Review Engagement Report 2

Transcription

1 Prestigious Properties Canada Three Limited Partnership Financial Statements For the year ended December 31, 2007 Contents Review Engagement Report 2 Financial Statements Balance Sheet 3 Statement of Operations and Deficit 4 Statement of Partners' Equity 5 Statement of Cash Flows 6 Notes to Financial Statements 7-12

2 Review Engagement Report To the Partners of Prestigious Properties Canada Three Limited Partnership We have reviewed the balance sheet of Prestigious Properties Canada Three Limited Partnership, as at December 31, 2007 and the statements of operations and deficit, partners' equity, and cash flows for the year then ended. Our review was made in accordance with Canadian generally accepted standards for review engagements and accordingly consisted primarily of enquiry, analytical procedures and discussion related to information supplied to us by the Company. A review does not constitute an audit and consequently we do not express an audit opinion on these financial statements. Based on our review, nothing has come to our attention that causes us to believe that these financial statements are not, in all material respects, in accordance with Canadian generally accepted accounting principles. Chartered Accountants Calgary, Alberta March 17,

3 Balance Sheet December Assets Cash $ 53,378 $ 245,887 Cash held for security deposits 116,919 - Subscriptions receivable - 125,000 Accounts receivable 5,796 - Escrow deposits (Note 4) 143,174 - Prepaid expenses 31,932 - Deposits - 360,000 Property and equipment (Note 5) 16,965,621 - $ 17,316,820 $ 730,887 Liabilities and Partners' Equity Liabilities Accounts payable and accrued liabilities $ 145,347 $ 23,125 Interest payable 71,436 - Security deposits 129,706 - Mortgages payable (Note 7) 12,330,806 - Due to related parties (Note 6) 387,000-13,064,295 23,125 Partners' equity 4,252, ,762 $ 17,316,820 $ 730,887 On behalf of the Board: Director The accompanying notes are an integral part of these financial statements. 3

4 Statement of Operations and Deficit For the year ended December Revenue Rental revenue (Note 8) $ 1,000,053 $ - Interest revenue 26, ,026, Expenses Amortization (Note 8) 289,320 - Asset management fees 99,017 - Property operating expenses (Note 8) 641,909 - Interest on mortgages (Note 8) 480,079 - Interest on loans and bank charges 22,451 2,087 Professional fees 39,135 8,957 Office and administration 68,572 12,203 Travel and promotion 81,898 30,268 1,722,381 53,515 Net loss for the year $ (696,269) $ (53,396) The accompanying notes are an integral part of these financial statements. 4

5 Statement of Partners' Equity For the year ended December Balance, beginning of year $ 707,762 $ - Partner subscriptions 5,100, ,000 Issue costs (631,343) (90,842) Net loss for the year (696,269) (53,396) 4,480, ,762 Cash distributions (227,625) - Balance, end of year $ 4,252,525 $ 707,762 5

6 Statement of Cash Flows For the year ended December Cash flows from operating activities Revenues $ 1,026,112 $ 119 Operating expenses excluding non-cash items and interest 919,831 51, ,281 (51,309) Changes in non-cash accounts: Accounts receivable (5,796) - Subscriptions receivable 125,000 (125,000) Deposits 360,000 (360,000) Prepaid expenses (31,932) - Escrow deposits (143,174) - Accounts payable and accrued liabilities 122,222 23, ,320 (461,875) Interest paid (429,007) (2,087) (2,687) (463,962) Cash flows from financing activities Mortgages 12,330,806 - Loans from related parties 387,000 - Partner subscriptions 5,100, ,000 Issue costs (631,343) (90,842) 17,186, ,158 Cash flows from investing activity Additions to property and equipment (17,254,941) - Cash distributions (227,625) - (17,482,566) - Increase (decrease) in cash (192,509) 245,887 Cash, beginning of year 245,887 - Cash, end of year $ 53,378 $ 245,887 6

7 December 31, 2007 Prestigious Properties Canada Three Limited Partnership Notes to Financial Statements 1. Nature of Operations The Limited Partnership (the "Partnership") was formed on October 20, 2006 under the laws of the Province of Alberta, and commenced active operations on November 1, Prestigious Properties Canada Three Inc. is the General Partner. Except for the General Partner and any limited partner who participates in the management of the Partnership, the liability of the partners is restricted to their investment in the Partnership. The Partnership is in the business to acquire real property and earn rental income from its operations. As at December 31, 2007, the Partnership had issued 1208 limited partnership units for a total consideration of $5,952,000. Each unit represents an equal undivided interest in the net assets of the Partnership. 2. Significant Accounting Policies The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements have, in management's opinion, been properly prepared using careful judgment with reasonable limits of materiality and within the framework of the significant accounting policies summarized below. (a) General These financial statements include only the assets, liabilities, revenue and expenses of the Partnership and not those of the General or limited partners. There is no provision for income taxes as Partnership income is taxed in the hands of the partners. (b) Property and equipment Property and equipment are stated at cost and amortized on a declining balance basis at the following rates, with only half rates applied in the year of acquisition: Buildings 4% Furniture and equipment 20% 7

8 Notes to Financial Statements December 31, Significant Accounting Policies - continued (c) Financial instruments The carrying amount of cash, accounts receivable, escrow deposits and accounts payable approximate their fair values due to the short-term maturities of these items. 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 except for advances from shareholders for which the fair value is not readily determinable. The Partnership adopted CICA Handbook Section 1506, Accounting Changes, the only effect of which is to provide disclosure and the resulting impact to the Company when an entity has not applied a new source of generally accepted accounting principles that has been issued but is not yet effective. This applies to CICA Handbook Sections 3862, "Financial Instruments Disclosure," and 3863, "Financial Instruments Presentation," which are required to be adopted for fiscal years on or after October 1, The Partnership intends to adopt these standards January 1, 2008 and it is expected that the only effect on the Partnership's financial statements will be incremental disclosures regarding the significance of financial instruments for the entity's financial position and performance; and the nature, extent and management of risks to which the entity is exposed arising from financial instruments. (d) Revenue recognition Rental revenue is recognized on an accrual basis as it is earned monthly. 8

9 Notes to Financial Statements December 31, General Partner Fees and Allocations Pursuant to the agreement dated October 20, 2006 between the Partnership and the General Partner, the Partnership has agreed: (a) To pay the General Partner quarterly in arrears 0.75% of the current value of the total assets of the Partnership; (b) To reimburse in full all third part costs incurred by the General Partner; and (c) To pay the General Partner 50% of the distributable cash flow paid quarterly in arrears after investors have received back the amount of their initial capital contribution. 4. Escrow Deposits Funds on two mortgages (Note 7) were not advanced to the Partnership but held in escrow under certain terms and conditions. Upon satisfaction of these terms and conditions, these funds will be applied to payment of the respective mortgages payable. 5. Property and Equipment Accumulated Net Book Net Book Cost Amortization Value Value Poplar Grove Estates Land $ 1,125,000 $ - $ 1,125,000 $ - Buildings 7,038, ,772 6,897,846 - Furniture & equipment 50,000 5,000 45,000 - $ 8,213,618 $ 145,772 $ 8,067,846 $ - Grand Park Village Land $ 1,700,000 $ - $ 1,700,000 $ - Buildings 5,196, ,935 5,092,787 - Furniture & equipment 42,000 4,200 37,800 - $ 6,938,722 $ 108,135 $ 6,830,587 $ - 9

10 Notes to Financial Statements December 31, Property and Equipment - continued Yorkton Manor Land $ 300,000 $ - $ 300,000 $ - Buildings 757,296 15, ,150 - Furniture & equipment 20,000 2,000 18,000 - $ 1,077,296 $ 17,146 $ 1,060,150 $ - Sunset Vistas Land $ 150,000 $ - $ 150,000 $ - Buildings 865,805 17, ,488 - Furniture & equipment 9, ,550 - $ 1,025,305 $ 18,267 $ 1,007,038 $ - Net book value of all property and equipment $ 16,965,621 $ - 6. Related Party Transactions and Balances The partnership paid and accrued management fees of $99,017 ( $0) to the General Partner during the year ended December 31, Commissions of $403,853 ( $83,422) included in the issue costs of $631,343 ( $90,842) were paid to the shareholders of the General Partner. Such commissions were based on sales of units and were calculated on the same basis as arms-length commissions paid to third parties. Marketing costs of $0 ( $5,853) were paid to a shareholder of the General Partner. Interest of $55,361 ( $0) on loans from related parties has been paid or accrued. At the year end, the loans payable to related entities are as follows: Big Richard Capital Corp. $ 12,000 $ - PrestProp West Edmonton Inc. 155,000 - Prestigious Properties Four Limited Partnership 200,000 - Prestigious Properties Canada Limited Partnership One 20,000 - $ 387,000 $ - All of the above entities are related by way of common control. All loans are securable via caveat on title of properties owned by the borrower, and bear interest at 18% per annum. There is no fixed date of repayment, but the lender has the right to demand repayment of the loan amount with a minimum three months notice. Included in the accounts payable balance at the year-end is $33,902 ( $0) due to the General Partner for its management fee for the fourth quarter of

11 Notes to Financial Statements December 31, Mortgages Payable Sun Life Financial Monthly installments of $37,224 including interest at 5.85% per annum, maturing June 3, 2008, secured by (a) (b) real property mortgage; security agreement between the Mortgagor and the General Partner. $ 5,846,523 $ - ING Bank of Canada Monthly installments of $6,199 including interest at 6.06% per annum, maturing May 15, 2008, secured by (a) real property mortgage; (b) general assignment of rents and leases; (c) purchase money security agreement between the Mortgagor and the General Partner; (d) personal guarantee by a shareholder of the General Partner. 763,571 - First Credit Union Monthly installments of $4,838 including interest at 6.85% per annum, maturing February 1, 2009, secured by (a) real property mortgage; (b) assignment of rents; (c) general security agreement between the Mortgagor and the General Partner; (d) indemnity agreement from the General Partner and its shareholders; (e) environmental indemnity agreement from the General Partner; (f) assignment of credit union deposits held by the General Partner. 695,712 - Trez Capital Corporation Monthly installments estimated at $37,687 including interest at the greater of 9.0% or prime + 3.0% per annum, maturing September 1, 2008; any further obligation past September 1, 2008 would continue at interest of 25% per annum, secured by (a) real property mortgage; (b) general assignment of rents and leases; (c) general security agreement between the Mortgagor and the General Partner; (d) indemnity agreement from the General Partner and its shareholders; (e) promissory note signed by the General Partner; (f) pledge of shares of the General Partner in favour of the Mortgagor; (g) personal guarantee and postponement of claims from the shareholders of the General Partner. 5,025,000 - $ 12,330,806 $ - 11

12 Notes to Financial Statements December 31, Mortgages Payable - continued Estimated principal repayments subsequent to 2007 in accordance with the credit facilities are as follows: 2008 $ 12,325, ,838 $ 12,330, Property Revenue and Expenses Rental revenue Poplar Grove Estates $ 502,280 $ - Grand Park Village 286,382 - Yorkton Manor 159,901 - Sunset Vistas 51,490 - $ 1,000,053 $ - Amortization Poplar Grove Estates $ 145,772 $ - Grand Park Village 108,135 - Yorkton Manor 17,146 - Sunset Vistas 18,267 - $ 289,320 $ - Property operating expenses Poplar Grove Estates $ 316,719 $ - Grand Park Village 129,122 - Yorkton Manor 129,742 - Sunset Vistas 66,326 - $ 641,909 $ - Interest on mortgages Poplar Grove Estates $ 215,119 $ - Grand Park Village 213,135 - Yorkton Manor 29,979 - Sunset Vistas 21,846 - $ 480,079 $ - 12