Annual Consolidated Financial Statements

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

Consolidated Statements of Earnings 

Consolidated Statements of Comprehensive Income

Consolidated Statements of Retained Earnings

See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flows

See accompanying notes to consolidated financial statements.

Notes to Consolidated Financial Statements
Years ended December 31, 2008 and 2007

1. Description of the business
Accord Financial Corp. (the "Company") is incorporated by way of Articles of Continuance under the Ontario Business Corporations Act and, through its subsidiaries, is engaged in providing asset-based financial services, including factoring, financing, credit investigation, guarantees and receivables collection to industrial and commercial enterprises, principally in Canada and the United States.

2. Basis of presentation
These financial statements are expressed in Canadian dollars and have been prepared in accordance with Canadian generally accepted accounting principles. 

3. Significant accounting policies
(a) Adoption of new accounting policies
Effective January 1, 2008, the Company adopted two new accounting standards issued by The Canadian Institute of Chartered Accountants ("CICA") on financial instruments comprising Handbook Section 3862, Financial nstruments - Disclosures, and Section 3863 Financial Instruments - Presentation, which apply to interim and annual financial statements. These sections revise and enhance the current disclosure requirements but do not change the existing presentation requirements for financial instruments. The new disclosures provide additional information on the nature and extent of risks arising from the financial instruments to which the Company is exposed and how it manages those risks. The Company also adopted CICA Handbook Section 1535, Capital Disclosures, which requires the Company to disclose qualitative and quantitative information relating to its objectives, policies and processes for managing its capital.

(b) Basis of consolidation
These financial statements consolidate the accounts of the Company and its wholly owned subsidiaries, namely, in Canada, Accord Business Credit Inc. and Montcap Financial Corporation and in the United States, Accord Financial, Inc. Inter-company balances and transactions are eliminated upon consolidation.

(c) Accounting estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting years. Actual results could differ from those estimates. Estimates that are particularly judgmental relate to the determination of the allowance for losses relating to factored receivables and loans and to managed receivables (note 4). Management believes that both allowances for losses are adequate.

(d) Revenue recognition
Revenue principally comprises factoring commissions from the Company's recourse and non-recourse factoring businesses. Factoring commissions are calculated as a discount percentage of the gross amount of the factored invoice. These commissions are recognized as revenue at the time of factoring. A portion of the revenue is deferred and recognized over the period when costs are being incurred in collecting the receivables. Additional factoring commissions are charged on a per diem basis if the invoice is not paid by the due date. Interest charges on performing loans are recognized as revenue on an accrual basis. Other revenue, such as due diligence fees, documentation fees and commitment fees, is recognized as revenue when earned.

(e) Allowances for losses        
The Company maintains a separate allowance for losses on both its factored receivables and loans and its guarantee of managed receivables. The Company maintains these allowances for losses at amounts, which, in management's judgment, are sufficient to cover the fair value of losses thereon. The allowances are based upon several considerations including current economic trends, condition of the loan and receivable portfolios and typical industry loss experience.

Credit losses on factored receivables are charged to the respective allowance for losses account when debtors are known to be bankrupt or insolvent. Losses on loans are charged to the allowance for losses when collectibility becomes questionable and the underlying collateral is considered insufficient to secure the loan balance. Recoveries of previously written off accounts are credited to the respective allowance for losses account.

(f) Capital assets
Capital assets are stated at cost. Depreciation is provided annually over the estimated useful lives of the assets as
follows:

Upon retirement or sale of an asset, its cost and related accumulated depreciation are removed from the accounts and any gain or loss is recorded in income or expense. The Company reviews capital assets on a regular basis to determine that their carrying values have not been impaired.

(g) Goodwill
Goodwill is not amortized, but tested for impairment annually, or more frequently if impairment indicators arise, to ensure that its fair value remains greater than, or equal to, its book value. If its book value exceeds fair value, the excess will be charged to income in the year in which the impairment is determined. 

(h) Income taxes
The Company follows the asset and liability method of accounting for income taxes, whereby future income tax assets and liabilities are recognized based on temporary differences between the tax and accounting bases of assets and liabilities, as well as losses available to be carried forward to future years for income tax purposes. Future income tax assets and liabilities are   measured using enacted or substantively enacted tax rates expected to be in effect when the temporary differences are expected to reverse and are adjusted for the effects of changes in tax laws and rates on the date of enactment or substantive enactment. To the extent that the realization of future income tax assets is not considered to be more likely than not, a valuation allowance is provided.

(i)  Foreign subsidiary             
The assets and liabilities of the Company's self-sustaining foreign subsidiary are translated into Canadian dollars at the exchange rate prevailing at the balance sheet date. Revenue and expenses are translated into Canadian dollars at the average monthly exchange rate then prevailing. Resulting foreign exchange gains and losses are credited or charged to other comprehensive income.

(j) Foreign currency translation
Assets and liabilities denominated in currencies other than the Canadian dollar are translated into Canadian dollars at the exchange rate prevailing at the balance sheet date. Revenue and expenses are translated into Canadian dollars at the prevailing average monthly exchange rate. Translation gains and losses are credited or charged to earnings.

(k) Earnings per common share
Earnings per common share are calculated using the treasury stock method to compute the dilutive effect of stock options.

(l) Stock-based compensation
The Company accounts for stock-based compensation awards, including stock options and share appreciation rights ("SARs") issued to employees and directors, using fair value based methods. 

(m) Derivative financial instruments
The Company records derivative financial instruments on its balance sheet at their respective fair values. Changes in the fair value of these instruments are reported in earnings unless all of the criteria for hedge accounting are met in which case changes in fair value would be recorded in other comprehensive income.

4. Factored receivables and loans

The activity in the allowance for losses on factored receivables and loans account during 2008 and 2007 was as follows:

The Company has also entered into agreements with clients whereby it has assumed the credit risk with respect to the majority of the clients' receivables. At December 31, 2008, the gross amount of these managed receivables was $133,754,008 (2007 - $100,189,507). Management has provided an amount of $686,000 (2007 - $725,000) as an allowance for losses on the guarantee of these managed receivables which represents the estimated fair value of these guarantees. As these managed receivables are off-balance sheet, this liability is included in the total of accounts payable and other liabilities.

The activity in the allowance for losses on the guarantee of managed receivables account during 2008 and 2007 was as follows:

The nature of the Company's business requires it to fund or assume the credit risk on receivables offered to it by its clients. The Company controls the credit risk associated with its factored receivables and loans and managed receivables in a variety of ways. For details of the Company's policies and procedures in this regard please refer to note 18(a).

5. Capital assets

6. Goodwill

Goodwill is tested for impairment annually or more frequently if impairment indicators arise. During 2008 and 2007, the Company conducted annual impairment reviews and determined there was no impairment to the carrying value of goodwill. The change in the net goodwill balance in 2008 relates to the translation of the Company's net goodwill balance of US$961,697 into Canadian dollars at a different prevailing year-end exchange rate.

7. Bank indebtedness
Revolving lines of credit have been established at a number of banking institutions bearing interest varying with the bank prime rate or LIBOR. These lines of credit are collateralized primarily by factored receivables and loans to clients. At December 31, 2008, the amounts outstanding under these lines of credit totalled $35,876,905 (2007 - $48,206,627). The Company was in compliance with the loan covenants under these lines of credit as at December 31, 2008 and 2007.

8. Notes payable
Notes payable are to individuals or entities and consist of advances from shareholders, management, employees, other related individuals and third parties. The notes are unsecured, due on demand and bear interest at the bank prime rate less one-half of one percent per annum. Notes payable and related interest expense were as follows:

9. Capital stock, contributed surplus, stock options and share appreciation rights

(a) Authorized
The authorized capital stock of the Company consists of an unlimited number of first preferred shares, issuable in series, and an unlimited number of common shares.

The first preferred shares may be issued in one or more series and rank in preference to the common shares. Designations, preferences, rights, conditions or prohibitions relating to each class of shares may be fixed by the Board of Directors. At December 31, 2008 and 2007, there were no first preferred shares outstanding.

(b) Issued and outstanding
The common shares issued and outstanding are as follows:

The fair value of those stock options exercised is transferred from contributed surplus to capital stock.

(c) Share repurchase program
On August 2, 2006, the Company received approval from the Toronto Stock Exchange ("TSX") to commence a normal course issuer bid (the "2006 Bid") for up to 488,158 of its common shares at prevailing market prices on the TSX. The 2006 Bid commenced August 8, 2006 and terminated on August 7, 2007. Under the 2006 Bid, the Company repurchased and cancelled 321,700 shares at an average price of $7.62 per share for a total consideration of $2,451,975. This amount was applied to reduce share capital by $204,091 and retained earnings by $2,247,884.

On August 1, 2007, the Company received approval from the TSX to commence a new normal course issuer bid (the "2007 Bid") for up to 474,723 of its common shares at prevailing market prices on the TSX. The 2007 Bid commenced August 8, 2007 and terminated on August 7, 2008. Under the 2007 Bid, the Company repurchased and cancelled 75,600 shares at an average price of $7.83 per share for a total consideration of $591,782. This amount was applied to reduce share capital by $49,705 and retained earnings by $542,077.

On August 5, 2008, the Company received approval from the TSX to commence a normal course issuer bid (the "2008 Bid") for up to 477,843 of its common shares at prevailing market prices on the TSX. The 2008 Bid commenced August 8, 2008 and will terminate on the earlier of August 7, 2009 or the date on which a total of 477,843 common shares have been repurchased pursuant to its terms. All shares repurchased pursuant to the 2008 Bid will be cancelled. During the year ended December 31, 2008, the Company repurchased and cancelled 118,700 common shares acquired under the 2008 Bid at an average price of $6.20 per common share for a total consideration of $735,769, which was applied to reduce share capital by $84,660 and retained earnings by $651,109.

During the year ended December 31, 2008, the Company repurchased and cancelled 154,000 common shares acquired under the 2007 and 2008 Bids at an average price of $6.53 per common share for a total consideration of $1,005,017, which was applied to reduce share capital by $107,870 and retained earnings by $897,147. During the year ended December 31, 2007, the Company repurchased and cancelled 41,600 common shares acquired under the 2006 and 2007 Bids at an average price of $8.00 per common share for a total consideration of $332,634, which was applied to reduce share capital and retained earnings by $27,321 and $305,313, respectively. 

(d) Contributed surplus

(e) Stock option plans
The Company has established an employee stock option plan. Under the terms of the plan, an aggregate of 1,000,000 common shares has been reserved for issue upon the exercise of options granted to key managerial employees of the Company and its subsidiaries.

According to the terms of the plan, options may be earned upon the achievement by the Company of certain minimum earnings.

The Company has also established a non-executive directors' stock option plan. Under the terms of the plan, an aggregate of 500,000 common shares has been reserved for issue upon the exercise of options granted to non-executive directors of the Company.

Options are granted to purchase common shares at prices not less than the market price of such shares on the grant date. The Company has issued no options to employees or directors since May 2004 and currently does not plan to do so.

During 2008, there were 138,000 (2007 - 53,000) stock options exercised for cash proceeds of $510,200 (2007 - $245,350), which were credited to capital stock.

The following table is a summary of stock option activity:

The following stock options were earned, exercisable and outstanding at December 31:

(f) Share appreciation rights
The Company has an established SARs plan whereby SARs are granted to directors and key managerial employees of the Company. The maximum number of SARs which may be issued in any fiscal year under the plan is 2.5% of the total number of issued and outstanding common shares of the Company. The SARs will have a strike price at the time of grant equal to the volume weighted average trading price of the Company's common shares on the TSX for the ten trading days that shares were traded immediately preceding the date of grant. An employee will have the right to sell part or all of their SARs after holding them for a minimum of 24 months. Each employee's SARs not sold to the Company will automatically be sold on the last business day on or preceding the fifth anniversary following such grant. Directors have no minimum holding period and can only exercise their SARs when they cease to be members of the Board of Directors, at which time exercise will be compulsory.

During 2008, 95,000 SARs were granted by the Company to directors and employees of the Company and its subsidiaries at a strike price of $7.25. These are the only SARs granted by the Company to date.

10. Stock-based compensation
The Company accounts for stock-based compensation, including stock option grants and SARs, using fair value based methods. Stock options are granted to employees and non-executive directors at prices not less than the market price of such shares on the grant date. These options vest over a period of three years provided certain earnings criteria are met. The Company utilizes the Black-Scholes option-pricing model to calculate the fair value of the stock options on the grant date. This fair value is expensed over the award's vesting period. Note 9(f) sets out details of the Company's SARs plan. Changes in the fair value of outstanding SARs are calculated at each balance sheet date. The change will be recorded in general and administrative expenses, with a corresponding entry to accounts payable and other liabilities. As at December 31, 2008, the outstanding SARs had no intrinsic value. No stock options were granted by the Company in 2008 and 2007.

In 2008 there was no stock-based compensation expense to record in respect of stock option and SARs grants (2007 - $1,406). The 2007 expense pertained to options granted for which the vesting period of such options included, in whole or in part, the year ended December 31, 2007.

11. Income taxes
The Company's income tax expense comprises:

The Company's income tax expense varies from the amount that would be computed using the Canadian statutory income tax rate of 33.5% (2007 - 36.1%) due to the following:

The tax effects that give rise to future income tax assets and liabilities at December 31 are as follows:

12. Earnings per common share and weighted average number of common shares outstanding
Basic earnings per common share have been calculated based on the weighted average number of common shares outstanding in the year without the inclusion of dilutive effects. Diluted earnings per common share are calculated based on the weighted average number of common shares plus dilutive common share equivalents outstanding in the year, which, in the Company's case, consist solely of stock options.

The following is a reconciliation of common shares used in the calculation:

Certain options were excluded from the calculation of diluted shares outstanding in 2008 because they were considered to be anti-dilutive for earnings per common share purposes. No options were excluded in 2007.

13. Contingent liabilities
(a) In the normal course of business there is outstanding litigation, the results of which are not expected to have a material effect upon the Company.  

(b) At December 31, 2008, the Company was contingently liable with respect to unaccepted letters of credit issued on behalf of clients in the amount of $2,273,300 (2007 - $1,776,416). There were no letters of guarantee issued on behalf of clients outstanding at December 31, 2008 (2007 - $469,633). These amounts have been considered in determining the allowance for losses on factored receivables and loans.

14. Lease commitments
The Company is committed under operating leases, principally office space leases, which expire between 2009 and 2017. The minimum rentals payable under these long-term operating leases, exclusive of certain operating costs and property taxes for which the Company is responsible, over the next five years and thereafter are as follows:

15. Financial instruments
The Company has entered into a forward foreign exchange contract with a financial institution, which must be exercised by the Company between January 2, 2009 and January 30, 2009 and which obligates the Company to sell Canadian dollars and buy US$400,000 at an exchange rate of 1.1545. The contract was entered into by the Company on behalf of one of its clients and a similar forward foreign exchange contract was entered into between the Company and the client whereby the Company will buy Canadian dollars from and sell the US$400,000 to the client. The favorable and unfavorable fair values of these contracts have been recorded on the Company's balance sheet in other assets and accounts payable and other liabilities, respectively. There has been no gain or loss to the Company as a result of entering into these contracts. 

As at December 31, 2007, the Company had entered into forward foreign exchange contracts with a financial institution that matured between January 3, 2008 and May 30, 2008 and obliged the Company to sell Canadian dollars and buy US$1,175,000 at an exchange rate of 0.9526. The contracts were entered into by the Company on behalf of one of its clients and similar forward foreign exchange contracts were entered into between the Company and the client whereby the Company would buy Canadian dollars from and sell the US$1,175,000 to the client. The favorable and unfavorable fair values of those contracts were recorded on the Company's balance sheet in other assets and accounts payable and other liabilities, respectively. There was no gain or loss to the Company as a result of entering into these contracts.

16. Accumulated other comprehensive loss
Accumulated other comprehensive loss comprises the unrealized foreign exchange gain or loss arising on translation of the assets and liabilities on the Company's self-sustaining U.S. subsidiary, which are translated into Canadian dollars at the exchange rate prevailing at the balance sheet date. Movements in this balance during 2008 and 2007 were as follows:   

17. Fair values of financial assets and liabilities
Any financial assets or liabilities recorded at cost are short term in nature and, therefore, their carrying values approximate fair values.

18. Financial risk management
The Company is exposed to credit, liquidity and market risk related to the use of financial instruments in its operations. The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework through its Audit Committee. The Company's risk management policies are established to identify, analyze, limit, control and monitor the risks faced by the Company. Risk management policies and systems are reviewed regularly to reflect changes in the risk environment faced by the Company.

(a) Credit risk
Credit risk is the risk of financial loss to the Company if a client or counterparty to a financial instrument fails to meet its contractual obligations. In the Company's case, credit risk arises with respect to its factored receivables and loans, managed receivables and any other counterparty the Company deals with. The carrying amount of these assets represents the Company's maximum credit exposure and is the most significant measurable risk that it faces. The nature of the Company's factoring and asset-based lending business requires it to fund or assume credit risk on the receivables offered to it by its clients, as well as to finance other assets, such as inventory, equipment and real estate. Typically, the Company takes title to the factored receivables and collateral security over the other assets that it lends against and does not lend on an unsecured basis. It does not take title to the managed receivables as it does not lend against them, but it assumes the credit risk from the client in respect of these receivables.

All credit is approved by a staff of credit officers, with larger amounts being authorized by supervisory personnel, management and, in the case of credit in excess of $1,000,000, by the Company's Board of Directors. The Company monitors and controls its risks and exposures through financial, credit and legal reporting systems and, accordingly, believes that it has in place procedures for evaluating and limiting the credit risks to which it is subject. All credit is subject to ongoing management review. Nevertheless, for a variety of reasons, there will inevitably be defaults by customers and clients. The Company's primary focus continues to be on the creditworthiness and collectability of its clients' receivables. Monitoring and communicating with its clients' customers is measured by, amongst other things, an analysis which indicates the amount of receivables current and past due. The clients' customers have varying payment terms depending on the industries in which they operate, although most customers have payments terms of 30 to 60 days from original shipping or invoice date. Of the total managed receivables for which the Company guarantees payment, 9.3% were past due more than 60 days at December 31, 2008. In the Company's recourse factoring business, receivables become "ineligible" for lending purposes when they reach a certain pre-determined age, usually 90 days from invoice date, and are usually charged back to clients, thereby eliminating the Company's credit risk on such older receivables.

The Company employs a client rating system to assess credit risk in its recourse factoring business, which reviews, amongst other things, the financial strength of each client, its management and the Company's underlying security, principally its clients' receivables, inventory, equipment and real estate, while in its non-recourse factoring business it employs a customer credit scoring system to assess the credit risk associated with those client receivables that it guarantees (managed receivables). Credit risk is primarily managed by ensuring that the receivables factored are of the highest quality and that any inventory, equipment or other assets securing loans are professionally appraised. The Company assesses the financial strength of its clients' customers and the industries in which they operate on a regular and ongoing basis. For a factoring company, the financial strength of the clients' customers is often more important than the financial strength of the clients themselves. The Company also minimizes credit risk by limiting to $10,000,000 the maximum amount it will lend to any one client, enforcing strict advance rates, disallowing certain types of receivables, charging back or making receivables ineligible for lending purposes as they become older, and employing concentration limits on a customer and industry specific basis. The Company also confirms the validity of the majority of the receivables that it purchases.

The following table summarizes the Company's credit exposure relating to its factored receivables and loans by industrial sector at December 31, 2008.

The following table summarizes the Company's credit exposure relating to its managed receivables by industrial sector at December 31, 2008:

As set out in notes 3(e) and 4, the Company maintains an allowance for credit and loan losses on both its factored receivables and loans and its guarantee of managed receivables. The Company maintains a separate allowance for losses on each of the above items at amounts, which, in management's judgment, are sufficient to cover the fair value of future losses thereon. The allowances are based upon several considerations including current economic trends, condition of the loan and receivable portfolios and typical industry loss experience.

(b) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when they fall due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation. The Company's principle obligations are its bank indebtedness, notes payable, due to clients and accounts payable and other liabilities. Revolving credit lines totalling approximately $100,000,000 have been established at a number of banking institutions bearing interest varying with the bank prime rate or LIBOR. At December 31, 2008, the Company had borrowed approximately $36,000,000 against these facilities (note 7). These lines of credit are collateralized primarily by factored receivables and loans to clients. The Company was in compliance with all loan covenants under these lines of credit as at December 31, 2008 and 2007. Notes payable (note 8) are due on demand and are to individuals or entities and consist of advances from shareholders, management, employees, other related individuals and third parties. As at December 31, 2008, 88% of these notes were due to related parties and 12% to third parties. Due to clients principally consist of collections of receivables not yet remitted to the Company's clients. Contractually, the Company remits collections within a week of receipt. Accounts payable and other liabilities comprise a number of different obligations the majority of which are payable within six months.

The Company had factored receivables and loans totalling approximately $103,000,000 at December 31, 2008, which substantially exceeded its total liabilities of approximately $55,000,000 at that date. The Company's receivables normally have payment terms of 30 to 60 days from original shipping or invoice date. Together with its unused credit lines, management believes that current cash balances and liquid short-term assets are more than sufficient to meet its financial obligations as they fall due.

(c) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Company's income or the value of its financial instruments. The objective of managing market risk is to control market risk exposures within acceptable parameters, while optimizing the return on risk.

(i) Currency risk
The Company is exposed to currency risk primarily in its self-sustaining U.S. subsidiary, which operates exclusively in U.S. dollars, to the full extent of the U.S. subsidiary's net assets of approximately US$30,000,000 at December 31, 2008. The Company's investment in its U.S. subsidiary is not hedged as it is long-term in nature. Unrealized foreign exchange gains or losses arise on the translation of the assets and liabilities of the Company's self-sustaining U.S. subsidiary into Canadian dollars at the balance sheet date. Resulting foreign exchange gains or losses are credited or charged to other comprehensive income or loss with a corresponding entry to the accumulated other comprehensive income or loss component of shareholders' equity (note 16). The Company is also subject to foreign currency risk on the earnings of its U.S. subsidiary, which are unhedged. Based on the U.S. subsidiary's results in the year ended December 31, 2008, a one cent change in the U.S. dollar against the Canadian dollar would change the Company's annual net earnings by approximately $25,000. It would also change other comprehensive income or loss and the accumulated other comprehensive income or loss component of shareholders' equity by approximately $300,000. The Company's Canadian operations have some assets and liabilities denominated in foreign currencies, principally factored receivables and loans, cash, bank indebtedness and due to clients. These assets and liabilities are usually economically hedged, although the Company enters into foreign exchange contracts from time-to-time to hedge its currency risk when there is no economic hedge. At December 31, 2008, the Company had unhedged foreign currency positions of US$49,000, €48,000 and £8,000 in its Canadian operations. The Company ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies on a spot or forward basis when necessary to address short term imbalances.

(ii) Interest rate risk
Interest rate risk pertains to the risk of loss due to the volatility of interest rates. The Company's lending and borrowing rates are usually based on bank prime rates of interest or LIBOR and are typically variable. The Company actively manages its interest rate exposure.

The Company's agreements with its clients (interest revenue) and lenders (interest expense) usually provide for rate adjustments in the event of interest rate changes so that the Company's spreads are protected to a large degree. However, as the Company's factored receivables and loans substantially exceed its borrowings, the Company is exposed to interest rate risk as a result of the difference, or gap, between interest sensitive assets and liabilities. This gap largely exists because of, and fluctuates with, the quantum of the Company's shareholders' equity.

The following table shows the interest rate sensitivity gap at December 31, 2008:

(in thousands)	Floating rate		Within 3 months		Non-rate sensitive		Total
Assets
Factored receivables and loans, net Cash All other assets	$	88,510 — —	$	— — —	$	11,480 994 2,514	$	99,990 994 2,514
Liabilities Bank indebtedness Due to clients Notes payable All other liabilities Shareholders' equity		88,510 26,837 — 10,944 — —		— 9,040 — — — —		14,988 — 4,588 — 3,909 48,180		103,498 35,877 4,588 10,944 3,909 48,180
		37,781		9,040		56,677		103,498
	$	50,729	$	(9,040)	$	(41,689)	$	—

19. Capital disclosure

The Company considers its capital structure to include shareholders' equity and debt, namely, its bank indebtedness and notes payable. The Company's objectives when managing capital are to: (i) maintain financial flexibility in order to preserve its ability to meet financial obligations and continue as a going concern; (ii) maintain a capital structure that allows the Company to finance its growth using internallygenerated cash flow and debt capacity; and (iii) optimize the use of its capital to provide an appropriate investment return to its shareholders commensurate with risk.

The Company's financial strategy is formulated and adapted according to market conditions in order to maintain a flexible capital structure that is consistent with its objectives and the risk characteristics of its underlying assets. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of its underlying assets. To maintain or adjust its capital structure, the Company may, from time to time, change the amount of dividends paid to shareholders, return capital to shareholders by way of normal course issuer bid, issue new shares, or reduce liquid assets to repay debt. The Company monitors the ratio of its equity to total assets, principally factored receivables and loans, and its debt to shareholders' equity. The Company's debt, and leverage, will usually rise with an increase in factored receivables and loans and vice-versa. These ratios are currently considerably better than those of most financial companies indicating the Company's continued financial strength and overall low degree of leverage. The Company's share capital is not subject to external restrictions. However, the Company's credit facilities include debt to tangible net worth (“TNW”) covenants. Specifically, MFC is required to maintain a debt to TNW ratio of less than 4.0, while AFI is required to maintain a minimum TNW of US$12,000,000 and a ratio of total liabilities to TNW of less than 2.5. The Company was fully compliant with these covenants at December 31, 2008 and 2007. There were no changes in the Company's approach to capital management from the previous year.

20. Future accounting changes

21. Segmented information

2008 (in thousands)		Canada		United States		Inter-company		Consolidated
Identifiable assets		$	55,911	$	47,587	$	—	$	103,498
Revenue		$	20,264	$	7,836	$	(40)	$	28,060
	Expenses
	Interest		2,666		245		(40)		2,871
	General and administrative		10,042		3,449		—		13,491
	Provision for (recovery of) credit and loan losses		3,878		(29)		—		3,849
	Depreciation		169		26		—		195
			16,755		3,691		(40)		20,406
	Earnings before income tax expense Income tax expense		3,509 1,137		4,145 1,476		— —		7,654 2,613
Net earnings		$	2,372	$	2,669	$	—	$	5,041