EcoSynthetix Reports 2012 Second Quarter Results

BURLINGTON, ON, Aug. 13, 2012 /CNW/ - EcoSynthetix Inc. ("EcoSynthetix" or the "Company"), a renewable chemicals company that produces a family of commercially proven bio-based products, today announced its financial results for the three and six months ended June 30, 2012. Financial references are in U.S. dollars unless otherwise indicated.

Second Quarter 2012 Highlights

• Won one new customer during the quarter and three customers subsequent to the end of the period, bringing the total new customers won during 2012 to eight
• New customers generated 20% of total sales during the quarter
• Signed a three-year contract with FutureMark Paper Company for a minimum of 2.5 million dry pounds of EcoSphere^® biolatex^® binders annually concurrent with an agreement to install a dry-material handling solution at its mill in Alsip, Illinois, subsequent to the end of the period

"We continue to successfully convert mill trials to customers, winning four new customers since the end of the first quarter. While year-over-year net sales were impacted by a specific Asian account, net sales grew by 39% excluding that customer," said John van Leeuwen, Chief Executive Officer of EcoSynthetix. "This growth reflects our continued confidence in the value that our EcoSphere^® biolatex^® binders offer customers as an alternative to petroleum-based binders. The power of our production process technology is clear even in the face of a recent increase in corn prices, as we maintain our low-cost advantage compared with the volatility and high price of petroleum alternatives."

Financial Summary

Net Sales

Net sales for the three months ended June 30, 2012 (Q2 2012) were $3.7 million compared to $5.6 million for the three months ended June 30, 2011 (Q2 2011). The difference was primarily attributable to $2.9 million in lower sales to a major customer in the Asia Pacific region compared to the prior year. Net sales increased in Q2 2012 by $0.5 million in North America, $0.4 million in EMEA and a $0.1 million in Latin America compared with the same period last year. Excluding the impact of the sales to the major Asian customer, sales increased by 39.4% during Q2 2012 compared to the same period last year.

Net sales for the year-to-date (YTD) period were $7.7 million compared to $11.8 million in the same period last year. The difference was primarily attributable to lower sales in Asia Pacific of $5.9 million partially offset by an increase in sales of $0.9 million and $0.6 million in North America and EMEA respectively. Sales decreased in Asia Pacific principally due to lower purchases from a major customer. Excluding the impact of this customer, sales increased 58.0% for YTD period in 2012 compared to the same period last year. Sales from new customers accounted for 21.0% of total sales for the YTD period.

Gross Profit

Gross profit was $0.6 million or 16.7% of sales in Q2 2012 compared to $1.4 million or 24.1% in the same period last year. The change in gross profit was principally due to lower sales volume, increased raw material input costs related to corn starch, lower sales price and higher manufacturing depreciation.

For the YTD period, gross profit was $1.4 million or 18.0% of sales compared to $2.8 million or 24.2% in the same period last year. The change in gross profit was principally due to lower sales volume, increased raw material input costs related to corn starch and higher manufacturing depreciation partially offset by an increase in sales price.

Manufacturing depreciation in 2012 increased as a result of commissioning two 80 million pound production lines at the Tennessee and the Netherlands facilities. Gross profit as a percentage of sales, adjusted for manufacturing depreciation, was 22.9% and 23.6% for Q2 2012 and YTD, respectively, compared with 25.9% in each of the same two periods last year.

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

Selling, general and administrative (SG&A) costs were $2.3 million in Q2 2012 compared to $2.0 million in the same period last year. For the YTD period, SG&A costs were $4.7 million compared to $3.0 million for the same period last year. The change was principally due to higher salaries and benefits and overhead costs associated with increased headcount.

Research and Development

Research and development (R&D) costs were $1.0 million in Q2 2012 compared to $0.3 million for the same period last year. For the YTD period, R&D costs were $2.0 million compared to $0.7 million for the same period last year. The Company continues to enhance its intellectual property base for new product development of its bio-based technology platforms to support market expansion. 

Adjusted EBITDA¹

Adjusted EBITDA was ($2.4) million in Q2 2012, compared to $(0.8) million in the same period last year. For the YTD period, adjusted EBITDA was ($5.0) million compared to ($0.6) million in the same period last year. Adjusted EBITDA was lower due to increased operating expenses and lower gross profit.

Net Loss

Net loss in Q2 2012 was $2.8 million, or $0.05 per common share (basic and fully diluted), compared to a net loss of $192.0 million, or $177.95 per common share (basic and fully diluted), for same period last year. For the YTD period, net loss was $5.7 million, or $0.10 per share (basic and fully diluted) compared to $248.1 million or $264.57 per share (basic and fully diluted) in the prior period.

The pro-forma (before fair value charges) net loss in Q2 2012 was $2.8 million or $0.05 per share (basic and fully diluted) compared with a pro-forma net loss of $1.1 million or $1.01 per share (basic and fully diluted) in the same period last year. For the YTD period, the pro-forma net loss was $5.7 million, or $0.10 per share (basic and fully diluted) compared to $1.2 million or $1.33 per share (basic and fully diluted) in the same period last year.

Liquidity

Working capital was $106.2 million at June 30, 2012 compared to working capital of $113.8 million at December 31, 2011.  The decrease was principally due to cash utilized in operating and investing activities. 

Notice of Conference Call

EcoSynthetix will host a conference call on Tuesday, August 14, 2012 at 8:30AM ET to discuss its financial results.  John van Leeuwen, CEO, and Robert Haire, CFO, will co-chair the call. All interested parties can join the call by dialing [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. The Company uses non-IFRS measures such as Adjusted EBITDA to provide investors with a supplemental measure of operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. Management also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess the Company's 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 Q2 2012 and Q2 2011:

									June 30,  2012				June 30, 2011
Net loss & comprehensive loss									(2,772,608)				(192,018,852)
Depreciation and amortization									262,515				145,974
Share-based compensation									177,104				217,667
Change in value of warrants and preferred shares									-				190,925,114
Interest expense (income)									(95,655)				(27,941)
Adjusted EBITDA ^(1)									(2,428,644)				(758,038)

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.

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 dated March 30, 2012. 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.

EcoSynthetix Inc. Interim Consolidated Balance Sheets (Unaudited)
(expressed in US dollars)
		June 30, 2012		December 31, 2011
Assets
Current assets
Cash		97,299,476		105,713,705
Accounts receivable		2,770,437		3,116,445
Inventory		8,602,245		10,243,410
Government grants receivable		626,796		639,685
Prepaid expenses		181,807		182,842
		109,480,761		119,896,087
Non-current assets
Intangible asset		136,509		-
Property, plant and equipment		12,869,887		10,766,124
Total assets		122,487,157		130,662,211
Liabilities
Current liabilities
Accounts payable and accrued liabilities		3,244,289		6,142,668
Shareholders' Equity
Common shares		492,382,972		492,353,321
Contributed surplus		6,478,854		6,073,080
Accumulated deficit		(379,618,958)		(373,906,858)
Total shareholders' equity		119,242,868		124,519,543
Total shareholders' equity and liabilities		122,487,157		130,662,211

EcoSynthetix Inc. Interim Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(expressed in US dollars, unless otherwise noted)
		Six months ended  June 30,				Three months ended June 30,
		2012	2011			2012		2011
Net sales		7,713,113	11,768,227			3,734,766		5,609,095
Cost of sales		6,328,535	8,923,008			3,110,002		4,254,502
Gross profit on sales		1,384,578	2,845,219			624,764		1,354,593
Expenses
Selling, general and administrative		5,254,457	3,401,885			2,538,024		2,162,594
Research and development		2,031,497	733,285			955,003		313,678
		7,285,954	4,135,170			3,493,027		2,476,272
Loss from operations		(5,901,376)	(1,289,951)			(2,868,263)		(1,121,679)
Interest income		189,276	45,889			95,655		27,941
Loss related to change in value of warrants and redeemable preferred shares		-	(246,829,537)			-		(190,925,114)
Net loss and comprehensive loss		(5,712,100)	(248,073,599)			(2,772,608)		(192,018,852)
Basic and diluted loss per common share		(0.10)	(264.57)			(0.05)		(177.95)
Weighted average number of common shares outstanding		55,248,568	937,657			55,248,933		1,079,036

EcoSynthetix Inc. Interim Consolidated Statements of Shareholders' Equity (Deficiency) (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)
Issuance of shares		67,369		-		(21,812)		-		45,557
Share-based compensation		-		-		411,335		-		411,335
Net loss and comprehensive loss		-		-		-		(248,073,599)		(248,073,599)
Balance - June 30, 2011		210,582		19,793,287		2,570,093		(369,272,309)		(346,698,347)
Balance - January 1, 2012		492,353,321		-		6,073,080		(373,906,858)		124,519,543
Common share options exercised		29,651		-		(11,330)		-		18,321
Share-based compensation		-		-		417,104		-		417,104
Net loss and comprehensive loss		-		-		-		(5,712,100)		(5,712,100)
Balance - June 30, 2012		492,382,972		-		6,478,854		(379,618,958)		119,242,868

EcoSynthetix Inc. Interim Consolidated Statements of Cash Flows (Unaudited)
(expressed in US dollars)
		Six months ended     June 30,			Three months ended June 30,
		2012	2011		2012	2011
Cash provided by (used in)
Operating activities
Net loss and comprehensive loss		(5,712,100)	(248,073,599)		(2,772,608)	(192,018,852)
Items not affecting cash
	Depreciation and amortization	501,932	292,034		262,515	145,974
	Share-based compensation	417,104	411,335		177,104	217,667
	Change in value of warrants and redeemable preferred shares	-	246,829,537		-	190,925,114
Changes in non-cash working capital
	Accounts receivable	346,008	(341,309)		(140,693)	502,835
	Inventory	1,841,523	(4,150,389)		1,057,335	(3,710,579)
	Government grants receivable	12,889	(190,197)		(104,460)	(254,595)
	Prepaid expenses	1,035	(98,405)		(63,901)	(90,799)
	Deferred share issuance costs	-	(1,626,682)		-	(1,626,682)
	Accounts payable and accrued liabilities	(1,122,947)	4,723,626		390,202	2,734,218
	Accrued compensation	-	(1,005,371)		-	(1,029,000)
	Deferred government assistance	-	(486,961)		-	-
		(3,714,556)	(3,716,381)		(1,194,506)	(4,204,699)
Investing activities
Cash used for purchase of intangible asset,         property, plant and equipment		(4,717,994)	(5,472,114)		(1,407,095)	(2,494,011)
Financing activities
Share issuance costs		-	(604,571)		-	(604,571)
Exercise of share options		18,321	45,557		2,174	45,557
Increase in government grants		-	2,302,904		-	1,099,422
		18,321	1,743,890		2,174	540,408
Decrease in cash during the period		(8,414,229)	(7,444,605)		(2,599,427)	(6,158,302)
Cash - Beginning of period		105,713,705	35,193,037		99,898,903	33,906,734
Cash - End of period		97,299,476	27,748,432		97,299,476	27,748,432

 

 

 

SOURCE: EcoSynthetix Inc.

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

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