EDMONTON, May 15 /CNW/ - Resin Systems Inc. (RS - TSX / RSSYF - OTCBB), a
composite products innovation company ("RS"), is pleased to announce financial
and operational results for the three months ended March 31, 2006. RS has
filed its unaudited consolidated financial statements for the three months
ended March 31, 2006 and related management's discussion and analysis with
Canadian securities regulatory authorities. The financial statements and
management's discussion and analysis have also been filed with the United
States Securities and Exchange Commission. Copies of the respective documents
are available at www.sedar.com, www.sec.gov and RS's website at
www.grouprsi.com. RS reports in Canadian dollars and all financial references
in this news release are in Canadian dollars unless otherwise noted.
RS's financial and operating highlights for the three months ended
March 31, 2006 included the following:
Financial Highlights
- RS experienced a nine-fold increase in sales to $815,512 from $82,951
in the first quarter of 2005;
- Gross margin was negative, reflecting RS's start-up and early stage of
production efficiency;
- During the quarter, RS invested $3.6 million in installing and
commissioning its state-of-the-art Calgary production facility,
including $1.6 million capitalized in Property, Plant and Equipment
and $2.0 million expensed as part of Manufacturing Start-up and
Product Development;
- Net loss for the quarter ended March 31, 2006 was $8.1 million
including the following significant items:
- costs related to manufacturing start-up of $2.0 million;
- costs related to product engineering and development of
$1.0 million;
- marketing and business development expenses of $0.9 million, an
increase of $0.4 million over the same period in 2005 resulting
from the increased focus on market penetration of RS's products;
and
- corporate overhead of $3.3 million, an increase of $1.3 million
over the same period in 2005 due to financing costs from the
convertible debenture issued in October 2005.
Overview
Since starting our commercialization in 2004, RS has successfully created
the RStandard(TM) product line of leading-edge utility poles that have gained
market acceptance with over 30 RStandard customers. RS is now well positioned
to compete for larger orders from its expanding customer base.
While RS continues to build its RStandard business, both in North America
and abroad, RS has numerous products under various stages of development
including multiple advanced opportunities. In general, these products present
significant market opportunities while having manageable barriers of entry. In
most cases, RS will actively seek partnerships with existing manufacturers to
efficiently commercialize these new products.
Production
RS's primary focus in the first quarter was the start-up, testing and
commissioning of its Calgary production facilities. This investment in
facilities involved a number of activities, including:
- commissioning and integration of production equipment built by RS's
equipment supplier. During the course of this work, the equipment
supplier has encountered significant delays in performing its work
and, ultimately, in the completion of their contractual obligations.
This negatively impacted RS's production schedule and start-up
costs;
- extensive module programming, qualifying and testing, and related
consumption of materials; and
- the recruitment and training of new production staff.
"Reaching efficient production is critical to advancing our North
American market penetration as well as our international licensing
initiatives." said Greg Pendura, Chairman, President and Chief Executive
Officer of RS. "We expect that as production and efficiency increases and
one-time start-up costs are eliminated, our operations will move toward
profitability. The investment we are making now is to ensure high-quality
standards and lower production costs in the long-term. With production Cell
No. 2 in Calgary, we are now able to produce RStandard modules for utility
poles up to 41 metres (135 feet) in height. This allows us to fulfill the
needs of our international partners."
NAFTA Market Penetration
RS made continued progress in its efforts to penetrate the North American
utility pole market, increasing its RStandard customer base 41% and its sales
55% over the fourth quarter of 2005. "Customer reports confirm that the
RStandard product advantages are real, measurable and significant and
increasing sales show that market acceptance of RStandard poles is rapidly
growing," stated Mr. Pendura. "We continue to focus on increasing our customer
base, obtaining repeat orders and broadening the scope of projects in which
our poles are used."
Global Markets
RS is actively pursuing opportunities in global markets through the
development of strategic relationships worldwide. In addition to the regions
highlighted below, RS is in discussions with several parties in other target
markets.
Australia
---------
During 2005 RS announced a license and supply agreement for Australia and
New Zealand with Armor Utilities Structures Pty Limited ("Armor") as well as
an initial shipment of poles for product approval and acceptance. Armor has
been working on market penetration in the region with successful installations
in three separate live grids and continuous acceptance work with local
utilities. The development of a production facility in Australia is dependent
upon the continued development of the Australian market, achieving efficient
production in the Calgary facility and receiving required customer acceptance.
China
-----
In October 2005, RS announced that it had entered into a co-operation and
initial purchase agreement with Jiangsu Far-East Group Co., Ltd. ("Far-East")
and Shenzhen Chamber of Commerce for Electric Power Service ("SCCEPS") to
introduce and supply RS's RStandard modular composite utility poles to China.
The agreement provides for RS to work with Far-East and SCCEPS to establish a
joint venture company called "FERSTGRID" in China that will manufacture and
distribute RS's RStandard utility poles in China. Following product approval
by Chinese authorities, the agreement calls for RS to manufacture and ship its
RStandard modules to China until such time as a production facility is
developed by the joint venture company. In April 2006, RS shipped the first of
several containers of RStandard modules to China for product testing and
expects to ship the remaining containers of test product during the second
quarter. RS anticipates that testing will be completed during the third
quarter of 2006 at which time regular shipments will begin in accordance with
the agreement. RS intends to work with its Chinese partners over the next two
quarters to further the development of FERSTGRID.
"Now that we are now able to produce the larger modules required by our
Chinese partners, we are advancing our international licensing deals with
them," said Mr. Pendura. "Our Chinese partners have told us they expect to
complete their approval process in the third quarter and are enthusiastic on
moving forward."
European Union
--------------
In August 2005, RS announced an order for approximately US$26 million of
RStandard modules from an established European Union energy producer and in
November 2005 RS shipped the first container of poles for regulatory testing
and customer acceptance. RS expects to complete testing and obtain customer
acceptance in the third quarter of 2006 and to begin regular shipments
thereafter.
Product Development
The RStandard product line is RS's first successfully developed and
commercialized composite product application. RS's product development cycle
involves a number of steps, including product design, engineering,
prototyping, and testing. The product acceptance cycle includes the production
of product samples for customer testing and acceptance. After completion of
product development and acceptance, RS will proceed with commercial
production.
Beyond RStandard, RS currently has 18 infrastructure and industrial
composite product applications in various stages of product development and
acceptance. An update on the current status of previously announced
applications follows.
Architectural Components
------------------------
In May 2005, RS announced a three-year purchase order for its Version(TM)
resin from Inline Fiberglass Limited, a manufacturer of composite
architectural components. The order initially contemplated shipments of resin
beginning in the fourth quarter of 2005. RS has completed all stages of
product development for this product and is in the acceptance stage. Regular
shipments of Version resin have not started due to delays in the manufacturer
finalizing the acceptance and sale of the architectural products to the end
customer.
Composite Tubing
----------------
In May 2005, RS announced an initial shipment of resin had been shipped
to Polymate, Inc., a Korean-based customer for use in the development and
manufacturing of grout pipes for civil engineering projects. RS has completed
all stages of product development for this product and has shipped samples for
customer approval. Due to product development delays, regular shipments of
Version resin which were expected to commence in October 2005 are not expected
to start until (the third quarter of 2006).
Conveyor System Rollers (VRoll(TM))
-----------------------------------
RS is currently developing composite conveyor rollers for use in
industrial conveyor systems. Over the last quarter, RS completed impact and
abrasion testing on prototype rollers, with excellent results and has provided
product samples for customer approval.
In August 2005, RS announced the acquisition of one-half of a European
Union company ("EUCo."). EUCo's mandate is to pursue market opportunities in
Europe and to establish a production facility in Europe. Also in August 2005,
EUCo. received a US$45 million purchase order for composite industrial
conveyor rollers from a company operating the largest open pit mine in the
European Union. The order is subject to the satisfactory engineering and
design of the product as well as agreement upon the final shipment schedule.
The shipments that were targeted to start during 2005 have been delayed by a
longer than anticipated product development process. Following customer
acceptance, EUCo. is expected to finalize the product shipment schedule.
Conference Call
RS will host a conference call on Monday, May 15, 2006 starting at
2:00 p.m., Mountain Time (4:00 p.m. Eastern Time) to discuss RS's first
quarter 2006 financial and operating results.
To participate in the conference call, please dial 1-866-585-6398
(toll-free in North America) or (416) 849-9626 approximately 10 minutes prior
to the call. A live audio webcast of the conference call will also be
available via RS's website, www.grouprsi.com, on the home page. The webcast
will be archived for approximately 90 days.
Reader Advisory
Certain information set forth in this news release, including
management's assessment of RS's future plans, operations, financial guidance
and long-term growth prospects, contains forward-looking statements which are
based on RS's current internal expectations, estimates, projections,
assumptions and beliefs, which may prove to be incorrect. Some of the
forward-looking statements may be identified by words such as "expects",
"anticipates", "believes", "projects", "plans" and similar expressions. These
statements are not guarantees of future performance and undue reliance should
not be placed on them. Such forward-looking statements necessarily involve
known and unknown risks and uncertainties, which may cause RS's actual
performance and financial results in future periods to differ materially from
any projections of future performance or results expressed or implied by such
forward-looking statements. These risks and uncertainties include, among other
things, RS's lack of revenues and unpredictability of future revenues; the
uncertainty of the profitability of existing and contemplated products of RS;
RS's ability to raise capital on acceptable terms when needed; RS's ability to
attract and retain key employees; competition from established competitors
with greater resources; the uncertainty of the developing markets in which RS
operates; the risks associated with rapidly changing technology; RS's reliance
on third parties to supply raw materials and the cost of such raw materials;
RS's reliance on third party licensees in international markets; intellectual
property risks, risks associated with international operations, foreign
exchange rate fluctuations and changes in general economic, market and
business conditions. Many of these risks and uncertainties are described in
RS's 2005 Annual Information Form and other documents RS files with the
Canadian securities authorities and the United States Securities and Exchange
Commission. The forward-looking statements are made as of the date hereof and
RS assumes no obligation to update or revise such statements to reflect new
events or circumstances unless otherwise required to by applicable securities
laws.
About RS
RS is a composite product innovator. RS engineers advanced composite
products for large-scale industrial markets. These products replace products
which historically have been made using conventional building blocks of wood,
concrete and steel. The foundation of RS is continuous innovation, product
development and its proprietary Version(TM) polyurethane resin system.
RS's business strategy is to continually seek out future business
opportunities in its realm of expertise while applying a focused, disciplined
approach to commercializing those opportunities that pass its business tests.
To date, RS has successfully developed and brought to market the award winning
RStandard(TM) modular composite transmission and distribution structure and is
in various stages of development with other composite products. For the latest
on RS's developments, click on "Latest News" on www.grouprsi.com.
"Version", "RStandard" and "VRoll" are trademarks of Resin Systems Inc.
