SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE OF 1934
For the transition period from _____________ to _____________
Commission file number: 0-24736
BioProgress Technology International, Inc.
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(Exact name of small business issuer as specified in its charter)
Nevada 88-0361701
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(State or other jurisdiction of (I.R.S. employer
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) 649-1133
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of September 30, 2000, there
were approximately 40,490,853 shares outstanding.
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I. PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) September 30, 2000
30 September 2000 31 December 1999
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$ $
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents 4,656,073 5,818
Marketable securities 438,341 367,306
Accounts receivable 1,029,112 201,803
Prepaid expenses and other current assets 293,188 61,174
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Total current assets 6,416,714 636,101
FIXED ASSETS
Property, plant and equipment, net 876,680 326,629
EQUITY INVESTMENTS, net 65,480 0
INTANGIBLE ASSETS
Trademarks, licenses, patents, net 1,102,200 1,232,289
Goodwill, net 5,594,933 6,103,565
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TOTAL ASSETS 14,056,007 8,298,584
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CURRENT LIABILITIES
Accounts payable 200,353 387,912
Amounts owed to related parties 0 780,850
Accrued expenses and other current liabilities 293,210 362,855
Deferred revenue 1,740,643 1,221,954
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Total current liabilities 2,234,206 2,753,571
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Redeemable convertible preferred stock, Series A, par value $1.00 2,964 51,475
Redeemable convertible preferred stock, Series B, par value $2.50 1,966,242 75,120
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1,969,206 126,595
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STOCKHOLDERS' EQUITY Common stock, $0.001 par value:
75,000,000 shares authorized (1999: 50,000,000)
40,490,853 shares issued and outstanding (1999: 36,002,800) 43,682 36,002
Additional paid-in capital 19,310,946 9,861,562
Accumulated deficit (9,587,085) (4,481,241)
Accumulated other comprehensive gain 85,052 2,095
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TOTAL STOCKHOLDERS' EQUITY 10,008,845 5,418,418
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 14,056,007 8,298,584
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The accompanying notes form an integral part of these statements.
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BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September, 30
2000 1999 (restated)
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$ $
<S> <C> <C>
Net revenues 395,634 71,311
Costs and expenses
Costs of revenues 171,422 17,697
Professional fees 220,773 128,315
Realized and unrealized loss on marketable securities 41,660 0
Management fee 0 120,000
General and administrative expenses 852,809 385,860
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Total cost and expenses 1,286,664 651,872
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Loss from operations (891,030) (580,561)
Dividend payable and accretion of preferred stock (271,916) 0
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Net loss applicable to common stockholders (1,162,946) (580,561)
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Net loss per common share (0.029) (0.0152)
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Weighted average number of common shares 40,490,853 38,214,403
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The accompanying notes form an integral part of these statements.
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BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended September, 30
2000 1999 (restated)
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$ $
<S> <C> <C>
Net revenues 631,648 563,054
Costs and expenses
Costs of revenues 184,210 30,950
Professional fees 441,499 373,973
Realized and unrealized profit on marketable securities (286,370) 0
Management fee 150,000 360,000
General and administrative expenses 2,895,781 1,109,177
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Total cost and expenses 3,385,120 1,874,100
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Loss from operations (2,753,472) (1,311,046)
Dividend payable and accretion of preferred stock (2,352,374) 0
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Net loss applicable to common stockholders (5,105,846) (1,311,046)
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Net loss per common share (0.1261) (0.0343)
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Weighted average number of common shares 40,490,853 38,214,403
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The accompanying notes form an integral part of these statements.
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BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
Nine months Twelve months
ended 30 September 31 Dec
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss (2,753,472) (3,017,529)
Adjustments to reconcile net loss to net cash
Used in operating activities
Depreciation and amortization 736,521 888,998
Unrealized (profit) loss on marketable securities (286,370) 752,694
Share of loss of associate 26,395 0
Loss on disposal of fixed assets 113,042 0
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (827,309) (189,128)
Increase in prepaid expenses and other current assets (138,874) (8,816)
Increase (decrease) in deferred revenue 518,689 (12,502)
(Decrease) increase in accounts payable (157,582) 1,476
Increase in accrued expenses and other current liabilities (952,543 1,054,075
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Net cash used in operating activities (3,721,503) (530,732)
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Cash flows from investing activities:
Purchases of property and equipment (788,393) (244,381)
Disposal of marketable securities 215,335 0
Purchase of investment (95,000) (650,880)
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Net cash used in investing activities (668,058) (895,261)
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Cash flows from financing activities:
Proceeds from sale of intangibles 0 164,000
Proceeds from sale of preferred stock 8,899,546 1,175,235
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Net cash provided by financing activities 8,899,546 1,339,235
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Effects of exchange rate changes on cash and cash equivalents 140,270 10,457
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Net increase (decrease) in cash and cash equivalents 4,650,255 (76,301)
Cash and cash equivalents, at beginning of period 5,818 82,119
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Cash and cash equivalents, at end of period 4,656,073 5,818
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Supplemental disclosure of cash flow information
Cash paid for interest 0 0
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The accompanying notes form an integral part of these statements.
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BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Financial Statements (Unaudited)
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the financial
condition of registrant have been included, and the disclosures are adequate to
make the information presented not misleading.
Note 1. A summary of significant accounting policies is currently on file with
the U.S. Securities and Exchange Commission in registrant's Form 10-KSB, which
is incorporated herein by reference.
Note 2. The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements.
Note 3 Restatement of September1999. BioProgress Technology International, Inc
has adjusted the comparatives for the Quarter ended 30 September 1999 to reflect
increased goodwill amortization from the purchase of BioProgress Technology
Limited. The goodwill arising on the acquisition has been restated at cost as
$6,781,739. This amount is to be amortized over a ten year period at the rate of
$169,543 per quarter. The quarter ended 30 September 1999 has also been restated
to reflect the accounting policies adopted for the purchase of the Trutona
license from Trutona International, Inc and the sale of the license to
Consolidated EcoProgress Technologies, Inc ("CES") of Canada. The consideration
paid of $1.5 million is being amortized over 10 years and the license income
receivable of $1.336 million from CES is being amortized over a matching period.
Note 4 A debit of $266,000 has been accreted to accumulated deficit to reflect
the $0.56 premium on the Series A Redeemable Convertible Preferred Stock and the
$0.63 premium on the Series B Redeemable Preferred Stock from the net effect of
new issues and conversions
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations:
The results during the period of the Registrant, BioProgress Technology
International, Inc., a Nevada corporation (together with its wholly owned
subsidiaries, BioProgress Technology, Inc., BioProgress Technology Limited, and
DHA Nutrition Limited, the "Company"), show that the Company received certain
license fees and other income derived from agreements signed in respect of its
XGel(TM) Film System. Material amounts of income from the same sources are also
included in an increased provision for deferred income. Other sources of income
were fees for research and development work and accrued royalties in respect of
the license sold to Consolidated EcoProgress Technologies, Inc., ("CES")
(VSE:CES). The reduced loss reported primarily consists of non-cash items, such
as depreciation, write-off of goodwill and a small write-down in the market
value of the Company's investment in CES. The cash burn incurred by the Company
in the implementation of its research and development program has been increased
as a direct result of a substantial increase in engineering manpower and
resources required to meet obligations of the Company under executed agreements.
The Company's cash balances remain strong following further receipts from the
private placement of Series "B" Preference shares. The results reflect the
Company's continuing efforts to commercialize its XGel(TM) Film System, both in
North America and Europe.
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The overheads reflect the considerable advancements that have been achieved in
the development of the Company's ingestible range of products. Revenues
generated during the period from the Research & Development Agreement the
Company has with CES continues to be in line with expectations previously
reported. The Research & Development Agreement with CES was executed
contemporaneous to an agreement to sell an exclusive worldwide license to CES to
manufacture, sell and distribute the Trutona(TM) line of flushable and
biodegradable products. The Company is primarily engaged in the development,
manufacture, sale and distribution of materials and processes used to replace
gelatin in the manufacture of soft capsules for both ingestible applications,
such as vitamin and herbal supplements, and pharmaceutical delivery systems, and
for non-ingestible applications, such as the delivery of chemicals and
manufacture of paintballs.
On July 25, 2000 the company announced that it has made the first sale of a full
license in respect of its XGel(TM) Film System to Peter Black Healthcare Limited
("PBHL"). PBHL is a wholly owned subsidiary of Peter Black Holdings (LSE: BKP).
PBHL is the UK's leading supplier of private label vitamin, mineral and herbal
supplements. In addition it owns several leading supplement brands and the UK's
No.2 Direct Marketing Brand. The license grants PBHL exclusive use of the
XGel(TM) Film System to produce and sell dietary supplements and
non-prescription medicines within the UK and Republic of Ireland. In addition,
PBHL has conditional exclusivity to serve as a contract manufacturer of dietary
supplements and non-prescription medicines within member states of the European
Economic Community and the European Free Trade Association. The license is in
respect of one XGel(TM) Film System. Additional XGel(TM) Film Systems, if and
when ordered by PBHL, will require the purchase of additional licenses.
Consideration paid for the license remains confidential at this time. In
addition, an annual license fee is payable in respect of the license for the
period of ten years or the life of the patent, whichever is the longer term.
PBHL is the largest manufacturer of vitamins, minerals and supplements (VMS) in
the UK. It has achieved this by developing close relationships with major retail
multiples whose own brand products now account for a significant share of the UK
market. PBHL not only manufactures for the major multiples but also provides
category management for the VMS sector and full logistical and distribution
support from a new state-of-the-art GMP manufacturing and distribution facility.
The Company is continuing to work with major international corporations engaged
in pharmaceuticals, consumer durables and confectionery products to determine
the suitability of the XGel(TM) Film System to replace traditional encapsulation
processes and, in some cases, to facilitate new product development not possible
with competitive technologies.
On October 20, 2000 the Company announced that its wholly owned subsidiary,
BioProgress Technology Limited, has executed an exclusive agreement with The
Boots Company PLC in respect of an innovative application of its XGel(TM) Film
System encapsulation technology. Further details of the agreement remain
confidential at this time.
The Boots Company PLC consists of seven separate businesses with an annual
turnover of more than $7billion. Boots is the UK's leading retailer of health
and beauty products.One third of the UK population shop at the 1400 pharmacy
stores every week. Internationally Boots stores have been opened in Japan,
Thailand and Taiwan. Through 410 Halfords stores, Boots is the UK's leading car
parts and accessories, cycles and cycle accessories retailer, and the leading UK
Optician chain through its 300 Boots Opticians stores. Boots Healthcare
International develops and markets innovative products and differentiated
consumer brands including Nurofen (analgesic sector), Strepsils (URT sector) and
E45, Lutsine, Onagrine and Balneum (Skincare sector) and these brands are sold
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in over 130 countries. With the acquisition of Clearasil, announced on Tuesday
this week, over 75% of Boots Healthcare International's business is generated
outside the UK. Its existing brands have leading positions in France and
Germany, a strong profile in Australasia, and have recently become available in
China and Latin America. Boots Contract Manufacturing is Europe's largest
healthcare, cosmetics and toiletry manufacturer with seven facilities producing
over 500 million units a year of over 8000 different products.
Additionally, in October, the company announced that the Exclusive Evaluation
Agreement executed earlier this year with a Fortune 500 company has been
completed and a new agreement is now effective. Further details remain
confidential.
On October 24, 2000 the Company announced that its wholly owned subsidiary,
BioProgress Technology Limited, has executed an agreement with a property
development company to construct a new purpose built manufacturing facility
close to its existing facility in Cambridgeshire, UK. The facility is planned to
open during April 2001.The new facility, which is to be leased, will occupy
27,000 square feet on a site of two and a half acres, leaving scope for further
expansion. The facility will house BioProgress' engineering design and
production teams and will accommodate up to six XGel(TM) Film Systems at any one
time, providing an estimated annual output capacity of fifty systems. The new
facility is being constructed in a way that will allow the assembly, trial and
commissioning of XGel(TM) Film Systems in secure individual cells, thereby
keeping customers' product concepts entirely separate from one another. Research
and development will continue at the existing laboratories, which will be
expanded internally to cope with the growing demand the company is receiving for
new product development.
On October 27, 2000 the Company announced two important appointments of Dr.
Louise Mulroy and Dr. Stephen Kessel, who have joined the research team. Dr.
Mulroy joins BioProgress as Project Manager in charge of research into
specialist films for use in disposable medical products. Previously, Dr. Mulroy
was a Research Fellow at Wellman Labs of Photomedicine, Massachusetts General
Hospital, Harvard Medical School. Dr. Kessel has been appointed Project Manager
of the Company's XGel(TM)Film System for ingestible projects. Previously, Dr.
Kessel served as Safety and Special Project Manager for the Cryovac Company. Dr.
Kessel is a Member of the Institute of Mechanical Engineers.
Liquidity and capital resources
In the past quarter to 30 September 2000 the Company has raised a further
$1,056,500 from the sale of "B" Series Preference Shares. In the last two
quarters, the company has increased its staffing levels as part of the process
to accelerate the research and development programme and to bring working
prototypes of the various types of encapsulation machinery to market at the
earliest possible date. Accordingly, the wages and salaries bill of the company
has increased in the last two quarters but will stabilize for the time being.
Loan staff and consultants are additionally being employed on an assignment
basis to accelerate the working designs for the machinery for machine projects
for ingestion and non-ingestion. These consultancy costs are in excess of
$220,000 on a quarterly basis and are likely to increase overheads materially
for the next two quarters. The impact in this quarter can be seen in a material
increase in the cost of revenues to $171,422. General and administrative
expenses are down in the quarter to 30 September 2000 due to a reduction in
professional advisor fees and a substantial foreign exchange loss in the
previous quarter. A new building has been commissioned and is in the process of
being built for us at a site nearby in March. We are not expected to occupy the
site until the 2nd quarter 2001 when rent will be payable, but fitting out costs
may begin to accrue in the 1st quarter of 2001.
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Revenues are at a higher level this quarter at $395,634 due to two important
contracts being signed in the quarter. A substantial proportion of the revenue
from these contracts has been deferred and is further likely to accrue in
addition to the foregoing. The year-to-date turnover is also the highest that
the company has achieved so far. The company continues to enjoy revenues from
its R & D agreement with Consolidated EcoProgress Technologies and income from
the sale of the Trutona license. A research and development agreement was signed
shortly after the end of the quarter with Boots Healthcare which will be revenue
enhancing in the next quarter. Revenues are likely to continue to be uneven over
the coming year as the company signs ad hoc research and development and
collaboration agreements and license and machine supply agreements. Over time
these revenues will even out and a discernible trend will emerge. Earnings per
share for the year-to-date show a loss of 12.61 cents per share. If accretion
charges are stripped out this falls to 6.80 cents per share. The cash burn of
the company has increased further during the quarter and will stabilize in the
next quarter. The cash balances of the company remain significant and have
increased slightly during the quarter due to new issues of "B" Preference Shares
less cash burn during the quarter. Cash is mainly held on treasury deposit of
different lengths of maturity to reflect the likely cash needs of the business
and to attract the best available interest rates. Marketable securities have
also increased slightly in value during the period. Accounts receivable has
increased considerably during the quarter and reflects receivables due form
transactions signed during the quarter. Deferred revenue has also increased
during the quarter to $1,740,643. The gross and net assets position of the
company remains strong and are the highest achieved to date. Gross assets,
excluding intangibles, amount to $7,358,874. Trade and other creditors of the
business are minimal and are within normal trade terms and the working capital
position of the company remains strong.
During the quarter, 1,035,300 and 29,180 Series "B" and Series "A" Preference
Shares respectively were converted into shares of common stock during the
quarter. This conversion has resulted in a partial reversal of the provision for
accretion made in the quarter ended 31 March 2000 in the previous quarter. In
the quarter to 30 September 2000, new "B" Preference Shares were issued which
lead to an accretion charge that has been partially offset by "B" Preference
shares also converting during the quarter resulting in a net charge of $266,000.
The majority of the Series "B" Preference Shares have now converted into shares
of common stock with the balance expected to convert in the final quarter of
this financial year. Upon conversion of all the Preference Shares to Common
Stock the Preference Shares are reclassified as shareholders' equity that
enhances the net asset position of the group considerably. This benefits the
company as it creates a stronger balance sheet. The Company continues to
investigate a number of other long-term funding scenarios and opportunities and
has accordingly appointed Close Brothers Corporate Finance Limited as it's
corporate finance advisors which is a significant step forward for the financial
stability of the company In addition, the company is investigating a number of
options available to it in consultation with Close Brothers.
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PART II - OTHER INFORMATION
Item 1. Litigation
No material legal proceedings to which the Company is a party or to which the
property of the Company is subject is pending and no such material proceeding is
known by management of the Company to be contemplated. No material legal
proceedings to which any director, officer or affiliate of the Company, any
owner of record or beneficially of more than five percent of any class of voting
securities of the Company, or security holder is a party adverse to the Company
or has a material interest adverse to the Company is pending.
Item 2. Change in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned; thereunto duly authorized this 13th day of November,
2000.
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
(Registrant)
By:
/s/ Barry J. Muncaster
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Barry J. Muncaster, President
and Chief Executive Officer
/s/ James T.C. Longley
----------------------
James T. C. Longley, Chief Financial Officer
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