Viridis Energy Inc. (“Viridis” or the “Company”) (TSXV: VRD), a “Cleantech” manufacturer and distributor of alternative energy providing waste biomass fuel to global residential and industrial markets, today reported financial results for its second quarter ended June 30, 2012. During the quarter the Company focused on tightening operations and streamlining costs in preparation for anticipated order acceleration in the second half of 2012 and beyond.
Viridis generated revenue for the second quarter 2012 of $2.4 million compared to $2.9 million in the second quarter of 2011, and $2.4 million during the first quarter of 2012. The year-to-year comparison was adversely affected by two factors. A shift in contract arrangements with certain customers in which the cost of freight, usually borne by the Company and recovered in the sales price, was paid directly by the customer, distorting the year-to-year sales comparison. In addition, the Company’s primary facility, Okanagan, produced approximately 10 percent less output during the quarter due to maintenance and enhancements that included upgrading the dryer which will enable the plant to accept green fiber, considered to be a highly cost-effective and plentiful fiber source. The Company anticipates sequential revenue growth acceleration in the second half of the year as the Okanagan facility ramps up to full production and importantly, as its recently acquired manufacturing capacity in Nova Scotia begins production in preparation for the fall/winter season.
The Company reported a comprehensive loss of $972,000 or $(0.02) per basic share for the second quarter of 2012. Viridis reported a loss from operations of $730,000 during second quarter 2012 versus a loss of $813,000 during the prior year and a loss of $818,000 for the sequential prior first quarter 2012. The increased loss during the current second quarter reflects financing costs and other start-up costs associated with the Scotia Atlantic facility without the benefit of revenue contribution from the facility, offset by a 22 percent decrease in total year-over-year operating expenses and a 6 percent decrease compared to first quarter 2012.
For the three months ended June 30, 2011, Viridis’ gross profit on revenue totaled $186,000, yielding a gross margin of 7.7 percent compared to 12.7 percent during the second quarter 2011 and 6.2 percent during first quarter 2012. Gross margin declined during the second half of last year due to prepaid agreements that were arranged in the off season as the company was working off old inventory that accompanied the purchase of the Okanagan facility. In 2012, the gross margin has increased sequentially each quarter. This trend is expected to continue as the Company enters its higher margin domestic home heating season and significantly, as it increases it own production capacity, thereby decreasing the percentage of revenues attributed to brokerage activity.
Operating expenses for the three month period ended June 30, 2012 were $916,000, which includes $246,000 of general and administrative (“G&A”) costs attributed to the Scotia Atlantic Biomass Company (“Scotia”) acquired by Viridis on February 7, 2012. Excluding G&A costs associated with the acquired Scotia entity, operating costs were $619,000, a decrease of approximately $560,000 from the prior year’s second quarter and a decrease of $217,000 from the sequential first quarter 2012. The quarter-over-quarter decrease in expenses was attributed to close management of operational expenses. The Company has succeeded in reducing aggregate compensation costs and associated employee benefits, in addition to achieving lower freight costs through bulk shipping, a more efficient on-site bagging at the destination.
For the six months ended June 30, 2012, Viridis reported revenues of $4.9 million, a 13 percent decrease compared to the same period in 2011. Net comprehensive loss totaled $2.2 million or $ (0.05) per basic share, compared to a net comprehensive loss of $1.7 million or $(0.06) per basic share for the same period in 2011. The Company’s year-over-year operating loss for the six month period increased $162,000 primarily due to carrying financial and operating costs of the plant in Nova Scotia as the facility is readied to launch production.
At June 30, 2012, the Company had cash and cash equivalents of $429,000 and accounts receivable of approximately $826,000, representing a DSO of approximately 22 days. During the second quarter, Viridis repaid its Promissory Note of $500,000 to the previous owners of Okanagan Pellet Company Inc., which it acquired in April 2010, thereby completing the full repayment of the mortgage and loans associated with the acquisition of this plant. Subsequent to quarter end, on July 17, 2012 the company’s largest shareholder, Cornwall Investments LLC (“Cornwall”) converted its 6% Convertible Notes into Viridis common stock thus reducing the Company’s total debt by over $4.1 million. The Company currently holds no long term debt and shareholder equity totaled $4.9 million at quarter end.
The Company’s common shares outstanding totaled 43.3 million, an increase of 2 million shares over year-end 2011 total outstanding share count, resulting from the $500,000 private placement completed on June 27, 2012. As of June 30, 2012, Viridis had approximately 67 million fully diluted shares, consisting of approximately 1.1 million options with a strike price of $0.35; 10.7 million warrants with an average strike price of approximately $0.52 (of which 2.9 million warrants with a $0.75 conversion rate expired during July 2012); and convertible debt that upon conversion would equate to 16.5 million common shares. As previously mentioned, subsequent to the end of the second quarter, Cornwall converted its 6% Convertible Notes that it purchased from Viridis on August 22, 2011 totaling $4.1 million into 16.5 million shares of common stock and 8.3 million warrants to purchase the Company’s common stock at $0.40 per share.
“Our focus this quarter was to streamline our costs, fortify our balance sheet and enhance our operational efficiencies, while preparing the production launch of the Nova Scotia facility and investigating additional opportunities to materially increase capacity to hit our target of 500,000 tons over the next couple of years. Our customer base is growing worldwide as demand for clean, inexpensive alternative fuel continues to be at the forefront of global public policy. Particularly in light of the recent ROC banding announcement by the UK government, large European utilities are actively making their plans by 2013 and beyond. It is our plan to be at the forefront of the industry, ready with supply,” stated Christopher Robertson, chief executive officer of Viridis Energy.