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Second Quarterly Report Ending November 30, 2004 …
Tags: accounting principles, annual report, canadian dollars, cholesterol, cholesterol levels, clinical research, conjuncture, consolidated financial statements, development initiatives, executive analysis, financial situation, inflammation, neptune krill oil, neptune technologies, north america, quarterly report, research initiatives, skin cancer, tradeshows, treasury,Pages: 12
Language: english
Created: Mon Jan 31 15:28:03 2005
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Second Quarterly Report
Ending November 30, 2004
2
EXECUTIVE ANALYSIS ON THE FINANCIAL SITUATION AND PRODUCTION RESULTS /
EXECUTIVE COMMENTS AND ANALYSIS
This analysis is presented in order to provide the reader with an overview of the changes to the Neptune Technologies & Bioressources Inc.
("Neptune" or "the Company") financial situation between May 31, 2004 and November 30, 2004. It also includes a comparison between the
operation results, the treasury flow and the financial situation for the 3-month period ending November 30, 2004 and those from the 3 month
period ending November 30, 2003.
This analysis, completed on January 17, 2005, must be read in conjuncture with the Company's audited consolidated financial statements at
May 31, 2004 and presented in the last annual report. Neptune financial statements were produced in accordance with Generally Accepted
Accounting Principles (GAAP). Company results are published in Canadian dollars. All amounts appearing in this executive analysis are in
Canadian dollars, unless indicated otherwise.
OVERVIEW
Neptune's second quarterly report ending November 30, 2004 was dedicated to the marketing of its products in North America and Asia.
Neptune also deployed development initiatives in the European market. To accomplish this, the Company participated in various tradeshows
in order to promote its products and maintain its level of excellence, established and developed since its foundation.
The Company maintained its clinical research initiatives. As a result, the Company can now take advantage of scientific results demonstrating
the benefits of Neptune Krill Oil (NKOTM) on various human conditions, such as those relating to skin cancer, premenstrual syndrome, elevated
cholesterol levels and inflammation problems. Neptune is also pursuing clinical research aiming to demonstrate the benefits of NKOTM for
people suffering from osteoarthritis and arteriosclerosis.
During the first two quarters of the May 31, 2005 year end, the Company has realised sales of 2,3M, surpassing the total sales of last year
ending May 31, 2004. The Company expect to double its sales for the current year comparing to last years' total.
PRINCIPAL QUARTERLY FINANCIAL DATA
(In thousands of dollars, except per share data)
Fiscal Year Ending May 31, 2005
Total First Second Third Fourth
Quarter Quarter Quarter Quarter
Sales Figures 2,314 1,134 1,180
EBITDA (before loss on foreign exchange) 270 151 119
Net Loss 891 388 503
Loss per Share 0.035 0.015 0.020
Fiscal Year Ended May 31, 2004
Total First Second Third Fourth
Quarter Quarter Quarter Quarter
Sales Figures 2,262 643 956 602 61
EBITDA (1,659) (353) (269) (240) (797)
Net Loss 3,534 799 744 717 1,274
Loss per Share 0.161 0.037 0.034 0,033 0,057
Fiscal Year Ended May 31, 2003
Total First Second Third Fourth
Quarter Quarter Quarter Quarter
EBITDA (2,402) (653) (982) (265) (502)
Net Loss 3,335 760 1,336 525 714
Loss per Share 0.213 0.049 0.085 0.034 0.045
During the second quarter ending November 30, 2004, the Company has decrease its loss by 32% compared to the quarter ending November
30, 2003 despite a loss on foreign exchange of $ 93,631 for this quarter compared to a loss on foreign exchange of $3,885 for the quarter
ending November 30, 2003. This decrease is also due in part by an increase in sales by $225,000 between the two quarters. The Company
has also maintained a positive EBITDA for the second quarter in a row for a cumulative EBITDA of $270,000 for the first semester. The
Company also reduced its cost of sales and operating expenses by approximately $109,000 even though the sales had increase between the
two quarters.
3
TREASURY FLOW AND FINANCIAL SITUATION
Operating Activities
During the second quarter ending November 30, 2004, the Company's operations have generated an increase in liquidities of $210,325
compared to a decrease of $1,277,946 for the quarter ending November 30, 2003. This increase of 1,49M is due in large part by the changes
in the working capital items from one quarter to the other. The changes in the working capital items for the second quarter ending November
30, 2004 are mainly due to a decrease in receivables for $294,291, an increase in inventories for $131,502 and an increase in accounts
payable for $114,497 compared to the previous quarter.
Financing Activities
During the second quarter, there was no financing activity except for the long term debt reimbursement.
Investing Activities
The main variation in investing activities related to acquisitions of fixed assets and intangible assets for a total of $17,394.
Overall, taking the treasury flow into account, the Company increased its cash by $374,460 since May 31, 2004.
Financial Situation
The following table details the important changes to the balance sheets as at November 30, 2004 and May 31, 2004:
Accounts Increase Comments
(Reduction)
(In thousands of dollars)
Cash 375 See cash flow statement
Receivables 161 Directly linked to the increase of operation
and sales activities
Inventory (223) Decrease in inventory related
to increase in sales
Other assets (222) Amortisation of start-up costs
Accounts payable (264) Decrease in purchases of raw material
and improvement in payment conditions
Convertible debenture 296 Addition of capitalises interest
PRIMARY ANNUAL FINANCIAL RATIOS
Nov. 30, 2004 May 31, 2004 May 31, 2003
Working Capital Ratio 1.30 1.05 1.76
Solvency Ratio
Debt Capital/Shareholder Equity* 1.23 1.31 0.65
*
including convertible debentures
Most of the Company's financial ratios improved for the quarter ending November 30, 2004 compared to the year ended May 31, 2004, mostly
because of the increase in sales and the private placement.
The Company's contractual obligations, including payments due during the next 5 reporting periods and the following ones, are presented in
the following table:
Required Payments per Period
Contractual Obligations Less than 2 to 3 4 to 5 More than
Total one period periods periods 5 periods
Long-term Debt (1) 3,699,534 692,868 1,472,000 1,452,000 82,666
Loans guaranteed by investments in
rental contracts (2) 191,066 107,089 74,383 9,594 -
Total liabilities 3,890,600 799,957 1,546,383 1,461,594 82,666
(1) This amount does not consider the value of the warrants and stock issued.
(2) Including interest fees
Stock-based Compensation Plan
On November 26, 2004, the company has re-priced to $0.25 a share, the exercise price of all stock option granted before October 5, 2004.
This re-pricing of the exercise price of the options generates an additional charge of $40,992. From that amount, $19,398 has been recorded
as at November 30, 2004, and $21,594 will be affected at each date that the re-priced options will become exercisable.
Related Party Transactions
The transactions between related parties are described in note 2 "Related Party Transactions" of the Company's financial statements as at
November 30, 2004.
4
Change in Accounting Policies
No changes in accounting policies since May 31, 2004.
Subsequent Events
There was no subsequent events of importance after November 30, 2004.
RISK FACTORS
Financial Risks
Management intends to continue the careful management of risks relating to exports, foreign exchange, interest rates and sale prices for
merchandise.
The majority of the Company's accounts receivables are 90% guaranteed by insurers. All export sales are completed in American funds. The
exchange rate risks incurred by the Company are, at present, limited to those relating to the American dollar. Due to the fact that Company's
raw materials are being purchased in American dollars and that the Company intends to maintain its matching policies, the Executive is not
currently using financial instruments.
Product Liability
The Company acquires a $5M-liability insurance policy to cover civil liability relating to its products on a yearly basis. The Company also
maintains a quality-assurance process that is PGO certified by the Canadian Food Inspection Agency (CFIA). In addition, the Company has
begun implementing the initiatives required to receive Good Manufacturing Practices accreditation by Health Canada.
Prospective Statements
This Executive Analysis contains prospective information. Prospective statements include a certain amount of risk and uncertainty, and it is
possible that the actual future results of the Company may differ somewhat from those predicted. These risks include: the growth in demand
for Company products, seasonal variations in customer orders, changes in price and availability for raw materials and changes to economic
conditions in Canada, the United-States and Europe, including variations in exchange and interest rates.
The Company based its analysis on the prospective statement information available at the time of drafting. The inclusion of this information
should not be considered a declaration by the Company that the predicted results have been achieved.
Additional Information
Updated and additional Company information is available from the SEDAR Website at: http://www.sedar.com.
On January 17, 2005, the total number of common shares issued by the Company and in circulation was 25,594,805 and Company common
shares were being traded on the TSX stock exchange in Toronto under the listing NTB.
Henri Harland André Godin
President and CEO Vice-president, Administration & Finance
5
Neptune Technologies & Bioressources inc.
Interim Consolidated Statement of Earnings
(unaudited)
Three months ended Six months ended
November 30, November 30,
2004 2003 2004 2003
$ $ $ $
Sales 1,179,546 956,350 2,313,830 1,599,622
Cost of sales and operating expenses (before amortization) 1,054,030 1,143,494 2,025,964 2,080,836
Research expenses 40,589 83,240 78,643 144,293
Financial expenses 250,866 232,956 501,975 434,321
Amortization of property and equipment 243,373 237,930 486,695 474,175
1,588,858 1,697,620 3,093,277 3,133,625
Loss before other revenue (expenses) 409,312 741,270 779,447 1,534,003
Interest income 300 943 405 3,399
Foreign exchange loss (93,631) (3,885) (111,831) (12,970)
Net loss 502,643 744,212 890,873 1,543,574
Basic and diluted loss per share 0.020 0.034 0.035 0.071
Weighted average number of shares outstanding 25,594,805 21,905,206 25,330,594 21,833,807
6
Neptune Technologies & Bioressources inc.
Interim Consolidated Statement of Deficit
Interim Consolidated Contributed Surplus
(unaudited)
Interim Consolidated Statement of Deficit
(unaudited)
Three months ended Six months ended
November 30, November 30,
2004 2003 2004 2003
$ $ $ $
Balance, beginning of year 12,603,082 9,459,733 12,194,383 8,660,371
Net loss 502,643 744,212 890,873 1,543,574
Share issue expenses 20,469
Balance, end of year 13,105,725 10,203,945 13,105,725 10,203,945
Interim Consolidated Contributed Surplus
(unaudited)
Three months ended Six months ended
November 30, November 30,
2004 2003 2004 2003
$ $ $ $
Balance, beginning of year 276,408 133,415 187,754 4,005
Expired warrants 62,049 27,210
Stock-based compensation - employees 25,764 15,600 52,369 15,600
Stock-based compensation - non-employees 7,319 7,319 102,200
Balance, end of year 309,491 149,015 309,491 149,015
7
Neptune Technologies & Bioressources inc.
Interim Consolidated Statement of Cash Flows
(unaudited)
Three months ended Six months ended
November 30, November 30,
2004 2003 2004 2003
$ $ $ $
OPERATING ACTIVITIES
Net loss (502,643) (744,212) (890,873) (1,543,574)
Non-cash items
Amortization of property and equipment 243,373 237,930 486,695 474,175
Amortization of deferred financing costs 6,277 5,552 12,559 10,746
Financial expenses 159,443 138,671 320,524 242,238
Stock-based compensation - employees 33,083 15,600 59,688 15,600
Changes in working capital items 270,792 (931,487) (210,346) (1,541,715)
Cash flows from operating activities 210,325 (1,277,946) (221,753) (2,342,530)
INVESTING ACTIVITIES
Property and equipment (2,015) (13,466) (2,015) (13,964)
Intangible assets (15,379) (96,029) (29,344) (96,029)
Cash flows from investing activities (17,394) (109,495) (31,359) (109,993)
FINANCING ACTIVITIES
Long-term debt 591,114 591,114
Repayment of long-term debt (29,365) (46,947) (68,079) (64,958)
Issue of convertible debentures 1,000,000 1,250,000
Issue of capital stock 370,839
Issue of warrants 340,092
Share issue expenses (15,280)
Cash flows from financing activities (29,365) 1,544,167 627,572 1,776,156
Increase (decrease) in cash and
cash equivalents 163,566 157,176 374,460 (676,367)
Cash and cash equivalents, beginning of period 164,254 101,454 (46,640) 934,997
Cash and cash equivalents, end of period 327,820 258,630 327,820 258,630
8
Neptune Technologies & Bioressources inc.
Interim Consolidated Balance Sheets
Unaudited Audited
November 30, 31 May
2004 2004
$ $
ASSETS
Current assets
Cash 327,820
Accounts receivable 746,919 585,558
Research tax credits receivable 115,369 87,638
Inventories 1,024,470 1,247,782
Prepaid expenses 52,280 60,837
2,266,858 1,981,815
Property and equipment 4,154,470 4,425,784
Intangible assets 514,233 486,367
Other assets 805,276 1,027,622
7,740,837 7,921,588
LIABILITIES
Current liabilities
Bank overdraft 46,640
Accounts payable and accrued liabilities
Company controlled by an officer and director 51,233 29,445
Directors 30,581 42,000
Other 863,515 1,127,007
Instalments on long-term debt 792,608 639,121
1,737,937 1,884,213
LONG-TERM DEBT (Note 3) 2,961,178 3,151,258
LIABILITY COMPONENT OF CONVERTIBLE DEBENTURES (Note 4) 4,841,125 4,544,797
9,540,240 9,580,268
SHAREHOLDERS' EQUITY (DEFICIENCY)
Capital stock and warrants (Note 5) 10,996,831 10,347,949
Contributed surplus 309,491 187,754
Deficit (13,105,725) (12,194,383)
(1,799,403) (1,658,680)
7,740,837 7,921,588
9
Neptune Technologies & Bioressources inc.
Notes to Interim Financial Statements
30 novembre 2004 (not audited)
1 - INTERIM FINANCIAL INFORMATION
These interim consolidated financial statements as at Novembre 30, 2004 are unaudited. They have been prepared by the Company in accordance with
generally accepted accounting principles in Canada for interim information and use the same accounting policies and methods of computation as the
consolidated financial statements for the fiscal year ended May 31, 2004. These interim consolidated financial statements should be read in
conjunction with the audited annual consolidated financial statements and notes thereto in the Company's 2004 annual report.
2 - RELATED PARTY TRANSACTIONS
The Company entered into an agreement with a shareholder (a company controlled by an officer and director), as of June 1, 2002, calling royalties to be
paid in semi-annual instalments of 1% of net annual sales, for an unlimited period. The amount paid cannot exceed net earnings before interest, taxes
and amortization. For the current period, total royalties amount to $11,795 ($9,563 in 2003). As at November 30, 2004, the balance due to this
shareholder amounts to $51,233 ($29,445 as at May 31,2004). This amount is shown on 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.
10
Neptune Technologies & Bioressources inc.
Notes to Interim Financial Statements
30 novembre 2004 (not audited)
3 - LONG TERM DEBT
November 30, 31 May
2004 2004
$ $
Mortgage loan, $1,200,000 par value, secured by processing and laboratory equipment
having an amortized cost of $3,060,611 in 2004, prime rate plus 6.25% , payable in
monthly capital instalments of $20,000, maturing in June 2009
1,140,000 1,140,000
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
1.25%, payable in 60 monthly capital instalments of $16,333 beginning in January 2005,
maturing in December 2009 947,843 941,623
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
2.25%, payable in 60 monthly capital instalments of $25,000 beginning in October 2004,
maturing in September 2009 1,407,530 1,389,555
9% unsecured loan, payable in monthly blended instalments of $993, maturing in
September 2005 9,534 14,922
Unsecured loan, without interest, maturing in June 2004 70,000 70,000
Obligations under capital leases, interest rates varying from 0.00% to 12.67%, payable
in monthly instalments of $9,883, maturing at different dates up until September 2009 178,879 234,279
3,753,786 3,790,379
Instalments due within one year 792,608 639,121
2,961,178 3,151,258
4 - LIABILITY COMPONENT OF CONVERTIBLE DEBENTURES
November 30, 31 May
2004 2004
$ $
Unsecured convertible debenture (a face amount of $1,500,000, bearing interest at 15%) 2,118,750 2,006,250
Secured convertible debenture (a face amount of $1,261,780, bearing interest at 15% compounded annually) 1,559,875 1,451,047
Unsecured convertible debenture (a face amount of $1,000,000, bearing interest at 15%) 1,162,500 1,087,500
4,841,125 4,544,797
11
Neptune Technologies & Bioressources inc.
Notes to Interim Financial Statements
30 novembre 2004 (not audited)
5 - CAPITAL STOCK AND WARRANTS
November 30, 31 May
2004 2004
$ $
Issued and fully paid
25,594,805 common shares (21,947,244 common shares as at May 31, 2004) 10,656,738 10,285,899
- series "E" warrants (196,000 warrants as at May 31, 2004) 62,049
250,000 series "G" warrants 1 1
3,025,922 series "H" warrants 302,592
250,000 series "I" warrants 37,500
340,093 62,050
10,996,831 10,347,949
6 - STOCK-BASED COMPENSATION PLAN
Activities within the plan are detailed as follows:
November 30, 2004 May 31, 2004
Weighted Weighted
average average
Number of exercise Number of exercise
options price options price
$ $
Options outstanding, beginning of period 1,930,000 0.85 1,260,000 1.00
Attributed 1,079,000 0.25 1,260,000 0.75
Cancelled (10,000) 1.00 (240,000) 0.88
Re-pricing
Old price (1,920,000) 0.85
New price 1,920,000 0.25
Outstanding options, end of period 2,999,000 0.25
Exercisable options, end of period 1,330,000 0.25 1,540,000 0.94
12
Neptune Technologies & Bioressources inc.
Notes to Interim Financial Statements
30 novembre 2004 (not audited)
6 - STOCK-BASED COMPENSATION PLAN (continued)
2004
Options outstanding Exercisable options
Weighted Number Number
Weighted remaining of options of options Weighted
average contractual outstanding exercisable average
exercise life as at as at exercise
price outstanding 30-11-2004 30-11-2004 price
$ $
0.25 3.51 2,999,000 1,330,000 0.25
On October 5, 2004, the company granted 1,029,000 stock options to employees and 50,000 to non employees at an exercice price of $0.25 per share.
The fair value of each granted option has been estimated according to the Black - Scholes model and using the following assumptions:
i) Fair value of the common shares at $0.15
ii) Risk-free interest rate of 4,05%
iii) Estimated life of four years and half
iv) Expected volatility of 103%
The fair value of the options granted is $0,1018 per option.
On November 26, 2004, the company has re-priced to $0.25 a share, the exercise price of all stock option granted before October 5, 2005. This
re-pricing as adjusted the fair value of the issued option based on the adoption of the Canadian Institute of Chartered Accountants
Section 3870, entitled Stock-based Compensation and other Stock-based Payments . The fair value of each modified option has been estimated
according to the Black - Schloes model and using the following assumptions:
Old New
price price
i) Excercice price $0.75 ŕ $1.00 $0.25
ii) Fair value of the common shares $0.17 $0.17
iii) Risk-free interest rate 3.17% 3.17%
iv) Estimated life in years 2.5 to 3.5 2.5 to 3.5
v) Expected volatility 102% 102%
Average fair value per option $0.0609 $0.0975
This re-pricing of the exercise price of the options generates an additional charge of $40,992. From that amount, $19,398 has been recorded as at
November 30, 2004, and $21,594 will be affected at each date that the re-priced options will become exercisable.
During the period, a $13,685 ($15,600 in 2003) charge representing employees' acquired rights during the year was recorded to expenses as
compensation.
7 - COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the presentation adopted in the current period.