Bio-Extraction Inc., announced today its financial results for the three and six month periods ended June 30, 2009. Complete financial statements and Management's Discussion and Analysis have been filed for public review at www.sedar.com.
- confirmation of the development of high-value canola protein isolates
- significant acceleration of protein isolate business plan implementation
- initial protein isolate customer product trials
- continued progress towards required food safety certifications (GRAS, HACCP)
- successful early warrant exercise program to fund protein isolate capex
- commencement and ramp-up of Phase 1 commercial operations in Saskatoon
- completion of preliminary work for a plant expansion into the United States
"The second quarter of 2009 was an extremely busy and productive time for BioExx. As a relatively young company with limited resources, we continue to drive forward on several parallel initiatives. We not only commenced operations and generated revenue for the first time, but we also significantly advanced our business plan with respect to protein isolate production and maintained our expected timing in announcing our second plant location," said Chris Carl, CEO of BioExx. "The work that has taken place to achieve these milestones has been dramatic and we continue to be proud of our growing team of leaders and doers. There are lots of details to be attended to before we will reach our goal of selling protein isolates, but our progress is steady and there is little doubt that we will be successful in the dramatic advancement of isolate production."
Summary of Q2 Events
Confirmation of Production of Protein Isolates: At the beginning of the quarter, BioExx completed pilot-scale production of its first protein isolates. The high quality of these isolates was confirmed through third party testing, including independent laboratories and customer testing. As a manifestation of intellectual property embodied in a May 2008 patent filing, the BioExx proteins profiled with outstanding nutritional and functional properties which are suggestive of a long-term position at the high end of the protein market. The Company has always maintained that isolate markets are its ultimate commercial goal, and accordingly this was considered a watershed moment in the evolution of BioExx.
Acceleration of Protein Isolate Production Plans: During the quarter, BioExx announced its intention to accelerate the production of protein isolates at the Saskatoon plant to as early as late 2009, from a prior target of early 2011. This advancement was enabled by on-going progress in product development, engineering design, regulatory requirements, and customer acceptance testing. 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 Proteins) into a single implementation phase. Accordingly, operating the Phase 1 Crushing operations on a stand-alone basis is extended by a few months. This effectively defers some of the expected economic enhancement to plant operations that would result from the Phase 2 Extraction implementation, and lengthens the marginally economic interim crush-only Phase 1. However, the net shareholder value gains and risk mitigation benefits embedded in the isolate production acceleration should materially outweigh any negative impact. The acceleration of the BioExx plan for entry into high-value protein isolate markets should be viewed as a seminal event in the Company's development, and most certainly the defining event of the second quarter of 2009.
Successful Early Warrant Exercise Program: In order to fund the increased and earlier capital expenditures associated with protein isolate production, BioExx reached out to its warrant holders to request the early exercise of in-the-money share purchase warrants which were not due to expire until January 29, 2010. The response to this request and the support of the warrant holders was tremendous. From the date of the announcement of the acceleration plan through to mid-August, BioExx has received approximately $6.3 million of proceeds from early warrant exercises. Assuming a reasonable continued flow of exercises through expiry, and together with other potential non-dilutive funding sources, BioExx is reasonably well positioned financially going into the final stages of construction of its protein isolate plant. As always however, the Company will continue to watch for appropriate ways to keep its cash position strong, and will have greater visibility into the matter as it gets closer to protein start-up.
Second Plant and Expansion Into the United States: Successful pre-development efforts during the quarter led to BioExx announcing plans for its second canola processing and protein production facility, to be located in Minot (pronounced "my-not"), North Dakota. Through the balance of 2009, BioExx will engage in further project development activities, including environmental permitting, site analysis, building design, and supplier and customer contracting. This would facilitate completion of project financing and commencement of construction in late spring 2010. The 80,000 metric tonne per year facility would then be scheduled for completion and start-up in 2011.
Commencement of Commercial Operations at Saskatoon Plant: The second quarter was also notable for the commencement and ramp-up of Phase 1 seed crushing operations at the Saskatoon plant. These operations faced many of the customary and expected plant start-up challenges, but continued to show improved metrics during the quarter, across the key variables of quality, yield, and throughput.
BioExx meal values progressed from below market at start-up to earning a consistent premium over market later in the quarter, reflective of good quality. BioExx oil also gained ground on quality measures during the quarter. The most dramatic gains came however just after quarter-end with the installation of an additional piece of key equipment, the delivery of which had been delayed, resulting in oil now meeting de-gummed specification and on a path to meeting the end target a of super de-gummed quality. Yields also improved each month during the quarter and are tracking towards Phase 1 yield targets.
It is notable that BioExx has achieved substantially higher oil yields from its pressing operation than was originally designed for the press. This has been driven by a desire to maximize yield and press oil production during interim crush-only operations. However, the higher oil yields will limit throughput to about 60% of final design capacity, although this will be negated once extraction operations commence later in the year. At that time press oil yields will be significantly and intentionally reduced and throughput capacity will be increased to 100% of original design. In strong crush margin periods, Phase 1 would have an ability to operate on a break-even cash basis within the parameters described above. While the current crush margin environment is weak, management is of the view that there remains room for improvement in its crush operations and that any losses incurred during this period are minimal compared to the ultimate operating performance anticipated upon the introduction of extraction and protein production.
Commodity Market Dynamics: Crush margins were healthy at the beginning of Q2 relative to historical averages, and spending most of the quarter in the C$120 - C$140 range. However, a number of factors subsequent to quarter-end conspired to create significant crush margin weakness with most of July and August in the C$80 - C$100 range. On the revenue side, general weakness in the influential energy markets and soy complex have 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.
It is also important to understand that, while board crush margins (which are derived from CBOT soy numbers) are a good proxy for general economic trends within the oilseed processing industry, they are not a perfectly correlated indicator of individual local or regional plant profitability. One example of this has been the particular weakness of late in Canadian canola meal markets, which has likely caused actual processing margins to be even lower than those suggested by board margins. Notably of course, at other times and under other circumstances, this divergence may work in favour of actual regional processing margins. An understanding of this point is important, and it also speaks to the stability and risk management gains embedded in the Company's strategy to geographically diversify its processing base.
Financial Results (excerpted from MD&A)
During the quarter, the Corporation earned $1,152,492 of revenue from canola oil and canola meal sales at its Saskatoon plant. This was the first quarter of commercial operations at the plant and while revenues consistently improved on a month-over-month basis for each month during the quarter, the total revenues are still reflective of the initial ramp-up stages of crush-only plant operations. Revenues are driven by product quality, oil yields, throughput, and commodity market prices. Each of these measures also improved on a month-over-month basis for each month during the quarter, with the exception of commodity market prices which fluctuated throughout the quarter and which are an uncontrollable variable. Notably, the plant was down for the last ten days of the quarter, on a scheduled basis, for the installation of a key process equipment item which had the effect of causing revenue to be lower than it would otherwise have been. As this was the first commercial operating quarter at the plant, there are no comparable prior periods to provide a basis for analysis versus historical results.
Cost of Goods Sold
Cost of Goods Sold includes canola seed, direct labour and utilities. These components were generally in line with expectations during the quarter. However, given that product quality and oil yields had not reached plan goals during this ramp-up quarter, sufficient revenue was not generated to cover the Cost of Goods Sold, resulting in a negative Gross Margin of $434,310.
Other Plant Expenses includes items such as maintenance expenses, QA/QC expenses, production supervision, plant supplies, and miscellaneous other plant expenses. This item increased month-over-month during the quarter, reflecting the ramp-up of plant activities and also reflecting one-time departmental setup and programmatic costs in maintenance and QA/QC. For the 2nd quarter, Other Plant Expenses was $282,255. Together with a non-cash Amortization of Plant and Plant Equipment of $280,653, this resulted in a negative total Plant Margin of $997,218 for the Quarter.
Administrative and General Expenses
The Company incurred Administrative and General Expenses of $1,360,558, versus $1,064,090 in the prior quarter and $877,399 in the comparable prior year period. The increase reflects increased activity levels across the Company, as well as the inclusion of administrative expenses related to the plant. Research and development expense was $352,597 versus $144,119 in the prior quarter and $210,230 in the comparable prior year period, being higher than the long term average and reflective of a greater intensity of program efforts towards the development and commercialization of the Company's protein products. Sales and marketing expense was $137,425 versus $61,354 in the prior quarter and $66,209 in the 2nd quarter of 2008, reflecting increased resource allocations towards customer-focused activities as the Company is now in commercial operations, and also reflecting higher travel-related investor relations expenditures.
The Net Loss for the quarter was $2,347,257, compared to $1,054,823 in the prior quarter and $796,126 in the 2nd quarter of 2008. The increase flows from the operating losses at the plant in the quarter, together with increased Administrative and General Expenses as discussed above. On a per share basis, the Net Loss is $0.02 for the quarter, versus $0.01 in the comparable periods.
Working Capital and Liquidity
As at June 30, 2009, current assets were $6,477,178, including cash of $4,585,643. Against current liabilities of $1,167,645, this results in net working capital of $5,309,533 (exclusive of availability of additional funds under the Corporation's various credit facilities). This compares to current assets of $3,895,293 and net working capital of $1,594,700 at March 31, 2009.
BioExx Cash Flow Used In Operating Activities during the quarter was ($2,005,829), compared to ($993,369) in the prior quarter and ($476,936) in the comparable prior year period, reflective primarily of the net losses discussed above as well as the increase in accounts receivable resulting from this quarter being the first quarter of commercial product sales.
BioExx Cash Flow From Financing Activities during the quarter was $7,500,691, comprised of $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 quarter. This compares to $2,957,499, driven by a $2,893,346 drawdown of credit facilities, in the prior quarter, and $3,298,993 in the 2nd quarter of 2008 resulting primarily from the amount received on completion of a private placement in that quarter.
BioExx Cash Flow Used In Investing Activities during the quarter was ($2,671,801). This results from ($3,082,745) of Property, Plant & Equipment and equipment deposits, reflecting the continued capital expenditure program at the Saskatoon plant, net of a $410,944 reduction in restricted cash due to construction lien holdback releases. This compares to ($4,403,847) in the prior quarter, comprised of ($2,871,515) for Property, Plant & Equipment and equipment deposits and ($1,478,725) of restricted cash allocations for construction lien holdbacks and a Letter of Credit Facility.
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 in alleviating food scarcity. 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. /quotes/comstock/11v!bxi (CA:BXI 1.35, -0.02, -1.46%) , 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."