EcoSynthetix Reports 2012 First Quarter Results

BURLINGTON, ON, May 14, 2012 /CNW/ - EcoSynthetix Inc. (TSX: ECO), a renewable chemicals company that produces a family of commercially proven bio-based products, today announced its financial results for the three months ended March 31, 2012. Financial references are in U.S. dollars unless otherwise indicated.

First Quarter 2012 Highlights

• Won four new customers during the quarter
• New customers included a global top 20 coated paper and paperboard manufacturer located in Asia Pacific and a fiberglass insulation manufacturer in the United States
• Commissioned an 80 million pound production line in the U.S. facility, bringing total capacity to 235 million pounds
• Five of the top 20 global paper and paperboard manufacturers are commercial with the Company's binders with an additional 9 of the top 20 manufacturers at the mill trial stage
• Recruited experienced sales executives to grow the binder business in Asia and Europe

"The investment in our sales team over the past year is beginning to yield results with four new customer wins so far this year," said John van Leeuwen, Chairman and Chief Executive Officer. "Petroleum and Styrene Butadiene Latex prices remain high and continue to demonstrate volatility. As potential customers meet with us and see their competitors adopting our products, they are recognizing a need to look more seriously at alternatives. Because our products offer a significant price advantage and demonstrate equal or better performance, we expect mill trials to continue to translate into customer wins in the year ahead."

Financial Summary

Revenue

Total revenue for the quarter was $4.0 million, compared to $6.2 million in Q1 2011, a decrease of $2.2 million.  The decrease was primarily caused by lower sales of approximately $3.1 million in the Asia Pacific region during the quarter, compared with Q1 2011. This was primarily a result of lower purchases by a major customer in the region. This decrease was partially offset by higher sales from the commercialization of three new paper mills during the quarter which included a global top 20 coated paper and paperboard manufacturer in Asia Pacific, as well as our first commercial shipment to a top-five insulation manufacturer in the United States. Overall, sales to new customers accounted for 21% of our total sales in the first quarter of 2012. Lower sales in Asia Pacific were also partially offset by a $0.4 million sales increase in North America, a $0.3 million sales increase in EMEA and a $0.2 million sales increase in Latin America. Excluding the impact of lower sales to the major Asian customer, revenue increased by 80% during the quarter compared to the same period in fiscal 2011.

Although mill trials are at robust levels, in the short-term the rate of adoption for our products continues to be impacted by the capacity rationalization that many paper companies are undertaking in response to weaker economic conditions. We expect that as industry capacity normalizes, paper manufacturers will place increased emphasis on operational improvements such as those offered by our low-cost, bio-based products.

Gross Profit

Gross profit for the quarter was $0.8 million, or 19.1% of revenue, compared to $1.5 million, or 24.2% of revenue, in Q1 2011. The decrease in gross profit during the quarter was primarily due to lower sales volume, higher depreciation related to manufacturing equipment during the quarter as well as an increase in raw material input costs, mainly related to cornstarch. The increase in manufacturing depreciation was due to the completion of our production expansion in The Netherlands in the fourth quarter of fiscal 2011 and lower absorption of manufacturing depreciation into inventory due to lower levels of production in the first quarter of 2012. These factors were partially offset by an increase in selling price year-over-year. Gross profit adjusted for depreciation related to manufacturing equipment was 24.4% of revenue in Q1 2012 compared to 25.8% of revenue in Q1 2011.

Selling, General and Administrative (excludes share-based compensation, depreciation and amortization and foreign exchange loss or gain)

Selling, general and administrative (SG&A) costs for the quarter were $2.4 million, compared to $1.0 million in Q1 2011. The increased costs incurred during the quarter were primarily due to the higher salaries, benefits and overhead costs associated with a 100% increase in staffing levels from Q1 2011.

Research and Development

Research and development (R&D) expenses for the quarter were $1.1 million, compared to $0.4 million in Q1 2011. The increase represents continued investment in research and development net of government assistance recognized and additional costs related to our Centre of Innovation (COI) which was commissioned in the fourth quarter of fiscal 2011.

Adjusted EBITDA¹

Adjusted EBITDA for the quarter was ($2.6) million, compared to $0.2 million in Q1 2011. The decrease in adjusted EBITDA was primarily due to higher operating expenses and lower gross profit year-over-year.

Net Loss

The net loss in Q1 2012 was $2.9 million, or $0.05 per common share (basic and fully diluted), compared to a net loss of $56.1 million, or $70.40 per share (basic and fully diluted), for Q1 2011. The comparative period included a $55.9 million charge related to the change in fair value of warrants and redeemable preferred shares previously treated as financial liabilities prior to the IPO.

The pro-forma (before fair value charges) net loss in Q1 2012 was $2.9 million or $0.05 per common share (basic and fully diluted) compared with a pro-forma net loss of $0.2 million or $0.19 per common share (basic and fully diluted) in Q1 2011.

Liquidity

Working capital was $109.1 million at March 31, 2012 compared to working capital of $113.8 million at December 31, 2011. The decrease was attributable to cash utilized for operating and investing activities.

Notice of Conference Call

EcoSynthetix will host a conference call on Monday, May 14, 2012 at 8:30AM ET to discuss its financial results.  John van Leeuwen, Chairman and CEO, and Robert Haire, CFO, will co-chair the call. All interested parties can join the call by dialling [phone] or [phone]. Please dial in 15 minutes prior to the call to secure a line. A live audio webcast of the conference call will also be available at www.ecosynthetix.com. The presentation will be accompanied by slides, which will be available via the Company's website. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast.

¹Non-IFRS Financial Measures

This press release makes reference to certain non-IFRS measures. These non-IFRS measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing a further understanding of results of operations of EcoSynthetix from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the financial information of EcoSynthetix reported under IFRS. We use non-IFRS measures such as Adjusted EBITDA to provide investors with a supplemental measure of operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Our management also use non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess its ability to meet its capital expenditure and working capital requirements.

Adjusted EBITDA is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. The Company presents Adjusted EBITDA because the Company believes it facilitates investors' use of operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structures (affecting relative interest expense), the book amortization of intangibles (affecting relative amortization expense) and the age and book value of property and equipment (affecting relative depreciation expense). The Company also presents Adjusted EBITDA because it believes it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance. Adjusted EBITDA as presented herein is not a recognized measure under IFRS and should not be considered as an alternative to operating income or net income as a measure of operating results or an alternative to cash flows as a measure of liquidity. Adjusted EBITDA is defined as consolidated net income (loss) before interest, income taxes, depreciation, amortization, other non-cash expenses and charges which include the movement in the unrealized gains and losses on the Company's redeemable preferred shares and warrants classified as financial liabilities prior to the initial public offering and share based compensation expense. The following table reconciles net loss to Adjusted EBITDA for Q1 2012 and Q1 2011:

	March 31, 2012	March 31, 2011
Net loss & comprehensive loss	(2,939,492)	(56,054,747)
Depreciation and amortization	239,417	146,060
Share-based compensation	240,000	193,668
Change in value of warrants and preferred shares	-	55,904,423
Interest expense (income)	(93,621)	(17,948)
Adjusted EBITDA ^1	(2,553,696)	171,456

Forward Looking Statements

Certain statements in this Press Release constitute "forward looking" statements that involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, objectives or achievements of the Company, or industry results, to be materially different from any future results, performance, objectives or achievements expressed or implied by such forward looking statements. These statements reflect our current views regarding future events and operating performance and are based on information currently available to us, and speak only as of the date of this Press Release. These forward looking statements involve a number of risks, uncertainties and assumptions and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such performance or results will be achieved. Those assumptions and risks include, but are not limited to, the fact that our results of operations and business outlook are subject to significant risk, volatility and uncertainty. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward looking statements, including the factors identified in the "Risk Factors" section of the Company's Annual Information Form for the fiscal year ended December 31, 2011. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward looking statements prove incorrect, actual results may vary materially from those described in this Press Release as intended, planned, anticipated, believed, estimated or expected. Unless required by applicable securities law, we do not intend and do not assume any obligation to update these forward looking statements.

About EcoSynthetix Inc. (www.ecosynthetix.com)

EcoSynthetix Inc. is a renewable chemicals company specializing in bio-based products that can be used as inputs in industrial manufacturing for a wide range of consumer products. The Company's products offer a reduced carbon footprint and are marketed primarily on the basis of lower cost, stable pricing and equal or superior performance. EcoSynthetix's lead product, ECOSPHERE^® BIOLATEX^® binders, is used commercially by a number of the global top 20 manufacturers in the coated paper and paperboard industry.

EcoSynthetix Inc.
Interim Consolidated Balance Sheets
(Unaudited)

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(expressed in US dollars)

		March 31, 2012		December 31, 2011
Assets
Current assets
Cash		99,898,903		105,713,705
Accounts receivable		2,629,744		3,116,445
Inventory		9,534,393		10,243,410
Government grants receivable		522,336		639,685
Prepaid expenses		117,906		182,842
		112,703,282		119,896,087
Non-current assets
Intangible asset		68,100		-
Property, plant and equipment		12,631,637		10,766,124
Total assets		125,403,019		130,662,211
Liabilities
Current liabilities
Accounts payable and accrued liabilities		3,566,821		6,142,668
Shareholders' Equity
Common shares		492,379,468		492,353,321
Contributed surplus		6,303,080		6,073,080
Accumulated deficit		(376,846,350)		(373,906,858)
Total shareholders' equity		121,836,198		124,519,543
Total shareholders' equity and liabilities		125,403,019		130,662,211

EcoSynthetix Inc.
Interim Consolidated Statements of Operations and Comprehensive Loss
For the three months ended March 31
(Unaudited)

---

(expressed in US dollars, unless otherwise noted)

		2012		2011
Net sales		3,978,347		6,159,132
Cost of sales		3,218,533		4,668,506
Gross profit on sales		759,814		1,490,626
Expenses
Selling, general and administrative		2,716,433		1,239,291
Research and development		1,076,494		419,607
		3,792,927		1,658,898
Loss from operations		(3,033,113)		(168,272)
Interest income		93,621		17,948
Loss related to change in value of warrants and redeemable preferred shares		-		(55,904,423)
Net loss and comprehensive loss		(2,939,492)		(56,054,747)
Basic and diluted loss per common share		(0.05)		(70.40)
Weighted average number of common shares outstanding		55,248,203		796,278

EcoSynthetix Inc.
Interim Consolidated Statements of Shareholders' Equity (Deficiency)
For the three months ended March 31
(Unaudited)

---

(expressed in US dollars)

		Common shares		Equity component of redeemable preferred shares		Contributed surplus		Accumulated deficit		Total
Balance - January 1, 2011		143,213		19,793,287		2,180,570		(121,198,710)		(99,081,640)
Share-based compensation		-		-		193,668				193,668
Net loss and comprehensive loss		-		-		-		(56,054,747)		(56,054,747)
Balance - March 31, 2011		143,213		19,793,287		2,374,238		(177,253,457)		(154,942,719)
Balance - January 1, 2012		492,353,321		-		6,073,080		(373,906,858)		124,519,543
Common share options exercised		26,147		-		(10,000)		-		16,147
Share-based compensation						240,000				240,000
Net loss and comprehensive loss				-		-		(2,939,492)		(2,939,492)
Balance - March 31, 2012		492,379,468		-		6,303,080		(376,846,350)		121,836,198

EcoSynthetix Inc.
Interim Consolidated Statements of Cash Flows
For the three months ended March 31
(Unaudited)

---

(expressed in US dollars)

		2012	2011
Cash provided by (used in)
Operating activities
Net loss and comprehensive loss		(2,939,492)	(56,054,747)
Items not affecting cash
	Depreciation and amortization	239,417	146,060
	Share-based compensation	240,000	193,668
	Change in value of warrants and redeemable preferred shares	-	55,904,423
Changes in non-cash working capital
	Accounts receivable	486,701	(844,144)
	Inventory	784,188	(439,810)
	Government grants receivable	117,349	64,398
	Prepaid expenses	64,936	(7,606)
	Accounts payable and accrued liabilities	(1,513,149)	1,989,408
	Accrued compensation	-	23,629
	Deferred government assistance	-	(486,961)
		(2,520,050)	488,318
Investing activities
Cash used for purchase of intangible asset, property, plant and equipment		(3,310,899)	(2,978,103)
Financing activities
Exercise of share options		16,147	-
Increase in government grants		-	1,203,482
		16,147	1,203,482
Decrease in cash during the period		(5,814,802)	(1,286,303)
Cash - Beginning of period		105,713,705	35,193,037
Cash - End of period		99,898,903	33,906,734

 

EcoSynthetix Inc.
John van Leeuwen
Chairman & Chief Executive Officer
Phone: [phone]
E-mail: [email protected] 

Investor Relations
Ross Marshall
TMX Equicom
Phone: [phone] (Ext.238)
E-mail: [email protected]