Matrix Asset Management Inc.



Matrix Asset Management Inc.

May 30, 2014 19:16 ET

Matrix Reports First Quarter Results and Management Update

VANCOUVER, BRITISH COLUMBIA--(Marketwired - May 30, 2014) - Matrix Asset Management Inc. (the "Company" or "Matrix") reported today its financial and operating results for the first quarter ended March 31, 2014.

President and CEO, David Levi commented, "Managing cash flow with a view towards reducing Matrix's working capital deficit is a priority while we continue to review options for the Company to address its present debt obligations and to provide liquidity options for its shareholders." Mr. Levi added, "With the return to a focus on the management of venture capital funds, Mr. Matthews, the Company's Chief Financial Officer is leaving and the Company is hiring an individual to serve as the firm's financial controller."

Selected First Quarter Highlights - Unaudited

  • At March 31, 2014, asset under management ("AUM") were $227 million, compared to $232 million as at December 31, 2013 and $1.1 billion as at March 31, 2013.
  • Total revenue for the first quarter was $1.9 million compared to $3.4 million during the same period last year.
  • Recurring expenses for the first quarter were $2.8 million compared to $4.5 million during the same period last year.
  • EBITDA from continuing operations for the first quarter of 2014 was $(0.4) million compared to $(0.6) million for the same period last year. Recurring EBITDA for the first quarter of 2014 was $(0.4) million compared to $(0.5) million during the same period last year.
  • Net loss for the first quarter was $(0.4) million compared to $(4.5) million for the same period last year. The Company recognized a net loss from continuing operations for the first quarter of 2014 of $(0.8) million compared to net loss from continuing operations of $(1.4) million for the same period last year.
  • Total current liabilities of $7.2 million as at March 31, 2014 are scheduled for repayment over the next 12 months.
  • Working capital deficit increased during the quarter by $1.5 million to $4.4 million. See "Liquidity and Capital Resources".

This release should be read in conjunction with Matrix's unaudited financial statements and Management Discussion & Analysis ("MD&A") for the first quarter ended March 31, 2014, which are available on the SEDAR at www.sedar.com.

Subsequent Events:

  • On April 13, 2014 Matrix announced the retirement of four long-serving directors of the Board. The directors had been involved for many years including with the predecessor companies of Matrix. These directors have wanted to retire from the board for some time but remained involved over the past year to ensure the completion of the financial and corporate restructuring of the Company, complete the annual audit and begin the review of strategic options. At present, the Board has fixed the number of directors at three. The sole director is considering new independent appointments and may present nominations at the June 25, 2014 annual and special meeting of shareholders.
  • On May 30, 2014 Mr. Matthews the Chief Financial Officer of Matrix resigned. Mr. Matthews was selected as the Chief Financial Officer of Matrix in connection with the expansion of the Company's operations to mutual funds and the January 2010 business combination of Matrix and Seamark Asset Management Ltd. (Seamark). In 2013, Matrix sold Seamark and the mutual fund management division, returned to a focus on the management of venture capital funds, and is in the process of hiring an individual to serve as the firm's financial controller.

Corporate Overview

Matrix is a venture capital asset management company with offices in Vancouver, Toronto & Halifax. As at March 31, 2014, the Company managed approximately $227 million in assets operated through GrowthWorks Capital Ltd., which manages funds in the venture capital sector.

Summary of First Quarter Financial Results - Unaudited

The following table sets out selected consolidated financial information about Matrix for the three months ended March 31, 2014 compared with financial information for Matrix for the same period in 2013.

The summary of financial results identifies expense items which are considered non-recurring. Management believes that it is important to identify non-recurring items in order to fully understand Matrix's operating results. The intent of identifying these non-recurring items is to provide greater transparency as to what the core or run-rate capacity of the business may be. This is particularly important for Matrix given that Matrix, and GWC in particular, has during prior periods: (i) executed various initiatives and incurred various expenses to grow its business by mergers and acquisitions and (ii) implemented significant restructuring measures as a result of completed mergers and acquisitions. In specific circumstances, management considers these matters to be material, and therefore important to present as supplemental information. Further information regarding non-recurring expenses is contained in Table 3 of Matrix's MD&A for the three months ended March 31, 2014.

For the three For the three
months ended months ended
March 31, 2014 March 31, 2013
(in $ thousands) (in $ thousands)
Revenue
Management and administration fees $ 1,697 $ 2,940
Additional administration fees 96 270
Incentive participation revenues 86 -
Interest income 1 181
Other income 55 47
1,935 3,438
Expenses
Selling, general and administrative 2,373 3,935
Share-based compensation 20 57
Servicing commissions - -
Amortization - property and equipment 18 57
Amortization - deferred sales commissions 38 158
Amortization - asset management contracts - 78
Interest 345 190
2,794 4,475
Loss before merger, acquisition and other special project costs and income taxes (859) (1,037)
Merger, acquisition and other special project costs (13) 87
Loss before income taxes (846) (1,124)
Income tax recovery - 238
Loss from continuing operations (846) (1,362)
Loss from discontinued operations, net of tax - 82
Net loss $ (846) $ (1,280)
Basic and diluted loss per share from continuing operations (in $) (0.02) (0.03)
Basic and diluted loss per share from discontinued operations (in $) - 0.00
NON-GAAP MEASURES
EBITDA(1) (425) (585)
Add non-recurring items, net(2) (13) 87
Recurring EBITDA(3) (438) (498)
Free Cash Flow (5) (580) (626)
Loss before taxes (846) (1,124)
Add non-recurring items, net(2) (13) 87
Recurring loss before taxes(4) (859) (1,037)
Dividends declared and paid(7) - -
As at As at As at
March 31, 2014 March 31, 2013 December 31, 2013
(in $ thousands) (in $ thousands) (in $ thousands)
Cash $ 433 $ 1,113 $ 1,251
Total assets 4,538 23,743 5,303
Total long-term liabilities 5,975 8,453 6,781
Total assets under management(6) 226,500 1,100,000 232,000

Notes:

  1. EBITDA (defined by Matrix as earnings before interest, taxes, depreciation and amortization and other non-cash items) is a measure used by many investors to compare issuers on the basis of their ability to generate cash from operations. Management believes EBITDA is a useful supplemental measure of operating performance as it provides an indication as to cash available for working capital needs, capital expenditures and dividends.
  2. Non-recurring items are described in Matrix's MD&A for the third quarter posted on SEDAR.
  3. Management believes "recurring EBITDA" is a useful supplemental measure of operating performance because it provides readers with greater insight into what the core or run-rate EBITDA generating capacity of the business may be by adjusting EBITDA for various non-recurring items. Without presentation of this measure, there can be a lack of transparency of the effect of non-recurring revenues or expenses on EBITDA.
  4. Management believes "recurring income (loss) before taxes" is a useful supplemental measure of operating performance because it provides readers with greater insight into what the core or run-rate income before taxes generating capacity of the business may be by adjusting income before taxes for various non-recurring items. Without presentation of this measure, there can be a lack of transparency of the effect of non-recurring revenues or expenses on income before taxes.
  5. Management believes "Free Cash Flow" (defined by Matrix as EBITDA less interest paid, commissions paid and net taxes (payable/refundable as filed)) is a useful supplemental measure of available cash generated from the business' operations for working capital needs, capital expenditures and dividends.
  6. Assets under management or "AUM" means the fair value of the net assets of the funds and accounts managed by Matrix and its subsidiaries in respect of which fees are earned.
  7. During the first quarter of 2014 no dividends were declared or paid. Dividends are described in Matrix's MD&A for the first quarter of 2014 posted on SEDAR.

The unaudited condensed interim consolidated financial statements of the Company have been prepared in accordance with the International Accounting Standard 34 - Interim Financial Reporting as issued by the International Accounting Standards Board and are the responsibility of the Company's management. The Company's independent auditor has not performed a review of these financial statements.

Liquidity and Capital Resources

As at March 31, 2014, Matrix had total assets of $4.5 million, a decrease of $0.8 million from $5.3 million at December 31, 2013. During the first quarter, current assets decreased by $0.7 million while long term assets decreased $0.1 million. Total liabilities of $13.2 million as at March 31, 2014 increased by $0.1 million compared to $13.1 million as at December 31, 2013. Current liabilities increased by $0.9 million while long term liabilities decreased by $0.8 million.

The Company requires capital for operating purposes, including funding current and long term liabilities and current and future operations. Subsidiaries of the Company registered under securities laws must also maintain minimum levels of working capital in order to meet regulatory requirements under securities laws. If these minimum working capital requirements are not maintained, these registrations may be revoked. As a result of the term credit facility provided on September 30, 2013 and December 30, 2013, the Company believes that it has rectified its previously announced working capital deficiency but securities regulators have not finalized their review of the matter and any confirmation of that rectification is still pending. There can be no assurance that these subsidiaries will restore and maintain compliance with working capital requirements to the satisfaction of regulatory authorities and a failure to do so would have a material adverse effect on the Company's ability to operate and its financial position and future operating results.

Matrix's liquidity position and capital resources are dependent on cash flows from operations which in turn are dependent on AUM. Matrix's AUM is subject to a number of risks and uncertainties and has declined significantly with the result of the dispositions related to the Seamark Sale and the Marquest Transaction (See "Introduction" in Matrix's MD&A for the three months ended March 31, 2014). Matrix's working capital position has also deteriorated significantly over the past two years. Failing to meet payment obligations, including in respect of secured indebtedness or failing to maintain compliance with working capital requirements under securities laws, may have a material adverse effect on Matrix's financial condition, operating results and ability to carry on business. See "Risk Factors" in Matrix's MD&A for the three months ended March 31, 2014.

As at March 31, 2014, Matrix had a working capital deficiency of $(4.4) million, comprised of $2.8 million current assets and $(7.2) million in current liabilities. Matrix's retained earnings deficit as at March 31, 2014 was $(33.2) million and the net loss from continuing operations for the quarter was $(0.8) million. Significant items contributing to the working capital deficit are: (1) $5.3 million in accounts payable and accrued liabilities; (2) $0.5 million of employment related obligations, primarily non-recurring lump sum payments due during the next 12 months; and (3) $0.7 million in operating lease related obligations.

The financial statements and MD&A were prepared on a going concern basis, which assumes that Matrix will continue to realize its assets and discharge its liabilities as they become due.

Management's cash flow forecasts indicate that the Company is expected to have resources available to continue to operate as a going concern; however the forecasts are based on a number of assumptions with respect to future cash flows and the Company's ability to re-structure $0.8 million of payments due to related parties on March 31, 2015 and obtain additional financing. There can be no assurance that Matrix will re-structure debt obligations and obtain additional financing in a manner that will allow Matrix to continue to operate. Uncertainties surrounding these assumptions may cast significant doubt on the ability of Matrix to discharge its liabilities in the normal course of business and continue to operate as a going concern. See Note 1 "Organization and Continuing Operations" in the annual audited consolidated financial statements and see Note 8 "Corporate Debt" in the condensed interim consolidated financial statements for a description of terms and security on corporate debt.

There is material uncertainty surrounding Matrix's ability to generate positive cash flows to generate savings from cost reduction programs (and as to the quantum of such savings), to re-pay, re-finance and/or re-structure debt obligations, to collect fund management fees and incentive participation dividends from managed funds with poor liquidity, to collect tax refunds and as to the outcome of regulatory reviews and filings and prospects for future transactions. See "Forward-Looking Statements". If the Company is unable to re-pay or re-finance its debt obligations, the obligations and associated security may be enforced, which would have a material adverse effect on the Company's business, financial position and operating results and the Company's ability to continue to operate. The auditor's report in respect of Matrix's consolidated financial statements for the year ended December 31, 2013 was unqualified, however did contain and Emphasis of Matter notation with respect to Matrix's working capital deficit as at December 31, 2013, net loss for the year and Matrix's ability to continue to operate as a going concern.

It is not possible to predict whether strategic options pursued by Matrix will result in sufficient improvements to Matrix's financial condition to allow Matrix to continue as a going concern. If the going concern assumption ceases to be appropriate, adjustments will be necessary to the carrying amounts and/or classification of Matrix's assets and liabilities. Further, a comprehensive restructuring plan could materially change the carrying amounts and classifications reported in the consolidated financial statements.

Matrix's first quarter 2014 financial statements and MD&A are available on SEDAR at www.sedar.com.

About Matrix (www.matrixasset.ca)

Matrix is a venture capital asset management company with offices in Vancouver, Toronto & Halifax. As at March 31, 2014, the Company managed approximately $227 million in assets operated through GrowthWorks Capital Ltd., which manages funds in the venture capital sector.

Forward-Looking Statements

Certain statements in this press release are forward-looking statements based on beliefs, assumptions and expectations of the Company and not on historical fact. Forward-looking statements are provided for the purposes of assisting the reader in understanding the Company's financial position and results of operations and to present information about management's current expectations and plans related to future periods. Readers are cautioned against placing undue reliance on forward-looking statements and that such statements may not be appropriate for other purposes. These statements may include, without limitation, statements regarding Matrix's ability to continue to operate as a going concern and meet minimum working capital and other regulatory requirements, future operations, business, financial condition, AUM, financial results, expense reductions, tax refunds, dividends and dividend policies, proposed financings, re-payment, re-financing and/or re-structuring Matrix's financial obligations, managed venture capital fund divestments, prospects, opportunities, goals, strategies, accounting policies and estimates and outlook of the Company for the current fiscal year and subsequent periods. Forward-looking statements include statements that are predictive in nature or depend upon or refer to future events or conditions.

Forward-looking statements are based upon beliefs and assumptions of management that were applied in drawing a conclusion or making an estimate, forecast or projection as reflected in the forward-looking statements, including the perception of historical trends and current conditions and beliefs and assumptions with respect to levels of AUM and related assumptions as to levels of portfolio returns and managed fund sales and redemptions, beliefs and assumptions concerning prevailing and future economic and market conditions and the impact of such conditions and other factors on Matrix's AUM, managed portfolio performance and the trading price of Matrix shares, the continuation of portfolio and fund management and advisory engagements, the extent and effectiveness of cost-saving measures and the impact of such measures and other factors on earnings, the outcome of pending and future tax filings, the outcome of litigation, the outcome of disputes on the allocation of expenses between Matrix and the Canadian Fund, the outcome of claims made to the Canadian Fund, the status of pending transactions and proposed transactions and the expected benefits from and impact of transactions on Matrix's future operations, the ability of Matrix to re-pay, re-finance or re-structure financial obligations, maintain compliance with related contractual covenants, minimum working capital and other regulatory requirements and other laws, tax rates, the outcomes of regulatory compliance reviews, the ability of managed venture capital funds to generate liquidity, pay management fees and IPA revenues when due and satisfy secured payment obligations under financing arrangements, performance of managed venture capital investments relative to carrying values and performance fee return thresholds, the collection of trade receivables and the absence of extraordinary or one-time expenses not currently known to management. While management considers these beliefs and assumptions to be reasonable based on information currently available, these statements are subject to numerous risks and uncertainties and no assurance can be given that such beliefs and assumptions will prove to be correct. Accordingly, actual results may differ significantly from those expressed or implied by forward-looking statements due to many factors including, but not limited to, regulatory and other risks associated with venture capital fund management sector generally, market, economic, political and other risks affecting portfolio performance, interest and foreign exchange rates, levels of managed fund sales and redemptions and in turn Matrix's AUM, risks associated with tax filings and litigation, other risks affecting revenues and earnings, regulatory and other risks associated with fund and asset management activities, managed venture capital fund divestments and liquidity levels, risks associated with non-performance of financial obligations, including secured obligations, integration and continuity risks affecting completed acquisitions, changes in consumer demand for the financial products offered by the Company, Matrix's ability to respond to competition and other risks and uncertainties listed under "Risk Factors" in the MD&A for the period ended March 31, 2014 and in Matrix's Annual Information Form dated March 31, 2014, which is available on SEDAR. Many of these risks are beyond the control of Matrix.

The assumptions and risks noted in this press release are not exhaustive of the factors that may affect any of the Company's business and the forward-looking statements in this press release. Readers should consider these and other risks, uncertainties and potential events carefully and should not place undue reliance on forward-looking statements. Other than as specifically required by law, the Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made, or to reflect new information, future unanticipated events or results or other factors.

Non-IFRS Financial Measures

"EBITDA", "recurring EBITDA", "Free Cash Flow", "recurring expenses", and "recurring income (loss) before taxes" are not measures recognized under International Financial Reporting Standards ("IFRS"). However, management of Matrix believes that most shareholders, creditors, other stakeholders and investment analysts prefer to have these measures included as reported measures of operating performance, a proxy for cash flow, and to facilitate valuation analysis. These non-IFRS measures do not have any standard meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Readers are cautioned that these non-IFRS measures are not alternatives to measures determined in accordance with IFRS and should not, on their own, be construed as indicators of performance, cash flows or profitability or measures of liquidity. These non-IFRS measures should only be read in conjunction with the financial statements of Matrix posted on SEDAR. "AUM", "working capital" and "non-recurring items" are also non-IFRS measures. AUM is the fair value of the net assets of the funds and accounts managed by Matrix and its subsidiaries in respect of which they earn fees. Working capital is determined by deducting current liabilities from current assets. For additional information regarding Matrix's use of non-IFRS measures, including reconciliations of these measures to the nearest IFRS measures, please refer to the "Non-IFRS Financial Measures" and "Non-Recurring Items, EBITDA & Free Cash Flow" sections of its MD&A available on the SEDAR website at www.sedar.com.

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