UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-SA
SEMIANNUAL REPORT
SEMIANNUAL REPORT PURSUANT TO
REGULATION A OF THE SECURITIES ACT OF 1933
For the Semiannual Period Ended October 31, 2017
RED MOUNTAIN VENTURES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Commission File Number: 024-10729
Rossland, British Columbia | 45-4862460 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1938-C Columbia Avenue, Box 670, Rossland, British Columbia, Canada, V0G 1Y0
| 20009 (Zip Code) |
(250) 362-7384
Registrant’s telephone number, including area code
Class D USD$ Series Limited Partnership Units
(Title of each class of securities issued pursuant to Regulation A)
PART II
INFORMATION TO BE INCLUDED IN REPORT
Item 1. Management’s Discussion and Analysis of Financial Condition and Results of Operations
An investment in our membership interests involves substantial risks. You should carefully consider the risk factors in addition to the other information contained in our offering circular before purchasing membership interests. The occurrence of the stated risks might cause you to lose a significant part of your investment. The risks and uncertainties discussed in the offering circular are not the only ones we face, but do represent those risks and uncertainties that we believe are most significant to our business, operating results, prospects and financial condition. Some statements in this semiannual report constitute forward-looking statements.
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto included elsewhere in this Offering Circular. Our fiscal year end is April 30th. Our financial statements are prepared in accordance with International Financial Reporting Standards, which may differ from US Generally Accepted Accounting Principles.
Overview
We own and operate the RED Ski Resort in Rossland, British Columbia. We also own, and are developing, certain real estate surrounding RED Mountain, however, our real estate development activities have been in a holding pattern over the last two fiscal years, except for the sale of one residential lot during each of the same period during 2016 and the six-month period ended October 31, 2017.
We earn our revenues in five principal categories. In order of their contribution, they are: lift tickets and season passes, food and beverage sales, retail sales and equipment rental, property management and real estate sales. Our property management revenues are derived from property management services rendered to the owners of condominiums at the base of RED Mountain.
Our single largest source of revenue is the sale of lift tickets (including season passes) which represented approximately 59% and 58% of total revenues for the six-month period ended October 31, 2017 and 2016 respectively. Lift ticket revenue is driven by the volume of lift tickets and season passes sold and their pricing. Most of our season pass products are sold before the start of the ski season.
The cost structure of our operations has a significant fixed component with variable expenses including, but not limited to, retail and food and beverage cost of sales, labor, power and utilities. As such, profit margins can fluctuate based on the level of revenues.
The timing and duration of favorable weather conditions impact our revenues in regard to the timing and number of skier visits. Though the amount of snowfall early in the ski season does encourage skier visits, our ski resort has snowmaking capabilities in the event that the natural snowfall is insufficient. Cold weather, however, is essential to a successful ski season. There is no way to predict favorable weather conditions in the future. We sell season passes prior to the start of the ski season to help mitigate any negative effects that unfavorable weather may have on our revenues.
We have recently experienced two of our most successful ski seasons since current ownership of RED Mountain was acquired in 2004. Compared to an average of the previous best four seasons since 2004, in the 2015/16 ski season we had an 8% increase in guest visits, and in the 2016/17 ski season, we had a 21% increase in guest visits. There can be no assurance that these results represent a trend or are indicative of future results.
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In addition to our ski resort operations, we are now focusing on the other three seasons of the year and extending the RED brand to four-season activities. This effort began in December 2015, with the creation of the Get Lost Adventure Centre. Get Lost has a permanent location at the base of RED Mountain as well as a centralized on-line booking engine offering year-round concierge services for such recreational activities as mountain biking, mountaineering, fishing and trail rides in conjunction with established operators in the Kootenay region. We believe that the Four Star, 106 room Josie Hotel (opening 2018), at the base of RED Mountain, which is owned and will be operated by a third party, will likewise aim to position itself as a true four-season resort and will take advantage of the activities offered at Get Lost. These activities, along with events, conferences and weddings, are expected to generate additional revenue and profits.
The presentation below relates to our operations for the six month period ended October 31, 2017. We are currently preparing our financial statements for the six month period ended October 31, 2016. Immediately upon completion, we will file an amended Semi-Annual Report that includes such financial statements and a comparative analysis of our financial performance for the six month periods ended October 31, 2017 and October 31, 2016.
Results of Operations
Revenues
Our overall revenue for the six-month period ended October 31, 2017, was $1,727,877.
Lift ticket and season pass revenue for the six-month period ended October 31, 2017, was $1,461,464.
Food and beverage revenue for the six-month period ended October 31, 2017, was $56,640.
Other revenue for the six-month period ended October 31, 2017, was $209,773.
Cost of Goods Sold
Cost of goods sold for the six-month period ended October 31, 2017, was $4,554.
Gross Profits
As a result of the foregoing, gross profit was $1,723,323.
Operating Expenses
Our overall operating expenses for the six-month period ended October 31, 2017, were $2,206,857.
Labor and labor related expenses for the six-month period ended October 31, 2017, were $85,216.
Depreciation expense for the six-month period ended October 31, 2017, were $85,216.
Selling and marketing expenses for the six-month period ended October 31, 2017, were $14,695.
Equipment rental and lease expenses for the six-month period ended October 31, 2017, were $50,792.
Property taxes for the six-month period ended October 31, 2017, were $21,080.
General and administrative expenses for the six-month period ended October 31, 2017, were $1,233,531.
Income (Loss) from Operations
Net loss for the six-month period ended October 31, 2017, was $181,109.
Other Expenses
Interest expense for the six-month period ended October 31, 2017, was $302,425.
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Net Loss
Net loss for the six-month period ended October 31, 2017, was $181,109.
Liquidity and Capital Resources
Principal Sources of Cash
Our available cash is the highest in our fourth fiscal quarter primarily due to the seasonality of our resort business, and the sale of season passes for the next ski season. We had $489,726 in cash and cash equivalents at October 31, 2017.
We currently anticipate that cash flow from operations will continue to provide a significant source of our operating needs. We expect that our liquidity needs for the near term and the next fiscal year will be met by continued use of operating cash flows (primarily those generated in our third and fourth fiscal quarters), and the proceeds of our Regulation A+ Offering and concurrent Canadian offering.
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Debt Conversion.
In July 2017, certain lenders to RMR, converted an aggregate of CDN$33,169,625 in loans owed by RMR into 2,674,359 of our Class C Units and 2,674,359 of our Class C2 Units.
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Item 2. Other Information
None.
Item 3. Financial Statements
RED MOUNTAIN VENTURES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(US $)
October 31, 2017 | April 30, 2017 | |||||||
(Unaudited) | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 489,726 | $ | 912,578 | ||||
Accounts receivable, net | 53,948 | 332,670 | ||||||
Prepaid expenses | 257,648 | 142,698 | ||||||
Inventory | 317,524 | 236,645 | ||||||
Total current assets | 1,118,846 | 1,624,591 | ||||||
Property, plant and equipment, net | 10,140,140 | 9,151,761 | ||||||
Land development costs | 13,301,108 | 12,635,421 | ||||||
Goodwill | 54,837 | 51,652 | ||||||
Total assets | $ | 24,614,931 | $ | 23,463,425 | ||||
LIABILITIES AND PARTNERSHIP INTEREST | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | 1,204,404 | $ | 636,910 | ||||
Deferred revenue | 138,769 | 1,021,990 | ||||||
Total current liabilities | 1,343,173 | 1,658,900 | ||||||
Long-term liabilities | ||||||||
Convertible debts | 1,045,920 | 25,626,394 | ||||||
Other long-term debt | 4,031,256 | 3,126,309 | ||||||
Capital leases | 67,864 | 91,363 | ||||||
Total long-term liabilities | 5,145,040 | 28,844,066 | ||||||
Total liabilities | 6,488,213 | 30,502,966 | ||||||
Commitments and contingencies | ||||||||
Partnership interest | ||||||||
Initial partnership interest | 2,657 | 2,657 | ||||||
Class A units contribution | 1,109 | 1,109 | ||||||
Class B units contribution | 13,083,607 | 13,083,607 | ||||||
Class C units contribution | 18,249,943 | - | ||||||
Class C2 units contribution | 7,297,567 | - | ||||||
Other comprehensive income | 3,014,283 | 3,214,425 | ||||||
Accumulated deficit | (28,778,493 | ) | (28,597,384 | ) | ||||
Total partnership interest attributable to Partnership | 12,870,673 | (12,295,586 | ) | |||||
Non-controlling interest | 5,256,045 | 5,256,045 | ||||||
Total partnership interest | 18,126,718 | (7,039,541 | ) | |||||
Total liabilities and partnership interest | $ | 24,614,931 | $ | 23,463,425 |
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RED MOUNTAIN VENTURES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME
(US $)
Six Month Ended | Year Ended | |||||||
October 31, 2017 | April 30, 2017 | |||||||
(Unaudited) | ||||||||
Operating revenue | ||||||||
Lift Revenue | $ | 1,461,464 | $ | 3,883,567 | ||||
Retail and rental | - | 613,136 | ||||||
Property management | - | 576,199 | ||||||
Food and beverage | 56,640 | 1,080,916 | ||||||
Real estate sales | - | 83,475 | ||||||
Other revenue | 209,773 | 294,873 | ||||||
Total operating revenue | 1,727,877 | 6,532,166 | ||||||
Cost of good sold | 4,554 | 814,568 | ||||||
Gross profit | 1,723,323 | 5,717,598 | ||||||
Operating expenses | ||||||||
Wages and benefits | 801,543 | 2,869,543 | ||||||
Depreciation | 85,216 | 653,882 | ||||||
Selling and marketing | 14,695 | 135,162 | ||||||
Equipment rental and leases | 50,792 | 235,695 | ||||||
Property taxes | 21,080 | 69,810 | ||||||
General and administration | 1,233,531 | 1,867,602 | ||||||
Total operating expenses | 2,206,857 | 5,831,694 | ||||||
Loss from operations | (483,534 | ) | (114,096 | ) | ||||
Other expense | ||||||||
Interest expense | 302,425 | (3,766,250 | ) | |||||
Total other expense | 302,425 | (3,766,250 | ) | |||||
Net loss | (181,109 | ) | (3,880,346 | ) | ||||
Net loss attribute to Non-controlling interest | - | (12,316 | ) | |||||
Net Loss attribute to Partnership | $ | (181,109 | ) | $ | (3,868,030 | ) | ||
Comprehensive loss | ||||||||
Net loss | (181,109 | ) | (3,880,346 | ) | ||||
Foreign currency translation adjustment | (200,142 | ) | 427,832 | |||||
Comprehensive loss | (381,251 | ) | (3,452,514 | ) | ||||
Comprehensive loss attribute to Non-controlling interest | - | (12,316 | ) | |||||
Comprehensive loss attribute to Partnership | $ | (381,251 | ) | $ | (3,440,198 | ) |
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RED MOUNTAIN VENTURES LIMTED PARTNERSHIP
STATEMENTS OF CHANGES IN LIMITED PARTNERSHIP INTEREST
(US $)
Initial | Other | |||||||||||||||||||||||
Partnership | Non-controlling | Partner | comprehensive | Accumulated | ||||||||||||||||||||
Interest | Interest | Contributions | Income | Deficit | Total | |||||||||||||||||||
Balance April 30, 2016 | $ | 2,657 | $ | 5,268,361 | $ | 13,066,584 | $ | 2,786,593 | $ | (24,729,353 | ) | $ | (3,605,158 | ) | ||||||||||
Partner's redemption | - | - | 18,132 | - | - | 18,132 | ||||||||||||||||||
Foreign currency translation gain | - | - | - | 427,832 | - | 427,832 | ||||||||||||||||||
Net loss | - | (12,316 | ) | - | - | (3,868,031 | ) | (3,880,346 | ) | |||||||||||||||
Balance April 30, 2017 | 2,657 | 5,256,045 | 13,084,716 | 3,214,425 | (28,597,384 | ) | (7,039,540 | ) | ||||||||||||||||
Contributions | - | - | 25,547,509 | - | - | 25,547,509 | ||||||||||||||||||
Foreign currency translation gain | - | - | - | (200,142 | ) | - | (200,142 | ) | ||||||||||||||||
Net loss | - | - | - | - | (181,109 | ) | (181,109 | ) | ||||||||||||||||
Balance October 31, 2017 | $ | 2,657 | $ | 5,256,045 | $ | 38,632,225 | $ | 3,014,283 | $ | (28,778,493 | ) | $ | 18,126,718 |
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RED MOUNTAN VENTURES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$)
Six Month Ended October 31, 2017 | Year Ended April 30, 2017 | |||||||
(Unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (176,439 | ) | $ | (3,880,346 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 83,019 | 653,882 | ||||||
Interest expense | - | 3,766,250 | ||||||
Loss on sale of land | - | 24,633 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 292,163 | (304,597 | ) | |||||
Inventory | (64,724 | ) | (31,954 | ) | ||||
Prepaid expenses | (103,645 | ) | (110,493 | ) | ||||
Accounts payable | 43,157 | 24,391 | ||||||
Deferred revenue | (923,874 | ) | (27,114 | ) | ||||
Cash generated from operations | (850,343 | ) | 114,652 | |||||
Interest paid | 335,889 | (142,388 | ) | |||||
Net cash used in operating activities | (514,454 | ) | (27,736 | ) | ||||
Cash flows from investing activities: | ||||||||
Proceeds from sale of fixed assets | - | 83,475 | ||||||
Purchase of fixed assets | (387,932 | ) | (386,489 | ) | ||||
Net cash used in investing activities | (387,932 | ) | (303,014 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from redemption of former partner interest | - | 18,369 | ||||||
Proceeds from long-term borrowings | - | 303,546 | ||||||
Payments on long-term borrowings | (40,060 | ) | (233,926 | ) | ||||
Net cash provided by (used in) financing activities | (40,060 | ) | 87,989 | |||||
Net change in cash | (942,446 | ) | (242,762 | ) | ||||
Cash balance as of May 1 | 912,578 | 1,247,601 | ||||||
Change in comprehensive income (loss) | 519,594 | (92,261 | ) | |||||
Cash balance as of October 31 | $ | 489,726 | $ | 912,578 | ||||
Supplemental disclosure of non-cash financing activities: | ||||||||
Foreign currency translation adjustments | $ | 519,594 | $ | (92,261 | ) | |||
Converstion of debt to equity | $ | (23,658,966 | ) | $ | - |
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Red Mountain Ventures
Notes to Consolidated Financial Statements
October 31, 2017
(Unaudited)
(US$)
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
Red Mountain Ventures Limited Partnership together with its subsidiaries collectively referred to as “Partnership” “RMVLP” “Red Mountain Ventures” or “RED” was formed as a British Columbia limited partnership on May 14, 2004 in connection with the acquisition of the Red Mountain Ski Resort Inc. in Rossland, British Columbia, Canada. RMVLP is managed by its sole general partner, Red Mountain Ventures G.P. Ltd. RMVLP owns direct and indirect interest in the legal entities that carry on the business (the “Red Business”) of Red Mountain Ski Resort (the “Red Ski Resort”) and hold its real estate interest.
RMR Acquisition Corp. (“RMR”)
RMR, a wholly owned subsidiary of the Partnership, owns the real property comprising the RED Ski Resort and the office furniture and equipment located at the RED Business offices. RMR, directly or indirectly, through a number of subsidiaries and affiliates, has an ownership interest in certain real estate surrounding the RED Ski Resort.
Red Resort Limited Partnership
Red Resort Limited Partnership is a wholly owned subsidiary of RMR and operates the RED Ski Resort. Red Resort Limited Partnership owns the assets related to the mountain operations of the RED Ski Resort including buildings, lifts and associated equipment.
Leroi Acquisition Corp.
Leroi Acquisition Corp. is a wholly owned subsidiary of the Partnership and operates the RED retail and rental business at the RED Ski Resort.
Red Property Management Ltd.
Red Property Management Ltd. is a wholly owned subsidiary of RMR and provides reservations and property management services for approximately 60 privately owned condominiums rental units at the base of RED Mountain.
Other Non-Material Subsidiaries and Affiliates:
Hannah Creek Limited Partnership
This partnership owns certain property in Rossland, British Columbia, which was to be subdivided and developed into approximately 50 condominium units contained in two three-to-five story buildings and related infrastructure. RMR owns a 50% interest in this partnership and third party investors own the remaining 50% interest. This partnership is currently inactive.
Slalom Creek Limited Partnership
This partnership developed certain property located in the central base area of the RED Ski Resort into condominium units which have since been sold. RMR owns approximately a 46.5% interest in the partnership and third party investors own the remaining 53.5% interest. This partnership is inactive and is expected to be dissolved at some point in the future.
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Red Development Co. Ltd.
Red Development Co. Ltd., a wholly-owned subsidiary of RMR, acts as general partner to Hannah Creek Limited Partnership and Slalom Creek Limited Partnership. In addition, Red Development Co. Ltd. provides research and investigative services to assist with feasibility analyses of potential future projects at RED Mountain, including further marketing of Caldera, the potential development of an 82-90 pillow youth hostel and the potential development of an additional 64 unit condominium project.
That Seventies Project Limited Partnership
This partnership beneficially owns and subdivided real property for sale near the base of the RED Ski Resort through its wholly-owned subsidiary That Seventies Project Development Ltd. The subdivided lots are marketed as the “Caldera” development. RMR owns a 50% interest in That Seventies Project Limited Partnership and third party investors own the remaining 50% interest.
Revenues are highly seasonal. The ski season generally runs from mid-December to early April. Red Property Management Ltd. operates year round but sees limited business between May and November. Leroi Acquisition Corp operates only during the ski season. Between May and November Red Resort Limited Partnership performs maintenance, completes capital projects and develops sales and marketing plans for the coming ski season.
The Partnership’s year-end is April 30.
The Partnership’s securities are not traded on any stock exchange in Canada and thus, Red Mountain Ventures is not subject to regulation by any Canadian stock exchange. The Partnership’s securities are also not registered under the United States Securities Act of 1933 nor are they traded on any securities or stock exchange in the United States. As a result, the Partnership is not presently subject to the reporting, certification or other requirements imposed on U.S. registered issuers under, among other things, U.S. Sarbanes-Oxley Act of 2002 ("SOX"). As a non reporting issuer designation under the Canadian securities laws, the Partnership is subject to limited reporting requirements – specifically related to the issuance of securities.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the presentation of the accompanying consolidated financial statements follows:
Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations applicable to companies reporting under IFRS. The financial statements have been prepared in United States Dollars, under the historical cost convention. The accounts have been rounded to the nearest dollar.
In the opinion of management, all adjustments considered necessary for a fair presentation have been included.
The accompanying consolidated financial statements include the accounts of the Partnership and its aforementioned subsidiaries and entities under common ownership. All significant intercompany accounts and transactions have been eliminated in consolidation. The ownership interest in subsidiaries that are held by owners other than the Partnership are recorded as non-controlling interest and reported in our consolidated balance sheets within partnership interest. Losses attributed to the non-controlling interest and to the Partnership are reported separately in our consolidated statements of operations and other comprehensive income.
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The accompanying consolidated financial statements have been prepared on a going concern basis which implies the Partnership will continue to meet its obligations for the next 12 months as of the date these financial statements are issued.
While management’s projected cash flows are forecasted to be sufficient to meet the Partnership’s obligations over the next 12 months, management believes it is prudent to continue its capital raising efforts in case its forecast is not achieved. Management’s plan to continue as a going concern includes raising capital in the form of debt or equity, increased gross profit from organic revenue growth and managing and reducing operating and overhead costs.
However, management cannot provide any assurances that the Partnership will be successful in accomplishing any of its plans. Management also cannot provide any assurance that unforeseen circumstances that could occur at any time within the next twelve months or thereafter will not increase the need for the Partnership to raise additional capital on an immediate basis.
However, based upon an evaluation of the Partnership’s continued growth trajectory, past success in raising capital and meetings its obligations as well as its plans for raising capital discussed above, management believes that the Partnership is a going concern.
Cash and cash equivalents
Cash and cash equivalents in the balance sheets is comprised of cash at bank and on hand. Cash and cash equivalents include cash at hand and short-term bank deposits with original maturities of three months or less, that are not restricted as to withdrawal or use, and are therefore considered to be cash equivalents.
Accounts receivable
Accounts receivable are generally unsecured. The Partnership establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied against the allowance for doubtful accounts. As of October 31, 2017 and April 30, 2017, allowance for doubtful accounts was $0 and $0, respectively.
Inventory
Inventory consists primarily of purchased retail goods, food and beverage items and rental equipment. The Partnership’s inventory is stated at the lower of cost or net realizable value, determined using primarily an average weighted cost method.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Depreciation on assets is calculated using the diminishing balance method by applying the depreciation rate to the net book value of the asset, resulting in a diminishing annual charge. The cost/net book value is allocated over their estimated useful lives, as follows:
No. of years | ||
Building | 25 | |
Trail improvement | 12.5 | |
Lifts and tows and snow infrastructure | 16.7 | |
Furniture, fittings & equipment | 5 | |
Vehicles | 3.3 |
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The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within the profit and loss account.
Property under development
The Partnership capitalizes as real estate held for sale and investment the original land acquisition cost, direct construction and development costs, property taxes, interest recorded on costs related to real estate under development and other related costs. The Partnership records capitalized interest once construction activities commence and real estate deposits have been utilized in construction. Development costs are applied against sale proceeds on a square footage basis.
Goodwill and intangible assets
Goodwill arose on the acquisition of Red Mountain Resort Inc. in 2004 and subsequent amalgamation with RMR and consists of the excess of the purchase price of the shares over the net book value of the assets of Red Mountain Resort Inc. at the date of acquisition. The goodwill is attributed substantially to land value. The Partnership tests goodwill annually for impairment. The testing of impairment consists of a comparison of the estimated fair value of the assets with their net carrying value. The Partnership determined that there was no impairment to goodwill for the six months ended October 31, 2017.
Long-lived assets
The Partnership periodically reviews its long-lived assets, including identifiable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Partnership recognizes an impairment loss when the sum of expected undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount. The amount of impairment is measured as the difference between the estimated fair value and the book value of the underlying asset. The Partnership does not believe any events or changes in circumstances indicating an impairment of the net carrying amount of a long-lived asset occurred during the six months ended October 31, 2017.
Capital leases contracts
Assets held under equipment lease agreements are capitalized in the balance sheet and are depreciated over their useful life. The corresponding purchase obligation is capitalized in the balance sheet as a liability. The interest element of the obligation is charged to the profit or loss account over the period of the contract and represents a constant proportion of the balance sheet capital repayments outstanding.
Convertible Debt
If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Partnership as a debt discount. In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Partnership amortizes the discount to interest expense or equity (if the debt is due to a related party), over the life of the debt using the effective interest method.
Investment in Joint Ventures
The Partnership owns a 50% interest in That Seventies Project, a real estate development project, and has capitalized approximately $5.9 million and $ 6.2 million, in development assets as of October 31, 2017 and April 30, 2017, respectively.
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The Partnership owns a 49.99% interest in the Hannah Creek Project, a real estate development project, and has capitalized approximately $1.7 million, in development assets as of October 31, 2017 and April 30, 2017, respectively.
The Partnership owns a 46.49 % interest in the Slalom Creek and has not incurred and or capitalized any costs in connection with this venture. This entity is expected to be dissolved in the near future.
Foreign currencies
The functional currency of the Partnership is Canadian Dollar (CAD). The reporting currency of the financial statements is United States Dollars. Income and expenses for each statement of profit and loss shall be translated at an average exchange rate for the year. All assets and liabilities are translated at the rate of exchange ruling at the balance sheet date. Equity accounts are translated using historical exchange rates. All differences are taken to the other comprehensive income or loss.
The exchange rates used to translate amounts in CAD into USD for the purposes of preparing the consolidated financial statements were as follows:
Balance Sheets:
October 31, | April 30, | |||||||
2017 | 2017 | |||||||
Period-end CAD: USD exchange rate | $ | 0.777223 | $ | 0.732091 |
Statements of Operations:
October 31, | April 30, | |||||||
2017 | 2017 | |||||||
Average Yearly CAD: USD exchange rate | $ | 0.778944 | $ | 0.758864 |
Revenue recognition
Revenues are recognized in profit or loss when the revenues can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Partnership and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenues are measured at the fair value of the consideration received less any trade discounts, volume rebates and returns.
Following are the specific revenue recognition criteria which must be met before revenue is recognized:
· | Lift revenue is derived from a wide variety of sources, including sale of lift tickets and season passes, and is recognized as services are performed. The Partnership records deferred revenue related to sale of season ski passes. The majority of season passes are sold from March 15 to April 30 each year for the following ski season and is recognized in the first month of the new fiscal year. Season pass revenues received from May 1 to March 15 are recognized when received. |
· | Retail and rental revenue is derived from retail sales and equipment rentals business and is recognized as products are delivered or services are performed. |
· | Property management revenue is derived from providing reservations and property management services for the privately owned condominium rental units and is recognized as services are performed. |
· | Food and beverage revenue is derived from sale of food and beverage from three Partnership-owned restaurants and is recognized as products are delivered or services are performed. |
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· | Real estate revenue primarily includes the sale of condominium units and land parcels and is recorded primarily using the full accrual method and occurs only upon the following: (i) substantial completion of the entire development project, (ii) receipt of certificates of occupancy or temporary certificates of occupancy from local governmental agencies, if applicable, (iii) closing of the sales transaction including receipt of all, or substantially all, sales proceeds (including any deposits previously received) and (iv) transfer of ownership. |
· | Other revenue primary includes ski school operations, KinderCare, locker rental, other on-mountain activities. |
Advertising Expense
The Partnership expenses marketing, promotions and advertising costs as incurred. Such costs are included in selling and marketing expense in the accompanying consolidated statements of operations. Advertising costs were $7,543 and $23,635 for the six months ended October 31, 2017 and the year ended April 30, 2017 respectively.
New standards, amendments and interpretations not yet adopted
The IASB and IFRIC have issued the following standards and with an effective date after the date of the financial statements and have not been applied in preparing these consolidated financial statements.
IFRS 15 – “Revenue from Contracts with Customers” - early adoption. As this is the first period of financial reporting for the group, management took the decision to adopt IFRS 15 early as it represented a major development in the recognition of revenue under International Financial Reporting Standards. Compared to IAS 18, Revenue and IAS 11, Construction Contracts and related interpretations, there was no material difference adopting IFRS 15 early. The standard is effective for annual periods beginning on or after January 1, 2017.
IFRS 16 Leases-IFRS 16 specifies how a Partnership will recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRS 16 will be applicable to annual reporting periods beginning on or after January 1 2019.
IFRS 17 Insurance Contracts- IFRS 17 establishes the principles for the recognition, measurement and presentation of insurance contracts. The objective is to ensure that an entity provides relevant information that faithfully represents those contracts. Red Mountain has no significant insurance contracts and this pronouncement will have no material impact on the financial statements. IFRS 17 will be applicable to annual reporting periods beginning on or after January 1, 2021
Unrealized losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument's holder expects to recover the carrying amount of the debt instrument by sale or by use. The carrying amount of an asset does not limit the estimation of probable future taxable profits. Estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences. An entity assesses a deferred tax asset in combination with other deferred tax assets. Where tax law restricts the utilization of tax losses, an entity would assess a deferred tax asset in combination with other deferred tax assets of the same type.
There are no other IFRS or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Partnership.
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Comprehensive income
Comprehensive income is defined as the change in equity resulting from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income that are excluded from consolidated net earnings.
NOTE 3 – CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The Partnership makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and assumptions are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.
The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income in the year of the change, if the change affects that year only, or in the year of the change and future years, if the change affects both.
Information about critical assumptions in applying accounting policies that have the most significant risk of causing material adjustment to the carrying amounts of assets and liabilities recognized in the consolidated financial statements within the next financial year are discussed below:
Taxation
The Limited Partnership accounts for income taxes in accordance with International Accounting Standard 12, Income Taxes (“IAS 12”).
· | Partnership |
Partnership income, losses, assets, and liabilities are all attributable to the partners. As per the Canada Income Tax Act, partnerships do not file separate tax returns. The partnerships file annual “information returns” setting out their income and details of the partners who are entitled to that income. It is the partners who are required to pay income tax. The limited partnership is simply a flow-through entity. So: the net income of the partners (for income tax purposes) of a limited partnership is determined by figuring out the net income of the limited partnership.
To figure out the net income of the limited partnership, the Act states that it is treated as if it were a separate legal person: s. 96(1)(a). So first include income and deduct allowable expenses and other credits. Then, the limited partnership’s income will be attributed to the partners (usually as per the limited partnership agreement). Each partner must report their income or losses from the partnership and pay taxes accordingly: s. 96(1)(f).
· | Corporations |
The Partnership owns a number of entities that are Corporation for tax purposes:
For such Corporations: Income tax expense is comprised of current and deferred income taxes. Current and deferred income taxes are recognized in profit and loss, except for income taxes relating to items recognized directly in equity or other comprehensive income.
Current income tax, if any, is the expected amount payable or receivable on the taxable income or loss for the period, calculated in accordance with applicable taxation laws and regulations, using income tax rates enacted or substantively enacted at the end of the reporting period and any adjustments to amounts payable or receivable relating to prior years.
Deferred income taxes are provided using the liability method based on temporary differences arising between the income tax base of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using income tax rates and income tax laws and regulations that have been enacted or substantively enacted at the end of the reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
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Deferred income taxes are recognized to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, the deferred tax asset is reduced.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxing authority and the Company intends to settle its current tax assets and liabilities on a net basis.
The Partnership did not record any Corporation related Current or Deferred income tax, since by tax law it does not flow through to the Partnership level.
Fair Value of Financial Instruments
The Partnership measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, the Partnership is required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:
Level 1 – Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.
Level 3 – Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.
The recorded amounts for cash and cash equivalents, receivables, other current assets and accounts payable and accrued liabilities approximate fair value due to their short-term nature.
NOTE 4 – CASH AND CASH EQUIVALENTS
October 31, 2017 | April 30, 2017 | |||||||
Cash in bank and on hand* | $ | 417,833 | $ | 844,859 | ||||
Bank deposits for periods of three months or less | 71,893 | 67,719 | ||||||
Total cash and cash equivalents | $ | 489,726 | $ | 912,578 |
*The company had a bank overdraft credit balance as of $484,030 which resulted in a credit balance for the cash in bank accounts. This amount was reclassed to a liability as of 10/31/17.
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Note 5 –Accounts Receivable
Accounts receivable, net of allowances for sales returns and doubtful accounts, consisted of the following:
October 31, 2017 | April 30, 2017 | |||||||
Trade accounts receivables | $ | 21,506 | $ | 21,799 | ||||
Other receivables | 32,442 | 310,871 | ||||||
Related party receivable | - | - | ||||||
Less allowances | (- | ) | (- | ) | ||||
Total accounts receivable, net | $ | 53,948 | $ | 332,670 |
During the six months ended October 31, 2017 and the year ended April 30, 2016, the Partnership charged $0 and $0, respectively to bad debt expense in setting up an allowance.
NOTE 6 – INVENTORY
Inventory consists primarily of purchased retail goods, food and beverage items and rental equipment. The Partnership’s inventory is stated at the lower of cost or net realizable value, determined using primarily an average weighted cost method. The carrying value of inventory consisted of the following:
October 31, 2017 | April 30, 2017 | |||||||
Retail goods | $ | 150,640 | $ | 93,346 | ||||
Food and beverage items | 53,810 | 36,791 | ||||||
Rental equipment | 113,074 | 106,508 | ||||||
Total inventory | $ | 317,524 | $ | 236,645 |
note 7 – Prepaid Expenses AND OTHER CURRENT ASSETS
At October 31, 2017 and April 30, 2017, prepaid expenses consisted of the following:
October 31, 2017 | April 30, 2017 | |||||||
Prepaid expenses | $ | 251,741 | $ | 137,135 | ||||
Deposits | 5,907 | 5,563 | ||||||
Total | $ | 257,648 | $ | 142,698 |
NOTE 8 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment’s cost and accumulated depreciation consist of the following
Cost | Land | Building and CIP | Ski runs and lifts | Fixtures and | Total | Depreciation | NBV | |||||||||||||||||||||
At April 30, 2016 | 410,127 | 3,914,484 | 8,915,865 | 2,133,469 | 15,373,945 | (5,040,871 | ) | $ | 10,333,074 | |||||||||||||||||||
Additions | - | 14,369 | 257,135 | 13,068 | 284,572 | (630,813 | ) | - | ||||||||||||||||||||
FX translation | (33,145 | ) | (316,351 | ) | (720,539 | ) | (172,417 | ) | (1,242,452 | ) | 407,380 | - | ||||||||||||||||
At April 30, 2017 | $ | 376,982 | $ | 3,612,502 | $ | 8,452,461 | $ | 1,974,120 | $ | 14,416,065 | $ | (5,264,304 | ) | $ | 9,151,761 | |||||||||||||
Additions | - | 419,208 | 6,265 | 88,551 | 514,024 | (50,223 | ) | - | ||||||||||||||||||||
FX translation | 23,241 | 222,704 | 521,077 | 100,910 | 867,932 | (343,355 | ) | - | ||||||||||||||||||||
At April 30, 2017 | $ | 400,223 | $ | 4,254,414 | $ | 8,979,803 | $ | 2,163,581 | $ | 15,798,021 | $ | (5,657,882 | ) | $ | 10,140,140 |
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Included in the Property, Plant and Equipment numbers above are assets held under finance leases or capital leases contracts as follows:
October 31, 2017 | April 30, 2017 | |||||||
Net book values | $ | 313,287 | $ | 295,095 | ||||
Depreciation charge for the year | $ | 34,068 | $ | 66,882 |
Management of the Partnership has reviewed its fixed assets for impairment as at October 31, 2017 and has concluded that no events or changes in circumstances have occurred that would indicate the carrying value of its fixed assets would not be recoverable.
NOTE 9 – PROPERTY UNDER DEVELOPMENT
Property under development includes costs directly related to construction and carrying charges during construction such as interest and property taxes. Development costs are applied against sale proceeds on a square footage basis. The acquisition of the Partnership in 2004 resulted in goodwill of approximately of approximately $4.3 million. Substantially all of the goodwill was attributed to the value of the real estate associated with the acquisition. As such, goodwill has been allocated to land development costs since inception and has been amortized on a pro rata basis as cost of sales related to sales of real estate. The balance of goodwill attributed to land and development costs were approximately $3.1 million as of October 31, 2017.
NOTE 10 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As of October 31, 2017 and April 30, 2017, accounts payable and accrued expenses consisted of the following:
October 31, 2017 | April 30, 2017 | |||||||
Trade payables | $ | 961,597 | $ | 256,528 | ||||
Accrued payroll | 251,989 | 61,175 | ||||||
Accrued tax | (7,970 | ) | 98,870 | |||||
Others | (1,212 | ) | 220,337 | |||||
Total | $ | 1,204,404 | $ | 636,910 |
NOTE 11 – DEFERRED REVENUE
As of October 31, 2017 and April 30, 2017, deferred revenue consisted of the following:
October 31, 2017 | April 30,2017 | |||||||
Balance at the beginning of the year | $ | 1,021,990 | $ | 1,140,302 | ||||
Received during the year | - | - | ||||||
Amortized during the year | (946,225 | ) | (26,158 | ) | ||||
Foreign currency translation | 63,004 | (92,154 | ) | |||||
Balance at the end of the year | $ | 138,769 | $ | 1,021,990 |
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NOTE 12 – DEBT
The Partnership debt at October 31, 2017 and April 30, 2017 are as follows:
October 31, 2017 | April 30, 2017 | |||||||
Convertible debt (a) (c) | $ | 1,045,920 | $ | 25,626,394 | ||||
Other long-term debt (b) | 4,031,256 | 3,126,309 | ||||||
Total | 5,077,176 | 28,752,703 | ||||||
Less: Current portion | - | - | ||||||
Long-term portion | $ | 5,077,176 | $ | 28,752,703 |
(a) | The convertible debt was obtained for the purpose of operation and development of the ski resort. The debt bears interest at 8% to 10% per annum, calculated and accrued annually and payable at maturity. All outstanding amounts under the facility are payable on April 18, 2019. The lender may convert the debt to Class C unit of Red Mountain Ventures Limited Partnership at the conversion price of $ CAD 8.86 (US $ 6.71) per Class C Unit. The convertible debt is secured by a first, fixed mortgage over all lands owned by the borrowers and by a general security interest over all property of the Partnership and related parties. The Partnership’s convertible debt is denominated in both Canadian and US Dollars. Amounts denominated in US Dollars are converted to Canadian Dollars at the exchange rate in effect at the end of the year. See Note 18 regarding subsequent conversion of convertible debt on June 30, 2017. |
(b) | Other long-term debt includes outstanding principal and accrued interest. |
(c) | Effective on June 30, 2017, the total outstanding principal balance of the Juice Trust convertible debt and promissory notes and the Woods Family Trust convertible debt of approximately $17 million in the aggregate owed by RMR to such lenders was converted by the lenders to Class C units of the Partnership at conversion price of CAD $ 8.86 (USD $ 6.71) per Class C unit. Class C2 units were also issued to the Juice Trust and the Woods Family Trust at that time. The Class C and C2 units are subordinate in priority to Class D units in respect of repayment of capital. |
October 31, 2017 | April 30,2017 | |||||||
Western Economic Diversification, $777,223 (CAD $1,000,000), March 31, 2019 | $ | 477,814 | $ | 470,029 | ||||
Community Future Development Corp, $310,889 (CAD $400,000), June 21, 2020, 6.7% | 344,792 | 328,026 | ||||||
Community Future Development Corp, $1,165,835 (CAD $1,500,000), April 15, 2023, 6.7% | 1,244,351 | 1,141,561 | ||||||
Community Future Development Corp, $ 932,668 (CAD $1,200,000), July 1, 2024, 6.7% | 1,148,694 | 1,109,477 | ||||||
Community Future Development Corp, $54,406 (CAD $70,000), June 29, 2025, 6.7% | 37,299 | 36,561 | ||||||
Community Future Development Corp, $310,889 (CAD $400,000), July 1, 2021, 6.7% | 1,082 | 40,655 | ||||||
J Busby Bridge Loan, $388,612 (CAD $500,000) | 388,612 | - | ||||||
J Busby Bridge Loan No. 2, $388,612 (CAD $500,000) | 388,612 | - | ||||||
Total | 4,031,256 | 3,126,309 | ||||||
Less: Current portion | - | - | ||||||
Long-term portion | $ | 4,031,256 | $ | 3,126,309 |
The interest expenses for the debts were approximately $14,000 and $3,761,000 for the six months ended October 31, 2017 and the year ended 2016, respectively.
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NOTE 13 – FINANCE LEASE
The Partnership’s finance lease balances at October 31, 2017 and April 30, 2017 are as follows:
Oct 31, 2017 | Apr 30, 2017 | |||||||
TechnoAlpin-2xT40 snow guns | $ | 26,532 | $ | 37,485 | ||||
TechnoAlpin-4xT40 snow guns | 22,789 | 29,008 | ||||||
Stikum-Server | 9,080 | 14,014 | ||||||
Stikum-Phone system | 9,463 | 10,856 | ||||||
Total | 67,864 | 91,363 | ||||||
Less: Current portion | (58,400 | ) | (66,493 | ) | ||||
Long-term portion | $ | 9,462 | $ | 24,870 |
The interest expenses for the finance lease were approximately $3,000 and $15,000 for the six months ended October 31, 2017 and the year ended April 30, 2017, respectively.
NOTE 14- TAXATION
No deferred tax asset in respect of corporation level tax losses has been recognized given the uncertainty over the timing of future profits against which they can be offset. Partnership management believes it is more likely than not that any such losses will not be recognized by the Partnership. As of April 30, 2017, if the Partnership had recorded a future benefit for income taxes, the amount would have totaled approximately $5.4 million no events have taken place as of October 31, 2017 that would have materially impacted this estimate.
NOTE 15 – RELATED PARTY TRANSACTIONS
Value Power, the Partnership’s largest unit holder is 63.1% owned by the Juice Trust to which the Partnership had issued convertible debt in the amount of approximately $22,177,000 as of April 30, 2017. As of June 30, 2017, all of the Juice Trust convertible debt has been converted to equity.
The Juice Trust loaned the Partnership $1,000,000 (CAD) during the six months ended October 31, 2017 to fund capital projects and the cost of raising capital for the sale of Class D units.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
Litigation
Management of the Partnership is currently not aware of any legal proceedings that management believes will have, individually or in the aggregate, a material adverse effect on the Partnership’s business, financial condition or operating results.
The Partnership is involved in two lawsuits as plaintiffs. In the first lawsuit, the Partnership filed claims against the manufacturer of the Grey Mountain Chairlift and certain parties involved in the installation of the chairlift, for alleged faulty engineering and installation that required significant reconstruction and repairs in 2015. The Partnership also has filed a construction defect lawsuit against the contractor and certain other parties involved in constructing a retaining wall on the property. Management of the Partnership does no view either of these lawsuits as material to the Partnership’s business, financial condition or operating results.
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NOTE 17 – PARTNERSHIP CAPITAL
The issued capital of the Partnership as of October 31, 2017 was 1,423,608 class A units 1,693,250 class B units and 3,819,135 class C units. As of October 31, 2017, no Class C units were issued. On June 29, 2017, the Partnership Agreement governing the Partnership was amended to create Class D units and Class C2 units.
The class A unit holders do not receive any preferential distribution or profit and loss allocations.
Subject to prior right to return of capital and preferential distribution of the Class D, C and C2 units, the Class B unit holders will receive distributions on a pro rata basis until each has received an amount equal to 100% of its capital contribution. Class B units holders are also entitled to the first right of refusal for any new issuances of class B units.
NOTE 18- OPERATING LEASE
The Partnership entered into lease contracts with Britco for the lease of temporary buildings. The contracts are for 12 months and renew annually, payments are made December through April. Operating lease expenses were $0 and $ 235,695 for the six months ended October 31, 2017 and the year ended April 30, 2017, respectively. There are no minimum payments for the contracts.
NOTE 19 – EVENTS AFTER THE REPORTING PERIOD
The Partnership is engaging in an offering pursuant to Canadian securities laws and under Regulation A of the United States Securities Act of 1933, of up to 1,000,000 Class D Units of the Partnership for USD $ 10.00 (US investors) CAD $10.00 (Canadian investors) per Class D Unit. The maximum amount that may be raised in the aggregate, in this offerings, is CDN$10,000,000 (US $8,000,000).
Management evaluated all activities of the Partnership through the issuance date of the Partnership’s consolidated financial statements and concluded that no other subsequent events have occurred that would require adjustments or disclosures into the consolidated financial statements.
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Item 4. Exhibits
None.
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SIGNATURES
Pursuant to the requirements of Regulation A, the issuer has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rossland, British Columbia, on February 9, 2018.
RED MOUNTAIN VENTURES LIMITED PARTNERSHIP
BY: RED MOUNTAIN VENTURES G.P. LTD.
ITS: GENERAL PARTNER
By: | /s/ Howard Katkov | |||
Howard Katkov, Chief Executive Officer, President and Director | ||||
Date: February 24, 2018 | ||||
By: | /s/ Kevin Magnall | |||
Kevin Magnall, Principal Financial Officer, Principal Accounting Officer and Director | ||||
Date: February 24, 2018 |
By | /s/ Donald J. Thompson | ||
Donald J. Thompson Vice | |||
President Resort Planning and | |||
Development and Director | |||
Date: February 24, 2018 |
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