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: June 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.
------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 88-0361701
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
9055 Huntcliff Trace, Atlanta, Georgia 30350-1735
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 649-1133
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes 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 June 30, 2000, there were
approximately 40,956,942 shares outstanding.
<PAGE>
<TABLE>
<CAPTION>
I. PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
-----------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(Unaudited) June 30, 2000
30 June 2000 31 December 1999
------------ ----------------
$ $
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 4,620,437 5,818
Marketable securities 464,101 367,306
Accounts receivable 164,289 201,803
Prepaid expenses and other current assets 175,853 61,174
----------- -----------
Total current assets 5,424,680 636,101
FIXED ASSETS
Property, plant and equipment, net 852,749 326,629
EQUITY INVESTMENTS, net 26,405 0
INTANGIBLE ASSETS
Trademarks, licenses, patents, net 1,162,973 1,232,289
Goodwill, net 5,764,477 6,103,565
----------- -----------
TOTAL ASSETS 13,231,284 8,298,584
=========== ===========
CURRENT LIABILITIES
Accounts payable 162,566 387,912
Amounts owed to related parties 13,530 780,850
Accrued expenses and other current liabilities 286,117 362,855
Deferred revenue 1,152,300 1,221,954
----------- -----------
Total current liabilities 1,614,513 2,753,571
----------- -----------
Redeemable convertible preferred stock, Series A, par value $1.00 48,485 51,475
Redeemable convertible preferred stock, Series B, par value $2.50 3,900,722 75,120
----------- -----------
3,949,207 126,595
----------- -----------
STOCKHOLDERS' EQUITY Common stock, $0.001 par value:
50,000,000 shares authorized (1999: 50,000,000)
40,956,942 shares issued and outstanding (1999: 36,002,800) 40,957 36,002
Additional paid-in capital 15,961,361 9,861,562
Accumulated deficit (8,424,139) (4,481,241)
Accumulated other comprehensive gain 89,385 2,095
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 7,667,564 5,418,418
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 13,231,284 8,298,584
=========== ===========
The accompanying notes form an integral part of these statements.
-2-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
-----------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June, 30
2000 1999 (restated)
----------- ---------------
$ $
<S> <C> <C>
Net revenues 56,786 85,468
Costs and expenses
Costs of revenues 6,782 6,716
Professional fees 229,466 191,331
Realized and unrealized loss on marketable securities 165,722 0
Management fee 0 120,000
General and administrative expenses 1,308,967 364,812
----------- -----------
Total cost and expenses 1,710,933 682,859
Share of loss of associated company 20,470 0
----------- -----------
Loss from operations (1,674,617) (597,391)
Dividend payable and accretion of preferred stock (790,753) 0
----------- -----------
Net loss applicable to common stockholders (2,465,370) (597,391)
=========== ===========
Net loss per common share (0.07) (0.021)
=========== ===========
Weighted average number of common shares 37,373,802 28,796,714
=========== ===========
The accompanying notes form an integral part of these statements.
-3-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
-----------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended June, 30
2000 1999 (restated)
----------- ---------------
$ $
<S> <C> <C>
Net revenues 236,014 111,743
Costs and expenses
Costs of revenues 12,786 13,253
Professional fees 480,943 245,658
Realized and unrealized (profit) loss on marketable securities (328,030) 0
Management fee 150,000 240,000
General and administrative expenses 1,762,284 597,745
----------- -----------
Total cost and expenses 2,077,983 1,096,656
Share of loss of associated company 20,470 0
----------- -----------
Loss from operations (1,862,439) (984,913)
Dividend payable and accretion of preferred stock (2,080,458) 0
----------- -----------
Net loss applicable to common stockholders (3,942,897) (984,913)
=========== ===========
Net loss per common share (0.11) (0.034)
=========== ===========
Weighted average number of common shares 36,697,593 28,796,714
=========== ===========
The accompanying notes form an integral part of these statements.
-4-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
-----------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Six months Twelve months
ended 30 June 31 Dec
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (1,862,439) (3,017,529)
Adjustments to reconcile net loss to net cash
Used in operating activities
Depreciation and amortization 464,295 888,998
Unrealized (profit) loss on marketable securities (96,795) 752,694
Share of loss of associate 20,470 0
Loss on disposal of fixed assets 113,042 0
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 37,514 (189,128)
Increase in prepaid expenses and other current assets (114,679) (8,816)
Increase (decrease) in deferred revenue (69,654) (12,502)
(Decrease) increase in accounts payable (212,574) 1,476
Increase in accrued expenses and other current liabilities (852,967) 1,054,075
---------- ----------
Net cash used in operating activities (2,573,787) (530,732)
========== ==========
Cash flows from investing activities:
Purchases of property and equipment (711,786) (244,381)
Purchase of investment (50,000) (650,880)
---------- ----------
Net cash used in investing activities (761,786) (895,261)
========== ==========
Cash flows from financing activities:
Proceeds from sale of intangibles 0 164,000
Proceeds from sale of preferred stock 7,843,045 1,175,235
---------- ----------
Net cash provided by financing activities 7,843,045 1,339,235
---------- ----------
Effects of exchange rate changes on cash and cash equivalents 107,147 10,457
---------- ----------
Net increase (decrease) in cash and cash equivalents 4,614,619 (76,301)
Cash and cash equivalents, at beginning of period 5,818 82,119
---------- ----------
Cash and cash equivalents, at end of period 4,620,437 5,818
========== ==========
Supplemental disclosure of cash flow information
Cash paid for interest 0 0
========== ==========
The accompanying notes form an integral part of these statements.
-5-
</TABLE>
<PAGE>
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 June 1999. BioProgress Technology International, Inc has
adjusted the comparatives for the Quarter ended 30 June 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 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 credit of $512,586 has been accreted from 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
Note 5. In April 2000, the company paid $50,000 for a 29.9% interest in the
equity of The-Healthy-Store.com, a development stage e-commerce company based in
Cambridge, UK. This investment is being accounted for using the equity method of
accounting
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 modest
income derived from agreements signed in respect of its XGel(TM) Film System.
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 substantial loss reported primarily
consists of non-cash items, such as depreciation, write-off of goodwill,
write-down in the market value of the Company's investment in CES and foreign
exchanges losses due to the fall in value of sterling against the US dollar. 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 receipt of funds from the private placement of Series "B" Preference
shares conducted during the first half of the year.
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
-6-
<PAGE>
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 in the fields of pharmaceutical products, VHMS (Vitamins,
herbs, minerals and supplements), OTC medicinal products and confectionary
products.
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 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. 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. 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. During 2000, CES appointed two new
manufacturers of the product line. However, delays suffered by CES in appointing
these manufacturers make it unlikely that the Company will receive royalties due
from CES during the current financial year.
In February 2000, the Company executed an Exclusive Evaluation Agreement in
respect of its XGel(TM) Film System with a Fortune 500 Company. The Company is
pleased to report that the evaluation work was completed successfully and ahead
of schedule. On June 30, 2000, the Exclusive Evaluation Agreement was superseded
by a Letter of Intent that calls for a Joint Development Agreement to be
executed on or before September 1st, 2000. 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. Development work is continuing at
the date of this report.
In April 2000, the Company paid $50,000 for 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. At the date of this report THS is continuing
development of its business plan.
On July 25, 2000, the Company announced that it had sold its first full license
and XGel(TM) Film System to Peter Black Healthcare Limited ("Peter Black"), a
subsidiary of Peter Black (Holdings) PLC. The Company has been working with
Peter Black for eighteen months, during which time Peter Black has carried out
comprehensive studies on the efficacy of the XGel(TM) Film System and the
performance of soft-capsules made using the XGel(TM) Film System.
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 anticipates executing several new agreements during the
current reporting period.
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
-7-
<PAGE>
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
-------------------------------
In the six months to 30 June 2000 the Company has now raised $7,843,045 from the
sale of "B" Series Preference Shares. A further $8,000 has been sold since the
end of June. At the end of June the company purchased the premises it occupies
at March, Cambridge, UK for $525,000. This results in a saving on rent of
$15,750 per quarter and adds to the stability of the group and provides the
company with premises that have been adapted exclusively for the research and
development activities of the company in the UK. During the last quarter,
together with the benefit of the new and enlarged premises, the company has been
able to boost 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
materially during the quarter and is expected to increase further in the next
quarter. As a result of the increased activity, other overheads have also
increased. The increase in overheads has been mitigated by the reductions in
rent and interest received from the cash on treasury deposit.
Revenues are lower in the second quarter than the first. The company enjoys
ongoing revenues from its R & D agreement with Consolidated EcoProgress
Technologies and from the sale of Trutona. However, revenues are likely to be
lumpy in the short-term 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. The cash burn
of the company has increased and will stabilize towards the end of the next
quarter so that management may continue to plan in detail the ongoing funding
requirements of the business until the company becomes cash positive as the sale
of licenses accelerates and the company commences the delivery of machinery and
other supplies. The cash balances of the company remain significant and the
gross and net assets position of the company remains strong. 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. Gross
assets, excluding intangibles, amount to $6,353,834. 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, 1,914,981 and 5,000 Series "B" and Series "A" Preference
Shares respectively were converted into shares of Common Stock during the
quarter. During the quarter, $1,209,437 was taken to shareholders' equity
following the conversion of Series "A" and Series "B" Redeemable Convertible
Preferred Stock. This reflects a portion of the accretion of the preferred
stock, whereby certain "A" and "B" Preference Shareholders have opted to convert
to shares of Common Stock, which has been written off to retain earnings in the
first half of this year. The majority of the balance of the Series "A" and
Series "B" Preference Shares are expected to convert into shares of Common Stock
in the third quarter this year. Upon conversion of the Preference Shares to
Common Stock, applicable amounts will be reclassified as shareholders' equity
and will enhance the net asset position of the group considerably. This would
benefit the company as it creates a stronger balance sheet and enables the
company to pursue certain capital raising options. The Company continues to
investigate a number of other long-term funding scenarios and opportunities.
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.
-8-
<PAGE>
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 14th day of August,
2000.
BIOPROGRESS TECHNOLOGY INTERNATIONAL, INC.
(Registrant)
By: /s/ Barry J. Muncaster
--------------------------
Barry J. Muncaster, President
and Chief Executive Officer
By: /s/ James T.C. Longley
--------------------------
James T. C. Longley, Chief Financial Officer
9
