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Press release from CNW Group

Firm Capital Mortgage Investment Corporation Announces Results

Wednesday, March 28, 2012

Firm Capital Mortgage Investment Corporation Announces Results15:55 EDT Wednesday, March 28, 2012TSX Symbol FCTORONTO, March 28, 2012 /CNW/ - Firm Capital Mortgage Investment Corporation (the "Corporation") (TSX FC), today released its financial statements for the fiscal year ended December 31, 2011.PROFIT & RETURN ON EQUITYProfit for the year ended December 31, 2011 totaled $14,659,462 compared to Operations Profit of $14,235,843 for the year ended December 31, 2010.  For the fourth quarter ended December 31, 2011 profit amounted to $3,843,403 compared to $3,757,347 for the same period ended in 2010. 2011 basic weighted average profit per unit of $0.995 compared to $1.008 per unit for 2010. The 2011 profit represent an annualized return on average Shareholders' equity of 10.26% per annum.  This return on Unitholders' equity equates to 912 basis points per annum over the average one year Government of Canada Treasury bill yield for the year and is well in excess of the Corporation's target yield objective of 400 basis points per annum over the average one year Treasury bill yield.DIVIDEND OVERVIEW 2011:Monthly dividends for 2011 equaled $.078 per month, for a total $0.936 per unit, which, together with the year-end Special Dividend of $0.054, represents total dividends for 2011 of $0.990 per share, a decrease from 2010 dividends of $1.008 per share.INVESTMENT PORTFOLIO TURNS:In 2011 $236 of new investments funded and $167 million discharged. This represents a significant turn of the portfolio enabling management to re-invest the funds in evolving market conditions. As the portfolio revolves, the Corporation is able to manage the portfolio size and return on equity based on the pricing of new investments.INVESTMENT PORTFOLIO HIGHLIGHTS:Details on the Corporation's investment portfolio as at December 31, 2011 are as follows:Total gross investment portfolio equals $274,028,591Conventional first mortgages, being those mortgages with loan to values less than 75%, comprise 68.6% of our total portfolio, and total conventional mortgages with loan to values under 75% comprise 83.9% of our total portfolio.Non-conventional mortgages total 8.8% of the portfolio.Related investments total 7.3% of the portfolio.Approximately 49% of the portfolio matures within 12 months. This results in a continuously revolving portfolio, allowing management to assess market conditions.The average face interest rate on the portfolio is 9.06% per annum.Regionally, the portfolio is diversified approximately as follows: Ontario 77.1%, Alberta 12.4%, British Columbia 7.3%, with the balance (3.2%) being in other provinces.Investment portfolio breakdown by loan size is as follows:Investment Portfolio BreakdownAmount Number of Investments Total Amount$0-$2,500,000  83 $80,430,612$2,500,001-$5,000,000  21  76,708,107$5,000,001-$7,500,000  9  53,920,094$7,500,001 +  7  62,969,778Total  120 $274,028,591IMPAIRMENT PROVISION UPDATE:Management has always taken a proactive approach to allowance provision reserves. This is a prudent approach to protecting our Shareholders' equity. Impairment provisions remained at $2,980,000 representing 1.09% of the gross loan portfolio.FINANCING UPDATE:The Corporation is pleased to announce that at the end of September 2011 its principal banker renewed its warehousing credit facility for a further year to mature September 30, 2012 with a right at maturity to lock in any balance outstanding for a second year term, should a renewal not be concluded at the end of the first year renewal. The credit facility was increased by $10 million in the first quarter of 2012. The Corporation currently has $22.0 million drawn on its credit facility.UNRECOGNIZED INCOME COLLECTED:As at December 31, 2011, the Corporation has banked non-refundable fee income of $556,991, which will be recognized as income over the term of the corresponding investments.DIVIDEND AND SHARE PURCHASE PLAN:The Corporation has in place a Dividend Reinvestment Plan (DRIP) and Share Purchase Plan that is available to its Shareholders. The plans allows participants to have their monthly cash dividends reinvested in additional shares at a 2% discount to market and grants participants the right to purchase, without commission, additional shares, up to a maximum of $12,000 per annum.ABOUT THE CORPORATIONThe Corporation, through its Mortgage Banker, Firm Capital Corporation, is a non-bank lender providing residential and commercial short-term bridge and conventional real estate financing, including construction, mezzanine and equity investments. The Corporation's investment objective is the preservation of Shareholders' equity, while providing Shareholders with a stable stream of monthly dividends from investments. The Corporation achieves its investment objectives by pursuing a strategy of growth through investments in selected niche markets that are under-serviced by large lending institutions. Lending activities to date continue to develop a diversified mortgage portfolio, producing a stable return to Shareholders. Full reports of the financial results of the Corporation for the year are outlined in the audited financial statements and the related management discussion and analysis of Firm Capital, available on the SEDAR website at www.sedar.com. In addition, supplemental information is available on Firm Capital's website at www.firmcapital.com.Forward-Looking StatementsThis news release contains forward-looking statements within the meaning of applicable securities laws including, among others, statements concerning our objectives, our strategies to achieve those objectives, our performance, our mortgage portfolio and our distributions, as well as statements with respect to management's beliefs, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts.  Forward-looking statements generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "expect", "intent", "estimate", "anticipate", "believe", "should", "plans" or "continue" or similar expressions suggesting future outcomes or events.  Such forward-looking statements reflect management's current beliefs and are based on information currently available to management.These statements are not guarantees of future performance and are based on our estimates and assumptions that are subject to risks and uncertainties, including those described in our Annual Information Form under "Risk Factors" (a copy of which can be obtained at www.sedar.com), which could cause our actual results and performance to differ materially from the forward-looking statements contained in this circular.  Those risks and uncertainties include, among others, risks associated with mortgage lending, dependence on the Corporation's manager and mortgage banker, competition for mortgage lending, real estate values, interest rate fluctuations, environmental matters, Unitholder liability and the introduction of new tax rules.  Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information include, among others, that the Corporation is able to invest in mortgages at rates consistent with rates historically achieved; adequate mortgage investment opportunities are presented to the Corporation; and adequate bank indebtedness and bank loans are available to the Corporation.  Although the forward-looking information continued in this new release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results and performance will be consistent with these forward-looking statements.All forward-looking statements in this news release are qualified by these cautionary statements.  Except as required by applicable law, the Corporation undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.Audited Financial Statements ofFIRM CAPITAL MORTGAGE INVESTMENT CORPORATION(formerly FIRM CAPITAL MORTGAGE INVESTMENT TRUST)Years Ended December 31, 2011 and 2010          FIRM CAPITAL MORTGAGE INVESTMENT CORPORATIONBalance Sheets(in Canadian dollars)          As at  Dec. 31, 2011  Dec. 31, 2010  Jan. 1, 2010          Assets         Cash  -  - $    1,444,339Amounts receivable and prepaid expenses (note 5) $    3,478,338 $   2,371,563      1,706,383Investment portfolio (note 6)  271,048,591  202,330,929  167,128,297          Total assets $274,526,929 $204,702,492 $170,279,019          Liabilities and Equity                   Bank indebtedness (note 7) $37,763,021 $  5,005,825  -Accounts payable and accrued liabilities  1,354,639  1,482,580 $    410,064Unearned income  556,991  372,514  202,481Shareholder dividend and unitholder distribution payable  2,008,118  2,127,845  2,543,120Loans payable (note 8)  15,649,081  4,289,249  10,714,637Convertible debentures (note 9)  69,134,395  53,628,803  23,681,244Conversion option of convertible debentures (note 4(e)(ii))  -   -  222,182Total liabilities excluding net assets attributable to unitholders  126,466,245  66,906,816  37,773,728          Net assets attributable to unitholders (note 10)  -   -  132,505,291          Shareholders' / Unitholders' equity  148,382,510  138,117,502  -Deficit  (321,826)  (321,826)  -Total equity  148,060,684  137,795,676  -          Commitments (note 6)         Contingent liabilities (note 17)                   Total liabilities and equity / net assets attributable to unitholders $274,526,929 $204,702,492 $170,279,019          See accompanying notes to audited financial statements.On behalf of the Directors:"Eli Dadouch""Jonathan Mair"        FIRM CAPITAL MORTGAGE INVESTMENT CORPORATIONStatements of Comprehensive IncomeYears ended December 31, 2011 and 2010(in Canadian dollars)                 2011   2010         Interest and fees earned (note 15)  $22,562,666  $20,098,195   $22,562,666   20,098,195         Corporation manager interest allocation (note 15)   1,784,991   1,394,583Interest expense (note 16)   5,348,266   2,877,078General and administrative expenses   769,947   1,310,691Impairment loss on investment portfolio (note 6)   -   280,000    7,903,204   5,862,352                  Operations profit before change in fair value of the conversion option of convertible debentures and distributions to unitholder  $14,659,462  $14,235,843          Change in fair value of the conversion option of convertible debentures(note 4(e)(ii))                -   (321,826) Distributions to unitholders (note 10)   -   (5,731,903)    -   (6,053,729)         Total comprehensive income and profit for the year and change in net assets attributable to unitholders for the year   $14,659,462  $8,182,114         Profit per share (note 12)         Basic  $   0.995   N/A Diluted  $   0.981   N/A                  See accompanying notes to audited financial statements.         FIRM CAPITAL MORTGAGE INVESTMENT CORPORATIONStatements of Changes in EquityYears ended December 31, 2011 and 2010(in Canadian dollars)             2011   2010         Shareholders' / Unitholders' Equity                 Shares / Units (note 11):                 Balance, beginning of year  $137,343,502   -         Reclassification of trust units from liability to equity (note 10)   -  $133,749,127         Proceeds from issuance of shares / units   764,376   3,574,375         Conversion of debentures to shares   9,093,000   20,000         Balance, end of year  $147,200,878  $137,343,502         Equity component of convertible debenture (note 9):                 Balance, beginning of year  $774,000   -         Conversion of debentures to shares   (202,368)   -         Reclassification of trust units from liability to equity (note 10)   -   $544,000         Equity component of debenture issued during the year   610,000   230,000         Balance, end of year  $1,181,632  $774,000         Total Shareholders' / Unitholders' equity  $148,382,510  $138,117,502         Retained earnings / deficit                 Retained earnings/(deficit), beginning of year  $(321,826)   -Dividends / distributions to shareholders / unitholders (note 13)  $(14,659,462)  $(8,503,940)Comprehensive income and profit for the year   14,659,462   8,182,114         Retained earnings / (deficit), end of year  $(321,826)  $(321,826)         Total Equity   148,060,684   137,795,676         Shares / units issued and outstanding (note 11)   15,213,018   14,377,333                  See accompanying notes to audited financial statements.            FIRM CAPITAL MORTGAGE INVESTMENT CORPORATIONStatements of Cash FlowYears ended December 31, 2011 and 2010(in Canadian dollars)                   2011   2010            Cash provided by (used in):                       Operating activities:            Total comprehensive income and profit for the year andChanges in net assets attributable to unitholders for the year     $14,659,462  $  8,182,114 Adjustments for:             Distributions to unitholders      -   5,731,903  Change in fair value of the conversion option of convertibledebentures      -   321,826  Implicit interest rate in excess of coupon rate- convertible debentures      91,487   57,689  Deferred finance cost amortization- convertible debentures      482,190   228,941  Impairment loss on investment portfolio      -   280,000 Net changes in non-cash items:             Increase in amounts receivable and prepaid expenses      (1,106,775)   (665,180)  Increase (decrease) in accounts payable and accrued liabilities      (127,941)   1,072,516  Increase in unearned income      184,477   170,033 Decrease in dividend and distributions payable      (119,727)   (415,274)Net cash flow from operating activities      14,063,173   14,964,568            Financing activities:            Proceeds from issuance of units      764,376   4,818,103 Proceeds from convertible debenture issued      25,738,000   31,443,000 Debenture offering costs      (1,305,453)   (1,531,972) Funding/repayment of loans payable (net)      11,359,832   (6,425,388) Dividends to shareholders paid during the year      (14,659,462)   (8,503,940) Distributions to unitholders      -   (5,731,903)Net cash flow from financing activities      21,897,293   14,067,900            Investing activities:            Funding of investments      (235,636,265)   (168,832,314) Discharge of investments      166,918,603   133,349,682Net cash flow used in investing activities      (68,717,662)   (35,482,632)            Cash (bank indebtedness), beginning of year      (5,005,825)      1,444,339Net decrease in cash for the year      (32,757,196)   (6,450,164)Bank indebtedness, end of year     $(37,763,021)  $(5,005,825)            Cash flows from operating activities include:            Interest received     $18,410,029  $15,631,465 Interest paid (note 16)     $4,362,676  $2,230,662                    See accompanying notes to audited financial statements.FIRM CAPITAL MORTGAGE INVESTMENT CORPORATIONNotes to Financial StatementsYears ended December 31, 2011 and 2010(in Canadian dollars)Firm Capital Mortgage Investment Corporation (the "Corporation"), through its mortgage banker, Firm Capital Corporation, is a non-bank lender providing residential and commercial short-term bridge and conventional real estate financing, including construction, mezzanine and equity investments. The shares of the Corporation are listed on the Toronto Stock Exchange under the symbol "FC".  The Corporation is a Canadian mortgage investment corporation and the registered office of the Corporation is 1244 Caledonia Road, Toronto, Ontario, M6A 2X5.1. Organization of Corporation:On November 30, 2010, Firm Capital Mortgage Investment Trust (the "Trust") entered into a plan of arrangement ("Reorganization"), whereby the Trust was converted from an income trust structure into the public corporation, Firm Capital Mortgage Investment Corporation, effective January 1, 2011.  The Corporation was incorporated pursuant to the laws of the Province of Ontario on October 22, 2010 for the purposes of participating in the Reorganization.Pursuant to the Reorganization, units of the Trust ("Units" or "Trust Units") were exchanged on a one-for-one basis for common shares of the Corporation.  Holders of Units therefore became the sole shareholders of the Corporation effective January 1, 2011.As part of the Reorganization, the Trust was wound up and its assets were distributed to the Corporation.  The Reorganization was treated as a change in business form rather than a change in control, and therefore, has been accounted for as a continuity of interest.  The carrying amounts of assets, liabilities, and unitholders' equity in the financial statements of the Trust immediately prior to the Reorganization were the same as the carrying values of the Corporation immediately following the Reorganization.  References to common shares, shareholders and dividends of the Corporation were formerly referred to as units, unitholders, and distributions under the Trust.  Comparative amounts in these and future financial statements during 2010 are those of the Trust.The Corporation's mortgage banker is Firm Capital Corporation and the Corporation's manager is FC Treasury Management Inc.2. Basis of presentation:(a) Statement of compliance:The financial statements of the Corporation have been prepared by management in accordance with International Financial Reporting Standards ("IFRS").  These are the Corporation's first annual financial statements prepared in accordance with IFRS and IFRS 1, First-time Adoption of International Financial Reporting Standards ("IFRS 1"), has been applied.An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Corporation is provided in note 4.  This note includes reconciliations of equity and total comprehensive income for comparative periods and of equity at the date of transition, being January 1, 2010, from reporting under Canadian generally accepted accounting principles ("Canadian GAAP" or "previous GAAP") to those reported for those periods and at the date of transition under IFRS.These financial statements were approved by the Board of Directors on March 27, 2012.(b) Basis of measurement:The financial statements have been prepared on the historical cost basis, except for financial instruments classified as fair value through profit or loss, which are measured at fair value.(c) Functional and presentation currency:These financial statements are presented in Canadian dollars, which is the Corporation's functional currency.(d) Use of estimates and judgements:The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses.  Actual amounts may differ from these estimates.The most significant estimates that the Corporation is required to make relate to the impairment of the investments (notes 3(a) and 6). These estimates may include assumptions regarding local real estate market conditions, interest rates and the availability of credit, cost and terms of financing, the impact of present or future legislation or regulation, prior encumbrances and other factors affecting the investments and underlying security of the investments.These assumptions are limited by the availability of reliable comparable data, economic uncertainty, ongoing geopolitical concerns and the uncertainty of predictions concerning future events. Illiquid credit markets and volatile equity markets have combined to increase the uncertainty inherent in such estimates and assumptions. Accordingly, by their nature, estimates of impairment are subjective and do not necessarily result in precise determinations. Should the underlying assumptions change, the estimated fair value could vary by a material amount.3. Summary of significant accounting policies:The Corporation's accounting policies and its standards of financial disclosure set out below are in accordance with IFRS and have been applied consistently to all periods presented in these financial statements and in preparing the opening IFRS balance sheet as at January 1, 2010 for the purposes of the transition to IFRS.(a) Investment portfolio:The Investment portfolio is classified as loans and receivable investments.  Such investments are recognized initially at fair value plus any directly attributable transaction costs.  Subsequent to initial recognition, the investment loans are measured at amortized cost using the effective interest method, less any impairment losses.The investments are assessed at each reporting date to determine whether there is objective evidence of impairment.  A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of an asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.An impairment loss in respect of investments measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate.  Losses are recognized in the statement of comprehensive income and reflected in an allowance account against the investments.  Interest on the impaired asset continues to be recognized through the unwinding of the discount if it is considered collectable.  When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.(b) Revenue recognition:(i) Interest and fee income:Interest income is accounted for on the accrual basis.  Commitment fees received are amortized over the expected term of the investment.(ii) Non-conventional mortgages:Special profit and interest participations earned by the Corporation on non-conventional mortgages are recognized and included in interest and fees earned only once the receipt of such amounts is certain.(c) Share-based compensation:The Corporation has share-based compensation plans (i.e. incentive option plan) which are described in note 11.  The expense of equity-settled incentive option plan are measured based on fair value of the awards of each tranche at the grant date. The expense is recognized on a proportionate basis consistent with the vesting features of each tranche of the grant.(d) Income taxes:The Corporation is a mortgage investment corporation ("MIC") pursuant to the Income Tax Act (Canada).  As such, the Corporation is entitled to deduct from its taxable income dividends paid to shareholders during the year or within 90 days of the end of the year to the extent the dividends were not deducted previously.  The Corporation intends to maintain its status as a MIC and intends to distribute sufficient dividends in the year and in future years to ensure that the Corporation is not subject to income taxes.  Accordingly, for financial statement reporting purposes, the tax deductibility of the Corporation's dividends results in the Corporation being effectively exempt from taxation and no provision for current or future income taxes is required.(e) Financial assets and liabilities:Financial assets include the Corporation's cash, amounts receivable and investment portfolio. Financial liabilities include the bank indebtedness, accounts payable and accrued liabilities, shareholder dividend and unitholder distribution payable, loans payable, liability component of convertible debentures and trust units (until June 8, 2010).Recognition and measurement of financial instrumentsThe Corporation determines the classification of its financial assets and liabilities at initial recognition. Financial instruments are recognized initially at fair value and in the case of financial assets and liabilities carried at amortized costs, adjusted for directly attributable transaction costs.The Corporation has designated its cash, amounts receivable and investment portfolio as loans and receivables, which are measured at amortized cost.Bank indebtedness, accounts payable and accrued liabilities, shareholder dividend and unitholder distribution payable, loans payable, liability component of convertible debentures and trust units (until June 8, 2010) are classified as other financial liabilities, which are also measured at amortized cost.The Corporation had neither available-for-sale, nor held-to-maturity instruments as at or during the years ended December 31, 2011 and 2010.(f) Compound financial instruments:Compound financial instruments issued by the Corporation comprise convertible debentures that can be converted to shares of the Corporation at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.  Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition.  Interest, dividends, losses and gains relating to the financial liability are recognized in profit or loss. Distributions to the equity holders are recognized in equity, net of any tax benefit.(g) Hybrid financial instruments:Hybrid financial instruments comprise convertible debentures which contain an embedded derivative related to the conversion feature to Trust units from its issuance to June 8, 2010.  Refer to Note 10 for events subsequent to June 8, 2010.  The embedded derivative is measured at fair value at initial recognition, and subsequently at every reporting period with fair value changes recorded in profit or loss. The difference between the consideration received and the fair value of the embedded derivatives, is attributed to the debt host contract at initial recognition which is subsequently measured at amortized cost using the effective interest method.(h) Share capital:Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity.(i) Trust Units:Trust units are classified as a liability from January 1, 2010 to June 8, 2010 and as equity from June 9, 2010 to December 31, 2010, as further detailed in note 10.(j) Basic and diluted per share calculation:The Corporation presents basic and diluted profit per share data for its common shares. Basic per share amounts are calculated by dividing the profit or loss attributable to common shareholders of the Corporation by the weighted average number of common shares outstanding during the period. Diluted per share amounts are calculated using the "if converted method" and are determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding, adjusted for the effects of all dilutive potential convertible debentures and granted incentive option plan.(k) New standards and interpretations not yet adopted:(i) In November 2009, the International Accounting Standards Board ("IASB") issued IFRS 9 Financial Instruments ("IFRS 9 (2009)"), and in October 2010 the IASB published amendments to IFRS 9 ("IFRS 9 (2010)"). In December 2011, the IASB issued an amendment to IFRS 9 to defer the mandatory effective date to annual periods beginning on or after January 1, 2015.IFRS 9 (2010) supersedes IFRS 9 (2009) and is effective for annual periods beginning on or after January 1, 2015, with early adoption permitted.  For annual periods beginning before January 1, 2015, either IFRS 9 (2009) or IFRS 9 (2010) may be applied.The Corporation intends to adopt IFRS 9 (2010) in its financial statements for the annual period beginning on January 1, 2015.  The extent of the impact of adoption of IFRS 9 (2010) has not yet been determined.(ii) In October 2010 the IASB issued Amendments to IFRS 7 Disclosures - Transfers of Financial Assets ("IFRS 7"), which is effective for annual periods beginning on or after January 1, 2012. The Corporation does not expect the amendments to IFRS 7 to have a material impact on the financial statements because of the nature of the Corporation's operations and the types of financial assets that it holds.(iii) In May 2011 the IASB published IFRS 13 Fair Value Measurement ("IFRS 13") which is effective prospectively for annual periods beginning on or after January 1, 2013. The disclosure requirements of IFRS 13 need not be applied in comparative information for periods before initial application.The Corporation intends to adopt IFRS 13 prospectively in its financial statements for the annual period beginning on January 1, 2013.  The extent of the impact of adoption of lFRS 13 has not yet been determined.(iv) In June 2011 the IASB published amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income ("IAS 1"), which are effective for annual periods beginning on or after July 1, 2012 and are to be applied retrospectively. Early adoption is permitted.The Corporation intends to adopt the amendments to lAS 1 in its financial statements for the annual period beginning on January 1, 2013.  The extent of the impact of adoption of the amendments has not yet been determined.(v) In December 2011 the IASB published Offsetting Financial Assets and Financial Liabilities and issued new disclosure requirements in IFRS 7 Financial Instruments: Disclosures ("IFRS 7").The effective date for the amendments to IAS 32 Financial Instruments - Presentation ("IAS 32") is annual periods beginning on or after January 1, 2014. The effective date for the amendments to IFRS 7 is annual periods beginning on or after January 1, 2013. These amendments are to be applied retrospectively.The Corporation intends to adopt the amendments to lAS 32 and IFRS 7 in its financial statements for the annual period beginning on January 1, 2013, and the amendments to lAS 32 in its financial statements for the annual period beginning January 1, 2014.  The extent of the impact of adoption of the amendments has not yet been determined.4. Transition to IFRS:The Corporation has adopted IFRS effective January 1, 2010 ("the transition date") and has prepared its opening IFRS statement of financial position as at that date.  Prior to the adoption of IFRS, the Corporation prepared its financial statements in accordance with Canadian GAAP.The accounting policies set out in note 3 have been applied in preparing the financial statements for the year ended December 31, 2011, the year ended December 31, 2010, and in the preparation of an opening IFRS balance sheet as at January 1, 2010.In preparing its opening IFRS balance sheet, the Corporation has adjusted amounts reported previously in financial statements prepared in accordance with Canadian GAAP.  An explanation of how the transition from Canadian GAAP to IFRS has affected the Corporation's financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables:(a) Exemptions and exceptions from full retrospective application:First-time adopters of IFRS must apply the provisions of IFRS 1. IFRS 1 requires adopters to retrospectively apply all IFRS standards as of the reporting date with certain optional exemptions and certain mandatory exceptions.In preparing the opening IFRS balance sheet in accordance with IFRS 1, the Corporation has applied the mandatory exception from full retrospective application of IFRS for estimates. The mandatory exception requires that estimates previously determined under Canadian GAAP cannot be revised due to the application of IFRS, except when necessary to reflect differences in accounting policies.(b) Reconciliation of equity as reported under Canadian GAAP and IFRS:The following is a reconciliation of equity as previously reported under Canadian GAAP to IFRS on January 1, 2010:                   CanadianGAAP  Effect oftransitionto IFRS  RestatedunderIFRS             Assets                         Cash     1,444,339  -  1,444,339Amounts receivable and prepaid expenses     1,706,383  -  1,706,383Investment portfolio     167,128,297  -  167,128,297             Total assets     170,279,019  -  170,279,019             Liabilities and Equity                         Bank indebtedness     -  -  -Accounts payable and accrued liabilities     410,064  -  410,064Unearned income     202,481  -  202,481Shareholder dividend and unitholder distribution payable     2,543,120  -  2,543,120Loans payable     10,714,637  -  10,714,637Convertible debentures (note 4(e)(ii))     23,681,244  -  23,681,244Conversion option of convertible debentures (note 4(e)(ii))     -  222,182  222,182Total liabilities excluding net assets attributable to unitholders     37,551,546  222,182   37,773,728             Net assets attributable to unitholders (note 4(e)(i))     -  132,505,291  132,505,291             Shareholders' / Unitholders' equity (note 4(e)(i))     132,727,473  (132,727,473)  -Deficit     -  -  -Total equity     132,727,473  (132,727,473)  -             Total liabilities and equity / net assets attributable to unitholders     170,279,019  -  170,279,019             The following is a reconciliation of equity as previously reported under Canadian GAAP to IFRS on December 31, 2010:                     CanadianGAAP    Effect oftransitionto IFRS  RestatedunderIFRS               Assets                             Cash     -    -  -Amounts receivable and prepaid expenses     2,371,563    -  2,371,563Investment portfolio     202,330,929    -  202,330,929               Total assets     204,702,492    -  204,702,492               Liabilities and Equity                             Bank indebtedness     5,005,825    -  5,005,825Accounts payable and accrued liabilities     1,482,580    -  1,482,580Unearned income     372,514    -  372,514Shareholder dividend and unitholder distribution payable     2,127,845       2,127,845Loans payable     4,289,249    -  4,289,249Convertible debentures (note 4(e)(ii))     53,628,803    -  53,628,803Conversion option of convertible debentures (note 4(e)(ii))     -    -  -Total liabilities excluding net assets attributable to unitholders     66,906,816    -  66,906,816               Net assets attributable to unitholders (note 4(e)(i))     -    -  -               Shareholders' / Unitholders' equity (note 4(e)(i))     137,795,676    321,826  138,117,502Deficit (note 4(e)(i))          (321,826)  (321,826)Total equity     137,795,676    -  137,795,676               Total liabilities and equity / net assets attributable to unitholders       204,702,492    -  204,702,492               (c) Reconciliation of comprehensive income, as reported under Canadian GAAP and IFRS:The following is a reconciliation of comprehensive income as previously reported under Canadian GAAP to IFRS for the year ended December 31, 2010:                     CanadianGAAP   Effect oftransitionto IFRS   RestatedunderIFRS               Interest and fees earned     20,098,195       20,098,195      20,098,195       20,098,195               Corporation manager interest allocation     1,394,583       1,394,583Interest expense     2,877,078       2,877,078General and administrative expenses     1,310,691       1,310,691Change in unrealized loss in value of investments (4(e)(iii)     280,000   (280,000)   -Impairment loss on investment portfolio (4(e)(iii)     -   280,000   280,000Total operating expenses     5,862,352   -   5,862,352               Operating profit before change in fair value of the conversion option of convertible debentures and distributions to unitholders    $14,235,843      $14,235,843               Change in fair value of the conversion option of convertible debentures(note 4(e)(ii))         (321,826)   (321,826)Distributions to unitholders (note 4(e)(i))         (5,731,903)   (5,731,903)      14,235,843   (6,053,729)   8,182,114               Total comprehensive income and profit (loss) for the year,and change in net assets attributable to unitholders for the year, respectively     14,235,843   (6,053,729)   8,182,114               (d) Impact on the statement of cash flow:The IFRS adjustments made to the comparative statement of comprehensive income for the year ended December 31, 2010 (as described above) have been made to the statement of cash flows as at the same date, under IAS 7, Statement of Cash Flows.  There were no significant IFRS transition differences noted.(e) Details of the material adjustments to the balance sheet and comprehensive income:(i) Previously under Canadian GAAP, the Trust Units were classified as equity instruments. In accordance with IAS 32, Financial Instruments: Presentation, the Trust Units are classified as a liability from January 1, 2010 to June 8, 2010 as the units impose an obligation requiring distribution of taxable income to unitholders until that date. Thereafter the Trust Units are classified as equity as further detailed in note 10.The Corporation measures its Trust Unit liability at amortized cost and presents it at the amount of residual net assets.As a result, the Corporation has recorded the liability at the cash amount originally exchanged for the Trust Units plus cumulative earnings and distributions to unitholders. The effect of classification is to reduce the shareholders' equity and increase liabilities (net assets attributable to unitholders) by $132,505,291 at January 1, 2010.At December 31, 2010, the Corporation reclassified $321,826 for the impact of change in fair value of the conversion option from January 1, 2010 to June 8, 2010 as further detailed in note 4(e)(ii).Consistent with the classification of the Trust Units as a liability, distributions paid to unitholders are considered as financing cost in the statement of comprehensive income for these periods.As the Trust Units are treated as floating rate liability, any changes in the distributions based on changes to income levels are expensed in the period in which they occur.(ii) For the period from January 1, 2010 to June 8, 2010, the convertible debentures contain an option to convert into the liability classified Trust Units.  As the conversion option of convertible debt is not otherwise closely related to the debt host, it constitutes a liability-classified embedded derivative, which is carried at fair value.  Fair value is calculated using market prices at the end of each reporting period. The fair value adjustment is recorded as part of finance costs on the statements of comprehensive income.On June 9, 2010, the fair value of the conversion option of convertible debt is reclassified to equity as the convertible debentures are now accounted for as compound financial instruments.  For the period from June 9, 2010 to December 31, 2010, the equity portion is not re-measured.(iii) The Corporation has reviewed its investment portfolio for impairment and adjusted the financial statements for impairment losses on investments previously reported.  Amounts for change in unrealized losses of investments have been removed to conform with Corporation's presentation under IFRS.5. Amounts receivable and prepaid expenses:The following is a breakdown of amounts receivable and prepaid expenses as at December 31, 2011, December 31, 2010 and January 1, 2010:                        Dec. 31, 2011   Dec. 31, 2010   Jan. 1, 2010Interest receivable      $2,779,473   $1,803,224   $1,450,807Prepaid expenses       152,478    111,800    160,903Special income receivable       411,511    389,198    -Fees receivable       134,876    67,341    94,673Amounts receivable and prepaid expenses      $3,478,338   $2,371,563   $1,706,383                  6. Investment portfolio:The following is a breakdown of the investment portfolio as at December 31, 2011, December 31, 2010 and January 1, 2010:                           Dec. 31, 2011  Dec. 31, 2010  Jan. 1, 2010     Amount  %   Amount  %   Amount  %Conventional first mortgages    $188,083,658  68.6  $181,078,399  88.2  $138,324,080  81.4Conventional non-first mortgages     41,927,607  15.3   13,785,737  6.7   12,768,832  7.5Related investments     19,958,571  7.3   3,535,000  1.7   1,035,000  0.7Non-conventional mortgages     24,058,755  8.8   6,911,793  3.4   17,700,385  10.4Total investments (at cost)    $274,028,591  100.0  $205,310,929  100.0  $169,828,297  100.0                       Impairment provision     (2,980,000)      (2,980,000)      (2,700,000)                          Investment portfolio    $271,048,591     $202,330,929     $167,128,297                 Conventional first mortgages are loans secured by a first priority mortgage charge with loan to values not exceeding 75%.  Conventional non-first mortgages are loans with mortgage charges not registered in first priority with loan to values not exceeding 75%.  Related investments are loans that may not necessarily be secured by mortgage charge security.  Non-conventional mortgages are loans that in some cases have loan to values that exceed or may exceed 75% and are the investments that are the source of all special profit participations earned by the Corporation.Investment portfolio is stated at amortized cost as discussed in note 3(a).  The impairment loss in the amount of $2,980,000 as at December 31, 2011 represents the total amount of management's estimate of the shortfall between the investment principal balances and the estimated recoverable amount from the collateral securing the loans.The loans comprising the Investment portfolio bear interest at the weighted average rate of 9.06% (2010 - 9.21%) and mature between 2012 and 2015.The un-advanced funds under the existing investment portfolio (which are commitments of the Corporation) amounted to $30,845,331 as at December 31, 2011 (December 31, 2010 - $18,406,862 and January 1, 2010 - $12,709,686).Principal repayments based on contractual maturity dates are as follows:                                                                  2012                                $135,641,9272013                                 91,403,5882014                                 42,013,3482015                                 4,969,728                                                                $274,028,591                               Borrowers who have open loans have the option to repay principal at any time prior to the maturity date.7. Bank indebtedness:The Corporation has entered into credit arrangements of which $37,763,021 as at December 31, 2011 (December 31, 2010 - $5,005,825 and January 1, 2010 - nil) has been drawn.  Interest on bank indebtedness is predominately charged at a formula rate that varies with bank prime and may have a component with a fixed interest rate established based on a formula linked to Bankers Acceptance rates.  The credit arrangement comprises a revolving operating facility, a component of which is a demand facility and a component of which has a committed term to September 30, 2012.  Bank indebtedness is secured by a general security agreement.  The credit agreement contains certain financial covenants that must be maintained.  As at December 31, 2011, December 31, 2010 and January 1, 2010, the Corporation was in compliance with all financial covenants.8. Loans payable:First priority charges on specific mortgage investments have been granted as security for the loans payable.  The loans mature on dates consistent with those of the underlying mortgages.  The loans are on a non-recourse basis and bear interest at rates ranging from 3.50% to 6.45% as at December 31, 2011 (December 31, 2010 - 3.50% to 6.45%).  The Corporation's principal balance outstanding under the mortgages for which a first priority charge has been granted is $26,334,738 as at December 31, 2011 (December 31, 2010 - $5,392,156 and January 1, 2010 - $14,224,566).The loans are repayable at the earlier of the contractual expiry date of the underlying mortgage investment and the date the underlying mortgage is repaid.  Repayments based on contractual maturity dates are as follows:                                 2012                                $1,720,0142013                                 -2014                                 13,777,3252015                                 151,742                               $15,649,081                           9. Convertible debentures:  Year-EndedDec. 31, 2011Year-EndedDec. 31, 2010   Total Debentures    Total Debentures  Principal balance, beginning of year$53,628,803$23,681,244Issued23,822,54729,680,929Conversions(9,093,000)(20,000)Adjustment to fair value of conversion option  202,368-     Implicit interest rate in excess of coupon rate91,48757,689Deferred finance cost amortization482,190228,941Principal balance, end of year$69,134,395$53,628,803The breakdown of the Total Debentures for year ended December 31, 2011 presented in the above table is as follows:  6.00%ConvertibleDebentures5.75%ConvertibleDebentures5.40%ConvertibleDebenturesTotalPrincipal balance, beginning of year  $23,886,736  $29,742,067-  $53,628,803Issued--  $23,822,54723,822,547Conversions(9,093,000)--(9,093,000)Adjustment to fair value of conversion option  202,368--202,368Implicit interest rate in excess of coupon rate57,99830,1173,37291,487Deferred finance cost amortization170,989248,94662,255482,190Principal balance, end of year$15,225,091$30,021,130$23,888,174$69,134,395The breakdown of the Total Debentures for year ended December 31, 2010 is as follows:  6.00%ConvertibleDebentures5.75%ConvertibleDebenturesTotalPrincipal balance, beginning of year  $23,681,244-  $23,681,244Issued-  $29,680,92929,680,929Conversions(20,000)-(20,000)Adjustment to fair value of conversion option---Implicit interest rate in excess of coupon rate  54,5033,18657,689Deferred finance cost amortization170,98957,952228,941Principal balance, end of year$23,886,736$29,742,067$53,628,803In the second quarter of 2006, the Corporation completed a public offering of 25,000 6% convertible unsecured subordinated debentures at a price of $1,000 per debenture for gross proceeds of $25,000,000.  The debentures mature on June 30, 2013 and interest is paid semi-annually on June 30 and December 31.  The debentures are convertible at the option of the holder at any time prior to the maturity date at a conversion price of $11.75.  The debentures could not be redeemed by the Corporation prior to June 30, 2009.  On and after June 30, 2009, but prior to June 30, 2010, the debentures were redeemable at a price equal to the principal, plus accrued interest, at the Corporation's option on not more than 60 days and not less than 30 days notice, provided that the weighted average trading price of the shares on the Toronto Stock Exchange for the 20 consecutive trading days ending five trading days preceding the date on which the notice of redemption is given is not less than 125% of the conversion price.  On and after June 30, 2010 and prior to the maturity date, the debentures are redeemable at a price equal to the principal amount plus accrued interest, at the Corporation's option on not more than 60 days' and not less than 30 days' prior notice.  On redemption or at maturity, the Corporation may, at its option, elect to satisfy its obligation to pay all or a portion of the principal amount of the debenture by issuing that number of shares of the Corporation obtained by dividing the principal amount being repaid by 95% of the weighted average trading price of the shares for the 20 consecutive trading days ending on the fifth trading day preceding the redemption or maturity date.In 2009, $536,000 of debentures were converted by the debenture holders to 45,617 shares of the Corporation.  In 2010, $20,000 of debentures were converted by the debenture holders to 1,702 shares of the Corporation.  In 2011, $9,093,000 of debentures were converted by the debenture holders to 773,861 shares of the Corporation.In the fourth quarter of 2010, the Corporation completed a public offering of 31,443, 5.75% convertible unsecured subordinated debentures at a price of $1,000 per debenture for gross proceeds of $31,443,000.  The debentures mature on October 31, 2017 and interest is paid semi-annually on April 30 and October 31.  The debentures are convertible at the option of the holder at any time prior to the maturity date at a conversion price of $15.90.  The debentures may not be redeemed by the Corporation prior to October 31, 2013.  On and after October 31, 2013, but prior to October 31, 2014, the debentures are redeemable at a price equal to the principal, plus accrued interest, at the Corporation's option on not more than 60 days' and not less than 30 days notice, provided that the weighted average trading price of the shares on the Toronto Stock Exchange for the 20 consecutive trading days ending five trading days preceding the date on which the notice of redemption is given is not less than 125% of the conversion price.  On and after October 31, 2014 and prior to the maturity date, the debentures are redeemable at a price equal to the principal amount plus accrued interest, at the Corporation's option on not more than 60 days' and not less than 30 days prior notice.  On redemption or at maturity, the Corporation may, at its option, elect to satisfy its obligation to pay all or a portion of the principal amount of the debenture by issuing that number of shares of the Corporation obtained by dividing the principal amount being repaid by 95% of the weighted average trading price of the shares for the 20 consecutive trading days ending on the fifth trading day preceding the redemption or maturity date.The convertible debentures were allocated into liability and equity components on the date of issuance as follows:                                 Liability                                          $31,213,000Equity                                            230,000                                 Principal                                         $31,443,000                               In the third quarter of 2011, the Corporation completed a public offering of 25,738, 5.40% convertible unsecured subordinated debentures at a price of $1,000 per debenture for gross proceeds of $25,738,000.  The debentures mature on February 28, 2019 and interest is paid semi-annually on February 28 and August 31.  The debentures are convertible at the option of the holder at any time prior to the maturity date at a conversion price of $14.35.  The debentures may not be redeemed by the Corporation prior to August 31, 2014.  On and after August 31, 2014, but prior to February 29, 2016, the debentures are redeemable at a price equal to the principal, plus accrued interest, at the Corporation's option on not more than 60 days' and not less than 30 days notice, provided that the weighted average trading price of the shares on the Toronto Stock Exchange for the 20 consecutive trading days ending five trading days preceding the date on which the notice of redemption is given is not less than 125% of the conversion price.  On and after February 29, 2016 and prior to the maturity date, the debentures are redeemable at a price equal to the principal amount plus accrued interest, at the Corporation's option on not more than 60 days' and not less than 30 days prior notice.  On redemption or at maturity, the Corporation may, at its option, elect to satisfy its obligation to pay all or a portion of the principal amount of the debenture by issuing that number of shares of the Corporation obtained by dividing the principal amount being repaid by 95% of the weighted average trading price of the shares for the 20 consecutive trading days ending on the fifth trading day preceding the redemption or maturity date.The convertible debentures were allocated into liability and equity components on the date of issuance as follows:                                 Liability                                          $25,128,000Equity                                            610,000                                 Principal                                         $25,738,000                          As at December 31, 2011, debentures payables bear interest at weighted average effective rate of 5.68% (December 31, 2010 - 5.86%, January 1, 2010 - 6.00%) per annum.Notwithstanding the carrying value of the convertible debentures, the principal balance outstanding to the debenture holders is $72,532,000 as at December 31, 2011 (December 31, 2010 - $55,887,000, January 1, 2010 - $24,464,000).10. Net assets attributable to unitholders:The Corporation performed an assessment of the characteristics of the Trust units in existence during the period from January 1, 2010 to December 31, 2010 (the "Units"), against the criteria set forth per IAS 32, Financial Instruments: Presentation.For the period from January 1, 2010 to June 8, 2010, the Trust Units are presented as a liability due to the Trust's requirement to distribute taxable income to the unitholders and distributions made on the Trust Units is recorded as finance costs in the statement of comprehensive income for this period. The liability was measured at amortized cost of the Trust Units, which includes any residual net assets attributable to unitholders.On June 9, 2010, the distribution policy set out in the Trust's Declaration of Trust was modified such that there was no longer a requirement for the Trust to distribute cash.  As such, equity classification criteria were determined to be met from that point.Changes in the number of Trust Units and in their carrying amounts were as follows during the year ended December 31, 2010:                            Units       Amounts                  Balance, at January 1, 2010           13,896,829     $132,505,399                  New units from exercise of options to June 8, 2010          100,500      994,950                  New units issued up to June 8, 2010 underDistribution Reinvestment Plan           22,671      248,778                  Trust units re-classified as equity (June 9, 2010)           (14,020,000)      (133,749,127)                  Balance, at December 31, 2010           -     $-                11. Shareholders' equity / Unitholders' equity:On January 1, 2011, all outstanding Units were exchanged on a one-for-one basis for common shares of the Corporation, as described in Note 1.The beneficial interests in the Corporation are represented by a single class of shares which are unlimited in number.  Each share carries a single vote at any meeting of shareholders and carries the right to participate pro rata in any dividends.(a) Shares and Units issued and outstanding:The following shares were issued and outstanding as at December 31, 2011:            Balance, beginning of year             14,377,333            New shares from conversion of debentures (note 9)             773,861            New shares issued during the period underDividend Reinvestment Plan             61,824            Balance, end of year             15,213,018        The following units were issued and outstanding as at December 31, 2010:            Balance, at June 9, 2010             14,020,000            New units from conversion of debentures (note 9)             1,702            New units from exercise of options             327,000            New units issued during the period underDistribution Reinvestment Plan             28,631            Balance, at December 31, 2010             14,377,333       (b) Incentive option plan:In 2005, 415,000 options were issued to directors, officers and employees of the Corporation Manager and Mortgage Banker, with an exercise price of $9.90 per share.  The options were exercisable any time up to November 17, 2010.  The options vested on the grant date.  At December 31, 2010, 415,000 share options have been exercised.In 2008, 35,000 options were issued to directors with an exercise price of $9.94.  The options were exercisable any time up to October 7, 2013.  The fair value of those share options, given the small number of options issued and given the low volatility in the Corporation's share trading price, is not material and therefore no related compensation expense has been recorded by the Corporation.  At December 31, 2010, 35,000 options have been exercised.As at December 31, 2011, no options remained outstanding (December 31, 2010 - nil & January 1, 2010 - 427,500).(c) Dividend reinvestment plan and direct share purchase plan:The Corporation has a dividend reinvestment plan and direct share purchase plan for its shareholders which allows participants to reinvest their monthly cash dividends in additional Corporation shares at a share price equivalent to the weighted average price of shares for the preceding five day period.12. Per share amounts:(a) Profit  per share calculation:As the trust units were classified as a liability until June 8, 2010 and the full change for the period from January 1, 2010 to June 8, 2010 in net assets is allocated thereto, there is no profit per unit presented for the year ended December 31, 2010.The following tables reconcile the numerators and denominators of the basic and diluted profit per share for the year ended December 31, 2011.Basic profit per share calculation:                        2011Numerator for basic profit per share:             Profit             $14,659,462Denominator for basic profit per share:             Weighted average shares              14,730,516Basic profit per share             $0.995Diluted profit per share calculation:                        2011Numerator for diluted profit per share:             Profit             $14,659,462 Interest on convertible debentures              4,069,958Net profit for diluted profit per share:             $18,729,420Denominator for diluted profit per share:             Weighted average shares              14,730,516 Net units that would be issued:              Assuming the proceeds from options are used              To purchase units at the average unit price              -                 Assuming debentures are converted              4,362,472Diluted weighted average shares              19,092,988Diluted profit per share             $0.981             (b) Pro forma per unit calculationManagement has chosen to disclose pro forma basic and diluted profit per unit for the year ended December 31, 2010 in order to provide an indication of the Trust's business performance that is comparable to how performance is otherwise measured when the instruments that represent residual interests in the entity qualify as equity instruments.  The calculation eliminates "change in fair value of the conversion option of convertible debentures" and "distributions to unitholders" from the numerator and uses the liability classified units as denominator.  For disclosure purposes only, the Corporation has determined the operations profit per share using the same basis that would apply in accordance with IAS 33 Earnings per Share.The following tables reconcile the numerators and denominators of pro forma basic and diluted operations profit per unit:Basic operations profit per share calculation:                        2010Numerator for basic operations profit per share:             Operations profit             $14,235,843Denominator for basic operations profit per share:             Weighted average shares              14,119,651Pro forma profit per unit             $1.008Diluted pro forma profit per unit calculation:                        2010Numerator for diluted pro forma profit per share:             Operations profit             $14,235,843 Interest on convertible debentures              2,135,889Net operations profit for diluted operations profit per unit             $16,371,732Denominator for diluted operations profit per unit:             Weighted average shares              14,119,651 Net units that would be issued:              Assuming the proceeds from incentive options areused to repurchase units at the average unit price   -               Assuming convertible debentures are converted              2,513,775Diluted weighted operations profit per unit              16,633,426Diluted pro forma profit per unit             $0.984             13. Dividends:The Corporation intends to make dividend payments to the shareholders on a monthly basis on or about the 15th day of each month.  The operating policies of Corporation set out that the Corporation intends to distribute to shareholders within 90 days after the year end at least 100% of the net income of the Corporation determined in accordance with the Income Tax Act (Canada), subject to certain adjustments.For the year ended December 31, 2011, the Corporation recorded dividends of $14,659,462 (2010 - $14,235,843) to its shareholders.  Dividends were $0.99 (2010 - $1.006) per share.14. Income taxes:The Income Tax Act (Canada) contains legislation (the "SIFT Rules") affecting the tax treatment of "specified investment flow-through" ("SIFT") trusts.  A SIFT includes a publicly traded trust.  The SIFT Rules provide for a transition period unit 2011 for publicly traded trusts like the Trust, which existed prior to November 1, 2006.  Under the SIFT Rules, distributions of certain types of income by a SIFT are not deductible in computing the SIFT's taxable income, and a SIFT is subject to tax on such income at a rate that is substantially equivalent to the general tax rate applicable to a Canadian corporation.  The SIFT Rules do not apply to a corporation that qualifies as a mortgage investment corporation under the Income Tax Act (Canada).  The Trust completed the necessary tax restructuring to qualify as a mortgage investment corporation effective January 1, 2011.15. Related party transactions and balances:Transactions with related parties are in the normal course of business and are recorded at the exchange amount, which is the amount of consideration established and agreed to by the related parties, and are measured at fair value.The Corporation Manager (a company controlled by some of the directors) receives an allocation of interest, referred to as Corporation Manager spread interest, calculated as 0.75% per annum of the Corporation's daily outstanding performing investment balances.  For the year ended December 31, 2011, this amount was $1,784,991 (2010 - $1,394,583).  Included in accounts payable and accrued liabilities at December 31, 2011 are amounts payable to the Corporation Manager of $204,988 (December 31, 2010 - $137,517, January 1, 2010 - $103,500).The total directors' fees paid for the year was $183,000 (2010 - $183,000). This amount has been fully settled during the year. The listing of the members of the board of directors is shown in the annual report.  The key management personnel are also directors of the Corporation and receive compensation from the Corporation Manager.  The directors held 361,908 shares in the Corporation as at the end of the financial year.The Mortgage Banker (a company controlled by a director) receives certain fees from the borrowers as follows:  loan servicing fees equal to 0.10% per annum on the principal amount of each of the Corporation's investments; 75% of all the commitment and renewal fees generated from the Corporation's investments; and 25% of all the special profit income generated from the non-conventional investments after the Corporation has yielded a 10% per annum return on its investments.  Interest and fee income is net of the loan servicing fees paid to the Mortgage Banker of approximately $238,000 for the year ended December 31, 2011 (2010 - $186,000).  The Mortgage Banker also retains all overnight float interest and incidental fees and charges payable by borrowers on the Corporation's investments.  The Corporation's share of commitment and renewal fees recorded in income for the year ended December 31, 2011 was $1,038,317 (2010 - $825,427) and applicable special profit income for the year ended December 31, 2011 was $353,081 (2010 - $1,892,342).The Corporation Management Agreement and Mortgage Banking Agreement contains provisions for the payment of termination fees to the Corporation Manager and Mortgage Banker in the event that the respective agreements are either terminated or not renewed.Several of the Corporation's investments are shared with other investors of the Mortgage Banker, which may include members of management of the Mortgage Banker and/or Officers or directors of the Corporation.  The Corporation ranks equally with other members of the syndicate as to receipt of principal and income.Mortgages totalling $15,560,000 (December 31, 2010 - $8,760,000 and January 1, 2010 - $1,760,000) were issued to borrowers controlled by certain directors of the Corporation.  Each investment is dealt with in accordance with the Corporation's existing investment and operating policies and is personally guaranteed by the related directors.16. Interest expense:                  2011    2010            Bank interest expense    $900,741   $483,907Loans payable interest expense     377,567    257,282Debenture interest expense     4,069,958    2,135,889Interest expense    $5,348,266   $2,877,078Deferred finance cost amortization - convertible debentures     (444,685)    (228,941)Implicit interest rate in excess of coupon rate - convertible debentures     (91,487)    (57,689)Change in accrued interest     (449,418)    (359,786)            Cash interest paid    $4,362,676   $2,230,662                        17. Contingent liabilities:The Corporation is involved in certain litigation arising out of the ordinary course of investing in loans.  Although such matters cannot be predicted with certainty, management believes the claims are without merit and does not consider the Corporation's exposure to such litigation to have an impact on these financial statements.18. Fair value of financial instruments:The fair value of amounts receivable, bank indebtedness, accounts payable and accrued liabilities and shareholder dividend payable approximate their carrying values due to their short-term maturities.The fair value of investment portfolio approximate its carrying values as the majority of the loans are repayable in full at any time without penalty, and have floating interest rates.The fair value of loans payable approximate their carrying values due to the fact that the majority of the loans are (i) repayable in full, at any time upon the borrower under the underlying loan that secures the loan payable repaying their loan without penalty, and (ii) have floating interest rates linked to bank prime.The fair value of the convertible debentures, including their conversion option, has been determined based on the closing price of the debentures of the Corporation on the TSX for the respective date.  The fair value has been estimated at December 31, 2011 to be $73,722,648 (December 31, 2010 - $56,305,890, January 1, 2010 - $24,708,640).  This is a level 1 input which is based on a quoted price in an active market.19. Risk management:(a) Interest rate risk:The Corporation's operations are subject to interest rate fluctuations.  The interest rate on the majority of the investments is set at the greater of a floor rate and a formula linked to bank prime.  The floor interest rate mitigates the effect of a drop in short term market interest rates while the floating component linked to bank prime allows for increased interest earnings where short term market rates increase.The Corporation's debt comprises bank indebtedness, loans payable and convertible debentures, with the bank indebtedness and loans payable bearing interest based on bank prime and/or based on short term Bankers Acceptance interest rates as a benchmark.At December 31, 2011, if interest rates at that date had been 100 basis points lower or higher, with all other variables held constant, comprehensive income and equity for the year would be affected as follows:     Carrying Value    -1%    +1%                 Financial assets                 Amounts receivable    $3,478,338           Investment portfolio     271,048,591    ($17,600)    $375,385                 Financial liabilities                 Bank indebtedness     37,763,021    377,630    (377,630) Accounts payable and accrued liabilities     1,354,639    -    - Shareholder dividend payable     2,008,118    -    - Loans payable     15,649,081    135,885    (135,885) Convertible debentures     69,134,395    -    -                 Total increase (decrease)          $495,915    ($138,130)                 At December 31, 2010 if interest rates at that date had been 100 basis points lower or higher, with all other variables held constant, net income for the year would be affected as follows:     Carrying Value    -1%    +1%                 Financial assets                 Amounts receivable    $2,371,563    -    - Investment portfolio    $202,330,929    $(20,800)    $126,487                 Financial liabilities                 Bank indebtedness     5,005,825    (50,058)    50,058 Accounts payable and accrued liabilities     1,482,580    -    - Unitholder distribution payable     2,127,845    -    - Loans payable     4,289,249    20,921    (20,921) Convertible debentures     53,628,803    -    -                 Total increase (decrease)          ($49,937)    $155,624                 (b) Credit and operational risks:Any instability in the real estate sector and an adverse change in economic conditions in Canada could result in declines in the value of real property securing the Corporation's investments.  The Corporation mitigates this risk by adhering to the investment and operating policies set out in its Declaration of Corporation.The Corporation's maximum exposure to credit risk is represented by the fair values of amounts receivable and the investment portfolio.(c) Liquidity risk:The Corporation's liquidity requirements relate to its obligations under its bank indebtedness, loans payable, convertible debentures and its obligations to make future advances under its existing portfolio.  Liquidity risk is managed by ensuring that the sum of (i) availability under the Corporation's bank borrowing line, (ii) the sourcing of other borrowing facilities, and (iii) projected repayments under the existing investment portfolio, exceeds projected needs (including funding of further advances under existing and new investments).As at December 31, 2011, the Corporation had not utilized its full leverage availability, being a guideline of 60% of its first mortgage investments.  Un-advanced committed funds under the existing investment portfolio amounted to $30,845,331 as at December 31, 2011 (December 31, 2010 - $18,406,862, January 1, 2010 - $12,709,686).  These commitments are anticipated to be funded from the Corporation's credit facility and borrower repayments.  The Corporation has a revolving line of credit with its principal banker to fund the timing differences between investment advances and investment repayments.  The bank borrowing line is a committed facility with a maturity date of September 30, 2012.  If the loan is not renewed on September 30, 2012, the terms of the facility allow for the Corporation to repay the balance owed on September 30, 2012 within 12 months.  In the current economic climate and capital market conditions, there are no assurances that the bank borrowing line will be renewed or that it could be replaced with another lender if not renewed.  If it is not extended at maturity, repayments under the Corporation's investment portfolio would be utilized to repay the bank indebtedness.  There are limitations in the availability of funds under the revolving line of credit.  The Corporation's investments are predominantly short-term in nature, and as such, the continual repayment by borrowers of existing investments creates liquidity for ongoing investments and funding commitments.   Loans payable relate to borrowings on specific investments within the Corporation's portfolio and only have to be repaid once the specific loan is paid out by the Borrower.If the Corporation is unable to continue to have access to its bank borrowing line and loans payables, the size of the Corporation's investment portfolio will decrease and the income historically generated through holding a larger portfolio by utilizing leverage will not be earned.Contractual obligations as at December 31, 2011 are due as follows:     Total   Less than1 year   1 - 3years   4 - 6yearsAccounts payable and accrued liabilities   $1,354,639  $1,354,639   -   -Shareholder dividend payable    2,008,118   2,008,118   -   -Bank indebtedness    37,763,021   37,763,021   -   -Loans payable    15,649,081   1,720,014   -   13,929,067Convertible debentures    72,532,000   -   15,351,000   57,181,000Subtotal - Liabilities    129,306,859   42,845,792   15,351,000   71,110,067Future advances under portfolio    30,845,331   30,845,331        Liabilities and contractual obligations   $160,152,190  $73,691,123  $15,351,000  $71,110,067                  The bank indebtedness and loans payable are liabilities resulting from the funding of the Corporation's investments.  Repayment of investments results in a direct and corresponding pay down of the bank indebtedness and/or loans payable.  The obligations for future advances under the Corporation's investment portfolio are anticipated to be funded from the Corporation's credit facility and borrower repayments.  Upon funding of same, the funded amount forms part of the Corporation's investments.Interest payments on loans payable (assuming outstanding amounts and the bank prime interest rate remain unchanged) would be $750,076 for less than 1 year, $1,500,152 for 1 to 3 years and $2,250,228 for 4 to 6 years.  Interest payments on debentures (assuming the amounts remain unchanged) would be $4,118,884 for less than 1 year, $8,237,768 for 1 to 3 years and $12,356,652 for 4 to 6 years.(d) Capital risk management:The Corporation defines capital as being the funds raised through the issuance of publicly traded securities of the Corporation.  The Corporation's objectives when managing capital/equity are:to safeguard the Corporation's ability to continue as a going concern, so that it can continue to provide returns for shareholders, andto provide an adequate return to shareholders by obtaining an appropriate amount of debt, commensurate with the level of risk.The Corporation manages the capital/equity structure and makes adjustments to it in light of changes in economic conditions.  In order to maintain or adjust the capital structure, the Corporation may issue new shares or repay bank indebtedness (if any) and loans payable.The Corporation's investment guidelines, which can be varied at the discretion of the Board of Directors, incorporate various guideline restrictions and investment operating policies.  The Corporation's guideline states that the Corporation (i) will not invest more than 5% of the amount of its capital in any single conventional first mortgages, (ii) will not invest more than 2.5% of the amount of its capital in any single non-conventional mortgage or conventional investment that is not a first mortgage, and (iii) will only borrow funds in order to acquire or invest in investments in amounts up to 60% of the book value of the Corporation's portfolio of conventional first mortgages.The Corporation is required by its Bank lender to maintain various covenants, including minimum equity amount, interest coverage ratios, indebtedness as a percentage of the performing first mortgage portfolio size and indebtedness to total assets.  The Corporation has complied with all such Bank covenants.20. Subsequent events:On March 21, 2012, the Corporation completed an offering of 1,340,000 common shares of the Corporation at a price of $13.45 per Share and $18,000,000 aggregate principal amount of 5.25% convertible unsecured subordinated debentures due March 31, 2019 of the Corporation at a price of $1,000 per debenture. Each debenture is convertible into common shares at the option of the holder at a conversion price of $14.80 per share   The Corporation also granted to the underwriters an over-allotment option, exercisable in whole or in part, at any time up to 30 days after the closing of the offering to purchase up to an additional 201,000 shares and an additional $2,700,000 principal amount of debentures. For further information: Firm Capital Mortgage Investment Corporation Eli Dadouch President & Chief Executive Officer (416) 635-0221