The Goldfarb Corporation announces 2009 year end and fourth quarter results
TORONTO, April 5 /CNW/ - The Goldfarb Corporation (the "Corporation") today announced its fourth quarter and fiscal 2009 results.
Revenues from operations for the fourth quarter of 2009 were $10,000 compared to $114,000 in 2008, a decrease of $104,000. The net loss for the Corporation in the fourth quarter of 2009 was $294,000 or $0.05 per share compared to a net loss of $929,000 or $0.15 per share in the fourth quarter of 2008. For the year ended December 31, 2009, the Corporation's revenues from operations were $95,000 compared to $522,000 in 2008, a decrease of $427,000. Net income for 2009 was $83,000 or $0.01 per share compared to a net loss of $4,948,000 ($0.83 per share) in 2008.
The accompanying ten pages of unaudited interim and annual financial statements have been prepared by and are the responsibility of the Corporation's management. The Corporation's auditor has not performed a review of the interim financial statements.
Statement of Income (Loss), Comprehensive Income (Loss) and Deficit
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Three Months Ended Year Ended
December 31 December 31
2009 2008 2009 2008
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(thousands of dollars except
per share information) (unaudited) $ $ $ $
Interest Revenue 10 114 95 522
Administrative expenses 266 (176) 1,039 1,595
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(256) 290 (944) (1,073)
Litigation recovery (settlement)
(note 8) - - 1,315 (1,500)
Impairment charge on long-term
investments (note 2) - (1,637) - (3,008)
Depreciation (2) (2) (5) (5)
Foreign exchange gains (losses) (36) 420 (283) 638
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Income (loss) before income taxes (294) (929) 83 (4,948)
Income tax expense (note 6) - - - -
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Net Income (Loss) and
Comprehensive Income (Loss) (294) (929) 83 (4,948)
Deficit, beginning of period (32,847) (32,295) (33,224) (28,276)
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Deficit, end of period (33,141) (33,224) (33,141) (33,224)
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Basic and Diluted Income
(Loss) per Share (0.05) (0.15) 0.01 (0.83)
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Weighted average number of
shares outstanding 5,936,660 5,936,660 5,936,660 5,936,660
Cash Flow Statement
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Three Months Ended Year Ended
December 31 December 31
2009 2008 2009 2008
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(thousands of dollars) (unaudited) $ $ $ $
Operating Activities
Net income (loss) (294) (929) 83 (4,948)
Add (deduct) items not
involving cash:
Depreciation 2 2 5 5
Unrealized foreign
exchange losses (gains) (72) (420) 175 (638)
Impairment charge on
long-term investments (note 2) - 1,637 - 3,008
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(364) 290 263 (2,573)
Changes in non-cash working
capital balances (note 5(a)) 39 (312) (64) (24)
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Cash provided by (used in)
operating activities (325) (22) 199 (2,597)
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Financing Activities
Distribution to shareholders
(note 4) - - (6,530) -
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Cash used in financing activities - - (6,530) -
Investing Activities
Redemption of short-term
investments - - 6,582 9,491
Acquisition of short-term
investments 135 (51) (6,650) (6,582)
Repayment of note receivable - - 1,478 -
Principal and interest received
on long-term investments (note 2) 81 - 941 -
Additions to capital assets - (1) - -
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Cash provided by (used in)
investing activities 216 (52) 2,351 2,909
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Foreign exchange gain (loss) on
cash held in foreign currency 72 197 (175) 347
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Increase (decrease) in cash and
cash equivalents for the period (37) 123 (4,155) 659
Cash and cash equivalents,
beginning of period (note 5(b)) 1,062 5,057 5,180 4,521
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Cash and cash equivalents, end
of period (note 5(b)) 1,025 5,180 1,025 5,180
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Balance Sheet
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As at December 31 2009 2008
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(thousands of dollars) (unaudited) $ $
ASSETS
Current Assets
Cash and cash equivalents (note 5(b)) 1,025 5,180
Short-term investments 6,650 6,582
Accounts receivable and prepaid expenses 55 78
Current portion of note receivable (note 3) - 355
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Total Current Assets 7,730 12,195
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Long-term Investments (note 2) 8,881 9,822
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Note Receivable (note 3) - 1,123
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Capital Assets 12 17
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16,623 23,157
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities 105 192
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Total Current Liabilities 105 192
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Shareholders' Equity
Capital stock (note 4) 49,206 55,736
Contributed surplus 453 453
Deficit (33,141) (33,224)
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Total Shareholders' Equity 16,518 22,965
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Contingency (note 9)
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16,623 23,157
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Notes to Interim Financial Statements
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For the period ended December 31, 2009 (thousands of dollars)
(unaudited)
1. Significant Accounting Policies
The disclosures contained in these unaudited interim financial statements
do not include all requirements of generally accepted accounting
principles for annual financial statements. The unaudited interim
financial statements should be read in conjunction with the annual
financial statements for the year ended December 31, 2008.
The unaudited interim financial statements are based upon accounting
principles consistent with those used and described in the annual
financial statements, except that effective January 1, 2008, the
Corporation adopted three new Handbook Sections issued by the CICA:
Section 3862 ("Financial Instruments-Disclosures"), Section 3863
("Financial Instruments-Presentation") and Section 1535 ("Capital
Disclosures"). These sections require the Corporation to provided
additional disclosures relating to its financial instruments and about
the Corporation's capital (notes 10 and 11).
The Corporation adopted the new requirements of CICA Handbook Section
1400 ("General Standards of Financial Statement Presentation") that
became effective January 1, 2008. The adoption did not have an impact on
the presentation of the financial statements for the year ended
December 31, 2008.
The unaudited interim financial statements reflect all adjustments,
consisting only of normal recurring accruals, which are, in the opinion
of management, necessary to present fairly the financial position of the
Corporation as of December 31, 2009 and the results of operations and
cash flows for the periods ended December 31, 2009 and 2008.
In February 2008, the CICA announced that Canadian generally accepted
accounting principles for public companies will be replaced by
International Financial Reporting Standards ("IFRS") for fiscal years
beginning on or after January 1, 2011. As a result, the conversion from
Canadian generally accepted accounting principles to IFRS will occur in
the first quarter of 2011. Comparative information for the previous
fiscal year will be required to be in accordance with IFRS. With the
Corporation proceeding to liquidation in the next twelve months, it is
not expected that IFRS will have an impact on the Corporation's
accounting and financial reporting.
2. Long-Term Investments (formerly Asset-Backed Commercial Papers
("ABCP"))
December 31
2009 2008
----------------------
$ $
Long-Term Investments 8,881 9,822
----------------------
In 2007, the Corporation invested $17.1 million in three separate
non-bank sponsored asset-backed commercial papers that did not redeem on
maturity. Dominion Bond Rating Service Limited ("DBRS") had rated these
commercial papers as R-1 High at the time of purchase.
These investments did not settle on maturity as a consequence of
liquidity issues in the non-bank sponsored ABCP market. Since that time,
the market for these asset-backed securities has been frozen. As a
result, the Corporation has classified its investment as held-for-trading
long-term investments. These investments are recorded at fair value with
unrealized gains and losses included in earnings.
The securities were subject to restructuring by the Pan-Canadian
Investors Committee (the "Committee") pursuant to which the holders of
the ABCP, including the Corporation, would exchange their securities for
new floating rate notes with maturities that match the maturities of the
underlying assets. In January 2009, the Ontario Superior Court of Justice
granted an order for the implementation of the Committee's final amended
restructuring plan for the ABCP. The restructuring was completed on
January 21, 2009 and on closing the Corporation exchanged its holdings of
ABCP for $17.1 million of long-term floating rate notes from Master Asset
Vehicle 2 ("MAV 2").
On closing, interest (net of actual and future estimated restructuring
fees and expenses) of $572 was received on the ABCP for the period from
August 13, 2007 to August 31, 2008. Interest for the period from
September 1, 2008 through January 21, 2009 in the amount of $326 was
received in 2009. These amounts have been included in the calculation of
the fair value of the long-term investments.
The MAV II Notes can be summarized as follows at December 31, 2009:
Note Categories Interest Rate
--------------- -------------
$
Class A-1 BA - 50 bps 5,968
Class A-2 BA - 50 bps 8,497
Class B BA - 50 bps 1,542
Class C 20% 496
Class 15 Tracking Notes Floating 541
--------
17,044
Interest received (925)
Valuation provision (7,238)
--------
Balance at December 31, 2009 8,881
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Interest on the Class A-1 and A-2 Notes is payable quarterly after
payment of the margin funding facility ("MFF"). The Class B and C Notes
will pay interest only after the Class A-1 and A-2 Notes are fully
repaid. The Class 15 Notes pay interest quarterly to the extent that
proceeds are realized and cash is available for that note. The Class A-1
and A-2 Notes were assigned an "A" rating by DBRS. In August 2009, DBRS
downgraded the rating of the Class A-2 Notes to BBB (low) from A and
maintained the rating Under Review with Negative Implication. On
February 9, 2010, DBRS removed the ratings from Under Review with
Negative Implication. The remaining notes are not rated.
Interest rates on the MAV II Notes are primarily based on prevailing
Banker's Acceptance rates. First quarter interest on the Class A-1 and
A-2 Notes was not paid when it became due because the prevailing banker's
acceptance rates were so low and there were insufficient funds to pay the
fixed expense of the MFF required to be paid prior to interest being
paid. By July 2009, rates had improved sufficiently to pay the accrued
MFF shortfall and both the first and second quarter interest due.
However, third and fourth quarter interest was not paid because rates
were again too low. Interest on the Class 15 Notes was paid for all
quarters of 2009. A one-time principal repayment attributable to excluded
securities was made on the
Class A-1 Notes and was received in two distributions that occurred
during the year and subsequent to year-end.
There is currently a very illiquid market for the MAV 2 Notes. Trading
has been limited and at distressed prices. It is uncertain when or if a
liquid market will develop. As a result, the Corporation will continue to
estimate the fair value of its long-term investments using a valuation
technique which incorporates a probability weighted discounted cash flow
approach considering the best available market data for such investments.
At December 31, 2009, the Corporation estimated the fair value of its
long-term investments to be $8.9 million (December 31, 2008 - $9.8
million).
The significant assumptions used to value the Corporation's investment in
these securities are as follows:
Timing of principal repayments at maturity
Risk free interest rate on Class A-1, A-2 and
Class 15 Notes 3.28% to 4.28%
Discount rate on Class B and C Notes 30%
Interest rate on Class A-1 and A-2 Notes 2.0%
Interest rate on Class B, C and Class 15 Notes 2.0% to 20.0%
Term of notes 6-8 years
Recovery of Class A-1 and A-2 Note principal and
interest 40% to 100%
Recovery of Class B and C Note principal and interest 0% to 40%
Recovery of Class 15 Note principal and interest 80% to 100%
The fair value of these investments could range from $8.1 million to
$9.9 million using the same valuation methodology with alternative
reasonably possible assumptions. In subsequent periods, the recorded fair
values may change materially from the estimated fair values. No changes
to the fair value resulted from the completion of the restructuring in
January 2009. A 1% change in the discount rate would increase or decrease
the estimated fair value of these long-term investments by approximately
$0.6 million.
3. Note Receivable
The following note represents the Corporation's pro-rata share (48.4%) of
the promissory note issued by SMK Speedy International Inc. ("Speedy"):
December 31
2009 2008
---------------
$ $
T-Note (2008-US $1,209) - 1,478
Less: Amount due within one year - (355)
---------------
- 1,123
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The T-note had terms and conditions that matched the note that Speedy
received from the purchaser, Tuffy Associates Corp. (the "Purchaser"),
upon the sale of its Car-X business in 2002 and was comprised of:
a. A note in the amount of US$ 1,453 bearing interest at US prime plus
3%, payable quarterly, with the principal due July 8, 2007 or at an
earlier date under certain circumstances.
b. A further note in the amount of US$ 2,906 bearing interest at US prime
plus 2% payable quarterly, with US$ 484 of principal payments due on
July 8 in each of the years 2007 through 2009 with the balance of US$
969 due on July 2, 2010.
In February 2007, the Purchaser renegotiated certain terms and conditions
of the note which resulted in an immediate prepayment of all principal
amounts due in 2007 and 2008 plus related accrued interest (US$ 2,219).
The maturity date of the remaining principal advanced to July 8, 2009.
The Purchaser guaranteed the remaining principal balance. The noteholders
agreed to subordinate the remaining outstanding principal to new
increased senior bank financing of the Purchaser. In December 2007, an
additional principal repayment of US$ 244 was received. In January 2009,
a further principal repayment of US$ 291 was received. The remaining
outstanding balance was received on July 8, 2009.
4. Capital Stock
At December 31, 2009, the Corporation's authorized capital stock was as
follows:
- Unlimited number of Preference Shares, issued in series;
- Unlimited number of Class A Subordinate Voting Shares;
- 182,000 Class B Shares carrying 15 votes per share, convertible into
Class A Subordinate Voting Shares on a one-for-one basis. In certain
prescribed circumstances, additional Class B Shares as may be
required to effect the conversion of Class A Subordinate Voting
Shares into Class B Shares.
The issued share capital is summarized as follows:
December 31
2009 2008
---------------
$ $
5,754,660 Class A Subordinate Voting Shares 49,193 55,523
182,000 Class B Shares 13 213
---------------
49,206 55,736
---------------
---------------
On February 6, 2009, the shareholders of the Corporation passed a special
resolution approving the reduction of the Corporation's stated capital by
an aggregate of $6.5 million, resulting in a distribution of $1.10 per
Class A Subordinate Voting Share and Class B Share. The distribution was
made on February 18, 2009.
5. Supplementary Cash Flow Information
a) Changes in non-cash working capital balances
Three Months Ended Year Ended
December 31 December 31
2009 2008 2009 2008
---------------------------------
$ $ $ $
Decrease in accounts and other amounts
receivable 48 44 23 5
Decrease in income taxes recoverable - 34 - 34
Decrease in accounts payable and accrued
liabilities (9) (390) (87) (63)
---------------------------------
39 (312) (64) (24)
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b) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and with banks, and
short-term investments in highly liquid instruments with original
maturities of 90 days or less. Cash and cash equivalents included in cash
flow statements comprise the following balance sheet amounts:
December 31
2009 2008
---------------
$ $
Cash on hand and with banks 81 695
Cash equivalents 944 4,485
---------------
1,025 5,180
---------------
---------------
c) Short-term investments
Short-term investments at December 31, 2009 consisted of redeemable GIC's
with original maturities of 365 days or less bearing interest at rates
ranging from 0.3% to 0.7%. Short-term investments at December 31, 2008
consisted of investments in corporate commercial papers that were
invested for more than 90 days at 3.10%.
d) Income taxes recovered
In 2008, the Corporation recovered income taxes of $34.
6. Income Taxes
The Corporation's provision for income taxes differs from the Canadian
statutory income tax rate of 33.5% due to the unrecognized benefit of
non-capital loss carry-forwards from losses incurred in prior years.
At December 31, 2009, the Corporation had non-capital losses available to
reduce future taxable income of approximately $13.3 million. No tax
benefits have been recognized on the losses incurred because it is more
likely than not that the losses will not be realized.If unused, these
losses expire as follows:
Year Of Expiry Amount
---------------------------
$
2026 10,696
2028 2,593
---------
13,289
---------
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At December 31, 2009, the Corporation had capital losses available to
offset future capital gains of approximately $27.0 million. These capital
losses do not expire.
7. Segmented Information
The Corporation's sole business segment is an investment holding company.
The Corporation's operations reside entirely in Canada.
8. Litigation Settlements
(a) In 2006, the Corporation reached a settlement in the amount of
$12 million in the claim that had been filed against the
Corporation and certain of its officers by the purchaser of
Goldfarb Consultants, the market research and consulting
business sold by the Corporation in 1998. The Corporation sought
contribution toward the settlement amount from the insurer of
the Corporation's directors and officers. In April 2009, a panel
of arbitrators ruled in favour of the Corporation and determined
that the insurer should contribute US$ 960 plus related interest
costs. The Corporation received Cdn $1.32 million. The recovery
has been recorded as income in 2009.
(b) In May 2008, the Corporation reached a settlement in the amount
of US$ 1.45 million in the claim that had been filed against the
Corporation and certain of its directors and officers by the
trustee of Fleming Packaging Corp. ("Fleming"). The settlement
was approved by the Illinois Bankruptcy Court in June 2008. The
Corporation sought contribution toward the settlement amount
from the insurer of the Corporation's directors and officers.
Arbitration proceedings took place in December 2009. Subsequent
to year-end, the arbitrator ruled in favour of the Corporation
and determined that the insurer should contribute US$ 725 plus
approximately US$35 in interest and Cdn $66 in respect of costs.
Payment was received in March 2010. The recovery will be
recognized as income in 2010.
9. Contingency
In 2003, the Corporation received a notice of withdrawal liability
assessment and demand for payment of US$900 from the GCIU-Employer
Retirement Fund in connection with the unionized employees' pension plan
of Fleming Packaging Corp. ("Fleming"). A claim was filed in connection
with this notice in 2007. The claim was dismissed by the Illinois
District Court in 2008 but was appealed by the plaintiff. In May 2009,
the judgment of the district court was affirmed. On August 10, 2009, the
appeal period for the plaintiff expired and the claim is now fully
concluded.
10. Financial Instruments
The carrying values reported in the balance sheet for cash and cash
equivalents, short-term investments, accounts receivable and accounts
payable and accrued liabilities approximate fair values due to the short
maturity of those instruments. The carrying value of the note receivable
approximates fair value because the interest rates on this instrument
changes with market interest rates. Long-term investments are carried at
estimated fair value.
The Corporation uses the following hierarchy in attempting to maximize
the use of observable inputs and minimize the use of unobservable inputs,
primarily using market prices in active markets.
Level 1 - Quoted prices in active markets for identical assets or
liabilities. An active market for an asset or liability is a market in
which transactions for the asset or liability occur with sufficient
frequency and volume to provide pricing on an ongoing basis.
Level 2 - Observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities, quoted prices in markets that
are not active, or other inputs that are observable that can be
corroborated by observable market data for substantially the full term of
the asset or liability.
Level 3 - Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities.
The following details the fair value hierarchy classification for
financial instruments carried at fair value on the balance sheets:
Fair value at December 31, 2009 using
Level 1 Level 2 Level 3
--------------------------------------
$ $ $
Cash and cash equivalents 1,025 - -
Short-term investments 6,650 - -
Long-term investments - - 8,881
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7,675 - 8,881
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The nature of these financial instruments and the Corporation's structure
as an investment holding company expose the Corporation to credit risk,
interest rate risk, currency risk and liquidity risk. The Corporation
manages its exposure to these risks by employing risk management
strategies and polices to ensure that any exposure to risk is in
compliance with the Corporation's capital management objectives and risk
tolerance levels. These risks are monitored in relation to market
conditions. The Board of Directors has overall responsibility for the
establishment and oversight of the Corporation's risk management
framework.
a) Credit risk
Financial instruments that potentially subject the Corporation to
concentrations of credit risk consist of cash and cash equivalents,
short-term and long-term investments, accounts receivable and the note
receivable. The Corporation's cash and cash equivalents and short-term
investments consist of bank deposits and investments in highly rated
liquid investments with Canadian financial institutions. The T-Note
receivable represented the Corporation's pro-rata share of the promissory
note issued by Speedy arising from the sale of its Car-X business in 2002
as described in Note 3. Long-term investments are in floating rate notes
receivable (formerly ABCP).
Financial instruments are exposed to credit risk as a result of the risk
of the counter-party defaulting on its obligations. The Corporation
monitors and limits its exposure to credit risk on a continuous basis.
The Corporation provides reserves for credit risks based on the financial
condition and short and long-term exposures to counter-parties.
As at December 31, 2009, the maximum exposure to credit risk was $16,661
(2008 - $23,140) being the carrying value of its cash and cash
equivalents, short-term and long-term investments, accounts receivable
and the note receivable. None of the financial assets that are fully
performing have been renegotiated during the year with the exception of
the long-term investments. The Corporation does not believe that there is
significant credit risk arising from any of its receivables and
investments except in connection with its long-term investments as
disclosed in Note 2.
b) Interest rate risk
The Corporation is exposed to interest rate risk arising from
fluctuations in interest rates on its cash and cash equivalents, short-
term investments, note receivable and long-term investments. Cash and
cash equivalents which are in excess of day-to-day requirements are
placed on short-term deposit with Canadian financial institutions and
earn interest at rates available at the time the deposits are made. Prior
to repayment, the T-Note receivable had a floating interest rate which is
based on the Wall Street Journal prime rate of interest. A 1% change in
market interest rates would have increased or decreased interest revenue
by approximately $84 for the year ended December 31, 2009. The
Corporation also has interest rate risk relating to its long-term
investments as disclosed in Note 2.
c) Currency risk
The Corporation has financial assets which are denominated in U.S.
dollars and are subject to fluctuations in exchange rates of the Canadian
dollar with the U.S. dollar. The Corporation does not utilize any
financial instruments or cash management policies to mitigate the risks
arising from changes in exchange rates. At December 31, 2009, the
Corporation had cash and cash equivalents and short-term investments of
$991 which were denominated in U.S. dollars. A 10% change in the foreign
exchange rate from Canadian dollars to United States dollars at December
31, 2009 would have increased or decreased the foreign exchange loss by
approximately $99 as at December 31, 2009.
d) Liquidity risk
The Corporation's approach to managing liquidity is to ensure that it
will have sufficient liquidity to meet its liabilities when they are due.
The Corporation manages liquidity risk through timing the maturities of
its investments to match its financial obligations and ensuring that it
invests in secure instruments. The Corporation's contractual obligations
are specifically related to its accounts payable and accrued liabilities.
At December 31, 2009, the Corporation's accounts payable and accrued
liabilities were $105, all of which become due for payment within the
normal terms of trade, generally between 30 and 60 days (2008 - $192).
11. Capital Management
The Corporation defines its capital as cash and cash equivalents, short-
term investments and long-term investments. Since the sale of Speedy, the
Board of Directors have been evaluating the various alternatives for the
use of the cash proceeds from the transaction, including determining the
cash available for distribution. The Board will consider alternative
methods of effecting a tax efficient distribution of the proceeds prior
to making such a distribution. The Corporation's objectives in managing
its capital are to provide an appropriate return on investment to its
shareholders while maintaining capital preservation.
There were no changes in the Corporation's approach to capital management
in the period ended December 31, 2009.
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The Goldfarb Corporation trades on the NEX Board of the TSX Venture
Exchange under the Symbol GDF.H
%SEDAR: 00002535E
For further information: Karen Killeen, Chief Financial Officer, at (416) 928-3710, Toronto, [email protected]
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