The Goldfarb Corporation announces third quarter results

TORONTO, Nov. 26 /CNW/ - The Goldfarb Corporation (the "Corporation") today announced its third quarter results.

Revenues from operations for the third quarter of 2009 were $9,000 compared to $109,000 in 2008, a decrease of $100,000. The net loss for the Corporation in the third quarter of 2009 was $323,000 or $0.06 per share compared to a net loss of $1,525,000 or $0.26 per share in 2008.

For the nine-month period ended September 30, 2009, the Corporation's revenues were $85,000 compared to $408,000 in 2008, a decrease of $323,000. The net income for the first nine months of 2009 was $377,000 ($0.06 per share) compared to a net loss of $4,019,000 ($0.68 per share) in 2008.

The accompanying 10 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     Nine Months Ended
                                        September 30          September 30
                                       2009       2008       2009       2008
    (thousands of dollars
    except per share information)         $          $          $          $
    Interest revenue                      9        109         85        408
    Administrative expenses             268        338        773      1,771
                                       (259)      (229)      (688)    (1,363)
    Litigation recovery (note 8(a))       -          -      1,315          -
    Litigation settlement (note 8(b))     -          -          -     (1,500)
    Depreciation                         (1)        (1)        (3)        (3)
    Foreign exchange gains (losses)     (63)        76       (247)       218
    Impairment charge on long-term
     investments (note 2)                 -     (1,371)         -     (1,371)
    Net Income (Loss) and
     Comprehensive Income (Loss)       (323)    (1,525)       377     (4,019)
    Deficit, beginning of period    (32,524)   (30,770)   (33,224)   (28,276)
    Deficit, end of period          (32,847)   (32,295)   (32,847)   (32,295)
    Basic Income (Loss) per Share     (0.06)     (0.26)      0.06      (0.68)
    Weighted average number of
     shares outstanding           5,936,660  5,936,660  5,936,660  5,936,660

    Cash Flow Statement
    (unaudited)                     Three Months Ended     Nine Months Ended
                                        September 30          September 30
                                       2009       2008       2009       2008
    (thousands of dollars)                $          $          $          $
    Operating Activities
    Income (Loss) from operations      (323)    (1,525)       377     (4,019)
    Add (deduct) items not
     involving cash:
      Depreciation                        1          1          3          3
      Foreign exchange (gains)
       losses                            63        (76)       247       (218)
      Impairment charge on long-term
       investments (note 2)               -      1,371          -      1,371
                                       (259)      (229)       627     (2,863)
    Changes in non-cash working
     capital balances (note 5)           78     (1,528)      (103)       288
    Cash provided by (used in)
     operating activities              (181)    (1,757)       524     (2,575)

    Financing Activities
    Distribution to shareholders
     (note 4)                             -          -     (6,530)         -
    Cash used in financing
     activities                           -          -     (6,530)         -

    Investing Activities
    Acquisition of short-term
     investments                     (1,330)    (6,531)    (6,785)    (6,531)
    Redemption of short-term
     investments                          -          -      6,582      9,491
    Principal and interest
     received on long-term
     investments (note 2)                40          -        860          -
    Repayment of note receivable      1,122          -      1,478          -
    Acquisition of capital
     assets, net                          -         (1)         -          1
    Cash provided by (used in)
     investing activities              (168)    (6,532)     2,135      2,961

    Foreign exchange gain (loss)
     on cash held in foreign
     currency                          (124)        43       (247)       150
    Increase (decrease) in cash
     and cash equivalents for
     the period                        (473)    (8,246)    (4,118)       536
    Cash and cash equivalents,
     beginning of period (note 5)     1,535     13,303      5,180      4,521
    Cash and cash equivalents,
     end of period (note 5)           1,062      5,057      1,062      5,057

    Balance Sheet
    (unaudited)                                    September 30  December 31
                                                           2009         2008
    (thousands of dollars)                                    $            $
    Current Assets
    Cash and cash equivalents (note 5)                    1,062        5,180
    Short-term investments                                6,785        6,582
    Accounts receivable and prepaid expenses                103           78
    Current portion of note receivable (note 3)               -          355
    Total Current Assets                                  7,950       12,195
    Long-term Investments (note 2)                        8,962        9,822
    Note Receivable (note 3)                                  -        1,123
    Capital Assets                                           14           17
                                                         16,926       23,157


    Current Liabilities
    Accounts payable and accrued liabilities                114          192
    Total Current Liabilities                               114          192
    Shareholders' Equity
    Capital stock (note 4)                               49,206       55,736
    Contributed surplus                                     453          453
    Deficit                                             (32,847)     (33,224)
    Total Shareholders' Equity                           16,812       22,965

    Contingency (note 9)
                                                         16,926       23,157

    Notes to Interim Financial Statements
    For the period ended September 30, 2009 (thousands of dollars)

    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, 2008. 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 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 September 30, 2009 and the results of operations and
    cash flows for the periods ended September 30, 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. The
    Corporation expects the transition to IFRS to impact accounting and
    financial reporting and is currently assessing the impact of the
    transition to ensure that conversion to IFRS occurs on a timely basis.

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

    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 holding
    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 their 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 $246 was
    received in May 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 September 30, 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
    Balance at January 21, 2009                                       17,044
    Interest received                                                   (844)
    Valuation provision                                               (7,238)
    Balance at September 30, 2009                                      8,962

    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
    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. 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 quarter interest was not paid because rates were again too
    low. Interest on the Class 15 Notes was paid for the first, second and
    third quarters. During the third quarter, a one-time principal repayment
    attributable to excluded securities was received on the Class A-1 Notes.

    There is currently a very illiquid market for the MAV 2 Notes. Trading
    has been limited and at extremely distressed prices. It is uncertain when
    or if this 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 September 30, 2009, the Corporation estimated the fair
    value of its long-term investments to be $9.0 million (December 31, 2008
    - $9.8 million).

    The significant assumptions used to value the Corporation's investment in
    these securities are as follows:

    Margin facility cost                                       1.0%
    Timing of principal repayments                             at maturity
    Risk free interest rate on Class A-1 and A-2 Notes         2.93% to 3.43%
    Discount rate on Class B, C and Class 15 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           50% to 100%

    The fair value of these investments could range from $7.0 million to
    $10.0 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.

    Currently, the Corporation has sufficient cash available to maintain its
    operations. The balance of the Corporation's investments totaling $7.8
    million are invested in highly rated liquid instruments.

    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"):

                                                   September 30  December 31
                                                           2009         2008
                                                              $            $
    T-Note (2008-US $1,209)                                   -        1,478
    Less: Amount due within one year                          -         (355)
                                                              -        1,123

    The T-note has terms and conditions that match 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.
        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 has 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, plus accrued interest, was
    received on July 8, 2009.

    4.  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:

                                                   September 30  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     Nine Months Ended
                                        September 30          September 30
                                       2009       2008       2009       2008
                                          $          $          $          $

    Decrease (increase) in accounts
     and other receivables               60        112        (25)       (39)
    Increase (decrease) in accounts
     payable and accrued liabilities     18     (1,640)       (78)       327
    Changes in non-cash working
     capital balances                    78     (1,528)      (103)       288

    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 365 days or less. Cash and cash equivalents included in
    cash flow statements comprise the following balance sheet amounts:

                                                               September 30
                                                             2009       2008
                                                                $          $
    Cash on hand and with banks                                85         20
    Short-term investments                                    977      5,037
                                                            1,062      5,057

    c)  Income taxes recovered

    There were no income tax payments or recoveries during the periods ended
    September 30, 2009.

    6.  Income Taxes

    At December 31, 2008, the Corporation had non-capital losses available to
    reduce future taxable income of approximately $14.5 million. If unused,
    these losses expire as follows:

           Year Of Expiry     Amount
                2009              80
                2010           1,094
                2026          10,702
                2028           2,576

    No tax benefit has been recognized on these losses because it is more
    likely than not that the benefit of these losses will not be realized. At
    December 31, 2008, 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 the fourth quarter of 2006, the Corporation settled the $110
              million 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 settlement was in the amount of
              $12 million. The Board of Directors of the Corporation
              appointed a committee of independent directors to represent the
              Corporation's interest in this litigation. Amongst other
              things, the committee approved the payment of the settlement
              and applicable expenses of all defendants, being the
              Corporation's Chairman, Secretary, its former Executive-Vice
              President and its former Chief Financial Officer. The
              Corporation, on behalf of the defendants, sought reimbursement
              of a portion of the settlement from the insurer of the
              Corporation's directors and officers. In April 2009, a panel of
              arbitrators ruled in favour of the Corporation and determined
              that the insurer should contribute US$ 960 plus related
              interest costs. On April 30, 2009, the Corporation received Cdn
              $1.32 million. The recovery has been recorded as income in the
              second quarter of 2009.

        (b)   An action was filed against the Corporation and certain of its
              directors and officers by the trustee of Fleming Packaging
              Corp. ("Fleming"). In May 2008, the Corporation reached a
              settlement with the plaintiff for US$ 1.45 million. The
              settlement was approved by the Illinois Bankruptcy Court on
              June 3, 2008. The Corporation is seeking contribution toward
              the settlement amount from the insurer of the Corporation's
              directors and officers. The amount to be contributed by the
              insurance company has not been determined at this time.

    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. A claim was filed in connection with this notice in 2007. The
    claim was dismissed by the Illinois District Court in August 2008 but was
    appealed by the plaintiff. On May 11, 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, interest
    receivable and accounts payable and accrued liabilities approximate fair
    values due to the short maturity of those instruments. Prior to
    repayment, the carrying value of the note receivable approximated fair
    value because the interest rate on this instrument changed with market
    interest rates. Long-term investments are carried at estimated fair

    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

    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, prior to
    repayment, 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. The 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 September 30, 2009, the maximum exposure to credit risk was $16,912
    (December 31, 2008 - $23,140) 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 with the exception of ABCP. 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
    was 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 $64 for the nine months ended September 30,
    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 September 30, 2009, the
    Corporation had cash and cash equivalents of $977 and accounts payable of
    $43 which were denominated in U.S. dollars. A 10% change in the foreign
    exchange rate from Canadian dollars to United States dollars would have
    increased or decreased the foreign exchange gain by approximately $525
    for the nine months ended September 30, 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 September 30, 2009, the Corporation's accounts payable and accrued
    liabilities were $114, all of which become due for payment within the
    normal terms of trade, generally between 30 and 60 days (December 31,
    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 September 30, 2009.

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

%SEDAR: 00002535E


For further information: For further information: Karen Killeen, Chief Financial Officer, at (416) 928-3710, Toronto,

Organization Profile


More on this organization

Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890