of Alberta property. Equipment amortization is expensed and funded under Fund A lease agreement is in place, whereby the Governors of the University of Alberta will lease this equipment for an original term of five years for the nominal fee of $1 per year. The lessee is responsible for provision of appropriate housing, maintenance relating to ensuring the equipment is in good working condition, and all inputs required for the operation of the equipment. 6. Assets under construction In 2012, the corporation undertook a project to build a pilot plant to process cereal protein and cellulose. Total cost of this project is estimated at $9,254,250, with $6,243,123 being spent prior to March 31, The equipment had been purchased in previous years and was reported as assets under construction as the equipment was not installed and ready for use, except for the portion of equipment related to the Cereals processing equipment leased to the University of Alberta mentioned in Note 5. In fiscal 2017, the remaining equipment was installed and the assets were then transferred to the Province of Alberta. 7. Accounts payable and accrued liabilities The government remittances payable at the year end was $Nil ( $NIL). 8. Funds held in trust The funds held in trust relate to monies received from industry by this corporation for a proposed project. They will be issued to the researcher when the project in question begins. 13

16 Notes to the Financial Statements March 31, Board and staff remuneration Per Diems / Salaries Benefits Expenses and Allowances Board Members Clarence Assenheimer $ 9,300 $ - $ 3,255 Dieter Kuhlmann 3,250-1,179 Tom Machacek 10, ,708 Craig Shaw 6, ,391 Graeme Finn 3, ,547 $ 33,700 $ 903 $ 11,080 Staff $ 395,494 $ 12,034 $ 18,739 Staff salaries and benefits shown above are the total paid to staff during the fiscal year; a portion of these salaries and benefits have been charged to Consortium Support expense, and are therefore shown in that category on the Statement of Operations and Fund Balances. 10. Economic dependence The Corporation's main source of revenue is from provincial grant funding and the investment income earned on this funding. As the agreements relating to this funding can be terminated at any time, continued operation of the corporation is dependent on continued provincial support. 14

17 Notes to the Financial Statements March 31, Financial instruments Transactions in financial instruments may result in an entity assuming or transferring to another party one or more of the financial risks described below. The required disclosures provide information that assists users of financial statements in assessing the extent of risk related to financial instruments. (a) (b) (c) Market risk Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether the factors are specific to the instrument or all instruments traded in the market. The corporation has significant investments in bonds, preferred shares and common shares that are traded on the open stock exchanges. The values of these investments may be different when investment is sold. Credit risk All long-term investments are held with one firm. Interest rate risk The Corporation is exposed to interest rate risk. Interest rate risk is the risk that the Corporation has interest rate exposure on its long-term investments. This exposure may have an effect on its earnings in future periods and may increase or decrease the fair market value of the asset. The Corporation does not use derivative instruments to reduce its exposure to interest rate risk. 12. Commitments As at March 31, 2017, the Corporation has entered into various agreements to fund specific research projects, each having schedules for expected payments over the next year. These payments are conditional upon certain conditions that must be met prior to release. If all conditions are met, the project grant payments committed to are as follows: 2018 $ 5,705, ,000 $ 5,747,284 15

Alberta Crop Industry Development Fund Limited

Alberta Crop Industry Development Fund Limited Audited Financial Statements #15 Fiscal 2015/16 March 31 2016 Financial Statements For the year ended March 31, 2016 Contents Independent Auditor's Report