OXBOW Equities Corp.

OXBOW Equities Corp.

April 03, 2006 11:41 ET

Oxbow Equities Corp. Announces Financial Results for the Year Ended December 31, 2005


Oxbow Equities Corp. ("Corporation")(TSX:XBO) today announced the results of its audited consolidated financial statements for the year ended December 31, 2005. The complete financial statements, including management's discussion and analysis ("MD&A") of the results will be filed with SEDAR (www.sedar.com).

A selection of financial information, derived from the Corporation's audited consolidated financial statements for the last three years ended December 31, 2005, 2004, and 2003 are presented below:

Consolidated statements of income

(in thousands except Year
per common share amounts) 2005 2004 2003
$ $ $

Interest income 2,547 2,209 1,894
Unrealized gain on investment in
Mission Medical, Inc. held for sale - 3,355 -
Gain realized on the disposition of
the investment in Mission Medical,
Inc. held for sale
realized on February 25, 2005 3,856 - -
unrealized gain previously recorded
in December 2004 (3,355) - -
Net change in unrealized gain (loss)
on investment due to changes in value - (154) 280
3,048 5,410 2,174
General and administrative 1,486 1,107 1,688
Foreign exchange losses 1,021 2,544 6,631
Write-down of investments 75 190 3,712
2,582 3,841 12,031
Income (loss) from continuing operations
before other income, income taxes and
other items 466 1,569 (9,857)
Other income
Consulting fees 218 454 461
Income (loss) from continuing operations
before income taxes and other items 684 2,023 (9,396)
Income tax recovery (expense) 1,063 - -
Income (loss) from continuing
operations before other items 1,747 2,023 (9,396)
Equity loss in MonoGen, Inc. (7,998) - -
Dilution gain on issuance of
common shares by MonoGen, Inc. 25 - -
Income (loss) from continuing
operations for the year (6,226) 2,023 (9,396)
Income from discontinued operations
for the year, net of tax 936 - -
Net income (loss) for the year (5,290) 2,023 (9,396)

Basic and diluted income (loss)
per common share
Income (loss) from continuing
operations (0.08) 0.03 (0.14)
Income from discontinued
operations 0.01 - -
Net income (loss) per common
share - basic and diluted (0.07) 0.03 (0.14)

Consolidated statements of cash flows

(in thousands) Year
2005 2004 2003
$ $ $

Decrease in cash flows relate to
operating activities from
continuing operations (739) (629) (1,058)
Increase in cash flows related to
financing activities from
continuing operations 2,333 1,479 3,162
Increase (decrease) in cash flows
related to investing activities from
continuing operations 14,067 (1,053) (4,016)

Consolidated balance sheets

(in thousands) December 31
2005 2004 2003
$ $ $

Cash and cash equivalents and
short term investment 15,978 470 681
Investment in Mission Medical,
Inc. held for sale - 15,576 12,235
Investment in MonoGen, Inc. 17,128 20,689 20,300
Total assets 34,911 37,016 33,393
Total liabilities 319 187 159
Shareholders' equity 34,592 36,829 33,234

Oxbow's investment in MonoGen, Inc. ("MonoGen") is described in its
Annual Information Form. The carrying amount and fair value of
theinvestment in MonoGen presented below are detailed in notes 5 and
9 of the audited consolidated financial statements for the year 2005:

(in thousands except Estimated Carrying Estimated Carrying
percentage amounts) FairValue Amount Fair Value Amount
December 31, 2005 December 31, 2004
$ $ $ $
Investments in MonoGen, Inc.
Common shares 4,705 - 818 818
Subordinated secured
convertible promissory
notes 47,051 17,128 19,871 19,871
Warrants to purchase
common shares 208 - - -
Stock appreciation rights - - - -
51,964 17,128 20,689 20,689
Basic 41.0% 41.3%
Fully diluted 47.2% 49.4%

Consolidated assets subject to foreign exchange risk

(in thousands except December 31
percentage amounts) 2005 2004 2003
$ $ $

Total assets 34,911 37,016 33,393
Total assets subject
to foreign exchange risk 18,975 36,522 32,738
Percentage of assets subject
to foreign exchange risk 54% 99% 98%
Exchange rate of the U.S.
dollar in Canadian dollars 1.1630 1.2020 1.2965
Average monthly exchange rate of
U.S. dollar in Canadian dollars
for the year then ended 1.2116 1.3015 1.4015

For the year ended December 31, 2005, the Corporation reported a consolidated net loss of $6,226,000 from continuing operations compared to a consolidated net income of $2,023,000 in 2004.

The net loss for the year ended December 31, 2005 is primarily the result of the change in the Corporation's accounting policy with regard to the recording of its investment in MonoGen. Effective January 1, 2005, the Corporation adopted the equity method to account for its investments in common shares of MonoGen and the cost method to account for its other investments in MonoGen (see note 2 of the audited consolidated financial statements). The net effect of adopting the equity method accounting policy was to record equity losses on the Corporation's investment in MonoGen of $7,998,000 for the year 2005. This non-cash expense was applied against the carrying amount of the Corporation's investments in MonoGen. More specifically, during the year, the carrying amount of the Corporation's investment in MonoGen common shares was reduced to zero as a result of allocating $843,000 of the equity loss, and the remaining balance of $7,155,000 of the equity loss reduced the carrying amount of the Corporation's investment in MonoGen subordinated secured convertible promissory notes.

In 2004, the results were positively impacted by the unrealized gain of $3,355,000 to reflect the price obtained upon the subsequent realization on February 25, 2005 of all of our investment in Mission Medical Inc. ("Mission"), a United States based privately held health care company. In the first quarter of 2005, an additional gain of $501,000 was recorded upon the realization of Mission for an aggregate gain of $3,856,000 recorded over two years. The total cash amount received from the sale of Mission was $16,124,000 (US$12,995,000).

The non-cash interest income revenue in 2005 increased from $2,209,000 to $2,547,000. The increase in non-cash interest income was substantially due to the fact that interest is compounded quarterly on the MonoGen convertible promissory notes since May 2003 and monthly on the demand promissory notes, and to interest earned on additional investments of $2,687,000 made into MonoGen in 2005.

During the year 2005, the general and administrative expenses increased to $1,486,000 from $1,107,000. The amount in 2005 included a non-cash expense of $320,000 for the stock-based compensation compared to $93,000 in 2004.

During 2005, the Corporation continued to be impacted by the fluctuation of the Canadian dollars vis-a-vis the United States dollars but to a lesser extent as in February 2005, the Corporation realized its investments in Mission for US$12,995,000 and the cash received was then invested substantially in highly liquid investments denominated in Canadian dollars for the remaining period of 2005. For the year 2005, the Corporation realized and unrealized foreign exchange losses amounted to $1,021,000 compared to $2,544,000 in 2004.

As of December 31, 2005 approximately 49.1% of the Corporation's assets are invested in one United States based privately held health care company, MonoGen (98.1% - December 31, 2004, two United States based privately health care companies, MonoGen and Mission). This important percentage reduction in 2005 is explained by the sale on February 25, 2005 of the Corporation's entire investment in Mission.

On February 7, 2005, the Corporation raised $2,350,000 of additional capital by completing a private placement of 4,700,000 common shares at a price of $0.50 per share.

Our cash position as of March 31, 2006 is approximately $15 million. The Corporation has previously stated that it intended to distribute approximately $15 million of its cash balance in the fourth quarter of 2005 assuming MonoGen is properly funded. MonoGen has now entered the commercialization phase of its lead product. Therefore, the Corporation now believes that the best use of its capital is to further invest into MonoGen a portion or all of its cash resources for the repayment of the loan from Cardinal Health 200, Inc. (see note 5 "MonoGen - Secured Loans Default" on the consolidated financial statements) and sustaining the growth of the business unless alternative financing at attractive terms becomes available.

MonoGen will require significant additional funding during the period starting January 1, 2006 and until it becomes cash flow positive. The funding needs are well in excess of amounts currently available to MonoGen from the Corporation. The Corporation is currently in discussions with MonoGen with a view to establish an operational and financial plan that will allow it to reach its objectives while maximizing shareholder value. The financial plan will likely result in the Corporation investing a portion or all of its cash resources in MonoGen and raising more equity capital in due course at the Corporation level and at the MonoGen level.

Future Prospects

The Corporation currently has approximately $15 million in cash reserves. It is impossible to estimate the amount (if any) of the contingent (earn-out) payments from the sale of Baseline at this time and therefore we currently ascribe no value to this stream of potential additional cash inflows.

We are pleased with the significant progress achieved during the past year at MonoGen which culminated in March 2006 with the United States Food and Administration ("FDA") approval to commercialize its MonoPrep® Pap Test. MonoGen is now ready to begin the manufacturing and commercialization of its products through its strategic partnerships; key plastic components supplier Hoffer Plastics Corporation, manufacturing partner Diamond Machine Werks, Inc. and commercialization partners Cardinal Health, Inc. These three partners are planning to ramp up their respective activities and initial product deliveries to customers of the MonoPrep® Processor and its MonoPrep® Pap Test are expected in the second half of 2006.

MonoGen requires additional capital until it becomes cash flow positive from the commercialization of its products, including approximately US$5 million to repay a secured loan from Cardinal Health. Following FDA approval for commercialization of the MonoPrep® Pap Test, the Secured Lender has demanded repayment of its secured loan and has stated that it maintains its distribution rights. Efforts to raise capital from private equity investors during the year have not resulted in terms that would be acceptable to MonoGen or the Corporation. With the recent FDA approval, we are seeing renewed interest from potential private equity investors which could lead to a financing that could have the Corporation participate into or not.

As said in the past, we have been withholding distributing our cash resources to our shareholders until MonoGen secures funding at acceptable terms. As this condition may not realize, and now that MonoGen is beginning its commercialization phase, we believe that investing additional cash resources in MonoGen at this time, either alone or together with financial partners, represent an attractive opportunity for the Corporation and its shareholders. To this effect, we are actively engaged in discussions with MonoGen as to the best way to achieve our mutual objectives.

The consolidated financial results of the Corporation will continue to be impacted by any variation in the exchange rate since a significant portion of its assets are denominated in United States dollars. The Corporation does not use and does not intend to use derivatives to hedge its foreign exchange rate risk.

The common shares of the Corporation are listed for trading on the Toronto Stock Exchange under the trading symbol "XBO".

Forward-Looking Statements

This press release contains statements that are forward-looking in nature. 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 necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to known and unknown risks and uncertainties such as, but not limited to the capacity of the Corporation to obtain funding for its operations and for the needs of MonoGen. In addition, the ultimate recoverability of the Corporation's investment in MonoGen will be dependent upon a number of factors including, but not limited to, the capacity of MonoGen to obtain funding from third parties to finance its operations and the need to repay its debt obligations as further described in note 5 "MonoGen Secured Loans Default" of the audited consolidated financial statements, the ability of MonoGen to maintain government regulations such as those of the United States FDA, the eventual commercial success of MonoGen's products, the capability of the Corporation to realize the value of MonoGen on commercially reasonable terms and/or in a timely manner, changes in future foreign currency exchange rates, and other factors referenced herein and in the Corporation's continuous disclosure filings. Therefore, the Corporation's actual results may be materially different from those expressed or implied by such forward-looking statements.

Contact Information

  • OXBOW Equities Corp.
    Mr. Andre Denis
    President and Chief Executive Officer:
    (514) 286-0999, ext. 224
    (514) 286-3777 (FAX)