EcoSynthetix Inc. Reports 2011 Second Quarter Results

- Revenue increased 58% in Q2 2011 compared to Q2 2010 -

BURLINGTON, ON, Aug. 11, 2011 /CNW/ - EcoSynthetix Inc. (TSX:ECO) ("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 months and six months ended June 30, 2011 (Q2 2011). This is EcoSynthetix's first reporting period since the Company closed its initial public offering on August 4, 2011.  Financial references are in U.S. dollars unless otherwise indicated.

Corporate Highlights

• Completed an initial public offering of 11,150,000 common shares at a price of Cdn$9.00 per share resulting in gross proceeds of Cdn$100,350,000 subsequent to the end of the quarter
• Converted two of the global top 20 coated paper and paperboard manufacturers into customers subsequent to quarter-end; the Company is now commercial with five of the global top 20 manufacturers
• Secured the Company's first commercial customer in the personal care segment during the quarter
• Reached full-scale production levels in the Netherlands manufacturing facility during Q2

Q2 2011 Financial Highlights

• Revenue increased to $5.6 million compared to $3.5 million in Q2 2010
• Gross profit increased to $1.4 million compared to $1.0 million in Q2 2010
• Adjusted EBITDA¹ decreased to ($0.7) million compared to ($0.2) million in Q2 2010

"Volatility in the price of oil and growing commercial adoption of our competitively priced products drove strong year-over-year sales growth for the Company," said John van Leeuwen, Chairman and Chief Executive Officer. "We converted two more of the global top twenty coated paper and paperboard manufacturers to EcoSphere^® Biolatex^® binders subsequent to quarter-end. The number of mill trials we have outstanding has increased since the end of the first quarter and we expect our cost advantage to drive the continued conversion of prospects into customers during the seasonally strong second half."

"On August 4^th, we completed our initial public offering and listing on the TSX. The $100 million we raised will be used to fund our capacity build-out, to further develop our bio-based product suite and to meet our working capital needs. As a low cost provider, we believe we are well positioned to capture additional market share in the coated paper and paperboard industry and to accelerate the adoption of our bio-based products into new markets and novel applications."

Financial Summary

Revenue

Total revenue for the quarter was $5.6 million compared to $3.5 million in Q2 2010, an increase of 58%. Revenue for the year-to-date ("YTD") period was $11.8 million compared to $5.2 million in the prior period. 95% of revenue in Q2 2011 came from recurring sales to current customers, while 5% of total revenue was generated from new customers.

Gross Profit

Gross profit for the quarter was $1.4 million or 24.1% of revenue compared to $1.0 million or 29.3% of revenue during the quarter ended June 30, 2010. For the YTD period, gross profit was $2.8 million or 24.2% of revenue compared to $1.5 million or 29.4% of revenue in the prior period. The compression in gross margin year-over-year was primarily a factor of increased cornstarch costs, which were partially offset by price increases.

Selling, General and Administrative

Selling, general and administrative costs for the quarter were $2.2 million compared to $1.4 million for the same period in 2010. Selling, general and administrative costs for the YTD period were $3.4 million compared to $2.3 million in the prior period. The increase in cost from the prior year is primarily a reflection of the higher staffing levels required to support the Company's growth.

Research and Development

Research and development expenses for the quarter were $0.3 million compared to $0.2 million for the same period in 2010. For the YTD period, expenses were $0.7 million compared to $0.5 million in the prior period. The higher expense year-over-year was primarily reflective of the continued commissioning of the pilot production line in the Company's Burlington, Ontario facility. The pilot production line is expected to be operational by September, 2011.

Adjusted EBITDA⁽¹⁾

Adjusted EBITDA for the quarter was ($0.7) million compared to ($0.2) million for the same period in 2010. For the YTD period, adjusted EBITDA was ($0.5) million compared to ($0.6) million in the prior period. The decrease in adjusted EBITDA in Q2 was primarily caused by the increase in operating expenses required to support the growth of the business, combined with higher cornstarch costs. The increase in expenses during the quarter was partially offset by growth in sales volume and average selling prices compared with Q2 2010.

Loss related to change in fair value of warrants and redeemable preferred shares

The redeemable preferred shares and warrants have been designated as financial liabilities, with changes in fair value reflected directly in earnings. For Q2 2011 the loss related to the change in fair value of warrants and redeemable preferred shares was $190.9 million compared to $18.4 million in the prior period. For the YTD period, the loss related to the change in fair value of warrants and redeemable preferred shares was $246.8 million compared to $18.8 million in the prior period.

All preferred shares and warrants outstanding at the closing of the initial public offering on August 4, 2011 were automatically converted into common shares and common share purchase warrants.

Net Loss and Comprehensive Loss

The net loss and comprehensive loss in Q2 2011 was $192.0 million, or $177.95 per common share (basic and fully diluted), compared to a net loss of $19.0 million, or $23.85 per share (basic and fully diluted), for the quarter ended June 30, 2010. For the YTD period, the net loss and comprehensive loss was $248.1 million, or $264.57 per share (basic and fully diluted) compared to $20.1 million, or $26.35 per share (basic and fully diluted) in the prior period.

The pro-forma (before fair value charges) net lossin Q2 2011 was $1.1 million or $1.01 per share (basic and fully diluted) compared with a pro-forma net loss of $0.6 million or $0.80 per share (basic and fully diluted) in Q2 2010. For the YTD period, the pro-forma net loss was $1.2 million, or $1.33 per share (basic and fully diluted) compared to $1.2 million or $1.61 per share (basic and fully diluted) in the prior period.

Liquidity

As at June 30, 2011, EcoSynthetix's cash balance was $27.7 million, compared with $35.2 million on December 31, 2010. Working capital as of June 30, 2011, was $32.2 million. The Company believes that ongoing operations, working capital and associated cash flow in addition to cash resources provide sufficient liquidity to support ongoing business operations for at least the next 12 months.

Notice of Conference Call

EcoSynthetix will host a conference call on Thursday, August 11, 2011 at 10:00 A.M. EST 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 (647) 427-7450 or (888) 231-8191. 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 and at www.newswire.ca. 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 expense, income taxes, depreciation, amortization, other non-cash expenses and charges which include the movement in the unrealized gains and losses on the Company's financial liabilities and stock based compensation expense. The following table reconciles net income (loss) to Adjusted EBITDA for Q2 2011 and Q2 2010:

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 supplemented prospectus dated July 27, 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 manufactures a family of commercially proven bio-based inputs for a wide range of consumer and industrial goods. The Company's products are displacing petroleum-based synthetic polymers in various applications because of their lower cost, more stable pricing and equivalent or superior performance. EcoSynthetix's lead product, EcoSphere^® Biolatex^® binder, is used commercially by a number of the top global coated paper and paperboard companies. The Company's "green" technology platforms provide customers with opportunities to significantly reduce their carbon footprint while switching to renewable, cost-effective inputs.