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Consolidated Ecoprogress Technology Inc. (TSX VENTURE: CES)(PINK SHEETS: CEPGF) -
Mr. John Banks reports:
Ecoprogress has started implementing nanotechnology materials to reduce the cost of goods and simplify production.
On completion of the 1st tranche of the financing, the company consummated the agreement with QuarTek Corp. QuarTek Corp. received 4,150,000 restricted shares of stock and the first installment of US$100,000 has already been made. Under the agreement, a total of US$200,000 remains to be paid. QuarTek Corp. will receive a further 2,500,000 restricted shares upon the implementation of the new nanotech materials. QuarTek Corp. has developed a lower cost nanotech material using our technology that will be used in both the Flushaway™ pads and liners. The nanotech material is expected to be implemented in March and is expected to increase margins to around 40% after royalties to QuarTek. Presently, approximately 8 containers of product a month are needed to be cash neutral. With the addition of the new material, approximately 4 containers are needed to be cash neutral. Quality control testing and sampling will begin in early March to perfect the production process. Retooling of machinery and new production techniques will be implemented during this transition. New production facilities with machinery specific to our product line have been sourced. The new generation of the product will look and feel the same except at a much lower cost. It is expected that we will manufacture and ship at least 3 containers in March. While inventories of the Flushaway™ pads and liners are expected to be extremely low during this transition, store shelves are expected to remain stocked.
Presently our manufacturing is not exclusive. Other company's products are made at the same facilities. Upon a recent trip to China, the company has been working with its present manufactures to have specific machinery and personnel solely for the Flushaway™ pads and liners. This will result in less wait time for product, speed up the manufacturing process, will shorten the production time cycle and help improve quality.
During the months of November and December, manufacturing had decreased due to cash constraints caused by a delay in payment from one of our distributors for approximately US$96,000. In addition, audit costs were CDN$51,000 payable in advance to complete our year-end audit. During the month of November, one container was manufactured and shipped while in December no containers were manufactured and shipped. It was management's initial decision to begin implementing the new nanotech materials to our product line beginning January 1, 2007. The production cycle will be altered and new techniques will be used to manufacture the new generation of Flushaway™ pads and liners. The company did not want to jeopardize the product not being available and the distributors running out of inventory while sales were ramping up. Management is in agreement that while inventories will remain low, implementing the new materials at this time would be prudent. To accommodate the setting up of new machinery, sampling, testing and perfecting of the newest generation of both Flushaway™ pads and liners, there was no production for January and due to Chinese New Year, there will be no production in February. Commencement of production and distribution using the nanotech materials will restart in March. Outstanding sales orders remain at records highs.
To ensure our cash concerns are met and continue manufacturing we have closed the previously announced private placement in two tranches rather than one. Sales from the period ending September 30, 2006 were CDN$89,890.47. Sales in the last quarter ending December 31, 2006 increased to approximately CDN$121,000. Other sales were an additional CDN$5,768.12 in each quarter as the licensing fee paid by Highford Holding is amortized over the life of the contract.
Presently, our accounts payable are approximately $340,000 and loans payable of less than $10,000. Accounts Receivable for product is at present approximately $140,000. Due to the extremely competitive nature of our business, cash in the bank and the company monthly burn rate will not be disclosed. These amounts will only be disclosed in our quarterly reports available on SEDAR.
The 2nd tranche of the private placement is expected to close shortly.
We are in ongoing discussions with Proctor and Gamble regarding a cosmetic design patent that we may be infringing upon pending verification from our patent attorney Vermette and Co. The patent is part of a non functional element of our product. Discussions are continuing with Proctor and Gamble with regard to this matter.
Also, we are providing an update on our distributors and brokers. A full review of all distributors and brokers has begun to determine whether to continue or amend their contracts.
Ecoprogress Australia Pty Ltd., a separate entity and distributor, reports to us that to date both Flushaway pads and liners sales are robust. The product is selling in Coles and Priceline in Australia. We are awaiting verification from the distributor as to the number of locations the Flushaway liners and pads are in. At present the distributor owes us US$96,000. There was a disagreement over the payment terms that resulted in a delay of us receiving those funds.
One of our two US distributors, Dr. Fresh, has said sales continue at K-Mart locations throughout the United States. The original agreement stated they can earn an additional 2,000,000 restricted shares of stock if certain sales milestones were achieved. That agreement has now lapsed. Talks are continuing with Dr. Fresh to place our product into various other Tier 1 retailers.
Our second US distributor, SPD, has indicated that the Homeland Security test appears positive. Homeland Security and SPD have not yet released to us a formal written response.
Highford Holdings Ltd., our Chinese distributor, has 20 containers on order. The product now sells in Bonjour stores in Hong Kong and preliminary print advertising had begun.
Our South African distributor, Envirostar, has verbally informed us more purchase orders will occur in this quarter. They have informed us that they will continue to sell our product and increase the distribution. Distribution to date has been primarily small pharmacies. According to the distributor, larger stores have shown interest. An update will be issued as news becomes available.
Our Canadian broker, Tempo Sales, has yet to place the product into a Canadian store. As part of the review process the contract with Tempo Sales has been amended removing any exclusivity.
One of the major stumbling blocks for the company has been alternative financing rather than equity financing. The company does not want to continue using equity funding as it results in too much dilution. The company has recently hired Jim Farrell, of SME Bancorp, to facilitate purchase order and accounts receivable financing enabling Ecoprogress to sell directly to retailers and obtaining the 20% to 30% margin currently taken by distributors. Discussions with other purchase order financing companies continues. Mr. Farrell previously worked for the Japanese operations for Scotiabank involving trade letters of credit and foreign exchange. Due to the company's production facilities operating out of China and sales denominated in US dollars, the company will be implementing a hedging strategy to reduce currency risk. It is expected that this strategy will be implemented this quarter.
With options, warrants outstanding, purchase order and accounts receivable financing; the company anticipates small equity financings that would have the least dilutive effect to the shares outstanding. The company has considered a shares-for-debt settlement for many of the outstanding payables and loans. No decision has been made while the shares remain at historic lows.
In the area of advertising, the company delegates the advertising to the various distributors. Each distributor would be responsible for their own advertising budget. The distributor will be more hands on with this approach and is closer to the day-to-day consumer level. We feel that in this way, the advertising will generate increased sales. As well, it saves the company from expending large amounts of resources for advertising and thus lowers our monthly burn rate.
In other areas, the company continues to increase its US shareholder base. To reach a wider investor audience and make it easier for US citizens to buy stock in the company, we have initiated contact with a market maker in the US as the company plans to continue listing on the TSX Venture and also the Pink Sheets in the US. Presently the company has a clearing symbol in the US, CEPGF, but almost all the trading takes place on the TSX Venture market. The benefits include reaching a wider US audience and the ease of trading for US citizens. A progress report will be made available when news becomes available. A US market maker has been identified and preliminary discussions have begun. An update will be issued when a formal contract is entered into.
The company feels that with a market capitalization of just over CDN$3,500,000, the stock is extremely undervalued. Flushaway™ pads and liners now sell on four continents and sales are expected to increase on a quarterly basis. To this end, the company is actively seeking additional investor relations support to complement our existing investor relations. Preliminary discussions have begun with various groups but no decision has been made to date.
As well, the shares outstanding of the company have been incorrectly posted on Stockwatch and other news services. The company has approximately 72.3 million shares outstanding as of today's date. This amount includes the recently issued shares to QuarTek Inc. and it includes the shares issued in the first tranche of the private placement.
Lastly, given the number of changes expected this year the company will be providing a regular progress report on the last Thursday of every month. Shareholders and interested investors are encouraged to submit their e-mail address to to receive these and other updates.
Flushaway™ pads and liners are now carried in K-Mart in the US, and Coles and Priceline in Australia. Product is also available in South Africa, the US Marines Corps worldwide and Bonjour in Hong Kong.
Ecoprogress is diligently working on becoming a lead player in environmentally friendly, absorbent and plastic replacement products. Its first branded product, Flushaway™, provides women with the choice of a flushable feminine hygiene product.
ON BEHALF OF THE BOARD OF DIRECTORS
John Banks, CEO and President
Consolidated Ecoprogress Technology Inc.
Statements contained in this news release that are not historical facts are forward-looking statements as that term is defined in the private securities litigation reform act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from estimated results. Such risks and uncertainties are detailed in the Company's filings with the TSX-V and on SEDAR.
The TSX Venture Exchange has not reviewed nor accepted responsibility for the adequacy or accuracy of the contents of this news release, which has been prepared by management.
About Consolidated Ecoprogress Technology Inc.
Consolidated Ecoprogress Technology Inc. (CES) is a Canadian environmental (nano)technology company whose goal is to become the worldwide industry leader in production and sale of biodegradable and disposable products including; feminine hygiene products, diapers for infants, and adult incontinence products.
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Consolidated Ecoprogress Technology Inc.
CEO and President
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