Bio-Extraction Inc.

Bio-Extraction Inc.

November 16, 2009 16:43 ET

BioExx Announces Q3 2009 Results

Conference Call: Tuesday, November 17, 10:00 a.m. ET Dial-in Numbers: 416-340-8061 / 866-225-0198

TORONTO, ONTARIO--(Marketwire - Nov. 16, 2009) - 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

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


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

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.

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