Firm Capital Mortgage Investment Trust announces second quarter 2008 results



    TSX Symbol FC.UN

    TORONTO, July 16 /CNW/ - Firm Capital Mortgage Investment Trust (the
"Trust") (TSX FC.UN), released today its financial statements for the second
quarter ended June 30, 2008.
    Net earnings for the second quarter ended June 30, 2008 increased to
$3,917,718 from $3,155,115 for the same period last year. Basic weighted
average earnings per unit for the second quarter amounted to $0.303 versus
$0.250 last year. Net earnings for the six month period ended June 30, 2008
increased to $7,492,005 from $6,513,723 for the same period last year. Basic
weighted average earnings per unit for the six month period ended June 30,
2008 increased to $0.586 versus $0.517 last year.
    For the six month period ended June 30, 2008, net earnings exceeded
distributions by $1,502,708, representing $0.115 per unit, based on the number
of units outstanding at June 30, 2008. The Trust distributes the balance of
its net earnings, less distributions made up to November 30 of that year, to
Unitholders of record as at December 31. Net earnings for the six month period
ended June 30, 2008 represented an annualized return on average Unitholders'
equity of 12.61% per annum. This return on Unitholders' equity equates to 975
basis points per annum over the average One Year Government of Canada Treasury
Bill yield for the related period, and is well in excess of the Trust's target
yield objective of 400 basis points per annum over the One Year Treasury Bill
yield.
    As at June 30, 2008, the Trust's mortgage portfolio, net of fair value
adjustment, stood at $244,645,057 as compared to $233,731,967 as at
December 31, 2007. The portfolio continued to be heavily concentrated in first
mortgages.
    The Trust, through its Mortgage Banker, Firm Capital Corporation, is a
non-bank lender providing residential and commercial short-term bridge and
conventional real estate finance, including construction, mezzanine and equity
investments. The Trust's investment objective is the preservation of
Unitholders' equity, while providing Unitholders with a stable stream of
monthly distributions from investments. The Trust achieves its investment
objectives by pursuing a strategy of growth through investments in selected
niche markets that are under-serviced by large lending institutions. Lending
activities to date continue to develop a diversified mortgage portfolio,
producing a stable return to Unitholders.
    Additional information about the Trust, including the Management's
Discussion and Analysis relating to the financial statements, will be
available on the SEDAR website at www.sedar.com.

    
                      Unaudited Financial Statements of

                   FIRM CAPITAL MORTGAGE INVESTMENT TRUST

                   For the Six Months Ended June 30, 2008

                   NOTICE UNDER NATIONAL INSTRUMENT 51-102

    National Instrument 51-102: Continuous Disclosure Requirements requires
that these interim financial statements be accompanied by this notice which
indicates that these financial statements have not been reviewed by the
auditors of Firm Capital Mortgage Investment Trust.



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Balance Sheets

    June 30, 2008, with comparative figures for December 31, 2007 and
    June 30, 2007

    -------------------------------------------------------------------------
                                         June 30,      Dec. 31,      June 30,
                                            2008          2007          2007
                                      (Unaudited)     (Audited)   (Unaudited)
    -------------------------------------------------------------------------
    Assets

    Amounts receivable and
     prepaid expenses               $  2,217,213  $  2,093,026  $  1,973,143
    Mortgage investments
     (note 5)                        244,645,057   233,731,967   204,952,996
    -------------------------------------------------------------------------
                                    $246,862,270  $235,824,993  $206,926,139
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and
     Unitholders' Equity

    Liabilities:
      Bank indebtedness (note 6)    $ 44,527,864  $ 52,593,158  $ 34,237,971
      Accounts payable and
       accrued liabilities               561,288       820,000       461,214
      Unearned income                    299,813       335,721       296,781
      Unitholder distribution
       payable                         1,021,684     2,186,413       984,397
      Loans payable (note 7)          50,463,679    36,002,060    26,608,102
      Convertible debenture
       (note 8)                       23,862,382    23,753,430    23,644,266
    -------------------------------------------------------------------------
                                     120,736,710   115,690,782    86,232,731

    Unitholders' equity (note 9):    126,125,560   120,134,211   120,693,408
      Issued and outstanding:
        13,098,509 units
         (2007 - 12,620,468)

    Commitments (note 5)
    Contingent liabilities
     (note 15)

    -------------------------------------------------------------------------
                                    $246,862,270  $235,824,993  $206,926,139
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to financial statements.



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Unaudited Statement of Earnings

    -------------------------------------------------------------------------
                               3 Month Period              6 Month Period
                           June 30,      June 30,      June 30,      June 30,
                              2008          2007          2008          2007
    -------------------------------------------------------------------------
    Interest and fees
     earned, net of
     Trust Manager
     interest
     allocation
     (note 13)        $  5,778,363  $  4,715,947  $ 11,257,026  $  9,569,415
    Less interest
     expense (note 14)   1,468,119     1,264,080     3,176,404     2,590,439
    -------------------------------------------------------------------------
    Net interest and
     fee income          4,310,244     3,451,867     8,080,622     6,978,976

    Expenses:
      General and
       administrative      192,526       201,752       388,617       370,253
      Unrealized loss
       in value of
       mortgages
       (note 5)            200,000        95,000       200,000        95,000
    -------------------------------------------------------------------------
                           392,526       296,952       588,617       465,253

    -------------------------------------------------------------------------
    Net earnings for
     the period       $  3,917,718  $  3,155,115  $  7,492,005  $  6,513,723
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net earnings per
     unit (note 10)
      Basic           $      0.303  $      0.250  $      0.586  $      0.517
      Diluted         $      0.288  $      0.243  $      0.559  $      0.500

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to financial statements.



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Statement of Unitholders' Equity

    -------------------------------------------------------------------------
                                         June 30,      Dec. 31,      June 30,
                                            2008          2007          2007
                                      (Unaudited)     (Audited)   (Unaudited)
    -------------------------------------------------------------------------
    Trust units (note 9):

    Balance, beginning of period    $119,753,729  $119,297,099  $119,297,099

    Offering costs (rights offering)    (164,037)            -             -

    Proceeds from issuance of units    4,652,679       456,630       274,825

    -------------------------------------------------------------------------
    Balance, end of period          $124,242,371  $119,753,729  $119,571,924
    -------------------------------------------------------------------------

    Equity component of convertible
     debentures (note 8):

    Balance, beginning of period    $    380,482  $    380,482  $    380,482

    Equity component of convertible
     debentures issued                         -             -             -

    -------------------------------------------------------------------------
    Balance, end of period          $    380,482  $    380,482  $    380,482
    -------------------------------------------------------------------------

    Cumulative earnings:

    Balance, beginning of period    $ 66,174,234  $ 53,289,186  $ 53,289,186

    Net earnings for the period        7,492,005    12,885,048     6,513,723

    -------------------------------------------------------------------------
    Balance, end of period          $ 73,666,239  $ 66,174,234  $ 59,802,909
    -------------------------------------------------------------------------

    Cumulative distributions to
     unitholders:

    Balance, beginning of period    $ 66,174,234  $ 53,289,186  $ 53,289,186

    Distributions to unitholders
     (note 11)                         5,989,297    12,885,048     5,772,720

    -------------------------------------------------------------------------
    Balance, end of period          $ 72,163,531  $ 66,174,234  $ 59,061,906
    -------------------------------------------------------------------------

    Total unitholders' equity       $126,125,560  $120,134,211  $120,693,409

    Units issued and outstanding
     (note 9)                         13,098,509    12,638,227    12,620,468

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to financial statements.



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Unaudited Statement of Cash Flows

    -------------------------------------------------------------------------
                               3 Month Period              6 Month Period
                           June 30,      June 30,      June 30,      June 30,
                              2008          2007          2008          2007
    -------------------------------------------------------------------------
    Cash provided by
     (used in):

    Operating
     activities
      Net earnings
       for the period $  3,917,717  $  3,155,115  $  7,492,005  $  6,513,723
      Net changes in
       non-cash items
        Increase in
         fair value
         adjustment        200,000        95,000       200,000        95,000
        Implicit
         interest rate
         in excess of
         coupon rate -
         convertible
         debenture          54,568        53,849       108,952       107,055
        Decrease
         (increase)
         in amounts
         receivable
         and prepaid
         expenses           33,671       (35,645)     (124,187)      101,547
        Increase
         (decrease)
         in accounts
         payable and
         accrued
         liabilities      (405,472)     (415,913)     (258,712)     (110,777)
        Increase
         (decrease)
         in unearned
         income             18,745        13,257       (35,908)       (8,826)
    -------------------------------------------------------------------------
                         3,819,229     2,865,663     7,382,150     6,697,722

    Financing activities:
      Proceeds from
       issuance of
       units             4,539,940       233,447     4,652,679       274,825
      Increase
       (decrease)
       in bank
       indebtedness      1,204,809     5,288,161    (8,065,294)   (5,863,713)
      Increase
       (decrease) in
       loans payable     8,308,383      (515,213)   14,461,619       624,929
      Increase
       (decrease) in
       distribution
       payable              35,042        26,995    (1,164,729)      984,397
      Debenture
       offering costs     (149,391)            -      (164,037)            -
      Distributions
       to unitholders   (3,030,013)   (2,900,953)   (5,989,297)   (5,772,720)
    -------------------------------------------------------------------------
                        10,908,770     2,132,437     3,730,941    (9,752,282)

    Investing
     activities:
      Funding of
       mortgages       (52,087,680)  (39,570,227)  (73,642,270)  (72,435,052)
      Discharge of
       mortgages        37,359,681    34,572,127    62,529,179    75,489,612
    -------------------------------------------------------------------------
                       (14,727,999)   (4,998,100)  (11,113,091)    3,054,560

    -------------------------------------------------------------------------
    Increase in cash,
     being cash,
     beginning and
     end of period    $          -  $          -  $          -  $          -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash
     flow information
      Interest paid
       (note 14)      $  1,794,492  $  1,564,812  $  3,273,981  $  2,426,012

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to financial statements.



    FIRM CAPITAL MORTGAGE INVESTMENT TRUST
    Notes to Financial Statements

    Three Months and Six Months ended June 30, 2008

    -------------------------------------------------------------------------

    1.  Organization of Trust:

        Firm Capital Mortgage Investment Trust (the "Trust") is a closed-end
        trust created for the benefit of the unitholders, pursuant to the
        Declaration of Trust dated July 13, 1999, as amended and restated.

        Pursuant to the Declaration of Trust, the Trust's mortgage banker is
        Firm Capital Corporation and the trust manager is FC Treasury
        Management Inc.

    2.  Basis of Presentation:

        The unaudited interim period financial statements were prepared in
        accordance with Canadian generally accepted accounting principles
        ("GAAP") and follow the same accounting policies and methods of
        application with those used in the preparation of the audited
        financial statements for the year ended December 31, 2007. Under
        Canadian GAAP, additional disclosure is required in annual financial
        statements and accordingly the interim financial statements should be
        read together with the audited financial statements and the
        accompanying notes included in Firm Capital Mortgage Investment
        Trust's 2007 Annual Report.

    3.  Summary of significant accounting policies:

        The Trust's accounting policies and its standards of financial
        disclosure are in accordance with Canadian generally accepted
        accounting principles ("GAAP").

        (a) Mortgage investments:

            Mortgage investments are stated at estimated fair value in
            accordance with Canadian Institute of Chartered Accountants
            Accounting Guideline 18. Fair value is the amount of
            consideration that would be agreed upon in an arm's length
            transaction between knowledgeable, willing parties who are under
            no compulsion to act. The fair value of Mortgage investments
            approximate their carry values due to the fact that the majority
            of the mortgages are (i) are short-term in nature with terms of
            12 months or less, (ii) repayable in full, at any time at the
            option of the borrower prior to maturity without penalty, and
            (iii) have minimum specified interest rates for mortgages with
            floating rates linked to bank prime. When, in management's
            opinion, collection of principal on a particular mortgage
            investment is no longer reasonably assured, the fair value of the
            mortgage investment is reduced to reflect the estimated net
            realizable recovery from the collateral securing the mortgage
            loan.

        (b) Convertible debentures:

            The Trust's convertible debentures are classified into debt and
            equity components. The equity component represents the estimated
            value of the conversion rights of the holders.

        (c) Revenue recognition:

            (i)  Interest and fee income:

                 Interest income is accounted for on the accrual basis, and
                 is recorded net of the Trust Manager interest spread
                 described in note 13. Commitment fees received are amortized
                 over the expected term of the mortgage.

            (ii) Non-conventional mortgages:

                 Special profit participations earned by the Trust on non-
                 conventional mortgages are recognized only once the receipt
                 of such amounts is certain.

        (d) Use of estimates:

            The preparation of financial statements requires management to
            make estimates and assumptions that affect the reported amounts
            of assets and liabilities, disclosure of contingent assets and
            liabilities at the date of the financial statements and the
            reported amounts of revenue and expenses during the year. Actual
            results could differ from those estimates.

        (e) Unit-based compensation:

            The Trust has unit-based compensation plans (i.e. incentive
            option plan) which are described in note 9. The Trust accounts
            for its unit-based compensation using the fair value method,
            under which compensation expense is measured at the grant date
            and recognized over the vesting period.

        (f) Basic and diluted net earnings per unit:

            Basic net earnings per unit is computed by dividing net earnings
            for the year by the weighted average number of units outstanding
            during the year. Diluted net earnings per unit is computed
            similarly to basic net earnings per unit, except that the
            weighted average number of shares outstanding is increased to
            include additional shares from the assumed exercise of incentive
            option units and the conversion of the convertible debentures, if
            dilutive. The number of additional units is calculated by
            assuming that outstanding incentive options were exercised and
            that proceeds from such exercises were used to acquire units at
            the average market price during the year. The additional units
            would also include those units issuable upon the assumed
            conversion of the convertible debentures, with an adjustment to
            net earnings for the year to add back any interest paid to the
            debenture holders. These common equivalent units are not included
            in the calculation of the weighted average number of units
            outstanding for diluted earnings per unit when the effect would
            be anti-dilutive.

        (g) Comprehensive income:

            CICA Section 1530, "Comprehensive Income", requires the
            presentation of a Statement of Comprehensive Income where certain
            gains and losses that would otherwise be recorded as part of net
            earnings are presented in other comprehensive income until it is
            considered appropriate to recognize it in net earnings. The Trust
            does not have any material income from this source and as such a
            Statement of Comprehensive Income has not been included in these
            financial statements.

        (h) Hedges:

            CICA Section 3865, "Hedges", specifies the requirements for the
            use of hedge accounting. The Trust does not apply hedge
            accounting.

        (i) Financial instruments - recognition and measurement:

            CICA Section 3855, "Financial Instruments - Recognition and
            Measurement", establishes standards for recognizing and measuring
            financial assets and financial liabilities including non-
            financial derivatives. In accordance with this standard, the
            Trust is required to classify its financial assets as one of the
            following: (i) held-to-maturity, (ii) loans and receivables,
            (iii) held for trading or (iv) available for sale. All financial
            liabilities must be classified as: (i) held for trading or (ii)
            other liabilities. The Trust's designations on adoption are as
            follows:

               Amounts receivable are classified as "Loans and Receivables"
               and are measured at amortized cost.

               Bank indebtedness, Accounts payable and accrued liabilities,
               Unitholder distribution payable, Loans payable and Convertible
               debentures are classified as "Other Liabilities" and are
               measured at fair value on inception and amortized using the
               effective interest rate method.

    4.  New accounting policies:

        New accounting standards issued in December 2006, Handbook Sections
        3862 (Financial Instruments - Disclosures) and Section 3863
        (Financial Instruments - Presentation), replace Section 3861
        (Financial Instruments - Disclosure and Presentation). The new
        standards require increased qualitative and quantitative disclosures
        about an entity's exposure to risks arising from financial
        instruments and how the entity manages those risks. These new
        standards are effective for the Trust commencing on January 1, 2008.
        The required note disclosure is set out in note 17 to these financial
        statements.

    5.  Mortgage Investments:

        The following is a breakdown of the mortgage investments as at
        June 30, 2008, December 31, 2007 and June 30, 2007:

        ---------------------------------------------------------------------
                                          June 30, 2008        Dec. 31, 2007
                                          Amount      %        Amount      %
        ---------------------------------------------------------------------

        Conventional first
         mortgages                  $207,752,248   84.3  $195,367,641   83.0
        Conventional non-first
         mortgages                    26,060,392   10.6    25,642,548   10.9
        Non-conventional mortgages
         & related investments        12,757,417    5.1    14,446,778    6.1
        ---------------------------------------------------------------------
        Total mortgage investments
         (at cost)                  $246,570,057  100.0   235,456,967  100.0

        Fair value adjustment          1,925,000            1,725,000

        ---------------------------------------------------------------------
        Fair value                  $244,645,057         $233,731,967
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        ------------------------------------------------
                                          June 30, 2007
                                          Amount      %
        ------------------------------------------------

        Conventional first
         mortgages                  $172,593,114   83.6
        Conventional non-first
         mortgages                    22,987,519   11.1
        Non-conventional mortgages
         & related investments        10,892,363    5.3
        ------------------------------------------------
        Total mortgage investments
         (at cost)                  $206,472,996  100.0

        Fair value adjustment          1,520,000

        ------------------------------------------------
        Fair value                  $204,952,996
        ------------------------------------------------
        ------------------------------------------------

        Conventional first mortgages are loans secured by a first priority
        mortgage charge with loan to values not exceeding 75%. Conventional
        non-first mortgages are loans secured by either a second or third
        priority mortgage charge with loan to values not exceeding 75%. Non-
        conventional mortgages & related investments are loans having loans
        to value that exceed or may exceed 75% and are the investments that
        are the source of all special profit participations earned by the
        Trust.

        Mortgages are stated at estimated fair value in accordance with
        Canadian Institute of Chartered Accountants Accounting Guideline 18.
        Estimated fair value is based on discounted cash flows. The discount
        interest rate utilized by the Trust is equivalent to the weighted
        average interest rate on the mortgage portfolio since the majority of
        the mortgages are (i) are short-term in nature with terms of
        12 months or less, (ii) repayable in full, at any time at the option
        of the borrower prior to maturity without penalty, and (iii) have
        minimum specified interest rates for mortgages with floating rates
        linked to bank prime. When, in management's opinion, collection of
        principal and/or interest on a particular mortgage investment is no
        longer reasonably assured, the value of the mortgage investment is
        reduced to reflect the estimated net realizable recovery from the
        collateral securing the mortgage loan. The Fair value adjustment in
        the amount of $1,925,000 as at June 30, 2008 represents the total
        amount of management's estimate of the shortfall between the mortgage
        investment principal and accrued interest balances and the estimated
        net realizable recovery from the collateral securing the mortgage
        loans.

        The mortgages are secured by real property, bear interest at the
        weighted average rate of 9.28% (2007 - 9.52%) and mature between 2008
        and 2012.

        The un-advanced funds under the existing mortgage portfolio (which
        are commitments of the Trust) amounted to $37,633,143 as at June 30,
        2008 (June 30, 2007 - $44,488,862 & December 31, 2007 - $49,359,642).

        Credit risk arises from the possibility that mortgagors may
        experience financial difficulty and be unable to fulfill their
        mortgage commitments. In accordance with the operating policies of
        the Declaration of Trust, the Trust mitigates the risk of credit loss
        by ensuring that its mix of mortgages is diversified between
        conventional and non-conventional mortgages, and by limiting its
        exposure to any one mortgagor.

        Interest rate risk arises from a mismatch of terms on borrowings to
        terms on the mortgage investments. The bank indebtedness bears
        interest at a floating rate that fluctuates with bank prime. A
        significant portion of the investment portfolio is short term in
        nature and also bears interest that fluctuates with bank prime,
        subject to an interest rate floor, thereby partially mitigating the
        interest rate risk. Interest on loans payable is matched to specific
        mortgage investments, thereby ensuring positive interest rate spread.

        Principal repayments based on contractual maturity dates are as
        follows:

        ---------------------------------------------------------------------

        2008                                                    $127,588,318
        2009                                                     101,940,615
        2010                                                      13,571,124
        2011                                                       3,000,000
        2012                                                         470,000
        ---------------------------------------------------------------------
                                                                $246,570,057
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Borrowers who have open loans have the option to repay principal at
        anytime prior to the maturity date.

    6.  Bank indebtedness:

        The Trust has entered into credit arrangements of which $44,527,864
        (June 30, 2007 - $34,237,971 & December 31, 2007 - $52,593,158) has
        been drawn. Interest on bank indebtedness is predominately charged at
        rates that vary with bank prime and may have a component with a fixed
        interest rate established based on a formula linked to Bankers
        Acceptance rates. The credit arrangement comprises a revolving
        operating facility, a component of which is a demand facility and a
        component of which has a committed term to September 30, 2008. Bank
        indebtedness is secured by a general security agreement. The credit
        agreement contains certain financial covenants that must be
        maintained.

    7.  Loans payable:

        First priority charges on specific mortgage investments have been
        granted as security for the loans payable. The loans mature on dates
        consistent with those of the underlying mortgages. The loans are on a
        non-recourse basis and bear interest at rates ranging from 6.25% to
        7.55% as at June 30, 2008 (2007 - 5.35% to 7.25%). The Trust's
        principal balance outstanding under the mortgages for which a first
        priority charge has been granted is $64,911,932 as at June 30, 2008
        (2007 - $34,519,550).

        The loans are repayable at the earlier of the contractual expiry date
        of the underlying mortgage investment and the date the underlying
        mortgage is repaid. Repayments based on contractual maturity dates
        are as follows:

        ---------------------------------------------------------------------

        2008                                                     $32,491,439
        2009                                                      13,772,240
        2010                                                       4,200,000
        ---------------------------------------------------------------------
                                                                 $50,463,679
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    8.  Convertible debentures:

        On April 24, 2006, the Trust completed a public offering of 25,000 6%
        convertible unsecured subordinated debentures at a price of $1,000
        per debenture for gross proceeds of $25,000,000. The debentures
        mature on June 30, 2013 and interest is paid semi-annually on June 30
        and December 31. The debentures are convertible at the option of the
        holder at any time prior to the maturity date at a conversion price
        of $11.75. The debentures may not be redeemed by the Trust prior to
        June 30, 2009. On and after June 30, 2009, but prior to June 30,
        2010, the debentures are redeemable at a price equal to the
        principal, plus accrued interest, at the Trust's option on not more
        than 60 days and not less than 30 days notice, provided that the
        weighted average trading price of the units on the Toronto Stock
        Exchange for the 20 consecutive trading days ending five trading days
        preceding the date on which the notice of redemption is given is not
        less than 125% of the conversion price. On and after June 30, 2010
        and prior to the maturity date, the debentures are redeemable at a
        price equal to the principal amount plus accrued interest, at the
        Trust's option on not more than 60 days and not less than 30 days
        prior notice. On redemption or at maturity, the Trust may, at its
        option, elect to satisfy its obligation to pay all or a portion of
        the principal amount of the debenture by issuing that number of units
        of the Trust obtained by dividing the principal amount being repaid
        by 95% of the weighted average trading price of the units for the 20
        consecutive trading days ending on the fifth trading day preceding
        the redemption or maturity date.

        The convertible debentures were allocated into liability and equity
        components on the date of issuance as follows:

        ---------------------------------------------------------------------
        Liability                    $25,000,000
        Equity                           380,482
        ---------------------------------------------------------------------

        Principal                    $24,619,518
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The accretion of the liability component of the convertible
        debentures, which increases the liability component from the initial
        allocation on the date of issuance, is included in interest expense.

        ---------------------------------------------------------------------
                                                       2008          2007
        ---------------------------------------------------------------------
        Liability, beginning of period             $23,753,430   $23,537,211
        Implicit interest rate in excess of
         coupon rate                                    23,692        22,264
        Amortization of debenture financing costs       85,260        84,792
        ---------------------------------------------------------------------

        Liability, end of period                   $23,862,382   $23,644,266
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Deferred financing costs relating to the issuance of convertible
        debentures are no longer presented as a separate asset on the balance
        sheet and are now netted against the carrying value of the
        convertible debenture.

        Notwithstanding the carry value of the convertible debenture, the
        principal balance outstanding to the debenture holders is
        $25,000,000.

    9.  Unitholders' equity:

        The beneficial interests in the Trust are represented by a single
        class of units which are unlimited in number. Each unit carries a
        single vote at any meeting of unitholders and carries the right to
        participate pro rata in any distributions.

        (a) The following units are issued and outstanding:

        ---------------------------------------------------------------------
                                           June 30,     Dec. 31,     June 30,
                                              2008         2007         2007
                                            Amount       Amount       Amount
        ---------------------------------------------------------------------

        Balance, beginning of period    12,638,227   12,593,549   12,593,549

        New units from exercise
         of options                              -       22,500       17,500

        New units from Rights Offering     439,982            -            -

        New units issued during the
         year under Distribution
         Reinvestment Plan                  20,300       22,178        9,419

        ---------------------------------------------------------------------
        Balance, end of period          13,098,509   12,638,227   12,620,468
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (b) Incentive option plan:

            In November, 2005, 415,000 options were issued to trustees,
            directors, officers and employees of the Trust Manager and
            Mortgage Banker, with an exercise price of $9.90 per unit. The
            options are exercisable any time up to November 17, 2010. The
            fair value of the unit options used to compute compensation
            expense of $21,729 (which was recorded in the fourth quarter of
            2005) is the estimated fair value of all options granted on the
            grant date. This was calculated for the options granted during
            the 2005 using the Black-Scholes option pricing model with the
            following assumptions: expected distribution yield is 9.44%,
            expected volatility is 8.83%; risk free interest rate is 3.96%;
            and expected option life in years is 5. The options vested on the
            grant date. During 2007 22,500 unit options were exercised. As at
            June 30, 2008, 392,500 options remained outstanding.

        (c) Distribution reinvestment plan and direct unit purchase plan:

            The Trust has a distribution reinvestment plan and direct unit
            purchase plan for its unitholders which allows participants to
            reinvest their monthly cash distributions in additional trust
            units at a unit price equivalent to the weighted average price of
            units for the proceeding five day period.

        (d) Rights Offering:

            In March, 2008 the Trust filed a rights offering, granting
            12,646,449 rights to subscribe for up to 1,264,645 units.
            Unitholders of record on March 20, 2008 were granted rights to
            subscribe for units of the Trust. Each unitholder was entitled to
            one right for each unit held on March 20, 2008. A holder of a
            right was entitled to subscribe, on May 1, 2008, for one fully
            paid unit of the Trust, at a price of $10.10 per unit, for every
            ten rights held. Rights not exercised at or before May 1, 2008
            were void and have no value. The Trust issued 439,982 units under
            the rights offering for gross proceeds of $4,443,818.

    10. Per unit amounts:

        The following table reconciles the numerators and denominators of the
        basic and diluted earnings per unit.

        Basic earnings per unit calculation:

    -------------------------------------------------------------------------
                                  Three Months ended:       Six months ended:
                                 June 30,    June 30,    June 30,    June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Numerator for basic
     earnings per unit:
      Net earnings            $3,917,717  $3,155,115  $7,492,005  $6,513,723

    -------------------------------------------------------------------------

    Denominator for basic
     earnings per unit:
      Weighted average units  12,939,191  12,611,918  12,791,675  12,603,412

    -------------------------------------------------------------------------

    Basic earnings per unit       $0.303      $0.250      $0.586      $0.517

    -------------------------------------------------------------------------

      Diluted earnings per
        unit calculation:

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                  Three Months ended:       Six months ended:
                                 June 30,    June 30,    June 30,    June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Numerator for diluted
     earnings per unit:
      Net earnings            $3,917,717  $3,155,115  $7,492,005  $6,513,723
      Interest on
       convertible debentures    429,568     428,849     858,952     857,056

    -------------------------------------------------------------------------
    Net earnings for diluted
     earnings per unit        $4,347,285  $3,583,964  $8,350,957  $7,370,779
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Denominator for diluted
     earnings per unit:
      Weighted average units  12,939,191  12,611,918  12,791,675  12,603,412
      Net units that would
       be issued:
        Assuming the proceeds
         from options are used
         to repurchase units at
         the average unit price   11,415      30,669      15,340      31,744

        Assuming convertible
         debentures are
         converted             2,127,660   2,127,660   2,127,660   2,127,660

    -------------------------------------------------------------------------
    Diluted weighted average
     units                    15,078,265  14,770,246  14,934,675  14,762,816
    -------------------------------------------------------------------------

    Diluted earnings per unit     $0.288      $0.243      $0.559      $0.500

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. Distributions:

        The Trust makes distributions to the unitholders on a monthly basis
        on or about the 15th day of each month. The Declaration of Trust
        provides that the Trust will distribute by year end at least 100% of
        the net income of the Trust determined in accordance with the Income
        Tax Act (Canada), subject to certain adjustments, to Unitholders. The
        net income of the Trust determined in accordance with the Income Tax
        Act (Canada), for the six month period ended June 30, 2008 was
        $7,227,780 (2007 - $6,281,000).

        For the six months ended June 30, 2008, the Trust recorded
        distributions of $5,989,297 (2007 - $5,772,720) to its unitholders.
        Distributions were $0.468 (2007 - $0.458) per unit.

    12. Income taxes:

        The Trust is taxed as a mutual fund trust for income tax purposes.
        Pursuant to the Declaration of Trust, the Trust is required to
        distribute its income for income tax purposes each year to such an
        extent that it will not be liable for income tax under Part 1 of the
        Income Tax Act (Canada). Therefore, no provision for income taxes is
        required on income earned by the Trust.

        On June 22, 2007, Bill C-52, which significantly modifies the income
        tax rules applicable to certain publicly traded or listed trusts and
        partnerships, received Royal Assent. In particular, certain income of
        (and distributions made by) these entities will be taxed in a manner
        similar to income earned by (and distributions made by) a
        corporation. These rules will be effective for the 2007 taxation year
        with respect to trusts which commence public trading after
        October 31, 2006. For trusts which were publicly traded or listed
        prior to November 1, 2006, the application of the rules will be
        delayed to the earlier of (i) the trust's 2011 taxation year, and
        (ii) a taxation year of the trust in which the trust exceeds normal
        growth as determined by reference to the normal growth guidelines, as
        amended from time to time, unless that excess arose as a result of a
        prescribed transaction. As currently structured, the Trust will be
        subject to these new rules, once applicable.

        On December 15, 2006, the Department of Finance (Canada) released the
        normal growth guidelines for income trusts and other flow-through
        entities that qualify for the four-year transitional relief. The
        guidance establishes objective tests with respect to how much an
        income trust is permitted to grow without jeopardizing its
        transitional relief. In general, the Trust will be permitted to issue
        new equity, which for these purposes includes units and convertible
        debt, in each of the next three years equal to the greater of
        $50 million and a certain percentage of the Trust's market
        capitalization as of the end of trading on October 31, 2006 (up to
        100% percent during the transitional period). This latter amount is
        cumulative to the extent it is not used in a given year and,
        accordingly, the Trust will be permitted to issue new equity during
        the transitional period at least equal to its October 31, 2006 market
        capitalization (subject to the applicable annual limits). Market
        capitalization, for these purposes, is to be measured in terms of the
        value of the Trust's issued and outstanding publicly-traded units. If
        these limits are exceeded, the Trust may lose its transitional relief
        and thereby become immediately subject to the new rules. The Trust
        has not exceeded these limits.

        The Trust is considering these legislative changes and their possible
        impact to the Trust. The new rules (including the normal growth
        guidelines released on December 15, 2006) may adversely affect the
        marketability of the Trust's units and the ability of the Trust to
        undertake financings and acquisitions, and, at such time as the new
        rules apply to the Trust, the distributable cash of the Trust may be
        materially reduced.

        The Trust expects that its distributions will not be subject to tax
        prior to 2011 and accordingly has not recorded future income taxes on
        temporary differences expected to be reversed prior to then. In
        addition, as the temporary differences between accounting and taxable
        income will all, or substantially all, reverse during the
        transitional period when the tax rate is 0%, a future tax asset or
        liability was not recorded.

    13. Related party transactions and balances:

        Transactions with related parties are in the normal course of
        business and are recorded at the exchange amount, which is the amount
        of consideration established and agreed to by the related parties,
        and represents fair market value.

        The Trust Manager (a company controlled by some of the trustees),
        pursuant to the Trust Management Agreement and Declaration of Trust,
        receives an allocation of mortgage interest referred to as Trust
        Manager spread interest, calculated as 0.75% per annum of the Trust's
        daily outstanding performing mortgage investment balances. For the
        six months ended June 30, 2008 this amount was $879,101 (2007 -
        $763,251), and for the three month period ended June 30, 2008 this
        amount was $436,640 (June 30, 2007 - $383,510), and was deducted from
        interest and fees earned.

        The Mortgage Banker (a company controlled by a Trustee), pursuant to
        the Mortgage Banking Agreement and Declaration of Trust, receives
        certain fees from the borrowers as follows: loan servicing fees equal
        to 0.10% per annum on the principal amount of each of the Trust's
        mortgage investments; 75% of all the commitment and renewal fees
        generated from the Trust's mortgage investments and 25% of all the
        special profit income generated from the non-conventional mortgage
        investments after the Trust has yielded a 10% per annum return on its
        investments. Interest and fee income is net of the loan servicing
        fees paid to the Mortgage Banker of approximately $117,000 for the
        six month period ended June 30, 2008 (2007 - $102,000). The Mortgage
        Banker also retains all overnight float interest and incidental fees
        and charges payable by borrowers on the Trust's mortgage investments.
        The Trust's share of commitment and renewal fees recorded in income
        for the six months ended June 30, 2008 was $417,824 (2007 - $460,715)
        and for the three month period ended June 30, 2008 was $246,635
        (June 30, 2007 - $271,181) and applicable special profit income for
        the six months ended June 30, 2008 was $808,594 (2007 - $436,052) and
        for the three month period ended June 30, 2008 was $593,606 (June 30,
        2007 - $109,780).

        The Trust Management Agreement and Mortgage Banking Agreement
        contains provisions for the payment of termination fees to the Trust
        Manager and Mortgage Banker in the event that the respective
        agreements are either terminated or not renewed.

        Several of the Trust's mortgages are shared with other investors of
        the Mortgage Banker, which may include members of management of the
        Mortgage Banker and/or Officers or Trustees of the Trust. The Trust
        ranks equally with other members of the syndicate as to receipt of
        principal and income.

        Mortgages totalling $1,760,000 at June 30, 2008 (2007 - $1,760,000)
        were issued to borrowers controlled by certain Trustees of the Trust.
        Each mortgage is dealt with in accordance with the Trust's existing
        investment and operating policies and is personally guaranteed by the
        related Trustee.

    14. Interest:

    -------------------------------------------------------------------------
                                  Three Months ended:       Six months ended:
                                 June 30,    June 30,    June 30,    June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Bank interest expense     $  474,542  $  469,203  $1,188,039  $  947,811
    Loans payable interest
     expense                     564,008     366,028   1,129,413     785,572
    Debenture interest expense   429,568     428,849     858,952     857,056
    -------------------------------------------------------------------------
    Interest expense          $1,468,119  $1,264,080  $3,176,404  $2,590,439
    Deferred finance cost
     amortization - convertible
      Debenture                  (42,630)    (42,630)    (85,260)    (84,792)
    Implicit interest rate in
     excess of coupon rate -
      Convertible debentures     (11,938)    (53,849)    (23,692)   (107,055)
    Change in accrued interest   380,941     397,211     206,530      27,420
    -------------------------------------------------------------------------

    Cash interest paid        $1,794,492  $1,564,812  $3,273,981  $2,426,012

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    15. Contingent liabilities:

        The Trust is involved in certain litigation arising out of the
        ordinary course of investing in mortgages. Although such matters
        cannot be predicted with certainty, management believes the claims
        are without merit and does not consider the Trust's exposure to such
        litigation to have an impact on these financial statements.

    16. Fair value of financial Instruments:

        The fair value of amounts receivable, bank indebtedness, accounts
        payable and accrued liabilities, unearned income and unitholder
        distribution payable, approximate their carry values due to their
        short-term maturities.

        The fair value of Loans payable approximate their carry values due to
        the fact that the majority of the loans are (i) are short-term in
        nature with terms of 12 months or less, (ii) repayable in full, at
        any time upon the borrower under the underlying mortgage that secures
        the loan payable repaying their mortgage without penalty, and (iii)
        have floating interest rates linked to bank prime.

        The fair value of the Convertible debentures has been determined
        based on the June 30, 2008 closing price on the TSX. The fair value
        has been estimated at June 30, 2008 to be $24,250,000 (2007 -
        $24,625,000).

    17. Financial instrument risk:

        (a) Interest rate risk

        The Trust's operations are subject to interest rate fluctuations. The
        interest rate on the majority of mortgage investments is set at the
        greater of a floor rate and a formula linked to bank prime. The floor
        interest rate mitigates the effect of a drop in short term market
        interest rates while the floating component linked to bank prime
        allows for increased interest earnings where short term market rates
        increase.

        The Trust's debt comprises bank indebtedness and loans payable, with
        the majority of such debt bearing interest based on bank prime and/or
        based on short term Bankers Acceptance interest rates as a benchmark.

        At June 30, 2008, if interest rates at that date had been 100 basis
        points lower or higher, with all other variables held constant, net
        income for the six month period ended June 30, 2008 would have been
        affected as follows:

                                    Carrying Value        Interest Rate Risk
                                   ------------------------------------------
                                                            -1%          +1%
        ---------------------------------------------------------------------

        Financial assets
          Amounts Receivable             2,217,213
          Mortgage Investments         244,645,057      (69,772)    $122,498

        Financial liabilities
          Bank indebtedness             44,527,864      223,557     (223,557)
          Accounts payable and
           accrued liabilities             561,288
          Unearned income                  299,813
          Unitholder distribution
           payable                       1,021,684
          Loans payable                 50,463,679      252,318     (252,318)
                                                    -------------------------

                                                    -------------------------
        Total increase (decrease)                       406,103     (353,377)
                                                    -------------------------
                                                    -------------------------

        (b) Credit and operational risks

        Any instability in the real estate sector and an adverse change in
        economic conditions in Canada could result in declines in the value
        of real property securing the Trust's mortgage investments. The Trust
        mitigates this risk by adhering to the investment and operating
        policies set out in its Declaration of Trust.

        The Trust's maximum exposure to credit risk is the fair values of
        amounts receivable and mortgage investments. The balance outstanding
        under all impaired mortgage investments held by the Trust does not
        exceed 2% of the total portfolio balance.

        (c) Liquidity risk

        Liquidity risk is managed by ensuring that the sum of (i)
        availability under the Trust's bank borrowing line, (ii) the sourcing
        of other borrowing facilities, and (iii) projected repayments under
        the existing mortgage portfolio, exceeds projected needs (including
        funding of further advances under existing and new mortgage
        investments).

        (d) Capital risk management

        The Trust's objectives when managing capital/equity are:

            -   to safeguard the entity's ability to continue as a going
                concern, so that it can continue to provide returns for
                unitholders, and

            -   to provide an adequate return to unitholders by obtaining an
                appropriate amount of debt, commensurate with the level of
                risk.

        The Trust manages the capital/equity structure and makes adjustments
        to it in light of changes in economic conditions. In order to
        maintain or adjust the capital structure, the Trust may issue new
        units or repay bank indebtedness and loans payable.

        The Trust's Declaration of Trust incorporates various mortgage
        investing restrictions and investment operating policies. The Trust
        cannot invest more than 5% of the amount of its capital in any
        single conventional first mortgage and cannot invest more than 2.5%
        of the amount of its capital in any single non-conventional mortgage
        or conventional mortgage that is not a first mortgage. The Trust may
        only borrow funds in order to acquire or invest in mortgage
        investments in amounts up to 60% of the book value of the Trust's
        portfolio of conventional first mortgage. The Trust has complied with
        all such restrictions in its Declaration of Trust.

        The Trust is required by its Bank lender to maintain various
        covenants, including minimum equity amount, interest coverage
        rations, indebtedness as a percentage of the performing first
        mortgage portfolio size, and indebtedness to total assets. The Trust
        has complied with all such Bank covenants.

    18. Comparative figures:

        Certain 2007 comparative figures have been reclassified to conform
        with the financial statement presentation adopted in 2008.
    





For further information:

For further information: Eli Dadouch, President & Chief Executive
Officer, (416) 635-0221, www.firmcapital.com


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