SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 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 March 31, 2000, there
were approximately 36,106,304 shares outstanding.
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<CAPTION>
I. PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) March 31, 2000
31 March 2000 31 December 1999
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<S> <C> <C>
CURRENT ASSETS $ $
Cash and cash equivalents 3,876,387 5,818
Marketable securities 697,245 367,306
Accounts receivable 145,815 201,803
Prepaid expenses and other current assets 137,260 61,174
----------- -----------
Total current assets 4,856,707 636,101
FIXED ASSETS
Property, plant and equipment, net 347,180 326,629
INTANGIBLE ASSETS
Trademarks, licenses, patents, net 1,198,173 1,232,289
Goodwill, net 5,934,021 6,103,565
----------- -----------
TOTAL ASSETS 12,336,081 8,298,584
=========== ===========
CURRENT LIABILITIES
Accounts payable 146,434 387,912
Amounts owed to related parties 155,604 780,850
Accrued expenses and other current liabilities 167,370 362,855
Deferred revenue 1,279,478 1,221,954
----------- -----------
Total current liabilities 1,748,886 2,753,571
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Redeemable convertible preferred stock, Series A, par value $1.00 56,285 51,475
Redeemable convertible preferred stock, Series B, par value $2.50 6,507,201 75,120
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6,563,486 126,595
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STOCKHOLDERS' EQUITY
Common stock, $0.001 par value:
50,000,000 shares authorized (1999: 50,000,000)
36,106,304 shares issued and outstanding (1999: 36,002,800) 36,106 36,002
Additional paid-in capital 9,913,837 9,861,562
Accumulated deficit (5,958,768) (4,481,241)
Accumulated other comprehensive gain 32,534 2,095
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TOTAL STOCKHOLDERS' EQUITY 4,023,709 5,418,418
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 12,336,081 8,298,584
=========== ===========
The accompanying notes form an integral part of these statements.
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<CAPTION>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March, 31
2000 1999
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(restated)
$ $
<S> <C> <C>
Net revenues 179,228 26,275
Costs and expenses
Costs of revenues 6,004 6,537
Professional fees 251,477 54,327
Realized and unrealized (profit) loss on marketable securities (493,752) 0
Management fee 150,000 120,000
General and administrative expenses 453,321 232,933
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Total cost and expenses 367,050 413,797
----------- -----------
Loss from operations (187,822) (387,522)
Dividend payable and accretion of preferred stock (1,289,705) 0
----------- -----------
Net loss applicable to common stockholders (1,477,527) (387,522)
=========== ===========
Net loss per common share (0.04) (0.013)
=========== ===========
Weighted average number of common shares 36,101,540 28,796,714
=========== ===========
The accompanying notes form an integral part of these statements.
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<CAPTION>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Three months Twelve months
ended 31 March 31 Dec
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) (187,822) (3,017,529)
Adjustments to reconcile net profit (loss) to net cash
Used in operating activities
Depreciation and amortization 234,077 888,998
Unrealized loss on marketable securities (329,939) 752,694
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 55,988 (189,128)
Increase in prepaid expenses and other current assets (76,084) (8,816)
Increase (decrease) in deferred revenue 57,524 (12,502)
(Decrease) increase in accounts payable (194,200) 1,476
Increase in accrued expenses and other current liabilities (820,731) 1,054,075
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Net cash used in operating activities (1,261,187) (530,732)
========== ==========
Cash flows from investing activities:
Purchases of property and equipment (50,969) (244,381)
Purchase of intangibles 0 (650,880)
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Net cash used in investing activities (50,969) (895,261)
========== ==========
Cash flows from financing activities:
Proceeds from sale of intangibles 0 164,000
Proceeds from sale of preferred stock 5,152,286 1,175,235
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Net cash provided by financing activities 5,152,286 1,339,235
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Effects of exchange rate changes on cash and cash equivalents 30,439 10,457
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Net increase (decrease) in cash and cash equivalents 3,870,569 (76,301)
Cash and cash equivalents, at beginning of year 5,818 82,119
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Cash and cash equivalents, at end of year 3,876,387 5,818
========== ==========
Supplemental disclosure of cash flow information
Cash paid for interest 0 0
========== ==========
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, 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 March 1999. The comparatives for the Quarter ended 31
March 1999 has been adjusted to reflect increased goodwill amortization from the
purchase of BioProgress Technology Limited by BioProgress Technology
International, Inc. 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 31 March 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 charge of $1,289,705 has been accreted to accumulated deficit to
reflect the $0.56 premium on the Series B Redeemable Convertible Preferred Stock
and the $0.63 premium on the Series B Redeemable Preferred Stock.
Note 5. In April 2000, the company acquired for an undisclosed sum a 29.9%
interest in the equity of The-Healthy-Store.com, a development stage e-commerce
company based in Cambridge, UK.
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 its first
income derived from agreements signed in respect of its XGel(TM) Film System.
Other sources of income were fees for research and development work, accrued
royalties in respect of the license sold to Consolidated EcoProgress
Technologies, Inc., ("CES") (VSE:CES). In addition the company recorded a
substantial gain in the 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 mitigated by the increased income referred to earlier.
Furthermore, the Company received net proceeds of $5.152 million from a private
placement of its Series B Preferred Shares. In addition a further circa $2.1
million has been raised in the second quarter. The Company's strong cash
position ensures that its programme to commercialize the XGel(TM) Film System is
fully underwritten.
The results reflect the Company's continuing efforts to commercialize its
XGel(TM) Film System, both in North America and Europe. 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. The overheads reflect
the considerable advancements that have been achieved in the development of the
Company's ingestible range of products. This development program continues to be
ahead of schedule and the Company's first ingestible capsule machine, received
during November 1999, is functioning as anticipated and is providing samples for
prospective customers.
Revenues generated during the period from the Research & Development Agreement
the Company has with CES were in line with expectations. The Research &
Development Agreement with CES was executed contemporaneously with an agreement
to sell an exclusive worldwide license to CES to manufacture, sell and
distribute the Trutona(TM) line of flushable and biodegradable products. During
fourth quarter of 1999, the Company delivered to CES samples of new and improved
versions of the Trutona flushable and biodegradable ultra thin sanitary napkin.
The new versions of the sanitary napkin include a product with wings. Each of
the new versions uses a new absorbent core, which greatly improves the general
level of absorbency and facilitates a more even dispersal of fluids.
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The new products have a natural pink backing sheet and may be individually
wrapped in water soluble and biodegradable film. Samples of the new sanitary
napkin have been well received by prospective customers and the Company expects
the royalties due from CES to increase significantly as these products are
rolled out.
In September 1999, construction work commenced on a 3,000 square feet extension
to the Company's facility in March, Cambridgeshire. This work was completed
during May 2000. The additional space created is being used to house
administrative, accounting and sales and marketing personnel and facilities.
In February 2000, the Company executed an Exclusive Evaluation Agreement in
respect of its XGel(TM) Film System with a Fortune 500 Company for a six month
period. At the time of this report the evaluation program is proceeding as
anticipated. Terms of the agreement are to remain strictly confidential.
In February 2000, the Company entered into a development agreement with J T
Racing LLP, of San Diego, whereby the Company and J T Racing will jointly
develop a new type of paintball using the Company's XGel(TM) Film technology.
Subsequently, Brass Eagle, Inc., one of the world's leading producers of
traditional paintballs, acquired J T Racing.
In April 2000, the Company acquired, for an undisclosed sum, a 29.9% interest in
the equity of The-Healthy-Store.com, ("THS") a development stage e-commerce
company based in Cambridge, England. THS aims to be a leading portal for
world-friendly products, including dietary supplements and disposable consumer
goods. The Company has agreed to develop a unique line of gelatin-free
ingestible products for resale through THS and it is envisioned that sole
distribution of such unique products will lead vegetarians and certain ethic and
religious groups to visit THS in large numbers. Launch of the THS business is
anticipated during the fourth quarter of the current year.
The Company is engaged in contract negotiations with several major corporations
who have received samples of soft capsules produced using the XGel(TM) Film
System.
The Company believes that its XGel(TM) Film System is the world's first
animal-free soft capsule process. The patented process eliminates the use of
gelatin, which is a protein derived from animal renderings. Since the
mid-1930's, gelatin has been the only material suitable for encapsulating
non-aqueous products such as vitamin oils (dietary supplements),
pharmaceuticals, cosmetic oils (bath beads) and paint, as used in the fast
growing paintball leisure pursuit. The XGel(TM) Film System employs innovative
processes that allow soft capsules to be produced with a very wide range of
characteristics from spontaneous release to delayed release, while improving the
capsules performance under extremes of temperature and humidity. The XGel(TM)
Film System technology has attracted the interest of major companies in both the
dietary supplement and pharmaceutical industries.
Liquidity and capital resources
During the quarter the Company has successfully raised $5,152m by the issuance
of $2.50 Series "B" Preference Shares. Following the quarter end further
subscriptions for "B" Preference Shares have been received and the offer has now
been closed. In the region of $7.25 million has been raised in total. As a
result of this fund raising exercise, the company has substantially reduced the
amount of external trade and other creditors of all types. External net debt of
the group, excluding preference shareholders, subsequent to the quarter end, is
now insignificant in the context of the overall assets of the company. Upon
conversion of the Preference Shares to Common Stock the Preference Shares will
no longer be classified as redeemable convertible preferred stock and will
enhance the net asset position of the group considerably. This would benefit the
company as it creates a stronger balance sheet and enable the company to pursue
capital raising options which might not otherwise be available to it. Whilst the
issue of the "B" Preference Shares enables the company to achieve its current
plans, other and further fund raising options for the future are under
consideration Therefore, the Company continues to investigate a number of other
long-term funding scenarios and opportunities.
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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 22nd day of May,
2000.
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
(Registrant)
By:
/s/ Barry J. Muncaster
-----------------------
Barry J. Muncaster, President
and Chief Executive Officer
/s/James T.C. Longley
----------------------
James T. C. Longley, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,876,387
<SECURITIES> 697,245
<RECEIVABLES> 283,075
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,856,707
<PP&E> 7,479,374
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,336,081
<CURRENT-LIABILITIES> 1,748,886
<BONDS> 0
0
6,563,486
<COMMON> 36,108
<OTHER-SE> 3,987,603
<TOTAL-LIABILITY-AND-EQUITY> 12,336,081
<SALES> 179,228
<TOTAL-REVENUES> 179,228
<CGS> 6,004
<TOTAL-COSTS> 6,004
<OTHER-EXPENSES> 361,046
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (187,822)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (187,822)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.05)
</TABLE>
