SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number: 0-24736
BioProgress Technology International, Inc.
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(Exact name of registrant as specified in its charter)
Nevada 88-0361701
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(State or other jurisdiction) (I.R.S. employer)
of incorporation or organization identification number
9055 Huntcliff Trace, Atlanta, Georgia 30350-1735
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 641-0264
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value (Title of class)
Indicate by check mark whether the registrant (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 X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10KSB or any amendment to
this Form 10KSB. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing: On
March 22, 2000, the closing inside bid and asked prices for the shares of common
stock of registrant, which is the sole voting stock outstanding of registrant,
were $4.09 and $4.25, respectively. On that date, there were approximately
36,002,800 shares of common stock outstanding, which did not include those
shares which the Company had the obligation to issue. Affiliates held 13,022,425
shares of this stock; thus, the aggregate market value of the voting stock held
by non-affiliates approximated $95,828,163. Indicate the number of shares
outstanding of each of the registrant's classes of common stock as of the latest
practicable date: As of March 22, 2000, there were approximately 36,002,800
shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents incorporated by reference and the Part of this Form
10KSB into which the document is incorporated: None.
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PART I.
Item 1. Description of Business:
History:
BioProgress Technology International, Inc. (Company), was incorporated in
California on March 5, 1990. Subsequently, shares of the common stock of the
Company (Common Stock) were distributed to the shareholders of the parent
corporation then owning the Company after registration with the U.S. Securities
and Exchange Commission (Commission). The Company changes its domicile to Nevada
in 1997.
Subsidiary Acquisitions:
Acquisition of BioProgress Technology, Inc.:
On November 17, 1997, the Company acquired all of the outstanding capital stock
of BioProgress Technology, Inc., a Colorado corporation (BioProgress Technology)
in exchange for 4,000,000 post-split shares of Common Stock.
Distributorship and Acquisition Agreement with BioProgress Technology Limited
(UK):
In conjunction with the acquisition of BioProgress Technology, the Company
entered into an agreement (BTL Option Agreement) with certain of the
shareholders of BioProgress Technology Limited, an entity incorporated in the
United Kingdom (BTL), which gave the Company the option of acquiring all or any
part, on a pro rata basis, of the issued and outstanding proprietary interest of
BTL. The BTL Option Agreement was subsequently modified and completed on
December 31, 1998. The Company assumed, in this acquisition,
approximately $1,000,000 in liabilities, satisfying such through the issuance of
shares of Common Stock valued at the inside bid price on the closing date, and
issued 22,818,446 shares of Common Stock as the sole consideration for the
acquisition.
Acquisition and Current Business of DHA Nutrition Limited (UK):
On August 12, 1998, the Company acquired DHA Nutrition Limited (UK), an entity
organized in the United Kingdom (DNL), as a wholly-owned subsidiary solely in
exchange for 400,000 shares of Common Stock. The number of shares which the
Company issued in the acquisition of DNL was to have been increased in the event
that certain gross revenues were accomplished by DNL. These figures were not
met; therefore, no additional common shares were issued by the Company in this
acquisition.
The sole asset of DNL on the date of acquisition was an agreement with Martek
Biosciences Corporation (Martek), a publicly-held corporation organized in the
United States whose securities trade on the NASDAQ System maintained by the
National Association of Securities Dealers, Inc. DNL is working with Martek to
develop the market in the United Kingdom for the use of Martek's nutritional
oils in infant formula, vegetarian foods, dietary supplements and agro feed
markets. Martek has identified and patented DHA (docosahexaenoic acid) producing
varieties of micro algae (sea plankton), and has developed techniques for the
production of both a powder form and an oil form of DHA. The oil form of DHA,
management feels, is an excellent candidate for delivery using the film system
developed by BTL.
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On closing of the acquisition of DNL by the Company, Messrs. Muncaster, Longley
and Brown were named to the board of DNL and assumed analogous officerial
positions with DNL as they maintain with the Company and BTL. Correspondingly,
the principal shareholder of DNL, Mr. Graham Hind, was named to the board of the
Company and was appointed Vice-President of Sales and Marketing of the Company
and BTL.
Martek has granted DNL exclusive DHA nutrition rights to develop a meat concept,
and on July 23, 1998, DNL entered into a development agreement with ABN Limited,
which is one of Europe's largest feed companies, to develop this opportunity
with the support of several U.K retailers. The Company horizontally expanded its
product line as a result of the DNL acquisition, and gained direct access to
several leading retailers in the U.K., which, management feels, will offer
potential to expand the customer base for a proposed line of vegetarian
soft-capsule dietary supplements by BTL.
Feed trials initiated by DNL in partnership with ABN Limited, which included
Martek's Algal Biomass and Biomeal in the diet of pigs and chickens, were
completed in 1999. The Biomeal waste product was unsuccessful as a feed additive
source of DHA as the residual levels of DHA were found not to be sufficiently
bio-available to the animals. Further feeding trial work on the Biomeal product
has therefore been abandoned. The Biomass product showed excellent results in
the feeding trials, and significant levels of DHA were transferred to the
chicken and pork meat. The UK government is currently funding a large study in
conjunction with The University of Bristol to investigate dietary methods of
manipulating the fatty acid composition of milk as a way of delivering the
important long chain cardio-protective fatty acids like DHA into the nation's
diet. As DNL through its exclusive agreement with Martek is the exclusive source
of algal DHA for animal feed purposes, Bristol University approached DNL, and,
in February, 2000, DNL agreed to supply a quantity of Biomass for this important
study. If successful, one of the largest UK dairy companies has expressed an
interest in marketing the new DHA enriched milk.
At the end of 1999, following the successful feeding trials, DNL commenced
discussions with major UK retailers about the opportunity for a new generation
of DHA enriched meat products. There is a great deal of interest in the concept,
but the timing and the method of communicating the benefits to the consumer are
the main issues. Most retailers in the UK have banned genetically modified
ingredients as a result of media-induced consumer pressure. Although the DHA
algal from Martek is a natural plant, grown and harvested and not in any way
artificially genetically modified, the retailers feel the opportunity of DHA
enriched foods needs to be addressed carefully. To maximise this opportunity it
needs to be launched at the right time and in the right media atmosphere when
other issues like genetically modified ingredients are not clouding the issue.
Major retailers want to be sure the DHA story will be received positively by the
media and consumers, and are, therefore, timing of the introduction will be very
important. The commercialisation of the concept could therefore take longer than
was originally envisaged. In the meantime DNL is continuing with feeding trial
research projects, at negligible cost to the Company, and is maintaining an
active and on-going dialogue with Martek with regard to this and other
opportunities.
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Product Acquisition and License Agreements:
Product Acquisition from Trutona International:
On February 15, 1999, the Company acquired from Trutona International, Inc., a
privately-held Atlanta-based corporation (Trutona), patents, licenses and
trademarks relating to a broad range of products, including an award winning
range of flushable and biodegradable disposable products designed by Trutona.
The Company paid Trutona $1,500,000 in the acquisition, of which $750,000 was
paid through the delivery of 1,875,000 shares of Common Stock at an agreed price
of $.40 per share, with the remainder payable on or before December 31, 1999,
through either the delivery of cash or of additional shares of Common Stock
valued at $.40 per share, or any combination of the two at the option of the
Company. The remaining purchase price was paid with cash prior to year end.
The products acquired include an ultra thin, flushable and biodegradable line of
feminine sanitary napkins which were recently selected for a "Millennium
Product" award under a program initiated by the British Government to promote
innovative technological achievements. Trutona is an affiliate of the Company
since Messrs. Muncaster, Longley and Brown are directors, officers and
significant shareholders of each entity.
License to Consolidated EcoProgress Technologies:
On April 5, 1999, the Company completed the sale of a license to Consolidated
EcoProgress Technologies (EcoProgress), a Canadian company with securities
traded on the Vancouver Stock Exchange. The license and certain patents was sold
for the sum of U.S. $1,336,000 and $164,000 respectively and gives EcoProgress
the exclusive right to manufacture, sell and distribute in the U.S. a line of
flushable and biodegradable disposable products employing the intellectual
property that the Company acquired from Trutona. EcoProgress paid $380,000 cash
at closing and the remaining $1,120,000 was paid through the issuance of
1,066,667 shares of free trading common stock in EcoProgress at an agreed price
of $1.05 per share. The sale allowed the Company to recoup the entire price paid
by the Company to Trutona for the technology. In addition to the consideration
paid at closing, the Company is entitled to receive up to a maximum of
$3,500,000 by way of royalty on gross revenues achieved by EcoProgress. Nominal
accruals of royalties have been made to date. Contemporaneous to the completion
of the sale to EcoProgress, the Company and EcoProgress executed a research and
development agreement that provides for the Company to exclusively develop
products subject to the license for a minimum of two years. During the year, the
Company conducted a review of the products under license to EcoProgress and
implemented design changes to the flushable and biodegradable sanitary napkin.
During the first quarter of 2000, trials of the new version of sanitary napkin
were initiated both in the UK and North America. The Company has confidentially
submitted a proposal to EcoProgress in respect of two new product developments.
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Business Conducted by the Company and its Subsidiaries:
The Company is a development stage company engaged in the research, development,
manufacturing, marketing, sales and distribution of products that use water
soluble and biodegradable films. During 1999, the Company's primary focus
remained on the development and commercialization of its unique and proprietary
process, the XGel(TM) Film System ("XGel(TM) FS").
The XGel(TM) FS is used to produce soft capsules that are free- from animal
by-products; gelatin in particular. Soft capsules are commonly recognized as
products that contain a wide variety of non-aqueous fillings either in
ingestible form, such as vitamin, herbal and mineral supplements and as oral
delivery systems for drugs; or in non-ingestible form, such as paintballs and
toiletries (bath and aromatherapy oils).
Gelatin is a protein, which is predominantly derived from animal renderings. For
many years gelatin has proven to be an acceptable and cost-effective
encapsulation medium for soft capsules; however, the Company is of the opinion
that this position is changing. Following the outbreak in Europe of Bovine
Spongiform Encephalopathy (BSE), or mad cow disease, all animal derived food and
by-products have come under the scrutiny of the scientific community and
legislators for fear that BSE may have entered the human food chain. The reason
for concern is that BSE may be linked to Creutzfeldt Jakob Disease (CJD), which
is fatal to humans. Recorded deaths in the UK from CJD totalled 56 at the end of
1999. A further 6 cases in living persons have been recently identified. The
Company believes that its XGel(TM) FS is the only viable alternative for
consumers who are anxious to switch to animal-free products in the global market
for soft capsules. In addition, the XGel(TM) FS opens up a substantial untapped
market for animal-free soft capsules that exists among vegetarian and religious
groups. These groups, because of belief or culture, refuse to consume gelatin
derived from cows or pigs, or in some cases, from any source. In addition,
market research carried out in the United States and in Europe has indicated
that in excess of 30% of all families are making efforts, on a regular basis, to
remove animal products from their diet.
The XGel(TM) FS not only provides consumers with the choice of an animal-free
soft capsule, but its unique and revolutionary design delivers significant
advantages in the manufacturing process when compared to traditional
encapsulation processes. One such advantage is the elimination of capital
intensive equipment employed to mix and heat gelatin prior to its delivery to
the encapsulating machine. A further example of the XGel(TM) FS's efficiency
lies in its ability to produce soft capsules that do not require drying before
being packed. Using traditional methods of manufacture, soft capsules may take
up to 48 hours to dry, thereby requiring a substantial investment in inventory
financing and resources. The Company believes its XGel(TM) FS to be the first
revolutionary development within the encapsulation industry since it was first
established in 1935. The Company has identified several new and substantial
market opportunities that can benefit from the XGel(TM) FS and which are not
available to traditional soft capsule manufacturers because of the limitations
imposed by the use of gelatin. The Company's strength lies in innovation and the
ability to commercialize innovative products.
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The Company is committed to a research and development program targeted to
introduce enhancements to the XGel(TM) FS on a regular basis, which will expand
the opportunities for both horizontal and vertical penetration of the Company's
target markets.
Evolving Business Plan
During the year the Company had the opportunity to meet with, and present its
Xgel (TM) Film System to, many of the world's leading corporations engaged in
pharmaceuticals, dietary supplements, household products, cosmetics,
confectionery and paintballs. Following these experiences the Company conducted
a strategic review of its business model for commercialization of the Xgel (TM)
Film System with the conclusion that, in order to achieve maximum global
penetration at the fastest possible rate for maximum benefit of the Company's
stockholders, the Company would implement the following strategy:
1. Sell licenses to use the Company's intellectual property vested in the
Xgel (TM) Film System;
2. Sell Xgel (TM) Film Systems for use by licensees of the intellectual
property; and,
3. Offer research and development services to assist licensees gain
maximum benefit from the license.
The resultant business model will benefit the Company in the following ways:
1. It eliminates the requirement for large capital investment to
establish Company owned Good Manufacturing Practices (GMP) facilities;
2. It eliminates the need for the Company to recruit skilled personnel to
staff GMP facilities;
3. It facilitates the rapid introduction of the Xgel (TM) Film System on
a global basis by a large group of companies who already have in place
the infrastructure and resources to produce and deliver products to
consumers;
4. It reduces the risk of and need for a competitive response by industry
peers;
5. It employs the Company's innovative technological and engineering
skills to maximum advantage;
6. It enables the Company to maintain a low cost base.
<PAGE>
This year the Company took several major steps toward commercializing the Xgel
(TM) Film System. Most significantly, during November, 1999, it took delivery of
the first ingestible product version of the Xgel (TM) Film System, code-named
Swallow 1. Swallow 1 was designed by the Company and is subject of various
patent applications, as yet unpublished, and was manufactured by specialist
sub-contractors. Delivery of Swallow 1 enabled the Company's technical staff to
successfully conduct batch trials of a wide range of Xgel (TM) films and active
ingredients. Having the ability to demonstrate Swallow 1 in operation to
potential customers generated serious interest from seven major international
corporations interested in purchasing licenses and Xgel (TM) Films Systems.
Developments Subsequent to Year End:
Subsequent to the year-end the Company executed an Exclusive Evaluation
Agreement with a Fortune 500 company in respect of a specific product
application. This work is progressing satisfactorily at the time of this report.
Further since year-end, the Company is at an advanced stage of discussions with
six major international corporations regarding the sale of Xgel (TM) Film System
licenses.
On March 7, 2000, the Company announced an agreement with J T Racing, LLP, based
in San Diego whereby the Company will develop a unique range of paintballs using
Xgel (TM) film technology for exclusive distribution by J T Racing.
Description of Products:
The Company's primary focus is to commercialize its XGel(TM) FS. Products
currently in development that are not related to the XGel(TM) FS include
flushable and biodegradable pouches for colostomists. During the year the
Company had granted within the United Kingdom two patents in respect of
flushable and biodegradable ostomy pouches. International patent applications in
respect of these inventions are being prosecuted in other territories. These and
other products, which are the subject of the Company's research and development
programs, are not expected to contribute to the Company's planned revenues
during the current year.
XGel(TM) FS:
The Company's soft capsule technology can be considered as two separate
technologies: the XGel(TM) FS for non-ingestible soft capsules, which is fully
developed and in use, and the XGel(TM) FS for ingestible soft capsules, which is
in the final stages of its development program. The Company believes that its
XGel(TM) FS has significant advantages over traditional gelatin based soft
capsule production machinery. These advantages are:
Lower Raw Material Costs: The cost of XGel(TM) Film per tonne is currently
marginally less than that of gelatin in powder forms. There are no additional
costs incurred to deliver XGel(TM) Film to the encapsulating head; whereas,
gelatin has to be mixed with glycerine to form a liquid film.
<PAGE>
Reduced Capital Investment and Manpower: The availability of XGel(TM) Film
in a film format eliminates the need for mixing containers and vats currently
used to prepare gelatin for the encapsulation machine. In addition, expensive
machinery is needed to maintain the viscosity of gelatin during its
transportation to the encapsulation machine. The resultant savings to the
Company in terms of capital investment and human resources compared to those of
its competitors are significant.
Multi-Task Encapsulating Head: A modular design of the filling, sealing,
and cutting head makes it possible to produce capsules having a range of shapes
and sizes with differing fills during the same encapsulation cycle. Traditional
machinery cannot deliver this flexibility.
Improved Speed of Processing: To achieve the correct viscosity for
processing, gelatin requires wide changes in temperature prior to it being fed
to the encapsulation machine. The time taken to achieve this change in
temperature is one of the controlling factors that determine the speed at which
the encapsulation machine can operate. XGel(TM) Film requires no such
temperature variation, and its use significantly increases potential processing
speeds to a level controlled by the rate of injection of the material to be
encapsulated.
Reduced Drying Time: Gelatin soft capsules require up to 48 hours in which
to dry after being made. This lengthy process requires a substantial resource in
terms of material handling equipment and storage facilities. XGel(TM) soft
capsules require less than 1 hour to dry.
XGel(TM) FS - Non-Ingestible Products:
This unique process is the subject of an international patent application. The
raw material used in the process is supplied in a film format (XGel(TM) Film)
and is made from a water soluble and biodegradable polymer, which is naturally
resistant to oils. This version of XGel(TM) Film exhibits good elasticity and
forms a very strong bond when sealed during the encapsulation process. The first
products to be produced using the XGel(TM) FS comprise a range of moisturizing
bath oils. There are four different soft capsules in the range; each containing
a different fragrance designed to deliver a sensual, relaxing, refreshing or
invigorating ambience to the bathroom. The Company is working with a Fortune 500
company, with a view to developing a novel delivery system for a range of its
products. This work is subject to a Confidential Disclosure Agreement.
XGel(TM) Film System - Ingestible Products:
The Company's second technology, which is the subject of three patent
applications, relates to materials that utilize all of the benefits of XGel(TM)
FS, but which can be made from FDA approved natural and sustainable resource
materials, and are, therefore ingestible. These materials are code named ProTex.
ProTex is produced in a film format that enables it to be processed using
similar machinery as used for non-ingestible soft capsules. Using proprietary
techniques, ProTex films may be formulated and/or coated to produce an
encapsulation medium with broad ranging characteristics that facilitate the oral
delivery of oils, pastes and powders by time or at site within the human body.
ProTex film is processed using the XGel(TM) FS. The Company has under
development a comprehensive range of vitamin, herbal and mineral supplements.
<PAGE>
Markets:
The gelatin capsule market is divided into two sectors: hard or soft, according
to the nature of the capsule shell. Hard capsules are manufactured in two pieces
and then filled with either, a powdered dose or a liquid dose washed with
nitrogen. These processes are expensive, and the resultant capsules are used
predominantly to carry orally administered medications and drugs. Soft capsules
are formed and filled simultaneously and predominantly carry liquid fills which
enables their use in a far wider variety of products, including pharmaceutical,
vitamin, herbal and mineral, toiletries and paintballs.
The gelatin soft capsule market is currently dominated by two companies, namely
R. P. Scherer Inc., (a subsidiary of Cardinal Health, Inc.), and Banner
Pharmacaps Inc. (a subsidiary of Sobel NV). During 1999, R. P. Scherer Inc.
(RPS), was acquired by Cardinal Healthcare, Inc, for $2.4 billion. RPS has
headquarters in Troy, Michigan, and 24 operating subsidiaries. Sobel NV is a
Dutch organization with a number of subsidiaries, including Banner Pharmacaps,
Limited., Banner Pharmacaps Inc., and Sobel Pharma BV.
The Company believes that its XGel(TM) FS gelatin-free soft capsule will be
extremely attractive to vegetarians and certain ethnic and religious groups,
such as Hindus and Muslims. These groups represent large potential markets. The
Muslim population now stands globally at 935 million. There are an estimated 2
million vegetarians in the United States, and 250,000 in the United Kingdom. In
addition, market research has indicated that in excess of 29 million households
in the United States qualify as "meat reducers" by making a regular effort to
remove animal products from their diet.
The value of a soft capsule rests in its contents. The shell is simply a means
of transporting the contents from the manufacturer to the consumer. Some soft
capsule manufacturers produce the contents as well as the shell and sell the
finished product under their own brand or for use in private label brands. Other
manufacturers simply act as sub-contract suppliers to the proprietors of main
brands.
Soft capsules reach consumers via a multitude of distribution channels. In the
United States dietary supplements and pharmaceuticals are sold through
traditional Over The Counter outlets, as well as in-store locations at large
food retailers. The Natural Food and Healthcare market, which in the United
States grew by 9% to $14.3 billion during 1998, is serviced by around 8,000
small and medium sized stores that tend to purchase from national distributors,
such as Tree of Life, Cornucopia and Lotus Light. Direct mail suppliers account
for a small but important part of the market.
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In general terms, the sales and distribution channels to be used by the Company
are mature and are easily identified. The market for dietary supplements in the
United Kingdom was approximately $560 million in 1999. The leading producer in
the United Kingdom is Peter Black Healthcare Limited, which accounts for
approximately 34% of the entire market. The market for soft capsules in the
pharmaceutical market is vast and global.
Marketing and Sales:
Marketing:
The Company's initial marketing and sales strategy is to create market expansion
by facilitating animal free soft capsules for consumers within the vegetarian
and religious groups referred to earlier. The second phase to the Company's plan
is to offer animal free soft capsules to existing consumers of gelatin based
soft capsules. In addition, the Company anticipates that new markets for its
products will be developed as future versions of its XGel(TM) FS are proven.
Sales:
The Non-Ingestible Range: During February 2000, the Company executed an
Exclusive Evaluation Agreement with a Fortune 500 company in respect of a
specific application of the Xgel (TM) Film System. The Exclusive Evaluation
Agreement provides for the Company and its customer to work together to develop
a novel delivery system for an entirely new mass market consumer product having
potential for sale on a global basis. The Company received a six-figure sum in
consideration of the grant of the evaluation period and all other matters
relating to the agreement remain strictly confidential. The Company commenced
work on the project during March 2000 and progress is satisfactory. On March 7,
2000, the Company announced an agreement with J T Racing, of San Diego, whereby,
the Company will develop a unique range of paintballs using Xgel (TM) film
technology. The Company continues to explore new market opportunities for
non-ingestible applications for the Xgel (TM) Film System. Terms of the
agreement remain strictly confidential.
The Ingestible Range: During 1998 Company executed a Technology Collaboration
Agreement with UBFCF, a part of the United Biscuits plc group, which enjoys
annual revenues of $3.6 billion. UBFCF is the owner of the leading brand of
vegetarian prepared foods for the U.K. market, where it is the brand leader by a
large margin.
<PAGE>
The Company approached UBFCF with the idea that, because of its dominant market
position, the brand would be the perfect vehicle through which to launch the
first full line of dietary supplements designed specifically for vegetarians.
The Company, because of its unique technology, is the only company capable of
making such a proposition. Under the terms of the Technology Collaboration
Agreement the Company had with UBFCF, the Company was asked to compile a range
of dietary supplements that deliver the perfect cocktail to address the
shortfall of nutrition evident in a vegetarian diet. That task was successfully
carried out by the Company's subsidiary, DNL. During the last quarter of the
year, UBFCF's parent company sold the business to Heinz Corporation. This
corporate activity caused delay to the project and its outcome remains uncertain
at the date of this report.
Certain formulations of XGel(TM) Film will enable its use as a drug delivery
system. The Company is in discussions with several leading pharmaceutical
companies with a view to licensing its Xgel (TM) Film System. It is too early in
the Company's development to comment in more detail on the possibilities within
this market sector.
Manufacturing:
During the year, the Company relocated both its manufacturing facility and its
research and development facility to March, Cambridgeshire, England.
Commissioning of the Company's non- ingestible Xgel (TM) Film System is complete
and it is producing products for assessment by the Fortune 500 Company referred
to herein. Commissioning of the Swallow 1 Xgel (TM) Film System is underway and
will be a continuing process during the year 2000. The Company's prime costs in
producing soft capsules are comparable to those of gelatin capsule
manufacturers; however, the capital investment required per line of XGel(TM) FS
is significantly less than gelatin systems . In addition, operational costs are
dramatically reduced using the XGel(TM) FS by reason of the elimination of the
need to dry capsules post-production.
Research and Development:
The XGel(TM) FS has potential for exploitation in many new markets. The Company
is committed to a research and development program intended to produce new
products for licensees and new variations of, and improvements to the Xgel (TM)
Film System. The research and development program seeks to explore the use of
alternative materials and formulations and to test their suitability to form
capsules suitable for ingestion and drug delivery by time and at site. In
parallel with the formulation work, the Company aims to expand the processing
abilities of the XGel(TM) FS. Throughout the research and development program
specialist centers of excellence are deployed and their expertise used to
optimize materials and processes.
<PAGE>
Y2K Disclosure: The Company and its suppliers suffered no recognisable impact
from the Y2K problem. No problems were identified, no costs were incurred and
the company does not expect any repercussions or related costs to be incurred in
the future in respect of Y2K.
Item 2. Description of Property: The Company, as of the date of this report,
owned no real or personal property, tangible or intangible, other than the
shares of its wholly-owned subsidiaries. The executive offices of the Company
are being provided by The Jade Partnership, a significant shareholder of the
Company owned by several of the executive officers and directors of the Company,
free of charge on a month-to-month basis. These offices are located at 9055
Huntcliff Trace, Atlanta, Georgia, 30350-1735. The telephone number at this
address is (770) 641-0264. BioProgress Technology, BTL and DNL are leasing at
market rates from a third party approximately 15,000 square feet of laboratory,
executive office, manufacturing and storage facilities at Unit 1, Norwood Road,
March, Cambridgeshire, United Kingdom PE15 8QD. The telephone number at this
address is 011-44-1354-655-674
Item 3. Legal Proceedings:
No material legal proceedings to which the Company(or any officer or director of
the Company, or any affiliate or owner of record or beneficially of more than
five percent of the Common Stock, to management's knowledge) 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.
Item 4. Submission of Matters to a Vote of Security Holders:
There were no meetings of security holders during the period covered by this
report.
Item 5. Market for Common Equity and Related Shareholder Matters:
As of March 22, 2000, there were approximately 36,002,800 shares of Common Stock
issued and outstanding, which were held of record by approximately 2,334
shareholders. The Common Stock is currently quoted on the Bulletin Board
maintained by the National Association of Securities Dealers, Inc., under the
symbol BPRG. There was no trading in the Common Stock prior to August, 1996. The
following table sets forth the range of high, low and closing bid and asked
prices per share of the Common Stock as reported by National Quotation Bureau,
Inc., for the quarterly period indicated.
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Bid Ask
Calendar Quarter High Low Close High Low Close
- ---------------- ---- --- ----- ---- --- -----
March 31, 1998 1.875 0.8125 0.9375 1.3125 0.90625 1.03125
June 30, 1998 0.96875 0.25 0.5 1.125 0.40625 0.53125
September 30, 1998 0.65625 0.375 0.375 0.6875 0.46875 0.46875
December 31, 1998 0.40625 0.22 0.27 0.4688 0.25 0.31
March 31, 1999 0.8438 0.26 0.78 0.92 0.30 0.83
June 30, 1999 2.375 0.7 1.375 2.4375 0.75 1.46875
September 30, 1999 1.71875 0.625 0.625 1.875 0.75 0.875
December 30, 1999 1.25 0.375 0.875 1.46875 0.59375 1.00
The above prices represent inter-dealer quotations without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
On March 22, 2000, the closing inside bid and asked prices for the Common Stock
were $4.09 and $4.25 , respectively. On that date there were ten market makers
publishing quotes.
The Company has paid no dividends on the Common Stock since inception and does
not expect to pay dividends in the foreseeable future. There are, however, no
restrictions on the payment of dividends.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
The following management's discussion and analysis of financial condition and
results of operations should be read in conjunction with the financial
statements, related notes and other financial information included elsewhere in
this document. Our financial statements have been prepared in accordance with
U.S. GAAP. This discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties. Actual results and
timing of certain events could differ materially from those anticipated in those
forward-looking statements.
Results of Operations:
There were two significant transactions affecting the Company's operations
during 1999. These were (1) the purchase of the Trutona assets primarily in
exchange for Common Stock and the incurrence of debt which was paid prior to
year end, and (2) the license of these assets to EcoProgress. As a result, the
assets of the Company increased significantly, with a smaller but corresponding
increase in equity, due to the purchase of these assets in significant part
through the issuance of Common Stock. The Company anticipates that significant
royalties will accrue over the life of the EcoProgress license which will far
exceed the cost of the assets licensed, and that the common shares of
EcoProgress received by the Company in partial exchange for this license will
increase in value.
BioProgress Technology was reorganized in late 1997 and was in the development
stage during 1997 and 1998. A full description of the business of the Company
and its subsidiaries is set forth under Item 1. The Company incurred
significantly higher losses in 1999. This was primarily due to the following:
1. Expansion of day-to-day operations
2. An increase in general and administrative expenses which includes
goodwill amortization of $678,174, an increase in other depreciation
and amortization charges, higher expenses from US operations, moving
costs to new premises, and amortization of the Trutona investment.
<PAGE>
3. An unrealized loss in the Ecoprogress securities of $752,694.
4. Increased management charges
Administration charges are likely to be stabilize during 2000 although
additional staff is being sought for the laboratories and is expected to be
recruited in 2000. In addition, at the beginning of the second quarter,
management charges are expected to be decreased substantially. Other efforts
will be made by management to minimize overhead, and periodic reviews of
overhead costs are being undertaken internally. Efficiency will be further
improved when the new extension to the factory and laboratories is completed in
the second quarter of 2000.
Liquidity and Capital Resources:
During the last six months of 1999 and the first three months of 2000,
Management implemented a string of measures to improve the Company's liquidity
and capital resources. The improvement resulted primarily from the sale of
Series B Preferred Stock. The sale of these shares has given the Company
sufficient funds for its operations for the foreseeable future given its current
cash consumption rate. It is envisaged that, during 2000, further capital
raising and other measures will be put into place to secure the long-term
financial future of the Company. These measures will be subsequently announced
in the normal course of business.
Sale of license: The sale of the license to Ecoprogress produced $380,000 in
cash during 1999, together with additional consideration of 1,066,666 shares of
Ecoprogress, which are traded on the Vancouver Venture Board. From March 10,
2000, the Company is permitted to sell these shares and will commence doing so
during 2000, if market conditions permit. In addition, during the latter part of
2000, the Company anticipates that Ecoprogress will be selling more products in
North America and, accordingly, will accrue and make more roaylty payments under
the license.
EcoProgress is developing its marketing strategy, and new and upgraded products
should come on line during 2000. In addition, EcoProgess' recent fund raising
efforts for inventory and other related operating expenses should significantly
enhance their efforts in North America.
Sale of Series A and Series B Preferred Stock: The Company has made significant
improvements to its liquidity and capital resources by the sale of preference
shares to accredited investors. During 1999, the Company received $1,115,235
from the sale of shares of Series A Preferred Stock and $60,000 from the sale of
24,000 shares of Series B Preferred Stock. In the first three months of 2000,
the Company received applications for 2,900,924 Series B preferred shares at
$2.50 each and proceeds of $4,088,408 have been received to date from the sale
<PAGE>
of these shares. These proceeds have been used (1) to reduce trade and short
term liabilities, (2) for research & development, (3) for the building, design
and upgrade of further plant and machinery, (4) for the expansion of the
business during the year and (5) for general working capital purposes.
Management anticipates making further offerings of the Company's securities to
provide for subsequent working capital needs as such arise.
The Company is in discussion with several parties regarding joint ventures and
license and distribution agreements for its XGel(TM) Film System and derived
products. In addition, the Company is engaged in discussions with institutional
investors and with industry peers regarding an investment in the Company.
Management believes that the aforementioned actions and activities will generate
sufficient cash to fully meet the working capital requirements of the Company
for the twelve months following the date of this report.
Compliance with Beneficial Ownership Reporting Rules: Section 16(a) of the
Securities Act of 1934, as amended (Exchange Act), requires the executive
officers and directors of the Company, and persons who beneficially own more
than 10% of the Common Stock, to file initial reports of ownership and reports
of changes in ownership with the Commission. These officers, directors and
shareholders are also required to furnish the Company with copies of certain of
these reports. Based solely on a review of copies of reports furnished to the
Company during its fiscal year ended December 31, 1999, and thereafter, or
written representations, if any, received by the Company from these persons that
no other reports were required, the Company believes that, during 1999, not all
applicable Section 16(a) filing requirements were satisfied; however, it has
been assured that the reporting persons are endeavoring to immediately file
these reports.
Item 7. Financial Statements:
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
BioProgress Technology International, Inc:
We have audited the accompanying consolidated balance sheets of BioProgress
Technology International, Inc. (a Nevada corporation) and subsidiaries as of
December 31, 1999 and 1998 (as restated-see note 2), and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BioProgress Technology
International, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
ARTHUR ANDERSEN LLP
New York, New York
March 29, 2000
<PAGE>
<TABLE>
<CAPTION>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998
------ ----------- -----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 5,818 $ 82,119
Marketable securities (Note 5) 367,306 --
Accounts receivable 201,803 12,675
Prepaid expenses and other current assets 61,174 52,357
Total current assets 636,101 147,151
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, net (Notes 2 and 4) 326,629 156,792
GOODWILL, net 6,103,565 6,781,739
INTANGIBLE ASSETS, net (Note 6) 1,232,289 32,569
----------- -----------
Total assets $ 8,298,584 $ 7,118,251
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Deferred revenue $ 1,221,954 $ 114,456
Accounts payable 387,912 287,315
Amounts owed to related parties (Note 10) 780,850 758,365
Accrued expenses and other current liabilities 362,855 53,716
----------- -----------
Total current liabilities 2,753,571 1,213,852
LONG-TERM DEBT (Note 8) -- 1,914
----------- -----------
Total liabilities 2,753,571 1,215,766
----------- -----------
Redeemable convertible preferred stock, Series A, par value $1.00 (Note 11) 51,475 100,000
Redeemable convertible preferred stock, Series B, par value $2.50 (Note 11) 75,120 --
----------- -----------
126,595 100,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value-
50,000,000 shares authorized; 36,002,800 (1998: 28,484,214) shares issued and
outstanding (Note 3) $ 36,002 $ 28,484
Additional paid-in capital (Note 3) 9,861,562 7,186,660
Accumulated deficit (4,481,241) (1,404,297)
Accumulated other comprehensive gain (loss) 2,095 (8,362)
----------- -----------
Total stockholders' equity 5,418,418 5,802,485
----------- -----------
Total liabilities and stockholders' equity $ 8,298,584 $ 7,118,251
=========== ===========
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1999 AND 1998
1999 1998
------------ ------------
<S> <C> <C>
NET REVENUE $ 293,582 $ 28,118
COST AND EXPENSES:
Cost of revenues 21,458 42,287
General and administrative expenses 1,602,322 318,545
Unrealized loss on marketable securities 752,694 --
Professional fees 334,637 258,195
Management fee 600,000 314,377
------------ ------------
Total cost and expenses 3,311,111 933,404
------------ ------------
Loss from operations (3,017,529) (905,286)
Dividends payable and accretion of preferred stock (59,415) --
------------ ------------
Loss applicable to common shareholders (3,076,944) (905,286)
============ ============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.10) $ (0.06)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 30,159,566 14,317,657
============ ============
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
DECEMBER 31, 1999 AND 1998
Accumulated Total
Common Additional Other Stockholders'
-------------------------- Paid-in Accumulated Comprehensive Equity
Shares Amount Capital Deficit Loss (Deficit)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE at December 31, 1997 15,750,000 $ 15,750 $ 312,421 $ (499,011) $ (2,226) $ (173,066)
===========
Net loss -- -- -- (905,286) -- (905,286)
Currency translation adjustment -- -- -- -- (6,136) (6,136)
-----------
Comprehensive loss (911,422)
-----------
Issuance of common shares 7,343,936 7,344 647,911 -- -- 655,255
Issuance of 5,390,278 common shares
par value $0.001 for purchase of
BTII in reverse acquisition 5,390,278 5,390 6,226,328 -- -- 6,231,718
----------- ----------- ----------- ----------- ----------- -----------
BALANCE at December 31, 1998 28,484,214 28,484 7,186,660 (1,404,297) (8,362) 5,802,485
Net loss -- -- -- (3,017,529) -- (3,017,529)
Currency translation adjustment -- -- -- -- 10,457 10,457
-----------
Comprehensive loss (3,007,072)
-----------
Dividends payable -- -- -- (34,000) -- (34,000)
Conversion of Series A preferred stock
to common stock 2,935,138 2,935 1,171,120 -- -- 1,174,055
Accretion of preferred stock to
redemption rate at
December 31, 1999 -- -- -- (25,415) -- (25,415)
Debt to equity conversion 2,708,448 2,708 755,657 758,365
Issuance of common shares 1,875,000 1,875 748,125 -- -- 750,000
----------- ----------- ----------- ----------- ----------- -----------
BALANCE at December 31, 1999 36,002,800 $ 36,002 $ 9,861,562 $(4,481,241) $ 2,095 $ 5,418,418
=========== =========== =========== =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(3,017,529) $ (905,286)
Adjustments to reconcile net loss to net cash used in operating activities-
Changes in operating assets and liabilities-
Depreciation and amortization 888,998 40,742
Unrealized loss on marketable securities 752,694 --
Increase in accounts receivable (189,128) (12,675)
Decrease (increase) in prepaid expenses and other current assets (8,816) (51,704)
Increase in deferred revenue (12,502) 79,343
Increase in accounts payable 1,476 261,864
Increase in accrued expenses and other current liabilities 1,054,075 568,349
----------- -----------
Net cash used in operating activities (530,732) (19,367)
----------- -----------
CASH FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (244,381) --
Purchase of intangibles (650,880) --
----------- -----------
Net cash used in investing activities (895,261) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock 1,175,235 100,000
Proceeds from sale of intangibles 164,000 --
----------- -----------
Net cash provided by financing activities 1,339,235 100,000
----------- -----------
Effects of exchange rate changes on cash and cash equivalents 10,457 --
----------- -----------
Net (decrease) increase in cash and cash equivalents (76,301) 80,633
CASH AND CASH EQUIVALENTS, beginning of year 82,119 1,486
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 5,818 $ 82,119
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ -- $ 1,995
=========== ===========
NON CASH TRANSACTIONS
During the year the Company purchased patents, licenses and trademarks from
Trutona International Inc. (see note 10). Non cash consideration provided was
$750,000 in shares of the Company's common stock.
During the year, the Company sold a license to Consolidated EcoProgress
Technologies, Inc., and received consideration of $1,120,000 in shares of common
stock in Consolidated EcoProgress (see note 10).
The Company issued equity for debt of $758,365 (see note 10). The total number
of common shares allocated was 2,708,448.
The accompanying notes to the consolidated financial statements are an integral
part of these consolidated statements.
</TABLE>
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. BACKGROUND AND ORGANIZATION
- ------------------------------
History
- -------
BioProgress Technology International, Inc. (the "Company"), was incorporated in
California on March 5, 1990, under the name of U.S. Flywheel, Inc., as a
subsidiary of Sunbird Technologies, Inc., a Utah corporation ("Sunbird
Technologies"). In June, 1991, the Company acquired three patents and a license
relating to flywheel technology from Sunbird Technologies and its affiliates in
exchange for common shares of the Company "Common Stock". These shares of Common
Stock were subsequently distributed to the shareholders of Sunbird Technologies
after registration with the U.S. Securities and Exchange Commission
("Commission"). The Company subsequently transferred its flywheel technology to
a partnership (the "Partnership") in exchange for a minority interest in the
Partnership. The Partnership interest of the Company was subsequently sold,
after which the Company began its search for a business in which to engage.
The Company changed its name to Famous Sam's Group Inc and briefly traded as a
restaurateur under the name of Famous Sam's. The business subsequently ceased to
trade and in 1997 the Company acquired its interest in BioProgress Technology
Inc, as described in note 3.
Operations
- ----------
The Group's primary operations are in the United Kingdom. The principal
activities of the Group are the development, manufacture, and sale of
non-gelatin encapsulation materials for the dietary supplement, pharmaceutical
and recreational industries, cosmetics and other related applications.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------
Principles of Consolidation
- ---------------------------
The accompanying consolidated financial statements include the financial
statements of the Company and its wholly owned subsidiaries: BioProgress
Technology, Inc., BioProgress Technology Limited, and DHA Nutrition Limited. All
significant intercompany transactions and balances have been eliminated.
The 1998 financial statements have been restated to reflect an adjustment to the
purchase price as a result of the reverse acquisition and to reflect the
appropriate number of shares outstanding and earnings per share.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Reclassifications
- -----------------
Certain reclassifications have been made to the prior year's financial
statements in order to ensure consistent presentation with the current year.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost. Depreciation of property,
plant and equipment is provided for using the straight-line method over the
estimated useful lives of the respective assets, ranging from 4 to 7 years.
Amortization of leasehold improvements is provided for over the related lease
term.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents represent all highly liquid investments with
maturities of three months or less when purchased.
Revenue Recognition
- -------------------
Revenue is recognized as products are shipped or services are performed. Cash
received from the sale of licenses is recognized as deferred income and
recognized over the term of the license agreement.
Marketable Securities
- ---------------------
Marketable securities represent the Company's investment in the common stock of
Consolidated EcoProgress Technology Inc, as described in note 5. Management
considers these securities as trading securities. The value of the investment is
marked to market value at each period end with any unrealized gain or loss
included in the statement of operations in the period to which it relates.
Intangibles
- -----------
Licenses are included at cost and depreciated in equal annual installments over
a period of 10 years which is their estimated useful economic life. Provisions
are made for any known impairments.
Goodwill
- --------
Goodwill is being amortized on a straight-line basis over a period of 10 years.
The amortization charge for 1999 and 1998 was $678,174 and $0 respectively.
Long-Lived Assets
- -----------------
The provisions of Statement of Financial Accounting Standards (SFAS) No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" requires, among other things, that an entity review its long
lived assets and certain related intangibles for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. Management does not believe that any such change in circumstances
has occurred.
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Earnings Per Share
- ------------------
Effective for the year ended December 31, 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 and diluted loss
per common share was calculated based upon the net loss available to common
stockholders divided by the weighted average number of shares of common stock
outstanding during the period. There are 3,000,000 stock options outstanding at
December 31, 1999 which are not included in the earnings per share calculation.
Foreign Currency Translation
- ----------------------------
The financial statements of the foreign subsidiaries are translated into U.S.
dollars using the exchange rate in effect at year end for balance sheet accounts
and the average exchange rate in effect during the year for revenue and expense
accounts with currency translation adjustments reflected in other comprehensive
loss in stockholders' equity. Gains and losses from foreign currency
transactions, such as those resulting from the settlement of foreign receivables
or payables, are included in the consolidated statement of operations. The
functional currency of foreign operations is the local currency.
Income Taxes
- ------------
The Company applies the deferred method of accounting for income taxes whereby
deferred taxes are recognized for tax consequences of temporary differences by
applying enacted statutory tax rates to differences between financial statements
carrying amounts and the tax bases of existing assets and liabilities.
New Accounting Pronouncements
- -----------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for derivative instruments and hedging activities". SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement or other comprehensive income (depending on the
type of hedge). To adopt hedge accounting a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting.
SFAS No. 137 delayed the effective date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. A company may implement the statement as of the
beginning of any fiscal quarter after issuance, however, SFAS No. 133 can not be
applied retroactively. The Company has not yet determined the timing of the
adoption of SFAS No. 133.
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
3. ACQUISITIONS
- ---------------
On October 30, 1997, the Company entered into a letter of intent with
BioProgress Technology, Inc., a Colorado corporation ("BioProgress Technology"),
which was followed on November 17, 1997, by a formal agreement (the
"Reorganization Agreement"). Pursuant to the Reorganization Agreement, the
Company agreed to acquire all of the outstanding capital stock of BioProgress
Technology in exchange for 4,000,000 post split shares of Common Stock.
Immediately prior to closing, the Company effected a one for five (1:5) reverse
stock split.
In conjunction with the execution and delivery of the Reorganization Agreement,
the Company entered into an agreement (the "BTL Option Agreement") with certain
of the shareholders of BioProgress Technology Limited, an entity incorporated in
the United Kingdom ("BTL"), which gave the Company the option of acquiring all
or any part, on a pro-rata basis, of the issued and outstanding common shares of
BTL on or before June 30, 1998. The Company was required under the BTL Option
Agreement to issue 1 1/2 shares of Common Stock for each outstanding share of
BTL, which then had 10,100,000 shares outstanding; thus, if the option had been
exercised in full and in accordance with the original terms of this agreement,
the Company would have issued 15,150,000 shares of Common Stock. BTL was
required to have no more than 10,100,000 shares outstanding, and the Company was
required to have no more than 5,000,000 shares of Common Stock issued and
outstanding and to have completed or be in a position to complete the sale of
such number of shares of Common Stock at a price of no less than $5.00 per share
so as to generate no less than $4,000,000 net of all costs. The terms and
conditions of the BTL Option Agreement were not met; however, the Company and
original signatories elected to amend the agreement and go forward with the
acquisition of BTL.
On June 30, 1998, the Company and BTL amended the BTL Option Agreement. First,
the maximum number of shares BTL was allowed to have outstanding at the closing
date was raised from 10,100,000 to 16,000,000. Second, the requirement that the
Company have no more than 5,000,000 shares of Common Stock issued and
outstanding and to have completed or be in a position to complete the sale of
such number of shares of Common Stock at a price of no less than $5.00 per share
so as to generate no less than $4,000,000 net of all costs was waived. Third,
the Company undertook to assume debt up to a maximum of $1,000,000, satisfying
such through the issuance of shares of Common Stock valued at the average market
price on the closing date. The Company acquired approximately 62% of BTL on
November 11, 1998, and acquired the remaining 38% of BTL on December 31, 1998,
issuing a total of 23,093,936 shares of Common Stock as sole consideration for
the acquisition.
The acquisition of BTL was treated as a reverse acquisition of the Company by
BTL. The shareholders of BTL received approximately 81% of the post acquisition
shares of the Company and therefore, BTL is the accounting acquirer. Common
stock and additional paid-in capital were restated in 1997 such that the total
dollar value of common stock and additional paid-in capital for 1997 was split
to reflect the same ratio as the Company's common stock and additional paid-in
capital at that time. The Company's financial results are included in the
consolidated financial statements for a period of two weeks during 1998.
Goodwill generated in the acquisition of $6,781,739 will be amortized on a
straight-line basis over a period of 10 years.
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
On July 31, 1998, the Company agreed to acquire DHA Nutrition Limited (UK), an
entity organized in the United Kingdom ("DNL"), in exchange for consideration of
400,000 shares of Common Stock. These shares are restricted from sale,
assignment or disposal for 18 months beginning July 31, 1998. The acquisition
closed on August 12, 1998. The number of shares, which the Company issued in the
acquisition of DNL, may be increased in the event that DNL's cumulative gross
revenues in respect of its Feed Supply sales exceed $8,319,000 in the period
from October 1, 1999 to September 30, 2000. In this event, the Company will
issue to the former DNL shareholders an additional 400,000 shares of Common
Stock. Further, and in addition to the foregoing shares, if DNL's cumulative
gross revenues in respect of its Food Supply sales exceed $831,900 in the period
October 1, 1999 to September 30, 2000, the Company will issue an additional
200,000 shares of Common Stock.
The acquisition of DNL was accounted for as a purchase. DNL's financial results
of operations are included in the consolidated financial statements for a period
of five months in 1998.
4. PROPERTY, PLANT AND EQUIPMENT
- --------------------------------
Property, plant and equipment are stated at cost and consist of the following:
Estimated
1999 1998 Useful Lives
---- ---- ------------
Leasehold improvements $ 129,117 $ -- 7 years
Plant and machinery 234,638 155,188 4
Equipment under capital leases 4,021 4,021 4
Office equipment 36,807 18,189 4
Laboratory equipment 41,065 26,353 6
--------- ---------
445,648 203,751
--------- ---------
Less- Accumulated depreciation (119,019) (46,959)
--------- ---------
Total $ 326,629 $ 156,792
========= =========
The depreciation expense was $74,544 and $40,741 for 1999 and 1998 respectively.
5. MARKETABLE SECURITIES
- ------------------------
Marketable securities in the balance sheet represent shares in Consolidated
EcoProgress Technologies Inc., which are classified as trading securities. The
investment is marked to market value at each period end, and an unrealized loss
of $752,694 has been reflected in the statement of operations during 1999.
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
6. INTANGIBLE ASSETS
- --------------------
1999 1998
---- ----
Trademarks, licenses, patents $ 1,368,569 $ 32,569
Less accumulated amortization (136,280) --
----------- -----------
Net intangible assets $ 1,232,289 $ 32,569
=========== ===========
The licenses were purchased from Trutona International, Inc., a related party as
disclosed in note 10 and are being depreciated in equal annual installments over
a period of 10 years which is their estimated useful economic life. The
amortization expense for the year was $136,280 and $0 for 1999 and 1998,
respectively.
7. OPERATING LEASE OBLIGATIONS
- ------------------------------
The Company leases its facilities under a non-cancelable operating lease that
expires in 2014. Minimum future lease payments under non-cancelable operating
leases as of December 31, 1999 are summarized as follows:
1999
----
2000 $ 67,200
2001 $ 67,200
2002 $ 67,200
2003 $ 67,200
2004 $ 67,200
--------
Thereafter $616,000
--------
$952,000
========
Rental expenses under operating leases totaled $56,000 and $0 for the years
ended December 31, 1999 and 1998, respectively
8. LONG-TERM DEBT
- -----------------
Long-term debt consists of capital lease obligations. The equipment lease
obligations are payable in monthly installments of $210, through May 2000. The
debt is collateralized by the related equipment. The Company's lease obligations
are due as follows-
1999 1998
---- ----
1999 $ -- $ 2,520
2000 1,050 1,914
---------- ----------
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
9. INCOME TAXES
- ---------------
The Company does not have any income taxes payable in 1999 or 1998. The Company
has no net operating loss carry forwards available in the U.S. but has tax
losses of approximately $1,862,000 and $1,335,000 for 1999 and 1998
respectively, available to carry forward against taxable profits in the U.K.,
subject to agreement with the U.K. tax authorities. The Company had deferred tax
assets (DTA's) at December 31, 1999 and 1998 respectively, of approximately
$559,000 and $400,000 representing the tax effect of the U.K. tax losses
available to carry forward. Due to uncertainty regarding the ultimate amount of
income tax benefits to be derived from the tax losses, the Company has recorded
valuation allowances against the entire DTAs.
10. RELATED PARTIES
- -------------------
The Jade Partnership International, Inc.
- ----------------------------------------
On April 1, 1998, the Company entered into a consulting and option agreement
with The Jade Partnership International, Inc. ("Jade"), a Delaware Corporation.
Certain directors of the Company are controlling shareholders in Jade. The
Company has a contract with Jade, under which Jade assists the Company in
obtaining equity and debt financing, and provides general business management,
administration services, international licensing and sales and marketing
strategies. In the opinion of management, all transactions are at arms length.
This agreement provides that the Company is to pay $50,000 per month as a fee to
Jade which, at the option of Jade, is convertible into Common Stock of the
Company at a price of $0.28 per share. On December 16, 1999, Jade elected to
convert $356,595 of fees outstanding into 1,273,556 shares of the Common Stock
of the Company. The Company incurred management charges of $600,000 during the
year and paid $122,675 to Jade in respect of the balance outstanding; the
balance due to Jade by the Group at December 31, 1999 was $780,850.
The executive offices of the Company located at 9055 Huntcliff Trace, Atlanta,
Georgia are provided free by Jade on a month-to-month basis.
Ormiston-Gore Securities Limited
- --------------------------------
Ormiston-Gore Securities Limited ("OGSL"), is a related party by virtue of its
shareholding in the Company.
On April 1, 1998, the Company entered into a financial consulting agreement with
OGSL, a Bahamian investment and financial services company.
OGSL, under this contract, provided services for BTL in obtaining equity and
debt financing and also loaned $230,746 to the Company. All services had been
rendered as of November 12, 1998. The Company agreed to pay OGSL a fee of
$10,000 per month which, at the option of OGSL, was convertible into common
stock of the Company at a price of $0.28 per share. The Company agreed to pay
OGSL the sum of $171,023 for fees. OGSL elected to convert this amount into
610,798 shares of the Common Stock of the Company on December 16, 1999.
OGSL elected to convert the outstanding loan of $230,746 into shares of the
Common Stock of the Company at a price of $0.28 per share, receiving 824,094
shares on December 16, 1999.
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
In addition, OGSL has entered into a lease agreement dated March 1, 1999 with
the Company for the rental of the premises in March, Cambridgeshire, U.K. The
term of the lease is 15 years and the rental per month is $5,600 with a security
deposit of $16,800. Details of the operating lease obligations are disclosed in
note 7.
Trutona International, Inc.
- ---------------------------
Certain directors of the Company are also directors of Trutona International,
Inc. ("Trutona"), a privately held Atlanta based corporation.
On February 15, 1999, the Company acquired from Trutona patents, licenses and
trademarks relating to a broad range of products, including a range of flushable
and biodegradable disposable products designed by Trutona. The consideration
payable to Trutona by the Company was $1,500,000 in the acquisition, of which
$750,000 was paid through the delivery of 1,875,000 shares of Common Stock at an
agreed price of $0.40, with the remainder was paid in cash.
In connection with the acquisition of the above patents, licenses and
trademarks, the Company has recognized license fee revenues of $88,862 in the
year relating to a previous license agreement between Trutona and Consolidated
EcoProgress Technology Inc. that has been assigned to the Company.
Consolidated EcoProgress Technologies, Inc
- ------------------------------------------
Consolidated EcoProgress Technologies, Inc, ("EcoProgress"), is a related party
by virtue of its shareholding in the Company.
On April 5, 1999, the Company completed the sale of a license to EcoProgress, a
Canadian company with securities traded on the Vancouver Stock Exchange. The
license was sold for the sum of $1,500,000 and granted EcoProgress the exclusive
right to manufacture, sell and distribute in the US a line of flushable and
biodegradable disposable products utilizing the intellectual property that the
Company recently acquired from Trutona International Inc (see note 10).
EcoProgress paid $380,000 in cash and the remaining $1,120,000 was paid through
the issuance of 1,066,666 shares of free trading common stock in EcoProgress at
an agreed price of $1.05 per share.
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK
- ------------------------------------------
The Series A and B redeemable convertible preferred stock are recorded in the
accompanying balance sheet outside the stockholders' equity section due to their
mandatory redemption feature.
<TABLE>
<CAPTION>
Series A Series B
redeemable redeemable
convertible convertible
preferred preferred
stock stock
----------- -----------
<S> <C> <C>
Number of shares authorized 1,250,000 3,750,000
Number of shares issued 1,215,235 24,000
Number of shares converted 1,174,055 --
Subscription price per share $ 1.00 $ 2.50
Value based on redemption rate at December 31, 1999 $ 51,475 $ 75,120
Proceeds from issuance $1,215,235 $ 60,000
Conversion date and rate to common shares
By December 31, 1999 1:2.5 1:2.5
From January 1, 2000 on or before December 31, 2000 1:1.0 1:2.5
From January 1, 2001 on or before December 31, 2001 1:0.5 1:1.0
From January 1, 2002 on or before December 31, 2002 -- 1:0.5
Expiry of conversion rights After 12/31/2001 After 12/31/2002
Conversion at discretion of Holder Holder
Redemption date and amount per share
On or before December 31, 1999 $ 1.25 $ 3.13
From January 1, 2000 on or before December 31, 2000 $ 1.56 $ 3.13
From January 1, 2001 on or before December 31, 2001 $ 1.95 $ 3.91
From January 1, 2002 on or before December 31, 2002 $ -- $ 4.88
Redemption at discretion of Company Company
Mandatory redemption date After March 31, 2002 After March 31, 2003
Mandatory redemption price $ 2.07 $ 5.19
Dividend rate 4% per annum of 4% per annum of
subscription amount subscription amount
computed quarterly in computed quarterly in
arrears March, June, arrears March, June,
September and December September and December
Voting rights None None
Preferential liquidation rights None None
A charge has been accreted to accumulated deficit to reflect the $0.25 premium
on Series A redeemable convertible preferred shares and the $0.63 premium on
Series B redeemable convertible preferred shares.
</TABLE>
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
At December 31, 1999 management had approved dividends of $34,000 on the Series
A redeemable convertible preferred stock. The payment of the dividend is
entirely at the discretion of management.
12. STOCK OPTION PLAN
- ---------------------
The Company granted 3,000,000 stock options to executives on January 25, 1999.
The following table summarizes information about stock options outstanding at
December 31, 1999.
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Number Average
Outstanding as Remaining Weighted Exercisable as Exercise Price
Exercise of December 31, Contractual Average of December 31, of Exercisable
Price $ 1999 Life Exercise Price 1999 Options
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.35 600,000 1 year $0.35 600,000 $0.35
0.75 600,000 1 year $0.75 600,000 $0.75
1.25 600,000 1 year $1.25 600,000 $1.25
1.75 600,000 1 year $1.75 600,000 $1.75
2.25 600,000 1 year $2.25 600,000 $2.25
--------- --------- ---------
3,000,000 5.0 years 3,000,000
========= ======== =========
</TABLE>
As permitted under SFAS No. 123 "Accounting for Stock Based Compensation", the
Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB No. 25") in accounting for
share-based awards to employees, for options granted. There is no compensation
charge arising as no stock options have been granted during the year at less
than fair market value.
Pro-forma information regarding net loss and net loss per share is required by
SFAS No. 123 and has been determined as if the Company had accounted for its
employee share options and the options granted by shareholders under the fair
value method consistent with the method prescribed by that Statement. The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for 1999:
- risk-free interest rate of 7%;
- dividend yield of 0%;
- volatility factor of 100%; and
- an expected life of the option of three years.
<PAGE>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
Had the Company's option plan and the options granted by shareholders been
accounted for under SFAS No. 123, the Company's charge to income for 1999 would
have been $561,244. Net loss and loss per share would have been increased to the
following pro-forma amounts.
Year ended December 31,
1999
-----------------------
Pro-forma net loss ($ 3,638,188)
Pro-forma net loss per share applicable
to common stockholders - basic and
diluted ($ 0.12)
=============
13. SUBSEQUENT EVENTS
- ---------------------
In the first quarter of 2000, the Company has received subscriptions for
2,900,924 redeemable convertible preferred Series B stock, par value $2.50 and
to date has received cash of $4,088,406.
On February 18, 2000, an agreement was signed with a Fortune 500 company in
respect of a specific product application.
On March 7, 2000, the Company signed an agreement with JT USA LP and Dye
Precision Inc to develop a commercially viable non-gelatin paintball for
exclusive distribution by JT Racing.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure: On March 8, 1999, the Company informed Halliburton, Hunter
& Associates that it would not retain them as the independent accountant to
audit the financial statements of the Company as of and for the year ended
December 31, 1998, because it had retained Arthur Andersen & Company. The
Company had no disagreement with its former accountant on any matter of
accounting principal or practice, financial statement disclosure or auditing
scope or procedure which would have caused the accountant to make reference in
its report upon the subject matter of the disagreement. Further, the former
principal accountant's report on the financial statements did not contain an
adverse opinion or a disclaimer of opinion or qualification as to audit scope or
accounting principle. The decision to change accountants was approved by the
full Board of Directors, which has no audit or similar committee.
PART III
Item 9. Directors and Executive Officers of the Company: The following table
sets forth all current directors, executive officers and significant employees
of the Company, BioProgress Technology, BTL and/or DNL, as well as their ages:
Name Age Position with Company
---- --- ---------------------
Barry J. Muncaster 54 Chairman of the Board of Directors
and Chief Executive Officer of
the Company, BioProgress
Technology, Inc., BTL and DNL;
Malcolm D. Brown 41 Director and Chief technical Officer
of the Company, BioProgress
Technology, Inc., BTL and DNL
James T.C. Longley 40 Director, Chief Financial and
Accounting Officer, and
Treasurer and Secretary of
the Company, BioProgress Technology,
Inc., BTL and DNL
Robert G.M. Hind 50 Director and Vice-President of Sales
and Marketing of the Company
BioProgress Technology, Inc.,
BTL and DNL
Edward Z. Nowak 46 Director of Research and Development
for BTL
Greg Bowers 48 Director of the Company and President
of Bioprogress Technology, Inc.
Larry Shattles 57 Director of the Company
<PAGE>
No current director has any arrangement or understanding whereby he is or will
be selected as a director or nominee, other than those gentlemen under
employment agreements, as discussed below. Directors and executive officers will
hold office until the next annual meeting of shareholders and until their
respective successors have been duly elected and qualified or until they earlier
resign. Officers are generally elected by the Board of Directors at its annual
meeting immediately following the shareholders' annual meeting and hold office
until their death or until they earlier resign or are removed from office. The
Company does not have any standing audit, nominating or compensation committees,
or any committees performing similar functions.
Profiles of Directors and Executive Officers of the Company and BioProgress
Technology:
Profiles of Directors and Executive Officers of the Company and BioProgress
Technology, Inc.:
Barry J. Muncaster: Chairman, Chief Executive Officer and President. Mr.
Muncaster is Chairman of the Board of Directors and Chief Executive Officer of
the Company, BioProgress Technology, Inc. and BTL, having served in these
capacities since November 17, 1997, for the Company and inception for
BioProgress Technology, Inc. and BTL. He has also served the Company and BTL as
President since November 17, 1997, and inception, respectively. Mr. Muncaster
also served BioProgress Technology as President from inception until the
engagement of Mr. Bowers. He has served in similar positions with DNL since the
acquisition of that entity as a wholly-owned subsidiary. Mr. Muncaster trained
as a telecommunications engineer with British Telecom, and obtained a diploma in
Telecommunications Engineering in 1970 from the Cambridge College of Arts and
Technology. Since 1970 Mr. Muncaster has been involved at the executive and
senior executive level with companies engaged in the development and
commercialization of high technology products, which include: laser-based
systems employed in high energy physics experiments, electronic taxi meters,
personal computer systems and home banking systems. He was a co-founder, and
served as Chief Executive Officer, of Oric Products International, Limited
which, within three years of start-up, manufactured and sold in excess of
300,000 personal computers, achieving annual sales revenues in excess of
$45,000,000 prior to its sale in 1983 to an investment company quoted on the
London Stock Exchange. Since 1987 Mr. Muncaster has been a partner in the Jade
Partnership, a firm of management consultants which specializes in assisting
developmental companies engaged in high technology activities. The Jade
Partnership was the sole shareholder of BioProgress Technology and now owns a
substantial portion of the outstanding shares of Common Stock. Mr. Muncaster
entered into an employment agreement with the Company on January 25, 1999, as
discussed further below.
Malcolm D. Brown: Director and Chief Technical Officer. Mr. Brown has served the
Company as a director and as the Executive Vice- President of Research and
Development since November 17, 1997, and for BioProgress Technology, Inc. and
BTL from inception. He has served in similar positions with DNL since the
acquisition of that entity as a wholly-owned subsidiary. He is responsible for
the direction and implementation of the research and development program of
BioProgress Technology Limited, the production engineering of its products, and
for the environmental, safety and performance compliance of all raw materials
used. Mr. Brown received a Bachelor of Science Degree (Honors) in Applied
Biology from Northeast London University in 1984 and a Masters of Science Degree
in Microbiology from London University in 1986. Prior to his affiliation with
BioProgress Technology, Inc. and BTL, Mr. Brown held senior research positions
with Gestetner Corporation and with Ferrisgate Limited, where he worked on the
formulation of specialist inks and coatings used in industrial processes. Mr.
Brown entered into an employment agreement with the Company on January 25, 1999,
as discussed further below. Mr. Brown is also a director, officer and
shareholder of The Jade Partnership.
James T.C. Longley: Director and Chief Financial and Accounting Officer and
Treasurer. Mr. Longley has been a director and the Chief Financial and
Accounting Officer, Treasurer and Secretary the Company since November 17, 1997,
and of BioProgress Technology, Inc. and BTL since inception. He has served in
similar positions with DNL since the acquisition of that entity as a
wholly-owned subsidiary. He received a Bachelor of Arts degree in accounting
with honors from Leeds University in 1980, and was admitted to the Institute of
Chartered Accountants in England in July, 1983, and was admitted as a fellow to
the Institute of Chartered Accountants in England and Wales in 1993. Mr. Longley
in 1983 joined Arthur Andersen, where he worked for two years, attaining the
position of Senior Accountant, Auditing Division. He then served for three years
as a manager in the Merchant Banking Division of Creditanstalt-Bankverein before
leaving to join Touche Ross and Co., another accounting firm, as a senior
manager in its corporate finance division. In 1991, Mr. Longley founded Chapman
Longley Chartered Accountants and Registered Auditors in the United Kingdom
where, in addition to providing services to a range of clients, he participated
as part of a management team which successfully completed a (pound)10.5 million
(Sterling) management buy-in within the manufacturing industry, and served as
the finance director of The Fleet Management Group Limited which had annual
revenues of (pound)18 million (Sterling) during this time. Mr. Longley entered
into an employment agreement with the Company on January 25, 1999, as discussed
further below. Mr. Longley is also a director and officer of The Jade
Partnership.
<PAGE>
Robert Graham Mason Hind: Director and Vice-President of Sales and Marketing.
Mr. Hind has been an executive officer and director of the Company and BTL since
the acquisition by the Company of DNL, prior to which he served as a consultant
to BioProgress Technology, Inc. and BTL from June 30, 1998. Mr. Hind has served
DNL as a director and executive officer since inception. Mr. Hind entered into
an employment agreement with the Company after its acquisition of DNL, as
discussed further below.
Edward Z. Nowak: Vice-President of Research. Mr. Nowak has been with BTL since
March, 1997. He received a Bachelor of Science Degree in Applied Chemistry from
Stockport University in the United Kingdom in 1978. Mr. Nowak then joined Ciba
Geigy agrochemical and industrial chemical divisions, where he worked for 12
years. He headed up formulations groups and pioneered technology in
micro-emulsions, granulation and polymer seed coatings. In 1989 Mr Nowak joined
Jeyes Group, where he was research and development manager. In 1992 Mr. Nowak
joined Bush Boake Allen's fragrance division as European technical manager. He
developed a number of new products for launch within the personal care and
household sectors for both Jeyes and Bush Boake Allen. Mr. Nowak has been
responsible for much of the product and process development of encapsulation
technology at BTL. Mr. Nowak entered into an employment agreement with the
Company on January 25, 1999, as discussed further below.
Gregory L. Bowers: Mr. Bowers was engaged as a director of the Company and as
President of BioProgress Technology, Inc. earlier this year. Prior to the
Company, he was employed as the Senior Vice-President of Sales and Marketing in
Health and Nutrition with the Banner Pharmacap Division of Sobel International
from April, 1996. In this capacity, Mr. Bowers was responsible for all sales and
marketing activities of a $120 million domestic and international nutrition and
generic drug business. From April, 1994, until April, 1996, Mr. Bowers was
employed by Chase Pharmaceutical as Executive Vice President and General
Manager. (Chase Pharmaceutical was purchased by Sobel International in March
1994.) In this capacity, he was responsible for all business operations of a $55
million, 350 employee pharmaceutical and nutritional products manufacturer. Mr.
Bowers reported directly to the CEO of the parent company and directing the
Senior VP Technical Affairs, VP Finance, VP Operations and VP Sales and
Marketing. From April, 1990, to April, 1994, Mr. Bowers served as Executive Vice
President of Sales and Marketing for Chase Pharmaceutical. In this capacity, he
reported directly to the CEO and was responsible for sales and marketing for
Chase Laboratories (generic drug division), Chase Pharmaceuticals (prescription
and OTC contract manufacturing) and Encapsulations, Inc. (nutritional products).
Mr. Bowers developed and directed long and short-term sales and marketing
strategies, including establishing operating budgets, negotiating licenses and
royalty agreements domestically and internationally. Prior to Chase
Pharamaceutical, Mr. Bowers worked in various sales and marketing positions in
the pharmaceutical and other industries. Mr. Bowers is a member of the (1)
American Association of Pharmaceutical Scientists, (2) National Association of
Chain Drugstores, (3) National Wholesale Drug Association, (4) National
Association of Pharmaceutical Manufacturers, and (4) Council for Responsible
Nutrition. He attended the University of Texas in Austin, Texas, receiving a
Bachelors of Arts in Biology and also attended Columbia University,
participating in their executive marketing program.
<PAGE>
Larry C. Shattles was appointed a Director of the Company and Executive Vice
President of BioProgress Technology, Inc in July this year. Prior to that date
he was President of Trutona International, Inc, which sold its "Trutona" assets
to the company during this period for $1,500,000. Previously, he was President
of Shattles and Associates, a publisher's representative firm contracting with
leading publishers such as Time, Inc., American Express, Meredith, and Hearst.
He was also employed for 12 years with Time, Inc. (now AOL/Time Warner). He also
has a Bachelor of Arts Degree from Oglethorpe University. . Consultants to
BioProgress Technology: Dawn M. Franklin. Ms. Franklin served for 21 years as
Marketing Property Manager for Mars, Inc., where she was responsible for the
management, registration and prosecution of intellectual property and
trademarks. She has a very high standing in the international trademark
community and holds the following positions: (i) Member of Board of Directors of
International Trademark Association; (ii) Chairman of Membership Committee of
International Trademark Association; (iii) Vice-Chairman of Public Relations
Committee of International Trademark Association; (iv) Vice-Chairman of British
Brands Group; (v) Member of Trademark Committee of AIM (European Association of
Branded Goods Manufacturers); (vi) Delegate representing AIM at World
Intellectual Property Organization ("WIPO"); (vii) Member of Committee of
Experts on Subject of Famous Marks at WIPO; (viii) Consultant to WIPO and Member
of Committee of Experts at WIPO on Subject of International Trademark Licensing;
and (ix) Member of MARQUES (Association of European Trademark Proprietors).
Item 10. Executive Compensation: No compensation was paid during 1999 directly
to the Board of Directors or executive officers of the Company in their
capacities as such.
Employment Agreements:
Barry J. Muncaster. On January 25, 1999, Mr. Muncaster and the Company entered
into an agreement for a term of five years pursuant to which Mr. Muncaster is to
serve the Company as a Director and Chief Executive Officer. He serves in a
similar capacity with BioProgress Technology, Inc., BTL and DNL. Mr. Muncaster
is entitled to receive cash compensation of $2,000 per month from the Company,
subject to upward revision per board review every six months. Mr. Muncaster also
received an option from the Company under this agreement which is exercisable on
or before December 31, 2003. This option grants Mr. Muncaster the right to
purchase up to 500,000 shares Common Stock in 100,000 share increments at prices
per share of $.35, $.75, $1.25, $1.75 and $2.25 per share. These shares are to
be registered under applicable securities laws before issuance.
<PAGE>
James T.C. Longley. On January 25, 1999, Mr. Longley and the Company entered
into an agreement for a term of five years pursuant to which Mr. Longley is to
serve the Company as a director and as Chief Financial Officer, Treasurer and
Secretary. He serves in a similar capacity with BioProgress Technology, BTL and
DNL. Mr. Longley is entitled to receive cash compensation of $2,000 per month
from the Company, subject to upward revision per board review every six months.
Mr. Longley also received from the Company an option under this agreement which
is exercisable on or before December 31, 2003. This option grants Mr. Longley
the right to purchase up to 500,000 shares Common Stock in 100,000 share
increments at prices per share of $.35, $.75, $1.25, $1.75 and $2.25 per share.
These shares are to be registered under applicable securities laws before
issuance.
Malcolm D. Brown: On January 25, 1999, Mr. Brown and the Company entered into an
agreement for a term of five years pursuant to which Mr. Brown is to serve the
Company as a director and as Executive Vice President Research and Development.
He serves in a similar capacity with BioProgress Technology, BTL and DNL. He is
entitled to receive cash compensation of $2,000 per month from the Company,
subject to upward revision per board review every six months. Mr. Brown also
received from the Company an option under this agreement which is exercisable on
or before December 31, 2003. This option grants Mr. Brown the right to purchase
up to 500,000 shares of Common Stock in 100,000 share increments at prices per
share of $.35, $.75, $1.25, $1.75 and $2.25 per share. These shares are to be
registered under applicable securities laws before issuance.
Edward Z. Nowak. On January 25, 1999, Mr. Nowak and the Company entered into an
agreement for a term of five years pursuant to which Mr. Nowak is to serve the
Company in connection with the business of the Company's wholly owned
subsidiary, BTL. Mr. Nowak serves BTL as Director of Research and Development.
In this capacity he receives $8,000 per month from BTL. Mr. Nowak has received
from the Company an option under this agreement which is exercisable on or
before December 31, 2003. This option grants Mr. Nowak the right to purchase up
to 500,000 shares of Common Stock in 100,000 share increments at prices per
share of $0.35,$0.75,$1.25, $1.75 and $2.25. These shares are to be registered
under applicable securities laws before issuance.
<PAGE>
Graham R M Hind. On January 25, 1999, Mr. Hind and the Company entered into an
agreement for a term of five years pursuant to which Mr. Hind is to serve the
Company as a director. He is entitled to receive cash compensation of $2,000 per
month from the Company, subject to upward revision per board review every six
months. Mr. Hind has received from the Company an option under this agreement
which is exercisable on or before December 31, 2003. This option grants Mr. Hind
the right to purchase up to 500,000 shares of Common Stock in 100,000 share
increments at prices per share of $0.35,$0.75,$1.25, $1.75 and $2.25. These
shares are to be registered under applicable securities laws before issuance.
Greg Bowers. On January 25, 1999, Mr. Bowers and the Company entered into an
agreement for a term of five years pursuant to which Mr. Bowers is to serve the
Company as a director. Mr Bowers serves BioProgress Technology, Inc. as a
director and President for which he is entitled to receive cash compensation of
$125,000 per annum from the Company, subject to upward revision per board review
annually. Mr. Bowers has received from the Company an option under this
agreement which is exercisable on or before December 31, 2003. This option
grants Mr. Bowers the right to purchase up to 500,000 shares of Common Stock in
100,000 share increments at prices per share of $0.35, $0.75, $1.25, $1.75 and
$2.25. These shares are to be registered under applicable securities laws before
issuance.
Item 11. Security Ownership of Management and Certain Others:
Based on information which has been made available to the Company by its stock
transfer agent and the individual officers and directors of the Company, the
following table sets forth, as of March 22, 2000, the shares of Common Stock and
options owned by each current director, by directors and executive officers as a
group and by each person known by the Company to own more than 5% of the
outstanding Common Stock:
Title of Class Name of Beneficial Owner Number of Shares Percent of Class (1)
- -------------- ------------------------ ---------------- --------------------
Common Stock The Jade Partnership (2) 3,125,000 8.68%
Common Stock Barry J. Muncaster (2,3,4) 8,298,109 12.96%
Common Stock Malcolm D. Brown (4) 4,464,277 11 %
Common Stock James T.C. Longley (4) 500,000 0%
Common Stock Robert G. M. Hind (4) 837,773 .94%
Common Stock Edward Nowak(4) 847,773 .97%
Common Stock Greg Bowers (4) 520,000 .06%
Common Stock Larry C Shattles 554,493 1.54%
Directors and Executive
Officers as a Group: 13,022,045 36.17%
- ------------
<PAGE>
(1) Based on approximately 36,002,800 shares of common stock issued and
outstanding on March 22, 2000. The share figures include all of the 3,000,000
shares under those options described in footnote five below, an aggregate of
39,002,800 shares. The percentage figures do not include these options, nor does
the total figure. Mr. Muncaster's figure includes the Jade shares, but his
percentage figure does not.
(2) The Jade Partnership is a Delaware corporation, the equity ownership of
which is as follows: (i) 42.49% - Barry J. Muncaster; (ii) 21.22% - Joe
Muncaster, the son of Barry J. Muncaster; (iii) 7.067% - Linda Zangus, the wife
of Barry J. Muncaster; and (iv) 29.23% - Malcolm D. Brown. All 4,000,000 shares
of Common Stock owned by Jade are attributed to Mr. Muncaster for purposes of
this table.
(3). (4) These shares include 3,808,634 shares owned directly by Mr. Muncaster
and 864,475 shares held by his wife, as well as the 3,498,123 shares held by The
Jade Partnership since Mr. Muncaster controls these entities.
(4) These shares include an option to acquire up to 500,000 shares of Common
Stock. This option is currently exercisable in whole or in part at any time and
from time to time. The option was granted on January 25, 1999, and allows the
holder to purchase 500,000 shares Common Stock on or before December 31, 2003.
The option is exercisable in 100,000 share increments at prices per share of
$.35, $.75, $1.25, $1.75 and $2.25 per share. The number of shares included in
this figure is 500,000 since the market price for the Common Stock exceeded the
option price for the all shares acquirable under these options.
Messrs. Muncaster, Brown, Longley, Nowak, Hind and Bowers each had an option to
acquire 500,000 shares at the date of this report under similar terms and
conditions, for an aggregate of 3,000,000 shares; thus, shares aggregating
3,000,000 in number under these options were included in the outstanding figure
since the strike price for these shares was more than the market price at March
22, 2000.
Item 12. Certain Transactions:
Product Acquisition from Trutona International:
Jade:
On April 1, 1998, the Company entered into a consulting and option agreement
with The Jade Partnership International, Inc. (Jade), a Delaware Corporation.
Certain directors of the Company are controlling shareholders in Jade. The
Company has a contract with Jade, under which Jade assists the Company in
obtaining equity and debt financing, and provides general business management,
administration services, international licensing and sales and marketing
strategies. In the opinion of management, all transactions are at arms length.
This agreement provides that the Company is to pay $50,000 per month as a fee to
Jade which, at the option of Jade, is convertible into Common Stock of the
Company at a price of $0.28 per share. During 1999, Jade elected to convert
$356,595 of fees outstanding into 1,273,556 shares of the Common Stock of the
Company. The Company incurred management charges of $600,000 during the year and
paid $122,675 to Jade in respect of the balance outstanding; the balance due to
Jade by the Company at December 31, 1999 was $780,850.
<PAGE>
Ormiston-Gore Securities Limited:
Ormiston-Gore Securities Limited (OGSL) is a related party by virtue of its
shareholding in the Company. On April 1, 1998, the Company entered into a
financial consulting agreement with OGSL, a Bahamian investment and financial
services company.
OGSL, under this contract, provided services for BTL in obtaining equity and
debt financing and also loaned $230,746 to the Company. All services had been
rendered as of November 12, 1998. The Company agreed to pay OGSL a fee of
$10,000 per month which, at the option of OGSL, was convertible into common
stock of the Company at a price of $0.28 per share. The Company agreed to pay
OGSL the sum of $171,023 for fees. OGSL elected to convert this amount into
610,798 shares of the Common Stock of the Company.
OGSL elected to convert the outstanding loan of $230,746 into shares of the
Common Stock of the Company at a price of $0.28 per share, receiving 824,094
shares. Both equity for debt transactions were completed during 1999.
In addition, OGSL has entered into a lease agreement dated March 1, 1999 with
the Company for the rental of the premises in March, Cambridgeshire, U.K. The
term of the lease is 15 years and the rental per month is $5,600 with a security
deposit of $16,800. Details of the operating lease commitment are disclosed in
note 7.
Trutona International, Inc.:
Certain directors of the Company are also directors of Trutona. On February 15,
1999, the Company acquired from Trutona patents, licenses and trademarks
relating to a broad range of products, including a range of flushable and
biodegradable disposable products designed by Trutona. The consideration payable
to Trutona by the Company was $1,500,000 in the acquisition, of which $750,000
was paid through the delivery of 1,875,000 shares of Common Stock at an agreed
price of $0.40, with the remainder was paid in cash.
In connection with the acquisition of the above patents, licenses and
trademarks, the Company has recognized license fee revenues of $88,862 in the
year relating to a previous license agreement between Trutona and EcoProgress
that has been assigned to the Company.
<PAGE>
Consolidated EcoProgress Technologies, Inc
EcoProgress is a related party by virtue of its shareholding in the Company. On
April 5, 1999, the Company completed the sale of a license to EcoProgress, a
Canadian company with securities traded on the Vancouver Stock Exchange. The
license was sold for the sum of $1,500,000 and gives EcoProgress the exclusive
right to manufacture, sell and distribute in the US a line of flushable and
biodegradable disposable products utilizing the intellectual property that the
Company recently acquired from Trutona International Inc (see note 10).
EcoProgress paid $380,000 in cash and the remaining $1,120,000 was paid through
the issuance of 1,066,666 shares of free trading common stock in EcoProgress at
an agreed price of $1.05 per share.
Item 13. Exhibits and Reports on Form 8-K:
(a) Exhibits:
3.1 (a) Articles of Incorporation and Amendments (California). (1)
3.1 (b) Articles of Incorporation and Amendments (Nevada). (2)
3.1 (c) Articles of Incorporation and Amendments (Nevada). (4)
3.1 (d) Articles of Incorporation and Amendments (Nevada). (5)
3.1 (e) Series A Preferred Stock Resolutions. (6)
3.1 (f) Series B Preferred Stock Resolutions. (6)
3.2 (a) Bylaws (California). (1)
3.2 (b) Bylaws (Nevada). (2)
4.1 Specimen stock certificate. (1)
10.1 Partnership Agreement dated October 20, 1993, among the Company,
Costner Industries, Inc., a California corporation, Jack Bitterly
and Steve Bitterly. (1)
10.2 Asset Purchase Agreement dated October 20, 1993, among the
Company, the Partnership, Jack Bitterly, Steve Bitterly, Bruce
Swartout, U.S. Flywheel, Inc., a California corporation and
Sunbird Technologies, Inc. (1)
10.3 U.S. Flywheel Systems Unit Purchase Agreement dated July 16,
1994, between the Company and Costner Industries, Inc. (1)
10.4 Straight Note dated October 21, 1993, between the Company and
Sunbird. (1)
10.5 Consulting Agreement dated October 20, 1993, between the
Partnership and Bruce Swartout. (1)
10.6 Asset Purchase Agreement dated May 31, 1996, changing name and
domicile to Nevada and reverse splitting outstanding
capitalization and increasing authorized capital. (2)
10.7 Reorganization Agreement between the Company and Famous Sam's.
(2)
10.8 Liquidating Trust. (2)
10.9 Recision Agreement. (4)
10.10 Reorganization Agreement between the Company and BioProgress
Technology. (4)
<PAGE>
10.11 Acquisition Agreement - DHA Nutrition (5)
10.12(a) Acquisition Agreement - BioProgress Limited (UK) (5)
10.12(b) Amendment to Acquisition Agreement - BioProgess Limited (UK) (5)
10.13 Employment Agreement - Barry J. Muncaster (5)
10.14 Employment Agreement - James T. C. Longley (5)
10.15 Employment Agreement - Malcolm D. Brown (5)
10.16 Employment Agreement - Edward I. Nowak (5)
10.17 Employment Agreement - Graham Hind (5)
10.18 Professional Services Agreement - The Jade Partnership
International, Inc. (5)
10.19 Professional Services Agreement - Company and Ormiston-Gore
Securities Limited (5)
10.20 Professional Services Agreement - BTL and Ormiston-Gore
Securities Limited (5)
10.21 Trutona Purchase Agreement (5)
10.22 EcoProgress License (5)
10.23 Employment Agreement - Gregory L. Bowers (6)
10.24 Confidential Contract (6)
10.25 JT Racing Contract (6)
- -----------------
(1) Filed as an exhibit to the Company's Registration Statement on Form 10-SB
dated August 23,1994, or October 21, 1994 (Registration No. 0-24736).
(2) Filed as an exhibit to the Company's Form 10-KSB for the year ended
December 31, 1995.
(3) Filed as an exhibit to the Company's Form 10-KSB for the year ended
December 31, 1996.
(4) Filed as an exhibit to the Company's Form 10-KSB for the year ended
December 31, 1997.
(5) Filed as an exhibit to the Company's Form 10-KSB for the year ended
December 31, 1998.
(6) Filed herewith.
- -----------------
(b) Forms 8-KSB: None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cambridge,
United Kingdom on the 29th day of March , 2000.
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
(Registrant)
/s/ Barry J. Muncaster
- ----------------------
Barry J. Muncaster, Chief Executive Officer
and President
/s/ James T.C. Longley
- ----------------------
James T.C. Longley, Chief Financial
and Accounting Officer, Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant in the
capacity on this 29th day of March, 2000.
/s/ Barry J. Muncaster
- ----------------------
Barry J. Muncaster, Director
/s/ James T.C. Longley
- ---------------------
James T.C. Longley, Director
/s/ Malcolm Brown
- ----------------
Malcolm Brown, Director
/s/ Robert GM Hind
- ------------------
Robert G.M. Hind, Director
/s/ Gregory L. Bowers
- ---------------------
Gregory L. Bowers, Director
<PAGE>
EXHIBITS
TABLE OF CONTENTS
3.1 (e) Series A Preferred Stock Resolutions
3.1 (f) Series B Preferred Stock Resolutions
10.23 Employment Agreement - Gregory Bowers
10.24 Confidentiality Contract
10.25 JT Racing Agreement
Exhibit
SERIES B: 4% DIVIDEND BEARING PREFERRED STOCK
CERTIFICATE SETTING FORTH RESOLUTIONS BY THE BOARD OF DIRECTORS
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
(Pursuant to the Nevada Corporation Code)
We, the undersigned, as the President and Secretary of BioProgress Technology
International, Inc.. a Nevada corporation, the Articles of Incorporation of
which are on file in the office of the Secretary of State for the State of
Nevada DO EACH HEREBY CERTIFY AND VERIFY: that the Board of Directors of
BioProgress Technology International, Inc., in accordance with said articles and
pursuant to the laws of the State of Nevada, duly adopted on July 20, 1999, the
preambles arid resolutions attached hereto.
IN WITNESS WHEREOF: We have set our hands and the corporate seal this 20th day
of July 1999.
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
By: /s/ Barry J. Muncaster
- --------------------------
Barry J. Muncaster, President [SEAL]
Attest: /s/ James T.C. Longley
- ------------------------------
James T.C. Longley, Secretary
<PAGE>
UNANIMOUS CONSENT IN LIEU OF SPECIAL MEETING
BOARD OF DIRECTORS FOR BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
(July 20, 1999)
Pursuant to the provisions of the Nevada Corporation Code- which provide that
action required or permitted by said code to be taken at a meeting of the board
of directors of a corporation may be taken without a meeting with the same force
and effect as a unanimous vote of said board if the action is (I) evidenced by
one or more written consents describing the action taken, (ii) signed by each
director and (iii) delivered to the secretary of the corporation for filing with
the corporate records-the undersigned, being die sole members of the board of
directors of BioProgress Technology International. Inc., (the Board of Directors
and the Company respectively), do hereby waive any and all notice which may be
required to be given with respect to a meeting of the Board of Directors and do
hereby take, ratify, confirm and approve the following action this 20th day of
July, 1999.
WHEREAS, the Company has been presented with an opportunity to sell shares of
equity in the form of preferred stock for the purpose of raising capital for its
business: WHEREAS, the Articles of Incorporation governing the Company (Articles
of Incorporation) permit the issuance of preferred shares in series with such
designations, preferences and relative participating option or oilier rights and
qualifications, limitations and restrictions as may be fixed by the Board of
Directors, including, without limitation: 1. the rate of dividends and
redemption and conversion prices, all of which are to be determined after giving
consideration to die financial and general condition of the Company and to the
condition of the securities markets, if any, existing at the time of issuance;
and WHEREAS, the directors deem it advisable to establish and issue a new series
of preferred stock at this time to accomplish the aforesaid purpose and have
carefully investigated the financial and general condition of the Company and
the relation of the condition of the Company to the condition of the securities
markets, and have determined that it is in the best interests of the Company to
establish a new series of preferred stock to be denominated Series B: 4%
Dividend Bearing, Redeemable, Convertible Preferred Stock" with the attributes
set forth in this resolution:
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby authorizes
the Company to issue Three Million, Seven Hundred Fifty Thousand (3,750,000)
shares of its Series B: 4% Dividend Bearing. Redeemable, Convertible Preferred
Stock at a price of $2 .50 per share, which series shall have the following
features: (a) Dividends - the series shall pay a dividend of 4% per annum
computed, but not accrued, quarterly in arrears, to be declared and paid when
and only when the Board of Directors deems such to be in the best interests of
the Company; (b) Conversion - the series shall be convertible at the sole
election of the holder into common shares of the Company on the basis of (1) one
preferred for two and one-half (2 1/2) common shares on or before December 31,
2000, one (1) preferred for one (1) Common share after December 31, 2000, and on
or before December 31, 2001, and one (1) preferred for one-half (1/2) common
share after December 31, 2001 and on or before December 31, 2002, after which
all conversion rights expire; (c) Redemption - the Company may at its sole
election redeem on 30 days' prior, written notice all or any portion of the
preferred by paying the sum of $3.13 per share on or before December 31, 2000,
$3.91 per share after December 31, 2000, and on or before December 31, 2001, and
$4.88 after December 31, 2001 and on or before December 31, 2002, and the
Company shall redeem all preferred shares remaining outstanding after March 31,
2003, through the payment of $5.19 per share: (d) Liquidation Preference - the
holders of the series shall not be entitled to a liquidation preference over any
existing or subsequently established class or series of outstanding stock of the
<PAGE>
Company; (e) Sinking Fund - the holders of this series shall not be entitled to
the establishment of any sinking fund for the purpose or retiring the shares of
the series or for any other purpose; (f) Voting Rights - the series shall have
no voting rights other than those provided under Nevada law; (g) Additional
Provision - the series shall be issued, upon compliance with the laws of the
State of Nevada, in accordance with those terms set forth on Exhibit A hereto,
which is specifically incorporated herein by this reference and adopted as the
act of the Company; RESOLVED FURTHER that the President and the Secretary are
hereby authorized and directed to cause to be filed under corporate seal such
certificates as shall be requisite to the end that the stock shall be issued and
delivered as aforesaid; and RESOLVED FINALLY that the President be, and he
hereby is, authorized to (i) effectuate, to the extent necessary and
appropriate, those actions taken hereby, (ii) issue a certificate or
certificates for the shares, (iii) prepare a form of certificate for the shares
in accordance with the above resolutions and (iv) provide for filing all
necessary documentation with the Secretary of State for the State of Nevada,
applicable state securities authorities and the United States Securities and
Exchange Commission.
IN WITNESS WHEREOF, the undersigned, being the sole member of the Board of
Directors, have hereunto set their hands effective as of the date first
specified above.
/s/ Barry J. Muncaster
- ----------------------
Barry J. Muncaster, on behalf of the Board
<PAGE>
EXHIBIT A
SERIES B: 4% DIVIDEND, REDEEMABLE, CONVERTIBLE PREFERRED STOCK PROVISIONS
The Series B: 4% Dividend, Redeemable, Convertible Preferred Stock (Preferred
Stock or Series A Preferred Stock) shall consist of one (1) series of Three
Million Seven Hundred Fifty Thousand (3,750,000) shares of the preferred stock
of BioProgress Technology International, Inc., (Company), with each share to be
identical to every other in all respects.
The following sets forth the provisions of the Series A Preferred Stock.
Part 1: Dividends: The holders of the issued and outstanding Preferred Stock
shall be entitled to receive quarterly in arrears, as and when declared by the
Board of Directors, dividends amounting to 4% of the subscription amount of
$2.50 on the Preferred Stock. If a dividend is not paid, it shall accrue but not
be compounded into the stated value of the Preferred Stock. Dividends shall
accrue, while the series is outstanding, on March 31, June 30, September 30 and
December 31,
Part 2: Conversion: The Preferred Stock shall be convertible, in whole or in
part, at any time and from time to time at the sole election of the holder into
common shares of the Company as follows: (1) one (1) preferred for two and
one-half (2 1/2) common shares on or before December 31, 2000, (2) one (1)
preferred for one (1) common share after December 31, 2000, and on or before
December 31, 2001, and (3) one (1) preferred for one-half (1/2) common share
after December 31, 2001 and on or before December 31, 2002. All conversion
rights of the holder(s) expire after December 31, 2002. Notice shall be given to
the Company by each electing holder to the Company at least 10, but no more than
30, days prior to electing to convert. The certificate evidencing the shares to
be convened shall accompany the notice.
Part 3: Redemption: The Company may at its sole election redeem on 30 days'
prior, written notice all or any portion of the Preferred Stock by paying the
sum of (1) $3.13 per share on or before December 31, 2000, (2) $3.91 per share
after December 31, 2000, and on or before December 31, 2001, and (3) $4.88 after
December 31, 2001 and on or before December 31, 2002. The Company may redeem all
or any part of the Preferred Stock from time to time and at any time as
aforesaid. The Company shall redeem all shares of Preferred Stock which remain
outstanding after March 31, 2003, through the payment of $5.19 per share.
Part 4: Liquidation: The Preferred Stock shall not entitled to preferential
liquidation rights over any other class or series of stock previously or which
may subsequently be issued by the Company.
Part 5: Sinking Fund: The Preferred Stock shall not be entitled to the
establishment of any sinking fund for any purpose.
Part 6: Voting Rights: The Preferred Stock shall have no voting rights.
Part 7: Additional Provisions: The Preferred Stock may not be subordinated in
any respect to the terms and provisions of the Common Stock and to the terms and
provisions of any other series of the outstanding preferred stock of the Company
which may be issued and become outstanding subsequent to the Preferred Stock.
EMPLOYMENT AGREEMENT
AGREEMENT, dated June 1,1999 between BioProgress Technology Inc. (Company), with
an office at PO Box 500127, Atlanta Ga. 31150 and Gregory L. Bowers (Employee),
residing at 3903 Westmount Drive, Greensboro, NC 27410
WITNESSETH
WHEREAS, the Company wishes to employ the Employee, and the Employee wishes to
accept such employment, all on the terms and conditions set forth below;
NOW THEREFORE, in consideration of the mutual obligations herein set forth, the
parties agree as follows:
Employment. The Company hereby employs the Employee, and Employee hereby accepts
such employment and agrees to perform the services specified herein, on the
terms and conditions set forth in this Agreement.
Services. The Employee shall act as President of BioProgress Technology, Inc.,
and shall perform such duties for Company and its subsidiaries and affiliates as
required or as may otherwise be reasonably assigned to him from time to time by
the Board of Directors of the Company (Board). Additionally the Employee shall
serve on the Board of Directors of BioProgress Technology International, Inc.
and will be compensated at the rate to be determined by the Chairman. The
Employee shall serve the Company and its subsidiaries and affiliates faithfully
and to the best of his ability and shall devote his full business time and
attention to the affairs of the Company, its subsidiaries and affiliates. b. The
principal office for the performance of the Employee's services shall be the
office of the Company in Greensboro, NC, and subject to such travel as the
performance of Employee's duties in the business of the Company may require. The
Company may require certain employees of the Company to relocate. If the
Employee shall be required to relocate within the Company from one office to
another, the Company shall provide to the Employee such relocation benefits as
are mutually agreed upon by the Employee and the Company in writing at the time
of relocation.
Term. The term of this Agreement shall be five (5) years; commencing on the date
hereof and ending May 31, 2004, subject to earlier termination as provided
herein. The term of this Agreement shall be automatically renewed for additional
terms of five (5) years each, unless either the Employee or the Company shall
give written notice to the other of its intention not to renew the Agreement.
The Company agrees to notify Employee of its intention not to renew the
Agreement no later than twelve (12) months prior to the expiration of the
initial term or the applicable renewal term as the case may be.
<PAGE>
Compensation. As compensation for all of the services to be performed by the
Employee hereunder, the Company shall pay the Employee an initial base salary at
a rate per annum equal to $125,000.00 (Base Salary), or such greater amount as
the Board may determine in it absolute discretion from time to time, but at
least annually, payable in installments in accordance with the normal payroll
policies of the Company in effect from time to time, including those relating to
the compliance with state and federal law including withholding of taxes, and
such other compensation, including participation in any incentive compensation
program and deferred compensation program provided by the Company from time to
time. Notwithstanding the foregoing, the minimum base salary and incentive
compensation programs (including bonus) shall be increased in accordance with
the figures reflected in Addendum A attached hereto. The term projected gross
revenues as reflected in Addendum A, refer to the revenues generated by the
parent company, BioProgress Technology International, Inc. including BioProgress
Technology, Inc.
Expenses. The Company shall reimburse the Employee for any out-of-pocket
expenses reasonably incurred by the Employee in the performance of his duties to
the Company upon receipt of appropriate vouchers therefore and in accordance
with the Company's current practice or as such practices may be changed from
time to time by the Board. Any single expense item greater that $2,000.00 is
subject to the prior approval of the directors. Air travel within continental
North America may be first class, and business class in respect of
intercontinental travel.
Fringe Benefits. The Employee shall be entitled to the following fringe
benefits:
annual paid vacation of five (5) weeks, and if the Employee fails to use all or
a portion of such vacation time, said time may be accumulated by the Employee up
to a maximum of two (2) weeks and used by him in the following year. Additional
vacation may be awarded to the Employee at the discretion of the Board,
medical, dental and disability insurance benefits, Exec-U-Care, group term life
insurance, sick pay and holidays shall be provided by the Company,
at the expense of the Company, an automobile allowance of 900 Dollars per month,
a company sponsored 401(k) savings plan with Company matching funds to be
determined by the Board in accordance with the standards of the industry,
<PAGE>
pension entitlement shall rank pari passu with other executive arrangements if,
and when, the Company introduces such a program,
participation in the Company's Stock Option Plans on the terms reflected in
Addendum B and Addendum C attached hereto.
Trade Secrets.
a. So long as the Employee is employed hereunder, the Employee shall not,
without the Company's prior written consent, directly or indirectly;
interfere with or attempt to disrupt any then existing relationship between the
Company, its subsidiaries or affiliates and any of their customers, suppliers,
employees or other persons with whom they do business; or
engage in any business, which is then competitive with the business of the
Company. For the purpose of this paragraph 7, the Employee will be considered to
have been directly or indirectly engaged in such business as a stockholder,
director, officer, employee, agent, broker, partner, individual proprietor,
lender, consultant, licensor, independent contractor or otherwise, except that
nothing herein will prevent the Employee from owning or participating as a
member of a group which owns 5% or smaller block of equity or debt securities of
any company traded on a national securities exchange or in any established
over-the-counter securities market. For the purpose of this paragraph 7, the
term any business then competitive to the business of the Company shall mean a
business principally engaged in the manufacture or sale of soft gelatin capsules
containing vitamins, food, food supplements, pharmaceuticals, cosmetics or
recreational products, and any other products in which the Company may become
significantly engaged in the period after the date hereof until termination of
this Agreement.
During the term of this Agreement, and thereafter without limitation of time,
the employee shall not knowingly divulge, furnish, or make available to any
third person, company, corporation or other organization (including but not
limited to customers, competitors or government officials), without the
Company's prior written consent, any trade secrets or other confidential
information concerning the Company or any of its subsidiaries, affiliates or
licensees or the business of any of the foregoing, including without limitation,
confidential methods of operation and organization, manufacturing methods and
other confidential uses of technology, any trade secrets or other proprietary
information concerning the properties, uses or manufacture of soft gelatin
products and confidential sources of supply and customer lists, but the Employee
may respond to proper subpoenas issued by governmental agencies without the
Company's prior written consent but with prior written notice to the Company.
The obligation imposed by this subparagraph shall cease as to any particular
trade secret or confidential information that shall become generally known to
the public through no fault of the Employee.
<PAGE>
In the event the Employee shall violate any provision of this paragraph 7, the
Employee shall no longer be entitled to and hereby waives any and all rights to
any severance payment and benefits under paragraph 8. In such event the Company
shall have the right to terminate this Agreement pursuant to subparagraph 8 and
such termination shall be in addition to and not a substitution for any and all
other rights of the Company at law or equity against the Employee arising out of
any such breach. The Employee acknowledges that his breach of any provisions of
this paragraph 7, including but not limited to any disclosure of or unauthorized
us of any technology or other trade secret of the Company, would cause
irreparable injury to the Company not compensable in money damages and that the
Company shall be entitled, in addition to all other applicable remedies, to
obtain a temporary and a permanent injunction and a decree for specific
performance of this paragraph 7 without being required to prove damages or
furnish any bond or other security.
Termination.
a. This Agreement shall terminate automatically upon the death of the Employee
without any further payment by the Company other than compensation, expenses and
fringe benefits earned pro rata under paragraphs 4, 5 and 6 prior to such date
of death. However, Employee shall be deemed to be fully vested in any pension
plan, stock option plan and other deferred compensation plan in which Employee
participated as of the time of termination under this or any other subparagraph
herein except termination under paragraph 8 (b). The Company shall have the
right, at its sole option, to terminate this Employee's employment under this
Agreement for cause at any time, without any further payment to the Employee
other than such base salary, expenses, and fringe benefits earned pro rata under
paragraphs 4, 5, and 6 prior to the date of termination, by notice to the
Employee specifying the reason for such termination. The Employee shall not be
entitled to any incentive compensation or deferred compensation for the period
ending on the date of such termination or to any fringe benefit thereafter. For
purposes of this subparagraph, cause shall mean solely (i) the Employee's
conviction of a felony or conviction for a criminal offense that would damage
the reputation of the Company; (ii) Employee's gross negligence detrimental to
the Company or willful misconduct; or (iii) the breach by Employee of paragraph
7 of this Agreement.
The Company shall have right to terminate the Employee's employment under this
Agreement at any time for any reason other than cause (as defined in the
preceding subparagraph), upon notice to the Employee. The Company shall pay the
Employee (i) upon such termination, all compensation, expenses and fringe
benefits earned pro rata under paragraphs 4, 5 and 6 through the date of
termination, including Employee's pro rata share of any incentive compensation
for the period ending on the date of such termination and (ii) a severance
payment (the Severance Payment) in the total amount whichever is the greater of
one hundred twenty-five thousand ($125,000) dollars or twelve (12) months of
base salary at the monthly rate in effect immediately preceding such
termination. Employee shall have right to exercise any stock options as defined
in Addendum's for a period of one (1) year after termination under this
subparagraph. Severance Payment shall be payable at the Employee's election
either in a lump sum (the Lump Sum Payment) or in equal monthly installments
(the Installment Payments), commencing with the date of termination. For a
period of one (1) year after termination under this subparagraph, employee shall
be entitled to receive life, disability, accident, health insurance benefits and
auto allowance substantially similar to those which Employee had received
immediately preceding such termination or, if it is not practicable for the
Company to provide such benefits, the Company shall pay Employee an amount equal
to the cost to Employee of obtaining such benefits.
<PAGE>
Termination Following Sale of Company. a. In the event a sale of the Company
shall have occurred and Employee's employment is erminated by the Company for
any reason other than cause (as defined in the preceding paragraph 8), or the
death of Employee, then the Company shall pay Employee (i) upon such
termination, all compensation, expenses and fringe benefits earned pro rata
under Paragraphs 4, 5 and 6 through the date of termination, including
Employee's pro rata share of any incentive compensation for the period ending on
the date of such termination and (ii) a severance payment (the Severance
Payment) in the total amount whichever is the greater of two hundred fifty
thousand ($250,000) dollars or twenty-four (24) months of base salary at the
monthly rate in effect immediately preceding such termination. Employee shall
have the right to exercise any stock options as defined in Addendum's for a
period of one (1) year after the termination under this subparagraph. Severance
payment shall be payable at the Employee's election either in a lump sum (the
Lump Sum Payment) or in twelve equal monthly installments commencing with the
date of termination. For a period of two (2) years after termination under this
subparagraph, employee shall be entitled to receive life, disability, accident,
health insurance benefits and auto allowance substantially similar to those
which Employee had received immediately preceding such termination or, if it is
not practicable for the Company to provide such benefits, the Company shall pay
Employee an amount equal to the cost to Employee of obtaining such benefits.
The severance payment payable under this Paragraph 9 shall be in lieu of the
Severance Payment payable under Paragraph 8, except that, if the Severance
Payment payable under 8(c) would exceed the amount of severance payable under
this Paragraph 9, Employee shall instead receive the Severance Payment payable
under Paragraph 8. For the purposes of this Paragraph 9, the term sale of the
Company shall, subject to the next sentence, mean (i) a sale of all or
substantially all of the assets of the Company, or (ii) a sale of 51% or more of
the outstanding shares of capital stock of the Company, or (iii) a merger or
consolidation of the Company where, in the event of a sale, the purchaser of
such assets or shares of capital stock, or, in the event or a merger or
consolidation, the surviving entity, is not a direct or indirect subsidiary,
affiliate or entity under the control of the Company. The term sale of the
Company shall not apply to a public offering or private placement of the shares
of the Company if following such offering or placement the Company retains,
directly or indirectly, control of the Company.
Miscellaneous. a. Any notice required or permitted under this Agreement shall be
in writing and shall be deemed given when delivered personally, or seven days
after being sent by first-class registered or certified mail, return receipt
requested, to the addressee at its or his address set forth at the beginning of
this Agreement (which, in the case of the Company, shall be sent Attention:
Chairman), or to such other address as either party may hereafter specify by
similar notice to the other.
This Agreement shall be governed by and construed in accordance with the laws of
the State of North Carolina governing contracts made and to be performed in
North Carolina.
This Agreement cannot be amended or modified except by a writing signed by both
parties. This Agreement may executed in one or more counterpart copies, each of
which shall be deemed an original, but all of which shall constitute the same
instrument.
<PAGE>
This Agreement, which is personal in nature, may not be assigned by Employee
without the prior written consent of the Company, and any purported assignment
without said consent shall be void; provided, that, the Company may freely
assign this Agreement in connection with any sale of substantially all the
assets of the Company or the transfer of control of the Company by its
shareholders.
This Agreement shall be binding upon and inure to the benefit of the parties and
their respective heirs, executors, administrators, personal representative,
successors, and permitted assigns. The term personal representative as used in
this Agreement with respect to an individual shall mean such individual's
guardian, committee, executor, administrator or other legal representative duly
empowered to act on his behalf following his death or legal incapacity. The term
Company as used in this Agreement shall include any legal successor of the
Company by merger, consolidation, or similar legal reorganization.
If any provision of this Agreement shall be deemed invalid or unenforceable as
written, it shall be construed, to the extent possible, in a manner which shall
render it valid and enforceable, and any limitations on the scope or duration of
any such provision necessary to make it valid and enforceable shall be deemed to
be part thereof; no invalidity or unenforceability shall affect any other
portion of this Agreement unless the provision deemed to be so invalid or
unenforceable is a material element of this Agreement, taken as a whole.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written above.
Company
By: /s/ Barry J. Muncaster
- --------------------------
Employee
/s/ Gregory L. Bowers
- ---------------------
<PAGE>
EMPLOYMENT AND OPTION AGREEMENT
This Employment and Option Agreement is made and entered into to be effective as
of January 25, 1999 and is by and between Gregory L. Bowers (Employee) and
BioProgress Technology International, Inc. (Company). The Employee is willing
and able to provide various valuable services for and on behalf of the Company
in connection with the business of the Company. The Company desires to retain
the Employee as a director of the Company and as an executive officer of its
subsidiary, BioProgress Technology, Inc. (BTI), and the Employee desires to be
retained in that capacity upon the terms and conditions hereinafter set forth.
In consideration of the foregoing premises, the mutual promises and agreements
hereinafter set forth, and such other and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and the Employee
agree as follows:
1. Services. The Company hereby retains the Employee as a director and as
President of BTI and the Employee hereby accepts and agrees to such retention.
The Employee shall render to the Company and to BTI services of such nature as
are necessary to provide for the strategic direction of the Company and day to
day management of BTI.
2. Time, Place and Manner of Performance. As set out in the Employment Agreement
to be appended hereto.
3. Term of Agreement. As set out in the Employment Agreement to be appended
hereto.
4. Compensation. As set out in the Employment Agreement to be appended hereto.
5. Stock Option. The Company grants the Employee an option (the Option) to
purchase up to 500,000 ordinary shares of common stock (the Option Shares) in
the Company in accordance with the following schedule: at any time on or before
December 31, 2003 the Employee may purchase up to 100,000 Option Shares at a
price of $0.35 per share, and up to 100,000 Option Shares at a price of $0.75
per share, and up to 100,000 Option Shares at a price of $1.25 per share, and up
to 100,000 Option Shares at a price of $1.75 per share, and up to 100,000 Option
Shares at a price of $2.25 per share. In the event that the Employee purchases
any or all Option Shares, then the Company shall provide to the Employee shares
of the free trading common stock of the Company registered under a Form S-8
filed in accordance with the terms and conditions set forth under the Securities
Act of 1933, as amended. The Option and any exercise of Option Shares shall at
all times be conditional upon Employee not being, nor having been in breach of
this Agreement, and further upon Employee being an employee of the Company at
the time the Option is exercised in whole or in part. In the event that this
Agreement is terminated either by the Company or by the Employee the Option
shall lapse simultaneously and shall cease to have any effect whatsoever,
notwithstanding that any or all Option Shares may not have been purchased by
Employee.
6. Expenses. As set out in the Employment Agreement appended hereto.
7. Disclosure of Information. As set out in the Employment Agreement appended
hereto.
8. Miscellaneous Provisions. (a) Notices. Any notices required or permitted to
be given under this Agreement shall be sufficient if in writing and delivered or
sent by registered or certified mail to the principle office of each party. (b)
Waiver of Breach. Any waiver by a party of a breach of any provision of this
<PAGE>
agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach by the waiving party. (c) Assignment. This agreement and
the rights and obligations of the parties hereunder are not assignable by either
party. (d) Applicable Law. It is the intention of the parties hereto that this
Agreement and the performance hereunder and all suits and special proceedings
hereunder be construed in accordance with and under and pursuant to the laws of
the State of Nevada and that in any action, special proceeding or other
proceeding that may be brought arising out of, in connection with or by reason
of this Agreement, the laws of the State of Nevada shall be applicable and shall
govern to the exclusion of the law of any other forum, without regard to the
jurisdiction in which any action or special proceeding may be instituted. (e)
Severability. All agreements and covenants contained herein are severable, and
in the event any of them shall be held to be invalid by any competent court, the
Agreement shall be interpreted as if such invalid agreements or covenants were
not contained herein. (f) Entire Agreement. This Agreement constitutes and
embodies the entire understanding and agreement of the parties and supersedes
and replaces all prior understandings, agreements and negotiations between the
parties. (g) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but both of which taken together shall
constitute but one and the same document.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
effective as of the day and year first above written.
EMPLOYEE:
Gregory L. Bowers
COMPANY: BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
Barry J. Muncaster
Duly Authorized Officer
BioProgress Technology International, Inc.
3903 Westmount Drive
Greensboro, NC 27410
Attn: Mr. Gregory Bowers, President
Re: Exclusive Evaluation Agreement
Gentlemen:
CONFIDENTIALTY REQUESTED (hereinafter referred to along with its affiliates as
"CONFIDENTIALITY REQUESTED") and BioProgress Technology International, Inc.
(hereinafter referred to along with its affiliates as BioProgress) are
interested in the evaluation of confidentiality requested. The parties hereby
agree to explore their mutual interests under the terms of this Exclusive
Evaluation Agreement.
I. Payment - In consideration of exclusivity defined by this Agreement and the
obligations set forth herein, CONFIDENTIALITY REQUESTED shall forthwith upon
execution of this Agreement pay BioProgress a total of CONFIDENTIALITY
REQUESTED.
II. Agreement Term - This Agreement shall terminate six (6) months from the date
of acceptance of this Agreement, subject to the renewal provisions of paragraph
VII.
Definitions -
CONFIDENTIALITY REQUESTED
CONFIDENTIALITY REQUESTED.
CONFIDENTIALITY REQUESTED.
CONFIDENTIALITY REQUESTED.
IV. Intellectual Property Ownership Rights - Any Inventions, whether patentable
or not, arising from the work being done under this Agreement relating to
CONFIDENTIALITY REQUESTED, shall be the property of CONFIDENTIALITY REQUESTED
(CONFIDENTIALITY REQUESTED Inventions). Accordingly, if BioProgress, solely or
jointly with CONFIDENTIALITY REQUESTED, makes such CONFIDENTIALITY REQUESTED
Inventions, whether patentable or not, in the course of the work being done
under this Agreement, BioProgress agrees to assign outright to CONFIDENTIALITY
REQUESTED the entire right, title and interest, both in the United States and
abroad, to CONFIDENTIALITY REQUESTED Inventions, without payment other than the
fees provided for herein. BioProgress further agrees to execute any and all
documents which CONFIDENTIALITY REQUESTED determines are necessary or convenient
to fully implement its proprietary rights in such CONFIDENTIALITY REQUESTED
Inventions, such as obtaining patents, and to fully cooperate in the prosecution
of such proprietary rights, but at no expense to them. CONFIDENTIALITY REQUESTED
will have the above-mentioned documents drafted, prosecuted and maintained at
its own expense.
If CONFIDENTIALITY REQUESTED does not commercialize Product, BioProgress may
license all CONFIDENTIALITY REQUESTED Inventions that are jointly invented by
BioProgress and CONFIDENTIALITY REQUESTED for a reasonably negotiated licensing
fee.
Any Inventions, whether patentable or not, arising from the work being done
under this Agreement relating to CONFIDENTIALITY REQUESTED shall be the property
of BioProgress (BioProgress Inventions). Accordingly, if CONFIDENTIALITY
REQUESTED, solely or jointly with BioProgress, makes such BioProgress
<PAGE>
Inventions, whether patentable or not, in the course of the work being done
under this Agreement, CONFIDENTIALITY REQUESTED agrees to assign outright to
BioProgress the entire right, title and interest, both in the United States and
abroad, to BioProgress Inventions, without payment other than the fees provided
for herein. CONFIDENTIALITY REQUESTED further agrees to execute any and all
documents which BioProgress determines are necessary or convenient to fully
implement its proprietary rights in such BioProgress Inventions, such as
obtaining patents, and to fully cooperate in the prosecution of such proprietary
rights, but at no expense to them. BioProgress will have the above-mentioned
documents drafted, prosecuted and maintained at its own expense.
In the event that BioProgress decides not to file patent applications relating
to BioProgress Inventions, CONFIDENTIALITY REQUESTED may, at its discretion,
file patent applications relating to BioProgress Inventions. In this situation,
if CONFIDENTIALITY REQUESTED files patent applications relating to BioProgress
Inventions, BioProgress agrees to assign outright to CONFIDENTIALITY REQUESTED
the entire right, title and interest, both in the United States and abroad, to
BioProgress Inventions, without payment other than the fees provided for herein,
provided that, CONFIDENTIALITY REQUESTED shall grant BioProgress a free,
non-exclusive license to use such patent applications and any patents in any
products or processes not in competition with the products or processes subject
of this Agreement and for the life of such patent applications and patents.
BioProgress further agrees to execute any and all documents which
CONFIDENTIALITY REQUESTED determines are necessary or convenient to fully
implement its proprietary rights in such BioProgress Inventions, such as
obtaining patents, and to fully cooperate in the prosecution of such proprietary
rights, but at no expense to them. CONFIDENTIALITY REQUESTED will have the
above-mentioned documents drafted, prosecuted and maintained at its own expense.
BioProgress and CONFIDENTIALITY REQUESTED warrant with each other that they have
appropriate ownership rights in the Inventions to carry out their obligations
under this paragraph IV.
V. Third Party Requests - BioProgress shall not engage in any development work
on said CONFIDENTIALITY REQUESTED, for the duration of this Agreement, without
the prior written consent of CONFIDENTIALITY REQUESTED.
VI. Publicity - Press Release is hereto attached as Attachment A, initialed by
both parties. Neither party shall produce, distribute, or publish or cause to be
produced, distributed, or published, any press release or other publicity,
including trade shows and/or client lists, referring to the relationship under
this Agreement, without the prior written consent of the other party.
VII. Agreement Renewal - Thirty (30) days prior to the expiration of the initial
six (6) month Agreement period, CONFIDENTIALITY REQUESTED shall have the option
to renew the terms of this Agreement for an additional thirty (30) days
immediately proceeding the initial six (6) month period for a total payment in
advance to BioProgress of CONFIDENTIALITY REQUESTED after which, upon written,
mutual consent by both CONFIDENTIALITY REQUESTED and BioProgress, the Agreement
may be extended in thirty (30) day increments for a total payment in advance to
BioProgress of CONFIDENTIALITY REQUESTED for each additional thirty (30) day
increment.
<PAGE>
VIII. First Right of Refusal - Nothing contained herein shall obligate either
party to purchase or supply equipment, materials or services to the other. Upon
termination of this Agreement, CONFIDENTIALITY REQUESTED shall have the first
right of refusal to negotiate a global, exclusive Purchase, Supply, and/or
Licensing Agreement with BioProgress under mutually acceptable terms, in the
area of CONFIDENTIALITY REQUESTED. To exercise this first right of refusal,
CONFIDENTIALITY REQUESTED shall notify BioProgress of its intent to enter into
such an agreement within thirty (30) days of expiration of this Agreement (or
expiration of any successive renewal under paragraph VII). In addition, such an
agreement must be negotiated and executed within ninety (90) days of the same
expiration.
IX. Unless otherwise specified herein, acceptance of this Agreement shall not
affect the ownership of, nor carry with it any express or implied license under,
any existing patent rights of the other party, nor does it obligate either party
to negotiate a cooperation of any kind with the other party.
X. In this Agreement, reference to BioProgress or CONFIDENTIALITY REQUESTED
shall be understood to include any company controlling, controlled by, or under
common control with BioProgress or CONFIDENTIALITY REQUESTED, respectively,
through stock ownership, direct or indirect.
If you are in agreement with the foregoing, please have a duly authorized member
of BioProgress's management sign both copies hereof, and return one to
CONFIDENTIALITY REQUESTED.
ACCEPTED: Very truly yours,
BIOPROGRESS TECHNOLOGY CONFIDENTIALITY REQUESTED INTERNATIONAL, INC.
By By
- --------------------------------------------------------------------------------
CONFIDENTIALITY REQUESTED
Print Name CONFIDENTIALITY REQUESTED
CONFIDENTIALITY REQUESTED
Title CONFIDENTIALITY REQUESTED
Date Date
- --------------------------------------------------------------------------------
Approved as to Form
Approved for Execution
bioprogeea.doc Date
A TECHNOLOGY COLLABORATION AGREEMENT
FOR THE DEVELOPMENT OF NON-GELATIN PAINTBALLS.
An agreement dated this 7th day of March 2000 by and among: BIOPROGRESS
TECHNOLOGY INTERNATIONAL, INC., a Nevada corporation (hereinafter referred to as
BPRG) having offices situated at Unit 1, Norwood Road, March Cambridgeshire PE15
8QD, England; JT USA, L.P., a California limited partnership (hereinafter
referred to as JT) having offices at 515 Otay Valley Road, Chula Vista, CA
91911, USA; and DYE PRECISION, INC., a California corporation (hereinafter
referred to DYE) having offices at 8545 Arjons Drive, Suite F, San Diego, CA
92126. JT and DYE are hereinafter jointly and severally referred to as JTR.
WHEREAS: BPRG is directly or indirectly through its wholly owned subsidiaries
the absolute and beneficial owner of all intellectual property relating to the
XGeI(TM) Film System.
JTR is a major supplier of equipment to, and a well established brand name
internationally within, the paintball leisure pursuit.
BPRG and JTR wish to collaborate with each other on an exclusive basis for
the specific purpose and sole intent of developing a new kind of non-gelatin
paintball by combining BPRG's XgeI (TM) Film System with JTR's expertise and
knowledge of the product specifications and performance characteristics required
by the paintball market in this regard.
As part of this collaboration, BPRG desires to grant JTR certain
exclusivity rights and rights of first refusal to market any non-gelatin
paintball developed by BPRG.
It is agreed as follows: The parties hereto will each use their best endeavors
to perform their respective obligations as set forth in this Agreement and with
the specific intent of developing a commercially viable non- gelatin paintball,
hereinafter referred to by the code name XGelball.
Obligations of BioProgress:
BPRG shall:
Commit such dedicated resources as may be reasonably required to produce samples
of the XGelball within the Term as defined in Clause 5, below. Produce and
provide to JTR such standard XGelball samples, in such limited quantities as
reasonably requested by JTR, as may be reasonably required by JTR to carry out
tests for trade and consumer acceptability of the XGelball, and any other tests
deemed necessary by JTR to evaluate the XGelball samples.
Diligently and promptly attend to any and all reasonable requests made by JTR
with regard to any amendments or modifications required to the XGelball samples
from time to time. Supply JTR with all material safety, regulatory and
specification data as may be reasonably required.
If commercially advantageous to do so, to assist JTR to obtain endorsements for
the XGelball from environmental, vegetarian, religious, or other special
interest groups.
<PAGE>
Permit JTR to use BPRG's XGeI(TM) Millennium Award logo on packaging and in all
sales and marketing collateral. Save for Clause 11, below, maintain as
confidential any and all information disclosed by JTR or JTR's subsidiaries,
agents, or representatives, pursuant to the Mutual Confidentiality Agreement
between BPRG and JTR. Obligations of JTR:
JTR shall:
Provide BPRG with product samples, price information and performance
specifications for upper, middle and lower end of market paintballs, and,
further, loan to BPRG a paintball gun or guns considered by JTR to be most
suitable for use in the development work subject of this Agreement.
Provide BPRG with all information reasonably determined by JTR to be required by
BPRG to enable BPRG to meet BPRG's obligations under this Agreement.
Commit such human and financial resources to the project to conduct such tests,
evaluation, consumer trials and market research on the XGelball as may be
reasonably necessary, as determined by JTR in JTR's sole discretion, to
determine the commercial potential of the XGelball.
In a timely manner, provide BPRG with the results of the tasks to be undertaken
by JTR pursuant to Clause 3.3.
Subject to the completion of the project to the mutual satisfaction of the
parties, and in consultation with BPRG, prepare a detailed marketing plan for
the launch of the XGelball internationally, and provide to BPRG a copy of said
plan. Save for Clause 11, below, maintain as confidential any and all
information disclosed by BioProgress or BPRG pursuant to the Mutual
Confidentiality Agreement between BPRG and JTR. Finance:
In contribution toward the costs to be incurred by BPRG in meeting its
obligations under this Agreement, JTR shall pay to BPRG the amounts and at the
times as follows:
On the date hereof the sum CONFIDENTIALITY REQUESTED.
On l April 2000, and thereafter on the first of each subsequent month during the
Term of this Agreement (as defined at Clause 5, below), the sum of
CONFIDENTIALITY REQUESTED.
Payment of all sums due under this Agreement shall be made by wire transfer for
the account of BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC CONFIDENTIALITY
REQUESTED.
Term of agreement: The Term of this agreement, unless terminated earlier in
accordance with Clause 5.2 hereof, shall be six calendar months from the date
hereof.
This Agreement shall be effective and continue for a minimum of three calendar
months from the date hereof, and may be terminated by JTR for any or no reason
at any time thereafter by JTR serving written notice of termination on BPRG.
In the event that JTR properly terminates the Agreement pursuant to Clause 5.2
then, provided that all payments due and outstanding at the date of termination
have been paid in full to BPRG, JTR shall be forever relieved of any and all
liabilities, no matter what kind and howsoever arising solely in connection with
this Agreement.
<PAGE>
Notwithstanding anything contained herein to the contrary, regardless of the
termination of this Agreement, JTR shall have the exclusive rights, as set forth
at Clause 6 and Clause 7, below, to distribute any and all non-gelatin
paintballs developed by BPRG.
Exclusivity:
During the Term of this agreement, and for a minimum period of six (6)
consecutive years from the date of this agreement, BPRG shall not enter into any
discussions, negotiations, collaboration, or agreement with any third party for
the development, marketing, distribution, sale, or other exploitation of
non-gelatin based paintballs, unless and until one of the following has
occurred: JTR, in JTR's sole and absolute discretion, has consented thereto in
writing; or JTR, in JTR's sole and absolute discretion, has given BPRG written
notification that JTR does not intend to pursue the commercial exploitation of
non-gelatin based paintballs developed by BPRG; or JTR fails to meet the sales
quotas established pursuant to Clause 7 of this agreement, if (i) BPRG and JTR
have agreed to proceed to market and sell the XGelball on a commercial basis,
and (ii) BPRG has timely provided JTR with sufficient quantities of XGelball
paintballs at commercially reasonable prices as agreed by the Parties in the
marketing plan pursuant to clause 3.5 above and as amended from time to time to
reflect changes (if any) in the price of raw materials and which are beyond the
reasonable control of BPRG in order for JTR to meet such sales quotas, and (iii)
the failure of JTR is not attributable in any material respect to the failure of
BPRG to perform under this agreement. JTR is in material breach of any provision
of this Agreement and fails to rectify such material breach within sixty (60)
days of receiving written notification of the same from BPRG. Commercial
Exploitation of the XGelball: Subject to the parties hereto being satisfied in
all respects as to the quality, suitability, commercial acceptance, pricing
strategy and any and all other matters that could directly or indirectly affect
the profitable commercial exploitation of the XGelball, then forthwith upon
resolution of such matters it is the intention of the parties that, in a timely
manner, they will negotiate in good faith to draft and execute a manufacturing
and distribution agreement whereby JTR shall have the following rights:
CONFIDENTIALITY REQUESTED CONFIDENTIALITY REQUESTED Subject to all parties
hereto being satisfied with the provisions of Clause 7.1 the parties agree that,
in a timely manner, they will negotiate in good faith to draft and execute a
manufacturing and distribution agreement to produce the XGelball, and said
agreement may be in the form of a manufacturing license being granted by BPRG
exclusively to JTR, or a joint venture between the parties, or the appointment
of a third party contract manufacturer or any combination thereof. In the event
that the parties are unable to agree upon a mutually satisfactory manufacturing
and distribution agreement, then the exclusivity rights of JTR set forth in
Clause 6, above, shall continue, and JTR shall have a right of first refusal to
match (and enter into with BPRG) any other manufacturing agreement or
distribution agreement that is in good faith proposed to be entered into between
BPRG and any third party for the manufacture, sale, and/or distribution of the
XGelball paintballs and/or any and all other BPRG non-gelatin paintballs. If JTR
fails to exercise such right of first refusal, then the exclusivity rights of
JTR shall expire, provided (i) BPRG shall not enter into or modify the terms of
such third party contract unless and until the JTR is given the right of first
refusal with respect to the same, (ii) BPRG enters into said third party
contract on commercially terms that evidence the good faith of BPRG with respect
to this right of first refusal in favor of JTR, and (iii) notwithstanding
anything contained herein to the contrary, JTR shall continue to have the
non-exclusive rights set forth at Clause 7.1.2, above. Sole Agreement and
Survival: With the exception of the Mutual Confidentiality Disclosure Agreement
<PAGE>
executed by the parties, and which shall persist during the Term and survive
this Agreement, this is the sole agreement between them in respect of the
subject matter and supersedes any and all prior agreements, whether written or
oral and actual or implied. Intellectual Property: Any and all intellectual
property existing in the XGelball to be developed by BPRG under this Agreement
shall, during and after the Term and without limitation and regardless of the
outcome of this Agreement or any future agreement between the parties, be vested
in and shall remain the absolute property of BPRG, and forever JTR will not have
any claim against and will not lay any claim thereto save for those rights
expressly provided for herein. Arms Length Agreement: Other than provided for
herein nothing in this Agreement, can or shall be construed as, or implied to
be, the grant of rights by one party to another, nor does this Agreement
constitute a partnership or joint venture between the parties. Announcements:
Both parties shall be at liberty to issue a statement announcing the execution
of this Agreement; such statement shall be limited to a summary of its terms.
Enforceability: This Agreement shall be legally binding upon the parties hereto
only in respect of the subject matter, and no party shall be liable to the other
in respect of any and all other matters whatsoever, and howsoever arising. Law
and Dispute Resolution: This agreement shall be construed in accordance with,
and governed by the Laws of the State of Nevada. Any dispute, controversy, or
claim arising out of or relating to this agreement, or the breach, termination,
or invalidity thereof, shall be settled by arbitration under the UNCITRAL
Arbitration Rules then in effect at the commencement of the arbitration. The
case shall be administered by the arbitrator selected hereunder, and the
administration shall in accordance with the UNCITRAL Arbitration Rules then in
effect. Further, the following shall apply: Arbitration. Except to the extent
that the parties agree in writing to any other method of resolution of a given
dispute, in the event of any dispute arising between the parties, or any of
them, or their successors-in-interest, concerning the enforcement, meaning or
interpretation of this Agreement, or concerning the rights, duties, or
obligations of the parties or their successors-in-interest, then such dispute
shall, with reasonable promptness, be submitted to and determined by arbitration
(under the UNCITRAL Arbitration Rules) in Vancouver, Canada, or such other sight
mutually determined by the parties. Arbitration Final and Binding; No Punitive
Damages. The decision of the arbitrator, including the determination of the
amount of damages suffered by any party hereto by reason of the acts or
omissions of any party, shall be final and binding upon the parties.
Notwithstanding the foregoing, the arbitrator shall not be authorized to award
punitive damages with respect to any such claim or controversy, nor shall any
party seek punitive damages relative to any matter under, arising out of or
relating to this Agreement in any other forum. Arbitrator Selection. The
arbitrator shall be selected by the parties, but if the parties cannot agree on
the arbitrator, then the arbitrator shall be appointed by a neutral third party
agreed upon by the parties. If a neutral third party cannot be agreed upon by
the parties, then either party may petition the appropriate court in Vancouver,
Canada, to appoint an arbitrator. Judgment on Arbitration Award. Judgment upon
any arbitration award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. In the event of an arbitration award that includes
an award of specific performance, the party so awarded the specific performance
remedy, may, if such party so elects, institute proceedings in any court having
jurisdiction of the specific performance of any such award. Stay of Defaults
During Arbitration. No party shall be considered in default during the pendency
of arbitration proceedings by virtue of a default with respect to matters which
are the subject of such arbitration and which occur during the pendency of the
arbitration. Venue for Arbitration. The parties hereby consent to jurisdictioion
and venue in the City of Vancouver, Canada, for such arbitration. Costs and
Attorney Fees to Prevailing Party. If any party shall bring an arbitration
proceeding against the other party by reason of the breach of any covenant,
warranty or condition hereof, or otherwise arising out of this Agreement, then
the prevailing party in such proceeding shall be entitled to such prevailing
party's costs of suit and reasonable attorneys' fees and accountants' fees,
which shall be payable whether or not such action is prosecuted to judgment.
"Prevailing party" within the meaning of this Section shall include, without
limitation, a party who dismisses an action for recovery hereunder in exchange
for payment of the sums due, performance of covenants breached, or consideration
substantially equal to the relief sought in the proceeding.
IN WITNESS WHEREOF the parties hereto have executed this TECHNOLOGY
COLLABORATION AGREEMENT FOR THE DEVELOPMENT OF NON- GELATIN PAINTBALLS as of the
date first above written. Signed:
A duly authorized officer for and on behalf of BIOPROGRESS TECHNOLOGY
INTERNATIONAL, INC.
Signed:
President/Manager
A duly authorized officer for and on behalf of JT USA, L.P.
Signed:
President
A duly authorized officer for and on behalf of DYE PRECISION, INC.
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