Genesis Land Development Corp.
Annual Report 2010

Plain-text annual report

GROwiNG FOR wARD GENESIS Land Development Corporation A N N U A L R E P O R T 2 0 1 0 tabLE of CoNtENtS TABLE OF CONTENTS CompaNy profILE ................................................................................................................................ 1 oVErVIEw .............................................................................................................................................. 2 prESIDENt’S mESSaGE .......................................................................................................................... 4 ChIEf fINaNCIaL offICEr’S mESSaGE ................................................................................................. 6 ChIEf opEratING offICEr’S mESSaGE ................................................................................................ 8 GENESIS LaND DEVELopmENt Corp. ................................................................................................... 11 thE CorporatIoN ................................................................................................................................ 13 ExECutIVE Summary ........................................................................................................................... 13 kEy fINaNCIaL pErformaNCE INDICatorS ...................................................................................... 14 NoN-Gaap mEaSurES .......................................................................................................................... 17 rESuLtS of opEratIoNS ...................................................................................................................... 18 rESIDENtIaL homE buILDING .............................................................................................................. 21 LIquIDIty aND CapItaL rESourCES ................................................................................................... 30 Summary of quartErLy rESuLtS .................................................................................................... 33 joINt VENturE ...................................................................................................................................... 34 off baLaNCE ShEEt arraNGEmENtS ................................................................................................ 34 rELatED party ...................................................................................................................................... 35 CrItIaL aCCouNtING EStImatES aND poLICIES ................................................................................ 35 INtErNatIoNaL fINaNCIaL rEportING StaNDarDS (“IfrS”) .......................................................... 36 rISkS aND uNCErtaINtIES ................................................................................................................... 40 DISCLoSurE CoNtroLS aND proCEDurES ........................................................................................ 42 INtErNaL CoNtroLS oVEr fINaNCIaL rEportING ........................................................................... 43 outLook ............................................................................................................................................... 45 othEr ..................................................................................................................................................... 45 maNaGEmENt’S rEport ...................................................................................................................... 46 INDEpENDENt auDItorS’ rEport ....................................................................................................... 47 CoNSoLIDatED baLaNCE ShEEt .......................................................................................................... 48 CoNSoLIDatED StatEmENtS of EarNINGS, ComprEhENSIVE INComE aND rEtaINED EarNINGS ...49 CoNSoLIDatED StatEmENtS of CaSh fLowS ................................................................................... 50 NotES to CoNSoLIDatED fINaNCIaL StatEmENtS .......................................................................... 51 fIVE yEar Summary ............................................................................................................................ 74 ON ThE COvER Vibrant green foliage represents the steady, healthy business growth experienced by Genesis Land Development Corporation over the last two decades and is symbolic of our enduring commitment to responsibly plan our communities with the least environmental impact to natural landform. COmPANy PROFiLE Genesis Land Development Corp. is a fully integrated community development company with land development, single-family and multi-family home building and commercial development and leasing components. our mission is to be the strongest and most proficient community developer in Canada through acquisition, re-zoning, development, management and sale of our properties through various divisions. we are committed to pursuing this strategy while maintaining a strong financial position. Genesis common shares trade on the toronto Stock Exchange under the symbol GDC. the management team of Genesis Land Development Corp. GROwiNG FOR wARD l aNNuaL rEport 2010 1 OvER viEw CoNSoLIDatED rEVENuE . 9 7 3 1 . 9 8 9 . 8 3 8 . 6 6 8 140 120 100 80 60 40 20 0 0 . 2 5 7 . 1 5 0 . 6 3 7 . 5 3 6 . 3 1 $ in millions 02 03 04 05 06 07 08 09 10 “The real estate sector worldwide has faced major challenges since 2008, but as in the past throughout our 20 year history, Genesis quickly responded to the challenges with timely adjustments to financing and operating strategies.” CoNSoLIDatED EarNINGS pEr SharE 2 8 . 0 0 5 . 0 0 2 0 . 8 1 0 . 0 2 0 . 5 1 0 . 5 1 0 . 1 1 0 . 2 0 0 . 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 $ in millions 02 03 04 05 06 07 08 09 10 2 Genesis Land Development Corporation LarGE LaND INVENtory Sustainable 15 year Inventory* 1,038 CommErCIaL/INDuStrIaL acres 20,020 muLtI-famILy units 18,088 SINGLE-famILy units *approximately 70% of Development Land has approvals. *this estimate is based on existing and anticipated land use. CANALS FOWLER LANDS (LP) CITY OF AIRDRIE BAYSIDE 25 min drive MITFORD CROSSING (WEST OF COCHRANE) SAGE HILL CROSSING SAGE MEADOWS CrossIron CrossIron Mills Mills KINWOOD KINWOOD SHERWOOD SHERWOOD KINCORA KINCORA DELACOUR DELACOUR (LP) CALGARY CALGARY INTERNATIONAL INTERNATIONAL AIRPORT AIRPORT SADDLESTONE SADDLESTONE N.E. LANDS (LP) TERAVISTA / TERALAKE TARAVISTA / TARALAKE CALGARY CITY CENTRE CALGARY CITY CENTRE CCALGARY CITY CENTR CALGARY CITY CENTRE 20 min drive 15 min drive MOUNTAIN VIEW VILLAGE MOUNTAIN VIEW VILLAGE 25 min drive Current Land Holdings Calgary and metropolitan area CaLGary aND arEa totaL 4,245 aCrES EDmoNtoN totaL 122 aCrES brItISh CoLumbIa totaL 2,916 aCrES GROwiNG FOR wARD l aNNuaL rEport 2010 3 prESIDENt’S mESSaGE Dear fellow Shareholders, on behalf of the board of directors, senior management and staff of Genesis, I am pleased to report that 2010 was a year of record results for Genesis. In fact, 2010 was probably the year of greatest accomplishments in the history of the Company. as a consolidated company we achieved total revenues of $137.9 million leading to our highest level of earnings ever of $36.4 million or $0.82 per share. Equally important is the fact that Genesis significantly reduced its debt levels since year end 2009 by $33.9 million. we continued to maintain value of our land base and advanced our commercial and multi-family operations in addition to our already mature land development and single-family home building operations. “Our ability to emerge from difficult economic times to a strong market position is a credit to the leadership, resolve and expertise of our management team.” I am particularly fulfilled by these achievements on the heels of the worst economic times in recent history. the real estate sector worldwide has faced major challenges since 2008, but as in the past throughout our 20 year history, Genesis quickly responded to the challenges with timely adjustments to financing and operating strategies. our ability to emerge from difficult times into a strong market position is a credit to the leadership, resolve and expertise of the management team. Looking ahead, we will focus on continuing to strengthen our balance sheet and move towards the development and retention of cash flow generating properties such as retail, office, industrial and residential multi-family rental properties. we are currently evaluating developing a portion of our inventory of approximately 19,000 multi-family units into cash flow generating rental product. the conditional sale of 27 acres of commercial lands at Sage hill Crossing to rioCan in 2010 is an exciting step forward towards the future development of that property which has approvals for 1.2 million square feet of retail, 1 million square feet of office space, over 4,000 multi-family units and a city transit hub. 4 Genesis Land Development Corporation our land inventories in Calgary and airdrie are very well positioned and should continue to yield strong sales levels for years to come in relatively stable market conditions. our strategy of maintaining a sizable land inventory of short, medium and longer term lands has served Genesis well through the various real estate cycles by permitting flexibility in business decision-making. Genesis` significant inventory of valuable lots and immediate and longer term development lands has mitigated the need to acquire new lands. although our single-family home building division saw closings come down in the latter half of 2010, we continued to maintain focus on strong margins inspite of a marketplace that experienced periods of reduced demand. we closely monitor the marketplace to assess what products are best tailored to the changing needs of our home buyers and are relentlessly assessing our operations to ensure that our builder group can increase production while maintaining its target margins. I remain optimistic on the future prospects for the Calgary metropolitan area. the strong resurgence of the energy sector has once again made the alberta economy among the strongest in North america. fundamental drivers of new home demand, such as job growth, in-migration and unemployment levels are positive for our city. “We remained focused and committed to maintaining the value of our land base by advancing our commercial and multi-family operations along with our already mature land development and single-family home building operations.” for 2011 and beyond, we remain committed to adding shareholder value through the continued generation of strong profits, reduced and improved quality of debt, ongoing land approvals, development of new sustainable revenue streams, and the possibility of implementing strategies which include share buybacks and dividend payouts. we will continue to maintain a conservative balance sheet through the uncertain macro-economic environment while emphasizing construction and development efficiencies to ensure that we preserve our historically strong margins. we expect to achieve all of these targets through strict adherence to our key performance Indicators. In conclusion, I would like to express my immense gratitude to all of our staff, trade partners, financial providers, customers and shareholders who have supported us during these last few years. I am also very proud of our current board of directors who I believe will play an important role in assisting Genesis to move forward. while there will likely continue to be challenges and uncertainty in 2011, I am excited as ever about the prospects for Genesis this year and into the future as we leverage our strengths and build on the profitable foundation that we established in 2010. Gobi Singh, President & Chief Executive Officer, Genesis Land Development Corporation GROwiNG FOR wARD l aNNuaL rEport 2010 5 ChIEf fINaNCIaL offICEr’S mESSaGE Genesis generated extraordinary results in 2010, establishing a new high-water mark for revenue and earnings. Net income of $36.4 million and earnings per share of $0.82 are increases of greater than 435% as compared to 2009; a testament to the significant value nestled within our land base. fiscal 2010 was also a watershed year for us. after the broad economic challenges of 2008 and 2009, we welcomed 2010 as an opportunity to normalize operations, strengthen our balance sheet and reposition the Company for growth into 2011 and beyond. In 2010, we were able to generate record profits in addition to $44,136 of funds from operations (ffo) (net income, net of non-cash items). we then applied $33,940 of the ffo to the corporation’s debt financings. Debt repayments of $162,057 exceeded advances of $137,900 and reduced the Debt to Equity ratio from 0.76:1 at December 31, 2009 to 0.54:1 at December 31, 2010. we continue to enjoy a strong relationship with our lenders. Even in the depths of the recent recession, we had access to capital to sustain us through the difficult times. as the Canadian economy continues to strengthen, we have experienced a reduction in the cost of financing. our average cost of borrowing decreased from 9.68% in 2009 to 8.21% in 2010. as we continue to repay our land acquisition loans, we anticipate these financing costs to approach normalized development loan levels. “Our continued discipline and a long term focus throughout the recent economic downturn have demonstrated our capacity to rise above challenges.” 6 Genesis Land Development Corporation the closing stock price of $3.35 at December 31, 2010 is a $1.37 increase as compared to the December 31, 2009 closing price of $1.98, which is a 69% return to investors. with an estimated after-tax NaV of $355,508 or $8.01 per share (see page 15 of the mD&a enclosed), at December 31, 2010 we are trading at a significant 58% discount to NaV. while land development companies typically trade at a discount to NaV, we are working towards closing the gap by repaying high coupon debt, and secondly by considering a share buy-back or dividend payments. moving into 2011, we intend to continue to bring on additional phases and lots in our existing communities. New mortgage qualification rules, potential increases in interest rates, and significant proposed increases to development levies within the City of Calgary may put downward pressures on the margins of the land development division as well as the home building division. however, we have the proven ability to adjust the range of lots and homes we produce to accommodate shifting demands and cost sensitivities in the market. “We have the proven ability to adjust the types of lots and homes we produce to accommodate shifting demands and cost sensitivities in the market.” Increasing price sensitivity of the single family housing market may also increase demand for multi- family sites and potentially make rental properties economical. we have the opportunity to either develop these sites ourselves or, in certain circumstances, sell them outright. the pending deal with rioCan is also an important milestone for us. a firm sale to rioCan, with an announced shadow anchor in place, would allow us to begin to unlock the potential of the Sage hill Crossing site. In addition to the large land sale, we plan to pursue recurring revenue opportunities. I look forward to 2011 and beyond, and continuing to be part of a management team who are focused on delivering value to our shareholders. my appreciation goes to our board of directors, staff, financial and trade partners, customers and our shareholders who all help contribute to our success. the annual meeting will be held on june 28, 2011 at 10 am at the Sandman Inn at 25 hopewell Drive NE. Simon fletcher Chief Financial Officer, Genesis Land Development Corporation GROwiNG FOR wARD l aNNuaL rEport 2010 7 ChIEf opEratING offICEr’S mESSaGE 2010 was an interesting and challenging year in the area of development and building operations. the year commenced with positive signs of the market emerging from the trials that arose from the failures and uncertainties in the financial markets. the market correction resulted in the easing of labour shortages and price adjustments in the inputs required for our development and construction operations. the right pricing and stabilization of input costs was a necessary and welcome outcome of the economic down turn. while market conditions created challenges as well as opportunity, our greatest frustration came in the form of an unseasonably wet 2010 construction season that resulted in delays in our construction and development program. Despite these delays, we were able to complete the majority of our 2010 construction program. this results in us entering 2011 with a healthy supply of serviced land inventory. we also continue our commitment to supporting the social and recreational need of the communities where we are involved. this is through our sponsorship of major recreation facilities such as the Genesis Centre of Community wellness in North East Calgary and Genesis place recreation facility in airdrie. “We have made a long term investment in Airdrie with a land base that will support ongoing development for many years to come.” Land During 2011, the land division completed the servicing and development work in existing and new subdivision areas. as the initial phases of the kincora and Sherwood subdivisions in Symons Valley approach full build out, servicing and development has been completed on the first two phases of the Sage meadows, providing continued lot inventory in the Symons Valley area. this lot production will be supplemented in 2011 by further lot production arising through the kinwood joint Venture, which is carrying out further development in the communities of Sherwood and kincora. 8 Genesis Land Development Corporation our long term involvement in North East Calgary continues as the taralake development wraps up and the servicing of Saddlestone phases 1&2 is completed. Saddlestone incorporates a pedestrian friendly street layout and an innovative storm water management system. this subdivision will provide ongoing land inventory over a five to six year period. airdrie is a young and vibrant community where we have a significant land inventory with two active communities – the Canals and bayside. In 2010, servicing of bayside phase 7 was completed and work continued on the completion of pathways, landscaping and construction of a pedestrian bridge, which are enhancing the appearance and connectivity within these unique and growing communities. we have made a long term investment in airdrie with a land base that will support ongoing development for many years to come. In addition to the areas outlined above, we continue to advance planning and approvals for additional land holdings in the provinces of alberta and british Columbia. home Building Genesis builders Group (GbG) continues to take an active role in the construction of single family and row house product in Genesis developments. In 2010, GbG made its first foray into a non Genesis subdivision with the acquisition of 68 lots in the Evans ridge Community in Symons Valley. GbG completed the sale of 101 homes in 2010 and carried forward 40 homes into 2011, which were either under design or construction. the year 2011 looks very promising for GbG, with show homes opening in Spring 2011 in the communities of Saddlestone, Sage meadows, Evans ridge and bayside. multi-Family Generations, our multi-family division, ended 2010 having successfully completed the construction of the 125 unit breeze development in the City of airdrie. Generations enters 2011 with a mandate to add value to and advance the development of the considerable multi-family inventory contained in the Genesis Land Development portfolio. In addition to the activities of Generations, we are negotiating the sale of select multi-family sites to third party developers. Commercial 2010 was an interesting and exciting year for the commercial land division. Commercial land sales occurred in the communities of taralake and Saddlestone in North East Calgary. Increased interest and enthusiasm was evident in the Sage hill Commercial development in North Calgary as demonstrated by a conditional sale of a portion of that site to a large commercial developer. the 2011 outlook for the commercial division appears very positive; we have a well positioned commercial land inventory at a time of renewed market interest in commercial projects. I look forward to 2011 with anticipation. In spite of the recent economic adversity, the progress we have achieved over the many years has enabled us to emerge more focused and determined than ever. I thank our board of directors, management team, financial providers, trade partners, customers and shareholders who support us in being able to carry out our mission to be the strongest and most proficient community developer in Canada. jeff blair Chief Operating Officer, Genesis Land Development Corporation GROwiNG FOR wARD l aNNuaL rEport 2010 9 10 Genesis Land Development Corporation GENESiS LAND DEvELOPmENT CORP. mANAGEmENT’S DiSCUSSiON AND ANALySiS OF FiNANCiAL CONDiTiON AND RESULTS OF OPERATiONS for the three-month period and year ended December 31, 2010 (all tabular and table footnotes dollar amounts are in thousands except per share amounts and as noted in %) DatED marCh 3, 2011 the following discussion and analysis of financial condition and results of operations of Genesis Land Development Corp. (“Genesis” or the “Corporation”) should be read in conjunction with the audited consolidated financial statements and the notes thereto for the years ended December 31, 2010 and 2009. these financial statements have been reviewed by the Corporation’s audit Committee, consisting of three independent external directors and adopted by the board of Directors. additional information, including the Corporation’s annual Information form, is available on SEDar at www.sedar.com. GROwiNG FOR wARD l aNNuaL rEport 2010 11 GENESiS LAND DEvELOPmENT CORP. forwarD-LookING StatEmENtS this mD&a contains certain statements which constitute forward-looking statements or information (“forward-looking statements”) within the meaning of applicable securities legislation concerning the business, operations and financial performance and condition of Genesis. forward-looking statements include, but are not limited to, statements with respect to the estimated pre-tax net asset value of the Company, the estimated after tax net asset value of the Company and estimated corporate tax rate and the number of dwelling sites that Genesis will actually develop and sell. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. although Genesis believes that the anticipated future results, performance or achievements expressed or implied by the forward-looking statements are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements because they involve assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Genesis to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements. accordingly, Genesis cannot give any assurance that its expectations will in fact occur and cautions that actual results may differ materially from those in the forward-looking statements. factors that could cause actual results to differ materially from those set forth in the forward-looking statements include, but are not limited to, general economic conditions; local real estate conditions, including the development of properties in close proximity to Genesis’ properties; timely leasing of newly-developed properties and re-leasing of occupied square footage upon expiration; dependence on tenants’ financial condition; the uncertainties of real estate development and acquisition activity; the ability to effectively integrate acquisitions; interest rates; availability of equity and debt financing; the impact of newly-adopted accounting principles on Genesis’ accounting policies and on period-to-period comparisons of financial results; economic conditions in western Canada, not realizing on the anticipated benefits from the transaction or not realizing on such anticipated benefits within the expected time frame and other risks and factors described from time to time in the documents filed by Genesis with the securities regulators in Canada available at www.sedar.com, including this mD&a under the heading “risks and uncertainties” and the annual Information form under the heading “risk factors”. furthermore, the forward-looking statements contained in this mD&a are made as of the date of this mD&a and, except as required by applicable law, Genesis does not undertake any obligation to publicly update or to revise any of the forward-looking statements, whether as a result of new information, future events or otherwise. Caution should be exercised in the evaluation and use of the appraisal results. the appraisal is an estimate of market value at specific dates and not a precise measure of value, being based on subjective comparison of related activity taking place in the real estate market. the appraisal is based on various assumptions of future expectations and while the appraiser’s assumptions are considered to be reasonable at the current time, some of the assumptions may not materialize or may differ materially from actual experience in the future. this mD&a refers to certain financial measurements that do not have any standardized meaning within Canadian Generally accepted accounting principles (“Gaap”) and therefore may not be comparable to similar measures provided by other companies. these measures are provided to assist investors in determining the Corporation’s ability to generate cash from various operations. the funds from operations (“ffo”) provide a longer term perspective of the expected cash flows than Gaap measures as it takes out the short term cash flow volatility from timing differences in revenue recognition and cash receipts. 12 Genesis Land Development Corporation ThE CORPORATiON Genesis is a Calgary-based real estate development corporation focusing primarily on the development and sale of residential, commercial and light industrial properties. the Corporation’s vertically integrated operations include: • • • the acquisition of raw land held for future development, including the planning, servicing and marketing of urban communities and resort destinations in western Canada; the construction and sale of single- and multi-family homes through Genesis Builders Group (“GbG”), a wholly-owned subsidiary of the Corporation; and the development of commercial, industrial and office properties. the Corporation owns development lands primarily in and around the City of Calgary, the City of Edmonton, the City of airdrie and the town of Cochrane in alberta, and also has land holdings within the City of prince George as well as the kamloops and radium areas in the province of british Columbia. the Corporation is listed for trading on the toronto Stock Exchange (the “Exchange” or “tSx”) under the symbol “GDC”. EXECUTivE SUmmAR y the year ended December 31, 2010 has been the most profitable year in Genesis’ history with a net profit of $0.82 per share compared to $0.15 per share for the year ended December 31, 2009. the record earnings were a result of the sale of residential development land parcels in the city of Calgary, alberta for a combined total of $42,512. the Corporation also sold 184 lots for $35,569 and 150 single and multi-family units for $58,569. total revenue for the year ended December 31, 2010 was $137,900. a key focus of the Corporation has been to reduce the debt levels. the Corporation reduced its debt by $33,890 during the year ended December 31, 2010. this included loan repayments of $162,057 and additional financing of $128,167. the land portfolio of the Corporation was independently appraised as of December 31, 2010 by an independent valuation and advisory services firm, Cushman & wakefield Ltd. (“Cushman”). based on the valuation, the Corporation estimates its after-tax net asset value (“NaV”) at December 31, 2010 to be $8.01 per outstanding share as compared to $8.25 per outstanding share as at December 31, 2009. as of December 31, 2010 Genesis had 65 employees. GROwiNG FOR wARD l aNNuaL rEport 2010 13 KEy FiNANCiAL PERFORmANCE iNDiCATORS the key financial performance Indicators that management of Genesis uses to measure performance of the Corporation are as follows: 1. funds from operations, and funds from operations per share, Earnings per Share and price Earnings ratio are earnings measures. 2. weighted average Cost of Debt and Debt to Equity ratio are leverage measures. 3. Net asset Value per share is a measure of asset value. 4. return on Equity is a measure of return on shareholders’ capital at risk. 5. return on assets is a measure of return on asset value. Some of the key performance Indicators calculated for the three-month period and year ended December 31, 2010 are as follows: Funds From Operations Funds From Operations Per Share Earnings Per Share Price Earnings Ratio Weighted Average Cost of Debt Debt to Equity Ratio Net Asset Value Per Share Return on Equity Return on Assets Three Months Ended December 31, Year Ended December 31, 2010 2009 2010 2009 14,067 0.32 0.24 1,582 0.04 (0.02) 7.0% 3.0% (0.6%) (0.2%) 44,136 0.99 0.82 4.09 8.2% 0.54 8.01 23.9% 10.3% 8,451 0.19 0.15 13.20 9.7% 0.76 8.25 5.2% 2.0% the price earnings ratio is based on closing stock price as of December 31, 2010 of $3.35 per share (December 31, 2009 – $1.98 per share) the decrease in NaV is mainly attributable to a decrease in real estate held for development and sale resulting from sales of residential lots and development land parcels, coupled with payments of interest on financings, taxes and other general and administrative expenses during the year ended December 31, 2010, while partially offset by an increase in the valuation of the remaining lands. the estimated NaV was calculated using the Cushman total pre-tax Land Value plus additional balance sheet assets less balance sheet liabilities and a 28% corporate tax rate as at December 31, 2010. the book value of all remaining assets and liabilities as set forth in the audited consolidated financial statements of the Corporation for the year ended December 31, 2010 has been added to the total pre-tax Land Value to calculate the pre-tax “Net” asset Value. Estimated taxes have been deducted from the pre-tax Net asset Value as if all properties were sold at their December 31, 2010 market values to determine NaV. 14 Genesis Land Development Corporation NEt aSSEt VaLuE CaLCuLatIoN ($’s) Appraised values (see note 1 and 2 below) Serviced Single-Family Lot Inventory Serviced Multi-Family Sites Fully Approved Commercial/Industrial Sites – Calgary, Airdrie & Edmonton Fully Approved Developable Lands – Calgary & Airdrie Other Raw and Partially Approved Links Total Pre-Tax Land Value Other Balance Sheet Assets (see note 3 below) Balance Sheet Liabilities (see note 4 below) Add Amount Due From Non-Controlling Interest (“NCI”) Pre-Tax NAV Estimated Tax After Tax NAV Total Shares Outstanding as at December 31, 2010 After-Tax NAV Per Share Outstanding 2010 84,950 47,133 80,385 167,032 95,245 474 ,745 54,302 (124,776) 23,436 427,707 (72,199) 355,508 44,379 8.01 aSSumptIoNS: 1. appraised values represent 100% Genesis owned lands. Limited partnership lands owned by other limited partnership investors (and the corresponding NCI liability) are excluded from the calculation. 2. Cushman’s appraised values of lands represents market value based on comparative figures of similar market transactions, except for single-family lots currently under development, which are valued as if serviced and subdivided with adjustment for estimated future costs to complete. Lot inventory has been valued on a per lot basis, multi-family sites have been valued on a per door basis and all other lands were valued on a per acre basis. GROwiNG FOR wARD l aNNuaL rEport 2010 15 3. other balance sheet assets and liabilities in the NaV Calculation includes the following: ($’s) Assets Housing Projects Under Development Excluding Land Value Accounts Receivable Other Operations Assets Cash Total Liabilities Financings Customer Deposits Accounts Payable and Accrued Liabilities Income Taxes Payable Future Income Taxes Land Development Service Costs Total 2010 8,470 27,021 16,356 2,455 54,302 81,320 8,388 13,024 8,310 3,387 10,347 124,776 4. Genesis has used a 2010 Corporate tax rate of 28% to calculate taxes in determining its NaV. 16 Genesis Land Development Corporation NON-GAAP mEASURES this mD&a refers to certain financial measurements that do not have any standardized meaning within Canadian Generally accepted accounting principles (“Gaap”) and therefore may not be comparable to similar measures provided by other companies. these measures are provided to assist investors in determining the Corporation’s ability to generate cash from various operations. the funds from operations (“ffo”) provide a longer term perspective of the expected cash flows than Gaap measures as it takes out the short term cash flow volatility from timing differences in revenue recognition and cash receipts. the specific measures being referred to are: i) gross margin, calculated as revenues less cost of sales; and ii) funds from operations calculated as follows: Three Months Ended December 31, Year Ended December 31, ($’s) 2010 2009 Change % 2010 2009 Change % Cash Provided (Used) by Operating Activities (GAAP) Changes in Non-Cash Working Capital (16,771) 282 (17,053) (6,047%) 36,541 21,881 14,660 67% 30,838 (1,300) 32,138 2,472% 7,595 (13,430) 21,025 157% Funds From Operations 14,067 (1,018) 15,085 1,482% 44,136 8,451 35,685 422% the Corporation saw a strong increase in the ffo for 2010 compared to 2009. the increase has mainly been driven by sales of development land parcels and lots in the Corporation’s recently developed phases, off-set by a decline in sales of single-family and multi-family homes. GROwiNG FOR wARD l aNNuaL rEport 2010 17 RESULTS OF OPERATiONS Three Months Ended December 31, Year Ended December 31, ($’s) 2010 2009 Change % 2010 2009 Change % Net Earnings After Tax and Non-Controlling Interest 10,624 (714) 11,338 1,588% 36,404 6,756 29,648 439% Basic Net Earnings Per Share 0.24 (0.02) 0.26 1,300% 0.82 0.15 0.67 447% rEVENuE, CoSt of SaLES aND GroSS marGIN the revenue mix for the years ended December 31, 2010 and 2009 is as follows: rEVENuE 2010 rEVENuE 2009 42% residential homes 1% other 26% residential Lots 31% Development Land 72% residential homes 1% other 26% residential Lots 18 Genesis Land Development Corporation rESIDENtIaL LotS rEVENuE, CoSt of SaLES aND GroSS marGIN – rESIDENtIaL LotS REVENUES COST OF SALES GROSS MARGIN 60,000 50,000 40,000 30,000 20,000 10,000 0 $ in thousands 07 08 09 10 GROwiNG FOR wARD l aNNuaL rEport 2010 19 Three Months Ended December 31, Year Ended December 31, ($’s) 2010 2009 Change % 2010 2009 Change % Residential Lot Revenue 24,955 3,974 20,981 528% 35,569 23,138 12,431 54% Cost of Sales (10,251) (4,034) (6,217) 154% (14,001) (12,729) (1,272) 10% Gross Margin Gross Margin % 14,704 (60) 14,764 24,607% 21,568 10,409 11,159 107% 59% (2%) 61% 45% Number of Lots Sold 128 23 105 457% 184 124 60 48% Average Revenue Per Lot 195 173 22 13% 193 187 6 3% Average Cost of Sales Per Lot 80 175 (95) (54%) 76 103 (27) (26%) revenues from residential lots for the year ended December 31, 2010 were higher than for the year ended December 31, 2009 due to higher number of lots sold in the current year and higher lot pricing due to improving economic conditions. the negative gross margin for the three months ended December 31, 2009 is due to a one-time true-up of the cost to complete, booked in the three-month period ended December 31, 2009 in respect of the entire year 2009. while cost of sales increased primarily due to higher sales volume driven by sales in the community of Saddlestone, the average cost per lot sold decreased for 2010, compared to last year mainly due to a comparatively lower cost base of the non-amenity lots sold this year as compared to amenity lots sold in Calgary’s northeast community of taralake in 2009. this contributed to the increase in gross margins in 2010 compared to last year. DEVELopmENt LaND Three Months Ended December 31, Year Ended December 31, ($’s) 2010 2009 Change % 2010 2009 Change % Development Land Revenue 2,800 — 2,800 Cost of Sales (1,060) — (1,060) 100% 100% 42,512 (14,860) — — 42,512 (14,860) 100% 100% Gross Margin Gross Margin % 1,740 — 1,740 100% 27,652 — 27,652 100% 62% — 65% for the year ended December 31, 2010, the sale of development land included two residential development land parcels in the city of Calgary, alberta for $39,062, a land for fire hall for $2,800, as well as a commercial land parcel (through one of its limited partnerships) in the city of airdrie, alberta for $650. 20 Genesis Land Development Corporation RESiDENTiAL hOmE BUiLDiNG SINGLE famILy homES rEVENuE, CoSt of SaLES aND GroSS marGIN – SINGLE famILy homES REVENUES COST OF SALES GROSS MARGIN 60,000 50,000 40,000 30,000 20,000 10,000 0 $ in thousands 07 08 09 10 GROwiNG FOR wARD l aNNuaL rEport 2010 21 Three Months Ended December 31, Year Ended December 31, ($’s) 2010 2009 Change % 2010 2009 Change % Single-Family Revenue 6,897 10,089 (3,192) (32%) 46,297 45,025 1,272 Cost of Sales (4,803) (5,823) 1,020 (18%) (31,561) (30,778) (783) 3% 3% Gross Margin Gross Margin % 2,094 4,266 (2,172) (51%) 14,736 14,247 489 3% 30% 42% 32% 32% Number of Homes Sold 15 Average Revenue Per Home 460 Average Cost of Sales Per Home 320 24 420 243 (9) 40 77 (38%) 10% 32% 101 458 312 118 382 261 (17) (14%) 76 20% 51 20% the average selling price per home has increased over last year as a result of the sales mix favoring the Communities of kincora and Sherwood, which are typically mid-range homes. the margins however did not increase proportionately due to pressure on selling prices. management believes the housing market has stabilized in Calgary and airdrie for the near term, which should help maintain margins at current levels. the drop in new homes sales in 2010 compared to 2009 was due to wet weather conditions which delayed the availability of lots to commence construction work. home sales recorded for the three months and year ended December 31, 2010 in Calgary and airdrie are as follows: Three Months Ended December 31, 2010 Year Ended December 31, 2010 # of Single-Family Average Amount Per Home ($’s) Homes Sold # of Single-Family Average Amount Per Home ($’s) Homes Sold Community 2010 2009 2010 2009 2010 2009 2010 2009 CALGARY Kincora Sherwood Taralake AIRDRIE Bayside Canals TOTAL — 6 — 9 — 15 7 3 8 4 2 — 617 — 355 — 416 546 461 309 308 33 25 3 40 — 8 7 63 13 27 441 590 519 386 — 413 541 412 314 292 24 460 420 101 118 458 382 22 Genesis Land Development Corporation Sales for the last four quarters were as follows: Quarter Ended December 31 September 30 June 30 March 31 Total muLtI-famILy # of Homes Closed/Sold 2010 2009 15 29 39 18 101 24 34 34 25 118 Three Months Ended December 31, Year Ended December 31, ($’s) 2010 2009 Change % 2010 2009 Change % Multi-Family Revenue 812 3,943 (3,131) Cost of Sales (762) (3,874) 3,112 (79%) (80%) 12,272 17,687 (5,415) (11,703) (17,767) 6,064 (31%) (34%) Gross Margin Gross Margin % 50 6% Number of Homes Sold Average Revenue Per Home Average Cost of Sales Per Home 4 203 191 69 2% 16 246 242 (19) (28%) (12) (43) (51) (75%) (17%) (21%) 569 5% 49 250 239 (80) 0% 72 246 247 649 811% (23) (32%) 4 (8) 2% (3%) the Corporation currently has only one active multi-family project, the breeze, a 125-unit condominium project in airdrie, which is a joint venture with Genesis Limited partnership #6 (“Lp6”). During the year ended December 31, 2010 a total of 49 units have closed (2009 - 72). Subsequently, no additional unit sales have closed for the project. the project was constructed at peak construction costs in 2007 and 2008, but has been selling in a depressed multi-family housing segment in 2009 and 2010. the margins are low because the carrying value of the project has been written down to an estimate of net realizable value. the project financing was repaid from unit sales in September 2010, any additional units sold will be split with Lp 6 approximately 3:1 in favor of Lp6. the Corporation currently has an additional nine multi-family projects which have undergone planning and approvals but have not commenced construction. management is currently evaluating the opportunities to develop or divest itself of certain of these project sites. GROwiNG FOR wARD l aNNuaL rEport 2010 23 othEr rEVENuE Three Months Ended December 31, Year Ended December 31, ($’s) 2010 2009 Change % 2010 2009 Change % Interest and Other Income 145 211 (66) (31%) 1,250 711 539 76% Increase in interest and other income for the year ended December 31, 2010 compared to last year was driven primarily by interest income on outstanding mortgage loan receivables and customer deposit forfeitures on purchases of real estate. GENEraL aND aDmINIStratIVE ExpENSE Three Months Ended December 31, Year Ended December 31, ($’s) 2010 2009 Change % 2010 2009 Change % General and Administrative Expense – Gross 3,223 2,603 Limited Partnership Allocations (264) 369 620 (633) 24% 12,263 10,946 1,317 12% (172%) (1,513) (711) (802) 113% General and Administrative Expense – Net 2,959 2,972 (13) (0%) 10,750 10,235 515 5% Increase in general and administrative expense, net of the limited partnership allocations, for the year ended December 31, 2010 compared to last year was mainly driven by higher fees incurred for professional services and by higher salaries and benefits driven by an increase in the number of employees reflecting management’s efforts to strengthen the Corporation’s internal controls environment. the positive allocation for the three months ended December 31, 2009 is due to reversals related to the VIE. 24 Genesis Land Development Corporation wrItE-DowN of rEaL EStatE hELD for DEVELopmENt, SaLE aND othEr Three Months Ended December 31, Year Ended December 31, ($’s) 2010 2009 Change % 2010 2009 Change % Write-down (Recovery) of Real Estate Held for Development and Sale and Other (3,860) 3,489 (7,349) (211%) (1,284) 7,643 (8,927) (117%) the improvement in economic conditions during 2010 resulted in an increase in the appraised values of properties. as at December 31, 2010, the value of certain previously written down properties recovered compared to the last valuation and write-downs amounting to $4,855 were reversed. the reversal combined with write-down of $3,571 booked during the year resulted in net recovery of $1,284. the reversals were the result of independent appraisal of all the properties held by the Corporation as at December 31, 2010. INtErESt ExpENSE Three Months Ended December 31, Year Ended December 31, ($’s) 2010 2009 Change % 2010 2009 Change % Interest Capitalized Interest Expensed 1,320 2,126 (806) (38%) 59 26 33 127% 7,172 804 7,035 1,470 137 2% (666) (45%) Total Interest Incurred 1,379 2,152 (773) (36%) 7,976 8,505 (529) (6%) Interest expense relates to single-family home building operations and certain operating loans secured by land. the decrease in interest expense for the year ended December 31, 2010 compared to last year was mainly due to lower average outstanding loan balances relating to working capital (non-project) financings which in turn is driven by management’s continuing efforts to reduce the Corporation’s non-project debt levels. this trend is expected to continue as management continues to target non- project loans for repayment. INComE tax ExpENSE Three Months Ended December 31, Year Ended December 31, ($’s) 2010 2009 Change % 2010 2009 Change % Income Tax Expense 4,160 31 4,129 13,319% 14,166 3,579 10,587 296% Income tax expense increased for the year ended December 31, 2010 compared to year 2009 primarily due to higher taxable earnings driven by residential development and commercial land parcel sales recognized during 2010. GROwiNG FOR wARD l aNNuaL rEport 2010 25 fINaNCIaL poSItIoN aSSEtS As of December 31, ($’s) 2010 % 2009 % Real Estate Held for Development and Sale Amounts Receivable Cash and Cash Equivalents Future Income Taxes Other Operating Assets 309,034 27,021 2,455 — 16,356 87% 8% 1% — 4% 302,598 15,384 4,578 2,213 17,568 88% 4% 1% 1% 6% 354,866 100% 342,341 100% rEaL EStatE hELD for DEVELopmENt aND SaLE As of December 31, ($’s) 2010 2009 Change Real Estate Held for Development and Sale 309,034 302,598 6,436 % 2% During the year ended December 31, 2010, carrying value of real estate held for development and sale increased primarily as a result of on-going residential land development and home construction expenditures relating to the first two phases in the Calgary communities of Sage meadows and Saddlestone where Genesis substantially completed servicing in 2010, while offset by sales of development land parcels and housing inventory, reflecting the real estate market’s stabilization in 2010. the increase is also attributable to partial reversals of previous write-downs amounting to $4,855 as a result of independent appraisal of the Corporation’s land portfolio. real estate held for development and sale changed during the year ended December 31, 2010 as follows: ($’s) December 31, 2009 Acquisitions & Transfers Development Sold Recovery (Write-down) Land Under Land Held for Future Development Development Housing Projects Intersegment Elimination Total 128,304 24,649 29,665 (20,654) (1,415) 156,557 (23,351) 2,770 — 3,510 17,737 18,229 26,057 (52,684) (340) — 302,598 (19,527) 19,527 — — — 78,019 (73,338) 1,755 December 31, 2010 160,549 139,486 8,999 — 309,034 26 Genesis Land Development Corporation the Corporation’s land holding mix was as follows: LaND hoLDING mIx 45% Land held for future Development 52% Land under Development 3% housing projects the Corporation had 631 single-family lots in inventory as at December 31, 2010. the lot inventory by community was as follows: totaL NumbEr of SINGLE-famILy LotS IN INVENtory by CommuNIty 31% Sage meadows 200 Lots 4% Canals 24 Lots 50% bayside 314 Lots 5% other 28 Lots 10% Saddlestone 65 Lots In airdrie, Genesis is completing servicing of 150, primarily, entry-level lots in phase 7 of its bayside Community. management believes that price point continues to be a major influence over new-home purchase decisions, particularly for first-time buyers, so these lots will be priced in the $100 range. the Corporation has contracts for the sale of 75 lots in Sage meadows for approximately $13,971. the sales under these contracts are expected to be recognized in 2011. GROwiNG FOR wARD l aNNuaL rEport 2010 27 amouNtS rECEIVabLE As of December 31, ($’s) Amounts Receivable Allowance for Doubtful Accounts 2010 2009 Change % 27,021 — 28,275 (12,891) (1,254) 12,891 (4%) (100%) 27,021 15,384 11,637 76% amounts receivable, net of allowance for doubtful accounts, increased at December 31, 2010 compared to December 31, 2009 mainly due to increase in lot sales achieved for the Saddlestone community making up 60% of the receivable balance, Vtb mortgage issued for the sale of a land parcel and partially offset by decrease in miscellaneous receivables. the allowance for doubtful receivables amounting to $12,891 as of December 31, 2009 decreased to $Nil balance in 2010 mainly due to reclaiming lots back into the inventory relating to doubtful receivables of insolvent customers. Credit exposure associated with land division lot receivables is mitigated as the Corporation retains title to the lot until payment is received. In the event that a customer is unable to pay the balance of the purchase price owing, the Corporation would retain the collected non-refundable deposit and the developed lot. Credit risk associated with accounts receivable for single- and multi-family homes is mitigated as payment is received upon title transfer of homes. LIabILItIES, NoN-CoNtroLLING INtErESt & SharEhoLDErS’ EquIty As of December 31, ($’s) Financings Customer Deposits Accounts Payable and Accrued Liabilities Income Taxes Payable Future Income Taxes Land Development Service Costs Non-Controlling Interest Shareholders’ Equity 2010 % 2009 % 81,320 8,388 13,024 8,310 3,387 10,347 58,920 171,170 23% 2% 4% 2% 1% 3% 17% 48% 115,210 4,985 8,350 11,139 — 8,301 61,084 133,272 34% 1% 2% 3% — 2% 18% 40% 354,866 100% 342,341 100% financings from lending institutions, excluding deferred financing fees, at December 31, 2010 totaled $82,963 of which $45,006 or 54% relates to short-term project financing, repayment of which is either (i) linked directly to the collection of lot receivables and sales proceeds; (ii) regularly scheduled principal installments; or (iii) due at maturity. During the year ended December 31, 2010, Genesis received $128,167 of financing proceeds and made repayments of $162,057. the multi- family division has financed $Nil of construction costs at December 31, 2010 as compared to $10,253 at December 31, 2009, which represented repayments of the financing for the breeze project while offset by the remaining construction cost of the project. repayment of the financing was through sales proceeds from closings of individual units to third party purchasers. 28 Genesis Land Development Corporation LaND DEVELopmENt SErVICE CoStS As of December 31, ($’s) 2010 2009 Change % Land Development Service Costs 10,347 8,301 2,046 25% accrued land development service costs increased at December 31, 2010 compared to December 31, 2009 mainly due to increased lot sales in the communities of Saddlestone, Sherwood and bayside, sale of land for fire hall in the community of Sage meadows, increase in estimated budgets for certain properties, while off-set by performing planned service work thus incurring previously budgeted completion costs. NoN-CoNtroLLING INtErESt As of December 31, ($’s) 2010 2009 Change % Non-Controlling Interest Liability 58,920 61,084 (2,164) (4%) Non-controlling interest liability decreased primarily due to cash paid to limited partnership unit holders and de-recognition of a variable interest entity (“VIE”) that was previously consolidated into the Corporation’s accounts. SharEhoLDErS’ EquIty as at march 3, 2011, the Corporation had 44,418,511 common shares issued and outstanding. In addition, there were options to acquire 2,162,871 common shares of the Corporation issued under the Corporation’s stock option plan. GROwiNG FOR wARD l aNNuaL rEport 2010 29 LiqUiDiTy AND CAPiTAL RESOURCES During the year ended December 31, 2010, the Corporation generated net earnings of $36,404 and generated $44,136 for funding its operating activities. at December 31, 2010, the consolidated cash balance was $2,455 as compared to $4,578 as at December 31, 2009. the current liabilities include: ($’s) Financings, Excluding Deferred Financing Fee Customer Deposits Accounts Payable and Accrued Liabilities Income Taxes Payable Total Current Liabilities Commitments Year Ended December 31, 2010 2009 45,006 8,388 13,024 8,310 74,728 4,977 101,802 4,985 8,350 11,139 126,276 741 79,705 127,017 at December 31, 2010, Genesis has obligations due within the next 12 months of $79,705. If Genesis is unable to generate sufficient sales and renew existing credit facilities or secure additional financing, it will impact the Corporation’s ability to meet its obligations as they become due. based on Genesis’ operating history, its relationship with its lenders and committed sales contracts, management believes that the Corporation has the ability to continue to renew or repay its financial obligations as they come due. the following is a summary of the Corporation’s divisional financings balances at quarter-end: Financings ($’s) Land & Land Project Loans Home Building Operations Other Deferred Financing Fees Fourth Quarter 2010 Third Quarter 2010 Second Quarter 2010 First Quarter 2010 Fourth Quarter 2009 81,862 65,169 84,993 106,435 106,547 442 659 — 714 1,617 705 4,943 10,253 688 839 82,963 (1,643) 65,883 (1,445) 87,315 (1,570) 112,066 117,639 (1,863) (2,429) 81,320 64,438 85,745 110,203 115,210 30 Genesis Land Development Corporation the movement in Corporation’s financing was as follows: ($’s) Balance, Beginning of Year Advances Repayments Balance, End of Year Year Ended December 31, 2010 2009 115,120 132,704 128,167 84,828 (162,057) (102,322) 81,230 115,210 through strategic sales of assets as well as ongoing principal repayments, the Corporation’s financings have decreased to $81,320 from the December 31, 2009 balance of $115,210. management is continuing its efforts to reduce the Corporation’s non-project and high-interest debt levels. the following table shows the debt to equity ratio calculated as total debt excluding non-controlling interest divided by total equity including non-controlling interest. ($’s) Total Liabilities (Excluding Non-Controlling Interest) Total Equity (Including Non-Controlling Interest) Debt to Equity Ratio Year Ended December 31, 2010 2009 124,776 230,090 0.54 147,985 194,356 0.76 Certain of the Corporation’s financing agreements include terms related to material adverse change, covenants and cross default. If loan defaults occur and management is unable to negotiate terms, and any one lender takes steps to exercise its rights and remedies under loan default provisions, which may include full repayment, the Corporation may face similar actions from its other lenders. If this occurs, management believes that the Corporation may not have sufficient liquidity to satisfy any such demand for repayments. additionally, the terms of the short-term debt arrangements in many cases require that cash collected from future sales is dedicated to partial discharges of the debt, resulting in a limitation on net free cash available to cover operational requirements. the Corporation uses a combination of project specific credit facilities and limited partnership capital to fund development costs and land acquisitions. Generally, Genesis repays its project specific debt from the proceeds of sale of homes and lots. the Corporation presently maintains lending relationships with several lenders who provide financings at interest rates ranging from prime + 1.5% to 10%. there is a risk that lot closings and property sales could be delayed which would impact the Corporation’s ability to repay these project oriented financings at the contracted discharge prices or in a timely fashion. In such an instance the Corporation would attempt to refinance and/or extend the term of the financing. GROwiNG FOR wARD l aNNuaL rEport 2010 31 CoNtraCtuaL obLIGatIoNS the Corporation’s contractual obligations, other than accounts payable, income taxes payable, customer deposits and land development service costs, stated as of December 31, 2010 are as follows: ($’s) Current Years 2 and 3 Years 4 and 5 Thereafter Financings (Excl. Deferred) Financing Fees) Purchase of Land Naming Rights Lease Obligations 45,006 37,957 — — 4,216 4,217 — — 200 400 400 400 561 354 57 — Total 49,983 42,928 457 400 82,963 8,433 1,400 972 93,768 Genesis has entered into a memorandum of understanding with a community society in north east Calgary, whereby Genesis will contribute $5,000 over the next ten years for the naming rights to a recreation complex. Negotiations are underway to determine when payments will commence; therefore this obligation is not reflected in the table above. Genesis has entered into an agreement with the City of airdrie, whereby Genesis will contribute $200 per year for ten years, commencing june 1, 2008, for the naming rights to a recreation complex. the first three payments have been remitted as scheduled and recorded as part of general and administrative expense. 32 Genesis Land Development Corporation REVENUES EARNINGS (loss) before income taxes and non-controlling interest NET EARNINGS SUmmAR y OF qUARTERL y RESULTS 65,000 55,000 45,000 35,000 25,000 15,000 5,000 -5,000 $ in thousands 1st Quarter 09 2nd Quarter 09 3rd Quarter 09 4th Quarter 09 REVENUES EARNINGS (loss) before income taxes and non-controlling interest NET EARNINGS 65,000 55,000 45,000 35,000 25,000 15,000 5,000 -5,000 $ in thousands 1st Quarter 10 2nd Quarter 10 3rd Quarter 10 4th Quarter 10 GROwiNG FOR wARD l aNNuaL rEport 2010 33 ($’s) Third Fourth Fourth Second Quarter Quarter Quarter Quater Quarter 2010 2010 2010 2010 2009 First Third Second Quarter Quarter Quarter 2009 2009 2009 First Revenues 35,609 17,793 66,440 18,058 18,219 20,621 31,119 16,603 Earnings (Loss) Before Income Taxes and Non-Controlling Interest 18,970 488 31,119 2,835 (1,868) (239) 3,792 3,920 Net Earnings (Loss) 10,624 994 22,802 1,984 (714) 721 4,387 2,362 Net Earnings (Loss) Per Share: Basic Diluted 0.24 0.24 0.02 0.02 0.52 0.52 0.04 0.04 (0.02) (0.02) 0.02 0.02 0.10 0.10 0.05 0.05 jOiNT vENTURE on april 30, 2010, Genesis entered into a joint venture agreement with another real estate development corporation to form a joint venture corporation (“jV”) with a purpose of conducting residential development of certain real estate holdings. Genesis contributed 75 acres (net of jV interests) and has a 50% interest in the jV. Development servicing is expected to commence in 2011. OFF BALANCE ShEET ARRANGEmENTS LEttErS of CrEDIt the Corporation has an ongoing requirement to provide letters of credit to municipalities as part of the subdivision plan registration process. as at December 31, 2010, these letters of credit totaling approximately $15,343, would provide a source of funds to the municipalities that would allow them to complete the construction and maintenance of improvements to the subdivision should the Corporation not be able to. the amount of any particular letter of credit is reduced at various stages of construction. once the municipality issues a certificate acknowledging completion of the improvements to the project, the letter of credit is returned and cancelled. LEaSE aGrEEmENtS the Corporation has certain lease agreements that are entered into in the normal course of operations. all leases are treated as operating leases whereby lease payments are included in operating expenses or general and administrative expenses depending on the nature of the lease. No asset or liability value has been assigned to these leases in the balance sheet as of December 31, 2010. 34 Genesis Land Development Corporation RELATED PARTy the Corporation engaged a former officer (“former officer”) of the Corporation as a Senior financial advisor. the amount of payments made to the former officer in 2010 were $202 (December 31, 2009 – $91). the former officer was granted 70,000 stock options on December 10, 2009. on october 2, 2009, the Corporation entered into a contract to construct a single-family home (“residential property”) for the former officer at a cost-plus agreed percentage basis, for the total value of the residential property of $970 representing terms offered to employees and measured at the exchange amount. as of march 3, 2011, the transaction has not closed. CRiTiCAL ACCOUNTiNG ESTimATES AND POLiCiES Certain estimates are necessary until amounts are finalized pursuant to transactional or legal proceedings. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods could differ significantly from those estimates. GENEraL LItIGatIoN the Corporation is subject to various legal proceedings and claims that arise in the ordinary course of business operations. the Corporation periodically reviews these claims to determine if amounts should be accrued in the financial statements or if specific disclosure is warranted. VaLuatIoN of LaND Land under development, land held for future development and housing projects under development are recorded at the lower of cost and estimated net realizable value on a project specific basis. an impairment loss is recognized to the extent that the carrying value of a project exceeds the fair value of that project. Cost includes land acquisition costs, other direct costs of development and construction, interest on debt used to finance specific projects, property taxes and legal costs. Land acquisition costs are prorated to a phase of a project on an acreage basis. CoStS to CompLEtE Genesis’ most significant estimates relate to future development costs for lot sales which are recognized prior to all costs being committed or known. the future development costs liability represents the construction costs remaining to be incurred for each project phase currently under development to the extent that revenue has been recognized. the liability to complete lots sold is recognized when the first revenue is recognized in the phase. the liability includes all direct construction costs and indirect costs including interest and property taxes expected to be incurred during the remainder of the construction period. Changes in the estimated future development cost directly impact the amount recorded for the future development liability, cost of sales, gross margin and in some cases, the value of real estate under development and held for sale. this liability is subject to significant measurement uncertainty as it is based on estimated budgeted numbers prepared by independent consultants. recent market conditions in alberta have been volatile thereby increasing the risk of estimation errors. GROwiNG FOR wARD l aNNuaL rEport 2010 35 iNTERNATiONAL FiNANCiAL REPORTiNG STANDARDS (“iFRS”) the accounting Standards board (“acSb”) requires publicly accountable enterprises to adopt IfrS in place of Canadian Gaap for interim and annual reporting purposes for fiscal years beginning on or after january 1, 2011. the Corporation’s IfrS adoption date of january 1, 2011 will require the restatement, for comparative purposes, of amounts reported by the Corporation for the year ended December 31, 2010, including the opening statement of financial position as at january 1, 2010. management has commenced and substantially completed its IfrS conversion project which consists of the following three phases: 1. Preliminary impact and assessment – this phase commenced with a review of the Corporation’s significant accounting policies relative to current and proposed IfrS. the results of this analysis were priority ranked according to the complexity and the extent of the impact in adoption of IfrS accounting policies. 2. Detailed analysis – the Corporation is now in the process of preparing draft analysis for the impact and evaluation phase, where items identified in the preliminary phase are addressed according to the priority levels assigned to them. this phase involves analysis of policy choices allowed under IfrS, drafting IfrS position papers for areas requiring significant judgment, assessing impact on systems and controls and drafting IfrS compliant consolidated financial statements. 3. implementation phase – this final phase involves implementing all changes approved in the impact and evaluation phase. the Corporation completed the preliminary impact and assessment phase. the Corporation is currently in the detailed analysis phase which is expected to be completed within the reasonable timeframe to allow for further disclosure and filing as required and applicable. for the second phase the Corporation’s IfrS advisor has completed drafting and finalizing IfrS position papers, decision on optional exemptions have been made, and draft analysis of impact has been calculated. the Corporation is currently preparing IfrS compliant consolidated financial statements and drafting the first set of IfrS financial statements. the implementation phase will commence upon completion of the detailed analysis phase. management determined that the differences most likely to have the greatest degree of complexity and impact on the Corporation’s consolidated financial statements were as follows: 36 Genesis Land Development Corporation fIrSt-tImE aDoptIoN IfrS 1 Grants first time adopters: • Optional exemptions, from retrospective application of certain standards, that the Corporation may choose to elect in preparation of its opening statement of financial position; and • Mandatory exceptions to retrospective application of certain standards. Elections made upon transition to IfrS can have a significant impact on the level of time and effort needed for IfrS conversion. the following optional exemptions appear to be the most applicable to the Corporation: (a) fair value or revaluation as deemed cost - this exemption provides the Corporation with the option to elect specific fair values for the deemed cost of any qualifying item of property, plant and equipment. the Corporation has elected to use the historical cost bases under Canadian Gaap as deemed cost at the transition date; (b) Share-based payments - this exemption provides the Corporation with the option of not applying IfrS 2 Share-based payments to equity-settled share-based payment transactions issued after November 7, 2002 and which have vested before the date of transition. the Corporation has elected to apply IfrS 2 to equity instruments granted after November 7, 2002 that have been vested as of january 1, 2010 and all liabilities arising from the share-base payment transactions that existed at january 1, 2010; and (c) Capitalization of borrowing costs - this exemption provides the Corporation with the option of applying IaS 23 borrowing Costs (“IaS 23”) prospectively from the transition date. the Corporation has elected to apply IaS 23 prospectively. furthermore, IfrS 1 requires extensive disclosure in the Corporation’s first set of IfrS compliant interim and annual consolidated financial statements. this includes the disclosure of several reconciliations that explain how the transition from Canadian Gaap to IfrS affected the reported financial position, financial performance and cash flows of the Corporation. borrowING CoStS IaS 23 borrowing Costs (“IaS 23”) requires the capitalization of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset that takes a long period of time to construct). Interest costs may only be capitalized to a property when an entity incurs expenditures for the asset, incurs borrowing costs, and begins development to prepare the asset for its intended use or sale. as a result, borrowing costs on land held for development may not qualify. borrowing costs must cease being capitalized to a project in cases of extended delays in development or once the property is substantially complete for its intended use, regardless of level of occupancy. furthermore, to the extent that the Corporation borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Corporation must determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. the capitalization rate is the weighted average of the borrowing costs applicable to the borrowings that are outstanding during the period. the Corporation has elected under the optional exemption provided by IfrS 1 to apply IaS 23, borrowing Costs, prospectively, consequently there is no impact on opening statement of financial position as of january 1, 2010. GROwiNG FOR wARD l aNNuaL rEport 2010 37 ImpaIrmENt of aSSEtS pp&E is tested for impairment in accordance with IaS 36 Impairment of assets which requires that the Corporation assesses, at the end of each reporting period, whether there is any indication that these assets may be impaired. an asset is impaired when the recoverable amount of the asset is less than the carrying amount. If there is any indication that an asset may be impaired, the recoverable amount should be estimated for individual assets. the recoverable amount is defined as the higher of the fair value less costs to sell and the value in use. fair value less costs to sell is the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable and willing parties. the value in use is the present value of the future cash flows (i.e. discounted cash flows) expected to be derived from an asset. If it is not possible to estimate the recoverable amount for the individual asset, the Corporation must determine the recoverable amount for the cash-generating unit (“CGu”) to which that asset can be allocated. a CGu is the smallest group of assets that generates cash flows largely independent of other assets or groups of assets. as a result of the above changes, impairment may be recognized more frequently under IfrS as Canadian Gaap does not require the discounting of cash flows when assessing the recoverability of an asset’s carrying value. IaS 36 does, however, require the reversal of an impairment loss where there is an indication that circumstances have changed and that the impairment loss no longer exists or may have decreased. this is not allowed under Canadian Gaap. the Corporation’s fixed assets are mainly composed of office equipment, computer equipment, automobiles, furniture, software and landscaping equipment. the net book value of these assets as of December 31, 2010 is $544. the management does not anticipate any material change to this balance for the opening statement of financial position as of january 1, 2010. INComE taxES IaS 12 Income taxes (“IaS 12”) is similar to Canadian Gaap in that the Corporation has to recognize deferred (future) taxes on temporary differences between the carrying value of assets and liabilities and their tax base. the adoption of IfrS may have a significant impact on the Corporation’s tax accounting in the period of adoption and in subsequent periods for new temporary differences arising on the conversion to IfrS as a result of changes in carrying values of assets, differences in depreciation and depletion expense, residual values, capitalization of borrowing and direct costs and impairment charges and reversals. ImpaCt oN SharEhoLDErS’ EquIty based on detailed analysis in second phase of the IfrS conversion, the following tables present the identified differences between Canadian Gaap and IfrS and their impact on shareholders’ equity as of january 1, 2010 and 2011. this un-audited information reflects our most recent views, assumptions and expectations. the identified differences are intended to highlight the most significant areas and should not be regarded as complete or final. 38 Genesis Land Development Corporation the summary of expected changes that we believe will be most significant when the Corporation transitions to IfrS as of january 1, 2010 are as noted in the following table: (Un-Audited) Description Financial Statement Line Item Impacted Increase / (Decrease) in Shareholders’ Equity Share Based Payments – IFRS 2 Contibuted Capital Total Impact Before Taxes Net After-Tax Impact on Shareholders’ Equity at January 1, 2010 595 595 595 the expected change to the shareholders’ equity as at january 1, 2011 based on detailed analysis is expected to be as summarized in the following table: (Un-Audited) Description Financial Statement Line Item Impacted Increase / (Decrease) in Shareholders’ Equity Borowing Cost – IAS 23 Real Estate Held for Development and Sale (6,830) Borrowing Cost – IAS 23 Non-Controlling Interest Share Based Payments – IFRS 2 Contributed Capital Total Impact Before Taxes Net After-Tax Impact on Shareholders’ Equity at January 1, 2011 fINaNCIaL StatEmENtS 1,512 786 (4,532) (2,936) the disclosure requirements under IfrS are more extensive than Canadian Gaap. the Corporation is in the process of completing draft financial statements which will be reviewed with the audit Committee in march 2011. the Corporation has retained its auditors to audit the opening statement of financial position as at january 1, 2010 included in these financial statements. GROwiNG FOR wARD l aNNuaL rEport 2010 39 ImpaCt oN SyStEmS aND CoNtroLS the changeover to IfrS has minimal impact on the accounting system. operational processes around the system have been updated to capture information for IfrS reporting purposes and to allow for comparative reporting in 2011. as part of the implementation stage, the management plans to adjust general ledger with the IfrS adjustment balances at the conversion date. the Corporation has reviewed the impact of IfrS on certain agreements, such as debt agreements, compensation agreements, other matters such as capital requirements and debt covenants. the review has been completed and we have not identified any material issues arising due to conversion to IfrS. the impact on internal control over financial reporting and disclosure controls and procedures has been assessed. the changes identified are not material and have been documented and all policies and procedures have been updated. the Corporation has completed the assessment of the impact to investor relations and external communication plans and does not anticipate any changes due to conversion to IfrS. NExt StEpS the Corporation plans to complete the following steps as part of phase 2 and 3 of its IfrS conversion plan in order to issue its first IfrS compliant financial statements: • Preparation of draft IFRS compliant financial statements and review with audit committee; • Completion of an audit of opening statement of financial position as at January 1, 2010; and • Adjust general ledger with IFRS adjustments at the conversion date. RiSKS AND UNCERTAiNTiES In the normal course of business, the Corporation is exposed to certain risks and uncertainties inherent in the real estate development industry. real estate development is a cyclical business; as a result, the profitability of the Corporation could be adversely affected by external factors beyond the control of management. Currently, the Corporation is seeing gradual market stabilization from the general downturn of 2008 and 2009 in the national and local economies. although Genesis had experienced a slowdown in lot sales, it is using this economic correction to strongly position itself when the market turns around. with a diversified land base, the Corporation is well positioned to focus on the real estate projects offering the best return in the market place going forward. the risks identified below are not an exhaustive listing of all possible risks faced by the Corporation. there may be additional risks that management may need to consider as circumstances require. 40 Genesis Land Development Corporation Genesis is exposed to a number of risks including: GENEraL ECoNomIC rISkS: Real Estate industry Risk: real estate investments are generally subject to varying degrees of risk, depending on the nature of the property. these risks include (i) changes in general economic conditions, (ii) changes in local conditions (such as an oversupply of land or a reduction in demand for real estate in the area), (iii) changes to government regulations (such as new or revised building codes) and (iv) competition from other developers or builders. raw land is relatively illiquid. Such illiquidity will tend to limit Genesis’ ability to rebalance its portfolio promptly in response to changing economic or investment conditions. In addition, financial difficulties of other developers and landowners, resulting in distressed sales, may depress real estate values in the markets in which the Corporation operates. Environmental Risk: as an owner of real estate, Genesis is subject to federal, provincial and municipal environmental regulations. these regulations may require the Corporation to fund the costs of removal and remediation of certain hazardous substances on its properties or releases from its properties. the failure to remediate such properties, if any, could adversely affect the Corporation’s ability to borrow using the property as collateral or sell the real estate. Genesis is not aware of any material noncompliance with environmental laws at any of its properties. the Corporation has made, and will continue to make, the necessary capital expenditures to comply with environmental laws and regulations. Environmental laws and regulations can change rapidly, and the Corporation may become subject to more stringent environmental laws and regulations in the future. Competition Risk: Each segment of the real estate business is competitive. Numerous other residential developers and builders compete for potential customers. although it is Genesis’ strategy to be the premier land developer or builder in the marketplaces in which it operates, some of the Corporation’s competitors may provide a better product or may be better located or better capitalized. the existence of alternative lots, housing or commercial properties could have a material adverse effect on Genesis’ ability to sell lots, single and multi-family homes or commercial properties and thus could adversely affect Genesis’ revenues and ability to meet its obligations. General Uninsured Losses: Genesis carries comprehensive insurance with policy specifications, limits and deductibles customarily carried for similar companies. there are, however, certain types of risks (generally of a catastrophic nature) that are either uninsurable or not economically insurable. SpECIfIC rISkS: Credit Risk: this arises from the possibility that builders that acquire lots from Genesis may experience financial difficulty and be unable to fulfill their lot payout commitments. the corporation does sell to a variety of builders to alleviate this risk. as well, thorough credit assessments are conducted with respect to all new builders and the Corporation also obtains a non-refundable deposit and maintains title to lots that are sold until payment is received in full. interest Risk: this is the combined risk that the Corporation would experience a loss as the result of its exposure to a higher interest rate environment (Interest rate risk) and the possibility that at the time of maturity of a mortgage the Corporation would be unable to renew the maturing debt either with the existing lender or with a new lender (renewal risk). the Corporation structures its debt so as to stagger the maturity dates, thus reducing exposure to any short-term fluctuations in rates. to mitigate against renewal risk, the Corporation has established relationships with a number of different lenders. the Corporation has historically been successful in obtaining refinancing on maturing debt where it has sought it. In addition, Genesis has been able to finance at loan-to-fair values of 50% to 60%, as applicable. GROwiNG FOR wARD l aNNuaL rEport 2010 41 management Risk: relates to the continuity of management. the success of the Corporation is largely dependent on the quality of its management and personnel. Loss of such personnel or the inability to attract personnel of equivalent ability could materially affect the operations and prospects of the Corporation. the Corporation continuously provides coaching, training and educational opportunities to its employees, as well as periodically evaluates a need to attract human resources of high professional quality and appropriate experience. other factors which effect Genesis’ ability to operate successfully include: Shifts in population patterns; • • Delays in regulatory approvals; • Availability of land; and • Availability of labor; to generally mitigate risks, Genesis has taken the following steps: • • • Constant monitoring of market trends and conditions. Substantial pre-sales are in place before commencing a project where prudent to do so. Raw land acquisitions generally financed with equity and development costs funded with short- term financing. all regulatory requirements are met on time. • Adequate financing is established prior to commencement of project development. • Strategic planning of current and future land development projects. DiSCLOSURE CONTROLS AND PROCEDURES the Chief Executive officer (“CEo”) and Chief financial officer (“Cfo”) have designed, or caused to be designed under their direct supervision, Genesis’ disclosure controls and procedures (as defined by National Instrument 52-109 – Certification of Disclosure in Issuers’ annual and Interim filings, adopted by the Canadian Securities administrators) to provide reasonable assurance that: (i) material information relating to Genesis, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which the annual and interim filings are being prepared; and (ii) material information required to be disclosed in the annual and interim filings is recorded, processed, summarized, and reported on a timely basis. In conformance with National Instrument 52-109 (“52-109”), the Corporation has filed certificates signed by the CEo and Cfo that deal with the matter of disclosure controls and procedures and have concluded that as of December 31, 2010 the design and operating effectiveness of these disclosure controls and procedures are effective in providing reasonable assurance that material information required to be disclosed by the Corporation in reports filed with Canadian securities regulators is accurate and complete and filed within the periods required. 42 Genesis Land Development Corporation iNTERNAL CONTROLS OvER FiNANCiAL REPORTiNG the CEo and Cfo have also designed, or caused to be designed under their direct supervision, Genesis’ internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian Gaap. further, using the criteria established in Internal Control – Integrated framework published by the Committee of Sponsoring organizations of the treadway Commission, they have evaluated, or caused to be evaluated under their direct supervision, the effectiveness of Genesis’ internal controls over financial reporting as of December 31, 2010 and concluded that the design and operating effectiveness of these internal controls over financial reporting are effective. matErIaL ChaNGES to INtErNaL CoNtroLS oVEr fINaNCIaL rEportING aND DISCLoSurE CoNtroL aND proCEDurES for thE yEar ENDED DECEmbEr 31, 2010 During the nine month period ended September 30, 2010, management of the Corporation with the participation of CEo and Cfo, concluded that as of September 30, 2010 Corporation’s disclosure control and procedures and internal controls over financial reporting were not effective. the management of the Corporation under the supervision of CEo and Cfo has remediated the material weaknesses identified as part of the evaluation according to the remediation plan designed by the management: • In May of 2010, Special Committee and the Corporate Governance Committee issued two news releases. Neither of these news releases were discussed with, nor circulated to the certifying officers prior to their release. Subsequent to these actions, the board of Directors have implemented the following remedies: • The board created an Executive Committee of the Board to oversee financing, land sale or purchase above certain financial limits, and press releases. • All board Mandates & Polices have been reviewed, updated and approved by the Board of Directors. During the nine month period ending September 30, 2010, management, with the participation of CEo and Cfo, concluded that the internal controls over financial reporting were not operating effectively. During the evaluation certain material weaknesses in internal controls over financial reporting were identified. Due to the limited number of staff and complexity of certain accounting transactions relating to items such as costs to complete and future development costs liability, instances of control weaknesses relating to insufficient segregation of duties and lack of independent review have been noted. GROwiNG FOR wARD l aNNuaL rEport 2010 43 management has taken the following measures and remediated the material weaknesses in internal controls over financial reporting: • Management has amended the process to calculate for estimates of “Cost to complete” and “future Developments Cost liability” by involving operational managers and Consultants in the estimation and assumptions made during the course of production. Genesis is also implementing new software that will help track costs and provide real-time data that help in providing current and actual data. Estimates are made with the best available data at the time the financial statements are being prepared. management has also hired a Senior Cost accountant to help in providing better estimates as well as ensure proper segregation of duties within the process. • Management has put in place a segregation of duties matrix and updated the procedures and processes to separate key duties where possible. as such, lack of segregation and their related risks are not uncommon in smaller companies with a limited number of employees in the accounting function. management has added new employees at management and non-management level to help clearly segregate duties. In order to provide a compensating control for these weaknesses, the Corporation is also employing the services of external consultants, and has hired an internal auditor to enhance its internal controls. while Genesis’ CEo and Cfo believe that the Corporation’s internal controls and procedures provide a reasonable level of assurance that such controls and procedures are reliable, an internal control system cannot prevent all errors and fraud. It is management’s belief that any control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. management will continue to monitor the effectiveness of its internal controls over financial reporting and disclosure framework and may make modifications from time to time as considered necessary or desirable. the CEo and Cfo oversee all material transactions and related accounting record. In addition, the audit Committee reviews on a quarterly basis the financial statements and key risks of the Corporation and queries management about significant transactions, and there is daily oversight by the senior management of the Corporation. 44 Genesis Land Development Corporation OUTLOOK In 2010, Genesis set new records for revenues and earnings, and also paid down its financings by nearly $34,000. In 2011, Genesis will look to build on these results. reductions in non-project debt, optimizing current operations and exploring recurring revenue streams will be the focus of management in 2011. the land division brought on two new projects in 2010, the communities of Saddlestone and Sage meadows, both in Calgary. for 2011, Genesis expects to continue to bring on additional phases and lots in these areas by the end of the year. additionally, now that the Nw Calgary communities of kincora and Sherwood are nearing the final stages of completion, Genesis and its jV partner, will commence the development of the first phase of its kinwood community, which is located just north of Genesis’ existing Sherwood project. In 2011, new mortgage qualification rules, increased interest rates, and significant increases to development levies within the city of Calgary will likely put downward pressures on the margins of the land development division as well as the home building division. It is expected the amended qualification rules will impact first-time home buyers most of all, and act as a barrier to entry. In response, Genesis will have to adjust its lot production within the city of Calgary to focus on smaller, more affordable lots and new home models for its entry level product. as the impact of these changes filter through the Calgary market, it should also increase the demand for housing within Calgary’s outlying areas, such as Genesis’ airdrie communities of bayside and the Canals. the increasing costs for single family home sales and lots could also have a positive impact on the demand for multi-family homes as they have a lower entry point for consumers. Genesis currently has a number of approved multi-family sites and will investigate the potential for additional land sales or the feasibility of the construction and sale of a multi-family project in its existing communities. Increased costs for home purchasers may also increase demand for rental units within the city of Calgary. Genesis is examining the feasibility of pursuing this side of the multi-family market as well. on january 5, 2011, Genesis announced a pending commercial land sale to rioCan real Estate Investment trust (“rioCan”) for +/-27 acres of land within its Sage hill crossing site. If rioCan’s due diligence condition is waived or satisfied, Genesis then has up to 720 days to complete the servicing of the site. a firm sale, pending completion of servicing, would be an important first to step to unlocking the potential for this site. otherwise, Genesis has +9 acre mixed-use site within its Sage meadows community which it is currently evaluating for development or sale. OThER additional information relating to the Corporation can be found on SEDar at www.sedar.com GROwiNG FOR wARD l aNNuaL rEport 2010 45 mANAGEmENT’S REPORT to the Shareholders of Genesis Land Development Corp. the consolidated financial statements and all information in the management’s Discussion and analysis are the responsibility of management. the consolidated financial statements have been prepared by management in accordance with the accounting policies in the notes to the consolidated financial statements. In the opinion of management, the consolidated financial statements have been prepared within acceptable limits of materiality, and are in accordance with Canadian generally accepted accounting principles appropriate in the circumstances. the financial information elsewhere in the management’s Discussion and analysis has been reviewed to ensure consistency with that in the consolidated financial statements. management maintains appropriate systems of internal control. policies and procedures are designed to give reasonable assurance that transactions are properly authorized, assets are safeguarded and financial records properly maintained to provide reliable information for the preparation of consolidated financial statements. the consolidated financial statements have been further examined by the board of Directors and by its audit Committee which meets regularly with the auditors and management to review the activities of each. the audit Committee, which is comprised of three independent directors, reports to the board of Directors. meyers Norris penny LLp, an independent firm of chartered accountants, was engaged to audit the consolidated financial statements in accordance with Canadian generally accepted auditing standards and provide an independent auditors’ opinion. Gobi Singh prESIDENt aND ChIEf ExECutIVE offICEr Simon fletcher ChIEf fINaNCIaL offICEr march 3, 2011 46 Genesis Land Development Corporation iNDEPENDENT AUDiTORS’ REPORT to thE SharEhoLDErS of GENESiS LAND DEvELOPmENT CORP. we have audited the accompanying consolidated financial statements of Genesis Land Development Corp. and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2010 and December 31, 2009, and the consolidated statements of earnings, retained earnings, comprehensive income and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory notes. maNaGEmENt’S rESpoNSIbILIty for thE CoNSoLIDatED fINaNCIaL StatEmENtS management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian Generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. auDItorS’ rESpoNSIbILIty our responsibility is to express an opinion on these consolidated financial statements based on our audits. we conducted our audits in accordance with Canadian generally accepted auditing standards. those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. an audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. the procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. an audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. we believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. opINIoN In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Genesis Land Development Corp. and its subsidiaries as at December 31, 2010 and December 31, 2009, and the results of their operations and cash flows for the years then ended in accordance with Canadian Generally accepted accounting principles. march 3, 2011 Calgary, Canada ChartErED aCCouNtaNtS GROwiNG FOR wARD l aNNuaL rEport 2010 47 GENESiS LAND DEvELOPmENT CORP . CoNSoLIDatED baLaNCE ShEEtS as at December 31, 2010 and 2009 (In Thousands of Canadian Dollars) Assets Real Estate Held for Development and Sale (note 4) Amounts Receivable (note 6) Other Operating Assets (note 7) Future Income Taxes (note 8) Cash and Cash Equivalents Total Assets Liabilities and Non-Controlling Interest Financings (note 9) Customer Deposits Accounts Payable and Accrued Liabilities Income Taxes Payable Future Income Taxes (note 8) Land Development Service Costs Non-Controlling Interest (note 5) Total Liabilities and Non-Controlling Interest Commitments and Contingencies (note 13) Shareholders’ Equity Share Capital (note 10) Contributed Surplus (note 11) Retained Earnings Total Shareholders’ Equity Total Liabilities, Non-Controlling Interest and Shareholders’ Equity See accompanying notes to the consolidated financial statements Gobi Singh prESIDENt aND ChIEf ExECutIVE offICEr Simon fletcher ChIEf fINaNCIaL offICEr 48 Genesis Land Development Corporation 2010 $ 309,034 27,021 16,356 — 2,455 354,866 81,320 8,388 13,024 8,310 3,387 10,347 58,920 183,696 54,798 4,913 111,459 171,170 354,866 2009 $ 302,598 15,384 17,568 2,213 4,578 342,341 115,210 4,985 8,350 11,139 — 8,301 61,084 209,069 54,097 4,120 75,055 133,272 342,341 GENESiS LAND DEvELOPmENT CORP . CoNSoLIDatED StatEmENtS of EarNINGS, ComprEhENSIVE INComE aND rEtaINED EarNINGS years Ended December 31, 2010 and 2009 (In Thousands of Canadian Dollars Except Per Share Amounts) Revenues Residential Lot Sales Development Land Sales Residential Home Sales Interest and Other Income Expenses Cost of Sales: Residential Lots Development Land Residential Homes Write-Down (Recovery) of Real Estate Held for Development and Sale and Other (note 4) General and Administrative Bad Debt Expense (Recovery) (note 14) Interest Stock-Based Compensation (note 12) Amortization Gain on De-Recognition of VIE (note 5(b)) Loss on Disposal of Property and Equipment Earnings Before Income Taxes and Non-Controlling Interest Provision for Income Taxes (note 8) Current Future Earnings Before Non-Controlling Interest Non-Controlling Interest (note 5) Net Earnings, Being Comprehensive Income Retained Earnings, Beginning of Year Retained Earnings, End of Year Net Earnings Per Share – Basic and Diluted (note 10) See accompanying notes to the consolidated financial statements 2010 $ 35,569 42,512 58,569 1,250 137,900 14,001 14,860 43,264 (1,284) 12,263 6 804 1,004 173 (613) 10 84,488 53,412 8,566 5,600 14,166 39,246 2,842 36,404 75,055 111,459 0.82 2009 $ 23,138 — 62,713 711 86,562 12,729 — 48,546 7,643 10,946 (594) 1,470 (6) 218 — 5 80,957 5,605 5,014 (1,435) 3,579 2,026 (4,730) 6,756 68,299 75,055 0.15 GROwiNG FOR wARD l aNNuaL rEport 2010 49 GENESiS LAND DEvELOPmENT CORP . CoNSoLIDatED StatEmENtS of CaSh fLowS years Ended December 31, 2010 and 2009 (In Thousands of Canadian Dollars) Funds Provided From (Used For): Operating Activities Net Earnings Items Not Involving Cash: Stock-Based Compensation Amortization Write-Down (Recovery) of Real Estate Held for Development and Sale and Other Gain on De-Recognition of VIE Loss on Disposal of Property and Equipment Future Income Taxes Non-Controlling Interest Increase (Decrease) in Non-Cash Working Capital (note 17) Financing Activities Advances from Financings Repayments of Financings Increase (Decrease) in Non-Controlling Interest Non-Controlling Interest Capital Repayments Purchase of Share Capital Issue of Share Capital Investing Activities Acquisition of Property and Equipment Change in Restricted Cash Proceeds on Disposal of Property and Equipment Net change in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year Supplemental Cash Flow Information: Interest Paid Interest Received Income Taxes Paid See accompanying notes to the consolidated financial statements 50 Genesis Land Development Corporation 2010 $ 36,404 1,004 173 (1,284) (613) 10 5,600 2,842 44,136 (7,595) 36,541 128,167 (162,057) (1,507) (2,886) — 490 2009 $ 6,756 (6) 218 7,643 — 5 (1,435) (4,730) 8,451 13,430 21,881 84,828 (102,322) 2,834 (1,316) (61) — (37,793) (16,037) (206) (712) 47 (871) (2,123) 4,578 2,455 4,622 518 11,395 (35) (5,734) — (5,769) 75 4,503 4,578 9,884 267 2,953 GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 1. DESCrIptIoN of buSINESS Genesis Land Development Corp. (the “Corporation” or “Genesis”) was incorporated as Genesis Capital Corp. under the business Corporation act (alberta) on December 2, 1997 and Genesis Land Development Corp. resulted from an amalgamation on january 1, 2002. the Corporation is engaged in the acquisition, development, subdivision, construction, sale and leasing of land, residential lots and homes and commercial property in alberta and british Columbia. the Corporation reports its activities as two business segments: land development and home building, both operating in one geographic area. all business activities of Genesis are conducted in western Canada and therefore are subject to local economic and weather conditions. Seasonality affects the land development segment as construction activities during freezing temperatures limit the completion of underground and surface work. within home building, construction in winter months may be limited to situations where concrete foundations are in place. 2. SIGNIfICaNt aCCouNtING poLICIES the consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. the preparation of consolidated financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses during the reporting period. actual results could differ from these estimates. Such estimates include the amounts relating to the determination of liabilities and accruals, in particular the provision for land development service costs, potential impairment of amounts receivable, future income tax assets and liabilities, stock based compensation and real estate held for development and sale. by their nature these amounts are subject to measurement uncertainty and changes in such estimates may affect the financial statements in future years. (a) principles of Consolidation these consolidated financial statements include the accounts of the Corporation, its wholly- owned subsidiaries, as well as the consolidated assets, liabilities, revenues, expenses and cash flows of limited partnership entities which the Corporation controls; comparative periods also include accounts of a variable interest entity (“VIE”). the investment in a joint venture is accounted for using the proportionate consolidation method. all intra-group transactions, balances, income and expenses are eliminated on consolidation. where audited financial accounts are not coterminous with those of the Corporation’s consolidated presentation, the financial information of the VIE has been derived from the last audited accounts available and unaudited management accounts for the period up to the Corporation’s balance sheet date. GROwiNG FOR wARD l aNNuaL rEport 2010 51 GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 2. SIGNIfICaNt aCCouNtING poLICIES (continued) (b) revenue recognition the Corporation’s revenue recognition policies for residential lot and home sales and development land sales are: (i) residential lot and development land sales Land and lot sales to third parties are recognized when the Corporation has substantially performed and supplied all of the agreed-to services pertaining to the property, the Corporation has received a minimum 15% non-refundable deposit and the collection of the remaining unpaid balance is reasonably assured. Deposits received from builders upon signing of contracts for purchases of lots on which revenue recognition criteria have not been met are recorded as customer deposits. (ii) residential home sales revenue is recognized when an agreement is signed and the completed unit is conveyed to the purchaser, at which time all proceeds are received or collection is reasonably assured. Deposits received from customers upon signing of contracts for purchases of completed units for which revenue recognition criteria have not been met are recorded as customer deposits. (c) real Estate held for Development and Sale Land under development, land held for future development and housing projects under construction are recorded at the lower of cost and estimated net realizable value on a project specific basis. an impairment loss is recognized to the extent that the carrying value of a project exceeds the fair value of that project, or the cost of construction exceeds the contracted sales price. Cost includes land acquisition costs, other direct costs of development and construction, interest on debt used to finance specific projects, property taxes and legal costs. fair value is estimated using comparisons of recent sales of similar or adjacent lands in the same geographic area. Land acquisition costs are pro-rated to a phase of a project on an acreage basis. at the time that a lot sale from a phase is made, any remaining estimated servicing and development costs in respect of the sold lot are recorded as costs of sale and a liability is classified as “land development service costs.” the land development service costs are reviewed on a phase by phase basis. when the estimate is known to be different from the actual costs incurred or expected to be incurred, an adjustment is made to the provision for estimated land development service costs and a corresponding adjustment is made to land under development and/or cost of sales. No other general and administration costs are capitalized to real estate held for development and sale. (d) property and Equipment property and equipment consisting of office equipment, computer hardware, software and vehicles is stated at cost less accumulated amortization. amortization is calculated on a declining balance basis at annual rates ranging from 20% to 30% per annum. 52 Genesis Land Development Corporation GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 2. SIGNIfICaNt aCCouNtING poLICIES (continued) (e) Income taxes Income taxes are recorded using the asset and liability method of accounting. under this method, income taxes are recorded for the effect of any difference between the accounting and income tax basis of an asset or liability, using substantively enacted income tax rates. accumulated future income tax balances are adjusted to reflect changes in income tax rates that are substantively enacted with the adjustment being recognized in net earnings in the period that the change occurs. future income tax assets and liabilities are determined based on the tax laws and rates that are anticipated to apply in the period of realization. a valuation allowance is recorded to the extent that there is uncertainty regarding utilization of future tax assets. (f) Cash and Cash Equivalents Cash and cash equivalents consist of cash held with banks and lawyers’ trust accounts. (g) Earnings per Share Calculations basic net earnings per share are calculated by dividing the net earnings by the weighted average number of shares outstanding for the year. Diluted net earnings per share amounts are calculated giving effect to the potential dilution that would occur if stock options were exercised. the treasury stock method is used to determine the dilutive effect of stock options. the treasury stock method assumes that proceeds received from the exercise of in- the-money stock options are used to repurchase common shares at the average market price over the year. (h) Stock-based Compensation the Corporation has a share option plan for employees, officers, directors and contractors, which is described in note 12. the Corporation calculates the fair value of stock-based compensation using the black-Scholes option-pricing model. the fair value of options granted are expensed and credited to contributed surplus over the related vesting period of the options. any consideration paid on the exercise of stock options, together with any contributed surplus recorded at the date the options vested, is credited to share capital. (i) financial Instruments a financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument to another entity. upon initial recognition all financial instruments, including derivatives, are recognized on the balance sheet at fair value. Subsequent measurement is then based on the financial instruments being classified into one of five categories: held for trading, held to maturity, loans and receivables, available for sale and other liabilities. the Corporation has designated its financial instruments into the following categories: Financial Instrument Category Measurement Method Cash and Cash Equivalents Deposits and Restricted Cash Amounts Receivable Accounts Payable and Accrued Liabilities Financings Held for Trading Held for Trading Loans and Receivables Other Liabilities Other Liabilities Fair Value Fair Value Amortized Cost Amortized Cost Amortized Cost GROwiNG FOR wARD l aNNuaL rEport 2010 53 GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 2. SIGNIfICaNt aCCouNtING poLICIES (continued) transaction costs for held-for-trading assets are immediately recognized in net income. transaction costs of the loans and receivables and other financial liabilities are included in net income or netted with the fair value of the financial instruments at initial measurement, and tested for impairment. the Corporation will assess at each reporting period whether there is a financial asset, other than those classified as held for trading, that is impaired. an impairment loss, if any, is included in net earnings. as at December 31, 2010, no impairment of amounts receivable (December 31, 2009 - $12,891) has been recognized. the Corporation does not have any contracts with embedded derivatives that require separation. the Corporation’s risk management policies are established to identify and analyze the risks faced by the Corporation, to set risk limits and controls, and to monitor risks and adherence to market conditions and the Corporation’s activities. 3. ChaNGES to futurE aCCouNtING poLICIES Canadian publicly traded companies will be required to prepare their financial statements in accordance with International financial reporting Standards (“IfrS”) as issued by the International accounting Standards board, for the financial years beginning on or after january 1, 2011. Effective january 1, 2011, Genesis will adopt IfrS as the basis for preparing its consolidated financial statements. financial results for the quarter ended march 31, 2011 and comparative data shall be prepared on IfrS basis, including an opening balance sheet, as at january 1, 2010. the Company is in the process of transitioning its financial statement reporting to IfrS in time to meet the deadline. the process will be ongoing as new standards and recommendations are issued by the International accounting Standards board and acSb. further details regarding the Company’s transition to IfrS are included in the Company’s December 31, 2010 management’s Discussion and analysis. 54 Genesis Land Development Corporation GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 4. rEaL EStatE hELD for DEVELopmENt aND SaLE Land Held for Future Development Land Under Development Housing Projects Under Development Gross 148,095 162,726 11,015 Provision for Write-Down (8,609) (2,177) (2,016) Net 139,486 160,549 8,999 Balance – December 31, 2010 321,836 (12,802) 309,034 Land Held for Future Development Land Under Development Housing Projects Under Development Gross 168,676 129,066 19,413 Provision for Write-Down (12,119) (762) (1,676) Net 156,557 128,304 17,737 Balance – December 31, 2009 317,155 (14,557) 302,598 During the year ended December 31, 2010, interest of $1,888 (December 31, 2009 - $3,290) and other carrying costs of $381 (December 31, 2009 - $1,753), respectively, were capitalized to land held for future development. as at December 31, 2010, land held for future development of $67,859 (December 31, 2009 - $62,799) and land under development of $15,285 (December 31, 2009 - $15,796) are held in limited partnerships controlled by Genesis (see note 5(a)). the Corporation recognized the following write-downs (recoveries) relating to impairment of carrying value of certain real estate held for development and sale during the years ended December 31, 2010 and 2009: Land Held for Future Development Land Under Development Housing Projects Under Development Change in Provision for Write-Down Miscellaneous Write-Offs Directly Against Carrying Value Write-Down (Recovery) of Real Estate Held for Development and Sale and Other 2010 2009 (3,510) 1,415 340 (1,755) 471 5,157 762 1,676 7,595 48 (1,284) 7,643 the Corporation recognized a partial reversal of $4,855 (December 31, 2009 - $Nil) of the write- down of land held for future development of which $4,354 (December 31, 2009 - $Nil) related to real estate held within Limited partnership Land pool 2007. the change in economic circumstances has lead to an increase in the net realizable value of land held for future development. GROwiNG FOR wARD l aNNuaL rEport 2010 55 GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 5. NoN-CoNtroLLING INtErESt (a) Limited partnerships the Corporation is the general partner in four limited partnership arrangements. Genesis ultimately controls each of the limited partnerships thereby requiring their consolidation within the accounts of the Corporation and recognition of a non-controlling interest. additionally, any profit or charges between the Corporation and the limited partnerships are eliminated on consolidation. the limited partnership units are non-redeemable and share in the profits, if any, of the associated development held by the partnership. Limited partners cannot be cash-called for further funding with respect to the development. Details of each of the limited partnerships are as follows: Limited partnerships 4/5 (Lp 4/5): Lp 4/5 holds land held for future development located east of Calgary in the municipal District of rocky View, adjacent to the Corporation’s taralake lands. No capital repayments are required with respect to Lp 4/5. Genesis is entitled to a management fee of 10% of the future development service costs payable on a per-lot basis as lots are sold. Limited partnerships 6/7 (Lp 6/7): Lp 6/7 holds land under development located in taralake and airdrie. all required capital repayments have been made to unit holders in Lp 6/7. Genesis is entitled to management fees of 5% to 10% of land costs to Lp 6/7 payable to Genesis as lands and lots are sold. Genesis also owns 11.65% of Lp 6/7’s units and participates proportionately in the profits of the partnership. Limited partnerships 8/9 (Lp 8/9): L/p 8/9 holds, among other things, 1,140 acres of raw land near radium, british Columbia. Genesis held a purchase right to acquire all Lp 8/9 units by february 28, 2009, which it did not exercise. therefore, all Lp unit holders are entitled to share in the profits of the development. the project lands have approval for 272 single-family home sites on 53 acres and 143 acres have been set aside for a golf course. upon achieving and exceeding 50% gross return to the Lp 8/9 unit holders, Genesis is entitled to 50% of the remaining profits on the single-family lots. Genesis is also entitled to 100% of the profit on the golf course, and retains the right to purchase the balance of the lands at the conclusion of the project for a nominal amount. additionally, Genesis is responsible for securing financing for the project development. Limited partnerships 2007 (LpLp 2007): on june 29, 2007, the Land pool Limited partnership 2007 was created to raise funds to secure funding for various land acquisitions. at the conclusion of the offering on february 28, 2009, LpLp 2007 had raised insufficient funds to close out the purchase of the lands and settle the land acquisition loan it used to acquire the Delacour Lands. as a result, Genesis has completed the transaction with its own funds and assumed the loan obligations of LpLp 2007. 56 Genesis Land Development Corporation GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 5. NoN-CoNtroLLING INtErESt (continued) additionally, Genesis can earn management fees of up to 50% of the remaining profits of the project upon achieving and exceeding 50% gross return to the LpLp 2007 external unit holders. as at December 31, 2010 and 2009, the Corporation recognized a non-controlling interest liability comprised as follows: LP 4/5 LP 6/7 LP 8/9 LPLP 2007 VIE TOTAL LP Balance – December 31, 2008 (8,098) (19,287) (7,055) (29,855) — (64,295) Contributions, Net of Capital Repayments Issuance Costs Incurred Net Earnings Allocation on Sale of Real Estate Held for Development and Sale — — — 298 (426) (2,452) (2,580) — — 43 — 43 — (966) — (39) — (1,005) Market Value Write-Down — 2,438 — 2,586 — 5,024 Cash Paid Out — 1,018 — — — 1,018 Net General and Administrative Expenses (Recoveries) 64 81 61 173 332 711 Balance – December 31, 2009 (8,034) (16,716) (6,696) (27,518) (2,120) (61,084) De-Recognition of VIE — — — — 2,120 2,120 Net Earnings Allocation on Sale of Real Estate Held for Development and Sale (14) (869) — (68) — (951) Market Value Write-Down (Recovery) — — — (3,404) — (3,404) Cash Paid Out — 2,886 — — — 2,886 Net General and Administrative Expenses 27 510 40 936 — 1,513 Balance – December 31, 2010 (8,021) (14,189) (6,656) (30,054) — (58,920) GROwiNG FOR wARD l aNNuaL rEport 2010 57 GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 5. NoN-CoNtroLLING INtErESt (continued) the real estate held within the limited partnerships is as follows: Gross 7,766 16,047 6,733 58,651 89,197 Gross 7,765 16,558 6,722 57,007 88,052 Provision for Write-Down — (762) — (5,291) (6,053) Provision for Write-Down — (762) — (8,695) (9,457) Net 7,766 15,285 6,733 53,360 83,144 Net 7,765 15,796 6,722 48,312 78,595 Limited Patnership 4 & 5 Limited Partnership 6 & 7 Limited Partnership 8 & 9 Limited Partnership Land Pool 2007 Balance – December 31, 2010 Limited Patnership 4 & 5 Limited Partnership 6 & 7 Limited Partnership 8 & 9 Limited Partnership Land Pool 2007 Balance – December 31, 2009 (b) Variable Interest Entity on September 29, 2008, the Corporation entered into an agreement to sell 107 single family lots under development in airdrie to an entity for gross proceeds totalling $23,000. the entity paid an initial deposit of $4,500 which was financed through a loan in the amount of $5,000. on january 20, 2009, the Corporation and this entity amended the purchase agreement to include an additional multi-family site in airdrie for $6,650 for total proceeds to Genesis of $29,650. No additional deposits were received, but $1,000 of the original deposit of $4,500 was redistributed to this additional parcel of land. In february 2010, Genesis entered into an agreement whereby the sale of the 107 single family lots as stated above was effectively cancelled and the sale of the multi-family site was retained. as part of the amended transaction, Genesis also agreed to take over the remaining loan balance ($4,000 at December 31, 2009) that was originally obtained to finance the initial deposit under the terms of the transaction. repayment of the remaining loan balance was completed on march 26, 2010. 58 Genesis Land Development Corporation GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 5. NoN-CoNtroLLING INtErESt (continued) at December 31, 2009, the entity was assessed a VIE to Genesis by virtue of subordinated financial support provided by the Corporation. In accordance with accounting Guideline 15, Consolidation of Variable Interest Entities, of the CICa handbook, as a result of the transaction that closed on march 26, 2010 (see above), Genesis has removed the subordinated financial support from the entity and subsequently de-recognized the entity’s financial accounts from its own consolidated accounts. as a result of this de-recognition, the Corporation has removed the assets and liabilities of the entity from the accompanying consolidated financial statements and any assets and liabilities of the entity that were eliminated in consolidation are restored at fair value. prior to march 26, 2010, the entity incurred losses of $945 and the Corporation has absorbed such losses by consolidating the accounts of the entity. the Corporation however was only liable for a portion of such losses in the amount of $332 as per the agreed upon terms between the Corporation and the entity. this resulted in a net gain on de-recognition of $613 recorded as a separate line item in the accompanying consolidated financial statements. 6. amouNtS rECEIVabLE Agreements Receivable Mortgages Receivable Other Receivables 2010 23,540 3,131 350 27,021 2009 27,521 — 754 28,275 Allowance for Doubtful Accounts — (12,891) 27,021 15,384 During the year ended December 31, 2010, the Corporation completed sales of two land parcels for $35,000 and $6,263, respectively. total proceeds of $38,132 were collected, $35,000 of which was applied to the Corporation’s land debt; vendor take back mortgage (“Vtb”) due april 30, 2011 in the amount of $3,131 was extended for the balance of the funds. the Vtb carries interest of prime + 1.5% per annum payable at the due date. GROwiNG FOR wARD l aNNuaL rEport 2010 59 GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 7. othEr opEratING aSSEtS Property and Equipment, Net Deposits Restricted Cash 2010 544 14,245 1,567 16,356 2009 568 16,145 855 17,568 at December 31, 2010, property and equipment is carried at a cost of approximately $2,004 (December 31, 2009 - $1,977), net of accumulated amortization of $1,460 (December 31, 2009 - $1,409). Deposits include amounts paid to development authorities as security to guarantee the completion of construction projects under development and deposits on future land acquisitions. the deposits are refundable upon completion of the related project and earn interest at rates approximating those earned on guaranteed investment certificates. restricted cash is held in trust accounts and also included in customer deposits liability and represents funds owed to the Corporation, at a future indeterminable date, when development of specific lands commences. 8. INComE taxES (a) the components of the future income tax asset (liability) at December 31, 2010 and 2009 are as follows: Real Estate Held for Development and Sale Non-Capital Loss Carry-Forwards* Reserves From Land Sales Unamortized Financing Costs Other Temporary Differences *Non-capital loss carry-forward amounts begin to expire in 2028. 2010 3,038 114 (6,659) 127 (7) (3,387) 2009 3,551 103 (1,480) 50 (11) 2,213 60 Genesis Land Development Corporation GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 8. INComE taxES (continued) (b) Income tax expense differs from that which would be expected from applying the combined statutory Canadian federal and provincial income tax rates of 28% (December 31, 2009 - 29.5%) to income before income taxes. the difference results from the following: Expected Income Tax Expense Change in Future Income Taxes Resulting from Tax Rate Reduction Stock-Based Compensation Other Non-Deductible Expenses Non-Controlling Interest 9. fINaNCINGS 2010 2009 14,955 (569) 281 295 (796) 1,648) (209) 106) 643) 1,391) 14,166 3,579) 2010 2009 Secured By Land Held for Future Development I. Land loans, maturing from June 1, 2011 to October 1, 2012, bearing interest at rates between the greater of 9.75% and prime + 5% per annum, secured by land held for development and sale with a carrying value of $64,420. 18,244 21,420 II. Other mortgages payable, bearing interest at rates between 7% and 14% per annum, payable on demand. 659 839 Secured By Land Under Development and Agreements Receivable III. Land project loans, payable on collection of agreements receivable, bearing interest at rates ranging from prime + 2% to the greater of 10% or prime + 5%, secured by land held for development and sale with a carrying value of $107,828, due between July 1, 2011 and November 1, 2012. IV. Other mortgage payable, bearing interest at the greater of 10.25% or prime + 3.25% per annum, secured by land with a carrying value of $Nil due October 1, 2010. The loan has been fully repaid. 63,618 81,127 — 4,000 Secured By Housing Projects Under Development V. Demand operating line of credit up to $3,000 subject to certain levels of assets with a sublimit of $761, bearing interest at prime + 1.5% per annum, secured by a general security agreement over assets of the home building division. 442 — VI. Project loan, payable on collection of closing proceeds, bearing interest at prime + 2.5% per annum due September 30, 2010. The loan has been fully repaid. — 10,253 Deferred Financing Fees 82,963 (1,643) 117,639 (2,429) 81,320 115,210 GROwiNG FOR wARD l aNNuaL rEport 2010 61 GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 9. fINaNCINGS (continued) During the year ended December 31, 2010, the Corporation received advances of $128,167 (December 31, 2009 - $87,257) relating to various new and renewed loan facilities secured by real estate held for development and sale and agreements receivable bearing interest ranging from prime + 2% to a combined rate of 8% preferred and 12% regular coupon per annum with due dates ranging from october 1, 2010 to November 1, 2012. the weighted average interest rate of loan agreements, based on December 31, 2010 balances, is 8.21% (December 31, 2009 - 9.68%). the Corporation’s financings are to be repaid, based on the contractual terms, within the following time periods (excluding deferred financing fees): January 1, 2011 to December 31, 2011 January 1, 2012 to December 31, 2012 Subsequent 45,006 37,957 — 82,963 the Corporation has various covenants in place with its lenders with respect to certain contracted credit facilities. Such covenants include among other credit usage restrictions, cancellation, prepayment, confidentiality and cross default clauses, as well as sales coverage requirements, conditions precedent for funding, and other general understandings such as but not limited to maintaining contracted lot prices, restrictions on encumbrances, liens and charges, material changes to project plans, and changes in the Corporation’s ownership structure. as at December 31, 2010, the Corporation is not in violation of any covenants with its lenders. 62 Genesis Land Development Corporation GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 10. SharE CapItaL (a) authorized: unlimited number of common shares unlimited number of preferred shares (b) Issued: Common Shares Balance – December 31, 2008 Purchased Through Normal Course Issuer Bid* Balance – December 31, 2009 Issued For Cash From Options Exercised Transferred From Contributed Surplus on Exercise of Options Number Stated Value 44,416,519 (304,762) 44,111,757 267,691 — $54,164 (66,837) 54,097 490 211 Balance – December 31, 2010 44,379,448 54,798 *Includes 250,262 shares purchased in prior year, but not cancelled until 2009. weighted average Number of Shares the following table sets forth the weighted average number of shares outstanding for net earnings per share purposes for the years ended December 31, 2010 and 2009: Basic Effect of Dilutive Securities – Stock Options Diluted 2010 2009 44,241,497 188,491 44,123,071 15,126 44,429,988 44,138,197 In calculating diluted earnings per share for the year ended December 31, 2010, the Corporation excluded 495,500 options (2009 - 699,563) as the exercise price was greater than the average market price of its shares during those years. 11. CoNtrIbutED SurpLuS Balance – Beginning of Year Stock Based Compensation, Net of forfeitures Normal Course Issuer Bid Fair Value of Options Exercised Balance – End of Year 2010 2009 4,120 1,004 — (211) 4,913 4,120 (6) 6 — 4,120 GROwiNG FOR wARD l aNNuaL rEport 2010 63 GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 12. StoCk optIoNS the Corporation has established a stock option plan for certain employees, officers, directors and contractors of the Corporation to purchase common shares. Vesting provisions and exercise prices are set at the time of issuance by the board of Directors. options vest over a number of years on various anniversary dates from the date of the original grant. the options must be issued at not less than the fair market value of the common shares at the date of grant and are issued with terms generally not exceeding 5 years from the date of grant. Details of outstanding stock options are as follows: 2010 2009 Number of Options Weighted Average Exercise Price Outstanding – Beginning of Year 1,962,750 Options Granted Options Exercised Options Forfeited Outstanding – End of Year Exercisable – End of Year 868,500 (267,691) (300,625) 2,262,934 1,070,815 $3.51 $3.46 $1.83 $3.20 $3.73 $3.95 Number of Options 1,976,000 1,196,250 — (1,209,500) 1,962,750 774,563 Range of Exercise Prices ($) 0.90 – 4.00 4.01 – 8.00 8.01 – 10.48 Outstanding Exercisable Number at December 31, 2010 Weighted Average Exercise Price Number at December 31, 2010 Weighted Average Exercise Price 1,691,434 426,500 145,000 $2.66 $6.16 $9.05 675,315 341,500 54,000 $2.53 $5.97 $8.85 2,262,934 $3.73 1,070,815 $3.95 Weighted Average Exercise Price $5.54 $1.85 — $5.18 $3.51 $3.79 Weighted Average Remaining Contractual Life in Years 3.98 1.32 1.73 3.33 the weighted average fair market value of options granted during the year ended December 31, 2010 was $1.68 (December 31, 2009 - $0.99) per option. 64 Genesis Land Development Corporation GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 12. StoCk optIoNS (continued) the fair value of each option granted was estimated on the date of grant using the black-Scholes option-pricing model with the following assumptions: 2010 2009 Risk-Free Interest Rate Estimated Term Period Prior to Exercise (Years) 1.42% – 1.55% 1.78% – 2.57% 2.5 5.0 Volatility in the Price of the Corporation’s Common Shares 71.1% – 83.6% 56.6% – 61.8% Forfeiture Rate Dividend Yield Rate 0.00% 0.00% 0.00% 0.00% 13. CommItmENtS aND CoNtINGENCIES (a) the Corporation has been named as a co-defendant to a lawsuit that commenced on December 6, 2001. the lawsuit seeks damages of $8,000 plus punitive damages of $1,000. the statement of claim asserts the share price used to convert certain debts of the Corporation into common shares of the Corporation was overstated. the outcome of the claim is unknown at this time and no amounts have been accrued in these consolidated financial statements relating to this matter. (b) In 2009, the Corporation was served with a statement of claim in the amount of $250. the statement of claim asserts that the Corporation did not take any steps to cover its property, which is adjacent to the plaintiffs’ property, to prevent spread of dust and soil to the plaintiffs’ property; as a result, the plaintiffs have suffered loss and damage. the matter is agreed to be set down for a hearing to determine if the matter can be settled before trial. the outcome of the claim is unknown at this time and no amounts have been accrued in these consolidated financial statements relating to this matter. (c) at December 31, 2010, the Corporation has certain obligations and commitments pursuant to service agreements with municipalities totaling $17,251 (December 31, 2009 - $14,161) of which $10,347 (December 31, 2009 - $8,300) have been accrued in the consolidated financial statements as land development service costs. pursuant to these obligations, the Corporation has granted irrevocable standby letters of credit, issued by financial institutions, to the municipalities to indemnify them in the event the Corporation does not perform its contractual obligations. as of December 31, 2010, the letters of credit amounted to $15,343 (December 31, 2009 - $17,259), of which $4,771 (December 31, 2009 - $4,771) is in respect of the commitment disclosed in note 13(d). GROwiNG FOR wARD l aNNuaL rEport 2010 65 GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 13. CommItmENtS aND CoNtINGENCIES (continued) (d) In respect of the commitments disclosed in note 13(c) to the municipalities, the Corporation has agreed to finance and pay for certain transportation improvements undertaken by a municipality. the Corporation has agreed to advance funds to the municipality to allow it to undertake certain additional transportation improvements. the advance is refundable without interest no later than june 30, 2012 up to a maximum of $4,346 with any excess thereto being non-refundable. the municipality has commenced construction of the improvements and it is anticipated that the Corporation will provide upfront financing to the municipality not exceeding $4,346. (e) the Corporation has a commitment pursuant to an agreement to pay $8,433 for purchase of certain lands due in two equal installments on November 25, 2011 and june 30, 2012. (f) pursuant to the terms of a participating mortgage that was repaid during 2002, the former mortgage holders have the right to a 20% participation in the profits from the development of approximately 39 acres of land under development. at December 31, 2010, a liability of approximately $1,772 (December 31, 2009 - $1,697) has been accrued in the records of Genesis in respect of this liability. (g) Genesis has entered into a memorandum of understanding with a community society, whereby Genesis will contribute $5,000 over ten years for the naming rights to a recreation complex. Negotiations are underway to determine when payments will commence. (h) on february 19, 2008 Genesis entered into an agreement with the City of airdrie, whereby Genesis will contribute $2,000 ($200 each year, terminating june 1, 2017) for the naming rights to a recreation complex. the first three installments totaling $600 were made through 2010. (i) the Corporation has office and other operating leases with the following annual payments: 2011 - $561; 2012 - $315; thereafter - $96. 66 Genesis Land Development Corporation GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 14. fINaNCIaL INStrumENtS (a) risks associated with financial Instruments (i) Credit risk as at December 31, 2010, the Corporation carried an allowance for doubtful accounts of $Nil (December 31, 2009 - $12,891). During the years ended December 31, 2010 and 2009, the Corporation recognized the following bad debt expense (recovery) and change in allowance for doubtful accounts relating to amounts receivable on sold lots net of the return of the real estate held for development and sale: 2010 2009 Bad Debt Expense (Recovery) Allowance for Doubtful Accounts Bad Debt Expense (Recovery) Allowance for Doubtful Accounts Beginning of Year Subsequent Collections of Previously Allowed for Lots Allowance for Lots Deemed Uncollectable Reversal of Partial Allowance On Collections in Full Reversal of Full Allowance Due to Forfeitures Miscellaneous Bad Debt Expense Incurred End of Year (12,891) (18,845) (468) 728 (1,715) 2,571 — — — 474 6 — 100 12,063 — — 720 (1,167) — — 401 — 4,550 — (594) (12,891) further allowances may be necessary. In order to mitigate credit risk, the Corporation retains title to sold residential lots until full payment is received. GROwiNG FOR wARD l aNNuaL rEport 2010 67 GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 14. fINaNCIaL INStrumENtS (continued) aging of amounts receivable as at December 31, 2010 and 2009 is as follows: Aging Not Past Due Past Due 0-90 Days Past Due 91-120 Days Past Due 121-270 Days Past Due > 270 Days Allowance for Doubtful Accounts 2010 26,812 209 — — — 27,021 — 27,021 2009 15,484 — 5,774 1,681 5,336 28,275 (12,891) 15,384 Individual balances due from customers as at December 31, 2010 which comprise greater than 10% of total amounts receivable total to $18,767 from 4 customers (December 31, 2009 - $13,621 from 4 customers). (ii) Liquidity risk the following are the contractual maturities of financial liabilities and other commitments as at December 31, 2010: Financial Liabilities Accounts Payable and Accrued Liabilities Income Taxes Payable Customer Deposits Financings, Excl. Deferred Financing Fees (note 9) Commitments Purchase of Land Lease Obligations Naming Rights < 1 Year > 1 Year Total 13,024 8,310 8,388 45,006 — — — 37,957 13,024 8,310 8,388 82,963 74,728 37,957 112,685 4,216 561 200 4,217 411 1,200 8,433 972 1,400 79,705 43,785 123,490 68 Genesis Land Development Corporation GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 14. fINaNCIaL INStrumENtS (continued) Land development service costs of $10,347 (December 31, 2009 - $8,300) at December 31, 2010 have not been included in the table stated above due to uncertainties of timing of the related payments. at December 31, 2010, Genesis has obligations due within the next 12 months of $79,705. If Genesis is unable to generate sufficient sales, renew existing or secure additional financing, it will impact the Corporation’s ability to meet its obligations as they become due. based on Genesis’ operating history, its relationship with its lenders and committed sales contracts, management believes that the Corporation has the ability to continue to renew or repay its financial obligations as they come due. (iii) market risk the Corporation is exposed to interest rate risk to the extent that certain agreements receivable and certain financings are at a floating rate of interest. the Corporation is also exposed to fair value risk to the extent that certain financings, mortgages receivable and loans receivable are at a fixed rate of interest. a 1% change in interest rates would result in a change in interest incurred of approximately $823 annually on floating rate loans, with approximately $29 impacting pre-tax net earnings. (b) fair value of financial Instruments the fair value of cash and cash equivalents, amounts receivable, restricted cash, deposits and accounts payable and accrued liabilities approximate their carrying values due to the relatively short periods to maturity. the fair value of the Corporation’s financings and accounts receivable were estimated based on current market rates for loans of the same risk and maturities. Held for Trading Cash and Cash Equivalents Deposits Excluding Prepayments Restricted Cash Loans and Receivables Amounts Receivable Other Liabilities Accounts Payable and Accrued Liabilities Financings, Excl. Deferred Financing Fees 2010 2009 Carrying Value Estimated Fair Value Carrying Estimated Value Fair Value 2,455 11,307 1,567 2,455 11,307 1,567 4,578 12,127 855 4,578 12,127 855 27,021 25,213 15,384 14,882 13,024 `13,024 8,350 8,350 82,963 82,692 117,639 115,747 GROwiNG FOR wARD l aNNuaL rEport 2010 69 GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 14. fINaNCIaL INStrumENtS (continued) fair value measurements recognized in the balance sheet are categorized using a fair value hierarchy that reflects the significance of inputs used in determining the fair values. the three fair value hierarchy levels are as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and Inputs other than quoted prices included in Level 1 that are observable for the Level 3: (unobservable inputs). Inputs for the asset or liability that are not based on observable market data the following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy as at December 31, 2010 and 2009: 2010 2009 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Cash and Cash Equivalents Deposits Excluding Prepayments Restricted Cash 2,455 11,307 1,567 — — — — — — 4,578 12,127 855 — — — — — — (c) Capital management the Corporation manages its capital structure and makes adjustments to it in light of changes in regional economic conditions and the risk characteristics of the underlying real estate industry within that region. the Corporation considers its capital structure to specifically include shareholders’ equity, non-controlling interest and financings. In order to maintain or adjust its capital structure, the Corporation may adjust its capital spending to manage current and projected debt levels. the Corporation continues to evaluate the need to leverage its land assets to secure sufficient financings to ensure the Corporation is able to meet its financial obligations as they come due. the Corporation is subject to externally imposed capital requirements. the Corporation failed to have the audit of the annual financial statements for one of the limited partnerships under its control performed on time in accordance with the requirements set forth in the related offering memorandum due to delay in completing the audit; the audit has now been completed. Nothing arising from this audit had a material effect on these consolidated financial statements. 70 Genesis Land Development Corporation GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 15. SubSEquENt EVENtS on january 20, 2011, the Corporation entered into a mortgage loan agreement for $2,000 to provide working capital financing secured by existing real estate under development. the loan bears interest at prime + 5% or 8% per annum whichever is greater with interest due monthly and principal due february 29, 2012. 16. joINt VENturE CASH FLOW FROM (USED IN) Assets Liabilities Revenue Earnings Operating Activities (losses) Investing Activities Financing Activities As at and for the Year Ended December 31, 2010 18,914 27 — (2) (90) — 100 the above table includes the Corporation’s proportionate share of the assets, liabilities, revenue, earnings and cash flow information of a joint venture (December 31, 2009 - $Nil) that is proportionately consolidated in these financial statements. the Corporation’s proportionate interest of this joint venture is 50% ownership. a deferred gain of $2,201 (December 31, 2009 - $Nil) recognized on initial contribution into the joint venture is included in the customer deposits balance of $8,387 at December 31, 2010. 17. ChaNGES IN NoN-CaSh workING CapItaL Operating Activities Real Estate for Development and Sale Amounts Receivable Other Operating Assets Accounts Payable and Accrued Liabilities and Land Development Service Costs Customer Deposits Income Taxes Payable 2010 2009 (5,152) (11,637) 1,900 6,720 3,403 (2,829) 11,222 14,114 (2,810) (12,118) 1,470 1,552 (7,595) 13,430 GROwiNG FOR wARD l aNNuaL rEport 2010 71 GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 18. SEGmENtED INformatIoN the Corporation operates in two reportable segments, land development and home building, which represent separately managed strategic business units with distinct marketing strategies. the Corporation evaluates segment performance based on profit or loss from operations before income taxes. Inter-segment sales are accounted for as if the sale were to third parties at current market prices. Internal lot sales from the land division to the home building division or a limited partnership have been eliminated and are not included in consolidated results, until the home is sold to a third party purchaser. the income producing business units of the Corporation report the following activities for the years ended December 31, 2010 and 2009: Year Ended December 31, 2010 Revenues Cost of Sales Recover (Write-Down) of Real Estate Held for Development and Sale and Other Other Expenses* Land Development Segment Home Building Segment Corporate and Other Segment Intersegment Elimination Total 98,752 (37,588) 57,659 (52,422) 1,624 (9,964) (340) (4,309) — — — — — (18,511) 17,885 137,900 (72,125) — 626 1,284 (13,647) — 53,412 Earnings Before Income Taxes and Non-Controlling Interest 52,824 588 Segmented Assets (as at December 31, 2010) 342,893 15,064 2,455 (5,546) 354,866 Land Development Segment Home Building Segment Corporate and Other Segment Intersegment Elimination Year Ended December 31, 2009 Revenues Cost of Sales Write-Down of Real Estate Held for Development and Sale and Other Other Expenses* 41,797 (23,035) 62,580 (57,289) (7,643) (7,272) — (3,533) Earnings Before Income Taxes and Non-Controlling Interest 3,847 1,758 Total 86,562 (61,275) (17,815) 19,049 — (1,234) (7,643) (12,039) — 5,605 — — — — — Segmented Assets (as at December 31, 2009) 318,311 27,067 4,578 (7,615) 342,341 *other expense items include general and administrative, bad debt expense (recovery), interest, stock-based compensation, amortization, gain on de-recognition of VIE and gain (loss) on disposal of property and equipment. 72 Genesis Land Development Corporation GENESiS LAND DEvELOPmENT CORP . NotES to thE CoNSoLIDatED fINaNCIaL StatEmENtS for the years Ended December 31, 2010 and 2009 (All tabular Amounts and Amounts in Footnotes to Tables are in Thousands of Canadian Dollars Except Number of Shares) 19. rELatED party traNSaCtIoNS a land loan with one of the Corporation’s former directors in the amount of $5,410 was repaid on September 20, 2010. the Corporation engaged a former officer (“former officer”) of the Corporation as a Senior financial advisor. the amount of payments made to the former officer in 2010 were $202 (December 31, 2009 – $91). the former officer was granted 70,000 stock options on December 10, 2009. on october 2, 2009, the Corporation entered into a contract to construct a single-family home (“residential property”) for the former officer at a cost-plus agreed percentage basis, for the total value of the residential property of $970 representing terms offered to employees and measured at the exchange amount. as of march 3, 2011, the transaction has not closed. 20. ComparatIVE fIGurES Certain comparative figures have been reclassified to conform to the current period’s presentation. GROwiNG FOR wARD l aNNuaL rEport 2010 73 FivE yEAR SUmmAR y CoNSoLIDatED baLaNCE ShEEtS (Expressed in thousands of Canadian dollars, except per share amounts) 2010 2009 2008 2007 2006 Assets Real Estate Held for Development and Sale Amounts Receivable Cash and Cash Equivalents Other Operating Assets Future Income Taxes Liabilities and Non-Controlling Interest Financings Customer Deposits Accounts Payable and Accrued Liabilities Income Taxes Payable Land Development Service Costs Future Income Taxes Non-Controlling Interest Shareholders’ Equity Share Capital Contributed Surplus Retained Earnings 309,034 27,021 2,455 16,356 — 302,598 15,384 4,578 17,568 2,213 285,574 29,498 4,503 45,101 778 221,264 47,587 11,007 22,565 — 130,084 16,886 13,411 6,799 3,353 354,866 342,341 365,454 302,423 170,533 81,320 8,388 13,024 8,310 10,347 3,387 58,920 115,210 4,985 8,350 11,139 8,301 — 61,084 132,704 3,515 24,203 9,587 4,566 — 64,296 85,160 3,196 20,637 1,781 8,681 5,098 58,877 20,091 3,356 12,578 4,488 6,377 — 28,724 183,696 209,069 238,871 183,430 75,614 54,798 4,913 111,459 54,097 4,120 75,055 54,164 4,120 68,299 56,383 3,333 59,277 56,425 1,534 36,960 171,170 133,272 126,583 118,993 94,919 354,866 342,341 365,454 302,423 170,533 CoNSoLIDatED StatEmENt of EarNINGS (Comprehensive Income and retained Earnings) (Expressed in thousands of Canadian dollars, except per share amounts) 2010 2009 2008 2007 2006 Revenues Sales Interest and Other Income Expenses Cost of Sales Write-Down (Recovery) of Real Estate Held for and Sale and Other General and Administrative Interest Stock-Based Compensation Amortization Gain on De-Recognition of VIE Loss on Disposal of Property and Equipment Bad Debt Expense (Recovery) Earnings Before Income Taxes and NCI Provision for Income Taxes Non-Controlling Interest 136,650 1,250 85,851 711 82,558 1,273 97,776 1,198 50,913 756 137,900 86,562 83,831 98,974 51,669 72,125 (1,284) 12,263 804 1,004 173 (613) 10 6 61,275 7,643 10,946 1,470 (6) 218 — 5 (594) 43,025 6,962 11,026 639 814 271 — 33 13,408 52,613 387 11,425 432 1,815 265 — 7 — 28,531 250 7,528 256 1,612 160 — 3 — 84,488 80,957 76,178 66,944 38,340 53,412 14,166 2,842 5,605 3,579 (4,730) 7,653 (3,099) 4,730 32,030 (12,147) 3,335 13,329 (4,583) (330) Net Earnings, Being Comprehensive Income 36,404 6,756 9,284 23,218 8,416 Net Earning Per Share – Basic and Diluted $ 0.82 $ 0.15 $ 0.20 $ 0.50 $ 0.18 74 Genesis Land Development Corporation CorporatE INformatIoN Senior management Team Board of Directors GobI SINGh, p. ENG. president & Chief Executive officer DouG N. bakEr, b.Comm., fCa Chairman of the board of Directors GobI kuLar SINGh, p. ENG. Director, Chief Executive officer & president StEVEN GLoVEr Director, Chairman of the audit Committee akhIL k. maNro Director, Chairman of Corporate Governance and Compensation Committee yaZDI bharuCha Director ELIaS a. foSCoLoS Director mark w. mItChELL Director SImoN fLEtChEr, Ca Chief financial officer jEffrEy bLaIr, mCIp Chief operational officer fraNk DEVCICh, Ca Senior financial advisor VaL SaLoV, mba, Cpa Corporate Controller arNIE StEfaNIuk, p.ENG General manager of Land Development pS SIDhu, mba General manager, Single family homes Graham Duff, b.SC General manager of Commercial LaxmI raGhuram, b.arCh project manager, Generations Group of Companies SaLLy SaLama, Cpa, CIa manager of Internal Controls Transfer Agent Corporate Counsel Compushare trust Company 600, 530 - 8 avenue Sw Calgary, alberta t2p 3S8 Stock Exchange toronto Stock Exchange Stock Symbol - GDC Auditors meyers Norris penny LLp 7th floor, 715 5th avenue Sw Calgary, alberta t2p 2x6 borden Ladner Gervais LLp Legal Counsel Centennial place, East tower 1900 520 3rd avenue Calgary, alberta t2p 0r3 Corporate Office 200. 3115 - 12 Street NE Calgary, alberta Canada t2E 7j2 ph: 403 265-8079 fax: 403 266-0746 Email: genesis@genesisland.com uncommon Communities www.genesisland.com 

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