Auditor's Report
| To the Directors of the Revelstoke Community Forest Corporation. We have audited the balance sheet of Revelstoke Community Forest Corporation as of April 30,1999 and the statements of operations and retained earnings and changes in financial position for the year then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the company as at April 30, 1999 and the results of its operations and the changes in financial position for the year then ended in accordance with generally accepted accounting principles.
| BDO Dunwoody LLP
Chartered Accountants Revelstoke, British Columbia
May 28, 1999 | 
Photo: RCFC's log sort yard on Highway 23 North
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| April 30 | 1999 | 1998 | | Assets | | Current | | | | Cash and short term deposit | 1,615,476 | 1,790,429 | | Accounts receivable | 161,175 | 426,199 | | Inventories (Note 1) | 314,784 | 369,741 | | Prepaid expenses | 304,061 | 456,746 | | Current portion of agreement receivable | 37,186 | 31,170 | | |
| | | $2,432,682 | $3,074,285 | | | | | | Agreement receivable (Note 2) | 389,878 | 428,757 | | Capital assets (Note 3) | 1,833,628 | 1,701,015 | | Deferred charges (Note 4) | 837,000 | 580,000 | | Other (Note 5) | 2,550,000 | 2,625,000 | | |
| | | $8,043,188 | $8,409,057 | | | | | | Liabilities and Shareholder's Equity | | Current | | | | Accounts payable | 1,024,153 | 1,101,953 | | Current portion of long-term debt | 63,107 | 51,075 | | |
| | | $1,087,260 | $1,153,028 | | | | | | Accrued silviculture | 1,293,087 | 1,754,820 | | Deferred revenue (Note 6) | 1,349,880 | 1,389,486 | | Long-term debt (Note 7) | 689,726 | 758,594 | | |
| | | $4,419,953 | $5,055,928 | | | | | | Shareholder's equity | | | Share capital (Note 8) | 1,000,000 | 1,000,000 | | Retained earnings | 2,623,235 | 2,353,129 | | |
| | | $3,623,235 | $3,353,129 | | |
| | | $8,043,188 | $8,409,057 | | | | |
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STATEMENT OF OPERATIONS & RETAINED EARNINGS | | For the year ended April 30 | 1999 | 1998 | | Revenue | | | | Timber Sales | 6,384,535 | 8,961,987 | | Multiskill program | - | 21,695 | | Amortization of deferred revenue | 39,605 | 39,605 | | Other | 26,894 | 51,804 | | |
| | | $6,451,034 | $9,075,091 | | |
| | | | | | Cost of goods sold | | | | Opening log inventory | 63,897 | 4,217 | | Logs | 3,526,191 | 4,968,683 | | Tree farm management | 152,034 | 149,815 | | Closing log inventory | - | (63,897) | | |
| | | $3,742,122 | $5,058,818 | | |
| | Gross profit | $2,708,912 | $4,016,273 | | |
| | | | | | Operating expenses, Schedule 1 | 1,548,423 | 2,777,061 | | Logyard operations | 340,446 | 305,728 | | Administrative expenses, Schedule 2 | 538,618 | 642,639 | | |
| | | $2,427,487 | $3,725,428 | | |
| | | | | | Income from operations | 281,425 | 290,845 | | Interest income | 65,681 | 45,091 | | |
| | Net income for the year | 347,106 | 335,936 | | | | | Retained earnings,
beginning of year (as restated - Note 12) | 2,353,129 | 2,081,693 | | Dividends | (77,000) | (64,500) | | |
| | Retained earnings, end of year | $2,623,235 | $2,353,129 | | | | |
| STATEMENT OF CHANGES IN FINANCIAL POSITION | | For the year ended April 30 | 1999 | 1998 | | Cash provided by (used in) | | | | Operating activities | | | | Net income for the year | 347,106 | 335,936 | | Items not involving cash | | | | Amortization of assets | 640,545 | 1,095,896 | | Amortization of deferred revenue | (39,605) | (39,605) | | |
| | | $948,046 | $1,392,227 | | | | | | Changes in non-cash working capital balances | | | | Accounts receivable | 265,024 | 48,855 | | Inventory | 54,957 | (233,360) | | Prepaid expenses | 152,685 | 231,136 | | Accounts payable | (77,800) | 313,323 | | |
| | | $1,342,912 | $1,752,181 | | | | | | Dividends | (77,000) | (64,500) | | |
| | | $1,265,912 | $1,687,681 | | |
| | | | | | Investing activities | | | | Decrease in agreement receivable | 32,863 | 32,592 | | Purchase of capitol assets | (773,159) | (1,433,696) | Increase (decrease) in long-term silviculture
accrual | (461,733) | (142,980) | | Increase in deferred charges | (257,000) | (240,000) | | Decrease in other assets | 75,000 | 114,804 | | |
| | | 1,384,029) | (1,669,280) | | |
| | | | | | Financial activities | | | | Decrease in long term debt | (56,836) | (46,479) | | |
| | Decrease in cash during year | (174,953) | (28,078) | | | | | | Cash and short term deposit, beginning of year | 1,790,429 | 1,818,507 | | |
| | Cash and short term deposit, end of year | $1,615,476 | $1,790,429 | | | | |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | | April 30, 1999 Nature of Business
The company is incorporated under the laws of British Columbia and is engaged in the operations of a Tree Farm License. The Company is owned by the City of Revelstoke. Inventory
Inventory is stated at the lower of cost and net realizable value. Cost is generally determined on a first-in, first-out basis. Capital Assets
Capital assets are recorded at cost. Amortization is provided on a straight line method based on the estimated useful life of the assets as follows: | Furniture and equipment | -20% | | Operations equipment | -30% | | Computer hardware | -30% | | Computer software | -50% |
Roads
Roads with a useful life of over one year are capitalized and recorded at cost and amortized over the estimated useful life of the road based on volume of timber removed. Other Assets
Other assets are recorded at cost. Amortization is provided on a straight line basis as follows: | Tree Farm License | -40 years | | Organization costs | -5 years |
Financial Instruments
The company's financial instruments consist of cash and short term deposits, accounts and agreement receivable, accounts payable, accrued silviculture, and long-term debt. Unless otherwise noted, it is management's opinion that the company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair values of these financial instruments approximate their carrying values, unless otherwise noted. |
| NOTES TO FINANCIAL STATEMENTS - APRIL 30,1999 |
| 1) Inventories | 1999 | 1998 | | Logs | - | 63,897 | | Bridges | - | 55,670 | | Culverts | 23,782 | 1,440 | | Seeds and seedlings | 291,002 | 248,734 | | |
| | | $314,784 | $369,741 | | | | |
| | 2) Agreement Receivable | The Agreement receivable from the lumber producers is being paid monthly in accordance with the provisions of the Timber Removal Agreement in proportion to the annual cut sold to the lumber
producers.
| | | 1999 | 1998 | | Agreement receivable from lumber producers | 427,064 | 459,927 | | Current portion | 37,186 | 31,170 | | |
| | $389,878 | $428,757 | | | | |
| | 3) Capital Assets | 1999 | | 1998 | | | Cost | Accumulated Amortization | Cost | Accumulated Amortization | | Land | 96,488 | - | 96,488 | - | | Furniture and equipment | 111,414 | 88,840 | 103,824 | 75,109 | | Log sortyard | 218,093 | 27,814 | 218,093 | 16,909 | | Operations equipment | 11,537 | 9,418 | 11,537 | 8,390 | | Radio equipment | 6,820 | 4,373 | 5,294 | 2,838 | | Roads | 5,125,311 | 3,605,590 | 4,361,269 | 2,992,244 | | |
| | | $5,569,663 | $3,736,035 | $4,796,505 | $3,095,490 | | |
| | Net book value | | $1,833,628 | | $1,701,015 | | | | | | |
| | 4) Deferred Charges | | Deferred charges represent expenses for site preparation for cut blocks that are not expected to be logged in the next fiscal period. | | |
| | 5) Other Assets | 1999 | 1998 | | Tree farm license | 3,000,000 | 3,000,000 | | Organization costs | 191,776 | 191,776 | | |
| | | $3,191,776 | $3,191,776 | | Accumulated amortization | 641,776 | 556,776 | | |
| | | $2,550,000 | $2,625,000 | | The cost of the tree farm license includes amounts paid in cash and assumption of various liabilities, including the silviculture liability which was adjusted subsequent to the purchase of the license due to changes in the Forest Practices Code reflecting the "Free to Grow" silviculture practices. | | |
| | 6) Deferred Revenue | | Deferred revenue results from the sale of rights under a Timber Removal Agreement to lumber producers for $1,500,000 as explained in Note 9 plus an additional working capital provision of $125,000. This amount is being included in revenue over forty years on the same basis that the Tree Farm License is being amortized. | | |
| | 7) Long-term Debt | 1999 | 1998 | | Bank loan, repayable $9,421 monthly including interest at prime plus 0.5% per annum payable on demand, secured by a registered general security agreement, maturing June 1999. | 752,833 | 809,669 | | Current portion | 63,107 | 51,075 | | |
| | | $689,726 | $758,594 | | |
| | Principal payments due in the next five years and thereafter are as follows: | 2000 | 63,107 | | | 2001 | 67,651 | | | 2002 | 72,370 | | | 2003 | 77,525 | | | 2004 | 82,987 | | | thereafter | 398,193 | | |
| | Management expects to renew the demand loan on similar repayment terms on the due date. | | $752,833 | | | | |
| | 8) Share Capital | | Authorized: 10,000 common shares, no par value
10,000,000 preferred shares, per value $1 each
| | Issued: | 1999 | 1998 | | 1 common share | $1,000,000 | $1,000,000 | | | | |
| | 9) Organization and Operations | | The Corporation was organized for the purpose of acquiring Tree Farm License 56 and to establish an agreement with certain area lumber producers for the removal of timber from the TFL. The agreement provides for the lumber producers to purchase 50% of the TFL production at the cost of production determined under the Timber Removal Agreement. The lumber producers purchased the rights under the agreement for $1,500,000 which also includes the right to 50% of any proceeds on the sale of the TFL in excess of its net book value should it ever be disposed of. The corporation retains the right to sell the remaining 50% of the timber for its own benefit at prices determined by current market conditions. | | |
| | 10) Income Taxes | | The corporation is exempted under Section 149(i)(d) of the Income Tax Act, Canada from income tax, consequently, no provision has been made in these financial statements for income taxes. Revenue Canada has recently changed the tax act for taxation years and fiscal periods that begin after 1998, to add a new test that if, for a taxation year, the corporation's income from operations carried on outside the geographical boundaries of the municipality exceeds 10% of its total income for the year, the corporation will not qualify for an exemption from income tax. Management is currently reviewing the corporation's situation and at this time have not determined if they will be taxable. | | |
| | 11) Transactions under the Timber Removal Agreement | During the year the company sold the following volumes of logs under the Timber Removal Agreement at cost.
| | | Volume in cubic meters | Volume in dollars | | Downie Timber Ltd. | 14,103 | 1,178,277 | | Cascade Cedar Ltd. | 4,780 | 399,369 | | Joe Kozek Sawmills Ltd. | 7,893 | 659,454 | | | | |
| | 12) Prior Period Error Correction | During the year, the company was charged for additional contractor benefits of $134,079 relating to its previous year of operations for which no amount had been accrued in its April 30, 1998 year end financial statements. The financial statement amounts that are presented for comparative purposes have been restated to correct this error as follows:
| | Increase in accounts payable | $134,079 | | Increase in cost of goods sold -logs | 134,079 | | Decrease in net income for the year and retained earnings, end of year | 134,079 | | | |
| | 13) Lease Commitment | The company has entered into operating leases for land and office space from the City of Revelstoke and certain equipment from suppliers. The minimum annual lease payments for the next five years are as follows.
| | Year | Amount | | 2000 | 30,763 | | 2001 | 25,906 | | 2002 | 21,160 | | 2003 | 21,160 | | 2004 | 21,160 |
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| For the year ended April 30 | 1999 | 1998 | | Cruising and engineering | 260,268 | 510,150 | | Post-logging | 46,344 | 125,184 | | Road amortization | 601,594 | 1,066,900 | | Road maintenance | 159,414 | 401,494 | | Road agreement usage | - | 233 | | Silviculture | 464,227 | 618,985 | | Spurs and landings | 19,147 | 18,344 | | Supplies | 1,720 | 4,764 | | Waste assessment (recovery) | (4,281) | 31,007 | | |
| | | $1,548,423 | $2,777,061 | | | | |
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| For year ended April 30 | 1999 | 1998 | Advertising and promotion | 17,440 | 10,768 | | Amortization | 16,294 | 57,975 | | Equipment rentals | 683 | 383 | | Insurance, license and dues | 9,883 | 9,006 | | Interest and bank charges | 1,064 | 3,113 | | Interest on long-term debt | 60,214 | 75,524 | | Management consulting | 841 | 48,985 | | Meetings/travel/vehicles | 37,437 | 35,986 | | Office and miscellaneous | 40,196 | 30,922 | | Professional fees | 7,464 | 6,263 | | Telephone and communication | 7,509 | 7,366 | | Wages and benefits | 339,593 | 356,348 | | |
| | | $538,618 | $642,639 | | | | |
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