BOTEX INDUSTRIES CORP.
Quarterly Report to Shareholders for the 1 st Quarter Ended March 31, 2000
SCHEDULE C: MANAGEMENT DISCUSSION
Note: The following management discussion has been prepared as a summary of activities for the three
months ending March 31, 2000 and significant events subsequent to that period.
NATURE OF BUSINESS
BOTEX is a developer, manufacturer, and marketer of 'BOTEX' products using a proprietary patent
pending process known as the Wetless Aqua Process that combines the elasticity of rubber with the
abrasion and water resistance of plastic. The Company produces a wide variety of "BOTEX" products,
ranging from wetsuit gear, flashlight covers, barefoot water - ski trainers, and dry - suit boots to
prosthetics. New products being developed include badges, logos, industrial gadgets.
HIGHLIGHTS
õ Closed private placement of 900,000 units at $1.25 per unit
õ Announces additional brokered private placement of up to 1,200,000 units at $1.25 per unit
õ Received proceeds of $23,000 from exercise of 33,333 warrants at $0.69 per warrant
õ Brought production mold manufacturing in-house
SIGNIFICANT EVENTS AND TRANSACTIONS
COMPLETION OF BROKERED PRIVATE PLACEMENT
On March 9, 2000, Botex closed a brokered private placement of 900,000 units at $1.25 per unit, each unit
consisting of one common share and one non-transferable share purchase warrant entitling the holder
thereof to purchase an additional common share for a period of two years at a price of $2.00 per share.
The Agent received a commission of 72,000 units, equal to 8% of the total proceeds, the units having the
same terms as the units under the placement. The Agent also received 108,000 share purchase warrants,
equal to 12% of the number of units sold, each warrant entitling it to purchase one common share for a
period of two years at a price of $2.00 per share. In addition, the Agent also received 20,000 common
shares as a corporate finance fee.
The securities issued pursuant to this private placement are subject to resale restrictions in British Columbia
expiring on July 7, 2000.
PRODUCTION MOLD MANUFACTURING BROUGHT IN-HOUSE
During the quarter, Botex installed two Computer Numerically Controlled (CNC) million machines at its
production facilities in Langley, British Columbia. With the installation of these two machines, the
Company has removed a significant bottleneck in the production of both prototype and production molds.
The turnaround time on molds has now been reduced from weeks to days (or even hours) with the
additional of internal mold making capabilities. The Company also expects to greatly reduce the cost of
molds by producing them internally instead of outsourcing this production to local suppliers.
FINANCIAL HIGHLIGHTS
TO MARCH 31, 1999
REVIEW OF OPERATIONS
Our financial results include the earnings of Botex and and its wholly owned subsidiary, Wetless for the
first quarter of this year. As we completed our acquisition of Wetless Aqua Gear Ltd. ("Wetless") in April,
1999, the comparative results for the first quarter of 1999 do not include the earnings of the parent, Botex.
This treatment is consistent with reverse takeover accounting required for our acquisition since the Wetless
shareholders after the acquisition was completed held a controlling number of common shares of Botex,
and under Canadian accounting rules, such transactions constitute a "reverse takeover" whereby Wetless is
treated as the Acquirer and Botex as the Acquired.
Consolidated Results of Operations
Revenues:
Revenues for the first quarter 2000 were $114,222 which is almost three times that generated in the
comparable period in 1999 of $37,820, when the Company was focused on completion of the acquisition
transaction, its relocation to new larger premises and development of its new flat bed production
equipment.
Operating Costs:
Operating costs rose from last year's level of $422,484 to virtually double this amount at $822,704 in 2000
due to the general ramp up of our efforts to develop a capability to manage large-scale orders from
industrial clients. Operating costs include those of Materials, supplies and labour, Sales and marketing,
Technology development, Administration and other.
Costs of Materials, supplies and labour for the first quarter in 2000 amounted to $326,814, up from
$133,171 in the first quarter of 1999. The higher costs reflect the increase in production staff, the costs of
our larger facility and related overheads and higher material costs for the higher volumes achieved.
Our Sales and marketing costs fell slightly to $75,699 this year from $88,797 in 1999. The decline is a
result of the discontinuation of an offshore marketing arrangement which has not proven beneficial to us as
yet. We intend to continue efforts in these markets using our in-house staff solely.
Costs for Technology development in 2000 were $94,332 representing the costs of our staff and research
facility. In 1999, for the most part the costs for this function were not separately classified and were
included in with costs of Materials, supplies and labour and with Administration and those reported
amounted to only $4,529 incurred for materials consumed.
Our Administration costs increased in the period to $254,640, which is more than double those incurred in
1999 of $117,385. Administration costs include the general administrative activities related to our
operations plus those of a public company, and include staff salaries and travel, general office, professional
and consulting fees and regulatory and shareholder reporting. The higher costs in this quarter reflect the
added costs of the public company which were not present in the comparable quarter for 1999.
Other costs reported include amortization of $67,714 in 2000, considerably higher than in the first quarter
of 1999 reflecting the impact of the additions to factory equipment year over year. Amortization in 1999
was $37,630. The Company also incurred financing interest costs this year of $3,505. This interest relates
to the lease-financing arrangement completed in this quarter for the purchase of two CNC mold-cutting
machines for our factory. In 1999, prior to the closing of the acquisition, Wetless was borrowing funds
from the Company and incurred large interest costs associated with these borrowings of $40,972 by
comparison for the first quarter.
Overall, our consolidated net loss in 2000 amounted to $706,075 which is 84 per cent higher than that of
the prior year of $383,686. The year over year increase was primarily attributable to the general ramp up of
operations.
Consolidated Financial Position
At March 31, 2000, we had cash of $544,124 and our working capital position was $504,913. We were
successful in raising a further $1,116,600 net of financing charges in March through the issue of 900,000
units priced at $1.25 per unit, each unit consisting of one common share and one non-transferable warrant
to purchase another common share of the Company at $2.00 per share for a period of two years from the
closing of the placement. In addition, we received $23,000 from the exercise of options for our common
shares. And as a result of the financed acquisition of the CNC machines we recorded an attributed source of
cash of $295,309 for the financed portion of the acquisition price.
Our funds on hand and from the above activities in the quarter were used to sustain our operations
throughout the quarter and to purchase equipment amounting to $383,851 in total. Our loss in the quarter
reduced these cash reserves by $706,075, and we also reduced cash resources notably by the pay down of
accounts payable of $351,595.
To date, our progress in increasing sales volumes from our production facility and through the licensing of
production equipment and the associated sale of resin material has been slower than we anticipated. We
continually draw on our cash resources to maintain operations. We have recently identified the need to
refocus our efforts solely on in-plant production where we have made the greatest progress to date and
concurrently to contain our overall costs of operations until sales volumes necessary to achieve profitability
are realized. To achieve this, we have effected a change in management and following this taken a number
of steps to reduce costs. Although we have increased revenues over the prior year and received additional
orders from existing and new customers, we recognize that our revenues will still be insufficient to meet
our ongoing costs of operations for the next several months. Consequently we anticipate the need for
additional funding to sustain our operations over this period and to allow us to increase our marketing
efforts in several areas for niche applications which we have identified.
Year 2000:
The Year 2000 issue arises because many computerized systems use two digits rather than four to identify a
year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a date. The Company has tested
all of its operating and accounting systems for Year 2000 compliance and has been satisfied that to the
extent known, there are no internal organization defaults related to the Year 2000 event. Although the
change of date has occurred, it is not possible to conclude that all aspects of the Year 2000 issue that may
affect the entity, including those related to customers, suppliers, or other third parties, have been fully
resolved.
INVESTOR RELATIONS
During 1999 and the first quarter of 2000, the Company did not engage outside parties for investor
relations. Investor relation's functions were accomplished through personnel whose duties include:
dissemination of news releases, investor communications, and general day-to-day operations of this
department.
SUBSEQUENT EVENTS
ú On May 2, 2000, Botex announced that effective April 27, 2000 Mr. Don Greer had been replaced by
Kevin Parkinson as President of the Company.
õ On May 16, 2000, the Company announced that, as a result of current market conditions, it would not
be proceeding with the private placement announced on February 22.
õ On May 24, 2000, Mr. Don Greer resigned from the board of directors. |
