Exhibit 99.2
Consolidated Interim Financial Statements of
(Unaudited)
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
For the three-month and-six month periods ended August 31, 2013 and 2012
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Consolidated Interim Financial Statements
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
Financial Statements | |
Consolidated Interim Statements of Financial Position | 1 |
Consolidated Interim Statements of Earnings and Comprehensive Loss | 2 |
Consolidated Interim Statements of Changes in Equity | 3 |
Consolidated Interim Statements of Cash Flows | 5 |
Notes to Consolidated Interim Financial Statements | 6 |
Notice:
These interim financial statements have not been reviewed by the Corporation’s auditors.
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Consolidated Interim Statements of Financial Position
(Unaudited)
As at August 31, 2013 and February 28, 2013
August 31, | February 28, | |||||||
2013 | 2013 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 9,523,193 | $ | 14,902,459 | ||||
Short-term investments | 10,008,852 | 13,720,719 | ||||||
Trade and other receivables | 9,190,970 | 9,590,945 | ||||||
Tax credits receivable | 1,092,210 | 442,221 | ||||||
Prepaid expenses | 884,901 | 139,656 | ||||||
Inventories (note 4) | 13,251,351 | 11,709,613 | ||||||
43,951,477 | 50,505,613 | |||||||
Property, plant and equipment | 21,663,987 | 15,476,660 | ||||||
Intangible assets | 1,829,221 | 1,510,528 | ||||||
Total assets | $ | 67,444,685 | $ | 67,492,801 | ||||
Liabilities and Equity | ||||||||
Current liabilities: | ||||||||
Trade and other payables | 10,079,095 | 7,985,215 | ||||||
Advance payments (note 9) | 863,715 | 849,659 | ||||||
Loans and borrowings (note 11) | – | 5,060 | ||||||
10,942,810 | 8,839,934 | |||||||
Deferred lease inducements (note 10) | 539,148 | 48,854 | ||||||
Loans and borrowings (note 11) | 1,948,970 | 1,865,981 | ||||||
Total liabilities | 13,430,928 | 10,754,769 | ||||||
Equity: | ||||||||
Share capital (note 6) | 85,748,831 | 83,561,499 | ||||||
Contributed surplus | 15,262,458 | 17,736,472 | ||||||
Deficit | (53,493,545 | ) | (45,457,773 | ) | ||||
Total equity attributable to equity holders of the Corporation | 47,517,744 | 55,840,198 | ||||||
Non-controlling interest (note 7) | 152,029 | (3,396,506 | ) | |||||
Subsidiary warrants and options (note 6) | 6,343,984 | 4,294,340 | ||||||
Total equity attributable to non-controlling interest | 6,496,013 | 897,834 | ||||||
Total equity | 54,013,757 | 56,738,032 | ||||||
Commitments and contingencies (note 14) | ||||||||
Subsequent events (note 16) | ||||||||
Total liabilities and equity | $ | 67,444,685 | $ | 67,492,801 |
See accompanying notes to unaudited consolidated interim financial statements.
1
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Consolidated Interim Statements of Earnings and Comprehensive Loss
(Unaudited)
Three-month and six-month periods ended August 31, 2013 and 2012
Three-month periods ended | Six-month periods ended | |||||||||||||||
August 31, | August 31, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenue from sales | $ | 5,345,733 | $ | 8,097,220 | $ | 11,435,769 | $ | 14,245,694 | ||||||||
Cost of sales | (4,698,695 | ) | (5,044,173 | ) | (10,183,373 | ) | (7,583,748 | ) | ||||||||
Gross profit | 647,038 | 3,053,047 | 1,252,396 | 6,661,946 | ||||||||||||
Other income – revenue from royalties | – | 1,736 | 2,261 | 6,392 | ||||||||||||
Other income – insurance recoveries (note 5) | 5,000,000 | – | 5,700,000 | – | ||||||||||||
Selling expenses | (515,762 | ) | (618,758 | ) | (1,045,241 | ) | (1,190,010 | ) | ||||||||
General and administrative expenses | (7,813,843 | ) | (4,993,569 | ) | (12,461,331 | ) | (7,956,866 | ) | ||||||||
Research and development expenses, net of | ||||||||||||||||
tax credits of $164,337 and $287,423 | ||||||||||||||||
(2012 - $98,131 and $293,598) | (2,442,112 | ) | (1,444,646 | ) | (4,026,495 | ) | (3,222,561 | ) | ||||||||
(5,124,679 | ) | (4,002,190 | ) | (10,578,410 | ) | (5,701,099 | ) | |||||||||
Finance income | 28,121 | 43,346 | 72,773 | 75,444 | ||||||||||||
Finance costs | (71,086 | ) | (438,662 | ) | (73,655 | ) | (698,137 | ) | ||||||||
Foreign exchange gain (loss) | 115,984 | (286,598 | ) | 112,469 | (54,818 | ) | ||||||||||
Net finance income (expense) | 73,019 | (681,914 | ) | 111,587 | (677,511 | ) | ||||||||||
Net loss and comprehensive loss for the period | $ | (5,051,660 | ) | $ | (4,684,104 | ) | $ | (10,466,823 | ) | $ | (6,378,610 | ) | ||||
Net loss and comprehensive loss attributable to: | ||||||||||||||||
Owners of the Corporation | $ | (3,569,519 | ) | $ | (3,895,084 | ) | $ | (8,035,772 | ) | $ | (4,878,425 | ) | ||||
Non-controlling interest | (1,482,141 | ) | (789,020 | ) | (2,431,051 | ) | (1,500,185 | ) | ||||||||
Net loss and comprehensive loss for the period | $ | (5,051,660 | ) | $ | (4,684,104 | ) | $ | (10,466,823 | ) | $ | (6,378,610 | ) | ||||
Basic and diluted loss per share | $ | (0.06 | ) | $ | (0.08 | ) | $ | (0.13 | ) | $ | (0.10 | ) | ||||
Basic and diluted weighted average number of common shares | 60,600,189 | 49,966,258 | 60,350,829 | 49,851,373 |
See accompanying notes to unaudited interim consolidated financial statements.
2
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Consolidated Interim Statements of Changes in Equity
(Unaudited)
Six-month periods ended August 31, 2013 and 2012
Attributable to equity holders of the Corporation | Attributable to non-controlling interest | |||||||||||||||||||||||||||||||||||||||
Subsidiary | Non- | |||||||||||||||||||||||||||||||||||||||
Share capital | Contributed | warrants | controlling | Total | ||||||||||||||||||||||||||||||||||||
Number | Dollars | Warrants | surplus | Deficit | Total | and options | interest | Total | equity | |||||||||||||||||||||||||||||||
Balance, February 28, 2013 | 60,079,730 | $ | 83,561,499 | $ | – | $ | 17,736,472 | * | $ | (45,457,773 | ) | $ | 55,840,198 | * | $ | 4,294,340 | * | $ | (3,396,506 | ) | $ | 897,834 | * | $ | 56,738,032 | |||||||||||||||
Net loss and comprehensive loss | ||||||||||||||||||||||||||||||||||||||||
for the period | – | – | – | – | (8,035,772 | ) | (8,035,772 | ) | – | (2,431,051 | ) | (2,431,051 | ) | (10,466,823 | ) | |||||||||||||||||||||||||
60,079,730 | 83,561,499 | – | 17,736,472 | (53,493,545 | ) | 47,804,426 | 4,294,340 | (5,827,557 | ) | (1,533,217 | ) | 46,271,209 | ||||||||||||||||||||||||||||
Transactions with owners, | ||||||||||||||||||||||||||||||||||||||||
recorded directly in equity | ||||||||||||||||||||||||||||||||||||||||
Contributions by and distribution | ||||||||||||||||||||||||||||||||||||||||
to owners | ||||||||||||||||||||||||||||||||||||||||
Share-based payment transactions | ||||||||||||||||||||||||||||||||||||||||
(note 8) | – | – | – | 3,391,523 | – | 3,391,523 | 2,049,644 | – | 2,049,644 | 5,441,167 | ||||||||||||||||||||||||||||||
Share-based payment transactions | ||||||||||||||||||||||||||||||||||||||||
with a consultant (note 8 (k)) | 75,389 | 213,990 | – | 435,750 | – | 649,740 | – | – | – | 649,740 | ||||||||||||||||||||||||||||||
Share options and RSUs exercised | ||||||||||||||||||||||||||||||||||||||||
(note 8) | 847,750 | 1,973,342 | – | (738,967 | ) | – | 1,234,375 | – | – | – | 1,234,375 | |||||||||||||||||||||||||||||
Total contributions by and | ||||||||||||||||||||||||||||||||||||||||
distribution to owners | 923,139 | 2,187,332 | – | 3,088,306 | – | 5,275,638 | 2,049,644 | – | 2,049,644 | 7,325,282 | ||||||||||||||||||||||||||||||
Change in ownership interests in | ||||||||||||||||||||||||||||||||||||||||
subsidiaries that do not result | ||||||||||||||||||||||||||||||||||||||||
in a loss of control | ||||||||||||||||||||||||||||||||||||||||
Exercise of Acasti warrants and | ||||||||||||||||||||||||||||||||||||||||
options by third parties (note 7 (a)) | – | – | – | 212,238 | – | 212,238 | – | 233,726 | 233,726 | 445,964 | ||||||||||||||||||||||||||||||
Exercise of NeuroBioPharm warrants and | ||||||||||||||||||||||||||||||||||||||||
options by third parties (note 7 (b)) | – | – | – | 836 | – | 836 | – | (534 | ) | (534 | ) | 302 | ||||||||||||||||||||||||||||
Subsidiary shares issued for | ||||||||||||||||||||||||||||||||||||||||
royalties prepayment (note 7 (a)) | – | – | – | (5,775,394 | ) | – | (5,775,394 | ) | – | 5,746,394 | 5,746,394 | (29,000 | ) | |||||||||||||||||||||||||||
Total changes in ownership | ||||||||||||||||||||||||||||||||||||||||
interest in subsidiaries | – | – | – | (5,562,320 | ) | – | (5,562,320 | ) | – | 5,979,586 | 5,979,586 | 417,266 | ||||||||||||||||||||||||||||
Total transactions with owners | 923,139 | 2,187,332 | – | (2,474,014 | ) | – | (286,682 | ) | 2,049,644 | 5,979,586 | 8,029,230 | 7,742,548 | ||||||||||||||||||||||||||||
Balance at August 31, 2013 | 61,002,869 | $ | 85,748,831 | $ | – | $ | 15,262,458 | $ | (53,493,545 | ) | $ | 47,517,744 | $ | 6,343,984 | $ | 152,029 | $ | 6,496,013 | $ | 54,013,757 |
*An amount of $406,677 has been recorded in the comparative opening balances as a reduction of Contributed surplus and increase of Subsidiary warrants and options, reflecting an immaterial correction.
See accompanying notes to unaudited consolidated interim financial statements.
3
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Consolidated Interim Statements of Changes in Equity, Continued
(Unaudited)
Six-month periods ended August 31, 2013 and 2012 (continued)
Attributable to equity holders of the Corporation | Attributable to non-controlling interest | |||||||||||||||||||||||||||||||||||||||
Subsidiary | Non- | |||||||||||||||||||||||||||||||||||||||
Share capital | Contributed | warrants | controlling | Total | ||||||||||||||||||||||||||||||||||||
Number | Dollars | Warrants | surplus | Deficit | Total | and options | interest | Total | equity | |||||||||||||||||||||||||||||||
Balance, February 29, 2012 | 49,688,843 | $ | 45,841,986 | $ | 743,195 | $ | 13,156,913 | $ | (31,973,311 | ) | $ | 27,768,783 | $ | 1,676,653 | $ | 3,178,566 | $ | 4,855,219 | $ | 32,624,002 | ||||||||||||||||||||
Net loss and comprehensive loss | ||||||||||||||||||||||||||||||||||||||||
for the period | – | – | – | – | (4,878,425 | ) | (4,878,425 | ) | – | (1,500,185 | ) | (1,500,185 | ) | (6,378,610 | ) | |||||||||||||||||||||||||
49,688,843 | 45,841,986 | 743,195 | 13,156,913 | (36,851,736 | ) | 22,890,358 | 1,676,653 | 1,678,381 | 3,355,034 | 26,245,392 | ||||||||||||||||||||||||||||||
Transactions with owners, | ||||||||||||||||||||||||||||||||||||||||
recorded directly in equity | ||||||||||||||||||||||||||||||||||||||||
Contributions by and distribution | ||||||||||||||||||||||||||||||||||||||||
to owners | ||||||||||||||||||||||||||||||||||||||||
Warrants exercised | 201,718 | 777,296 | (143,578 | ) | – | – | 633,718 | – | – | – | 633,718 | |||||||||||||||||||||||||||||
Share-based payment transactions | – | – | – | 3,396,312 | – | 3,396,312 | 1,292,385 | – | 1,292,385 | 4,688,697 | ||||||||||||||||||||||||||||||
Share options exercised | 270,500 | 792,033 | – | (291,283 | ) | – | 500,750 | – | – | – | 500,750 | |||||||||||||||||||||||||||||
Total contributions by and | ||||||||||||||||||||||||||||||||||||||||
distribution to owners | 472,218 | 1,569,329 | (143,578 | ) | 3,105,029 | – | 4,530,780 | 1,292,385 | – | 1,292,385 | 5,823,165 | |||||||||||||||||||||||||||||
Change in ownership interests in | ||||||||||||||||||||||||||||||||||||||||
subsidiaries that do not result | ||||||||||||||||||||||||||||||||||||||||
in a loss of control | ||||||||||||||||||||||||||||||||||||||||
Exercise of Acasti warrants and | ||||||||||||||||||||||||||||||||||||||||
options by third parties | – | – | – | 16,095 | – | 16,095 | – | 28,980 | 28,980 | 45,075 | ||||||||||||||||||||||||||||||
Acquisition of subsidiary shares | ||||||||||||||||||||||||||||||||||||||||
on the market | – | – | – | (26,345 | ) | – | (26,345 | ) | – | (2,514 | ) | (2,514 | ) | (28,859 | ) | |||||||||||||||||||||||||
Total changes in ownership | ||||||||||||||||||||||||||||||||||||||||
interest in subsidiaries | – | – | – | (10,250 | ) | – | (10,250 | ) | – | 26,466 | 26,466 | 16,216 | ||||||||||||||||||||||||||||
Total transactions with owners | 472,218 | 1,569,329 | (143,578 | ) | 3,094,779 | – | 4,520,530 | 1,292,385 | 26,466 | 1,318,851 | 5,839,381 | |||||||||||||||||||||||||||||
Balance at August 31, 2012 | 50,161,061 | $ | 47,411,315 | $ | 599,617 | $ | 16,251,692 | $ | (36,851,736 | ) | $ | 27,410,888 | $ | 2,969,038 | $ | 1,704,847 | $ | 4,673,885 | $ | 32,084,773 |
See accompanying notes to unaudited consolidated interim financial statements.
4
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Consolidated Interim Statements of Cash Flows
(Unaudited)
Three-month and six-month periods ended August 31, 2013 and 2012
Three-month periods ended | Six-month periods ended | |||||||||||||||
August 31, | August 31, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net loss for the period | $ | (5,051,660 | ) | $ | (4,684,104 | ) | $ | (10,466,823 | ) | $ | (6,378,610 | ) | ||||
Adjustments: | ||||||||||||||||
Depreciation of property, plant and equipment | 66,575 | 177,489 | 132,536 | 356,154 | ||||||||||||
Amortization of intangible assets | 8,548 | 9,465 | 16,750 | 18,930 | ||||||||||||
Stock-based compensation | 3,994,214 | 3,068,156 | 6,090,907 | 4,688,697 | ||||||||||||
Amortization of deferred lease inducements | (14,839 | ) | – | (20,635 | ) | – | ||||||||||
Net finance (income) expense | (73,019 | ) | 681,914 | (111,587 | ) | 677,511 | ||||||||||
Realized foreign exchange gain (loss) | 45,508 | (162,869 | ) | 69,933 | 5,141 | |||||||||||
Unrealized foreign exchange loss (gain) | ||||||||||||||||
on advance payments | 20,584 | (16,046 | ) | 19,553 | (31,928 | ) | ||||||||||
(1,004,089 | ) | (925,995 | ) | (4,269,366 | ) | (664,105 | ) | |||||||||
Changes in non-cash operating working capital items: | ||||||||||||||||
Trade and other receivables | 459,570 | (485,175 | ) | (2,183,824 | ) | (1,104,730 | ) | |||||||||
Tax credits receivable | (164,337 | ) | (68,163 | ) | (287,423 | ) | (263,630 | ) | ||||||||
Prepaid expenses | (677,286 | ) | 319,311 | (745,245 | ) | 210,982 | ||||||||||
Inventories | 2,692,227 | 595,124 | (1,541,738 | ) | (1,519,091 | ) | ||||||||||
Trade and other payables | 501,515 | 1,107,384 | 1,322,400 | 1,647,223 | ||||||||||||
Advance payments | 7,590 | (26,585 | ) | (5,497 | ) | 84,489 | ||||||||||
Deferred lease inducements | – | – | 510,929 | – | ||||||||||||
2,819,279 | 1,441,896 | (2,930,398 | ) | (944,757 | ) | |||||||||||
1,815,190 | 515,901 | (7,199,764 | ) | (1,608,862 | ) | |||||||||||
Cash flows from investing activities: | ||||||||||||||||
Interest received | 6,242 | 1,979 | 146,877 | 20,628 | ||||||||||||
Acquisition of property, plant and equipment | (1,811,000 | ) | (3,057,849 | ) | (3,262,379 | ) | (6,226,283 | ) | ||||||||
Acquisition of intangible assets | (297,787 | ) | (24,685 | ) | (314,767 | ) | (193,149 | ) | ||||||||
Maturity of short-term investments | 3,381,896 | 2,268,290 | 8,925,096 | 5,606,790 | ||||||||||||
Acquisition of short-term investments | (200,000 | ) | – | (5,287,333 | ) | – | ||||||||||
1,079,351 | (812,265 | ) | 207,494 | (792,014 | ) | |||||||||||
Cash flows from financing activities: | ||||||||||||||||
Repayment of loans and borrowings | (6,290 | ) | (115,293 | ) | (7,518 | ) | (1,507,410 | ) | ||||||||
Increase in loans and borrowings | – | – | – | 3,037,393 | ||||||||||||
Proceeds from exercise of subsidiary warrants and options | 421,300 | 30,813 | 446,266 | 45,075 | ||||||||||||
Proceeds from exercise of warrants | – | 537,901 | – | 541,214 | ||||||||||||
Acquisition of subsidiary shares on the market | – | (28,859 | ) | – | (28,859 | ) | ||||||||||
Proceeds from exercise of options | 1,174,375 | 283,250 | 1,234,375 | 500,750 | ||||||||||||
Subsidiary share issue costs | (29,000 | ) | – | (29,000 | ) | – | ||||||||||
Interest paid | (71,086 | ) | (40,419 | ) | (73,655 | ) | (75,413 | ) | ||||||||
1,489,299 | 667,393 | 1,570,468 | 2,512,750 | |||||||||||||
Foreign exchange gain (loss) on cash held in foreign currencies | 70,476 | (123,729 | ) | 42,536 | (59,959 | ) | ||||||||||
Net increase (decrease) in cash | 4,454,316 | 247,300 | (5,379,266 | ) | 51,915 | |||||||||||
Cash beginning of period | 5,068,877 | 3,569,880 | 14,902,459 | 3,765,265 | ||||||||||||
Cash, end of period | $ | 9,523,193 | $ | 3,817,180 | $ | 9,523,193 | $ | 3,817,180 | ||||||||
Supplemental cash flow disclosure: | ||||||||||||||||
Non-cash transactions: | ||||||||||||||||
Acquired property, plant and equipment included | ||||||||||||||||
in accounts payable and accrued liabilities | $ | 939,166 | $ | 36,825 | $ | 1,675,751 | $ | 4,045,163 | ||||||||
Intangible assets included in accounts | ||||||||||||||||
payable and accrued liabilities | 14,694 | 2,027 | 38,159 | 31,463 | ||||||||||||
Ascribed value to share capital on exercise | ||||||||||||||||
of private placement warrants | – | 92,504 | – | 92,504 | ||||||||||||
Grant receivable applied against property, plant | ||||||||||||||||
and equipment | – | – | 5,498 | – | ||||||||||||
Derecognition of grant receivable applied against | ||||||||||||||||
property, plant and equipment | 2,589,297 | – | 2,589,297 | – | ||||||||||||
Tax credit receivable applied against property, | ||||||||||||||||
plant and equipment | – | – | 362,566 | – | ||||||||||||
Interest capitalized | 43,204 | – | 85,448 | – |
See accompanying notes to unaudited interim consolidated financial statements.
5
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
1. | Reporting entity: |
Neptune Technologies & Bioressources Inc. (the "Corporation") is incorporated under the Business Corporations Act (Québec) (formerly Part 1A of the Companies Act (Québec)). The Corporation is domiciled in Canada and its registered office is located at 545, Promenade du Centropolis, Laval, Québec, H7T 0A3. The consolidated financial statements of the Corporation comprise the Corporation and its subsidiaries, Acasti Pharma Inc. ("Acasti") and NeuroBioPharm Inc. ("NeuroBioPharm"). The Corporation focuses on the research, development and commercialization of products derived from marine biomasses for the nutraceutical and pharmaceutical industries.
Neptune is a biotechnology corporation engaged primarily in the development, manufacture and commercialization of marine-derived omega-3 polyunsaturated fatty acids ("PUFAs"). Neptune produces omega-3 PUFAs through its patented process of extracting oils from Antartic krill, which omega-3 PUFAs are then principally sold as bulk oil to Neptune’s distributors who commercialize them under their private label primarily in the U.S., European and Australian nutraceutical markets. Neptune’s lead products, Neptune Krill Oil (NKO®) and ECOKRILL Oil (EKOTM), generally come in capsule form and serve as a dietary supplement to consumers.
The Corporation’s subsidiaries are subject to a number of risks associated with the successful development of new products and their marketing, the conduct of clinical studies and their results, the meeting of development objectives set by the Corporation in its license agreements and the establishment of strategic alliances. The Corporation’s subsidiaries will have to finance their research and development activities and their clinical studies. To achieve the objectives of their business plans, the Corporation’s subsidiaries plan to establish strategic alliances, raise the necessary capital and make sales. It is anticipated that the products developed by the Corporation’s subsidiaries will require approval from the U.S. Food and Drug Administration and equivalent organizations in other countries before their sale can be authorized.
2. | Basis of preparation: |
(a) | Statement of compliance: |
These consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB), on a basis consistent with those accounting policies followed by the Corporation in the most recent audited consolidated annual financial statements, except as described in note 3. These condensed consolidated interim financial statements have been prepared under IFRS in accordance with IAS 34, Interim Financial Reporting. Certain information, in particular the accompanying notes, normally included in the consolidated annual financial statements prepared in accordance with IFRS, has been omitted or condensed. Accordingly, the condensed consolidated interim financial statements do not include all of the information required for full annual consolidated financial statements, and therefore, should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended February 28, 2013.
(b) | Basis of measurement: |
The consolidated financial statements have been prepared on the historical cost basis except for the following:
· | Equity warrants and stock options which are measured pursuant to IFRS 2, Share-based payment; |
· | Liabilities for warrants which are measured at fair value. |
(c) | Functional and presentation currency: |
These consolidated interim financial statements are presented in Canadian dollars, which is the Corporation and its subsidiaries’ functional currency.
(d) | Use of estimates and judgements: |
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
6
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
2. | Basis of preparation (continued): |
(d) | Use of estimates and judgements (continued): |
Estimates are based on the management’s best knowledge of current events and actions that the Corporation may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements include the following:
· | Impact of plant explosion including recognition of future insurance recoveries and related contingencies, which required judgement in evaluating whether the Corporation has the unconditional right to receive insurance recoveries and whether it is probable that economic benefits will be required to settle any contingencies; |
· | Assessing the recognition of contingent liabilities, which required judgement in evaluating whether it is probable that economic benefits will be required to settle matters subject to litigation. |
Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year include the following:
· | Utilization of tax losses and investment tax credits; |
· | Reasonable assurance of grant recognition and compliance with conditions of grant agreements; |
· | Measurement of derivative financial liabilities and stock-based compensation; and |
· | Collectability of trade receivable. |
Also, the Corporation uses its best estimate to determine which research and development (“R&D”) expenses qualify for R&D tax credits and in what amounts. The Corporation recognizes the tax credits once it has reasonable assurance that they will be realized. Recorded tax credits are subject to review and approval by tax authorities and therefore could be different from the amounts recorded.
3. | Significant accounting policies: |
The accounting policies and basis of measurement applied in these condensed consolidated interim financial statements are the same as those applied by the Corporation in its consolidated financial statements for the year ended February 28, 2013, except as described below:
On March 1, 2013, the Corporation adopted the following new accounting standards issued by the IASB:
(a) | IFRS 10, Consolidated Financial Statements (“IFRS 10”), which builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of a parent company. IFRS 10 also provides additional guidance to assist in the determination of control where this is difficult to assess; |
(b) | IFRS 13, Fair Value Measurement (“IFRS 13”), which defines fair value, sets out in a single IFRS a framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 does not determine when an asset, a liability or an entity’s own equity instrument is measured at fair value. Rather, the measurement and disclosure requirements of IFRS 13 apply when another IFRS requires or permits the item to be measured at fair value (with limited exceptions). IFRS 13 requires additional information to be presented in quarterly financial statements, as presented in note 12. |
The impact of the adoption of these standards and amendments did not have a significant impact on the Corporation’s condensed consolidated interim financial statements.
7
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
4. | Inventories: |
August 31, 2013 | February 28, 2013 | |||||||
Raw materials | $ | 11,471,595 | $ | 7,492,442 | ||||
Work in progress | 178,398 | 183,495 | ||||||
Finished goods | 1,427,747 | 3,860,065 | ||||||
Spare parts | 173,611 | 173,611 | ||||||
$ | 13,251,351 | $ | 11,709,613 |
For the six-month period ended August 31, 2013, the cost of sales of $10,183,373 ($7,583,748 for the six-month period ended August 31, 2012) comprised inventory costs of $9,906,852 ($7,454,868 for the six-month period ended August 31, 2012) which consisted of raw materials, consumables and changes in work in progress and finished goods, inventory writedown of $188,656 ($16,318 for the six-month period ended August 31, 2012) and other costs of $87,865 ($112,562 for the six-month period ended August 31, 2012).
5. | Insurance recoveries: |
During the six-month period ended August 31, 2013, the Corporation received insurance recoveries related to the plant explosion that occurred on November 8, 2012, for an amount of $5,700,000 ($6,000,000 for the year ended February 28, 2013), recorded as other income. These recoveries represent part of the total compensation that management expects to receive once the Corporation completes and settles its claims with its insurers.
6. | Capital and other components of equity: |
(a) | Share capital: |
Authorized capital stock:
Unlimited number of shares without par value:
Ø | Common shares |
Preferred shares, issuable in series, rights, privileges and restrictions determined at time of issuance:
Ø | Series A preferred shares, non-voting, non-participating, fixed, preferential and non-cumulative dividend of 5% of paid-up capital, exchangeable at the holder’s option under certain conditions into common shares (none issued and outstanding). |
8
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
6. | Capital and other components of equity (continued): |
(b) | Subsidiary warrants and options: |
August 31, 2013 | February 28, 2013 | |||||||||||||||
Number | Number | |||||||||||||||
outstanding | Amount | outstanding | Amount | |||||||||||||
Acasti Pharma Inc. | ||||||||||||||||
Series 4 warrants | 5,291,100 | $ | 372,206 | 5,422,350 | $ | 370,735 | ||||||||||
Options outstanding under stock-based | ||||||||||||||||
compensation plan (note 8 (b)) | 4,954,750 | 3,497,255 | 5,216,250 | 2,915,611 | ||||||||||||
Call-options (note 8 (f)) | 4,135,000 | 1,374,143 | 2,175,000 | 404,783 | ||||||||||||
Restrictive share units (note 8 (i)) | 1,060,000 | 478,586 | – | – | ||||||||||||
Private placement warrants | ||||||||||||||||
Series 6 | 375,000 | 306,288 | 375,000 | 306,288 | ||||||||||||
Series 7 | 375,000 | 100,400 | 375,000 | 100,400 | ||||||||||||
16,190,850 | 6,128,878 | 13,563,600 | 4,097,817 | |||||||||||||
NeuroBioPharm Inc. | ||||||||||||||||
Series 2011-1 warrants | 4,057,725 | – | 4,058,128 | – | ||||||||||||
Series 2011-2 warrants | 3,450,075 | 16,962 | 3,450,075 | 14,295 | ||||||||||||
Series 2011-3 warrants | 8,050,175 | 166,798 | 8,050,175 | 166,630 | ||||||||||||
Options outstanding under stock-based | ||||||||||||||||
compensation plan (note 8 (c)) | 450,000 | 14,158 | 461,250 | 13,704 | ||||||||||||
Call-options (note 8 (g)) | 4,125,000 | 4,284 | 2,250,000 | 1,894 | ||||||||||||
Share bonus awards (note 8 (j)) | 832,000 | 12,904 | – | – | ||||||||||||
20,964,975 | 215,106 | 18,269,628 | 196,523 | |||||||||||||
37,155,825 | $ | 6,343,984 | 31,833,228 | $ | 4,294,340 |
The characteristics of the Acasti subsidiary warrants are as follows:
Series 4 allows the holder to purchase one Class A share of Acasti for $0.25 per share until October 8, 2013 (1).
Series 6 allows the holder to purchase one Class A share of Acasti for $1.50 per share until February 10, 2015.
Series 7 allows the holder to purchase one Class A share of Acasti for $1.50 per share until February 10, 2015 subject to the achievement of certain agreed upon and predefined milestones. Series 7 warrants are subject to vesting in equal installments over four semesters, subject to continued service and attainment of market (187,500 warrants) and non-market performance conditions (187,500 warrants).
(1) 121,250 warrants have been exercised during the period ended August 31, 2013 for consideration in Acasti of $30,313 and additional consideration in Neptune of $11,875.
9
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
6. | Capital and other components of equity (continued): |
(b) | Subsidiary warrants and options (continued): |
The characteristics of the NeuroBioPharm subsidiary warrants are as follows:
Series 2011-1 allows the holder to purchase one Class A share for $0.40 per share until the earliest of the two following events: (i) fifteen (15) days after the listing of the Corporation’s shares on a recognized stock exchange; or (ii) on April 12, 2014 (1).
Series 2011-2 allows the holder to purchase one Class A share of NeuroBioPharm for $0.47 per share until the earliest of the two following events: (i) fifteen (15) days after the listing to the corporation's shares on a recognized stock exchange; or (ii) on April 12, 2016.
Series 2011-3 allows the holder to purchase one Class A share of NeuroBioPharm for $0.40 per share until April 12, 2016.
(1) 403 warrants have been exercised during the period ended August 31, 2013 for consideration in NeuroBioPharm of $161 and additional consideration in Neptune of $141.
7. | Non-controlling interest: |
(a) | Acasti: |
During the six-month period ended August 31, 2013, the Corporation’s participation in Acasti changed as follows:
During the six-month period ended August 31, 2013, various holders of Acasti warrants and options exercised their right to purchase Class A shares, resulting in the issuance of 402,750 shares by Acasti and cash proceeds in Acasti of $434,089 and additional consideration in Neptune of $11,875, for a total of $445,964. The impact of these warrants and options exercised on the non-controlling interest amounts to $233,726.
On December 4, 2012, the Corporation announced that it had entered into a prepayment agreement with a subsidiary, Acasti, pursuant to which the subsidiary exercised its option under the exclusive technology license agreement to pay in advance all of the future royalties’ payable under the license agreement.
The value of the prepayment, determined with the assistance of outside valuations specialists, using the pre-established formula set forth in the license agreement, amounted to $15,525,000, which has been settled by the subsidiary through the issuance of 6,750,000 Class A shares, issuable at a price of $2.30 per share, upon the exercise of a warrant delivered to the Corporation at the signature of the prepayment agreement.
The prepayment and the issuance of the shares to the Corporation were approved by the TSX Venture Exchange and of the disinterested shareholders of the subsidiary at the annual meeting of shareholders of the subsidiary held on June 27, 2013.
As a result, on July 12, 2013, Acasti issued to the Corporation 6,750,000 Class A shares, at a price of $2.30 per share, increasing the ownership interest of Neptune in Acasti by 3% and increasing the non-controlling interest of $5,746,394. Changes in ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The difference between the consideration received and the non-controlling interest was recognized in contributed surplus. The subsidiary incurred share issue costs of $29,000.
The distribution of the shareholdings of issued and outstanding Acasti’s capital stock between the Corporation and other shareholders as at August 31, 2013 and February 28, 2013 is detailed as follows:
August 31, 2013 | ||||||||||||
Other | ||||||||||||
Corporation | shareholders | Total | ||||||||||
Class A shares | 48,175,933 | 32,084,355 | 80,260,288 | |||||||||
Votes and participation | 60 | % | 40 | % | 100 | % |
10
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
7. | Non-controlling interest (continued): |
(a) | Acasti (continued): |
February 28, 2013 | ||||||||||||
Other | ||||||||||||
Corporation | shareholders | Total | ||||||||||
Class A shares | 41,427,733 | 31,679,805 | 73,107,538 | |||||||||
Votes and participation | 57 | % | 43 | % | 100 | % |
Class A shares are voting (one vote per share), participating and without par value.
(b) | NeuroBioPharm: |
During the six-month period ended August 31, 2013, the Corporation’s participation in NeuroBioPharm changed as follows:
During the six-month period ended August 31, 2013, various holders of NeuroBioPharm warrants exercised their right to purchase Class A shares, resulting in the issuance of 403 shares by NeuroBioPharm and cash proceeds in NeuroBioPharm of $161 and additional consideration in Neptune of $141, for a total of $302. The impact of these warrants exercised on the non-controlling interest amounts to $(534).
The distribution of the shareholdings of issued and outstanding NeuroBioPharm’s capital stock between the Corporation and other shareholders as at August 31, 2013 and February 28, 2013 is detailed as follows:
August 31, 2013 | ||||||||||||
Other | ||||||||||||
Corporation | shareholders | Total | ||||||||||
Class A shares | 6,501,000 | 2,002,275 | 8,503,275 | |||||||||
Class B shares | 2,475,000 | 25,000 | 2,500,000 | |||||||||
Class G shares | 17,325,000 | 175,000 | 17,500,000 | |||||||||
Class H shares | 25,740,000 | 260,000 | 26,000,000 | |||||||||
52,041,000 | 2,462,275 | 54,503,275 | ||||||||||
Votes | 96 | % | 4 | % | 100 | % | ||||||
Participation | 76 | % | 24 | % | 100 | % |
11
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
7. | Non-controlling interest (continued): |
(b) | NeuroBioPharm (continued): |
February 28, 2013 | ||||||||||||
Other | ||||||||||||
Corporation | shareholders | Total | ||||||||||
Class A shares | 6,501,000 | 2,001,872 | 8,502,872 | |||||||||
Class B shares | 2,475,000 | 25,000 | 2,500,000 | |||||||||
Class G shares | 17,325,000 | 175,000 | 17,500,000 | |||||||||
Class H shares | 25,740,000 | 260,000 | 26,000,000 | |||||||||
52,041,000 | 2,461,872 | 54,502,872 | ||||||||||
Votes | 96 | % | 4 | % | 100 | % | ||||||
Participation | 76 | % | 24 | % | 100 | % |
Class A shares, voting (one vote per share), participating, without par value and a discretionary dividend.
Class B shares, voting (ten votes per share), non-participating, without par value and maximum annual non-cumulative dividend of 5% on the amount paid for said shares, subject to adjustment. Class B shares are convertible, at the holder’s discretion, into Class A shares, on a one-for-one basis, and Class B shares are redeemable at the holder’s discretion at a price equivalent to the amount paid for the shares, subject to adjustments.
Class G shares, non-voting, non-participating, without par value. Class G shares are convertible, at the holder’s discretion or at the corporation’s discretion on occurrence of a private placement or the listing of the corporation’s shares, into Class A shares, on a one-for-one basis. Class G shares are redeemable at the holder’s discretion at a price equivalent to the amount paid for the shares, subject to adjustments.
Class H shares, voting (one vote per share), non-participating, without par value. Class H shares are convertible, at the holder’s discretion or at the corporation’s discretion on occurrence of a private placement or the listing of the corporation’s shares, into Class A shares, on a one-for-one basis. Class H shares are redeemable at the holder’s discretion at a price equivalent to the amount paid for the shares, subject to adjustments.
12
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
8. | Share-based payment: |
Description of the share-based payment arrangements:
At August 31, 2013, the Corporation has the following share-based payment arrangements:
(a) | Corporation stock-based compensation plan: |
The Corporation has established a stock-based compensation plan for directors, officers, employees and consultants. The plan provides for the granting of common share options. The purchase price of the shares covered by the stock options granted under the plan is the closing price of the common shares listed on the TSX on the eve of the grant. The terms and conditions for acquiring and exercising options are set by the Board of Directors, as well as the term of the options which, however, cannot be more than five years or any other shorter period as specified by the Board of Directors, according to the regulations of the plan. The Corporation’s stock-option plan allows the Corporation to issue a number of incentive stock options not in excess of 15% of the number of shares issued and outstanding. The total number of shares issued to a single person cannot exceed 5% of the Corporation’s total issued and outstanding common shares, with the maximum being 2% for any one consultant.
Every stock option issuance in the stock option plan will be subject to conditions no less restrictive than a minimal vesting period of 18 months, with the vesting rights acquisition gradual and equal, at least on a quarterly basis.
The number and weighted average exercise price of share options are as follows:
Weighted average exercise price | Number of options | Weighted average exercise price | Number of options | |||||||||||||
Outstanding at March 1, 2013 and 2012 | $ | 2.95 | 8,115,418 | $ | 2.46 | 3,768,000 | ||||||||||
Granted | 2.65 | 710,000 | 3.37 | 3,040,000 | ||||||||||||
Forfeited | 3.18 | (259,000 | ) | 3.45 | (50,000 | ) | ||||||||||
Expired | 2.28 | (90,000 | ) | – | – | |||||||||||
Exercised | 1.60 | (772,750 | ) | 1.85 | (270,500 | ) | ||||||||||
Outstanding at August 31, 2013 and 2012 | $ | 3.07 | 7,703,668 | $ | 2.88 | 6,487,500 | ||||||||||
Exercisable at August 31, 2013 and 2012 | $ | 3.07 | 4,396,154 | $ | 2.35 | 2,702,827 |
13
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
8. | Share-based payment (continued): |
(a) | Corporation stock-based compensation plan (continued): |
The fair value of options granted has been estimated according to the Black-Scholes option pricing model and based on the weighted average of the following assumptions for options granted during the periods ended:
Six-month periods ended August 31, | ||||||||
2013 | 2012 | |||||||
Share price | $ | 2.48 | $ | 2.86 | ||||
Dividend | – | 0.02 | % | |||||
Risk-free interest | 0.52 | % | 1.29 | % | ||||
Estimated life | 1.62 years | 2.64 years | ||||||
Expected volatility | 73.39 | % | 66.47 | % |
The weighted average fair value of the options granted to employees during the six-month period ended August 31, 2013 is $1.01 (2012 - $1.11). The weighted average fair value of the options granted to non-employees during the six-month period ended August 31, 2013 is $1.11 (2012 - $1.67).
The weighted average share price at the date of exercise for options exercised during the six-month period ended August 31, 2013 was $3.31 (2012 - $4.04). An amount of $489,967 was reclassified to share capital on exercise of these options.
For the six-month period ended August 31, 2013, the Corporation recognized stock-based compensation under this plan in the amount of $2,455,517 (2012 - $3,396,312).
(b) | Acasti Pharma stock-based compensation plan: |
The subsidiary, Acasti, has established a stock-based compensation plan for directors, officers, employees and consultants. The plan provides for the granting of options to purchase Acasti Class A shares. The exercise price of the stock options granted under this plan is not lower than the closing price of the shares listed on the eve of the grant. Under this plan, the maximum number of options that can be issued equaled 10% of Acasti Class A shares held by public shareholders, as approved annually by such shareholders. On June 27, 2013, the subsidiary’s shareholders approved the renewal of the Acasti stock option plan, under which the maximum number of options that can be issued is 7,317,128, corresponding to 10% of the shares outstanding as of the date of shareholders’ approval. The terms and conditions for acquiring and exercising options are set by the subsidiary’s Board of Directors, subject, among others, to the following limitations: the term of the options cannot exceed ten years and every stock option granted under the stock option plan will be subject to conditions no less restrictive than a minimal vesting period of 18 months, a gradual and equal acquisition of vesting rights, at least on a quarterly basis. The total number of shares issued to a single person cannot exceed 5% of the subsidiary’s total issued and outstanding shares, with the maximum being 2% for any one consultant.
14
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
8. | Share-based payment (continued): |
(b) | Acasti Pharma stock-based compensation plan (continued): |
The number and weighted average exercise prices of share options are as follows:
Weighted average exercise price | Number of options | Weighted average exercise price | Number of options | |||||||||||||
Outstanding at March 1, 2013 and 2012 | $ | 1.55 | 5,216,250 | $ | 1.15 | 3,347,500 | ||||||||||
Granted | 2.36 | 140,000 | 2.10 | 2,155,000 | ||||||||||||
Exercised | 1.43 | (281,500 | ) | 0.68 | (20,000 | ) | ||||||||||
Forfeited | 1.96 | (120,000 | ) | – | – | |||||||||||
Outstanding at August 31, 2013 and 2012 | $ | 1.57 | 4,954,750 | $ | 1.53 | 5,482,500 | ||||||||||
Exercisable at August 31, 2013 and 2012 | $ | 1.33 | 3,229,664 | $ | 0.95 | 1,776,333 |
The fair value of options granted has been estimated according to the Black-Scholes option pricing model and based on the weighted average of the following assumptions for options granted during the periods ended:
Six-month periods ended | ||||||||
August 31, | ||||||||
2013 | 2012 | |||||||
Share price | $ | 2.36 | $ | 2.10 | ||||
Dividend | – | – | ||||||
Risk-free interest | 1.03 | % | 1.34 | % | ||||
Estimated life | 2.44 years | 4.19 years | ||||||
Expected volatility | 79.42 | % | 70.52 | % |
The weighted average fair value of the options granted to employees during the six-month period ended August 31, 2013 is $1.06 (2012 - $1.13). The weighted average fair value of the options granted to non-employees during the six-month period ended August 31, 2012 was $0.90. No options were granted to non-employees during the six-month period ended August 31, 2013.
The weighted average share price at the date of exercise for options exercised during the six-month period ended August 31, 2013 was $3.84 (2012 - $2.10).
For the six-month period ended August 31, 2013, the Corporation recognized stock-based compensation under this plan in the amount of $581,644 (2012 - $1,136,292). This amount is included in the ‘’share-based payment transactions’’ of the equity attributable to non-controlling interest.
15
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
8. | Share-based payment (continued): |
(c) | NeuroBioPharm stock-based compensation plan: |
On May 25, 2011, the Board of Directors approved the establishment of a stock option plan for directors, executive officers, employees and consultants of the NeuroBioPharm. The maximum number of Class A shares that may be issued under the plan is 600,000 Class A shares, with specified individual limits established for consultants, investor relations and individuals. The exercise price of the options will be determined by the Board of Directors but may not be lower than either (i) the price per share obtained in the latest arm’s length private placement within the last year and (ii) the demonstration of value in one of the following ways: formal valuation; deferred expenditures incurred within the five previous years which have contributed to or can reasonably be expected to contribute to the development of the product or technology for which NeuroBioPharm intends to conduct a recommended research and development program in the following twelve months; net tangible assets; five times average cash flows; or some other determination of value acceptable to a recognized stock exchange where the securities of NeuroBioPharm are listed, if applicable. The life of the option will be a maximum of 10 years. The total number of shares issued to a single person cannot exceed 5% of the Corporation’s total issued and outstanding common shares, with the maximum being 2% for any one consultant.
The stock option plan will be subject to conditions no less restrictive than a minimal vesting period of 18 months, a gradual and equal acquisition of vesting rights, at least on a quarterly basis.
The number and weighted average exercise prices of share options are as follows:
Weighted average exercise price | Number of options | Weighted average exercise price | Number of options | |||||||||||||
Outstanding at March 1, 2013 and 2012 | $ | 0.50 | 461,250 | $ | 0.50 | 496,260 | ||||||||||
Forfeited | 0.50 | (11,250 | ) | – | – | |||||||||||
Outstanding at August 31, 2013 and 2012 | $ | 0.50 | 450,000 | $ | 0.50 | 496,250 | ||||||||||
Exercisable at August 31, 2013 and 2012 | $ | 0.50 | 450,000 | $ | 0.50 | 248,134 |
No options were granted during the six-month periods ended August 31, 2013 and 2012.
For the six-month period ended August 31, 2013, the Corporation recognized stock-based compensation under this plan in the amount of $454 (2012 - $2,424). This amount is included in the ‘’share-based payment transactions’’ of the equity attributable to non-controlling interest.
16
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
8. | Share-based payment (continued): |
(d) | Incentive rights over Acasti warrants: |
From time to time, the Corporation awards incentive rights to employees over Series 4 warrants it owns in its subsidiary Acasti. The rights vest gradually. All are subject to the employees’ continued service, or having reached four years of continued service for directors.
The number and weighted average exercise prices of rights over Acasti warrants are as follows:
Weighted average exercise price | Number of rights | Weighted average exercise price | Number of rights | |||||||||||||
Outstanding at March 1, 2013 and 2012 | $ | 0.33 | 5,352,350 | $ | 0.33 | 5,715,500 | ||||||||||
Exercised | 0.34 | (121,250 | ) | 0.30 | (103,150 | ) | ||||||||||
Outstanding at August 31, 2013 and 2012 | $ | 0.33 | 5,231,100 | $ | 0.33 | 5,612,350 | ||||||||||
Exercisable at August 31, 2013 and 2012 | $ | 0.33 | 5,231,100 | $ | 0.30 | 4,951,100 |
No rights were granted during the six-month periods ended August 31, 2013 and 2012.
The weighted average share price at the date of exercise for rights exercised during the six-month period ended August 31, 2013 was $3.33 (2012 - $2.12).
For the six-month period ended August 31, 2013, the Corporation recognized stock-based compensation under this plan in the amount of $1,471 (2012 - $125,207). This amount is included in the ‘’share-based payment transactions’’ of the equity attributable to non-controlling interest.
(e) | Incentive rights over NeuroBioPharm warrants: |
From time to time, the Corporation awards incentive rights to employees over Series 2011-2 and Series 2011-3 warrants it owns in its subsidiary NeuroBioPharm. The rights vest gradually. All are subject to the employees’ continued service, or having reached four years of continued service for directors.
The number and weighted average exercise prices of rights over NeuroBioPharm warrants are as follows:
Weighted average exercise price | Number of rights | Weighted average exercise price | Number of rights | |||||||||||||
Outstanding at March 1, 2013 and 2012 | $ | 0.51 | 7,733,176 | $ | 0.51 | 7,023,427 | ||||||||||
Granted | 0.76 | 210,000 | 0.75 | 730,000 | ||||||||||||
Forfeited | 0.60 | (317,505 | ) | – | – | |||||||||||
Outstanding at August 31, 2013 and 2012 | $ | 0.54 | 7,625,671 | $ | 0.53 | 7,753,427 | ||||||||||
Exercisable at August 31, 2013 and 2012 | $ | 0.51 | 6,800,421 | $ | 0.47 | 5,161,529 |
17
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
8. | Share-based payment (continued): |
(e) | Incentive rights over NeuroBioPharm warrants (continued): |
The fair value of rights over NeuroBioPharm warrants granted has been estimated according to the Black-Scholes option pricing model and based on the weighted average of the following assumptions for rights granted during the periods ended:
Six-month periods ended | ||||||||
August 31, | ||||||||
2013 | 2012 | |||||||
Share price | $ | 0.10 | $ | 0.10 | ||||
Dividend | – | – | ||||||
Risk-free interest | 0.76 | % | 1.20 | % | ||||
Estimated life | 2.38 years | 2.91 years | ||||||
Expected volatility | 80.47 | % | 74.44 | % |
The weighted average fair value of the rights granted to employees during the six-month period ended August 31, 2013 is $0.01 (2012 -$0.01). The weighted average fair value of the rights granted to non-employees during the six-month period ended August 31, 2013 is $0.00. No rights were granted to non-employees during the six-month period ended August 31, 2012.
For the six-month period ended August 31, 2013, the Corporation recognized stock-based compensation under this plan in the amount of $2,835 (2012 - $28,462). This amount is included in the ‘’share-based payment transactions’’ of the equity attributable to non-controlling interest.
(f) | Acasti call-options: |
On December 3, 2012, Neptune has granted incentive stock compensation as a means of retention, partially offsetting salary reductions and as long-term incentive for management and key employees. The call-options vest gradually over a period of two years. All are subject to the employees’ continued service and a portion of these options are subject to non-market performance conditions which are met on August 31, 2013.
The number and weighted average exercise price of call-options on Acasti shares are as follows:
Weighted average exercise price | Number of call-options | Weighted average exercise price | Number of call-options | |||||||||||||
Outstanding at March 1, 2013 and 2012 | $ | 2.75 | 2,175,000 | $ | – | – | ||||||||||
Granted | 3.00 | 1,975,000 | – | – | ||||||||||||
Forfeited | 2.75 | (15,000 | ) | – | – | |||||||||||
Outstanding at August 31, 2013 and 2012 | $ | 2.87 | 4,135,000 | $ | – | – | ||||||||||
Exercisable at August 31, 2013 and 2012 | $ | 2.75 | 540,000 | $ | – | – |
18
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
8. | Share-based payment (continued): |
(f) | Acasti call-options (continued): |
The fair value of call-options granted has been estimated according to the Black-Scholes option pricing model and based on the weighted average of the following assumptions for call-options granted during the six-month period ended August 31, 2013:
Six-month period ended August 31, 2013 | ||||
Share price | $ | 2.89 | ||
Dividend | ‒ | |||
Risk-free interest | 1.26 | % | ||
Estimated life | 2.45 years | |||
Expected volatility | 71.07 | % |
The weighted average fair value of the call-options granted to employees during the six-month period ended August 31, 2013 is $1.22. The weighted average fair value of the call-options granted to non-employees during the six-month period ended August 31, 2013 is $1.08.
For the six-month period ended August 31, 2013, the Corporation recognized stock-based compensation under this plan in the amount of $969,360 (2012 - nil). This amount is included in the ‘’share-based payment transactions’’ of the equity attributable to non-controlling interest.
(g) | NeuroBioPharm call-options: |
On December 3, 2012, Neptune has granted incentive stock compensation as a means of retention, partially offsetting salary reductions and as long-term incentive for management and key employees. The call-options vest gradually over a period of two years. All are subject to the employees’ continued service and a portion of these options are subject to non-market performance conditions which are met on August 31, 2013.
The number and weighted average exercise price of call-options on NeuroBioPharm shares are as follows:
Weighted average exercise price | Number of call-options | Weighted average exercise price | Number of call-options | |||||||||||||
Outstanding at March 1, 2013 and 2012 | $ | 0.75 | 2,250,000 | $ | ‒ | ‒ | ||||||||||
Granted | 1.00 | 1,925,000 | ‒ | ‒ | ||||||||||||
Forfeited | 0.75 | (50,000 | ) | ‒ | ‒ | |||||||||||
Outstanding at August 31, 2013 and 2012 | $ | 0.87 | 4,125,000 | $ | ‒ | ‒ | ||||||||||
Exercisable at August 31, 2013 and 2012 | $ | 0.75 | 550,000 | $ | ‒ | ‒ |
19
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
8. | Share-based payment (continued): |
(g) | NeuroBioPharm call-options (continued): |
The fair value of call-options granted has been estimated according to the Black-Scholes option pricing model and based on the weighted average of the following assumptions for call-options granted during the six-month period ended August 31, 2013:
Six-month period ended August 31, 2013 | ||||
Share price | $ | 0.10 | ||
Dividend | ‒ | |||
Risk-free interest | 1.26 | % | ||
Estimated life | 2.45 years | |||
Expected volatility | 426.97 | % |
The weighted average fair value of the call-options granted to employees during the six-month period ended August 31, 2013 is $0.10. No call-options were granted to non-employees.
For the six-month period ended August 31, 2013, the Corporation recognized stock-based compensation under this plan in the amount of $2,390 (2012 - nil). This amount is included in the ‘’share-based payment transactions’’ of the equity attributable to non-controlling interest.
(h) | Equity incentive plan of Neptune: |
In January 2013, the Board of Directors approved an equity incentive plan for employees, directors and consultants of the Corporation which was subject to the approval of the Toronto Stock Exchange and the shareholders of the Corporation. The plan was subsequently approved by the Toronto Stock Exchange and the shareholder’s approval was obtained on June 27, 2013. The plan provides for the issuance of restricted share units, performance share units, restricted shares, deferred share units and other share-based awards, under restricted conditions as may be determined by the Board of Directors. Upon fulfillment of the restricted conditions, as the case may be, the plan provides for settlement of the award through shares.
On June 21, 2013, the Corporation granted to board members, executive officers, employees and consultants a total of 1,191,000 Restrictive Share Units (‘’RSUs’’) under the Neptune equity incentive plan. Neptune RSUs will vest gradually overtime with an expiry date of no later than January 15, 2017, based on a specific rate, depending on each holder’s category, but sixty percent (60%) of such awards will vest only upon achievement of the performance objectives identified by the Corporation. Performance objectives are based in part on the Corporation’s specific and global goals, but also on each holder’s individual performance. The fair value of the RSUs is determined to be the share price at date of grant and is recognized as stock-based compensation, through contributed surplus, over the vesting period. The fair value of the RSUs granted during the quarter was $3.32 per unit.
Number of RSU | ||||
Outstanding at March 1, 2013 | ‒ | |||
Granted | 1,191,000 | |||
Exercised | (75,000 | ) | ||
Outstanding at August 31, 2013 | 1,116,000 |
20
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
8. | Share-based payment (continued): |
(h) | Equity incentive plan of Neptune (continued): |
During the six-month period ended August 31, 2013, 75,000 fully vested RSUs granted for past services have been exercised. The fair value of these RSUs of $3.32 per unit, totalling $249,000, has been reclassified from contributed surplus to share capital on exercise.
For the six-month period ended August 31, 2013, the Corporation recognized stock-based compensation under this plan in the amount of $936,006 (2012 - nil).
(i) | Equity incentive plan of Acasti: |
In May 2013, the Board of Directors of Acasti approved an equity incentive plan for employees, directors and consultants of Acasti which was subject to the approval of the Toronto Stock Exchange the shareholders of Acasti. The plan was subsequently approved by the Toronto Stock Exchange and the shareholder’s approval was obtained on June 27, 2013. The plan provides for the issuance of restricted share units, performance share units, restricted shares, deferred share units and other share-based awards, under restricted conditions as may be determined by the Board of Directors of Acasti. Upon fulfillment of the restricted conditions, as the case may be, the plan provides for settlement of the award through shares.
On June 27, 2013, Acasti granted to board members, executive officers, employees and consultants a total of 1,060,000 Restrictive Share Units (‘’RSUs’’) under the Acasti equity incentive plan. Acasti RSUs will vest gradually overtime with an expiry date of no later than January 15, 2017, based on a specific rate, depending on each holder’s category, but sixty percent (60%) of such awards will vest only upon achievement of the performance objectives identified by Acasti. Performance objectives are based in part on the Acasti’s specific and global goals, but also on each holder’s individual performance. The fair value of the RSUs is determined to be the share price at date of grant and is recognized as stock-based compensation, through ‘’share-based payment transactions’’ of the equity attributable to non-controlling interest, over the vesting period. The fair value of the RSUs granted during the quarter was $2.89 per unit.
No RSUs have been exercised as at August 31, 2013.
For the six-month period ended August 31, 2013, the Corporation recognized stock-based compensation under this plan in the amount of $478,586 (2012 - nil). This amount is included in the ‘’share-based payment transactions’’ of the equity attributable to non-controlling interest.
(j) | Share bonus plan of NeuroBioPharm: |
In May 2013, the Board of Directors of NeuroBioPharm approved an equity incentive plan for employees, directors and consultants of NeuroBioPharm which was subject to the approval of the Toronto Stock Exchange and the shareholders of NeuroBioPharm. The plan was subsequently approved by the Toronto Stock Exchange and the shareholder’s approval was obtained on June 27, 2013. The plan provides for the issuance of share bonus awards, under restricted conditions as may be determined by the Board of Directors of NeuroBioPharm. Upon fulfillment of the restricted conditions, as the case may be, the plan provides for settlement of the award through shares.
On June 27, 2013, NeuroBioPharm granted a total of 832,000 Share Bonus Awards under the NeuroBioPharm Share Bonus Plan (‘’SBAs’’). NeuroBioPharm SBAs will vest gradually overtime with an expiry date of no later than January 15, 2017, based on a specific rate, depending on each holder’s category, but sixty percent (60%) of such awards will vest only upon achievement of the performance objectives identified by NeuroBioPharm. Performance objectives are based in part on the NeuroBioPharm’s specific and global goals, but also on each holder’s individual performance. The fair value of the SBAs is determined to be the share price at date of grant and is recognized as stock-based compensation, through ‘’share-based payment transactions’’ of the equity attributable to non-controlling interest, over the vesting period. The fair value of the SBAs granted during the quarter was $0.10 per unit.
No SBAs have been exercised as at August 31, 2013.
For the six-month period ended August 31, 2013, the Corporation recognized stock-based compensation under this plan in the amount of $12,904 (2012 - nil). This amount is included in the ‘’share-based payment transactions’’ of the equity attributable to non-controlling interest.
21
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
8. | Share-based payment (continued): |
(k) | Share-based payment transactions with a consultant: |
During the six-month period ended August 31, 2013, the Corporation entered into a fee agreement with a consultant for its services expected to be rendered up to January 31, 2014. As agreed, a portion of the fair value of the services to be received by the Corporation will be settled in common shares. This transaction is within the scope of IFRS 2, Share-based payment. An amount of $649,740, representing the fair value of the services received to date, is presented in the share-based payment expense. During the six-month period ended August 31, 2013, the Corporation issued 75,389 shares to the consultant, as a payment of a part of the services rendered to the Corporation, for which an amount of $213,990 was reclassified from contributed surplus to share capital.
9. | Partnership and collaboration agreements: |
In 2008, the Corporation received a first payment of €500,000 out of several payments scheduled under the terms of a partnership agreement. The agreement foresees the Corporation’s commitment of developing a clinical research program and the development of products incorporating Neptune Krill Oil - NKO® in a dietary matrix. An amount of 62.5% of the initial payment is refundable only if the parties fail to meet certain development milestones, prior to the release of the products on the market. The extent of any reimbursement obligations are currently being discussed between Neptune and the partner, but no agreement has been reached. In addition, during the year ended February 28, 2011, the Corporation received an amount of €100,000 which was conditional to the Corporation receiving the Novel Food status as well as meeting positive organoleptic results as defined in an amendment to the partnership agreement between the two parties. No revenues have been recognized by the Corporation under this agreement. As at August 31, 2013, an amount of $844,016 is included in “advance payments” in the consolidated statements of financial position (February 28, 2013 - $824,464).
10. | Deferred lease inducements: |
In addition to deferred lease inducements recorded as at February 28, 2013, during the six-month period ended August 31, 2013, the Corporation reached an agreement with its landlord for additional lease incentives amounting to $510,929, of which $459,836 was received in cash and $51,093 remains receivable. The incentives received will be recognized as a reduction of rent expense prospectively on a straight line basis over the remaining term of the lease.
11. | Loans and borrowings: |
During the period ended August 31, 2013, the operating line of credit was not renewed.
12. | Determination of fair values: |
Financial assets and liabilities:
The Corporation has determined that the carrying values of its short-term financial assets and liabilities approximate their fair value given the short-term nature of these instruments.
The fair value of obligations under capital leases and of the refundable contributions obtained under a federal grant program is determined by discounting future cash flows using a rate that the Corporation can use for loans with similar terms, conditions and maturity dates. The fair value of these loans approximates the carrying amounts.
22
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
12. | Determination of fair values (continued): |
Derivatives over equity:
The fair value of the 2011 Private placement - US is determined by using valuation models incorporating the following estimates and assumptions at the following dates:
August 31, 2012 | ||||
Valuation model | Black & Scholes | |||
Dividend yield | – | |||
Volatility | 49.99 | % | ||
Estimate life | 0.17 year | |||
Risk-free rate | 0.16 | % |
These warrants expired on November 3, 2012.
Included in finance costs is the change in fair value of these derivatives over equity:
August 31, 2012 | ||||
2011 Private placement - US | $ | 619,115 |
13. | Operating segments: |
The Corporation has three reportable segments structured in legal entities, as described below, which are the Corporation’s strategic business units. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the Corporation’s CEO reviews internal management reports on at least a quarterly basis. The following summary describes the operations in each of the Corporation’s reportable segments:
· | Neptune produces and commercializes nutraceutical products. |
· | Acasti Pharma Inc. develops and commercializes pharmaceutical applications for cardiovascular diseases. |
· | NeuroBioPharm Inc. develops and commercializes pharmaceutical applications for neurological diseases. |
Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Corporation’s CEO. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Transfer pricing is based on predetermined rates accepted by all parties involved.
23
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
13. | Operating segments (continued): |
Three-month period ended August 31, 2013:
Nutraceutical | Cardiovascular | Neurological | Intersegment Eliminations | Total | ||||||||||||||||
Revenue from external sales | $ | 5,079,582 | $ | 266,151 | $ | – | $ | – | $ | 5,345,733 | ||||||||||
Revenue from internal sales or | ||||||||||||||||||||
Internal research contracts | 127,397 | – | – | (127,397 | ) | – | ||||||||||||||
Insurance recoveries | 5,000,000 | – | – | – | 5,000,000 | |||||||||||||||
Depreciation and amortization | (73,785 | ) | (502,520 | ) | (81,325 | ) | 582,507 | (75,123 | ) | |||||||||||
Stock-based compensation | (2,678,750 | ) | (993,266 | ) | (322,198 | ) | – | (3,994,214 | ) | |||||||||||
Finance income | 33,569 | 7,677 | – | (13,125 | ) | 28,121 | ||||||||||||||
Finance costs | (70,434 | ) | (652 | ) | (13,125 | ) | 13,125 | (71,086 | ) | |||||||||||
Reportable segment loss | (1,638,292 | ) | (3,238,204 | ) | (757,671 | ) | 582,507 | (5,051,660 | ) | |||||||||||
Reportable segment assets | 97,037,906 | 25,872,516 | 3,832,513 | (59,298,250 | ) | 67,444,685 | ||||||||||||||
Reportable segment liabilities | 12,094,291 | 3,887,868 | 20,059,968 | (22,611,199 | ) | 13,430,928 |
Three-month period ended August 31, 2012:
Nutraceutical | Cardiovascular | Neurological | Intersegment Eliminations | Total | ||||||||||||||||
Revenue from external sales | $ | 7,859,906 | $ | 237,314 | $ | – | $ | – | $ | 8,097,220 | ||||||||||
Revenue from internal sales or | ||||||||||||||||||||
Internal research contracts | 242,125 | – | – | (242,125 | ) | – | ||||||||||||||
Depreciation and amortization | (184,966 | ) | (166,274 | ) | (81,325 | ) | 245,611 | (186,954 | ) | |||||||||||
Stock-based compensation | (2,417,466 | ) | (523,007 | ) | (127,683 | ) | – | (3,068,156 | ) | |||||||||||
Finance income | 40,181 | 15,938 | 352 | (13,125 | ) | 43,346 | ||||||||||||||
Finance costs | (438,243 | ) | (419 | ) | (13,125 | ) | 13,125 | (438,662 | ) | |||||||||||
Reportable segment loss | (2,658,392 | ) | (1,752,466 | ) | (518,857 | ) | 245,611 | (4,684,104 | ) | |||||||||||
Reportable segment assets | 55,908,112 | 13,651,575 | 4,488,751 | (24,783,063 | ) | 49,265,375 | ||||||||||||||
Reportable segment liabilities | 16,167,251 | 1,418,633 | 19,167,571 | (19,572,853 | ) | 17,180,602 |
24
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
13. | Operating segments (continued): |
Six-month period ended August 31, 2013:
Nutraceutical | Cardiovascular | Neurological | Intersegment Eliminations | Total | ||||||||||||||||
Revenue from external sales | $ | 11,163,230 | $ | 272,539 | $ | – | $ | – | $ | 11,435,769 | ||||||||||
Revenue from internal sales or | ||||||||||||||||||||
Internal research contracts | 379,451 | – | – | (379,451 | ) | – | ||||||||||||||
Insurance recoveries | 5,700,000 | – | – | – | 5,700,000 | |||||||||||||||
Depreciation and amortization | (146,465 | ) | (668,289 | ) | (162,650 | ) | 828,118 | (149,286 | ) | |||||||||||
Stock-based compensation | (4,013,869 | ) | (1,534,196 | ) | (542,842 | ) | – | (6,090,907 | ) | |||||||||||
Finance income | 81,124 | 17,899 | – | (26,250 | ) | 72,773 | ||||||||||||||
Finance costs | (72,129 | ) | (1,526 | ) | (26,250 | ) | 26,250 | (73,655 | ) | |||||||||||
Reportable segment loss | (4,752,199 | ) | (5,203,312 | ) | (1,339,430 | ) | 828,118 | (10,466,823 | ) | |||||||||||
Reportable segment assets | 97,037,906 | 25,872,516 | 3,832,513 | (59,298,250 | ) | 67,444,685 | ||||||||||||||
Reportable segment liabilities | 12,094,291 | 3,887,868 | 20,059,968 | (22,611,199 | ) | 13,430,928 |
Six-month period ended August 31, 2012:
Nutraceutical | Cardiovascular | Neurological | Intersegment Eliminations | Total | ||||||||||||||||
Revenue from external sales | $ | 13,994,722 | $ | 250,972 | $ | – | $ | – | $ | 14,245,694 | ||||||||||
Revenue from internal sales or internal | ||||||||||||||||||||
research contracts | 320,316 | – | – | (320,316 | ) | – | ||||||||||||||
Depreciation and amortization | (371,124 | ) | (332,532 | ) | (162,650 | ) | 491,222 | (375,084 | ) | |||||||||||
Stock-based compensation | (3,408,420 | ) | (1,052,634 | ) | (227,643 | ) | – | (4,688,697 | ) | |||||||||||
Finance income | 78,205 | 23,137 | 352 | (26,250 | ) | 75,444 | ||||||||||||||
Finance costs | (696,849 | ) | (1,288 | ) | (26,250 | ) | 26,250 | (698,137 | ) | |||||||||||
Reportable segment loss | (2,518,816 | ) | (3,328,446 | ) | (1,022,570 | ) | 491,222 | (6,378,610 | ) | |||||||||||
Reportable segment assets | 55,908,112 | 13,651,575 | 4,488,751 | (24,783,063 | ) | 49,265,375 | ||||||||||||||
Reportable segment liabilities | 16,167,251 | 1,418,633 | 19,167,571 | (19,572,853 | ) | 17,180,602 |
Differences between the sums of all segments and consolidated balances are explained primarily by the cardiovascular and neurological segments operating under licenses issued by the nutraceutical segment, the ultimate owner of the original intellectual property used in pharmaceutical applications. The intangible license assets of the pharmaceutical segments, their amortization charges and royalties are eliminated upon consolidation. Intersegment investments and balances payable or receivable explain further eliminations to reportable segment assets and liabilities.
The nutraceutical segment is the primary obligor of corporate expenses of the group. All material corporate expenses, except financing costs and certain common office expenses, are allocated to each reportable segment in a fraction that is commensurate to the estimated fraction of services or benefits received by each segment. These charges may not represent the cost that the segments would otherwise need to incur, should they not receive these services or benefits through the shared resources of the group or receive financing from the nutraceutical segment.
25
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
14. | Commitments and contingencies: |
(a) | Contingencies: |
(i) | On or around January 27, 2010, the Corporation and Acasti filed a Motion for the Issuance of a Permanent Injunction before the Quebec Superior Court against US Nutraceuticals LLC (d.b.a. Valensa), a US based corporation. Neptune and Acasti are seeking inter alia an injunction ordering Valensa to amend some patent applications filed by Valensa to add Neptune as co-owner, or in the alternative to have Valensa assign these patent applications to Neptune, as well as punitive damages, loss of profit and loss of business opportunity for an amount currently established at $3,000,000. On September 28, 2011, Valensa filed its Defence wherein it denied Neptune/Acasti’s allegations and requested a dismissal of the Motion. Valensa also filed a Cross-Demand but only against Neptune, wherein it alleged breach of contract and damages in the amount of $2,300,000. The Corporation denies all material allegations made by Valensa. The case is currently pending and no trial dates have been set. No provision has been recorded by the Corporation as at August 31, 2013 for this matter. |
(ii) | On October 4, 2011, the Corporation filed a Complaint in the US District Court for the District of Delaware against Aker Biomarine ASA, Aker Biomarine Antarctic USA Inc., and Schiff Nutrition International Inc. (Aker et al.) for the infringement of the Corporation’s US patent 8,030,348 and for damages. On December 19, 2011, Aker et al. filed Counterclaims denying any infringement, seeking the invalidity of the Corporation’s patent, and seeking an award for costs and damages. The proceedings have been stayed due to the reexamination of the patent and no trial dates have been set. No provision has been recorded by the Corporation as at August 31, 2013 for this matter. In addition, on October 2, 2012, the Corporation filed a Complaint in the US District Court for the District of Delaware against Aker Biomarine ASA, Aker Biomarine Antartic USA Inc., Aker Biomarine Antartic AS, Schiff Nutrition Group Inc., and Schiff Nutrition International Inc. (Aker et al.) for the infringement of the Corporation’s US patent 8,278,351 and for damages. On February 5, 2013, Aker et al. filed Counterclaims denying any infringement, seeking the invalidity of the Corporation’s patent, and seeking an award for costs and damages. No provision has been recorded by the Corporation as at August 31, 2013 for this matter. |
(iii) | On October 4, 2011, the Corporation filed a Complaint in the US District Court for the District of Delaware against Enzymotec Limited, Enzymotec USA Inc., Mercola.com Health Resources, LLC, and Azantis Inc. for the infringement of the Corporation’s US patent 8,030,348 and for damages. On December 30, 2011, Enzymotec USA Inc. filed a Counterclaim denying any infringement, seeking the invalidity of the Corporation’s patent, and seeking an award for costs and damages. On December 30, 2011, Mercola.com Health Resources, LLC and Azantis Inc. filed a Counterclaim denying any infringement, seeking the invalidity of the Corporation’s patent, and seeking an award for costs and damages. The proceedings have been stayed due to the reexamination of the patent and no trial dates have been set. No provision has been recorded by the Corporation as at August 31, 2013 for this matter. In addition, on October 2, 2012, the Corporation filed a Complaint in the US District Court for the District of Delaware against Enzymotec Limited, Enzymotec USA Inc., Mercola.com Health Resources, LLC for the infringement of the Corporation’s US patent 8,278,351 and for damages. On January 14, 2013, Enzymotec Limited, Enzymotec USA Inc., Mercola.com Health Resources, LLC filed a Counterclaim denying any infringement, seeking the invalidity of the Corporation’s patent, and seeking an award for costs and damages. No provision has been recorded by the Corporation as at August 31, 2013 for this matter. |
(iv) | On December 20, 2012, the Corporation filed a claim for the revocation of Aker Biomarine ASA’s standard patent (2008231570) and four innovation patents before the Australian Federal Court. The Corporation is seeking a declaration that all the claims in Aker’s patents, are, and at all materials times have been, invalid. The Aker patents claim a krill oil composition and methods of extraction that lack novelty and are, in the Corporation’s opinion, not patentable inventions since the Corporation marketed its NKO krill oil product many years before Aker filed its patents in Australia. The depositions of the parties’ representatives are scheduled to start soon. |
26
NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
14. | Commitments and contingencies (continued): |
(a) | Contingencies (continued): |
(v) | On January 29, 2013, the Corporation filed a Complaint under Section 337 of the US Tariff Act of 1930 with the United States International Trade Commission alleging that Aker BioMarine AS, Aker BioMarine Antarctic USA, Inc., Aker BioMarine Antarctic AS, Enzymotec Limited, Enzymotec USA, Inc., Olympic Seafood AS, Olympic Biotec Ltd., Rimfrost USA, LLC, Bioriginal Food & Science Corp. and Avoca, Inc., a division of Pharmachem Laboratories Inc. are engaging in unfair trade practices by, at least, the importation, sale for importation, and sale after importation of certain krill-based products, namely krill paste and krill oils, that directly or indirectly infringe one or more claims of Neptune’s U.S. Patents No. 8,278,351 and 8,383,675. The investigation was officially instituted on April 11, 2013, the depositions and the filing of the expert reports are currently under way, and the hearing is set to begin on December 10, 2013. On September 26, 2013, the Corporation reached a settlement with Olympic Seafood AS, Olympic Biotec Ltd., Rimfrost USA, LLC, Bioriginal Food & Science Corp. and Avoca, Inc. (collectively the ‘’Settling Respondents’’). As part of the settlement, the Corporation granted a world-wide, non-exclusive, royalty-bearing license to the Settling Respondents, allowing them to market and sell within the nutraceutical market products containing components extracted from krill. The Settling Respondents also agreed to pay Neptune an additional royalty amount due for the manufacture and sale of krill products prior to the effective license commencement date. The Complaint is still ongoing against the remaining respondents. |
(vi) | On March 6, 2013, the Corporation filed a Complaint in the US District Court for the District of Delaware against Aker Biomarine ASA, Aker Biomarine Antartic USA Inc., Aker Biomarine Antartic AS, Schiff Nutrition Group Inc., and Schiff Nutrition International Inc. (Aker et al.) for the infringement of the Corporation’s US patent 8,383,675 and for damages. This proceeding has been stayed pending a determination from the United States International Trade Commission regarding the Corporation’s request filed on January 29, 2013. |
(vii) | On March 6, 2013, the Corporation filed a Complaint in the US District Court for the District of Delaware against Enzymotec Limited, Enzymotec USA Inc., Mercola.com Health Resources, LLC for the infringement of the Corporation’s US patent 8,383,675 and for damages. This proceeding has been stayed pending a determination from the United States International Trade Commission regarding the Corporation’s request filed on January 29, 2013. |
(viii) | On March 6, 2013, the Corporation filed a Complaint in the US District Court for the District of Delaware against Rimfrost USA, LLC, Avoca, Inc., and Olympic Seafood AS for the infringement of the Corporation’s US patents 8,030,348, 8,287,351 and 8,383,675, and for damages. This proceeding has been stayed pending a determination from the United States International Trade Commission regarding the Corporation’s request filed on January 29, 2013. All the proceedings against Rimfrost USA, LLC, Avoca, Inc., and Olympic Seafood AS have been dismissed following the signature of a license settlement agreement with the Corporation on September 26, 2013. |
(ix) | On April 2, 2013, the Corporation received a motion filed by G.S.C. Communication Inc. against the Corporation and Entreprises Laliberté Division Électricité Inc. The motion was filed as a result of the November 8, 2012 plant explosion and the plaintiff is seeking monetary relief for the costs of the plaintiff’s tools destroyed during the fire. The case is currently pending and is currently handled by the Corporation’s insurers. No trial dates have been set. |
(x) | The Corporation is subject to laws and regulations concerning the environment and to the risk of environmental liability inherent in its activities relating to past and present operations. Management believes, based on current information, that environmental matters will not have a material adverse effect on the Corporation’s financial condition. |
(b) | Commitments: |
(i) | In September 2011, Neptune announced the conclusion of a memorandum of understanding (“MOU”) with Shanghai KaiChuang Deep Sea Fisheries Co., Ltd. (“SKFC”) to form a 50/50 joint venture named Neptune-SKFC Biotechnology, which would manufacture and commercialize Neptune’s krill products in Asia. The initial cost and total value of the project, which includes the construction of a production facility and development of a commercial distribution network for Asia, as well as other details of this arrangement are currently being reviewed by the parties. SFKC is 43% owned by Shanghai Fisheries General Corporation (“SFGC”), a large fishing conglomerate owned by the Government of China. SFGC is specializing in pelagic fishing, fishing vessels, fishing machinery, fresh grocery and storage services. It is present in more than 10 countries and employs more than 4,000 employees. SKFC also has the largest fleet of vessels of krill harvesting in the Antarctic Ocean. The MOU is subject to further negotiations and to approval by the boards of each party as well as by Chinese regulators. |
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NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
14. | Commitments and contingencies (continued): |
(b) | Commitments (continued): |
(ii) | In December 2011, the Corporation announced the start of an expansion project at its Sherbrooke plant. The cost of the expansion project has been revised to approximately $43,000,000 following the November 8, 2012 incident. It is expected to be funded primarily by an interest-free loan, certain investment tax credits, a secured credit facility, insurance recoveries and a portion of Neptune’s working capital. The financing is actually in the form of an interest-free loan in the amount of $3,500,000 with a ten-year term. Most of these financing amounts remain to be disbursed. The management reassessed the recognition criteria of the grant receivable and as the criteria are not met, management derecognized grant receivable applied against property, plant and equipment during the quarter ended August 31, 2013. Since the explosion that occurred on November 8, 2012, the Corporation plans to rebuild an operational production facility using the Phase I plant expansion facility that was under construction. |
(iii) | In the normal course of business, a Corporation’s subsidiary has signed agreements with various partners and suppliers for them to execute research projects and to produce and market certain products. The Corporation’s subsidiary initiated research and development projects that will be conducted over a 12- to 24-month period for a total initial cost of $5,064,000, of which an amount of $3,447,000 has been paid to date. As at August 31, 2013, an amount of $531,000 is included in “Trade and other payables” in relation to these projects. |
15. | Related parties: |
Transactions with key management personnel:
Under the terms of an agreement entered into with a corporation controlled by an officer and director (which is also a shareholder of the Corporation), the Corporation is committed to pay royalties of 1% of its revenues in semi-annual instalments, for an unlimited period. The annual amount disbursed cannot exceed net earnings before interest, taxes and amortization of the Corporation on a non-consolidated basis. For the three-month and six-month period ended August 31, 2013, total royalties included in operating expenses amounted to $52,070 and $112,450, respectively (three-month and six-month periods ended August 31, 2012 - $72,024 and $140,289). As at August 31, 2013, the balance due to this corporation under this agreement amounts to $249,450 (February 28, 2013 - $256,734). This amount is presented in the consolidated statements of financial position under ''Trade and other payables''.
Key management personnel compensation:
The key management personnel of the Corporation are the members of the Board of Directors and certain officers. They control 3% of the voting shares of the Corporation.
Key management personnel compensation includes the following for the periods ended:
Three-month periods ended | Six-month periods ended | |||||||||||||||
August 31, | August 31, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Short-term employee benefits | $ | 505,372 | $ | 528,892 | $ | 982,526 | $ | 1,057,784 | ||||||||
Share-based compensation costs | 819,845 | 1,006,996 | 1,352,577 | 1,853,604 | ||||||||||||
$ | 1,325,217 | $ | 1,535,888 | $ | 2,335,103 | $ | 2,911,388 |
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NEPTUNE TECHNOLOGIES & BIORESSOURCES INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and six-month periods ended August 31, 2013 and 2012
16. | Subsequent events: |
(a) | Series 4 Acasti warrants exercised and options granted: |
On October 1, 2013, Neptune issued to certain employees, officers and directors of the Group (the ‘’Employees’’), 3,153,750 options to purchase Acasti class A common shares that Neptune holds in Acasti (the ‘’Call-Options’’), each Call-Options allowing its holder to purchase one Acasti class A common share from Neptune at an exercise price between $0.25 and $0.50 per share prior to October 1, 2017. Previously, Neptune had granted rights over 3,153,750 Neptune owned series 4 Acasti warrants (the ‘’Warrants’’) to the same Employees, each Warrant allowing its holder to purchase one Acasti class A common share at an exercise price between $0.25 and $0.50 per share prior to October 8, 2013.
For accounting purpose, management identified the grant of Call-Options as a replacement award. As a result, the transaction will be accounted for in accordance with the modification accounting guidance of IFRS 2, Share-based payment. The difference between the fair value of the Warrants and the Call-Options at the date of modification, in the amount of $81,716, is considered beneficial to the Employees as the maturity is effectively extended by four years and will be expensed at the modification date since the Call-Options are fully vested on issuance.
On October 8, 2013, all unexercised Warrants were exercised by Neptune, resulting in the issuance by Acasti of 3,173,750 Acasti class A common shares to Neptune for an aggregate exercised price of $793,438.
In addition, various holders of the Warrants exercised their right, resulting in the issuance by Acasti of 2,137,350 Acasti class A common shares for cash proceeds in Acasti of $534,337 and additional consideration in Neptune of $395,900, for a total of $930,237.
Overall, these transactions had no impact on the ownership interest of Neptune in Acasti.
(b) | Krill oil manufacturing and supply agreement: |
On October 2, 2013, the Corporation and Rimfrost USA, LLC announced that they have signed a strategic non-exclusive krill oil manufacturing and supply agreement giving Neptune the right to purchase, at a preferred price, up to 800 metric tons of krill oil during the first three-year term of the renewable agreement.
(c) | Investissement Québec financing: |
On October 8, 2013, Neptune received a loan offer of $12.5 million from Investissement Québec (IQ). The IQ secured loan bearing interest at a rate of 7.0% per annum includes a two-year moratorium on principal repayment from the first disbursement date, following which, the loan will be payable in equal monthly instalments over a 4-year period. The loan will be disbursed overtime to Neptune on a project driven basis and is subject to compliance with certain covenants and warranties customary to such type of transaction.
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