(dba four corners community savings) · b.c. community financial services corporation (dba four...

B.C. COMMUNITY FINANCIAL SERVICES CORPORATION

(dba Four Corners Community Savings)

Financial Statements

March 31, 2004

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Kanester Johal *

Chartered Accountants Narinder 5. Johal, CA

Direct line: (604) 451-8330e-mail: [email protected]

(604) 451-8300

5atpal 5. Johl, CADirect line: (604) 451-8360e-mail: [email protected]

5uite 2083993 Henning DriveBumaby, B.C. V5C 6P?CanadaFax: (604) [email protected]

AUDITOR'S REPORT

To the Shareholder of

B.C. Community Financial Services Corporation (dba Four Corners Community Savings)

We have audited the Balance Sheet ofB.C. Community Financial Services Corporation (dba Four CornersCommunity Savings) as at March 31, 2004, and the Statements of Loss and Deficit and Cash Flows for theyear then ended. These fmancial statements are the responsibility of the corporation's management. Ourresponsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Thosestandards require that we plan and perform an audit to obtain reasonable assurance whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the fmancial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating theoverall financial statement presentation.

In our opinion, these fmancial statements present fairly, in all material respects, the financial position ofthe corporation as at March 31, 2004 and the results of operations and changes in financial position of thecorporation for the year then ended, in accordance with Canadian generally accepted accountingprinciples. As required by the Community Financial Services Act of British Columbia, we report that, inour opinion, these principles have been applied on a basis consistent with that of the preceding year.

Burnaby, BCMay 25,2004

KANESTER JOChartered Accountants

A MEMBER OF

.a partnership of professional corporations

Approved On Behalf Of The Board Of Directors:

Director d Director

B.C. COMMUNITY FINANCIAL SERVICES CORPORATION(dba Four Corners Community Savings)

Balance SheetAs At March 31, 2004

2004 2003

Assets

Cash $ 215,621 $ 634,152Tenn deposits (Note 3) 4,266,201 8,475,842Accounts receivable - 108,008Accrued interest 46,859 57,477Line of credits (Note 4) 14,677 39,153Prepaid expenses - 19,819Investment in BC Central Shares 100 100Loans receivable (Note 5) 6,227 186,225Mortgages receivable -net of allowance 538,216 2,293,337Property, plant and equipment (Note 6) - 613,131

$ 5,087,901 $ 12,427,244

Liabilities

Chequing $ 95,909 $ 920,192Savings 123,636 739,075Bank Instruments 99,504 58,455Tenn deposits - 4,542,443Registered retirement savings plan 26,074 146,251Accounts payable and accrued liabilities 174,642 52,692

519,765 6,459,108

Share Capital And Deficit

Share capital (Note 8) 10,000,000 10,000,000Contributed surplus (Note 9) 1,600,000 1,600,000Deficit (7,031,864) (5,631,864)

4,568,136 5,968,136

$ 5,087,901 $ 12,427,244


Statement Of Loss And DeficitFor The Year Ended March 31, 2004

2004 2003

Financial Revenue

Investment $ 256,808 $ 267,617Customer service and miscellaneous 262,367 429,412

519,175 697,029

Financial Expenses 88,036 177,872

431,139 519,157

Administrative Expenses

Administrative and general (Note 14(b» 145,871 134,437Amortization - 91,629Automated teller machine 21,864 26,541Bad debts 233,093 83,046

Bonding and insurance 38,317 30,977Contract services 1,161 3,661Courier 275 595

Data processing 108,102 125,099Directors and advisory council fees and related expenses 14,700 21,175

Expense recovery (Note 14(b» (90,000) (90,000)Interest and bank charges 15,141 13,476Professional fees 19,755 22,587Rent - 57,780

Repairs and maintenance 6,307 7,541

Security 28,610 11,004

Telephone 11,785 11,330Utilities 15,582 20,101

Wages and benefits 442,696 451,424

1,013,259 1,022,403

Loss From Operations (582,120) (503,246)

Gain on foreign currency exchange 2,464 8,568

Write-downs and expenses from discontinued operations (Note 15)Write-off of property, plant and equipment (613,131)Closing costs (207,213)

Net Loss, for the year (1,400,000) (494,678)

Deficit, beginning of year (5,631,864) (5,137,186)

Deficit, end of year $

B.C. COMMUNITY FINANCIAL SERVICES CORPORATION(dba Four Corners Community Savings),.Statement Of Cash Flows

For The Year Ended March 31, 2004

2004 2003

Operating Activities

Net loss for the year $ (1,400,000) $ (494,678)Add: adjustment for

Amortization - 91,629Write-off of property, plant and equipment 613,131

(786,869) (403,049)Net changes in

Accounts receivable 108,008 (97,797)Accrued interest 10,618 36,217Prepaid expenses 19,819 (9,138)Accounts payable and accrued liabilities 121,953 (38,976)

(526,471) (512,743)

Financing Activities

Decrease in customers deposits (6,061,295) (1,752,164)Contributed surplus - 600,000-

(6,061,295) (1,152,164)

Investing Activities

Additions to property, plant and equipment - (640)Decrease in line of credits and loans receivable 204,473 140,153Decrease in mortgages receivable 1,755,121 1,408,483

1,959,594 1,547,996

Decrease In Cash (4,628,172) (116,911)

Cash, beginning of year 9,109,994 9,226,905

Cash, end of ear $ 4,481,822 $ 9,109,994

Cash is consisted of:

Cash $ 215,621 $ 634,152Term deposits 4,266,201 8,475,842

$ 4,481,822 $ 9,109,994

ID- - -


Notes To The Financial StatementsMarch 31, 2004

1. The Corporation

BC Community Financial Services Corporation was established under the Community FinancialServices Act, SBC 1994 on July 4, 1994 and commenced operations on January 12, 1995. Thepurpose of the Corporation was to encourage and facilitate the use of savings institutions by, and toprovide a range of financial and related services to, members of the community. The Act does notallow the Corporation to issue its shares to any person other than the Minister of Finance andCorporate Relations for the Province of British Columbia.

Over the past years, the Corporation has experienced ongoing operating losses and required additionalfunding by way of operating grants from the Provincial Government in order to satisfy the minimumequity requirement of $5 million for a Provincial Trust Company, as stipulated under the FinancialInstitutions Act. Since the inception of its operations, the Province of British Columbia has invested$10 million in share capital and $1.6 million in operating grants. On December 4,2003, the Provinceof British Columbia indicated that it would not be providing any further funding to compensate forfurther operating losses. As a result, the Board of Directors, at a meeting held on the same day,unanimously agreed to suspend operations as soon as contractually possible.

The Board of Directors approved a motion to permanently close the Corporation's door to the publicat the close of business on February 27,2004. This deadline was extended to March 10, 2004 whenthe branch was effectively closed. The Corporation is in the process of realizing on its remainingassets and discharging its remaining liabilities. On April 29, 2004, Bill 18 that included a sectionrepealing the Community Financial Services Act upon execution of an Order in Council receivedRoyal Assent. When the Order in Council is executed, all of the Corporation's remaining assets andliabilities will be transferred to or assumed by the Province of British Columbia. See also Note 16.

2. Significant Accounting Policies

Winding Down of Operations

As of March 31, 2004, the Corporation is continuing to wind down its operations. Management isattempting to locate all of its customers to close their accounts in an orderly manner. After May 31,2004, when operations cease totally, as stipulated in the Financial Institutions Act, those accounts thathave not been closed, where the balance is greater than $50 (Financial Institutions Act stipulates$100), will be transferred to the British Columbia Unclaimed Property Society. It is furtheranticipated that all outstanding Creditors' accounts will be paid in full prior to the execution of theOrder in Council. As a result, the values of the assets and liabilities presented on the balance sheetclosely approximate their net realizable values. See also Note 16.

Property, Plant and Equipment

As of March 31, 2004, arrangements are being made with the Province of British Columbia to assistthe Corporation in selling and liquidating its property, plant and equipment before the Corporationpermanently vacates the site. The Province of British Columbia will attempt to sell the assets to thirdparties on behalf of the Corporation. Since it is assumed that the property, plant and equipment willhave minimal realizable value to the Corporation, the balances as at March 31, 2004 have beenwritten off. Upon the sale or disposal, proceeds, if any, will be recognized as a recovery of closingcosts and the net proceeds will be transferred to the Province of British Columbia.



2. Significant Accounting Policies (Continued)

Loans and Mortgages Receivable

Loans and mortgages receivable are stated net of a provision established to recognize loanimpairment. This provision is determined by reference to specific loans in arrears and by judgment ofmanagement based on loan collection experience. Loans and mortgages receivable considereduncollectible are written off. Interest income is accrued unless the loan is classified as impaired.

Use of Estimates

The preparation of the financial statements in conformity with Canadian generally acceptedaccounting principles requires management to make estimates and assumptions that affect theamounts reported in the financial statements and accompanying notes. Actual results could differfrom those estimates.

Income Taxes

The Corporation is owned by the Crown and therefore exempt from income tax under Section 149 ofthe Income Tax Act.

3. Term Deposits

2004 2003

Credit Union Central of British Columbia $ 4,266,201 $ 8,475,842

4. Line of Credits

2004 2003

Notes receivable $ 14,677 $ 81,073

Less:allowancefor doubtful - (41,920)

$ 14,677 $ 39,153



The Corporation has a line of credit with Credit Union Central of British Columbia with an authorizedamount of $500,000 and interest calculated at prime rate. The line of credit is guaranteed by theProvince of British Columbia.

8. Share Capital

Authorized:10,000,000 Shareswitha par valueof$1.00 each.

2004 2003

Issued and outstanding:10LOOO,000Shares $ 10,000,000 $ 10,000,000

5. Loans Receivable

2004 2003

Loans receivable $ 54,821 $ 290,029

Less: allowance for doubtful (48,594) (103,804)

$ 6,227 $ 186,225

6. Property, Plant and Equipment

Accumulated Net NetCost Amortization 2004 2003

Computer equipment $ 171,058 $ 171,058 $ - $ 18,953Furniture and equipment 134,764 134,764 - 69,542Leaseholdimprovements 930,576 930,576 - 510,288Securitysystem 44,615 44,615 - 13,193Software 22,968 22,968 - 1,155

$ 1,303,981 $ 1,303,981 $ - $ 613,131

Effective March 10, 2004, the Corporation ceased operations. The balance of property, plant andequipment has been written off. See also Notes 2 and 16.

7. Line of Credit

B.C. COl\1MUNITY FINANCIAL SERVICES CORPORATION(dba Four Corners Community Savings)


9. Contributed Surplus

The Province of British Columbia initially contributed $1 million to assist with start-up costs. Anadditional $600,000 was provided at the end of the 2003 fiscal year to offset the CUlTentoperatingcosts while the Corporationexploredother alternativesto become more cost effective.

10. Capital, Liquidity and Risk Management

Under Section 68 of the Financial Institutions Act (the "Act"), a financial institution must ensure thatits capital base is at all times adequate in relation to the business carried on by the financialinstitution. The Corporation is authorized to carry on business as a Provincial trust company, in thatit can carry on deposit business or both trust business and deposit business under the Act; however,the Corporation must ensure that its capital base is at all times at least greater than $5 million or 8%of the total value of the risk-weighted assets. As at March 31, 2004, the Corporation's capital base isless than $5 million, and while the Financial Institutions Commission (FICOM) could require that theCorporation's capital base is increased, it is unlikely that this will be done because of the announcedtermination of business.

Credit risk is the risk associated with the members not meeting their debt obligations. This risk isminimized by evaluating the members' credit rating at the time a loan is granted, continuedobservation of the account to ensure timely payments and ensuring that members do not exceed setcredit limits. The Corporation is no longer issuing new loans and credit lines and is focusing oncollection of the outstanding loans and lines of credit.

Interest rate risk is the risk associated with fluctuations in interest rates. In managing interest raterisk, the Corporation relies primarily upon its overall asset-liability management.

Interest Sensitivity Position $ 4,196,240 $ 283,958 $ (4,480,298)$ (lOO)

11. Maturities And Weighted Average Rates

Weighted Within 2 to 3 Not InterestAverageRate 1year years Sensitive Total

AssetsCash $ -$ -$ 215,621 $ 215,621Term deposits 3.01 % 4,201,201 65,000 - 4,266,201Accruedinterest - - 46,859 46,859Loansand mortgages 13.19 % 340,162 218,958 - 559,120

$ 4,541,363 $ 283,958 $ 262,480 $ 5,087,801

Liabilities and Shareholders' EquityDeposits 0.37 % $ 345,123 $ - $ -$ 345,123Other - - 174,642 174,642Shareholder'sequity - - 4,568,136 4,568,136

$ 345,123 $ -$ 4,742,778 $ 5,087,901


Notes To The Financial StatementsMarch 31,2004

12. Remuneration To Directors And Advisory Council Members

During the year, the Corporation incurred $14,700 (2003 - $21,175) in fees to members of the Boardof Directors and the Advisory Council for attendance at meetings.

13. Financial Instruments

As noted in Note 1, the Corporation is ceasing operations. The book values approximate the fairvalues of the remaining assets and liabilities as determined by management.

14. Related Parties Transactions

During the year, the Corporation participated in the following transactions with other governmentorganizations:

(a) The Corporation paid $ni1(2003 -$57,780) in rent to another provincial organization;

(b) The Corporation received services with a value of approximately $90,000 (2003 -$90,000) fromother government agencies for no consideration. The services have been included inadministrative and general expenses.

15. Write-downs and Expenses of Discontinued Operations

The Corporation has recorded a write-off of property, plant and equipment of $613,131 and closingcosts of $207,213 associated with the decision to close its branch operations. The loss of $820,344 onthe discontinued operations is based on management's best estimates. This includes the completewrite-off of property, plant and equipment, the actual closure costs incurred to date, as well asmanagement's projection of the estimated closure costs to be incurred prior to May 31, 2004.Changes to these estimates will be recognized as a gain or loss from discontinued operations in theperiod in which such changes are determined.

B.C. COMMUNITY FINANCIAL SERVICES CORPORATION(dbaFourCornersCommunitySavings)

Notes To The Financial StatementsMarch 31,2004

16. Subsequent Events

On April 29, 2004, legislation repealing the Community Financial Services Act received RoyalAssent under this legislation, the Act is repealed upon execution of an Order in Council. It is believedthat the Order in Council will be executed as soon as possible after it is deemed that the corporateshell is no longer required. The loan portfolio has been transferred to the Collection and LoanManagement Branch of the Ministry of Provincial Revenue for collection on the Corporation's behalfpending execution of the Order in Council.

Upon the execution of the Order in Council and the repeal of the Community Financial Services Act;

The RC. Community Financial Services Corporation will be dissolved and disestablished,

The appointment of each member of the Corporation's Board of Directors will be rescinded,

The Advisory Council elected under section 10 of the Community Financial Services Act will bedissolved and disestablished,

All of the rights, property and assets of the Corporation will be transferred to and vested in theProvince of British Columbia, and

All of the debts, liabilities, obligations and covenants of the Corporation will be transferred toand vested in the Province of British Columbia.

In the process of winding down operations, the following steps are being undertaken

. Any unclaimed cash balances greater than $50 are being transferred to the British ColumbiaUnclaimed Property Society for administration,

. All outstanding Bank Instruments consisting of money orders and official cheques have beentransferred to the British Columbia Unclaimed Property Society for administration,

. The Corporation's membership in the Canadian Payment Association will terminate on May 31,2004, at which time the Corporation's transit number will cease to exist preventing any furthertransactions,

. The outstanding loans and mortgages have been transferred to the Collection and LoanManagement Branch of the Ministry of Provincial Revenue for administration pending executionof the Order in Council,

. On June 2, 2004, or shortly thereafter, all of the remaining investments will be transferred to theProvince of British Columbia, and

. All minor unclaimed cash balances are being extinguished as necessary.

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