FORUM NATIONAL INVESTMENTS LTD.
March 31, 2008 and 2007
Condensed Consolidated Financial Statements
(Expressed in Canadian dollars)
1
FORUM NATIONAL INVESTMENTS LTD.
Condensed Consolidated Balance Sheets
(Expressed in Canadian dollars)
Unaudited | Audited | |||||
March 31, | September 30, | |||||
2008 | 2007 | |||||
Assets | (Restated – note 4 | ) | (Restated – note 4 | ) | ||
Current | ||||||
Cash and cash equivalents | $ | 454,024 | $ | 8,624,205 | ||
Short-term deposits | 14,512 | 14,210 | ||||
Accounts and notes receivable | 999,704 | 360,634 | ||||
Other receivables | 239,366 | 265,183 | ||||
Prepaid expenses (note 9) | 1,457,510 | – | ||||
Total Current Assets | 3,165,116 | 9,264,232 | ||||
Deferred Organization Costs | 438,611 | 149,976 | ||||
Long-term Portion of Prepaid expenses(note 9) | 61,194 | – | ||||
Investments(note 6) | 3,602,800 | – | ||||
Investments in Life Settlements(note 9) | 2,648,735 | – | ||||
Property and Equipment | 11,002,981 | 9,100,127 | ||||
Deferred Costs, net | 1,345,114 | 1,491,275 | ||||
Intangibles | 28,664 | 30,276 | ||||
Total Assets | $ | 22,293,215 | $ | 20,035,886 | ||
Liabilities and Shareholders’ Equity | ||||||
Current | ||||||
Accounts payable and accrued liabilities | $ | 951,377 | $ | 491,250 | ||
Accounts payable - other (note 6) | 1,209,512 | – | ||||
Advances against future revenue streams | – | 8,182 | ||||
Current portion of deferred revenue | 923,352 | 675,897 | ||||
Current portion of long-term debt (note 10) | 227,567 | 227,567 | ||||
Convertible debentures | 40,486 | 40,486 | ||||
Loans from related parties | 237,173 | 288,552 | ||||
Total Current Liabilities | 3,589,467 | 1,731,934 | ||||
Deferred Revenue | 2,027,726 | 1,389,678 | ||||
Long-Term Debt(note 10) | 4,036,061 | 3,988,031 | ||||
Total Liabilities | 9,653,254 | 7,109,643 | ||||
Shareholders’ Equity | ||||||
Capital Stock | 24,209,793 | 24,194,793 | ||||
Contributed Surplus | 2,944,536 | 2,944,536 | ||||
Deficit | (14,514,368 | ) | (14,213,086 | ) | ||
Total Shareholders’ Equity | 12,639,961 | 12,926,243 | ||||
Total Liabilities and Shareholders’ Equity | $ | 22,293,215 | $ | 20,035,886 |
Going-concern (note 3)
Commitments (note 12)
See accompanying notes to condensed consolidated financial statements.
Approved on behalf of the Board:
“Dan Clozza” | Director | “Martin Tutschek” | Director |
Dan Clozza | Martin Tutschek |
The accompanying Financial Statements for the six months ended March 31, 2008 have not been reviewed or audited by the Company’s auditor.
2
FORUM NATIONAL INVESTMENTS LTD.
Condensed Consolidated Statements of Operations and Deficit
(Expressed in Canadian dollars)
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||
(Restated – note 4) | (Restated – note 4) | |||||||||||
Revenues | ||||||||||||
Revenues (note 7) | $ | 1,633,101 | $ | 1,011,099 | $ | 2,783,454 | $ | 2,370,339 | ||||
Net Revenues | 1,633,101 | 1,011,099 | 2,783,454 | 2,370,339 | ||||||||
Expenses | ||||||||||||
General and administration | 1,598,451 | 801,407 | 3,047,352 | 1,725,021 | ||||||||
Amortization | 19,110 | 18,512 | 37,385 | 22,084 | ||||||||
Total Operating Expenses | 1,617,561 | 819,919 | 3,084,737 | 1,747,105 | ||||||||
Income Before Income Taxes | 15,540 | 191,180 | (301,282 | ) | 623,233 | |||||||
Income Taxes (Expense) | – | – | – | (453 | ) | |||||||
Net Income for Period | 15,540 | 191,180 | (301,282 | ) | 622,780 | |||||||
Deficit, Beginning of Period | (14,529,907 | ) | (11,934,329 | ) | (14,213,086 | ) | (12,154,945 | ) | ||||
Adjustment on Acquisition | ||||||||||||
of Subsidiary | – | – | – | (210,984 | ) | |||||||
Deficit, End of Period | $ | (14,514,368 | ) | $ | (11,743,149 | ) | $ | (14,514,368 | ) | $ | (11,743,149 | ) |
Basic (loss) earnings per share | $ | 0.00 | $ | 0.04 | $ | – | $ | 0.13 | ||||
Diluted (loss) earnings per share | $ | 0.00 | $ | 0.04 | $ | – | $ | 0.13 | ||||
Weighted average number of | ||||||||||||
common shares outstanding – Basic | 28,435,248 | 4,664,661 | 28,435,248 | 4,664,661 |
See accompanying notes to condensed consolidated financial statements.
The accompanying Financial Statements for the six months ended March 31, 2008 have not been reviewed or audited by the Company’s auditor.
3
FORUM NATIONAL INVESTMENTS LTD.
Condensed Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Six Months Ended March 31, | ||||||
2008 | 2007 | |||||
(Restated – note 4 | ) | (Restated – note 4 | ) | |||
Operating Activities | ||||||
Net (loss)/income | $ | (301,283 | ) | $ | 622,780 | |
Items not involving cash: | ||||||
Policy revenue | (1,207,258 | ) | – | |||
Deferred revenue | (429,849 | ) | (212,947 | ) | ||
Deferred commission costs | 273,394 | 452,982 | ||||
Amortization | 37,385 | 22,804 | ||||
Revenue recognized on advances against | ||||||
future revenue streams | (8,182 | ) | (11,709 | ) | ||
(1,635,793 | ) | 873,190 | ||||
Changes in non-cash operating working capital: | ||||||
Accounts, notes and other receivables | (613,252 | ) | (117,063 | ) | ||
Prepaid expenses | (1,457,510 | ) | 16,126 | |||
Deferred costs | (127,233 | ) | (279,846 | ) | ||
Accounts payable and accrued liabilities | 1,669,638 | 600,174 | ||||
Long-term portion of pre-paid expenses | (61,194 | ) | – | |||
Deferred revenue | 1,315,353 | 243,582 | ||||
Deferred gain | – | (4,320 | ) | |||
725,802 | 458,653 | |||||
Cash (Used in) Generated From Operating Activities | (909,991 | ) | 1,331,843 | |||
Investing Activities | ||||||
Short-term investment | (302 | ) | (10,710 | ) | ||
Deferred Organization cost | (288,635 | ) | – | |||
Investments | (3,602,800 | ) | – | |||
Investments – Life Settlements | (1,441,477 | ) | – | |||
Purchase of property and equipment | (1,938,627 | ) | (1,805,722 | ) | ||
Cash Used in Investing Activities | (7,271,841 | ) | (1,816,432 | ) | ||
Financing Activities | ||||||
Net proceeds received on share issuance | 15,000 | – | ||||
Amounts due to (from) related parties | (51,379 | ) | 227,518 | |||
Current portion of long-term debt | – | 49,263 | ||||
Long-term debt | 48,030 | 1,141,951 | ||||
Reduction in capital stock on disposal of asset | – | (349,900 | ) | |||
Adjustment to accumulated deficit | – | (210,984 | ) | |||
Cash Provided by Financing Activities | 11,651 | 857,849 | ||||
Increase (Decrease) in Cash | (8,170,181 | ) | 373,260 | |||
Cash and Cash Equivalents, Beginning of Year | 8,624,205 | 111,745 | ||||
Cash and Cash Equivalents, End of Year | $ | 454,024 | $ | 485,005 |
See accompanying notes to condensed consolidated financial statements
The accompanying Financial Statements for the six months ended March 31, 2008 have not been reviewed or audited by the Company’s auditor.
4
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
1. | Nature of Operations |
The Company earns revenue from investments in life settlement contracts and dues from members of its travel club, who are entitled to the full-travel services of the Company. The Company also operates a full-service gym to increase memberships and marketing opportunities and expanded in ancillary projects that include an interest in a marine resort project and a 120 foot motor vessel for charter tours.
2. | Financial Statement Presentation |
These unaudited interim consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in Canada for interim financial information and follow the same accounting policies and methods of their application as the Company’s most recent annual financial statements. These interim consolidated financial statements do not include all of the disclosure included in the audited annual consolidated financial statements, and accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements for the nine months ended September 30, 2007. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these unaudited interim consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire year.
These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada. These principles differ in certain respects from those accounting principles and practices that the Company would have followed had its unaudited consolidated financial statements been prepared in accordance with accounting principles and practices generally accepted in the United States.
The accompanying Interim Consolidated Financial Statements for the six months ended March 31, 2008 have not been reviewed or audited by the Company’s Auditors.
3. | Going Concern |
These financial statements have been prepared on a going-concern-basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Accordingly, these financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should the Company be unable to continue as a going-concern. The Company had a loss of $ 301,283 for the six months ended March 31, 2008. At March 31, 2008 it has working capital deficiency of $424,351. Operations for the six months ended March 31, 2008 resulted in operating cash out-flow of $1,635,793 after eliminating non-cash items. Growth and development of new and additional business ventures has come from the issuance of capital stock. We will continue to draw down on cash reserves for the foreseeable future until the development of additional business ventures attains positive cash flows. |
6
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
3. | Going Concern (continued) |
Management has continued to take steps to try to improve the Company’s financial results and cash flows. These steps include the liquidation of notes receivable and pursuing equity financing to fund working capital requirements. The Company’s ability to continue growing operations is contingent on its ability to obtain financing. Management believes that it may be able to secure the necessary financing; however, there is no assurance that management will be successful in achieving this objective. | |
These financial statements do not reflect adjustments to the carrying value of assets and liabilities, the reported revenues and expenses and balance sheet classifications used that would be necessary if the going concern assumption were not appropriate. Such adjustments could be material | |
4. | Significant Accounting Policies |
(a) | Basis of presentation | |
These interim consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) and include the accounts of the Company and the following wholly owned subsidiaries: |
Incorporating | Date of Acquisition | ||
Subsidiaries | Jurisdiction | or Incorporation | |
inTRAVELnet.com inc. | Alberta, Canada | November 9, 1999 | |
Intravelnet Ltd. | Ontario, Canada | July 25, 2003 | |
ATM Travel Group Ltd. (“ATM”) | British Columbia, Canada | April 3, 2000 | |
International Fitness Vacations (BC) Ltd. | British Columbia, Canada | December 31, 2006 | |
(note 5) | |||
Price Shield Systems Inc. (note 5) | Washington State, USA | February 27, 2007 | |
American Life Settlement Society LLC | State of Delaware, USA | November 15, 2007 | |
All significant intercompany balances and transactions have been eliminated.
(b) | Revenue recognition | |
(i) The Company generates revenues from the sale of memberships and dues. The portion of revenue received from members, which entitles members to use the Company’s vacation and travel club privileges at a future date, is deferred and recognized in income evenly over the term of the member’s entitlements. For lifetime memberships, revenue is recognized over a period of five years, which is management’s best estimate of the period over which performance will be required. |
6
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
4. | Significant Accounting Policies (continued) | |
(b) | Revenue recognition (continued) | |
(ii) On March 27, 2006, FASB Staff Position No. FTB 85-4-1Accounting for Life Settlement Contracts by Third-Party Investors(FSP FTB 85-4-1) was issued, which amends FTB 85-4. The FASB Staff Position states that an investor may elect to account for its investments in life settlement contracts using either the investment method or the fair value method. The election shall be made on an instrument-by instrument basis and is irrevocable. Under the investment method, an investor shall recognize the initial investment at the purchase price plus all initial direct costs. Continuing costs (policy premiums and direct external costs, if any) to keep the policy in force shall be capitalized. Under the fair value method, an investor shall recognize the initial investment at the purchase price. In subsequent periods, the investor shall re-measure the investment at fair value in its entirety at each reporting period and shall recognize change in fair value earnings (or other performance indicators for entities that do not report earnings) in the period in which the changes occur. FSP FTB 85-4-1 is required to be applied to fiscal years beginning after June 15, 2006. The Company uses the Fair Value method to calculate its Life Settlement Portfolio. | ||
(c) | Business segments | |
The Company’s businesses are organized, managed and internally grouped into segments based on differences in products, technologies and services. The Company continues to manage its operations in two operating business segments: Life Settlement segment and Vacation Club segment. | ||
(d) | Stock-based compensation | |
The Company follows the recommendations of the Canadian Institute of Chartered Accountants (“CICA) for stock-based compensation and other stock-based payments. The Company accounts for stock options granted to directors, employees and consultants using the fair value method. The fair value of each option granted is estimated on the date of grant using the Black- Scholes option pricing model and charged to earnings over the vesting period with a corresponding increase in contributed surplus. Upon exercise of the stock options, consideration received together with the amount previously recognized in contributed surplus is recorded as an increase to capital stock. | ||
(e) | Property and equipment | |
Property and equipment are stated at cost. Amortization is provided on a straight-line basis in order to amortize the cost of depreciable assets over their estimated useful lives. For assets constructed internally, amortization is charged once the asset is complete and brought into use. The Company periodically evaluates the recoverability of its in-use property and equipment based on expected undiscounted future cash flows and recognizes impairments, if any, when the undiscounted future cash flows are expected to be less than the carrying value |
7
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
4. | Significant Accounting Policies (continued) | |
(e) | Property and equipment (continued) of the asset. For assets that are under construction, the Company evaluates recoverability based on the fair value of the asset on the reporting date. When impairment in value is noted, the carrying value of the property and equipment is reduced by a charge to operations. | |
The annual rates applied are as follows: |
Asset | Basis | Rate | |
Motor vessel | Straight-line | 4% | |
Vehicles | Straight-line | 25% | |
Equipment | Straight-line | 20% | |
Computers | Straight-line | 30% | |
Leasehold improvements | Term of lease | 5 years |
(f) | Deferred organization costs | |
The Company defers the costs associated with setting up its Life Settlement business. The full cost of setting up the Life Settlement Business will be charged to revenue once the Life Settlement Business commences operations. | ||
(g) | Purchased intangibles | |
The Company defers and amortizes the cost of purchased intangibles, which consists of a license to purchase condo accommodation at wholesale prices. Amortization is provided on a straight-line basis over a period of ten years. | ||
Tangible assets acquired in a business combination are identified and recognized apart from goodwill when they arise from either contractual enterprise and sold, transferred, licensed, rented or exchanged, either individually or with a group of related assets or liabilities. Goodwill and intangible assets having indefinite lives are not amortized, but are tested for impairment at least annually. Intangible assets with definite lives are amortized over their estimated useful lives. When the carrying amount of goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in the statement of operations. Goodwill is tested for impairment on a reporting unit basis. The Company has identified one reporting unit. | ||
(h) | Foreign currency translation | |
Monetary assets and liabilities denominated in foreign currency have been translated into Canadian dollars at exchange rates in effect at the balance sheet date and non-monetary items are translated at rates of exchange in effect when the assets were acquired or obligations incurred. Revenues and expenses are translated at the rates in effect at the time of the transaction. Foreign exchange gains and losses are included in the determination of net loss for the period. |
8
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
4. | Significant Accounting Policies (continued) | |
(i) | Advances against future revenue streams | |
The Company has entered into arrangements whereby future streams of certain financed membership cash flows are sold to a third party (“Lender”) while the Company is committed to provide the future services under these membership contracts. The Company receives cash proceeds on the sale at a discount to the future proceeds that the Lender is expected to receive from the customers. The Lender has recourse against the Company should the amounts become uncollectible, and the Company establishes a reserve for such amounts. For accounting purposes, the discounted proceeds have been recorded as a liability at the time of the transaction, which is credited to the gross value through a charge to interest expense over the term of the membership contracts. The related revenue is recorded as a reduction of the liability to reflect the membership services rendered by the Company with the resulting reduction in the Company’s potential obligation, in accordance with its revenue recognition policy (note 4(b)). | ||
(i) | Earnings per share | |
Basic earnings-per-share is calculated based on the weighted average number of common shares outstanding during the year. The Company uses the treasury stock method for calculating diluted earnings per share. | ||
(k) | Income taxes | |
Income taxes are accounted for under the asset and liability method. Future income tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss carry-forwards. Future income tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the substantial enactment date. To the extent that it is more likely than not those future income tax assets will not be realized, a valuation allowance is provided for the excess. | ||
(l) | Impairment of long lived assets | |
Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when the carrying value of a long-lived asset intended for use exceeds the sum of the undiscounted cash flows is expected from its use and eventual disposition. The impairment loss is measured as the excess of the carrying value of the asset over its fair value. |
9
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
4. | Significant Accounting Policies (continued) | |
(m) | Use of estimates | |
The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of estimates include the valuation of accounts receivable, impairment of assets, including intangible assets, rates for amortization and revenue recognition, balances of accrued liabilities, valuation allowance for future income tax assets, and the determination of the variables used in the calculation of stock-based compensation. While management believes the estimates used are reasonable, actual results could differ from those estimates and could impact future results of operations and cash flows. | ||
(n) | Cash and cash equivalents | |
Securities with original maturities of three months or less are considered cash equivalents, at cost. The securities are highly liquid and can be converted to known amounts of cash at any time, and are held at major financial institutions. Accrued interest on the guaranteed investment certificates, included as cash equivalents, is at the stated interest rate over the term of the instrument and included in accounts receivable. | ||
(o) | Deferred costs | |
Sales commissions are deferred and amortized to operations on the same basis as the related membership sales are recognized as revenue. | ||
(p) | Comprehensive income | |
A new category, Accumulated Other Comprehensive Income, is added to shareholders’ equity on the consolidated balance sheets. Major components for the category include unrealized gains and losses on financial assets classified as available-for-sale, unrealized foreign currency translation amounts, net of hedging arising from self-sustaining foreign operations and changes in fair value of the effective portion of cash flow hedging amounts. | ||
The adoption of this new standard had no effect in the Company’s consolidated financial statements. | ||
(q) | Financial instruments | |
Financial instruments are intentionally recognized at fair value. The fair value of a financial instrument 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. Fair values of financial instruments are based on independent prices quoted in active markets. In the absence of an active market, fair values are determined based on valuation models such as discounted cash flows, which require the use of assumptions concerning the amount of timing of estimated future cash flows and discount rates. Subsequent measurement depends on management’s classification of the financial assets as held-for-trading, available –for-sale, |
10
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
4. | Significant Accounting Policies (continued) | |
(q) | Financial instruments (continued) held-to-maturity or loans and receivables, and financial liabilities as held-for-trading or other liabilities. The classification of financial instruments depends on the nature of and the purpose of the financial instruments, management’s choice and in some circumstances, management’s intentions. | |
Held-for-trading | ||
Financial instruments classified as held-for-trading are measured at fair value with the realized and unrealized changes in fair value recognized each reporting period through interest and financing costs, net on the consolidated statement of earningsAvailable-for-saleFinancial assets classified as available-for-sale are measured at fair value with the unrealized changes in fair value recorded each reporting period in OCI, Investments in equity instruments classified as available-for-sale do not have the quoted price in an active market are recorded at cost. Each reporting period, available-for-sale assets are written down to fair value through interest and financing costs, net on the consolidated statement of earnings to reflect impairments that are considered to be other than temporary. | ||
Held-to-maturity, loans and receivables and other liabilities | ||
Financial instruments classified as held-to-maturity, loans and receivables and other liabilities are measured at amortized cost using the effective interest method | ||
The following table summarizes the Company’s selected financial instrument classifications based on its intentions: |
Financial instrument | Classification | |
Cash and cash equivalents | Held-for-trading | |
Short-term deposits | Held-to-maturity | |
Accounts and notes receivable | Loans and receivables | |
Life settlement receivable | Loans and receivables | |
Other receivables | Loans and receivables | |
Accounts payable and accrued liabilities | Other liabilities | |
Accounts payable - other | Other liabilities | |
Convertible debentures | Other liabilities | |
Long term debt | Other liabilities | |
Loan from related parties | Other liabilities |
11
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
5. | Restatement of prior figures |
The restatements to the September 30, 2007 and December 31, 2006 consolidated financial statements as previously reported result from the following accounting error correction: The Company recognized revenue and the related commission costs incorrectly on the sale of its vacation club memberships in fiscal 2006 and 2007. The Company incorrectly accounted for the full membership contract value in the year sold, if more than 10% of the face value was received during those periods. The related commissions were incorrectly recognized on the same basis as the related membership revenues. | |
The company has corrected the this error and recognize revenue on the sale of memberships and the related commission costs in accordance with the significant accounting policies described in notes 2(b) and 2(f). | |
The change recognize membership sales and related commission if less than 10% of face value was received in the period incurred and amortize in accordance with the significant accounting policies described in notes 2(b) and 2(f) resulting in an increase in other receivables by $8,911 (2007 - $ 33,840). The effect of this change was to increase deferred costs by $1,491,275 (2006 - $ 1,352,796) with a corresponding decrease in commission costs of $213,265 (2006 - $ 1,251,276) and an increase to deferred revenue – current portion of $675,895 ( 2006 - $ 765,854) and an increase in deferred revenue of $1,389,679 (2006 - $ 1,389,587) with corresponding decrease in membership sales and travel revenue of $9,849 (2006 - $ 2,020,081) and a decrease to deficit at September 30, 2007 of $203,416 (increase in 2006 - $ 768,805). | |
At September 30, 2007 the restatements resulted in changes to the previously reported varying values of assets, liabilities and shareholders’ equity as follows: |
Previously | ||||||||||
Reported | Adjustments | |||||||||
Restated | ||||||||||
Assets | ||||||||||
Other receivables | $ | 256,272 | $ | 8,911 | $ | 265,183 | ||||
Deferred costs | – | 1,491,275 | 1,491,275 | |||||||
Liabilities | ||||||||||
Deferred revenue - current portion | – | 675,895 | 675,895 | |||||||
Deferred Revenue | – | 1,389,679 | 1,389,679 | |||||||
Shareholders’ Equity | ||||||||||
Deficit | (13,647,697 | ) | (565,389 | ) | (14,213,086 | ) | ||||
12
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
5. | Restatement of prior figures (continued) |
The restatements resulted in changes to the previously amounts of consolidated statements of operations and deficit for the nine months ended September 30, 2007, as follows: |
Previously | ||||||||||
Reported | Adjustments | |||||||||
Restated | ||||||||||
Revenue | ||||||||||
Membership sales and travel | $ | 1,280,649 | $ | (9,854 | ) | $ | 1,270,800 | |||
Expenses | ||||||||||
Amortization of commission costs | 731,628 | (213,265 | ) | 518,363 | ||||||
Net Loss for Period | (2,415,883 | ) | 203,416 | 2,212,467 | ||||||
Deficit, End of Period | (13,647,697 | ) | (565,388 | ) | (14,213,086 | ) | ||||
Basic and diluted earnings per share | $ | (0.22 | ) | $ | (0.02 | ) | $ | (0.02 | ) |
At December 31, 2006 the restatements resulted in changes to the previously reported varying values of assets, liabilities and shareholders’ equity as follows:
Previously | ||||||||||
Reported | Adjustments | |||||||||
Restated | ||||||||||
Assets | ||||||||||
Other receivables | $ | 323,281 | $ | 33,840 | $ | 357,121 | ||||
Deferred costs | – | 1,352,796 | 1,352,796 | |||||||
Liabilities | ||||||||||
Deferred revenue - current portion | – | 765,854 | 765,854 | |||||||
Deferred Revenue | – | 1,389,587 | 1,389,587 | |||||||
Shareholders’ Equity | ||||||||||
Deficit | (11,231,814 | ) | (768,805 | ) | (12,000,619 | ) |
13
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
5. | Restatement of prior figures (continued) |
The restatements resulted in changes to the previously amounts of consolidated statements of operations and deficit for the year ended December 31, 2006, as follows: |
Previously | ||||||||||
Reported | Adjustments | |||||||||
Restated | ||||||||||
Revenue | ||||||||||
Membership sales and travel | $ | 3,918,409 | $ | (2,020,081 | ) | $ | 1,898,328 | |||
Expenses | ||||||||||
Amortization of deferred commission costs | 1,939,061 | (1,251,277 | ) | 687,784 | ||||||
Net income for Year | 1,644,160 | (768,805 | ) | 875,355 | ||||||
Deficit, End of Year | (11,231,814 | ) | (768,805 | ) | (12,000,619 | ) | ||||
Basic and diluted earnings per share | $ | 0.32 | $ | (0.15 | ) | $ | 0.17 |
6. | Acquisitions | |
(a) | The Company invested in a real estate development project in Needles, California, in November 2007 acquired a 25% interest for a price of $1.0 million. The project is controlled and/or operated by a director of the Company. The company accounts for the investment on the cost method. | |
(b) | Effective November 30, 2007, the Company completed the purchase of Family Vacation Centers being the notes receivable and vacation club memberships from Family Vacation Centers Inc (“The Vendor”) in the amount of $3,052,866. Investments increased by $2,602,800 to reflect the non-current portion of the acquisition. The Company did not purchase the outstanding capital stock of the Vendor nor were any debt or obligations relating to the Vendor assumed. Consideration given was cash payment in the amount of $1,843,356 and an amount of $1,209,510 payable in capital stock of the company as at March 31, 2009. Other current liabilities were increased accruing for the remaining liability. | |
The assets of Family Vacation Centers at the time of acquisition were: |
Purchase price | $ | 3,052,866 | ||
Purchase price allocation | ||||
Notes receivable | 206,798 | |||
Vacation club membership | 2,602,800 | |||
Total | $ | 3,052,866 |
14
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
7. | Business segments |
Transactions among reportable segments are recorded at cost. The Company is an integrated enterprise characterized by substantial intersegment cooperation and cost allocations, therefore, management does not represent that these segments, if operated independently, would report the operating income and financial information shown. The allocations resulting from the shared utilization of shared assets are not necessarily indicative of the underlying activity for segment assets, depreciation and amortization, and capital expenditures. |
(a) | Net sales |
Net sales | Six months | Six months | |||||
ended March | ended March | ||||||
31, 2008 | 31, 2007 | ||||||
Life Settlements | $ | 478,503 | $ | – | |||
Vacation Clubs | 2,173,849 | 2,043,717 | |||||
Corporate and unallocated | 131,102 | 326,622 | |||||
Total Company | $ | 2,783,454 | $ | 2,370,339 |
(b) | Operating income |
Operating Income | Six months | Six months | |||||
ended March | ended March | ||||||
31, 2008 | 31, 2007 | ||||||
Life Settlements | $ | 478,503 | $ | – | |||
Vacation Clubs | 131,217 | 1,191,884 | |||||
Corporate and unallocated | (911,002 | ) | (568,651 | ) | |||
Total Company | $ | (301,283 | ) | $ | 623,233 |
(c) | Assets |
Assets | Six months | Six months | |||||
ended March | ended March | ||||||
31, 2008 | 31, 2007 | ||||||
Life Settlements | $ | 3,087,346 | $ | – | |||
Vacation Clubs | 3,052,866 | – | |||||
Corporate and unallocated | 16,153,003 | 10,792,879 | |||||
Total Company | $ | 22,293,215 | $ | 10,792,879 |
15
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
7. | Business segments (continued) |
(d) | Capital expenditure |
Capital expenditures | Six months | Six months | |||||
ended March | ended March | ||||||
31, 2008 | 31, 2007 | ||||||
Life Settlements | $ | 2,458,867 | $ | – | |||
Vacation Clubs | 3,052,866 | – | |||||
Corporate and unallocated | 2,488,863 | 1,816,432 | |||||
Total Company | $ | 8,000,596 | $ | 1,816,432 |
(e) | Deprecation and Amortization |
Depreciation and Amortization | Six months | Six months | |||||
ended March | ended March | ||||||
31, 2008 | 31, 2007 | ||||||
Life Settlements | $ | – | $ | – | |||
Vacation Clubs | – | – | |||||
Corporate and unallocated | 37,385 | 22,084 | |||||
Total Company | $ | 375,385 | $ | 22,084 |
Segment assets for the operating business segments (excluding Corporate and Unallocated) primarily include accounts receivable, investments, pre-paid expenses and other miscellaneous assets. .Assets included in Corporate and Unallocated principally are cash and cash equivalents; other receivables and property and equipment. Corporate and unallocated assets can change from year to year due to changes in cash, cash equivalents and changes in other unallocated asset categories. For management reporting purposes, corporate capital assets are not allocated to the two operating business segments. Capital expenditure excludes acquisitions paid for by issuing stock.
16
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
8. | Financial Instruments |
The company’s financial instruments and the types of risks to which their carrying values are exposed are as follows: |
Risks | ||||
Market risks | ||||
Credit | Liquidity | Interest rate Currency | ||
Measured at amortized cost: | ||||
Accounts & notes receivable | X | X | ||
Other receivables | X | X | ||
Accounts payable and accrued liabilities | X | X | ||
Convertible debentures | X | X | ||
Long term debt | X | X | ||
Loans form related parties | X | X | ||
Measured at fair value: | ||||
Cash and cash equivalents | X | X | ||
Short- tem deposits | X | |||
Loans from related parties | X | X |
(a) | Credit risk | |
Credit risk is the risk that a party to one of the Company’s financial instruments will cause a financial loss to the Company by failing to discharge an obligation. The carrying values of the Company’s financial assets, which represent the maximum exposure to credit risk, are as follows: |
March 31, | ||||
2008 | ||||
Cash and cash equivalents | $ | 454,024 | ||
Short-term deposits | 14,210 | |||
Accounts and notes receivable | 999,704 | |||
Other receivables | 239,366 | |||
Total | $ | 1,707,606 |
Cash and cash equivalents and short term deposits:Credit risk associated with these assets is minimized substantially by ensuring that these financial assets are placed in debt instruments of the Canadian Federal government and well-capitalized financial institutions.
17
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
8. | Financial Instruments (continued) |
(a) | Credit risk (continued) | |
Accounts and notes receivable and Other receivables:Credit risk associated with these assets is minimized due to their nature. All notes receivable are carried a net after allowing for bad debts and unearned interest. The provision for doubtful accounts receivable is estimated based on an assessment of individual accounts and the length of time balances have been outstanding |
(b) | Liquidity risk | |
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities. The Company manages liquidity risk by regularly monitoring forecast and actual cash flows as well as maturity profiles of financial assets and financial liabilities. The company expects the following maturities of its financial liabilities (including interest) and operating leases and contracts: |
Expected payments by period as at March 31, 2008 | ||||||||||||||||
More | ||||||||||||||||
Within 1 yr | 2-3 yrs | 4-5 yrs | than 5 yrs | Total | ||||||||||||
Accounts payable and | ||||||||||||||||
accrued liabilities | $ | 951,377 | – | – | – | $ | 951,377 | |||||||||
Accounts payable – other | 1,209,510 | – | – | – | 1,209,510 | |||||||||||
Life settlement premiums | 656,856 | 2,627,426 | 2,627,426 | – | 5,911,409 | |||||||||||
Operating lease and contracts | 325,465 | 191,784 | – | – | 517,249 | |||||||||||
Total | $ | 3,143,211 | $ | 2,819,210 | $ | 2,627,426 | – | $ | 8,589,547 |
Operating leases and contracts include property leases for the company’s travel operations. The Company believes that it will not encounter difficulty in meeting the obligations associated with its’ financial liabilities and further believes that if necessary, it would be able to access the capital markets for additional financial resources at prevailing market rates.
18
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
8. | Financial Instruments (continued) | |
(c) | Market risk | |
Market risk is the risk that fair value of future cash flows of financial instrument will fluctuate because of changes in interest rates and/or foreign currency exchange rates. With exception of its’ construction loan to complete overhaul of the motor vessel, the carrying amounts of the Company’s financial instruments are not subject to interest rate risk. | ||
The following table sets out a sensitivity analysis of the effect of the Company’s financial instruments that are subject to foreign currency risk by applying reasonable possible changes in foreign currency rates relative to the Company’s functional currency, the Canadian dollar |
Foreign Currency Risk(1) | ||||||||||||||||
-25% | +25% | |||||||||||||||
Carrying amount | Net | Net | ||||||||||||||
March 31, 2008 | earnings | OCI(2) | earnings | OCI | ||||||||||||
Financial Liabilities | ||||||||||||||||
Long term debt – current | 227,567 | 56,892 | – | (59,892 | ) | – | ||||||||||
Long term debt | 4,036,061 | 1,009,015 | – | (1,009,015 | ) | – | ||||||||||
Total (decrease) increase | 1,065,907 | – | (1,065,907 | ) | – |
(1) | Displayed is the effects on the Company’s US dollar denominated financial assets and liabilities if the value of the US $: | |
(2) | OCI – “Other comprehensive income |
The Company is exposed to currency risk in relation to their US dollar financing referred to in note 13. The Company has not entered into any foreign currency contracts to mitigate this risk. | ||
�� | ||
(d) | Fair value | |
Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, short-term investments, accounts and notes receivable, and accounts payable and accrued liabilities approximate fair values due to their short-term maturities. The fair value of the convertible debentures is not readily determinable as these instruments were issued to related parties and comparable market rates are not available. |
19
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
9. | Investments in Life settlements |
The company purchases life settlement contracts for long term investment purposes and accounts for these investments under FSB FTB 85-4-1. The Company uses the Fair-value-method of accounting for these contracts. As of March 31, 2008 the Company has the following investment in life settlement contracts: | |
The table below summarizes the attributes of outstanding life settlement contracts at March 31, 2008: |
Carrying | Premiums | Face | ||
Year | value | payable | value | |
2008 | 2,648,735 | - | 30,000,000 |
Fair value is estimated using good-faith estimates calculated by a valuation committee. The committee considered the following factors: cost at date of purchase; recent purchases and sales of similar investments, financial standing of the issuer, changes in economic conditions affecting the issuer; standard, actuarially developed mortality tables and industry life expectancy reports
For the fiscal period presented on the current statement of operations and deficit, six months ended March 31, 2008, and six months ended March 31, 2007 the investments experienced the following gains:
Realized | Unrealized | ||||||
Year | Gains (Losses) | Gains (Losses) | |||||
2007 | - | - | |||||
2008 | - | 478,503 |
10. | Long-Term Debt |
The Company has secured a long-term loan to complete the refit project of the vessel. |
March 31, | September 30, | ||||||
2008 | 2007 | ||||||
Construction loan in US funds to complete vessel refit project, | |||||||
convertible into a permanent loan at completion, amortizing | |||||||
over 10 years bearing interest at the per annum LIBOR plus | |||||||
3.25% monthly published rate. | $ | 4,036,061 | $ | 4,215,598 | |||
Less: Current portion | 227,567 | 227,567 | |||||
Long-term portion | $ | 4,263,628 | $ | 3,988,031 |
The loan is secured by the motor vessel and by a guarantee from two of the directors of the Company.
20
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
11. | Income Taxes |
The reconciliation of income tax provision computed at statutory rates to the reported income tax provision is as follows: |
Six-Month | Fiscal | ||||||
Period Ended | Period Ended | ||||||
March 31, | September 30, | ||||||
2008 | 2007 | ||||||
Statutory income tax rate | – | 33.9% | |||||
Statutory rate applied to income (loss) from | |||||||
operations before income taxes | $ | – | $ | (818,984 | ) | ||
Permanent differences | – | 1,007,468 | |||||
Large corporations tax and other | – | – | |||||
Non-capital losses not previously recognized | – | – | |||||
Use of losses not previously recognized | – | (76,321 | ) | ||||
Tax effect of depreciation and amortization | |||||||
in excess of capital cost allowance | – | (112,163 | ) | ||||
Income tax expense (recovery) | $ | – | $ | – |
The significant components of the Company’s future income tax assets are as follows:
March 31, | September 30, | ||||||
2008 | 2007 | ||||||
Future income tax assets: | |||||||
Non-capital loss carry forwards | $ | – | $ | 1,224,008 | |||
Capital loss carry forwards | – | 378,127 | |||||
Excess of tax basis over carrying value of assets | – | 178,155 | |||||
– | 1,780,290 | ||||||
Valuation allowance | – | (1,780,290 | ) | ||||
Future income taxes, net | $ | – | $ | – |
The ultimate realization of the future tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In assessing the reliability of future tax assets, management considers whether it is more likely than not that some or all of the future tax assets will be realized. Where management does not believe that realization is more likely than not, a valuation allowance is provided.
The Company has non-capital income tax loss carry forwards of approximately $3,979,000 available to reduce future years’ taxable income expiring between 2008 and 2027.
The Company has a capital loss carry-forward of approximately $1,243,000, which can be carried forward indefinitely.
21
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
12. | Contingencies | |
Dispute with Charles Wolfe in the amount of $540,000, plus interest and costs and the company is defending the claim accordingly, it is not possible at this time to assess the likelihood of recovery or to estimate the possible quantum of damages. | ||
From time to time, the Company is a party to litigation arising in the normal course of its business operations. In the opinion of management, after consulting with legal counsel, it is not anticipated that the matters will have a material adverse impact on the Company’s financial condition, liquidity or results of operations. | ||
(a) | The Company has commitments in respect of operating leases with total aggregate payments due of approximately $232,314 (September 30, 2007 – $190,867). Payments due in each of the next three years are as follows: |
2008 | $ | 71,000 | ||
2009 | 102,006 | |||
2010 | 59,308 | |||
Total | $ | 232,314 |
(b) | The Company has commitments in respect of office leases with total aggregate payments due of approximately $314,282 (September 30, 2007 – $105,832). Payments due in each of the next two years are as follows: |
2008 | $ | 254,465 | ||
2009 | 30,470 | |||
Total | $ | 314,282 |
22
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
13. | Capital Stock |
(a) | The authorized capital stock: |
Unlimited - Common shares without par value
Unlimited - Series “A” - Preference non-dilutive convertible shares without par value
(convertible to 50% of outstanding common shares at the time of conversion)
Unlimited - Series “B” - Preference convertible shares without par value
(convertible to one common share for each preferred share held)
(b) | The issued capital stock of the Company is as follows: | |
13,933,983 Series “A” preferred shares for no consideration |
Number of | |||||||
Common | |||||||
Shares | Amount | ||||||
Balance, December 31, 2006 | 4,644,661 | 14,802,797 | |||||
Forward share split - 3-for-1 | 9,289,322 | – | |||||
Private placement | 11,000,000 | 5,773,918 | |||||
Private placement | 3,500,000 | 3,650,396 | |||||
Share issue costs | – | (32,318 | ) | ||||
Balance, September 30, 2007 | 28,433,983 | 24,194,793 | |||||
Share issued – Stock options exercised | 15,000 | 15,000 | |||||
Balance, March 31, 2008 | 28,448,983 | $ | 24,209,793 |
(c) | Options | |
The Company did not reserve any further shares in terms of the stock option plan for the reporting period. |
23
FORUM NATIONAL INVESTMENTS LTD. |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
Period ended March 31, 2008 and 2007 |
(Expressed in Canadian dollars) |
13. | Capital Stock (continued) | |
(d) | Stock-based compensation | |
Since no employee options were granted, modified or settled during the three or six months ended March 31, 2008 or 2007, there was no stock-based compensation expense included in the net income for such periods. | ||
The table below summarizes the outstanding stock options as at September, 30 2007 and September 30, 2007: |
Number | Exercise | ||||||
of Options | Price (US $) | ||||||
Balance, September 30, 2007 | 2,835,000 | $ | 1.00 | ||||
Granted | – | – | |||||
Balance, September 30, 2007 | 2,835,000 | $ | 1.00 |
The table below summarizes the attributes of the outstanding stock options as at March 31, 2008:
Options Outstanding | Options Exercisable | |||
Exercise | Number | Remaining | Number | Exercise |
Price (US $) | of Options | Contractual Life | of Options | Price (US $) |
$1.00 | 2,835,000 | 4.25 years | 2,835,000 | $ 1.00 |
The fair value of stock options used to calculate stock-based compensation is estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
September 30, 2007 | ||||
Dividend rate | – | |||
Expected volatility | 209% | |||
Interest rate | 4.88% | |||
Expected life | 5 years |
(e) | Contributed surplus |
Balance, September 30, 2007 | $ | 2,944,536 | ||
Stock-based compensation | – | |||
Balance, March 31, 2008 | $ | 2,944,536 |
24