Discovery Capital Corporation

Discovery Capital Corporation

May 29, 2006 14:47 ET

Discovery Capital Corporation Reports First Quarter 2006 Results-Net Asset Value of $0.25 per Share

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - May 29, 2006) - Discovery Capital Corporation ("Discovery Capital" or the "Company") (TSX VENTURE:DVY.Y) provides the following summary of its financial results for the three months ended March 31, 2006.

Key points include the following:

- At March 31, 2006, net asset value ("NAV") per share was $0.25, up 14% from $0.22 at December 31, 2005, due mainly to improvements in the share trading prices of the Company's publicly-traded investments, and, in particular, due to an increase during the period in the share trading price of the Company's holdings in TIR Systems Ltd. Currently, fluctuations in the trading price of the shares of TIR, which is the Company's largest publicly-traded investment holding, can significantly impact the Company's NAV per share.

- Total results of operations for the three months ended March 31, 2006 were $1,767,453, or $0.04 per share, principally as a result of a positive change of $2,005,814 in unrealized depreciation of investments as the trading prices of the Company's publicly-traded portfolio investments generally increased after several consecutive quarters of declines. During the same period in 2005, total results of operations were $(5,216,663), or $(0.10) per share, including a negative change of $(5,067,352) in unrealized depreciation of investments. Changes in the trading prices of the Company's publicly-traded investments in junior technology companies can vary significantly from period to period, resulting in high volatility in total results of operations.

- Annualized management expense ratio of 3.2% as calculated by the Company for the three months ended March 31, 2006 continued its improving trend, compared to 3.3% for 2005 and 3.9% for 2004, as, notwithstanding substantially lower net asset values of the Company since 2004, net operating expenses have also declined as a result of reducing overall expenses and increasing income from management fees.

Since mid-2004, Discovery Capital has made no new investments directly and has re-invested only in its existing portfolio of 10 public and private companies in order to try to maximize returns from these investments. Currently, the Company is actively involved in pursuing liquidity options for several of its portfolio companies. The Company generates recurring revenue primarily from fund management fees through its wholly owned subsidiary, Discovery Capital Management Corp. (DCMC) and non-recurring revenue from dispositions of its investment holdings. DCMC provides investment management services principally to British Columbia Discovery Fund (VCC) Inc. ("BCDF"), a venture capital corporation established by the Company in 2002 that has raised over $35.5 million and has investments in 12 developing technology companies. BCDF also provides the opportunity for the Company to earn performance fees on the successful realization of portfolio companies by BCDF over time; in 2005, the Company earned its first such performance fee. BCDF has a 2006 tax credit allocation of $10 million, and further allocations of $10 million for each of 2007 and 2008.

March 31, 2006 Financial Review

Selected financial data derived from the Company's consolidated financial statements is as follows:

As at As at
March 31, December 31,
2006 2005
(unaudited) (audited)
Statements of Financial Position
Net assets $12,779,912 $11,012,459
Unrealized depreciation of investments (9,975,451) (11,981,265)
Net Asset Value per share $ 0.25 $ 0.22

Three months Three months
ended ended
March 31, March 31,
Statements of Operations 2006 2005
and Deficit (unaudited) (unaudited)
Management fee and other income $ 290,726 $ 216,492
Loss before change in value
of investments (50,458) (152,403)
Realized gains (losses) on
disposal of investments (187,903) 3,092
Change in unrealized depreciation
of investments 2,005,814 (5,067,352)
Total results of operations 1,767,453 (5,216,663)
Total results of operations per share $ 0.04 $ (0.10)

At March 31, 2006, the Company had working capital of $784,268, up from working capital of $630,988 at December 31, 2005. There was also a net increase in cash of $292,713 during the three months ended March 31, 2006. During this period, net investing activities generated cash whereas net investing activities consumed cash in the comparable period of 2005. Further, the Company was not active with its normal course issuer bid during the current period. Both of these factors contributed to the cash increase in the 2006 period.

At March 31, 2006, the Company had Available for Sale Securities with an estimated fair value of $3,864,183. This is an increase from the estimated fair value of Available for Sale Securities of $2,665,546 at December 31, 2005, but substantially lower than Available for Sale Securities of $10,879,727 at December 31, 2004, reflecting the general decline in the value of the publicly-traded investments of the Company over the last two years and the additional shares of TIR Systems pledged during 2005 to secure outstanding bank indebtedness of a private portfolio company in the amount of approximately $490,000. The Company has identified securities as "Available for Sale Securities" when those securities have readily determinable fair values (based on quoted stock market prices) and are not restricted from re-sale.

A breakdown of the estimated fair value of the Company's investments, showing total cost and fair values at March 31, 2006 and December 31, 2005, is as follows:

March 31, 2006 December 31, 2005
(unaudited) (audited)

Fair Value Cost Fair Value Cost
----------- ----------- ----------- -----------
Available for Sale
Securities $ 3,864,183 $ 8,543,636 $ 2,665,546 $ 8,388,126
Other Public
Investments 3,529,201 2,127,388 3,100,216 2,750,284
Private Investments 4,526,004 11,223,815 4,525,779 11,134,396
----------- ----------- ----------- -----------
Total Investments $11,919,388 $21,894,839 $10,291,541 $22,272,806
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

The Company has used Available for Sale Securities in the past several years to provide cash as needed for operating, financing and investing activities, and management continues to believe that, as and to the extent necessary, Available for Sale Securities can provide liquidity to fund the Company's operations and any follow-on investment activity for the foreseeable future. Increasing management fee revenue over the past three years has resulted in the Company being less reliant on Available for Sale Securities for liquidity. The Company is not making any new investments and expects that the need to make follow-on investments into existing portfolio companies will not be as great as in the past three years.

Full details of the Company's financial results for the three months ended March 31, 2006 are found in the Company's financial statements and related Management's Discussion and Analysis which will be filed on SEDAR at

About Discovery Capital:

With 20 years of venture capital experience in British Columbia, Discovery Capital, through its wholly owned subsidiary, Discovery Capital Management Corp., is a venture fund manager and venture capital investor specializing in: information technology, communications, health and life sciences, and other advanced technologies. We have proven expertise in strategic planning, management development, innovative financing strategies, corporate governance and positioning for liquidity. Discovery Capital Management Corp. is the manager of British Columbia Discovery Fund (VCC) Inc., a British Columbia venture capital fund that has raised over $35.5 million to date and has investment interests in twelve developing technology companies.

For more information about Discovery Capital Corporation, please visit

John McEwen, President and Co-Chief Executive Officer

Harry Jaako, Chairman and Co-Chief Executive Officer

This news release may include statements about expected future events and/or financial results that are forward-looking in nature and subject to risks and uncertainties. The Company cautions that actual performance will be affected by a number of factors, many of which are beyond its control. Future events and results may vary substantially from what the Company currently foresees.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Discovery Capital Corporation
    John McEwen
    President and Co-CEO
    (604) 683-3000 ext. 106
    Discovery Capital Corporation
    Harry Jaako
    Chairman and Co-CEO
    (604) 683-3000 ext. 105
    Discovery Capital Corporation
    Charles Cook
    (604) 683-3000 ext. 102