Wen Lian Aquaculture Co. Ltd. Condensed Interim Financial Statements. For the Three and Six Months Ended December 31, 2013 (Unaudited)

Transcription

1 Condensed Interim Financial Statements For the Three and Six Months Ended December 31, 2013

2 Condensed Interim Statements of Financial Position December 31,2013. June 30, 2013 (Audited) $ $ Current Asset Cash and cash equivalents 132,299 1,137,154 Accounts receivable (Note 3) 3,619, ,141 Other receivables (Note 4) 47,575 65,581 Inventory (Note 5) 1,030, ,749 Prepaid expenses and deposits 4,522 7,059 4,834,398 1,627,684 Deferred financing charges (Note 6) 80,601 62,956 Property and equipment (Note 7) 1,263,224 1,282,658 6,178,223 2,973,298 Current Liabilities Accounts payable and accrued liabilities 148, ,222 Income tax payable (Note 10) 85,882 - Deferred revenue 51,375 - Due to a related party (Note 9) 1,335, ,736 1,621, ,958 Equity Share capital (Note 8) 3,719,547 3,719,547 Share subscription received (Note 8(d)) 1,000,000 1,000,000 Deficit (162,560) (2,563,207) 4,556,987 2,156,340 6,178,223 2,973,298 NATURE AND CONTINUANCE OF OPERATIONS (Note 1) COMMITMENTS (Note 13) SUBSEQUENT EVENTS (Note 14) Approved on behalf of the Board: /s/ Lai-zhong Qiu Lai-zhong Qiu, Director See accompanying notes to condensed interim financial statements. Page 1

3 Condensed Interim Statements of Comprehensive Income Three Months Ended December 31, 2013 Six Months Ended December 31, 2013 $ $.. Sales 3,448,811 4,526,183 Cost of sales 618,820 1,698,269 Gross profit 2,829,991 2,827,914 Expenses Depreciation 39,897 82,804 Office and general 47, ,949 Professional fees 49,018 71,848 Rental expenses 6,000 12,008 Consulting fees 12, ,000.. Travel expenses 4,724 30,130 Supplies and utilities 9,733 12, , ,930 Income from operations 2,661,292 2,484,984 Other Income Interest income - 1,545 Net income before income taxes 2,661,292 2,486,529 Income tax expense 85,882 85,882 Net income and comprehensive income for the period 2,575,410 2,400,647 Deficit, beginning of the period (2,737,970) (2,563,207) Deficit, ending of the period (162,560) (162,560) Income per common share Basic and diluted Weighted average number of common shares outstanding (Note 8(c)) 90,000,000 90,000,000 See accompanying notes to condensed interim financial statements. Page 2

4 Condensed interim Statement of Changes in Equity Note Number of.. Common Shares.. Common Shares Share.. Capital.. Share Subscription Received Deficit.... Total.. Equity.. $.. $.. $.. Balance, June 30, (475,798).. (475,698).. Comprehensive loss for the year (396,406).. (396,406).. Balance, June 30, (872,204).. (872,104).. Comprehensive loss for the year (556,406).. (556,406).. Balance, June 30, (1,428,610).. (1,428,510).. Debt to share conversion 8 (b) 80,999, ,720, ,720,856.. Private placement 8 (b) 9,000, ,000, ,000,000.. Share issuance costs -.. (1,409) (1,409).. Share subscription received 8 (d) ,000, ,000,000.. Comprehensive loss for the year (1,134,597).. (1,134,597).. Balance, June 30, ,000, ,719,547 1,000,000 (2,563,207).. 2,156,340.. Comprehensive loss for the period (174,763).. (174,763).. Balance, September 30, ,000,000 3,719,547 1,000,000 (2,737,970) 1,981,577 Comprehensive income for the period ,575,410 2,575,410 Balance, December 31, ,000,000 3,719,547 1,000,000 (162,560) 4,556,987 See accompanying notes to condensed financial statements. Page 3

5 Condensed Interim Statements of Cash Flows Three Months Ended Six Months Ended December 31, 2013 December 31, 2013 $.. $.. OPERATING ACTIVITIES Net income for the period 2,575,410 2,400,647 Items not involving cash: Depreciation 39,897 82,804 2,615,307 2,483,451 Changes in non-cash working capital balances: Accounts receivable (2,542,612) (3,381,843) Other receivables (4,742) 18,006 Inventory (684,091) (850,269) Prepaid expenses and deposits - 2,537 Deferred revenue (206,200) 51,375 Accounts payable and accrued liabilities 22,871 3,718 Income tax payable 85,882 85,882 Cash used in operating activities (713,585) (1,587,143) INVESTING ACTIVITIES Acquisition of property and equipment (1,830) (63,370) Cash used in investing activities (1,830) (63,370) FINANCING ACTIVITIES Deferred financing costs (13,866) (17,645) Advances from a related party 525, ,303 Cash provided by financing activities 511, ,658 Decrease in cash (203,485) (1,004,855) Cash and cash equivalents, beginning 335,784 1,137,154 Cash and cash equivalents, ending 132, ,299 Supplemental disclosure of cash flow information: Cash paid for interest - - Cash paid for income taxes - - Non-cash financing activity (Note 8(b)(i)) See accompanying notes to condensed financial statements. Page 4

6 1. NATURE AND CONTINUANCE OF OPERATIONS Wen Lian Aquaculture Co. Ltd. (the Company or Wen Lian ) is a company specializing in the production of seed for scallop, geoduck and sea cucumber for Aquaculture farms. The Company is also a buyer and exporter of adult geoduck and sea cucumber. The Company was incorporated on July 14, 2007 in British Columbia, Canada under the provisions of the British Columbia Business Corporations Act. The Company conducts its hatchery activities in Courtenay, British Columbia, Canada. The address of the Company s office is located at Patterson Avenue, Burnaby, British Columbia. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board ( IASB ) and interpretations of the International Financial Reporting Interpretations Committee ( IFRIC ). The financial statements were authorized for issue by the Board of Directors on March 6, b) Basis of measurement The financial statements have been prepared on the historical cost basis except for certain financial instruments carried at fair value as described in Note 2 (j). c) Use of estimates and judgements The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which affect the application of accounting policies and the reported amounts of assets, liabilities and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. Significant estimates include: the recognition of revenue; the determination of allowance for doubtful receivables; the recognition and valuation of obsolescence of inventories; the determination of the useful lives of equipment; and the recognition and valuation of impairment of assets, Critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements include the following: the determination of functional currency of the Company; the evaluation of the Company s ability to continue as going concern; and the estimation of the accrual for land lease payments under a lease arrangement which has not been documented (see note 13 a) the recoverability of deferred financing charges against financing raised Page 5

7 2. SIGNIFICANT ACCOUNTING POLICIES (continued) d) Revenue recognition Sales revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, delivery has occurred and there is reasonable assurance of collection of the sales proceeds. The Company generally obtains acknowledgement from its customers, and considers delivery to have occurred when the delivery terms set out in the sales contracts have been fulfilled. Payments received from customers in advance of meeting all of the recognition criteria are recorded as deferred revenue and subsequently recognized as these criteria are met. e) Cash equivalents Cash equivalents consist of highly liquid investments and bank overdrafts, excluding restricted cash, if any, that are readily convertible to cash with maturities of three months or less when purchased, or which are redeemable at the option of the Company. f) Amounts receivable Amounts receivable includes trade customer receivables net of allowances for doubtful accounts. The Company makes an allowance to reduce the carrying value of amounts receivable identified as uncollectible to their estimated realizable amount. The allowance for doubtful accounts is the Company s best estimate of the amount of probable credit losses in its existing amounts receivable. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Historically, the Company s bad debts have not been significant. g) Share issuance costs Professional, consulting and regulatory fees as well as other costs directly attributable to financing transactions are reported as deferred financing costs until the transactions are completed, if the completion of the transaction is considered to be more likely than not. Share issuance costs are charged to share capital when the related shares are issued. Costs relating to financing transactions that are not completed, or for which successful completion is considered unlikely, are charged to operations. h) Impairment At each reporting date, the carrying amounts of the Company s assets are reviewed to determine whether there is any indication of impairment. If any such indication exists, then the asset s recoverable amount is estimated to determine the extent of the impairment, if any. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the assets. An impairment loss is recognized in operations if the carrying amount of an asset exceeds its recoverable amount. For an asset that does not generate independent cash flows, the recoverable amount is determined for the cash generating unit to which the asset belongs. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. An impairment loss in respect of goodwill is not reversed. Page 6

8 2. SIGNIFICANT ACCOUNTING POLICIES (continued) i) Property and equipment Property and equipment are stated at cost net of accumulated depreciation and accumulated impairment losses, if any. Cost includes the acquisition price, any direct costs to bring the asset into productive use at its intended location, the cost of replacing part of the property and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. Major inspection cost is recognized in the carrying amount of the property and equipment as a replacement if the recognition criteria are satisfied. Depreciation is calculated using the following rates and methods: Aquaculture equipment Building Computer Equipment Vehicles Boats Leasehold Improvement 20% declining balance basis 10% straight line basis 50% declining balance basis 30% declining balance basis 15% declining balance basis 10 year straight line basis j) Financial instruments The Company does not have any derivative financial assets and derivative financial liabilities. Non-derivative financial assets Non-derivative financial assets are initially recognized at fair value and are classified into one of four categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables or available-for-sale financial assets. i) Financial assets at fair value through profit or loss Financial assets are classified as fair value through profit or loss ( FVTPL ) if they are held for trading or are designated as such upon initial recognition. Financial assets at fair value through profit or loss are measured at fair value, and changes are recognized in operations. Upon initial recognition transaction costs are recognized in operations as incurred. ii) Held-to-maturity financial assets Financial assets are classified as held-to-maturity if the Company has the positive intent and ability to hold them to maturity. These financial assets are recognized initially at fair value together with directly attributable costs, and are subsequently measured at amortized cost using the effective interest method less any impairment losses. Any sale or reclassification of a more than significant amount of these assets not close to their maturity would result in the reclassification of all held-to-maturity financial assets as available-for-sale, and would prevent the Company classifying investment securities as held-to-maturity for the current and following two financial years. iii) Loans and receivables These assets are financial assets with fixed or determinable payments that are not quoted in an active market. These assets are recognized initially at fair value plus any directly attributable transaction costs, and are subsequently measured at amortized cost using the effective interest method less any impairment losses. iv) Available-for-sale financial assets Available-for-sale financial assets are financial assets that are designated as available-for-sale and that are not classified in any of the previous categories. Subsequent to initial recognition, they are measured at fair value and any changes, other than impairment losses and foreign currency differences on available-for-sale equity instruments, are recognized in other comprehensive income and presented within equity. When an available-for-sale financial asset is derecognized, the cumulative gain or loss in other comprehensive income is reclassified through operations. Page 7

9 2. SIGNIFICANT ACCOUNTING POLICIES (continued) j) Financial instruments (continued) Non-derivative financial liabilities Non-derivative financial liabilities are initially recognized at fair value and are classified into one of two categories: financial liabilities at fair value through profit or loss or other financial liabilities. i) Financial liabilities at fair value through profit or loss These financial liabilities are acquired or incurred principally for the purpose of selling or repurchasing in the near term. They are measured at fair value, and changes therein are recognized in operations. ii) Other financial liabilities These financial liabilities are recognized initially at fair value plus any directly attributable transaction costs, and are subsequently measured at amortized cost using effective interest method. k) Share-based payments The Company accounts for share-based payment awards granted to employees and consultants using the fair value method. The fair value of options granted is recognized as a share-based payment expense with a corresponding increase in equity. The fair value is measured at grant date and each tranche is recognized on a graded-vesting basis over the period during which the options vest, using the Black-Scholes option pricing model. The amount recognized as expense is adjusted to reflect the number of share options expected to vest at each reporting period. l) Income taxes Income tax expense comprises current and deferred tax and is recognized in operations except to the extent that it relates to business combinations, or items recognized directly in equity or in other comprehensive income. Current income tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred income tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, except for temporary differences in assets and liabilities arising in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, transactions relating to investments in jointly controlled entities to the extent that they will not reverse in the foreseeable future, and transactions arising on the initial recognition of goodwill. Deferred income tax is recognized at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date. A deferred income tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. m) Earnings per share Basic earnings per share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period. The Company applies the treasury stock method in calculating diluted earnings per share. Diluted earnings per share exclude all dilutive potential common shares if their effect is anti-dilutive. The weighted number of shares outstanding for prior periods has been adjusted to reflect all adjustments to the number of issued shares made without consideration having been paid or received by the Company (see note 8 c). Page 8

10 2. SIGNIFICANT ACCOUNTING POLICIES (continued) n) Interest expense Interest expense for loans is calculated using the effective interest method. Interest expense that is directly attributable to the acquisition and construction of capital assets is included in the cost of that asset. The Company begins capitalizing interest expense as part of the cost of capital assets on the commencement of construction and ceases capitalizing when substantially all the activities necessary to prepare the qualifying asset for its intended use. Upfront loan administration fees are included in the determination of the loan balance and expensed as part of finance charges and interest. o) Related party transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence; related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions that are in the normal course of business and have commercial substance are measured at the exchange amount. p) Functional and presentation currency Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates ( the functional currency ). The functional currency of the Company is the Canadian dollar. The financial statements are presented in Canadian dollars, which is the Company s presentation currency. q) Inventory The Company s inventory is comprised of freeze-dried sea cucumber products stated at the lower of cost and net realizable value. Cost is determined on a weighted average basis. The cost of inventory includes inbound freight. An allowance for obsolete, slow-moving or defective inventories is made where necessary. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses. r) Change in accounting policies The Company adopted the following accounting policies effective July 1, 2013: IFRS 10 Consolidated Financial Statements - IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12 Consolidation - Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements. IFRS 11 Joint Arrangements - IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities - Non-monetary Contributions by Venturers. IFRS 12 Disclosure of Interests in Other Entities - IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity s interests in other entities. Page 9

11 2. SIGNIFICANT ACCOUNTING POLICIES (continued) r) Change in accounting policies (continued) IFRS 13 Fair Value Measurement - IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures. IAS 1 Presentation of Financial Statements - In June 2011, the IASB issued an amendment to IAS 1, which requires entities to separately present items in other comprehensive income based on whether or not they may be recycled to profit or loss in future periods. IAS 19 Employee Future Benefits - In June 2011, the IASB issued an amendment to IAS 19, which changes the recognition, measurement and presentation of defined benefit pension expense and provides for additional disclosures for all employee benefits. IAS 27 Separate Financial Statements - As a result of the issue of the new consolidation suite of standards, IAS 27 has been reissued, as the consolidation guidance will now be included in IFRS 10. IAS 27 will now only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. IAS 28 Investments in Associates and Joint Ventures - As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12, IAS 28 has been amended and will provided the accounting guidance for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. The amended IAS 28 will be applied by all entities that are investors with joint control of, or significant influence over, an investee. s) New standards and interpretations not yet adopted Certain new standards, interpretations and amendments to existing standards have been issued by the IASB or the IFRIC that are mandatory for future accounting periods. Some updates that are not applicable or are not consequential to the Company may have been excluded from the list below. Standard effective for annual periods beginning on or after January 1, 2014 IAS 32 Financial Instruments: Presentation - In December 2011, the IASB issued an amendment to clarify the meaning of the offsetting criterion and the principle behind net settlement, including identifying when some gross settlement systems may be considered equivalent to net settlement. Earlier application is permitted when applied with corresponding amendment to IFRS 7 Financial Instruments: Disclosures. Standard effective for annual periods beginning on or after January 1, 2015 IFRS 9 Financial Instruments - In November 2009, as part of the IASB project to replace IAS 39 Financial Instruments: Recognition and Measurement, the IASB issued the first phase of IFRS 9 Financial Instruments, which introduces new requirements for the classification and measurement of financial assets. The standard was revised in October 2010 to include requirements regarding classification and measurement of financial liabilities. The extent of the impact of adoption of these standards and interpretations on the financial statements of the Company has not been determined. Page 10

12 3. ACCOUNTS RECEIVABLE The average credit period on sales of goods is 90 days. No interest is charged on outstanding trade receivables balances. Allowances for doubtful debts are recognized against trade receivables based on estimated unrecoverable amounts determined by reference to past default experience of the counterparty and an analysis of the counterparty's current financial position. As of December 31, 2013, balance less than 90 days was due from one customer, and balances over 90 days was due from two customers, all of which were not considered uncollectible and therefore no allowance for impairment loss was included in trade receivables. The Company does not hold any collateral or other credit enhancements over these balances nor does it have a legal right of offset against any amounts that may be owed by the Company to the counterparty. During the period ended December 31, 2013 substantially all of the revenue was generated from one customer. The aging analysis of amounts receivables as at December 31 is as follows: December 31,2013. $ 1 90 days 2,542,612 Over 90 days 1,077,372 3,619,984 In determining the recoverability of an amounts receivable balance, the Company considers any change in the credit quality of the amounts receivable from the date credit was initially granted up to the end of the reporting period. The concentration of credit risk is limited due to the fact that the customer base is large and unrelated. The carrying values of amounts receivable approximate their fair value as at December 31, OTHER RECEIVABLES December 31,2013. $.. HST refundable 47,575 Other - 5. INVENTORY 47,575.. December 31,2013. $.. Freeze-dried sea cucumber product 1,030,018 1,030,018 During the period ended December 31, 2013, $ 390,271 in inventory was expensed in cost of sales. 6. DEFERRED FINANCING CHARGES As at December 31, 2013, the balance of deferred financing charges is comprised of $80,601 relating to a financing arrangement to be completed concurrently with the proposed transaction as described in Note 13(d). Page 11

13 7. PROPERTY AND EQUIPMENT Aquaculture Equipment Boats Building Computer Equipment Leasehold Improvement Vehicles Total Cost $ $ $ $ $ $ $ Balance, June 30, , , , , ,445, , ,737,913.. Additions - 61, ,830-63,370 Balance, December 31, , , , , ,447, , ,801,283.. Accumulated Depreciation Balance, June 30, ,855. 3, , , , , ,255.. Charge for the period 10,635. 3,592. 1, , , ,804.. Balance, December 31, ,490. 6, , , , , ,059.. Net book value June 30, , , , , ,124, , ,282,658.. December 31, , , , , ,066, , ,263,224.. Page 12

14 8. SHARE CAPITAL (a) Authorized: unlimited number of common shares without par value (b) Issued and outstanding: (i) On July 1, 2012, a related party converted a loan of $2,720,856 payable by the Company into 80,999,900 common shares of the Company. No share-based compensation expense is recognized for this transaction as the issuance of shares upon debt conversion represents a reorganization of the share capital for the sole shareholder in his capacity as a shareholder. (ii) On Feb 18, 2013, the Company closed a private placement by issuing 9,000,000 common shares at a price of $0.11 per share for total cash consideration of $1,000,000. (c) The number of common shares issued and outstanding for all periods presented is based on the number of shares after the debt to share conversion as described in Note 8(b). (d) During the year ended June 30, 2013, the Company received share subscription proceeds of $1,000,000 from a customer for 5,000,000 common shares at $0.20 per share in connection with a private placement to be completed concurrently with the transaction described in Note 13(d). 9. RELATED PARTY BALANCES AND TRANSACTIONS The Company has identified its directors and senior officers as its key management personnel. The Company had the following balances with an officer as at December 31: December 31,2013. $.. Due to a related party 1,335,039.. Total 1,335,039.. The above balance is non-interest bearing, unsecured and with no fixed terms of repayment. No post-employment benefits, other long-term benefits or termination benefits were made during the six months ended December 31, Short-term key management compensation consists of the following:.. $.. Salaries 19,184 Consulting fees 24, INCOME TAX The following table reconciles the amount of income tax expense on the application of the combines statutory Canadian federal and provincial income tax rates: June 30, 2013Ju $.. Canadian statutory income tax rate 25% Income tax recovery at statutory rates 621,632 Non-deductible items and others 737 Change in enacted tax rates (24,577) Change in unrecognized deferred tax assets (511,910) Income tax provision 85,882 Page 13

15 10. INCOME TAX (continued) Deferred income taxes arise from temporary differences in the recognition of income and expenses for financial reporting and tax purposes. The significant components of deferred tax assets (liabilities) are as follows: Property and equipment 81,790 Unrecognized deferred tax assets (81,790) Net deferred income tax assets The Company has no Canadian accumulated non-capital losses carried forward as of December 31, FINANCIAL INSTRUMENTS Fair values The Company s financial instruments include cash, trade receivables, other receivables, accounts payable and shareholder loan. The carrying amounts of these financial instruments are a reasonable estimate of their fair values because of their current nature. The following table summarizes the carrying values of the Company s financial instruments:. $.. December 31,2013. $.. Financial assets at fair value through profit or loss (i) 132,299.. Loans and receivables (ii) 3,619,984.. Other financial liabilities (iii) 1,483,979 (i) (ii) (iii) Cash and cash equivalents Accounts receivable Accounts payable and due to a related party The Company classifies its fair value measurements in accordance with the three level fair value hierarchy as follows: Level 1 Level 2 Level 3 Unadjusted quoted prices in active markets for identical assets or liabilities Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices), and Inputs that are not based on observable market data Page 14

16 11. FINANCIAL INSTRUMENTS (continued) The following table sets forth the Company s financial assets measured at fair value by level within the fair value hierarchy as follows: At December 31, 2013 Level 1 Level 2 Level 3 Total. $ $ $ $.. Cash and cash equivalents 132, ,299 Interest Rate and Credit Risk Credit risk is the risk of loss associated with counterparty s inability to fulfill its payment obligations. Management evaluates credit risk on an ongoing basis and monitors activities related to amounts receivable including the amounts of counterparty concentrations. The primary sources of credit risk for the Company arise from its financial assets consisting of cash and cash equivalents and amounts receivable. The carrying value of these financial assets represents the Company s maximum exposure to credit risk. To minimize credit risk the Company only holds its cash and cash equivalents with chartered Canadian financial institutions. Management, on an ongoing basis, monitors the level of accounts and other receivables attributable to each customer and the length of time taken for amounts to be settled and where necessary, takes appropriate action to follow up on those balances considered overdue. As at December 31, 2013, the Company has no financial assets that are past due or impaired due to credit risk defaults. Currency Risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the foreign currency exchange rates. The Company s functional currency is the Canadian dollar. All of the Company s financial instruments are denominated in Canadian dollars and all current operational activities occur within Canada. In management s opinion there is no significant foreign exchange risk to the Company. Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's objective to managing liquidity risk is to ensure that it has sufficient liquidity available to meet its liabilities when due. The Company uses cash to settle its financial obligations as they fall due. The ability to do this relies on the Company collecting its amounts receivables in a timely manner and by maintaining sufficient cash on hand through equity financing and bank loans. The following are the contractual maturities of financial liabilities: December 31, 2013 Carrying Amount Contractual Cash Flows Within 1 year Within 2 years Within 3 years $. $ $ $ $ Accounts payable 148, , , Due to a related party 1,335,039 1,335,039 1,335, Total 1,483,979 1,483,979 1,483, CAPITAL DISCLOSURES The Company's objectives when managing capital are: to safeguard the Company's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and to provide an adequate return to shareholders through expansion correspondingly to the level of risk. The Company sets the amount of capital in proportion to risk. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue new shares, sell assets, reduce debt or increase its debt. Page 15

17 13. COMMITMENTS (a) On March 1, 2009, the Company entered into an agreement with an arm s length party (the Landlord ) to lease its hatchery facilities for $50,000 per annum. The lease agreement expired on February 28, 2012 ( Expiry Date ). The Company continued to accrue rent at the rate outlined in the expired lease while it negotiated a new lease with the Landlord. As at December, 2013, the Company has not entered into any formal new lease agreement with the Landlord for the hatchery facilities. However, during the period ended December 31, 2013, the Company and the landlord have agreed, that upon signing of a new lease agreement, the Company will pay the landlord $250,000 in cash to settle any amounts owing to the landlord at the time of signing a new lease for outstanding land lease payments, and to compensate the landlord for other services performed on the Company s behalf. (b) The Company entered into a lease agreement with an arm s length party to use the premises at 4089 Gartley Point Road in Courtenay, BC as an office for the Company and as the residence for onsite workers at the Company s hatchery. Rent is $2,000 per month and the agreement expires in October (c) The Company is committed to reimbursing a portion of expenses incurred by a senior officer in using his home as an office for the Company. (d) On November 29, 2013, the Company entered into an arrangement agreement (the Arrangement Agreement ) with Megal Capital Corporation ( Megal ). Pursuant to the Arrangement Agreement, Megal agreed to acquire all of the issued and outstanding shares of Wen Lian from the shareholders of Wen Lian. Then, Megal will continue on with the business of Wen Lian, with Wen Lian as Megal s wholly-owned, operating subsidiary. Megal will be renamed Gourmet Ocean Products Inc. and intends to use the name Vandemer as its business name. Pursuant to the terms of the Arrangement Agreement, each shareholder of Wen Lian (including investors who purchases common shares of Wen Lian in the concurrent financing) will receive one common share of Megal for each one common share of Wen Lian held by such shareholder. Concurrent with the closing, Wen Lian intends to raise 5,000,000 in a brokered and non-brokered placement. 14. SUBSEQUENT EVENTS (a) On February 14, 2014, pursuant to the Arrangement Agreement on November 29, 2013, Megal acquired all of the issued and outstanding shares in the capital of Wen Lian by issuing 90,000,000 common shares in the capital of Megal. (b) On February 14, 2014, in connection with and prior to the completion of the Arrangement, Wen Lian completed a brokered private placement of $4,000,000 (the Brokered Financing Portion ) and a nonbrokered private placement of $1,000,000 (the Non-Brokered Financing Portion, together with the Brokered Financing Portion, the Concurrent Financing ) by way of a sale of common shares of Wen Lian at a price of $0.20 per share to arm s length investors. The common shares of Wen Lian issued pursuant to the Concurrent Financing and the Agent s Financing Shares were exchanged for the common shares of Megal in connection with the Arrangement. (c) On February 11, 2014, the Company entered into a sub-lease agreement and is committed to office leases for its office in Vancouver, Canada, starting from May 1, 2014 and expiring on March 31, Minimum annual lease payments of $84,600 are required until expiry. Page 16