Exhibit 99.4

Regional Tire Distributors (Edmonton) Inc.

Index

February 28, 2014 and 2013 and February 29, 2012

 

		Page
Independent Auditors’ Report			2
Financial Statements
Balance Sheets			3
Statements of Operations			4
Statements of Retained Earnings			5
Statements of Cash Flows			6
Notes to Financial Statements			7

 

1

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				Collins Barrow Edmonton LLP
		INDEPENDENT AUDITORS’ REPORT		2380 Commerce Place
				10155—102 Street N.W.
				Edmonton, Alberta
				T5J 4G8 Canada
				T.  780.428.1522
To the Shareholders of Regional Tire Distributors (Edmonton) Inc.				F.  780.425.8189
				www.collinsbarrow.com

We have audited the accompanying financial statements of Regional Tire Distributors (Edmonton) Inc., which comprise the balance sheets as of February 28, 2014, February 28, 2013 and February 29, 2012, and the related statements of operations, retained earnings and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian Accounting Standards for Private Enterprises; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the 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 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. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Regional Tire Distributors (Edmonton) Inc. as of February 28, 2014, February 28, 2013 and February 29, 2012, and the results of their operations and their cash flows for the years then ended in accordance with Canadian Accounting Standards for Private Enterprises.

Basis of Accounting

As more fully described in Note 2 to the financial statements, the Company’s policy is to prepare its financial statements on the basis of Canadian Accounting Standards for Private Enterprises which differ from accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to that matter. Information relating to the nature and effect of such differences is presented in note 11 to the financial statements.

 

Edmonton, Alberta		/s/ Collins Barrow Edmonton LLP
June 25, 2014 except for Note 11 (footnotes (b)
and (c)) which are as of July 25, 2014 and Notes 11 (footnotes (a) and (d)) and 12 which are as of August 18, 2014		Chartered Accountants

 

This office is independently owned and operated by Collins Barrow Edmonton LLP
The Collins Barrow trademarks are used under License.

 

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Balance Sheets

As at February 28, 2014, February 28, 2013 and February 29, 2012

 

		February 28, 2014				February 28, 2013				February 29, 2012
ASSETS
Current Assets
Cash		$	616,007			$	190,917			$	769,834
Accounts receivable (Note 3)			1,156,243				907,255				1,559,453
Goods and Services Tax receivable			—				149,806				190
Income taxes receivable			40,047				—				—
Dividend receivable			109,081				—				—
Inventories (Note 4)			2,178,797				3,448,221				2,227,471
Prepaid expenses			5,513				6,403				5,260
			4,105,688				4,702,602				4,562,208
Loans receivable from related parties (Note 5)			11,728,951				3,012,874				1,099,391
Equipment (Note 6)			5,953				7,463				9,359
Investments			625				175				175
		$	15,841,217			$	7,723,114			$	5,671,133
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities		$	1,108,673			$	843,924			$	1,623,197
Income taxes payable			—				380,473				5,955
Goods and Services Tax payable			46,289				—				—
Management remuneration payable			—				30,000				600,000
			1,154,962				1,254,397				2,229,152
Loans payable to related parties (Note 5)			3,584,288				2,633,845				922,428
Shareholders’ loan (Note 7)			6,232,700				500,000				600,000
			10,971,950				4,388,242				3,751,580
SHAREHOLDERS’ EQUITY
Share capital (Note 8)			100				100				100
Retained earnings			4,869,167				3,334,772				1,919,453
			4,869,267				3,334,872				1,919,553
		$	15,841,217			$	7,723,114			$	5,671,133

See accompanying notes

 

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Statements of Operations

For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012

 

		February 28, 2014				February 28, 2013				February 29, 2012
Sales (Note 5)		$	19,504,654			$	18,455,516			$	18,315,246
Cost of sales (Note 5)			14,371,030				15,547,112				15,991,709
Gross profit			5,133,624				2,908,404				2,323,537
Expenses
Wages and benefits			532,308				498,127				347,259
Office			389,063				145,229				282,178
Rent (Note 5)			228,401				219,750				159,500
Professional fees			137,722				954				2,740
Management salaries			55,250				10,000				610,000
Automotive			43,138				38,460				24,275
Interest and bank charges			41,303				45,540				33,607
Advertising and promotion			38,458				44,003				66,261
Insurance			18,054				15,969				12,473
Travel			15,303				18,022				2,829
Bad debt expense			11,504				33,342				697
Property taxes			7,625				208				441
Telephone and utilities			2,791				2,738				2,540
Repairs and maintenance			2,204				1,320				2,776
Amortization			1,510				1,896				3,274
Shop supplies			1,458				609				85
Dues and memberships			—				100				100
			1,526,092				1,076,267				1,551,035
Income before other revenue (expenses) and income taxes			3,607,532				1,832,137				772,502
Other revenue (expenses)
Dividend income			109,081				—				—
Interest income			22,735				27,700				18,118
Impairment of advances to related party			(1,800,000	)			—				—
Income before income taxes			1,939,348				1,859,837				790,620
Income taxes expense			404,953				444,518				69,387
Net income		$	1,534,395			$	1,415,319			$	721,233

See accompanying notes

 

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Statements of Retained Earnings

For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012

 

		February 28, 2014				February 28, 2013				February 29, 2012
Balance, beginning of year		$	3,334,772			$	1,919,453			$	1,198,220
Net income			1,534,395				1,415,319				721,233
Balance, end of year		$	4,869,167			$	3,334,772			$	1,919,453

See accompanying notes

 

5

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Statements of Cash Flows

For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012

 

		February 28, 2014				February 28, 2013				February 29, 2012
Cash provided by (used in):
Operating Activities
Net income		$	1,534,395			$	1,415,319			$	721,233
Items not affecting cash
Amortization			1,510				1,896				3,274
Impairment of advances to related party			1,800,000				—				—
Change in non-cash working capital items (Note 9)			922,569				(1,694,065	)			(478,452	)
			4,258,474				(276,850	)			246,055
Investing Activities
Investment in other companies			(450	)			—				(75	)
Purchase of equipment			—				—				(633	)
Advances to related parties			(10,516,178	)			(2,085,895	)			(1,000,392	)
Repayments from related parties			100				1,099,000				311,659
			(10,516,528	)			(986,895	)			(689,441	)
Financing Activities
Advances from related parties			2,108,692				784,828				690,769
Repayments to related parties			(1,158,248	)			—				(72,100	)
Advances from shareholder			5,732,700				—				500,000
Repayment to shareholder			—				(100,000	)			—
			6,683,144				684,828				1,118,669
Increase (decrease) in cash			425,090				(578,917	)			675,283
Cash, beginning of year			190,917				769,834				94,551
Cash, end of year		$	616,007			$	190,917			$	769,834

See accompanying notes

 

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

1. Nature of operations

The Company was incorporated under the Alberta Business Corporations Act on December 3, 2004 and operates a wholesale tire distribution business, which fully commenced operations in the fiscal year ended February 28, 2009 as North Alta Tire Limited and subsequently changed its name to Regional Tire Distributors (Edmonton) Inc.

2. Summary of significant accounting policies

Basis of presentation

These financial statements are prepared in accordance with Canadian accounting standards for private enterprises.

Revenue recognition

Revenue is recognized when the goods have been delivered, the services have been completed, the transaction has been accepted by the customer and collection is reasonably assured. The Company reports its revenue net of returns, sales discounts and volume rebates to customers.

Interest revenue is recognized on an annual basis as it is earned.

Vendor rebates and allowances

The Company participates in various purchase rebate programs with its major tire vendors including early payment incentives and volume purchase rebates based on defined levels of purchase volume. These arrangements enable the Company to earn rebates that reduce the cost of merchandise purchased. Vendor rebates and allowances are accrued as earned. Vendor rebates and allowances earned are initially recorded as a reduction in the cost of merchandise inventories and are included in operations (as a reduction of cost of goods sold) in the period the related product is sold. Accordingly, the amount of vendor rebates included in operations in any year could include rebates earned in a prior year.

Allowance for doubtful accounts

The allowance for doubtful accounts reflects management’s best estimate of losses on the accounts receivable balances. The company maintains an allowance for doubtful accounts that is estimated based on a variety of factors including accounts receivable aging, historical experience and other currently available information, including events such as customer bankruptcy and current economic conditions. Interest is charged on overdue account receivable balances. A provision is recorded in the period in which the receivable is deemed uncollectible.

Inventories

Inventories are valued at the lower of cost or net realizable value. The cost of inventories comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition including volume rebates and allowances from vendors. The cost of inventories is determined using the first-in, first-out (FIFO) method. Net realizable value is the estimated selling price in the ordinary course of business, less costs necessary to complete the sale. Inventory is reduced for the estimated losses due to obsolescence. This reduction is determined for groups of products based on purchases in the recent past and/or expected future demand.

 

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

Equipment

Equipment is recorded at cost less accumulated amortization.

Amortization is calculated at the following annual rates:

 

Office equipment		-  20% declining balance basis
Computer equipment		-  30% declining balance basis
Shop equipment		-  20% declining balance basis

Equipment is tested for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable when it exceeds the sum of the undiscounted cash flows expected from its use and eventual disposal. In such a case, an impaired loss must be recognized and is equivalent to the excess of the carrying amount of a long-lived asset over its fair value.

Investments

The company accounts for its investments using the cost method. The carrying value of each investment is reviewed annually and written down below cost if there is a loss of value.

Income taxes

The Company uses the future income taxes method to account for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Future income tax assets are recognized only to the extent it is more likely than not that the asset will be realized.

Use of estimates

The preparation of financial statements in conformity with Accounting Standards for Private Enterprises requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more subjective estimates included in these financial statements are the determination of allowance for doubtful accounts receivable, valuation of inventory and the recognition of vendor rebates and allowance. Actual results could differ from those estimates.

Financial Instruments

Measurement of financial instruments

The company initially measures its financial assets and liabilities at fair value, except for certain non-arm’s length transactions.

The Company subsequently measures all its financial assets and financial liabilities at amortized cost, except for equity instruments that are quoted in an active market, which are measured at fair value. Changes in fair value are recognized in net income.

 

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

Financial assets measured at amortized cost include cash, accounts receivable, dividend receivable and loans receivable from related parties.

Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, management remuneration payable, loans payable to related parties and shareholders’ loan.

Impairment

Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income.

Transaction costs

Transaction costs relating to financial instruments that are measured subsequently at fair value are recognized in operations in the year in which they are incurred. For instruments that are subsequently measured at amortized cost, the amount initially recognized is adjusted for transaction costs directly attributable to the origination, acquisition, issuance or assumption.

3. Accounts Receivable

Accounts Receivable consists of the following:

 

		February 28, 2014				February 28, 2013				February 29, 2012
Accounts receivable—Trade		$	1,221,786			$	964,752			$	1,319,446
Warranty receivable			49,739				47,385				314,820
Allowance for Doubtful Accounts			(115,282	)			(104,882	)			(74,813	)
		$	1,156,243			$	907,255			$	1,559,453

4. Inventories

Inventories consist of the following:

 

		February 28, 2014				February 28, 2013				February 29, 2012
Tires		$	2,177,365			$	3,447,166			$	2,227,471
Parts			1,432				1,055				—
		$	2,178,797			$	3,448,221			$	2,227,471

Cost of sales reported on the statement of operations include $14,371,030 (February 28, 2013—$15,547,112; February 29, 2012—$15,991,709) of inventories recognized as an expense during the year.

Inventories are net of volume rebates in the amount of $56,179 (February 28, 2013—$197,268; February 29, 2012—$29,087)

 

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

5. Loans Receivable from/Payable to Related Parties and Related Party Transactions

Loans receivable from related parties are as follows:

 

		February 28, 2014				February 28, 2013				February 29, 2012
Kirks Tire Ltd.		$	3,750,000			$	—			$	—
Tirecraft Western Canada Ltd.			139,949				—				—
Extreme Wheel Distributors Ltd.			17,367				12,924				441
1773503 Alberta Ltd.			2,499,900				—				—
Tirecraft Canada Ltd.			—				—				99,000
Regional Tire Distributors (Saskatchewan) Inc.			4,676,167				2,499,950				999,950
Regional Tire Distributors (Manitoba) Inc.			499,900				500,000				—
Tire Storage Direct (Edmonton) Ltd.			30,818				—				—
Integra Tire & Auto Centres Canada Ltd.			114,850				—				—
		$	11,728,951			$	3,012,874			$	1,099,391

Loans receivable from the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. The relationship between Regional Tire Distributors (Edmonton) Inc. and each of these companies is as follows:

Kirks Tire Ltd. is indirectly owned by a director of Regional Tire Distributors (Edmonton) Inc.

Tirecraft Western Canada Ltd., Tire Storage Direct (Edmonton) Ltd. and 1773503 Alberta Ltd. are wholly owned by Regional Tire Distributors (Edmonton) Inc.

Extreme Wheel Distributors Ltd. is controlled by a close family member of a director of Regional Tire Distributors (Edmonton) Inc.

Regional Tire Distributors (Manitoba) Inc. and Integra Tire & Auto Centres Canada Ltd. are companies in which Regional Tire Distributors (Edmonton) Inc. has significant influence.

Tirecraft Canada Ltd. is indirectly owned by a director of Regional Tire Distributors (Edmonton) Inc.

Regional Tire Distributors (Saskatchewan) Inc. is owned by the directors of Regional Tire Distributors (Edmonton) Inc.

As the loans receivable have no stated terms of repayment and are not expected to be repaid within the next year, and accordingly have been classified as long term assets.

Loans payable to related parties are as follows:

 

		February 28, 2014				February 28, 2013				February 29, 2012
Tirecraft Western Canada Ltd.		$	—			$	158,248			$	231,659
Kirks Tire Ltd.			—				1,000,000				—
Trail Tire Distributors Ltd.			3,584,288				1,475,597				690,769
		$	3,584,288			$	2,633,845			$	922,428

 

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

Loans payable to the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. The relationship between Regional Tire Distributors (Edmonton) Inc. and each of these companies is as follows:

Tirecraft Western Canada Ltd. is wholly owned by Regional Tire Distributors (Edmonton) Inc.

Kirks Tire Ltd. is indirectly owned by a director of Regional Tire Distributors (Edmonton) Inc.

Trail Tire Distributors Ltd. is jointly controlled by a director of Regional Tire Distributors (Edmonton) Inc.

As the related parties have agreed in writing not to demand repayment of any portion of the loan balances prior to March 1, 2015, the loans have been classified as long term liabilities.

Sales to related parties are as follows:

 

		February 28, 2014				February 28, 2013				February 29, 2012
Regional Tire Distributors (Calgary) Inc.		$	743,230			$	123,978			$	142,204
Kirks Tire (Lethbridge) Ltd.			11,741				3,771				—
Kirks Tire (Edmonton) Ltd.			59,442				62,786				88,523
Kirks Tire (Red Deer) Ltd.			86,029				61,090				79,087
Regional Tire Distributors (Langley) Inc.			38,021				4,571				2,596
Regional Tire Distributors (Vernon) Inc.			59,804				16,666				1,352
Regional Tire Distributors (Victoria) Inc.			6,724				23,592				—
Regional Tire Distributors (Winnipeg) Inc.			112,164				1,803				—
Tirecraft Edmonton Truck Centre Inc.			336,054				285,546				519,443
Tirecraft Lloydminster Truck Centre Inc.			429,157				416,794				370,678
Trail Tire Distributors Ltd.			223,912				2,585,228				72,677
Extreme Wheel Distributors Ltd.			9,164				329				—
Trail Tire (Kingsway) Ltd.			64,690				23,205				—
		$	2,180,132			$	3,609,359			$	1,276,560

Included in accounts receivable are the following balances receivable from related parties as at the fiscal year-end:

 

		February 28, 2014				February 28, 2013				February 29, 2012
Regional Tire Distributors (Calgary) Inc.		$	6,990			$	5,907			$	3,205
Kirks Tire (Lethbridge) Ltd.			4,135				10,558				7,093
Kirks Tire (Edmonton) Ltd.			2,321				1,976				2,523
Kirks Tire (Red Deer) Ltd.			2,321				1,160				6,714
Regional Tire Distributors (Vernon) Inc.			5,911				2,856				—
Regional Tire Distributors (Victoria) Inc.			2,635				1,562				—
Regional Tire Distributors (Winnipeg) Inc.			11,686				1,893				—
Tirecraft Edmonton Truck Centre Inc.			20,877				14,315				51,881
Tirecraft Lloydminster Truck Centre Inc.			11,224				38,867				43,133
Trail Tire Distributors Ltd.			294,547				256,070				28,102
Extreme Wheel Distributors Ltd.			2,731				72				—
Trail Tire (Kingsway) Ltd.			2,497				1,386				—
		$	367,875			$	336,622			$	142,651

 

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

Regional Tire Distributors (Calgary) Inc. is a company in which Regional Tire Distributors (Edmonton) Inc. has significant, non-controlling interests.

A director of Regional Tire Distributors (Edmonton) Inc. has indirect interests in KDW Enterprises Ltd., Kirks Tire (Lethbridge) Ltd., Kirks Tire (Edmonton) Ltd., Kirks Tire (Red Deer) Ltd., Regional Tire Distributors (Vernon) Inc., Regional Tire Distributors (Victoria) Inc., Regional Tire Distributors (Langley) Inc., Regional Tire Distributors (Winnipeg) Inc., Tirecraft Lloydminster Truck Centre Inc. and Tirecraft Edmonton Truck Centre Inc.

Trail Tire (Kingsway) Ltd. is controlled by a director of Regional Tire Distributors (Edmonton) Inc.

Purchases from related parties are as follows:

 

		February 28, 2014				February 28, 2013				February 29, 2012
Kirks Tire Ltd.		$	1,103,450			$	1,040,771			$	1,778,657
KDW Enterprises Ltd.			534,721				994,156				1,099,098
Regional Tire Distributors (Calgary) Inc.			75,372				181,406				151,258
Trail Tire Distributors Ltd.			88,701				265,241				252,697
Extreme Wheel Distributors Ltd.			1,973				3,812				4,190
		$	1,804,217			$	2,485,386			$	3,285,900

Included in the rent expense are lease payments to 1470242 Alberta Ltd., a company controlled by a director of the Company, which amounted to $174,000 for the 2014 fiscal year (February 28, 2013—$219,750; February 29, 2012—$159,500).

Included in accounts payable and accrued liabilities are the following balances payable to the related parties as at the fiscal year-end:

 

		February 28, 2014				February 28, 2013				February 29, 2012
Trail Tire Distributors Ltd.		$	242,157			$	381,745			$	1,130,048
Kirks Tire Ltd.			209,092				188,472				8,158
KDW Enterprises Ltd.			534,465				598,227				729,999
Regional Tire Distributors (Calgary) Inc.			13,135				7,537				11,371
Extreme Wheel Distributors Ltd.			—				855				151
		$	998,849			$	1,176,836			$	1,879,727

These transactions are in the normal course of operations and have been reported in these financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

6. Equipment

 

		February 28, 2014
		Cost				Accumulated Amortization				Net
Office equipment		$	5,947			$	3,872			$	2,075
Computer equipment			789				670				119
Shop equipment			11,985				8,226				3,759
		$	18,721			$	12,768			$	5,953

 

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

		February 28, 2013
		Cost				Accumulated Amortization				Net
Office equipment		$	5,947			$	3,353			$	2,594
Computer equipment			789				618				171
Shop equipment			11,985				7,287				4,698
		$	18,721			$	11,258			$	7,463

 

		February 29, 2012
		Cost				Accumulated Amortization				Net
Office equipment		$	5,947			$	2,704			$	3,243
Computer equipment			789				546				243
Shop equipment			11,985				6,112				5,873
		$	18,721			$	9,362			$	9,359

7. Shareholders’ Loan

Shareholders’ loan at February 28, 2014 includes amounts outstanding at February 28, 2013 and February 29, 2012 are unsecured, non-interest bearing, and are due March 1, 2015.

8. Share Capital

 

Authorized:

Unlimited number of Class “A” common voting shares

Unlimited number of Class “B” and “C” common non-voting shares

1,000,000 Class “D” Preferred redeemable voting shares

 

		February 28, 2014				February 28, 2013				February 29, 2012
Issued:
100 Class A common shares		$	100			$	100			$	100

9. Non-cash Working Capital Items

Non-cash working capital items related to operations are as follows:

 

		February 28, 2014				February 28, 2013				February 29, 2012
Accounts receivable		$	(248,988	)		$	652,198			$	(734,470	)
Goods and Services Tax receivable			149,806				(149,616	)			(190	)
Income taxes receivable			(40,047	)			—				—
Dividend receivable			(109,081	)			—				—
Inventories			1,269,424				(1,220,750	)			(673,551	)
Prepaid expenses and deposits			890				(1,143	)			(2,322	)
Accounts payable and accrued liabilities			264,749				(779,272	)			344,490
Income taxes payable			(380,473	)			374,518				4,521
Goods and Services Tax payable			46,289				—				(16,930	)
Management remuneration payable			(30,000	)			(570,000	)			600,000
		$	922,569			$	(1,694,065	)		$	(478,452	)

 

13

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

10. Financial Instruments

Credit Risk

The Company is susceptible to credit risk on its accounts receivable and mitigates this risk through an extensive credit evaluation process.

Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to this risk mainly in respect to its accounts payable and accrued liabilities and its management remunerations payable. At February 28, 2014 the company had a working capital balance of $2,950,726 (February 28, 2013—$3,448,205; February 29, 2012—$2,333,056).

Interest Rate Risk

Interest rate risk refers to adverse consequences of interest rate changes on the Company’s cash flows and financial position. Management does not believe the Company is exposed to significant interest rate risk.

11. Canadian Accounting Standards for Private Enterprises and US GAAP Reconciliation

The financial statements of the Company have been prepared in accordance with Canadian Accounting Standards for Private Enterprises (“ASPE”). The material differences between the accounting policies used by the Company under ASPE and US GAAP are disclosed below.

a) Income Taxes

The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to this guidance represents an unrecognized tax benefit. An unrecognized tax benefit is disclosed as a long-term liability unless the Corporation anticipates a payment or receipt within one year in respect of the position. As a result of implementing these provisions there was no material impact on the Company’s financial statements.

Under US GAAP the Company is required to calculate and record corporate income taxes based on enacted corporate income tax rates. Under the Canadian Accounting Standards for Private Enterprises, the Company had calculated and recognized corporate income taxes using substantively enacted corporate income tax rates. For the company, enacted and substantively enacted corporate tax rates are the same; as a result no differences to calculated and recognized corporate income taxes arise. There are no material differences between the Company’s statutory income tax rate and the effective tax rate.

b) Variable interest entities

The Company has performed a review of the entities with which it conducts business and has concluded that there are no entities that are required to be consolidated or variable interest that are required to be disclosed under the requirements of ASC Topic 810, Consolidation of Variable Interest Entities.

c) Wholly owned subsidiaries and investments subject to significant influence

US GAAP requires the consolidation of subsidiaries, whereas under ASPE the Company elected to record the investment in subsidiaries on the cost method. The Company’s wholly owned subsidiaries include Tirecraft Western Canada Ltd., 1773503 Alberta Ltd., and Tire Storage Direct (Edmonton) Ltd.

 

14

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

The Company also has significantly influence investments in Regional Tire Distributors (Calgary) Inc., Regional Tire Distributors Manitoba (6631208 Manitoba Ltd.), Integra Tire and Auto Centres Canada, and Regional Tire Distributors (Saskatchewan) Inc. Under US GAAP, significantly influenced investments are required to be accounted for using the equity method, whereby the investment is initially recorded at cost, and adjusted to recognize the Company’s share of after tax earnings or losses, and reduced by dividends received, however under ASPE the Company elected to record the significantly influenced investments on the cost method. The accompanying financial information includes consolidated financial statements which reflect the equity method of accounting for these investments and condensed financial statements for each investee company.

The following financial information presents the financial statement as at February 28, 2014, February 28, 2013 and February 29, 2012 on a consolidated basis.

d) Comprehensive Income

US GAAP requires the presentation of a Statement of Comprehensive Income. The Company has no items that would cause such presentation to differ from the amounts presented as Net Income in the accompanying financials statements.

 

15

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

2014 Consolidated Balance Sheet

 

		Regional Tire Distributors (Edmonton) Inc.				Tirecraft Western Canada Ltd.				1773503 Alberta Ltd.				Tire Storage Direct (Edmonton) Ltd.				Adjustments and Eliminations				Consolidated
		(i)
ASSETS
Current Assets
Cash		$	616,007			$	464,293			$	—			$	88,845			$	—			$	1,169,145
Accounts receivable			1,156,243				600,238				196,875				8,624				—				1,961,980
Goods and Services Tax receivable			—				—				—				46				—				46
Income taxes receivable			40,047				—				—				—				—				40,047
Dividend receivable			109,081				—				—				—				—				109,081
Inventories			2,178,797				34,757				—				—				—				2,213,554
Prepaid expenses			5,513								—				—				—				5,513
			4,105,688				1,099,288				196,875				97,515				—				5,499,366
Loans receivable from related parties			11,090,841				3,581				—				—				(2,670,667	)			8,423,755
Equipment			5,953				3,985				2,403,425				7,051				—				2,420,414
Investments			1,157,017				—								—				(300	)			1,156,717
		$	16,359,499			$	1,106,854			$	2,600,300			$	104,566			$	(2,670,967	)		$	17,500,252
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities		$	1,108,673			$	40,784			$	—			$	2,099			$	—			$	1,151,556
Income taxes payable			—				95,924				22,731				11,299				—				129,954
Goods and Services Tax payable			46,289				18				9,375				—				—				55,682
			1,154,962				136,726				32,106				13,398								1,337,192
Loans payable to related parties			3,584,288				568,306				—				26,355				—				4,178,949
Shareholder loan			6,232,700				139,949				2,499,900				30,818				(2,670,667	)			6,232,700
			10,971,950				844,981				2,532,006				70,571				(2,670,667	)			11,748,841
SHAREHOLDERS’ EQUITY
Share capital			100				100				100				100				(300	)			100
Retained earnings			5,387,449				261,773				68,194				33,895				—				5,751,311
			5,387,549				261,873				68,294				33,995				(300	)			5,751,411
		$	16,359,499			$	1,106,854			$	2,600,300			$	104,566			$	(2,670,967	)		$	17,500,252

 

(i)	Represents the balance sheet as prepared under Canadian Accounting Standards for Private Enterprises adjusted for the Company’s accumulated share of earnings and losses in significantly influenced investments of $518,282 as required by the equity method of accounting for investments.

 

16

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

2014 Consolidated Statement of Operations

 

		Regional Tire Distributors (Edmonton) Inc.				Tirecraft Western Canada Ltd.				1773503 Alberta Ltd.				Tire Storage Direct (Edmonton) Ltd.				Adjustments and Eliminations				Consolidated
		(i)
Sales		$	19,504,654			$	1,917,645			$	187,500			$	87,820			$	(72,989	)		$	21,624,630
Cost of sales			14,371,030				761,025				—				3,900				(72,989	)			15,062,966
Gross profit			5,133,624				1,156,620				187,500				83,920				—				6,561,664
Expenses
Wages and benefits			532,308				292,634				—				—				—				824,942
Management salaries			55,250				27,500				—				—				—				82,750
Rent			228,401				—				—				20,717				—				249,118
Automotive			43,138				49,191				—				—				—				92,329
Interest and bank charges			41,303				—				—				74				—				41,377
Amortization			1,510				443				96,575				1,244				—				99,772
Telephone and utilities			2,791				2,564				—				—				—				5,355
Office			389,063				120,828				—				7,925				—				517,816
Repairs and maintenance			2,204				—				—				—				—				2,204
Insurance			18,054				1,966				—				1,219				—				21,239
Advertising and promotion			38,458				98,411				—				2,274				—				139,143
Shop supplies			1,458				—				—				1,050				—				2,508
Travel			15,303				39,076				—				10				—				54,389
Professional fees			137,722				81,016				—				761				—				219,499
Property taxes			7,625				214				—				3,497				—				11,336
Bad debt expense			11,504				46,352				—				—				—				57,856
Dues and memberships			—				7,499				—				—				—				7,499
			1,526,092				767,694				96,575				38,771				—				2,429,132
Income before other revenue (expenses) and income taxes			3,607,532				388,926				90,925				45,149				—				4,132,532
Other revenue
Dividend income			109,081				—				—				—				—				109,081
Interest income			22,735				1,727				—				45				—				24,507
Share of investee income			159,164				—				—				—				—				159,164
Impairment of advances to related party			(1,800,000	)			—				—				—				—				(1,800,000	)
Income before income taxes			2,098,512				390,653				90,925				45,194				—				2,625,284
Income taxes expense			404,953				95,924				22,731				11,299				—				534,907
Net income		$	1,693,559			$	294,729			$	68,194			$	33,895			$	—			$	2,090,377

 

(i)	Represents the statement of operations of the Company under Canadian Accounting Standards for Private Enterprises adjusted for the Company’s share of the earnings and losses in significantly influenced investments of $159,164.

 

17

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

2014 Consolidated Statement of Retained Earnings

 

		Regional Tire Distributors (Edmonton) Inc.				Tirecraft Western Canada Ltd.				1773503 Alberta Ltd.				Tire Storage Direct (Edmonton) Ltd.				Adjustments and Eliminations				Consolidated
Balance, beginning of year		$	3,693,890			$	(32,956	)		$	—			$	—			$	—			$	3,660,934
Net income			1,693,559				294,729				68,194				33,895				—				2,090,377
Balance, end of year		$	5,387,449			$	261,773			$	68,194			$	33,895			$	—			$	5,751,311

2014 Consolidated Statement of Cash Flows

 

		Regional Tire Distributors (Edmonton) Inc.				Tirecraft Western Canada Ltd.				1773503 Alberta Ltd.				Tire Storage Direct (Edmonton) Ltd.				Adjustments and Eliminations				Consolidated
Cash provided by (used in):
Operating Activities
Net income		$	1,693,559			$	294,729			$	68,194			$	33,895			$	—			$	2,090,377
Items not affecting cash Amortization			1,510				443				96,575				1,244				—				99,772
Share of investee income			(159,164	)			—				—				—				—				(159,164	)
Impairment of advances to related party			1,800,000				—				—				—				—				1,800,000
Change in non-cash working capital items			922,569				(100,220	)			(164,769	)			4,728				—				662,308
			4,258,474				194,952				—				39,867				—				4,493,293
Investing Activities
Investment in other companies			(450	)			—				—				—				200				(250	)
Purchase of equipment			—				(4,428	)			(2,500,000	)			(8,295	)			—				(2,512,723	)
Advances to related parties			(10,516,178	)			(1,352	)			—				—				2,670,667				(7,846,863	)
Repayments from related parties			100				—				—				—				—				100
Repayments from Shareholder			—				158,248				—				—				—				158,248
			(10,516,528	)			152,468				(2,500,000	)			(8,295	)			2,670,867				(10,201,488	)
Financing Activities
Advances from related parties			2,108,692				22,000				—				26,355				—				2,157,047
Repayments to related parties			(1,158,248	)			(95,796	)			—				—				—				(1,254,044	)
Advances from shareholder			5,732,700				139,949				2,500,000				30,918				(2,670,867	)			5,732,700
Repayment to shareholder			—				—				—				—				—				—
			6,683,144				66,153				2,500,000				57,273				(2,670,867	)			6,635,703
Increase (decrease) in cash			425,090				413,573				—				88,845				—				927,508
Cash, beginning of year			190,917				50,720				—				—				—				241,637
Cash, end of year		$	616,007			$	464,293			$	—			$	88,845			$	—			$	1,169,145

 

18

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

2013 Consolidated Balance Sheet

 

		Regional Tire Distributors (Edmonton) Inc.				Tirecraft Western Canada Ltd.				Adjustments and Eliminations				Consolidated
		(i)
ASSETS
Current Assets
Cash		$	190,917			$	50,720			$	—			$	241,637
Accounts receivable			907,255				478,639				—				1,385,894
Goods and Services Tax receivable			149,806				2,948				—				152,754
Inventories			3,448,221				20,826				—				3,469,047
Prepaid expenses			6,403				—				—				6,403
			4,702,602				553,133				—				5,255,735
Loans receivable from related parties			2,824,549				2,229				—				2,826,778
Equipment			7,463				—				—				7,463
Shareholder advance			—				158,248				(158,248	)			—
Investments			547,618				—				(100	)			547,518
		$	8,082,232			$	713,610			$	(158,348	)		$	8,637,494
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities		$	843,924			$	94,364			$	—			$	938,288
Income taxes payable			380,473				—				—				380,473
Goods and Services Tax payable			—				—				—				—
Management remuneration payable			30,000				10,000				—				40,000
			1,254,397				104,364				—				1,358,761
Loans payable to related parties			2,633,845				642,102				(158,248	)			3,117,699
Shareholder loan			500,000				—				—				500,000
			4,388,242				746,466				(158,248	)			4,976,460
SHAREHOLDERS’ EQUITY
Share capital			100				100				(100	)			100
Retained earnings			3,693,890				(32,956	)			—				3,660,934
			3,693,990				(32,856	)			(100	)			3,661,034
		$	8,082,232			$	713,610			$	(158,348	)		$	8,637,494

 

(i)	Represents the balance sheet as prepared under Canadian Accounting Standards for Private Enterprises adjusted for the Company’s accumulated share of earnings and losses in significantly influenced investments of $359,118 as required by the equity method of accounting for investments.

 

19

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

2013 Consolidated Statement of Operations

 

		Regional Tire Distributors (Edmonton) Inc.				Tirecraft Western Canada Ltd.				Adjustments and Eliminations				Consolidated
		(i)
Sales		$	18,455,516			$	793,126			$	(74,124	)		$	19,174,518
Cost of sales			15,547,112				261,427				(74,124	)			15,734,415
Gross profit			2,908,404				531,699				—				3,440,103
Expenses
Wages and benefits			498,127				165,243				—				663,370
Management salaries			10,000				20,000				—				30,000
Rent			219,750				—				—				219,750
Automotive			38,460				33,504				—				71,964
Interest and bank charges			45,540				—				—				45,540
Amortization			1,896				—				—				1,896
Telephone and utilities			2,738				1,392				—				4,130
Office			145,229				297,283				(70,000	)			372,512
Repairs and maintenance			1,320				—				—				1,320
Insurance			15,969				1,928				—				17,897
Advertising and promotion			44,003				21,280				—				65,283
Shop supplies			609				109				—				718
Travel			18,022				39,213				—				57,235
Professional fees			954				24,843				—				25,797
Property taxes			208				208				—				416
Bad debt expense			33,342				—				—				33,342
Dues and memberships			100				7,399				—				7,499
			1,076,267				612,402				(70,000	)			1,618,669
Income (loss) before other revenue and income taxes			1,832,137				(80,703	)			70,000				1,821,434
Other revenue
Interest income			27,700				695				—				28,395
Share of investee income			174,036				—				—				174,036
Administrative service revenue			—				70,000				(70,000	)			—
Income before income taxes			2,033,873				(10,008	)			—				2,023,865
Income taxes expense			444,518				—				—				444,518
Net income		$	1,589,355			$	(10,008	)		$	—			$	1,579,347

 

(i)	Represents the statement of operations of the Company under Canadian Accounting Standards for Private Enterprises adjusted for the Company’s share of earnings and losses in significantly influenced investments of $174,036.

 

20

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

2013 Consolidated Statement of Retained Earnings

 

		Regional Tire Distributors (Edmonton) Inc.				Tirecraft Western Canada Ltd.				Adjustments and Eliminations				Consolidated
Balance, beginning of year		$	2,104,535			$	(22,948	)		$	—			$	2,081,587
Net income			1,589,355				(10,008	)			—				1,579,347
Balance, end of year		$	3,693,890			$	(32,956	)		$	—			$	3,660,934

2013 Consolidated Statement of Cash Flows

 

		Regional Tire Distributors (Edmonton) Inc.				Tirecraft Western Canada Ltd.				Adjustments and Eliminations				Consolidated
Cash provided by (used in):
Operating Activities
Net income		$	1,589,355			$	(10,008	)		$	—			$	1,579,347
Items not affecting cash
Amortization			1,896				—				—				1,896
Share of Investee income			(174,036	)			—				—				(174,036	)
Change in non-cash working capital items			(1,694,065	)			(270,841	)			—				(1,964,906	)
			(276,850	)			(280,849	)			—				(557,699	)
Investing Activities
Investment in other companies			—				—				—				—
Purchase of equipment			—				—				—				—
Advances to related parties			(2,085,895	)			(1,144	)			73,411				(2,013,628	)
Repayments from related parties			1,099,000				—				—				1,099,000
Repayment from Shareholder			—				—				—				—
			(986,895	)			(1,144	)			73,411				(914,628	)
Financing Activities
Advances from related parties			784,828				242,991				—				1,027,819
Repayment to related parties			—				(5,000	)			—				(5,000	)
Advances from shareholder			—				73,411				(73,411	)			—
Repayment to shareholder			(100,000	)			—				—				(100,000	)
			684,828				311,402				(73,411	)			922,819
Increase (decrease) in cash			(578,917	)			29,409				—				(549,508	)
Cash, beginning of year			769,834				21,311				—				791,145
Cash, end of year		$	190,917			$	50,720			$	—			$	241,637

 

21

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

2012 Consolidated Balance Sheet

 

		Regional Tire Distributors (Edmonton) Inc.				Tirecraft Western Canada Ltd.				Adjustments and Eliminations				Consolidated
		(i)
ASSETS
Current Assets
Cash		$	769,834			$	21,311			$	—			$	791,145
Accounts receivable			1,559,453				134,423				—				1,693,876
Goods and Services Tax receivable			190				4,348				—				4,538
Inventories			2,227,471				3,676				—				2,231,147
Prepaid expenses			5,260				176				—				5,436
			4,562,208				163,934				—				4,726,142
Loans receivable from related parties			1,099,391				1,085				—				1,100,476
Equipment			9,359				—				—				9,359
Shareholder advance			—				231,659				(231,659	)			—
Investments			185,257				—				(100	)			185,157
		$	5,856,215			$	396,678			$	(231,759	)		$	6,021,134
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities		$	1,623,197			$	15,415			$	—			$	1,638,612
Income taxes payable			5,955				—				—				5,955
Goods and Services Tax payable			—				—				—				—
Management remuneration payable			600,000				—				—				600,000
			2,229,152				15,415				—				2,244,567
Loans payable to related parties			922,428				404,111				(231,659	)			1,094,880
Shareholder loan			600,000				—				—				600,000
			3,751,580				419,526				(231,659	)			3,939,447
SHAREHOLDERS’ EQUITY
Share capital			100				100				(100	)			100
Retained earnings (losses)			2,104,535				(22,948	)			—				2,081,587
			2,104,635				(22,848	)			(100	)			2,081,687
		$	5,856,215			$	396,678			$	(231,759	)		$	6,021,134

 

(i)	Represents the balance sheet as prepared under Canadian Accounting Standards for Private Enterprises adjusted for the Company’s accumulated share of earnings and losses in significantly influenced investments of $185,082 required by the equity method of accounting for investments.

 

22

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

2012 Consolidated Statement of Operations

 

		Regional Tire Distributors (Edmonton) Inc.				Tirecraft Western Canada Ltd.				Adjustments and Eliminations				Consolidated
		(i)
Sales		$	18,315,246			$	399,118			$	(55,948	)		$	18,658,416
Cost of sales			15,991,709				16,026				(55,948	)			15,951,787
Gross profit			2,323,537				383,092				—				2,706,629
Expenses
Wages and benefits			347,259				351,038				—				698,297
Management salaries			610,000				—				—				610,000
Rent			159,500				—				—				159,500
Automotive			24,275				36,443				—				60,718
Interest and bank charges			33,607				99				—				33,706
Amortization			3,274				—				—				3,274
Telephone and utilities			2,540				1,834				—				4,374
Office			282,178				13,975				(240,000	)			56,153
Repairs and maintenance			2,776				—				—				2,776
Insurance			12,473				1,267				—				13,740
Advertising and promotion			66,261				170,072				—				236,333
Shop supplies			85				358				—				443
Travel			2,829				27,031				—				29,860
Professional fees			2,740				26,824				—				29,564
Property taxes			441				441				—				882
Bad debt expense			697				3,617				—				4,314
Dues and memberships			100				6,208				—				6,308
			1,551,035				639,207				(240,000	)			1,950,242
Income (loss) before other revenue and income taxes			772,502				(256,115	)			240,000				756,387
Other revenue
Interest income			18,118				1,076				—				19,194
Share of investee income			185,082				—				—				185,082
Administrative service revenue			—				240,000				(240,000	)			—
Income (loss) before income taxes			975,702				(15,039	)			—				960,663
Income taxes expense			69,387				—				—				69,387
Net income		$	906,315			$	(15,039	)		$	—			$	891,276

 

(i)	Represents the statement of operations of the Company under Canadian Accounting Standards for Private Enterprises adjusted for the Company’s share of the earnings in significantly influenced investments of $185,082.

 

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

2012 Consolidated Statement of Retained Earnings

 

		Regional Tire Distributors (Edmonton) Inc.				Tirecraft Western Canada Ltd.				Adjustments and Eliminations				Consolidated
Balance, beginning of year		$	1,198,220			$	(7,909	)		$	—			$	1,190,311
Net income			906,315				(15,039	)			—				891,276
Balance, end of year		$	2,104,535			$	(22,948	)		$	—			$	2,081,587

2012 Consolidated Statement of Cash Flows

 

		Regional Tire Distributors (Edmonton) Inc.				Tirecraft Western Canada Ltd.				Adjustments and Eliminations				Consolidated
Cash provided by (used in):
Operating Activities
Net income		$	906,315			$	(15,039	)		$	—			$	891,276
Items not affecting cash
Amortization			3,274				—				—				3,274
Share of Investee income			(185,082	)			—				—				(185,082	)
Change in non-cash working capital items			(478,452	)			105,269				—				(373,183	)
			246,055				90,230				—				336,285
Investing Activities
Investment in other companies			(75	)			—				—				(75	)
Purchase of equipment			(633	)			—				—				(633	)
Advances to related parties			(1,000,392	)			(499	)			—				(1,000,891	)
Repayments from related parties			311,659				—				—				311,659
Advances to shareholder			—				(231,659	)			231,659				—
			(689,441	)			(232,158	)			231,659				(689,940	)
Financing Activities
Advances from related parties			690,769				157,912				(231,659	)			617,022
Repayment to related parties			(72,100	)			(10,000	)			—				(82,100	)
Advances from shareholder			500,000				—				—				500,000
Repayment to shareholder			—				(8,000	)			—				(8,000	)
			1,118,669				139,912				(231,659	)			1,026,922
Increase (decrease) in cash			675,283				(2,016	)			—				673,267
Cash, beginning of year			94,551				23,327				—				117,878
Cash, end of year		$	769,834			$	21,311			$	—			$	791,145

 

24

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

The Company holds a 25% interest in Regional Tire Distributors (Calgary) Inc. The Condensed Financial Statements of Regional Tire Distributors (Calgary) Inc. is as follows:

 

Balance Sheets		February 28, 2014				February 28, 2013				February 29, 2012
Current Assets		$	8,986,008			$	7,307,723			$	7,327,776
Long Term Assets			2,320,654				686,852				697,596
			11,306,662				7,994,575				8,025,372
Current Liabilities			1,646,195				1,046,550				1,338,278
Long Term Liabilities			3,671,703				2,182,086				3,370,599
Shareholders’ Equity			5,988,764				4,765,939				3,316,495
		$	11,306,662			$	7,994,575			$	8,025,372

 

Statements of Operations		February 28, 2014				February 28, 2013				February 29, 2012
Sales		$	25,592,573			$	19,961,625			$	16,589,405
Cost of sales			20,463,834				15,726,623				12,987,392
Gross profit			5,128,739				4,235,002				3,602,013
Operating expenses			3,558,310				2,435,191				3,149,754
Income before other revenue and income taxes			1,570,429				1,799,811				452,259
Other revenue			183,674				174,550				144,079
Income before income taxes			1,754,103				1,974,361				596,338
Income taxes			462,218				524,917				69,931
Net income		$	1,291,885			$	1,449,444			$	526,407

The Company holds a 50% interest in Regional Tire Distributors (Saskatchewan) Inc. The Condensed Financial Statements of Regional Tire Distributors (Saskatchewan) Inc. is as follows:

 

Balance Sheets		February 28, 2014				February 28, 2013				February 29, 2012
Current Assets		$	5,226,861			$	6,047,177			$	3,871,475
Long Term Assets			229,942				272,472				331,016
			5,456,803				6,319,649				4,202,491
Current Liabilities			3,626,064				3,589,339				2,595,531
Long Term Liabilities			2,999,900				2,999,900				1,499,900
Shareholders’ Equity			(1,169,161	)			(269,590	)			107,060
		$	5,456,803			$	6,319,649			$	4,202,491

 

25

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

Statements of Operations		February 28, 2014				February 28, 2013				February 29, 2012
Sales		$	12,854,683			$	11,999,083			$	4,571,939
Cost of sales			11,144,551				9,310,716				3,381,476
Gross profit			1,710,132				2,688,367				1,190,463
Operating expenses			2,609,703				3,065,017				1,083,503
(Loss) income before income taxes			(899,571	)			(376,650	)			106,960
Income taxes			—				—				—
Net (loss) income		$	(899,571	)		$	(376,650	)		$	106,960

The Company holds a 50% interest in Regional Tire Distributors Manitoba (6631208 Manitoba Ltd.). The Condensed Financial Statements of Regional Tire Distributors Manitoba (6631208 Manitoba Ltd.) is as follows:

 

Balance Sheet		February 28, 2014
Current Assets		$	5,962,347
Long Term Assets			290,041
			6,252,388
Current Liabilities			597,291
Long Term Liabilities			5,517,124
Shareholders’ Equity			137,973
			$6,252,388

 

Statement of Operations		February 28, 2014
Sales		$	15,171,112
Cost of sales			12,079,184
Gross profit			3,091,928
Operating expenses			2,613,663
Income before other revenue and income taxes			478,265
Other revenue			3,306
Income before income taxes			481,571
Income taxes			45,246
Net income		$	436,325

 

26

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

The Company holds a 50% interest in Integra Tire and Auto Centres Canada Ltd. The Condensed Financial Integra Tire and Auto Centres Canada Ltd. is as follows:

 

Balance Sheet		February 28, 2014
Current Assets		$	1,141,492
Long Term Assets			—
			1,141,492
Current Liabilities			674,453
Long Term Liabilities			331,208
Shareholders’ Equity			135,831
			$1,141,492

 

Statement of Operations		February 28, 2014
Sales		$	3,382,315
Cost of sales			2,895,607
Gross profit			486,708
Operating expenses			312,260
Income before other revenue and income taxes			174,448
Other revenue			6,393
Income before income taxes			180,841
Income taxes			45,210
Net income		$	135,631

d) Reconciliation of net income per ASPE and US GAAP

 

		February 28, 2014				February 28, 2013				February 29, 2012
Net income, as reported in statement of operations under ASPE		$	1,534,395			$	1,415,319			$	721,233
Adjustments
Income from entities consolidated under
US GAAP:
Tirecraft Western Canada Ltd.			294,729				(10,008	)			(15,039	)
1773503 Alberta Ltd.			68,194				—				—
Tire Storage Direct (Edmonton) Ltd.			33,895				—				—
Share of income from significantly influenced investees			159,164				174,036				185,082
Net income per US GAAP		$	2,090,377			$	1,579,347			$	891,276

 

27

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REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.

Notes to the Financial Statements

February 28, 2014, February 28, 2013 and February 29, 2012

 

12. Correction of an Error

Subsequent to the release of the financial statements on June 25, 2014 management changed its assessment of the probability of realizing the future tax asset resulting from the impairment of the loan receivable and has determined that it does not meet the requirements for recognition of the deferred income tax asset and has made some adjustments to the tax provision. As a result of the change in the assessment by management the following changes have been made to the financial statements for the fiscal year ended February 28, 2014.

 

		Previously Reported				Adjustment Increase (Decrease)				Restated Balance
Income taxes receivable		$	—			$	40,047			$	40,047
Future income tax asset			807,660				(807,660	)			—
Income taxes payable			409,953				(409,953	)			—
Current income tax expense			854,953				(450,000	)			404,953
Future income tax recovery			327,600				(327,600	)			—
Net income			1,411,995				122,400				1,534,395
Retained earnings			5,226,827				(357,660	)			4,869,167

 

28