Forterra Environmental Reports 2009 Year-End Results
- Success in developing new customer relationships is slow to result in expected sales growth as financial constraints affect marketing and sales efforts - Company remains optimistic about opportunities for growth as various directors and others provide financial support - Further sales growth and improved financial performance expected for 2010, subject to the company's ability to raise additional capital - Plant open to accommodate retail and other buyers in May
PUSLINCH, ON, May 3 /CNW/ - Forterra Environmental Corp. (TSXV: FTE), a manufacturer, marketer, and seller of premium organic soil-enrichment products based on worm castings, today announced its financial results for year ended December 31, 2009. Financial results conform to Canadian generally accepted accounting principles (GAAP) and all currency amounts are in Canadian dollars.
"Forterra continued to make progress in key areas in 2009, including carrying out successful trials with potential customers and developing new relationships that we anticipate will result in increased sales in 2010, improving our manufacturing operations, and reducing expenses. Nevertheless, it was a frustrating year," said Rick Denyes, president and chief operating officer.
"We had expected that the success that we were having in attracting new customers would result in significant sales growth. That did not happen at nearly the rate that we anticipated. We found that the process of carrying out trials with potential new major customers and subsequently negotiating supply or sales agreements is considerably lengthier than we had anticipated.
"It also became evident that even after we have developed a new customer relationship, it takes longer to gain adoption for our products by their customers and it requires a more aggressive marketing and sales push supported by us," Mr. Denyes continued. "We have been unable to implement the marketing and sales programs that we have planned due to the financial constraints under which we have been operating for most of Forterra's history and particularly in 2009 and the first part of 2010.
"These factors contributed to the company recording only negligible sales in the 2009 fourth quarter. Other factors that adversely affected our sales in 2009 included the cooler, wetter weather conditions early in the year, as we have previously discussed," said Mr. Denyes. "The slower than expected development of sales for the year resulted in a significant shortfall in Forterra's revenues and working capital compared with the amounts projected by the company in its budget. The shortfall in anticipated sales has continued into the early part of 2010."
"While we are experiencing pressure on our financial liquidity, our management and the Board of Directors continue to be optimistic about the longer-term opportunities for Forterra's growth and its ability to create value for its shareholders," said Don Green, Chairman and Chief Executive Officer. "Based on this belief, as we announced on April 20, certain directors invested $214,000 through the non-brokered issue of a 12% Secured Debenture and certain holders of the company's Series A Secured Debentures, including myself, elected to reinvest $174,539.35 of payments that they had received back into Forterra to provide further financing intended to provide a bridge to see the company through the current critical seasonal selling period.
"Forterra's success is dependent on a number of factors," Mr. Green continued. "Obviously, we must increase our sales and improve our financial performance. We completed 2009 with a substantial working capital deficiency and payables. The company will need to rely, at least in the short term, on its lenders for financial assistance and is continuing to explore possible opportunities to raise additional capital. We cannot determine at this time whether these efforts will be successful.
"We do know, however, that Forterra has a very good product offering that has been enthusiastically reviewed by our current and potential customers. Through years of investment, trials, and errors, we have developed a reliable and efficient manufacturing process. Given these attributes, we believe that Forterra will be successful," Mr. Green said.
In response to inquiries from shareholders and others, Forterra said that its Puslinch facility will be open for retail and other buyers during the spring planting season in May. The hours for sales will be Monday to Friday from 10:00 a.m. until 4:00 p.m. and Saturdays from 9:00 a.m. until noon.
Financial Highlights
Forterra continues to be considered a development-stage company for accounting purposes and, as such, the progress that the company is making is not fully reflected in the financial statements. As a development-stage company, its revenues are applied to reduce general and administrative (G&A) expenses. Total sales were $142,284 for 2009 versus $110,508 in 2008.
G&A expenses consist primarily of costs related to modification, engineering and refinement of the manufacturing facilities, senior management salaries, occupancy costs, consulting, and professional legal and accounting services. The company's efforts to reduce and control expenses resulted in a decline in G&A in 2009 from the 2008 level as Forterra reduced its costs for sales, wages, and occupancy. G&A expenses were $1,372,790 for 2009, compared with $1,618,806 in 2008. G&A expenses for 2008 have been restated to reflect the company's change in its accounting policy to recognize its worm population as a biological asset. Accordingly, while the value of the worms as at December 31, 2008 based on the unamortized acquisition price was $131,765, the re-valuation to the market value based on market prices less selling costs as at December 31, 2008 resulted in a market valuation loss of $61,076.
Salaries and wages totaled $456,264 in 2009 and $598,214 in 2008. The decreases relate, in part, to capitalizing production salaries to inventory in 2009; salaries directly involved in the production of worm castings are being capitalized as part of inventory.
Occupancy expenses, consisting of the Puslinch facility, which is the company's active plant and head office, decreased to $365,246 in 2009, including expenses for former facilities in Downsview and Concord for the first half of the year. Including additional costs and accruals related to the Downsview and Concord locations, total occupancy costs for 2009 amounted to $591,443. Occupancy expenses in 2008 were $393,983, consisting of rents for the Downsview and Concord locations. Occupancy expense for the Puslinch facility will be approximately $196,000 in 2010. Management has reached an agreement on the termination of the Concord space and is in negotiations to terminate the Downsview location.
Sales and marketing expenses amounted to $148,731 for 2009 versus $111,321 for 2008. Marketing expenses were increased in early 2009 as the result of the addition of new sales representatives and to costs relating to the establishment of marketing strategies and market research and reflecting the fact that 2008 was considerably lower due to decreases resulting in adjustments of marketing consulting services and the completion of web page development.
R&D expenditures were $55,969 for 2009 and $5,954 for 2008. R&D expenditures relate primarily to the development of manufacturing equipment and research conducted in house in relation to the red wiggler worms required for the production process. The company also has funded studies at the University of Guelph that it believes will be contribute to the development and marketing of Forterra's products.
After certain other expenses, including interest, depreciation and amortization, and stock-based compensation, the consolidated net loss was $2,070,254 (a loss of $0.03 per share on a basic and diluted basis) for 2009, compared with a net loss of $2,302,553 (a loss of $0.03 per share on a basic and diluted basis) for 2008.
As at December 31, 2009, the company had negative working capital of ($851,575) compared with December 31, 2008, when the company had positive working capital of $298,421.
In November 2009, the company recovered Scientific Research and Experimental Development (SR&ED) Credits of $293,795 with respect to expenditures in 2006 and 2007. No recoveries were made in 2008. Certain debenture holders waived their right to receive their portion of the SR&ED credit refund and reinvested this amount ($85,832) back into Forterra. Subsequent to the 2009 year-end, certain debenture holders reinvested an additional $88,707 back into Forterra as loans made on the same terms as those of the 12% Secured Debenture Series B with the exception that no bonus shares were issued.
Subsequent to the 2009 year-end, Forterra raised $214,400 through the non-brokered issuance of a 12% Secured Debenture - Series B to three directors of the Company. The financing is intended to be a bridge loan with the debentures and interest due and payable on August 31, 2010, subject to earlier redemption without any penalty at the option of the Company. Subject to the approval of the TSX Venture Exchange, the three lenders will receive Bonus Shares at the rate of four common shares of Forterra for every $1.00 principal amount of the loan (a total of 857,600 shares to be issued). The deemed value of the common shares to be issued is $0.05 per share.
About Forterra Environmental Corp.
Forterra manufactures, markets, and sells environmentally friendly soil enhancers, using worm castings, which boost fertility while restoring the soil with organic matter for sustainable, longer-term benefits, including stronger root growth, and drought and pest resistance. Forterra products contain only organic material. They are ideal for golf courses, sports fields, lawn care, parks, nurseries, orchards, and vineyards. Essentially, Forterra uses red wriggler worms to convert organic material into vermicompost or worm castings. Worm castings contain micronutrients, which are required for healthy plant development. Worm castings also contain microbes, which increase the rate at which plants take up available macronutrients and micronutrients. Further information is available on the company's website at www.forterra.com.
Forward-Looking Statements
This news release contains forward-looking statements based on current expectations. These forward-looking statements entail various risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Such statements are based on current expectations, are subject to a number of uncertainties and risks, and actual results may differ materially from those contained in such statements. These uncertainties and risks include, but are not limited to, availability of resources, competitive pressures, changes in market activity, the ability to sign contracts with customers, the development of markets for worm castings, its ability to breed and maintain a sufficiently large worm population, and regulatory requirements. Risks and uncertainties about Forterra's business are more fully discussed in the company's disclosure materials, including its annual information form and MD&A, filed with the securities regulatory authorities in Canada. Forterra assumes no obligation to update any forward-looking statement or to update the reasons why actual results could differ from such statements.
Neither the TSX Venture Exchange Inc. nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
FORTERRA ENVIRONMENTAL CORP. (A Development Stage Company) CONSOLIDATED BALANCE SHEET FOR THE YEARS ENDED DECEMBER 31, 2009 2008 $ $ ------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents 2,297 368,426 Amounts receivable 47,031 104,147 Inventory 411,843 312,982 Prepaid expenses and deposits 7,732 76,515 -------------------------- TOTAL CURRENT ASSETS 468,903 862,070 PROPERTY AND EQUIPMENT 336,732 300,921 BIOLOGICAL ASSETS 232,698 70,689 INTANGIBLE ASSETS 1 1 GOODWILL 30,000 30,000 -------------------------- TOTAL ASSETS 1,068,334 1,263,681 -------------------------- -------------------------- LIABILITIES CURRENT LIABILITIES Amounts payable and accrued liabilities 1,160,478 299,744 Current portion of capital lease payable - 3,905 -------------------------- TOTAL CURRENT LIABILITIES 1,160,478 303,649 DEBENTURE PAYABLE ) 409,630 - DUE TO SHAREHOLDERS 160,000 260,000 DEFERRED RENT 23,908 90,534 -------------------------- TOTAL LIABILITIES 1,754,016 654,183 -------------------------- SHAREHOLDERS' EQUITY CAPITAL STOCK 8,818,910 8,668,601 WARRANTS 411,398 1,367,716 CONTRIBUTED SURPLUS 2,555,863 960,745 SHARES TO BE ISSUED - 14,035 (DEFICIT) (12,471,853) (10,401,599) -------------------------- TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (685,682) 609,498 -------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,068,334 1,263,681 -------------------------- -------------------------- FORTERRA ENVIRONMENTAL CORP. (A Development Stage Company) CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS AND DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2009 2008 $ $ ------------------------------------------------------------------------- EXPENSES General and administrative 1,372,790 1,618,806 Sales and marketing 148,731 111,321 Research and development 55,969 5,954 -------------------------- Loss before other expenses 1,577,490 1,736,081 -------------------------- OTHER EXPENSES (RECOVERED) Stock-based compensation 638,800 456,551 Amortization of property and equipment 67,532 38,400 Scientific Research and Experimental Development Credits (293,795) - Gain on forgiveness of debt - (35,877) Foreign exchange gain (3,565) (2,592) Interest and accretion on long-term debt 104,206 120,890 Interest on held for trading investments (3,256) (14,351) Interest income (24,328) Interest expense 7,170 3,451 -------------------------- 492,764 566,472 -------------------------- NET LOSS AND COMPREHENSIVE LOSS FOR THE YEAR 2,070,254 2,302,553 -------------------------- DEFICIT, beginning of year, as previously stated 10,340,523 8,099,046 Change in accounting policy 61,076 0 -------------------------- DEFICIT, beginning of year, as restated 10,401,599 8,099,046 -------------------------- DEFICIT, end of year 12,471,853 10,401,599 -------------------------- -------------------------- Weighted average shares outstanding 81,399,269 70,026,117 Loss per share basic and diluted 0.03 0.03 FORTERRA ENVIRONMENTAL CORP. (Previously named "REWORKS Environmental Corp.") (A Development-Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009 2008 $ $ ------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the year (2,070,254) (2,302,553) Changes to deficit not involving cash: Amortization 67,533 38,400 Market revaluation of biological assets (162,009) 61,076 Accretion on long-term debt 53,905 86,835 Stock-based compensation 638,800 456,551 Deferred rent (66,626) 66,172 Issuance of shares for settlement of interest - 1,425 Gain on forgiveness of debt - (35,877) -------------------------- (1,538,651) (1,627,971) Changes in non-cash working capital balances Decrease (Increase)in prepaid expenses and deposits 68,784 (23,348) Decrease (Increase)in amounts receivable 57,115 (37,499) Increase in inventory (98,860) (300,719) Increase in amounts payable and accrued liabilities 860,744 53,929 -------------------------- Cash flows from operating activities (650,868) (1,935,608) -------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of loans payable (3,905) (136,663) Advances (Repayment) from shareholders 255,714 50,000 Issuance of common shares (net) 136,274 2,249,932 -------------------------- Cash flow from financing activities (262,785) 2,163,269 -------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (103,343) (200,427) -------------------------- Increase (decrease) in cash and cash equivalents (366,128) 27,324 Cash and cash equivalents, beginning of year 368,426 341,192 -------------------------- Cash and cash equivalents, end of year 2,298 368,426 -------------------------- -------------------------- CASH AND CASH EQUIVALENTS CONSIST OF: Cash 2,298 68,426 Cash equivalents 300,000 -------------------------- 2,298 368,426 -------------------------- -------------------------- SUPPLEMENTAL INFORMATION Interest paid 53,698 34,055 Income taxes paid - - Broker warrants issued for share issue costs - 60,228 Issuance of shares for settlement of shareholder loan - 50,000 Issuance of shares for business acquisition - 30,000
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For further information: Investor and Media Relations: Richard W. Wertheim, Wertheim + Company Inc., Email: [email protected], (416) 594-1600, (416) 518-8479 (cell)
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