Functional Technologies Corp.
TSX VENTURE : FEB

Functional Technologies Corp.

April 28, 2011 11:00 ET

Functional Technologies Announces Second Quarter 2011 Financial Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - April 28, 2011) - Functional Technologies Corp. (TSX VENTURE:FEB) (the "Company") today reported operational and financial results for the second quarter ended February 28, 2011. Amounts, unless specified otherwise, are expressed in Canadian dollars and in accordance with Canadian Generally Accepted Accounting Principles (Canadian GAAP).

Mr. Garth Greenham, Functional Technologies' President and COO, said, "We are pleased with the numerous milestones achieved in the past months. Functional Technologies is evolving as a growth story as we drive our technologies from development to commercialization. As we continue to build customer confidence and momentum, we anticipate significant revenue growth from our H2S-preventing wine yeasts. We also look forward to key developments across several of the applicable food sectors for our acrylamide-preventing yeasts."

Q2 2011 Operating Highlights

  • Announced that the U.S. Food and Drug Administration (FDA) had issued a "no questions" letter in response to the Company's Generally Recognized as Safe (GRAS) notification for the use of its Phyterra™-branded hydrogen sulphide (H2S)-preventing yeast during the fermentation of alcoholic beverages including red and white wine, champagne, sherry, sake and other rice wines, and beer. Although GRAS status is not required for the sale of the H2S-preventing wine yeasts, which are already commercially available in the U.S., the designation facilitates more effective marketing and adoption of the yeasts worldwide.
  • Announced the appointment of Dr. Connie Chen as Vice President of Corporate Development and Communications, as well as the engagement of Pathfinder Ventures Corporation, as part of its initiatives to build shareholder value and increase awareness of the Company and its developments to the broader investment community.
  • Completed a non-brokered private placement, raising gross proceeds of approximately $4.0 million from the issuance of 7.3 million units at a price of $0.55 per unit. Each unit is comprised of one common share and one-half of a common share purchase warrant. Each whole warrant entitles the holder to purchase one common share at a price of $0.70 for a 24 month period from the closing date. If the closing price of Functional Technologies' common shares exceeds $1.00 for 20 continuous trading days, the Company can elect to give the warrant holder 30 days notice of an accelerated warrant expiry date.
  • Announced sales results from the first commercial season of the Company's H2S-preventing wine yeasts, reflecting penetration into the U.S. wine yeast market. This was a key milestone critical to establishing demand for the fall sales season, and to facilitate introduction into commercial wineries in Europe and South America. The Company's four H2S-preventing yeast strains were sold to over 75 wineries in 13 states, with the majority of sales occurring in the key California market.

Operating Highlights Subsequent to Quarter-End

  • Reflecting the interest in, as well as demand for, its Phyterra™-branded H2S-preventing wine yeasts in the commercial winemaking sector after a successful introductory 2010 season, the Company announced the renewal of its distribution agreement with Beverage Supply Group (BSG), including an increase of more than 350% in the minimum purchase volume in the U.S. market for the upcoming 2011 season. The guaranteed sales represented by this amended agreement is expected to complement the direct sales initiatives of the Company as it expands commercially not only in the U.S., but also in the larger European and South American markets.
  • Providing validation of the commercial appeal and potential of Functional Technologies' acrylamide-preventing (AP) yeast platform, the Company entered into a collaboration agreement with an undisclosed, leading multinational company to confirm the performance characteristics of its AP yeasts in one of several applicable sectors of food-related products. The agreement precludes other commercial agreements in this pre-specified sector for a fixed period during which the multinational company carries out its evaluation of the Company's AP-yeasts. However, during this development and testing period other multinational companies are able to continue or begin to evaluate the AP-yeasts in this particular food category as well as other various applicable food-based sectors. Collaborating with several of the leading multinational firms in the food processing and ingredients sectors will provide Functional Technologies with key opportunities to gain rapid access to global production capacity and global distribution networks. Such partnerships are expected to better position the Company to accelerate the commercial progression of its AP yeast products.
  • Appointed Mr. John Campbell, founder and Chief Investment Officer of Camlin Asset Management Ltd., to the Company's Advisory Board. With over 29 years of extensive experience in the investment industry and significant expertise in mergers and acquisitions, the addition of Mr. Campbell is expected to benefit the execution of the Company's commercialization strategy.
  • Announced that the Company's subsidiary, Phyterra Yeast Inc., had been awarded $2.5 million in non-dilutive funding from the Government of Canada's Atlantic Innovation Fund (AIF) under the oversight of the Atlantic Canada Opportunities Agency (ACOA). These funds will support a project by the Company to develop and commercialize the application of its proprietary acrylamide-preventing yeast technology, Acryleast™, in the processed potato industry. Another key objective of the project is to replicate the greater-than-90% reduction of acrylamide that was demonstrated in sector-specific trials (e.g. baked goods and snack foods) conducted in Europe with the Company's proprietary AP yeasts. The interest in and endorsement of this application by major industrial food processors supports the importance of Functional Technologies' yeast-based technologies as a potential viable solution to the formation of acrylamide in a variety of potato-based foods.
  • The Company's subsidiary, Phyterra Yeast Inc., was one of six companies across the nation recognized by the Government of Canada as businesses whose R&D initiatives and investments were supported by federal funding and which have subsequently evolved successfully into commercial entities. Non-dilutive, government funding is an important financial resource that enables and enhances the Company's ability to evolve its R&D innovations and core yeast technologies into commercial products in established global markets.

Q2 2011 Financial Results

The Company incurred a net loss of $1,061,447 for the three months ended February 28, 2011, compared to a net loss of $664,227 for the three months ended February 28, 2010, representing an increase of $397,220 due primarily to an increase in operating expenses and a decrease in government assistance.

Operating expenses, excluding stock-based compensation expenses, for Q2 2011 were $995,482, compared to $747,918 in Q2 2010, consisting primarily of office and general expenses, professional fees, research and development costs, marketing efforts, salaries and wages, and the amortization of capital assets.

The increase of $247,564 in operating expenses was attributed primarily to the following areas: consulting fees increased by $97,505, salaries and wages increased by $57,162, amortization of capital assets increased by $53,904, travel and meals expenses increased by $23,797 and sales and marketing expenses increased by $17,277.

Liquidity and Outstanding Share Capital

As at February 28, 2011, the Company had cash and short-term investments of $3,220,731 compared to $946,738 as at August 31, 2010. As at February 28, 2011, the Company had working capital of $3,782,386 compared to $1,352,923 as at August 31, 2010.

As at April 25, 2011, Functional Technologies had 44,662,395 common shares issued and outstanding.

Additional Information

This news release should be read in conjunction with the Company's consolidated financial statements for the quarter ended February 28, 2011 and the notes thereto, together with the MD&A for the corresponding period, which are available on the Company's website www.functionaltechcorp.com and on SEDAR at www.sedar.com.

Forward-Looking Statements

This news release contains forward-looking statements about Functional Technologies Inc. and its future plans. Forward-looking statements are statements that are not historical facts, and in this news release include the statements regarding: (1) the Company's expectation for volume and revenue growth in the upcoming winemaking seasons; (2) the expectation for additional key developments related to the Company's AP-yeasts; (3) the extended and amended agreement with BSG that includes an increase in the minimum purchase volume of Phyterra's H2S-preventing wine yeasts to U.S.; (4) the Company's expected commercial expansion in the U.S., Europe and South America; and (5) the expectation that collaborating with leading multinational firms in the food processing and ingredients sectors will provide key opportunities to gain rapid access to global production capacity and distribution networks. The forward-looking statements in this news release are subject to various risks, uncertainties and other factors that could cause the Company's actual results or achievements to differ materially from those expressed in or implied by forward-looking statements. These risks, uncertainties and other factors include, without limitation, uncertainty as to the Company's ability to achieve the goals and satisfy the assumptions of management; uncertainty as to the demand for the Company's products and the Company's ability to meet such demand; and general economic factors and other factors that may be beyond the control of the Company. Forward-looking statements are based on the opinions and expectations of the Company's management at the time they are made, and the Company does not assume any obligation to update its forward-looking statements if those opinions or expectations, or other circumstances, should change. Reference to the section entitled "Risks and Uncertainties" commencing on page 18 of the Company's management's discussion and analysis relating to the fiscal quarter ended February 28, 2011, which is available on SEDAR at www.sedar.com.

About Functional Technologies Corp.

Functional Technologies develops and commercializes proprietary, advanced yeast-based solutions to significant challenges in the food, beverage and healthcare industries. The Company's platform improves the performance of innate yeast functions, and prevents the formation of naturally occurring toxins and contaminants that either affect final product quality or are classified by the World Health Organization as probable human carcinogens. Functional Technologies' lead technologies include yeasts that prevent and reduce the formation of the foul-smelling hydrogen sulphide (H2S) and the carcinogens acrylamide and ethyl carbamate (more commonly known as urethane), by-products of food and beverage processing. These contaminants are found in many commonly consumed items, such as fermented food products and alcoholic beverages, and baked and fried foods. With a head office in Vancouver, Functional Technologies Corp. has R&D operations in Prince Edward Island and Europe, as well as a U.S. sales office in Napa Valley, California. For more information, please visit our website at www.functionaltechcorp.com.

Neither the 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.

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