Quest Capital Corp. ("Quest" or the "Company") (TSX: QC)(AMEX:
QCC)(AIM: QCC) today reported its financial results for the three
and six months ended June 30, 2008 - including strong growth in
interest income and mortgage loans - and expressed a confident
outlook for the second half of 2008. Quest's mortgage assets are
located exclusively in Canada, it does not lend into the United
States.
"Quest is firmly on track with the growth strategy we introduced
for 2008," said Stephen Coffey, President and Chief Executive
Officer. "We are experiencing a significant increase in new lending
opportunities from quality borrowers and are meeting this demand as
a dedicated Mortgage Investment Corporation or MIC."
A MIC is a tax-advantaged Canadian corporation through which the
Canadian government encourages residential mortgage lending. As a
MIC, Quest can distribute its entire taxable income by way of
dividends to shareholders and deliver increasing yield as compared
to taxable corporations, as dividends paid are tax deductible to
the Company. Dividends received from a MIC are taxed as
interest.
"Quest's results to date are satisfying and include growth in
interest income, a sizeable increase in our loan portfolio based on
good funding volumes, a reduction in impaired loans and the payment
of an attractive dividend," said Mr. Coffey. "Our ability to reduce
taxable income through the payment of dividends to shareholders has
helped us to increase shareholder yield and after-tax earnings. Net
income for the second quarter of 2008 is the highest since the
fourth quarter of 2006. During the quarter, we also took the first
steps towards applying for a deposit-taking license. This is a
major initiative that, if successful, will accelerate our growth
potential in future years."
Second Quarter Highlights
- Interest income increased 23% to $11.5 million in the second
quarter of 2008, compared to $9.4 million during the same period in
2007. This increase was the result of a 38% year-over-year growth
in average outstanding loans.
- The Company's loan portfolio grew to $350.4 million at June
30, 2008, representing a 26% increase from December 31, 2007 and a
46% increase from June 30, 2007.
- Total loans funded during the quarter were $72 million
compared to $59 million in the comparative period in 2007 - a 22%
increase. Quest also syndicated $5.7 million in loans, compared to
$4.3 million a year ago.
- Net income was $7.5 million ($0.05 per share basic and
diluted) compared to $7.4 million ($0.05 per share basic and
diluted) during the same period last year - despite an expected
drop in other income from corporate finance and investment
operations that were discontinued late in 2007. The comparative
period in 2007 also included a $3.6 million gain related to the
sale of marketable securities.
Quarterly Dividend of $0.045 Per Share Declared
The Board of Directors declared a quarterly dividend of $0.045
per share, payable on September 30, 2008 to shareholders of record
on September 15, 2008. Quest's objective is to increase value for
shareholders while reducing taxable corporate income. It
accomplishes this objective through its dividend strategy which
involves achieving a high payout ratio each year. The current
dividend declaration follows the June 30, 2008 dividend payment of
$0.045 per share which produced a payout ratio on income before
taxes for the second quarter of 2008 of 82% compared to 34% a year
earlier.
Six Month Highlights
For the six months ended June 30, 2008:
- Interest income was $22.7 million compared to $19.5 million
last year, a 16.4% increase.
- Net income was $14.6 million, virtually unchanged from a year
earlier.
- Earnings per share (basic and diluted) were $0.10, also
unchanged from the same period in 2007.
- Total loans funded grew 77% to $149.4 million compared to
$84.5 million during the comparative period in 2007.
Other Performance Metrics
- At June 30, 2008, total assets were $366.5 million
representing a 24% increase from $295.8 million a year earlier.
- Shareholders' equity at June 30, 2008 was $295.5 million
compared to $288.3 million a year earlier - a 2.5% increase.
- At June 30, 2008, impaired loans totalled $12.4 million, a
significant improvement over impaired loans of $23.0 million a year
ago.
"With estimated underlying security of $20 million on our
impaired loans, we expect to avoid losses and maintain our track
record of credit quality," said Jim Grosdanis, Chief Financial
Officer. "Moreover, because we are targeting to achieve an
increasing level of geographic diversification within our
portfolio, we have confidence that we can continue to achieve one
of our main objectives: preservation of capital."
Outlook
"Looking forward, we're confident about our prospects," said Mr.
Coffey. "From a capital perspective, we have drawn down $66.5
million of our $88.0 million revolving debt facility at June 30,
2008. So while we've been very efficient in using leverage, we
still have room to support the addition of quality mortgages
including the use of syndication. From a market perspective, while
we're cognizant of the fact that Canadian real estate markets are
not as strong as last year, they still provide more than adequate
support for Quest. We're particularly pleased with the reception
we've been given in the selected locations in the Ontario market
since opening there earlier this year and expect our mortgage
portfolio there to grow in the second half. This complements our
additional penetration into the Saskatchewan market. In terms of
adding value to shareholders, we remain optimistic."
SECOND QUARTER CONFERENCE CALL
Quest Capital will host a conference call at 11 a.m. Eastern
today to discuss its second quarter performance. To access the call
live, please dial 1-800-762-8908. The call will be recorded and a
replay made available for one week ending Friday, August 15, 2008
at midnight. The replay may be accessed approximately one hour
after the call by dialing 416-640-1917 and entering passcode
21279182 followed by the number sign (#).
About Quest
Quest Capital Corp. is a leading Mortgage Investment Corporation
serving Canadian real estate markets. Quest's objective is to
become Canada's largest Mortgage Investment Corporation in terms of
(i) equity, (ii) loans generated and (iii) profitability.
Quest's strategy is to deploy its financial capital at superior
rates of return while minimizing risk in the process. The three
principles of Quest's investing strategy are capital preservation,
obtaining an attractive yield on lending activities and profitable
growth.
Forward Looking Statements
This press release includes certain statements that constitute
"forward-looking statements", and "forward-looking information"
within the meaning of applicable securities laws ("forward-looking
statements" and "forward-looking information" are collectively
referred to as "forward-looking statements", unless otherwise
stated). 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. Forward-looking statements may
relate to the Company's future outlook and anticipated events or
results and may include statements regarding the Company's future
financial position, business strategy, budgets, litigation,
projected costs, financial results, taxes, plans and objectives. We
have based these forward-looking statements largely on our current
expectations and projections about future events and financial
trends affecting the financial condition of our business. These
forward-looking statements were derived utilizing numerous
assumptions regarding expected growth, results of operations,
performance and business prospects and opportunities that could
cause our actual results to differ materially from those in the
forward-looking statements. While the Company considers these
assumptions to be reasonable, based on information currently
available, they may prove to be incorrect. Forward-looking
statements should not be read as a guarantee of future performance
or results.
Forward-looking statements are based on information available at
the time those statements are made and/or management's good faith
belief as of that time with respect to future events, and are
subject to risks and uncertainties that could cause actual
performance or results to differ materially from those expressed in
or suggested by the forward-looking statements. To the extent any
forward-looking statements constitute future-oriented financial
information or financial outlooks, as those terms are defined under
applicable Canadian securities laws, such statements are being
provided to describe the current potential of the Company and
readers are cautioned that these statements may not be appropriate
for any other purpose, including investment decisions.
Forward-looking statements speak only as of the date those
statements are made. Except as required by applicable law, we
assume no obligation to update or to publicly announce the results
of any change to any forward-looking statement contained or
incorporated by reference herein to reflect actual results, future
events or developments, changes in assumptions or changes in other
factors affecting the forward-looking statements. If we update any
one or more forward-looking statements, no inference should be
drawn that we will make additional updates with respect to those or
other forward-looking statements. You should not place undue
importance on forward-looking statements and should not rely upon
these statements as of any other date. All forward-looking
statements contained in this press release are expressly qualified
in their entirety by this cautionary statement.
QUEST CAPITAL CORP.
Unaudited Interim Consolidated Financial Statements
June 30, 2008
(Expressed in thousands of Canadian dollars)
Quest Capital Corp.
Unaudited Interim Consolidated Balance Sheets
As at June 30, 2008 with comparative figures for December 31, 2007 and
June 30, 2007
(Expressed in thousands of Canadian dollars)
--------------------------------------------------------------------------
June 30, December 31, June 30,
2008 2007 2007
-----------------------------------
Assets
Cash and cash equivalents $ 3,101 $ 30,484 $ 26,163
Loans (note 5) 350,419 277,710 240,055
Future income taxes 2,981 3,916 9,000
Restricted cash (note 6) 8,763 12,452 2,279
Prepaid and other receivables 160 155 356
Capital assets 929 841 416
Other assets 186 186 1,262
Marketable securities - - 3,621
Investments - - 12,646
-----------------------------------
$ 366,539 $ 325,744 $ 295,798
-----------------------------------
-----------------------------------
Liabilities
Accounts payable and accrued
liabilities (note 10) $ 3,559 $ 7,081 $ 3,606
Income taxes payable 45 188 1,829
Future income taxes 879 904 1,212
Asset retirement obligation 522 572 840
Debt payable (note 7) 66,010 26,365 -
-----------------------------------
71,015 35,110 7,487
-----------------------------------
Shareholders' equity
Share capital (note 8) 207,161 207,161 203,590
Contributed surplus (note 8) 7,474 6,934 6,673
Accumulated other
comprehensive income - - 3,094
Retained earnings 80,889 76,539 74,954
-----------------------------------
295,524 290,634 288,311
-----------------------------------
$ 366,539 $ 325,744 $ 295,798
-----------------------------------
-----------------------------------
Contingencies and commitments
(notes 5(d) and 11)
Approved by the Board of Directors
"Stephen C. Coffey" Director "A. Murray Sinclair" Director
------------------------- -------------------------
Stephen C. Coffey A. Murray Sinclair
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Quest Capital Corp.
Unaudited Interim Consolidated Statements of Retained Earnings
For the three and six months ended June 30, 2008 and 2007
(Expressed in thousands of Canadian dollars)
--------------------------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
--------------------------------------------
2008 2007 2008 2007
--------------------------------------------
Retained earnings -
beginning of period $ 79,968 $ 71,218 $ 76,539 $ 65,137
Adoption of financial
instruments standards - - - 1,591
Net income for the period 7,526 7,366 14,625 14,755
Dividends (6,605) (3,630) (10,275) (6,529)
--------------------------------------------
Retained earnings - end
of period $ 80,889 $ 74,954 $ 80,889 $ 74,954
--------------------------------------------
--------------------------------------------
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Quest Capital Corp.
Unaudited Interim Consolidated Income Statements
For the three and six months ended June 30, 2008 and 2007
(Expressed in thousands of Canadian dollars, except per share amounts)
--------------------------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
--------------------------------------------
2008 2007 2008 2007
--------------------------------------------
Interest income $ 11,549 $ 9,356 $ 22,680 $ 19,480
Interest expense (726) (18) (1,149) (248)
--------------------------------------------
Interest income, net 10,823 9,338 21,531 19,232
Provision for loan losses
(note 5) (246) - (450) -
--------------------------------------------
Net interest income after
provision for loan losses 10,577 9,338 21,081 19,232
Other income
Syndication (note 10) 114 322 234 560
Management and finder's
fees (note 10) - 416 - 1,142
Gains on sale of
securities (note 10) - 3,578 - 5,735
Other - 20 - 20
--------------------------------------------
114 4,336 234 7,457
--------------------------------------------
Net interest and other
income 10,691 13,674 21,315 26,689
--------------------------------------------
Non-interest expense
Salaries and benefits 942 1,018 1,678 1,917
Bonuses 487 965 992 1,870
Stock-based compensation
(note 8) 268 366 540 566
Office and other 452 389 1,038 722
Legal and professional
services 258 352 980 712
Regulatory and shareholder
relations 155 150 358 421
Directors' fees 65 44 118 110
Sales tax (recovery) - (344) - 306
Other expenses
(recoveries) relating
to resource assets 11 (1) 74 15
--------------------------------------------
2,638 2,939 5,778 6,639
--------------------------------------------
Income before income taxes 8,053 10,735 15,537 20,050
Provision for income taxes
(note 9) 527 3,369 912 5,295
--------------------------------------------
Net income for the period $ 7,526 $ 7,366 $ 14,625 $ 14,755
--------------------------------------------
--------------------------------------------
Earnings per share
Basic $ 0.05 $ 0.05 $ 0.10 $ 0.10
Diluted $ 0.05 $ 0.05 $ 0.10 $ 0.10
Weighted average number of
shares outstanding
Basic 146,789,711 145,118,549 146,789,711 145,037,733
Diluted 146,839,776 148,718,138 147,315,821 148,735,913
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Quest Capital Corp.
Unaudited Interim Consolidated Statements of Comprehensive Income and
Accumulated Other Comprehensive Income
For the three and six months ended June 30, 2008 and 2007
(Expressed in thousands of Canadian dollars)
--------------------------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
--------------------------------------------
2008 2007 2008 2007
--------------------------------------------
Net income for the period $ 7,526 $ 7,366 $ 14,625 $ 14,755
--------------------------------------------
Other comprehensive income
Net unrealized gains
(losses) on available-
for-sale financial assets
arising during the period - (533) - 1,429
Reclassification adjustment
for gains recorded in net
income - (597) - (567)
--------------------------------------------
Other comprehensive income
(loss) - (1,130) - 862
--------------------------------------------
Comprehensive income $ 7,526 $ 6,236 $ 14,625 $ 15,617
--------------------------------------------
--------------------------------------------
Accumulated other
comprehensive income -
beginning of period $ - $ 4,224 $ - $ -
Adoption of financial
instruments standards - - - 2,232
Other comprehensive income
(loss) for the period - (1,130) - 862
--------------------------------------------
Accumulated other
comprehensive income -
end of period $ - $ 3,094 $ - $ 3,094
--------------------------------------------
--------------------------------------------
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Quest Capital Corp.
Unaudited Interim Consolidated Statements of Cash Flows
For the three and six months ended June 30, 2008 and 2007
(Expressed in thousands of Canadian dollars)
--------------------------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
---------------------------------------------
2008 2007 2008 2007
---------------------------------------------
Cash flows from operating
activities
Net income for the period $ 7,526 $ 7,366 $ 14,625 $ 14,755
Adjustments to determine
net cash flows relating
to operating items:
Future income taxes 563 3,338 884 5,166
Stock-based compensation 268 366 540 566
Provision for loan losses 246 - 450 -
Amortization of deferred
interest and loan fees (1,281) (2,691) (2,931) (4,523)
Deferred interest and
loans fees received 1,685 1,069 4,241 1,295
Other 149 277 318 172
Activity in marketable
securities held for
trading
Purchases - (752) - (2,437)
Proceeds on sales - 2,079 - 4,989
Gains on sale of
marketable securities
and investments - (3,578) - (5,735)
Expenditures for asset
retirement obligation (35) (62) (83) (117)
Increase/(decrease) in
prepaid and other
receivables 148 (36) (5) 328
Decrease in accounts
payables and accrued
liabilities (3,069) (2,162) (3,522) (651)
Decrease in income
taxes payable (120) (212) (141) (985)
---------------------------------------------
6,080 5,002 14,376 12,823
---------------------------------------------
Cash flows from financing
activities
Proceeds from shares
issued - 275 - 704
Dividends (6,605) (3,630) (10,275) (6,529)
Financing costs - - (664) -
Change in revolving
debt facility 26,010 - 66,510 -
Change in other debt
facility - - (26,365) (22,000)
---------------------------------------------
19,405 (3,355) 29,206 (27,825)
---------------------------------------------
Cash flows from investing
activities
Activity in loans
Funded (72,043) (58,690) (149,436) (84,510)
Repayments 49,030 68,091 77,564 106,978
Other (969) 878 (2,597) 3,436
Activity in investments
Proceeds on sales - 4,574 - 5,876
Change in restricted cash (165) 103 3,745 74
Purchases of capital assets (133) (7) (235) (13)
---------------------------------------------
(24,280) 14,949 (70,959) 31,841
---------------------------------------------
Foreign exchange gain
(loss) on cash held
in a foreign subsidiary 2 (176) (6) (182)
---------------------------------------------
Increase (decrease) in
cash and cash equivalents 1,207 16,420 (27,383) 16,657
Cash and cash equivalents -
beginning of period 1,894 9,743 30,484 9,506
---------------------------------------------
Cash and cash equivalents -
end of period $ 3,101 $ 26,163 $ 3,101 $ 26,163
---------------------------------------------
---------------------------------------------
Supplemental cash flow
information (note 15)
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Quest Capital Corp.
Notes to Unaudited Interim Consolidated Financial Statements
For the three and six months ended June 30, 2008
(Expressed in thousands of Canadian dollars, except share
capital information)
1. Nature of operations
Quest Capital Corp.'s ("Quest" or the "Company") focus is to
provide mortgage financings. Throughout 2007, the Company also
provided a range of services including corporate finance,
consulting, management and administrative services through its
wholly-owned subsidiaries, Quest Management Corp. and Quest
Securities Corporation.
In December 2007, Quest reorganized its business, operations and
assets in order to qualify as a mortgage investment corporation
("MIC") for Canadian income tax purposes. A MIC is a
special-purpose corporation defined under Section 130.1 of the
Income Tax Act (Canada). A MIC does not pay corporate-level taxes
when all taxable income is distributed to shareholders as dividends
during a taxation year and within 90 days of its year end. Taxable
Canadian shareholders will have dividend payments subject to
Canadian tax as interest income. As of January 1, 2008, the Company
must continually meet the following criteria to maintain MIC
eligibility: (i) at least 50% of its assets must consist of
residentially oriented mortgages and/or cash; (ii) it must not
directly hold any foreign assets, including investments secured by
real property located outside of Canada; (iii) it must not engage
in operational activities outside of the business of lending and
investing of funds; and (iv) no person may own more than 25% of the
issued and outstanding shares.
2. Basis of presentation
The accompanying financial information does not include all
disclosures 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 interim consolidated financial statements
should be read in conjunction with the Company's 2007 audited
annual financial statements and notes.
Certain comparative figures have been reclassified to conform to
the current period's presentation and have been adjusted due to a
prior period classification error relating to cumulative
translation adjustment and other comprehensive income as reported
in the December 31, 2007 financial statements.
3. Significant accounting policies
These interim consolidated financial statements follow the same
accounting policies and methods of application as the Company's
audited annual financial statements, except as noted in Note 4
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, QC Services Inc., Viceroy Capital Corp.,
Viceroy Gold Corporation and its 75% proportionate joint venture
interest in the Castle Mountain property.
4. Changes in accounting policies
Effective January 1, 2008, the Company adopted the CICA handbook
section 1535, "Capital Disclosures", which requires an entity to
disclose its objectives, policies, and processes for managing
capital. In addition, this section requires disclosure of summary
quantitative information about what an entity manages as capital;
see note 13 to these consolidated financial statements.
Effective January 1, 2008, the Company adopted the CICA handbook
sections 3862 "Financial Instruments - Disclosures" and 3863
"Financial Instruments - Presentation". These sections replace CICA
handbook section 3861 "Financial Instruments - Disclosure and
Presentation", and enhance disclosure requirements on the nature
and extent of risks arising from financial instruments and how the
entity manages those risks; see notes 12 and 13 to these interim
consolidated financial statements. Also, refer to "risk and
uncertainties" section of the Company's Management Discussion and
Analysis ("MD&A") for the three and six months ended June 30,
2008.
5. Loans
a) Loans and Allowance for Loan Losses
Loans outstanding as at June 30, 2008:
Allowance for loan losses
Gross ------------------------------- Net
Amount Specific General Total Amount
-------------------------------------------------------------
Mortgages $ 340,648 $ - $ 426 $ 426 $ 340,222
Bridge loans 18,846 - 24 24 18,822
Accrued
interest
and deferred
loan fees (8,625) - - - (8,625)
-------------------------------------------------------------
$ 350,869 $ - $ 450 $ 450 $ 350,419
-------------------------------------------------------------
-------------------------------------------------------------
Loans outstanding as at December 31, 2007:
Allowance for loan losses
Gross ------------------------------- Net
Amount Specific General Total Amount
-------------------------------------------------------------
Mortgages $ 279,644 $ - $ - $ - $ 279,644
Bridge loans 10,549 - - - 10,549
Accrued
interest
and deferred
loan fees (12,483) - - - (12,483)
-------------------------------------------------------------
$ 277,710 $ - $ - $ - $ 277,710
-------------------------------------------------------------
-------------------------------------------------------------
Loans outstanding as at June 30, 2007:
Allowance for loan losses
Gross ------------------------------- Net
Amount Specific General Total Amount
-------------------------------------------------------------
Mortgages $ 221,345 $ - $ - $ - $ 221,345
Bridge loans 30,560 - - - 30,560
Accrued
interest
and deferred
loan fees (11,850) - - - (11,850)
-------------------------------------------------------------
$ 240,055 $ - $ - $ - $ 240,055
-------------------------------------------------------------
-------------------------------------------------------------
b) Past Due Loans that are not Impaired
Loans are classified as past due when the loan is outstanding
past the contractual maturity date. This may arise in the normal
course of business as a result of various factors including
construction or refinancing delays. These loans are not considered
impaired as interest payments are current and all other terms of
the loan agreements are in good standing.
The Company's past due loans are as follows:
Days Outstanding June 30, December 31, June 30,
Past Maturity 2008 2007 2007
-----------------------------------
1 - 30 days $ 4,173 $ - $ -
31 - 60 days - 11,436 -
Over 60 days 9,615 - -
------------------------------------
$ 13,788 $ 11,436 $ -
------------------------------------
------------------------------------
c) Impaired Loans, Specific and General Allowances
Loans are classified as impaired when interest on the loan is
over 90 days in arrears or when there is no reasonable assurance of
the collection of principal and interest. In determining the
provision for possible loan losses, management considers the length
of time the loan has been in arrears, the overall financial
strength of borrowers and the collateral value of security pledged.
Once a loan is classified as impaired, the Company does not record
any further interest until it has been repaid or the loan is
brought back into good standing.
During the period, the Company renegotiated a previously
impaired loan of $11,436 which is no longer classified as impaired
(December 31, 2007 - $nil, June 30, 2007 - $nil).
The Company's impaired loans and specific allowances are as
follows:
June 30, December 31, June 30,
2008 2007 2007
-----------------------------------
Gross amount of impaired loans $ 12,391 $ 7,500 $ 22,960
Specific allowances - - -
-----------------------------------
$ 12,391 $ 7,500 $ 22,960
-----------------------------------
-----------------------------------
At June 30, 2008, the total estimated value of collateral of
impaired loans is $20,358.
The Company has recorded specific allowances for loan losses as
follows:
June 30, June 30,
2008 2007
---------------------
Balance - beginning of period $ - $ 586
Specific allowances - -
Allowance applied - (586)
---------------------
Balance - end of period $ - $ -
---------------------
---------------------
In addition, starting in 2008, the Company commenced providing
for a general allowance for loan losses to reflect probable, but
unidentified losses in its loan portfolio. The Company has recorded
a general allowance for loan losses as follows:
June 30, June 30,
2008 2007
---------------------
Balance - beginning of
period $ - $ -
General allowance for
the period 450 -
---------------------
Balance - end of period $ 450 $ -
---------------------
---------------------
d) Loan Commitments
At June 30, 2008, the Company had entered into agreements to
advance funds of $16.1 million and had committed to future
advances, primarily construction loans, of up to $78.9 million.
These advances are subject to the completion of due diligence, no
material adverse change in the assets, business or ownership of the
borrower and other terms.
6. Restricted cash
Restricted cash comprises:
June 30, December 31, June 30,
2008 2007 2007
------------------------------------
Castle Mountain $ 1,899 $ 1,999 $ 2,279
Interest reserves on loans
(held in trust) 6,864 10,453 -
------------------------------------
Total $ 8,763 $ 12,452 $ 2,279
------------------------------------
------------------------------------
a) Castle Mountain
Pursuant to an agreement among the partners of the Castle
Mountain property, the Company is required to set aside restricted
cash of US$1,859 ($1,899) as at June 30, 2008 (December 31, 2007 -
US$2,016 or $1,999, June 30, 2007 - US$2,139 or $2,279) in a fund
to fulfill reclamation and closure obligations at the Castle
Mountain property.
b) Interest reserves on loans (held in trust)
Certain of the Company's loan agreements permit the Company to
withhold a portion of the total loan amount in trust as interest
reserves. These amounts are applied as interest payments are due.
Amounts held in trust relating to unearned interest are recorded as
restricted cash.
7. Debt payable
In January 2008, the Company entered into a revolving debt
facility syndicated among three Canadian chartered banks to a
maximum of $88,000. The facility bears interest based on prime rate
and is collateralized by the Company's loan portfolio. As at June
30, 2008, $66,510 was drawn down under the facility. The Company
amortizes financing costs associated with the revolving debt
facility over the term of the facility, being 2 years.
June 30, December 31, June 30,
2008 2007 2007
------------------------------------
Revolving debt facility drawn $ 66,510 $ - $ -
Other debt facility drawn - 26,365 -
Less: unamortized balance of
financing costs (500) - -
------------------------------------
$ 66,010 $ 26,365 $ -
------------------------------------
------------------------------------
8. Share capital
a) Authorized
Unlimited First and Second Preferred Shares
Unlimited common shares without par value
b) Shares issued and outstanding
Number of
Shares Amount
----------- ---------
Common shares
Opening and closing balance 146,789,711 $ 207,161
----------- ---------
----------- ---------
c) 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 six months ended June 30, 2008, the change in stock
options outstanding was as follows:
Weighted
Number of average
shares exercise price
-------------- --------------
Common shares
Opening balance 10,553,000 $ 2.28
Granted 2,455,000 2.37
Exercised - -
Expired or cancelled (314,063) 3.06
-------------- --------------
Closing balance 12,693,937 $ 2.28
-------------- --------------
-------------- --------------
Options exercisable 9,477,589 $ 2.17
-------------- --------------
-------------- --------------
The following table summarizes information about stock options
outstanding and exercisable at June 30, 2008:
Options outstanding Options exercisable
--------------------------------------------------- ---------------------
Weighted
average
remaining Weighted Weighted
contractual average average
Range of Options life exercise Options exercise
exercise prices outstanding (years) price exercisable price
$1.51 223,000 1.14 $ 1.51 223,000 $ 1.51
$1.52 to $1.95 6,150,000 0.64 1.95 6,150,000 1.95
$1.96 to $2.31 2,355,000 3.73 2.17 1,212,391 2.28
$2.32 to $3.24 3,965,937 3.85 2.89 1,892,198 2.91
---------------------------------------------------------
12,693,937 2.22 $ 2.28 9,477,589 $ 2.17
---------------------------------------------------------
---------------------------------------------------------
d) Contributed surplus
Opening balance - at January 1, 2008 $ 6,934
Stock-based compensation 540
Fair value of stock options exercised -
--------------
Ending balance - at June 30, 2008 $ 7,474
--------------
--------------
The fair values of options granted during the six months ended
June 30, 2008 have been estimated using an option pricing model.
Assumptions used in the pricing model are as follows:
Risk-free interest rate 2.86%
Expected life of options 3.0 years
Expected stock price volatility 35%
Expected dividend yield 10%
Weighted average fair value of options $ 0.32
9. Income taxes
The Company has tax losses and other deductions in certain of
its entities which are available 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 provision for income taxes consists of the following:
Three Months Six Months
Ended June 30 Ended June 30
----------------------------------------
2008 2007 2008 2007
----------------------------------------
Current tax expense (recovery)
Canada $ (26) $ 31 $ 23 $ 129
United States (10) - 5 -
----------------------------------------
Total current tax expense
(recovery) (36) 31 28 129
----------------------------------------
Future tax expense (recovery)
Canada 570 3,338 934 5,166
United States (7) - (50) -
----------------------------------------
Total future tax expense 563 3,338 884 5,166
----------------------------------------
Total provision for income taxes $ 527 $ 3,369 $ 912 $ 5,295
----------------------------------------
----------------------------------------
10. Related party transactions
a) Included in accounts payable as at June 30, 2008 is $1,951
due to employees and officers for bonuses payable (December 31,
2007 - $4,620, June 30, 2007 - $2,375).
b) For the six months ended June 30, 2008, the Company paid $89
for administration services to a party related by virtue of having
certain directors and officers in common. The Company was also
reimbursed $20 in office and premises costs by the same related
party.
c) Included in the loan portfolio as at June 30, 2008 is a
$10,000 bridge loan (December 31, 2007 - $nil, June 30, 2007 -
$nil) which is serviced at market rates by a party related by
having certain directors and officers in common.
d) For the six months ended June 30, 2008, the Company received
$13 (June 30, 2007 - $40) in syndication loan administration fees
from parties related by virtue of having certain directors and
officers in common.
e) For the six months ended June 30, 2008, the Company recorded
a gain on disposal of securities and investments of $nil (June 30,
2007 - $2,156) in companies related by virtue of having certain
directors and officers in common. These transactions were recorded
at the exchange amount which management believes to be a fair
approximation of fair value.
f) For the six months ended June 30, 2008, the Company received
$nil (June 30, 2007 - $348) in management and finder's fees from
parties related by virtue of having certain directors and officers
in common.
g) Included in accounts payable as at June 30, 2008 is $40
(December 31, 2007 - $41 June 30, 2007 - $25) in co-lender interest
payable to related parties.
11. Contingencies and commitments
a) Surety bond guarantees totalling US$2,405 have been provided
by Castle Mountain Joint Venture for compliance with reclamation
and other environmental agreements.
b) The Company has entered into operating leases for office
premises. Minimum annual lease payments required are approximately
as follows:
2008 (remaining six months) $ 313
2009 625
2010 548
2011 395
2012 395
c) Other commitments and contingencies are disclosed elsewhere
in these interim consolidated financial statements and notes.
12. Interest rate sensitivity
The Company's exposure to interest rate changes results from the
difference between assets and liabilities and their respective
maturities or interest rate repricing dates. Based on current
differences as at June 30, 2008, the Company estimates that an
immediate and sustained 100 basis point increase in interest rates
would decrease net interest income over the next 12 months by $338.
An immediate and sustained 100 basis point decrease in interest
rates would increase net interest income over the next 12 months by
$405.
The carrying amounts of assets and liabilities in the following
table are presented in the periods in which they next reprice to
market rates or mature based on the earlier of contractual
repricing and maturity dates, as at June 30, 2008:
Non-
Interest
Floating 0 to 6 6 to 12 1 to 3 Over Sensi-
Rate Months Months Years 3 Years tive Total
---------------------------------------------------------------------------
Total
assets $ 44,990 $173,451 $ 53,732 $ 82,592 $ - $ 11,774 $ 366,539
Total
liabil-
ities
and
equity 66,510 - - - - 300,029 $ 366,539
---------------------------------------------------------------------------
Differ-
ence $(21,520) $173,451 $ 53,732 $ 82,592 - $(288,255) $ -
---------------------------------------------------------------------------
Cumula-
tive
differ-
ence $(21,520) $151,931 $205,663 $288,255 $ 288,255 $ - $ -
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Cumula-
tive
differ-
ence
as a
percen-
tage
of total
assets (5.9%) 41.4% 56.1% 78.6% 78.6% - -
---------------------------------------------------------------------------
---------------------------------------------------------------------------
13. Risk management
The primary goals of the Company's risk management are to ensure
that the outcomes of activities involving elements of risk are
consistent with the Company's objectives and risk tolerance, and to
maintain an appropriate risk/reward balance while protecting the
Company's financial operations from events that have the potential
to materially impair its financial strength. Balancing risk and
reward is achieved through aligning risk tolerance with the
Company's business strategy, diversifying risk, pricing
appropriately for risk, mitigating risk through preventative
controls and transferring risk to third parties.
Capital Management
The Company's capital management objectives are to maintain a
strong and efficient capital structure to provide liquidity to
support lending operations. A strong capital position also provides
flexibility in considering accretive growth opportunities. As at
June 30, 2008, the Company was in compliance with its revolving
debt facility covenants.
Management considers the Company's capital to be comprised of
debt payable of $66,010 at June 30, 2008 and all components of
shareholders' equity which amount to $295,524 as at June 30,
2008.
The Company's dividend policy is to distribute sufficient
dividends to shareholders throughout 2008 and within 90 days after
the end of 2008 to reduce its taxable income to a negligible
amount, after first deducting all available loss carry-forwards and
other deductions against 2008 taxable income.
Financial Instruments
Effective January 1, 2008, the Company adopted the CICA handbook
section 3862, "Financial Instruments - Disclosures". As permitted
by the standard, the disclosures required under this section can be
found in the Company's MD&A section "risks and uncertainties".
The following table provides a cross referencing of those
disclosures from the MD&A:
---------------------------------------------------------------------------
Description Section
---------------------------------------------------------------------------
For each type of risk arising from financial Risk management
instruments, an entity shall disclose: the ----------------------
exposure to risk and how they arise; objectives, Credit risk management
policies and processes used for managing the ----------------------
risks; methods used to measure the risk; and Liquidity risk
description of collateral ----------------------
Market risk
----------------------
Interest rate risk
---------------------------------------------------------------------------
Credit risk - gross exposure to credit risk, Credit risk management
credit quality and concentration of exposures
---------------------------------------------------------------------------
Market risk - value-at-risk, interest rate risk Market risk
and equity risk ----------------------
Interest rate risk
---------------------------------------------------------------------------
Liquidity risk - liquid assets, maturity of Liquidity risk
financial liabilities and credit and liquidity
commitments
---------------------------------------------------------------------------
14. Segmented information
The Company has primarily one operating segment, which is to
provide mortgage financings. The Company's geographic location is
Canada.
15. Supplemental cash flow information
a) Cash received or paid
Three Months Six Months
Ended June 30 Ended June 30
---------------------------------------
2008 2007 2008 2007
---------------------------------------
Interest received (non-loan) $ 88 $ 172 $ 342 $ 270
Interest paid 601 3 920 226
Income tax instalments - 850 67 870
b) Non-cash financing and investing activities
Three Months Six Months
Ended June 30 Ended June 30
---------------------------------------
2008 2007 2008 2007
---------------------------------------
Marketable securities and
investments received as loan fees $ - $ 1,554 $ - $ 2,171
16. Future accounting changes
The CICA plans to converge Canadian GAAP for public companies
with International Financial Reporting Standards ("IFRS") over a
transition period effective for fiscal periods ending on or after
January 1, 2011. Management is currently preparing a plan to adopt
IFRS, however, the impact of IFRS convergence of financial
reporting standards on the Company's consolidated financial
statements is not yet determinable.
QUEST CAPITAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE SECOND QUARTER ENDED JUNE 30, 2008
INTRODUCTION
The following information, prepared as of August 8, 2008, should
be read in conjunction with the unaudited interim consolidated
financial statements of Quest Capital Corp. ("Quest" or the
"Company") as at June 30, 2008 and for the three and six months
ended June 30, 2008 and 2007 and its audited annual consolidated
financial statements as at December 31, 2007 and 2006 and for the
years ended December 31, 2007, 2006 and 2005, and the related notes
attached thereto, which are prepared in accordance with Canadian
generally accepted accounting principles ("GAAP"). All amounts are
expressed in Canadian dollars unless otherwise indicated.
Additional information relating to the Company, including the
Company's 2007 Annual Information Form, is available on SEDAR at
www.sedar.com.
BUSINESS PROFILE AND STRATEGY
Quest's primary business focus is mortgage lending on the
security of Canadian real estate. The Company's primary lending
activity is to provide first mortgages concentrating on
residentially oriented real estate. In general, a loan is
residentially oriented, if, at the time the loan is made, the real
estate on which the loan is secured is, or is intended to be,
devoted to residential purposes. This includes financing the
development or acquisition of single family, apartment,
condominium, social housing and nursing/retirement residences. A
secondary lending activity is to provide mortgages secured by
commercial or industrial properties. The Company also participates
in bridge lending to Canadian companies secured by resource assets
located in Canada.
As a mortgage investment corporation ("MIC"), Quest can decrease
its taxable income through the payment of dividends to its
shareholders and to this end, Quest's goal is to enhance
shareholder value by increasing dividend distributions to its
shareholders and in the process reduce its corporate taxes. It is
the Company's intention to further enhance shareholder
distributions by increasing profitability through the use of
leverage to grow its mortgage portfolio.
The growth of its mortgage portfolio will be carried out
prudently and profitably through the use of increased leverage as
opposed to any increase in its equity. In January 2008, the Company
arranged bank lines totaling $88 million for this purpose. In June
2008, Quest began the process of applying for a deposit taking
license from the Office of the Superintendent of Financial
Institutions (Canada) in order to access alternate sources of
funding. If successful, Quest would envision accepting customer
term deposits (through brokers and agents) towards the end of 2009.
Under MIC rules, the Company will be able to carry up to five times
its equity in debt, including term deposits, thereby allowing the
Company to increase the loan portfolio proportionately.
NON-GAAP MEASURES
Basic earnings per share ("EPS") before taxes, return on equity
before taxes, return on assets before taxes and payout ratio on
earnings before taxes do not have standardized meanings prescribed
by GAAP and, therefore, may not be comparable to similar measures
presented by other companies. The fact that tax expense is for the
most part a non-cash item to the Company is the major reason the
Company calculates and highlights various ratios on a before tax
basis. Non-GAAP measures used in this management's discussion and
analysis ("MD&A") are calculated as follows:
- basic earnings per share before taxes - earnings before taxes
divided by number of common shares outstanding for basic EPS
purposes;
- return on equity before taxes - earnings before taxes divided
by average shareholders' equity;
- return on assets before taxes - earnings before taxes divided
by average total assets; and
- payout ratio on earnings before taxes - dividends paid per
share divided by basic earnings per share before taxes.
Readers are cautioned not to view non-GAAP measures as
alternatives to financial measures calculated in accordance with
GAAP.
FINANCIAL PERFORMANCE
Table 1 - Selected Financial Information
($ thousands, except per share amounts)
Three months ended Six months ended
------------------ ------------------
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
------------------ ------------------
Key Performance Indicators
Interest income 11,549 9,356 22,680 19,480
Other income 114 4,336 234 7,457
Net interest and other income 10,691 13,674 21,315 26,689
Earnings before income taxes 8,053 10,735 15,537 20,050
Earnings per share before taxes(1) 0.05 0.07 0.11 0.14
Net earnings for the period 7,526 7,366 14,625 14,755
Earnings per share - basic 0.05 0.05 0.10 0.10
Earnings per share - diluted 0.05 0.05 0.10 0.10
Return on equity before taxes(1)(2) 11% 15% 11% 14%
Return on equity(1)(2) 10% 10% 10% 10%
Return on assets before taxes(1)(2) 9% 15% 9% 13%
Return on assets(1)(2) 8% 10% 8% 10%
Dividends paid per share 0.045 0.025 0.070 0.045
Payout ratio on earnings
before taxes(1) 82% 34% 66% 33%
Loans 350,419 240,055
Total assets 366,539 295,798
Shareholders' equity 295,524 288,311
Book value per share 2.01 1.99
1. See non-GAAP measures disclosed in this MD&A.
2. Annualized basis.
QUARTERLY DIVIDEND DECLARED
The Board declared a quarterly dividend of $0.045 per share at
its meeting held August 7, 2008 payable September 30, 2008 to
shareholders of record on September 15, 2008. As a MIC, Quest may
deduct dividends paid to shareholders in the computation of its
taxable income. During the course of this year, the Company has
paid dividends of $0.045 and $0.025 per share in June and March,
respectively and expects to pay sufficient dividends during the
remainder of 2008 and within 90 days of the end of 2008 to reduce
its taxable income to a negligible amount after first deducting any
tax losses and other deductions carried forward.
OUTLOOK
As the credit market turmoil continues, Quest has seen an
increasing number of new lending opportunities, as well as an
increase in the quality of borrowers. Quest expects this to
continue throughout 2008.
The Company monitors very closely the credit quality of its
loans and continues to focus on the loan to value and the location
of its collateral. Despite the credit market turmoil being negative
for the broad industry, the Company's circumstances continue to
remain strong. As of June 30, 2008, the Company has three impaired
loans totaling $12 million. Quest's management expects to recover
the full amount of its investment as the underlying security is
estimated to be $20 million.
Quest has been successful in penetrating the Saskatchewan
lending market and has also commenced lending in selected areas in
the Ontario market through its new originator located in the
Toronto office. The Company expects to be able to increase its loan
portfolio in these regions throughout the remainder of the
year.
RESULTS OF OPERATIONS
Table 2 - Condensed Income Statement
($ thousands)
For the For the For the For the
three months three months six months six months
ended ended ended ended
June 30, 2008 June 30, 2007 June 30, 2008 June 30, 2007
------------- ------------- ------------- -------------
Net interest,
other income
and provision
for loan losses
Interest income 11,549 108% 9,356 68% 22,680 106% 19,480 73%
Other income 114 1% 4,336 32% 234 1% 7,457 28%
Interest on debt (726) (7)% (18) 0% (1,149) (5%) (248) (1%)
Provision for
loan losses (246) (2)% - 0% (450) (2%) - 0%
------------- ------------- ------------- -------------
10,691 100% 13,674 100% 21,315 100% 26,689 100%
------------- ------------- ------------- -------------
Expenses
Salaries 942 36% 1,018 35% 1,678 29% 1,917 29%
Bonuses 487 18% 965 33% 992 17% 1,870 28%
Stock-based
compensation 268 10% 366 12% 540 9% 566 9%
Legal and
professional
services 258 10% 352 12% 980 17% 712 11%
Other 683 26% 238 8% 1,588 28% 1,574 23%
------------- ------------- ------------- -------------
2,638 100% 2,939 100% 5,778 100% 6,639 100%
------------- ------------- ------------- -------------
Net income before
income taxes 8,053 10,735 15,537 20,050
Income taxes 527 3,369 912 5,295
------ ------- ------- -------
Net income for
the period 7,526 7,366 14,625 14,755
------ ------- ------- -------
------ ------- ------- -------
The three months ended June 30, 2008 is Quest's second quarter
operating as a MIC. There are some fundamental differences in
operations between this year's and last year's second quarter. The
Company is no longer providing corporate finance, management and
investment services and accordingly, there are no revenues or
expenses for such activities in second quarter 2008 results. Also,
while still eligible under MIC rules when lending on Canadian
assets, only one bridge loan was funded during the second quarter
of 2008. These factors have led to a decrease in net income before
taxes, however, by utilizing the special taxation rules for MICs,
income tax expense has decreased and the Company's second quarter
2008 net income is $0.2 million or 2% greater than net income in
the second quarter of 2007. On a sequential basis, net income is
$0.4 million or 6% greater than that of the first quarter of
2008.
Interest income
Interest income includes loan interest at the stated loan rate
excluding interest that has not been accrued on impaired loans plus
loan commitment fees net of originators' fee expense. Interest is
calculated using the effective interest rate method.
Interest income increased $2.2 million or 23% to $11.5 million
for three months ended June 30, 2008 as compared to $9.4 million
during the comparative period in 2007. This increase was largely
due to greater average loan balances in 2008 as compared to 2007.
Measured on a quarterly basis, the average outstanding loan
portfolio was $339 million during the second quarter of 2008, a $94
million or 38% increase over the $245 million average balance
outstanding during the second quarter of 2007. Based on these
average outstanding portfolio balances, interest yields were 13.6%
in the second quarter of 2008 compared to 15.3% in the comparative
period in 2007. The decrease in yield during 2008 as compared to
2007 reflects the decrease in bridge loan activity as compared to
the comparative period in 2007.
Other income
The Company divested itself of its management, corporate finance
and investment operations during 2007 as previously disclosed. As
well, only one bridge loan was funded during the second quarter of
2008. Consequently, the only other income reported during the three
months ended June 30, 2008 relates to the service fees generated
from syndicated loans. During the three months ended June 30, 2008,
the Company reported $0.1 million in servicing fees as compared to
$0.3 million in the comparative period in 2007. Syndicated loan
servicing fees have decreased due to the Company choosing to fund
loans with its revolving line of credit instead of increasing
syndications. During the second quarter of 2007, the Company
recorded $3.6 million in gains on sale of marketable securities and
investments and management and finder's fees.
Interest expense and provision for loan losses
Interest expense relates to interest on Quest's revolving debt
facility in 2008 and other debt facility in 2007 used to assist in
funding its mortgage portfolio. This expense has grown with
increased utilization of the facility. Commencing in 2008, the
Company established a general allowance for loan losses to be
consistent with industry practice. During the three months ended
June 30, 2008, the Company has taken a charge for a general
allowance for loan losses of $0.2 million as compared to $nil in
the comparative period in 2007. As at June 30, 2008, the Company's
general allowance for loan losses is $0.5 million. There has been
no specific loan loss provisions recorded in 2008 or during the
comparative period in 2007.
Salaries and bonuses
Salaries and benefits decreased $0.1 million or 7% during the
three months ended June 30, 2008 as compared to the comparative
period in 2007. As at June 30, 2008, the Company had 22 employees
involved in lending operations as compared to 15 employees as at
June 30, 2008. At June 30, 2007, the Company also had 10 employees
engaged in management and corporate finance operations.
Bonuses for the quarter ended June 30, 2008 were $0.5 million, a
decrease of $0.5 million or 50% from $1.0 million in the
comparative period in 2007, primarily due to a decrease in bonuses
paid to employees in corporate finance operations. Bonuses
represent amounts under the Company's incentive plans paid to
officers and employees of the Company. The Company's incentive
plans include discretionary and non-discretionary components.
Discretionary payments and allocations are subject to the approval
of the Compensation Committee and the Board of Directors.
Non-discretionary amounts relate to the originators' fees which
have been netted against commitment fee income and included as a
component of interest income.
Stock-based compensation
Stock-based compensation decreased $0.1 million or 27% to $0.3
million in the second quarter of 2008 as compared to $0.4 million
in the comparative period in 2007. The expense related to options
is recorded on a straight line basis over the expected vesting term
of the option (usually three years), therefore the current expense
relates to options vesting over a three year period.
Legal and professional fees
Legal and professional fees decreased $0.1 million or 27% to
$0.3 million during the three months ended June 30, 2008 as
compared to $0.4 million in the comparative period in 2007.
Approximately $0.1 million of these legal and professional fees are
non-recurring expenses related to special advisory work carried
over from 2007.
Other expenses
Other expenses include general and office expenses, directors'
remuneration, regulatory and other miscellaneous expenses. These
expenses have increased $0.4 million or 187% to $0.7 million during
the quarter ended June 30, 2008 as compared to $0.2 million in the
comparative period in 2007 which included a recovery of $0.3 for
sales taxes.
Provision for income taxes
The Company has recognized a future tax asset based on the
likely utilization of tax losses and other deductions which may be
used to reduce future taxable income. During the three months ended
June 30, 2007, net income was reduced through the recording of a
tax provision as a result of the utilization of future tax assets
previously set up. In the current period, tax expense has also been
recorded based on the utilization of this tax asset, however, the
Company's ability to deduct dividend payments in the calculation of
taxable income has resulted in a much reduced tax provision. During
the quarter, the Company utilized $0.7 million of tax losses. There
is approximately a further $1.7 million of losses carried forward
available to be utilized during the remainder of 2008.
Net income
For the quarter ended June 30, 2008, the Company had
consolidated net income of $7.5 million (or $0.05 basic EPS)
compared to consolidated net income of $7.4 million (or $0.05 basic
EPS) during the comparative period in 2007 an increase of $0.2
million or 2%. On a year to date basis, net income has decreased
$0.1 million or 1%.
Comprehensive income
The Company did not have any available for sale assets or
liabilities whose fair values differ from their original carrying
value during 2008. As a result, there is no other comprehensive
income to report during the period ended June 30, 2008. Other
comprehensive loss for the three months ended June 30, 2007 was
$1.1 million and included $0.5 million of unrealized losses on
available-for-sale financial assets.
FINANCIAL POSITION
Table 3 - Asset Components
($ thousands)
June 30, December 31, June 30,
2008 2007 2007
--------------- --------------- ---------------
Asset mix
Cash and cash
equivalents 3,101 1% 30,484 9% 26,163 9%
Loans 350,419 96% 277,710 85% 240,055 81%
Future tax asset 2,981 1% 3,916 1% 9,000 3%
Other 10,038 2% 13,634 5% 20,580 7%
--------------- --------------- ---------------
366,539 100% 325,744 100% 295,798 100%
--------------- --------------- ---------------
--------------- --------------- ---------------
Cash
The Company's cash resources at June 30, 2008 were $3.1 million
as compared to $30.5 million as at December 31, 2007 and $26.1
million at June 30, 2007. Cash and cash equivalents include cash
balances with a major Canadian chartered bank, and do not include
any investments in commercial paper. The Company attempts to keep
its cash balances to a minimum during periods when it has drawn on
its revolving debt facility.
Loans
The Company's loan portfolio continued to grow during the second
quarter of 2008 to $350.4 million representing a 26% increase over
the portfolio balance as at December 31, 2007 and a 46% increase
over that at June 30, 2007. As at June 30, 2008, 95% of the
Company's loan portfolio was comprised of mortgages on real estate,
compared to 96% at December 31, 2007 and 88% at June 30, 2007. As
at June 30, 2008, Quest's loan portfolio consisted of 63 loans of
which 57 were mortgages secured by real estate and 6 were bridge
loans secured by various mining and energy related assets. The
following table illustrates the composition of the Company's loan
portfolio:
Table 4 - Loan Portfolio
($ thousands)
June 30, December 31, June 30,
2008 2007 2007
--------------- --------------- ---------------
Principal Outstanding
Mortgages
Land under development 148,841 41% 151,607 52% 120,659 48%
Real estate - residential 39,923 11% 22,752 8% 49,957 20%
Real estate - commercial 68,359 19% 51,123 18% 48,589 19%
Construction 83,525 24% 54,162 18% 2,140 1%
--------------- --------------- ---------------
Total mortgages 340,648 95% 279,644 96% 221,345 88%
Bridge loans 18,846 5% 10,549 4% 30,560 12%
--------------- --------------- ---------------
Total principal
outstanding 359,494 100% 290,193 100% 251,905 100%
------ ------ ------
------ ------ ------
Prepaid and accrued
interest, net (4,630) (8,877) (8,222)
Deferred loan fees
and other, net (3,995) (3,606) (3,628)
General allowance for
loan losses (450) 0 0
-------- -------- --------
As recorded on the
balance sheet 350,419 277,710 240,055
-------- -------- --------
-------- -------- --------
The Company funded $72 million in loans during the three months
ended June 30, 2008, an increase of $13 million or 22% over the
loans funded of $59 million in the comparative period in 2007. For
the six months ended June 30, 2008, the Company's funded $149
million in loans, representing an increase of $64 million or 75%
over that funded during the six months ended June 30, 2007. The
Company syndicated $5.7 million in loans during the quarter ended
June 30, 2008 compared to $4.3 million loans syndicated during the
same period in 2007. The Company will syndicate a loan, in certain
instances, if it does not have sufficient cash resources to fund
the entire loan itself or if it wishes to reduce its exposure to a
borrower.
The following table illustrates the flow in the loan portfolio
during 2007 and 2008. The Company collects commitment fees each
time a loan is funded or renewed. Hence the shorter the loan term,
the greater the capacity to fund new loans and earn commitment
fees.
Table 5 - Loan Principal Continuity
($ thousands)
For the For the
three months ended six months ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
---------- ---------------------- ----------
Principal balance,
beginning of period 335,445 261,307 290,193 279,426
Loans funded 72,043 58,690 149,436 84,510
Loans repaid and other (47,994) (68,092) (80,135) (112,031)
---------- ---------- ---------- ----------
Principal balance,
end of period 359,494 251,905 359,494 251,905
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
As at June 30, 2008, the portfolio was comprised of 93% first
mortgages and 7% second mortgages. The amount of the Company's
loans, secured by first or second mortgages, generally do not
exceed 75% of the collateral value. The following table outlines
Quest's continuing concentration on first mortgages:
Table 6 - Priority of Mortgage Security Charges(1)
($ thousands)
June 30, December 31, June 30,
2008 2007 2007
--------------- --------------- ---------------
Principal secured by:
First mortgages 315,217 93% 259,344 93% 185,930 84%
Second mortgages 25,431 7% 20,300 7% 35,415 16%
--------------- --------------- ---------------
Total mortgages 340,648 100% 279,644 100% 221,345 100%
--------------- --------------- ---------------
--------------- --------------- ---------------
1. Includes mortgage portion of loan portfolio only.
As at June 30, 2008, the mortgage portfolio is concentrated in
western Canada, with loans in British Columbia representing 47% of
the portfolio, the Prairies 46% and Ontario 7%.
The following table indicates the geographical composition of
the Company's mortgages at the stated period ends.
Table 7 - Geographic Location of Mortgages(1)
($ thousands)
June 30, December 31, June 30,
2008 2007 2007
--------------- --------------- ---------------
Principal outstanding:
British Columbia 161,388 47% 160,986 58% 112,886 51%
Prairies 157,878 46% 94,440 34% 81,898 37%
Ontario 21,382 7% 17,500 6% 22,135 10%
Other - 0% 6,718 2% 4,426 2%
--------------- --------------- ---------------
Total mortgages 340,648 100% 279,644 100% 221,345 100%
--------------- --------------- ---------------
--------------- --------------- ---------------
1. Includes mortgage portion of loan portfolio only.
Management reviews the geographical composition of the loan
portfolio on a regular basis and adjusts lending policies to
reflect market conditions.
Credit quality and impaired loans
As part of the Company's security, corporate and/or personal
guarantees are generally required from the borrower. Where in
Quest's opinion the real estate security alone is not as strong as
management may require, additional collateral is obtained by way of
collateral charges on other real estate and assets owned by the
borrower or by letters of credit. Management reviews the portfolio
on a regular basis to confirm whether the quality of the underlying
security is maintained and if credit conditions have deteriorated,
suitable action is taken.
As at June 30, 2008, the Company had three impaired loans in the
amount of $12.4 million (June 30, 2007 - $23.0 million) on which
remedial action has been undertaken. In management's opinion, the
underlying security on these loans is of sufficient value to cover
the Company's investment.
The Company has commenced providing for a general allowance for
loan losses in 2008. This general allowance represents a provision
for unknown or unidentified, but probable, credit losses in the
portfolio.
Quest has no exposure to US sub-prime mortgages or to any
structured investment vehicles. Quest also has no derivative
instruments.
Future income taxes and other assets
Tax assets are comprised of losses carried forward and other tax
deductions (see Critical Accounting Policies and Estimates). The
set up and utilization of future tax assets are non-cash items. The
Company has recognized a future tax asset based on the likely
realization of tax losses to be utilized against future taxable
income. In 2008 to date, $0.9 million of previously recognized
future tax assets were utilized and charged to expense in the
income statement compared to $5.2 million in 2007. The Company has
also recognized a future tax liability related to its former U.S.
based operations.
Other assets at June 30, 2008 include $8.8 million of restricted
cash, of which $6.9 million was held in trust to fund borrower's
future interest payments.
Liabilities
Total liabilities at June 30, 2008 were $71 million as compared
to $35.1 million, as at December 31, 2007 representing a 100%
increase. The largest component of total liabilities is the
Company's revolving debt facility. As at June 30, 2008, $66.5
million had been drawn on the Company's $88.0 million facility, as
compared to $nil as at June 30, 2007. Debt facilities are used to
fund loans, as well as to bridge any gap between loan advances and
loan repayments.
Capital management
Shareholders' equity as at June 30, 2008 of $295.5 million is
$4.9 million or 2% greater than that as at December 31, 2007 and is
$7.2 million or 3% greater than that as at June 30, 2007. During
2008, the Company has paid out $10.3 million in dividends,
approximately 70% of its earnings before taxes. As discussed above,
as a MIC, the Company intends to pay out sufficient dividends in
2008 and within 90 days after the end of 2008 to reduce taxable
income to a negligible amount, after first deducting available
losses and other tax deductions carried forward. The Company's
current strategy is to grow through use of leverage and not through
further accumulation of earnings or the issue of equity.
Contractual obligations
The Company has contractual obligations for its leased office
space in Vancouver and Toronto. The Company's Calgary office is
leased on a month to month basis. The total minimum lease payments
for the years 2008 - 2012 are $2.3 million. As well, the Company
has committed to fund loan principal as at June 30, 2008 in the
amount of $95 million (see note 5(d) to the interim consolidated
financial statements). The following table illustrates these
obligations by period due:
Table 8 - Contractual obligations
($ thousands) Obligations due by period
-------------------------------------------
More
Less than 1 - 3 3 - 5 than 5
Type of Contractual Obligation Total 1 Year Years Years Years
---------------------------------------------------------------------------
Office Leases 2,276 313 1,173 790 -
Loan Commitments 95,000 95,000 - - -
---------------------------------------------------------------------------
Total 97,276 95,313 1,173 790 -
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---------------------------------------------------------------------------
OFF BALANCE SHEET ARRANGEMENTS
The Company has no off balance sheet arrangements.
SUMMARY OF QUARTERLY RESULTS
Table 9 - Summary Of Quarterly Results
($ thousands, except per share amounts)
Second First Fourth Third Second First Fourth Third
Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
2008 2008 2007 2007 2007 2007 2006 2006
---------------------------------------------------------------
Interest
income 11,549 11,131 11,133 9,497 9,356 10,124 10,284 8,292
Other income 114 120 2,360 2,165 4,336 3,205 1,425 3,518
Income before
taxes 8,053 7,484 8,156 7,782 10,735 9,315 7,918 9,087
Net Income 7,526 7,099 3,648 5,264 7,366 7,389 16,021 8,770
Basic
Earnings
Per Share 0.05 0.05 0.02 0.04 0.05 0.05 0.12 0.06
Total
Assets 366,539 342,491 325,744 304,294 295,798 295,330 305,737 280,784
Total
Liabil-
ities 71,015 48,156 35,110 13,125 7,487 10,267 31,608 25,036
---------------------------------------------------------------------------
---------------------------------------------------------------------------
As disclosed previously, the Company divested itself of its
management, corporate finance and investment operations during
2007. Consequently, there are no revenues or expenses for such
services for the three months ended June 30, 2008. Historically,
other income from these operations varied by quarter depending on
the amount of management, advisory, and finder's fees received and
gains on sale of marketable securities and investments. During the
fourth quarter of 2006, net earnings were positively impacted by
the recognition of a future tax asset of $7.7 million, as a result
of the likely realization of unused tax losses from future
earnings.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's accounting policies are described in Note 3 of its
audited consolidated financial statements as at December 31, 2007
and 2006 and for the years ended December 31, 2007, 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 a general allowance for loan losses,
and, where required, specific allowances 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. This 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 the loan portfolio on at
least a quarterly basis and specific provisions are established
where required on a loan-by-loan basis. In determining the
provision for possible loan losses, the Company considers the
following:
- the nature and quality of collateral and, if applicable, any
guarantee;
- secondary market value of the loan and the related
collateral;
- the overall financial strength of the borrower;
- the length of time that the loan has been in arrears; and
- the borrower's plan, if any, with respect to restructuring the
loan.
Commencing in 2008, the Company is establishing a general
allowance for loan losses in order to be consistent with industry
practice.
Future Tax Assets and Liabilities
The Company has recognized a future tax asset based on the
likely realization of tax losses 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 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.
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
Effective January 1, 2008, the Company adopted the CICA handbook
section 1535, "Capital Disclosures", which requires an entity to
disclose its objectives, policies, and processes for managing
capital. In addition, this section requires disclosure of summary
quantitative information about what an entity manages as capital;
see note 13 to the interim consolidated financial statements for
the three and six months ended June 30, 2008.
Effective January 1, 2008, the Company has adopted the CICA
handbook sections 3862 "Financial Instruments - Disclosures" and
3863 "Financial Instruments - Presentation". These sections replace
CICA handbook section 3861 "Financial Instruments - Disclosure and
Presentation", and enhance disclosure requirements on the nature
and extent of risks arising from financial instruments and how the
entity manages those risks; see notes 12 and 13 to the interim
consolidated financial statements for the three and six months
ended June 30, 2008 and 2007. Also, refer to "risk and
uncertainties" section of this MD&A.
TRANSACTIONS WITH RELATED PARTIES
The Company's related party transactions are described in Note
10 of its interim consolidated financial statements as at June 30,
2008 and for the three and six months ended June 30, 2008 and 2007.
Historically, certain directors or officers of Quest joined the
boards of companies in which Quest had invested or to which Quest
had provided bridge loan financing to ensure Quest's interests were
represented. This strategy resulted in a number of related party
transactions.
DISCLOSURE OF OUTSTANDING SHARE DATA
As at August 7, 2008, the Company had the following common
shares and stock options outstanding:
Common shares 146,789,711
Stock options 12,693,937
RISKS AND UNCERTAINTIES
Additional risk factors are disclosed under "Risk Factors" in
the 2007 Annual Information Form filed on SEDAR at
www.sedar.com.
Risk Management
The success of Quest is dependent upon its ability to assess and
manage all forms of risk that affect its operations. Like other
financial institutions, Quest is exposed to many factors that could
adversely affect its business, financial conditions or operating
results. Developing policies and procedures to identify risk and
the implementation of appropriate risk management policies and
procedures is the responsibility of senior management and the Board
of Directors. The Board directly, or through its committees,
reviews and approves these policies and procedures, and monitors
their compliance with them through ongoing reporting requirements.
A description of the Company's most prominent risks follows.
Credit Risk Management
Credit risk is the risk that a borrower will not honour its
commitments and a loss to the Company may result. Senior management
is committed to several processes to ensure that this risk is
appropriately mitigated. These include:
- the employment of qualified and experienced loan originators
and underwriters;
- the investigation of the creditworthiness of all
borrowers;
- the engagement of qualified independent consultants such as
lawyers, quantity surveyors, real estate appraisers and insurance
consultants dedicated to protecting the Company's interests;
- the segregation of duties to ensure that qualified staff are
satisfied with all due diligence requirements prior to funding;
and
- the prompt initiation of recovery procedures on overdue
loans.
The Board of Directors has the responsibility of ensuring that
credit risk management is adequate. The Board has delegated much of
this responsibility to its Credit Committee, which is comprised of
three independent directors. They are provided monthly with a
detailed portfolio analysis including a report on all overdue and
impaired loans, and meet on a quarterly basis, to review and assess
the risk profile of the loan portfolio. The Credit Committee is
required to approve all loan applications between $15 million and
$25 million, and any loan application for amounts greater than $25
million must be approved by the Board. The Board has delegated
approval authority for all loans less than $15 million to an
approval committee comprised of senior management. In addition, the
Company does not allow any one loan to exceed 10% of the Company's
equity and restricts lending to any one borrower to 20% or less of
the Company's equity. As at June 30, 2008, the largest loan in the
Company's loan portfolio was $27 million (8% of the Company's loan
portfolio); this was also the largest aggregate amount owing by any
one borrower. Also, the Company will syndicate loans in certain
circumstances if it wishes to reduce its exposure to a borrower.
The Company reviews its policies regarding its lending limits on an
on-going basis.
The amount of the Company's loans, secured by first or second
mortgages, generally do not exceed 75% of the collateral value.
Liquidity Risk
Liquidity risk is the risk that the Company will not have
sufficient cash to meet its obligations as they become due. This
risk arises from fluctuations in cash flows from making loan
advances and receiving loan repayments. The goal of liquidity
management is to ensure that adequate cash is available to honour
all future loan commitments. As well, effective liquidity
management involves determining the timing of such commitments to
ensure cash resources are optimally utilized. Quest manages its
liquidity risk by monitoring scheduled mortgage fundings and
repayments, and whenever necessary, accessing its debt facility to
bridge any gaps in loan maturities and funding obligations. In
addition, the Company will syndicate a portion of its loans as part
of its liquidity risk management.
As at June 30, 2008, the Company had drawn $66.5 million on its
$88.0 million revolving debt facility and had future loan
commitments of up to $95 million. Further, as at June 30, 2008, 66%
of the Company's loan portfolio, being $238.5 million, was due
within a year. In managements' opinion, the Company has sufficient
resources to meet its current cash flow requirements.
Market Risk
Market risk arises as a result of changes in conditions which
affect real estate values. These market changes may be regional,
national or international in nature or may revolve around a
specific product type. Risk is incurred if the value of real estate
securing the Company's loans falls to a level approaching the loan
amounts. Quest is subject to risks in its construction lending
business if borrowers are not able to absorb rising costs of labour
and materials. In addition, the Company has loaned funds to a
number of companies, which funds are used for development including
the re-zoning in respect of the relevant project. Any decrease in
real estate values may delay the development process and will
adversely affect the value of the Company's security. To manage
these risks, management ensures that its mortgage origination team
is aware of the market conditions that affect each mortgage
application and the impact that any changes may have on security
for a particular loan. Management and the Board monitor changes in
the market on an ongoing basis and adjust the Company's lending
practices and policies when necessary to reduce the impact of the
above risks.
Interest Rate Risk
Interest rate risk is the risk that a lender's earnings are
exposed to volatility as a result of sudden changes in interest
rates. This occurs, in most circumstances, when there is a mismatch
between the maturity (or re-pricing characteristics) of loans and
the liabilities or resources used to fund the loans. For loans
funded using bank debt priced off of Bank Prime Rate, the Company
manages this risk through the pricing of certain of its loans also
being based upon the Bank Prime Rate. In addition, the Company will
in some cases have minimum rates or an interest rate floor in its
variable rate loans. The Company is also exposed to changes in the
value of a loan when that loan's interest rate is at a rate other
than current market rate. Quest currently mitigates this risk by
lending for short terms, with terms at the inception of the loan
varying from six months to two years, charging prepayment penalties
and upfront commitment fees.
As at June 30, 2008, the Company had 11 variable rate loans
priced off the Bank Prime Rate with an aggregate principal of $41.4
million and 52 fixed rate loans with an aggregate principal of
$318.1 million.
INTERNAL DISCLOSURE CONTROLS AND PROCEDURES
Changes in Internal Disclosure Controls and Procedures
Effective May 9, 2008, Jim Grosdanis was appointed Chief
Financial Officer of the Company. There were no other changes in
the Company's internal disclosure controls and procedures that
occurred during the second quarter ended June 30, 2008 that have
materially affected, or are reasonably likely to affect, the
Company's internal disclosure controls and procedures. No changes
were made in the Company's internal controls over financial
reporting during the quarter ended June 30, 2008 that have
materially affected, or are reasonably likely to materially affect,
the Company's internal controls 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 applicable securities
legislation is properly 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.
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 reviews its controls and procedures over financial
reporting. However, because of the inherent limitations in a
control system, any control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that
it will prevent or detect all misstatements, due to error or fraud,
from occurring in the financial statements.
FORWARD LOOKING INFORMATION
This MD&A includes certain statements that constitute
"forward-looking statements", and "forward-looking information"
within the meaning of applicable securities laws ("forward-looking
statements" and "forward-looking information" are collectively
referred to as "forward-looking statements", unless otherwise
stated). These statements appear in a number of places in this
MD&A and include statements regarding our intent, beliefs or
current expectations 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 MD&A, words such
as "believe", "anticipate", "estimate", "project", "intend",
"expect", "may", "will", "plan", "should", "would", "contemplate",
"possible", "attempts", "seeks" and similar expressions are
intended to identify these forward-looking statements.
Forward-looking statements may relate to the Company's future
outlook and anticipated events or results and may include
statements regarding the Company's future financial position,
business strategy, budgets, litigation, projected costs, financial
results, taxes, plans and objectives. We have based these
forward-looking statements largely on our current expectations and
projections about future events and financial trends affecting the
financial condition of our business. These forward-looking
statements were derived utilizing numerous assumptions regarding
expected growth, results of operations, performance and business
prospects and opportunities that could cause our actual results to
differ materially from those in the forward-looking statements.
While the Company considers these assumptions to be reasonable,
based on information currently available, they may prove to be
incorrect. Forward-looking statements should not be read as a
guarantee of future performance or results. Forward-looking
statements are based on information available at the time those
statements are made and/or management's good faith belief as of
that time with respect to future events, and are subject to risks
and uncertainties that could cause actual performance or results to
differ materially from those expressed in or suggested by the
forward-looking statements. To the extent any forward-looking
statements constitute future-oriented financial information or
financial outlooks, as those terms are defined under applicable
Canadian securities laws, such statements are being provided to
describe the current potential of the Company and readers are
cautioned that these statements may not be appropriate for any
other purpose, including investment decisions. Forward-looking
statements speak only as of the date those statements are made.
Except as required by applicable law, we assume no obligation to
update or to publicly announce the results of any change to any
forward-looking statement contained or incorporated by reference
herein to reflect actual results, future events or developments,
changes in assumptions or changes in other factors affecting the
forward-looking statements. If we update any one or more
forward-looking statements, no inference should be drawn that we
will make additional updates with respect to those or other
forward-looking statements. You should not place undue importance
on forward-looking statements and should not rely upon these
statements as of any other date. All forward-looking statements
contained in this MD&A are expressly qualified in their
entirety by this cautionary statement.
Contacts: Quest Capital Corp. - Contact in Canada: Stephen
Coffey President & CEO (416) 367-8383 (416) 367-4624 (FAX)
Quest Capital Corp. - Contact in Canada: A. Murray Sinclair
Co-Chairman (604) 687-8378 or Toll Free: 1-800-318-3094 (604)
682-3941 (FAX) Website: www.questcapcorp.com / www.sedar.com AIM
NOMAD: Canaccord Adams Limited Ryan Gaffney or Robert Finlay 011 44
20 7050 6500
Quest (AMEX:QCC)
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