Lignol Reports Fiscal 2014 First Quarter Financial Results
VANCOUVER, Sept. 30, 2013 /CNW/ - Lignol Energy Corporation (TSXV: LEC) ("LEC" or "the Company"), a leading technology company in the advanced biofuels and renewable chemicals sector, today announced its unaudited consolidated financial results for the three months ended July 31, 2013 (all figures in Canadian dollars, unless otherwise noted).
During the quarter, LEC continued to develop its Canadian based technology platform for the production of cellulosic ethanol, high value cellulose and high purity HP-LTM lignin and consolidated its shareholding in Territory Biofuels limited ("TBF"). It also identified an additional strategic investment opportunity in the form of an investment, currently in progress, in Neutral Fuels Parent Company, to develop a biodiesel program for the APMEA region, and laid the groundwork for gaining access to additional funding in August 2013.
- Increased investment in TBF to obtain majority control with approximately 54% non-diluted and 60% fully diluted shareholding
- Increased its credit facility with Difference Capital Financial Inc. ("DCF") from $5 million to up to $6.25 million in July 2013
- Reported an operating loss of $0.98 million for the quarter compared to a loss of $0.96 million for the comparable quarter last year
Achieved a comprehensive profit for the quarter of $3.96 million as a
result of a $4.08 million increase in the market value of its
investment in ARW and a non-cash foreign exchange gain of $1.7 million
arising from the consolidation of TBF
Subsequent Event Highlights
- Replaced the DCF line of credit with a secured revolving credit facility of up to $12.5 million
- Agreed to provide TBF with further funding of up to an additional A$1 million to increase LEC's investment up to potentially between 76% and 87% of the issued shares of TBF and between 75% and 86% on a fully diluted basis
Agreed to provide funding of A$4.07 million to acquire a 40% equity
stake in Neutral Fuels Parent Company ("Neutral Fuels") and a 51%
interest in Neutral Fuels' Australia and New Zealand biodiesel
On August 14, 2013, the Company announced that it had replaced its secured credit facility of $5 million with DCF, which was amended on July 9, 2013 for up to $6.25 million (the "Amended Loan" or the "Drawn Amount"), with a new secured revolving credit facility (the "Note") of up to $12.5 million with DCF. Under the terms of the Note, 50% of the unpaid principal amount and accrued and unpaid interest on such amount will be payable on the closing of an equity financing of at least $20 million (as long as none of the outstanding Warrants, as defined below, remain unexercised) and the remaining unpaid principal amount and accrued and unpaid interest on such amount are payable on December 31, 2014. Amounts drawn under this facility will bear interest at 9% per annum and any amount owing under the Amended Loan (the "Drawn Amount") is deemed to be a borrowing under the Note. The Company agreed to pay DCF a commitment fee of $0.2 million, of which $0.1 million had already been paid in respect of the earlier credit facilities. In consideration for providing the Note, DCF is entitled to receive 3,555 warrants to purchase common shares in the capital of LEC (each a "Warrant Share") for each $1,000 drawn down under the Note, which allows for the issue of up to approximately 44.4 million warrants (the "Warrants") which if fully exercised, would result in DCF owning 48.3 percent of LEC on a partially diluted basis, assuming the exercise of only DCF's warrants. As of September 30, 2013, DCF was entitled to receive a total of 34,661,250 Warrants in respect of the Drawn Amount. Each Warrant is non-transferrable, shall expire on December 31, 2014 and entitle the holder to purchase one Warrant Share at an exercise price of $0.15 per share (the "Exercise Price"), subject to any adjustments necessary to comply with applicable securities laws and requirements of the TSX Venture Exchange or any other stock exchange in which the Lender's securities are listed.
On August 19, 2013, the Company announced it had agreed to provide TBF with equity funding of up to A$1,000,000 over the course of the next several months. Subsequently on September 30, 2013, the Company announced it had agreed to vary the the terms and conditions of its existing loan to TBF in the amount of A$500,000 (the "Loan") and LEC's investment (the "Investment") in TBF of up to A$1,000,000. The Company and TBF have agreed that the Loan and the Investment amounts will be applied to the subscription for secured convertible notes (the "Notes") of TBF, in the aggregate amount of up to A$1,500,000. In accordance with its previous Investment commitment, LEC has provided funding to TBF totaling A$500,000 and is in the process of providing the opportunity to existing TBF investors to subscribe for the remaining A$500,000 worth of Notes. Existing investors of TBF may subscribe for these Notes on the basis of their proportionate entitlement and LEC has agreed to fund any amounts not subscribed by these existing shareholders and to close this transaction no later than November 15, 2013. The closing of this entire transaction is subject to regulatory approval. Each of the Notes is convertible into ordinary shares of TBF after June 30, 2014 and at any time up to November 15, 2018. The Notes are interest free, due if not converted on December 15, 2018 and are secured by TBF's assets. The terms for the conversion of the Notes into TBF equity depends on a range of criteria related to the development of the Darwin facility amongst other matters, the outcome of which are expected to be known by June 30, 2014. Upon completion of the Investment, and the conversion of all the Notes, LEC is expected to increase its majority holding up to potentially between 76% and 87% of the issued and outstanding shares of TBF, and up to potentially between 75% and 86% on a fully diluted basis, assuming no other existing investors participate in this investment opportunity.
On September 5, 2013, the Company announced that it will provide funding of A$4.07 million to acquire a 40% equity stake in Neutral Fuels Parent Company ("Neutral Fuels") and a 51% interest in Neutral Fuels' Australia and New Zealand biodiesel operation, Neutral Fuels (Melbourne) Pty Ltd. ("NFANZ"). This funding is for the deployment of the next phase of a planned rollout of closed loop biorefineries throughout the Asia Pacific/Middle East/Africa region ("APMEA") in an agreement with the McDonald's Restaurants used cooking oil biodiesel program. Under the agreement with McDonald's, Neutral Fuels currently operates two closed loop biorefineries located in Dubai, United Arab Emirates and Melbourne, Australia.
The consolidated financial statements of the Company for the quarter ended July 31, 2013 include the accounts of LEC, its wholly owned subsidiaries LIL and TBF. The Company acquired a 40 percent interest in TBF effective April 15, 2013, and determined that it had achieved de facto control over TBF on that date and as a result, has consolidated the results of TBF's operations and its balance sheet from the date of April 15, 2013.
The Company's investments in ARW are carried at market value. ARW has a June 30 year end, issues financial statements twice per year for the Six Months ended December 31 and for the year ended June 30. ARW quarterly newsletters are also sent out to shareholders. This information is available on ARW's website under the heading Investor Relations.
During the quarter, LEC continued to develop its Canadian based technology platform for the production of cellulosic ethanol, high value cellulose and high purity HP-LTM lignin and consolidated its shareholding in Territory Biofuels limited ("TBF"). It also identified an additional strategic investment opportunity in the form of an investment, currently in progress, in Neutral Fuels Parent Company, to develop a biodiesel program for the APMEA region, and laid the groundwork for gaining access to additional funding in August 2013. These activities are consistent with the Company's intention to invest in, or otherwise obtain, equity interests in energy related projects which have synergies with the Company and have the potential to generate near term cash flow.
For the three month period ended July 31, 2013 ("Q1 FY14"), the Company reported an operating loss of $0.98 million, or $0.001 per share (basic and fully diluted) compared to a net loss of $0.96 million or $0.02 per share (basic and fully diluted) for the three month period ended July 31, 2012 ("Q1 FY13"). Research and development expenses increased by $0.2 million as a result of the impact of consolidating the results of TBF during the quarter, and this was offset by a $0.2 million increase in government and corporate cointributions.
LEC achieved a total $3.96 million comprehensive profit for the quarter compared with a comprensive loss of $0.97 million in Q1 FY13. The current reported profit reflects a $4.08 million increase in the market value of its investment in ARW and a non-cash foreign exchange gain of $1.7 million which arose from the devaluation of the Australian dollar relative to the Canadian dollar and its impact on the consolidation of TBF.
LEC Going Concern
In August 2013, the Company entered into a secured revolving credit facility with Difference Capital Financial Inc. ("DCF") for up to $12.5 million (as further described in Notes 8 and 15 to the Interim Financial Statements). A total of $6.0 million had been received as of July 31, 2013; and by September 27, 2013 a total of $9.75 million had been drawn down under the facility.
The Company currently forecasts that its working capital requirements for the next twelve months may exceed the combination of its current working capital, and those funds which are expected to be received in the future under its revolving secured credit facility and those funds which are expected to be received in the future from LIL's existing government grants and corporate relationships. The ability of the Company to continue as a going concern is dependent upon its ability to continue to fund its business objectives and to be able to repay amounts drawn under the DCF credit facility. There can be no assurance that the Company will be able to obtain further financing on favourable terms and in such event, the Company's working capital may not be sufficient to meet its stated business objectives.
These consolidated financial statements have been prepared on a going concern basis which assumes that the Company will continue its operations for the foreseeable future and contemplates the realization of assets and the settlement of liabilities in the normal course of business. The conditions and risks noted above cast significant doubt on the validity of that assumption.
These financial statements do not give effect to any adjustments to the amounts and classification of assets and liabilities that may be necessary and could potentially be material, should the Company be unable to continue as a going concern.
Liquidity and Capital Resources
LEC has historically financed its capital requirements largely through public and private sales of equity securities. It has more recently gained access to a revolving line of credit from DCF to support, amongst other things, recent investments in ARW, TBF and Neutral Fuels which have potential synergies with the Company. The ongoing funding requirements of LEC's wholly owned subsidiary LIL, were met out of these funds together with government grants and corporate contributions received directly by LIL.
At July 31, 2013, LEC and its subsidiaries, LIL and TBF, had on a consolidated basis, $1.5 million in cash and cash equivalents and up to $2.6 million in future funding receivable from contracted government funding agreements. There were also $2.6 million in trade payables, and $2.3 million in current lease obligations, and $6.0 million outstanding under the DCF credit facility as of July 31, 2013, which is repayable on December 31, 2014. The Company had a $7.2 million surplus in net shareholders' equity after taking into account an accumulated deficit of $36.2 million.
The $2.6 million in funding receivable in the future from contracted government funding agreements has not yet been recognized in the financial statements. These funds are intended to be applied against future expenses incurred under various development programs. This funding is available subject to the satisfaction of certain conditions which includes LIL completing the body of work required in respect of the previous round of funding, LIL demonstrating the ability to incur future budgeted program expenditures, and continuing to meet all of its reporting requirements. Receipt is also conditional in certain cases upon having sufficient matching funds and there can be no assurance that this funding will be received.
As noted in the LEC Going Concern note above, in order to continue funding its operations, LEC will continue to explore a number of different options. There can be no assurance that LEC will be able to obtain further financing on favourable terms and in such event, LEC's working capital may not be sufficient to meet its stated business objectives (see also "Risks and Uncertainties").
The Company continues to manage and defer non-priority expenditures, while at the same leveraging all available funding sources to extend, as much as is possible, the overall availability of its resources.
Lignol's complete financial statements for the three months and fiscal year ended July 31, 2013 and the related Management's Discussion & Analysis of Financial Condition and Results of Operations are available at the Company's website, www.lignol.ca, or at www.sedar.com under the Company's profile. These financial statements were prepared in accordance with International Financial Reporting Standards.
About Lignol Energy Corporation ("LEC")
Lignol Energy Corporation is an emerging producer of biofuels, biochemicals and renewable materials from waste biomass. LEC is actively involved in the management of its wholly owned subsidiary Lignol Innovations Ltd. and in the management of Territory Biofuels Limited, in which it has a controlling interest, but it has no significant influence over the activities of Australian Renewable Fuels Limited. The Company intends to invest in, or otherwise obtain, equity interests in energy related projects, which have synergies with the company and have the potential to generate near term cash flow. On September 5, 2013 LEC announced that it had agreed to provide funding of A$4.07 million to acquire a 40% stake in Neutral Fuels Parent Company ("Neutral Fuels") and a 51% interest in Neutral Fuels (Melbourne) Pty Ltd. Funding is due in two tranches of approximately A$2 million each on or about October 15, 2013 and on January 15, 2014.
Lignol Innovations Ltd. ("LIL")
The Company's wholly owned subsidiary, LIL is a leading technology company in the advanced biofuels and renewable chemicals sector undertaking the development of biorefining technologies for the production of advanced biofuels, including fuel-grade ethanol, and other renewable chemicals from non-food cellulosic biomass feedstocks. LIL's modified solvent based pre-treatment technology facilitates the rapid, high-yield conversion of cellulose to ethanol and the production of value-added biochemical co-products, including high purity HP-LTM lignin. HP-LTM lignin represents a new class of high purity lignin extractives (and their subsequent derivatives) which can be engineered to meet the chemical properties and functional requirements of a range of industrial applications that until now has not been possible with traditional lignin by-products generated from other processes. LIL is executing on its development plan through strategic partnerships to further develop and integrate its core technologies on a commercial scale.
Territory Biofuels Limited ("TBF")
The Company presently owns a controlling 54% equity stake in TBF (and is in the process of increasing that stake up to potentially between 76% and 87%), a company which owns a large scale biorefining facility located in Darwin, Northern Territory which includes a Lurgi-designed biodiesel plant and the largest glycerine refinery in Australia. The facility was commissioned in 2008 at a cost of A$80 million, along with 38 million litres of related tankage, now leased by TBF. The biodiesel plant is the largest in Australia with a rated capacity of 140 million litres per year. The plant was originally built to run on palm oil and food-grade vegetable oil, however the plant was shut down in 2009 due to challenging technical and economic conditions. To take advantage of current market opportunities, TBF is in the process of raising funds to restart the existing facility utilizing a specific grade of palm oil; environmentally certified, Refined Bleached & Deodorized (RBD) palm oil. In 2014, TBF plans to integrate new feedstock pre-treatment technologies and catalysts to process a broader range of feedstocks such as lower quality tallow, used cooking oil and palm sludge oil; a waste product from palm oil mill extraction. LEC has appointed a majority of the Board of TBF which includes two executives and directors of LEC, one of whom is Chairman of the Board. Since obtaining a controlling interest on April 15, 2013, LEC has been actively engaged in the operations of TBF and in supporting TBF to obtain access to additional finance so as to restart the Darwin plant and to enable the company to commence commercial operations.
Australian Renewable Fuels ("ARW")
The Company currently owns a 21% investment in ARW, a company listed on the Australian Stock Exchange (ASX:ARW), which is the largest biodiesel producer in Australia owning three plants with a total nameplate capacity of 150 million litres per annum. ARW's three plants were built at an aggregate cost of over A$100 million. ARW has made significant changes in recent years to become a more cost effective producer of high quality biodiesel to address growing biofuel demand in the Australian market. In March 2013, ARW completed an equity financing of A$12.3 million, which was partially funded by LEC, for the purpose of repaying existing debt and to provide additional working capital. Further information about ARW can be found at www.arfuels.com.au
Neutral Fuels Parent Company ("Neutral Fuels")
In accordance with Neutral Fuels' agreement with the McDonald's Restaurants used cooking oil biodiesel program, Neutral Fuels intends to rollout its closed loop biorefineries throughout the Asia Pacific/Middle East/Africa region ("APMEA"). Under this agreement with McDonald's, Neutral Fuels currently operates two closed loop biorefineries located in Dubai, United Arab Emirates and Melbourne, Australia.
Neutral Fuels owns and manages biorefineries that convert used cooking oil into biodiesel, the modern, sustainable replacement for fossil diesel. On a lifecycle basis, biodiesel accounts for over an 80% reduction in carbon dioxide and equivalents, the major contributors to climate change. Neutral Fuels pioneered the closed loop business model which was developed specifically for McDonald's, where used cooking oil is collected from McDonald's restaurants by the same vehicles that deliver the fresh oil. The used oil is then backhauled to the co-located Neutral Fuels biorefinery where it is converted, litre for litre, into biodiesel, which is then pumped back into the delivery fleet in an ongoing recycling process. Further information about Neutral Fuels can be found at www.neutral-fuels.com/
Neither TSX Venture Exchange 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.
Caution concerning forward-looking statements:
Certain statements contained in this document may constitute forward-looking information within the meaning of applicable securities laws. Such forward-looking statements or information include, without limitation, statements or information about LEC's ability to complete the provision of funding of A$4.07 million to Neutral Fuels Parent Company ("Neutral Fuels") within the agreed timeframes, LEC's ability to invest in, or otherwise obtain, equity interests in energy related projects which have potential synergies with the Company and which have the potential to generate near term cash flow, LEC's ability to continue as a going concern and to raise additional financing to fund the operations of LEC and its affiliates, the Company's ability to draw down additional funds in the future from Difference Capital Financial Inc. ("DCF"), DCF's ability to provide funding to LEC in accordance with the terms of the Note signed between the two companies, the ability of The Neutral Fuels Group to complete the transfer of all of its liquid fuels business to Neutral Fuels before the completion of the funding of the transaction, the ability of Neutral Fuels to complete the rollout of closed loop biorefineries in accordance with its agreed timetable, TBF's ability to finance and restart its 140 million litre per year biodiesel plant and glycerine refinery, to commence commercial operations and to generate revenues and near term cash flow, TBF's ability to integrate new pretreatment technologies and catalysts to facilitate the processing of a broad range of lower cost feedstocks, LEC's ability to complete the funding of TBF in the above timeframes, the creation of the Notes through the conversion of the Loan and the applicable amount of the Investment, possible conversion of the Notes into equity of TBF, the ability of existing TBF shareholders to participate in the current TBF financing, TBF's ability to obtain US EPA approval, TBF's ability to integrate new pretreatment technologies and catalysts to facilitate the processing of a broad range of lower cost feedstocks, the development status of Lignol Innovations limited's ("LIL") fully integrated pilot scale biorefinery in Burnaby, British Columbia, the planning and development of a commercial plant, LIL's ability to complete project deliverables which are funded in part by government agencies, obtaining strategic partnership investments and government funding for initial commercial projects. Often, but not always, forward looking statements or information can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes" or variations of such words and phrases or words and phrases that state or indicate that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved.
Such statements or information reflect LEC's current views with respect to future events and are subject to certain risks, uncertainties and assumptions including, without limitation, LEC's ability to raise additional capital to fund operations and to support the capital requirements of its affiliates, the requirements of the potential effect of changes in government policy relating to the environment, and incentives for renewable fuels, the potential impact of changes in the prices of feedstock and the market price of liquid fuels including biodiesel, ethanol and renewable chemicals, the ability of LEC's subsidiary, associate and investee company to generate future profits and to pay dividends, and to meet increasing regulatory requirements, LEC's ability to divest the ARW ordinary shares due to modest trading volumes, LIL's ability to satisfy the conditions of existing government grants and to obtain new additional grants, LIL's ability to finance and complete the development of a commercial project, LIL's ability to develop products and to obtain off-take agreements, LEC's reliance on publically available information of ARW in its evaluation of its acquisition of shares in ARW, the potential fluctuation of biodiesel and feedstock prices and their impact on ARW, the potential inability to divest the ARW ordinary shares due to modest trading volumes, the potential inability to divest the ordinary shares the Company owns of TBF, the effect on ARW of changes in government policy relating to the environment, and incentives for renewable fuels, the ability of ARW to generate cash flow and pay dividends, and the ability of ARW to market their products overseas and to meet relevant regulatory requirements. the estimated cost of any future TBF capital investment, the fluctuation of biodiesel and feedstock prices on TBF, the effect on TBF of changes in government policy relating to the environment, and incentives for renewable fuels, the ability of TBF to generate cash flow and pay dividends, and the ability of TBF to market their products overseas and to meet relevant regulatory requirements.
Many factors could cause LEC's actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements or information, including among other things, financial market conditions which will impact LEC's ability to finance its operations and to meet future capital and investment requirements, the demand for the market price of liquid fuels including gasoline, biodiesel, ethanol, the market price and demand for renewable chemicals, risks relating to the protection of technology from infringement and those risk factors which are discussed elsewhere in documents that LEC files from time to time with securities and other regulatory authorities. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements or information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Except as required by law, the Company expressly disclaims any intention or obligation to update or revise any forward looking statements and information whether as a result of new information, future events or otherwise. All written and oral forward-looking statements and information attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements.
SOURCE Lignol Energy Corporation