WALTON YELLOWHEAD DEVELOPMENT CORPORATION. FIRST QUARTER REPORT 2014 For the three months ended March 31, 2014 and March 31, 2013

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1 WALTON YELLOWHEAD DEVELOPMENT CORPORATION FIRST QUARTER REPORT 2014 For the three months ended March 31, 2014 and March 31, 2013

2 TABLE OF CONTENTS CEO MESSAGE TO SHAREHOLDERS MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL STATEMENTS (UNAUDITED) WALTON GROUP OF COMPANIES Edmonton

3 CEO MESSAGE TO SHAREHOLDERS Included in this report are the first quarter fiscal results of 2014 for Walton Yellowhead Development Corporation (the Corporation ). Launched in 2011, the Corporation was established to provide investors with the opportunity to participate in the industrial development of the acre property (the Property ) located in the Winterburn Industrial Park, in northwest Edmonton, Alberta. As previously reported the Corporation completed the sale of its entire right, title and interest in the Property for total consideration of 36,677,800 on April 30, The Property was purchased by Yellowhead Lands Limited Partnership owned 85% by the Canada Pension Plan Investment Board; 7.5 % by WAM Development Group, an arm s length third-party; and 7.5% by Walton International Group Inc. The initial distribution of funds from the sale of the Property to shareholders took place in May 2014, with the final distribution anticipated in March 2015 along with the dissolution of the Corporation. HIGHLIGHTS FOR THE FIRST QUARTER During the first quarter of 2014, the Corporation: Received approval of its rezoning application and associated Area Structure Amendment from Edmonton City Council on February 24, 2014; Received approval of its subdivision application from the City of Edmonton on March 27, 2014; Completed detailed engineering design and submitted construction drawings for onsite underground utilities, surface work, shallow utilities and landscaping to the City; Yellowhead Master Plan Aerial. Concept plan is subject to change. First Quarter Report 2014 Walton Yellowhead Development Corporation 3

4 HIGHLIGHTS FOR THE FIRST QUARTER CONTINUED Received conditional approval of its road closure application and continued to negotiate the sales agreement with the City of Edmonton for surplus right-of-way identified along 215 th Street adjacent to the Property; and Sold the Property in its entirety as per the amended Purchase and Sale Agreement dated February 7, 2014, which closed on April 30, Thank you for investing in the Corporation, and for your support and confidence in the Walton Group of Companies. Best regards, BILL DOHERTY Chief Executive Officer Walton Yellowhead Development Corporation 4 Walton Yellowhead Development Corporation First Quarter Report 2014

5 MANAGEMENT S DISCUSSION & ANALYSIS For the three months ended March 31, 2014 May 27, 2014 The following management s discussion and analysis ( MD&A ) is a review of the financial condition and results of operations of Walton Yellowhead Development Corporation (the Corporation ) for the three months ended March 31, The MD&A should be read in conjunction with the Corporation s unaudited condensed interim financial statements for the three months ended March 31, 2014 and the Corporation s audited financial statements for the years ended December 31, 2013 and December 31, All financial information is reported in Canadian dollars and has been prepared in accordance with International Accounting Standard ( IAS ) 34 Interim Financial Reporting and uses accounting policies that are consistent with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). In limited situations, IFRS has not issued rules and guidance applicable to the real estate investment and development industry. In such instances, the Corporation has followed guidance issued by the Real Property Association of Canada to the extent that such guidance does not conflict with the requirements under IFRS or the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the IFRS framework. Additional information about the Corporation is available on SEDAR at PURCHASE AND SALE AGREEMENT AND BASIS OF PRESENTATION On April 30, 2014 (the Closing Date ), the Corporation completed the sale of its entire right, title and interest in the Property for a total cash consideration of 36,677,800. The Property was purchased by Yellowhead Lands Limited Partnership (the "Purchaser") which accepted an assignment of the purchase agreement from Alberta Ltd., which is 50% owned by Walton International Group Inc. ( WIGI ), on the Closing Date. A Canadian pension fund has an 85% ownership interest in the Purchaser, with the remaining 15% being owned by an entity that is 50% owned by WIGI and 50% owned by an arm s length third-party Canadian development company ("DevCo."). In connection with the purchase of the Property, the Purchaser paid back the project debt of 5,527,741 outstanding as of the Closing Date, pursuant to directions from both the Corporation and DevCo., to apply towards the repayment of the project debt funds owed to each of them from the Purchaser related to the development of the Property. Subsequent to quarter end, the Corporation has used the proceeds from the sale to repay any remaining outstanding liabilities at March 31, 2014 including accrued development and management fees. On May 15, 2014, management made a distribution of 34,898,534, which included the payment in full of Debentures, Interest Debentures, accrued interest, the return of shareholders capital investment and a dividend distribution. A reserve is being withheld by the Corporation to pay for the remaining liabilities, operating expenses and any unforeseen expenses until the dissolution of the Corporation which is anticipated to be on or before March 15, 2015, at which time a final distribution will be made by the Corporation. As a result of the sale, the Corporation has determined it is no longer appropriate to present the financial statements on a going concern basis. No adjustments to the assets or liabilities of the Corporation are considered necessary as the Corporation expects to be able to both recover its assets and settle its remaining liabilities that will not be assumed by the purchaser in an orderly fashion and without any penalties or additional charges. First Quarter Report 2014 Walton Edgemont Development Corporation 5

6 CRITICAL ACCOUNTING ESTIMATES The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amount of assets, liabilities and equity at the date of the financial statements, and the reported amount of revenues 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: Estimates and judgements The preparation of condensed interim financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity, the date of the financial statements, and the reported amounts of revenue and expenses during the year. There have been no significant changes in accounting judgements, estimates and assumptions made by the Corporation in the preparation of these condensed interim financial statements from those judgements, estimates and assumptions disclosed in the Corporation s audited financial statements for the year ended December 31, FORWARD-LOOKING STATEMENTS Certain information set forth in this MD&A, including the disclosure of the anticipated completion dates of key project milestones, are based on management s current expectations, intentions, plans and beliefs, which are based on experience and management s assessment of historical and future trends. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond management s control. These risks and uncertainties include, but are not limited to, the timing of approval by municipalities, the estimated time required for construction, the estimated costs for construction and the business and general economic environment. These uncertainties may cause the Corporation s actual performance, as well as financial results in future periods, to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Investors are cautioned against attributing undue certainty to forward-looking statements as actual results could differ materially from management s targets, expectations or estimates. Also see Risk Factors in this MD&A. The forward-looking statements contained in this MD&A are given as of the date hereof. Except as otherwise required by law, the Corporation does not intend to, and assumes no obligations to, update or revise these or other forward-looking statements it may provide whether as a result of new information, plans or events or otherwise. RESPONSIBILITY OF MANAGEMENT This MD&A has been prepared by, and is the responsibility of, the management of the Corporation. APPROVAL BY THE BOARD OF DIRECTORS The MD&A was authorized for issue by the Board of Directors on May 27, Walton Edgemont Development Corporation First Quarter Report 2014

7 BUSINESS OVERVIEW The Corporation, which is managed by Walton Asset Management L.P. ( WAM ), was established on August 24, 2011, for the purpose and objective of providing investors with the opportunity to participate in the acquisition and development of the approximately acre Yellowhead Property (the Property ) located in the Winterburn Industrial Park ( Winterburn ), which includes a variety of existing uses, including manufacturing, outdoor storage facilities, a mobile home park and wholesale trade industries. Winterburn is approximately 2,500 acres in size and is located in northwest Edmonton, bordered by the Yellowhead Trail North TransCanada Highway 16 to the north, the Anthony Henday Ring Road to the east, Parkland County to the west, and Stony Plain Road to the south. The development of the Property is managed by Walton Development and Management (Alberta) LP ( WDM ). In order to raise sufficient capital for the acquisition and development of the Property, the Corporation completed an initial public offering ( IPO ) of units on November 18, Each unit issued by the Corporation ( Unit ) was comprised of a 7.50 principal amount of unsecured, subordinated, convertible, extendable debenture bearing simple interest at a rate of 8% ( Debenture ) and one class B non-voting common share ( Class B share ) having a price of Having successfully completed the IPO, the Corporation completed the acquisition of the Property on December 29, The Corporation s investment objectives are to: i) preserve the capital investment of the investors in the Units; ii) make annual cash distributions on the Units beginning in December 2012 until the final distribution of funds from the Yellowhead development project ( Project ), which is anticipated to be in December of 2014; and iii) achieve a net internal rate of return of 13.0% on the purchase price of the Units. Prior to entering into the agreement for the purchase and sale of the Property, the intention of the Corporation has been to preserve the capital investment of the investors of the Units in the Corporation and provide cash distributions on the Units by executing the following four step strategy: i) acquire the Property; ii) obtain letters of intent or expressions of interest from vertical developers and other industrial end users to purchase acreage to be serviced in each of the two planned phases of the development of the Property before construction commences on that phase; iii) construct municipal services infrastructure on the Property in phases to provide a controlled supply of serviced acreage to the marketplace; and iv) use the revenue from the sale of the serviced acreage to repay construction loans and other obligations of the Corporation and then pay the remainder to the holders of the Debentures and Class B shares by paying the interest and principal on the Debentures and by declaring a dividend or dividends on the Class B shares and/or winding up the Corporation and distributing its assets to the holders of the Class B shares. Management made a distribution of 34,898,534 on May 15, 2014, which included the payment in full of Debentures, Interest Debentures, accrued interest, the return of the shareholders capital investment and a dividend distribution. A reserve is being withheld by the Corporation to pay for all the remaining liabilities, operating expenses and any unforeseen expenses until the dissolution of the Corporation which is anticipated to be on or before March of 2015 at which time a final distribution will be made by the Corporation. The final IRR to investors is projected to be 8.8%. The registered office and principal place of business is 23 rd floor, th Avenue SW, Calgary, Alberta, T2P 3H5. First Quarter Report 2014 Walton Edgemont Development Corporation 7

8 SUMMARY FINANCIAL DATA Three months ended March Total revenues () - - Total expenses () 195, ,939 Deferred income tax recovery () 48,899 47,484 Comprehensive net loss () 146, ,455 Weighted average shares outstanding 1 2,889,256 2,889,256 Basic and diluted loss per share () Notes: 1 The weighted average number of shares outstanding excludes the 100 Class A voting common shares issued. Based on the Corporation s articles of incorporation, the Class A shareholder is not entitled to participate in any dividends declared by the Corporation, or the distributions of any part of the assets of the Corporation. March 31, 2014 December 31, 2013 Total assets () 38,644,081 37,388,385 Total non-current liabilities () - - Total liabilities () 33,192,153 31,789,760 Total Equity () 5,451,928 5,598,625 Class B shares outstanding end of period 2,889,256 2,889,256 REVIEW OF OPERATIONS Summary During the first quarter of 2014, the Corporation continued to take steps towards the fulfillment of its Project plan. The key activities undertaken by the Corporation during the quarter were as follows: the rezoning application and associated Area Structure Amendment was approved by City Council at the Public Hearing on February 24, 2014; the subdivision application was approved by the City of Edmonton on March 27, 2014; completed detailed engineering design and submitted construction drawings for onsite underground utilities, surface work, shallow utilities and landscaping; received conditional approval of the Road Closure application and continued to negotiate the sales agreement with the City of Edmonton for surplus right-of-way identified along 215 th Street adjacent to the Property; sale of the Property in its entirety as per the amended Purchase and Sale Agreement dated February 7, 2014 closed on April 30, During the three months ended March 31, 2014, the Corporation incurred total expenses and a net loss before tax of 195,596 (March 31, ,939). The total expenses primarily consisted of 132,866 (March 31, Walton Edgemont Development Corporation First Quarter Report 2014

9 132,866) in costs for the management of the Corporation, and 32,190 (March 31, ,190) in servicing fees. The nature and amount of expenses incurred during the three months ended March 31, 2014 was comparable to the total expenses incurred during the comparative period. The net loss before tax of 195,596 (March 31, ,939) was partially offset by a deferred tax recovery of 48,899 (March 31, ,484), resulting in an overall net loss of 146,697 (March 31, ,455). Based on the sale of the Property, the initial distribution of funds from the Project occurred on May 15, The final distribution is anticipated on or before March 2015, along with the dissolution of the Corporation. ANALYSIS OF FINANCIAL CONDITION As at March 31, 2014, the Corporation had total assets of 38,644,081 (December 31, ,388,385), total liabilities of 33,192,153 (December 31, ,789,760) and total shareholders equity of 5,451,928 (December 31, ,598,625). The most significant assets of the Corporation as at March 31, 2014 was land development inventory of 36,398,530 (December 31, ,275,581). The most significant liabilities of the Corporation as at March 31, 2014 were Project debt of 5,490,793 (December 31, ,104,869), Debentures payable of 21,556,545 (December 31, ,217,889), Interest Debentures payable of 3,321,479 (December 31, ,321,479) and other current liabilities of 2,823,336 (December 31, ,145,523). The balance of the Corporation s liabilities as at March 31, 2014 was significant relative to the balance of its cash and receivables. The Corporation plans to settle these liabilities with the proceeds from the sale of the Property. LAND DEVELOPMENT INVENTORY Three months ended March 31, 2014 Year ended December 31, 2013 BALANCE BEGINNING OF PERIOD 35,275,581 29,403,556 Development Costs 1,122,949 5,872,025 BALANCE END OF PERIOD 36,398,530 35,275,581 Due to the delays experienced in the Project as previously reported, progress on the development work completed to date is behind schedule, and the amount of development costs incurred to date, are less than the amounts initially anticipated by management. In conjunction with the sale of the Property, the Bridge Loan used to fund the development costs will be assumed by the Purchaser. PROJECT DEBT In October 2013, the Corporation entered into a 13.7 million non-revolving, Bridge Loan with a Canadian financial institution to help finance the construction of infrastructure in respect of the Property, and to repay the Mezzanine Loan. Included in the Bridge Loan is an interest reserve of 997,500. The Bridge Loan is fully guaranteed by WIGI, payable on demand, and bears interest at a rate calculated as the greater of: a) prime % and b) 8.25% per annum. The current interest rate being charged is 8.25%. The Bridge Loan is secured by, among other things, all present and future personal property of the Corporation and a first fixed charge over the Property. The maturity date is within twelve months of the first advance which was funded in November First Quarter Report 2014 Walton Edgemont Development Corporation 9

10 As of March 31, 2014, the balance outstanding under this Bridge Loan was 5,490,793 (December 31, ,104,869), which was comprised of 5,453,031 (December 31, ,074,393) of principal, plus accumulated interest of 37,762 (December 31, ,476). The Corporation was in compliance with all conditions under the Bridge Loan as at March 31, These conditions are all non-financial in nature. Subsequent to quarter end the project debt has been assumed by the Purchaser of the Property as part of the purchase and sale agreement. MANAGEMENT FEES Management fees are paid in accordance with the terms of the Management Services Agreement between the Corporation and WAM. Under the terms of the Management Services Agreement, WAM will provide management and administrative services to the Corporation in return for an annual management fee equal to: i) from November 18, 2011 until the earlier of the date of termination of the Management Services Agreement and December 31, 2014, 2% of the aggregate of: a) the net proceeds raised from the IPO of 26,110,000, calculated as the gross proceeds raised of 28,000,000, net of agency fees of 1,470,000 and offering costs of 420,000; and b) the product of the number of Units issued by the Corporation to WIGI in exchange for its interest in the Property multiplied by 9.325, which was equal to 832,312; and ii) thereafter, from January 1, 2015 until the termination date of the Management Services Agreement, an amount equal to 0.5% of the book value of the Property. During the three months ended March 31, 2014, the total management fees charged to the Corporation was 132,866 (March 31, ,866). The total management fees incurred during the three months ended March 31, 2014 were consistent with both the terms of the Management Services Agreement and management s expected use of funds. SERVICING FEES Under the terms of the Management Services Agreement between the Corporation and WAM, the Corporation has a servicing fee payable to WAM (which it will then pay to the agents on behalf of the Corporation) equal to 0.5% annually of the net proceeds raised from the IPO, until the earlier of the dissolution of the Corporation and December 31, During the three months ended March 31, 2014, the total servicing fees charged to the Corporation was 32,190 (March 31, ,190). The total servicing fees incurred during the first quarter were consistent with both the terms of the Management Services Agreement and management s expected use of funds. TRANSACTIONS WITH RELATED PARTIES WAM, WDM, WIGI and WFL are considered to be related to the Corporation by virtue of the fact that they are all controlled by Walton Global Investments Ltd ( WGIL ). The balances due to these related parties as at March 31, 2014 and December 31, 2013 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 prime + 3%. The servicing fee is payable to WAM semi-annually and the management fee is payable to WAM quarterly. Any balances due to 10 Walton Edgemont Development Corporation First Quarter Report 2014

11 related parties may be secured by a debenture recorded against the titles of the Property. The debenture would be discharged on settlement of amount owing. March 31, 2014 December 31, 2013 Walton Asset Management L.P. 1,337,414 1,172,358 Walton Development and Management (Alberta) LP 4,940 1,775 Walton International Group Inc. 1, Total Due to related parties 1,344,192 1,174,816 Walton Asset Management L.P. In accordance with the Management Services Agreement between the Corporation and WAM, the Corporation incurred total management fees during the three months ended March 31, 2014 of 132,866 (March 31, ,866). There were no amounts paid to WAM in the three months ended March 31, 2014 (March 31, nil). In accordance with the Management Services Agreement between the Corporation and its agents, the Corporation incurred total servicing fees during the three months ended March 31, 2014 of 32,190 (March 31, ,190). The servicing fee is payable to WAM, which is responsible for the distribution of the servicing fee to the agents. There were no amounts paid to WAM in the three months ended March 31, 2014 (March 31, nil). The balance payable to WAM as at March 31, 2014 was in respect of management fees and servicing fees. The Corporation intends to make payments for the management fees and servicing fees with the proceeds from the sale of the Property. All amounts that exceed the regular payment terms are due on demand and bear no interest. Walton Development and Management (Alberta) LP In accordance with the Project Management Agreement between the Corporation and WDM, the fees and costs for services provided by WDM are divided into the following two categories: i) WDM will receive a development fee, plus applicable taxes equal to 2% of certain development costs incurred in the calendar quarter, payable within 60 days of the end of such quarter; and ii) WDM will receive a performance fee, plus applicable taxes, equal to 25% of cash distributions after all investors of Units in the Corporation have received cash payments or distributions equal to per Unit, plus a cumulative compounded priority return of 8% per annum. The priority return is calculated on that 10 amount per Unit, reduced by any cash payments or distributions by the Corporation. During the three months ended March 31, 2014, the total development fee charged to the Corporation was 5,973 (March 31, ,069). Total development fees paid by the Corporation was 3,465 (March 31, ,159). These costs have been capitalized as part of land development costs. These amounts include GST. During the three months ended March 31, 2014, the Corporation incurred a total amount payable to WDM of 657 (March 31, ) for day to day expenses that were initially funded by WDM on the Corporation s behalf. The total amount paid to WDM for amounts that were incurred on behalf of the Corporation during the three months ended March 31, 2014 was nil (March 31, ). First Quarter Report 2014 Walton Edgemont Development Corporation 11

12 No performance fee was incurred by the Corporation during the three months ended March 31, 2014 or the comparative prior period because the 10 per Unit amount and the cumulative compounded priority return have not been received by the investors of Units in the Corporation. WDM has agreed to waive its performance fee of approximately 111,234 with the sale of the Property. Walton International Group Inc. As at March 31, 2014, the Corporation owed 1,838 to WIGI (December 31, ). The balance outstanding as at March 31, 2014 was comprised of costs that were initially funded by WIGI on behalf of the Corporation but were reimbursable by the Corporation. During the three months ended March 31, 2014, the Corporation incurred a total amount payable to WIGI of 1,155 (March 31, ) in costs initially funded by WIGI on the Corporation s behalf. The total amount paid to WIGI for amounts funded on the Corporation s behalf was nil (March 31, ). Key Management Compensation Key management personnel are comprised of the Corporation s directors and executive officers. The independent directors are paid quarterly in advance, and the amount of compensation is fixed over the life of the Corporation. The amount of compensation expense incurred by the Corporation relating to its independent directors was as follows: Three months ended March Directors fees 13,032 13, All services performed for the Corporation by its executive officers and non-independent directors are governed by the Management Services Agreement. The quarterly management fee that WAM receives under the Management Services Agreement has been disclosed above. The compensation of key management does not include the remuneration paid to individuals who are paid directly by WGIL or WAM. The officers of the Corporation are also officers and directors of numerous entities controlled or managed by WGIL and it is not practicable to make a reasonable apportionment of their compensation in respect of each of those entities. 12 Walton Edgemont Development Corporation First Quarter Report 2014

13 SUMMARY OF QUARTERLY RESULTS A summary of operating results for the past eight quarters is as follows: March 31, 2014 December 31, 2013 September 30, 2013 Three months ended June 30, 2013 March 31, 2013 December 31, 2012 September 30, 2012 Note: 1 - With the exception of the period from August 24, 2011 to September 30, 2011 when the only shares outstanding were Class A voting shares of the Corporation, the weighted average shares outstanding exclude the 100 Class A voting common shares. Based on the Corporation s articles of incorporation, the Class A shareholder is not entitled to participate in any dividends declared by the Corporation, or the distributions of any part of the assets of the Corporation. June 30, 2012 Total assets () 38,644,081 37,388,385 33,444,773 32,342,153 30,530,405 29,940,946 29,134,884 28,834,489 Total liabilities () 33,192,153 31,789,760 27,666,517 26,395,440 24,411,214 23,739,765 22,779,943 22,311,634 Total equity/(deficit) 5,451,928 5,598,625 5,778,257 5,964,713 6,119,191 6,201,181 6,354,941 6,522,856 () Total revenue () Total expenses () 195, , , , , , , ,240 Deferred tax recovery 48,899 51,913 50,057 51,398 47,484 43,255 49,910 48,060 () Net loss and comprehensive loss 146, , , , , , , ,180 () Weighted average shares 2,889,256 2,889,256 2,889,256 2,889,256 2,889,256 2,889,256 2,889,256 2,889,256 outstanding 1 Basic and diluted net loss per share () Class B shares outstanding end of period 2,899,256 2,889,256 2,889,256 2,889,256 2,889,256 2,889,256 2,889,256 2,889,256 The Corporation is expected by management to incur a net loss in all periods, except during periods when revenue from lot sales is recognized. The Corporation incurred total expenses during the first quarter of 2014 of 195,596 (March 31, ,939). The nature and amount of these expenses was comparable to the total expenses incurred during the first quarter of The net loss before tax of 195,596 (March 31, ,939) was partially offset by a deferred tax recovery of 48,899 (March 31, ,484), resulting in an overall net loss of 146,697 (March 31, ,455) for the first quarter of First Quarter Report 2014 Walton Edgemont Development Corporation 13

14 SUPPLEMENTAL INFORMATION Liquidity and Capital Resources The Corporation s capital consists of shareholder s equity, debentures payable, interest debentures payable, project debt and balances due to related parties. Prior to the sale of the Property, the Corporation s objectives when managing capital were to: (1) ensure adequate capital is retained by the Corporation to obtain construction loans to fund construction of the Project; (2) ensure that the Corporation is able to meet all obligations relating to the entity and the development of the land, through sale of the lots; and (3) maximize the rate of return to our Shareholders With the sale, the Corporation will manage the capital structure by maintaining a reserve after the initial distribution on May 23, 2014 to pay for all the remaining liabilities, operating expenses and any unforeseen expenses incurred until the dissolution of the Corporation. Cash Requirements The following table summarizes the Corporation s undiscounted contractual obligations as at March 31, thereafter Project debt 5,490, Debentures payable 21,669, Interest debentures payable 3,321, Interest payable 1,135, Due to related parties 1,392, Accounts payable and accrued liabilities 507, ,517, The Corporation s intention is to meet short-term liquidity requirements with the proceeds from the sale of the Property. Sources and Uses of Cash Our primary use of capital includes paying operating expenses, incurring project development costs on the land development inventory, project debt interest payments, interest payments on Debentures Payable and Interest Debentures payable and principal debt repayments. The Corporation believes that the funds remaining from the gain on the sale of the Property will be sufficient to cover the Corporation s normal operating expenditures until dissolution of the Corporation. 14 Walton Edgemont Development Corporation First Quarter Report 2014

15 The following table summarizes the Corporation s cash flows from (used in) operating, and financing activities, as reflected in the Statement of Financial Position. March 31, March 31, Cash flows from operating activities (293,749) (310,773) Cash flows from financing activities 378, ,706 During the three months ended March 31, 2014, the Corporation incurred 284,029 on development costs that were capitalized to land development inventory. Financing was increased as advances were used to cover operating expenditures and construction on development. Off-Balance Sheet Arrangements There were no off-balance sheet arrangements as at March 31, Financial Instruments The Corporation s financial instruments consist of other receivables, cash, Project debt, Debentures payable, Interest Debentures payable, interest payable, due to related parties and accounts payable and accrued liabilities. Other receivable and cash are classified as loans and receivables, and are carried at amortized cost using the effective interest rate method. Project debt, Debentures payable, Interest Debentures payable, interest payable, due to related parties and accounts payable and accrued liabilities have been classified as other financial liabilities and are carried at amortized cost using the effective interest rate method.the fair value of these financial instruments approximate their carrying value due to the short-term nature of these items. The fair value of Project debt approximates its carrying amount because the debt is due on demand and the interest rate on the debt is variable based on the prime lending rate. The fair value of Debentures payable and Interest Debentures payable approximates the carrying amount because the interest rate on these financial liabilities approximates the interest rate on debentures issued by comparable entities. It is management's opinion that the financial instruments of the Corporation do not give rise to significant credit, liquidity, interest rate or currency risk due to the aforementioned sale. Outstanding Shares As of the date of this MD&A, the Corporation had 100 Class A shares outstanding and 2,889,256 Class B shares outstanding. Outstanding Debentures As of the date of this MD&A, the Corporation had 2,889,256 Debentures payable outstanding with a principal value of 21.7 million and total Interest Debentures outstanding of 3.3 million. The Corporation may in its sole discretion, convert all or any principal amount of the Debentures payable or Interest Debentures payable into a variable number of Class B shares, based on the fair market value per Class B share on the date of the conversion. First Quarter Report 2014 Walton Edgemont Development Corporation 15

16 Commitments The following table presents future commitments of the Corporation under the Management Services Agreement up to December 31, It does not include the performance fee payable to WDM under the Project Management Agreement as this was waived with the sale of the Property. Servicing fee Management fee Total ,360 44, ,649 Total 98,360 44, ,649 CURRENT CHANGES IN ACCOUNTING POLICIES The accounting policies used in the preparation of the condensed interim financial statements are consistent with those which were disclosed in the Corporation s audited financial statements for the year ended December 31, 2013 except as explained below. IAS 32 Financial instruments: Presentation offsetting financial instruments amendment was issued by the IASB in December 2011, for retrospective application in annual periods beginning on or after January 1, The amendments address inconsistencies in practice when applying the current criteria for offsetting financial instruments by clarifying the meaning of currently has a legally enforceable right to set-off, and clarifying that some gross settlement systems may be considered equivalent to net settlement. The amendment did not have an impact on the condensed interim financial statements of the Corporation. In May 2013, the IASB issued International Financial Reporting Interpretation Committee ( IFRIC ) 21 Levies ( IFRIC 21 ), which provided guidance on when to recognize a liability for a levy imposed by the government, both for levies that are accounted for in accordance with IAS 37 - Provisions, contingent liabilities and contingent assets, and those where the timing and the amount of the levy is certain. The Corporation has adopted the interpretation effective January 1, The adoption of IFRIC 21 did not result in any change to the condensed interim financial statements. CORPORATE GOVERNANCE Board of Directors The mandate of the board of directors is to oversee the management of the business of the Corporation, with a view to maximizing the Corporation s shareholder value, and ensuring corporate conduct in an ethical and legal manner via an appropriate system of corporate governance and internal control processes and procedures. The board of directors facilitates its exercise of independent supervision over management through, among other things: The adoption by the board of directors of a written mandate requiring that a majority of the members of the board of directors be independent of management; and 16 Walton Edgemont Development Corporation First Quarter Report 2014

17 The requirement, in the board of directors written mandate for its audit committee, that the audit committee be comprised solely of directors that are independent of management. The board of directors is comprised of Clifford H. Fryers, Jon N. Hagan and Richard R. Singleton. Within the meaning of National Instrument Audit Committees ( NI ), Jon N. Hagan and Richard R. Singleton are independent of management of the Corporation, while Clifford H. Fryers is not independent as a result of the aggregate remuneration that he receives from the Walton group of companies ( Walton Group ). Mr. Fryers is the Chairman of the board of directors. The only standing committee of the board of directors is the audit committee (the Audit Committee ), which consists of Richard R. Singleton and Jon N. Hagan. Mr. Hagan is the Chairman of the Audit Committee. Personal Profiles Clifford H. Fryers Mr. Fryers is the Chairman and Chief Executive Officer of White Iron Inc. and Stampede Entertainment Inc., both entertainment companies.he recently retired as the Chair of the Board of the Manning Centre for Building Democracy and the Manning Foundation for Democratic Education. He is also former Chairman of the Board of Directors for ENMAX Corporation. Mr. Fryers is on the board of directors of several companies in the Walton Group, including the following reporting issuers: Walton Ontario Land 1 Corporation, being the general partner of Walton Ontario Land L.P. 1; Walton Big Lake Development Corporation, being the general partner of Walton Big Lake Development L.P.; Walton Edgemont Development Corporation; and Walton Westphalia Development Corporation. He was on the board of Advisors of Walton Global Investments Ltd. for eight years, retiring as Vice Chairman in November of From 1997 until 2000, Mr. Fryers was Chief of Staff to the Leader of Her Majesty s Official Opposition in the House of Commons. Prior to that, he was a Senior Tax Partner and Managing Partner with the law firm of Milner Fenerty (now Dentons LLP) which he joined in He worked in the Tax Litigation Section of the Department of Justice, Ottawa from 1971 to 1977 and then as General Tax Counsel for Mobil Oil Canada, Ltd. until Mr. Fryers holds the ICD.D certification granted by the Institute of Corporate Directors. Jon N. Hagan Mr. Hagan has been the principal of JN Hagan Consulting since December He provides assistance to major corporations regarding real estate capital markets, and acquisition and disposition transactions covering situations in Canada, the United States of America, Mexico and China. Mr. Hagan is also a director and member of the audit and executive committees of the board of directors of First Capital Realty Inc., which is a reporting issuer in Canada. He is Chair of the board and the Compensation, Nomination, and Governance Committee, and on the Audit Committee of Regal Lifestyle Communities Inc.. which is a reporting issuer in Canada. He was formerly a director and member of the audit, human resources, corporate governance and investment committees of Bentall Kennedy Group from 2001 to He was a trustee of Sunrise Senior Living Real Estate Investment Trust from 2004 to 2007, and was the chair of the audit committee thereof. He was the Chairman of Teranet Income Fund from 2006 to He was a director and on the audit committee of the board of directors of The Mills Corporation for the first three months of 2007 to assist in the sale of The Mills Corporation. Mr. Hagan is also on the board of directors and Chair of the Audit Committee of the following reporting issuers within the Walton Group: Walton Ontario Land 1 Corporation, being the general partner of Walton Ontario Land L.P. 1; Walton Big Lake Development Corporation, being the general partner of Walton Big Lake Development L.P.; Walton Edgemont Development Corporation; and Walton Westphalia Development Corporation. First Quarter Report 2014 Walton Edgemont Development Corporation 17

18 Mr. Hagan has held a number of executive finance positions in the real estate industry, beginning with Oxford in the 1970s. His career took him to Cambridge Shopping Centres in 1980, where he eventually became Senior Vice-President, Corporate Group and Chief Financial Officer. He then joined the Empire Company Limited where he was Executive Vice-President, Finance and Corporate Development. From 1996 through 2000, he was Executive Vice President and Chief Financial Officer of Cadillac Fairview Corporation. Mr Hagan's experience spans corporate strategy, corporate and real estate finance, real estate acquisition and disposition, compensation programs, computer systems, financial reporting, forecasting and budgeting. Mr. Hagan is a chartered accountant. He holds a BSc in Mechanical Engineering from the University of Saskatchewan and attended the Executive MBA program at the University of Alberta. Richard R. Singleton Mr. Singleton was one of the lead architectural partners with Cohos Evamy Partners, Architects, Engineers, Planners (now called Dialogue Design) for 36 years. He primarily focused on larger commercial projects and planning work in Alberta and throughout Canada. Mr. Singleton has been retired since 2008, and, during that time, he has consulted and provided assistance to developers in various planning and building projects. During his career, Mr. Singleton s work included major land planning and land parcel development projects primarily in Alberta and other major commercial projects in other parts of Canada. His experience spanned land use project financial proforma analyses, budgeting for land use and development projects, concept design and approval agency policy planning initiatives. Mr. Singleton is also on the board of directors of the following reporting issuers within the Walton Group: Walton Ontario Land 1 Corporation, being the general partner of Walton Ontario Land L.P. 1; Walton Big Lake Development Corporation, being the general partner of Walton Big Lake Development L.P.; Walton Edgemont Development Corporation; and Walton Westphalia Development Corporation. Mr. Singleton is a past director of the National Music Centre (Cantos Foundation), a member of the Advisory Board of Thermal Systems KWC Ltd., a past member of the Calgary Arts Development Authority, Member of the board of Kahanoff Center of Charitable Activities and sits on its building committee, member of the building committee of the YWCA Calgary and a board member of a private real estate investment group. He was previously a member of the board of advisors of Walton Global Investments Ltd. Mr. Singleton holds a Bachelor of Architecture from the University of Manitoba and is LEED (Leadership in Energy and Environmental Design) accredited. LEED is a set of rating systems for the design, construction and operation of high performance green buildings, homes and neighbourhoods. Compensation The Corporation has agreed to pay to each of the directors who are independent within the meaning of NI , an annual retainer of 25,000 per year, paid quarterly in advance. This amount was determined by the Corporation and the directors prior to the retention of the directors. The executive officers of the Corporation do not receive any compensation from the Corporation. Orientation and Continuing Education New directors will attend a briefing with existing directors on all aspects of the nature and operation of the Corporation s business from the existing directors and the senior management of the Corporation. Directors will be afforded the opportunity to attend and participate in seminars and continuing education programs and are encouraged to identify their continuing education needs through a variety of means, including discussions with senior management of the Corporation and at meetings of the directors. Outside 18 Walton Edgemont Development Corporation First Quarter Report 2014

19 experts may be retained, as appropriate, to provide directors with ongoing education on specific subject matters. Nomination of Directors The original members of the board of directors were appointed by the Class A shareholder of the Corporation. If and when a director resigns, the remaining directors will identify a new director with a view to ensuring overall diversity of experience and skill. The new director may be appointed by the remaining directors or by the Class A shareholder of Corporation. Assessments The directors will regularly assess themselves with respect to their effectiveness and contribution. Audit Committee The primary function of the Audit Committee is to assist the board of directors in fulfilling their responsibility of oversight and supervision of the Corporation s accounting and financial reporting practices and procedures, the adequacy of internal controls and procedures, and the quality and integrity of its financial statements. In addition, the Audit Committee will be responsible for directing the auditors examination of specific areas, for the selection of the Corporation s independent auditors and for the approval of all nonaudit services for which its auditors may be engaged, including the fees for such services. The Audit Committee currently consists of Jon N. Hagan and Richard R. Singleton. Each member of the Audit Committee is independent as contemplated by NI and each is financially literate, meaning that each has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the financial statements of the Corporation. Ethical Business Conduct Directors who have, or may be reasonably perceived to have, a personal interest in a transaction or agreement being contemplated by the Corporation are required to declare such interest at any meeting at which the matter is being considered and, where appropriate, leave the meeting during the discussion and abstain from voting on such matter. The directors encourage and promote a culture of ethical business conduct by expecting each director, as well as the officers of the Corporation, to act in a manner that exemplifies ethical business conduct. The Corporation has established a Code of Business Conduct and Ethics to which all directors, officers and employees of the Corporation are required to adhere. This code requires that all such individuals conduct themselves in a professional and ethical manner, and that they must not condone or encourage unethical conduct. This code also requires that any individuals who are aware of dishonest activities or conduct to report the conduct to the President and CEO. Whistleblower Policy The Corporation has established a Whistleblower Policy to ensure the integrity of the accounting records and financial statements of the Corporation and its compliance with applicable laws. Under the whistleblower policy, any employee who becomes aware of any questionable accounting, internal accounting controls, First Quarter Report 2014 Walton Edgemont Development Corporation 19

20 auditing matters or potential violations of law are encouraged to contact their immediate supervisor, their immediate supervisor s manager, the President or the Chief Executive Officer. Employees also have the option of reporting such matters directly to the chair of the Audit Committee or the chair of the board of directors. Appropriate procedures are then undertaken to ensure that the report is promptly and thoroughly investigated. RISK FACTORS Risks of Real Property Ownership and Development Real estate investments are generally subject to varying degrees of risk depending on the nature of the Property. Such risks include the highly competitive nature of the real estate industry, changes in general economic conditions (such as the availability and cost of mortgage funds), local conditions (such as the supply of office, industrial, retail space or warehousing or the demand for residential real estate in the area and thereby the prices at which serviced lots and parcels may be sold), government regulation and changes therein (such as planning, zoning, taxation of property and environmental legislation), changes in governments and the political environment in the applicable jurisdictions, competition from other available properties and the attractiveness of the Property to potential purchasers, including builders. In addition, each segment in the real estate development industry is capital intensive and is typically sensitive to interest rates and general economic conditions. The income generated by real estate properties, if any, is dependent upon general economic conditions and, accordingly, the return on investment may be affected by changes in those conditions. There is also no assurance that the Property can be expected to be developed profitably. Economic conditions also may affect the municipalities and their ability and willingness to fund infrastructure projects necessary to support development. The market for real property can be affected adversely by economic factors, which may be regional, national or international in scope. Throughout Canada, the real estate market has been experiencing increased weakness and volatility. The recent recession in Canada and the United States and the increased default rates on sub-prime mortgages in the U.S. and the affect of these increased default rates on the mortgage backed securities market in U.S. and Canada has significantly reduced the amount of debt financing available for real estate projects, in particular, residential real estate projects in the U.S., but Canada as well. Some experts believe that as a consequence of significant drops in prices in the real estate sector, the current value of real estate investments could considerably decrease. This could mean that the development of the Property may not be completed in accordance with the existing plan, on time or on budget or that the Property may decrease in value. These factors may have a negative impact on the value of the Corporation s interests in the Property, on the length of time the Corporation will be required to hold the Property and on the purchase price of the lots from the Property when they are eventually sold. The Corporation will be required to make certain expenditures in respect of its activities, including, but not limited to, the payment of property taxes, maintenance costs, insurance costs and related charges, regardless of whether the Property are producing sufficient income to service such expenses. If the Corporation is unable or unwilling to meet such payment obligations, losses could be sustained as a result of the exercise by creditors of rights of foreclosure or sale. Various factors can affect the timing and profitability of real estate development and construction. While certain plans have been made for development of the Property, there is no assurance that such plans will be met on a timely basis or at all. There is also no assurance that the Property can be developed profitably. The Corporation will be subject to risks inherent in the development of residential real estate including: (i) construction and other unforeseen delays; (ii) the incurring of construction and development costs in advance of securing sales revenue; (iii) cost overruns; (iv) the inability to secure the appropriate development and other necessary approvals in a timely and cost effective manner; (v) the inability to sell lots from the Property; and (vi) fluctuations in demand and supply for developed Property. 20 Walton Edgemont Development Corporation First Quarter Report 2014

21 Required Loans May Not Be Provided, May Terminate or May Not Be Sufficient The Corporation has the authority to negotiate and obtain other loans or loan facilities on behalf of the Corporation for the purposes of carrying out the operations of the Corporation and to grant security against the assets of the Corporation, including the Property, without obtaining the approval of the holders of the Debentures and the Class B shares. The Corporation may exercise this power in a number of circumstances including (i) if it wishes to replace the Construction Loan for any reason, (ii) the Construction Loan is terminated for any reason, or (iii) when other credit facilities, loans or borrowings are required to be entered into by the Corporation to pay for the development of the Property, including development of the Property beyond Phase 1, or to pay for other costs of the Corporation. Any such borrowing and the granting of security against the assets of the Corporation with respect thereto, which may be from arm's length third parties and/or, subject to compliance with all applicable laws and receipt of all required regulatory approvals (if any), from affiliates of WAM or from affiliates of holders of Debentures or Class B Shares, will be on such terms as the Corporation determines to be appropriate. Any such borrowings by the Corporation may be evidenced by promissory notes or other evidences of indebtedness. There can be no assurances that the Corporation will be able to obtain financing for the purposes of the Corporation when required, or if it can obtain such financing, that such financing will be on terms that are reasonable or acceptable to the Corporation. The failure or inability of the Corporation to obtain such financing will have a material negative effect on the ability of the Corporation to develop the Property on a timely basis, or at all. Regulatory Approvals and Third Party Approvals Full development of the Property requires zoning, subdivision and other approvals for each phase of the Property, including Phase 1, from local government agencies and other approving authorities that have the jurisdiction over regulatory planning and development approvals in Edmonton. The process of obtaining such approvals may take many months, and there can be no assurance that the necessary approvals will be obtained or obtained in a manner that is acceptable for the purposes of the proposed development of the Property. There is also a possibility that additional approvals to those described above may be necessary due to new legislation or for other reasons. Holding costs will accrue while regulatory approvals are being sought and delays in obtaining such approvals could render the development of the Property uneconomic. Failure to obtain acceptable approvals in a timely manner could have a significant negative affect on the value of the Property. In addition, there is the potential for the discovery of archaeological sites on the Property, which may require the Corporation to preserve the site at its expense and refrain from developing all or a portion of the Property. In addition, any required easement, cost sharing or other similar agreements with neighbouring land owners required for development of the Property may not be obtained on a timely basis, if at all. Environmental Matters and Other Concerns There can be no assurances that environmental contamination will not occur as a result of the development of the Property or any other activity on, or occupation of, the Property or farming, other operations or other occupation on adjacent parcels of land. There can be no assurances that if such environmental contamination does occur that it will not be significant or will not significantly reduce the value of the Property. Under various environmental laws, ordinances and regulations, the current or previous owners or operators of the Property, and the Corporation may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in the Property. These costs could be substantial. Such laws could impose liability whether or not the Corporation knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of hazardous or toxic substances, or the failure to remove or remediate such substances, if any, or restrictions imposed by environmental laws on the manner in which the Property may be operated or developed, could adversely affect the First Quarter Report 2014 Walton Edgemont Development Corporation 21

22 Corporation s ability to sell lots from the Property or to borrow using the Property as collateral and also could potentially result in claims against the Corporation. Environmental laws provide for sanctions for non-compliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of, and exposure to, hazardous substances into the air. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could be substantial. The Corporation may be subject to liability for undetected pollution or other environmental hazards against which it cannot insure, or against which it may elect not to insure where premium costs are disproportionate to the Corporation s or WAM s or WDM s perception of relative risk. Political and Economic Climate The Province of Alberta, and more specifically, the City of Edmonton, present social, economic and political conditions that are reasonably stable. However, these levels of government and the federal government could implement legislation and policies that would have an adverse affect on the Corporation. Examples of such policies are tax reform, zoning restrictions, land ownership restrictions, transportation policies, development moratoriums, annexation proceedings or other adverse economic and/or monetary policies. In addition, the Alberta economy may not attain levels of growth that it has achieved in the past and projections regarding future growth may not be accurate. Changes in Legislation and Policies There can be no assurances that provincial, county or municipal legislation will not be implemented or policies and frameworks will not be implemented by the applicable municipal bodies or other government regulators having jurisdiction over the Property which places restrictions on the ability to develop the Property or which generally has the effect of significantly reducing the value, or the potential value, of the Property. Competition The Corporation competes with other investors, developers, and owners of properties for the sale of desirable real estate properties. Some of the commercial, retail and residential properties of the competitors of the Corporation are newer, better located, better capitalized and/or more developed than the Properties. Certain of these competitors have greater financial and other resources and greater operating flexibility than the Corporation. The existence of competing developers and owners could have a material adverse affect on the ability of the Corporation to market the Property, and could adversely affect the profitability of the Corporation. Affiliates of the Corporation, WAM and WDM (including WAM and WDM) manage, and manage the development of, other properties around the City of Edmonton or elsewhere that may be competitive to the Property. Builder Contract Risk The success of any development project is to a certain extent dependent upon the ability to attract builders with successful track records in sales and construction. In the event that any of the builders that are contracted with in connection with the Property should cease operating in connection with the Property or not comply with their obligations to the Corporation under the applicable agreements, the financial performance of the Corporation will depend upon WDM s ability to find a replacement builder or builders. There can be no guarantee that WDM will find suitable builders on a timely basis or on terms that are advantageous to the Corporation. 22 Walton Edgemont Development Corporation First Quarter Report 2014

23 Single Asset The Corporation was formed solely for the development of all or a portion of the Property. The Property will represent the only significant asset of the Corporation and, therefore, the Corporation s financial performance will be directly tied to the value of the Property. First Quarter Report 2014 Walton Edgemont Development Corporation 23

24 UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS Walton Yellowhead Development Corporation For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM FINANCIAL STATEMENTS Section 4.3(3) of National Instrument , Continuous Disclosure Obligations, provides that if an auditor has not performed a review of the interim financial statements, the interim financial statements must be accompanied by a notice indicating that the interim financial statements have not been reviewed by an auditor. The Corporation s external auditors have not performed a review of these interim financial statements of Walton Yellowhead Development Corporation. 24 Walton Edgemont Development Corporation First Quarter Report 2014

25 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Condensed Interim Statements of Financial Position Unaudited As at March 31, 2014 and December 31, 2013 (Expressed in Canadian dollars) March 31, 2014 December 31, 2013 ASSETS Land development inventory (note 4) 36,398,530 35,275,581 Deferred tax asset (note 9) 586, ,634 Prepaid expenses - 1,400 Other receivable 1,495 1,854 GST recoverable 8,917 8,199 Cash 1,648,606 1,563,717 TOTAL ASSETS 38,644,081 37,388,385 LIABILITIES Project Debt (note 6) 5,490,793 5,104,869 Debentures payable (note 5) 21,556,545 21,217,889 Interest debentures payable (note 5) 3,321,479 3,321,479 Interest payable (note 5) 971, ,623 Due to related parties (note 7) 1,344,192 1,174,816 Accounts payable and accrued liabilities 507, ,084 TOTAL LIABILITIES 33,192,153 31,789,760 SHAREHOLDERS EQUITY Share capital 6,857,150 6,857,150 Accumulated deficit (1,405,222) (1,258,525) TOTAL EQUITY 5,451,928 5,598,625 TOTAL LIABILITIES & EQUITY 38,644,081 37,388,385 Nature of Business and basis of presentation note 1 The accompanying notes to the condensed interim financial statements are an integral part of these statements First Quarter Report 2014 Walton Edgemont Development Corporation 25

26 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Condensed Interim Statements of Comprehensive Loss Unaudited For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) Three months ended March 31 March OTHER INCOME/(EXPENSES) Interest income 4, Management fees (note 7) (132,866) (132,866) Servicing fees (note 7) (32,190) (32,190) Office and other expenses (17,491) (6,929) Directors fees (note 7) (13,032) (13,032) Professional fees (4,538) (5,383) NET LOSS BEFORE TAX (195,596) (189,939) Deferred income tax recovery (note 9) 48,899 47,484 NET AND COMPREHENSIVE LOSS (146,697) (142,455) Basic and diluted net loss per share attributable to class B shares (note 8) (0.05) (0.05) Nature of Business and basis of presentation note 1 The accompanying notes to the condensed interim financial statements are an integral part of these statements. 26 Walton Edgemont Development Corporation First Quarter Report 2014

27 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Condensed Interim Statements of Changes in Shareholders Equity Unaudited For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) Class A Voting Common Shares Class B Non-voting Common Shares Accumulated Deficit Total # of Shares # of Shares DECEMBER 31, ,889,256 6,857,050 (655,969) 6,201,181 Net and comprehensive loss (142,455) (142,455) MARCH 31, ,889,256 6,857,050 (798,424) 6,058,726 Net and comprehensive loss (460,101) (460,101) DECEMBER 31, ,889,256 6,857,050 (1,258,525) 5,598,625 Net and comprehensive loss (146,697) (146,697) MARCH 31, ,889,256 6,857,050 (1,405,222) 5,451,928 Nature of Business and basis of presentation note 1 The accompanying notes to the condensed interim financial statements are an integral part of these statements. First Quarter Report 2014 Walton Edgemont Development Corporation 27

28 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Condensed Interim Statements of Cash Flows Unaudited For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) Three months ended March 31 March CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net and comprehensive loss for the period (146,697) (142,455) Adjustments for: Interest Income (4,521) (461) Items not affecting cash Deferred tax recovery (48,899) (47,484) Changes in non-cash operating items Increase in land development inventory (284,029) (55,759) Decrease in prepaid expenses 1, (Increase)/decrease in GST recoverable (718) 6,009 Increase/(decrease) in accounts payable and accrued liabilities 15,459 (210,730) Increase in due to related parties 169, ,489 Interest received 4, (293,749) (310,773) FINANCING ACTIVITIES Advances from project debt 378,638 - Advances from related party - 185, , ,706 Increase/(decrease) in cash 84,889 (125,067) Cash Beginning of period 1,563, ,278 Cash End of period 1,648,606 59,211 SUPPLEMENTAL INFORMATION Accretion related to Debentures payable capitalized to land development inventory 338,656 98,740 Non-cash interest capitalized to land development inventory 500, ,244 Interest paid capitalized to land development inventory 104,007 - Nature of Business and basis of presentation note 1 The accompanying notes to the condensed interim financial statements are an integral part of these statements. 28 Walton Edgemont Development Corporation First Quarter Report 2014

29 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Notes to the Condensed Interim Financial Statements Unaudited For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION Walton Yellowhead Development Corporation (the Corporation ) was incorporated under the laws of the province of Alberta on August 24, The Corporation was formed to provide investors with the opportunity to participate in the development of the approximately acre Yellowhead property located in Edmonton, Alberta (the Property ) through the purchase of units in the Corporation. Each unit issued by the Corporation ( Unit ) through its initial public offering ( IPO ) was comprised of a 7.50 principal amount of offering debenture ( Debenture ) and one Class B nonvoting common share ( Class B share ) at a price of 2.50 per share. The Corporation entered into an agreement for the sale of its entire right, title and interest in the Property for total cash consideration of 36,677,800. The sale closed on April 30, The sale is described in note 13 to the financial statements. Subsequent to the quarter end, the Corporation has used the proceeds from the sale to repay any remaining outstanding liabilities at March 31, 2014 including accrued development and management fees. On May 15, 2014, management made a distribution of 34,898,534, which included the payment in full of Debentures, Interest Debentures, accrued interest, the return of shareholders capital investment and a dividend distribution. A reserve is being withheld by the Corporation to pay for the remaining liabilities, operating expenses and any unforeseen expenses until the dissolution of the Corporation which is anticipated to be on or before March 15, 2015, at which time a final distribution will be made by the Corporation. As a result of the sale, the Corporation has determined it is no longer appropriate to present the financial statements on a going concern basis. No adjustments to the assets or liabilities of the Corporation are considered necessary as the Corporation expects to be able to both recover its assets and settle its remaining liabilities that will not be assumed by the purchaser in an orderly fashion and without any penalties or additional charges. The registered office and principal place of business is 23 rd floor, th Avenue SW, Calgary, Alberta, T2P 3H5. These financial statements were authorized for issue by the Board of Directors on May 27, BASIS OF PREPARATION These condensed interim financial statements, including comparatives, have been prepared in accordance with International Accounting Standard ( IAS ) 34: Interim Financial Reporting and using accounting policies that are consistent with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). They do not include all of the information required for full annual financial statements and should be read in conjunction with the Corporation s audited annual financial statements for the year ended December 31, First Quarter Report 2014 Walton Edgemont Development Corporation 29

30 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Notes to the Condensed Interim Financial Statements Unaudited For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) The Corporation s financial statements have been prepared on the liquidation basis, as noted in note 1. Due to the sale of the Property, all assets and liabilities are current in nature and are expected to be settled in less than twelve months. Change in Presentation In the statement of cash flows, the treatment of interest income/receivable and interest paid/payable has been changed to be consistent with current year presentation. In the statement of cash flows, balances relating to financing activities with related parties was removed from operating activities and included as financing activity. 3. ACCOUNTING POLICIES The accounting policies used in the preparation of these condensed interim financial statements are consistent with those which were disclosed in the Corporation s audited financial statements for the year ended December 31, 2013, except for the following accounting standards and interpretations that were adopted on January 1, 2014: IAS 32 Financial instruments: Presentation offsetting financial instruments amendment was issued by the IASB in December 2011, for retrospective application in annual periods beginning on or after January 1, The amendments address inconsistencies in practice when applying the current criteria for offsetting financial instruments by clarifying the meaning of currently has a legally enforceable right to set-off, and clarifying that some gross settlement systems may be considered equivalent to net settlement. The amendment did not have an impact on the condensed interim financial statements of the Corporation. In May 2013, the IASB issued International Financial Reporting Committee ( IFRIC ) 21 Levies ( IFRIC 21 ), which provided guidance on when to recognize a liability for a levy imposed by the government, both for levies that are accounted for in accordance with IAS 37 Provisions, contingent liabilities and contingent assets, and those where the timing and the amount of the levy is certain. The Corporation has adopted the interpretation effective January 1, The adoption of IFRIC 21 did not result in any change to the condensed interim financial statements. Estimates and Judgements The preparation of condensed interim financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity, the date of the financial statements, and the reported amounts of revenue and expenses during the year. There have been no significant changes in accounting judgements, estimates and assumptions made by the Corporation in the preparation of these condensed interim financial statements from those judgements, estimates and assumptions disclosed in the Corporation s audited financial statements for the year ended December 31, Walton Edgemont Development Corporation First Quarter Report 2014

31 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Notes to the Condensed Interim Financial Statements Unaudited For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) 4. LAND DEVELOPMENT INVENTORY Three months ended March 31, 2014 Year ended December 31, 2013 BALANCE BEGINNING OF PERIOD 35,275,581 29,403,556 Development costs 1,122,949 5,872,025 BALANCE END OF PERIOD 36,398,530 35,275,581 During the three months ended March 31, 2014, 604,271 (December 31, ,826,865) of interest was capitalized to development costs. 5. DEBENTURES, INTEREST DEBENTURES AND INTEREST PAYABLE The following table reconciles the change in debentures payable: Three months ended March 31, 2014 Year ended December 31, 2013 BALANCE BEGINNING OF PERIOD 21,217,889 20,678,557 Accretion on debentures 338, ,332 BALANCE END OF PERIOD 21,556,545 21,217,889 First Quarter Report 2014 Walton Edgemont Development Corporation 31

32 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Notes to the Condensed Interim Financial Statements Unaudited For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) The following table reconciles the change in interest debentures payable: Three months ended March 31, 2014 Year ended December 31, 2013 BALANCE BEGINNING OF PERIOD 3,321,479 1,496,021 Interest debentures issued - 1,825,458 BALANCE END OF PERIOD 3,321,479 3,321,479 The following table reconciles the change in interest payable: Three months ended March 31, 2014 Year ended December 31, 2013 BALANCE BEGINNING OF PERIOD 478, ,428 Accrued interest on the Debentures 427,452 1,733,554 Accrued interest on the interest debentures 65, ,099 Settlement of interest through the issuance of interest debentures - (1,825,458) BALANCE END OF PERIOD 971, ,623 As at March 31, 2014 and December 31, 2013, WIGI owned approximately 5.2% of the outstanding Units of the Corporation. As a result, approximately 5.2% of the balance of Debentures, Interest Debentures and interest payable was payable to WIGI. 6. PROJECT DEBT As of March 31, 2014, the balance outstanding under this Bridge Loan was 5,490,793 (December 31, ,104,869), which was comprised of 5,453,031 (December 31, ,074,393) of principal, plus accumulated interest of 37,762 (December 31, ,476). The Corporation was in compliance with all conditions under the Bridge Loan as at March 31, These conditions are all non-financial in nature. 32 Walton Edgemont Development Corporation First Quarter Report 2014

33 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Notes to the Condensed Interim Financial Statements Unaudited For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) 7. RELATED PARTY TRANSACTIONS March 31, 2014 December 31, 2013 Walton Asset Management L.P. (WAM) 1,337,414 1,172,358 Walton Development and Management (Alberta) LP (WDM) 4,940 1,775 Walton International Group Inc. (WIGI) 1, ,344,192 1,174,816 Walton Asset Management L.P. During the three months ended March 31, 2014, the total servicing fees and management fees charged to the Corporation was 32,190 (March 31, ,190) and 132,866 (March 31, ,866) respectively. There were no amounts paid to WAM in the three months ended March 31, 2014 (March 31, nil) The balance payable to WAM as at March 31, 2014 was in respect of the management fees and servicing fees. The Corporation intends to make payments for the management fees and servicing fees with the proceeds from the sale of the Property. WAM has indicated that it will continue to provide its services as manager of the Corporation and to fund the servicing fee on behalf of the Corporation. All amounts that exceed the regular payment terms are due on demand and bear no interest. Walton Development and Management (Alberta) LP During the three months ended March 31, 2014, the total development fee charged to the Corporation was 5,973 (March 31, ,069), total development fees paid by the Corporation was 3,465 (March 31, ,159). These costs have been capitalized as part of land development costs. These amounts include GST. During the three months ended March 31, 2014, the Corporation incurred a total amount payable to WDM of 657 (March 31, ) for day to day expenses that were initially funded by WDM on the Corporation s behalf. The total amount paid to WDM for amounts that were incurred on behalf of the Corporation during the three months ended March 31, 2014 was nil (March 31, ). No performance fee was incurred by the Corporation during the three months ended March 31, 2014 or the comparative prior period because the 10 per Unit amount and the cumulative priority return have not been received by the investors of Units in the Corporation. WDM has waived the performance fee with the sale of the Property. First Quarter Report 2014 Walton Edgemont Development Corporation 33

34 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Notes to the Condensed Interim Financial Statements Unaudited For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) Walton International Group Inc. As at March 31, 2014, the Corporation owed 1,838 to WIGI (December 31, ). The balance outstanding as at March 31, 2014 was comprised of costs that were initially funded by WIGI on behalf of the Corporation but were reimbursable by the Corporation. During the three months ended March 31, 2014, the Corporation incurred a total amount payable to WIGI of 1,155 (March 31, ) in costs initially funded by WIGI on the Corporation s behalf. The total amount paid to WIGI for amounts funded on the Corporation s behalf was nil (March 31, ). Key Management Compensation Key management personnel are comprised of the Corporation s directors and executive officers. The total compensation expense incurred by the Corporation relating to its independent directors was as follows: Three months ended March Directors fees 13,032 13,032 All services performed for the Corporation by its executive officers and non-independent director are governed by the Management Services Agreement. The quarterly management fee that WAM receives under the Management Services Agreement has been disclosed above. The compensation of key management does not include the remuneration paid to individuals who are paid directly by WGIL or WAM. The officers of the Corporation are also officers and directors of numerous entities controlled or managed by WGIL and it is not practicable to make a reasonable apportionment of their compensation in respect of each of those entities. 8. SHARE CAPITAL Basic net loss per share is calculated by dividing the Corporation s net loss by the weighted average number of shares outstanding. Class A shares outstanding have not been included in the weighted average shares outstanding because the Class A shares do not participate in the profits or losses of the Corporation. The weighted average number of shares outstanding during the three months ended March 31, 2014 and March 31, 2013 was 2,889, Walton Edgemont Development Corporation First Quarter Report 2014

35 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Notes to the Condensed Interim Financial Statements Unaudited For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) As the Corporation has the right to convert any portion of the debentures payable into Class B shares, this conversion feature could result in potentially dilutive shares in the determination of the weighted average diluted shares outstanding. For the three months ended March 31, 2014 and the three months ended March 31, 2013, the potentially dilutive shares were nil because the Corporation generated a net loss during those years. 9. INCOME TAXES The following table reconciles the tax recovery calculated on the Corporation s net loss before tax using Corporation s statutory tax rate to the income tax recovery recognized: Three months ended March Net loss before tax 195, ,939 Statutory tax rate 25% 25% INCOME TAX RECOVERY 48,899 47,484 Deferred income tax assets are a result of temporary differences between the carrying amount of assets and liabilities in the financial statements and their carrying amount for income tax purposes, as well as the recognition of tax losses. The following table reconciles the change in the deferred tax asset: March 31, 2014 December 31, 2013 DEFERRED TAX ASSET - BEGINNING OF PERIOD 537, ,782 Recognition of tax losses from current year 72, ,352 Temporary differences as a result of issuance costs (23,301) (94,500) DEFERRED TAX ASSET - END OF PERIOD 586, ,634 7 First Quarter Report 2014 Walton Edgemont Development Corporation 35

36 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Notes to the Condensed Interim Financial Statements Unaudited For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) As outlined in the Corporation s accounting policies, deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which temporary differences and prior year tax losses can be utilized. The nature of the Corporation s business is such that until the sale of lots commences, any revenue generated by the Corporation is not significant. Due to the sale of the Property (note 13), management believes the Corporation will be able to recover all previously incurred tax losses and settle the deferred tax asset in the next twelve months. 10. FINANCIAL INSTRUMENTS The Corporation s financial instruments consist of other receivable, cash, project debt, debentures payable, interest debentures payable, interest payable, accounts payable and accrued liabilities, and amounts due to related parties. The fair value of these financial instruments approximate carrying value due to the short-term nature of these items. With the closing of the sale, all financial instruments are expected to be settled within the next year. MARCH 31, 2014 Fair Value Through profit and loss Loans and receivables Amortized Cost Other financial liabilities Carrying amount Totals Fair Value Asset (liability): Other receivable - 1,495 1,495 1,495 Cash - 1,648,606 1,648,606 1,648,606 Project debt - - (5,490,793) (5,490,793) (5,490,793) Debentures payable - - (21,556,545) (21,556,545) (21,556,545) Interest debentures payable - - (3,321,479) (3,321,479) (3,321,479) Interest payable - - (971,601) (971,601) (971,601) Accounts payable and accrued liabilities - - (507,543) (507,543) (507,543) Due to related parties - - (1,344,192) (1,344,192) (1,344,192) - 1,650,101 (33,192,153) (31,542,052) (31,542,052) 36 Walton Edgemont Development Corporation First Quarter Report 2014

37 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Notes to the Condensed Interim Financial Statements Unaudited For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) DECEMBER 31, 2013 Fair Value Through profit and loss Loans and receivables Amortized Cost Other financial liabilities Carrying amount Totals Fair Value Asset (liability): Other receivable - 1,854-1,854 1,854 Cash - 1,563,717-1,563,717 1,563,717 Project debt - - (5,104,869) (5,104,869) (5,104,869) Debentures payable - - (21,217,889) (21,217,889) (21,217,889) Interest debentures payable - - (3,321,479) (3,321,479) (3,321,479) Interest payable - - (478,623) (478,623) (478,623) Accounts payable and accrued liabilities - - (492,084) (492,084) (492,084) Due to related parties - - (1,174,816) (1,174,816) (1,174,816) - 1,565,571 (31,789,760) (30,224,189) (30,224,189) The future undiscounted obligations of the Corporation are noted below: thereafter Project debt 5,490, Debentures payable 21,669, Interest debentures payable 3,321, Interest payable 1,135, Due to related parties 1,392, Accounts payable and accrued liabilities 507, ,517, First Quarter Report 2014 Walton Edgemont Development Corporation 37

38 WALTON YELLOWHEAD DEVELOPMENT CORPORATION Notes to the Condensed Interim Financial Statements Unaudited For the three months ended March 31, 2014 and March 31, 2013 (Expressed in Canadian dollars) 11. COMMITMENTS The following table presents future commitments of the Corporation under the Management Services Agreement and up to December 31, It does not include the performance fee payable to WDM under the Project Management Agreement as this was waived with the sale of the Property. Servicing fee Management fee Total ,360 44, , CAPITAL MANAGEMENT The Corporation defines capital as total Shareholders Equity, Debentures Payable, Interest Debentures Payable, Project Debt and balances Due to Related Parties. At March 31, 2014 the total capital managed was 37,164,937(December 31, ,417,678) Prior to the sale of the Property, the Corporation s objectives when managing capital were to: (i) (ii) (iii) ensure adequate capital is retained by the Corporation to obtain construction loans to fund construction of the Project; ensure that the Corporation is able to meet all obligations relating to the entity and the development of the land, through sale of the lots; and maximize the rate of return to our Shareholders. With the sale, the Corporation will manage the capital structure by maintaining a reserve after the initial distribution on May 23, 2014 to pay for all the remaining liabilities, operating expenses and any unforeseen expenses incurred until the dissolution of the Corporation. 13. SUBSEQUENT EVENTS On April 30, 2014 (the Closing Date ), the Corporation completed the sale of its entire right, title and interest in the Property for a total cash consideration of 36,677,800. The Property was purchased by Yellowhead Lands Limited Partnership (the "Purchaser") which accepted an assignment of the purchase agreement from Alberta Ltd., which is 50% owned by WIGI, on the Closing Date. A Canadian pension fund has an 85% ownership interest in the Purchaser, with the remaining 15% being owned by an entity that is 50% owned by WIGI and 50% owned by an arm s length third-party Canadian development company ("DevCo."). In connection with the purchase of the Property, the Purchaser paid back the project debt of 5,527,741 outstanding as of the Closing Date pursuant to directions from both the Corporation and DevCo. to apply towards the repayment of the project debt funds owed to each of them from the Purchaser related to the development of the Property. 38 Walton Edgemont Development Corporation First Quarter Report 2014

39 NOTES First Quarter Report 2014 Walton Yellowhead Development Corporation 39

40 WALTON GROUP OF COMPANIES The Walton Group of Companies (Walton) is a family-owned, multinational real estate investment, planning, and development firm concentrating on the research, acquisition, administration, planning and development of strategically located land in major North American growth corridors. With more than 85,000 acres* of land under administration and management, Walton is one of North America s premier land asset administrators and managers. Walton has been in business for over 30 years. We take a long-term approach to land planning and development. Our expertise in real estate investment, land planning and development positions Walton to responsibly transition land into sustainable communities where people live, work and play. Our communities are comprehensively designed in collaboration with local residents for the benefit of community stakeholders. Our goal is to build communities that will stand the test of time: hometowns for present and future generations. *As of March 31, Walton Yellowhead Development Corporation First Quarter Report 2014