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.
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
Contacts: Bio-Extraction Inc. Chris Schnarr Chief Financial
Officer (416) 588-4442 x111 cschnarr@bioexx.com Investor Relations:
Scott Koyich President, Brisco Capital Partners (403) 262-9888
scott@briscocapital.com
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