The Goldfarb Corporation announces first quarter results

TORONTO, May 26 /CNW/ - The Goldfarb Corporation (the "Corporation") today announced its first quarter 2010 results.

Revenues from operations for the first quarter of 2010 were $10,000 compared to $56,000 in 2009, a decrease of $46,000. The net income for the Corporation in the first quarter of 2010 was $1,088,000 or $0.18 per share compared to a net loss of $87,000 or $0.01 per share in 2009. Net income for the quarter increased primarily as a result of the recovery of $834,000 from the Corporation's insurer on the arbitration of the 2008 litigation settlement with Fleming Packaging Corporation and a fair value recovery of $500,000 on the Corporation's long-term investments.

The accompanying ten pages of unaudited interim 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 these interim financial statements.

    
    Statement of Income (Loss), Comprehensive Income (Loss) and Deficit
    -------------------------------------------------------------------------
    (unaudited)                                         Three Months Ended
                                                             March 31
                                                         2010        2009
    -------------------------------------------------------------------------
    (thousands of dollars except per share information)       $            $

    Interest Revenue                                         10           56
    Administrative expenses                                 235          207
    -------------------------------------------------------------------------
                                                           (225)        (151)
    Litigation recovery (note 7)                            834            -
    Fair value recovery on long-term investments
     (note 2)                                               500            -
    Depreciation                                             (1)          (1)
    Foreign exchange gains (losses)                         (20)          65
    -------------------------------------------------------------------------
    Income (loss) before income taxes                     1,088          (87)
    Income tax expense (note 5)                               -            -
    -------------------------------------------------------------------------
    Net Income (Loss) and Comprehensive Income (Loss)     1,088          (87)
    Deficit, beginning of period                        (33,141)     (33,224)
    -------------------------------------------------------------------------
    Deficit, end of period                              (32,053)     (33,311)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic Income (Loss) per Share                          0.18        (0.01)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number of shares outstanding     5,936,660    5,936,660



    Cash Flow Statement
    -------------------------------------------------------------------------
    (unaudited)                                         Three Months Ended
                                                             March 31
                                                         2010        2009
    -------------------------------------------------------------------------
    (thousands of dollars)                                    $            $

    Operating Activities
    Net Income (loss)                                     1,088          (87)
    Add (deduct) items not involving cash:
      Depreciation                                            1            1
      Foreign exchange losses (gains)                        20          (65)
      Fair value recovery on long-term investments
       (note 2)                                            (500)           -
    -------------------------------------------------------------------------
                                                            609         (151)
    Changes in non-cash working capital balances (note 4)    33          (28)
    -------------------------------------------------------------------------
    Cash provided by (used in) operating activities         642         (179)
    -------------------------------------------------------------------------

    Financing Activities
    Distribution to shareholders (note 3)                     -       (6,530)
    -------------------------------------------------------------------------
    Cash used in financing activities                         -       (6,530)
    -------------------------------------------------------------------------

    Investing Activities
    Repayment of note receivable                              -          356
    Redemption of short-term investments                    241        6,582
    Principal and Interest received on long-term
     investments (note 2)                                     5          572
    Additions to capital assets, net                         (2)           -
    -------------------------------------------------------------------------
    Cash provided by investing activities                   244        7,510
    -------------------------------------------------------------------------

    Foreign exchange gain (loss) on cash held in foreign
     currency                                               (20)          40
    -------------------------------------------------------------------------
    Increase in cash and cash equivalents for
     the period                                             866          841
    Cash and cash equivalents, beginning of period        1,025        5,180
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period (note 4)     1,891        6,021
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Balance Sheet
    -------------------------------------------------------------------------
    (unaudited)                                       March 31    December 31
                                                        2010         2009
    -------------------------------------------------------------------------
    (thousands of dollars)                                    $            $

    ASSETS
    Current Assets
    Cash and cash equivalents (note 4)                    1,891        1,025
    Short-term investments                                6,409        6,650
    Accounts receivable and prepaid expenses                139           55
    -------------------------------------------------------------------------
    Total Current Assets                                  8,439        7,730
    -------------------------------------------------------------------------
    Long-term Investments (note 2)                        9,376        8,881
    -------------------------------------------------------------------------
    Capital Assets                                           13           12
    -------------------------------------------------------------------------
                                                         17,828       16,623
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current Liabilities
    Accounts payable and accrued liabilities                222          105
    -------------------------------------------------------------------------
    Total Current Liabilities                               222          105

    Shareholders' Equity
    Capital stock                                        49,206       49,206
    Contributed surplus                                     453          453
    Deficit                                             (32,053)     (33,141)
    -------------------------------------------------------------------------
    Total Shareholders' Equity                           17,606       16,518
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                                         17,828       16,623
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Notes to Interim Financial Statements
    -------------------------------------------------------------------------
    For the period ended March 31, 2010 (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 are based upon accounting principles consistent with
    those used and described in the annual financial statements for the year
    ended December 31, 2009. The unaudited interim financial statements
    should be read in conjunction with the annual financial statements for
    the year ended December 31, 2009.

    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 March 31, 2010 and the results of operations and cash
    flows for the periods ended March 31, 2010 and 2009.

    2.  Long-Term Investments (formerly Asset-Backed Commercial Papers
        ("ABCP"))

                                                      March 31   December 31
                                                        2010         2009
                                                     ------------------------
                                                              $            $

    Long-Term Investments                                 9,376        8,881
                                                     ------------------------

    In 2007, the Corporation invested $17.1 million in three separate non-
    bank sponsored ABCP that did not redeem 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 pursuant to which the
    holders of the ABCP, including the Corporation, exchanged their
    securities for new floating rate notes with maturities that match the
    maturities of the underlying assets. The restructuring was completed in
    January 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"). During 2009, interest (net of restructuring fees and
    expenses) of $898 was received on the ABCP for the period from August 13,
    2007 to the closing of the restructuring in January 2009. These amounts
    have been included in the calculation of the fair value of the long-term
    investments.

    The MAV 2 Notes can be summarized as follows at March 31, 2010:

    Note Categories                Interest Rate
    ---------------                -------------
                                                                           $
    Class A-1                      BA - 50 bps                         5,964
    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
                                                                  -----------
                                                                      17,040
    Interest received                                                   (926)
    Valuation provision                                               (6,738)
                                                                  -----------
    Balance at March 31, 2010                                          9,376
                                                                  -----------
                                                                  -----------

    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 2 Notes are primarily based on prevailing
    Banker's Acceptance rates. Interest on the Class A-1 and A-2 Notes has
    not been consistently paid when it became due because of low prevailing
    banker's acceptance rates. As a result of these low rates, there were
    insufficient funds to pay the fixed expense of the MFF required to be
    paid prior to interest being paid. Interest on the Class 15 Notes has
    been paid through all quarters since their issuance. 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 2009 and
    2010.

    There is currently an 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, until a liquid market develops,
    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 March 31, 2010, the Corporation
    estimated the fair value of its long-term investments to be $9.4 million
    (December 31, 2009 - $8.9 million). Consequently, the Corporation
    recorded a fair value recovery on its long-term investments of $500
    during the period ended March 31, 2010.

    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                                     2.59% to 4.25%
    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                                       45% 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 $8.6 million to
    $10.4 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.  Capital Stock

    The Corporation's authorized capital stock is 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:

                                                      March 31    December 31
                                                        2010         2009
                                                     ------------------------
                                                              $            $
    5,754,660 Class A Subordinate Voting Shares          49,193       49,193
    182,000 Class B Shares                                   13           13
                                                     ------------------------
                                                         49,206       49,206
                                                     ------------------------
                                                     ------------------------

    In February 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 in February 2009.

    4.  Supplementary Cash Flow Information

    a) Changes in non-cash working capital balances

                                                        Three Months Ended
                                                             March 31
                                                         2010        2009
                                                       ----------------------
                                                              $            $
    Decrease (increase) in accounts and other amounts
     receivable                                             (84)          62
    Increase (decrease) in accounts payable and
     accrued liabilities                                    117          (90)
                                                       ----------------------
    Changes in non-cash working capital balances             33          (28)


    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:

                                                      March 31    December 31
                                                        2010         2009
                                                     ------------------------
                                                              $            $
    Cash on hand and with banks                             974           94
    Cash equivalents                                        917        5,927
                                                     ------------------------
                                                          1,891        6,021
                                                     ------------------------
                                                     ------------------------


    c) Income taxes

    There were no income tax payments or recoveries during the periods ended
    March 31, 2010 and 2009.

    5.  Income Taxes

    The Corporation's provision for income taxes differs from the Canadian
    statutory income tax rate of 31.0% (2009 - 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
                                  ---------
                                  ---------

    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.

    6.  Segmented Information

    The Corporation's sole business segment is an investment holding company.
    The Corporation's operations reside entirely in Canada.

    7.  Litigation Recovery

    In 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 Corporation sought contribution toward the
    settlement amount from the insurer of the Corporation's directors and
    officers. Arbitration proceedings were completed in 2009 and in the first
    quarter of 2010, the arbitrator ruled in favour of the Corporation
    determining that the insurer should contribute US$725 plus interest and
    costs. In March 2010, the Corporation received CDN$834. The recovery has
    been recorded as income.

    8.  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. 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 March 31, 2010 using
                                          Level 1       Level 2      Level 3
                                         ------------------------------------
                                                $             $            $
    Cash and cash equivalents               1,891             -            -
    Short-term investments                  6,409             -            -
    Long-term investments                       -             -        9,376
                                         ------------------------------------
                                            8,300             -        9,376
                                         ------------------------------------
                                         ------------------------------------

    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 policies 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 and accounts 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 long-term
    investments are in floating rate notes receivable.

    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 March 31, 2010, the maximum exposure to credit risk was $17,815
    (December 31, 2009 - $16,611) being the carrying value of its cash and
    cash equivalents, short-term and long-term investments and accounts
    receivable. None of the financial assets that are fully performing have
    been renegotiated during the year. 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 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. A 1% change in market
    interest rates would have increased or decreased interest revenue by
    approximately $18 for the three months ended March 31, 2010. 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 March 31, 2010, the
    Corporation had cash and cash equivalents and short-term investments of
    $1,737 and accounts payable of $130 which were denominated in U.S.
    dollars. A 10% change in the foreign exchange rate from Canadian dollars
    to United States dollars at March 31, 2010 would have increased or
    decreased the foreign exchange gain by approximately $174 for the three
    months ended March 31, 2010.

    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 March 31, 2010, the Corporation's accounts payable and accrued
    liabilities were $222, all of which become due for payment within the
    normal terms of trade, generally between 30 and 60 days (December 31,
    2009 - $105).

    10. Capital Management

    The Corporation defines its capital as cash and cash equivalents, short-
    term investments and long-term investments. Since the resolution of the
    arbitration proceedings and other contingencies, the Board of Directors
    have been evaluating the various alternatives for the use of its capital,
    including determining the cash available for distribution to
    shareholders. The Board will consider alternative methods of effecting a
    tax efficient distribution 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 March 31, 2010.

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

The Goldfarb Corporation trades on the NEX Board of the TSX Venture Exchange under the symbol GDF.H.

%SEDAR: 00002535E

SOURCE GOLDFARB CORPORATION

For further information: For further information: Karen Killeen, Chief Financial Officer, at (416) 928-3710, Toronto, info@goldfarbcorp.com

Organization Profile

GOLDFARB CORPORATION

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