Bio-Extraction Inc. (TSX VENTURE:BXI) ("BioExx" or "the Company") announced
today its financial results for the three and nine month periods ended September
30, 2009. Complete financial statements and Management's Discussion and Analysis
have been filed for public review at www.sedar.com.
Summary of Q3 Events
Overall Performance: The third quarter of 2009 was marked by strong and
continued progress towards the Company's primary short-term goal of initiating
Extraction and Protein Production operations at its Saskatoon facility. The
Company's key interim activities on that path include continuous improvement of
current canola processing operations in Saskatoon, as well as advancement of
product development, engineering, procurement, and installation activities
related to Extraction and Protein Production start-up.
Acceleration of Protein Isolate Production Plans: Just prior to the start of the
third quarter, BioExx announced its intention to accelerate the production of
protein isolates at the Saskatoon plant to late 2009, from a prior target of
early 2011. On a short-run basis, the process modifications embedded in the
isolate system involve the consolidation of what were previously two distinct
implementation phases (Phase 2 Extraction and Phase 3 Protein Concentrates) into
a single implementation phase. Accordingly, this extended the planned
stand-alone Phase 1 Crushing operations and thus deferred some of the expected
economic enhancement to plant operations that would result from the Phase 2
Extraction implementation. However, it is the expedited net shareholder value
gains and risk mitigation benefits embedded in the isolate production
acceleration that dominate decision analysis at this stage. The Company
announced during the third quarter that its expected start up timing on
Extraction and Protein had shifted slightly from year end to late February, as a
result of small delays in receipt of a few equipment items which do control the
critical path at this point in time. Nevertheless, the Company remains pleased
with its progress, which would in aggregate, and based on the current schedule,
still accelerate its planned entry into high-value protein isolate markets by a
full year.
Second Plant and Expansion into the United States: During the quarter, BioExx
announced its plans for its second canola processing and protein production
facility, to be located in Minot, North Dakota. Through the balance of 2009 and
early 2010, BioExx will engage in further project development stages, including
environmental permitting, site analysis, building design and construction
tendering, supplier and customer contracting, and preliminary engagement of
credit markets. This would facilitate completion of project financing and
commencement of construction in late spring 2010. The 80,000 metric ton per year
facility would then be scheduled for completion and start-up approximately one
year later.
Additional Funding from Agri-Opportunities Program: During the quarter, BioExx
was conditionally approved for a repayable contribution of $2,958,000 by
Agriculture and Agri-food Canada, under its Agri-Opportunities program, subject
to completion of a definitive agreement. The proceeds from the contribution will
be used for capital equipment, installation, and commissioning for the
Extraction and Protein system in Saskatoon. To be advanced on a cost-sharing
basis, the contribution is interest-free, unsecured, and is repayable in five
equal annual installments beginning in April, 2013. Subsequent to the end of the
quarter, the definitive agreement in respect of the contribution was completed.
Completion of Private Placement: On September 25th, BioExx moved to mitigate
financial risk and strengthen its balance sheet through a "bought deal" private
placement of common shares for gross proceeds of $15,000,000, including full
exercise of the Agents' overallotment option. The private placement closed on
October 15, 2009, with proceeds to be directed towards capital expenditures at
the BioExx Saskatoon processing facility, the proposed North Dakota processing
facility, and for general working capital and corporate purposes.
Receipt of ISO 22000, HACCP and GMP Certification: Subsequent to quarter-end,
the Company received its Certificate of Registration to certify that its
Saskatoon facility Food Safety Management System had been assessed by NSF-ISR
and found to be in conformance with ISO 22000:2005 where the Scope of
Registration is Canola oilseed processing. To successfully complete the ISO
22000:2005 audit, an applicant must also demonstrate that is has adequately
installed both HACCP ("Hazard Analysis Critical Control Points") and GMP ("Good
Manufacturing Practices") procedures and is practicing both to a level that is
consistent with the requirements set out under ISO 22000:2005. HACCP is
internationally recognized as the primary means for enhancing food safety
throughout the value chain, and is increasingly being used around the world.
HACCP is a standard designed to prevent, reduce or eliminate potential
biological, chemical and physical food safety hazards. GMP is a term that is
recognized worldwide for the control and management of manufacturing and quality
control of foods, pharmaceutical products, and medical devices. GMP's are
guidelines that outline the aspects of production that would affect the quality
of a product.
Saskatoon Plant Operations: Q3 marked the second full quarter of Phase 1
crushing operations in Saskatoon, and was characterized by continued improvement
across each of the three key metrics of quality, throughput, and yield.
Relative to quality, during the quarter the Company achieved its target of
commencing production of food-grade super de-gummed oil. This was facilitated by
the installation of an additional equipment package at the beginning of the
quarter, the introduction of which brought a significant change in processing
conditions and process optimization, and therefore required some re-ramping of
the overall system. Despite the challenges associated with the change,
throughput capacity and yield both trended positively for the quarter.
Throughput for the quarter was up 45% over the prior quarter and even though
this is still not achieving the original Phase 1 targeted throughput levels,
this does represent a significant improvement considering both the new equipment
additions and a switch in seed variety (discussed below). In addition, oil
yields (the amount of oil recovered compared to the original oil content in the
seed) improved very well, with September delivering an average yield in excess
of Phase 1 targets. The Company does note that in a mechanical pressing
operation such as this, higher yields are necessarily traded off against lower
throughput, and accordingly, as oil yields are pushed higher, throughput is
reduced. When the Company moves to its Extraction and Protein phase, oil yield
targets will be significantly reduced (since the remaining oil after pressing
will be removed in Extraction), and throughput can be increased then to the full
40,000 Mt per year capacity of the plant.
In September, as planned, the Company switched its seed input to the specific
variety which will be used for its Extraction and Protein operations, in order
to gain experience and perfect the processing of that seed in preparation for
protein. Relative to standard Canada #1 canola, the new seed has a somewhat
higher protein content and lower oil content. While reduced oil content means a
slight reduction in revenues from Phase 1 processing, this higher protein
content is of course beneficial to the Company, as its go-forward economics are
significantly biased in favour of proteins. Again however, switching the seed
input variety requires altered processing parameters to optimize quality, yield,
and throughput. With the strong progress on this to date, the Company is
confident that operating conditions will be appropriately locked in well in
advance of the introduction of Extraction and Protein production.
Through the balance of Q4 and the beginning of Q1 2010, the Company anticipates
that it will from time to time be taking the Phase 1 pressing operation off-line
in order to tie in new equipment required for Extraction and Protein production.
While this will negatively impact operating performance for short periods, and
in some cases may require re-ramping of the system, all decision making at
present is driven toward optimizing readiness for protein production as that
major milestone draws nearer.
Commodity Market Dynamics: Crush margins were generally quite weak throughout
the quarter, spending most of the quarter below C$100, and touching lows near
C$70. At times, these levels fell to almost half the crush margin levels seen in
the prior year. On the revenue side, general weakness in the influential energy
markets and soy complex, together with slack export demand, pressured canola oil
and meal prices lower, while on the cost side, canola seed prices were buoyed by
supply stocks moving to the end of the crop year and also by concerns about the
possible negative effect of prairie weather on the 2009 harvest. Subsequent to
quarter-end, there was some recovery in crush margins, with a pickup in demand,
and the favourable resolution of harvest concerns in the form of a very strong
year (expected to come in as perhaps the second largest Canadian canola crop on
record).
While the Company is pleased to see some recovery in crush margins after the end
of the quarter, to the C$115 range, the Company does not consider the current
crush margin environment to be economically meaningful in the context of its
longer term business plan as its crush-only operation is temporary in nature,
pending the start-up of protein production operations.
Protein Isolate Implementation: Continued progress was made during and
subsequent to the third quarter towards the key and overriding milestone of
protein system start-up. At present, some items have arrived on site, and early
installation work has begun. Equipment will continue arriving, with installation
on-going, through to the anticipated system start-up in February 2010. It is
understood that in any scale-up such as this, particularly with first of its
kind technology, there will be challenges along the way, both anticipated and
unanticipated. However, the Company's confidence in the efficacy of the
technology at the planned commercial scale remains very high, and there is
tremendous excitement among team members as the start-up date nears.
Financial Results
Revenue:
During the third quarter, the Company generated $1,633,153 of revenue from
canola oil and canola meal sales at its Saskatoon plant, up 42% versus revenue
of $1,152,492 in the prior quarter. This was the second quarter of commercial
operations at the plant and while revenues significantly improved during the
quarter, the total revenues are still reflective of interim operations of the
current crush-only Saskatoon plant. As discussed earlier, revenues are driven by
product quality, oil yields, and throughput, each of which improved during the
quarter. Total seed processed increased 45% from 2,911Mt in Q2 to 4,207Mt in Q3.
After the scheduled completion of the major equipment package installation at
the beginning of the quarter, yields improved each month, with September
averaging 83.3%, ahead of the Phase 1 target of 75-80%. Although revenue was up
significantly over the prior quarter, economic gains from this growth were
mitigated by uncontrollable commodity market prices declines, as discussed
earlier, with realized per tonne prices for oil and meal declining slightly
during the quarter.
Cost of Goods Sold:
Cost of Goods Sold includes canola seed, direct labour and utilities. Cost of
Goods Sold increased by 34% from $1,586,802 in Q2 to $2,129,095 in Q3, or
$542,293, more than offsetting the revenue increase of $480,661 even though on a
percentage change basis costs only rose 34% against the 42% revenue increase.
This created a negative Gross Margin of $495,942 versus negative $434,310 in Q2,
or an increase of $61,632. The controllable cost elements of labour and
utilities were essentially flat on the quarter, thus pointing to increased seed
costs as the primary source of the increased Cost of Goods Sold. This is
reflective of higher seed prices creating crush margin weakness during the
quarter.
Plant Margin:
Other Plant Expenses includes items such as maintenance expenses, QA/QC
expenses, production supervision, plant supplies, and miscellaneous other plant
expenses. This item increased slightly versus the prior quarter, by $42,131 or
15%, from $282,255 to $324,386, primarily reflecting costs associated with press
operation upgrades and increased QA/QC activities. Together with non-cash
Amortization of Plant and Plant Equipment of $74,677, this resulted in a 5%
increase in negative Plant Margin from $855,415 in Q2 to $895,005 in Q3.
Administrative and General Expenses:
Administrative and General Expenses excluding non-cash items declined 31% to
$771,307 in Q3, versus $1,111,121 in Q2, a reduction of $339,814. Approximately
half of this reduction reflected reduced R&D spending in the quarter, as various
projects had been completed in Q2 or early Q3. The balance of the lower spending
in Q3 resulted from reductions on a broad range of other line items.
Inclusive of non-cash items, Administrative and General Expenses for the quarter
increased by 5% or $63,894, to $1,393,486 versus $1,329,592 in the prior
quarter, with a $411,058 increase in non-cash Stock-based Compensation more than
offsetting the cash expense reductions in other Administrative and General
areas.
Net Loss:
The Net Loss for the quarter increased 5% to $2,274,780, compared to $2,174,488
in the prior quarter, with the relatively flat comparison accruing to the net
impact of the individual items discussed above. On a per share basis, the Net
Loss is $0.02 for the quarter, versus $0.02 in the prior quarter.
Working Capital and Liquidity:
As at September 30, 2009, current assets were $9,075,816, including cash of
$7,180,699. Against current liabilities of $2,375,514, this results in net
working capital of $6,700,302 (exclusive of availability of additional funds
under the Corporation's various credit facilities). This compares to current
assets of $6,477,178 and net working capital of $5,309,533 at June 30, 2009.
The relatively high Accounts Payable balance of $1,982,887 is reflective most
significantly of the planned and increasing rate of capital expenditures on the
implementation of the Extraction and Protein Separation infrastructure at the
Saskatoon plant.
Proceeds of the bought-deal private placement completed after quarter-end are
not included in these amounts.
Cash Flows:
BioExx Cash Flow Used in Operating Activities during the quarter was
($1,453,441), compared to ($2,005,829) in the prior quarter, representing a
27.5% reduction, and ($816,465) in the comparable prior year period, reflective
primarily of a change in accounts receivable balances and inventories. This
flows from the fact that, as discussed last quarter, the plant was shut down for
the last ten days of the prior quarter for a scheduled equipment installation,
and hence all finished goods inventory was shipped and billed prior to the end
of quarter, creating a high accounts receivable balance and low inventory
balance at the end of the last quarter.
BioExx Cash Flow from Financing Activities during the quarter was $6,151,359,
comprised primarily of $6,031,187 received on the exercise of share purchase
warrants and a small amount of stock options in the quarter. This compares to
$7,500,691, driven by $663,197 in drawdown of credit facilities, $1,999,990 from
the exercise of options and warrants, and $4,840,315 from an equity private
placement, net of issue costs, completed in the prior quarter.
BioExx Cash Flow Used in Investing Activities during the quarter was
($2,102,862). This results primarily from ($1,608,658) equipment deposits, and
($493,902) in additions of Property, Plant & Equipment, reflecting the continued
capital expenditure program at the Saskatoon plant. This compares to
($2,671,801) in the prior quarter, comprised of ($3,082,745) of Property, Plant
& Equipment and equipment deposits, net of a $410,944 reduction in restricted
cash due to construction lien holdback releases.
About Bio-Extraction Inc.
Headquartered in Toronto, Canada, BioExx is a leading technology and industrial
processing company focused on the extraction of oil and high-value proteins from
oilseeds for the global food market. BioExx's patented technology allows for the
use of significantly lower temperatures than conventional methods in extracting
the active ingredients and oils from oilseeds, resulting in higher yields and
higher-quality meal, oils and proteins. BioExx's low energy requirements,
environmentally sound process, and high-yield production have the potential to
make a valuable contribution to global food and protein markets. BioExx operates
a commercial scale extraction facility in Saskatoon, Saskatchewan, and has a
mission to construct additional and larger processing facilities on a global
basis. To find out more about Bio-Extraction Inc. (TSX VENTURE:BXI), please
visit www.bioexx.com
The statements made in this press release include forward-looking statements
that involve a number of risks and uncertainties. These statements relate to
future events or future performance and reflect management's current
expectations and assumptions. A number of factors could cause actual events,
performance or results to differ materially from the events, performance and
results discussed in the forward-looking statements, such as the economy,
generally, competition in its target markets, the demand for BioExx's products,
the availability of funding, the efficacy of its technology, and the anticipated
costs of BioExx's plant construction and operation. These forward-looking
statements are made as of the date hereof and BioExx does not assume any
obligation to update or revise them to reflect new events or circumstances.
Actual events or results could differ materially from BioExx's expectations and
projections.
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