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.
Highlights
- 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 operation
Subsequent Events
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.
Financial Results
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