Q3 2019 and YTD HIGHLIGHTS
BioNeutra had a significant turnaround of sales in the third quarter of 2019 with sales increasing 24% over the same comparable quarter of 2018. Research and development work on new products that will be fully recognized in the USA market for soluble fiber content are being tested by several of our larger clients in anticipation of significant growth in demand. BioNeutra was able to achieve a stable supply chain agreement with our offshore IMO contract manufacturer facilities and subsequent to quarter end signed a long-term supply agreement to that effect. This agreement will take effect in the fourth quarter of 2019 and management expects to be able to fill all outstanding orders and meet increased demand from our clients.
The Company was also able to achieve an amicable settlement of the outstanding recall claim from the start of the year, while at the same time maintaining a solid customer relationship and is now experiencing increased sales from that customer.
Management has been able to research, define and create a plan to address the inventory valuation write downs that had occurred in the previous quarters and are confident that our systems can produce accurate inventory valuations. Management does not anticipate further large write downs due to system issues.
Third quarter gross margins were significantly better than the second quarter but still suffered from some of the same supply issues that plagued the Company for the first half of 2019. Management believes with the execution of a long term supply agreement; gross margins should be able to return to historical levels in the fourth quarter of 2019 and beyond.
BioNeutra’s Canadian manufacturing plant is now in production, and the Company is well positioned to provide high quality retail products from this facility. In addition, the operation of the Canadian plant may be used to help offset possible future adverse events that may arise in other contracted plants at other locations. The plant has not yet reached full capacity and as such product costs in the third quarter were considerably higher than budgeted. Management has taken steps to increase production and lower costs while introducing new products and processes for the fourth quarter of 2019 and into 2020.
The Company’s products are becoming more diversified from the original basic VitaFiber powder and syrup. Product offerings now include original organic, DP3, organic DP3, VitaSweet, DixiFiber, Beta Glucan, BetaFiber powder and syrup, as well as an exciting new line up of retail products to be launched in 2020. The Company is continuing to expand its sales outreach to new regions and countries. New regions recently explored include India, Thailand, Indonesia, Malaysia, Vietnam, Cambodia, Philippines, Australia & New Zealand, Turkey, Israel and Brazil.
OUTLOOK
Management has taken proactive steps to respond to the critical shortage of supply from contract manufacturers by completing new contract agreements and developing plans to expand capacity of the Company owned manufacturing facility. Gross margins continued to be affected due to the reasons brought forward in the first half of 2019. We anticipate that gross margins should return to traditional margins as the result of eliminating supply shortages which will improve delivery to our clients and improve overall profitability in the coming quarters.
The Company has continued to invest in research and development as a commitment to our quality, but also to create new products that can complement our existing product offering. To that end BioNeutra will be launching a new, high fiber, low calorie prebiotic sweetener in early 2020 as well as new retail offerings to complement the launch online and in retail this fall.
Industry trends in health and wellness, plant-based products, fiber and sugar all strongly support continued growth and demand for our product. A key feature of the VitaFiber IMO family of products is their versatility. Few competitive products, and none manufactured in North America, possess the full functionality of these products. The products unique combination of health attributes allows BioNeutra to enter several segments within both mainstream and functional food and beverage markets and retail businesses. Coupled with superior functional attributes and extensive regulatory approvals, VitaFiber IMO represents excellent value for food and beverage manufacturers. They are also available as a certified organic product.