TORONTO, ONTARIO--(Marketwire - Nov. 14, 2011) - BioExx Specialty Proteins Ltd. ("BioExx", or "the Company") BXI, the first company to commercialize a new and complete food-grade protein from a major global crop since the introduction of soy protein isolate some 60 years ago, today provided a comprehensive update on corporate activities and announced its consolidated financial results for the three and nine month periods ended September 30, 2011.
New CEO Announced
The Board of Directors, with the assistance of its executive search consultant, Caldwell Partners, has conducted a thorough review of external candidates for the position of CEO and is pleased to announce the appointment of the Company's Chief Financial Officer and Interim Chief Executive Officer, Chris Schnarr, to the position of CEO.
"While the Board was impressed with the breadth and depth of candidates identified, we believe that Mr. Schnarr is particularly well qualified to lead the company through the next phase of its evolution, in alignment with the strategic direction that the board has established," said William Ollerhead, Chairman of the Board. "He has the depth of knowledge and experience to understand all aspects of our business and, importantly, he has the respect of staff, customers, and partners."
The Company also announced that Mr. Greg Furyk, CA, the Company's Controller since January 2009, is being appointed to the position of Chief Financial Officer. "Greg's experience, knowledge, integrity, and commitment to the Company are well proven. We are fortunate to have him on our team and I am confident he will excel in his new role", said Chris Schnarr.
Strategic Focus
Since its inception, the Company's strategy has been to create value by building, owning and operating its own processing plants. However, after rigorous internal and board-level strategic review and discussion, the Company believes that the best path forward, at this stage of its development, is not to over-allocate limited and high-cost capital to press for greater scale at its existing Saskatoon facility, but rather to firm up its business at current levels, and then drive future growth through strong strategic partnerships, which will allow the Company to better leverage its core protein technology through the capital, infrastructure and market presence of a major strategic partner or partners.
Therefore, the Company will immediately begin a formal process, through a transactional advisory firm to be selected, to execute on this strategy.
"Our efforts to deploy our technology at a commercial scale have not unfolded according to our original expectations, and our pioneering work in this field has been tremendously challenging," said Mr. Schnarr. "We are therefore now looking to leverage the growing value of our Intellectual Property and extensive operating knowledge, by pairing these two drivers with the things we lack - long-term growth capital and global commercial infrastructure - so that we can maximize value for our shareholders."
Mr. Schnarr added, "While we understand the frustration of our shareholders, we have successfully overcome a vast array of challenges in the development and early-stage commercialization of the first complete plant-based protein source in half a century. We have created a new protein source that is nutritional, functional, sustainable, and solvent free. This is a very notable achievement, which we believe has created tremendous value. The next step is to refine, leverage, and unlock that value. This means recognizing our limitations and moving forward with a cogent and executable strategy in the context of our current situation."
Technological Advances
As part of its on-going development and continuous improvement focus, the Company also announced a significant technological advancement, which adds to its already extensive protein separation technology portfolio.
BioExx has recently filed an additional patent for a solvent-free canola protein isolate production process, which is now being employed at the Saskatoon plant. The new patent, which was driven largely by efforts to address the constraints of the previous solvent extraction process, involves an enzyme-assisted mechanical separation and filtration process for the production of canola protein isolates. This solvent-free process is cleaner and more sustainable, and is also believed to be more robust and scalable. While it does involve a reduced rate of recovery of saleable oil, potential capital cost and operating cost reductions and higher protein sales prices are expected to provide a net economic gain. The Company will continue to look to incremental development and continuous improvement of this process, with a focus on optimization at larger scales.
"Our target markets remain large and robust," said Mr. Schnarr. "In particular, the on-going evolution and sophistication of consumer nutrition markets and the desire on the part of consumers to avoid products with adverse chemicals and solvents are driving premium pricing for products which address these concerns."
Operating Progress
Operational results have improved since completion of the recent plant shutdown and with the assistance of the move to the solvent-free process. After a period of re-start and rationalization, weekly production volumes are now three times the average production volumes prior to shutdown (approximately 1.2 metric tons versus 400 kg per week).
"In simplest terms, we are putting feedstock into the system twice as fast as before shutdown, getting over 1.5 times the yield, and therefore producing protein at over three times the pre-shutdown rate. That is a meaningful increase in efficiency. Trending is also good, as aggregate volumes have been growing at an average rate of over 30% per week since shutdown," said Mr. Schnarr. "Unfortunately, we've also had some challenges along the way and our uptime hours are relatively flat, despite adding an extra shift. We'll work to sort out the uptime issue presently, and that should drive additional increases in volume, as will expected further increases in production efficiency. Overall, we are definitely headed in the right direction, and we are striving to do better."
Perhaps even more important than production volume at this point, is product quality. Protein purity has improved, averaging 83% post-shutdown versus 80% pre-shutdown. Also, microbiological quality of the finished product has improved and is more consistent than prior to shutdown. Finally, organoleptic properties (taste, colour, smell) have also improved post-shutdown as a result of process improvements.
Going forward, the interim focus of operations will be on quality and consistency, based substantially on existing infrastructure. While the Company will continue to seek low cost, high impact ways to increase production above current levels, and at the same time improve economics, the key priorities will be consistency, quality, and steady shipments to customers. This is intended to ensure a stable and scalable platform, reduce uncertainty and variability, provide a strong foundation for future capacity expansion, and reduce interim capital expenditure requirements, while at the same time enabling the Company to move forward with its strategic partner plans.
"Relative to where we were, we've made headway on our key metrics of volume, quality, and consistency, and we'll look to continue to build on this progress. We believe our efforts going forward will validate our technology and business model, while facilitating scalability engineering and the ability to attract a strategic partner," continued Mr. Schnarr.
Once a strategic partner is engaged, the Company will undertake the appropriate analysis to determine optimal capital allocations between the Saskatoon plant and future projects in the context of this environment. Also during this interim period, the Company will continue work to improve protein purity levels, as well as further piloting and prove-up of its hydrolyzed protein (Vitalexx) process and product.
Finance
The Company will very conservatively and prudently manage its capital during this time, undertaking only low-risk, low-cost, high-impact projects. The Company believes that its current cash position is sufficient to facilitate the completion of its strategic partner initiatives, without the injection of any additional or interim equity capital.
"We are focussing on capitalizing on our strengths, while reaching out in a best-practices way to address our weaknesses. We have the right strategy at the right time, and it is with excitement, confidence, and tremendous determination that we move into this next stage of our corporate development," said Mr. Schnarr.
Adoption of Shareholder Rights Plan
The board of directors has approved the adoption of a shareholder rights plan (the "Rights Plan") designed to encourage the fair and equal treatment of shareholders in connection with any take-over bid for the Company's outstanding securities. The purpose of the Rights Plan is to provide shareholders and the Company's board of directors with adequate time to consider and evaluate any unsolicited bid made for the Company, to provide the board with adequate time to identify, develop and negotiate value-enhancing alternatives to any such unsolicited bid, and to ensure that any proposed transaction is in the best interests of the Company's shareholders.
The Rights Plan is similar to plans adopted by other Canadian companies. One right (a "Right") will be issued by the Company in respect of each common share. The Rights will become exercisable only if a person (together with its affiliates, associates and joint actors) acquires 20% or more of the Company's common shares without complying with the "Permitted Bid" provisions of the Rights Plan, or without the approval of the Company's board of directors. "Permitted Bids" under the Rights Plan must be made to all holders of the Company's common shares and must be open for acceptance for a minimum of 60 days. If at least 50% of the outstanding common shares have been tendered and not withdrawn after 60 days, the bidder may take-up the shares, but must make a public announcement of that take-up and extend the bid for a further 10 days to allow other shareholders to tender to the bid.
Although effective as of today, the Rights Plan is subject to ratification by the Company's shareholders at the next annual meeting of shareholders. If the Rights Plan is not ratified at the next annual shareholder's meeting, the Rights Plan and all of the Rights outstanding at that time will terminate. The Rights Plan has been approved by the Toronto Stock Exchange. A copy of the Rights Plan is available to the public for viewing on SEDAR at www.sedar.com under the Company's profile.
Q3 2011 FINANCIAL RESULTS
Revenues
During the quarter, the Company generated $930,239 of revenue from canola oil and canola meal sales at its Saskatoon plant (including a loss on derivatives of $14,682 - Q3 2010 $Nil), versus revenue of $178,464 in Q3 2010. This revenue was based on approximately 2,000 Mt seed processed in the quarter, as compared to approximately 500 Mt in the comparable 2010 quarter. The primary factor in the higher revenues was the higher processing volumes. While crushing operations were off-line for the month of August 2011 due to shut-down, volumes still materially exceeded the Q3 2010 period during which time the plant was dominated by protein equipment installation and as such ran only infrequently.
Gross Profit (Loss)
Cost of Goods Sold for the quarter was $2,218,434, compared to $846,619 for Q3 2010. The increase results primarily from the higher processing volumes, and also higher seed costs versus Q3 2010. Cost of Goods Sold for the quarter was also higher, relative to revenues for the quarter, as a result of annual plant maintenance shutdown activities included in Cost of Goods Sold. As a result of the foregoing factors, Gross Loss for the quarter was $1,288,195, compared with $668,155 for the comparable period.
Other Expenses
The Corporation incurred other expenses during the quarter of $4,462,498, compared to $2,370,794 in the comparable period.
Given the challenges to date in protein production and start-up, the Company has renewed its focus on discretionary expenditure control. Although the scope and breadth of operations are more extensive than in the prior year period, aggregate expenditures across Other general and administrative, Research and development, and Sales and marketing are relatively flat.
As the Company moved into the later stages of protein start-up and into commercial protein operations during Q3 2011, it incurred Plant commissioning and start-up expenses, which it did not incur during Q3 2010 as the Saskatoon plant was not advanced to the same extent at that time. In comparison with the prior quarter for greater relevance, Plant commissioning and start-up expenses were $2,368,705 in Q3 versus $1,537,215 in Q2. Depreciation for Q3 of $1,091,713 (the first quarter after significant assets were put into commercial use, and therefore the first full quarter of depreciation) versus $328,932 in Q2. Plant commissioning and start-up expenses also included a loss on disposal of certain pieces of equipment, in the amount of $223,106, mainly related to items which are the subject of a Statement of Claim filed against an equipment vendor as disclosed in Note 25(e) to the September 30, 2011 unaudited interim consolidated financial statements. After considering these two items, Plant commissioning and start-up expenses were lower on a quarter over quarter basis.
Net Finance Costs were lower versus the comparable prior year period primarily as a result of higher interest earned on proceeds from the Company's most recent public equity offering.
As a result of the solvent-free process enhancement discussed above however, and as discussed in Note 25(f) to the September 30, 2011 unaudited interim consolidate financial statements, the Company has identified certain production assets which will no longer be in use. IFRS 5, Non-current Assets Held For Sale and Discontinued Operations requires that an impairment loss be recognized on specific assets at such time that the assets qualify as held for sale or when the assets have been disposed of. The Company estimates the impairment expense, which will be recognized at such time as the specific assets qualify as held for sale or have been disposed of, to be approximately $9,500,000.
Net Loss
The Net Loss for the quarter was $5,750,693, compared to $3,038,949 for the comparable prior year quarter. This increase in net loss comprises the cumulative result of the various items discussed above. On a per share basis, the Net Loss is $0.03 for the quarter, versus $0.02 in the comparable quarter.
Working Capital and Liquidity
As at September 30, 2011, current assets were $20,644,985, including cash and cash equivalents and restricted cash of $18,571,708. Against current liabilities of $6,335,473, this results in net working capital of $14,309,512. This compares to current assets of $20,311,796 and net working capital of $14,147,997 as at December 31, 2010.
Complete financial statements and Management's Discussion and Analysis have been filed for public review at www.sedar.com and will be posted on the Company's website at www.bioexx.com.
Quarterly Conference Call and Webcast Presentations
Interested parties are invited to listen to our quarterly conference call on Tuesday, November 15, 2011, at 10:00 a.m. (ET). At that time, BioExx will comment on results for the quarter, provide an update on corporate activities and respond to questions.
The call may be accessed by telephone at 416-340-8530 (from within Toronto) / 877-240-9772 (North America) / 800-2787-2090 (International). The call will be audio-cast live and archived for 90 days at www.bioexx.com.
About BioExx Specialty Proteins Ltd.
Headquartered in Toronto, Canada, BioExx is a technology and processing company focused on the separation of oil and high-value proteins from oilseeds for global food, beverage, nutrition, and other markets. BioExx employs trade secret, patented and patent-pending technologies that utilize significantly lower temperatures than conventional oilseed processing, in order to enable the improved separation of proteins from oilseeds. BioExx believes that these processes cumulatively have the potential to make a valuable contribution to global food and protein supply while maintaining an environmentally sustainable footprint.
To find out more about BioExx Specialty Proteins Ltd. 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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