Energy Composites Corporation (�ECC�) (OTCBB:ENCC) a leading
provider of composites-based solutions to the clean-tech sector,
today announced results for its fiscal year ended December 31,
2008. ECC announced full year revenues on a consolidated basis of
$9.2 million, up from revenues of $6.5 million in 2007.
During 2008, ECC enjoyed a beneficiary relationship with
Fiberglass Piping & Fitting Company (�FPF�), a piping
distribution company owned by ECC�s largest shareholder, and
M&W Fiberglass, LLC (�M&W�), a predecessor company to
Advanced Fiberglass Technologies, Inc. (�AFT�). Both M&W and
FPF were considered variable interest entities throughout 2008,
thus requiring that ECC report financial performance on a
consolidated basis for 2008. On December 30, 2008, ECC terminated
that beneficial relationship with both entities. The figures used
in the remainder of this release reflect ECC�s results on a
stand-alone basis by removing the results of M&W and FPF.
�
2008 �
2007 Revenue $8,674,276 $6,372,420 Cost of
goods sold 7,455,339 5,043,884 Gross profit 1,218,937 1,328,536
Selling, general and administrative expenses 2,654,247 1,224,902
Merger expenses 296,635 - Income (loss) from operations (1,731,945)
103,634 Depreciation add back: 260,499 126,244 EBITDA excluding
non-cash charges ($1,471,446) $229,878
ECC reported stand-alone 2008 revenues of $8.6 million, up from
$6.3 million in 2007. The 36% increase in revenues year over year
was attributable to volume improvements in and strengthening of
core markets (flue-gas desulfurization, chemical storage, water
handling and bio-fuels), as well as greater diversification into
service and installation activities. In 2008, ECC launched its
Field Service Division, providing 24/7 mobile production,
installation, maintenance, overhaul and repair teams to meet the
requirements of customers across the clean-tech spectrum.
Sam Fairchild, ECC�s CEO, stated that, �Our expansion and
diversification strategy called for us to focus in 2008 on
expanding our market share in existing sectors, especially those
still at the earliest stage of using composites where we can secure
market advantages from our innovations in materials, design,
manufacturing processes and product technologies. Several of these
core markets have growth profiles that are generally driven by
regulatory requirements. During the year we developed a stronger
sales and marketing program for core markets into which we devoted
increased resources in order to position ourselves to capture
substantial gains in market penetration and market share. While
this decision certainly paid off in 2008�s revenue numbers, we
believe that the bigger payoff will come in 2009 and 2010.�
�Our effort to establish a field service program during 2008 was
a success,� Jamie Mancl, ECC�s founder and President, added. �We
recognize that our mobile production teams provide a good way for
us to accelerate growth in 2009 and 2010 across all of our serviced
sectors, especially in the provision of on-site production,
installation, and maintenance, repair and overhaul (�MRO�) services
to the power generation industry for flue gas desulfurization
infrastructure. Our mobile production teams will be even more
effective after the 2009 delivery of a new mobile winder that is
capable of producing products up to 40 feet in diameter. Launching
field services in 2008 affected our gross margin performance, which
declined from 20.8% in 2007 to 14.1% in 2008, but we believe that
the investment in the start-up costs for field services in 2008
will pay dividends in 2009 and beyond since on-site revenues
generally contribute higher gross margins than our traditional
manufacturing operations.�
The company completed a reverse acquisition of AFT as of October
14, 2008, and purchased AFT�s manufacturing facilities from M&W
as of December 31, 2008.
ECC reported a net loss from 2008 operations of $2.1 million,
compared to $0.3 million in income in 2007. Much of that shift was
the result of higher cost of goods sold (�COGS�), itself the
product of raw materials, manufacturing labor and manufacturing
overhead. Raw material costs declined from 33% of revenue in 2007
to 27% of revenue in 2008, the result of substantial gain in
manufacturing efficiencies from the use of new automated winding
equipment. Manufacturing labor increased to 38% of revenue in 2008
from 33% of revenue in 2007, primarily due to the 2008 start-up of
the field services division. Removing this effect would have
delivered a significant reduction in manufacturing labor as a
percentage of revenue. Finally, manufacturing overhead increased to
21% of revenue in 2008 from 13% in 2007. Nearly all of the increase
in manufacturing overhead was attributable to charges associated
ECC�s new 73,000 square foot manufacturing facility, which AFT
moved into in August 2007.
The rest of the 2008 operational loss was driven by ECC�s
investment in the selling and corporate overhead required to
facilitate and manage ECC�s growth plan. Selling, general and
administrative expenses (�SGA�) increased from 18.9% of revenue in
2007 to 29% in 2008. Much of this increase came from increased
headcount in ECC�s sales and marketing force and the administrative
resources to support the sales effort. Most of the remainder of the
SGA increase relates to increased corporate headcount and
associated expenses to accommodate the requirements associated with
being a public company.
Jeff Keuntjes, ECC�s Vice President, Finance, noted that �Our
COGS and SGA results are within our operating plan�s expected
range, but are a couple of percentage points higher than I
expected. We have identified several opportunities to reduce COGS
further in 2009, and we do not anticipate inefficiencies from our
field services division in 2009 following the start-up in 2008. We
also believe that we will enjoy substantial improvement in
manufacturing overhead as a percentage of revenues as production
volumes increase. Finally, we are looking forward to the benefits
in 2009 and beyond that will be generated by our investment in our
sales and marketing efforts in 2008 as our proposal pipeline is at
an all-time high.�
ECC recorded merger expenses of $0.7 million in 2008 related to
the reverse acquisition of AFT. In addition, ECC record non-cash
amortization of debt discounts for warrants and beneficial
conversion feature related to the convertible debt � ECC�s primary
source of capital in 2008 � of $3.9 million. ECC recorded a net
income tax benefit of $2.2 million for 2008, resulting in a net
loss of $4.1 million for 2008 compared to a net income of $0.04
million for 2007.
Sam Fairchild said, �We believe that the most meaningful
measurement of our performance is EBITDA because of the substantial
effect of our non-cash charges related to the method of accounting
for convertible debt. I am pleased with our progress in positioning
ourselves to meet our growth targets. The company has made
substantial investment in the selling and leadership infrastructure
to support the next part of our growth plan, as we diversify into
manufacturing, servicing and providing raw materials for composite
structures for the wind energy market as well as expansion of our
recent manufacturing and installation activities for the municipal
water and wastewater infrastructure market.�
About Energy Composites Corporation
ECC operates a world-class, automated 73,000 sq. ft.
climate-controlled manufacturing facility in Wisconsin Rapids, WI,
employing advanced composite materials to design, engineer and
manufacture complex composite structures, vessels and processing
systems for a range of clean-tech applications that include: wind
energy system components, flue gas desulfurization for power
plants, infrastructure for biofuel storage and processing,
infrastructure for managing waste water and drinking water storage,
advanced municipal utilities infrastructure, and caustic material
storage and handling systems for the petrochemical, mining and the
pulp and paper industries. ECC also provides 24/7 field service
crews nationwide for wind energy system composites maintenance,
repair and overhaul; industrial retrofit, shutdown and maintenance;
system installation; and repair and inspection services. For
additional information, visit our website at
www.energycompositescorp.com or contact Sam Fairchild at
1-800-787-5439.
Certain statements found in this press release may constitute
forward-looking statements. Forward-looking statements are based on
current expectations and include any statement that does not
directly relate to a current or historical fact. Such statements
are generally identifiable by the terminology used, such as
�anticipate,� �believe,� �intend,� �expect,� �plan,� or other
similar words. Our forward-looking statements in this release
generally relate to our expectations and beliefs with respect to
our growth and expansion activities and plans. Although it is not
possible to foresee all of the factors that may cause actual
results to differ from our forward-looking statements, such factors
include, among others, the following: (i) unforeseen delays, costs
or liabilities associated with our growth and expansion plans; (ii)
fluctuations in general economic conditions; and (iii) those risks
described from time to time in our reports to the Securities and
Exchange Commission. Investors should not consider any list of such
factors to be an exhaustive statement of all of the risks,
uncertainties or potentially inaccurate assumptions that could
cause our current expectations or beliefs to change. Shareholders
and other readers should not place undue reliance on
�forward-looking statements� as such statements speak only as of
the date of this release. We undertake no obligation to update
publicly or revise any forward-looking statements, other than as
required by law.
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