MonoGen, Inc.
TSX : MOG

MonoGen, Inc.

August 10, 2007 19:28 ET

MonoGen Announces Financial Results for the Three-Month and Six-Month Periods Ended June 30, 2007

CHICAGO, ILLINOIS--(Marketwire - Aug. 10, 2007) - This Press Release is Not for Distribution in the United States

MonoGen, Inc., ("Corporation") (TSX:MOG) today announced the results of its unaudited interim consolidated financial statements for the three-month and six-month periods ended June 30, 2007. The unaudited interim consolidated financial statements, including management's discussion and analysis ("MD&A") of the results will be filed with SEDAR (www.sedar.com).

On October 31, 2006 we acquired our subsidiary, also called MonoGen, Inc. (the "Transaction").

Overall Performance

For the three-month and six-month periods ended June 30, 2007, we reported a consolidated net loss of $4,978,000 ($0.03 per share) and $9,664,000 ($0.06 per share) respectively from continuing operations compared to consolidated net losses of $2,541,000 ($0.05 per share) and $3,207,000 ($0.07 per share) for the same periods in 2006.

The net loss for the three-month and six-month periods ended June 30, 2007 and 2006 differ primarily as a result of the method of recording our equity share of the losses in MonoGen USA. In the first six months of 2006, a 41% share of the losses in MonoGen USA, $3,569,000, was included in our net loss as an equity pick-up. In the first six months of 2007, MonoGen USA's results of operations, cash flows and financial position were fully consolidated.

Interest income earned on short-term investments in the first six months of 2007 was $549,000 compared with $1,309,000 in 2006. In the first half of 2006, non-cash interest revenue of $1,077,000 arose from the convertible notes issued by MonoGen USA. Following the completion of the Transaction, this interest income was eliminated on consolidation.

During the first half of 2007, general and administrative expenses increased to $3,080,000 from $737,000 for the same period in 2006. The increase was due mostly to the consolidation of MonoGen USA's results of operations in 2007. In 2007, general and administrative expenses included non-cash stock-based compensation expense of $613,000 compared to $238,000 in 2006.

As a result of the Transaction, for the first six months of 2007 we recorded selling and marketing, research and development and regulatory, and amortization expenses incurred by MonoGen USA. These expenses included non-cash expenses of $430,000 for stock-based compensation and $400,000 related to the estimated fair value of warrants issued as compensation for the cancellation of a manufacturing agreement and lease. We incurred non-cash expenses related to the amortization of tangible and intangible assets of $276,000 and $966,000 respectively.

As the United States dollar is now our functional currency, our foreign exchange gains and losses are minimal compared to prior years where the fluctuation of the United States dollar versus the Canadian dollar resulted in significant foreign exchange gains and losses.

Future Prospects

Sales and Marketing

Our commercialization team has progressed in the development of the strategy for market launch of the MonoPrep Processor and its accompanying MonoPrep Pap Test. This process has lead to the conclusion that a highly trained and dedicated direct sales force catering to both the laboratory and physician will be required to effectively compete in the marketplace. As a result of this analysis, we have agreed with our commercialization partner, Cardinal Health, to redefine each of our roles and responsibilities in the partnership going forward. Under this new marketing partnership agreement, the Cardinal Health sales force will continue to be responsible for lead generation and customer data gathering which will greatly assist the MonoGen sales force to target the most attractive opportunities. This new agreement will leave better margins for MonoGen to finance its new sales force and improve the financial attractiveness of MonoGen from a financial markets perspective. Cardinal Health was granted approximately 9.1 million warrants representing 5% of the number of common shares outstanding as at June 30, 2007 in return for the changed economics of this new marketing partnership. This new relationship aligns the financial interests of the two partners which should contribute to improving the performance of their respective teams.

Operations

We have completed the move to our new manufacturing and distribution facility in Waukegan, Illinois. All equipment required for consumables production has been moved and reinstalled and is about to undergo process validation in the coming weeks. In addition, instrument assembly is currently underway in the new facility. The FDA informed us in late July that we would be required to submit a 180-day PMA Supplement regarding the relocation of manufacturing and distribution activities to a new facility. This PMA Supplement is anticipated to be submitted to the FDA during the third quarter of 2007 upon completion of the validation process. This change in our planning and execution will likely push out market launch into the first quarter of 2008.

Product Pipeline/Research Projects

The imaging program continues to be our focus for the next technology platform offered by MonoGen as the market potential for such a product has been demonstrated in the marketplace. We believe we have the technological knowledge and experience to develop a state-of-the art imaging platform that will have clear market advantages over existing products. To that end, we have engaged the services of a medical diagnostics product development company to assist in this effort. We are too early in this product development program to estimate a market introduction date. At this point in our evolution, we intend to focus all of our resources on the launch of the MonoPrep Processor and its accompanying MonoPrep Pap Test as well as the development of the imaging system. Although molecular diagnostics remains of strong interest to us, we will be deferring additional efforts in this area until a later date.

Regulatory and Intellectual Property

Our PMA Supplement for the use of the MonoPrep Pap Test with Digene's hc2 HPV DNA Tests was submitted in late June. After several discussions with the FDA, it became clear that their approval requirements for the HPV Supplement will likely not be met with the information provided in our current submission. Therefore, we decided to withdraw the current submission. We will work with the FDA in a new study design and protocol and will initiate the study as soon as is practical after market launch, as such a clinical trial cannot be performed prior to market launch of the MonoPrep system. Although we remain pleased with the performance of the MonoPrep system in the current study, we believe that taking this action will provide a faster route to approval by the FDA rather than continuing with the current submission.

We have begun reviewing our patent portfolio to assess which patents and countries are of vital importance to our future. This process is conducted keeping in mind the current and future direction of the Corporation and will result in a reduction in the portfolio areas and/or countries that are not critical to the protection of our proprietary technologies or commercial success.

Management / Board of Directors

In recent news, Norman J. Pressman, Ph.D., announced his resignation as Executive Chairman of the Board of Directors and Chief Scientific Officer of the Corporation. Mr. Larry Hootnick has resigned his directorship and has been replaced by Mr. Frank Leo, a seasoned healthcare executive. In another key management change, Mr. Matt Zelinski, formerly with Battelle Memorial Institute, has joined us as Vice President of Research and Development. Additional hires to complement the management team will be made in the coming months.

Financial Situation

Our cash position at the end of the second quarter was approximately $24 million. At the current projected burn rate, this current cash position would give us more than one year of cash. However, we would not have enough cash to cover all of our needs until reaching anticipated positive cash flows. Therefore, we intend to remain opportunistic and raise additional equity capital as market conditions allow us to do so.

Forward-Looking Statements

To the extent any statements made in this press release contain information that is not historical, these statements are essentially forward-looking in nature and are subject to risks and uncertainties. Statements preceded by the words believe, expect, anticipate, plan, intend, continue, estimate, may, will, and similar expressions are forward-looking statements.

Forward-looking statements are based on our beliefs and assumptions based on information available at the time the assumption was made. Forward-looking statements relate to, among other things, anticipated financial performance, business prospects, strategies, regulatory developments, new services, market forces, commitments and technological developments, relating to MonoGen USA and us. By its nature, such forward-looking information is subject to various risks and uncertainties which could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed. Those risks and uncertainties include, but are not limited to, our ability to raise additional capital, our ability to execute our business plan while maintaining at all times our various regulatory approvals, the performance of our strategic partners including the performance of Cardinal Health, Inc. in the commercialization of our products in the marketplace and the competitive response from existing and potential competitors. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date it is expressed in this document, and we undertake no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise.



Conference Call to Review Results and Business Outlook

MonoGen, Inc. will host a teleconference/audio web cast to discuss second
quarter 2007 results as well as its business outlook.

TIME: 8:30 am ET on August 13, 2007

To participate, please call the following at least 15 minutes prior to the
start of the event.

Teleconference:
North America: 1-800-310-7032
International: +1 719-457-2694

Webcast
Access at www.monogen.com

Replay: (Available until 11:59 pm, August 20, 2007)
North America: 1-888-203-1112
International: +1 719-457-0820
Passcode: 2916444


UNAUDITED INTERIM CONSOLIDATED
BALANCE SHEET


(In thousands of United States dollars)
June 30, December 31,
2007 2006
$ $
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ASSETS
Current
Cash and cash equivalents 24,142 961
Cash from discontinued operations 13 13
Short-term investments 9 20,136
Accounts receivable 119 140
Inventories 1,180 1,096
Other current assets 362 217
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Total current assets 25,825 22,563
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Restricted cash 280 -
Property, plant and equipment 2,946 2,215
Intangible assets 22,946 23,912
Goodwill 20,132 20,132
Deposit 6 25
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72,135 68,847
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 1,065 903
Due to related parties 13 310
Liabilities from discontinued operations 5 -
Accrued interest on convertible promissory
note 38 36
Convertible promissory note 3,029 -
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Total current liabilities 4,150 1,249
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Convertible promissory note - 2,868
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4,150 4,117
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Shareholders' equity
Share capital 91,680 81,796
Warrants 1,552 -
Additional paid-in capital 6,780 5,291
Equity component of convertible promissory
note 27 27
Deficit (39,924) (30,254)
Accumulated other comprehensive income 7,870 7,870
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Total shareholders' equity 67,985 64,730
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72,135 68,847
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UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF LOSS
AND COMPREHENSIVE LOSS AND DEFICIT


(In thousands of United States dollars)


Three-month period Six-month period
ended June 30 ended June 30
2007 2006 2007 2006
$ $ $ $
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REVENUES
Interest income 286 677 549 1,309
Consulting fees - 37 - 75
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286 714 549 1,384
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EXPENSES
General and administrative 1,501 443 3,080 737
Selling and marketing 638 - 1,095 -
Research and development
and regulatory 2,703 - 4,919 -
Amortization of property,
plant and equipment 143 - 276 -
Amortization of intangible assets 482 - 965 -
Foreign exchange loss 21 1,074 20 285
Equity loss in MonoGen USA - 1,738 - 3,569
Interest expense 81 163 -
Recovery of promissory note (325) - (325) -
Loss on disposal of equipment 20 - 20 -
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5,264 3,255 10,213 4,591
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Loss from continuing operations
for the period (4,978) (2,541) (9,664) (3,207)
Loss from discontinued
operations for the period,
net of income taxes (4) (17) (5) (17)
Income taxes (1) (947) (1) (934)
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Net loss and comprehensive loss
for the period (4,983) (3,505) (9,670) (4,158)
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Deficit, beginning of the
period (34,941) (21,219) (30,254) (20,566)
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Deficit, end of the period (39,924) (24,724) (39,924) (24,724)
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Loss per common share
Basic and diluted
Loss from continuing (0.03) (0.05) (0.06) (0.07)
Loss from discontinued
operations - - - -
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Loss per common share - basic
and diluted (0.03) (0.05) (0.06) (0.07)
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Weighted average number of
common shares
outstanding 175,462,167 76,848,075 171,976,122 76,771,458


UNAUDITED INTERIM CONSOLIDATED STATEMENTS
OF CASH FLOWS


(In thousands of United States dollars)

Three-month period Six-month period
ended June 30 ended June 30
2007 2006 2007 2006
$ $ $ $
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OPERATING ACTIVITIES
Net loss for the year (4,983) (3,505) (9,670) (4,158)
Loss from discontinued
operations 4 17 5 17
Items not affecting cash
Interest expense 76 - 150 -
Interst income from promissory
notes - (566) - (1,089)
Amortization of intangible
assets 482 - 966 -
Amortization of property,
plant and equipment 143 - 276 -
Amortization of deferred
financing costs 1 - 2 -
Foreign exchange losses - 1,657 - 806
Stock-based compensation 615 184 1,443 238
Accretion expense 4 - 11 -
Loss on disposal of fixed assets 20 - 20 -
Equity loss in MonoGen USA - 1,737 - 3,569
Future income taxes - 947 - 947
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(3,638) 471 (6,797) 330
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Net change in other operating
assets and liabilities:
Decrease (increase) in
accounts receivable (10) 19 21 (50)
Increase in inventories (53) - (84) -
Decrease (increase) in other
current assets 8 - (145) -
Decrease in deposit 6 - 19 -
Increase (decrease)
in accounts payable and
accrued liabilities (618) 5 162 (67)
Increase (decrease) in due to
related parties (6) 4 (297) (45)
Increase in accrued interest
and convertible promissory note 1 - 2 -
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Cash flows related to operating
activities from continuing
operations (4,310) 499 (7,119) 168
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Cash flows related to operating
activities from discontinued
operations 1 (35) - (35)
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Cash flows relating to operating
Activities (4,309) 464 (7,119) 133
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FINANCING ACTIVITIES
Proceeds from exercised
options (note 4) - - 27 88
Proceeds from issuance of
common shares 10,841 - 10,841
Proceeds from issuance
of warrants 1,718 - 1,718
Financing costs (1,104) - (1,104)
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Cash flows related to
financing activities 11,454 - 11,481 88
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INVESTING ACTIVITIES
Additions to property, plant
and equipment (764) - (1,027) -
Proceeds from the sale of
short-term investments 17,181 - 20,127 -
Additions to restricted cash - - (280) -
Additions to investments
in MonoGen USA - (1,631) - (2,490)
Proceeds on disposal of
Baseline Technologies Inc. - - - 203
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Cash flows related to
investing activities from
continuing operations 16,417 (1,631) 18,820 (2,287)
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Cash flows related to
investing activities from
discontinued operations - - - (203)
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Cash flows related to
investing activities 16,417 (1,631) 18,820 (2,490)
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Foreign exchange loss on
cash and cash equivalents
held in foreign current (1) (34) (2) (43)
Increase (decrease) in
cash and cash equivalents
from continuing operations 23,561 (1,166) 23,181 (2,074)
Increase (decrease) in
cash and cash equivalents
from discontinued operations 1 (35) - (238)
Cash and cash equivalents,
beginning of period
From continuing operations 581 12,822 961 13,730
From discontinued operations 12 53 13 256
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Cash and cash equivalents,
end of period
From continuing operations 24,142 11,656 24,142 11,656
From discontinued operations 13 18 13 18
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