UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
AMENDMENT NO. 1
x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2005
o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 0-50520
BIOMASS PROCESSING TECHNOLOGY, INC.
(Name of Small Business Issuer as Specified in Its Charter)
Delaware | 65-0638890 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
3222 Commerce Place, Suite A, West Palm Beach, Florida | 33407 | |
(Address of Principal Executive Offices) | (Zip Code) |
(561) 684-6611
(Issuer’s Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of December 9, 2005, there were 71,145,657 shares of Common Stock issued and outstanding.
Transitional Small Business Disclosure Format: Yes x No o
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Certifications: Exhibits 31.1 and 31.2 | 26 |
Certifications: Exhibits 32.1 and 32.2 | 28 |
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This quarterly report contains both historical and forward-looking statements that reflect the Company’s current views with respect to future events. All statements, other than statements of historical facts, that address future activities, events or developments are forward-looking statements, including, but not limited to, statements containing the words "believe," "anticipate," "expect" and words of similar import. These statements are based on certain assumptions and analyses made by us in light of our experience and our assessment of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Whether actual results will conform to the expectations and predictions of management, however, is subject to a number of risks and uncertainties that may cause actual results to differ materially. These risks include, among others, the risks described under "Description of Business - Risk Factors" in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2004.
Consequently, all of the forward-looking statements made in this Form 10-QSB/A are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company's business operations. Furthermore, forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. Readers are cautioned to not place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this report.
Forward-looking statements are made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Company undertakes no obligation to update forward-looking statements to reflect further developments or information obtained after the date of filing of this Quarterly Report and disclaims any obligation to do so.
BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(Unaudited) | |||||||
September 30, | December 31, | ||||||
2005 | 2004 | ||||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 411,143 | $ | 44,559 | |||
Accounts receivable | — | 79,963 | |||||
Prepaid expenses and other current assets | 190,428 | 284,427 | |||||
Total Current Assets | 601,571 | 408,949 | |||||
Property and equipment, net | 24,056,762 | 24,974,665 | |||||
Other assets | |||||||
Equipment system | 2,175,290 | 2,137,783 | |||||
Patent application costs | 336,050 | 246,489 | |||||
Deposits and other assets | 101,780 | 101,780 | |||||
Total Other Assets | 2,613,120 | 2,486,052 | |||||
Total Assets | $ | 27,271,453 | $ | 27,869,666 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities | |||||||
Accounts payable | $ | 849,751 | $ | 1,709,511 | |||
Accrued expenses | 781,127 | 1,033,880 | |||||
Current portion of long term debt and capital leases | 55,802 | 124,810 | |||||
Total Current Liabilities | 1,686,680 | 2,868,201 | |||||
Long term debt | |||||||
Long term debt and capital leases, less current portion | 2,852 | 45,461 | |||||
Note payable - officer | 39,325 | 107,700 | |||||
Total Long-term Liabilities | 42,177 | 153,161 | |||||
Commitments and Contingencies | |||||||
Stockholders' equity | |||||||
Common stock, $.02 par value; 100,000,000 shares | |||||||
authorized; issued and outstanding, 71,145,657 | |||||||
at September 30, 2005 and 69,931,413 | |||||||
at December 31, 2004 | 1,422,913 | 1,398,628 | |||||
Additional paid in capital | 46,265,149 | 40,959,999 | |||||
Deficit accumulated during the development stage | (22,145,466 | ) | (17,510,323 | ) | |||
Total Stockholders' Equity | 25,542,596 | 24,848,304 | |||||
Total Liabilities and Stockholders' Equity | $ | 27,271,453 | $ | 27,869,666 | |||
See accompanying notes to the consolidated financial statements
BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Cumulative | ||||||||||||||||
During | For the Three | For the Nine | ||||||||||||||
Development | Months Ended September 30, | Months Ended September 30, | ||||||||||||||
Stage | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Revenues (Note 5) | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||
Operating Expenses | ||||||||||||||||
Research and development | 20,674,188 | 1,041,098 | 460,641 | 4,175,232 | 1,605,921 | |||||||||||
Loss on disposal of assets | 736,690 | — | 118,549 | 541,384 | 96,357 | |||||||||||
Total Operating Expenses | 21,410,878 | 1,041,098 | 579,190 | 4,716,616 | 1,702,278 | |||||||||||
Interest Expense | (400,701 | ) | (3,526 | ) | (10,857 | ) | (27,520 | ) | (27,202 | ) | ||||||
Loss from continuing operations | ||||||||||||||||
before income tax benefit | (21,811,579 | ) | (1,044,624 | ) | (590,047 | ) | (4,744,136 | ) | (1,729,480 | ) | ||||||
Income tax benefit | — | — | — | — | — | |||||||||||
Loss from continuing operations | (21,811,579 | ) | (1,044,624 | ) | (590,047 | ) | (4,744,136 | ) | (1,729,480 | ) | ||||||
Discontinued Operations (Note 5): | ||||||||||||||||
Profit (loss) from discontinued | ||||||||||||||||
Landfill contract activities | (333,887 | ) | — | (29,870 | ) | 108,993 | (507,840 | ) | ||||||||
NET LOSS | $ | (22,145,466 | ) | $ | (1,044,624 | ) | $ | (619,917 | ) | $ | (4,635,143 | ) | $ | (2,237,320 | ) | |
Loss per Common Share, Basic and Diluted: | ||||||||||||||||
From Continuing Operations | $ | (0.01 | ) | $ | (0.01 | ) | $ | ( 0.07 | ) | $ | (0.02 | ) | ||||
From Discontinued Operations | $ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.01 | ) | ||||||
Net Loss | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | (0.03 | ) | ||||
Weighted average number of common shares outstanding | 71,038,093 | 69,836,020 | 70,543,368 | 69,644,527 | ||||||||||||
See accompanying notes to the consolidated financial statements
BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Deficit | ||||||||||||||||
Accumulated | ||||||||||||||||
Number of | Common | During the | ||||||||||||||
Common | Stock, | Paid in | Development | |||||||||||||
Shares | at Par Value | Capital | Stage | Total | ||||||||||||
Balances as of December 31, 2004 | 69,931,413 | $ | 1,398,628 | $ | 40,959,999 | $ | (17,510,323 | ) | $ | 24,848,304 | ||||||
Issuance of common shares | 1,179,444 | 23,589 | 4,624,346 | — | 4,647,935 | |||||||||||
Issuance of common shares to | — | |||||||||||||||
Related Party (Note 2): | ||||||||||||||||
Contribution of common stock | (127,600 | ) | (2,552 | ) | 2,552 | — | ||||||||||
Acquisition of common stock | (127,600 | ) | (2,552 | ) | (40,948 | ) | (43,500 | ) | ||||||||
Issuance to related party | 290,000 | 5,800 | 719,200 | 725,000 | ||||||||||||
Net | 34,800 | 696 | 680,804 | 681,500 | ||||||||||||
Net loss for the nine month | ||||||||||||||||
period ended September 30, 2005 | — | — | — | (4,635,143 | ) | (4,635,143 | ) | |||||||||
Balances as of September 30, 2005 | 71,145,657 | $ | 1,422,913 | $ | 46,265,149 | $ | (22,145,466 | ) | $ | 25,542,596 | ||||||
See accompanying notes to the consolidated financial statements
BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Cumulative During | For the Nine Months Ended | |||||||||
Development | September 30, | |||||||||
Stage (see Note 1) | 2005 | 2004 | ||||||||
Operating Activities | ||||||||||
Net Loss | $ | (22,145,466 | ) | $ | (4,635,143 | ) | $ | (2,237,320 | ) | |
Adjustments to reconcile net loss to net cash used in operations: | ||||||||||
Depreciation | 3,367,029 | 1,764,641 | 158,971 | |||||||
Loss on disposal of assets | 736,690 | 541,384 | 96,357 | |||||||
Stock-based compensation | 163,700 | — | — | |||||||
Non-cash expense - stock transaction | 290,000 | 290,000 | — | |||||||
Changes in certain assets and liabilities: | ||||||||||
Accounts receivable | — | 79,963 | 45,514 | |||||||
Prepaid expenses & other current assets | (335,436 | ) | (51,009 | ) | 8,550 | |||||
Deposits and other assets | (101,780 | ) | — | (500 | ) | |||||
Accounts payable and accrued expenses | 1,638,550 | (1,112,513 | ) | 1,119,245 | ||||||
Net Cash Used in Operations | (16,386,713 | ) | (3,122,677 | ) | (809,183 | ) | ||||
Investing Activities | ||||||||||
Proceeds from sale of assets | 137,230 | — | 41,300 | |||||||
Patent application costs | (336,050 | ) | (89,561 | ) | (141,673 | ) | ||||
Construction of equipment system | (2,175,290 | ) | (37,507 | ) | (490,462 | ) | ||||
Purchases of property and equipment | (26,965,647 | ) | (1,243,114 | ) | (2,392,901 | ) | ||||
Net Cash Used in Investing Activities | (29,339,757 | ) | (1,370,182 | ) | (2,983,736 | ) | ||||
Financing Activities | ||||||||||
Proceeds from long-term debt issuances | 219,596 | — | 10,000 |
Repayment of debt and capital leases | (1,345,670 | ) | (111,617 | ) | (218,837 | ) | ||||
Proceeds from (payments on) | ||||||||||
Note payable - officer | 39,325 | (68,375 | ) | 112,700 |
Acquisition of stock | (43,500 | ) | (43,500 | ) | — | |||||
Proceeds from common stock issuance | 47,267,862 | 5,082,935 | 3,588,750 | |||||||
Net Cash Provided by Financing Activities | 46,137,613 | 4,859,443 | 3,492,613 | |||||||
Net increase (decrease) in cash and cash equivalents | 411,143 | 366,584 | (300,306 | ) | ||||||
Cash and cash equivalents | ||||||||||
at beginning of the period | — | 44,559 | 394,816 | |||||||
Cash and cash equivalents | ||||||||||
at the end of the period | $ | 411,143 | $ | 411,143 | $ | 94,510 | ||||
(Continued) | ||||||||||
See accompanying notes to the consolidated financial statements
BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Cumulative | ||||||||||
During | For the Nine Months Ended | |||||||||
Development | September 30, | |||||||||
Stage (see Note 1) | 2005 | 2004 | ||||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||
CASH PAID DURING THE PERIOD FOR: | ||||||||||
Interest (net of amounts capitalized) | $ | 399,963 | $ | 31,100 | $ | 23,986 | ||||
Income taxes | $ | — | $ | — | $ | — | ||||
Supplemental Disclosure of Noncash Investing and Financing Activities: | ||||||||||
Equipment Financing. During the nine months ended September 30, 2005 and 2004 the Company acquired equipment and vehicles by entering into capital leases and debt agreements totaling $-0- and $155,975, respectively. Since inception, the Company acquired equipment and vehicles by entering into capital leases and debt agreements totaling $1,330,277. | ||||||||||
During the three months ended September 30, 2004, the Company assigned a capital lease with respect to certain equipment subject to that lease. On the date of assignment, the equipment had a book value of $134,103 and the capital lease balance assumed by the buyer was $135,549. | ||||||||||
Debt to Equity Conversion. During the three months ended September 30, 2004, the holder of a convertible promissory note in the amount of $10,000 elected, in accordance with provisions of the note, to convert the note to 2,500 shares of common stock valued at $4.00 per share. | ||||||||||
See accompanying notes to the consolidated financial statements
BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Biomass Processing Technology, Inc. and its wholly-owned subsidiaries, Omni Environmental Corporation, (formerly known as Omni Technologie International, Ltd. and incorporated in Delaware on June 23, 1989), BPT CAV1 Corporation (“CAV1”), and BPT Intellectual Property Corporation (“IP”) (collectively, “the Company”). All significant inter-company transactions have been eliminated. CAV1 was incorporated in the State of Florida on October 24, 2003, to operate the CAV1 facility and IP was incorporated in the State of Delaware on October 24, 2003, to manage certain intellectual property assets. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Development Stage and Going Concern Considerations: In December 2004, the Company commenced operating the CAV1 facility on a test basis by initiating test production operations. The Company continues to be a development stage enterprise as defined under GAAP because it has not yet generated significant revenues in its intended business. Historically, the Company has relied upon outside investor funds to maintain its operations and develop its business. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company currently expects initial shipment of product to occur during the fourth quarter of 2005. While the Company believes that its current resources may be sufficient to enable it to commence production activities with lines one and two of its CAV facility, the Company will need to raise additional capital to fund the construction costs required to bring lines three and four operational and to complete implementation of the hydrolysis process at the CAV facility. Further, the Company will need to raise additional capital to fund the cost of constructing lines five and six at the CAV facility. The Company has commenced efforts to raise additional capital through private placements of equity securities. There is no assurance that the Company will be able to raise additional funds that may be necessary to enable it to continue its planned business operations including expansion at the planned rate. Should any of management’s planned events not occur, the Company's financial condition and results of operations may be materially affected.
Interim Reporting: The accompanying unaudited financial statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions to Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The consolidated balance sheets, statements of operations, and statements of cash flows include, in the opinion of management, all the adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of these periods and the financial condition as of that date. There are no additional material subsequent events
BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION (Continued)
or material contingencies that require disclosure. The information included in these unaudited financial statements should be read in conjunction with Part I, Item 2, “Plan of Operation” contained in this report and with the financial statements and accompanying notes included in the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004. Historical interim results are not necessarily indicative of results that may be expected for any future period.
NOTE 2 - RELATED PARTY TRANSACTIONS
During 2004, Larry W. Denney, the Company’s principal stockholder, Chairman of the Board, President and Chief Executive Officer, loaned the Company $110,000 for working capital under a note in a principal amount not to exceed $200,000 and bearing simple interest at 4%. Through December 31, 2004, Mr. Denney made additional advances of $59,700 to the Company under the note and the Company repaid $62,000 under the note. The note, as amended, is payable on or before October 1, 2006 and may be prepaid without penalty. The balance as of December 31, 2004 was $107,700. Accrued interest, which is presented as a component of accrued expenses, totaled $738 and $4,318 as of September 30, 2005, and December 31, 2004, respectively. During the nine months ended September 30, 2005, the Company made payments of $68,375 in principal and $5,240 in interest and $1,660 in interest was accrued. As of September 30, 2005, the balance of principal was $39,325.
On September 27, 2005, Philip H. Good, a Director of the Company, acquired 290,000 shares of the Company’s common stock, pursuant to the following transactions. Larry W. Denney, President, Chief Executive Officer, and Chairman of the Board, contributed 127,600 of his personally owned common shares to the Company for no consideration; the Company purchased 127,600 of personally owned common shares from Jack B. Simpson, a cofounder of the Company, for $43,500; then the Company sold the 255,200 contributed shares, plus 34,800 of newly issued common shares for a total of 290,000 shares, to Mr. Good for cash consideration of $435,000. The transactions resulted in net cash proceeds to the Company of $391,500 for a net increase of 34,800 issued and outstanding common shares.
BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE 2 - RELATED PARTY TRANSACTIONS (Continued)
The shares contributed by Mr. Denney for no consideration and the shares sold to the Company at approximately $.34 per share by Mr. Simpson were contributed or sold to reduce the dilutive effect on existing stockholders that would have resulted had the Company sold newly issued shares at lower prices than those paid by previous investors. As the Company’s largest stockholders, Mr. Denney and Mr. Simpson stood to benefit from an increase in the Company's value resulting from raising the additional capital. After the transactions, Mr. Denney owned 32,802,663.5 shares and Mr. Simpson owned 15,768,431.5 shares. The contributed shares were accounted for as capital contributions to the Company at par value of $.02 per share as a decrease in common stock issued and outstanding and an increase in additional paid in capital.
Pursuant to accounting rules and principles applicable to these types of related party transactions, the Company recorded a $290,000 non-cash increase in its “additional paid in capital” account, and it recorded a non-cash expense for the same amount; the recording of this non-cash accounting entry has no effect on total stockholders’ equity. (Also see Note 7 - Subsequent Events.)
Jack B. Simpson, a principal stockholder, advanced the Company $3,000 as a short-term, non-interest bearing loan as of December 31, 2004, which was included in accrued expenses. Mr. Simpson was a director at the time the loan was advanced. This amount was repaid to Mr. Simpson during the three months ended March 31, 2005.
During the year ended December 31, 2004, the Board of Directors approved $67,110 in consulting fees for shareholder relations services provided by a company wholly-owned by Mr. Simpson. As of December 31, 2004, the balance due on these fees of $42,110 was included in accrued expenses. This amount was paid during the three months ended March 31, 2005. The Board also approved the payment of an additional $16,777 in consulting fees to the same company during the three months ended March 31, 2005.
NOTE 3 - NET LOSS PER COMMON SHARE
Statement of Financial Accounting Standards (“SFAS”) No. 128, "Earnings Per Share" requires companies with complex capital structures or common stock equivalents to present both basic and diluted earnings per share (EPS). The Company’s only authorized capital stock is 100,000,000 shares of common stock, $0.02 par value per share. There were no common share equivalents as of or during the periods ended September 30, 2005. In February 2004, the Company issued a convertible promissory note, which constituted a common stock equivalent. The note was converted into shares of the Company’s common stock on July 26, 2004. Therefore, the Company did not have common stock equivalents as of September 30, 2004, and there was no diluted EPS during the periods ended September 30, 2004 as the effect was anti-dilutive.
BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
Basic EPS is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated by dividing net income (loss) available to common stockholders by the weighted average number of common shares and common stock equivalents. Common stock equivalents are excluded from the computation in periods in which they have an anti-dilutive effect. In accordance with SFAS No. 128, the weighted average number of shares includes shares issued and shares reacquired during the respective periods.
A reconciliation of the number of common shares shown as outstanding in the consolidated financial statements with the number of shares used in the computation of weighted average common shares outstanding is shown below:
For the Three | For the Nine | ||||||||||||
Months Ended September 30, | Months Ended September 30, | ||||||||||||
2005 | 2004 | 2005 | 2004 | ||||||||||
Outstanding shares | 71,145,657 | 69,904,913 | 71,145,657 | 69,904,913 | |||||||||
Effect of Weighting | (107,564 | ) | (68,893 | ) | (602,289 | ) | (260,386 | ) | |||||
Weighted Average | 71,038,093 | 69,836,020 | 70,543,368 | 69,644,527 |
NOTE 4 - ACCRUED LIABILITIES
Accrued liabilities represent expenses that apply to the reported period and have not been billed by the provider or paid by the Company. At September 30, 2005, and December 31, 2004, accrued liabilities consisted of the following:
September 30, 2005 | December 31, 2004 | ||||||
Accrued Property Taxes | $ | 317,217 | $ | 206,639 | |||
Reserve for Casualty Loss | 223,597 | 445,687 | |||||
Deferred Officers Salaries | 148,019 | 176,950 | |||||
Accrued Vacation | 36,620 | 35,885 | |||||
Accrued Payroll and Payroll Taxes | 26,824 | 56,543 | |||||
Accrued Professional Fees | 28,850 | 104,810 | |||||
Other | — | 7,366 | |||||
Total Accrued Liabilities | $ | 781,127 | $ | 1,033,880 |
BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE 5 - DISCONTINUED OPERATIONS
Effective January 13, 2005, the Company terminated its contract with St. Lucie County for services in disposal of vegetative waste at the St. Lucie County landfill. At the request of St. Lucie County, the Company continued to perform the services through April 5, 2005 in order to maintain service until a new contractor commenced work.
These activities were never intended to be a primary business of the Company, but rather a means for the Company to obtain vegetative biomass to be used in the production of the Company’s primary product. The Company now expects to use animal based biomass which is less expensive than the vegetative waste from the municipal landfill.
Consistent with the requirements of SFAS No. 144, the above noted activities are being reported as discontinued operations. There are no income tax liabilities or benefits associated with the discontinued operations.
Because of the reclassification of previously reported revenues to discontinued operations, the Company now reports $ -0- revenues. The revenue and the operating results of the discontinued activities described above for the three month periods ended September 30, 2005 and 2004, for the nine month periods ended September 30, 2005 and 2004, and for the cumulative period during development stage were as follows:
Cumulative | ||||||||||||||||
During | For the Three Months | For the Nine Months | ||||||||||||||
Development | Ended September 30, | Ended September 30, | ||||||||||||||
Stage | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Revenues | $ | 8,448,276 | $ | — | $ | 267,302 | $ | 468,772 | $ | 939,655 | ||||||
Cost of Services Provided | 8,782,163 | — | 297,172 | 359,779 | 1,447,495 | |||||||||||
Net Income (Loss) | $ | (333,887 | ) | $ | — | $ | (29,870 | ) | $ | 108,993 | $ | (507,840 | ) |
The following items have been reclassified from presentation within operating expenses in prior period financial statements to discontinued operations as reflected above. Effective May 2004, the Company recorded a $485,000 loss accrual related to equipment damaged in a fire at the St. Lucie landfill site. “Cost of Services Provided” in the discontinued operations shown above for the nine months ended September 30, 2005 includes an adjustment of $109,718 for revisions reducing the accrual.
BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
NOTE 5 - DISCONTINUED OPERATIONS (Continued)
Assets related to discontinued operations consist of accounts receivable of $ -0- and $79,963 as of September 30, 2005 and December 31, 2004, respectively. Liabilities related to discontinued operations are $223,597 and $639,144 as of September 30, 2005
and December 31, 2004, respectively. These liabilities are included in accounts payable and accrued expenses.
NOTE 6 - CHANGES IN ESTIMATED SERVICE LIVES OF CERTAIN ASSETS AND RECLASSIFICATION OF CERTAIN CURRENT ASSETS
In December 2004, the Company began depreciating equipment at its CAV1 facility using a preliminary estimated service life of five years. During the second quarter of 2005, the Company analyzed all of the facility’s component assets and their estimated service lives and made the following changes within property and equipment: (1) the Company wrote off components valued at $541,384 which were determined to be obsolete portions of the facility; (2) the Company reclassified as construction in process components valued at $4,340,691 identified as parts of the facility not yet in service; (3) the Company identified a group of machinery components with service lives of seven years and another group of machinery and equipment with service lives of twenty years. As of the beginning of the second quarter of 2005, the Company began depreciating assets based on the revised assessment of assets placed in service and the revised estimate of the service lives of the components of the equipment as described above.
During the second quarter of 2005, the Company enhanced its system of spare parts inventory reporting and system of physical counts of spare parts inventory. As a result of the analysis, spare parts valued at an aggregate of $145,008 and previously included in current assets were reclassified as a component of property and equipment as of June 30, 2005.
During the second quarter of 2005, the Company reclassified “Equipment in process, held for sale” from current assets to “Other Assets - Equipment system” consistent with the Company’s current intention to offer the equipment for rental, with servicing and licensing included, by the end of 2005. The equipment, which is reflected at its cost of $2,175,290 and $2,137,783, as of September 30, 2005, and December 31, 2004, respectively, has also been reclassified in the presentation herein of the December 31, 2004 balance sheet.
NOTE 7 - SUBSEQUENT EVENTS
On November 14, 2005, the Company sold 965,000 shares of common stock for $965,000 to Philip H. Good, a director. Of the shares sold, 482,500 shares were contributed to the Company without consideration by Larry W. Denney, Chairman of the Board, President, and Chief Executive Officer, and 482,500 shares were contributed to the Company without consideration by Jack B. Simpson, a cofounder of the Company.
As of September 30, 2005, the Company was a development stage company, as its planned principal operations had not commenced and it had not conducted significant operations or generated significant operating revenues since its inception. The principal business of the Company is intended to be the development and commercialization of its proprietary biomass processing technology, through the application of which biomass material may be converted into its constituent components using hydrolysis and fermentation-based processing. The plan of operations for the next twelve months and beyond of the Company is to produce and sell basic feed protein and other products for the animal feed, food, chemical, and energy markets. These products are to be produced by the Company from the processing of biomass material using the Company’s proprietary technology and production facilities.
Liquidity and Capital Resources
As of September 30, 2005, the Company’s working capital deficit was $1,085,109. This represents a reduction in working capital deficit of $1,374,143 during the nine month period over the working capital deficit of $2,459,252 as of December 31, 2004 (See Note 6 to the financial statements regarding reclassification of certain assets from current assets to long-term). The $1,374,143 change in working capital consisted of a $192,622 increase in current assets and a $1,181,521 decrease in current liabilities. The change in working capital was primarily due to the Company’s receipt of $5,082,935 in proceeds from private placements of the Company’s common stock during the period.
The Company is substantially dependent upon the proceeds from sales of its common stock for working capital. The Company's principal uses of its working capital are to pay operating expenses and to fund expansion costs, including capital expenditures and the cost of additional personnel. Should the funds available to the Company be insufficient to fulfill all of these needs, the Company manages its available funds according to the following priorities (from highest to lowest): (1) payment of operating expenses, (2) creation or maintenance of a sufficient working capital reserve, and (3) expansion of personnel and equipment to implement the Company's business plan.
The Company believes that its current capital resources are insufficient to fund both its intended operations and expansion at its planned expansion rate. While the Company believes that its current resources may be sufficient to enable it to commence production activities with lines one and two of its CAV facility, the Company will need to raise additional capital to fund the construction costs required to bring lines three and four operational and to complete implementation of the hydrolysis process at the CAV facility. Further, the Company will need to raise additional capital to fund the cost of constructing lines five and six at the CAV facility.
The Company is continuing efforts to raise additional capital through private placements of common stock. There is no assurance that the Company will be able to raise additional funds that may be necessary to enable it to continue its planned business operations including expansion at the planned rate. Should any of management’s planned events not occur, the Company's financial condition and results of operations may be materially affected.
As a consequence of the shortfalls in capital raising which the Company has experienced, the Company has incurred significant staffing limitations and personnel reductions. The capital limitations have restricted the Company’s ability to obtain and train experienced personnel required to reach established goals. After identifying, attracting, and hiring qualified personnel, a period of time is required to acquaint new employees with Company policies and goals and to train them in the Company's technology. During and subsequent to the third quarter 2005, the Company has begun to hire and train additional personnel with the funds raised from recent equity placements. As of November 14, 2005, the Company has added five engineers and has qualified and trained sufficient operators for the Company’s intended three-shift operation at the CAV facility.
The Company's ability to add and train qualified personnel is a key element of its ability to fully pursue its business plan in the time desired. Should the Company be unable to attract and retain sufficient qualified personnel, its ability to achieve its goals within predicted time frames will be adversely affected.
The CAV Facility
During the nine months ended September 30, 2005, the Company continued testing of its combined animal and vegetative (“CAV”) biomass conversion and fermentation operation, including testing of underground pipeline delivery to the CAV of nutrient extracted from dairy barn waste. The Company has completed this testing successfully.
As a result of testing in September and October 2005, it was decided to implement a productivity change in the dryers which is in progress and expected to be completed by the end of November 2005.
While no damage to facilities occurred, the Company experienced weeks of lost time during the testing phase due to the passage of hurricanes Katrina and Wilma.
As described in our previous quarterly report, in August 2005, the Company began the process of bringing production lines one and two of the CAV facility into operation with the goal of commencing production and accumulation of initial finished product inventory. At the time, the Company expected to begin generating revenues from the sale of products near the beginning of the fourth quarter of 2005. Although the Company experienced delays, primarily as a result of the hurricanes and improvements in the dryers, the Company currently expects initial shipment of product to occur during the fourth quarter of 2005. The Company expects to emerge from the development stage and commence financial reporting as an operating company when it recognizes significant revenues from product sales.
The CAV facility as currently constructed has four fermenter lines, each of which includes a 200,000-gallon fermentation reactor. Two lines are fully constructed to production capability and ready to commence production operations, including extensive production level testing. Subject to raising the additional capital necessary, the Company plans to complete the work necessary to expand its production capacity to utilize all four fermentation lines. The production capacity of the CAV facility utilizing all four fermentation lines is approximately 300% of the production capacity of the facility utilizing only lines one and two.
The CAV facility is permitted for up to six production lines. Although the Company plans to construct the fifth and sixth production lines as soon as feasible, the Company has not entered into any construction contracts and will require additional capital to fund the cost of constructing these additional lines. The Company expects its commercial processing operations at its CAV facility to initially consist of processing yeast in a sterile environment utilizing phosphorus, nitrogen, carbohydrate, and other nutrients contained in barn waste from adjacent farming operations. The primary product to be produced by the CAV facility is yeast to be marketed to animal feed manufacturers for use as a protein and pro-biotic supplement to animal feed. The secondary product presently planned to be produced at the CAV facility is lignin, a natural polymer.
The Company’s investment in its CAV facility and supporting spare parts inventory is $25.4 million as of September 30, 2005. This amount includes construction and installation of all reactors and major equipment for four lines of fermentation, with piping and control for two production lines to operational status. This amount also includes the cost of construction of redundant infrastructure, such as boilers, hydrolysis reactors, compressed air, freon chillers, evaporative water cooling, reverse osmosis, process control, and ancillary buildings, all to support up to six production lines. Of the total construction costs of the facility, $17.7 million represents lines one and two and related equipment already operational, $5.5 million represents construction in process in lines three and four and the hydrolysis system, and $2.2 million represents buildings, leasehold improvements, and back up spare parts.
The Company has in place the major processing equipment for four production lines and is in the process of contracting for the construction work necessary to bring lines three and four operational by adding piping, sensor and control elements. The Company is seeking to raise additional capital to fund a portion of these costs, as it does not currently have sufficient funds on hand for this purpose.
Construction costs remaining to bring line three operational are estimated at $57,500 in parts and $325,000 in vendor labor. Construction costs remaining to complete line four are estimated at $765,500. Subject to raising the additional capital required to fund these costs, the Company expects to complete construction of lines three and four during the fourth quarter of 2005. Should the Company be unable to raise the necessary additional capital to pay these costs, it is likely to be unable to complete these construction activities within these time periods.
In addition, most major components required for hydrolysis are in place. Implementation of the hydrolysis process requires the in-place components plus the addition of material handling equipment, piping and control. The Company has authorized final construction on the hydrolysis process with completion expected early in 2006 at an estimated cost of about $315,000. The hydrolysis process is expected to be implemented in three phases. Unlike the fermentation aspect of the process at the CAV, no production-scale testing of the hydrolysis process has been performed. Should the Company be unable to raise the necessary additional capital to pay these costs, it is likely to be unable to complete the implementation of the hydrolysis process at the CAV facility within this time period.
The fifth and sixth production lines will require construction and installation of foundations and all major process equipment, as well as piping and control. The Company estimates the cost of constructing these two additional lines (lines five and six) of production to be $4,000,000 and projects the addition of these two lines will increase production capacity by two thirds (167%) of the original estimated production capability of the first four lines, and 450% of the production capacity of lines one and two combined. The Company will need to raise additional capital to fund this expansion through additional private offerings of its securities.
Patent Applications
On May 16, 2005, the Company filed seven Patent Cooperation Treaty (“PCT”) applications, claiming priority to seven provisional patent applications the Company previously filed with the United States Patent and Trademark Office with respect to its proprietary technology for the processing of biomass materials. A provisional application is a patent filing allowing the Company one year to complete the final application. The filing of the PCT applications extends the time allowed to the Company to complete filing formal U.S. applications, and gives the Company the ability to extend the time for filing applications with foreign governments that are Patent Cooperation Treaty participants.
Based on the PCT applications, the Company has been advised by its patent counsel that the final applications may seek issuance of 50 or more U.S. and foreign patents. Upon the granting of any patents, the associated costs will be amortized over the life of the patents.
The technology covered by the Company’s patent applications involves pre-treatment, core fermentation, and post treatment aspects. The Company believes each of these aspects has unique elements, and the PCT patent applications seek coverage in each of these general areas. Both equipment and process innovations are covered for many diverse waste streams. Treatment of all the waste streams utilizes the central inventive aspects of the process (“core technology”).
The waste streams explored are:
· | Ruminant cattle manure |
· | Swine and other animal manure |
· | Municipal cellulosistic solid waste |
· | Other cellulosistic solid waste |
· | Whey broth from cheese production |
· | Fermentation broth remediation from alcohol and yeast production |
· | Other undefined dilute waste streams |
Ruminant cattle and swine manure treatment and remediation are dealt with more extensively in the presentation as specific instances of application of the core technology.
The Company believes that the discoveries presented in its patent applications constitute a novel means of fermentation. In general the core technology presented, taken as a whole, addresses the major problems of waste stream treatment—sub optimal, very dilute, poor, and variable concentration nutrient supply. The Company believes that its technology can address remediation of waste streams as dilute as certain river water, or as concentrated as manure, potentially with recovery of valuable product that may more than offset the cost of the processing.
Other innovations presented in the patent applications may be separated into (1) proper preparation of the waste stream and (2) the core technology—equipment design, fermentation organism selection, sensor and control selection, and process definition.
The Company’s technology includes elements relating to the proper preparation of waste streams for fermentation that are both necessary to optimize utilization of waste streams for use in the core technology and are otherwise generally useful, innovative tools. These elements relate to:
· | Recovery of organic material suitable for fermentation. |
· | Limiting presence of substances that interfere with, or make less optimal, proper recovery. |
The Company refers to these processes as its EcoGold™ technology (discussed below). The processes involve the recovery of nutrient value from dilute, variable waste streams by fermentation processing. The technology encompasses several variations that include cheese whey, ethanol fermentation waste, and recovery of nutrient specific to various manure waste animal species such as hogs, poultry, and cattle.
The Company can give no assurance that the provisional patent applications will result in the issuance of any specific patents, or that any patents that may be issued will withstand challenge, provide any specific protection or ultimately be of commercial value to the Company.
EcoGold™ - The Dilute Waste Stream Recovery Technology
The Company’s seven provisional patent applications, and the additional seven PCT applications discussed above, are related to a unique biomass processing technology that the Company refers to as EcoGold™. EcoGold™ is the name of the Company’s ecologically beneficial process and equipment as well as the name of the product produced through the process, which is a golden colored, high value nutrient. The EcoGold™ process is designed to reduce phosphorus and nitrogen pollution from waste streams, by creating a valuable product (protein) at farms and industrial sites.
The Company plans to complete installation of the first equipment developed using the EcoGold™ process at a large dairy testing site by the end of 2005, after commencing sales of the products of its CAV facility processing operations.
The Company expects to complete testing and any necessary modifications to this unit and to then offer the unit for rental with servicing and licensing included by the end of 2005. This test site equipment is shown on the Company’s balance sheet as of September 30, 2005 as “Equipment system” reflected at a cost of $2,175,290, although the cost of future smaller units may be considerably less if the Company is able to successfully produce these units through larger scale production. The rental/lease agreement anticipated for this first unit is expected to be based on anticipated future lower cost of production, but to return full value to the Company as a result of the inclusion of licensing fees in the revenue base. The Company has had initial discussions with several vendors, but has not yet entered into any agreements with respect to the sale or production of these units.
Other Products in Development
The Company presently is concentrating its efforts on its CAV and EcoGold™ operations as discussed above. The Company has other potential products and applications of its technology which are in various stages of research and development.
Annual Meeting of Stockholders
On October 4, 2005 the Company held its Annual Meeting for Stockholders at the Company’s corporate offices in West Palm Beach, Florida. Shareholders representing over 71% of outstanding shares of common stock attended. Current directors Larry W. Denney, Sandra McDonald, P.E. MacAllister, and Philip H. Good were elected unanimously by those attending to continue serving until the next Annual Meeting of Stockholders in 2006. Following the meeting, stockholders in attendance took a tour of the CAV facility in Okeechobee, Florida to see it in operation.
Discontinued Operations
Effective January 13, 2005, the Company terminated its contract with St. Lucie County for services in disposal of vegetative waste at the St. Lucie landfill. At the request of St. Lucie County, the Company continued to perform the services through April 5, 2005 in order to maintain service until a new contractor commenced work.
The Company’s activities in handling vegetative waste at municipal landfills were intended as a feasibility test and not as the Company’s planned business operations or a core business activity. The Company’s purpose in engaging in these activities historically was to demonstrate the availability and actual costs of this form of raw material. The Company was attempting to establish that the material could be obtained at a cost of approximately zero net of fees or at a slight profit. The Company referred to this concept of obtaining low cost waste material for use in production as “zero to negative cost” of raw materials. During the five year life (2000-2005) of the contracts, the Company established that a “zero to negative cost” (net of fees) in obtaining the material was possible.
The Company’s CAV biomass processing plant has been designed to utilize animal biomass, vegetative biomass, or a combination of both as raw material for the production of yeast. The vegetative biomass was intended to be used as raw material in production of the Company’s primary product, yeast animal feed protein supplement. While use of vegetative biomass material such as the landfill material remains an option, use of this material has been relegated to a back-up plan due to the intended total replacement of the vegetative material with animal-based material processed by the Company’s EcoGold™ technology. This animal based biomass is expected to be less expensive than the vegetative waste from the municipal landfill because transportation is a negligible cost due to proximity of the material and as a result of automated processing and underground pipe transporting systems. The cost of the material itself is negligible because the Company has a contract in place under which it receives a significant supply of barn waste at no cost.
In the future, the Company may consider utilizing some form of vegetative biomass as raw material if it becomes cost beneficial or if greater quantities of raw material are required. Currently the Company does not intend to continue any activities similar to those related to the St. Lucie County contract noted above.
The Company continues to be a development stage enterprise as defined under GAAP because it has not yet generated significant revenues in its intended business. In prior years the Company’s financial statements have presented revenues and related operating expenses of the St. Lucie County contract and a similar contract with Indian River County, Florida, which contract expired in a prior year, as gross revenues from operations although these activities were never intended to be a primary business of the Company. The Company anticipates that fees it may receive from processing animal or vegetative waste will not be material.
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of September 30, 2005, the Company's management carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. This evaluation was carried out by Larry W. Denney, the Company's Chief Executive Officer, and Robert F. Kendall, the Company’s Chief Financial Officer. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2005, the Company's disclosure controls and procedures were not effective in timely alerting them to material information required to be included in the Company's periodic SEC reports.
The Company's independent auditors, in conjunction with their audit of the Company’s financial statements for the year ended December 31, 2004, advised the Company and the Audit Committee that in the auditors' view, the Company's disclosure controls and procedures were subject to a material weakness resulting from inadequate segregation of duties related to accounting controls caused by the limited number of personnel available for accounting duties. The accounting department consists of the chief financial officer, who is a CPA, one accountant, and the controller, who is married to the chief executive officer of the Company. Additionally, the chief executive officer of the Company is active in review of all aspects of financial reporting. As a mitigating control, the chief executive officer, chief financial officer, controller, and the accountant do extensive review of all of the accounting records and financial reporting. The Company is a research and development company in the development stage. Since inception in 1996 the Company has been entirely funded by investment and has had no revenues to date in its intended business. Management believes that remediation of the cited lack of segregation of duties can be accomplished through the hiring of additional accounting personnel or by adding or modifying certain existing internal control procedures. For example, the Company is evaluating guidance set forth in COSO’s “Exposure Draft on Internal Controls - Integrated Framework Guidance for Smaller Public Companies Reporting on Internal Controls Over Financial Reporting.” As for hiring additional personnel, it has not been reasonable or cost beneficial for the Company to hire extra accounting personnel who have no other purpose, duties, or workload than to provide formal segregation of duties under internal control principles. In the future, the Company may hire additional accounting personnel as soon as it has sufficient financial resources and additional workload to justify such hiring.
It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company's reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act with respect to the fiscal quarter ended September 30, 2005 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
On various dates from July 5, 2005 through September 5, 2005, in a private offering limited to existing stockholders which commenced on June 15, 2005, the Company had received an aggregate of $889,625 in proceeds from the sale of an aggregate of 355,850 shares of common stock at a price of $2.50 per share to 47 existing stockholders only, each of whom the Company believes to be an accredited investor. The shares were offered and sold without general solicitation or advertising and without registration in reliance on Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D thereunder.
On various dates between August 22, 2005, and September 12, 2005, the Company sold an aggregate of 6,500 shares of common stock at a price of $10 per share to three investors, all of whom the Company believes to be accredited investors, for aggregate proceeds of $65,000. The shares were offered and sold without general solicitation or advertising without registration in reliance on Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D thereunder.
On September 27, 2005, the Company sold 290,000 shares of common stock to Philip H. Good, a Director of the Company, at a price of $1.50 per share, for aggregate proceeds of $435,000. Larry W. Denney, Chairman, President, and Chief Executive Officer of the Company, contributed 127,600 of his personally owned shares to the Company for no consideration and the Company purchased 127,600 of personally owned common shares from Jack B. Simpson, a former Director, for $43,500. The net effect of these transactions was that the Company received net proceeds of $391,500 for the net issuance of 34,800 additional shares of common stock. The shares were issued without registration in reliance on Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D thereunder.
List of Exhibits:
Document | Exhibit No. |
Certificate of Incorporation filed with the Delaware Secretary of State on January 30, 1996 (incorporated herein by reference to Exhibit 2.1.1 of the registrant's Form 10-SB, filed with the Commission on December 19, 2003) | |
Certificate of Amendment to Certificate of Incorporation filed with the Delaware Secretary of State on September 12, 1997 (incorporated herein by reference to Exhibit 2.1.2 of the registrant's Form 10-SB, filed with the Commission on December 19, 2003) | |
Certificate of Amendment to Certificate of Incorporation filed with the Delaware Secretary of State on May 23, 2001 (incorporated herein by reference to Exhibit 2.1.3 of the registrant's Form 10-SB, filed with the Commission on December 19, 2003) | |
By-Laws (incorporated herein by reference to Exhibit 2.2 of the registrant's Form 10-SB, filed with the Commission on December 19, 2003) | |
Certification by the Chief Executive Officer of the Company pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended* | |
Certification by the Chief Financial Officer of the Company pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended* | |
Certification by the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
Certification by the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
* | Filed herewith |
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BIOMASS PROCESSING TECHNOLOGY, INC. | ||
| | |
Dated: May 9, 2006 | By: | /s/ Larry W. Denney |
Name: Larry W. Denney Title: Chairman of the Board, President and Chief Executive Officer (principal executive officer) |
Dated: May 9, 2006 | By: | /s/ Robert F. Kendall |
Name: Robert F. Kendall Title: CPA, Chief Financial Officer (principal financial officer) |
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