Founders Advantage Enters Into CAD $100 Million Senior Secured Credit Facility With Strategic Capital Provider, Sagard Credit Partners

CALGARY, ALBERTA–(Marketwired – May 31, 2017) – Founders Advantage Capital Corp. (TSX VENTURE:FCF) (the “Corporation”) is pleased to announce that it has entered into a USD $75 million (approx. CAD $100 million) senior secured credit facility (the “Senior Facility”) with Sagard Holdings ULC (“Sagard Holdings”), pursuant to which Sagard Credit Partners will be the lender. The proceeds from the Senior Facility will be used to repay the Corporation’s existing senior indebtedness, to complete further acquisitions and for general corporate purposes. The initial draw at closing under the Senior Facility is USD $42 million (approx. CAD $56 million), with additional draws subject to Sagard Holding’s further approval. The Senior Facility is expected to close on or about June 16, 2017.

Stephen Reid, President and Chief Executive Officer of the Corporation comments: “After considering various capital alternatives, we believe we have found a strategic partner that will be transformational for our long-term growth and success. The strategic relationship with Sagard Holdings provides us with the liquidity and financial flexibility required to prudently execute our business plan of investing in scalable and defensive founder-run companies. The Sagard Holdings team shares our view of building long-term shareholder value through a diverse portfolio of partnerships in founder run, not for sale, high free cash-flow, stable and well managed premium companies.”

Adam Vigna, Chief Investment Officer of Sagard Credit Partners, added: “We are very pleased to provide this facility to Founders Advantage, a team we have known for many years. Sagard Credit Partners is focused on providing credit to companies with strong fundamentals and where we have long-term relationships with management teams. We look forward to working closely with Founders to execute on the business plan and their growth strategy.”

The Senior Facility will have a five (5) year term and will bear interest at a rate of LIBOR plus 700 basis points (with a 1.00% LIBOR floor), payable quarterly on March 31, June 30, September 30 and December 31 each year. The Senior Facility will be secured by a first priority lien on all present and after-acquired assets of the Corporation. The borrowings under the Senior Facility are denominated in USD and the Corporation anticipates implementing a foreign currency hedging program to reduce currency risk.

As additional consideration for the Senior Facility, the Corporation has agreed to issue Sagard Holdings 2,078,568 non-transferable common share purchase warrants (the “Warrants”), which Warrants are equal to 5% of the Corporation’s fully diluted common shares outstanding as at the date hereof. Each Warrant entitles Sagard Holdings to acquire one common share of the Corporation at any time over the next five years upon payment of the Warrant exercise price. The Warrant exercise price for 1,039,284 Warrants is $3.508 (a 15% premium to the 30 day VWAP of the common shares) and the exercise price for the remaining 1,039,284 Warrants is $3.965 (a 30% premium to the 30 day VWAP of the common shares).

Closing of the Senior Facility is subject to customary closing conditions including the approval of the TSX Venture Exchange.

While the Corporation intends on repaying its existing credit facility with Alberta Treasury Branches with the proceeds of the Senior Facility, we would like to express our gratitude to ATB for their support to date which allowed the Corporation to advance its business plan.

About Sagard Credit Partners and Sagard Holdings

Sagard Credit Partners, part of Sagard Holdings, is focused on providing debt capital to middle market companies in Canada and the US. Sagard Credit Partners provides custom-tailored debt solutions, focusing on the needs of the borrower, and looks to invest in companies where it can develop deep, long term relationships.

Sagard Holdings is an investment firm based in New York and Toronto which invests long term equity and debt capital in middle market companies in the US and Canada through its affiliates, including Sagard Credit Partners.

About Founders Advantage Capital Corp.

The Corporation is listed on the TSX Venture Exchange as an Investment Issuer (Tier 1) and employs a permanent investment approach. The Corporation has developed an investment approach to create long-term value for its shareholders and partner entrepreneurs (investees) by pursuing majority interest acquisitions of cash flow positive middle-market privately held entities. The Corporation seeks to win mandates by appealing to the segment of the market which is not aligned with traditional private equity control, royalty monetizations or related structures. The Corporation’s innovative platform offers incentives (contractually) for growth in favour of our partner entrepreneurs. This unique platform is designed to appeal to entrepreneurs who believe in the growth of their businesses and who want the added ability to continue to manage the business with a long-term partner.

The Corporation’s common shares are listed on the TSX Venture Exchange under the symbol “FCF”.

For further information please refer to the Corporation’s website at www.advantagecapital.ca.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

Cautionary Statement Regarding Forward-Looking Financial Information

Certain statements in this document constitute forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as “anticipate”, “believe”, “estimate”, “will”, “expect”, “plan”, “schedule”, “intend”, “propose”, or similar words suggesting future outcomes or an outlook. Forward-looking information in this document includes, but is not limited to:

  • the use of proceeds for the Senior Facility;
  • the closing date of the Senior Facility;
  • the Senior Facility being transformational for the Corporation’s long-term success;
  • the relationship with Sagard Holdings will allow the Corporation access to additional capital to execute the Corporation’s business plan;
  • the implementation of a foreign currency hedging program to effectively mitigate currency risk;
  • the expected pro-forma share ownership of Sagard Holdings after giving effect to the exercise in full of the Warrants; and
  • approval of the Senior Facility by the TSXV.

Such forward-looking information is based on a number of assumptions which may prove to be incorrect. Assumptions have been made with respect to the following matters, in addition to any other assumptions identified in this document:

  • the conditions to closing the Senior facility will be satisfied and all regulatory approvals will be obtained;
  • the Corporation will receive approval from Sagard Holdings for additional draws on the Senior Facility;
  • the Corporation and its investee entities will continue to operate consistent with expectations; and
  • that additional acquisitions will be available to the Corporation on terms and conditions acceptable to it.

Although the Corporation believes that the expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on them as the Corporation can give no assurance that such expectations will prove to be correct. Forward-looking information is based on expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Corporation and described in the forward-looking information. The material risks and uncertainties include, but are not limited to:

  • the inability to satisfy the closing conditions;
  • the inability to obtain TSXV approval for the Senior Facility;
  • unexpected changes in the financial markets;
  • the inability of the Corporation to identify additional acquisition targets on terms and conditions acceptable to it, or at all; and
  • changes in the general economic and business conditions of the Corporation or its investees.

The foregoing list of risks is not exhaustive. For more information relating to risks, see the section titled “Risk Factors” in the Corporation’s current annual information form. The forward-looking information contained in this document is made as of the date hereof and, except as required by applicable securities law, the Corporation undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.

Founders Advantage Releases Q1 2017 Results; Investee Revenues Increase Year Over Year, Earnings Reflect Normal Seasonality

CALGARY, ALBERTA–(Marketwired – May 29, 2017) – Founders Advantage Capital Corp. (TSX VENTURE:FCF) (the “Corporation”) is pleased to report its financial results for the three months ended March 31, 2017 (“Q1 2017”). Readers should refer to the condensed interim consolidated financial statements and management discussion and analysis (“MD&A”) for the three months ended March 31, 2017 for complete information, which are available on SEDAR at www.sedar.com and on the Corporation’s website at www.advantagecapital.ca.

“We continue to be excited about the performance of our current investments and the pipeline of opportunities being presented to us,” stated Stephen Reid, President and Chief Executive Officer of the Corporation. “DLC has continued to grow its funded mortgage volumes despite the recent turbulence in the Canadian mortgage industry and Club16 has increased its membership base by 4.9% year over year. Historically, January through March is the slowest period of the year for home purchases, which impacts DLC’s revenues. Even during the slowest time of year, DLC’s funded mortgage volume grew 11.2% year over year, outperforming our expectations. As these seasonal lows are anticipated, DLC management uses this time for marketing and promotion activities to recruit additional brokers and franchises, which drive additional funded volume growth for the remainder of the year. During the quarter, DLC continued to reposition its newest asset, Newton Connectivity Systems, which was acquired in December 2016. While we are very pleased with the growth outlook and initial revenues being generated by Newton, we are forecasting certain repositioning costs to be incurred during the year, and expect better indications of run-rate profitability in subsequent quarters.”

Please see the Overview and Outlook of Investees section for performance details on each of our investees and Outlook for 2017.

Q1 2017 Highlights

  • On March 1, 2017, the Corporation completed the acquisition of a 52% interest in Impact Radio Accessories (“Impact”) for $12.7 million. This acquisition further diversifies the Corporation’s investment portfolio of companies operating in defensive, recession-resistant industries.
  • Concurrent with the acquisition of Impact, the Corporation entered into an amended credit facility with ATB Financial to increase its revolving credit facility from $17.0 million to $28.0 million and to cancel its previously existing non-revolving $5.0 million credit facility. As such, the Corporation increased its available borrowing limit from $22.0 million to $28.0 million. The Corporation used its available borrowings to fund the acquisition of Impact.
  • Declared first quarterly dividend of $0.0125 per share ($0.05 per share annualized), which resulted in a payment of $0.5 million in April 2017.

Selected Consolidated Financial Highlights

For the three months ended
(000’s, except per share amounts) March 31,
2017
December 31,
2016
March 31,
2016(1)
Revenues $ 13,694 $ 9,277 $
Loss from operations (2) $ (1,790) $ (1,606) $ (2,940)
Adjusted EBITDA (2) (3) $ 1,413 $ 998 $ (1,930)
Cash generated by (used in) operating activities $ 3,334 $ (253) $ (1,578)
Net loss attributable to shareholders $ (1,630) $ (2,410) $ (4,025)
Adjusted EBITDA attributable to shareholders (3) $ 255 $ (211) $ (1,930)
Basic loss per share $ (0.04) $ (0.07) $ (0.40)
Diluted loss per share $ (0.04) $ (0.07) $ (0.40)
Dividends declared (4) $ 474 $ $
(1) As a result of the change in the Corporation’s business plan, effective February 23, 2016, the prior year period is not a direct indication of comparable results.
(2) Newton Connectivity Systems contributed loss from operations of $1.0 million and negative adjusted EBITDA of $0.8 million during the three months ended March 31, 2017.
(3) See “Non-IFRS measures” below for the definition of adjusted EBITDA and cautions related thereto.
(4) The Corporation announced a dividend policy in November 2016, with the first quarterly dividend being declared on March 15, 2017 to shareholders of record as at March 31, 2017.

Review of Q1 2017 Consolidated Financial Results

Consolidated revenues were $13.7 million, compared to $nil during Q1 2016, due to the timing of acquisitions made during fiscal 2016. Specifically, as the acquisition of Dominion Lending Centres Limited Partnership (“DLC”), Club16 Limited Partnership (“Club16” or “Trevor Linden Club16”) and Impact Radio Accessories (“Impact”) closed on June 3, 2016, December 20, 2016 and March 1, 2017, respectively, there were no financial results consolidated into the Corporation’s financial statements during Q1 2016. DLC’s $7.2 million in revenues for Q1 2017 were impacted by the expected seasonally slowest period for home purchases, but were supplemented by $0.6 million in revenues generated by DLC’s most recent acquisition, Newton Connectivity Systems Inc. (“Newton”). As Newton is still restructuring and ramping up its services, we expect growing quarterly revenues from Newton going forward. Club16 generated revenue of $5.5 million during Q1 2017, which excludes the annual club enhancement fee paid by the Club16 members every May, which $2.2 million was received on May 3, 2017. Impact generated revenue of $0.9 million since its acquisition (31 days of the current quarter), which is effected by the timing of certain larger purchase orders during the year. Please see “Overview and Outlook of Investees” section below for additional details on investee performance.

Consolidated loss from operations was $1.8 million, compared to $2.9 million during Q1 2016. The current quarter loss is impacted by the $9.6 million of consolidated general and administrative expenses and seasonality of DLC’s operations. DLC ($4.1 million), Club16 ($3.8 million), Impact ($0.3 million) and Corporate ($1.5 million) each contributed to the consolidated general and administrative expenses. DLC’s expenses do not vary proportionately with the fluctuations in revenue caused by the changes in home buying season. As a result, loss from operations for Q1 2017 is impacted more heavily than in other fiscal quarters when revenues are expected to be higher and costs are not increased proportionately. Also, DLC incurred $0.3 million in severance costs related to DLC and Newton during Q1 2017. Newton incurred a loss from operations of $1.0 million during the quarter, which is expected to improve during fiscal 2017 as operations continue to ramp up. Further, Club16’s annual club enhancement fee is not earned until May every year, which $2.2 million was received on May 3, 2017. This revenue has no associated costs, which results in a significant positive impact to income from operations during the next fiscal quarter. Due to the seasonality of DLC’s business, the changing run-rate profitability of Newton, the timing of Club16’s annual club enhancement fee, and the variable timing of Impact’s revenue, the loss from operations for Q1 2017 is not necessarily indicative of future quarterly results.

Consolidated adjusted EBITDA was $1.4 million, compared to negative adjusted EBITDA of $1.9 million during Q1 2016. This increase over the prior year is significantly due to the completed acquisitions. As noted above, due to the seasonality of DLC’s business, the changing run-rate profitability of Newton, the timing of Club16’s annual club enhancement fee, and the variable timing of Impact’s revenue, the adjusted EBITDA for Q1 2017 is not necessarily indicative of future quarterly results.

Consolidated net loss attributable to shareholders was $1.6 million, compared to $4.0 million during Q1 2016. This variance over the prior year quarter is primarily driven by the full consolidation of the financial results of DLC, Club16 and Impact during Q1 2017. As discussed above, due to the seasonality of DLC’s business, the changing run-rate profitability of Newton, the timing of Club16’s annual club enhancement fee, and the variable timing of Impact’s revenue, the net loss attributable to shareholders for Q1 2017 is not necessarily indicative of future quarterly results.

Overview and Outlook of Investees

In addition to the information provided in the Q1 2017 consolidated financial statements and associated MD&A, we would like to note the following additional information regarding our investees.

DLC Limited Partnership

For the three months ended
(000’s) (1) March 31,
2017
December 31,
2016
Revenues $ 7,338 $ 8,644
Operating expenses 6,729 7,153
Income from operations (2) 609 1,491
Other (expense) income, net (275) 426
Income before tax 334 1,917
Add back:
Depreciation and amortization 1,338 1,341
Finance expense 177 130
Other income (462)
Adjusted EBITDA(2) $ 1,849 $ 2,926
Adjusted EBITDA attributable to:
Shareholders $ 1,224 $ 1,755
Non-controlling interests $ 605 $ 1,171
Key performance indicators:
Funded mortgage volumes (3) $ 6,769,244 $ 9,325,208
Number of franchises (4) 446 443
Number of brokers (4) 5,309 5,237
(1) DLC’s results generally vary from quarter to quarter as a result of seasonal fluctuations in the reporting segment. This means DLC’s results in one quarter are not necessarily a good indication of how they will perform in a future quarter.
(2) Newton Connectivity Systems contributed loss from operations of $1.0 million and negative adjusted EBITDA of $0.8 million during the three months ended March 31, 2017.
(3) Funded mortgage volumes are a key performance indicator for the DLC segment that allows us to measure DLC’s performance against our operating strategy. These amounts are stated in thousands.
(4) The number of franchises and brokers are as at the respective balance sheet date.

The Corporation acquired its 60% interest in DLC on June 3, 2016. Prior to the acquisition, DLC’s unaudited revenue for Q1 2016 was $6.4 million. The revenue for Q1 2017 was $7.3 million, representing 14.1% revenue growth year over year. This growth over the prior year is significantly due to the 11.2% increase in funded mortgage volumes during Q1 2017, compared to Q1 2016. DLC’s revenues are significantly impacted by the home buying season, which is typically more heavily weighted during the months of May through September. As a result, we expect additional revenues to be earned during the upcoming fiscal quarters when compared to Q1 2017.

DLC’s income from operations and adjusted EBITDA were $0.6 million and $1.8 million, respectively, which were significantly impacted by both direct costs of $1.3 million and general and administrative expense of $4.1 million. As noted above, DLC’s revenue is seasonal in nature caused by changes in the home buying season, and general and administrative costs do not vary proportionately with these seasonal fluctuations. As a result, income from operations for Q1 2017 is impacted more heavily than in other fiscal quarters when revenues are expected to be higher and costs are not increased proportionately. Also included in income from operations for the current quarter are the revenues and costs associated with Newton, totaling a net $1.0 million in costs, which include $0.2 million of severance related expenses. As Newton continues to ramp up its operations, we expect the income from operations to increase going forward. Currently, Newton represents approximately 3% of the connectivity platform market. As DLC represents approximately 35% of the Canadian mortgage brokerage industry, migrating mortgage brokers to the Newton platform would have a meaningful impact on DLC’s revenues and adjusted EBITDA.

DLC expects to continue to expand its network of mortgage brokers and franchisees by focusing on their recruiting initiatives, as evidenced by DLC’s continued quarter over quarter growth in funded mortgage volumes and increases in franchises and brokers. As a result of these growth initiatives, we anticipate DLC having steady growth in its funded mortgage volumes in 2017, resulting in steady growth in revenues and adjusted EBITDA.

The Corporation is receiving $540,000 per month in after-tax cash distributions from DLC.

Trevor Linden Club16

For the three months ended
(000’s) March 31,
2017
December 31,
2016
Revenues $ 5,466 $ 633
Operating expenses 5,022 665
Income (loss) from operations 444 (32)
Other (expense), net (40) (6)
Income (loss) before tax 404 (38)
Add back:
Depreciation and amortization 672 127
Finance expense 40 6
Adjusted EBITDA $ 1,116 $ 95
Adjusted EBITDA attributable to:
Shareholders $ 670 $ 57
Non-controlling interests $ 446 $ 38
Key performance indicators:
Total fitness club members (1) 80,296 78,316
(1) The number of fitness club members is as at the respective balance sheet date.

The Corporation acquired its 60% interest in Trevor Linden Club16 on December 20, 2016. Prior to the acquisition, Club16’s unaudited revenue for Q1 2016 was $5.0 million. The revenue for Q1 2017 was $5.5 million, representing 9.2% revenue growth year over year, which is partially driven by the 4.9% increase in membership base. Also, Club16 received its annual club enhancement fee from its members on May 3, 2017 for $2.2 million, which will be included in the financial results of the next quarter.

Club16’s income from operations and adjusted EBITDA were $0.4 million and $1.1 million, respectively. The income from operations and adjusted EBITDA for Q1 2017 represent normal course operations, and we expect continued growth in the total fitness club members based on the historic growth trend.

Club16 anticipates continued growth in its personal training services, which are a relatively new product offering. These services are expected to add to Trevor Linden Club16’s revenues and adjusted EBITDA. During Q1 2017, Club16 earned $0.7 million in revenues related to personal training services (gross margin of 43%), compared to $0.3 million during Q1 2016 (gross margin of 24%).

Trevor Linden Club16 expects to continue adding new members by increasing total square footage of gym space via opening a new location and expanding one of the current locations during 2017. It is anticipated that these initiatives will have a positive impact on 2017 fitness club membership revenues and adjusted EBITDA.

The Corporation is receiving $270,000 per month in pre-tax cash distributions from Club16. The Corporation offsets this income with its corporate general and administrative expenses to reduce the income taxes payable to nil.

Impact

For the three months ended
(000’s) (1) March 31,
2017
December 31,
2016
Revenues $ 890 $
Operating expenses 799
Income from operations 91
Other income, net 12
Income before tax 103
Add back:
Depreciation and amortization 96
Share-based payments 24
Adjusted EBITDA $ 223 $
Adjusted EBITDA attributable to:
Shareholders $ 116 $
Non-controlling interests $ 107 $
(1) Includes 31 days of Impact operations as the acquisition was completed on March 1, 2017.

The Corporation acquired its 52% interest in Impact on March 1, 2017. Revenues for the month of March 2017 were $0.9 million, consistent with March 2016. Total revenues for Q1 2017, including the period prior to the acquisition, were $2.4 million, consistent with the same prior year period.

Impact’s income from operations and adjusted EBITDA were $0.1 million and $0.2 million, respectively, which represents 31 days of operations. As Impact is subject to certain fluctuations in timing of larger purchase orders, we expect variability in the quarterly financial results.

Impact expects to increase sales by adding distributors and anticipates that its products will gain additional exposure as the distributors expand their own businesses (via organic and acquisition growth), which will result in more distributor representatives selling the Impact products. It is anticipated that these initiatives will have a positive impact on 2017 revenues and adjusted EBITDA.

The Corporation is receiving $104,000 per month in after-tax cash distributions from Impact.

Non-IFRS measures

Adjusted EBITDA for both our corporate head office and investees is defined as earnings before interest, taxes, and non-cash items such as depreciation and amortization, share-based payments, losses recognized on the sale of investments, and any unusual non-operating one-time items such as corporate start-up costs and other revenues. Adjusted EBITDA is also adjusted for expenses relating to prior mineral property impairment reversal and arbitration. Readers are cautioned that adjusted EBITDA should not be construed as a substitute or an alternative to applicable generally accepted accounting principle measures as determined in accordance with IFRS.

About Founders Advantage Capital Corp.

The Corporation is listed on the TSX Venture Exchange as an Investment Issuer (Tier 1) and employs a permanent investment approach. The Corporation has developed an investment approach to create long-term value for its shareholders and partner entrepreneurs (investees) by pursuing controlling interest acquisitions of cash flow positive middle-market privately held entities. The Corporation seeks to win mandates by appealing to the segment of the market which is not aligned with traditional private equity control, royalty monetizations or related structures. The Corporation’s innovative platform offers disproportionate incentives (contractually) for growth in favour of our investees. This unique platform is designed to appeal to entrepreneurs who believe in the growth of their businesses and who want the added ability to continue managing the business while partnering with a long-term partner.

The Corporation’s common shares are listed on the TSX Venture Exchange under the symbol “FCF”.

For further information, please refer to the Corporation’s website at www.advantagecapital.ca.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

Cautionary Statement Regarding Forward-Looking Financial Information

Certain statements in this document constitute forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as “anticipate”, “believe”, “estimate”, “will”, “expect”, “plan”, “intend”, or similar words suggesting future outcomes or an outlook. Forward-looking information in this document includes, but is not limited to:

  • the Corporation forecasts certain restructuring costs to be incurred related to Newton;
  • the Corporation expects better run-rate profitability in subsequent quarters from Newton;
  • the Corporation expects growing quarterly revenues from Newton going forward;
  • the Corporation plans to obtain additional financing either through debt or equity;
  • the Corporation is forecasting positive cash flows from operating activities;
  • the Corporation expects DLC’s funded mortgage volumes will continue growing;
  • the Corporation expects Newton to continue to ramp up its operations;
  • the Corporation expects Newton’s income from operations to increase going forward;
  • DLC anticipates it can increase Newton’s market share;
  • DLC expects to continue to expand its network of mortgage brokers and franchisees;
  • the Corporation expects Trevor Linden Club16’s membership base to continue growing;
  • Trevor Linden Club16 anticipates continued growth in its personal training services;
  • Trevor Linden Club16 expects to continue adding new members;
  • Impact expects to increase sales by adding distributors;
  • Impact expects its products will gain additional exposure; and
  • The Corporation’s ability to win potential acquisitions over competing sources of investment, including, but not limited to, private equity, royalty funds or related structures.

Such forward-looking information is based on a number of assumptions which may prove to be incorrect. Assumptions have been made with respect to the following matters, in addition to any other assumptions identified in this document:

  • The Corporation being able to source and negotiate transactions on acceptable terms and in a timely manner;
  • The Corporation being able to source additional financing on acceptable terms and in a timely manner;
  • That the Board of Directors for each of the investee entities resolves to continue distributing cash as expected; and
  • That the business of DLC, Trevor Linden Club16 and Impact will not suffer any material adverse changes.

Although the Corporation believes that the expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on them as the Corporation can give no assurance that such expectations will prove to be correct. Forward-looking information is based on expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Corporation and described in the forward-looking information. The material risks and uncertainties include, but are not limited to:

  • The adequacy of the Corporation’s existing resources to complete additional potential transactions;
  • The return for any acquisition not being as expected by the Corporation post-closing; and
  • Incremental risks associated with any additional investee company, as well as the risks associated with the industries in which additional investees operate.

The foregoing list of risks is not exhaustive. For more information relating to risks, see the section titled “Risk Factors” in the Corporation’s current annual information form. The forward-looking information contained in this document is made as of the date hereof and, except as required by applicable securities law, the Corporation undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.

Founders Advantage Capital Corp. Provides Update and Increases 2017 Guidance

CALGARY, ALBERTA–(Marketwired – May 18, 2017) – Founders Advantage Capital Corp. (TSX VENTURE:FCF) (the “Corporation” or “FAC”) is pleased to report the following key performance indicators for its investee entities for the three months ended March 31, 2017. The Corporation anticipates its quarterly financial statements and related management’s discussion and analysis will be filed on May 29, 2017:

Dominion Lending Centres Limited Partnership (“DLC”)

  • Total revenues for the three months ended March 31, 2017 were $7.3 million, up 17.8% from the same quarter in the prior year (March 31, 2016 – $6.2 million);
  • Total funded mortgage volumes were $6.77 billion, up 11.2% from the same quarter in 2016 (March 31, 2016 – $6.1 billion);
  • Total number of brokers as at March 31, 2017 was 5,300, compared to 5,001 as at March 31, 2016 (an increase of 6.0%); and
  • Total number of franchisees as at March 31, 2017 was 469, compared to 424 as at March 31, 2016 (an increase of 10.6%).

Club16 Limited Partnership (“Club16”)

  • Total revenues for the three months ended March 31, 2017 were $5.47 million, up 9.2% from the same quarter in the prior year (March 31, 2016 – $5.0 million); and
  • Total number of members as at March 31, 2017 was 80,296, compared to 76,554 as at March 31, 2016 (an increase of 4.9%).

Impact Radio Accessories (“Impact”)

  • The acquisition of a 52% interest in Impact closed on March 1, 2017, part-way through the quarter ending March 31, 2017 (only 31 days of Impact results will be included in the Corporation’s quarterly financial statements); and
  • Total revenues for the three months ended March 31, 2017 were $2.4 million, consistent with the total revenues from the same quarter in the prior year.

Increase to 2017 Guidance

The Corporation is increasing its 2017 guidance relating to its proportionate interest of anticipated investee annual adjusted EBITDA to a range of $19.5 million – $20.7 million (being an increase of $2.5 million from the guidance of $17.0 million – $18.0 million released on January 24, 2017). The above guidance assumes FAC ownership for a full financial year and is prior to FAC’s corporate expenses, including G&A. Further, the above guidance does not reflect any additional acquisitions that FAC intends on completing in 2017.

As at the date hereof, the Corporation has an aggregate of 38.1 million class A common shares issued and outstanding.

Non-IFRS measures

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before non-cash items such as share-based payments and losses recognized on the sale of investments, and any unusual non-operating one-time items such as corporate start-up costs. Readers are cautioned that EBITDA and adjusted EBITDA should not be construed as a substitute or an alternative to applicable generally accepted accounting principle measures as determined in accordance with IFRS.

About Founders Advantage Capital Corp.

The Corporation is listed on the TSX Venture Exchange as an Investment Issuer (Tier 1) and employs a permanent investment approach. The Corporation has developed an investment approach to create long-term value for its shareholders and partner entrepreneurs (investees) by pursuing controlling interest acquisitions of cash flow positive middle-market privately held entities. The Corporation seeks to win mandates by appealing to the segment of the market which is not aligned with traditional private equity control, royalty monetizations or related structures. The Corporation’s innovative platform offers disproportionate incentives (contractually) for growth in favour of our investees. This unique platform is designed to appeal to entrepreneurs who believe in the growth of their businesses and who want the added ability to continue managing the business while partnering with a long-term partner.

The Corporation’s common shares are listed on the TSX Venture Exchange under the symbol “FCF”.

For further information, please refer to the Corporation’s website at www.advantagecapital.ca.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

Cautionary Statement Regarding Forward-Looking Financial Information

Certain statements in this document constitute forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as “anticipate”, “believe”, “estimate”, “will”, “expect”, “plan”, “schedule”, “intend”, “propose”, or similar words suggesting future outcomes or an outlook. Forward-looking information in this document includes, but is not limited to:

  • The Corporation’s interest of anticipated investee annual EBITDA for 2017; and
  • That the Corporation expects to complete additional acquisitions in 2017.

Such forward-looking information is based on a number of assumptions which may prove to be incorrect. Assumptions have been made with respect to the following matters, in addition to any other assumptions identified in this document:

  • The Corporation being able to source and negotiate transactions on acceptable terms and in a timely manner;
  • That the Board of Directors for each of the investee entities resolves to distribute cash as expected; and
  • That the business of DLC, Club16 and Impact will not suffer any material adverse changes.

Although the Corporation believes that the expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on them as the Corporation can give no assurance that such expectations will prove to be correct. Forward-looking information is based on expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Corporation and described in the forward-looking information. The material risks and uncertainties include, but are not limited to:

  • The adequacy of the Corporation’s existing resources to complete additional potential transactions;
  • The return for any acquisition not being as expected by the Corporation post-closing; and
  • Incremental risks associated with any additional investee company, as well as the risks associated with the industries in which additional investees operate.

The foregoing list of risks is not exhaustive. For more information relating to risks, see the section titled “Risk Factors” in the Corporation’s current annual information form. The forward-looking information contained in this document is made as of the date hereof and, except as required by applicable securities law, the Corporation undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.

Founders Advantage Capital Offers Liquidity Without Boredom

Founders Advantage Capital Corp. Announces Fiscal 2016 Results; Provides Update on Investees

CALGARY, ALBERTA–(Marketwired – May 1, 2017) – Founders Advantage Capital Corp. (TSX VENTURE:FCF) (the “Corporation”) is pleased to report its financial results for the fifteen months ended December 31, 2016 (“fiscal 2016”). The comparative period is the year ended September 30, 2015 (“fiscal 2015”). Note that during fiscal 2016, the Corporation changed its year end from September 30 to December 31. As a result, the Corporation is reporting a one-time, fifteen-month transition year, covering the period of October 1, 2015 to December 31, 2016. All results are presented in Canadian dollars. Readers should refer to the audited annual consolidated financial statements and management discussion and analysis (“MD&A”) for the fifteen months ended December 31, 2016, which are available on SEDAR at www.sedar.com and on the Corporation’s website at www.advantagecapital.ca.

“2016 was an exciting inaugural year for the corporation,” stated Stephen Reid, President and Chief Executive Officer of the Corporation. “In less than ten months, we raised over $100 million in capital and closed two investments in defensive industries that are generating strong free cash flow. Our momentum continued into Q1 2017 with a third acquisition closing post year-end which further diversified our investment portfolio. We are excited about the growth opportunities for each of our investee partners and are confident 2017 will be another strong year. 2016 was a year dedicated to laying a strong foundation for continued success in executing our business plan. During 2017, we intend on continuing to diversify our investment portfolio and execute our long-term business strategy to partner with exceptional founders operating in growing and defensive industries with high free cash flow.”

With recent turbulence in the Canadian mortgage industry, the Corporation is pleased to report that we do not anticipate that Dominion Lending Centres Limited Partnership (“DLC”) will be adversely affected from such events. DLC has over 200 lending partners with the ability to shift volumes when and if necessary. Further, DLC’s primary business is the franchising of mortgage brokerage services (it is not a lender) and therefore does not bear any direct underwriting nor credit risk. Origination volumes are diversified across the country in every province and territory with over 5,000 brokers and 700 locations. DLC continues to exceed our expectations as Canadians continue to rely on mortgage brokers to place their mortgages with financial institutions.

Please see the Overview and Outlook of Investees section for performance details on each of our investees and Outlook for 2017.

Fiscal 2016 Highlights

  • February 3: The Corporation announced the agreement to acquire Advantage Investments (Alberta) Ltd. (“Advantage Investments”), which resulted in the Corporation changing its business strategy and the adoption of a new acquisition-oriented investment model; transaction closed on February 23. This change in business plan has resulted in significantly different financial results compared to fiscal 2015.
  • April 14: Completed brokered and non-brokered private placement of subscription receipts for gross proceeds of $28.8 million.
  • May 13: Announced the agreement to acquire a 60% interest in DLC for $61.4 million cash consideration and 4,761,902 common shares; transaction closed on June 3.
  • July 6: Completed brokered bought deal and non-brokered private placement of common shares for gross proceeds of $33.3 million.
  • July 19: Entered into a commitment letter with ATB for a Senior Credit Facility of $22.0 million, which facility was subsequently renegotiated in December 2016 and March 2017.
  • November 2: Announced the agreement to acquire a 60% interest in Club16 Limited Partnership (“Trevor Linden Club16” or “Club16”) for $22.0 million; transaction closed on December 20.
  • November 4: Announced the implementation of a dividend policy for 2017, whereby the Corporation intends to pay an annual dividend of $0.05 per common share (payable quarterly). The first quarterly dividend ($0.0125 per common share) was declared on March 15, 2017 to shareholders of record as at March 31, 2017.
  • December 14: DLC acquired a 70% interest in Newton Connectivity Systems Inc. (“Newton”, formerly Marlborough Stirling Canada Limited) for an aggregate purchase price of $5.5 million.
  • December 22: Announced the agreement to acquire a 52% interest in Impact Radio Accessories (“Impact”) for $12.0 million; transaction closed on March 1, 2017.

Highlights Subsequent to Year End

  • March 1, 2017: Completed the previously announced acquisition of a 52% interest in Impact. This acquisition further diversifies the Corporation’s investment portfolio of companies operating in defensive, recession-resistant industries.
  • March 1, 2017: Concurrent with the acquisition of Impact, the Corporation entered into an amended credit facility with ATB to increase its revolving credit facility from $17.0 million to $28.0 million and to cancel its previously existing non-revolving $5.0 million credit facility. As such, the Corporation increased its available borrowings from $22.0 million to $28.0 million. The Corporation used its available borrowings to fund the acquisition of Impact.
Selected Consolidated Financial Highlights
(in thousands of Canadian dollars, except per share amounts)
Three months ended December 31, Fiscal(1)
2016 2015 (2) 2016 2015
Revenue $ 9,277 $ $ 22,938 $
Loss from operations $ (1,606 ) $ (658 ) $ (6,337 ) $ (3,282 )
Adjusted EBITDA(3) $ 998 $ (574 ) $ 3,233 $ (1,222 )
Cash generated by operating activities $ (253 ) $ 28 $ (3,440 ) $ (3,443 )
Net (loss) income attributable to shareholders $ (2,410 ) $ (1,116 ) $ (9,794 ) $ 35,709
Basic (loss) income per share $ (0.07 ) $ (0.11 ) $ (0.42 ) $ 3.61
Diluted (loss) income per share $ (0.07 ) $ (0.11 ) $ (0.42 ) $ 3.41
Dividends declared (4) $ $ $ $
Notes:
1. As a result of the change in the Corporation’s business plan, effective February 23, 2016, and the change in year-end from September 30 to December 31, the comparative period is not a direct indication of comparable results.
2. As a result of the change in year-end from September 30 to December 31, the fifteen months ended December 31, 2016 does not have a directly comparable prior year fiscal quarter. To facilitate calendar year over year comparison, the three months ended December 31, 2015 is shown as the comparable period.
3. See “Non-IFRS measures” below for the definition of adjusted EBITDA and cautions related thereto.
4. The Corporation announced a dividend policy in November 2016, with the first quarterly dividend being declared on March 15, 2017 to shareholders of record as at March 31, 2017.

Review of Fiscal 2016 Selected Consolidated Financial Results

Consolidated revenues were $22.9 million, compared to $nil during fiscal 2015, as a result of the acquisitions made during fiscal 2016. Specifically, as the acquisition of DLC closed on June 3, 2016, a total of 212 days of DLC’s financial information was consolidated into the Corporation’s financial statements. Further, as the acquisition of Trevor Linden Club16 closed on December 20, 2016, a total of 12 days of Trevor Linden Club16’s financial information was consolidated into the Corporation’s financial statements. Please see “Overview and Outlook of Investees” section below for additional details on investee performance.

Consolidated adjusted EBITDA was $3.2 million, compared to negative adjusted EBITDA of $1.2 million during fiscal 2015. This increase over the prior year is significantly due to the acquisitions made during fiscal 2016, which are generating gross profit of $18.3 million. This additional gross profit was partially offset by higher general and administrative expenses of $12.6 million, compared to $2.0 million during fiscal 2015. This increase is a direct result of consolidating the financial results of our investees into the Corporation’s financial statements, as well as higher salaries, professional fees and travel costs associated with the change in business plan.

Consolidated net loss attributable to shareholders was $9.8 million, compared to net income of $35.7 million during fiscal 2015. This variance is primarily driven by the receipt of $39.6 million during the prior year period related to an arbitration settlement regarding certain historic mining concessions that related to the Corporation’s previous business plan. This variance over the prior year is further described by the inclusion of DLC’s financial results during fiscal 2016, partially offset by higher corporate office costs related to a number of items including, salaries, acquisition costs, amortization of intangible assets, finance expense on loans and borrowings and the issuance of share options that were incurred as a result of the change in the Corporation’s business plan.

Working Capital

As at December 31, 2016, the Corporation had a consolidated cash position of $7.8 million and a net working capital deficiency of $19.4 million, primarily resulting from $25.1 million in demand credit facilities being classified as current liabilities as required by International Financial Reporting Standards (“IFRS”). Management plans to renegotiate current credit facilities or obtain additional financing to provide the Corporation with sufficient capital to meet its obligations as they become due, and is forecasting positive cash flows from operating activities during the 2017 fiscal year, which will provide the required resources to fund ongoing operations.

Overview and Outlook of Investees

In addition to the information provided in the fiscal 2016 audited consolidated financial statements and associated MD&A, we would like to note the following additional information regarding our investees.

DLC

The Corporation acquired its 60% interest in DLC on June 3, 2016. At the time of acquisition, DLC’s adjusted trailing twelve month EBITDA was $14.6 million. The adjusted EBITDA for the twelve months ended December 31, 2016 was $16.4 million, representing 12.3% adjusted EBITDA growth since completion of the acquisition.

Overall, we are pleased with DLC’s results for fiscal 2016. In addition to the financial information in the audited consolidated financial statements and associated MD&A, we note DLC’s funded mortgage volumes increased on a quarterly and annual basis, which highlights the defensive nature of DLC’s business. Funded mortgage volumes for Q1 2016, Q2 2016, Q3 2016 and Q4 2016 each grew by 13.3%, 13.0%, 12.2% and 10.5% over their respective 2015 comparable quarter. Based on these historic growth trends, we expect DLC’s funded mortgage volumes to continue growing during 2017.

DLC’s business tracks the seasonality of home purchases in Canada. Based on the seasonality of DLC’s operations, readers are cautioned not to weight quarterly financial data equally for all quarters. More specifically, the following table outlines the historic ranges of funded mortgage volumes on a quarterly basis:

Q1 14.2% – 18.8%
Q2 24.2% – 28.1%
Q3 29.6% – 32.4%
Q4 24.0% – 27.7%

Some of DLC’s expenses are also subject to seasonality. More specifically, certain advertising campaigns and promotional events occur at varying times throughout the fiscal year, which impact adjusted EBITDA disproportionately compared to seasonal revenue fluctuations.

In December 2016, DLC acquired a 70% interest in Newton, which is one of two approved connectivity platforms between Canadian lenders and mortgage brokers. In consideration for the Newton services, Canadian lenders pay Newton fees based on the funded volume of mortgages. DLC anticipates it can increase Newton’s market share by having more DLC mortgage brokers use the Newton platform. It is expected that the financial results of Newton will further grow DLC’s revenues and adjusted EBITDA.

DLC expects to continue to expand its network of mortgage brokers and franchisees by focusing on their recruiting initiatives, as evidenced by DLC’s continued quarter over quarter growth in funded mortgage volumes. As a result of these growth initiatives, we anticipate DLC having steady growth in its funded mortgage volumes in 2017, resulting in steady growth in revenues and adjusted EBITDA.

The Corporation is receiving $540,000 per month in after-tax cash distributions from DLC.

Trevor Linden Club16

The Corporation acquired its 60% interest in Trevor Linden Club16 on December 20, 2016, which had adjusted trailing twelve month EBITDA of approximately $6.1 million at that time.

We are excited by the growth in Trevor Linden Club16’s business during 2016 as it continued to increase the average number of members on a quarterly basis. The average number of members for Q1 2016, Q2 2016, Q3 2016 and Q4 2016 each grew by 16.7%, 19.2%, 14.9% and 9.2% over their respective 2015 comparable quarter. Club16 started 2016 with approximately 71,000 members and ended the year with approximately 78,000 members. Based on these historic growth trends, we expect Club16’s membership base to continue growing during 2017. Subsequent to December 31, 2016, Club16’s total membership exceeds 80,000 members, a new milestone for the company. Additionally, Club16 anticipates continued growth in its personal training services, which are a relatively new product offering. These services are expected to add to Trevor Linden Club16’s revenues and adjusted EBITDA.

Trevor Linden Club16 expects to continue adding new members by increasing total square footage of gym space via opening a new location and expanding one of the current locations during 2017. It is anticipated that these initiatives will have a positive impact on 2017 fitness club membership revenues and adjusted EBITDA.

The Corporation is receiving $270,000 per month in pre-tax cash distributions from Trevor Linden Club16. The Corporation offsets this income with its corporate general and administrative expenses to reduce the income taxes payable to nil.

Impact

The Corporation acquired its 52% interest in Impact on March 1, 2017, which had adjusted trailing twelve month EBITDA of approximately $3.6 million at that time.

Impact expects to increase sales by adding distributors and anticipates that its products will gain additional exposure as the distributors expand their own businesses (via organic and acquisition growth) which will result in more distributor representatives selling the Impact products. It is anticipated that these initiatives will have a positive impact on 2017 revenues and adjusted EBITDA.

The Corporation anticipates receiving $104,000 per month in after-tax cash distributions from Impact, commencing May 2017.

Corporate Outlook

Our team continues to market our investment strategy across North America and receives numerous inbound proposals from founders and their advisors each week. We have a robust pipeline of potential transactions across Canada and the U.S. that we continue to review and assess. Our 2017 key financial priorities include:

  • Continue to focus on partnering with premium founder-run businesses operating in defensive industries with stable historical adjusted EBITDA, significant free cash flows, and attractive growth prospects;
  • Maximizing shareholder value through on-going monitoring of our operating subsidiaries and identifying opportunities for growth and improved efficiencies; and
  • Identifying various sources of capital to finance future acquisition opportunities.

The implementation of the business plan during fiscal 2016 and the achievements since then have created a platform for growth and acquisition opportunities during 2017. As a result of the acquisitions during fiscal 2016 and Impact in March 2017, the Corporation expects its proportionate share of 2017 pro forma anticipated investee adjusted EBITDA to be $17.0 – $18.2 million.

Executive Appointment
The Corporation is pleased to announce that Michelle Chambers has been appointed Senior Vice-President, Finance. Ms. Chambers previously served as Corporate Controller of the Corporation. Ms. Chambers is a Chartered Professional Accountant with several years’ experience in financial accounting and reporting for multi-jurisdictional entities, auditing and management reporting. Prior to joining FA Capital, Ms. Chambers worked in a number of financial accounting lead roles, including most recently with Talisman Energy and Total E&P Canada Ltd.

Non-IFRS measures

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before non-cash items such as share-based payments and losses recognized on the sale of investments, and any unusual non-operating one-time items such as corporate start-up costs. Readers are cautioned that EBITDA and adjusted EBITDA should not be construed as a substitute or an alternative to applicable generally accepted accounting principle measures as determined in accordance with IFRS.

About Founders Advantage Capital Corp.

The Corporation is listed on the TSX Venture Exchange as an Investment Issuer (Tier 1) and employs a permanent investment approach. The Corporation has developed an investment approach to create long-term value for its shareholders and partner entrepreneurs (investees) by pursuing controlling interest acquisitions of cash flow positive middle-market privately held entities. The Corporation seeks to win mandates by appealing to the segment of the market which is not aligned with traditional private equity control, royalty monetizations or related structures. The Corporation’s innovative platform offers disproportionate incentives (contractually) for growth in favour of our investees. This unique platform is designed to appeal to entrepreneurs who believe in the growth of their businesses and who want the added ability to continue managing the business while partnering with a long-term partner.

The Corporation’s common shares are listed on the TSX Venture Exchange under the symbol “FCF”.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

Cautionary Statement Regarding Forward-Looking Financial Information

Certain statements in this document constitute forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as “anticipate”, “believe”, “estimate”, “will”, “expect”, “plan”, “intend”, or similar words suggesting future outcomes or an outlook. Forward-looking information in this document includes, but is not limited to:

  • the Corporation’s investee entities having another strong year during 2017;
  • the Corporation expects to complete additional acquisitions in 2017;
  • the Corporation plans to obtain additional financing either through debt or equity;
  • the Corporation is forecasting positive cash flows from operating activities;
  • the Corporation expects DLC’s funded mortgage volumes will continue growing;
  • DLC anticipates it can increase Newton’s market share;
  • DLC expects to continue to expand its network of mortgage brokers and franchisees;
  • the Corporation expects Trevor Linden Club16’s membership base to continue growing;
  • Trevor Linden Club16 anticipates continued growth in its personal training services;
  • Trevor Linden Club16 expects to continue adding new members;
  • Impact expects to increase sales by adding distributors;
  • Impact expects its products will gain additional exposure;
  • Impact will distribute cash to the Corporation as expected or at all;
  • The 2017 pro forma anticipated investee adjusted EBITDA; and
  • The Corporation’s ability to win potential acquisitions over competing sources of investment, including, but not limited to, private equity, royalty funds or related structures.

Such forward-looking information is based on a number of assumptions which may prove to be incorrect. Assumptions have been made with respect to the following matters, in addition to any other assumptions identified in this document:

  • The Corporation being able to source and negotiate transactions on acceptable terms and in a timely manner;
  • The Corporation being able to source additional financing on acceptable terms and in a timely manner;
  • That the Board of Directors for each of the investee entities resolves to continue distributing cash as expected; and
  • That the business of DLC, Trevor Linden Club16 and Impact will not suffer any material adverse changes.

Although the Corporation believes that the expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on them as the Corporation can give no assurance that such expectations will prove to be correct. Forward-looking information is based on expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Corporation and described in the forward-looking information. The material risks and uncertainties include, but are not limited to:

  • The adequacy of the Corporation’s existing resources to complete additional potential transactions;
  • The return for any acquisition not being as expected by the Corporation post-closing; and
  • Incremental risks associated with any additional investee company, as well as the risks associated with the industries in which additional investees operate.

The foregoing list of risks is not exhaustive. For more information relating to risks, see the section titled “Risk Factors” in the Corporation’s current annual information form. The forward-looking information contained in this document is made as of the date hereof and, except as required by applicable securities law, the Corporation undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.

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