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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Quest Capital | LSE:QCC | London | Ordinary Share | CA74835U1093 | COM SHS NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 56.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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RNS Number:8697B
Quest Capital Corporation
09 August 2007
RESTATED FINANCIAL STATEMENTS FOR THE QUARTRER ENDED MARCH 31, 2007
Attached are the retated financial statements and management discussion and
analysis for the quarter ended March 31, 2007 as referenced in the news release
of August 8, 2007
QUEST CAPITAL CORP.
Restated Consolidated Financial Statements
March 31, 2007
(Expressed in thousands of Canadian dollars)
(Unaudited)
Quest Capital Corp.
Restated Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)
(Unaudited)
Restated Restated
(note 13) (note 13)
March 31, December 31,
2007 2006
-----------------------------
Assets
Cash and cash equivalents $ 9,743 $ 9,506
Marketable securities 2,597 1,865
Loans (note 5) 250,274 269,522
Investments 16,341 9,980
Future tax asset 11,805 14,500
Restricted cash 2,571 2,568
Prepaid and other receivables 321 686
Resource and capital assets 446 477
Other assets 1,232 1,253
-----------------------------
$ 295,330 $ 310,357
=============================
Liabilities
Accounts payable and accrued liabilities $ 5,798 $ 4,290
Income taxes payable 2,192 2,981
Deferred interest and loan fees - 4,620
Future income taxes 1,313 1,326
Asset retirement obligation 964 1,011
Debt payable (note 6) - 22,000
----------------------------
10,267 36,228
----------------------------
Shareholders' Equity
Share capital (note 7) 203,110 202,513
Contributed capital (note 7) 6,511 6,479
Accumulated other comprehensive income 6,362 2,138
Retained earnings 69,080 62,999
----------------------------
285,063 274,129
----------------------------
$ 295,330 $ 310,357
============================
Contingencies and commitments (note 10)
Approved by the Board of Directors
"Bob Buchan" Director "Brian E. Bayley" Director
------------------------------------- ---------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
Quest Capital Corp.
Restated Consolidated Statements of Retained Earnings
Three months ended March 31, 2007 and 2006
(Expressed in thousands of Canadian dollars)
(Unaudited)
Restated Restated
(note 13) (note 13)
2007 2006
------------------------------
Retained earnings - Beginning of period - $ 67,231 $ 30,739
as originally reported
Adjustment for future income taxes accounting (4,232) (4,232)
error (note 13) -------------------------------
Retained earnings - Beginning of period - 62,999 26,507
as restated
Adoption of financial instruments standards 1,591 -
(note 4)
Net earnings for the period 7,389 8,028
Dividends (2,899) -
-------------------------------
Retained earnings - End of period $ 69,080 $ 34,535
==============================
The accompanying notes are an integral part of these consolidated financial
statements.
Quest Capital Corp.
Restated Consolidated Statements of Earnings
For the three months ended March 31, 2007 and 2006
(Expressed in thousands of Canadian dollars, except per share amounts)
(Unaudited)
2007 2006
------------------------------
Interest and related fees $ 10,807 $ 5,798
------------------------------
Non-interest income
Management and finder's fees 726 1,251
Marketable securities and other assets trading 1,041 1,738
gains
Realized gains, net of writedowns of 1,116 2,956
investments
Other income and gold sales - 16
-------------------------------
2,883 5,961
-------------------------------
Total interest and non-interest income 13,690 11,759
-------------------------------
Interest on debt (230) -
-------------------------------
13,460 11,759
------------------------------
Expenses and other
Salaries and benefits 899 668
Bonuses 1,350 1,600
Stock-based compensation 200 136
Office and other 314 198
Legal and professional services 360 467
Regulatory and shareholder relations 271 264
Directors' fees 66 88
Sales tax 650 -
Foreign exchange loss (gain) 19 (1)
Other expenses relating to resource properties 16 24
------------------------------
4,145 3,444
------------------------------
Earnings before income taxes 9,315 8,315
Provision for income taxes (note 8) 1,926 287
------------------------------
Net earnings for the period $ 7,389 $ 8,028
==============================
Earnings per share
Basic 0.05 0.07
Diluted 0.05 0.06
Weighted average number of shares outstanding
Basic 144,956,018 122,932,235
Diluted 148,654,198 126,053,811
The accompanying notes are an integral part of these consolidated financial
statements.
Quest Capital Corp.
Restated Consolidated Statement of Comprehensive Income
For the three months ended March 31, 2007
(Expressed in thousands of Canadian dollars)
(Unaudited)
Restated
(note 13)
2007
-------------
Net earnings for the period $ 7,389
-------------
Other comprehensive income, net of tax
Unrealized gains (losses) on translating financial statements 9
of self-sustaining foreign operations
Unrealized gains on available-for-sale financial assets arising 1,962
during the period
Reclassification adjustment for gains recorded included in net 21
income --------------
Other comprehensive income 1,992
-------------
Comprehensive income $ 9,381
==============
Accumulated other comprehensive income - Beginning of period $ 2,138
(note 4)
Adoption of financial instruments standards (note 4) 2,232
Other comprehensive income for the period 1,992
--------------
Accumulated other comprehensive income - $ 6,362
==============
End of period
The accompanying notes are an integral part of these consolidated financial
statements.
Quest Capital Corp.
Restated Consolidated Statements of Cash Flows
For the three months ended March 31, 2007 and 2006
(Expressed in thousands of Canadian dollars)
(Unaudited)
2007 2006
--------------------------
Cash flows from operating activities
Net earnings for the period $ 7,389 $ 8,028
Items not affecting cash:
Future tax asset 1,679 (12)
Stock-based compensation 200 136
Amortization of deferred interest and loan fees (1,832) (945)
Marketable securities and other assets trading (1,041) (1,738)
gains
Realized gains, net of writedowns of investments (1,116) (2,956)
Other 44 61
Other assets and investments received as finder's - (394)
fees
Deferred interest and loans fees received 226 1,232
Activity in marketable securities held for
trading
Purchases (1,685) (557)
Proceeds on sales 2,910 3,044
Expenditures for reclamation and closure (55) (593)
Changes in prepaid and other receivables 364 51
Changes in accounts payables and accrued 1,511 1,051
liabilities
Changes in income taxes payable (773) -
--------------------------
7,821 6,408
--------------------------
Cash flows from financing activities
Proceeds from shares issued 429 13,300
Dividend payment (2,899) (3,518)
Proceeds from debt 8,000 -
Repayment of debt (30,000) -
--------------------------
(24,470) 9,782
--------------------------
Cash flows from investing activities
Net (increase) decrease in loans 15,625 (35,578)
Activity in investments
Proceeds on sales 1,302 6,220
Purchases - (278)
Change in restricted cash (29) (1,523)
Expenditures on resource and fixed assets (6) (13)
Net other assets acquired - -
--------------------------
16,892 (31,172)
--------------------------
Foreign exchange gain (loss) on cash held in a (6) 26
--------------------------
foreign subsidiary
Increase (decrease) in cash and cash equivalents 237 (14,956)
Cash and cash equivalents - Beginning of period 9,506 33,739
--------------------------
Cash and cash equivalents - End of period $ 9,743 $ 18,783
=========================
Supplemental cash flow information (note12)
Quest Capital Corp.
Notes to Restated Consolidated Financial Statements
Three months ended March 31, 2007
(Expressed in Canadian dollars; tables in thousands, except share capital
information)
(Unaudited)
1 Nature of operations
Quest Capital Corp.'s ("Quest" or the "Company") primary focus is providing
commercial bridge loans and mortgage financings. The Company also provides a
range of services including the raising of capital, consulting, management and
administrative services through its wholly owned subsidiaries, Quest Management
Corp. and Quest Securities Corporation.
2 Basis of presentation
The accompanying financial information does not include all disclosure required
under generally accepted accounting principles for annual financial statements.
The accompanying financial information reflects all adjustments, consisting
primarily of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of results for the interim
periods. These consolidated financial statements should be read in conjunction
with the Company's 2006 audited annual financial statements and notes.
3 Significant accounting policies
These interim consolidated financial statements follow the same accounting
policies and methods of application as the Company's annual financial
statements, except as noted below. These interim consolidated financial
statements are prepared in accordance with Canadian generally accepted
accounting principles and include the Company's accounts and those of its
wholly-owned subsidiaries, Quest Management Corp., Quest Securities Corporation,
Viceroy Gold Corporation and its 75% proportionate joint-venture interest in the
Castle Mountain Property.
4 Change in accounting policies - restated
Effective January 1, 2007, the Company adopted the Canadian Institute of
Chartered Accountants (CICA) Handbook Section 3855 Financial Instruments -
Recognition and Measurement, Section 3865 Hedges and Section 1530 Comprehensive
Income (the "Financial Instrument Standards"). As the Company has not undertaken
any hedging activities, adoption of Section 3865 currently has no impact on the
Company. Prior to January 1, 2007, the principal accounting policies affecting
the Company's financial instruments were: marketable securities were valued at
the lower of average cost and market value, investments were valued at cost or
at cost less amounts written off to reflect any impairment in value considered
to be other than temporary, loans were stated net of an allowance for credit
losses on impaired loans and other assets were valued at the lower of cost and
net realizable value.
The adoption of the Financial Instrument Standards requires the presentation of
a separate statement of comprehensive income. Loans are recorded at amortized
cost, subject to impairment reviews. Fees received for originating the loans are
netted against the loans' cost and are recognized in net earnings using the
effective interest rate method. Investments and marketable securities are
recorded in the consolidated balance sheet at fair value. Fair value is
determined directly by reference to quoted market prices in an active market.
Changes in fair value of marketable securities are recorded in earnings and
changes in the fair value of investments have been reported in other
comprehensive income. The transitional adjustments in respect of these standards
have been made to opening marketable securities, investments and loan balances
and adjusted through retained earnings and accumulated other comprehensive
income as at January 1, 2007.
As a consequence of adopting the Financial Instrument Standards at January 1,
2007, retained earnings increased by $1.6 million, currency translation
adjustment decreased by $2.1 million and accumulated other comprehensive income
increased by $4.3 million. These movements reflect an increase of $0.4 million
in marketable securities$3.4 million increase in investmentsa decrease in
deferred interest and loan fees of $4.6 million and a decrease in loans of $4.6
million. These adjustments represent the net gain on measuring the fair value of
held for trading and available for sale investments, which had not been
recognized on a fair value basis prior to January 1, 2007.
5 Loans
a) Loans are repayable over various terms up to 24 months from March 31,
2007, and bear interest at a fixed rate of between 8% and 18% before commitment
and other fees. Marketable securities, real property, real estate, corporate or
personal guarantees generally are pledged as collateral. At March 31, 2007, the
loan portfolio was comprised of 89% real estate mortgages, 9% in the resource
sectors and 2% in other sectors. At March 31, 2007, the real estate mortgages
were located as follows: 48% in British Columbia, 38% in Alberta, 12% in Ontario
and 2% in other; and, 81% were first mortgages and 19% were second mortgages. As
at March 31, 2007, the Company's loan portfolio consisted of 48 loans.
As at March 31, 2007, 70% of the Company's loan portfolio is due within a year.
The Company had approximately $24.8 million of loans impaired as a result of
certain principal and/or interest payments being in arrears as at March
31, 2007. The Company does not have a provision for loan losses. The Company
monitors the repayment ability of borrowers and the value of underlying
collateral. In determining the provision for possible loan losses, management
considers the length of time the loans has been in arrears, the overall
financial strength of borrowers and the residual value of collateral pledged.
The Company expects to collect the full carrying value of its loan portfolio. As
at March 31, 2007, the Company had 5 impaired loans.
Subsequent to March 31, 2007, $12.5 million of impaired loans were repaid or
cured.
b) The Company has recorded changes in the allowance for loan losses as
follows:
2007
--------------
Balance - Beginning of period $ 586
Add:
Specific provision for the period -
Less:
Loan write-offs (586)
----------------
Balance - End of period $ -
===============
c) At March 31, 2007, the Company has entered into agreements to advance
funds of $3.6 million. Advances under these agreements are subject to a number
of conditions including due diligence and completion of documentation.
6 Debt payable
In March 2007, the Company entered into a collateralized revolving debt facility
with the Bank of Nova Scotia for up to $25 million. The facility bears interest
at prime or bankers acceptance notes plus 1.25%.
7 Share capital
a) Authorized
Unlimited First and Second Preferred Shares
Unlimited common shares without par value
b) Shares issued and outstanding
Number of Amount
Shares
-------------------------------
Common shares
Opening balance - January 1, 2007 144,842,628 $ 202,513
Issued on exercise of stock options 220,000 597
------------------------------
Ending balance - March 31, 2007 145,062,628 $ 203,110
==============================
c) Compensation options issued and outstanding
Number of Exercise Expiry date
options price per
share
------------------------------------------
Common shares
Opening balance - January 1, - -
2007 comprised of:
Issued pursuant to a equity 1,085,775 $ 2.30 August 23, 2007
placement
Issued pursuant to a equity 48,000 2.30 October 26, 2007
placement -----------
1,133,775
-----------
Exercised -
----------
Ending balance - March 31, 2007 1,133,775
==========
d) Stock options outstanding
The Company has a stock option plan under which the Company may grant options to
its directors, employees and consultants for up to 10% of the issued and
outstanding common shares. The exercise price of each option is required to be
equal to or higher than the market price of the Company's common shares on the
day of grant. Vesting and terms of the option agreement are at the discretion of
the Board of Directors.
During the three months ended March 31, 2007, the change in stock options
outstanding was as follows:
Number of Weighted
shares average
share price
---------------------------
Common shares
Opening balance 8,981,333 $ 2.01
Granted 1,770,000 3.12
Exercised (220,000) 1.95
Expired (57,032) 2.88
--------------------------
Closing balance 10,474,301 $ 2.20
--------------------------
Options exercisable 8,334,281 $ 2.01
=========================
The following table summarizes information about stock options outstanding and
exercisable at March 31, 2007:
Options outstanding Options exercisable
-------------------------------------------------- -----------------------
Range of Options Weighted Weighted Options Weighted
exercise outstanding average average exercisable average
prices remaining exercise exercise
contracted price price
life
(years)
$ 0.81 113,333 0.56 0.81 113,333 0.81
$ 1.51 273,000 2.39 1.51 273,000 1.51
$ 1.80 to 6,650,000 1.87 1.95 6,650,000 1.95
1.95
$ 2.30 1,167,968 3.71 2.30 844,515 2.30
$ 2.64 to 2,270,000 4.62 3.04 453,433 2.88
3.21 -----------------------------------------------------------
10,474,301 2.67 2.20 8,334,281 2.01
============================================================
e) Contributed capital
Opening balance $ 6,479
Stock-based compensation 200
Fair value of stock options exercised (168)
---------------
Ending balance $ 6,511
==============
The fair values of options granted during the three months ended March 31, 2007
have been estimated using an option pricing model. Assumptions used in the
pricing model are as follows:
Risk-free interest rate 3.98%
Expected life of options 3.0 years
Expected stock price volatility 35%
Expected dividend yield 2.56%
Weighted average fair value of options $ 0.76
8 Income taxes
The Company has utilized tax losses in certain of its entities to reduce its
taxable income in Canada. The Company has recognized a future tax asset to the
extent that the amount is more likely than not to be realized from future
earnings.
The provisions for income taxes consists of the following:
2007 2006
-----------------------------
Current
Canada $ 98 $ 299
------------------------------
Total current expenses 98 299
------------------------------
Future
Canada 1,828 (12)
------------------------------
Total future recovery 1,828 (12)
------------------------------
Total provision for income taxes $ 1,926 $ 287
==============================
9 Related party transactions
a) For the three months ended March 31, 2007, the Company received
$180,000 (2006 - $262,000) in advisory, management and finder's fees from
parties related by virtue of having certain directors and officers in common.
Other assets include $345,000 of non-transferable securities held in either
private or publicly traded companies related by virtue of having certain
directors and officers in common.
b) Loans include $nil (December 31, 2006 = $nil) in amounts due from
parties related by virtue of having certain directors and officers in common.
During the three months ended March 31, 2007, the Company received $nil (2006 -
$376,000) in interest and fees from related parties by virtue of having certain
directors and officers in common. During the three months ended March 31, 2007,
the Company has made no additional provision for losses on loans from a party
related by virtue of having a director in common.
c) For the three months ended March 31, 2007, the Company received
$12,000 (2006-$12,000) in syndication loan administration fees from parties
related by virtue of having certain directors and officers in common.
d) Marketable securities and investments include $15,358,000 (December
31, 2006 - $9,143,000) of shares held in publicly traded companies related by
virtue of having certain directors and officers in common. For the three months
ended March 31, 2007, the Company recorded a gain on disposal of securities of
$213,000 (2006 - $3.6 million) from parties related by virtue of having certain
directors and officers in common.
e) Included in accounts payable at March 31, 2007 is $4,085,000 due to
employees, consultants and officers for bonuses.
10 Contingencies and commitments
a) Surety bond guarantees totalling US$2,405,000 have been provided by
Castle Mountain Joint Venture for compliance with reclamation and other
environmental agreements.
b) On March 22, 2002, Quest Investment Corporation (a predecessor
company) and other parties were named as defendants in a lawsuit filed in the
Supreme Court of British Columbia. The plaintiff has claimed approximately
$410,000 plus interest due for consulting services. Management intends to fully
defend this claim. No provision has been made for this claim in the consolidated
financial statements. The ultimate outcome of this claim is not determinable at
the time of issue of these consolidated financial statements and the costs, if
any, will be charged to earnings in the period(s) in which they are finally
determined.
c) The Company has entered into operating leases for office premises.
Minimum annual lease payments required are approximately as follows
2007 $ 434,000
2008 $ 358,000
2009 $ 358,000
2010 $ 281,000
2011 $ 43,000
d) Other commitments and contingencies are disclosed elsewhere in these
consolidated financial statements and notes.
11 Segmented information
The Company has primarily one operating segment, which is financial services.
The Company's geographic location is Canada.
12 Supplemental cash flow information
Non-cash financing and investing activities
2007 2006
------------------------------
Marketable securities and investments $ 617 $ 475
received as loan fees
13 Restatement of Financial Statements
During 2007, the Company undertook a review of business alternatives for its
wholly owned U.S. subsidiary, Viceroy Gold Corporation ("Viceroy Gold"), and
management identified a historical accounting error related to the failure to
recognize future income taxes, relating to the differences in the accounting and
tax values of certain assets and liabilities held by Viceroy Gold. Management
thereafter determined that amendments should be reflected in these restated
consolidated financial statements.
As a result, the Company has recorded an adjustment to opening retained earnings
at December 31, 2004 totaling $4.2 million to recognize current and future taxes
for the period from 2000 to 2003. As this liability is denominated in U.S.
dollars, subsequent change in the foreign exchange rates are reflected in the
accumulated other comprehensive income (previously currency translation
adjustment) account.
In addition, the Company has recorded an adjustment of $1.3 million to its
future tax asset and retained earnings, related to the adoption of financial
instruments standards disclosed in note 4 of the financial statements. This
adjustment reflects an accounting error related to the adoption of financial
instruments standards effective January 1, 2007.
The effect of the restatement on the restated consolidated financial statements
is summarized below.
Balance Sheet - March 31, 2007 As
previously As
reported Adjustments restated
-------------------------------------------
Future tax asset (1) $ 10,500 $ 1,305 $ 11,805
Income taxes payable 237 1,955 2,192
Future income taxes - 1,313 1,313
Retained earnings (1) 72,007 (2,927) 69,080
Other comprehensive income 5,398 964 6,362
(1) Includes a $1.3 million adjustment related to the adoption of financial
instruments standards disclosed in note 4.
Balance Sheet - December 31, 2006 As
previously As
reported Adjustments restated
-------------------------------------------
Income taxes payable $ 1,009 $ 1,972 $ 2,981
Future income taxes - 1,326 1,326
Retained earnings 67,231 (4,232) 62,999
Other comprehensive income 1,204 934 2,138
There are no changes to the Company's consolidated statement of earnings for the
three months ended March 31, 2007 and 2006, as the error relates to tax
provisions prior to fiscal year 2004.
QUEST CAPITAL CORP.
RESTATED MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 2007
INTRODUCTION
The following information, initially prepared as of May 4, 2007, should be read
in conjunction with Quest Capital Corp.'s (the "Company") restated interim
consolidated financial statements as at March 31, 2007 and for the three months
ended March 31, 2007 and 2006 and its restated audited annual consolidated
financial statements as at December 31, 2006 and 2005 and for the years ended
December 31, 2006, 2005 and 2004 and related notes attached thereto. These
statements, together with the related management's discussion and analysis ("MD&
A"), have been prepared in accordance with Canadian generally accepted
accounting principles ("Cdn GAAP"). All amounts are expressed in Canadian
dollars unless otherwise indicated. This report has been amended and restated as
at August 2, 2007, as discussed below.
The business of the Company consists of:
* mortgage financings secured by first and second real estate
mortgages;
* commercial bridge loans provided primarily to publicly traded
development stage companies;
* financial and corporate assistance in arranging equity offerings
for companies; and
* management and administrative services to public and private
companies.
The Company generates the majority of its revenues through interest it earns on
its loan portfolio. The Company's revenues are subject to the return it is able
to generate on its capital, its ability to reinvest funds as loans mature and
are repaid and the nature and credit quality of its loan portfolio, including
the quality of the collateral security. In addition, the Company generates
revenues from gains on the sale of marketable securities and investments. The
Company also receives fees from its corporate finance activities; these fees are
subject to the number and value of the transactions in which the Company
participates.
The following discussion, analysis and financial review is comprised of 14 main
sections:
1. AMENDMENT AND RESTATEMENT TO THE COMPARATIVE PERIODS
2. RESULTS OF OPERATIONS
3. SUMMARY OF QUARTERLY RESULTS
4. LIQUIDITY
5. RELATED PARTY TRANSACTIONS
6. SUBSEQUENT AND PROPOSED TRANSACTIONS
7. OFF BALANCE SHEET ARRANGEMENTS
8. OUTLOOK
9. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
10. CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
11. DISCLOSURE OF OUTSTANDING SHARE DATA
12. RISKS AND UNCERTAINTIES
13. FORWARD LOOKING INFORMATION
14. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Additional information about the Company, including its Annual Information Form
and other public filings, are available on SEDAR at www.sedar.com.
1. AMENDMENT AND RESTATEMENT TO THE COMPARATIVE PERIODS
During 2007, the Company undertook a review of business alternatives for its
wholly owned U.S. subsidiary, Viceroy Gold Corporation ("Viceroy Gold"), and
management identified a historical accounting error related to the failure to
recognize future income taxes, relating to the differences in the accounting and
tax values of certain assets and liabilities held by Viceroy Gold. Management
thereafter determined that amendments should be reflected in these restated
consolidated financial statements.
As a result the Company has recorded an adjustment to opening retained earnings
at December 31, 2004 totaling $4.2 million to recognize current and future taxes
for the period from 2000 to 2003. As this liability is denominated in U.S.
dollars, subsequent change in the foreign exchange rates are reflected in the
accumulated other comprehensive income (previously currency translation
adjustment) account.
In addition, the Company has recorded an adjustment of $1.3 million to its
future tax asset and retained earnings, related to the adoption of financial
instruments standards disclosed in note 4 of the financial statements. This
adjustment reflects an accounting error related to the adoption of financial
instruments standards effective January 1, 2007.
There are no changes to the Company's consolidated statement of earnings for the
three months ended March 31, 2007 and 2006, as the error relates to tax
provisions prior to fiscal year 2004.
Quarterly disclosures - (unaudited)
(In thousands of Canadian dollars)
1st 4th 3rd 2nd 1st 4th 3rd 2nd
Qtr '07 Qtr '06 Qtr '06 Qtr '06 Qtr '06 Qtr '05 Qtr '05 Qtr '05
------------------------------------------------------------------------
Total
assets
Previous 294,025 310,357 284,935 267,891 208,060 189,603 166,928 123,487
Restated 295,330 310,357 284,935 267,891 208,060 189,603 166,928 123,487
Total
liabilities
Previous 6,999 32,930 20,885 14,828 8,999 12,009 6,718 7,525
Restated 10,267 36,228 24,048 17,987 12,284 15,309 10,008 10,993
This MD&A reflects all amounts as restated to address the items discussed above.
2. RESULTS OF OPERATIONS
Total assets as at March 31, 2007 were $295.3 million comprised of $9.7 million
of cash, $2.6 million of marketable securities, $250.3 million in loans, $16.3
million in investments and $16.4 million of other assets.
The loan portfolio at March 31, 2007 was comprised of 89% in first and second
real estate mortgages, 9% in the resource sectors and 2% in other sectors. As at
December 31, 2006, the loan portfolio was comprised of 87% in first and second
real estate mortgages, 12% in resource sectors, and 1% in other sectors. At
March 31, 2007, mortgages were located as follows: 48% in British Columbia, 38%
in Alberta, 12% in Ontario and 2% in other areas; of which 81% were first
mortgages and 19% were second mortgages. This investment concentration may vary
from time to time depending on the investment opportunities available, however
in the near term the Company does not expect any material changes in the
composition of its loan portfolio. As at March 31, 2007, the Company's loan
portfolio consisted of 48 loans.
For the three months ended March 31, 2007 the Company had consolidated earnings
before taxes of $9.3 million compared to $8.3 million in the comparative period
in 2006. For the three months ended March 31, 2007 the Company had consolidated
net earnings of $7.4 million compared to $8.0 million in the comparative period
in 2006.
During the three months ended March 31, 2007, the Company has recorded $0.6
million as sales tax expense, related to certain tax filings (refer to
management's report on internal controls over financial reporting).
Interest and Related Fees
Net interest income from the Company's lending activities increased to $10.8
million for the first quarter of 2007 as compared to $5.8 million in 2006 due to
the growth in the loan portfolio year-over-year. Total loans as at March 31,
2007 were $250.3 million as compared to $264.9 million (net of deferred interest
and loan fees) as at December 31, 2006, representing a decrease of 6%. During
the current quarter approximately 14% of our loan portfolio was repaid. Included
in interest and related fees is interest and related fees earned on bridge loans
totaling $2.4 million during the three months ended March 31, 2007 and $0.9
million earned during the three months ended March 31, 2006.
Non-Interest Income
During the three months ended March 31, 2007, fees recorded from management and
finder's fees totaled $0.7 million, compared to $1.3 million in the comparative
period in 2006. This decrease is primarily due to a decrease in corporate
finance services rendered as compared to the first quarter in 2006.
During the three months ended March 31, 2007, the Company recorded trading gains
of $1.0 million compared to gains of $1.7 million in the comparative period in
2006.
Net realized gains from the sales of investments resulted in the Company
recording gains of $1.1 million in 2007 compared to gains of $3.0 million in the
comparative period in 2006.
Expenses and Other
Total expenses and other for the three months ended March 31, 2007 were $4.1
million as compared to $3.4 million in the comparative period in 2006.
Salaries and benefits increased to $0.9 million in 2007 compared to $0.7 million
in 2006 as a result of expansion of the business and the addition of new
employees. During the three months ended March 31, 2007, the Company's employees
increased by four.
Bonuses for the three months ended March 31, 2007 were $1.4 million as compared
to $1.6 million in the comparative period in 2006. This represents amounts
allowed under the incentive plan to officers, employees and consultants of the
Company. The payments and allocations under such plan are subject to the
approval of the Compensation Committee and Board of Directors.
Income tax expense was $1.9 million for the three months ended March 31, 2007,
compared to an expense of $0.3 million in the comparative period in 2006. The
Company has recognized an additional $1.3 million future tax asset during the
three months ended March 31, 2007, based on the likely realization of certain
time released tax deductions which will be utilized against future taxable
earnings. Income tax expense reported in 2007 is primarily a non-cash item, as
it is the draw down of the future tax asset, as shown on the Company's balance
sheet.
During the three months ended March 31, 2007, the Company has recorded $0.6
million as sales tax expense, related to certain tax filings (refer to
management's report on internal controls over financial reporting).
Comprehensive Income
The Company is reporting comprehensive income for the first time, having adopted
the new accounting standards for financial reporting which were effective for
Canadian companies on January 1, 2007. The most significant components of other
comprehensive income were the unrealized mark-to-market gains on the Company's
investments in the available-for-sale investment category and currency
translation adjustments.
3. SUMMARY OF QUARTERLY RESULTS
(In thousands of Canadian dollars, except per share amounts)
Re- Re- Re- Re- Re- Re- Re- Re-
Stated Stated Stated Stated Stated Stated Stated Stated
First Fourth Third Second First Fourth Third Second
Qtr '07 Qtr '06 Qtr '06 Qtr '06 Qtr '06 Qtr '05 Qtr '05 Qtr '05
Interest 10,807 10,597 8,781 7,415 5,798 5,555 4,399 4,004
and
related
fees
Non- 2,883 1,265 3,368 7,905 5,961 4,028 1,883 2,377
interest
income
Earnings 9,315 7,918 9,087 11,664 8,315 5,059 4,291 4,507
before
taxes
Net 7,398 16,021 8,770 10,882 8,028 11,395 4,295 4,550
earniings
Basic 0.05 0.12 0.06 0.08 0.07 0.10 0.04 0.05
Earnings
Per Share
Total 295,330 310,357 284,935 267,891 208,060 189,603 166,928 123,487
Assets
Total 10,267 36,228 24,048 17,987 12,284 15,309 10,008 10,993
Lia- -----------------------------------------------------------------------
bilities
The Company's interest and related fees have continued to increase for the past
eight quarters as the Company's loan portfolio grows.
Non-interest income varies by quarter depending on the management, advisory, and
finder's fees received, marketable securities' trading gains/(losses) and
realized gains and write-down of investments. Quarter to quarter comparisons of
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance.
During the fourth quarter of 2005, second quarter of 2006 and fourth quarter of
2006, net earnings were positively impacted by the recognition of a future tax
asset of $6.0 million, $0.8 million and $7.7 million, respectively, as a result
of the likely realization of unused tax losses from future earnings.
4. LIQUIDITY
The Company's cash resources at March 31, 2007 were $9.7 million as compared to
$9.5 million as at December 31, 2006. The Company's primary focus is to provide
loans and its cash balances will vary depending on the timing of loans advanced
and repaid.
As at March 31, 2007, the Company has also entered into agreements to advance
funds of $3.6 million. Advances under these agreements are subject to a number
of conditions including due diligence and completion of documentation.
The Company's loan portfolio as at March 31, 2007 was $250.3 million comprised
of 89% real estate mortgages, 9% in the resource sectors and 2% in other
sectors. As at March 31, 2007, 70% of the loan value is scheduled to mature
within a year. The Company had approximately $24.8 million of loans impaired as
a result of certain principal and/or interest payments being in arrears as at
March 31, 2007. The Company has not made any allowance for credit losses as the
Company expects to collect the full carrying value of its loan portfolio.
For the three months ended March 31, 2007, cash flow from operations provided
$7.8 million as compared to $6.4 million for the comparative period in 2006, as
a result of higher earnings.
During the three months ended March 31, 2007, the Company arranged $49.5 million
of new loans (net to the Company - $25.8 million) and $46.8 million of loans
(net to the Company - $38.9 million) were repaid.
Management is not aware of any trends or expected fluctuations that would create
any liquidity deficiencies. The Company believes that cash flow from continuing
operations and existing cash resources will be sufficient to meet the Company's
short-term requirements, as well as ongoing operations, and will be able to
generate sufficient capital to support the Company's business. However, the
Company assumes short-term debt from time to time to fund its investments and
loan operations. The Company currently has a $25 million revolving line of
credit with Bank of Nova Scotia. In addition, the Company is reviewing the
implementation of other term debt facilities.
The Company has contractual obligations for its leased office space in Vancouver
and Toronto. The total minimum lease payments for the years 2007 - 2012 are
$3,159,250.
Obligation due by period
-----------------------------------------------------
Type of Contractual Total Less than 1 1 - 3 Years 3 - 5 More than
Obligation Year Years 5 Years
Office Leases $3,159,250 $755,000 $1,639,000 $685,000 $80,250-
Loan Commitments $3,600,000 $3,600,000 - - -
--------------------------------------------------------------------------------
Total $6,759,250 $4,355,000 $1,639,000 $685,000 $80,250
==============================================================================
5. RELATED PARTY TRANSACTIONS
For the three months ended March 31, 2007, the Company received $0.2 million
(2006 - $0.3 million) in advisory, management and finder's fees from parties
related by virtue of having certain directors and officers in common. Other
assets include $0.3 million of non-transferable securities held in either
private or publicly traded companies related by virtue of having certain
directors and officers in common.
Loans include $nil (December 31, 2006 - $nil) in amounts due from parties
related by virtue of having certain directors and officers in common. During the
three months ended March 31, 2007, the Company received $nil (2006 - $0.4
million) in interest and fees from related parties by virtue of having certain
directors and officers in common. During the three months ended March 31, 2007,
the Company has made no additional provision for losses on loans from a party
related by virtue of having a director in common.
For the three months ended March 31, 2007, the Company received $12,000 (2006 -
$12,000) in syndication loan administration fees from parties related by virtue
of having certain directors and officers in common.
Marketable securities and investments include $15.4 million (December 31, 2006 -
$9,143,000) of shares held in publicly traded companies related by virtue of
having certain directors and officers in common. For the three months ended
March 31, 2007, the Company recorded a gain on disposal of securities of
$0.2 million (2006 - $3.6 million) from parties related by virtue of having
certain directors and officers in common.
Included in accounts payable at March 31, 2007 is $4.1 million due to employees,
consultants and officers for bonuses.
6. SUBSEQUENT AND PROPOSED TRANSACTIONS
The Company has no subsequent and proposed transactions to report.
7. OFF BALANCE SHEET ARRANGEMENTS
The Company has no off balance sheet arrangements.
8. OUTLOOK
As at March 31, 2007, the Company had $9.7 million of cash on hand. Reinvestment
of the Company's cash as loans are repaid is the primarily focus of management.
The Company is not planning any material changes in the make-up of its lending
business, although the precise composition of its loan portfolio may vary
somewhat from the currently existing percentages as loans are made in the
context of market conditions. During the upcoming year, the Company may hire
additional employees and raise equity or debt required to fund the growth of the
Company's loan portfolio (also refer to Liquidity).
9. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's accounting policies are described in Note 3 of its audited
consolidated financial statements for the years ended December 31, 2006 and
2005. Management considers the following policies to be the most critical in
understanding the judgments and estimates that are involved in the preparation
of its consolidated financial statements and the uncertainties which could
materially impact its results, financial condition and cash flows. Management
continually evaluates its assumptions and estimates; however, actual results
could differ materially from these assumptions and estimates.
Provision for Loan Losses
Loans are stated net of an allowance for credit losses on impaired loans. Such
allowances reflect management's best estimate of the credit losses in the
Company's loan portfolio and judgments about economic conditions. The evaluation
process involves estimates and judgments, which could change in the near term,
and result in a significant change to a recognized allowance.
The Company's Credit Committee reviews its loan portfolio at least on a
quarterly basis and specific provisions are established on a loan-by-loan basis.
In determining the provision for possible loan losses, the Company considers the
following:
* length of time the loans have been in arrears;
* the overall financial strength of the borrowers;
* the nature and quality of collateral and, if applicable,
guarantees;
* secondary market value of the loans and the collateral; and
* the borrower's plan, if any, with respect to restructuring the
loans.
Valuation of Investments
The Company's investments are primarily held in public companies. Effective
January 1, 2007, investments are recorded on the balance sheet at their fair
value. Fair value is determined directly by reference to quoted market price in
an active market (see section 10 below).
Future Tax Assets and Liabilities
The Company has recognized a future tax asset based on the likely realization of
tax losses which are to be utilized against future earnings. The Company will
reassess at each balance sheet date its existing future income tax assets, as
well as potential future income tax assets that have not been previously
recognized. In determining whether an additional future income tax asset is to
be recognized, the Company will assess its ability to continue to generate
future earnings based on its current loan portfolio, expected rate of return,
the quality of the collateral security and ability to reinvest the funds. If an
asset has been recorded and the Company assesses that the realization of the
asset is no longer viable, the asset will be written down. Conversely, if the
Company determines that there is an unrecognized future income tax asset which
is more-likely-than-not to be realized, it will be recorded in the balance sheet
and statement of earnings.
The Company has also recognized a future tax liability related to its former
U.S. based operations.
10. CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
Effective January 1, 2007, the Company adopted the Canadian Institute of
Chartered Accountants (CICA) Handbook Section 3855 Financial Instruments -
Recognition and Measurement, Section 3865 Hedges and Section 1530 Comprehensive
Income (the "Financial Instrument Standards"). As the Company has not undertaken
any hedging activities, adoption of Section 3865 currently has no impact on the
Company. Prior to January 1, 2007, the principal accounting policies affecting
the Company's financial instruments were: marketable securities were valued at
the lower of average cost and market value, investments were valued at cost or
at cost less amounts written off to reflect any impairment in value considered
to be other than temporary, loans were stated net of an allowance for credit
losses on impaired loans and other assets were valued at their net realizable
value.
The adoption of the Financial Instrument Standards requires the presentation of
a separate statement of comprehensive income. Loans are recorded at amortized
cost, subject to impairment reviews. Fees received for originating the loan are
netted against the loan's cost and is recognized in net earnings using the
effective interest method. Investments and marketable securities are recorded in
the consolidated balance sheet at fair value. Fair value is determined directly
by reference to quoted market prices in an active market. Changes in fair value
of marketable securities are recorded in income and changes in the fair value of
investments have been reported in other comprehensive income. The transitional
adjustments in respect of these standards have been made to the opening
marketable securities, investments and loan balances and adjusted through
retained earnings and accumulated other comprehensive income, as at January 1,
2007. Prior periods have not been restated.
As a consequence of adopting the Financial Instrument Standards at January 1,
2007, retained earnings increased by $1.6 million, currency translation
adjustment decreased by $2.1 million and accumulated other comprehensive income
increased by $4.3 million. These movements reflect an increase of $0.4 million
in marketable securities, $3.4 million increase in investments, a decrease in
deferred interest and loan fees of $4.6 million and a decrease in loans of $4.6
million. These adjustments represent the net gain on measuring the fair value of
held for trading and available for sale investments, which had not been
recognized on a fair value basis prior to January 1, 2007.
11. DISCLOSURE OF OUTSTANDING SHARE DATA
As at May 4, 2007, the Company had the following common shares, stock options
and compensation options outstanding:
Common shares 145,062,628
Stock options 10,474,301
Compensation options 1,133,775
------------
Fully diluted shares outstanding 156,670,704
Dividends
As a reflection of the continued profitability in the Company's business, on
November 1, 2006 its board of directors approved an increase in its dividend
rate from $0.06 per year to $0.08 per year. This new dividend will be paid
quarterly, at the rate of $0.02 per share.
12. RISKS AND UNCERTAINTIES
Additional risks factors are disclosed under "Risk Factors" in the Annual
Information Form filed on SEDAR at www.sedar.com.
Liquidity Risk
The Company maintains a sufficient amount of liquidity to fund its obligations
as they come due under normal operating conditions. As at March 31, 2007, 70% of
the value of the loan portfolio is scheduled to mature within a year.
Credit Risk
Credit risk management is the management of all aspects of borrower risk
associated with the total loan portfolio, including the risk of loss of
principal and/or interest from the failure of the borrowers to honour their
contractual obligations to the Company.
The Company generally provides real estate mortgages to approximately 75% of the
value of the security and generally provides commercial bridge loans to
primarily publicly traded development stage companies to approximately 50% of
the value of guarantees and security (also refer to results of operations for
current loan composition details). The Company provides for loan losses on a
specific loan basis and had no provision as at March 31, 2007.
13. FORWARD LOOKING INFORMATION
These materials include certain statements that constitute "forward-looking
statements" within the meaning of Section 27A of the United States Securities
Act of 1933 and Section 21E of the United States Securities Exchange Act of
1934. These statements appear in a number of places in this document and include
statements regarding our intent, belief or current expectation and that of our
officers and directors. Such forward-looking statements involve known and
unknown risks and uncertainties that may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. When
used in this document, words such as "believe", "anticipate", "estimate",
"project", "intend", "expect", "may", "will", "plan", "should", "would"
"contemplate", "possible", "attempts", "seek", and similar expressions are
intended to identify these forward-looking statements. These forward-looking
statements are based on various factors and were derived utilizing numerous
assumptions that could cause our actual results to differ materially from those
in the forward-looking statements. Accordingly, you are cautioned not to put
undue reliance on these forward-looking statements. Forward-looking statements
include, among others, statements regarding our expected financial performance
in future periods, our plan of operations and our business strategy and plans or
budgets.
14. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Internal Disclosure Controls and Procedures
The Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") are
responsible for establishing and maintaining adequate disclosure controls and
procedures. Disclosure controls and procedures are designed to ensure that
information required to be disclosed in the Company's filings under securities
legislation is accumulated and communicated to management, including the CEO and
CFO as appropriate, to allow timely decisions regarding public disclosure. They
are designed to provide reasonable assurance that all information required to be
disclosed in these filings is recorded, processed, summarized and reported
within the time periods specified in securities legislation. The Company reviews
its disclosure controls and procedures; however, it cannot provide an absolute
level of assurance because of the inherent limitations in control systems to
prevent or detect all misstatements due to error or fraud.
As of December 31, 2006, the Company's management, including the CEO and CFO,
concluded an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on this evaluation, the CEO
and CFO were of the view that the Company's disclosure controls and procedures
were effective.
Subsequent to December 31, 2006, this evaluation was revisited in connection
with the preparation of the restated financial statements for the years ended
December 31, 2006, 2005 and 2004 and three months ended March 31, 2007. In view
of the restatement of financial statements described above, the CEO and CFO have
concluded that a material weakness existed in the Company's internal disclosure
controls and procedures as of December 31, 2006, related specifically to certain
tax filings and computation of future tax provisions. Management recognizes that
improvements are required and is taking appropriate action to remediate
deficiencies by the end of 2007.
Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal
control 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 GAAP. Internal control over financial
reporting includes those policies and procedures that: (1) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of the assets of the Company, (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts
and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company, and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a
material effect on the financial statements.
The Company's management has evaluated the effectiveness of internal control
over financial reporting. Based on this evaluation, management has concluded
that internal control over financial reporting was not wholly effective as of
December 31, 2006, specifically as it related to the determination of tax
provisions, as noted in "Internal Disclosure Controls and Procedures".
This information is provided by RNS
The company news service from the London Stock Exchange
END
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