Matrix Asset Management Inc. (the "Company" or "Matrix") reported today its
financial and operating results for the fourth quarter ended December 31, 2013.
A conference call to discuss the fourth quarter results is scheduled for April
1, 2013 at 9:00 a.m. Eastern Time. The conference may be accessed by calling
1-855-353-9183 and entering access code 58018. Alternatively a webcast of this
conference is available at https://web.conf-centre.com/ by entering conference
reference 1153646 and access code 58018.
President and CEO, David Levi commented, "I thank all of our investors for their
support during a very challenging past year. We voluntarily delisted from the
Toronto Stock Exchange and have undertaking a strategic review of the Company in
order to address its present debt obligations and to provide liquidity options
for its shareholders." Mr. Levi added, "The delisting of the Company's Common
shares does not affect any of the funds managed by subsidiaries of Matrix."
Selected Fourth Quarter and Year End 2013 Highlights
-- At December 31, 2013, asset under management ("AUM") were $232 million,
compared to $332 million as at September 30, 2013 and $1.1 billion as at
December 31, 2012.
-- Total revenue for the fourth quarter was $2.6 million compared to $3.2
million during the same period last year.
-- Recurring expenses for the fourth quarter were $1.8 million compared to
$5.7 million during the same period last year.
-- Net loss for the fourth quarter was $(1.2) million compared to net loss
of $(3.2) million for the same period last year. Total current
liabilities of $6.3 million as at December 31, 2013 are scheduled for
repayment over the next 12 months.
-- Working capital deficit improved over the quarter by $0.3 million to
$2.9 million. See "Liquidity and Capital Resources".
-- On September 30, 2013, Matrix announced that it had entered into
financing arrangements for a term credit facility of up to $5 million
which bears interest at 12% per annum calculated and paid quarterly. In
addition, the Company agreed to pay a processing fee of 6.5% per annum,
calculated and paid quarterly. $4 million and $1 million of the facility
was advanced to the Company on September 30, 2013 and December 30, 2013,
respectively.
This release should be read in conjunction with Matrix's audited financial
statements and Management Discussion & Analysis ("MD&A") for the fourth quarter
and year ended December 31, 2013, which are available on the SEDAR at
www.sedar.com.
Subsequent Events:
-- Subsequent to the termination of the Management Agreement between the
GrowthWorks Canadian Fund Ltd. ("Canadian Fund") and GrowthWorks WW
Management Ltd. ("GWWV"), the Company has taken legal action to claim
damages for lost management and administration fee revenue for the
remaining term of the contract (five years), unpaid management and
administration fees, unpaid incentive payments and unpaid capital
retention administration fees. In addition, the Company is seeking
compensation for damages that the Company has and will incur as a result
of being forced to renegotiate a lending facility at less favourable
terms. The possible compensation that may arise from this event is
unknown and would be determined following the occurrence or non-
occurrence of one or more uncertain future events not wholly within the
control of the Company. The Canadian Fund has reserved the right to
claim damages in respect of any breaches of the Management Agreement by
GWWV. There can be no assurance as to the outcome of claims made by the
Canadian Fund with respect to such breaches, if any, or by GWWV with
respect to what Matrix believes is a wrongful termination of the
Management Agreement.
-- On December 3, 2013, the Company announced that it intends to apply for
alternative listing and voluntarily delist from the TSX. On March 25,
2014 the Company confirmed its application to voluntarily delist from
the TSX which became effective March 28, 2014.
-- Subsequent to the year ended December 31, 2013, the Company accrued a
$0.1 million success fee in relation to the sale of portfolio assets
held by Working Opportunity Fund (EVCC) Ltd. ("WOF")
Corporate Overview
Matrix is a venture capital asset management company with offices across Canada.
As at December 31, 2013, the Company managed approximately $0.2 billion in
assets operated through GrowthWorks Capital Ltd., which manages funds in the
venture capital sector.
Summary of Fourth Quarter and Year End 2013 Financial Results
The following table sets out selected consolidated financial information about
Matrix for the years ended December 31, 2013, 2012 and 2011.
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. The following table summarizes non-recurring expenses for the three
and year ended December 31, 2013 compared with the same periods in 2012. Further
information regarding non-recurring expenses is contained in Table 3 of Matrix's
MD&A for the year ended December 31, 2013.
For the twelve For the twelve For the twelve
months ended months ended months ended
December December December
31, 2013 31, 2012 31, 2011
(in $ thousands) (in $ thousands) (in $ thousands)
----------------------------------------------------------------------------
Revenue
Management and
administration fees $ 9,935 $ 14,064 $ 16,916
Additional
administration fees 812 1,248 1,421
Incentive participation
revenues 853 503 1,533
Interest income 412 534 38
Other income 510 253 388
----------------------------------------------------------------------------
12,522 16,602 20,296
Expenses
Selling, general and
administrative 14,204 15,917 18,571
Share-based compensation 152 507 477
Servicing commissions - 2 7
Amortization and
impairment - property
and equipment 541 231 235
Amortization - deferred
sales commissions 591 760 942
Amortization and
impairment - asset
management contracts 1,569 2,267 1,268
Interest 737 547 190
----------------------------------------------------------------------------
17,794 20,231 21,690
----------------------------------------------------------------------------
Loss before merger,
acquisition and other
special project costs
and income taxes (5,272) (3,629) (1,395)
----------------------------------------------------------------------------
Merger, acquisition and
other special project
costs 1,718 342 4,043
----------------------------------------------------------------------------
Loss before income taxes (6,990) (3,971) (5,438)
Income tax recovery (1,319) (473) (2,019)
----------------------------------------------------------------------------
Loss from continuing
operations (5,671) (3,498) (3,419)
Loss from discontinued
operations, net of tax (3,663) (1,358) (6,762)
----------------------------------------------------------------------------
Net loss $ (9,334) $ (4,856) $ (10,181)
----------------------------------------------------------------------------
Basic and diluted loss
per share from
continuing operations
(in $) (0.11) (0.07) (0.07)
Basic and diluted loss
per share from
discontinued operations
(in $) (0.07) (0.03) (0.15)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at As at As at
December December December
31, 2013 31, 2012 31, 2011
(in $ thousands) (in $ thousands) (in $ thousands)
----------------------------------------------------------------------------
Cash, cash equivalents
and investments $ 1,251 $ 2,353 $ 1,141
Total assets 5,303 25,439 28,133
Total long-term
liabilities 6,781 9,689 11,799
Total assets under
management(1) 232,000 1,100,000 1,600,000
Notes:
(1) 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.
For the three For the three
months ended months ended
December 31, 2013 December 31, 2012
(in $ thousands) (in $ thousands)
----------------------------------------------------------------------------
Revenue
Management and
administration fees $ 1,696 $ 3,239
Additional administration
fees 98 296
Incentive participation
revenues 463 (624)
Interest income (19) 185
Other income 375 80
----------------------------------------------------------------------------
2,613 3,176
Expenses
Selling, general and
administrative 1,466 3,434
Share-based compensation 22 95
Servicing commissions - -
Amortization and impairment
- property and equipment 33 50
Amortization - deferred
sales commissions 144 191
Amortization and impairment
- asset management
contracts - 1,692
Interest 215 194
----------------------------------------------------------------------------
1,880 5,656
----------------------------------------------------------------------------
Income (loss) before merger,
acquisition and other special
project costs and income
taxes 733 (2,480)
----------------------------------------------------------------------------
Merger, acquisition and other
special project costs 704 18
----------------------------------------------------------------------------
Income (loss) before income
taxes 29 (2,498)
Income tax (recovery) expense (15) 577
----------------------------------------------------------------------------
Income (loss) from continuing
operations 44 (3,075)
Loss from discontinued
operations, net of tax (1,226) (108)
----------------------------------------------------------------------------
Net Loss $ (1,182) $ (3,183)
----------------------------------------------------------------------------
Basic and diluted loss per
share from continuing
operations (in $) 0.00 (0.06)
Basic and diluted loss per
share from discontinued
operations (in $) (0.02) (0.00)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liquidity and Capital Resources
As at December 31, 2013, Matrix had total assets of $5.3 million, a decrease of
$20.1 million from $25.4 million at December 31, 2012. During the year, current
assets decreased by $5.0 million while long term assets decreased $15.1 million.
Total liabilities of $13.1 million as at December 31, 2013 decreased by $11.0
million compared to $24.1 million as at December 31, 2012. Current liabilities
decreased by $8.1 million while long term liabilities decreased by $2.9 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.
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".
As at December 31, 2013, Matrix had a working capital deficiency of ($2.9)
million, comprised of $3.4 million current assets and ($6.3) million in current
liabilities. Matrix's retained earnings deficit as at December 31, 2013 was
$(32.4) million and the net loss from continuing operations for the year was
$(5.7) million. Significant items contributing to the working capital deficit
are: (1) $4.8 million in trades payable and accrued liabilities; (2) $0.9
million of employment related obligations, primarily non-recurring lump sum
payments due during the next 12 months; and (3) $0.6 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 discharge its current liabilities during 2014.
There can be no assurance that Matrix will re-structure or re-finance these debt
obligations 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 14 "Corporate Debt" in the annual audited 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.
In addition to the funds raised by the September and December 2013 financing
(see "Introduction"), on August 7, 2012, the Board of Directors approved Matrix
raising up to $2.0 million in debt through term loan arrangements, including
with insiders of Matrix. During the third quarter of 2012, Matrix raised
approximately $0.6 million under term loans advanced by the CEO of Matrix and
the largest shareholder of Matrix. These two loans were evidenced by unsecured
promissory notes that mature on the earlier of 30-day written notice by the
lenders and the date of closing of a transaction by Matrix or any of its
subsidiaries resulting in cash proceeds to Matrix of $7 million or more. The
notes bear interest at a rate of 8.0% per annum, calculated and compounded
monthly. These terms may be adjusted to match terms negotiated with additional
third party lenders, although maturity dates may vary by lender. During to the
fourth quarter of 2013, the lenders agreed, for no additional consideration, to
extend the maturity date to March 31, 2015. On December 31, 2013 the Company
entered into an additional $0.1 million loan with the largest shareholder of
Matrix with the same terms and due date. There can be no assurance as to the
amount of additional capital that will be raised through these arrangements.
Matrix's fourth quarter and year end 2013 financial statements and MD&A
available on SEDAR at www.sedar.com.
About Matrix (www.matrixasset.ca)
Matrix Asset Management Inc. a venture capital asset management company with
offices across Canada. As at December 31, 2013, the Company managed
approximately $0.2 billion 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, the trading price of Matrix shares, 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, liquidity risks associated with low trading
volumes for Matrix Common shares and Matrix's decision to voluntarily delist
from the TSX, 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 year ended
December 31, 2013 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.
FOR FURTHER INFORMATION PLEASE CONTACT:
David Levi
President & CEO
(604) 895-7274
david.levi@matrixasset.ca
Clint Matthews
Chief Financial Officer
(604) 895-7251
clint.matthews@matrixasset.ca
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