RNS Number:3552W
Quest Capital Corporation
10 May 2007
May 9, 2007 TSX: QC
AMEX/AIM: QCC
QUEST REPORTS ITS FINANCIAL RESULTS FOR FIRST QUARTER 2007
AND AN INCREASE IN ITS DIVIDEND RATE
Vancouver, British Columbia - Quest Capital Corp. ('Quest' or the 'Company')
announces its unaudited interim consolidated financial results for the three
months ended March 31, 2007 (a copy of which is attached hereto and is also
available on SEDAR at www.sedar.com).
HIGHLIGHTS
* Earnings before income taxes of $9.3 million ($0.06 per share) for the
three months ended March 31, 2007, as compared to earnings before income
taxes of $8.3 million ($0.07 per share) for the comparative period in 2006;
* Loans arranged during the three months ended March 31, 2007 totaled
$49.5 million, of which the Company funded $25.8 million. Interest and
related fees from loans increased during the three months ended
March 31, 2007 to $10.8 million as compared to $5.8 million for the
comparative period in 2006;
* Net realized gains from the sale of marketable securities and
investments during the three months ended March 31, 2007 totaled $2.2
million, as compared to $4.7 million realized during the comparative period
in 2006.
As a reflection of the continued growth in our business, the Company announces
that on May 9, 2007 its Board of Directors approved an increase in its dividend
rate from CAD $0.02 per quarter to CAD $0.025 per quarter. The quarterly
dividend will be paid on June 26, 2007 to shareholders of record at the close of
business on June 15, 2007. Shareholders should refer to the Company's website
for the tax treatment of these dividends.
"The results for the start of 2007 were excellent as our lending business put in
another strong quarterly performance," said Managing Director, A. Murray
Sinclair. "Going forward, we remain focused on maintaining the positive growth
momentum while providing shareholders with an increasing dividend stream. To
accomplish this objective, we recently established our first bank credit
facility that will allow us to enhance returns by utilizing leverage as we
expand our lending activities with a focus on geographical and product
diversification."
Over the past several months, Chief Operating Officer Kenneth Gordon has
enhanced and further developed and expanded an internal structure designed to
manage Quest's real estate lending operations and the expansion of its mortgage
lending activities. "With this structure in place, Quest will gradually increase
its leverage towards a debt target of 25% of total assets".
The Company is also pleased to announce that Walter Traub, a lawyer specializing
in commercial lending matters, and Dale Peniuk, Chartered Accountant, have
joined the Board of Directors of the Company.
About Quest
Quest Capital Corp. is a merchant bank that focuses on providing financial
services, specifically mortgages and bridge loans. Quest's primary expertise is
providing asset backed loans to companies in real estate, manufacturing and
resource sectors. Quest complements its lending business by providing corporate
finance services through its wholly owned subsidiary, Quest Securities
Corporation.
For more information about Quest, please visit our website
(www.questcapcorp.com) or contact:
Contact in Canada Contacts in London
AIM NOMAD:
A.Murray Sinclair, Managing Director Canaccord Adams Limited
or
Ken Gordon (Chief Operating Officer) Erin Needa:
erin.needra@canaccordadams.com
Tel: (604) 68-QUEST
(604) 687-8378 Robert Findlay:
(604) 687-8378 robert.finlay@canaccordadams.com
Toll free: (800) 318-3094
Forward Looking Statements
Statements contained in this news release that are not historical facts are
forward-looking statements that involve various risks and uncertainty affecting
the business of Quest. Actual results realized may vary materially from the
information provided in this release. As a result, there is no representation by
Quest that actual results realized in the future will be the same in whole or in
part as those presented herein.
Quest Capital Corp.
Consolidated Financial Statements
March 31, 2007
(Expressed in thousands of Canadian dollars)
(Unaudited)
Quest Capital Corp.
Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)
(Unaudited)
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 10,500 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
---------------------------------
$ 294,025 $ 310,357
=================================
Liabilities
Accounts payable and accrued liabilities $ 5,798 $ 4,290
Income taxes payable 237 1,009
Deferred interest and loan fees - 4,620
Asset retirement obligation 964 1,011
Debt payable (note 6) - 22,000
--------------------------------
6,999 32,930
================================
Shareholders' Equity
Share capital (note 7) 203,110 202,513
Contributed capital (note 7) 6,511 6,479
Accumulated other comprehensive income 5,398 1,204
Retained earnings 72,007 67,231
--------------------------------
287,026 277,427
--------------------------------
$ 294,025 $ 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.
Consolidated Statements of Retained Earnings
Three months ended March 31, 2007 and 2006
(Expressed in thousands of Canadian dollars)
(Unaudited)
2007 2006
--------------------------------
Retained earnings - Beginning of period $ 67,231 $ 30,739
Adoption of financial instruments standards 286 -
(note 4) --------------------------------
As restated 67,517 30,739
Net earnings for the period 7,389 8,028
Dividends (2,899) -
--------------------------------
Retained earnings - End of period $ 72,007 $ 38,767
=================================
The accompanying notes are an integral part of
these consolidated financial statements.
Quest Capital Corp.
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
Director's 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 145,880,563 126,053,811
The accompanying notes are an integral part of these consolidated financial
statements.
Quest Capital Corp.
Consolidated Statement of Comprehensive Income
For the three months ended March 31, 2007
(Expressed in thousands of Canadian dollars)
(Unaudited)
2007
--------------
Net earnings for the period $ 7,389
Other comprehensive income, net of tax
Unrealized gains (losses) on translating financial statements (21)
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 1,962
Comprehensive income 9,351
------------
Accumulated other comprehensive income - Beginning of period 1,204
(note 4)
Adoption of financial instruments standards (note 4) 2,232
Other comprehensive income for the period 1,962
------------
Accumulated other comprehensive income - $ 5,398
End of period =============
The accompanying notes are an integral part of these consolidated financial
statements.
Quest Capital Corp.
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 fees - (394)
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 liabilities 1,511 1,051
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)
The accompanying notes are an integral part of these consolidated financial
statements.
Quest Capital Corp.
Notes to 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
Effective January 1, 2007, the Company has 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 that is
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 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 $0.3 million, currency translation
adjustment decreased by $1.2 million and accumulated other comprehensive income
increased by $3.4 million. These movements reflect an increase of $0.4 million
in marketable securities, $3.4 million increase in investments, a decrease in
future tax asset of $1.3 million, 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.
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 security. 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
security. 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 security 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 secured 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 1.95 6,650,000 1.87 1.95 6,650,000 1.95
$ 2.30 1,167,968 3.71 2.30 844,515 2.30
$2.64 to 3.21 2,270,000 4.62 3.04 453,433 2.88
-------------------------------------------------------------------------------
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 for 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 certain directors and
officers in common.
b) Loans include $nil (December 31, 2006 = $nil) in amounts due from
parties related by virtue of 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 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 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 to ensure 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
QUEST CAPITAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 2007
INTRODUCTION
The following information, prepared as of May 4, 2007, should be read in
conjunction with Quest Capital Corp.'s (the "Company") interim consolidated
financial statements for the three months ended March 31, 2007 and its audited
annual consolidated financial statements for the years ended December 31, 2006
and 2005 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.
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 13 main
sections:
1. RESULTS OF OPERATIONS
2. SUMMARY OF QUARTERLY RESULTS
3. LIQUIDITY
4. RELATED PARTY TRANSACTIONS
5. SUBSEQUENT AND PROPOSED TRANSACTIONS
6. OFF BALANCE SHEET ARRANGEMENTS
7. OUTLOOK
8. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
9. CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
10. DISCLOSURE OF OUTSTANDING SHARE DATA
11. RISKS AND UNCERTAINTIES
12. FORWARD LOOKING INFORMATION
13. 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. RESULTS OF OPERATIONS
Total assets as at March 31, 2007 were $294.0 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 $15.1 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.
2. SUMMARY OF QUARTERLY RESULTS
(In thousands of Canadian dollars, except per share amounts)
First Fourth Third Second First Fourth Third Second
Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
2007 2006 2006 2006 2006 2005 2005 2005
-------------------------------------------------------------------------------
Interest and 10,807 10,597 8,781 7,415 5,798 5,555 4,399 4,004
related fees
Non-interest 2,883 1,265 3,368 7,905 5,961 4,028 1,883 2,377
income
Earnings 9,315 7,918 9,087 11,664 8,315 5,059 4,291 4,507
before
taxes
Net earnings 7,398 16,021 8,770 10,882 8,028 11,395 4,295 4,550
Basic Earnings 0.05 0.12 0.06 0.08 0.07 0.10 0.04 0.05
Per Share
Total 294,025 310,357 284,935 267,891 208,060 189,603 166,928 123,487
Assets
Total 6,999 32,930 20,885 14,828 8,999 12,009 6,718 7,525
Liabilities
================================================================================
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.
3. 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 - 3 3 - 5 More than
Obligation 1 Year Years 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
================================================================================
4. 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 certain directors and
officers in common.
Loans include $nil (December 31, 2006 - $nil) in amounts due from parties
related by virtue of 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 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 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.
5. SUBSEQUENT AND PROPOSED TRANSACTIONS
The Company has no subsequent and proposed transactions to report.
6. OFF BALANCE SHEET ARRANGEMENTS
The Company has no off balance sheet arrangements.
7. 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).
8. 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 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.
Future Tax Asset
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.
9. 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 that is
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 $0.3 million, currency translation
adjustment decreased by $1.2 million and accumulated other comprehensive income
increased by $3.4 million. These movements reflect an increase of $0.4 million
in marketable securities, $3.4 million increase in investments, a decrease in
future tax asset of $1.3 million, 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.
10. 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.
11. 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.
12. 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.
13. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting. Any system of internal
control over financial reporting, no matter how well designed, has inherent
limitations. While management believes there are no deficiencies in internal
controls over financial reporting which would result in a material misstatement,
for the quarter ended March 31, 2007, management recognized that improvements in
previously designed internal controls related to certain tax filings were
required. Management is taking appropriate action and any deficiencies that
exist will be being remediated.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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