SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE OF 1934
For the transition period from ____________ to _______________
Commission file number: 0-24736
BioProgress Technology International, Inc.
------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 88-0361701
------ ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
9055 Huntcliff Trace, Atlanta, Georgia 30350-1735
-------------------------------------- ----------
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 649-1133
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of March 31, 1999, there
were approximately 30,093,199 shares outstanding.
<PAGE>
I. PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
---------------------------------------------------------
(a development stage company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 1999
ASSETS
Cash and equivalents 144,881
Inventory 24,450
Other debtors 385,133
Deferred consideration 1,120,000
----------
Total current assets 1,674,464
INVESTMENTS 1,425,000
FIXED ASSETS
Plant and machinery 116,280
Office equipment 16,652
Laboratory equipment 31,304
INTANGIBLE ASSETS
Intellectual property rights 31,487
Goodwill 5,524,505
----------
TOTAL ASSETS 8,819,692
==========
LIABILITIES
Accounts payable 282,161
Related parties 526,270
Other creditors 400,517
Deferred income 1,120,000
Short-term loans 742,000
Bank overdraft 142
----------
Total current liabilities 3,071,090
----------
TOTAL LIABILITIES 3,071,090
==========
STOCKHOLDER'S EQUITY
Common stock, $0.008 par value:
25,000,000 shares authorized (1997: 25,000,000)
38,214,403, 38,214,403 and 10,500,000 issued in 1999,
1998 and 1997 respectively (See Note 2) 66,694
Additional paid-in capital 7,154,527
Accumulated deficit (1,559,641)
Profit for the current period 87,022
----------
5,748,602
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 8,819,692
==========
The accompanying notes form an integral part of these statements.
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
---------------------------------------------------------
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months
Ended March, 31
-------------------------
1999 1998
---- ----
$ $
- -
Net Revenues 406,275 0
Cost of revenues 6,537 0
----------- -----------
Gross profit 412,812 0
Less: expenses
Professional fees 54,327 13,370
Management recharge 120,000 0
General and administrative expenses 151,463 178,007
----------- -----------
Total cost and expenses 325,790 191,377
----------- -----------
Profit/(loss) from operations and net profit/(loss)
Applicable to common stockholders 87,022 (191,177)
=========== ===========
Diluted profit/(loss) per common share 0.002 (0.02)
=========== ===========
Weighted average number of common shares 38,214,403 12,921,392
=========== ===========
The accompanying notes form an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
---------------------------------------------------------
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three months ended
31 March
------------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net profit (loss) 87,022 (191,177)
Adjustments to reconcile net profit (loss) to net cash
Used in operating activities
Depreciation and amortization 87,967 0
Changes in operating assets and liabilities:
Decrease in accounts receivable 12,675 0
(Increase) in inventory (24,450) 0
(Increase) in prepaid expenses and other current assets (332,776) 0
(Increase) in deferred consideration (1,120,000) 0
(Increase) in payments in advance 0 (96,993)
Decrease in other assets 1,082 120,000
Increase in deferred revenue 1,005,544 0
(Decrease) increase in accounts payable (5,154) 7,820
Increase in related parties and other creditors 115,422 5,850
Net of amounts acquired (8,000) 0
---------- ----------
Net cash used in operating activities (180,668) (154,500)
========== ==========
Cash flows from investing activities:
Purchases of property and equipment (1,520,082) 0
Net of amounts acquired 1,500,000 0
---------- ----------
Net cash used in investing activities (20,082) 0
========== ==========
Cash flows from financing activities:
Cash from business acquisition 0 0
Proceeds from sale of stock 0 0
Proceeds from sale of preferred stock 266,000 0
Stock issued in payment of liabilities 0 0
Stock subscription receivable 0 155,000
Reduction in long-term debt (2,630) 0
---------- ----------
Net cash provided by financing activities 263,370 155,000
========== ==========
Net increase in cash and cash equivalents 62,620 500
Cash and cash equivalents at beginning of period 82,119 0
---------- ----------
Cash and cash equivalents at end of year 144,739 500
========== ==========
Supplemental disclosure of cash flow information
Cash paid for interest 499 0
========== ==========
The accompanying notes form an integral part of these statements.
</TABLE>
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
(a development stage company)
Notes to Financial Statements
(Unaudited)
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the financial
condition of registrant have been included, and the disclosures are adequate to
make the information presented not misleading.
Note 1. A summary of significant accounting policies is currently on file with
the U.S. Securities and Exchange Commission in registrant's Form 10, which is
incorporated herein by reference.
Note 2. The company has prepared these accounts on the basis of a reverse
acquisition under purchase accounting by BioProgress Technology Limited, a
subsidiary of BioProgress Technology International, Inc. Accordingly, Common
Stock and additional paid-in capital have been restated to reflect the
accounting treatment required. The disclosure of stockholders' equity and in
particular the disclosure of shares in issue do not represent the shares of
common and preference stock in issue of BioProgress Technology International,
Inc. These were 30,093,199 and 366,000 shares respectively at 31 March 1999.
Note 3. The profit per share was computed by dividing net profit by the weighted
average number of shares of common stock outstanding during the period.
Effective for the year ended 31 December, 1998 the Company adopted SFAS No. 128
"Earnings per share." The adoption of SFAS No. 128 requires the presentation of
basic earnings per share and diluted earnings per share. Basic profit or Loss
per common share was calculated based upon the net profit or loss available to
common stockholders outstanding during the period
Note 4. Registrant has not declared or paid dividends on its common shares since
inception.
Note 5. The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements.
Note 6. Income taxes have not been provided for in that registrant has not had a
tax liability from inception to the date of these notes.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations:
The results during the period of the Registrant, BioProgress Technology
International, Inc., a Nevada corporation (together with its wholly owned
subsidiaries, BioProgress Technology, Inc., BioProgress Technology Limited, and
DHA Nutrition Limited, the "Company"), show that the Company has now posted its
first quarterly profits.
The results reflect the Company's continuing efforts to commercialize its
XGel(TM) Film System, both in North America and Europe. The Company is engaged
in the development, manufacture, sale and distribution of materials and
processes used to replace gelatin in the manufacture of soft capsules, with
particular emphasis on ingestible products, such as vitamin and herbal
supplements, and pharmaceutical delivery systems. The overheads reflect the
considerable advancements that have been achieved in the development of the
Company's ingestible range of products. This development program is ahead of
schedule and it is anticipated that the ingestible range of products should be
ready for market in the fourth quarter of 1999. These efforts by the Company are
continuing as the other lines the Company will be distributing are developed and
are introduced to the range of products.
On 30 March 1999 the company completed the purchase of patents, licenses and
trademarks relating to a broad range of products - including the award-winning
range of flushable and biodegradable disposable products - designed by Trutona
International, Inc. (Trutona). Trutona is a private company based in Atlanta.
Total consideration payable by the Company to Trutona is $1,500,000, of which,
$750,000 was paid at closing in the form of 1,875,000 newly issued shares of
BioProgress common stock. The remaining consideration is payable on or before
December 31, 1999 through an additional 1,875,000 newly issued shares of
BioProgress common stock, in cash or through a combination of stock and cash, at
the sole discretion of BioProgress.
The acquisition of Trutona's intellectual property is strategic in that it
brings complementary technology to BioProgress. The special formulation and
coating of water soluble and biodegradable films is at the very heart of the
design and processing of both our animal-free soft capsules and Trutona's
disposable products. BioProgress is now positioned as one of the world's leading
companies engaged in the commercialization of water soluble film technologies."
On 30 March 1999 the Company also announced an agreement to sell an exclusive
worldwide license to Consolidated EcoProgress Technologies (CES) (VSE: CES) to
manufacture, sell and distribute the Trutona(TM) line of flushable and
biodegradable disposable products.
Total consideration payable by CES to BioProgress is $1,500,000, of which,
$380,000 is to be paid in cash at closing and the remaining $1,120,000 is to be
paid via 1,066,667 newly issued shares of CES common stock. Further, BioProgress
will receive from CES a royalty on Trutona(TM) gross product sales of 5%, up to
$3,500,000.
<PAGE>
Trutona's product range includes the world's first ultra thin, flushable and
biodegradable line of feminine sanitary napkins, which recently was selected for
a "Millennium Product" award under a program initiated by the British Government
to promote innovative technological achievements. The Trutona(TM) product line
is the only one of its kind to receive the coveted EcoLogo(TM) mark promoted by
the Canadian Government under its Environmental Choice(TM) Program.
In addition to the agreement announced on 30 March 1999, the Company and CES
have executed a research and development agreement under which the Company will
develop a line of biodegradable baby diapers, adult incontinence pads, and a
range of water soluble and biodegradable cloths and solids for use in medical
applications and in the recovery of heavy metals. Both the existing and proposed
lines of products will use a combination of the intellectual property developed
by the Company and the intellectual property acquired from Trutona. CES is to
provide the funding for these development projects and, upon commercialization,
they will be subject to the 5% royalty agreement referred to above.
The company's income for this quarter is largely from the sale of the extended
license to Trutona products to CES and ongoing license fees. The sale of this
license will assist the Company's efforts in financing working capital for the
ongoing research and development program and the resources required by the
Company to bring its products to market. The Company's expenses in the first
quarter of fiscal 1999 have been largely administrative and research and
development related. No meaningful comparison can be made between 1999 and 1998
as the Company had limited operations during 1998. The Company continues to
investigate other product lines and commercial opportunities presented to it.
On April 6, 1999 BioProgress Technology Ltd today announced the execution of a
technology collaboration agreement with Peter Black Healthcare Limited (PBHL),
one of Europe's leading manufacturers and distributors of vitamin, herb and
mineral supplements. The collaboration agreement allows BioProgress and PBHL to
work together to develop a new range of animal-free dietary supplements by using
the XGel(TM) Film System developed by BioProgress. The new range will be made
available under both the Company's brand and through co-branding with PBHL.
This arrangement allows the Company to cultivate a relationship with a strong
partner having a first class reputation within the industry, and with first
class production and distribution systems. PBHL's packaging and distribution
expertise will enable BioProgress to focus solely on maximising the efficiency
of the XGel(TM) Film System and should help to increase the rate at which the
Company is able to rollout its product line. This agreement will give the
Company the opportunity to fully explore the possible uses of the XGel(TM) Film
System in detail for PBHL's brands and private label customers, which include
Superdrug, Sainsbury, Tesco and Safeway. This agreement, together with a similar
agreement with United Biscuits plc executed during the last quarter of 1998,
means the company is now positioned to implement its business plan to deliver
new and innovative products.
<PAGE>
On April 27, 1999 BioProgress announced the appointment of Gregory L. Bowers to
the newly created position of President of its North American subsidiary,
BioProgress Technology, Inc. Greg joined the Company from Banner Pharmacaps,
Inc., where he served as Senior Vice President Sales and Marketing of its Health
and Nutrition division. In his new position, he will be responsible for
overseeing the implementation of the Company's plan to enter the North American
market. Greg has also been elected to the Company's Board of Directors. While at
Banner Pharmacaps for 12 years, which is the North American market leader in
soft capsules, Greg was responsible for the company's entire sales and marketing
activity for its nutritional products, and in an earlier position for its
generic prescription drugs and international business. Prior to joining Banner,
Greg served as Executive Vice President and General Manager for Chase
Pharmaceutical Company for 6 years, where he was responsible for all business
operations of the 350-employee pharmaceutical and nutritional products
manufacturer.
On April 21, 1999 the company announced that its UK subsidiary, BioProgress
Technology Ltd has been granted Millennium Product status by the United
Kingdom's Design Council for its innovative XGel(TM) Film System after Prime
Minister Tony Blair challenged British businesses to show that Britain is the
creative powerhouse of the world. The British Government's Secretary for Trade
and Industry, Stephen Byers, announced news of the award in London on Monday 19
April. Millennium Products status will help reinforce the importance of the
Company's technology as it seeks to grow its customer base around the world
The Company believes that its XGel(TM) Film System is the world's first
animal-free soft capsule process. The patented process eliminates the use of
gelatin, which is a protein derived from animal renderings. Since the
mid-1930's, gelatin has been the only material suitable for encapsulating
non-aqueous products such as vitamin oils (dietary supplements),
pharmaceuticals, cosmetic oils (bath beads) and paint, as used in the fast
growing paintball leisure pursuit. The XGel(TM) Film System employs innovative
processes that allow soft capsules to be produced with a very wide range of
characteristics from spontaneous release to delayed release, while improving the
capsules performance under extremes of temperature and humidity. The XGel(TM)
Film System technology has attracted the interest of major companies in both the
dietary supplement and pharmaceutical industries.
Liquidity and capital resources
The Company continues to fund its operations via loans and credit management and
the sale of preference shares in the Company. The acquisition of the Trutona
assets and the extension of the license to CES should contribute significantly
to the Company's working capital by way of royalties and the sale of shares in
CES. The Company continues to investigate a number of other long-term funding
scenarios and opportunities.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Litigation
No material legal proceedings to which the Company is a party or to which the
property of the Company is subject is pending and no such material proceeding is
known by management of the Company to be contemplated. No material legal
proceedings to which any director, officer or affiliate of the Company, any
owner of record or beneficially of more than five percent of any class of voting
securities of the Company, or security holder is a party adverse to the Company
or has a material interest adverse to the Company is pending.
Item 2. Change in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned; thereunto duly authorized this 8th day of June, 1999.
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
(Registrant)
By: /s/ Barry J. Muncaster
- --------------------------
Barry J. Muncaster, President
and Chief Executive Officer
/s/ James T.C. Longley
- ----------------------
James T. C. Longley, Chief Financial
Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 144,881
<SECURITIES> 1,425,000
<RECEIVABLES> 385,133
<ALLOWANCES> 0
<INVENTORY> 24,450
<CURRENT-ASSETS> 1,674,464
<PP&E> 164,236
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,819,692
<CURRENT-LIABILITIES> 3,071,090
<BONDS> 0
0
0
<COMMON> 66,694
<OTHER-SE> 5,681,908
<TOTAL-LIABILITY-AND-EQUITY> 8,819,692
<SALES> 406,275
<TOTAL-REVENUES> 406,275
<CGS> 6,537
<TOTAL-COSTS> 6,537
<OTHER-EXPENSES> 325,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 87,022
<INCOME-TAX> 0
<INCOME-CONTINUING> 87,022
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,022
<EPS-BASIC> .002
<EPS-DILUTED> .002
</TABLE>
