RS Technologies Reports Second Quarter 2010 Results

CALGARY, Aug. 12 /CNW/ - RS Technologies Inc. ("RS") (RS - TSX), a technology innovator and manufacturer of advanced composite products for infrastructure markets, today announced that it has filed its financial statements and management's discussion and analysis for the quarter ended June 30, 2010 with Canadian securities regulatory authorities. Copies of these documents are available at www.sedar.com and RS's website at www.grouprsi.com.

About RS

RS is an ISO 9001:2008 certified technology innovator that develops advanced composite material products for infrastructure markets. The composite products manufactured using the company's proprietary resins and processes are typically lighter, more durable and longer-lasting than competing products made from the traditional building blocks of wood, steel or concrete. RS's flagship product is its award-winning RStandard(R) composite pole. The pole is used as transmission and distribution poles to carry electric grids and as communication structures for various uses including wireless networks and microwave communications systems.

For the latest on RS's developments, go to the company's website at www.grouprsi.com.

"RStandard" is a registered trademark of RS.

    
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    RS TECHNOLOGIES INC. (formerly Resin Systems Inc.)
    MANAGEMENT'S DISCUSSION & ANALYSIS

    FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010
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The following Management's Discussion and Analysis ("MD&A"), dated August 12, 2010, focuses on key statistics from the unaudited consolidated financial statements of RS Technologies Inc., formerly Resin Systems Inc., ("RS" or the "Company") for the period ended June 30, 2010, and pertains to known risks and uncertainties relating to production, distribution and sales of its composite products. This discussion should not be considered all-inclusive as it excludes changes that may occur in general economic, political and environmental conditions. The following discussion and analysis of the results of the operations and financial condition of RS should be read in conjunction with the Company's unaudited consolidated financial statements for the period ended December 31, 2009.

Unless otherwise disclosed, all information in this section has been prepared in accordance with Canadian generally accepted accounting principles and is presented in Canadian dollars. Additional information relating to RS, including the Company's annual information form and continuous disclosure documents are available on the Company's website at www.grouprsi.com and on SEDAR at www.sedar.com.

    
    I. Caution Regarding Forward Looking Statements
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Certain information set forth in this MD&A, including management's assessment of the Company's future plans and operations, contains forward-looking statements which are based on the Company's current internal expectations, estimates, projections, assumptions and beliefs, and which may prove to be incorrect. Some of the forward-looking statements may be identified by words such as "anticipate", "believe", "plan", "estimate", "expect", "predict", "intend", "will", "may", "could", "would", "should" and similar expressions intended to identify forward-looking statements. 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 the Company'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, the unpredictability of future revenues; the uncertainty of the profitability of existing and contemplated products of the Company; the Company's future capital requirements; the Company's future labour requirements; competition from established competitors with greater resources; the uncertainty of developing a market for the Company's products or for third party products incorporating its products; the Company's reliance on third parties to develop, manufacture and/or sell its products in North American and international markets; the risks associated with rapidly changing technology; the Company's reliance on third parties to supply raw materials in amounts and at such prices so as to allow the Company to make its patented polyurethane resin and RStandard composite products; 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 the Company's annual information form for the year ended December 31, 2009 and other documents the Company files with the Canadian securities authorities. The forward-looking statements are made as of the date hereof and the Company assumes no obligation to update or revise such statements to reflect new events or circumstances unless otherwise required to by applicable securities laws.

    
    II. RS Technologies Inc.
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RS was incorporated on July 26, 1995 as Recycled Solutions for Industry Inc. under the Business Corporations Act (Alberta) ("ABCA"). Effective September 15, 1998, the Company completed a reverse takeover of Summerwood Industries Inc. ("Summerwood"), an ABCA company incorporated on June 11, 1996. By articles of amalgamation dated September 17, 1998, Summerwood amalgamated with RS to form Recycled Solutions for Industry Inc. By articles of amendment dated May 5, 2000, RS changed its name from Recycled Solutions for Industry Inc. to Resin Systems Inc. On July 15, 2008, RS incorporated a wholly owned subsidiary, RS Advanced Structures Inc. ("RSAS"), under the Business Corporations Act (Ontario), to manufacture RStandard(R) utility poles. On June 8, 2010, RS changed its name from Resin Systems Inc. to RS Technologies Inc.

RS is traded on the Toronto Stock Exchange (the "TSX") under the symbol RS.

Vision

To be a world-class, diversified manufacturer of composite products for infrastructure markets.

    
    III. Overview of the Business and Strategy
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RS is an ISO 9001:2008 certified technology innovator that develops advanced composite material products for infrastructure markets. The composite products manufactured using the Company's proprietary resins and processes are typically lighter, more durable and longer-lasting than competing products made from the traditional building blocks of wood, steel or concrete. RS is a leader in the successful integration of composite poles into the utility and communications industries. RS is currently the only manufacturer, on a commercial scale, of composite utility structures for transmission lines over 100 feet (30.5 metres) in height. This is currently the fastest growing segment in the industry due to the need to connect renewable generation sources, such as wind energy, to the existing power grid. RS is also the only manufacturer, on a commercial scale, of composite telecommunication structures over 100 feet (30.5 metres) in height.

RS's strategy is to leverage its technological advantage by applying its expertise to the specific requirements of large and carefully selected infrastructure markets and develop and manufacture products. The Company accomplishes this by being a composite product developer and manufacturer that sells its products through distributors and direct sales to strategic customers.

The Company targets its product development and manufacturing expertise on products that:

    
    -   have very compelling and undisputed advantages for customers;
    -   have large, and where possible, global markets;
    -   have appropriate market entry ability for RS;
    -   allow RS's products to create significant and sustained barriers to
        entry for competitors; and
    -   provide above average profit margins.
    

RS's short-term strategy is to increase the market share of its composite pole within the North American utility and communications markets, and internationally on an opportunistic basis. In order for the Company to meet its short and long-term strategies, additional financing is required as described in the Liquidity and Ongoing Operations sections of this MD&A.

i. Utility and Communication Structures

The RStandard modular utility pole emerged from the research and development phase in mid-2006 and is currently being used in both the electric power and communications industries.

The modular utility pole fits RS criterion to address large global markets. In North America alone, the total value of market demand for replacement and new utility poles is estimated to be in excess of US$8 billion annually, representing approximately 25 to 30 percent of the global annual purchases of utility poles.

The market for composite utility poles is very broad, and can be divided into the three primary segments of electric power, communications and other (small wind generators, sirens and lighting). Capital assets such as utility poles are incorporated into the electricity rate base at reconstruction value, and as such, are linked directly to the utility's annual revenue. New transmission projects are unique among electric utility applications because the capital structure is negotiated with the regulating entity during the planning phase. RS has successfully sold RStandard poles into a number of new transmission projects.

RS has aligned its strategy according to the key market segments of Transmission (New), Transmission (Reconstruction), Distribution, Communications, and Other. Commercially, RS will continue to focus its sales and marketing efforts on the Transmission (New) market segment, which is currently the fastest growing segment in the industry due to the need to connect renewable generation sources, such as wind energy, to the existing power grid. Transmission projects generally require larger modules which have greater than average gross margins for the company.

Whenever the opportunity exists, our strategy is to ensure that all stakeholders who are involved in the decision making process regarding the maintenance and building of the electric grid are made aware of the advantages of RS's products. This includes senior managers who are responsible for managing costs and operations throughout the life cycle of a utility pole, including the stages of acquisition, storage, transportation, installation, inspection, maintenance, replacement, remediation and ultimately disposal. The Company's marketing strategy includes aligning with regulators and promoting its products for consideration within engineering, procurement and construction companies.

RS has met some success in penetrating the communications industry in Canada and the United States with its modular monopole structures. This is the result of the Company dedicating increased marketing, sales and technical resources to this sector. Generally, wireless operators within the United States and Canada are regulated. Much like the utility market, RS markets to all stakeholders involved in the decision making process regarding the construction of communications networks.

Our goals in 2010 for our RStandard composite pole business unit is to build on our 2009 achievements and continue to:

    
    -   increase our North American market share by working with our
        distribution partner to add key North American customers and increase
        the number of repeat orders from existing customers;
    -   focus on new transmission projects which generally have greater gross
        margin potential;
    -   increase the composite pole production rate and production
        efficiencies to meet the anticipated increase in demand;
    -   improve the manufacturing process to achieve positive gross margins;
    -   develop the RStandard product line based on the needs and experiences
        of customers; and
    -   support and oversee the design and engineering of next generation
        turnkey production cells to meet the growing market demand.
    

ii. Material Handling Products

The Company continues to evaluate the product development, technical and market introduction strategies of its Veylon polyurethane composite tubing for conveyor idler rolls (formerly RStandard composite idler roll tube). Specifically, RS is in the process of developing a total non-metallic solution that incorporates all components of an idler roll, including the Company's composite roller tube and third party hubs and seals.

    
    IV. Business Operations
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i. RS Operations

a. Manufacturing

Management has identified key areas of focus in order to improve its gross margin including process optimization, equipment improvements and the qualification of new suppliers.

During the period, RS continued to focus on process optimization and equipment improvements. In March 2010, the Company began a six-month process optimization and equipment improvement plan which will focus on improving each cell separately. The cost of implementing the plan is not expected to vary significantly from historical expenditures on equipment maintenance. During the quarter, RS implemented production changes which reduced production scrap rates. In order to meet the orders placed under the contract with HD Supply Utilities Ltd. ("HDSU"), the planned shut-downs of each cell has not occurred in the timeframe initially budgeted, delaying some of the optimization and equipment improvements originally contemplated. Additional improvements will be implemented during the remaining portion of 2010 subject to HDSU demand. It is the goal of the process optimization and equipment improvement plan to maximize the production rate of each cell to achieve consistent optimal production rates, and minimize material waste and scrap.

The agreement with HDSU includes an initial purchase order in excess of $100 million USD over the first half of the agreement, subject to applicable terms and conditions. RS expects to fulfill the initial purchase order during the period from 2010 to mid-2012. Approaching the second half of the agreement's term, the volumes contemplated will necessitate an expansion of the Company's production facilities.

During the quarter, RS continued its process of qualifying new suppliers of its raw materials in an effort to mitigate supply chain management risks.

Management tracks production efficiency and processes on a weekly basis, and is continuing to develop benchmarks to evaluate financial and non-financial measures such as production rate, material waste, scrap and cost of goods sold. RS's unique manufacturing process does not allow for relevant comparison of industry statistics that may be available to the Company on these metrics.

b. Sales and Marketing

RS directly employs a number of corporate and field commercial staff in a variety of roles, including sales, marketing, product management and customer service. The commercial sales team manages and executes direct sales with strategic customers and through distributors and manufacturers' representatives in various geographic regions. These distributors include HDSU in North America and the Caribbean, Armor Utility Structures Pty Limited in Australia and New Zealand and Melbye Skandinavia AS in Scandinavia, and Polycomtec in the Commonwealth of Independent States (Russia and extended states).

In support of RS's strategic focus on the North American market, the Company employs account executives in Canada, the United States and Mexico who are actively engaged in the sales process with both HDSU and end-user customers. The Company's commercial team employs a growing number of tools to capture sales, including RS's total life-cycle pole cost savings whitepaper, present value analysis model, lifetime guarantee, 41-year manufacturer's warranty and the official RStandard pole library file for the industry-leading transmission and distribution line design software suite, PLS-POLE and PLS-CADD. Management believes that RS has the account executive talent to fully cover the North American market until a plant expansion is required.

RStandard composite poles are currently installed and used by 145 utility companies across North America and the world, and are installed and used by 13 wireless communication companies in North America. Many of these utility and communication companies are repeat buyers of RStandard products. Likewise, many installations have been completed for product evaluation purposes, potentially leading to large scale deployment.

    
    c.  Corporate

        i. Private placement

        On March 19, 2010, the Company issued 22,465,396 common shares as
        part of a private placement at $0.33 per share for net proceeds of
        $7.3 million.

        ii. Bank loans

        On February 19, 2010, the Company obtained an additional $3 million
        of demand loans from a Canadian chartered bank at an interest rate of
        bank prime plus one percent due March 31, 2010. A commitment fee of
        $30,000 was paid to the bank upon acceptance of the loan.

        On March 19, 2010, the Company obtained an extension on the demand
        loans from March 31, 2010 to October 1, 2010. An extension fee of
        $35,000 was paid and a general security agreement over all the assets
        of the Company was provided to the bank as part of the agreement,
        giving the bank a first charge over the Company's assets, subject to
        certain permitted encumbrances.

        The members of the Board of Directors have agreed to provide, and
        subsequently extend, limited liability guarantees ("Guarantees") in
        favour of the bank guaranteeing all the obligations of the Company to
        the bank up to October 1, 2010. During the quarter, a third party
        advisor to the Company completed their analysis of the guarantee
        compensation. The Directors will be compensated for the provision of
        the guarantees at a weighted average annual rate of 8.46% for the
        originally contemplated timeframes for each loan. The Company has
        agreed to compensate the directors for the extension of the
        guarantees and will retain an independent third party valuator to
        provide a fair market valuation of the provision. As at August 12,
        2010, this valuation has not been completed. An estimate of $0.1M for
        the additional compensation has been included in the financial
        statements.

        iii. Shares issued for interest

        In an effort to conserve cash, RS issued shares in lieu of cash
        interest on its unsecured $25M 8.5% debenture on January 7 and June
        30, 2010. 9,486,668 common shares were issued with a weighted average
        price of $0.224 during the period, conserving approximately $2.1M in
        cash used to fund operations.

    V. Financial and Operating Results
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RS's financial information and the related discussion of financial results in the MD&A are for the three and six month period ended June 30, 2010.

    
    Thousands of
     Canadian
     dollars except
     per share
     amounts which
     are in         Three Months Ended June 30     Six Months Ended June 30
     thousands of
     shares         2010      2009    % change    2010      2009    % change
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    Product
     revenues     $  3,341  $  4,940       (32) $  6,330  $  5,940         7
    Gross margin  $ (1,565) $ (1,834)       15  $ (3,030) $ (2,766)       10
    Net loss      $ (6,221) $ (7,186)       13  $(12,607) $(13,458)        6
    Net loss per
     share        $  (0.03) $  (0.05)       40  $  (0.06) $  (0.09)       33
    Funds from
     opera-
     tions(1)     $ (4,140) $ (5,515)       25  $ (9,406) $(10,234)        8
    Total assets  $ 16,089  $ 12,724        26  $ 16,089  $ 12,724        26
    Convertible
     debent-
     ures(2)      $ 31,304  $ 28,024        12  $ 31,304  $ 28,024        12
    Basic and
     diluted
     weighted
     average shares
     outstanding   214,035   147,133        46   204,160   147,117        39

    (1) Funds from operations is defined as "Cash used in operating
        activities", as reflected in the Consolidated Statements of Cash
        Flows before change in non-cash operating working capital. Management
        believes that the presentation of this non-generally accepted
        accounting principle measure provides useful information about the
        Company's ability to fund future operations.

        Funds from operations is not a recognized measure under Canadian
        generally accepted accounting principles. Investors are cautioned
        that funds from operations should not be construed as an alternative
        to net earnings or loss determined in accordance with Canadian
        generally accepted accounting principles as an indicator of the
        financial performance of the Company or as a measure of the Company's
        liquidity and cash flows. The Company's method of calculating funds
        from operations may differ from other issuers and may not be
        comparable to similar measures presented by other issuers.

    (2) Includes both current and long-term portions of the Convertible
        debentures. For detailed convertible debenture information, please
        see the Company's 2009 annual financial statements.
    

Discussion of Consolidated Financial Results for the Three Months Ended June 30, 2010

Product revenues for the three months ended June 30, 2010 were $3.3 million (2009 - $4.9 million), a decrease of $1.6 million or 32 percent consisting entirely of Pole sales. The sales decrease is a result of a significant decrease in sales volumes of large modules offset by the increase in the selling price per the agreement with HDSU signed in November 2009. The impact of the increase price was slightly offset by the decrease in the US dollar exchange rate to Canadian dollars.

Negative gross margin for the three months ended June 30, 2010 was $1.6 million (2009 - $1.8 million), a decrease of $0.2 million or a 11 percent improvement (2009 - 930 percent decrease). The improvement in negative gross margin was a result of the Company improving its production, not withstanding that optimal production levels have not been achieved. Included in cost of goods sold is an inventory write-down to net realizable value of $0.8 million for the period or 25 percent of revenue (2009 - $0.3 million or 6 percent of revenue). As production optimization continues, inventory unit costs will decrease, thereby reducing the required write-down to net realizable value, if any.

Selling, general and administrative ("SG&A") expenses for the three months ended June 30, 2010 were $2.7 million or 82 percent of revenues (2009 - $2.8 million or 57 percent of revenues). The $0.1 decrease is a result of decreased travel, insurance and discretionary expenses.

Depreciation of property, plant and equipment for the three months ended June 30, 2010 was $0.3 million, inclusive of depreciation allocated to cost of sales (2009 - $0.4 million). Capital additions of $0.4 million (2009 - $1.7 million) were made during the quarter. Capital additions in 2009 were primarily the purchase of land and building at the Tilbury production facility.

Financing charges for the three months ended June 30, 2010 were $1.9 million (2009 - $1.7 million), an increase of $0.2 million. The increase is due to higher accretion on the secured and unsecured convertible debentures of $0.1 million and increases in short term borrowing costs by $0.1 million.

Stock-based compensation for the three months ended June 30, 2010 was $0.05 million (2009 - $0.6 million). The decrease of $0.55 million is comprised of $0.2 million from the granting and revaluation of the Company's deferred share units, with the remaining change as a result of fewer options vesting and prior options granted becoming fully vested in the current quarter compared to the same quarter in the prior year.

The net loss for the three months ended June 30, 2010 was $6.2 million (2009 - $7.2 million) or a loss of $0.03 per share (2009 - loss of $0.05 per share). The decrease in the loss of $1.0 million was primarily associated with the decrease in stock-based compensation and SG&A.

Discussion of Consolidated Financial Results for the Six Months Ended June 30, 2010

Product revenues for the six months ended June 30, 2010 were $6.3 million (2009 - $5.9 million), an increase of $0.4 million or 7 percent consisting entirely of Pole sales. The sales increase is as a result of the increase in the selling price per the agreement with HDSU signed in November 2009 offset by the decrease in large module sales in the second quarter and the decrease in the US dollar exchange rate to Canadian dollars.

Negative gross margin for the six months ended June 30, 2010 was $3.0 million (2009 - $2.8 million). The decrease in negative gross margin from the second quarter was offset by the increase in negative gross margin during the first quarter.

SG&A expenses for the six months ended June 30, 2010 were $5.7 million or 90 percent of revenues (2009 - $5.7 million or 97 percent of revenues). The decrease in the second quarter resulting from decreased travel, insurance and discretionary expenses was partially offset by an increase in raw materials and labour related to testing, research and development, and unabsorbed overheads.

Depreciation of property, plant and equipment for the six months ended June 30, 2010 was $0.6 million, inclusive of depreciation allocated to cost of sales (2009 - $0.7 million). Capital additions of $0.5 million (2009 - $2.2 million) were made during the period. In 2009, $1.7 million of the capital additions were primarily the land and building at the Tilbury production facility.

Financing charges for the six months ended June 30, 2010 were $3.8 million (2009 - $3.4 million), an increase of $0.4 million. The increase is due to higher accretion on the secured and unsecured convertible debentures of $0.2 million and increases in short term borrowing costs by $0.2 million.

Stock-based compensation for the six months ended June 30, 2010 was $0.1 million (2009 - $1.2 million). The decrease of $1.1 million is comprised of $0.2 million for forfeitures resulting from employees leaving the Company, $0.2 million from the granting and revaluation of the Company's deferred share units, with the remaining change as a result of fewer options vesting and prior options granted becoming fully vested in the current quarter compared to the same period in the prior year.

The net loss for the six months ended June 30, 2010 was $12.6 million (2009 - $13.5 million) or a loss of $0.06 per share (2009 - loss of $0.09 per share). The decrease in the loss of $0.9 million was primarily associated with the decrease in stock-based compensation and depreciation, partially offset by the increase in financing charges.

    
    VI. Financial Position
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The following table outlines the significant changes in RS's consolidated balance sheet from December 31, 2009 to June 30, 2010:

    
                           Increase/
                          (Decrease)

    Cash and cash          $(2.3)    Decrease is due to production costs
     equivalents           million   being greater than selling cost.

    Accounts receivable    $(0.5)    Decrease is due to the timing of current
                           million   quarter sales and receipt of prior
                                     quarter receivables.

    Inventory              $1.4      Increase is due to the build up of
                           million   finished goods inventory and raw
                                     materials on hand.

    Prepaid expenses and   $0.3      Increase is due to the prepayment of
     deposits              million   raw materials, the renewal of insurance
                                     and an increase in other deposits.

    Property, plant and   ($0.1)     Decrease is due to the amortization of
     equipment             million   property, plant and equipment.

    Current liabilities    $1.5      Increase is due to the addition of bank
                           million   debt; increased accretion expense on the
                                     debentures; offset by a reduction in
                                     accounts payable and accrued liabilities
                                     and a reduction in the value of the
                                     deferred share units issued and
                                     outstanding.

    Secured and            $0.2      Increase is due to the accretion on the
     unsecured             million   secured debentures.
     convertible
     debentures

    Other long-term       ($0.1)     Decrease is due to the repayment of the
     liabilities           million   mortgage on the Tilbury, Ontario land
                                     and building.


    VII. Financial Instruments
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At June 30, 2010, the fair value of cash, accounts receivable, accounts payable and accrued liabilities, bank loans, and the Province of Ontario loan approximate their carrying amounts due to the short-term, demand nature of these instruments. The fair value of the restricted cash approximates carrying value as it earns interest at variable market rates.

The fair values of the convertible debentures are not materially different from the carrying value.

The carrying value of the mortgage payable approximates fair value as the interest rate of the mortgage is consistent with interest rates available to the Company from other lenders with the same terms.

The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth and shareholder returns. The principal financial risks the Company is exposed to are described below.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. Management uses internally prepared cash flow forecasts to seek to ensure that the Company has sufficient liquidity to meet its liabilities when due. The Company will continue its cost cutting strategies as well as seeking to complete a financing discussed in the Future Operations section to ensure that it has sufficient funds to discharge its current obligations.

The following are the contractual maturities of financial liabilities as at June 30, 2010:

    
                                                  Contr-
    Thousands of                      Carrying    actual    0 to 3    3 to 6
    Canadian dollars                    amount cash flow    months    months
    -------------------------------------------------------------------------
    Accounts payable and
     accrued liabilities              $  3,129  $  3,129  $  3,129  $      -
    Bank loans                           7,000     7,000         -     7,000
    Other liabilities                    4,292     3,633     2,431        61
    Unsecured debentures i)             24,179    25,000         -    25,000
    Secured debenture i)                 7,125    10,000         -         -
    Debenture interest i)                    -     6,650         -     2,076
    -------------------------------------------------------------------------

                                      $ 45,725  $ 55,412  $  5,560  $ 34,137
    -------------------------------------------------------------------------
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    Thousands of                       6 to 12  12 to 24  After 24
    Canadian dollars                    months    months    months
    ---------------------------------------------------------------
    Accounts payable and
     accrued liabilities              $      -  $      -  $      -
    Bank loans                               -         -         -
    Other liabilities                      124       247       770
    Unsecured debentures i)                  -         -         -
    Secured debenture i)                     -         -    10,000
    Debenture interest i)                1,500     1,500     1,574
    ---------------------------------------------------------------

                                      $  1,624  $  1,747  $ 12,344
    ---------------------------------------------------------------
    ---------------------------------------------------------------

    i)  These instruments allow the Company to choose whether it settles the
        financial liabilities by delivering cash or issuing common shares.

    VIII. Related Party Transactions
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On January 7 and June 30, 2010, 85,236 and 227,825 (2009 - nil) shares, respectively, were issued to directors of the Company who hold unsecured debentures as payments for the interest due December 31, 2009 and June 30, 2010, in accordance with the supplemental indenture. The supplemental indenture gives RS the option to satisfy its interest payments on the unsecured debentures by issuing common shares in lieu of cash.

Please refer to the Business Operations section under "Bank loans" and the Subsequent Events section for further information on related party transactions.

These transactions are considered to be in the normal course of operations and have been recorded at the exchange amount.

    
    IX. Commitments
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The Company has a contract with its North American distributor until December 31, 2014 at contracted prices. The contract stipulates certain price increases for RStandard modules, some that take effect on January 1, 2011, and others that may come into effect based on increases in certain manufacturing costs. Accordingly, the Company continuously monitors its manufacturing costs to plan potential changes to pricing.

The Company has a 41-year warranty and limited lifetime guarantee on its RStandard modules. The warranty will provide for a replacement module in the event that a manufacturing defect is discovered, reported and verified within 41 years of its delivery date to the customer. Under the limited lifetime guarantee, the Company will replace any module that fails as a result of the physical loads imposed by ice, snow, wind or lightning strikes. The Company has not included a provision for the warranty or guarantee in these financial statements, as there is insufficient historical information to estimate the future cost of the warranty and guarantee to the Company.

To date, the Company has not had any successful warranty or guarantee claims.

    
    X. Liquidity and Capital Resources
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The Company has experienced working capital deficiencies since it resumed direct manufacturing at its Ontario production facility. It is expected for 2010 that funds from operations will be insufficient to fund existing operations, obligations, and capital expenditures, accordingly, additional capital will be required in the immediate short-term.

During the period, the Company issued 22.5 million common shares for net proceeds of $7.3 million. The Company also obtained additional short-term financing of $3.0 million from the bank for a total of $7.0 million. These bank loans are due October 1, 2010 with $4.0 million bearing interest at bank prime plus two percent with the remaining $3.0 million bearing interest at bank prime plus one percent.

The interim consolidated financial statements have been prepared on a going concern basis in accordance with Canadian generally accepted accounting principles, which assumes RS will realize its assets and discharge its liabilities and commitments in the normal course of business. The application of the going concern concept is dependent upon RS successfully completing a financing arrangement and operating profitably. See the discussion of "Future Operations" under the Critical Accounting Estimates section for further details.

To date, the Company's main source of cash flow has been through the issuance of debt and equity securities. This dependence on the public market to fund its cash flow needs has resulted in management including a "Future Operations" note in the interim consolidated financial statements.

i. Cash From Operations

For the six months ended June 30, 2010, the Company recorded a cash flow deficit from operations of $12.0 million (2009 - $8.1 million). The increase in cash flow deficit from operations is as a result of the change in non-cash working capital. The net loss for the three months ended June 30, 2010 was $6.2 million (2009 - $7.2 million). The decrease in net loss is primarily associated with the decrease in stock-based compensation and depreciation.

ii. Financing Activities

Financing activities for the six months ended June 30, 2010 consisted of a completed private placement resulting in the issuance of 22.5 million common shares and net proceeds of $7.3 million. The Company also obtained an additional loan of $3.0 million from the bank. Comparatively in 2009, the Company issued unsecured promissory notes of $1.5 million and obtained a mortgage for the purchase of the land and building at its Tilbury production facility of $1.4 million.

iii. Investing Activities

Net cash used in investing activities for the six months ended June 30, 2010 was $0.5 million (2009 - $2.2 million). The decrease is due to the Company's focus on cash conservation during the period, and the expenditures were financed using cash from the March private placement. RS's investments in property, plant and equipment during the quarter are expected to enhance the efficiency of the Company's composite pole manufacturing. Comparatively in 2009, the Company's expenditures during the period were primarily for the purchase of the land and building at its Tilbury production facility.

In the remainder of 2010, the Company has budgeted for an additional $0.5 million of capital expenditures to further enhance its manufacturing processes and improve the features of the Tilbury facility.

    
    XI. Share Capital
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Authorized

RS's authorized share capital consists of an unlimited number of Common Shares and an unlimited number of preferred shares issuable in series whose designation, rights, privileges, restrictions and conditions are determined when issued.

Issued

The issued and outstanding Common Shares as at June 30, 2010 and August 12, 2010 were 220,861,608.

Stock options

The number of stock options outstanding as at June 30, 2010 and August 12, 2010 was 11,893,050.

    
    XII. Summary of Eight Recently Completed Quarters
    -------------------------------------------------------------------------
    

The following table highlights RS's performance for the quarterly reporting periods from September 30, 2009 to June 30, 2010.

    
    -------------------------------------------------------------------------
                                       2010                   2009
    -------------------------------------------------------------------------
                                 Jun         Mar         Dec        Sept
    -------------------------------------------------------------------------
    (Thousands of Canadian dollars except per share amounts)
    -------------------------------------------------------------------------
    Product revenue                3,341       2,989       3,222       1,409
    -------------------------------------------------------------------------
    Net loss                      (6,221)     (6,386)     (6,803)     (8,250)
    -------------------------------------------------------------------------
    Basic and diluted loss per
     common share                  (0.03)      (0.03)      (0.04)      (0.05)
    -------------------------------------------------------------------------
    Total cash and cash
     equivalents                     738       3,939       3,048       1,879
    -------------------------------------------------------------------------
    Total assets                  16,089      21,498      17,371      15,575
    -------------------------------------------------------------------------
    Total long-term liabilities    8,691       8,605       9,083      30,975
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                       2009                   2008
    -------------------------------------------------------------------------
                                 Jun         Mar         Dec        Sept
    -------------------------------------------------------------------------
    (Thousands of Canadian dollars except per share amounts)
    -------------------------------------------------------------------------
    Product revenue                4,940       1,000         101         446
    -------------------------------------------------------------------------
    Net loss                      (7,186)     (6,272)     (8,369)    (12,013)
    -------------------------------------------------------------------------
    Basic and diluted loss per
     common share                  (0.05)      (0.04)      (0.06)      (0.08)
    -------------------------------------------------------------------------
    Total cash and cash
     equivalents                     415       2,005       7,964       7,111
    -------------------------------------------------------------------------
    Total assets                  12,724      14,960      19,548      20,071
    -------------------------------------------------------------------------
    Total long-term liabilities   29,880      28,011      27,321      20,384
    -------------------------------------------------------------------------



    XIII. Disclosure Controls and Procedures and Internal Controls over
          Financial Reporting
    -------------------------------------------------------------------------
    

RS's chief executive officer and interim chief financial officer have designed, or caused to be designed under their supervision, disclosure controls and procedures to provide reasonable assurance that: (i) material information relating to RS is made known to RS's chief executive officer and interim chief financial officer by others, particularly during the period in which the annual filings are being prepared; and (ii) information required to be disclosed by RS in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and accurately reported within the time period specified in securities legislation.

There have been no changes in the Company's disclosure controls or internal control over financial reporting during the six months ended June 30, 2010, that have materially changed the conclusions and material weaknesses identified in the Company's 2009 annual MD&A.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even when those systems are determined to be designed effectively, they can provide only reasonable assurance with respect to financial statement preparation and presentation.

    
    XIV. Future Accounting Changes
    -------------------------------------------------------------------------
    

International Financial Reporting Standards

The Company has completed the development of its conversion plan for the conversion of its financial statements from Canadian generally accepted accounting principles to International Financial Reporting Standards ("IFRS") which will be required in its financial reporting for the 2011 fiscal year. The conversion plan has six stages: (1) identification of differences between current generally accepted accounting principles and IFRS; (2) analysis of IFRS 1 exemptions; (3) analysis of impact of differences between current generally accepted accounting principles and IFRS; (4) preparation of January 1, 2010 opening balance sheet in accordance with IFRS; (5) evaluation and documentation of IFRS accounting policies; and (6) implementation of changes and preparation of comparative information (the "Implementation").

During 2010, RS will complete its conversion plan and Implementation which will include, among other things, the project structure and governance, resourcing requirements, training plans, a communications plan, and a review of the impact on data systems and internal controls.

Management is currently working through the first three stages of the conversion plan. As management's review and analysis is not yet complete, no estimate of the impact of the adoption of IFRS on the transition date can be made. As a result of the preliminary work on the first and third stages of the conversion plan, the Company has identified the following areas where it is expected that significant changes and/or adjustments as a result of adopting IFRS will be required:

    
    -   Property, plant and equipment
    -   Impairment of assets
    -   Financial Instruments recognition and measurement
    -   Financial Instruments presentation
    

Once these stages have been finalized, the impact of adoption will be disclosed.

The Company has yet to finalize the accounting policy choices available to it. Management expects that as they finalize the accounting policies during stage five of the conversion plan, disclosures surrounding the choices, rationale, and impact will be made as completed.

It is expected that the conversion plan, up to Implementation, will be complete during the third quarter of 2010, and the impacts of IFRS adoption will be disclosed as they are known.

Implementation is expected to begin during the third quarter and continue through to year end. The results of changes in comparative information and other impacts of implementing IFRS will be disclosed as they are known.

    
    XV. Critical Accounting Estimates
    -------------------------------------------------------------------------
    

Since a determination of the value of many assets, liabilities, revenues and expenses is dependent upon future events, the preparation of RS's consolidated financial statements requires the use of estimates and assumptions which have been made using careful judgement by management. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of the Board of Directors and its independent auditors, who have reviewed and approved RS's disclosure relating to critical accounting estimates in this MD&A.

RS's significant accounting policies are described in the notes to the audited consolidated financial statements of RS for the year ended December 31, 2009. Actual results may differ from these estimates.

Future operations

These interim consolidated financial statements have been prepared on a going concern basis in accordance with Canadian GAAP, which assumes that the Company will realize its assets and discharge its liabilities and commitments in the normal course of business. The application of the going concern concept is dependent upon, amongst other things, the continued support and cooperation of shareholders, lenders, suppliers, and the ability to generate profitable operations.

For the six months ended June 30, 2010, the Company reported a net loss of $12.6M. RS had negative working capital of $28.5M and an accumulated deficit of $200.4M at quarter end. As a result of these factors and the continued use of cash in operations, there exists significant doubt with respect to the Company's ability to discharge its current liabilities through the normal course of operations beyond August 31, 2010.

Additional financing by way of debt and/or equity will be required for the Company to continue as a going concern. Management is perusing a number of actions in an effort to ensure that RS will continue as a going concern until additional financing is obtained, including but not limited to:

    
    1)  The engagement of Macquarie Capital Advisors as a financial advisor,
        to assist the Company in securing funds for both its near term
        working capital needs and manufacturing improvements. The Company,
        with its financial advisor is actively, engaged in seeking debt
        and/or equity financing in order to raise the funds necessary to
        pursue management's plan of operation, to fund the working capital
        deficit, and in order pay its accounts payable and accrued
        liabilities, and make capital improvements to enhance manufacturing.
        The Company does not currently have any arrangements in place for the
        completion of any debt and/or equity financing and there is no
        assurance that RS will be successful in completing any debt and/or
        equity financing.

        RS's ability to continue operations will be entirely dependent upon
        the Company's ability to obtain bridge financing until such time as
        long-term financing is obtained. The Company has obtained $2.0M of
        bridge financing from a related party (see the Subsequent Events
        section) and will require additional funds in the event that a long-
        term financing arrangement is not completed prior to August 31, 2010.

        It is anticipated that changes to the Company's outstanding
        indebtedness and/or equity will be required in conjunction the
        completion of with any long-term financing arrangement. The structure
        and timing of these changes remain unknown until an arrangement is
        finalized, subject to the approval of such changes by the applicable
        securityholders and regulatory agencies. In addition, the Company may
        choose to begin changing its outstanding indebtedness and/or equity
        prior to reaching a long-term financing arrangement in order to ease
        the current debt burden.

    2)  Continuing to implement plans to reduce operational costs. In order
        to extend the availability of current capital resources, a focus on
        cash management including detailed weekly budgets, the negotiation of
        more favourable terms with the Company's suppliers, and a reduction
        of discretionary spending, has been implemented. Management has made
        every effort to ensure that these changes have not and will not
        impact the Company's ability to meet its current and future customer
        obligations.
    

Management believes that the foregoing actions, together with the continued support and cooperation of securityholders, lenders and suppliers, and securing the required long-term financing, will enable RS to continue as a going concern. There can be no assurance that management's plans will be successful as such plans will be entirely dependent upon the completion of a long-term financing arrangement, market acceptance of the Company's products, and the implementation of manufacturing improvements. Should the Company be unsuccessful in raising additional financing, it may have no choice but to seek protection from its creditors. These financial statements do not reflect any adjustments should RS be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities outside the normal course of business.

Impairment of long-lived assets

Long-lived assets, including property, plant and equipment, and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the assets exceeds the fair value of the asset.

Stock-based compensation plans

The Company applies the fair-value method of accounting to all stock-based compensation arrangements, using the Black-Scholes option pricing model, for both employees and non-employees. Compensation cost of equity-classified awards to employees are measured at fair value at the grant date and expensed over the awards' vesting period with a corresponding increase to contributed surplus. Upon the exercise of the award, consideration received together with the amount previously recognized in contributed surplus is recorded as an increase to share capital. Compensation cost of equity-classified awards to non-employees, initially measured at fair value and periodically re-measured to fair value until the non-employees' performance is complete, are expensed over the vesting period. The Company accounts for actual forfeitures as they occur for unvested options.

The Company has a restricted share unit plan whereby restricted share units are granted to participants at the discretion of management. Compensation expense, equal to the fair market value of the shares on the grant date, is recorded as an increase to contributed surplus over the vesting period. Once vested, the amount previously recognized in contributed surplus is recorded as an increase to share capital.

The Company has a cash settled deferred share unit plan, where the directors' fees are tied to the market value of the Company's common shares and payment is elected to be deferred until the director resigns from the Board. Deferred share units are recorded as a liability and are initially recognized at the fair value of the Company's shares on the grant date. The liability relating to the deferred share unit plan is revalued quarterly based on the market value of the Company's Common Shares and the resulting adjustment is recorded in income.

Income taxes

The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, future income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of substantive enactment. A valuation allowance is recorded against any future income tax asset if it is more likely than not that the asset will not be realized.

    
    XVI. Risk and Uncertainties
    -------------------------------------------------------------------------
    

This document contains forward-looking statements based on current expectations that involve a number of business risks and uncertainties. The factors that could cause results to differ materially from future results expressed or implied include, but are not limited to the following: the Company's overall level of indebtedness; amount of debt maturity and potential dilution within the next year; the lack of revenues and unpredictability of future revenues; the uncertainty of the profitability of existing and contemplated products of the Company; the Company's future capital requirements; the Company's future labour requirements; competition from established competitors with greater resources; the uncertainty of developing a market for the Company's products or for third party products incorporating its products; the Company's reliance on third parties to develop, and/or sell RStandard products in North American and international markets; the risks associated with rapidly changing technology; the Company's reliance on third parties to supply raw materials in amounts and at such prices so as to allow the Company to make its patented polyurethane resin and RStandard composite products; intellectual property risks; risks associated with international operations, foreign exchange rate fluctuations and changes in general economic, market and business conditions. A detailed discussion of the Company's risk factors can be found in its annual information form for the year ended December 31, 2009, dated March 30, 2010. This annual information form can be found on SEDAR at www.sedar.com or the Company's website at www.grouprsi.com.

    
    XVII. Outlook
    -------------------------------------------------------------------------
    

Management continues to believe that the current economic climate will not have a significantly negative impact on its operations. However, even though the general economy is improving, access to credit is going to continue to be difficult and costly in the near term for RS and its customers.

Management believes that the Company's RStandard composite poles for the utility and communication markets are well positioned to take advantage of the estimated demand of $8 billion in infrastructure projects that have been initiated by public sector bodies in an effort to stimulate the global economy.

In the long-term, it is well known that North America's current electric grid needs significant investment to meet the needs of society. The grid must be expanded and upgraded. Estimates regarding the amount of money needed to be invested in energy for items including new transmission and distribution infrastructure, research and development, and energy generation, is as high as $3 trillion by 2030.(1)

Company Outlook

In 2010, RS will continue with its short-term business strategy to increase market share of its composite pole within the North American utility and communications markets, and internationally on an opportunistic basis. RS will focus on this strategy until it can fund future operations from internally generated cash flows from existing business units.

Based on RS's contract with HDSU and the efforts of its own commercial team, the number of sales leads and projects being quoted, management believes that an increase in the sales of RStandard composite poles in both the utility and the communications markets will occur during 2010.

In addition to obtaining adequate financing for both short-term and long-term objectives, RS's goals in 2010 are to build on its 2009 achievements and continue to:

    
    -   increase our North American pole market share by working with our
        distribution partner to add key North American customers and increase
        the number of repeat orders from existing customers;
    -   focus on new transmission projects which generally have greater gross
        margin potential;
    -   increase the composite pole production rate and production
        efficiencies to meet the anticipated increase in demand;
    -   improve the manufacturing process to achieve positive gross margins;
    -   develop the RStandard product line based on the needs and experiences
        of customers; and
    -   support and oversee the design and engineering of the next generation
        of turnkey production cells to meet the growing market demand.
    

In addition, management continues to assess all aspects of the Company to identify possible improvements.

For additional risks, please see RS's 2009 Annual Information Form.

    
    XVIII. Subsequent Events
    -------------------------------------------------------------------------
    

Subsequent to quarter end, the company received $2.0 million of unsecured bridge loans from a company controlled by a director. The loans will bear interest at 12% per annum, mature November 1, 2010, and will be repaid by the proceeds of any long-term financing obtained. In addition, one million common shares will be issued at no cost to the lender.

On August 11, 2010, the Company issued the maturity notice to the unsecured debenture holders of its intention to discharge the outstanding unsecured debenture principal balance of $25M by way of issuing common shares of the Company, in accordance with the terms of the indenture.

    
    Unaudited Interim Consolidated Financial Statements of

    RS TECHNOLOGIES INC.
    (formerly Resin Systems Inc.)

    For the Three and Six Month Periods Ended
    June 30, 2010 and 2009


                             RS TECHNOLOGIES INC.
                        (formerly Resin Systems Inc.)
                         CONSOLIDATED BALANCE SHEETS

    -------------------------------------------------------------------------
    Thousands of Canadian dollars (unaudited)               June    December
                                                        31, 2010    31, 2009
    -------------------------------------------------------------------------
    ASSETS
    Current assets
      Cash                                            $      738  $    3,048
      Accounts receivable                                    855       1,378
      Inventories (note 3)                                 6,412       5,033
      Prepaid expenses and deposits                          523         240
    -------------------------------------------------------------------------
                                                           8,528       9,699
    Restricted cash                                          146         145
    Property, plant and equipment                          7,415       7,527
    -------------------------------------------------------------------------
                                                      $   16,089  $   17,371
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES and SHAREHOLDERS' DEFICIT
    Current liabilities
      Accounts payable and accrued liabilities        $    3,129  $    5,849
      Bank loans (note 4)                                  7,000       4,000
      Province of Ontario loan                             2,000       2,000
      Current portion of long-term debt                      233         226
      Unsecured convertible debentures (note 5)           24,179      22,718
      Other current liabilities                              493         763
    -------------------------------------------------------------------------
                                                          37,034      35,556
    Secured convertible debentures (note 5)                7,125       6,892
    Long-term debt                                           915       1,033
    Other long-term liabilities                              651         652
    -------------------------------------------------------------------------
                                                          45,725      44,133

    Shareholders' deficit
      Share capital (note 6)                             147,550     138,051
      Warrants (note 6)                                    2,746       2,746
      Equity component of secured and unsecured
       convertible debentures                             10,415      10,415
      Contributed surplus (note 6)                        10,064       9,830
      Deficit                                           (200,411)   (187,804)
    -------------------------------------------------------------------------
                                                         (29,636)    (26,762)
    -------------------------------------------------------------------------
    Future operations (note 2)
    Contingencies (note 10)
    Commitments (note 11)
    Subsequent events (note 12)
    -------------------------------------------------------------------------
                                                      $   16,089  $   17,371
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements.

    On behalf of the Board:

           Signed "David Williams"             Signed "Wilmot Matthews"
           Director                            Director



                             RS TECHNOLOGIES INC.
                        (formerly Resin Systems Inc.)
       CONSOLIDATED STATEMENTS OF LOSS, COMPREHENSIVE LOSS AND DEFICIT

    -------------------------------------------------------------------------
    Thousands of Canadian dollars

    Except per share                    Three months              Six months
     amounts and shares                ended June 30           ended June 30
     outstanding (unaudited)        2010        2009        2010        2009
    -------------------------------------------------------------------------
    Product revenue           $    3,341  $    4,940  $    6,330  $    5,940
    Cost of sales                  4,906       6,774       9,360       8,706
    -------------------------------------------------------------------------
                                  (1,565)     (1,834)     (3,030)     (2,766)
    -------------------------------------------------------------------------
    Expenses
      Selling, general and
       administrative              2,683       2,839       5,669       5,668
      Depreciation                    51         297         106         568
      Stock based compensation
       (note 6)                       48         626          78       1,239
    -------------------------------------------------------------------------
                                   2,782       3,762       5,853       7,475
    -------------------------------------------------------------------------
    Operating loss                (4,347)     (5,596)     (8,883)    (10,241)
    Guarantees                         -          90           -          90
    Other income                      18          36          31          59
    Financing charges (note 8)    (1,892)     (1,716)     (3,755)     (3,366)
    -------------------------------------------------------------------------
    Net loss and comprehensive
     loss                         (6,221)     (7,186)    (12,607)    (13,458)
    Deficit, beginning
     of period                  (194,190)   (165,565)   (187,804)   (159,293)
    -------------------------------------------------------------------------

    Deficit, end of period    $ (200,411) $ (172,571) $ (200,411) $ (172,751)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted loss
     per common share         $    (0.03) $    (0.05) $    (0.06) $    (0.09)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted
     weighted average number
     of shares outstanding   214,034,540 147,133,047 204,160,161 147,116,843
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements.



                            RS TECHNOLOGIES INC.
                        (formerly Resin Systems Inc.)
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

    -------------------------------------------------------------------------
                                        Three months              Six months
    Thousands of Canadian              ended June 30           ended June 30
     dollars (unaudited)            2010        2009        2010        2009
    -------------------------------------------------------------------------
    Cash provided by (used in):
    Operating activities:
    Net loss                  $   (6,221) $   (7,186) $  (12,607) $  (13,458)
      Items which do not
       involve cash
        Depreciation of
         property, plant and
         equipment                   283         362         573         701
        Non-cash financing
         charges                   1,772         749       2,601       1,467
        Amortization of
         deferred gain on
         sale of property,
         plant and equipment         (19)        (30)        (38)        (50)
        Stock based compensation      48         606          78       1,239
        Other non-cash items          (3)        (16)        (13)       (133)
    -------------------------------------------------------------------------
    Cash used in operating
     activities                   (4,140)     (5,515)     (9,406)    (10,234)
    Change in non-cash
     operating working capital     1,450       2,795      (2,545)      2,159
    -------------------------------------------------------------------------
                                  (2,690)     (2,720)     (11,951)    (8,075)
    Financing activities:
        Issue of share capital         -          12        7,335         12
        Bank loan                      -           -        3,000          -
        Issue of unsecured
         promissory notes              -       1,500            -      1,500
        Issue of mortgage              -       1,404            -      1,404
        Repayment of mortgage        (57)          -         (111)         -
        Repayment of other
         long-term liabilities       (57)       (129)        (121)      (149)
    -------------------------------------------------------------------------
                                    (114)      2,787       10,103      2,767
    Investing activities:
        Purchase of property,
         plant and equipment        (397)     (1,657)        (462)    (2,241)

    -------------------------------------------------------------------------
    Decrease in cash and
     cash equivalents             (3,201)     (1,590)      (2,310)    (7,549)
    Cash and cash equivalents,
     beginning of period           3,939       2,005        3,048      7,964
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                   738         415          738        415
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Cash                             738         215          738        215
    Cash equivalents                   -         200            -        200
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period            $      738  $      415  $       738  $     415
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements.



             RS Technologies Inc. (Formerly Resin Systems Inc.)
               Notes to the consolidated financial statements
              Three and Six months ended June 30, 2010 and 2009

    1.  Basis of presentation:

        These unaudited interim consolidated financial statements of RS
        Technologies Inc. (formerly Resin Systems Inc.) ("RS" or the
        "Company") have been prepared by management in accordance with
        Canadian generally accepted accounting principles ("GAAP"). The
        accounting policies and methods of application are consistent with
        those outlined in RS's audited consolidated financial statements for
        the year-ended December 31, 2009. These consolidated financial
        statements reflect all normal recurring adjustments that are, in the
        opinion of management, necessary to fairly present the financial
        position and results of operations. These interim consolidated
        financial statements do not include all disclosures required in the
        annual financial statements and should be read in conjunction with
        the Company's annual audited consolidated financial statements and
        notes thereto for the year ended December 31, 2009.

    2.  Future operations:

        These interim consolidated financial statements have been prepared on
        a going concern basis in accordance with Canadian GAAP, which assumes
        that the Company will realize its assets and discharge its
        liabilities and commitments in the normal course of business. The
        application of the going concern concept is dependent upon, amongst
        other things, the continued support and cooperation of shareholders,
        lenders, suppliers, and the ability to generate profitable
        operations.

        For the six months ended June 30, 2010, the Company reported a net
        loss of $12,607. RS had negative working capital of $28,506 and an
        accumulated deficit of $200,411 at quarter end. As a result of these
        factors and the continued use of cash in operations, there exists
        significant doubt with respect to the Company's ability to discharge
        its current liabilities through the normal course of operations
        beyond August 31, 2010.

        Additional financing by way of debt and/or equity will be required
        for the Company to continue as a going concern. Management is
        perusing a number of actions in an effort to ensure that RS will
        continue as a going concern until additional financing is obtained,
        including but not limited to:

        1) The engagement of Macquarie Capital Advisors as a financial
           advisor, to assist the Company in securing funds for both its near
           term working capital needs and manufacturing improvements. The
           Company, with its financial advisor is actively, engaged in
           seeking debt and/or equity financing in order to raise the funds
           necessary to pursue management's plan of operation, to fund the
           working capital deficit, and in order pay its accounts payable and
           accrued liabilities, and make capital improvements to enhance
           manufacturing. The Company does not currently have any
           arrangements in place for the completion of any debt and/or equity
           financing and there is no assurance that RS will be successful in
           completing any debt and/or equity financing.

           RS's ability to continue operations will be entirely dependent on
           the Company's ability to obtain bridge financing until such time
           as long-term financing is obtained. The Company has obtained
           $2,000 of bridge financing from a related party (see note 12) and
           will require additional funds in the event that a long-term
           financing arrangement is not completed prior to August 31, 2010.

           It is anticipated that changes to the Company's outstanding
           indebtedness and/or equity will be required in conjunction the
           completion of with any long-term financing arrangement.  The
           structure and timing of these changes remain unknown until an
           arrangement is finalized, subject to the approval of such changes
           by the applicable securityholders and regulatory agencies.  In
           addition, the Company may choose to begin changing its outstanding
           indebtedness and/or equity prior to reaching a long-term financing
           arrangement in order to ease the current debt burden.

        2) Continuing to implement plans to reduce operational costs. In
           order to extend the availability of current capital resources, a
           focus on cash management including detailed weekly budgets, the
           negotiation of more favorable terms with the Company's suppliers,
           and a reduction of discretionary spending, has been implemented.
           Management has made every effort to ensure that these changes have
           not and will not impact the Company's ability to meet its current
           and future customer obligations.

        Management believes that the foregoing actions, together with the
        continued support and cooperation of securityholders, lenders and
        suppliers, and securing the required long-term financing, will enable
        RS to continue as a going concern. There can be no assurance that
        management's plans will be successful as such plans will be entirely
        dependent upon the completion of a long-term financing arrangement,
        market acceptance of the Company's products, and the implementation
        of manufacturing improvements. Should the Company be unsuccessful in
        raising additional financing, it may have no choice but to seek
        protection from its creditors. These financial statements do not
        reflect any adjustments should RS be unable to continue as a going
        concern and therefore be required to realize its assets and discharge
        its liabilities outside the normal course of business.

    3.  Inventories:

        ---------------------------------------------------------------------
                                           June 30, 2010   December 31, 2009
        ---------------------------------------------------------------------
        Raw materials                        $     1,569         $     1,096
        Finished goods                             4,843               3,937
        ---------------------------------------------------------------------
                                             $     6,412         $     5,033
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        During the quarter, the Company wrote-down finished goods inventory
        to net realizable value. The year to date inventory write-down of
        $1,649 (2009 - $1,432) is included in cost of sales. Raw materials
        are recorded at cost.

    4.  Bank loans:

        On February 19, 2010, the Company obtained an additional $3,000 of
        demand loans from a Canadian chartered bank at an interest rate of
        bank prime plus 1.00% due March 31, 2010. A commitment fee of $30 was
        paid to the bank upon acceptance of the loan.

        On March 19, 2010, the Company obtained an extension on the demand
        loans from March 31, 2010 to October 1, 2010. An extension fee of $35
        was paid and a general security agreement over all the assets of the
        Company was provided to the bank as part of the agreement, giving the
        bank a first charge over the Company's assets, subject to certain
        permitted encumbrances.

        The members of the Board of Directors have agreed to provide and
        extend, limited liability guarantees ("Guarantees") in favour of the
        bank, guaranteeing all the obligations of the Company to the bank up
        to October 1, 2010. During the quarter, a third party advisor to the
        Company completed their analysis of the guarantee compensation. The
        Directors will be compensated for the provision of the guarantees at
        a weighted average annual rate of 8.46% for the originally
        contemplated timeframes for each loan. The Company has agreed to
        compensate the directors for the extension of the guarantees and will
        retain an independent third party valuator to provide a fair market
        valuation of the provision. As at June 30, 2010, this valuation has
        not been completed, and an estimate of $138 for the additional
        compensation has been included in these financial statements.

    5.  Secured and unsecured convertible debentures:

        Unsecured convertible debentures

        On October 6, 2005, the Company issued $25,000 of unsecured
        convertible debentures ("Unsecured Debentures") due October 7, 2010
        and bearing interest at 8.5% per annum payable semi-annually each
        June 30th and December 31st.

        The holders of the Unsecured Debentures have the option to convert
        the principal amount of the Unsecured Debenture into common shares at
        an original conversion price of $2.90 per share at any time prior to
        the maturity date or the business day preceding the Company
        exercising its redemption option on the debentures. This conversion
        price was more than the market price of the Company's shares at the
        issue date.

        The Unsecured Debentures are redeemable by the Company at any time
        after October 6, 2007 at a redemption price equal to the principal
        amount plus accrued and unpaid interest provided that the volume
        weighted average trading price ("VWAP") of the common shares exceeds
        $3.63 for the twenty consecutive trading days ending five trading
        days prior to the date of which notice of redemption is given. On
        redemption or maturity, the Company may elect to repay the principal
        amount plus accrued and unpaid interest on the debentures by issuing
        and delivering common shares in the amount of the unsecured debenture
        principal plus accrued and unpaid interest divided by 95% of the VWAP
        of the common shares for the twenty consecutive trading days ending
        five trading days preceding the date fixed for redemption or
        maturity.

        As a result of the rights offering in July 2009, the conversion price
        of the outstanding unsecured convertible debentures was adjusted from
        $2.90 per common share to $2.76 per common share. This results in a
        conversion rate of approximately 362 common shares for each $1,000
        principal amount of debentures.

        The Unsecured Debentures were bifurcated into a liability component
        of $14,129 and an equity component of $10,258 at inception. The
        difference between the $25,000 due on maturity and the initial
        liability component is accreted and recorded as financing charges.

        The financing costs related to the Unsecured Debentures of $1,410
        were also bifurcated into a liability component and an equity
        component on a pro-rata basis based on carrying amounts.

        In January 2010, the Company entered into a supplemental indenture
        whereas the interest due on December 31, 2009 and through the
        remainder of the debenture term can be made by an issuance of shares
        in lieu of a cash payment. The number of shares issued is based on
        95% of the current market price as defined by the Toronto Stock
        Exchange ("TSX").

        On January 7, 2010, the Company issued 2,582,891 shares at $0.411 per
        share as payment for interest accrued for the period from July 1,
        2009 to December 31, 2009. On June 30, 2010, the Company issued
        6,903,777 common shares at $0.154 per share as payment for interest
        accrued for the period from January 1, 2010 to June 30, 2010.

        Secured convertible debentures

        On December 16, 2008, the Company issued 10,000 units for total
        proceeds of $10,000, due December 17, 2013. Each unit consists of a
        one thousand dollar convertible secured redeemable debenture
        ("Secured Debenture") earning interest at 15% per annum paid annually
        with the first interest payment due on November 30, 2009. The Company
        has the option of paying the interest by issuing common shares to the
        debenture holders. The issuance of the shares would be based on 85%
        of the VWAP of the common shares for the five consecutive trading
        days ending five trading days preceding the interest payment date.

        The Secured Debentures are secured by all of the assets of the
        Company, subject to the ability to put in place senior indebtedness.
        The Secured Debentures and accrued interest are convertible by the
        holder at any time after December 16, 2010 and prior to repayment of
        the debenture. The conversion price will be based on 115% of the VWAP
        for the five consecutive trading days immediately preceding
        December 16, 2010.

        The Secured Debentures are redeemable by the Company, in whole or in
        part, at a redemption price equal to their principal amount plus any
        accrued and unpaid interest. In addition, each unit has 4,000
        purchase warrants enabling the holder to purchase common shares at
        $0.18 per share until December 16, 2013.

        As a result of the rights offering in July 2009, the exercise price
        for the 40 million warrants currently outstanding has been adjusted
        to $0.17 per common share and the number of common shares purchasable
        per warrant has been adjusted to 1.06 common shares.

        On maturity or on redemption at any time after December 16, 2010, the
        Company may, at its option, on not more than 60 days and not less
        than 40 days prior notice and subject to regulatory approval, elect
        to satisfy its obligation to repay the principal amount of the
        Secured Debentures and accrued interest thereon by issuing and
        delivering that number of freely tradable common shares obtained by
        dividing the principal amount of the Secured Debentures and the
        accrued interest thereon by 85% of the volume weighted average
        trading price of the common shares on the TSX for the five
        consecutive trading days ending five trading days preceding the date
        fixed for redemption or maturity, as the case may be.

        If there is a change in control involving the acquisition of voting
        control or direction over 50% or more of the Company's issued and
        outstanding common shares, the Company is required to offer a price
        equal to 101% of the principal amount plus accrued and unpaid
        interest to the holders of the Secured Debentures.

        The Secured Debentures were separated into the following three
        components, on issuance:

                        --------------------------------
                         Debenture              $ 6,911
                         Conversion option          337
                         Warrants                 2,752
                        --------------------------------
                         Total value of units   $10,000
                        --------------------------------

        The financing costs related to the Secured Debentures of $584 were
        also bifurcated into a liability component and an equity component on
        a pro-rata basis based on carrying amounts.

    6.  Shareholders' equity:

        (a) Authorized and issued share capital:
        ---------------------------------------------------------------------
                                   Common Shares             Warrants
                              -----------------------------------------------
                                 Number      Amount      Number     Amount
        ---------------------------------------------------------------------
        Balance,
         December 31, 2009    188,883,711   $  38,051  39,919,000   $  2,746
        Shares issued in
         private placement(1)  22,465,396       7,335           -          -
        Shares issued for
         interest(2)(3)         9,486,668       2,125           -          -
        Restricted share
         units exercised           25,833          39           -          -
        ---------------------------------------------------------------------
        Balance,
         June 30, 2010        220,861,608   $  47,550  39,919,000   $  2,746
        ---------------------------------------------------------------------

           (1) On March 19, 2010, the Company issued 22,465,396 common shares
               as part of a private placement of $0.33 per share for net
               proceeds of $7,335.

           (2) On January 7, 2010, the Company issued 2,582,891 common shares
               at $0.411 per share as payment for interest accrued for the
               period from July 1, 2009 to December 31, 2009.

           (3) On June 30, 2010, the Company issued 6,903,777 common shares
               at $0.154 per share as payment for interest accrued for the
               period from January 1, 2010 to June 30, 2010.

        (b) Warrants:

            At June 30, 2010 and December 31, 2009, there were 39,919,000
            warrants outstanding at a price of $0.17 and expiry of
            December 16, 2013.

        (c) Stock based compensation:

            In the second quarter of 2010, the Company recorded $221 (2009 -
            $411) in stock-based compensation relating to stock options
            granted to employees, net of forfeitures. In addition, a net
            recovery of $184 (2009 - $205 expense) of stock-based
            compensation has been recorded related to the granting and
            revaluation of deferred share units ("DSUs") and an expense of
            $11 (2009 - $10) related to restricted share units ("RSUs"), net
            of forfeitures.

            For the period ended June 30, 2010, the Company has recorded $251
            (2009 - $871) in stock-based compensation expense that relates to
            stock options granted to employees, net of forfeitures. In
            addition, a net recovery of $195 (2009 - $338 expense) of stock-
            based compensation has been recorded related to the granting and
            revaluation of deferred share units ("DSUs") and an expense of
            $22 (2009 - $30) related to restricted share units ("RSUs"), net
            of forfeitures.

        (d) Stock options outstanding:

        ---------------------------------------------------------------------
                                               Number of    Weighted average
        Options held by employees          share options      exercise price
        ---------------------------------------------------------------------
        Outstanding, December 31, 2009        10,043,050            $   0.92
        Granted                                2,750,000                0.29
        Forfeited                             (1,000,000)               0.81
        ---------------------------------------------------------------------
        Outstanding, June 30, 2010            11,793,050            $   0.79
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        ---------------------------------------------------------------------
                                               Number of    Weighted average
        Options held by non-employees      share options      exercise price
        ---------------------------------------------------------------------
        Outstanding, December 31, 2009 and
         June 30, 2010                           100,000            $   1.63
        ---------------------------------------------------------------------

        The following table summarizes information about the stock options
        outstanding as at June 30, 2010:

                                                    Weighted
                                               average years
             Price range       Outstanding         remaining     Exercisable
        ---------------------------------------------------------------------
        $    0.23 - 0.35         5,175,000              4.28         733,332
             0.36 - 1.12         2,343,000              2.97       1,194,334
             1.13 - 1.50         4,175,000              1.87       3,361,666
             1.51 - 2.40           200,050              0.47         200,050
        ---------------------------------------------------------------------
        $    0.23 - 2.40        11,893,050              3.11       5,489,382
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (e) Restricted shares

            Under the Company's restricted share unit plan, the Company
            granted no RSUs in the current or prior period. Of the units
            previously granted, 25,833 vested in the current period and
            100,000 units vest in 2011.

        (f) Deferred share unit plan

            As at June 30, 2010, there were 2,246,008 DSUs outstanding. The
            liabilities for DSUs are revalued to market on a quarterly basis
            and as at June 30, 2010, $312 (December 31, 2009 - $506) is
            included in other current liabilities.

        (g) Contributed surplus:

            The following table reconciles the Company's contributed surplus
            for the period:

        ---------------------------------------------------------------------
        Balance, December 31, 2009                                  $  9,830
        Stock-based compensation                                         273
        Restricted share units exercised                                 (39)
        ---------------------------------------------------------------------
        Balance,  June 30, 2010                                     $ 10,064
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    7.  Segmented information:

        RS's activities are comprised of one operating segment being the
        development, manufacturing and sales of composite products. The
        Company evaluates performance as one entity. During the three and six
        months ended June 30, 2010, the Company's revenues consisted entirely
        of utility pole sales. During the three and six months ended June 30,
        2010, 80% and 86% (2009 - 93% and 92%) of total sales were to
        Customer A, respectively.

        The following table represents revenues geographic location:

                                        Three months              Six months
                                       ended June 30           ended June 30
        Location                    2010        2009        2010        2009
        ---------------------------------------------------------------------
        Canada                $    2,689  $    4,279  $    5,466  $    4,340
        ---------------------------------------------------------------------
        United States                  -         565          81       1,400
        ---------------------------------------------------------------------
        International                652          96         783         200
        ---------------------------------------------------------------------
                              $    3,341  $    4,490  $    6,330  $    5,940
        ---------------------------------------------------------------------

    8.  Financing charges:

                                                    Six months ended June 30
        ---------------------------------------------------------------------
                                                            2010        2009
        ---------------------------------------------------------------------
        Interest on secured and unsecured
         convertible debentures                       $    1,806  $    1,806
        Unsecured convertible debenture accretion          1,461       1,288
        Secured convertible debenture accretion              232         179
        Other interest                                       256          93
        ---------------------------------------------------------------------
                                                      $    3,755  $    3,366
        ---------------------------------------------------------------------

    9.  Financial instruments:

        At June 30, 2010, the fair value of cash, accounts receivable,
        accounts payable and accrued liabilities, bank loans, and the
        Province of Ontario loan approximate their carrying amounts due to
        the short-term, demand nature of these instruments. The fair value of
        the restricted cash approximates carrying value as it earns interest
        at variable market rates.

        The fair values of the secured and unsecured convertible debentures
        are not materially different from the carrying value.

        The carrying value of the mortgage payable approximates fair value as
        the interest rate of the mortgage is consistent with interest rates
        available to the Company from other lenders with the same terms.

        The Company is exposed to risks of varying degrees of significance
        which could affect its ability to achieve its strategic objectives
        for growth and shareholder returns. The principal financial risks the
        Company is exposed to are described below.

        Liquidity risk

        Liquidity risk is the risk that the Company will not be able to meet
        its financial obligations as they come due. Management uses
        internally prepared cash flow forecasts to seek to ensure that the
        Company has sufficient liquidity to meet its liabilities when due.
        The Company will continue its cost cutting strategies as well as
        complete a debt and/or equity financing discussed in note 2 to ensure
        that sufficient funds will be available to discharge its current
        obligations as they become due.

        The following are the contractual maturities of financial liabilities
        as at June 30, 2010:

                             Carrying  Contractual       0 to 3       3 to 6
                               amount    cash flow       months       months
        ---------------------------------------------------------------------
        Accounts payable and
         accrued liabilities $  3,129     $  3,129     $  3,129     $      -
        Bank loans              7,000        7,000            -        7,000
        Other liabilities       4,292        3,633        2,431           61
        Unsecured convertible
         debentures(a)         24,179       25,000            -       25,000
        Secured convertible
         debenture(a)           7,125       10,000            -            -
        Debenture interest(a)       -        6,650            -        2,076
        ---------------------------------------------------------------------
                             $ 45,725     $ 55,412     $  5,560     $ 34,137
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

                              6 to 12     12 to 24     After 24
                               months       months       months
        --------------------------------------------------------
        Accounts payable and
         accrued liabilities $      -     $      -     $      -
        Bank loans                  -            -            -
        Other liabilities         124          247          770
        Unsecured convertible
         debentures(a)              -            -            -
        Secured convertible
         debenture(a)               -            -       10,000
        Debenture interest(a)   1,500        1,500        1,574
        --------------------------------------------------------
                             $  1,624     $  1,747     $ 12,344
        --------------------------------------------------------
        --------------------------------------------------------

        (ii) These instruments allow the Company to choose whether it settles
              the financial liabilities by delivering cash or issuing common
              shares.

    10. Contingencies:

        In the ordinary course of business, the Company may be contingently
        liable for litigation and claims with customers, suppliers, former
        employees and third parties. Management believes that adequate
        provisions have been recorded in the accounts where applicable.
        Although it may not be possible to estimate accurately the extent of
        potential costs and losses, if any, management believes that the
        ultimate resolution of such contingencies would not have a material
        effect on the financial position of the Company.

    11. Commitments:

        The Company has a contract with its North American distributor until
        December 31, 2014 at contracted prices. The contract stipulates
        certain price increases for RStandard modules, some that take effect
        on January 1, 2011, and others that may come into effect based on
        increases in certain manufacturing costs. Accordingly, the Company
        continuously monitors its manufacturing costs to plan potential
        changes to pricing.

        The Company has a 41-year warranty and limited lifetime guarantee on
        its RStandard(R) modules. The Company has not included a provision
        for the warranty or guarantee in the current period, as there is
        insufficient historical information to estimate the future cost of
        the warranty and guarantee to RS. To date, there have not been any
        successful warranty or guarantee claims.

    12. Subsequent Events:

        Subsequent to quarter end, the company received $2,000 of unsecured
        bridge loans from a company controlled by a director. The loans will
        bear interest at 12% per annum, mature November 1, 2010, and will be
        repaid by the proceeds of any long-term financing obtained. In
        addition, 1,000,000 common shares will be issued at no cost to the
        lender.

        On August 11, 2010, the Company issued the maturity notice to the
        unsecured debenture holders of its intention to discharge the
        outstanding unsecured debenture principal balance of $25,000 by way
        of issuing common shares of the Company, in accordance with the terms
        of the indenture.

    13. Comparative figures:

        Certain comparative figures have been reclassified to conform to the
        current financial statement presentation.

    (1)  Energybiz. "Now is the time" Pg 6. January/February 2009.
    

SOURCE RS Technologies Inc.

For further information: For further information: Laurien Abel, Investor Relations and Communications, Tel: (403) 219-8000, Fax: (403) 219-8001, Email: info@grouprsi.com

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RS Technologies Inc.

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