Third Quarterly Report
Ending February 29, 2008
Financial Statements
Neptune Technologies & Bioressources Inc.
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| Unaudited |
| Audited |
February 29, 2008 and May 31, 2007 |
| February 29, |
| May 31, |
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| 2008 |
| 2007 |
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ASSETS |
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Current assets |
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Cash and cash equivalents | $ | 684,786 | $ | 659,354 |
Short term deposits (3.55%) |
| 2,630,778 |
| 2,750,323 |
Accounts receivable |
| 3,785,363 |
| 3,067,381 |
Tax credits receivable |
| 121,746 |
| 100,858 |
Inventories |
| 1,941,314 |
| 2,115,652 |
Prepaid expenses |
| 108,590 |
| 53,039 |
|
| 9,272,577 |
| 8,746,607 |
Property, plant and equipment |
| 4,077,193 |
| 4,310,360 |
Intangible assets |
| 750,421 |
| 560,620 |
Other assets |
| 5,917 |
| 18,385 |
| $ | 14,106,108 | $ | 13,635,972 |
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LIABILITIES |
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Current liabilities |
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Bank loan | $ | 220,000 | $ | 210,000 |
Accounts payable and accrued liabilities |
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Company controlled by an officer and director |
| 28,285 |
| 46,134 |
Other |
| 1,341,968 |
| 1,432,785 |
Current portion of long-term debt |
| 963,994 |
| 942,969 |
|
| 2,554,247 |
| 2,631,888 |
Advance Payments (note 4) |
| 818,210 |
| - |
Long-term debt (note 6) |
| 2,676,940 |
| 3,295,312 |
|
| 6,049,397 |
| 5,927,200 |
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SHAREHOLDERS EQUITY |
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Capital stock and warrants (Note 7) |
| 24,871,152 |
| 23,182,472 |
Contributed surplus |
| 5,134,613 |
| 2,974,533 |
Deficit |
| (21,949,054) |
| (18,448,233) |
|
| 8,056,711 |
| 7,708,772 |
| $ | 14,106,108 | $ | 13,635,972 |
See acompanying notes to unaudited consolidated financial statements
Neptune Technologies & Bioressources Inc.
(unaudited)
Consolidated Statements of Deficit
Periods ended February 29, 2008 and 2007 | ||||||||
2008 |
| 2007 |
| 2008 |
| 2007 | ||
(3 months) | (3 months) | (9 months) | (9 months) | |||||
Balance, beginning of period | $ | (21,062,897) | $ | (16,315,663) | $ | (18,448,233) | $ | (15,237,262) |
Net loss | (886,157) | (454,512) | (3,500,821) | (1,189,225) | ||||
Share issue expenses | - | (16,981) | - | (360,669) | ||||
Warrants issue expenses | - | (172,869) | - | (172,869) | ||||
Balance, end of period | $ | (21,949,054) | $ | (16,960,025) | $ | (21,949,054) | $ | (16,960,025) |
Consolidated Statements of Contributed Surplus
Periods ended February 29, 2008 and 2007
2008 | 2007 | 2008 | 2007 | |||||
(3 months) | (3 months) | (9 months) | (9 months) | |||||
Balance, beginning of period | $ | 4,339,145 | $ | 2,235,836 | $ | 2,974,533 | $ | 1,172,116 |
Exercised options | (117,492) | (608,570) | (1,023,847) | (608,570) | ||||
Stock-based compensation | 912,960 | 886,996 | 3,183,927 | 1,950,716 | ||||
Balance, end of period | $ | 5,134,613 | $ | 2,514,262 | $ | 5,134,613 | $ | 2,514,262 |
See acompanying notes to unaudited consolidated financial statements
Neptune Technologies & Bioressources Inc.
(unaudited)
Consolidated Statements of Earnings
Periods ended February 29, 2008 and 2007 |
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| 2008 |
| 2007 |
| 2008 |
| 2007 |
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| (3 months) |
| (3 months) |
| (9 months) |
| (9 months) |
Sales | $ | 2,875,411 | $ | 2,889,226 | $ | 7,129,556 | $ | 6,388,310 |
Cost of sales and operating expenses (excluding amortization and stock based compensation) |
| 2,385,123 |
| 2,108,677 |
| 6,078,875 |
| 4,614,078 |
Stock options based compensation |
| 912,960 |
| 886,996 |
| 3,183,927 |
| 1,950,716 |
Research and development expenses |
| 172,531 |
| 86,241 |
| 373,964 |
| 236,251 |
Financial expenses |
| 123,473 |
| 146,299 |
| 391,291 |
| 429,440 |
Amortization |
| 150,548 |
| 166,362 |
| 441,316 |
| 477,964 |
|
| 3,744,635 |
| 3,394,575 |
| 10,469,373 |
| 7,708,449 |
Loss before the undernoted |
| (869,224) |
| (505,349) |
| (3,339,817) |
| (1,320,139) |
Interest income |
| 30,743 |
| 24,346 |
| 73,526 |
| 29,215 |
Foreign exchange gain (loss) |
| (47,676) |
| 26,491 |
| (234,530) |
| 101,699 |
Net loss | $ | (866,157) | $ | (454,512) | $ | (3,500,821) | $ | (1,189,225) |
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Basic and diluted loss per share | $ | (0.024) | $ | (0.013) | $ | (0.095) | $ | (0.034) |
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Weighted average number of shares outstanding |
| 37,376,985 |
| 36,210,089 |
| 37,076,672 |
| 35,096,076 |
See acompanying notes to unaudited consolidated financial statements
Neptune Technologies & Bioressources Inc.
(unaudited)
Consolidated Statements of Cash Flows
Periods ended February 29, 2008 and 2007 |
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| 2008 |
| 2007 |
| 2008 |
| 2007 |
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| (3 months) |
| (3 months) |
| (9 months) |
| (9 months) |
OPERATING ACTIVITIES |
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Net loss | $ | (886,157) | $ | (454,512) | $ | (3,500,821) | $ | (1,189,225) |
Non-cash items |
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Property, plant and equipment amortization |
| 144,868 |
| 164,119 |
| 429,780 |
| 468,887 |
Intangible assets amortization |
| 5,680 |
| 2,243 |
| 11,536 |
| 6,728 |
Deferred financing cost amortization |
| 4,156 |
| 4,156 |
| 12,468 |
| 12,468 |
Stock-based compensation - employees |
| 912,960 |
| 886,996 |
| 3,183,927 |
| 1,950,716 |
Changes in working capital items (Note 5) |
| (152,867) |
| (980,319) |
| (728,749) |
| (2,930,120) |
Cash flow from operating activities |
| 28,640 |
| (377,317) |
| (591,859) |
| (1,680,546) |
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INVESTING ACTIVITIES |
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Addition to property, plant and equipment |
| (121,046) |
| (71,624) |
| (196,613) |
| (982,484) |
Addition to intangible assets |
| (57,661) |
| (20,642) |
| (201,337) |
| (44,561) |
Decrease (increase) in short term deposits |
| (15,881) |
| 976,435 |
| 119,545 |
| (2,473,565) |
Cash flows from investing activities |
| (194,588) |
| 884,169 |
| (278,405) |
| (3,500,610) |
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FINANCING ACTIVITIES |
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Increase (decrease) in bank loan |
| (180,000) |
| - |
| 10,000 |
| (40,000) |
Increase in long-term debt |
| - |
| - |
| - |
| 855,000 |
Repayment of long-term debt |
| (148,800) |
| (240,555) |
| (597,347) |
| (452,690) |
Issue of share capital |
| - |
| - |
| - |
| 4,500,000 |
Advanced payments |
| - |
| - |
| 818,210 |
| - |
Issue of share capital on exercice of options and warrants |
| 152,839 |
| 72,406 |
| 664,833 |
| 170,664 |
Share issue expenses |
| - |
| (16,981) |
| - |
| (360,669) |
Cash flows from financing activities |
| (175,961) |
| (185,130) |
| 895,696 |
| 4,672,305 |
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Net increase (decrease) in cash and cash equivalents |
| (341,909) |
| 321,722 |
| 25,432 |
| (508,851) |
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Cash and cash equivalents, at the beginning |
| 1,026,695 |
| 45,328 |
| 659,354 |
| 875,901 |
Cash and cash equivalents, at the end | $ | 684,786 | $ | 367,050 | $ | 684,786 | $ | 367,050 |
See acompanying notes to unaudited consolidated financial statements
Neptune Technologies & Bioressources Inc.
(unaudited)
Notes to Consolidated Financial Statements
Periods ended February 29, 2008 and 2007
1 - BASIS OF PRESENTATION
The interim consolidated financial statements have not been reviewed by the auditors and reflect normal and recurring adjustments which are, in the opinion of Neptune Technologies & Bioressources Inc. (the “Company”), considered necessary for a fair presentation. These interim unaudited consolidated financial statements have been prepared in conformity with Canadian generally accepted accounting principles. However, they do not include all disclosures required under generally accepted accounting principles and accordingly should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest Annual Report. The interim unaudited consolidated financial statements have been prepared using the same accounting policies as described in the latest Annual Report.
2 - CHANGES TO ACCOUNTING POLICIES
Effective June 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 1530,Comprehensive Income, Section 3855,Financial Instruments – Recognition and Measurementand Section 3865,Hedges. The significant changes related to these new accounting standards are as follows:
a) Comprehensive income
CICA Handbook Section 1530, Comprehensive Income, introduces a new financial statement which shows the change in equity of an enterprise during a period from transactions and other events arising from non-owner sources. No adjustments were required as a result of the application of this section for the nine-month period ended February 29, 2008.
b) Financial assets and financial liabilities, and Hedges
CICA Handbook Section 3855 establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. Under this standard, financial instruments are now classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or other financial liabilities and measurement in subsequent periods depends on their classification. Transaction costs are expensed as incurred for financial instruments classified as held-for-trading. For other financial instruments, transaction costs are capitalized on initial recognition and must be classified against the underlying financial instruments.
Financial assets and financial liabilities held-for-trading are measured at fair value with changes in those fair values recognized in financial expenses. Financial assets held-to-maturity, loans and receivables, and other financial liabilities are measured at amortized cost using the effective interest method of amortization. Available-for-sale financial assets are measured at fair value or at cost in the case of financial assets that do not have a quoted market price in an active market and changes in fair value are recorded in comprehensive income.
The Company classified its cash and cash equivalents and its short terms deposits as financial assets held-for-trading. Accounts receivable and the subordinated loan to an affiliated company and interest receivable are classified as loans and receivables. Accounts payable and accrued liabilities and tax credits receivable are classified as other financial liabilities.
CICA Handbook Section 3865, Hedges, specifies the criteria under which hedge accounting may be applied, how hedges accounting should be performed under permitted hedging strategies and required disclosures.
The adoption of these new sections had no impact on the consolidated financial statements for the nine-month period ended February 29, 2008.
3 - RELATED PARTY TRANSACTION
The Company entered into an agreement with a shareholder, (a company controlled by an officer and director), as of June 1, 2002, calling for royalties to be paid in semi-annual instalments equal to 1% of net annual sales, for an unlimited period. The amount paid cannot exceed net earnings before interest, taxes and amortization. For the period ended February 29, 2008, total royalties amount to $71,291 ($81,206 in 2007). As of February 29, 2008, the balance due to this shareholder under this agreement amounts to $28,285 ($46,134 as of May 31, 2007). This amount is presented in the balance sheet under accounts payable and accrued liabilities.
These transactions occurred in the normal course of operations and are measured at the exchange amount, which is the amount of consideration determined and accepted by the parties involved.
4 - PARTNERSHIPS AND COLLABORATIONS AGREEMENTS
During the first quarter, the company received a first payment of $718,350 out of many amounts scheduled under the terms of a partnership agreement entered in June 2007. This amount is recorded under advanced payment. The agreement foresees the Company’s commitment of developing a clinical research program and the development of products incorporating Neptune krill oil (“NKO™”) in a dietary matrix. The initial payment is reimbursable only if the parties fails to meet certain common research objectives and milestones within the development process prior to the release of the products on the market.
During the 2nd quarter, the company reiceived a payment of $99,860 under the terms of a collaboration agreement for a clinical study concluded in May2007. This amount is recorded under advanced payments. The agreement foresees the Company’s commitment to implement a research project on the effects of Neptune krill oil and Neptune phospholipid concentrates on certain neuro-degenerative health conditions. This amount is uniquely reimbursable if a license or a license option is signed by Neptune concerning the use of the clinical study’s results with a third party other than the one currently involved in the agreement. For the nine-month period ended February 29, 2008, no revenues were recognized relatively to these two agreements.
5 - INFORMATION INCLUDED IN THE STATEMENT OF CASH FLOWS
Net changes in working capital items are detailed as follows:
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| Three months ended |
| Nine months ended | ||||
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| 2008 |
| 2007 |
| 2008 |
| 2007 |
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Accounts receivable | $ | (982,348) | $ | (1,414,980) | $ | (717,982) | $ | (2,211,924) |
Tax credits receivable |
| 40,118 |
| 89,691 |
| (20,888) |
| 52,811 |
Inventories |
| 856,047 |
| 610,894 |
| 174,338 |
| (626,418) |
Prepaid expenses |
| (56,070) |
| 82,952 |
| (55,551) |
| 76,099 |
Accounts payable and accrued liabilities |
| (10,614) |
| (348,876) |
| (108,666) |
| (220,688) |
| $ | (152,867) | $ | (980,319) | $ | (728,749) | $ | (2,930,120) |
6 - LONG-TERM DEBT
|
| February 29 |
| May 31 |
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| 2008 |
| 2007 |
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Mortgage loan, $1,200,000 par value, secured by processing and laboratory equipment having an amortized cost of $2,065,533 as of February 29, 2008, prime rate plus 6.75% (14,50% as of February 29, 14.75% as of May 31, 2007), payable in monthly principal instalments of $26,650, maturing in February 2010 | $ | 640,300 | $ | 880,150 |
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Mortgage loan, $980,000 par value less the net value of series "E" warrants, secured by the universality of property, weekly variable interest rate determined by the lender plus 5% (effective rate 12.46% as of February 29, 2008, and 13.55% as of May 31, 2007), payable in 60 monthly principal instalments of $16,333, maturing in September 2011 |
| 675,988 |
| 818,298 |
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Mortgage loan, $1,500,000 par value less the net value of the issued shares, secured by the universality of property, weekly variable interest rate determined by the lender plus 3% (effective rate 12.25% as of February 29, 2008 and 11.92% as of May 31, 2007), payable in 60 monthly principal instalments of $25,000, maturing in September 2011 |
| 1,024,807 |
| 1,238,006 |
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Mortgage loan, $855,000 par value, secured by the plant, payable in 10 years, fixed interest rate of 7.77% (on 10 yrs), payable in the first 10 years until 2017 in monthly principal of $8,058. Balance to be renegociated in 10 yrs capital instalments of $25,000, maturing in September 2011 |
| 812,806 |
| 836,813 |
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Second rank mortgage loan, following plant acquisition, $399,750 par value, representing the balance of sale, secured by the plant, fixed interest rate of 10.25%, payable in 5 years, monthly principal instalments of $8,501. |
| 311,853 |
| 357,265 |
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Obligations under capital leases, interest rates varying from 0.00% to 15.46%, payable in average monthly instalments of $2,108 ($2,261 in 2007), maturing at different dates until November 2010 |
| 122,680 |
| 55,249 |
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Refundable contribution obtained from a Federal subsidy program available for small and medium enterprises, without pledge or interest, payable in 8 consecutive biannual instalments 2 years after the project ends. |
| 52,500 |
| 52,500 |
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| 3,640,934 |
| 4,238,281 |
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Current portion of long-term debt |
| 963,994 |
| 942,969 |
| $ | 2,676,940 | $ | 3,295,312 |
Under these mortgage loans, the company is required to maintain certain financial ratios.
7 - CAPITAL STOCK AND WARRANTS
February 29 | May 31 | ||
2008 | 2007 | ||
Issued and fully paid | |||
37,423,797 common shares (36,729,547 as of May 31, 2007) | 24,808,327 | $ | 23,119,647 |
31,618 warrants | 62,825 | 62,825 | |
24,871,152 | $ | 23,182,472 | |
Number of | |||
shares | Consideration | ||
Common Shares | |||
Balance as of May 31, 2005 | 25,594,805 | 10,656,737 | |
Issued following the conversion of debentures | 3,800,000 | 3,881,512 | |
Issued for cash | 600,000 | 600,000 | |
Issued as settlement of expenses | 288,188 | 288,188 | |
Issued following the exercise of stock options | 733,375 | 416,499 | |
Issued following the exercise of warrants | 3,275,922 | 1,159,073 | |
Balance as of May 31, 2006 | 34,292,290 | 17,002,009 | |
Issued following private placement | 1,500,000 | 4,500,000 | |
Issued following the exercise of stock options | 881,875 | 1,313,757 | |
Issued following the exercise of warrants | 55,382 | 303,881 | |
Balance as of May 31, 2007 | 36,729,547 | 23,119,647 | |
Issued following the exercise of stock options | 694,250 | 1,688,680 | |
Balance as of February 29, 2008 | 37,423,797 | $ | 24,808,327 |
8 - STOCK-BASED COMPENSATION PLAN
The Company has initiated a stock-based compensation plan for administrators, officers, employees and consultants.
On October 3rd 2007, the Company revised the exercise price of stock options outstanding granted to employees (non-officers) between May 1st, 2007 and June 6, 2007 at a price of $5.50 per share. In accordance with CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payment. The modification of the exercice price of the options has been treated as if it were an exchange of the original award for a new award. This modification resulted in an additional expense of $44,303. From this amount, $36,809 has been recorded as an expense in the earnings of nine months period ended February 29, 2008. The remaining $7,494 will be amortized over the remaining periods when the rights will be acquired by non-officers employees.
Activities within the plan are detailed as follows:
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| February 29. 2008 |
| May 31, 2007 |
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| Weighted |
| Weighted |
|
| average |
| average |
| Number of | exercise | Number of | exercise |
| options | price | options | price |
|
| $ |
| $ |
Options outstanding, beginning of year (a) | 4,970,000 | 2.40 | 3,703,875 | 0.45 |
Granted | 460,000 | 6.92 | 2,597,500 | 4.89 |
Exercised | (694,250) | 0.96 | (881,875) | 0.32 |
Cancelled | (231,063) | 6.25 | (449,500) | 2.84 |
Options oustanding, 9 months period ended February 29, 2008 | 4,504,687 | 2.89 | 4,970,000 | 2.58 |
Exercisable options, 9 months period ended February 29, 2008 | 2,925,300 | 2.20 | 1,618,375 | 0.84 |
(a): The 4,970,000 options outstanding at the beginning of the year includes 485,000 stock options that underwent a revision in their exercise price from $7.25
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| February 29, 2008 | |
| Options outstanding |
| Exercisable options | ||
| Weighted | Weighted | Number | Number | Weighted |
| average | remaining | of options | of options | average |
| exercise | contractual | outstanding | exercisable | exercise |
| price | life |
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| price |
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| outstanding |
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| $ |
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| $ |
0.25 | 0.25 | 1.87 | 1,578,875 | 1,198,375 | 0.25 |
1.00 | 1.00 | 2.84 | 458,000 | 458,000 | 0.99 |
2.60 to 3.00 | 2.63 | 3.28 | 838,625 | 584,500 | 2.62 |
3.50 | 3.50 | 3.63 | 40,000 | 40,000 | 3.50 |
4.25 | 4.25 | 3.87 | 20,000 | 6,000 | 4.25 |
5.50 to 5.75 | 5.59 | 1.49 | 1,005,000 | 389,750 | 5.61 |
7.25 to 7.50 | 7.30 | 4.01 | 564,187 | 248,675 | 7.29 |
| 2.89 | 2.71 | 4,504,687 | 2,925,300 | 2.20 |
9 - SEGMENT DISCLOSURES
Descriptive information on the Company's reportable segments
The Company has only one reportable operating segment: processing and commercializing products derived from marine biomasses.
Geographic information
All the Company's assets are located in Canada.
The Company sales are attributed based on the customer's area of residency:
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|
| Three month ended |
| Nine month ended | |||
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| February 29 |
| February 29 | |||
|
| 2008 |
| 2007 |
| 2008 |
| 2007 |
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Canada | $ | 660,068 | $ | 608,813 | $ | 904,151 | $ | 833,452 |
United States |
| 1,615,524 |
| 2,023,032 |
| 3,892,188 |
| 4,145,583 |
Europe |
| 509,005 |
| 200,989 |
| 1,301,005 |
| 1,195,586 |
Asia / Oceania |
| 90,814 |
| 56,392 |
| 1,032,212 |
| 213,689 |
| $ | 2,875,411 | $ | 2,889,226 | $ | 7,129,556 | $ | 6,388,310 |
Information about major customers
During the nine-month period ended February 29, 2008, the Company realized sales amounting to $2,660,724 from three costumers ($2,163,374 from two costumers in 2007).
10 - CORRESPONDING CONSOLIDATED FINANCIAL STATEMENTS
Some comparative figures have been reclassified to conform with the presentation adopted in this period.