Resin Systems Inc. ("RS"), (RS - TSX / RSSYF - OTCBB), a technology innovator that develops advanced composite material products for infrastructure markets today announced its financial and operating results for the quarter ended September 30, 2008. RS reports in Canadian dollars and all financial references in this news release are in Canadian dollars unless otherwise noted.
Third Quarter and Year-to-date 2008 Highlights
- Revenue increased to $0.4 million in the third quarter of 2008 (2007 - $0.1 million) and year-to-date it increased by $3.6 million to $3.9 million (2007 - $0.3 million) due to an increase in RStandard utility pole sales;
- net loss for the quarter was $12.0 million (2007 - $3.1 million) or a loss of $0.08 per share (2007 - loss of $0.02 per share) and net loss year-to-date is $30.4 million (2007 - $17.5 million) or a loss of $0.22 per share (2007 - loss of $0.15 per share), due mainly to expenses, provisions and the assumption of the loans guaranteed by RS all stemming from the bankruptcy of Global Composite Manufacturing Inc. ("GCM") and the restarting of manufacturing operations in Tilbury, Ontario for the quarter and year-to-date; and
- use of cash in operations before non-cash working capital was $5.8 million (2007 - $3.3 million) and year-to-date it was $18.1 million (2007 - $11.6 million) due mainly to the net loss resulting from production delays in the first and second quarters of 2008 and the bankruptcy of GCM.
Business Operations
During this quarter, RS resumed control of the manufacturing of its RStandard utility poles, as a result of the default of GCM of its contractual obligations to RS and its subsequent bankruptcy. When RS resumed control of the manufacturing operations through a wholly-owned subsidiary, it discovered technical deficiencies with the production cells and was in the process of correcting these deficiencies before the plant was shut down on October 31, 2008. Even with the technical deficiencies, RS was able to meet its customers' orders.
As at September 30, 2008, RS had received in excess of $2.0 million worth of orders backlogged against the HD Supply Utilities Ltd. purchase order for utility poles that is in excess of $50 million USD. During the third quarter under difficult circumstances, the Company produced $0.6 million worth of poles and shipped $0.4 million worth of poles.
It had been anticipated that RS would be at a cash-flow positive rate by the end of 2008 and that cash resources would be sufficient to execute the Company's plan until it became cash-flow positive. RS will not be at a cash-flow positive rate by the end of 2008 and the current cash resources are insufficient to bring the Company to a cash-flow positive position. This is mainly due to GCM's failure to meet its obligations under its contract with RS, the discoveries made regarding technical deficiencies with the production cells once RS resumed pole production, the transition of direct manufacturing back to RS and the longer than anticipated sales cycle. Management still anticipates that financial metrics will improve as production increases and the Company's products gain increased acceptance in the marketplace.
Update of Contract Manufacturing
On August 12, 2008, BDO Dunwoody, the interim receiver appointed over GCM's business ("Interim Receiver"), reached an operating agreement with RS. The agreement allowed RS's wholly-owned subsidiary to continue with the manufacturing operations in Tilbury, Ontario on a short-term basis so that RS could fulfill its contractual obligations to deliver RStandard poles to its customers.
Motor City Community Credit Union ("MCCCU") had agreed to lend funds to GCM and RS provided a guarantee in respect of those funds collateralized by the utility pole manufacturing equipment. Once the Interim Receiver was in place, MCCCU made it clear it would move to enforce its security under the guarantee unless RS agreed to make certain payments to MCCCU. In an effort to protect its economic interest and substantial investment in the utility pole manufacturing facility, ensure production continued and protect employees' jobs in Tilbury, Ontario, RS entered an agreement with MCCCU on August 28, 2008. MCCCU agreed it would not exercise its security rights over the equipment and would allow RS to continue to operate the manufacturing lines. In exchange, RS agreed to make the principal and interest payments for the term loans, to repay GCM's line of credit of approximately $575,000 and make a further $500,000 payment towards GCM's term loans. RS entered into this agreement without prejudice.
On October 30, 2008, RS filed a statement of claim against MCCCU seeking damages in the amount of $10,000,000 against MCCCU and an injunction preventing MCCCU from proceeding with the sale of the RS equipment used to manufacture RStandard modular utility poles. The basis of RS's claim against MCCCU is the improper disbursement of funds to GCM.
On November 3, 2008 a temporary injunction was granted by the Ontario Superior Court until November 14, 2008 to allow the parties to review evidence. During this time the manufacturing operations at the Tilbury, Ontario plant will cease and MCCCU is not permitted to take any steps against the equipment of RS.
As of the date of this news release, there have been no further updates on these proceedings. RS will continue to update the market as material developments occur. -- www.cnxmarketlink.com
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