Forterra Environmental Reports 2010 First-Quarter Results
- Sales continue to be significantly below internal forecasts as the
company does not have the financial capacity to support required sales
and marketing push
- Efforts continue to drive sales and raise additional capital
PUSLINCH, ON, June 2 /CNW/ - Forterra Environmental Corp. (TSXV: FTE), a manufacturer, marketer, and seller of premium organic soil-enrichment products based on worm castings, today announced its financial results for first quarter ended March 31, 2010. Financial results conform to Canadian generally accepted accounting principles (GAAP) and all currency amounts are in Canadian dollars.
Forterra's efforts to attract new customers and penetrate new markets have made progress. For example, the company has developed a number of new significant customer relationships, including a national supplier which is working to provide Forterra's products to Weed Man franchises and other customers. However, sales have been disappointing and below the company's internal forecast. As noted in Forterra's news release on May 3, 2010 announcing its year-end 2009 financial results, it has become increasingly evident that the company needs to support its distributors and customers with its own sales and marketing programs. Forterra currently does not have the staff or the financial capacity to undertake such an effort. The company is considering a number of initiatives to further drive sales.
The much lower level of sales than had been projected by the company's management has resulted in a significant shortfall in revenues and working capital. The company has taken steps to reduce its cash requirements in the near term, including postponing planned capital investments and reducing operating expenses. While the company is experiencing pressure on its financial liquidity, management continues to believe in the value of its products and the longer-term opportunities for its business. However, the company will not be able realize these opportunities unless it is able to raise additional working capital.
Financial Highlights
Forterra continues to be considered a development-stage company for accounting purposes and, as such, the progress that the company is making is not fully reflected in the financial statements. As a development-stage company, its revenues are applied to reduce sales and marketing expenses. Total sales were $12,675 for the 2010 first quarter versus $22,119 in the 2009 period.
General and administrative (G&A) expenses consist primarily of costs related to modification, engineering and refinement of the manufacturing facilities, senior management salaries, occupancy costs, consulting, and professional legal and accounting services. The company's efforts to reduce and control expenses resulted in a more than 48% decline in G&A in the 2010 first quarter to $228,080 from the 2009 level of $442,770 as Forterra reduced its costs for sales, wages, and occupancy.
Salaries and wages totaled $68,262 in the 2010 first quarter, compared with $150,668 in the 2009 period. Salaries directly involved in the production of worm castings are being capitalized as part of inventory. The decline is attributable to the company's efforts to control its costs, which have included a reduction in plant labor.
Occupancy expenses, consisting of the Puslinch facility, which is the company's active plant and head office, decreased to $88,262, compared with $169,553 in the 2009 period, including expenses for the vacated former facilities in Downsview and Concord. Occupancy expense for the Puslinch facility will be approximately $196,000 in 2010. Management has reached an agreement on the termination of the Concord space and is in negotiations to terminate the Downsview location.
Sales and marketing costs amounted to a positive $6,395 net of sales applied to reduce the expenses against them for the 2010 first quarter versus an expense of $16,996 for the 2009 quarter. The decline in 2010 expense also reflects the company's lack of working capital to fund additional sales and marketing programs in the first part of 2010.
After certain other expenses, including interest, depreciation and amortization, and stock-based compensation, the consolidated net loss was $309,438 (a loss of $0.004 per share on a basic and diluted basis) for the 2010 first quarter, compared with a net loss of $708,192 (a loss of $0.01 per share on a basic and diluted basis) for the 2009 period.
As at March 31, 2010, the company had negative working capital of ($992,708), compared with December 31, 2009, when Forterra had negative working capital of ($851,575).
In November 2009, the Scientific Research and Experimental Development ("SR&ED") credit refund was received and applied to reduce the debenture payable. Certain debenture holders waived their right to receive their portion of the SR&ED credit refund and reinvested this amount ($85,832) back into Forterra. Subsequent to the 2009 year-end, certain debenture holders reinvested an additional $88,707 back into Forterra as loans made on the same terms as those of the 12% Secured Debenture Series B with the exception that no bonus shares were issued.
Subsequent to the end of the 2010 first quarter, Forterra raised $214,400 ($30,000 of the $214,000 was received by the company prior to the end of the quarter) through the non-brokered issuance of a 12% Secured Debenture - Series B to three directors of the company. The financing is intended to be a bridge loan with the debentures and interest due and payable on August 31, 2010, subject to earlier redemption without any penalty at the option of the company. Subject to the approval of the TSX Venture Exchange, the three lenders will receive Bonus Shares at the rate of four common shares of Forterra for every $1.00 principal amount of the loan (a total of 857,600 shares to be issued). The deemed value of the common shares to be issued is $0.05 per share.
The company does not currently have sufficient resources to complete the commercialization of its products or to carry out its entire business strategy. It sales and marketing efforts are being significantly constrained by the lack of working capital. Therefore, Forterra will need to raise additional capital to fund operations. Although the company believes that additional financing can be sourced, Forterra cannot be certain that any financing will be available when needed on acceptable terms or at all. Any additional equity financings will be dilutive to existing shareholders, and debt financing, if available, may require additional stock to be issued and/or involve restrictive covenants on the business.
The amount of capital the company will need depends on many factors including: the progress and timing related to the achievement of full production capabilities; the progress, timing and scope of marketing and sales initiatives; the scope and timing of research and development related to products, worms, and the manufacturing process; and the costs related to personnel, facilities rent, and public company reporting requirements.
In addition, Forterra continues to have discussions with current and potential customers with respect to additional purchasing of products in 2010 that would result in increased sales and cash flow for the company.
Forterra also announced the resignation of Randy Pilon as a Director of the corporation and thanked him for his nearly two years of service and counsel on the Board.
About Forterra Environmental Corp.
Forterra manufactures, markets, and sells environmentally friendly soil enhancers, using worm castings, which boost fertility while restoring the soil with organic matter for sustainable, longer-term benefits, including stronger root growth, and drought and pest resistance. Forterra products contain only organic material. They are ideal for golf courses, sports fields, lawn care, parks, nurseries, orchards, and vineyards. Essentially, Forterra uses red wriggler worms to convert organic material into vermicompost or worm castings. Worm castings contain micronutrients, which are required for healthy plant development. Worm castings also contain microbes, which increase the rate at which plants take up available macronutrients and micronutrients. Further information is available on the company's website at www.forterra.com.
Forward-Looking Statements
This news release contains forward-looking statements based on current expectations. These forward-looking statements entail various risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Such statements are based on current expectations, are subject to a number of uncertainties and risks, and actual results may differ materially from those contained in such statements. These uncertainties and risks include, but are not limited to, availability of resources, competitive pressures, changes in market activity, the ability to sign contracts with customers, the development of markets for worm castings, its ability to breed and maintain a sufficiently large worm population, and regulatory requirements. Risks and uncertainties about Forterra's business are more fully discussed in the company's disclosure materials, including its annual information form and MD&A, filed with the securities regulatory authorities in Canada. Forterra assumes no obligation to update any forward-looking statement or to update the reasons why actual results could differ from such statements.
Preparation of Financial Statements
The company's financial statements were prepared on a going-concern basis, which presumes that the Forterra will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of its operations. At March 31, 2010, Forterra continued to be unable to pay its suppliers within normal trade terms and has a significant working capital deficiency. To remain a going concern, Forterra must become profitable and be able to rely on financial assistance from lenders. The company also is in the process of attempting to raise capital. It cannot be determined at this time whether these efforts will be successful.
Neither the TSX Venture Exchange Inc. nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
FORTERRA ENVIRONMENTAL CORP.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
FOR THE QUARTER ENDED
Mar. 31, 2010 Dec. 31, 2009
$ $
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ASSETS
CURRENT ASSETS
Cash and cash equivalents 6,994 2,297
Amounts receivable 18,226 47,031
Inventory (Note 4) 429,243 411,843
Prepaid expenses and deposits 7,732 7,732
----------------------------
TOTAL CURRENT ASSETS 462,195 468,903
PROPERTY AND EQUIPMENT 322,192 336,732
BIOLOGICAL ASSETS 232,698 232,698
INTANGIBLE ASSETS 1 1
GOODWILL 30,000 30,000
----------------------------
TOTAL ASSETS 1,047,086 1,068,334
----------------------------
----------------------------
LIABILITIES
CURRENT LIABILITIES
Amounts payable and accrued liabilities 1,264,903 1,160,478
Current portion of capital lease payable - -
----------------------------
TOTAL CURRENT LIABILITIES 1,264,903 1,160,478
DEBENTURE PAYABLE 532,194 409,630
DUE TO SHAREHOLDERS 190,000 160,000
DEFERRED RENT 23,908 23,908
----------------------------
TOTAL LIABILITIES 2,011,005 1,754,016
----------------------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK 8,818,910 8,818,910
WARRANTS 411,398 411,398
CONTRIBUTED SURPLUS 2,587,063 2,555,863
SHARES TO BE ISSUED - -
(DEFICIT) (12,781,291) (12,471,853)
----------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (963,920) (685,682)
----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,047,086 1,068,334
----------------------------
----------------------------
FORTERRA ENVIRONMENTAL CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE QUARTER ENDED
3 Months 3 Months
ended ended
March 31, March 31,
2010 2009
$ $
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EXPENSES
General and administrative 228,080 442,770
Sales and marketing (6,395) 16,996
Research and development (net) 5,814 10,467
----------------------------
Loss before other expenses 227,449 470,234
OTHER EXPENSES
Stock-based compensation 31,200 85,025
Amortization of property and equipment 16,883 15,564
Interest and accretion on long-term debt 33,856 144,000
Interest expense - (6,631)
----------------------------
NET LOSS FOR THE QUARTER 309,438 708,192
DEFICIT, beginning of year 12,471,853 10,340,523
----------------------------
DEFICIT, end of quarter 12,781,291 11,048,715
----------------------------
----------------------------
FORTERRA ENVIRONMENTAL CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED
3 Months 3 Months
ended ended
March 31, March 31,
2010 2009
$ $
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) for the quarter (309,438) (708,192)
Changes to income not involving cash:
Amortization 16,883 15,564
Accretion on long-term debt 33,856 144,000
Stock-based compensation 31,200 85,025
Leasehold inducement 7,134
----------------------------
(227,449) (456,469)
Changes in non-cash working capital balances
(Increase) in prepaid expenses and deposits - (1,346)
(Increase) in amounts receivable 28,805 63,183
(Increase) in inventory (17,400) (63,443)
Increase (decrease) in amounts payable and
accrued liabilities 104,425 62,787
----------------------------
Cash flows from operating activities (111,669) (395,288)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of loans payable 88,707 -
Advances from shareholders 30,000 600,000
----------------------------
Cash flow from financing activities 118,707 600,000
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (2,343) (63,259)
----------------------------
Increase in cash and cash equivalents 4,697 141,453
Cash and cash equivalents, beginning of year 2,297 368,426
----------------------------
Cash and cash equivalents, end of March 6,994 509,879
----------------------------
----------------------------
CASH AND CASH EQUIVALENTS CONSIST OF:
Cash 6,994 509,879
Cash equivalents
----------------------------
6,994 509,879
----------------------------
----------------------------
SUPPLEMENTAL INFORMATION
Interest paid 17,987 3,407
Income taxes paid - -
%SEDAR: 00013128E
For further information: Investor and Media Relations, Richard W. Wertheim, Wertheim + Company Inc., Email: [email protected], (416) 594-1600, (416) 518-8479 (cell)
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