RF Capital : États financiers consolidés

RF Capital Group Inc.

Consolidated Financial Statements

December 31, 2023 and 2022

KPMG LLP

Bay Adelaide Centre

333 Bay Street, Suite 4600 Toronto, ON M5H 2S5 Canada

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Fax [phone]www.kpmg.ca

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of RF Capital Group Inc.

Opinion

We have audited the consolidated financial statements of RF Capital Group Inc. (the Entity), which comprise:

• the consolidated balance sheets as at December 31, 2023 and December 31, 2022;
• the consolidated statements of income (loss) and comprehensive income (loss) for the years then ended;
• the consolidated statements of changes in equity for the years then ended;
• the consolidated statements of cash flows for the years then ended; and
• notes to the consolidated financial statements, including a summary of material accounting policies. (Hereinafter referred to as the "financial statements").

In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2023 and December 31, 2022, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with IFRS Accounting Standards.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's report.

We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

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Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2023. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We have determined the matter described below to be the key audit matter to be communicated in our auditor's report.

Evaluation of goodwill for impairment

Description of the matter

We draw attention to Note 2(c) and Note 11 to the financial statements. The Entity has recorded goodwill of $164.9 million as of December 31, 2023 related to the Richardson Wealth acquisition. The Entity performs impairment testing for goodwill on an annual basis or more frequently when there is an indication of impairment. An impairment is recognized if the carrying amount of an asset, or its cash generating unit (CGU), exceeds its estimated recoverable amount. The recoverable amount of an asset is the greater of its fair value less costs of disposal, where available, and value-in-use calculations, determined using managements best estimates of forecasted cash earnings, long-term growth rate and the discount rate (the "assumptions").

Why the matter is a key audit matter

We identified the evaluation of goodwill for impairment as a key audit matter. This matter represented an area of significant risk of material misstatement requiring specialized skills and knowledge to evaluate the Entity's significant assumptions, as noted above, used in estimating the recoverable amount for the CGU to which goodwill is allocated. Significant auditor judgment was required in evaluating the results of our audit procedures due to the high degree of sensitivity of the estimated recoverable amounts to changes to the assumptions.

How the matter was addressed in the audit

The primary procedures we performed to address this key audit matter included the following:

We evaluated the appropriateness of forecasted cash earnings by:

• Comparing the Entity's prior year forecasted cash earnings to the actual results to assess the Entity's budgeting process.
• Assessing forecasted cash earnings by comparing them to the CGU's historical performance and against new initiatives in the Entity's long-term strategic plan.

We assessed the long-term growth rate by comparing it to available market information and the Entity's historical performance.

We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the appropriateness of the discount rate by comparing the Entity's Weighted Average Cost of Capital (WACC) against publicly available market data for comparable entities.

Other Information

Management is responsible for the other information. Other information comprises:

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• the information included in Management's Discussion and Analysis filed with the relevant Canadian Securities Commissions.

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated.

We obtained the information included in Management's Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditor's report.

We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Entity's financial reporting process.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

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The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
• Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
• Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditor's report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Chartered Professional Accountants, Licensed Public Accountants

The engagement partner on the audit resulting in this auditor's report is Abhimanyu Verma.

Toronto, Canada

February 29, 2024

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Consolidated Financial Statements

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying consolidated financial statements of RF Capital Group Inc. (the Company), were prepared by management, who are responsible for the integrity and fairness of all information presented in the consolidated financial statements and management's discussion and analysis (MD&A) for the year ended December 31, 2023. The consolidated financial statements were prepared by management in accordance with International Financial Reporting Standards. Financial information presented in the MD&A is consistent with these consolidated financial statements.

In management's opinion, the consolidated financial statements have been properly prepared within reasonable limits of materiality and within the framework of the basis of preparation and significant accounting policies summarized in Notes 2 and 3, respectively, of the consolidated financial statements. Management maintains a system of internal controls to meet its responsibilities for the integrity of the consolidated financial statements.

The board of directors of the Company (Board of Directors) oversees management's responsibilities for financial reporting through the Company's audit committee (Audit Committee), which is composed entirely of independent directors. Among other things, the mandate of the Audit Committee includes the review of the consolidated financial statements of the Company on a quarterly basis, advising the Board of Directors on auditing matters and financial reporting issues and recommending the consolidated financial statements to the Board of Directors for approval. The Audit Committee has full access to management and the auditors to review their activities and to discuss the external audit program, internal controls, accounting policies and financial reporting matters.

KPMG LLP performed an independent audit of the consolidated financial statements, as outlined in the auditors' report contained herein. KPMG LLP had, and has, full and unrestricted access to management of the Company, the Audit Committee and the Board of Directors to discuss their audit and related findings and have the right to request a meeting in the absence of management at any time.

"Kishore Kapoor"	"Tim Wilson"
KISHORE KAPOOR	TIM WILSON
President and Chief Executive Officer	Chief Financial Officer
Toronto, Canada
February 29, 2024

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Consolidated Financial Statements

Consolidated Balance Sheets

($ thousands)
As at December 31,	Note	2023	2022
ASSETS
Cash and cash equivalents	23	80,	829	367,848
Securities owned	5,20		613	673
Receivable from:	20,23
Clients		254,	989	377,096
Brokers	7	560,	387	61,204
Client funds held in trust	20,23		-	367,316
Employee and other loans receivable	8,20	48,	597	45,410
Equipment and leasehold improvements	9	34,	801	37,452
Right-of-use assets	10	47,	433	52,809
Other assets	6,20	15,	092	34,895
Deferred tax assets	14	11,	622	17,370
Goodwill and intangible assets	11	325,	620	337,581
		1, 379,	983	1,699,654
L IAB IL ITIES
Payable to:	20,23
Clients		764,	592	1,034,808
Brokers			-	24,650
Accounts payable and accrued liabilities	16,20	61,	207	50,966
Debt	20,21	110,	922	110,922
Provisions	17	12,	301	24,734
Lease liabilities		59,	675	62,448
Deferred tax liability	14	40,	747	44,205
		1, 049,	444	1,352,733
EQUITY
Common shares	15	461,	523	462,935
Preferred shares	15	112,	263	112,263
Contributed surplus		46,	726	46,151
Accumulated other comprehensive income		20,	293	19,652
Accumulated deficit		(310,	266)	(294,080)
Shareholders' equity		330,	539	346,921
		1, 379,	983	1,699,654

See accompanying notes, which are an integral part of these consolidated financial statements.

"Kishore Kapoor"	"Donald Wright"
Kishore Kapoor	Donald Wright
President and Chief Executive Officer	Chair of the Board

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Consolidated Financial Statements

Consolidated Statements of Income (Loss)

($ thousands)
For the years ended December 31,	Note	2023	2022
REVENUE
Wealth management		275,191	278,319
Corporate finance		6,150	8,643
Interest		48,833	37,581
Other		20,945	29,429
Total Revenue	4	351,119	353,972
Variable advisor compensation		145,277	149,748
Gross Margin		205,842	204,224
EXPENSES
Employee compensation and benefits		79,639	80,928
Selling, general and administrative		71,215	70,279
Advisor award and loan amortization	12	18,387	17,267
Interest		14,706	10,797
Depreciation and amortization	9,10,11	27,404	28,064
		211,351	207,335
Loss before income taxes		(5,509)	(3,111)
Income tax expense/(recovery)
Current	14	2,029	1,938
Deferred	14	2,290	(246)
		4,319	1,692
Net income/(loss) from continuing operations		(9,828)	(4,803)
Net income/(loss) from discontinued operations	25	(2,064)	-
Net income/(loss)		(11,892)	(4,803)
Weighted-average number of common shares outstanding:
(in thousands)
Basic	19	15,230	9,601
Diluted	15,566	15,854
Net loss per common share (dollars) from continuing operations:
Basic	19	(0.93)	(0.95)
Diluted	(0.93)	(0.95)
Net loss per common share (dollars):
Basic	19	(1.07)	(0.95)
Diluted	(1.07)	(0.95)

See accompanying notes, which are an integral part of these consolidated financial statements.

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Consolidated Financial Statements

Consolidated Statements of Comprehensive Income (Loss)

($ thousands)
For the years ended December 31,	2023	2022
Net inco me/(los s)	(11,892)	(4,803)
Other comprehensive income/(loss)
Item that may be subsequently reclassified to net income/(loss):
Foreign currency translation gain/(loss) from continuing operations	-	(4)
Total other comprehensive income/(loss)	-	(4)
Total comprehensive income/(loss) attributable to shareholders	(11,892)	(4,807)

See accompanying notes, which are an integral part of these consolidated financial statements.

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Consolidated Financial Statements

Consolidated Statements of Changes in Equity

							Accumulated other
						Contributed	comprehensive	Accumulated	Shareholders'
			Preferred shares		Common shares	surplus	income	deficit	equity
($ thousands)	Note	#	$	#	$	$	$	$	$
As at December 31, 2021		4,600	112,263	156,400	464,667	44,103	18,842	(284,985)	354,890
Net foreign currency translation gain	20	-	-	-	-	-	(4)	-	(4)
Common shares purchased and cancelled	15	-	-	(140,830)	(1,732)	187	814	-	(731)
Share-based compensation	16	-	-	-	-	1,861	-	-	1,861
Preferred share dividends	15	-	-	-	-	-	-	(4,292)	(4,292)
Net loss		-	-	-	-	-	-	(4,803)	(4,803)
As at and for the period ended December 31, 2022		4,600	112,263	15,570	462,935	46,151	19,652	(294,080)	346,921
As at December 31, 2022		4,600	112,263	15,570	462,935	46,151	19,652	(294,080)	346,921
Common shares purchased and cancelled	15	-	-	(50)	(1,710)	502	641	-	(567)
Share-based compensation	16	-	-	46	298	73	-	(2)	369
Preferred share dividends	15	-	-	-	-	-	-	(4,292)	(4,292)
Net loss		-	-	-	-	-	-	(11,892)	(11,892)
As at and for the period ended December 31, 2023		4,600	112,263	15,566	461,523	46,726	20,293	(310,266)	330,539

See accompanying notes, which are an integral part of these consolidated financial statements.

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