RNS Number:0805T
Quest Capital Corporation
16 March 2007
QUEST CAPITAL CORP.
March 15, 2007 TSX: QC
AMEX/AIM: QCC
QUEST REPORTS ITS FINANCIAL RESULTS FOR 2006
Vancouver, British Columbia - Quest Capital Corp. ('Quest' or the 'Company'),
announces its audited consolidated financial results for the year ended December
31, 2006.
HIGHLIGHTS
* Earnings before income taxes of $37.0 million ($0.27 per share) for the
year ended December 31, 2006, as compared to earnings before taxes of $17.2
million ($0.17 per share) for the comparative period in 2005;
* The Company recognized a future tax asset based on the likely
realization of tax losses which are to be utilized against future taxable
earnings. In 2005 a future tax asset of $6.0 million was recognized and in
2006 an additional $8.5 million was recognized. As a result of the
recognition of a future tax recovery in 2005 and 2006, net earnings
increased by $6.3 million and $6.7 million respectively.
* Net earnings of $43.7 million ($0.32 per share) for the year ended
December 31 2006, as compared to net earnings of $23.6 million ($0.23 per
share) for the comparative period in 2005;
* Total loans arranged in 2006 totaled $279.2 million, of which the
Company funded $255.2 million;
* Loan portfolio increased 116% in 2006 to $269.5 million, as compared to
$124.6 million as at December 31, 2005;
* Net realized gains from sale of marketable securities and investments
during the year ended December 31, 2006 totaled $14.5 million, as compared
to $4.9 million realized during the comparative period in 2005.
"In 2006, the Company generated record revenues and record earnings as we
continue to experience strong performance on our operating fronts," said
Managing Director, A. Murray Sinclair. "The outstanding financial results are a
testament to our business model, and are reflective of our ability to adjust our
lending strategy to take advantage of where the opportunities lie, and probably
more importantly, where they do not. We continue to monitor the US market and
currently have no material exposure there, but remain heavily invested in the
western Canadian markets, with an emphasis on growth in Alberta. In 2007, we
expect to continue to adjust our portfolio, to reflect our views of where
opportunities lie."
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.
A. Murray Sinclair (Managing Director) or Ken Gordon (Chief Operating
Officer)
Tel: (604) 68-QUEST
(604) 687-8378
Toll free: (800) 318-3094
For more information about Quest, please visit our website
(www.questcapcorp.com) or contact:
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.
Vancouver: Suite 300, 570 Granville Street, Vancouver, BC, Canada V6C 3P1
Tel: 604-689-1428 Toll Free: 800-318-3094 Fax: 604-681-4692
Toronto: 77King Street West, PO Box 157, Suite 3110, Royal Trust Tower,
Toronto-Dominion Centre, Toronto, ON, Canada M5K 1H1
Tel: 416-367-8383 Fax: 416-367-4624
Quest Capital Corp.
Consolidated Financial Statements
December 31, 2006 and 2005
(expressed in thousands of Canadian dollars)
Management's Responsibility for Financial Reporting
The accompanying consolidated financial statements of the Company have been
prepared by management in accordance with Canadian generally accepted accounting
principles and reconciled to United States generally accepted accounting
principles. These consolidated financial statements contain estimates based on
management's judgement. Management maintains an appropriate system of internal
controls to provide reasonable assurance that transactions are authorized,
assets safeguarded, and proper records maintained.
The Audit Committee of the Board of Directors, which is composed of a majority
of independent directors, reviews the results of the annual audit and the
consolidated financial statements prior to submitting the consolidated financial
statements to the Board for approval.
The Company's auditors, PricewaterhouseCoopers LLP, are appointed by the
shareholders to conduct an audit and their report follows.
"Brian E. Bayley" "Narinder Nagra"
Brian E. Bayley Narinder Nagra
President and CEO Chief Financial Officer
Vancouver, B.C., Canada
March 15, 2007
Independent Auditors' Report
To the Shareholders of
Quest Capital Corp.
We have audited the consolidated balance sheets of Quest Capital Corp. as at
December 31, 2006 and 2005 and the consolidated statements of earnings, retained
earnings and cash flows for the years ended December 31, 2006, 2005 and 2004.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2006
and 2005 and the results of its operations and its cash flows for the years
ended December 31, 2006, 2005 and 2004 in accordance with Canadian generally
accepted accounting principles.
Chartered Accountants
Vancouver, British Columbia
March 15, 2007
Quest Capital Corp.
Consolidated Balance Sheets
As at December 31, 2006 and 2005
(expressed in thousands of Canadian dollars)
2006 2005
Assets
Cash and cash equivalents $ 9,506 $ 33,739
Marketable securities (note 5) 1,865 945
Loans (notes 5 and 6) 269,522 124,551
Investments (note 5) 9,980 17,117
Future tax asset (note 12) 14,500 6,488
Restricted cash (note 7) 2,568 2,265
Prepaid and other receivable 686 739
Resource and fixed assets 477 700
Other assets (note 5) 1,253 2,008
Assets held for disposition (note 4) - 1,051
---------------------------
$ 310,357 $ 189,603
===========================
Liabilities
Accounts payable and accrued liabilities $ 4,290 $ 3,734
Income taxes payable 1,009 458
Dividend payable - 3,518
Deferred interest and loan fees 4,620 1,685
Asset retirement obligation (note 9) 1,011 1,884
Debt payable (note 5 and 8) 22,000 -
Liabilities and provision for loss on assets held - 730
for disposition (note 4)
-----------------------------
32,930 12,009
----------------------------
Shareholders' Equity
Share capital (note 10) 202,513 138,891
Contributed capital (note 10) 6,479 6,772
Retained earnings 67,231 30,739
Currency translation adjustment (note 11) 1,204 1,192
--------------------------
277,427 177,594
--------------------------
$ 310,357 $ 189,603
===========================
Contingencies and commitments (note 14)
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
For the years ended December 31, 2006, 2005 and 2004
(expressed in thousands of Canadian dollars)
2006 2005 2004
---------------------------------------------
Retained earnings (deficit) - $ 30,739 $ 10,706 $ (2,041)
Beginning of year
Net earnings for the year 43,701 23,551 12,747
Dividends (7,209) (3,518) -
--------------------------------------------
Retained earnings - End of year $ 67,231 $ 30,739 $ 10,706
============================================
The accompanying notes are an integral part of these consolidated financial
statements.
Quest Capital Corp.
Consolidated Statements of Earnings
For the years ended December 31, 2006, 2005 and 2004
(expressed in thousands of Canadian dollars, except per share amounts)
2006 2005 2004
----------------------------------------------
Interest and related fees $ 32,591 $ 17,410 $ 10,948
----------------------------------------------
Non-interest income
Management and finder's fees 3,993 4,204 2,200
Marketable securities and other 5,616 743 (1,020)
assets trading gains (losses)
Realized gains and writedowns of 8,876 4,171 2,090
investments
Other income and gold sales 14 372 3,505
----------------------------------------------
18,499 9,490 6,775
-----------------------------------------------
Total interest and non-interest 51,090 26,900 17,723
income -----------------------------------------------
Interest on debt (1,380) (63) -
Provision for losses (238) - (275)
------------------------------------------------
49,472 26,837 17,448
-----------------------------------------------
Expenses and other
Salaries and benefits 2,889 2,108 1,650
Bonuses 5,525 2,000 1,500
Stock-based compensation 521 2,142 1,769
Office and other 970 935 771
Legal and professional services 1,908 820 1,412
Regulatory and shareholder relations 478 522 285
Director's fees 280 218 151
Foreign exchange loss (gain) 59 96 (275)
Gain on dilution net of provision for - 91 -
loss on disposition
Other expenses relating to resource 111 155 467
properties
Gains on disposition, adjustment to (253) 582 (3,349)
reclamation provision and settlement -------------------------------------------
of Australian operations
12,488 9,669 4,381
-------------------------------------------
Earnings before income taxes 36,984 17,168 13,067
(Recovery of) provision for income (6,717) (6,315) 320
taxes (note 12)
Non-controlling interest in a - (68) -
subsidiary (note 4)
---------------------------------------------
Net earnings for the year $ 43,701 $ 23,551 $ 12,747
==============================================
Earnings per share
Basic 0.32 0.23 0.14
Fully diluted 0.31 0.23 0.14
Weighted average number of shares
outstanding
Basic 137,713,931 100,923,801 87,997,155
Fully diluted 140,826,503 103,563,223 89,205,829
The accompanying notes are an integral part of these consolidated financial
statements.
Quest Capital Corp.
Consolidated Statements of Cash Flows
For the years ended December 31, 2006, 2005 and 2004
(expressed in thousands of Canadian dollars)
2006 2005 2004
Cash flows from operating activities
Net earnings for the year $ 43,701 $ 23,551 $ 12,747
Adjustments to determine net cash
flows relating to operating items
Future tax asset (8,012) (6,488) -
Stock-based compensation 521 2,142 1,769
Non-controlling interest in subsidiary - (68) -
Provision for losses 386 - 275
Amortization of deferred interest and (5,539) (4,568) (4,693)
loan fees
Marketable securities and other assets (5,616) (743) 1,020
trading (gains) losses
Realized gains and writedowns of (8,876) (4,171) (2,090)
investments
Gain on dilution and provision for - 156 -
loss on disposition of subsidiary and
other assets
Depreciation 162 128 110
Other expenses relating to resource 75 155 431
properties
Gains on disposition of resource (253) 582 (644)
assets and adjustments to retirement
obligations
Other assets and investments received (862) (1,245) (566)
as finder's fees
Deferred interest and loans fees 6,428 3,083 2,117
received
Activity in marketable securities held
for trading
Purchases (4,356) (215) (43)
Proceeds on sales 12,327 2,259 1,171
Expenditures for reclamation and (934) (2,498) (4,747)
closure
Changes in prepaid and other 50 34 1,353
receivables
Changes in accounts payables and 555 (1,784) 3,864
accrued liabilities
Changes in income taxes payable 552 - -
----------------------------------------
30,309 10,310 12,074
=======================================
Cash flows from financing activities
Proceeds from shares issued 62,807 56,025 2,329
Dividend payment (10,727) - -
Proceeds from debt 99,931 - -
Repayment of debt (77,931) - -
---------------------------------------
74,080 56,025 2,329
=======================================
Cash flows from investing activities
Activity in loans
Net (increase) decrease in loans (145,357) (54,869) (43,400)
Net decrease (increase) in convertible - 2,030 (975)
debentures
Activity in Investments
Proceeds on sales 124,909 13,865 13,655
Purchases (107,752) (4,794) (11,876)
Net proceeds on dilution of subsidiary - 592 -
Change in restricted cash (304) 7,655 2,761
Cash transferred to purchaser of - (2,500) -
resource property
Proceeds on sale of resource and fixed 356 210 864
assets
Expenditures on resource and fixed (77) (368) (295)
assets
Net other assets acquired (425) (281) -
Cash of subsidiary being held for sale - (678) -
/disposed
----------------------------------------
(128,650) (39,138) (39,266)
----------------------------------------
Foreign exchange loss on cash held in 28 (65) (327)
a foreign subsidiary
----------------------------------------
Increase (decrease) in cash and cash (24,233) 27,132 (25,190)
equivalents
Cash and cash equivalents - Beginning 33,739 6,607 31,797
of year
---------------------------------------
Cash and cash equivalents - End of $ 9,506 $ 33,739 $ 6,607
year =========================================
Currency translation adjustment
(note11)
Supplemental cash flow information
(note16)
The accompanying notes are an integral part of these consolidated financial
statements.
Quest Capital Corp.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
(expressed in Canadian dollars; tables in thousands, except share capital
information)
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.
Previously, the Company was a natural resource holding company engaged in the
acquisition, exploration, financing, and development and operation of minerals
properties and the financing of junior exploration companies and merchant
banking. The Company owns and has reclaimed its 75% owned Castle Mountain
property, other than long-term monitoring and maintenance.
2 Change in accounting policies
Effective January 1, 2007, the Company will adopt Canadian Institute of
Chartered Accountants (CICA) Section 3855 Financial Instruments - Recognition
and Measurement, Section 3865 Hedges and Section 1530 Comprehensive Income (the
"Financial Instrument Standards"). As the Company does not anticipate in
undertaken hedging activities, adoption of Section 3865 will have no impact on
the Company. Prior to January 1, 2007, the principal accounting policies
affecting the Company's financial instruments were, marketable securities that
were valued at the lower of average cost and market value, investments that 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 are stated net of an
allowance for credit losses on impaired loans and other assets that were valued
at their net realizable value.
The adoption of the Financial Instrument Standards will require the presentation
of a separate statement of comprehensive income. Investments and marketable
securities will be recorded in the consolidated balance sheet at fair value.
Changes in fair value of marketable securities will be recorded in income and
changes in the fair value of investments will be reported in comprehensive
income. The transitional adjustments in respect of these standards will be
recorded to the opening marketable securities, investments and loan balances and
adjusted through the retained earnings account and accumulated other
comprehensive income, at January 1, 2007.
As a consequence of adopting the Financial Instrument Standards at January 1,
2007, retained earning will increase by $0.3 million, currency translation
adjustment will decrease by $1.2 million and accumulated other comprehensive
income will increase by $3.4 million. This reflects an increase of $0.4 million
in marketable securities, $3.4 million increase in investments and a decrease in
future tax asset of $1.3 million. This represents the net gain on measuring the
fair value of held for trading and available for sale investments, which has
been not recognized on a fair value basis prior to January 1, 2007.
Effective January 1, 2005, the Company has adopted the new Accounting Guideline
15 (AcG-15) "Consolidation of Variable Interest Entities". The new standard
establishes when a company should consolidate a variable interest entity in its
financial statements. AcG-15 provides the definition of a variable interest
entity and requires a variable interest entity to be consolidated if a company
is at risk of absorbing the majority of the variable interest entity's losses,
or is entitled to receive a majority of the variable interest entity's residual
returns, or both. The impact of this change did not have a significant effect on
the Company's financial results.
3 Significant accounting policies
Generally accepted accounting principles
These consolidated financial statements have been prepared using accounting
principles generally accepted in Canada. Significant differences between
Canadian and U.S. generally accepted accounting principles (GAAP) as they relate
to these financial statements are described in note 17.
Basis of presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The Company's significant subsidiaries include Quest
Management Corp., Quest Securities Corporation, Quest Mortgage Corp. (formerly
Viceroy Minerals Corporation), and Viceroy Gold Corporation and its 75%
proportionate joint-venture interest in the Castle Mountain property. On
December 31, 2006, Quest Mortgage Corp. amalgamated with Quest Capital Corp. to
form one company called Quest Capital Corp.
Gold sales from former resource operations have been recorded as "Other Income"
and expenses relating to these operations have been recorded as "Other Expenses
Relating To Resource Properties".
Certain comparative figures have been reclassified to conform to the current
period's presentation.
Use of estimates
The preparation of these consolidated financial statements requires management
to make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent liabilities at the date of the
consolidated financial statements and the reported amount of revenues and
expenses during the period. While management believes that these estimates and
assumptions are reasonable, actual results may differ. Financial statement items
subject to significant management judgement include loan losses, investment
carrying values, fair value of non-cash fees and stock-based compensation, asset
retirement obligations and future income tax assets.
Cash and cash equivalents
Cash and cash equivalents include all highly liquid short-term deposits,
government guaranteed money market investments and corporate paper with a
minimum R-1 mid-grade rating, all of which have a maturity of 90 days or less at
the time of acquisition.
Marketable securities
Marketable securities are carried at the lower of average cost and market value.
Loans
Loans are stated net of an allowance for credit losses on impaired loans.
Loans are classified as impaired when the principal is past due, interest is 90
days in arrears, and when there is no longer reasonable assurance of the timely
collection of principal and interest. A provision for losses incurred on
impaired loans is made to reduce the carrying amount to the estimated realizable
amount.
Investments
Investments are recorded at cost or at cost less amounts written off to reflect
any impairment in value that is considered to be other than temporary.
Provision for asset retirement obligations
The Company recognizes a liability for asset retirement obligations when the
liability is incurred. A liability is recognized initially at fair value if a
reasonable estimate of the fair value can be made and the resulting amount would
be capitalized as part of the asset. The liability is accreted over time through
periodic charges to earnings. In subsequent periods, the Company adjusts the
carrying amounts of the liability for changes in estimates of the amount or
timing of underlying future cash flows. Any adjustments are accounted for in
earnings in the period in which the adjustment is made.
It is possible that the Company's estimates of its ultimate reclamation and site
restoration liability could change as a result of changes in regulations or cost
estimates.
Translation of foreign currencies
Self-sustaining foreign operations are translated using the current rate method.
Under this method, assets and liabilities are translated at the exchange rates
prevailing at the balance sheet date and revenues and expenses at the average
exchange rate during the period. The net effect of foreign currency translation
is deferred and shown as a currency translation adjustment in shareholders'
equity until charged against earnings when the investment in the operation is
reduced.
Integrated foreign operations are translated using the temporal method. Under
this method, monetary items are translated at the exchange rate prevailing at
the balance sheet date, non-monetary items are translated at historical exchange
rates and revenue and expenses are translated at the average rate during the
period.
Revenue recognition
Interest income is recorded on an accrual basis except on loans classified as
impaired. When a loan is classified as impaired, interest income is recognized
on a cash basis only, after specific provisions or write-offs have been
recovered and provided there is no further doubt about the collectability of
remaining principal balances. Loan syndication fees are included in income as
earned over the life of the loan. Loan commitment, origination, restructuring
and renegotiation fees are recorded as interest over the life of the loan.
Interest and fees collected in advance are recorded as deferred revenue and
recognized in income as set out above.
Finder's fees received as compensation for corporate finance business activities
are recorded when performance is complete and the cash or non-monetary
consideration is received or is reasonably assured to be received. Non-monetary
consideration includes shares, broker warrants and/or options and has been
valued using the trading price of the shares at the time they are received and
the Black Scholes option pricing model for warrants. Adjustments are made to the
trading price for liquidity relative to size of the position, hold periods and
other resale restrictions.
Trading revenue and sale of investments are recognized on a settlement basis.
Income taxes
Income taxes are calculated using the asset and liability method of accounting
for income taxes. Accordingly, future tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. Future tax assets and liabilities are measured using enacted or
substantively enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled.
The effect on future taxes for a change in tax rates will be recognized in
income in the period that includes the date of substantive enactment. In
addition, future tax assets are recognized to the extent their realization is
more likely than not.
Stock-based compensation
The Company has a stock option plan as described in note 10(e). In 2003, the
Company elected to apply the fair value method of accounting for stock options
granted to directors, officers and employees on a prospective basis in
accordance with the recommendations of the CICA. Accordingly, effective January
1, 2003, the fair value of all stock options granted is recorded as a charge to
operations and a credit to fair value of stock options and warrants over the
period the stock options are outstanding. Consideration received on exercise of
stock options is credited to share capital and at this time the value attributed
to the exercised options is transferred to share capital.
Earnings per share
Basic earnings per share is calculated based on the weighted average number of
common shares issued and outstanding during the year.
Diluted earnings per share is calculated using the treasury stock method, if
dilutive.
4 Assets and liabilities and provision for loss on assets
In November 2005, Lara Exploration Ltd. ("Lara"), in which the Company
previously held a 66% interest, agreed to acquire a private Brazilian company
that held the rights to nine prospective gold, nickel, copper and zinc
properties in Brazil. In return for the assignment of the shares of the private
Brazilian company to Lara, the Company agreed to transfer its 3,000,000 escrow
shares of Lara to the shareholders of the private Brazilian company for nominal
consideration. In February 2006, the transaction was completed and a concurrent
private placement was done by Lara. The Company held less than 10% of the
outstanding shares of Lara after the transaction and ceased to exercise control
or significant influence of Lara. The Company's remaining investment has been
accounted for using the cost method. The following is a breakdown of the net
assets disposed of during the current year:
Assets held for disposition
Cash $ 678
Resource assets 373
---------------
$ 1,051
================
Liabilities and provision for loss on disposition
Accounts payable $ 32
Minority interest 355
Provision for loss on disposition 343
--------------
$ 730
===============
5 Financial instruments
The carrying values of cash and cash equivalents, restricted cash, other
receivables, accounts payable and debt payable approximate their fair values due
to the short-term nature of these instruments.
The fair value of the Company's remaining financial assets and liabilities is as
follows:
2006 2005
-------------------------------------------------
Carrying Fair Carrying Fair
value value value value
Marketable securities $ 1,865 2,301 $ 945 1,168
Investments 9,980 13,368 17,117 24,430
Loans and convertible 269,522 269,522 124,551 124,551
debentures
Other assets 646 646 1,601 1,601
Marketable securities and investments represent shares in publicly traded
companies. The fair value represents the quoted trading price of the shares. The
fair value of loans and debt are estimated to be approximately the equivalent of
carrying value due to the relatively short term of these instruments. The fair
value of convertible debentures is generally considered to be the equivalent of
carrying value unless the trading price of the underlying security exceeds the
conversion price of the debenture, at which point fair value would be considered
to be the quoted trading price of the underlying security. Financial instruments
included in other assets include securities and investments in capital pool
companies, which are restricted from trading and are carried at cost.
6 Loans and convertible debentures
a) Loans are repayable over various terms up to 24 months from
December 31, 2006, 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
December 31, 2006, the loan portfolio was comprised of 87% real estate
mortgages, 12% in the resource sectors, and 1% in other sectors. At December 31,
2006, the real estate mortgages were geographically located as follows: 48% in
British Columbia, 37% in Alberta, 13% in Ontario and 2% in other; and, 80% were
held as first mortgages and 20% held as second mortgages. As at December 31,
2006, the Company's loan portfolio consisted of 54 loans.
As at December 31, 2006, 69% of the Company's loan portfolio is due within a
year. The Company had approximately $13.8 million of loans impaired as a result
of certain principal and/or interest payments being in arrears as at
December 31, 2006. The Company's provision for loan losses is $0.6 million. 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 or convertible debenture 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.
Loan and convertible debenture analysis as at December 31, 2006 and 2005 is as
follows:
2006
-------------------------------------------------
Term loans Specific Carrying
allowance amount
Unimpaired loans $ 256,357 $ - $ 256,357
Impaired loans 13,165 - 13,165
------------------------------------------------
$ 269,522 $ - $ 269,522
Convertible debentures 586 586 -
-------------------------------------------------
$ 270,108 $ 586 $ 269,522
=================================================
2005
----------------------------------------------------
Term loans Specific Carrying
allowance amount
Unimpaired loans $ 118,041 $ - $ 118,041
Impaired loans 6,461 337 6,124
-------------------------------------------------
$ 124,502 $ 337 $ 124,165
Convertible debentures 586 200 386
-------------------------------------------------
$ 125,088 $ 537 $ 124,551
===============================================
As at December 31, 2006, the Company had 4 impaired loans. Subsequent to year
end $1.5 million of impaired loans were repaid.
b) The Company has recorded an allowance for losses as follows:
2006 2005 2004
---------------------------------------------
Balance - Beginning of year $ 537 $ 537 $ 1,472
Add:
Specific provision for the year 386 - 275
Less:
Loan write-offs net of recoveries (337) - (1,210)
-------------------------------------------
Balance - End of year $ 586 $ 537 $ 537
==============================================
c) At December 31, 2006, the Company has also entered into agreements to
advance funds of $2 million. Advances under these agreements are subject to due
diligence, no material adverse change in the assets, business or ownership of
the borrower and other terms.
7 Restricted cash
Pursuant to an agreement amongst the partners of the Castle Mountain property,
the Company was required to set aside restricted cash of $2,568,000 (2005 -
$2,265,000) as at December 31, 2006 in a fund to fulfill reclamation and closure
obligations at the Castle Mountain property.
8 Debt payable
In August 2006, the Company entered into a short term unsecured debt facility.
The facility bears interest at prime plus 2% and is payable on demand. At
December 31, 2006, $22 million was owing under this facility.
9 Asset retirement obligation
The Company's asset retirement obligation relates to closure obligations at its
Castle Mountain property.
The Company accounts for asset retirement obligations by recognizing a liability
for obligations associated with the retirement of fixed assets when the
liability is incurred. A liability is recognized initially at fair value if a
reasonable estimate of the fair value can be made and the resulting amount would
be capitalized as part of the asset. The liability is accreted over time through
periodic charges to earnings. In subsequent periods, the Company adjusts the
carrying amounts of the liability for changes in estimates of the amount or
timing of underlying future cash flows. Any adjustments are accounted for in
earnings in the period in which the adjustment is made.
A reconciliation of the provision for reclamation is as follows:
2006 2005 2004
---------------------------------------
Balance -Beginning of year $ 1,884 $ 5,366 $ 10,492
Liabilities settled during the year (935) (2,498) (4,747)
Liabilities disposed of during the - (2,078) -
year
Accretion expense 75 155 431
Revisions in estimated cash flows - 943 (644)
Currency translation adjustment (13) (4) (166)
-----------------------------------------
Balance -End of year $ 1,011 $ 1,884 $ 5,366
=========================================
The provision for reclamation is based on the following key assumptions:
* total undiscounted cash flows of $1,363,000
* the expected timing of payment of the cash flows ranging in the years 2007
to 2016
* a credit adjusted risk free rate at which the estimated cash flows have
been discounted by 6.5%.
10 Share capital
a) Authorized
Unlimited First and Second Preferred Shares
Unlimited common shares without par value
Previously the Company had Class A Voting Shares and Class B Voting
Shares. Effective April 19, 2005, the Class B Shares were cancelled and
the designation of the Class A Shares was changed to common shares.
In June 2004, the shareholders approved the amendments to the Company's
Class A subordinate voting shares and Class B multiple voting shares
(the Class A and Class B amendments). The general effect of the Class A
and Class B amendments was, among other things, to amend the voting
rights of the Class B Shares to one vote per share and allow the Class B
shareholders to convert each Class B Share into 1.25 Class A share. The
Class A and Class B Share amendments also provided the Company with the
right to give notice of conversion of each Class B Share into 1.25 Class
A Share.
In October 2004, the Company gave notice of conversion of each Class B
Share into 1.25 Class A Share and all remaining Class B Shares at that
time were converted to Class A Shares.
b) Shares issued and outstanding
2006 2005 2004
--------------------- ----------------------- --------------------
Number of Amount Number of Amount Number of Amount
shares shares shares
Common
shares
Opening
balance 119,265,568 $ 138,891 - $ - - $ -
Issued
for
cash 15,625,000 50,000 24,300,000 51,890 - -
Share
issue
Costs (2,684) - (3,587) - -
Issued
on
exercise
of stock
options 1,094,500 2,950 - - - -
Issued on
exercise
of
warrants 8,833,335 13,300 4,500,000 7,200 - -
Issued on
xercise of
compensation
options 24,225 56 - - - -
Exchanged
for
Class A
Shares 90,465,568 83,388 - -
---------------------------------------------------------------------
Closing
balance 144,842,628 $ 202,513 119,265,568 $ 138,891 - $ -
---------------------------------------------------------------------
Class A
Shares
Opening
balance - $ - 90,465,568 $ 83,388 83,194,934 $ 76,330
Issued on - - - - 1,924,583 2,330
exercise of
warrants
Fair value of - - - - - 350
warrants on
exercise
Exchanged for - - - - 5,346,051 4,378
Class B Shares
Exchanged for - - (90,465,568) (83,388) - -
common shares ---------------------------------------------------------------
Closing balance - $ - - $ - 90,465,568 $ 83,388
---------------------------------------------------------------
Class B Shares
Opening balance - $ - - $ - 4,276,851 $ 4,378
Exchanged for - - - (4,276,851) (4,378)
Class A Shares -----------------------------------------------------------------
Closing balance - $ - - $ - - $ -
---------------------------------------------------------------
Total share $ 202,513 $ 138,891 $ 83,388
capital ========= ========== ========
In April 2006, the Company completed an offering of 15,625,000 shares of the
Company at a price of $3.20 per share for aggregate proceeds of $50,000,000.
The Company also granted the underwriters an over allotment option
exercisable to May 26, 2006 to purchase up to 2,343,750 shares at a price of
$3.20 per share, of which the underwriters exercised no shares. Net proceeds
from the equity offering after expenses were $47,316,000.
In August 2005, the Company completed an offering of 18,500,000 shares of
the Company at a price of $2.30 per share for aggregate proceeds of
$42,550,000. The Company also granted the underwriters an over-allotment
option exercisable to October 23, 2005 to purchase up to an additional
2,775,000 shares at a price of $2.30 per share, of which the underwriters
exercised 800,000 shares. In addition, the underwriters were granted
1,158,000 compensation options expiring August 23, 2007 and October 26,
2007. Each compensation option is exercisable at $2.30 per common share. Net
proceeds from the equity offering and over allotment after expenses were
$40,803,000.
In May 2005, the Company completed a private placement of 5,000,000 shares
at a price of $1.50 per share for aggregate proceeds of $7,500,000.
c) Warrants issued and outstanding
Number of Exercise
warrants price per
share Expiry date
--------------------------------------
Class A Shares
Opening balance - January 1, 2004 15,257,918 $ -
Exercised (88,333) 0.60 June 13, 2004
Exercised (1,836,250) 1.24 Dec. 23, 2004
Closing balance - December 31, 2004 13,333,335
Exercised (4,500,000) 1.60 Oct. 20, 2008
Closing balance - December 31, 2005 8,833,335
Exercised (8,333,335) 1.50 June 30, 2008
Exercised (500,000) 1.60 Oct. 20, 2008
--------------
Closing balance -December 31, 2006 -
==============
d) Compensation options issued and outstanding
Number of Exercise
warrants price per
share Expiry date
---------------------------------------
Common shares
Opening balance - January 1, 2004
and 2005 - -
Issued pursuant to a private placement 1,110,000 $ 2.30 Aug. 23, 2007
Issued pursuant to a private placement 48,000 2.30 Oct. 26, 2007
----------
Closing balance - December 31, 2005 1,158,000
-----------
Exercised (24,225) 2.30 Aug. 23, 2007
------------
Closing balance - December 31, 2006 1,133,775
============
e) 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 years ended December 31, 2006, 2005 and 2004, the change in stock
options outstanding was as follows:
2006 2005 2004
-------------------------- ------------------ --------------------
Number of Weighted Number of Weighted Number of Weighted
shares average shares average shares average
share price share price share price
----------------------------------------------------------------------
Common
shares
Opening
balance 9,563,333 $ 1.97 - $ - - $ -
Granted 550,000 2.79 2,350,000 2.14 - -
Exercised (1,094,500) 1.95 - - - -
Expired - - (160,415) 1.89 - -
Cancelled (37,500) 2.30 - - - -
Exchanged
for
Class A
share
options - - 7,373,748 1.91 - -
-----------------------------------------------------------------------
Closing
balance 8,981,333 $ 2.02 9,563,333 $ 1.97 - $ -
=====================================================================
Options 8,151,630 $ 1.98 8,096,146 $ 1.93 - $ -
exerc. ======================================================================
at year
end
Class A
Shares - -
Opening
balance - $ - 7,373,748 $ 1.91 7,725,828 $ 1.97
Exchanged for - - (7,373,748) 1.91 - -
common share
options
Granted - - - - 300,000 1.95
Expired - - - - (652,080) 2.42
-------------------------------------------------------------------
Closing balance - $ - - $ - 7,373,748 $ 1.91
-------------------------------------------------------------------
Options - $ - - $ - 5,236,748 $ 1.90
exercisable ===============================================================
at year-end
The following table summarizes information about stock options outstanding
and exercisable at December 31, 2006:
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 0.80 $ 0.81 113,333 $ 0.81
$ 1.51 273,000 2.64 1.51 273,000 1.51
$ 1.80 to 6,870,000 2.11 1.95 6,766,875 1.95
1.95
$ 2.30 1,175,000 3.95 2.30 734,362 2.30
$ 2.64 to
3.08 550,000 4.24 2.79 264,060 2.76
--------------------------------------------------------------
8,981,333 2.48 $ 2.02 8,151,630 $ 1.98
==============================================================
f) Contributed capital
2006 2005 2004
---------------------------------------
Opening balance $ 6,772 $ 4,198 $ 2,779
Fair value of warrants (exercised) - - (350)
Fair value of options (exercised) (814) - -
Stock-based compensation 521 2,142 1,769
Other - (90) -
Compensation options - 522 -
--------------------------------------
Ending balance $ 6,479 $ 6,772 $ 4,198
=======================================
The fair values of options for 2006, 2005 and 2004 have been estimated using
an option pricing model. Assumptions used in the pricing model are as
follows:
2006 2005 2004
---------------------------------------
Risk-free interest rate 3.73% 3.18% 2.90%
Expected life of options 2.5 years 2.3 years 3 years
Expected stock price volatility 33% 33% 48%
Expected dividend yield 2.81% 0% 0%
Weighted average fair value of $ 0.62 $ 0.42 $ 0.54
options
11 Currency translation adjustment
This adjustment represents the net foreign currency translation adjustment
on the Company's net investment in self-sustaining foreign operations.
2006 2005
----------------------------
Opening balance $ 1,192 $ 1,228
Unrealized loss from change in exchange rates 12 (36)
----------------------------
Closing balance $ 1,204 $ 1,192
===========================
12 Income taxes
a) The provisions for (recovery of ) income taxes consists of the
following:
2006 2005 2004
--------------------------------------
Current
Canada $ 1,184 $ 488 $ (88)
United States 111 (315) 408
-------------------------------------
Total current expenses 1,295 173 320
--------------------------------------
Future
Canada (8,012) (6,488) -
----------------------------------------
Total future recovery (8,012) (6,488) -
-----------------------------------------
Total (recovery of) provision for $ (6,717) $ (6,315) $ 320
incoem taxes ==========================================
b) The reconciliation of the statutory income tax rates to the
effective tax rates on the earnings (loss) before income taxes is as
follows:
2006 2005 2004
-------------------------------------
Income taxes at statutory rates $ 14,925 $ 5,985 $ 4,541
Increase (decrease) in taxes from:
Non-deductible differences (193) 938 923
Difference in foreign tax rates (173) (92) 142
Benefits of timing differences not (2,162) (426) (174)
previously recognized
Recognition of prior year tax losses (19,114) (12,720) (4,953)
Large corporations tax - - (159)
-------------------------------------
$ (6,717) $ (6,315) $ 320
=====================================
c) The Company has losses in various jurisdictions as set out below.
The Company has non-capital losses to reduce future taxable income in Canada
of approximately $24,982,000. These losses expire between 2007 and 2015.
d) The significant components of the future income tax assets as at
December 31, 2006 are as follows:
2006 2005
---------------------------
Loss carryforwards $ 8,524 $ 19,487
Capital losses 16,669 10,127
Resource and fixed assets 7,071 10,117
Investment in subsidiaries - 6,208
Investments and marketable securities 1,071 2,489
Other 3,029 2,546
--------------------------
36,364 50,974
Valuation allowance (21,864) (44,486)
---------------------------
Future tax asset $ 14,500 $ 6,488
============================
13 Related party transactions
a) For the year ended December 31, 2006, the Company received
$1,507,000 (2005 - $1,614,000, 2004 - $1,534,000) in advisory, management
and finder's fees from parties related by virtue of having certain directors
and officers in common. Other assets includes $245,000 (2005-$479,000) of
non-transferable securities held in either private or publicly traded
companies related by virtue of certain directors and officers in common. For
the year ended December 31, 2006, the Company recorded a write-down of other
assets of $74,000 (2005 $nil, 2004 $nil) in parties related by virtue of
having certain directors in common.
b) Loans and convertible debentures include $nil (2005 - $5,740,000)
in amounts due from parties related by virtue of directors and officers in
common. During the year ended December 31, 2006, the Company received
$607,000 (2005 - $2,111,000, 2004 - $1,094,000) in interest and fees from
related parties by virtue of certain directors and officers in common.
During the year ended December 31, 2006, the Company has made $386,000 in
additional provision for losses on loans and convertible debentures (2005 -
$nil, 2004 - $200,000) from a party related by virtue of having a director
in common.
c) For the year ended December 31, 2006, the Company received
$24,000 (2005-$128,000, 2004 -$15,000) in syndication loan administration
fees from parties related by virtue of certain directors and officers in
common.
d) Marketable securities and investments include $9,143,000 (2005 -
$14,032,000) of shares held in publicly traded companies related by virtue
of having certain directors and officers in common. For the year ended
December 31, 2005, the Company recorded a gain on disposal of securities of
$10,627,000 (2005 - $3,854,000, 2004 - $317,000) from parties related by
virtue of having certain directors and officers in common. For the year
ended December 31, 2006, the Company recorded a write-down of investments of
$1,207,000 (2005 $nil, 2004 $nil) in parties related by virtue of having
certain directors in common.
e) For the year ended December 31, 2006, the Company borrowed and
repaid $20,000,000 (2005 - $nil) from parties related by virtue of certain
directors in common. Interest paid on these borrowings totalled $110,000,
with identical terms to the Company's debt facility described in note 8.
f) Included in accounts payable is $3,170,000 (2005 - $2,017,000)
due to employees and officers for bonuses payable.
14 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 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.
Accordingly, 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 income 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.
15 Segmented information
The Company has primarily one operating segment, which is financial
services. The Company's geographic location is Canada.
16 Supplemental cash flow information
a) Cash (paid) for
2006 2005 2004
---------------------------------------------
Interest $ 35,444 $ 19,585 $ 12,405
Income taxes (583) (387) (334)
b) Non-cash financing and investing activities
2006 2005 2004
-------------------------------------
Marketable securities and investments $ 2,157 $ 2,005 $ 3,006
received as loan fees
Investment purchases funded by (30,899) - -
brokerage margin account
Investment proceeds funded by 30,899 - -
brokerage margin account
Property and other assets received as - 121 35
loan fees
Loans and debentures settled with - 4,516 145
shares
Shares received as consideration for - 1,800 -
sale of resource property
17 United States generally accepted accounting principles
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) in Canada which differ, in
certain respects, from GAAP in the United States of America. Material
measurement differences to these consolidated financial statements are as
follows:
a) Reduction of stated capital
At the Company's Annual General Meeting in June 2003, shareholders approved
a reduction of stated capital. This practice is allowed under Canadian GAAP.
Under United States GAAP, companies are not allowed to record a reduction of
stated capital in these circumstances. This GAAP difference has no net
impact on total shareholders' equity reported.
b) Unrealized holding gains (losses)
Under U.S. GAAP, securities are classified as trading marketable securities
or available-for-sale securities depending upon the Company's intentions.
Unrealized holding gains and losses for trading securities are included in
earnings. Unrealized holding gains and losses for long-term
available-for-sale securities are excluded from earnings and reported as a
net amount in a separate component of shareholders' equity until realized.
c) Fair value of conversion option
For U.S. GAAP purposes, the conversion option of a debenture into shares is
considered an embedded derivative to the holder of the debenture and changes
in the fair value of such derivative is reported in the statements of
earnings. Prior to 2003, the change in fair value was not considered
material and the cumulative adjustment has been recorded in 2004.
d) Dilution gains
Under Canadian GAAP, the Company recognizes a gain or loss on the dilution
of its interests in subsidiaries upon the issue of new shares by the
subsidiary to third parties. Under U.S. GAAP, such gains related to
development stage subsidiaries are accounted for as an equity transaction.
e) Revenue recognition
Effective January 1, 2004, for Canadian GAAP purposes, the Company has
prospectively adopted recognizing revenues from precious metals when title
has passed. Previously, the Company recognized revenues from precious metals
when the metals were available for delivery and revenue amounts recognized
but not settled were classified as accounts receivable. Under U.S. GAAP,
revenue is not recorded before title has passed.
f) Asset retirement obligations
Effective January 1, 2003, the Company has adopted Statement of Financial
Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations."
This statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. For Canadian GAAP purposes this change in
accounting policy was applied retroactively and accordingly, the financial
statements of prior periods were restated. For U.S. GAAP purposes the
Company would record a cumulative effect adjustment in the statements of
earnings for the difference between the amounts recognized prior to the
adoption of SFAS No. 143 and the net amount recognized according to
SFAS No. 143.
g) Currency translation adjustment
The Company has a self-sustaining foreign operation and as such accounts for
movements in exchange rates within this account. Under U.S. GAAP, exchange
gains or losses arising from translation of self sustaining operations are
included in other comprehensive earnings.
h) Reconciliation to U.S. GAAP
The application of the above described U.S. GAAP differences would have the
following effect on earnings, earnings per share, marketable securities and
total shareholders' equity for U.S. GAAP purposes:
2006 2005 2004
---------------------------------------
Earnings
As reported in accordance with $ 43,701 $ 23,551 $ 12,747
Canadian GAAP
Adjustment for unrealized (loss)gain 213 (38) (78)
on trading securities
Revenue recognition - - 820
Gain on dilution of shares - (252) -
Fair value adjustment for derivatives - (250) 250
------------------------------------
Net earnings under U.S. GAAP 43,914 23,011 13,739
Other comprehensive income
Adjustment for unrealized holding (3,925) 1,808 (3,472)
gains (losses)
Currency translation adjustment 12 (36) (426)
-------------------------------------
Comprehensive earnings $ 40,001 $ 24,783 $ 9,841
======================================
Earnings per share under U.S. GAAP
Basic $ 0.32 $ 0.23 $ 0.15
Dilutive $ 0.31 $ 0.23 $ 0.15
Marketable securities
Under Canadian GAAP $ 1,865 $ 945 $ 786
Adjusted for fair market value 436 223 261
(note 17(b)) --------------------------------------
Under U.S. GAAP $ 2,301 $ 1,168 $ 1,047
=====================================
Investments
Under Canadian GAAP $ 9,980 $ 17,117 $ 15,032
Adjusted for fair value 3,388 7,313 5,505
-------------------------------------
Under U.S. GAAP $ 13,368 $ 24,430 $ 20,537
=====================================
Loans and convertible debentures
Under Canadian GAAP $ 269,522 $124,551 $ 76,215
Adjusted for fair value - - 250
-------------------------------------
Under U.S. GAAP $ 269,522 $124,551 $ 76,465
=====================================
Asset retirement obligations
Under Canadian and U.S. GAAP $ 1,011 $ 1,884 $ 5,366
Total shareholders' equity
Share capital
Under Canadian GAAP $ 202,513 $ 138,891 $ 83,388
Adjusted for reduction of stated 185,584 185,584 185,584
capital (note 17(a))
Under U.S. GAAP $ 388,097 $ 324,475 $ 268,972
Warrants and options
Under Canadian and U.S. GAAP $ 6,479 $ 6,772 $ 4,198
Retained earnings (deficit)
Under Canadian GAAP $ 67,231 $ 30,739 $ 10,706
Adjustments to deficit (185,148) (185,361) (185,073)
-------------------------------------
Under U.S. GAAP $ (117,917) $(154,622) $(174,367)
-------------------------------------
Cumulative other comprehensive income
Under Canadian GAAP $ - $ - $ -
Adjusted for fair value of 3,388 7,313 5,505
investments
Currency translation adjustment 1,204 1,192 1,228
------------------------------------
Under U.S. GAAP $ 4,592 $ 8,505 $ 6,733
------------------------------------
Total shareholders' equity under $ 281,251 $ 185,130 $ 105,536
======================================
U.S. GAAP
Statement of Cash Flows From
Operating activities under Canadian $ 30,309 $ 10,310 $ 12,074
and U.S. GAAP
Financing activities under Canadian $ 74,080 $ 56,025 $ 2,329
and U.S. GAAP
Investing activities under Canadian $ (128,650) $ (39,138) $ (39,266)
and U.S. GAAP
i) Impact of recently issued accounting standards
(i) Effective January 1, 2007, the CICA issued three new
standards: "Financial Instruments - Recognition and Measurement.""Hedges"
and "Comprehensive Income." The implementation of these standards will
require the Company to present a separate statement of comprehensive
income. Investments and marketable securities will be recorded in the
consolidated balance sheet at fair value. Changes in fair value of
marketable securities will be recorded in income and changes in the fair
value of investments will be reported in comprehensive income. The impact
of these standards on the Company, result in no Canadian-U.S.GAAP
differences.
(ii) In July 2006, the Financial Accounting Standards Board
("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting for
Uncertainty in Income Taxes". FIN 48 was issued to address financial
statement recognition and measurement by an enterprise of a tax position
taken or expected to be taken in a tax return. The new standard will r
require several new disclosures in annual financial statements,
including: (a) the income statement classification of income tax related
interest and penalties and (b) a reconciliation of the total amount of
unrecognized tax benefits. The effective date of this standard is fiscal
years beginning after December 15, 2006. Based on the Company's
assessment this standard results in no Canadian - U.S. GAAP difference.
(iii) In September 2006, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 108, "Considering the Effects of
Prior Year Misstatements When Quantifying Misstatements in Current Year
Financial Statements" ("SAB 108"), which provides interpretive guidance on
how the effects of the carryover or reversal of prior year misstatement
should be considered in quantifying a current year misstatement. The
guidance is applicable for fiscal years ending after November 15, 2006.
The Company does not believe SAB 108 will have a material impact on its
consolidated financial statements.
QUEST CAPITAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2006
INTRODUCTION
The following information, prepared as of March 7, 2007, should be read in
conjunction with Quest Capital Corp.'s (the "Company") audited annual
consolidated financial statements for the years ended December 31, 2006 and
2005 and related notes attached thereto, which were prepared in accordance
with Canadian generally accepted accounting principles ("Cdn GAAP"),
together with the related management's discussion and analysis ("MD&A"). 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;
+ *providing commercial bridge loans 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; which fees are subject to the number and value
of the transactions in which the Company participates.
The following discussion, analysis and financial review is comprised of 14
main sections:
1. SELECTED ANNUAL INFORMATION
2. RESULTS OF OPERATIONS
3. SUMMARY OF QUARTERLY RESULTS
4. LIQUIDITY
5. RELATED PARTY TRANSACTIONS
6. SUBSEQUENT AND PROPOSED TRANSACTIONS
7. OFF BALANCE SHEET ARRANGEMENTS
8. OUTLOOK
9. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
10. CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
11. DISCLOSURE OF OUTSTANDING SHARE DATA
12. RISKS AND UNCERTAINTIES
13. FORWARD LOOKING INFORMATION
14. INTERNAL DISCLOSURE CONTROLS AND PROCEDURES
Additional information about the Company, including its Annual Information
Form and other public filings, are available on SEDAR at www.sedar.com.
1. SELECTED ANNUAL INFORMATION
(In thousands of Canadian dollars, except per share amounts)
For the year ended December 31,
2006 2005 2004
Interest and related fees 32,591 17,410 10,948
Non-interest income 18,499 9,490 6,775
Expenses and other 12,488 9,732 4,381
Earnings before income taxes 36,984 17,168 13,067
Net Earnings 43,701 23,551 12,747
Basic Earnings Per Share 0.32 0.23 0.14
Total Assets 310,357 189,603 111,905
Total Liabilities 32,930 12,009 12,385
Cash Dividends Declared Per Share $0.05 $0.03 -
The Company's loan portfolio continued to grow in 2006 to $269.5 million
which is a 116% increase as compared to the previous year. As at December
31, 2006, the majority of the Company's loan portfolio includes first and
second real estate mortgages. These loans are characterized by slightly
lower interest rates and fees that the Company would otherwise realize from
commercial loans to publicly traded development stage companies.
The Company realized net gains from sale of marketable securities and
investments in 2006 totaling $14.5 million, as compared to $4.9 million
realized in 2005 and $1.1 million realized in 2004.
In 2004, the Company, through its wholly owned subsidiary Quest Securities
Corporation, expanded its services to include corporate finance services in
return for fees. In 2006, fees recorded from these activities totaled $2.8
million, compared to $3.3 million in 2005 and $0.9 million in 2004. The
decrease in 2006 is the result of changes in management of the Company's
corporate finance services.
In 2006, the Company completed its closure obligations at the Castle
Mountain property located in California, other than long-term monitoring and
maintenance. In the impact of the Company's former resource operations were
minimal in 2006 and 2005. Currently, the Company is seeking to sell the
Castle Mountain property.
In 2005 and 2006, net earnings were also positively impacted by the
recognition of a future tax asset (see Critical Accounting Policies and
Estimates - Future Tax Asset) of $6.0 million and $8.5 million,
respectively, as result of the likely realization of unused tax losses from
future earnings. In 2007, the future tax asset will be utilized to offset
taxable earnings. As the future tax asset is realized, future earnings will
be reduced. As a result, the Company's 2007 attributed tax rate will be
approximately 34%.
2. RESULTS OF OPERATIONS
Total assets as at December 31, 2006 were $310.4 million comprised of $9.5
million of cash, $1.9 million of marketable securities, $269.5 million in
loans, $10.0 million in investments with a fair value of $13.4 million and
$19.5 million of other assets.
The loan portfolio at December 31, 2006 was comprised of 87% in first and
second real estate mortgages, 12% in resource sectors, and 1% in other
sectors. As at December 31, 2005, the loan portfolio was comprised of 89% in
first and second real estate mortgages, 6% in resource sectors, and 5% in
other sectors. At December 31, 2006, mortgages were geographically located
as follows: 48% in British Columbia, 37% in Alberta, 13% in Ontario and 2%
in other areas; of which 80% are first mortgages and 20% are 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 December 31, 2006, the Company's loan portfolio
consisted of 54 loans.
For the year ended December 31, 2006 the Company had consolidated net
earnings of $43.7 million (or $0.32 per share) compared to consolidated net
earnings of $23.6 million ( or $0.23 per share) in 2005 and consolidated net
earnings of $12.7 million ($0.14 per share) in 2004. For fiscal years 2005
and 2006, the Company recognized a future tax asset based on the likely
realization of tax losses which are to be utilized against future taxable
earnings. In 2005 a future tax asset of $6.0 million was recognized and in
2006 an additional $8.5 million was recognized. As a result of the
recognition of a future tax recovery in 2005 and 2006, earnings before tax
increased by $6.3 million and $6.7 million respectively.
Interest and Related Fees
Net interest income from the Company's lending activities increased for 2006
as compared to 2005 and 2004 due to the growth in the loan portfolio
year-over-year. Total loans as at December 31, 2006 were $269.5 million as
compared to $124.6 million as at December 1, 2005, representing a 116%
increase.
Non-Interest Income
Net earnings have been positively impacted over the past years with
increases in management and finder's fees earned by the Company's corporate
finance services. In 2006, fees recorded from these activities totaled $2.8
million, compared to $3.3 million in 2005 and $0.9 million in 2004. The fair
value of non-monetary compensation received as finder's fees in the form of
shares, broker warrants and/or options are estimated using the trading price
for shares, adjusted for liquidity, hold periods and other restrictions and
the Black-Scholes option model for warrants.
Marketable securities are carried at the lower of average cost and market
value. Accordingly, trading gains in 2006 resulted in the Company recording
a gain of $5.6 million compared to a net gain of $0.7 million in 2005 and a
net loss of $1.0 million in 2004. Included in the net gain in 2006 is a
write-down in the amount of $0.4 million, no write-downs were recorded in
2005 or 2004.
Net realized gains from the sales and write-downs to carrying value of
investments resulted in the Company recording a net gain of $8.9 million in
2006 compared to a net gain of $4.2 million in 2005 and a net gain of $2.1
million in 2004. Included in the net gain in 2006 is a write-down in the
amount of $1.5 million and in 2005 a write-down of $1.2 million.
Expenses and Other
Total expenses and other for the year ended December 31, 2006 were $12.5
million as compared to $9.7 million in 2005 and $4.4 million in 2004.
Salaries and benefits increased in 2006 compared to 2005 and 2004 as a
result of expansion of the business and the addition of new employees over
the past three years.
Bonuses for the year ended December 31, 2006 were $5.5 million as compared
to $2.0 million in 2005 and $1.5 million in 2004. This represents amounts
under the incentive plan to officers and employees of the Company. The 2006
increase in bonuses is the result of the realized gain on sale of securities
and increased level of loan activity. The payments and allocations under
such plan are subject to the approval of the Compensation Committee and
Board of Directors. The Company's incentive plan includes discretionary and
non-discretionary components. The non-discretionary components are based on
the Company's corporate finance activities and loan underwritings. The
discretionary components are primarily based on the earnings of the Company.
Stock based compensation decreased in 2006 to $0.5 million as compared to
$2.1 million in 2005 and $1.8 million in 2004, as a result of fewer options
being issued and vested.
Legal and professional fees and regulatory and shareholder relations costs
increased in 2006 as compared to 2005, primarily as a result of listing our
shares on the London Alternative Investment Market (AIM) and other
regulatory requirements. Legal and professional fees in 2004 included legal
costs associated with resolving the legal claim in Australia.
Income tax recovery was $6.7 million for the year ended December 31, 2006,
compared to a recovery of $6.3 million in 2005 and an income tax expense of
$0.3 million in 2004. Earnings has been positively impacted by the
recognition of a future tax asset of $8.5 million in 2006 and $6.0 million
in 2005, as a result of the likely realization of unused tax losses from
future earnings.
3. SUMMARY OF QUARTERLY RESULTS
(In thousands of Canadian dollars, except per share amounts)
Fourth Third Second First Fourth Third Second First
Qtr 2006 Qtr 2006 Qtr 2006 Qtr 2006 Qtr 2005 Qtr 2005 Qtr 2005 Qtr 2005
--------------------------------------------------------------------------
Interest
and 10,597 8,781 7,415 5,798 5,555 4,399 4,004 3,452
related
fees
Non-
interest 1,265 3,368 7,905 5,961 4,028 1,883 2,377 1,202
income
Earnings 7,918 9,087 11,664 8,315 5,059 4,291 4,507 3,311
before
taxes
Net
earnings 16,021 8,770 10,882 8,028 11,395 4,295 4,550 3,311
Basic
and 0.12 0.06 0.08 0.06 0.10 0.04 0.05 0.04
Diluted
Earnings
Per
Share
Total
Assets 310,357 284,935 267,891 208,060 189,603 166,928 123,487 114,030
Total 32,930 20,885 14,828 8,999 12,009 6,718 7,525 10,684
Liabil. ======================================================================
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.
Fourth Quarter
For the quarter ended December 31, 2006, the Company had earnings of $7.9
million before tax or net earnings of $16.0 million. Net interest income
increased as compared to the previous three quarters due to the growth in
the loan portfolio quarter over quarter.
The increase of $7.3 million in the future income tax asset between the
third and fourth quarter of 2006 represents management's review of available
tax losses and future earnings as at December 31, 2006.
4. LIQUIDITY
The Company's cash resources at December 31, 2006 were $9.5 million as
compared to $33.7 million as at December 31, 2005. 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 December 31, 2006, the Company had commitments under existing loan
agreements to lend further funds of $2.0 million. Advances under these
agreements are subject to a number of conditions, including due diligence
and no material adverse change in the assets, business or ownership of the
borrower.
The Company's loan portfolio as at December 31, 2006 was $269.5 million
comprised of 87% real estate mortgages, 12% in resource sectors, and 1% in
other sectors. As at December 31, 2006, 69% of the loan value is scheduled
to mature within a year. The Company had approximately $13.8 million of
loans impaired as a result of certain principal and/or interest payments
being in arrears as at December 31, 2006 against which the Company has a
provision of $0.6 million. The Company expects to collect the full carrying
value of its loan portfolio.
For 2006, cash flow from operations provided $30.3 million as compared to
$10.3 million for the comparative period in 2005, as a result of higher
earnings and proceeds received from the sale of marketable securities.
In April 2006, the Company completed an equity offering of 15,625,000 common
shares and received net proceeds of $47.3 million.
In 2006, the Company's loan portfolio increased by $144.9 million to $269.5
million as compared to December 31, 2005. In 2006, the Company had arranged
$279.2 million of new loans (net to Company - $255.2 million) and $116.9
million of loans (net to the Company - $101.5 million) were repaid.
As part of the Company's investment and tax planning strategies significant
acquisitions and disposals of investments occurred in 2006 funded by
internal sources and the use of margin accounts.
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. In addition, the Company is
reviewing the implementation of various 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 -
2011 are $1,474,000.
Obligation due by period
-----------------------------------------------
Type of Contractual Total Less than 1 1 - 3 3 - 5 More
Obligation Year Years Years than 5
Years
-----------------------------------------------------------------------------
Office Leases $1,474,000 $434,000 $997,000 $43,000 -
Loan Commitments $2,000,000 $2,000,000 - - -
---------------------------------------------------------------------------
Total $3,474,000 $2,434,000 $997,000 $43,000 -
============================================================================
5. RELATED PARTY TRANSACTIONS
For the year ended December 31, 2006, the Company received $1.5 million (
2005 - $1.6 million, 2004 - $1.5 million) in advisory, management and
finder's fees from parties related by virtue of having certain directors and
officers in common. Other assets includes $0.2 million (2005 - $0.5 million)
of non-transferable securities held in either private or publicly traded
companies related by virtue of certain directors and officers in common. For
the year ended December 31, 2006, the Company recorded a write-down of other
assets of $0.1 million (2005 $nil, 2004 $nil) in parties related by virtue
of having certain directors in common.
As at December 31, 2006, no loans and convertible debentures were due from
parties related by virtue of directors and officers in common, compared with
$5.7 million in 2005. During the year ended December 31, 2006, the Company
received $0.6 million (2005 - $2.1 million, 2004 - $1.1 million) in interest
and fees from a related parties by virtue of certain directors and officers
in common. During the year ended December 31, 2006, the Company has made
$0.4 million in additional provision for losses on loans and convertible
debentures (2005 - $nil, 2004 - $0.2 million) from a party related by virtue
of having a director in common.
For the year ended December 31, 2006, the Company received $24,000
(2005-$128,000, 2004 -$15,000) in syndication loan administration fees from
parties related by virtue of certain directors and officers in common.
Marketable securities and investments include $9.1 million (2005 - $14.0
million) of shares held in publicly traded companies related by virtue of
having certain directors and officers in common. For the year ended December
31, 2005, the Company recorded a gain on disposal of securities of $10.6
million (2005 - $3.9 million, 2004 - $0.3 million) from parties related by
virtue of having certain directors and officers in common. For the year
ended December 31, 2006, the Company recorded a write-down of investments of
$1.2 million (2005 $nil, 2004 $nil) in parties related by virtue of having
certain directors in common.
For the year ended December 31, 2006, the Company borrowed and repaid $20.0
million (2005 - $nil) from parties related by virtue of certain directors in
common. Interest paid on these borrowings totalled $110,000, with identical
terms to the Company's debt facility described in note 10 of the audited
consolidated financial statements.
Included in accounts payable is $3.2 million (2005 - $2.0 million) due to
officers for bonuses payable.
6. SUBSEQUENT AND PROPOSED TRANSACTIONS
The Company has no subsequent and proposed transactions to report.
7. OFF BALANCE SHEET ARRANGEMENTS
The Company has no off balance sheet arrangements.
8. OUTLOOK
As at December 31, 2006, the Company had $9.5 million of cash on hand.
Reinvestment of the Company's cash as loans mature is the paramount 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 as is
required to fund the growth of the Company's loan portfolio (also refer to
Liquidity).
9. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's accounting policies are described in Note 3 of its audited
consolidated financial statements for the years ended December 31, 2006 and
2005. Management considers the following policies to be the most critical in
understanding the judgments and estimates that are involved in the
preparation of its consolidated financial statements and the uncertainties
which could materially impact its results, financial condition and cash
flows. Management continually evaluates its assumptions and estimates;
however, actual results could differ materially from these assumptions and
estimates.
Provision for Loan Losses
Loans are stated net of an allowance for credit losses on impaired loans.
Such allowances reflect management's best estimate of the credit losses in
the Company's loan portfolio and judgments about economic conditions. The
evaluation process involves estimates and judgments, which could change in
the near term, and result in a significant change to a recognized allowance.
The Company's Credit Committee reviews its loan portfolio at least on
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.
Investments are recorded at cost or at cost less amounts written off to
reflect any impairment in value that is considered to be other than
temporary. The Company regularly reviews the carrying value of its portfolio
positions. A decline in market value may be only temporary in nature or may
reflect conditions that are more permanent. Declines may be attributable to
general market conditions, either globally or regionally, that reflect
prospects of the economy as a whole or prospects of a particular industry or
a particular company. Such declines may or may not reflect the likelihood of
ultimate recovery of the carrying amount of an investment.
In determining whether the decline in value of the investment is other than
temporary, quoted market price is not the only factor considered,
particularly for thinly traded securities, large block holdings and
restricted shares. Other factors considered include:
* the trend of the quoted market price and trading volume;
* the financial position of the company and its results;
* changes in or reorganization of the business plan of the investment;
and
* the current fair value of the investment (based upon an appraisal
thereof) relative to its carrying value.
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 realization 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.
10. CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
No new accounting policies were adopted during the year ended December 31,
2006.
Effective January 1, 2007, the Company adopted Canadian Institute of
Chartered Accountants (CICA) Section 3855 Financial Instruments -
Recognition and Measurement, Section 3865 Hedges and Section 1530
Comprehensive Income (the "Financial Instrument Standards"). As the Company
does not anticipate in undertaking hedging activities, adoption of Section
3865 will have no impact on the Company. Prior to January 1, 2007, the
principal accounting policies affecting the Company's financial instruments
were, marketable securities that were valued at the lower of average cost
and market value, investments that 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 are stated net of an allowance for credit
losses on impaired loans and other assets that were valued at their net
realizable value.
The adoption of the Financial Instrument Standards will require the
presentation of a separate statement of comprehensive income. Investments
and marketable securities will be recorded in the consolidated balance sheet
at fair value. Changes in fair value of marketable securities will be
recorded in income and changes in the fair value of investments will be
reported in comprehensive income. The transitional adjustments in respect of
these standards will be recorded to the opening marketable securities,
investments and loan balances and adjusted through the retained earnings
account and accumulated other comprehensive income, at January 1, 2007.
As a consequence of adopting the Financial Instrument Standards at January
1, 2007, retained earnings will increase by $0.3 million, currency
translation adjustment will decrease by $1.2 million and accumulated other
comprehensive income will increase by $3.4 million. This reflects an
increase of $0.4 million in marketable securities, $3.4 million increase in
investments and a decrease in future tax asset of $1.3 million. This
represents the net gain on measuring the fair value of held for trading and
available for sale investments, which was not recognized on a fair value
basis prior to January 1, 2007.
11. DISCLOSURE OF OUTSTANDING SHARE DATA
As at March 7, 2007, the Company had the following common shares, stock
options and compensation options outstanding:
Common shares 144,962,628
Stock options 10,186,333
Compensation options 1,133,775
Fully diluted shares outstanding 156,282,736
Dividends
As a reflection of the continued growth in the Company's business, on
November 1, 2006 its board of directors approved an increase in its dividend
rate from $0.06 per year to $0.08 per year. This new dividend will be paid
quarterly, at the rate of $0.02 per share.
12. RISKS AND UNCERTAINTIES
Additional risks factors are disclosed under "Risk Factors" in the Annual
Information Form filed on SEDAR at www.sedar.com.
Liquidity Risk
The Company maintains a sufficient amount of liquidity to fund its
obligations as they come due under normal operating conditions. As at
December 31, 2006, 69% 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 composition of the loan portfolio at December 31, 2006 was 87% in first
and second real estate mortgages, 12% in resource sectors, and 1% in other
sectors. At December 31, 2006, mortgages were geographically located as
follows; 48% in British Columbia, 37% in Alberta, 13% in Ontario and 2% in
other; of which 80% are first mortgages and 20% are second mortgages. 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. The Company provides for loan
losses on a specific loan basis and has a provision of $0.6 million as at
December 31, 2006.
13. FORWARD LOOKING INFORMATION
These materials include certain statements that constitute "forward-looking
statements" within the meaning of Section 27A of the United States
Securities Act of 1933 and Section 21E of the United States Securities
Exchange Act of 1934. These statements appear in a number of places in this
document and include statements regarding our intent, belief or current
expectation and that of our officers and directors. Such forward-looking
statements involve known and unknown risks and uncertainties that may cause
our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. When used in this document, words such as
"believe", "anticipate", "estimate", "project", "intend", "expect", "may",
"will", "plan", "should", "would" "contemplate", "possible", "attempts",
"seek", and similar expressions are intended to identify these
forward-looking statements. These forward-looking statements are based on
various factors and were derived utilizing numerous assumptions that could
cause our actual results to differ materially from those in the
forward-looking statements. Accordingly, you are cautioned not to put undue
reliance on these forward-looking statements. Forward-looking statements
include, among others, statements regarding our expected financial
performance in future periods, our plan of operations and our business
strategy and plans or budgets.
14. INTERNAL DISCLOSURE CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") are
responsible for establishing and maintaining adequate disclosure controls
and procedures. Disclosure controls and procedures are designed to ensure
that information required to be disclosed in the Company's filings under
securities legislation is accumulated and communicated to management,
including the CEO and CFO as appropriate, to allow timely decisions
regarding public disclosure. They are designed to provide reasonable
assurance that all information required to be disclosed in these filings is
recorded, processed, summarized and reported within the time periods
specified in securities legislation. The Company reviews its disclosure
controls and procedures; however, it cannot provide an absolute level of
assurance because of the inherent limitations in control systems to prevent
or detect all misstatements due to error or fraud.
The Company's management, including the CEO and CFO, conducted an evaluation
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures as of December 31, 2006. Based on this evaluation,
the CEO and CFO have concluded that the Company's disclosure controls and
procedures are effective.
Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal
control over financial reporting to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with GAAP. Internal control
over financial reporting includes those policies and procedures that: (1)
pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the
Company, (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
GAAP, and that receipts and expenditures of the Company are being made only
in accordance with authorizations of management and directors of the
Company, and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on the financial statements.
The Company's management has evaluated the effectiveness of internal control
over financial reporting. Based on this evaluation, management has concluded
that internal control over financial reporting was effective as of December
31, 2006.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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