Forbes Medi-Tech Inc.
OTC Bulletin Board : FMTI

August 11, 2005 08:00 ET

Forbes Medi-Tech Announces 112% Increase in Second Quarter 2005 Revenue

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Aug. 11, 2005) - Forbes Medi-Tech Inc. (TSX:FMI)(NASDAQ:FMTI) -

European Patent Granted for Cholesterol-Lowering Drug, FM-VP4

Forbes Medi-Tech Inc. today announced its financial results for the three and six-month periods ended June 30, 2005. Comparative periods for these statements are the three months and six months ended June 30, 2004, respectively. All amounts are in Canadian Dollars unless otherwise noted.

Second Quarter 2005 Highlights

- Reported revenues of $6.73 million for the three months ended June 30, 2005 compared to $3.18 million for the three months ended June 30, 2004

- Reported revenues of $11.45 million for the six months ended June 30, 2005 compared to $6.44 million for the six months ended June 30, 2004

- Reported net loss of $0.09 per share for the three months ended June 30, 2005 compared to $0.08 per share loss for the three months ended June 30, 2004

- Announced the launch of a cholesterol-lowering yogurt by Kesko of Finland incorporating Forbes' Reducol™

- Completed the FM-VP4 toxicity study as a precursor to the planned US Phase II trial

- Announced FM-VP4/Zocor(i) pre-clinical study results will be presented at the AAPS Conference in November ((i) Zocor is a registered trademark of Merck & Co. Inc.)

"In the second quarter, we demonstrated record growth in our ingredient business and increased activity in our core research and development programs," said Charles Butt, President and CEO of Forbes Medi-Tech Inc. "The granting of the European patent for FM-VP4 is a significant milestone in the drug's development path. The successful grant of the patent parallels the Company's progress in its efforts to complete its IND application for FM-VP4's planned US Phase II trial," said Butt.

Drug Development

Building a successful pharmaceutical development program includes key milestones in both science and intellectual property (IP) protection. Strengthening the Company's IP, Forbes has received notice from the European Patent Office that the patent for FM-VP4 has been granted. On the development front, the Company is currently compiling information received from the toxicity study to complete its investigational new drug (IND) application to the FDA. The Company plans to initiate a US Phase II clinical trial pending the outcome of the FDA review of the IND.

Marketing & Sales Outlook

Building Reducol™'s awareness and stature in the European market has become a focal point for Forbes' ingredient business as it continues to develop additional opportunities with potential customers. Kesko of Finland was the first to capitalize on Reducol™'s regulatory approvals in launching a yogurt incorporating the cholesterol-lowering ingredient in May 2005. With its non-genetically modified (non-GMO), wood-based sterols, Forbes has garnered interest in its products for the European market, where there is a preference for non-GMO ingredients, and a limited supply. Based on existing sales contracts, and assuming that forecasted supply requirements will be ordered and shipped, the Company maintains its revenue guidance for 2005 of $21-22 million. This figure represents Forbes' actual year-to-date revenue and the projected revenue for the balance of the year from the Company's sales and from its proportionate share of the Phyto-Source joint venture revenue.

Financial Results

The following table summarizes Forbes' results of operations for the three and six-month periods ended June 30, 2005 and 2004.



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3 month 3 month 6 month 6 month
Summary: period period period period
('000's Cdn$ except ended- ended- ended- ended-
per share values) June 30, June 30, June 30, June 30,
(unaudited) 2005 2004 2005 2004
--------------------------------------------------------------------
Revenues $ 6,726 $ 3,177 $ 11,450 $ 6,439
Expenses (9,225) (5,613) (15,902) (10,611)
Income taxes (669) - (1,180) -
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Net loss ($ 3,168) ($ 2,436) ($ 5,632) ($ 4,172)
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Net loss per
common share,
basic and diluted ($ 0.09) ($ 0.08) ($ 0.17) ($ 0.14)
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Revenues - Phytosterol revenues, including direct sales of phytosterol products and the amortization of license fees, made up the majority of the Company's total revenue of $6.6 million for the three months ended June 30, 2005 ($3.1 million - three months June 30, 2004) and $11.2 million for the six months ended June 30, 2005 ($6.3 million - six months ended June 30, 2004). The increase in revenue is primarily due to the strong demand for the Company's cholesterol-lowering ingredients combined with the increase in capacity from the completed plant expansion.

Net loss - For the three months ended June 30, 2005, the Company recorded a net loss of $3.2 million ($0.09 per common share) compared to a net loss of $2.4 million ($0.08 per common share) for the three months ended June 30, 2004. Net loss for the six-month period ended June 30, 2005 totaled $5.6 million ($0.17 per common share) compared to a net loss of $4.2 million ($0.14 per common share) for the six months ended June 30, 2004.

Expenses:



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3 month 3 month 6 month 6 month
period period period period
Expenses (summary) ended- ended- ended- ended-
('000's Cdn$) June 30, June 30, June 30, June 30,
(unaudited) 2005 2004 2005 2004
--------------------------------------------------------------------
Cost of sales,
marketing &
product development $ 3,609 $ 1,610 $ 6,158 $ 3,603
Research & development 3,338 828 5,338 1,695
General &
administrative 1,174 1,566 2,364 2,316
Stock-based
compensation 663 1,236 1,116 2,270
Depreciation &
amortization 441 373 926 727
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Total expenses $ 9,225 $ 5,613 $ 15,902 $ 10,611
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Cost of sales, marketing and development for the three months ended June 30, 2005 totaled $3.6 million on phytosterol revenues of $6.6 million, or 55% of phytosterol revenues, versus $1.6 million on phytosterol revenues of $3.1 million for the three months ended June 30, 2004, or 52% of phytosterol revenues. Cost of Sales for the six months ended June 30, 2005 totaled $6.2 million on $11.2 million of phytosterol revenues, or 55% of phytosterol revenues, versus $3.6 million on $6.3 million of phytosterol revenues, or 57% of phytosterol revenues, for the six months ended June 30, 2004. Cost of Sales as a percentage of phytosterol revenue varies due to a number of factors, including changes in production efficiencies, phytosterol product mix and marketing efforts.

Research and development expenses ("R&D") for the three months ended June 30, 2005 totaled $3.3 million compared with $0.8 million for the same period in 2004. R&D expenses for the six months ended June 30, 2005 totaled $5.3 million compared with $1.7 million for the same period in 2004. R&D expenditures increased significantly in the second quarter of 2005 primarily due to work on the 90 day toxicity study, Phase II clinical work on FM-VP4, and continuing work on our Library of Compounds. Increases in R&D expenditures are expected to continue through 2005. Patent application, filing and defence costs are expensed as incurred and included in R&D costs.

General and administrative expenditures ("G&A") totaled $1.2 million for the three months ended June 30, 2005 compared with $1.6 million for the three months ended June 30, 2004. The primary reason for the decrease was that included in G&A in the three and six months ended June 30, 2004 was a payment of $0.6 million resulting from the termination of a consulting contract. Other fluctuations in G&A for the three months period are due to increased staffing levels and increased expenditures in legal and professional fees. G&A for the six-months ended June 30, 2005 was $2.4 million compared to $2.3 million for the same period ended June 30, 2004.

Depreciation and Amortization for the three months ended June 30, 2005 totaled $0.4 million compared with $0.4 million for the three months ended June 30, 2004. For the six months ended June 30, 2005, of the total $0.9 million in depreciation and amortization, $0.5 million pertains to depreciation of assets and $0.4 million to amortization of the Company's technology licenses compared with the six months ended June 30, 2004, where, of the total of $0.7 million in depreciation and amortization expenses, $0.4 million pertains to depreciation of assets and $0.3 million to amortization of the Company's technology licenses.

Stock Based Compensation Expense totaled $0.7 million for the three months ended June 30, 2005 compared with $1.2 million in the same period last year. For the six-month period ended June 30, 2005 stock-based compensation expense totaled $1.1 million compared with $2.3 million for the six months ended June 30, 2004. The change is due primarily to a decrease in non-employee stock-based compensation for the three and six month periods ending June 30, 2005.

Liquidity & Capital Resources

Cash, cash equivalents and Working Capital

As at June 30, 2005, Forbes' net cash and cash equivalents were $12.0 million compared with $9.2 million as at December 31, 2004. The Company's working capital at June 30, 2005 was $11.4 million compared with $15.1 million at December 31, 2004.

Operations

During the three months ended June 30, 2005, the Company used $2.1 million of cash in operations compared with $1.5 million of cash used in the three months ended June 30, 2004. During the six months ended June 30, 2005, Forbes used $2.2 million of cash in operations compared with $2.6 million used in operations during the six months ended June 30, 2004.

Investing Activities

Cash used in investing activities in the three months ended June 30, 2005 and 2004 were insignificant and resulted from capital asset additions and movements in short-term investments. During the six months ended June 30, 2005, $5.8 million of cash was provided by investing activities compared with $10.4 million of cash used in the six-month-period ended June 30, 2004. In 2005, $6.0 million was transferred from short-term investments and $0.2 million of cash was used in the acquisition of capital assets, compared with $1.0 million of cash used for capital asset acquisitions in 2004 and $10.7 million was transferred into short-term investments. In addition, in the six-month period ended June 30, 2004, Forbes received the final payment on the disposal of the AD/ADD technology.

Financing Activities

Cash used in financing activities in the three months ended June 30, 2005 and June 30, 2004 were insignificant and related primarily to the receipt of cash from the exercise of stock options offset by repayment of loans and leases. For the six-month period ended June 30, 2005, $0.8 million was used in financing activities, primarily for the repayment by Phyto-Source of the US$1.0 million (Forbes' 50% joint venture interest - US$0.5 million, Cdn$0.6 million) of funds previously drawn under the revolving line of credit and the regular term-loan payments, offset by cash received on the exercise of stock options compared with $14.5 million of cash which was provided in the six-month period ended June 30, 2004. In the six month period ending June 30, 2004, the January 2004 equity financing provided a net amount of $12.9 million of cash and stock option and warrant exercises provided an additional $1.2 million of cash.

Second Quarter 2005 Report

This news release includes by reference the Company's unaudited financial statements for the second quarter ended June 30, 2005, including the full Management Discussion & Analysis (MD&A). The MD&A and financial statements are being filed with applicable Canadian and U.S. regulatory authorities.

About Forbes Medi-Tech Inc.

Forbes Medi-Tech Inc. is a life sciences company dedicated to the research, development and commercialization of innovative products for the prevention and treatment of cardiovascular disease. Our vision is to develop and market products along a treatment continuum that cardiovascular disease consumers, healthcare professionals and specialized cardiovascular disease research and healthcare institutions will identify, recommend and seek. Our business strategy is to develop and commercialize proprietary compounds to address the unmet needs of patients within the cardiovascular disease market.

This News Release contains forward-looking statements concerning anticipated developments in the Company's business and projected sales volumes, revenues, capital, research and development, products, and other information in future periods. Forward-looking statements can be identified by forward-looking words such as "plans", "to develop", "projected", "revenue guidance", "expected", "future", "outlook", "forecasted", "continues", and similar expressions or variations thereon, or statements that events, conditions or results "will," "may", "could", "would" or "should" occur or be achieved. Forward-looking statements are statements about the future and are inherently uncertain, and actual achievements of the Company and other results and occurrences may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, including, without limitation, the need for performance by buyers of products and by the Company's strategic partners; uncertainty whether patents will be issued for FM-VP4 in any jurisdictions other than Europe; the need to secure new sales contracts; the need to secure raw materials at competitive prices; uncertainty as to whether future clinical trials will be undertaken or completed as planned, and if undertaken or completed, the risk that such trials may not achieve expected results; uncertainty as to whether the Company's anticipated sales volumes,
revenues, and expenditure levels will be achieved as currently anticipated or at all; the risk of technical obsolescence; the need for regulatory approvals, including the need for FDA review prior to commencing the planned US Phase II clinical trial, which may be withdrawn or not be obtained in a timely manner or at all; intellectual property risks; marketing/manufacturing risks; partnership/strategic alliance risks and in particular, the Company's dependency on its manufacturing joint venture partner, Chusei (U.S.A.) Inc.; product liability risk; the effect of competition; the uncertainty of the size and existence of a market opportunity for, and of market acceptance of, the Company's and its customers' products; the Company's need for additional future capital, which may not be available in a timely manner or at all; exchange rate fluctuations; the need to attract and retain key personnel; risks inherent in research and development; changes in business strategy or development plans; and other risks and uncertainties affecting the Company and its business, as contained in news releases and filings with the United States Securities and Exchange Commission and Canadian Securities Regulatory Authorities, any of which could cause actual results to vary materially from current results or the Company's anticipated future results. Forward-looking statements are based on the beliefs, opinions and expectation of the Company's management at the time they are made, and the Company does not assume any obligation to update its forward-looking statement if those beliefs, opinions or expectations or other circumstances should change.



FORBES MEDI-TECH INC.
CONSOLIDATED BALANCE SHEETS
in thousands of Canadian dollars
(unaudited)

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June 30 December 31
2005 2004
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ASSETS

Current Assets
Cash and cash equivalents $ 12,005 $ 9,229
Short-term investments - 6,018
Accounts receivable 2,545 3,530
Inventories 1,557 708
Prepaid expenses and deposits 370 192
--------------------------------------------------------------------
16,477 19,677

Property, plant and equipment 12,649 12,989
Intangible and other assets 5,411 5,923
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$ 34,537 $ 38,589

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LIABILITIES and SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities $ 4,213 $ 2,855
Deferred revenues 75 344
Current portion of long-term debt 747 1,405
--------------------------------------------------------------------
5,035 4,604

Long-term liabilities
Long-term debt 406 763
Tenure allowance 890 765
--------------------------------------------------------------------
6,331 6,132

Shareholders' equity
Common Shares $ 94,722 $ 94,223
Contributed surplus 5,053 4,171
Deficit (71,569) (65,937)
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28,206 32,457
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$ 34,537 $ 38,589

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Approved on Behalf of the Board:

Don Buxton Nitin Kaushal
------------- -------------
Director - Director -


FORBES MEDI-TECH INC.
CONSOLIDATED STATEMENTS OF OPERATIONS and DEFICIT
in thousands of Canadian dollars except per share values
(unaudited)

--------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30 June 30 June 30
2005 2004 2005 2004
--------------------------------------------------------------------
REVENUES
Sales $ 6,562 $ 3,046 $ 11,160 $ 6,178
Licensing 38 38 75 75
--------------------------------------------------------------------
Phytosterol revenues 6,600 3,084 11,235 6,253
Interest and other 126 93 215 186
--------------------------------------------------------------------
6,726 3,177 11,450 6,439

EXPENSES
Cost of sales,
marketing and
product development 3,609 1,610 6,158 3,603
Research and
development 3,338 828 5,338 1,695
General and
administrative 1,174 1,566 2,364 2,316
Stock-based
compensation
expense 663 1,236 1,116 2,270
Depreciation and
amortization 441 373 926 727
--------------------------------------------------------------------
9,225 5,613 15,902 10,611
--------------------------------------------------------------------
Loss for the period
before taxes (2,499) (2,436) (4,452) (4,172)
--------------------------------------------------------------------

Provision for
income taxes 669 - 1,180 -
--------------------------------------------------------------------
Net loss for the
period $ (3,168) $ (2,436) $ (5,632) $ (4,172)

Deficit, beginning
of period (68,401) (59,659) (65,937) (57,923)
--------------------------------------------------------------------
Deficit, end of
period $ (71,569) $ (62,095) $ (71,569) $ (62,095)
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Basic and diluted
loss per share $ (0.09) $ (0.08) $ (0.17) $ (0.14)
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FORBES MEDI-TECH INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
in thousands of Canadian dollars
(unaudited)

--------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30 June 30 June 30
2005 2004 2005 2004
--------------------------------------------------------------------
OPERATIONS
Net loss for the
period $ (3,168) $ (2,436) $ (5,632) $ (4,172)
Adjustment to
reconcile net loss
to cash flow
provided by (used
in) operations:
Depreciation and
amortization 441 373 926 727
Amortization of
deferred license
revenues (38) (38) (75) (75)
Loss on disposal
of fixed assets - 1 (3) 3
Stock-based
compensation
expense 663 1,236 1,116 2,270
Foreign exchange
translation 6 23 10 24
License fee paid
in common shares - - - 49
Purchase of
license (11) - (11) -
Changes in
operating assets
and liabilities:
Accounts
receivable (1,422) 47 985 (73)
Inventories (492) (150) (849) (228)
Prepaid expenses
and deposits 382 153 36 (146)
Accounts payable
and accrued
liabilities 1,447 (761) 1,358 (954)
Tenure allowance
liability 65 17 125 17
Tenure allowance
asset - - (41) (46)
Deferred revenues - - (193) -
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(2,127) (1,535) (2,248) (2,604)
INVESTMENTS
Acquisition of
property, plant &
equipment (103) (440) (226) (963)
Proceeds on
disposal of pilot
plant - 18 - 44
Proceeds on
disposal of fixed
assets - 2 3 3
Proceeds on
divestiture of
AD/ADD technology - - - 1,230
Short-term
investments - (1,150) 6,018 (10,702)
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(103) (1,570) 5,795 (10,388)
FINANCING
Issuance of common
shares 211 119 265 1,290
Issuance of
preferred shares - - - 12,910
Repayment of
capital lease
obligations (34) (6) (67) (10)
Repayment of notes
payable (27) (37) (66) (73)
Repayment of term
loan (151) (162) (301) (324)
Increase in line
of credit - 6 - 670
Repayment of line
of credit - - (602) -
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(1) (80) (771) 14,463
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Increase
(decrease) in cash
and cash
equivalents (2,231) (3,185) 2,776 1,471
Cash and cash
equivalents,
beginning of
period 14,236 9,168 9,229 4,512
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Cash and cash
equivalents, end
of period $ 12,005 $ 5,983 $ 12,005 $ 5,983
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