PRT Forest Regeneration Income Fund

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PRT Forest Regeneration Income Fund Condensed Consolidated Interim Financial Statements (unaudited) For the quarter ended March 31, 2011 (in thousands of Canadian dollars) 2011

Condensed Consolidated Interim Statements of Financial Position (unaudited) Assets (in thousands of dollars) As at March 31, As at December 31, As at January 1, Note 2011 2010 2010 Non-current assets Property, plant and equipment 7 $ 35,960 $ 36,127 $ 37,765 Intangible assets 8 254 264 429 Investment in associate 9 275 282 333 Biological assets, non-current 12 173 169 95 36,662 # 36,842 # 38,622 Current assets Cash and cash equivalents 1,279 92 - Accounts receivable 10 6,249 6,147 11,237 Inventories 11 1,163 1,079 1,054 Agricultural produce 12 79 73 104 Biological assets, current 12 491 511 274 Prepaid expenses and deposits 455 218 224 Unbilled revenue 10 4,325 2,399 2,711 Property, plant and equipment held for sale 13 150-774 14,190 10,519 16,378 Liabilities $ 50,852 $ 47,361 $ 55,000 Current liabilities excluding net assets attributable to unitholders Operating line 14 $ - $ - $ 3,566 Accounts payable and accrued liabilities 3,046 2,407 1,799 Provisions 15 54 139 591 Unearned revenue 10 3,304 1,052 754 Current portion of finance lease 16 72 91 65 Current portion of long-term debt 17 195 198 1,658 6,672 3,886 8,432 Non-current liabilities excluding net assets attributable to unitholders Finance lease 16 266 281 320 Long-term debt 17 831 880 3,497 Deferred tax liabilities 18 2,252 1,956 1,996 Unit option grants 19 257 243 155 10,277 7,246 14,401 Net assets attributable to unitholders 40,575 40,115 40,599 Memorandum Note: Total Unitholders interests $ 50,852 $ 47,361 $ 55,000 Capital contributions (liability) 19, 20 $ 96,400 $ 96,393 $ 96,303 Cumulative deficit 20 (55,962) (56,319) (55,704) Accumulated other comprehensive income 137 41 - Net assets attributable to unitholders $ 40,575 # $ 40,115 # $ 40,599 Commitments (note 15) Subsequent events (note 25) See accompanying notes to these consolidated financial statements. Page 2

Condensed Consolidated Interim Statements of Operations and Comprehensive Income (Loss) (unaudited) (in thousands of dollars, except per unit amounts) Three months ended March 31, Note 2011 2010 Revenue $ 7,291 $ 6,240 Expenses Costs of production 3,974 3,623 Selling, general and administration 1,822 2,283 Loss on foreign exchange 63 104 Earnings before the following 1,432 230 Interest paid 32 148 Amortization of property, plant and equipment 596 639 Amortization of intangibles 10 57 Equity in earnings of investee 9 7 15 Loss on disposal of property, plant and equipment 94 58 Profit (Loss) before income taxes 694 (688) Recovery of (provision for) income taxes (284) 89 Profit (loss) for the period 410 (598) Exchange differences on translating foreign operations 56 86 Tax on other comprehensive income (14) (45) Other comprehensive income 42 41 Total comprehensive income (loss) $ 452 $ (557) Basic and diluted income (loss) per Trust Unit 20 $ 0.05 $ (0.06) Weighted average number of Trust Units outstanding 20 9,757,336 9,721,702 See accompanying notes to these consolidated financial statements. Page 3

Condensed Consolidated Interim Statements of Net Assets Attributable to Unitholders (unaudited) (in thousands of dollars) Capital Contributions (Unitholder liability) Accumulated other comprehensive income - translation reserve Cumulative Deficit Total net assets attributable to Unitholders Balance at January 1, 2010 $ 96,303 $ - $ (55,704) $ 40,599 Units issued under ESOP 19 - - 19 Profit (loss) for the period - - (598) (598) Translation of foreign operations - 86-86 Tax on other comprehensive income - (45) - (45) Balance at March 31, 2010 96,322 41 (56,303) 40,060 Balance at January 1, 2011 96,394 95 (56,373) 40,116 - Units issued under ESOP 6 - - 6 Profit (loss) for the period - - 410 410 Translation of foreign operations - 56-56 Tax on other comprehensive income - (14) - (14) Balance at March 31, 2011 $ 96,400 $ 137 $ (55,963) $ 40,575 See accompanying notes to these consolidated financial statements. Page 4

Condensed Consolidated Interim Statements of Cash Flows (unaudited) (in thousands of dollars) Three Months ended March 31, Note 2011 2010 Cash flows from operating activities Profit (loss) for the period $ 410 $ (598) Items not affecting cash Amortization of property, plant and equipment (excluding seedling containers) 596 638 Seedling container amortization included in costs of production 145 166 Amortization of intangibles 10 57 Recovery of future income taxes - (85) Loss on disposal of property, plant and equipment 94 57 Equity in earnings of investee 9 7 15 Unrealized loss on foreign exchange 8 166 Unrealized loss (gain) on interest rate swaps 284 (64) Unit option grants 19 14 19 1,568 371 Net change in non-cash working capital balances 21 521 1,487 2,089 1,858 Cash flows from financing activities Repayment of long-term debt (52) (3,916) Repayment of finance lease (34) (17) Decrease in operating line - (2,227) Issuance of Trust Units 19 6 19 (80) (6,141) Cash flows from investing activities Purchase of property, plant and equipment (823) (767) Disposal of property, plant and equipment (net of disposal costs) 13-5,046 (823) 4,279 Increase in cash and cash equivalents 1,187 - Cash and cash equivalents - beginning of period 92 - Cash and cash equivalents - end of period $ 1,279 $ - See accompanying notes to these consolidated financial statements. Page 5

1. Organization and nature of operations PRT Forest Regeneration Income Fund (the Fund ) is an open-ended single purpose trust, created under the laws of British Columbia by a Declaration of Trust dated May 14, 1997. The Fund is the largest producer of container-grown forest seedlings in North America. The Fund provides seedling growing services from its nurseries in British Columbia, Alberta, Saskatchewan, Ontario and Oregon. These condensed consolidated financial statements include the accounts of the Fund, its wholly owned subsidiary Pacific Regeneration Technologies Inc. ( PRT or the Company ) and PRT s wholly owned subsidiary companies. 2. Basis of preparation and statement of compliance These condensed consolidated interim financial statements have been prepared in accordance with international Accounting Standard 34 (IAS 34) Interim Financial Reporting. These are the Fund s first IFRS condensed consolidated interim financial statements for the part of the period covered by the first IFRS consolidated annual financial statements to be presented in accordance with IFRS for the year ending December 31, 2011 and IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied. Previously the Company prepared its consolidated annual and consolidated interim financial statements in accordance with Canadian generally accepted accounting principles (GAAP). These consolidated interim financial statements have been prepared using the accrual basis of accounting, except cash flow information. The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements. These financial statements are presented in Canadian dollars which is the Fund s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand. The preparation of these condensed consolidated interim financial statements resulted in changes to accounting policies as compared with the most recent annual financial statements prepared under GAAP. The accounting policies set out below have been applied consistently to all periods presented, unless otherwise noted. They have also been applied in preparing the opening IFRS balance sheet as of January 1, 2010 for the purposes of the transition to IFRS for which the impact of the transition is explained in note 24. These condensed consolidated interim financial statements were approved by the Board of Trustees on June 2, 2011. 3. Seasonality of operations Revenues and cash flow are affected by the PRT s seedling crop cycles and by the seasonality of PRT s customers planting season. As such, fluctuations between quarters occur depending upon the activities and expenditures in the quarter. Comparatively high cost activities, such as harvesting, typically occur in the second and fourth quarters, and accordingly these quarters normally reflect a higher proportion of annual revenues associated with the percentage of completion method of revenue recognition. 4. Significant accounting policies Principles of consolidation These interim financial statements include the accounts of the Fund and its wholly owned subsidiaries: PRT and PRT USA Inc. Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial Page 6

statements. Subsidiaries are entities controlled by the Fund. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Revenue recognition Revenue from contracts is recognized as a percentage of the contract price, based on the percentage of total direct expenses incurred to total expected direct costs. At this point the amount of revenue, stage of completion and costs incurred to date and expected to be incurred to completion are reliably measurable and it is probable that future economic benefits will result. Total revenue is recognized when seedling crops reach substantial completion, which is defined as meeting all contracted growth specifications. Any excess of revenues recorded using this percentage of completion method over amounts billed is recorded as unbilled revenue in the assets section of the balance sheet (billings in excess of earned revenue is presented as unearned revenue in the liabilities section of the balance sheet). The Fund uses this method of revenue recognition as it can reasonably estimate the expected costs and revenues of the contract based on the Fund s business practices, methods and experience. This method requires estimates of costs and profits over the full duration of the contract. Management regularly revises the underlying estimates of profitability and such adjustments are reflected in the statement of operations when known. Provisions for estimated losses, if any, are recognized in the period the loss is determined. Revenue from non-contracted goods and services is recognized when the goods are delivered, and the significant risks and rewards of ownership have transferred or the service has been substantially rendered, the amount of revenue can be measured reliably and the economic benefits associated with the transaction will flow to the Fund. Where services span multiple reporting periods such as over winter tree storage ( cold storage ) revenue is recognized based on the proportion of service rendered at the reporting date. Revenue from all sources is only recognized when collection is reasonably assured. Inventories and biological assets Inventories of supplies are recorded at the lower of cost and replacement cost (which approximates net realizable value), with cost being determined on a weighted average basis. Seedlings grown for inventory are considered a biological asset and are valued under IAS 41, Agriculture, at market value for finished seedlings where the fair value can be determined, and at cost for seedlings in progress where no fair value is available. Seedlings in process are not marketable as such to establish a fair value, and therefore are valued at cost. Deferred income taxes Deferred 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. Deferred tax is measured 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 by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. Page 7

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred 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. Investment The Fund accounts for investments over which it exercises significant influence using the equity method. Under this method, the initial investment is recorded at cost and the Fund s pro rata share of the investees earnings or losses is included in results of operations. Dividends received are recorded as a decrease in the equity investment. When the Company s share of losses exceeds its interest in an equityaccounted investee, the carrying amount of that interest is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee. Property, plant and equipment Property, plant and equipment are measured at cost less accumulated amortization and impairment losses. Included in the carrying value of greenhouses and other constructed assets are all costs to construct and put the item into use. For land and buildings, where elected under IFRS 1, deemed cost was established January 1, 2010 as market value. Amortization is based on the cost of an asset less its residual value. Significant components of individual assets are assessed, and if a component has a useful life that is different from the remainder of the asset, then that component is amortized separately. Amortization methods, useful lives and residual values are reviewed annually and adjusted if appropriate. Amortization is calculated and recognized in profit or loss using the straight-line method or declining balance method at rates that reflect the estimated useful lives of the components. Amortization related to seedling containers is included in costs of production in the consolidated income statements. Leased assets are amortized over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Land is not amortized. The estimated useful lives for the current and comparative periods are as follows: Buildings and Greenhouses 30-50 years Equipment and Vehicles 3-25 years Seedling Containers 5 years When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The cost of replacing a component or item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced component is derecognized. The costs of day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred. The Company capitalizes borrowing costs for qualifying assets where the construction period exceeds twelve months. Internally constructed assets normally involve greenhouses or open compound space and normal construction time for any one asset is from 1 to 3 months. Page 8

Property, plant and equipment held for sale Property, plant and equipment held for sale represents assets being actively marketed for sale, recorded at lower of carrying value and fair value less cost to sell. Depreciation ceases on assets when they are classified as held for sale. Government grants PRT is under agreement to receive two grants from the BC provincial government and federal government. Both grants correspond to expenditures at the Red Rock nursery which relate to a biomass energy project. Government grants are only recognized when there is reasonable assurance that PRT will comply with the conditions attached to them and reasonable assurance that the grants will be received. IFRS provides two approaches to accounting for government grants: the capital approach and the income approach. PRT has chosen to account for government grants under the capital approach under which the asset is reduced by the grant amount to arrive at the carrying amount of the asset shown on the statement of financial position. The grant is then recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense. Intangible assets Intangibles represent patents, customer lists, leases and non-competition agreements recorded on acquisition of subsidiaries. Intangibles are measured at cost less accumulated amortization and impairment losses and are being amortized on a straight-line basis over their estimated useful lives of 5 to 20 years. Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognized in profit or loss as incurred. Impairment of non-financial assets IFRS requires that a long-lived asset should be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The recoverable amount of an asset is the greater of its value in use and its fair value less cost to sell. An impairment loss is recognized if the carrying amount of an asset exceeds its estimated recoverable amount. In assessing impairments management has concluded that greenhouses and related structures cannot be tested individually, but rather are grouped together into one cash generating unit for the consideration of impairment. The nature of the PRT business is that, within the current operating year, specific cash flows can be identified with specific locations and therefore the assets at that location. However, from year-to-year the market environment changes enough that PRT cannot specifically identify which types of crops (e.g. species, crop rotation, age, etc.) will be grown at any particular location, and capacity is managed on a pooled basis so that site by site analysis would be inappropriate. Therefore the most appropriate asset grouping over a number of years for an impairment analysis is the entire Company. Where a location is being closed, such that PRT is able to identify the specific cash flows to be associated with the long lived assets at that location in that year, and, where those long-lived assets are not planned to be reused at other nurseries in future years, PRT can identify the appropriate impairment charge for those assets. Page 9

Leases PRT leases certain items of property, plant and equipment. Leases of property, plant and equipment, where PRT has substantially all the risks and rewards of ownership, are classified as finance leases. From the beginning of the lease, finance leases are capitalized at the lower of the fair value of the leased property and the present value of minimum lease payments. PRT s payments are apportioned between finance expenses and reduction of the lease obligation using the effective interest method so as to achieve a constant rate of interest on the remaining balance of the liability. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term. Leases in which substantially all the risks and rewards of ownership are retained by the lessor, are classified as operating leases. Operating lease payments are recognized as an expense on a straight line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Foreign exchange Foreign currency transactions are translated into Canadian dollars at the exchange rates in effect at the transaction dates. Monetary account balances denominated in foreign currencies are translated into Canadian dollars at exchange rates in effect at the balance sheet dates. Non-monetary account balances denominated in foreign currencies are translated at their historical exchange rates. Exchange gains and losses arising from the translation or settlement of foreign currency denominated monetary items are included in the determination of net earnings. The Company has determined that the functional currency of the Fund s United States operations is US Dollars. The assets and liabilities of foreign operations are translated to Canadian dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Canadian dollars at exchange rates at the dates of the transactions. Exchange differences arising from the translation of the operation are recognized in the foreign currency translation reserve in other comprehensive income. Segment reporting: Operating segments are based on the information about the components of the Company used by management to make decisions about operating matters. The subsidiaries of the Company engage in one main business activity, hence operating segment information is not provided. Geographical segment information is provided by country of operations in note 22. Use of estimates The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Accordingly, actual results could differ from those estimates. Financial risk management is discussed in greater detail in note 6. The most significant estimates are related to the recoverability of accounts receivable, costs to complete contracts as a basis for revenue recognition, future income tax assets, asset impairment and useful lives for amortization. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Page 10

Financial instruments Financial assets and financial liabilities are recognized when the Fund becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognized when it is extinguished, discharged, cancelled or expires. Financial assets and financial liabilities are measured initially at fair value plus transactions cost, except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at fair value. The Company has adopted the following classification for financial assets and financial liabilities: Cash and cash equivalents are classified as Financial Assets at Fair Value Through Profit or Loss. This financial asset is marked-to market through net earnings at each period end. Any derivative contracts are classified as Financial Assets or Financial Liabilities at Fair Value Through Profit or Loss with marked-to-market adjustments being recorded to net earnings at each period end. Accounts receivable are classified as Loans and Receivables. After their initial fair value measurement, they are measured at amortized cost using the effective interest rate method, as reduced by appropriate allowances for estimated unrecoverable amounts. Operating lines, accounts payable and accrued liabilities, distributions payable and long term debt are classified as at Amortized Cost and are net of any related financing fees or issue costs. After their initial fair value measurement, they are measured at amortized cost using the effective interest rate method. As a result of the Fund s units being redeemable for cash, Units and Unit options are classified as financial instrument liabilities and classified as at Amortized Cost. The cost of cash-settled unit-based transactions is measured at fair value using a Black-Scholes model and expensed over the vesting period. Foreign exchange contracts are not designated as hedges. The unrealized portions of these derivatives are marked-to-market each period and recorded on the statement of financial position with unrealized gains or losses recognized in earnings each period. Provisions Decommissioning The Fund recognizes provisions in the period that a constructive or legal obligation arises, can be reasonably estimated and is probable that costs will result from the obligation. Provisions are determined by discounting the expected future cash flows at a pretax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The Company s activities may give rise to the dismantling or decommissioning of nurseries. A provision is made for the present value of estimated costs based on management s best estimates of the expenditure required to settle the obligation. Provision estimates are reviewed quarterly and the increase or decrease is recognized as an increase or decrease in the related asset, or if an increase in liability exceeds the carrying amount of the asset, through profit and loss. Page 11

Onerous contracts A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognizes any impairment loss on associated assets. Employee benefits Short-term employee benefits are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Termination benefits are recognized as an expense when the Company is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits for voluntary terminations are recognized as an expense if the Company has made an offer of voluntary termination, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, then they are discounted to their present value. Unit based compensation The Fund has a unit based long-term incentive plan as described in note 19. The fair value of the award payable to employees, in the form of Fund Units or cash, is recognized as an expense with a corresponding increase in liabilities, over the period that the employees unconditionally become entitled to payment. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met. The liability is remeasured at its fair value each reporting date and at the settlement date. Any changes in the fair value of the liability are recognized as an employee expense in profit or loss. Comprehensive income (loss) Comprehensive income (loss) represents the change in equity of an enterprise during a year from transactions and other events arising from non-owner sources including gains and losses arising on translation of self-sustaining foreign operations, gains and losses from changes in the fair value of available for sale financial assets and changes in fair value of the effective portion of cash flow hedging instruments Income (loss) per unit Comprehensive income (loss) per unit is calculated based on the net comprehensive income (loss) attributable to Units for the year divided by the weighted average number of Units issued and outstanding during the year. While units are not ordinary common shares, they are treated as such for comprehensive income (loss) per unit calculations. Diluted comprehensive income (loss) per unit is calculated using the treasury stock method under which all options whose exercise price is less than or equal to the average Unit price of the Fund for the year are assumed to be exercised at the beginning of the year (or at the time of vesting if later) and the Fund using the resulting proceeds to purchase its units at the average market price during the year. The purchased units reduce the number of units issued upon exercise of the options and this net number is included in the denominator when calculating diluted comprehensive income per unit. When the effect of options converted into units is anti-dilutive, including when the Fund has incurred a loss for the period, basic and diluted loss per unit are the same. Page 12

Capital Contributions The Trust Units do not meet the definition of equity under IAS 32, and are therefore recorded under Net Assets attributable to Unitholders. This classification is a result of the Units being puttable instruments as the holder has an option to redeem Units, as described in note 19, and the Fund has a contractual obligation requiring delivery of Fund income to the Unitholders. The Fund records the capital contribution at the fair value of the Units at their inception and records the amounts subsequent to initial recognition on an amortized cost basis. Direct expenses associated with the initial issuance of the Fund Units are expensed as a financing cost at the date of issuance. Subsequent issuances of Fund Units are recorded at the fair value of the Units at the date of issue. 5. Financial instruments Fair value The fair values of cash and cash equivalents, accounts receivable, operating line, accounts payable and accrued liabilities approximate their carrying values given the short-term maturity of these instruments. The fair value of finance lease obligations is not expected to differ materially from their respective carrying values, given the interest rates being charged. Management considers that the fair value of the long-term debt approximates its carrying amount because it is floating rate debt and risk is addressed through the renewal of the credit agreements annually. 6. Financial risk management Credit risk The carrying amount of financial assets recorded in the financial statements, net of allowances for doubtful accounts, represents the Fund s maximum exposure to credit risk. Interest rate risk PRT is exposed to interest rate risk its long-term debt. PRT previously mitigated this risk primarily through the use of interest rate swaps. PRT opted to not renew swaps on debt where arrangements expired in the third quarter of 2009 while considering options to reduce the overall debt. In 2010 all loans with swapped rates were paid out and rate differences realized to income. Liquidity risk PRT manages liquidity through a combination of operating cash flow, an operating line of credit, and a term debt facility; the latter is used to finance long-term capital or project expenditures only. From an operating point of view, the management of the Company s liquidity exposures is centralized by a daily cash concentration process which enables PRT to manage its liquidity requirements according to the actual need of the Company and each nursery. The Company s short- and mid-term liquidity takes into account the maturities of financial assets and liabilities and estimates of cash flows from the operating business. The Company s policy is to use 10 year amortizing debt against its term debt facility. Market risk The business of PRT is highly dependent on the forest industry in Canada. While the Company is not materially dependent on any one customer, regional markets may be impacted by changes in global markets and government regulations and by more consolidated buying decisions by larger customers. Page 13

PRT manages and reduces this risk through diversification of operations across a wider variety of customers, and Provincial and State jurisdictions. 7. Property, plant and equipment Deemed Cost: Land Buildings Greenhouses Equipment Seedling Containers Subtotal Biological Assets Total Balance at January 1, 2010 $ 7,903 $ 7,530 $ 14,358 $ 29,131 $ 8,141 $ 67,063 $ 102 $ 67,165 Additions Assets acquired - 164 412 1,147 159 1,882 77 1,959 Disposals - (20) (158) (444) - (622) - (622) Balance at December 31, 2010 7,903 7,674 14,612 29,834 8,300 68,323 179 68,502 Additions Assets acquired - 29 5 291 494 819 4 823 Disposals - (3) (2) (254) - (259) - (259) Reclassed as held for sale (17) (158) - - - (175) - (175) Balance at March 31, 2011 $ 7,886 $ 7,542 $ 14,615 $ 29,871 $ 8,794 $ 68,708 $ 183 $ 68,891 Accumulated amortization: Land Buildings Greenhouses Equipment Seedling Containers Subtotal Biological Assets Total Balance at January 1, 2010 $ - $ 1,787 $ 5,981 $ 14,625 $ 6,906 $ 29,299 $ 7 $ 29,306 Disposals - (3) (67) (203) - (273) - (273) Amortization for the period - 208 428 1,971 563 3,170 3 3,173 Balance at December 31, 2010-1,992 6,342 16,393 7,469 32,196 10 32,206 Disposals - (1) (1) (162) - (164) - (164) Reclassed as held for sale - (25) - - - (25) - (25) Amortization for the period - 54 88 453 146 741 1 742 Balance at March 31, 2011 $ - $ 2,020 $ 6,429 $ 16,684 $ 7,615 $ 32,748 $ 11 $ 32,759 In addition to the disposals detailed above, the Company disposed of assets held for sale in the first quarter of 2010 as outlined in note 9. Carrying amounts: Land Buildings Greenhouses Equipment Seedling Containers Subtotal Biological Assets Total At January 1, 2010 $ 7,903 $ 5,743 $ 8,377 $ 14,506 $ 1,235 $ 37,765 $ 95 $ 37,859 At December 31, 2010 $ 7,903 $ 5,682 $ 8,270 $ 13,441 $ 831 $ 36,127 $ 169 $ 36,296 At March 31. 2011 $ 7,886 $ 5,522 $ 8,186 $ 13,187 $ 1,179 $ 35,960 $ 172 $ 36,132 Page 14

The following summarizes amortization charged to earnings: March 31, March 31, 2011 2010 Seedling container amortization included in costs of production $ 145 $ 167 Property, plant and equipment 596 638 Intangibles 10 57 $ 751 $ 862 Included in property, plant and equipment is a reduction of $584 (December 31, 2010 - $584) for funds received or receivable under Provincial and Federal grant programs, as follows: Provincial Federal Total Grants recognized at January 1, 2010 $ 31 $ 114 $ 145 Additional grants claimed - - - Net cash received (28) (114) (142) Grants receivable at March 31, 2010 $ 3 $ - $ 3 Provincial Federal Total Grants recognized at January 1, 2010 $ 31 $ 114 $ 145 Additional grants claimed 333 105 438 Net cash received (328) (220) (547) Grants receivable at December 31, 2010 $ 36 $ - $ 36 Provincial Federal Total Grants recognized at January 1, 2011 $ 364 $ 220 $ 584 Additional grants claimed - - - Net cash received (328) (220) (547) Grants receivable at March 31, 2011 $ 36 $ - $ 36 The table below details property plant and equipment reported in the statement of financial position as at January 1, 2010, December 31, 2010 and March 31, 2011 respectively: Page 15

Land Buildings Greenhouses Equipment Seedling Containers Subtotal Biological Assets Total Categorization at January 1, 2010 Owned $ 7,903 $ 5,403 $ 8,377 $ 14,492 $ 1,235 $ 37,410 $ 95 $ 37,505 Finance leased - 342-13 - 355-355 Held for sale - 311 431 32-774 - 774 $ 7,903 $ 6,056 $ 8,808 $ 14,537 $ 1,235 $ 38,539 $ 95 $ 38,634 Categorization at December 31, 2010 Owned $ 7,903 $ 5,401 $ 8,270 $ 13,371 $ 831 $ 35,776 $ 169 $ 35,945 Finance leased - 281-70 - 351-351 Held for sale - - - - - - - - $ 7,903 $ 5,682 $ 8,270 $ 13,441 $ 831 $ 36,127 $ 169 $ 36,296 Categorization at March 31, 2011 Owned $ 7,886 $ 5,256 $ 8,186 $ 13,119 $ 1,179 $ 35,626 $ 172 $ 35,798 Finance leased - 266-68 - 334-334 Held for sale 17 133 - - - 150-150 $ 7,903 $ 5,655 $ 8,186 $ 13,187 $ 1,179 $ 36,110 $ 172 $ 36,282 8. Intangible assets PRT s intangible assets include customer lists acquired with the Coldstream and Maple Ridge, BC nurseries and certain agreements that arose from contractual agreements including non-competition agreements and leases. PRT amortizes intangibles over the term of those contracts. No additions or disposals took place during 2011 or 2010. PRT reclassified patents held on certain equipment to intangibles in 2010 (previously reported within equipment). The following summarizes intangible assets held: March 31, 2011 Cost Accumulated amortization Net Customer lists $ 970 $ 970 $ - Non-competition agreements 404 314 90 Lease 176 68 108 Patent 133 77 56 $ 1,683 $ 1,429 $ 254 December 31, 2010 Cost Accumulated amortization Net Customer lists $ 970 $ 970 $ - Non-competition agreements 404 309 95 Lease 176 65 111 Patent 133 75 58 $ 1,683 $ 1,419 $ 264 Page 16

January 1, 2010 Cost Accumulated amortization Net Customer lists $ 970 $ 873 $ 97 Non-competition agreements 404 259 145 Lease 176 54 122 Patent 133 68 65 $ 1,683 $ 1,254 $ 429 Intangible assets amortization expense for the quarter was $10 (2010 - $57). 9. Investment In 2003, PRT acquired a 40% non-controlling interest in a privately held company for cash consideration of $742. The investment is accounted for by the equity method. The investee is a supplier of software solutions for seedling supply management by forest companies and the investment has a carrying value as follows: March 31, 2011 December 31, 2010 January 1, 2010 Opening carrying value $ 282 $ 333 $ 265 Equity earnings of investee (7) 89 93 Amortization of intangible assets - - (5) Dividends paid (3) (120) - Draw (repayment) of shareholder loan 3 (20) (20) Closing carrying value $ 275 $ 282 $ 333 10. Accounts receivable, unbilled revenue and unearned revenue A substantial portion of PRT s accounts receivable are with customers in the forest industry and are subject to normal industry credit risks. Credit risk is managed by continuous evaluation by management of credit exposure on key accounts which includes current and future billings and contract values, and aged receivable balances in conjunction with specific client knowledge, past experience, and industry analysis. Allowance for doubtful accounts and past due receivables are reviewed by management at each balance sheet reporting date. PRT updates its estimate of allowance for doubtful accounts based on the specific evaluation of each customer s accounts receivable balance considering the account s historical collection trends and outlook. Accounts receivable are written-off once it is determined that they are more likely than not to be uncollectible. Page 17

Accounts receivable includes a non-trade receivable of $4,534 for insurance proceeds outstanding as of January 1, 2010. March 31, 2011 December 31, 2010 January 1, 2010 Trade $ 6,031 $ 5,927 $ 6,666 Insurance receivable - - 4,534 Other non-trade 218 220 37 $ 6,249 $ 6,147 $ 11,237 With regards to their respective terms, trade accounts receivable are aged as follows: March 31, 2011 December 31, 2010 January 1, 2010 Current $ 5,520 $ 5,744 $ 6,580 Past due less than 30 days 257 40 - Past due over 30 days 254 143 86 Trade accounts receivable $ 6,031 $ 5,927 $ 6,666 Trade receivables have been netted against the allowance for bad debts against specific receivables of $40 (2010 - $58). The changes in the allowance for doubtful accounts were as follows: March 31, 2011 December 31, 2010 January 1, 2010 Balance, beginning of year $ 58 $ 85 $ 74 Bad debt expense, net of recovery (18) (27) 11 Written-off - - - Balance, end of year $ 40 $ 58 $ 85 Revenue from contracts is recognized as a percentage of the contract price, based on the percentage of total direct expenses incurred to total expected direct costs to complete the contracts. Total revenue is recognized when seedling crops reach substantial completion, which is defined as meeting all contracted growth specifications. Any excess of revenues recorded using this percentage of completion method over amounts billed is recorded as unbilled revenue. Any revenues billed under contract terms, but not yet earned as a percentage of the contract price are recorded as unearned revenue. 11. Inventories PRT carries raw materials consisting mainly of growing materials and supplies including: peat, sand and vermiculite, packaging material, fertilizers and pesticides. There were no write-downs or reversals recorded in the periods presented. Seedlings and seed are carried at fair value, are classified as agricultural produce and are presented separately in the balance sheet. Page 18

12. Biological assets and agricultural produce PRT s agricultural produce includes seed, seedlings in process and finished seedlings. Depending on the season, PRT may have agricultural produce from biological assets including unrooted cuttings and harvested biomass, which are accounted for as inventory at their fair values less costs to sell under IFRS (where the fair value can be determined): Biological assets - non-current March 31, December 31, January 1, 2011 2010 2010 Stool Beds $ 17 $ 18 $ 6 Biomass Farm 156 151 89 $ 173 $ 169 $ 95 Agricultural Produce March 31, December 31, January 1, 2011 2010 2010 Seed $ 66 $ 66 $ 97 Unrooted Cuttings 6 - - Harvested biomass 7 7 7 $ 79 $ 73 $ 104 Biological Assets - current March 31, December 31, January 1, 2011 2010 2010 Seedlings in process $ 65 $ 35 $ 101 Finished seedlings 426 476 173 $ 491 $ 511 $ 274 13. Property, plant and equipment held for sale January 1, 2010 assets held for sale relate to the nursery in Maple Ridge, BC. The closure took place in phases and operations ceased in August of 2009. The Company relocated certain long-lived assets to other nursery locations in the first quarter of 2010 and disposed of other excess assets. PRT is currently actively marketing a cold-storage facility in Northern Ontario; land and buildings have been segregated from assets employed to held for sale. The following summarizes the carrying value of assets held for sale from the applicable sites: March 31, December 31, January 1, 2011 2010 2010 Land $ 17 $ - $ - Buildings 133-311 Growing facilities - - 431 Equipment - - 32 $ 150 $ - $ 774 Page 19

All assets held for sale at January 1, 2010 were disposed of in 2010. The disposal included a nonmonetary transaction with the owner of the previously leased Maple Ridge nursery site where certain PRT owned plant and equipment were exchanged for other movable and production equipment of similar nature. The value was measured at carrying value with a difference of $42 paid by PRT. This nonmonetary transaction generated no gain or loss. 14. Operating line PRT has a demand revolving operating facility with a major Canadian bank of up to $13,000 to fund the Company s working capital and general corporate requirements, and to provide temporary financing of capital expenditures prior to conversion of this financing to term debt. The amount of operating line available is dependent upon meeting certain margin requirements. As at March 31, 2011 no funds were drawn (December 31, 2010 nil; January 1, 2010 - $3,566). Cash advances bear interest at prime plus 1%. A first fixed and floating charge over PRT s assets is provided as security with transaction costs recorded in profit and loss in the period of inception. 15. Provisions In October 2008, the Fund announced that it would close its seedling nursery facility in Maple Ridge, BC and cease operations in the latter part of 2009; the exit activities were completed during 2010. The Fund also announced, in November 2009 the temporary closure of its Kirkland Lake, Ontario nursery and permanent closure of its Summerland, BC nursery facility. Property, plant and equipment previously located at Summerland have been relocated at other facilities within the PRT group of nurseries. Provisions are reevaluated on a quarterly basis and the outstanding estimated liability is adjusted to profit and loss allocated by function. The only remaining exit activities in progress at March 31, 2011 relate to Summerland, and it is anticipated that this will be completed in 2011. Exit activities from January 1, 2010 to March 31, 2011 are summarized as follows: Exit Activities Balance at January 1, 2010 $ 591 Additional provisions made 465 Unused amounts reversed - Charged against the provision (496) Balance at March 31, 2010 $ 560 Balance at January 1, 2010 $ 591 Additional provisions made 582 Unused amounts reversed - Charged against the provision (1,034) Balance at December 31, 2010 $ 139 Balance at January 1, 2011 $ 139 Additional provisions made - Unused amounts reversed (44) Charged against the provision (41) Balance at March 31, 2011 $ 54 Page 20

16. Financing leases PRT leased certain equipment and facilities and have determined that these leases are considered finance leases and are recorded on the statement of financial position. Finance lease liabilities are payable as follows: Minimum Lease Payments Due Within one One to five Total year years March 31, 2011: Future minimum lease payments $ 72 $ 266 $ 338 Interest 13 27 40 Value of minimum payments $ 85 $ 293 $ 378 December 31, 2010: Future minimum lease payments $ 91 $ 281 $ 372 Interest 14 31 45 Value of minimum payments $ 105 $ 312 $ 417 January 1, 2010: Future minimum lease payments $ 65 $ 320 $ 385 Interest 21 49 70 Value of minimum payments $ 86 $ 369 $ 455 The value of the lease payments is calculated using the interest rate implicit in the lease. Operating leases and other commitments PRT has non-cancelable operating lease commitments for certain nursery growing facilities. The leases typically run for a period of 6-10 years, with an option to renew the lease after that date. PRT also enters into agreements for natural gas supply. Obligations are as follows: Twelve Months Ending March 31, 2011 2010 2011 $ - $ 755 2012 606 430 2013 367 423 2014 209 144 2015 66 117 2016 62 - Thereafter 322 347 $ 1,632 $ 2,216 17. Long-term debt PRT repaid all Canadian bank term debt in February 2010. This includes all term debt disclosed below with the exception of the subsidiary s US$ debt (Term loan #2). Page 21

Term loan #2 was renewed with the Company s US lender on December 22, 2010 for $1,105, with a maturity date of November 30, 2015. PRT entered a new term loan facility agreement with Farm Credit Canada (FCC) in December 2010 for $5,500. No draws have been made on this facility to date. Canadian Bank Term loans Term loan #2 (USA), bearing interest at 5%, maturing on November 30, 2015 At March 31, 2011 At December 31, 2010 At January 1, 2010 $ - $ - $ 3,705 1,026 1,078 1,450 1,026 1,078 5,155 Less: Current portion 195 198 1,658 $ 831 $ 880 $ 3,497 Interest paid on long-term debt 1 $ 15 $ 114 $ 320 1 interest paid is for the quarter-ended March 31, and the years-ended December 31, 2010 and 2009 respectively The principal repayments required on the long-term debt facilities are as follows: At December 31, 2010 At January 1, 2010 At March 31, 2011 Year ending December 31 2010 $ - $ - $ 1,698 2011 196 197 1,911 2012 206 208 868 2013 216 218 678 2014 228 230-2015 180 225 - $ 1,026 $ 1,078 $ 5,155 A first fixed and floating charge over the Company s nursery assets at the Pitt Meadows, Armstrong and Harrop, BC nurseries is provided as security for the FCC facilities, and a fixed and floating charge over nursery assets in Oregon, USA secure the US term debt facility. 18. Income taxes Effective January 1, 2011the Fund is taxable on any income that is distributed to Unitholders. Additionally, PRT is taxable on its income at Canadian statutory tax rates. Page 22

a) The consolidated income tax recovery comprises the following: March 31, 2011 March 31, 2010 Current income taxes $ - $ 4 Future income taxes 298 (48) $ 298 $ (44) b) The recovery of income taxes shown in the consolidated statement of operations, comprehensive income and cumulative earnings differs from the amounts obtained by applying statutory tax rates to the earnings before income taxes for the following reasons: March 31, 2011 March 31, 2010 Income tax expense (recovery) computed at statutory rates $ 174 $ (173) Valuation allowances and other 124 129 Expense (Recovery) of income taxes $ 298 $ (44) c) The net future income tax liability comprises the following differences between book value and tax value at current tax rates: March 31, 2011 March 31, 2010 January 1, 2010 Future income tax liabilities Property, plant and equipment $ (3,321) $ (949) $ (3,118) Tax loss carry-forwards and other 1,366 1,300 1,417 Valuation allowances (297) (307) (295) Future income tax asset (liability) - net $ (2,252) $ 44 $ (1,996) d) Non-capital loss carry-forwards in subsidiary companies start to expire commencing in 2024. 19. Capital contributions The Declaration of Trust provides that an unlimited number of Trust Units may be created and issued. Each Trust Unit represents an equal undivided beneficial interest in the assets of the Fund. All Trust Units of the Fund are of the same class with equal rights and privileges. Each Trust Unit is transferable and entitles the holder to participate equally in allocations and distributions, and to one vote at all meetings of Unitholders. Unitholders are not subject to future calls or assessments. Trust Units are redeemable at the holder s option at amounts related to market prices at the time, subject to a maximum of $75 in cash redemptions by the Fund in any particular month. The monthly redemption limitation may be waived at the discretion of the Trustees of the Fund. Redemption in excess of the maximum, assuming no waiving of the limitation, shall be paid by way of a distribution of a pro rata number of PRT common shares and unsecured variable interest rate subordinated notes (the Notes ). The fair value of the Fund units redeemable for cash at March 31, 2011 is $30.4 million (December 31, 2010 - $23.0 million; January 1, 2010 - $19.8 million) based on the quoted market price of the Fund units at each respective reporting date. Page 23