EDMONTON, Aug. 14 /CNW/ - Resin Systems Inc. (RS - TSX / RSSYF - OTCBB),
a composite products development company ("RS"), is pleased to announce
financial and operational results for the quarter ended June 30, 2006. RS has
filed its unaudited consolidated financial statements for the quarter ended
June 30, 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.
Second Quarter 2006 Highlights
<<
- Received orders for RStandard(TM) poles in excess of $2 million;
- Sales were $0.4 million (sales reflects orders shipped);
- Gross margin was slightly negative, reflecting RS's continued focus on
achieving production capacity and efficiency;
- RS invested $6.1 million in manufacturing start-up and product
development including $0.3 million capitalized in Property, Plant and
Equipment, $2.8 million attributed to scrap and waste and $1.2 million
related to product development and engineering;
- Net loss for the quarter ended June 30 2006 was $10.4 million
due to the following additional significant items:
- marketing and business development expenses of $0.8 million, a
decrease of $0.2 million over the same period in 2005;
- corporate overhead of $3.7 million, an increase of $2 million
over the same period in 2005 due to financing charges related
to the Company's convertible debentures.
>>
Overview
Since starting its first product development in 2004, RS has successfully
created the RStandard(TM) product line of leading-edge utility poles. RS
continues to build the RStandard business globally and is receiving increasing
orders from its expanding customer base.
As a composite product innovator, RS has numerous products in 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 strategic
relationships with existing manufacturers to efficiently commercialize these
new products.
Production
RS's primary focus in the second quarter continued to be the ramp-up and
efficiency of the new Calgary production facilities. The goal was to reach
full efficiency and production capability in the third quarter. By the end of
the second quarter, it is apparent that this will not be achieved due to
unexpected technical issues. These second quarter production challenges
included:
<<
- as seasonal temperatures and humidity increased, RS encountered
unexpected surface quality issues in its production process at levels
unacceptable for its quality standards. After extensive analysis, RS
has isolated the causes and has implemented a number of environmental
controls to solve this problem under a variety of humidity conditions;
- RS experienced higher than planned material waste in its production
process. Management has implemented a number of key process changes
that have reduced waste significantly, and further improvements being
made in this area are expected to reduce waste to acceptable levels;
- the process changes to reduce waste also included changes to the
winding patterns of each module to optimize the strength
characteristics of the resin systems. These changes required a
complete round of reprogramming and retesting of each module in the
RStandard design;
- RS continued to encounter significant delays in addressing equipment
issues resulting from incomplete performance and insufficiently robust
equipment design by its equipment supplier. RS has met these
challenges with increasing its in-house mechanical skills in equipment
manufacturing; and
- the local labour market continues to create significant ongoing
challenges in the sourcing of growing staff needs and the retention of
existing staff. Management is meeting these challenges by expanding
its recruiting region and increasing focus on human resource
management.
>>
"We have met some unexpected technical issues with our production," said
Greg Pendura, Chairman, President and Chief Executive Officer of RS. "The good
news is we have addressed the issues and believe they are now behind us. We
have learned a significant amount about efficiently manufacturing composite
utility poles, and this new knowledge can now be applied as we grow our
business."
Sales and NAFTA Market Penetration
RS gained traction in the North American utility pole market, increasing
second quarter new orders to over $2 million.
"The North American market awareness is increasing as seen by our order
numbers and continued regular customer contact and interest," stated Mr.
Pendura. "We continue to see repeat orders and a strong interest from new
utility and engineering companies. In fact, during this quarter we completed
our first wind farm transmission line with a new customer."
Global Markets
RS continues actively pursuing strategic relationships worldwide. In
addition to the regions highlighted below, RS is in advanced discussions with
various interested parties in South Korea, Philippines, India, The Middle
East, the Mediterranean region, Brazil and Mexico.
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 the initial 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 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. Initial testing of RStandard poles is currently underway in China and
expected to be completed during the third quarter of 2006. Orders for the
additional in-situ testing and final customer acceptance have been received
and are scheduled to be shipped at the end of Q3 2006. Once the customer
testing and product acceptance is completed regular shipments will begin in
accordance with the agreement.
Research and Product Development
RS's product development cycle involves a significant number of steps,
including product design, engineering, prototyping, testing and product
acceptance. The product acceptance cycle includes the production of product
samples for customer testing and acceptance. After completion of product
development and acceptance, RS is able to proceed with commercial production.
Beyond RStandard, RS currently has multiple infrastructure and industrial
composite product applications in various stages of product development and
acceptance. An update on the applications that are the most advanced in our
product acceptance cycle follows.
Bulk Handling Conveyor System Rollers (VRoll(TM))
-------------------------------------------------
RS is currently in the final stages of testing VRoll conveyor system
rollers. VRoll has undergone stringent third-party and in-house testing and
the results are better than expected. The next and final stage of product
development is initial customer in-situ testing and acceptance, which are
currently underway. Following customer acceptance a shipment schedule will be
finalized and commercialization of Vroll will commence.
Conference Call
RS will host a conference call on Tuesday, August 15, 2006 starting at
9:00 a.m., Mountain Time (11:00 a.m. Eastern Time) to discuss RS's second
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 develops advanced composite
products for large-scale industrial markets. These products replace products
which traditionally have been made using conventional building blocks of wood,
concrete and steel. The foundation of RS is continuous innovation and product
development utilizing 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 is bringing to market the award
winning RStandard(TM) modular composite transmission and distribution
structure and is in various stages of development of additional new 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.
