Acana Capital Corp.
Ameri-Can Agri Co. Inc.
Consolidated Financial Statements
For the period from October 17, 2014 (Incorporation) to
September 30, 2015
(Expressed in Canadian Dollars)
INDEPENDENT AUDITOR’S REPORT To the Shareholders of Ameri-Can Agri Co. Inc., We have audited the accompanying consolidated financial statements of Ameri-Can Agri Co. Inc., which comprise the consolidated statement of financial position as at September 30, 2015, and the consolidated statements of comprehensive loss, cash flows, and changes in equity for the period from October 17, 2014 (Incorporation) to September 30, 2015, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Ameri-Can Agri Co. Inc. as at September 30, 2015, and its financial performance and its cash flows for the period from October 17, 2014 (Incorporation) to September 30, 2015 in accordance with International Financial Reporting Standards. Emphasis of Matter Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which describes certain conditions that indicate the existence of a material uncertainty that may cast significant doubt on Ameri-Can Agri Co Inc.’s ability to continue as a going concern.
DALE MATHESON CARR-HILTON LABONTE LLP CHARTERED PROFESSIONAL ACCOUNTANTS Vancouver, Canada January 28, 2016
Ameri-Can Agri Co. Inc. Consolidated statement of financial position (Expressed in Canadian Dollars) Note
September 30, 2015 $
Assets Current assets Cash Marketable securities Other receivable
Non-current Biological Assets Equipment Properties Total assets
973,823 677,000 3,857 1,654,680
6 7 8
3,144,217 997,661 11,024,753 16,821,311
9 10 12
613,790 220,935 3,606,220 4,440,945
7,051,914 267,800 11,760,659
Liabilities and shareholders' equity Current liabilities Accounts payable and accrued liabilities Note payable Due to related parties Non-current liabilities Debenture Notes payable Total liabilities Shareholders' equity Share capital Reserves Deficit Equity attributed to shareholders
2,484,793 1,170,365 (1,581,419) 2,073,739
Total liabilities and shareholders' equity
Subsequent event (Note 17) Approved and authorized for issuance by the Board of Directors on January 28, 2016 "Rajen Janda" Director See accompanying notes to the consolidated financial statements
"Lucky Janda" Director
Ameri-Can Agri Co. Inc. Consolidated statement of comprehensive loss (Expressed in Canadian Dollars) Note Rental income Rental expenses Expenses Amortization Consulting Property development expenses Office and administration Professional fees Trust and filing fees Total operating expenses Loss before other items Other items: Change of fair value-marketable securities Other income Interest expense-debenture Interest expense - notes Impairment of properties Write down of receivables
7, 8 11
From October 17, 2014 (Incorporation) to September 30, $ 282,847 42,025 240,822 96,422 63,536 3,751 22,961 13,759 7,439 207,868 32,954
441,000 4,500 (528,984) (10,198) (394,881) (2,198,398) (2,686,961) (2,654,007)
Other comprehensive income: Translation gain Comprehensive loss
Net loss attributable to: Equity holders of the Company Non-controlling interests Other comprehensive income attributable to: Equity holders of the Company Non-controlling interests Comprehensive loss attributable to: Equity holders of the Company Non-controlling interests Loss per share attributable to the equity holders of the Loss per share, basic and diluted Weighted average number of outstanding shares, basic and diluted See accompanying notes to the consolidated financial statements
4 12 10 8 5
(1,581,419) (1,072,588) (2,654,007) 1,170,365 276,380 1,446,745 (411,054) (796,208) (1,207,262) (0.06) 41,519,085
Ameri-Can Agri Co. Inc. Consolidated statement of cash flows (Expressed in Canadian Dollars) From October 17, 2014 (Incorporation) to September 30, 2015 Cash (used in) provided by:
Operating activities Net loss Items not involving cash : Write down of receivables Accrued interest on debenture and notes Impairment of properties Amortization Change in fair value of marketable securities Changes in non-cash operating working capital Due to related party Other receivables and prepaid Accounts payable and accrued liabilities Cash used in operating activities Investing activities Cash acquired from the Arrangement
(2,654,007) 2,198,398 539,182 394,881 96,422 (441,000) 1,026,467 (1,804,517) 36,832 (607,342)
Acquisition of marketable securities
Loan receivable Addition of properties
Cash used in investing activities
Financing activities Issuance of shares for cash
Cash provided by financing activities
Effect of foreign exchange on cash Increase of cash
Cash, beginning of period Cash, end of period
Supplementary information: Cash paid for interest Cash paid for income taxes
Non-cash transactions during the period ended September 30, 2015 include: Properties purchased, included in notes payable Properties purchased, included in due to related parties Equipment purchased, included in accounts payable and accrued liabilities Equipment purchased, included in due to related parties Biological assets purchased, included in due to related parties See accompanying notes to the consolidated financial statements
267,500 111,560 480,002 555,049 2,558,830
Ameri-Can Agri Co. Inc. Consolidated statement of changes in equity From October 17, 2014 to September 30, 2015 (Expressed in Canadian Dollars) Common shares
October 17, 2014, date of inception Completion of the Arrangement Unit issuance - for cash Warrant exercise Translation from subsidiaries Contribution by minority interest Net loss September 30, 2015
3 11 11
Translation Amount gain (loss)
1 30,646,671 15,000,000 2,400,000 48,046,672
1 744,792 1,500,000 240,000 2,484,793
See accompanying notes to the consolidated financial statements
Equity attributed to the equity Retained holders of the earnings Company
1 744,792 1,500,000 240,000 1,170,365 (1,581,419) 2,073,739
1,982,462 276,380 1,800,659 (1,072,588) 2,986,913
1 2,727,254 1,500,000 240,000 1,446,745 1,800,659 (2,654,007) 5,060,652
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 1. NATURE OF OPERATIONS AND GOING CONCERN Ameri-Can Agri Co. Inc. (the “Company” or “Ameri-Can”) was incorporated on October 17, 2014 in British Columbia as a wholly owned subsidiary of Mag One Products Inc. (formerly Acana Capital Corp.) (“Mag One”). The Company’s principal activity is the acquisition and development of real estate and farming properties. The Company’s head office is located at Suite 200 – 8338 120th Street, Surrey, BC, V3W 3N4. On January 1, 2015 the Company spun out from Mag One and the Company’s shares commenced trading on Canadian Securities Exchange (“CSE”) under the symbol ACM (Note 3) on March 11, 2015. Going concern These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As at September 30, 2015, the Company is not able to finance its day to day activities through operations. The Company’s continuation as a going concern is dependent whether the Company can be developed into a viable business and continued support from the Company’s related persons. These factors indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. Should the Company be unable to continue as a going concern, the net realizable value of its assets may be materially less than the amounts on its statement of financial position. 2. SIGNIFICANT ACCOUNTING POLICIES Statement of compliance These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). Basis of preparation These consolidated financial statements have been prepared on an accrual basis and are based on historical costs, except for financial instruments measured at their fair value, and are presented in Canadian dollars, unless otherwise noted. These consolidated financial statements incorporate the accounts of the Company and its controlled subsidiaries: Country of Ownership Name incorporation/formation percentage * JDLP LLP (“JDLP”) USA 50% Ameri-Can Agri Co. (“Agri”) USA 100% Acana Capital LLC. (“Acana”) USA 100% * The Company has control over the partnership; therefore, it is consolidated resulting in non-controlling interests being recorded in the consolidated statement of financial position. Inter-company balances and transactions, including unrealized income and expenses arising from intercompany transactions, are eliminated on consolidation.
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Significant estimates and assumptions The preparation of financial statements in conformity with IFRS requires management to make certain estimates, judgments and assumptions concerning the future. The Company’s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised. Estimates where there is significant risk of material adjustments to assets and liabilities in future accounting periods include fair value measurements for financial instruments, fair value of properties and biological assets, estimation of percentage of completion of the development of the biological assets, useful life of equipment and the recoverability and measurement of deferred tax assets. Significant judgments The preparation of financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accounting policies. The most significant judgments in applying the Company’s financial statements is the assessment of the Company’s ability to continue as a going concern and whether there are events or conditions that may give rise to significant uncertainty, the determination of the functional currencies of the parent and each subsidiary, and the classification of financial instruments. Loss per share Basic loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of shares outstanding in the period. Diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period. Financial instruments The Company classifies its financial instruments in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale and financial liabilities. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition. Fair value through profit or loss (“FVTPL”) - Financial assets are classified at fair value through profit or loss when they are either held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. They are subsequently measured at fair value with changes in fair value recognized in profit or loss. The Company classifies its marketable securities as FVTPL. Loans and receivables - These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are subsequently measured at amortized cost. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Company has designated its cash and other receivable as loan and receivables.
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial instruments (continued) Held-to-maturity investments - These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities and that the Company intends to hold to maturity. These assets are subsequently measured at amortized cost. Held-to-maturity investments are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. The Company does not hold any held-to-maturity financial assets. Available-for-sale – These consist of non-derivative financial assets that are designated as available-for sale or are not suitable to be classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments and are subsequently measured at fair value. These are included in current assets to the extent they are expected to be realized within 12 months after the end of the reporting period. Unrealized gains and losses are recognized in other comprehensive income, except for impairment losses and foreign exchange gains and losses on monetary financial assets. The Company does not hold any available-for-sale financial assets. Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost. Regular purchases and sales of financial assets are recognized on the trade-date – the date on which the group commits to purchase the asset. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. At each reporting date, the Company assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a significant and prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. The Company does not have any derivative financial assets and liabilities. Functional currency and foreign currency translation The functional currency of each entity is measured using the currency of the primary economic environment in which that entity operates. These consolidated financial statements are presented in Canadian dollars which is the parent company’s functional currency. The functional currency of all of the Company’s US subsidiaries is the US dollar. Transactions and balances: Foreign currency transactions will be translated into the functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in profit or loss in the statement of comprehensive loss in the period in which they arise, except where deferred in equity as a qualifying cash flow or net investment hedge.
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Functional currency and foreign currency translation (continued) Transactions and balances: (continued) Exchange differences arising on the translation of non-monetary items are recognized in other comprehensive income in the statement of comprehensive income to the extent that gains and losses arising on those nonmonetary items are also recognized in other comprehensive income. Where the non-monetary gain or loss is recognized in profit or loss, the exchange component is also recognized in profit or loss. Foreign operations: The financial results and position of foreign operations whose functional currency is different from the Company’s presentation currency will be translated as follows: -
assets and liabilities are translated at period-end exchange rates prevailing at that reporting date; and income and expenses are translated at average exchange rates for the period.
Exchange differences arising on translation of foreign operations are recorded to the Company’s other comprehensive loss. Biological assets The Company records its biological assets as cost less accumulated amortization, unless the fair value of the biological assets can be measured reliably. Cost consists of costs incurred planting and farming costs incurred until the point that such trees begin producing. If fair value can be measured reliably, biological assets are measured at fair value less cost to sell with gains and losses recorded in profit or loss. No amortization is taken before the biological assets are ready for use. Properties Properties are comprised of parcels of lands used for real estate projects which are developed, to be developed, or are in development, and two parcels of land that are being used for agricultural activity. The Company account for all the lands and buildings in connection with the Company’s real estate projects in accordance with IAS 40 - Investment Property. The Company capitalizes the acquisition and expenses development costs in the period in which they were incurred. The Company amortizes its properties once they are available for use at 39 years straight line (commercial real estate properties). Equipment Equipment is comprised solely of the watering system used for farming purpose in connection with the Company’s biological assets. Cost consists of acquisition installation and delivery. Cost less residual value, if any, is amortized on straight basis over the estimated useful life of 15 years. Impairment of assets The carrying amounts of the Company’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the statement of comprehensive loss.
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Impairment of assets (continued) The Company amount of assets is the greater of an asset’s fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is only reversed if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount, however, not to an amount higher than the carrying amount that would have been determined had no impairment loss been recognized in previous years. Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Revenue Recognition Rental income is recognized when: -
the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the lease will flow to the Company; the stage of completion of the lease at the end of the reporting period can be measured reliably; and the costs incurred for and to complete the lease can be measured reliably.
Warrants Proceeds from issuances of security units by the Company consisting of shares and warrants are allocated based on the residual method. The fair value of the warrants is determined to be the difference between gross proceeds over the fair market value of the shares. If the proceeds from the offering are less than or equal to the fair market value of shares issued, a fair value of $Nil is assigned to the warrants. Common-control transaction Since the shareholders of the Company and Mag One upon close of the Arrangement were the same, the transaction was deemed a common-control transaction. As such, the assets and liabilities assumed by Company, including cash, other receivables, properties, accounts payable and accrued liabilities, amounts due to related parties, and the note payable, were originally recognized on the date of the Arrangement at the carrying value of the assets and liabilities according to the records of Mag One. Income taxes Current income tax: Current income tax assets and liabilities for the period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income. Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Income taxes (continued) Deferred tax: Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. New Accounting Standards and Interpretations IFRS 9 Financial Instruments (“IFRS9”) was issued by the IASB in October 2010 and will replace IAS 39 Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 will be effective January 1, 2018. Earlier adoption is permitted. The Company is in the process of assessing the impact of this standard on its financial statements. Other accounting standards or amendments to existing accounting standards that have been issued and have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s consolidated financial statements. 3. CORPORATE RESTURCTING On January 1, 2015, the Company and Mag One entered into a plan of arrangement in order to proceed with a corporate restructuring (the “Arrangement”), whereby Mag One transferred the ownership of its 50% interest in JDLP, Agri and Acana, to the Company in return for 30,646,671 common shares of the Company (“AmeriCan Shares”) with a fair value of $744,792. Ameri-Can Shares were distributed to the shareholders of Mag One on a pro-rata basis based on their relative shareholdings of Mag One of the completion of the Arrangement, when the Company’s common shares started trading on the CSE after all approvals were received. Upon the completion of the Arrangement, the Company was no longer a subsidiary of Mag One.
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 3. CORPORATE RESTURCTING (Continued) $ Assets acquired by the Company Cash Other receivable Biological assets (Note 6) Properties (Note 8) Liabilities assumed by the Company Accounts payable and accrued liabilities Debenture Due to related parties Note payable Interest held by minority interest Net assets acquired
47,951 260,345 508,312 9,393,747 (75,622) (7,051,914) (163,719) (191,846) (1,982,462) 744,792
The Arrangement received the approval and completed on March 11, 2015. 4. MARKETABLE SECURITIES As at September 30, 2015, the Company’s marketable securities comprise of shares and share purchase warrants of public companies. The fair value of warrants is determined using a Black–Scholes pricing model. September 30, 2015 Common shares Warrants
Cost $ 236,000 236,000
Gain $ 224,000 217,000 441,000
Fair value $ 460,000 217,000 677,000
The fair value of the warrants was determined using the Black-Scholes option pricing model using the following weighted average assumptions: Expected life of warrants Annualized volatility Risk-free interest rate Dividend rate
September 30, 2015 3.75 years 123% 0.66% 0%
All the marketable securities acquired during the period ended September, 2015 are of public companies that have directors or officers common with the Company.
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 5. OTHER RECEIVABLE During the period ended September 30, 2015, the Company wrote off an amount owing from JDLP’s 50% partner as this amount was not considered to be collectible. As a result, a write-down of $2,098,398 was recorded in the statement of comprehensive loss. Additionally, during the period ended Spetember 30, 2015, the Company wrote off a loan of $100,000 owing from a company with common directors and officers due to the uncertainty of collectability (Note 12). 6. BIOLOGICAL ASSETS As at September 30, 2015, the Company had immature non-current biological assets which were comprised of plantation bearer assets of walnut trees planted on the Company’s properties located at 106 Glenn and 860 Corning (collectively the “Corning Properties”) (Note 8). Continuity of the cost of the biological assets are as follows:
Deferred farming costs (Note 8 and 12)
January 1, 2015
Effect of foreign exchange
September 30, 2015
$ Cost: At October 17, 2014 Additions At September 30, 2015 Amortization: At October 17, 2014 Charge for the period At September 30, 2015 Foreign exchange adjustment at September 30, 2015: Net book value: At September 30, 2014 At September 30, 2015
1,036,479 1,036,479 (36,605) (36,605) (2,213)
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 8. PROPERTIES All of the properties were transferred from Mag One in accordance with the Arrangement on January 1, 2015 (Note 3). Continuity is as follows:
48th Ave Land 49th Ave Land 6565 Lang Ave 106 Glenn 860 Corning Vineyard Plaza Bader Road Lot Tuscon Building Total Properties
January 1, 2015 $ 534,151 2,921,798 2,919,947 321,325 2,696,526 9,393,747
Additions $ 236,584 96,923 283,742 617,249
Accumulated Amortization $ (59,719) (59,719)
Impairment $ (394,881) (394,881)
Effect of foreign September exchange 30, 2015 $ $ 25,831 262,415 1,247 98,170 19,669 303,411 80,994 615,145 443,031 3,364,829 439,990 2,965,056 48,722 370,047 408,873 3,045,680 1,468,357 11,024,753
48 Ave Land: Vacant land which is intended for residential development. 49 Ave Land: Vacant land which is intended for residential development. 6565 Lang Avenue: Vacant land which is intended for residential development. 106 Glenn: Farm land in Corning, California, USA. The Company, owns 50% interest through its 50% owned limited liability partnership JDLP. 860 Corning: Farm land in Corning, California, USA. The Company, owns 50% interest through its 50% owned limited liability partnership JDLP. 106 Glenn and 860 Corning are adjacent to each other (collectively the “Corning Properties”). The Company, through JDLP, entered into an agreement with a contractor to plant a walnut plantation over an area of approximately 350 acres on the Corning Properties at an estimated cost of USD $2,300,000 (Note 6). Vineyard Plaza: Vacant land located in Sacramento County, California, USA, and is intended for commercial buildings development. During the period ended September 30, 2015, the Company impaired $394,881 of costs relating to the building of a gas station permit that was refused by the county. Bader Road Lot: Vacant land located in Elk Grove, California, USA which is intended for multi-family residential development. Tuscon Building: Industrial building located in 5575 S Houghton St., Tuscon, Arizona. This property is leased out for three years commencing January 1, 2015 to December 31, 2017 for US$20,000 per month.
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES September 30, 2015 $ Trade payables Interest payable (Note 10)
10. NOTES PAYABLE As at September 30, 2015, the Company had the following notes payable: Principal US$ 165,000
Current $ 220,935
Non-Current $ -
Interest of 4% per annum, maturing on June 26, 2016 Interest of 4% for the first 2 years and 5% per annum thereafter, maturing on May 19, 2019 Interest of 4% per annum maturing on July 1, 2018
Bader Road Lot 48th Ave Land
6565 Lang Avenue
Interest accrued of $12,478 (Note 9) is included in accounts payable and accrued liabilities as at September 30, 2015, of which $2,280 was transferred with the Arrangement. 11. SHARE CAPITAL Authorized Unlimited number of common shares and preferred shares without par value. Issued In March 2015, the Company issued 30,646,671 common shares to Mag One upon the completion of the Arrangement with fair value of $744,792 (Note 3). On March 11, 2015, the Company completed a private placement for the issuance of 15,000,000 units for gross proceeds of $1,500,000. Each unit is comprised of one common share and one share purchase warrant of the Company. Each share purchase warrant can be exercised into one common share at $0.10 until March 11, 2020. The fair value of the warrants was determined to be $Nil. 10,500,000 common shares issued from this private placement are under escrow and will be released as follows: 25% on March 11, 2015, 25% on September 11, 2015, 25% on March 11, 2016, and 25% on September 11, 2016. 2,400,000 of the above share purchase warrants were exercised into 2,400,000 common shares of the Company for proceeds of $240,000.
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 11. SHARE CAPITAL Warrants
Balance, October 17, 2015 Granted Exercised Balance, September 30, 2015
Number of Warrants 15,000,000 (2,400,000)
Exercise price $0.10 $0.10
Expiry date March 11, 2020 March 11, 2020
As at September 30, 2015, warrants outstanding have a weighted average life of 4.45 years and average exercise price of $0.10. Foreign currency translation reserve The foreign currency translation reserve records unrealized exchange differences arising on translation of foreign operations that have a functional currency other than the Company’s reporting currency. 12. RELATED PARTY TRANSACTIONS Key Management Compensation Fees paid to the Company’s management from October 17, 2014 to the period ended September 30, 2015 was $Nil. Debenture As at September 30, 2015, the Company had a debenture of principal of $7,051,914 (“Debenture’) payable to to the Company’s CEO and his spouse. The Debenture bears interest at 10% per annum, is due on March 25, 2018 and is secured against all of the Company’s interests in the US. In addition to the interest, the holder of the Debenture is also entitled to the following:
a bonus of $400,000 upon the Company having earned its first net income of $1,000,000 from its operations; another bonus of $400,000 upon the Company having earned its second net income of $1,000,000 from its operations.
As at September 30, 2015, the Company owed $1,086,192 to the CEO of the Company and his spouse (including interest expense payable on the debenture of $528,984). This amount is unsecured, non-interest bearing, due on demand, and is included in due to related parties. Farming contract During the period ended September 30, 2015, the Company contracted a company with common management to provide farming services on its biological assets. During the period ended September 30, 2015 the Company incurred $2,406,140 of costs to this company, which have been capitalized to biological assets. Receivable During the period ended September 30, 2015, the Company loaned $100,000 to a company with directors and officers in common. During the year ended September 30, 2015, the Company wrote off this received due to the uncertainty of collectability (Note 5).
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 12. RELATED PARTY TRANSACTIONS (Continued) Revenue During the period ended September 30, 2015, a company in which a director is a member of key management personnel have collected the revenue associated with its rental properties on behalf of the Company. As at September 30, 2015, the Company owes this company in which a director is a member of key management personnel $2,513,333 for farming costs, net of revenues owing. This amount is non-interest bearing with no terms of repayment, and is included in due to related parties. As at September 30, 2015, the Company owed its CFO $6,695, which is included in due to related parties. This amount is non-interest bearing with no terms of repayment and is included in due to related parties. 13. FINANCIAL INSTRUMENTS The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows: Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company’s primary exposure to credit risk is on its cash which is held in bank accounts. As most of the Company’s cash is held by two banks, there is a concentration of credit risk. This risk is managed by using major banks that are high credit quality financial institutions as determined by rating agencies. The Company’s secondary exposure to risk is on its sale taxes receivable from the Canadian government; as such, the credit risk is minimal. Liquidity Risk Liquidity risk is the risk that the Company may be unable to meet its financial obligations as they fall due. The Company reviews its working capital position regularly to ensure there is sufficient capital in order to meet short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash. Market risk includes foreign exchange risk, interest rate risk, and price risk as well as factors specific to an individual investment or its issuer or risk specific to a certain market. Market risk is managed principally through diversification of investments. Management monitors the overall market risk position on a quarterly basis Price Risk The Company is exposed to price risk in relation to listed marketable securities held at FVTPL. A 10% change in the market would result in a change of approximately $154,000 to comprehensive loss. Management regularly reviews the expected returns from holding such investment on an individual basis.
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 13. FINANCIAL INSTRUMENTS (Continued) Foreign exchange risk Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is not exposed to foreign exchange risk. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to interest rate risk is minimal as all of the interest bearing obligations have fixed interest rate. Classification of financial instruments Financial assets included in the statement of financial position are as follows:
Loans and receivables: Cash FVTPL: Marketable securities
September 30, 2015 $ 973,823 677,000 1,650,823
Financial liabilities included in the statement of financial position are as follows:
Non-derivative financial liabilities: Trade payables Interest payable Due to related parties Debenture Notes payable
September 30, 2015 $ 590,312 12,478 3,606,220 7,051,914 488,735 11,749,659
Fair Value The fair values of the Company’s financial assets and liabilities approximates the carrying amounts either due to their short-term nature or because the interest rates applied to measure their carrying amount approximate current market rates.
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 13. FINANCIAL INSTRUMENTS (Continued) Fair Value (continued) Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and Level 3 – Inputs that are not based on observable market data.
The following is an analysis of the Company’s financial assets measured at fair value as September 30, 2015:
Cash Marketable Securities (Note 4)
Level 1 $ 973,823 460,000 1,433,823
Level 2 $ 217,000 217,500
Level 3 $ -
Cash is measured at fair value using level 1 inputs. 14. SEGMENTS Operating segments The Company operates in a single reportable operating segment which is the acquisition and development of properties and biological assets in the US. Geographic segments All of the Company’s non-current assets are located in the US and all revenue is earned in the US. 15. CAPITAL MANAGEMENT The Company's policy is to maintain a strong capital base so as to maintain investor and creditor confidence, safeguard the Company’s ability to support the development of its properties and biological assets and to sustain future development of the business. The capital structure of the Company consists of working and share capital. There are no restrictions on the Company’s capital. There were no changes in the Company's approach to capital management during the year.
Ameri-Can Agri Co. Inc. Notes to the consolidated financial statements September 30, 2015 (Expressed in Canadian dollars) 16. INCOME TAXES A reconciliation of the expected income tax recovery to the actual income tax recovery is as follows:
Net loss before income taxes Statutory tax rate Expected income tax recovery at the statutory tax rate Non-deductible expenses Foreign exchange and other Changes in valuation allowance Income tax recovery
September 30, 2015 $ (2,654,007) 26% (690,042) (57,330) (608,315) 1,355,687 -
The Company has the following deferred tax assets (liabilities) differences for which no deferred tax asset has been recognized:
Non-capital loss carry-forwards Marketable securities Properties Deferred tax assets
September 30, 2015 $ 831,669 (57,330) 581,348 1,355,687
The Company’s has approximately $719,000 in Canaidan non-capital tax losses and approximately $1,416,000 in US non-capital tax losses which will expire in 2035. 17. SUBSEQUENT EVENT On October 13, 2015, 250,000 warrants were exercised for cash proceeds of $25,000.