SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934
For the month of: February 2019 |
Commission File Number: 001-33526 |
NEPTUNE WELNESS SOLUTIONS INC.
(Translation of Registrant’s name into English)
545 Promenade du Centropolis
Suite 100
Laval, Québec
Canada H7T 0A3
(Address of Principal Executive Office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☐ Form 40-F ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ☐ No ☒
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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NEPTUNE WELLNESS SOLUTIONS INC. |
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Date: February 13, 2019 |
By: |
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/s/ Mario Paradis |
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Name: |
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Mario Paradis |
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Title: |
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VP & Chief Financial Officer |
Exhibit |
Description of Exhibit |
99.1 |
Management Discussion and Analysis of the Financial Situation and Operating Results for the Three-Month and Nine-Month Periods Ended December 31, 2018 and 2017 |
99.2 99.3 99.4 |
Consolidated Interim Financial Statements for the Three-Month and Nine-Month Periods Ended December 31, 2018 and 2017 Form 52-109F2 – Certification of Interim Filings - Full Certificate (CEO) Form 52-109F2 – Certification of Interim Filings - Full Certificate (CFO) |
Exhibit 99.1
MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL SITUATION AND OPERATING RESULTS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED DECEMBER 31, 2018 AND 2017
INTRODUCTION
This management discussion and analysis (‟MD&A”) comments on the financial results and the financial situation of Neptune Wellness Solutions Inc. (‟Neptune”, the ‟Corporation” or the ‟Company”), formerly Neptune Technologies and Bioressources Inc., including its subsidiary, Biodroga Nutraceuticals Inc. (‟Biodroga”) for the three-month and nine-month periods ended December 31, 2018 and 2017. The comparative period includes operating results of Acasti Pharma Inc. (‟Acasti”) until the loss of control of the subsidiary on December 27, 2017. This MD&A should be read in conjunction with our consolidated interim financial statements for the three-month and nine-month periods ended December 31, 2018 and 2017. Additional information on the Corporation, as well as registration statements and other public filings, are available on SEDAR at www.sedar.com or on EDGAR at www.sec.gov/edgar.shtml.
In this MD&A, financial information for the three-month and nine-month periods ended December 31, 2018 and 2017 is based on the consolidated interim financial statements of the Corporation, which were prepared in accordance with IAS 34, Interim Financial Reporting of International Financial Reporting Standards (‟IFRS”), as issued by the International Accounting Standards Board (‟IASB”). In accordance with its terms of reference, the Audit Committee of the Corporation’s Board of Directors reviews the contents of the MD&A and recommends its approval to the Board of Directors. The Board of Directors approved this MD&A on February 13, 2019. Disclosure contained in this document is current to that date, unless otherwise noted.
Note that there have been no significant changes with regards to the ‟Related Party Transactions”, ‟Consolidated Off-Balance Sheet Arrangements” or ‟Critical Accounting Policies and Estimates” to those outlined in the Corporation’s 2018 annual MD&A as filed with Canadian securities regulatory authorities on June 5, 2018. As such, they are not repeated herein.
Unless otherwise indicated, all references to the terms ‟we”, ‟us”, ‟our”, ‟Neptune”, ‟enterprise”, ‟Company” and ‟Corporation” refer to Neptune Wellness Solutions Inc. and its subsidiaries. Unless otherwise noted, all amounts in this report refer to thousands of Canadian dollars. References to ‟CAD” and ‟USD” refer to Canadian dollars and US dollars, respectively. Information disclosed in this report has been limited to what management has determined to be ‟material”, on the basis that omitting or misstating such information would influence or change a reasonable investor’s decision to purchase, hold or dispose of the Corporation’s securities.
FORWARD-LOOKING STATEMENTS
Statements in this MD&A that are not statements of historical or current fact constitute ‟forward-looking statements” within the meaning of the U.S. securities laws and Canadian securities laws. Such forward-looking statements involve known and unknown risks, uncertainties, and other unknown factors that could cause the actual results of Neptune to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms "believes," "belief," "expects," "intends," "projects," "anticipates," "will," "should," or "plans" to be uncertain and forward-looking. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this management analysis of the financial situation and operating results. Forward-looking information in this MD&A includes, but is not limited to, information or statements about our ability to successfully develop, produce, supply, promote or generate any revenue from the sale of any cannabis-based products in the legal cannabis market.
1
management discussion and analysis of the financial situation and operating results
The forward-looking statements contained in this MD&A are expressly qualified in their entirety by this cautionary statement and the ‟Cautionary Note Regarding Forward-Looking Information” section contained in Neptune’s latest Annual Information Form (the ‟AIF”), which also forms part of Neptune’s latest annual report on Form 40-F, and which is available on SEDAR at www.sedar.com, on EDGAR at www.sec.gov/edgar.shtml and on the Investors section of Neptune’s website at www.neptunecorp.com. All forward-looking statements in this MD&A are made as of the date of this MD&A. Neptune does not undertake to update any such forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in Neptune public securities filings with the Securities and Exchange Commission and the Canadian securities commissions. Additional information about these assumptions and risks and uncertainties is contained in the AIF under ‟Risk Factors”.
Caution Regarding Non-IFRS Financial Measures
The Corporation uses two adjusted financial measures, Adjusted Segment Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) called non-IFRS operating segment loss when a segment is in a loss position, and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) called non-IFRS operating loss when the Corporation is in a loss position, to assess its operating performance. These non-IFRS financial measures are directly derived from the Corporation’s financial statements and are presented in a consistent manner. The Corporation uses these measures for the purposes of evaluating its historical and prospective financial performance, as well as its performance relative to competitors. These measures also help the Corporation to plan and forecast for future periods as well as to make operational and strategic decisions. The Corporation believes that providing this information to investors, in addition to IFRS measures, allows them to see the Corporation’s results through the eyes of management, and to better understand its historical and future financial performance.
Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than IFRS do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies. Accordingly, they should not be considered in isolation. The Corporation uses Adjusted Segment EBITDA (or non-IFRS operating segment loss when in a loss position) and Adjusted EBITDA (or non-IFRS operating loss when in a loss position) to measure its performance from one period to the next without the variation caused by certain adjustments that could potentially distort the analysis of trends in our operating performance, and because the Corporation believes it provides meaningful information on the Corporation’s financial condition and operating results. Neptune’s method for calculating Adjusted Segment EBITDA (or non-IFRS operating segment loss) and Adjusted EBITDA (or non-IFRS operating loss) may differ from that used by other corporations.
Neptune obtains its Adjusted Segment EBITDA (or non-IFRS operating segment loss) measurement by adding depreciation and amortization and stock-based compensation to segment income (loss) from operating activities before corporate expenses. Neptune obtains its Adjusted EBITDA (or non-IFRS operating loss) measurement by adding to net income (loss), net finance costs, depreciation and amortization, income tax expense and by subtracting income tax recovery and net finance income. Other items such as stock-based compensation, impairment loss on inventories, net gain on sale of assets, gain on loss of control of subsidiary and legal fees related to royalty settlements that do not impact core operating performance of the Corporation are excluded from the calculation as they may vary significantly from one period to another. Excluding these items does not imply they are non-recurring.
A reconciliation of segment income (loss) from operating activities before corporate expenses to Adjusted Segment EBITDA or non-IFRS operating segment loss and a reconciliation of net income (loss) to Adjusted EBITDA or non-IFRS operating loss are presented later in this document.
BUSINESS OVERVIEW AND CORPORATE RECENT DEVELOPMENT
Neptune Wellness Solutions specializes in the extraction, purification and formulation of health and wellness products. Licensed by Health Canada to process cannabis at its 50,000 square foot facility located in Sherbrooke, Quebec, Neptune brings decades of experience in the natural products sector to the legal cannabis industry. Leveraging its scientific and technological expertise, Neptune focuses on the development of value-added and differentiated products for the Canadian and global cannabis markets. Neptune’s activities also include the development and commercialization of turnkey nutrition solutions and patented ingredients such as MaxSimil®, and of a variety of marine and seed oils. The Company’s head office is located in Laval, Quebec.
2
management discussion and analysis of the financial situation and operating results
Neptune’s shareholders have approved at the Annual Meeting of Shareholders held on August 15, 2018 the change of the Company’s legal name to Neptune Wellness Solutions Inc., in order to better reflect the Company’s products and business. The name change has been effective upon opening of the markets on September 21, 2018. The Company’s common shares will keep trading under the same ticker symbol ‟NEPT” on NASDAQ and TSX.
New Appointment on the Board of Directors
On August 16, 2018, we announced the appointment of Ms. Hélène F. Fortin to its Board of Directors.
Appointment of Director of Corporate Affairs
On September 27, 2018, we announced the appointment of Caroline Lavoie as Director of Corporate Affairs. In her role, Caroline will provide leadership in the development of Neptune’s public affairs strategy, direct issues and communications through cannabis industry associations, and manage relations with Quebec and Canadian governments.
Issuance of Shares
During the nine-month period ended December 31, 2018, Neptune issued 1,017,908 common shares for share options exercised and 135,557 common shares for DSU’s released.
CANNABIS BUSINESS UPDATE AND OUTLOOK
Neptune’s vision is to provide great wellness solutions that deliver optimal health and wellness. Our mission is to leverage our scientific and innovation expertise to create and provide our global customers with the best-available nutritional products and wellness solutions. Neptune is active in five main areas: Legal Cannabis Products, Nutritional Ingredients, Turnkey Solutions, Pet Supplements and Consumer Brand.
Consistent with our strategic focus of providing wellness products while levering our know-how, large-scale solvent extraction and application technology capabilities, our objective is to become the world’s leader in extraction, purification and formulation of cannabis products.
We applied for a licence with Health Canada to produce cannabis oil under the Cannabis Regulations (CR) which replaced the ACMPR on October 17, 2018. In April 2017, the Corporation submitted a written application to Health Canada to become a Licensed Producer. We adapted our existing Sherbrooke facility in order to obtain our licence, including the addition of physical barriers, visual monitoring, recording devices, intrusion detection, as well as other important controls around access.
On September 17, 2018, we received a Confirmation of Readiness letter from Health Canada in regard to our application to become a Licensed Producer under the CR.
On September 19, 2018, Neptune submitted its complete Evidence Package to Health Canada. The Evidence Package, which was the final step of the application process prior to the issuance of a Producers Licence from Health Canada, included detailed evidence to clearly demonstrate that the facility was completed and ready to begin operations pursuant to the requirements of the CR.
On January 4, 2019, we received our license to process cannabis from Health Canada. The Health Canada license enables Neptune to handle dried cannabis, to manufacture and purify cannabis extracts and cannabis oil, and to sell its products or services to other license holders. With production activities anticipated to commence shortly at Neptune’s 50,000 square foot GMP (Good Manufacturing Practices, mandated by the Natural Health Products Directorate of Health Canada)-certified facility in Sherbrooke, the Company expects to be able to generate revenues from existing commercial agreements and conclude additional agreements shortly.
Our GMP production facility features robust safety measures and equipment, which allows for enhanced manufacturing practices. We also operate a laboratory at our facility, which allows us to conduct research, new product development and quality control analysis in‑house.
The first Phase of the commercialization strategy, for which a capital budget of $5 million was approved to install site security and install CO2 extraction equipment, is now completed. This investment brings our extraction dried cannabis processing capacity
3
management discussion and analysis of the financial situation and operating results
at approximately 30,000 kg annually. The Corporation has agreed upon commitments along with other projected opportunities for more than 80% of the 30,000 kg of dried cannabis extraction capacity in Phase 1.
Neptune successfully completed solvent lab scale trials and as a consequence, the Board approved a $4.8 million investment for Phase II capacity expansion. This next phase is expected to be completed in March 2019 and will increase the total processing capacity to approximately 200,000 kg of dried cannabis using advanced extraction processes. Furthermore, the Corporation has plans and ability on site to further expand the plant processing capacity beyond the capacity indicated above as global demand requires.
Commercialization
We are working to develop unique extracts and formulation in the legal wellness cannabis space. During the current fiscal year, our focus is to build a viable B2B wholesale extraction, purification and formulation cannabis business. As the cannabis industry is rapidly evolving, we believe that speed is essential to gain a foothold. The licence received under the CR allows us to produce cannabis oil wholesale initially on a B2B basis. We intend to pursue two business models: (i) by buying dry cannabis and selling cannabis oil wholesale through extraction, refinement and formulations, and, (ii) by offering custom production services based on Neptune proprietary technology while capitalizing on long-term site utilization. Our long-term objective will be to create a cannabis consumer packaged goods brand with a strong wellness positioning, which we believe will offer higher margins longer term.
Multi-year Agreement with Canopy Growth
On June 19, 2018, we announced that we entered into a multi-year agreement with Canopy Growth. Under the terms of the agreement, Neptune will supplement Canopy Growth’s extraction capacity. This multi-year agreement, including minimum volume commitments, will be supported by Neptune’s decades of experience in extraction, purification and formulation of value added differentiated science-based products.
Multi-year IP licencing and capsule agreement with Lonza
On December 21, 2018, we entered into a multi-year IP licencing and capsule agreement with Lonza, a global leader in the life sciences industry. Thanks to the agreement, Neptune’s customers will benefit from Lonza’s proprietary Licaps® liquid filled hard capsule technology combined with Neptune’s leading extraction and purification capabilities, and significant capacity for the production of cannabis oil.
With an initial annual capacity of up to 200 million capsules, this licensing agreement will allow Neptune to set up as a large-scale Licaps® manufacturer in the Canadian cannabis sector. The Licaps® technology supports differentiated product offerings through its various delivery systems, colours and branding possibilities. Furthermore, this is an effective technology for variable and multiple product formulation runs. The new manufacturing line will be integrated into Neptune’s state of the art 50,000 square foot GMP facility in Sherbrooke.
This initiative is consistent with Neptune’s strategy to offer value added, differentiated product forms to the cannabis market. In addition to the investment for IP transfer, know-how and manufacturing equipment, a budget of $780 has been approved by the Board for on-site construction and installation of the new manufacturing line.
During the three-month and nine-month periods ended December 31, 2018, an intangible asset of $2,718 has been recorded related to the agreement, with a corresponding amount in liabilities. The amount of liabilities consist of an upfront payment of $1,768 (US$1,300, which has been paid in February 2019) and payments in the next twelve months based on minimum volume commitments of $147 presented as trade and other payables and future royalty payments based on minimum volume commitments, irrespective of the volume achieved, with a present value of $803 presented as long-term payable. In addition, all royalties based on net sales of capsules greater than the minimum volume requirements will be recorded as incurred in cost of goods sold. The intangible asset will be amortized over a 33 months period and the expense will be presented in the cost of goods sold. This 5 year agreement also includes a supply agreement for empty capsules.
Markets
According to a Canaccord Genuity Report published in March 2017, the Canadian cannabis market is estimated to generate C$7.8B by 2021, of which C$6B represents adult use and C$1.8B medical use. According to BDS Canadian market data conducted in 2017 and published in Q1 of 2018, 21% of Canadians have used cannabis in the last 6 months and approximately 50% of adults are open to consuming in the next 6 months.
4
management discussion and analysis of the financial situation and operating results
The US market is projected at US$40B by 2021, assuming 35 States have medical or adult-use legality as stated in the Arcview Market Research report published in 2018.
In 2017, BDS Analytics conducted a survey on Colorado cannabis consumers, demonstrating that 50% of consumers take cannabis for health and wellness reasons i.e.: sleep, anxiety, pain. Another BDS report published in June 2018 demonstrated that flower represented approximately 60% of sales in California.
Filing of Two Patent Applications for Innovative Cannabis Extraction Processes
On August 9, 2018, we have filed two applications with the United States Patent and Trademark Office (USPTO) for patents related to the extraction of cannabis material. The extraction processes provide highly-efficient methods to obtain cannabinoids and other desired compounds from the cannabis plant at a greater purity than conventional methods. Both processes are applicable to marijuana and hemp and have been incorporated into the Company’s GMP-certified extraction facility in Sherbrooke.
The first patent application outlines a method of extracting and isolating compounds from plants of the Cannabis genus at low temperature by using a cold organic solvent. The second patent application similarly provides for a method for extracting compounds from cannabis at low temperature, but without the use of organic solvents. Specifically, this patent relates to a process for high recovery of cannabinoids and terpenes by using natural solvents.
SEGMENT DISCLOSURES
In prior periods and until the loss of control of the subsidiary Acasti on December 27, 2017, the Corporation had three reportable segments which were the Corporation’s strategic business units, the nutraceutical, the cannabis and the cardiovascular segments. The nutraceutical segment that produces and commercializes nutraceutical products and turnkey solutions for primarily omega-3 softgel capsules and liquids, which includes the results of Biodroga, and the cannabis oil extraction project which began in October 2017 are the current strategic business segments of the Corporation.
Information regarding the results of each reportable segment is included below. The cardiovascular results are presented until the loss of control. Performance is measured based on segment income (loss) from operating activities before corporate costs, as included in the internal management reports that are reviewed by the Corporation’s Chief Operating Decision Maker, as management believes that such information is the most relevant in evaluating the results of our segments relative to other entities that operate within these industries. As a result, our segment reporting now presents segment income (loss) from operating activities before corporate costs, in order to better reflect the performance of each segment that are reviewed by the Chief Operating Decision Maker. The comparative periods have been recast accordingly.
The Sherbrooke facility has been repurposed from the krill oil activities and will be used for the extraction, purification and formulation of cannabis extracts and oils and is now presented under the cannabis segment information.
5
management discussion and analysis of the financial situation and operating results
Selected financial information by segment is as follows:
The following tables show selected financial information by segments:
Three-month period ended December 31, 2018
|
Nutraceutical |
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Cannabis |
|
Corporate |
|
Total |
|
||||
|
$ |
|
$ |
|
$ |
|
$ |
|
||||
Total revenues |
|
6,538 |
|
– |
|
|
|
|
|
6,538 |
|
|
Gross margin |
|
2,228 |
|
– |
|
|
|
|
|
2,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R&D expenses, net of tax credits and grants |
|
(130 |
) |
|
(1,647 |
) |
|
|
|
|
(1,777 |
) |
SG&A expenses |
|
(1,203 |
) |
|
(497 |
) |
|
|
|
|
(1,700 |
) |
Segment income (loss) from operating activities before corporate expenses |
|
895 |
|
|
(2,144 |
) |
|
|
|
|
(1,249 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
(2,378 |
) |
|
(2,378 |
) |
Net finance income |
|
|
|
|
|
|
|
31 |
|
|
31 |
|
Income tax expense |
|
|
|
|
|
|
|
(62 |
) |
|
(62 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
(3,658 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Segment EBITDA1 (non-IFRS operating segment loss)1 reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) from operating activities before corporate expenses |
|
895 |
|
|
(2,144 |
) |
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
188 |
|
|
561 |
|
|
|
|
|
|
|
Stock-based compensation |
|
126 |
|
|
277 |
|
|
|
|
|
|
|
Adjusted Segment EBITDA1 (non-IFRS operating segment loss)1 |
|
1,209 |
|
|
(1,306 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS operating loss1 reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(3,658 |
) |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
804 |
|
Net finance income |
|
|
|
|
|
|
|
|
|
|
(31 |
) |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
900 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
62 |
|
Non-IFRS operating loss1 |
|
|
|
|
|
|
|
|
|
|
(1,923 |
) |
1 The Adjusted Segment EBITDA or Non-IFRS operating segment loss and the Adjusted EBITDA or Non-IFRS operating loss are not standard measures endorsed by IFRS requirements.
6
management discussion and analysis of the financial situation and operating results
Three-month period ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment |
|
|
|
|
|
|
Nutraceutical |
|
Cannabis |
|
Cardiovascular |
|
Corporate |
|
eliminations |
|
Total |
|
||||||
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
Total revenues |
|
7,315 |
|
– |
|
– |
|
|
|
|
– |
|
|
7,315 |
|
|||
Gross margin |
|
2,015 |
|
– |
|
– |
|
|
|
|
– |
|
|
2,015 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R&D expenses, net of tax credits and grants |
|
(42 |
) |
|
(1,441 |
) |
|
(4,261 |
) |
|
|
|
|
581 |
|
|
(5,163 |
) |
SG&A expenses |
|
(1,023 |
) |
|
(289 |
) |
|
(908 |
) |
|
|
|
– |
|
|
(2,220 |
) |
|
Other income - net gain on sale of assets |
|
(147 |
) |
– |
|
– |
|
|
|
|
– |
|
|
(147 |
) |
|||
Segment income (loss) from operating activities before corporate expenses |
|
803 |
|
|
(1,730 |
) |
|
(5,169 |
) |
|
|
|
|
581 |
|
|
(5,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on loss of control of subsidiary |
– |
|
– |
|
– |
|
|
8,783 |
|
– |
|
|
8,783 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
(1,455 |
) |
|
|
|
|
(1,455 |
) |
Net finance costs |
|
|
|
|
|
|
|
|
|
|
(419 |
) |
|
|
|
|
(419 |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
(53 |
) |
|
|
|
|
(53 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Segment EBITDA1 (non-IFRS operating segment loss)1 reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) from operating activities before corporate expenses |
|
803 |
|
|
(1,730 |
) |
|
(5,169 |
) |
|
|
|
|
581 |
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
186 |
|
|
524 |
|
|
670 |
|
|
|
|
|
(581 |
) |
|
|
|
Stock-based compensation |
|
4 |
|
|
66 |
|
|
330 |
|
|
|
|
– |
|
|
|
|
|
Other income - net gain on sale of assets |
|
147 |
|
– |
|
– |
|
|
|
|
– |
|
|
|
|
|||
Adjusted Segment EBITDA1 (non-IFRS operating segment loss)1 |
|
1,140 |
|
|
(1,140 |
) |
|
(4,169 |
) |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS operating loss1 reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,341 |
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
852 |
|
Net finance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
419 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
529 |
|
Other income - net gain on sale of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147 |
|
Gain on loss of control of subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,783 |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53 |
|
Non-IFRS operating loss1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,442 |
) |
1 The Adjusted Segment EBITDA or Non-IFRS operating segment loss and the Adjusted EBITDA or Non-IFRS operating loss are not standard measures endorsed by IFRS requirements.
7
management discussion and analysis of the financial situation and operating results
Nine-month period ended December 31, 2018
|
Nutraceutical |
|
Cannabis |
|
Corporate |
|
Total |
|
||||
|
$ |
|
$ |
|
$ |
|
$ |
|
||||
Total revenues |
|
18,778 |
|
– |
|
|
|
|
|
18,778 |
|
|
Gross margin |
|
6,078 |
|
– |
|
|
|
|
|
6,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R&D expenses, net of tax credits and grants |
|
(316 |
) |
|
(4,825 |
) |
|
|
|
|
(5,141 |
) |
SG&A expenses |
|
(3,386 |
) |
|
(1,473 |
) |
|
|
|
|
(4,859 |
) |
Segment income (loss) from operating activities before corporate expenses |
|
2,376 |
|
|
(6,298 |
) |
|
|
|
|
(3,922 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
(6,561 |
) |
|
(6,561 |
) |
Net finance costs |
|
|
|
|
|
|
|
(171 |
) |
|
(171 |
) |
Income tax expense |
|
|
|
|
|
|
|
(154 |
) |
|
(154 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
(10,808 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Segment EBITDA1 (non-IFRS operating segment loss)1 reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) from operating activities before corporate expenses |
|
2,376 |
|
|
(6,298 |
) |
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
562 |
|
|
1,571 |
|
|
|
|
|
|
|
Stock-based compensation |
|
369 |
|
|
802 |
|
|
|
|
|
|
|
Adjusted Segment EBITDA1 (non-IFRS operating segment loss)1 |
|
3,307 |
|
|
(3,925 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS operating loss1 reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(10,808 |
) |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
2,291 |
|
Net finance costs |
|
|
|
|
|
|
|
|
|
|
171 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
2,785 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
154 |
|
Non-IFRS operating loss1 |
|
|
|
|
|
|
|
|
|
|
(5,407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets3 |
|
21,097 |
|
|
49,434 |
|
|
22,085 |
|
|
92,616 |
|
Cash, cash equivalents and restricted short-term investment |
|
918 |
|
– |
|
|
14,725 |
|
|
15,643 |
|
|
Working capital2 |
|
2,069 |
|
|
(1,366 |
) |
|
13,721 |
|
|
14,424 |
|
1 The Adjusted Segment EBITDA or Non-IFRS operating segment loss and the Adjusted EBITDA or Non-IFRS operating loss are not standard measures endorsed by IFRS requirements.
2 The working capital is presented for information purposes only and represents a measurement of the Corporation’s short-term financial health mostly used in financial circles. The working capital is calculated by subtracting current liabilities from current assets. Because there is no standard method endorsed by IFRS, the results may not be comparable to similar measurements presented by other public companies.
3 The corporate reportable segment assets include the investment in Acasti.
8
management discussion and analysis of the financial situation and operating results
Nine-month period ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment |
|
|
|
|
|
|
Nutraceutical |
|
Cannabis |
|
Cardiovascular |
|
Corporate |
|
eliminations |
|
Total |
|
||||||
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
Total revenues |
|
20,640 |
|
– |
|
– |
|
|
|
|
– |
|
|
20,640 |
|
|||
Gross margin |
|
4,866 |
|
– |
|
– |
|
|
|
|
– |
|
|
4,866 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R&D expenses, net of tax credits and grants |
|
(780 |
) |
|
(1,441 |
) |
|
(9,592 |
) |
|
|
|
|
1,742 |
|
|
(10,071 |
) |
SG&A expenses |
|
(3,950 |
) |
|
(289 |
) |
|
(2,761 |
) |
|
|
|
– |
|
|
(7,000 |
) |
|
Other income - net gain on sale of assets |
|
23,724 |
|
– |
|
– |
|
|
|
|
– |
|
|
23,724 |
|
|||
Segment income (loss) from operating activities before corporate expenses |
|
23,860 |
|
|
(1,730 |
) |
|
(12,353 |
) |
|
|
|
|
1,742 |
|
|
11,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on loss of control of subsidiary |
– |
|
– |
|
– |
|
|
8,783 |
|
– |
|
|
8,783 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
(4,324 |
) |
|
|
|
|
(4,324 |
) |
Net finance costs |
|
|
|
|
|
|
|
|
|
|
(1,847 |
) |
|
|
|
|
(1,847 |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
(40 |
) |
|
|
|
|
(40 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Segment EBITDA1 (non-IFRS operating segment loss)1 reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) from operating activities before corporate expenses |
|
23,860 |
|
|
(1,730 |
) |
|
(12,353 |
) |
|
|
|
|
1,742 |
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
1,630 |
|
|
524 |
|
|
2,005 |
|
|
|
|
|
(1,742 |
) |
|
|
|
Stock-based compensation |
|
157 |
|
|
66 |
|
|
661 |
|
|
|
|
– |
|
|
|
|
|
Impairment loss on inventories |
|
1,719 |
|
– |
|
– |
|
|
|
|
– |
|
|
|
|
|||
Other income - net gain on sale of assets |
|
(23,724 |
) |
– |
|
– |
|
|
|
|
– |
|
|
|
|
|||
Legal fees related to royalty settlements |
|
91 |
|
– |
|
– |
|
|
|
|
– |
|
|
|
|
|||
Adjusted Segment EBITDA1 (non-IFRS operating segment loss)1 |
|
3,733 |
|
|
(1,140 |
) |
|
(9,687 |
) |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-IFRS operating loss1 reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,091 |
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,774 |
|
Net finance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,847 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,442 |
|
Impairment loss on inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,719 |
|
Other income - net gain on sale of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,724 |
) |
Gain on loss of control of subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,783 |
) |
Legal fees related to royalty settlements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
Non-IFRS operating loss1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
24,636 |
|
|
41,381 |
|
|
6,079 |
|
|
27,661 |
|
– |
|
|
99,757 |
|
|
Cash, cash equivalents and restricted short-term investments |
|
2,395 |
|
– |
|
– |
|
|
26,191 |
|
– |
|
|
28,586 |
|
|||
Working capital2 |
|
4,363 |
|
|
379 |
|
– |
|
|
25,202 |
|
– |
|
|
29,944 |
|
1 The Adjusted Segment EBITDA or Non-IFRS operating segment loss and the Adjusted EBITDA or Non-IFRS operating loss are not standard measures endorsed by IFRS requirements.
2 The working capital is presented for information purposes only and represents a measurement of the Corporation’s short-term financial health mostly used in financial circles. The working capital is calculated by subtracting current liabilities from current assets. Because there is no standard method endorsed by IFRS, the results may not be comparable to similar measurements presented by other public companies.
9
management discussion and analysis of the financial situation and operating results
Key ratios of the nutraceutical segment
|
Three-month period ended |
|
|
Nine-month period ended |
|
||||||||
|
December 31, 2018 |
|
December 31, 2017 |
|
|
December 31, 2018 |
|
December 31, 2017 |
|
||||
Key ratios (in % of total revenues): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
34 |
% |
|
28 |
% |
|
|
32 |
% |
|
24 |
% |
R&D expenses net of tax credits and grants |
|
2 |
% |
|
1 |
% |
|
|
2 |
% |
|
4 |
% |
SG&A expenses |
|
18 |
% |
|
14 |
% |
|
|
18 |
% |
|
19 |
% |
OPERATING RESULTS OF THE NUTRACEUTICAL SEGMENT
Revenues
Total revenues for the three-month period ended December 31, 2018 amounted to $6,538, representing a decrease of $777 or 11% compared to $7,315 for the three-month period ended December 31, 2017. Total revenues for the nine-month period ended December 31, 2018 amounted to $18,778, representing a decrease of $1,862 or 9% compared to $20,640 for the nine-month ended December 31, 2017. The decrease for the three-month and nine-month periods ended December 31, 2018 was directly related to the sale of the krill oil manufacturing and distribution activities (“Transaction”). The krill oil manufacturing and distribution sales were respectively $922 and $3,017 for the three-month and nine-month periods December 31, 2017. Total revenues for the nutraceutical segment compared with total revenues excluding krill oil manufacturing business increased by respectively 2% and 7% for the three-month and nine-month periods ended December 31, 2018 compared to the three-month and nine-month periods ended December 31, 2017. This increase for the nine-month period ended December 31, 2018 is mainly coming from business of new customers and royalty revenues as indicated below.
Total revenues for the three-month period ended December 31, 2018 include $406 of royalty compared to $504 for the three-month period ended December 31, 2017. Total revenues for the nine-month period ended December 31, 2018 include $1,164 of royalty compared to $984 for the nine-month ended December 31, 2017. Royalty streams come from an existing licensing agreement that was excluded from the Transaction. The increase is directly related to increased sales of our licensee, partially offset by recognition of the remaining deferred royalty revenues in comparative periods.
Gross Margin
Gross margin is calculated by deducting the cost of sales from total revenues. Cost of sales consists primarily of costs incurred to manufacture products, including sub-contractors, freight expenses and duties on raw materials, storage and handling costs and lab testing on raw materials and finish goods.
Gross margin for the three-month period ended December 31, 2018 amounted to $2,228 compared to $2,015 for the three-month period ended December 31, 2017. Gross margin for the nine-month period ended December 31, 2018 amounted to $6,078 compared to $4,866 for the nine-month ended December 31, 2017. The increase in gross margin for the nine-month period ended December 31, 2018 compared to the nine-month period ended December 31, 2017 was directly related to the impairment loss on inventories of $1,719 recorded last year related to the Transaction concluded as explained above. The gross margin decrease for the nine-month period ended December 31, 2018 of $6,078 compared to the gross margin of $6,585 before the impairment loss in inventories of $1,719 for the nine-month period ended December 31, 2017, is related to a decrease in sales revenues. The krill oil manufacturing and distribution gross margin on sales, excluding the impairment loss on inventories of $1,719, were respectively ($15) and $1,183 for the three-month and nine-month periods ended December 31, 2017.
Gross margin as a % of total revenues increased from 28% for the three-month period ended December 31, 2017 to 34% for the three-month period ended December 31, 2018. Gross margin as a % of total revenues increased from 24% for the nine-month period ended December 31, 2017 to 32% for the nine-month period ended December 31, 2018. Last year’s gross margin % when adjusted for the krill oil sale Transaction would have been 32% and 31% respectively for the three-month and nine-month periods ended December 31, 2017. The gross margin as a % versus last year is therefore comparable.
Research and Development (R&D) Expenses Net of Tax Credits and Grants
R&D expenses net of tax credits and grants amounted to $130 in the three-month period ended December 31, 2018 compared to $42 in the three-month period ended December 31, 2017, an increase of $88. R&D expenses net of tax credits and grants amounted to $316 in the nine-month period ended December 31, 2018 compared to $780 in the nine-month ended December 31, 2017, a decrease of $464. The decrease for the nine-month period ended December 31, 2018 is attributable to the
10
management discussion and analysis of the financial situation and operating results
reorientation of a portion of the R&D projects to medical and wellness cannabinoid-based products activities after the sale of assets. Cannabis activities are now presented as a separate segment of the Corporation. Refer to Operating results of cannabis segment section below.
Selling, General and Administrative (SG&A) Expenses
SG&A expenses amounted to $1,203 in the three-month period ended December 31, 2018 compared to $1,023 for the three-month period ended December 31, 2017, an increase of $180. SG&A expenses amounted to $3,386 in the nine-month period ended December 31, 2018 compared to $3,950 for the nine-month period ended December 31, 2017, a decrease of $564. The increase for the three-month period ended December 31, 2018 is related to an increase in marketing expenses and stock-based compensation. The decrease in the nine-month period ended December 31, 2018 is mainly attributable to the sale of the krill oil manufacturing and distribution activities.
Adjusted Segment EBITDA1 before corporate expenses
Adjusted Segment EBITDA of the nutraceutical segment amounted to $1,209 for the three-month period ended December 31, 2018, an increase of $69 compared to the three-month period ended December 31, 2017. Adjusted Segment EBITDA of the nutraceutical segment amounted to $3,307 for the nine-month period ended December 31, 2018, a decrease of $426 compared to the nine-month period ended December 31, 2017. The increase in Adjusted segment EBITDA for the three-month period ended December 31, 2018 compared to the three-month period ended December 31, 2017 is mainly attributable to the gross margin increase as explained above, partially offset by an increase in SG&A and R&D expenses net of tax credits and grants before depreciation and amortization and stock-based compensation. The decrease in Adjusted segment EBITDA for the nine-month period ended December 31, 2018 is related to the decrease in the gross margin compared to the gross margin before the impairment loss on inventories as explained above, depreciation and amortization and stock-based compensation, partially offset by a decrease in SG&A and R&D expenses net of tax credits and grants before depreciation and amortization, stock-based compensation and legal fees related to royalty settlement.
OPERATING RESULTS OF THE CANNABIS SEGMENT
Research and Development (R&D) Expenses Net of Tax Credits and Grants
R&D expenses net of tax credits and grants of the cannabis segment amounted to $1,647 in the three-month period ended December 31, 2018 compared to $1,441 for the three-month period ended December 31, 2017. R&D expenses net of tax credits and grants of the cannabis segment amounted to $4,825 in the nine-month period ended December 31, 2018 compared to $1,441 for the nine-month period ended December 31, 2017. The increase for the three-month period ended December 31, 2018 is related to an increase in salaries and benefits, stock-based compensation, depreciation and amortization and clinical studies, partially offset by a decrease in licensing and consultation fees. The increase for the nine-month period ended December 31, 2018 is due to having 9 months of cannabis activity in the current period compared to 3 months in the prior period, since the cannabis activities started on October 1st, 2017.
Depreciation and amortization of $561 and stock-based compensation of $117 for the three-month period ended December 31, 2018 are included in these R&D expenses compared to respectively $524 and $34 for the three-month period ended December 31, 2017. Depreciation and amortization of $1,571 and stock-based compensation of $333 for the nine-month period ended December 31, 2018 are included in these R&D expenses compared to respectively $524 and $34 for the nine-month period ended December 31, 2017. Since the sale of assets and the repurposing of the Sherbrooke facility, the depreciation and amortization of the plant and equipment is recorded under R&D as part of the cannabis project until we start to generate revenues. R&D expenses of the cannabis segment are also comprised of salaries and benefits and expenses to operate the facility.
Selling, General and Administrative (SG&A) Expenses
SG&A expenses of the cannabis segment amounted to $497 in the three-month period ended December 31, 2018 compared to $289 for the three-month period ended December 31, 2017. SG&A expenses of the cannabis segment amounted to $1,473 in the nine-month period ended December 31, 2018 compared to $289 in the nine-month period ended December 31, 2017. The increase for the three-month period ended December 31, 2018 is related to an increase in salaries and benefits, stock-based compensation and in marketing expenses. The increase for the nine-month period ended December 31, 2018 is due to having
|
1 The Adjusted Segment EBITDA or Non-IFRS operating segment loss is not a standard measure endorsed by IFRS requirements. |
11
management discussion and analysis of the financial situation and operating results
9 months of cannabis activity in the current period compared to 3 months in the prior period, since the cannabis activities started on October 1st, 2017.
Stock-based compensation of $160 and $469, respectively, for the three-month and nine-month periods ended December 31, 2018 are also included in this SG&A amount. Stock-based compensation of $32 is included for the three-month and nine-month period ended December 31, 2017.
Non-IFRS operating segment loss1 before corporate expenses
Non-IFRS operating segment loss amounted to $1,306 for the three-month period ended December 31, 2018 compared to $1,140 for the three-month period ended December 31, 2017. Non-IFRS operating segment loss amounted to $3,925 for the nine-month period ended December 31, 2018 compared to $1,140 for the nine-month period ended December 31, 2017. The increase in non-IFRS operating segment loss for the three-month period ended December 31, 2018 is attributable to an increase in R&D expenses net of tax credits and grants and SG&A expenses. The increase for the nine-month period ended December 31, 2018 is due to having 9 months of cannabis activity in the current period compared to 3 months in the prior period, since the cannabis activities started on October 1st, 2017.
CONSOLIDATED RESULTS
As stated in the Loss of Control of the Subsidiary Acasti section of the 2018 Annual MD&A, management has determined that the Corporation lost the de facto control of the subsidiary on December 27, 2017. On that date, the Corporation ceased consolidating Acasti and therefore, no results of Acasti were presented from that date and in the three-month and nine-month periods ended December 31, 2018. Results of Acasti, that represented the cardiovascular segment, are included in the comparative three-month and nine-month periods ended December 31, 2017.
Corporate general and administrative expenses
The Corporate general and administrative expenses are amounts that are not allocated to the segments and consist of the following types of expenses: salaries and benefits of administration and marketing departments, including board of directors, corporate and legal fees, professional fees, communications and investor relations, and expenses related to head office such as rent, insurance and human resources expenses. It amounted to $2,378 for the three-month period ended December 31, 2018 compared to $1,455 for the three-month period ended December 31, 2017, an increase of $923. The Corporate general and administrative expenses amounted to $6,561 for the nine-month period ended December 31, 2018 compared to $4,324 for the nine-month period ended December 31, 2017, an increase of $2,237. The increase for the three-month and nine-month periods ended December 31, 2018 is mainly attributable to an increase in stock-based compensation, insurance and corporate and legal fees. The increase for the nine-month period ended December 31, 2018 is also attributable to an increase in salaries and benefits partially offset by a decrease in depreciation and amortization related to IP sold in the comparative period.
Net finance costs
The net finance income amounted to $31 for the three-month period ended December 31, 2018 compared to a net finance cost $419 for the three-month period ended December 31, 2017, a decrease of $450. The net finance costs amounted to $171 for the nine-month period ended December 31, 2018 compared to $1,847 for the nine-month period ended December 31, 2017, a decrease of $1,676. The decrease for the three-month and nine-month periods ended December 31, 2018 is mainly attributable to the reduction of debt in August 2017 and an increase in finance income related to interest recorded on short-term investments resulting from the Transaction of sale of assets. The decrease in net finance costs is partially offset by a gain on change in fair value of derivative assets and liabilities recorded in the three-month and nine-month periods ended December 31, 2017.
Net loss
The Corporation realized a net loss for the three-month period ended December 31, 2018 of $3,658 compared to a net income of $1,341 for the three-month period ended December 31, 2017, a decrease of $4,999. The net income was $5,929 before consideration of Acasti’s net loss for the three-month period ended December 31, 2017. The Corporation realized a net loss for the nine-month period ended December 31, 2018 of $10,808 compared to a net income of $14,091 for the nine-month period ended December 31, 2017, a decrease of $24,899. The net income was $24,702 before consideration of Acasti’s net loss for the nine-month period ended December 31, 2017.
|
1 The Adjusted Segment EBITDA or Non-IFRS operating segment loss is not a standard measure endorsed by IFRS requirements. |
12
management discussion and analysis of the financial situation and operating results
The increase in the net loss for the three-month and nine-month periods ended December 31, 2018 is mainly attributable to the gain on loss of control of subsidiary that has been recorded in the comparative period. The increase in the net loss for the nine-month period ended December 31, 2018 is also attributable to the net gain on sale of assets, partially offset by the impairment loss on inventories recorded last year. The increase in net loss before consideration of Acasti for the three-month and nine-month periods ended December 31, 2018 is also mainly attributable to the investment in the cannabis segment in R&D and business development and additional expenses in corporate general and administrative.
Non-IFRS operating loss1
Non-IFRS operating loss decreased by $3,519 for the three-month period ended December 31, 2018 to a non-IFRS operating loss of $1,923 compared to the three-month period ended December 31, 2017. The non-IFRS operating loss increased by $650 before consideration of Acasti’s non-IFRS operating loss for the three-month period ended December 31, 2017. Non-IFRS operating loss decreased by $5,096 for the nine-month period ended December 31, 2018 to a non-IFRS operating loss of $5,407 compared to the nine-month period ended December 31, 2017. The non-IFRS operating loss increased by $4,591 before consideration of Acasti’s non-IFRS operating loss for the nine-month period ended December 31, 2017.
The increase in non-IFRS operating loss before consideration of Acasti for the three-month and nine-month periods ended December 31, 2018 compared to the three-month and nine-month periods ended December 31, 2017 is mainly attributable to the investment in the cannabis segment in R&D and business development and additional expenses in corporate general and administrative.
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
Our operations, R&D program, cannabis project, capital expenditures and acquisitions are mainly financed through the cash that came from the sale of the krill business, cash flows from operating activities and liquidities, as well as the issuance of debt and common shares.
Operating Activities
During the three-month period ended December 31, 2018, the cash used in operating activities amounted to $1,896. The cash flows used by operations before the change in operating assets and liabilities amounted to $1,944. The change in operating assets and liabilities amounting to $48, mainly resulting from variations in trade and other receivables, inventories, prepaid expenses and deferred revenues, decreased the cash flows used by operations to $1,896. This use of cash in operating activities mainly reflects the investment of the Corporation in the cannabis business development.
During the three-month period ended December 31, 2017, the cash used in operating activities, including Acasti’s operating activities, amounted to $5,670. The cash flows used by operations before the change in operating assets and liabilities amounted to $6,163. The change in operating assets and liabilities amounting to $492, mainly resulting from variations in trade and other receivables, inventories, prepaid expenses and trade and other payables, decreased the cash flows used by operations to $5,670.
During the nine-month period ended December 31, 2018, the cash used in operating activities amounted to $4,873. The cash flows used by operations before the change in operating assets and liabilities amounted to $5,580. The change in operating assets and liabilities amounting to $707, mainly resulting from variations in trade and other receivables, inventories, prepaid expenses and trade and other payables, decreased the cash flows used by operations to $4,873. This use of cash in operating activities mainly reflects the investment of the Corporation in the cannabis business development.
During the nine-month ended December 31, 2017, the cash used in operating activities, including Acasti’s operating activities, amounted to $6,049. The cash flows used by operations before the change in operating assets and liabilities amounted to $13,281. The change in operating assets and liabilities amounting to $7,231, mainly coming from trade and other receivables, inventories, prepaid expenses and trade and other payables, decreased the cash flows used by operations to $6,049. The cash generated by operating assets and liabilities mainly reflects the sale of the krill oil inventories and the receipt of net receivable account.
|
1 The Adjusted or Non-IFRS operating loss is not standard measure endorsed by IFRS requirements. |
13
management discussion and analysis of the financial situation and operating results
During the three-month period ended December 31, 2018, except for the maturity of short-term investment generating $2,362 of cash, the cash flows used for investing activities were mainly for acquisition of property, plant and equipment (PPE) ($2,071), computer software ($84) required at the Sherbrooke facility for the cannabis business and at the head office and the payment of a licence agreement ($120). Investing activities also include interest received of $63.
During the three-month period ended December 31, 2017, the cash flows used for investing activities were mainly for acquisition of PPE ($366) and acquisition of intellectual property ($112) which was payable as at March 31, 2017. In addition, the cash flow was reduced by the cash related to the loss of control and deconsolidation of Acasti ($2,666). Investing activities also include interest received of $100.
During the nine-month period ended December 31, 2018, except for the maturity of short-term investment generating $2,362 of cash, the cash flows used for investing activities were mainly for acquisition of PPE ($5,930), computer software ($147) required at the Sherbrooke facility for the cannabis business at the head office and payment of a licence agreement ($210). Investing activities also include interest received of $197.
The investing activities for the nine-month ended December 31, 2017 include proceeds of $43,076 resulting from the Transaction. During the nine-month ended December 31, 2017, except for the variation in the short-term investments generating $335 of cash, the cash flows used for investing activities were for acquisition of PPE ($668) and for acquisition of intellectual property ($3,702) which was payable as at March 31, 2017. In addition, the cash flow was reduced by the cash related to the loss of control and deconsolidation of Acasti ($2,666). Investing activities also include interest received of $147.
Financing Activities
During the three-month period ended December 31, 2018, the financing activities used $775 of cash mainly for the repayment of loans and borrowings of $346, the variation of the bank line of credit of $590 and for interest paid of $73, partially offset by the exercise of options of the Corporation for $239.
During the three-month period ended December 31, 2017, the financing activities used $2,446 of cash mainly for the repayment of loans and borrowings of $2,818, for the interest paid of $124, partially offset by proceeds from exercise of options of the Corporation for $112 and from the exercise of Acasti’s warrants of $384.
During the nine-month period ended December 31, 2018, the financing activities used $148 of cash mainly for the repayment of loans and borrowings of $1,083, the variation of the bank line of credit of $490 and for interest paid of $225, partially offset by the exercise of options of the Corporation for $1,655.
During the nine-month ended December 31, 2017, the financing activities used $20,073 of cash mainly for the repayment of loans and borrowings of $19,021, for the interest paid of $795, penalty on debt reimbursement of $263 and for the payment of Acasti public offering and debt issuance transaction costs of $421 which were payable at March 31, 2017, partially offset by proceeds from the exercise of options of the Corporation for $112 and from the exercise of Acasti’s warrants of $384.
On February 13, 2019, Neptune has filed a preliminary short form base shelf prospectus with the securities regulatory authorities in each of the provinces and territories of Canada and a corresponding shelf preliminary registration statement on Form F-10 with the U.S. Securities and Exchange Commission (the “SEC”). The specific terms of any future offering will be established in a prospectus supplement to the shelf prospectus, which supplement will be filed with the applicable Canadian securities regulatory authorities and with the SEC. There is no assurance that there will be a future offering.
At December 31, 2018, the Corporation’s liquidity position, consisting of cash and cash equivalents, was $15,595. The Corporation also has a restricted short-term investment of $48.
The Corporation has an authorized bank line of credit of $2,500 (expiring on August 31, 2019), of which $2,500 was available as at December 31, 2018.
14
management discussion and analysis of the financial situation and operating results
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets out selected consolidated financial information for the three-month and nine-month periods ended December 31, 2018 and 2017. Variations in these amounts have been explained in the consolidated results section above.
|
Three-month period ended |
|
|
Nine-month period ended |
|
||||||||
|
December 31, 2018 |
|
December 31, 2017 |
|
|
December 31, 2018 |
|
December 31, 2017 |
|
||||
|
$ |
|
$ |
|
|
$ |
|
$ |
|
||||
Total revenues |
|
6,538 |
|
|
7,315 |
|
|
|
18,778 |
|
|
20,640 |
|
Non-IFRS operating loss1 |
|
(1,923 |
) |
|
(5,442 |
) |
|
|
(5,407 |
) |
|
(10,503 |
) |
Net income (loss) |
|
(3,658 |
) |
|
1,341 |
|
|
|
(10,808 |
) |
|
14,091 |
|
Net income (loss) attributable to equity holders of the Corporation |
|
(3,658 |
) |
|
4,755 |
|
|
|
(10,808 |
) |
|
22,283 |
|
Basic and diluted income (loss) per share |
|
(0.05 |
) |
|
0.06 |
|
|
|
(0.14 |
) |
|
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
92,616 |
|
|
99,757 |
|
Working capital2 |
|
|
|
|
|
|
|
|
14,424 |
|
|
29,944 |
|
Non-current financial liabilities |
|
|
|
|
|
|
|
|
1,142 |
|
|
518 |
|
Equity attributable to equity holders of the Corporation |
|
|
|
|
|
|
|
|
79,335 |
|
|
89,479 |
|
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
As explained in other sections, the Corporation revenues are entirely generated by the nutraceutical segment. The cardiovascular segment included until the loss of control on December 27, 2017, conducts research activities and has incurred losses since inception. Quarterly data is presented below.
|
|
December 31 |
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
||||
|
|
2018 |
|
|
2018 |
|
|
2018 |
|
|
2018 |
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total Revenues |
|
|
6,538 |
|
|
|
7,071 |
|
|
|
5,168 |
|
|
|
7,005 |
|
Non-IFRS operating loss1 |
|
|
(1,923 |
) |
|
|
(1,228 |
) |
|
|
(2,257 |
) |
|
|
(1,802 |
) |
Net loss |
|
|
(3,658 |
) |
|
|
(3,050 |
) |
|
|
(4,100 |
) |
|
|
(4,752 |
) |
Net loss attributable to equity holders of the Corporation |
|
|
(3,658 |
) |
|
|
(3,050 |
) |
|
|
(4,100 |
) |
|
|
(4,752 |
) |
Basic and diluted loss per share |
|
|
(0.05 |
) |
|
|
(0.04 |
) |
|
|
(0.05 |
) |
|
|
(0.06 |
) |
|
|
December 31, |
|
|
September 30, |
|
|
June 30, |
|
|
March 31, 2017 |
|
||||
|
|
2017 |
|
|
2017 |
|
|
2017 |
|
|
(4 months) |
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total Revenues |
|
|
7,315 |
|
|
|
6,795 |
|
|
|
6,531 |
|
|
|
11,829 |
|
Non-IFRS operating loss1 |
|
|
(5,442 |
) |
|
|
(3,588 |
) |
|
|
(1,473 |
) |
|
|
(1,227 |
) |
Net income (loss) |
|
|
1,341 |
|
|
|
16,117 |
|
|
|
(3,367 |
) |
|
|
(2,298 |
) |
Net income (loss) attributable to equity holders of the Corporation |
|
|
4,755 |
|
|
|
19,074 |
|
|
|
(1,546 |
) |
|
|
(424 |
) |
Basic and diluted income (loss) per share |
|
|
0.06 |
|
|
|
0.24 |
|
|
|
(0.02 |
) |
|
|
(0.01 |
) |
1 The Non-IFRS operating loss is not a standard measure endorsed by IFRS requirements. A reconciliation to the Corporation’s net loss is presented above.
2 The working capital is presented for information purposes only and represents a measurement of the Corporation’s short-term financial health mostly used in financial circles. The working capital is calculated by subtracting current liabilities from current assets. Because there is no standard method endorsed by IFRS, the results may not be comparable to similar measurements presented by other public companies.
15
management discussion and analysis of the financial situation and operating results
Quarterly revenues starting September 30, 2017 reflect the sale of assets related to the Transaction. Revenues of the quarter ended June 30, 2017 are lower than revenues of the previous quarters because of the decrease in the quantity of kg of krill oil sold. The net loss for the quarter ended March 31, 2018 includes an impairment loss on inventories of $658. The net income for the quarter ended December 31, 2017 includes a gain on loss of control of the subsidiary Acasti of $8,783. The net income for the quarter ended September 30, 2017 includes other income related to sale of assets of $23,871 and impairment loss on inventories of $1,719.
CONSOLIDATED FINANCIAL POSITION
The following table details the significant changes to the statement of financial position (other than equity) at December 31, 2018 compared to March 31, 2018:
Accounts |
Increase (Reduction) |
|
Comments |
|
Cash and cash equivalents |
|
(8,692 |
) |
Refer to "Consolidated liquidity and capital resources" |
Short-term investment |
|
(2,350 |
) |
Release of restricted short-term investment |
Trade and other receivables |
|
(1,693 |
) |
Receipt of accounts receivables |
Prepaid expenses |
|
576 |
|
Renewal of services |
Inventories |
|
599 |
|
Increase of work in progress and finish goods |
Property, plant and equipment |
|
4,065 |
|
Improvement to Sherbrooke facility for cannabis business net of depreciation |
Intangible assets |
|
2,369 |
|
Acquisition of intangible assets, including licensing agreement with Lonza net of depreciation |
Other financial asset |
|
(812 |
) |
Decrease in fair value of the investment in Acasti |
Trade and other payables |
|
1,992 |
|
Increase in purchases related to inventories and PPE net of payment |
Long-term payables |
|
711 |
|
Acquisition of intangible assets and related payable |
Deferred tax liabilities |
|
154 |
|
Income tax expense |
Loans and borrowings |
|
(1,555 |
) |
Repayments of loans and bank line of credit |
See the statement of changes in equity in the consolidated financial statements for details of changes to the equity accounts from March 31, 2018.
CONSOLIDATED CONTRACTUAL OBLIGATIONS
The following are the contractual maturities of financial liabilities and other contracts as at December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
|
||
Required payments per year |
|
Carrying amount |
|
|
Contractual Cash flows |
|
|
Less than 1 year |
|
|
1 to 3 years |
|
|
4 to 5 years |
|
|
More than 5 years |
|
||||||
Trade and other payables and long-term payables |
|
$ |
9,701 |
|
|
$ |
9,701 |
|
|
$ |
8,740 |
|
|
$ |
961 |
|
|
$ |
– |
|
|
$ |
– |
|
Loans and borrowings* |
|
|
3,107 |
|
|
|
3,261 |
|
|
|
3,261 |
|
|
– |
|
|
– |
|
|
– |
|
|||
Research and development contracts |
|
– |
|
|
|
496 |
|
|
|
421 |
|
|
|
75 |
|
|
– |
|
|
– |
|
|||
Purchase obligations |
|
– |
|
|
|
1,724 |
|
|
|
1,724 |
|
|
– |
|
|
– |
|
|
– |
|
||||
Operating leases |
|
– |
|
|
|
1,349 |
|
|
|
403 |
|
|
|
684 |
|
|
|
262 |
|
|
– |
|
||
|
|
$ |
12,808 |
|
|
$ |
16,531 |
|
|
$ |
14,549 |
|
|
$ |
1,720 |
|
|
$ |
262 |
|
|
$ |
– |
|
*Includes interest payments to be made at the contractual rate.
Under the terms of its financing agreements, the Corporation is required to meet certain financial covenants. As of December 31, 2018, Neptune was compliant with all of its borrowing covenant requirements.
Other commitments not included in the above table include royalty payments described in Notes 7 and 15(a)(i) of the consolidated interim financial statements for the three-month and nine-month periods ended December 31, 2018 and 2017.
16
management discussion and analysis of the financial situation and operating results
In the normal course of operations, the Corporation is involved in various claims and legal proceedings. The most significant of which are as follows:
(i) |
A former CEO of the Corporation is claiming the payment of approximately $8,500 and the issuance of equity instruments as severance entitlements under his employment contract. The Corporation intends to vigorously defend against this claim. Neptune also filed a counterclaim to recover approximately $530 from this former officer. All outstanding share-based payments held by the former CEO were cancelled in a prior year. A trial date is currently scheduled for hearing in May and June 2019. |
(ii) |
Under the terms of an agreement entered into with a corporation controlled by the former CEO of the Corporation, the Corporation should pay royalties of 1% of its krill oil revenues in semi-annual instalments, for an unlimited period, for a claim of approximately $1,700. Neptune filed a motion challenging the validity and interpretation of certain clauses of the agreement, which position is contested by the former CEO. The counterclaim amount that the Corporation is seeking from the former CEO is approximately $2,100. The Corporation intends to vigorously defend against the former CEO’s claim. Hearing of the case was completed on February 7, 2019. The case is pending judgment from the Court. |
(iii) |
The Corporation initiated arbitration against a krill oil customer that owed approximately $5,046 (US$3,700). The full amount of trade receivable has been written-off in February 2015. This customer is counterclaiming a sum in damages. During the nine-month period ended December 31, 2018, the counterclaim amount was amended to $193 million (AUD$201 million). The Corporation intends to continue to pursue its claim for unpaid receivable and to vigorously defend against this amended counterclaim. Arbitration is currently scheduled for hearing in July 2019. |
The outcome of these and various other claims and legal proceedings against the Corporation cannot be determined with certainty and is subject to future resolution, including the uncertainties of litigation. Based on currently available information, no additional provision has been recognised as of December 31, 2018.
CHANGES IN ACCOUNTING POLICIES AND FUTURE ACCOUNTING CHANGES
The accounting policies and basis of measurement applied in the consolidated interim financial statements for the three-month and nine-month periods ended December 31, 2018 and 2017 are the same as those applied by the Corporation in its consolidated financial statements for the year ended March 31, 2018, except as disclosed below.
The Corporation has initially adopted IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments as at April 1st, 2018. The Corporation has also adopted amendments to IFRS 2, Classification and Measurement of Share-Based Payment Transactions on April 1st, 2018.
Further information can be found in Note 3 of the consolidated interim financial statements for the three-month and nine-month periods ended December 31, 2018 and 2017. The adoption of IFRS 15, IFRS 9 and amendments to IFRS 2 has not had a significant effect on the Corporation’s consolidated interim financial statements.
A number of new standards, interpretations and amendments to existing standards were issued by the IASB or the IFRS Interpretations Committee (‟IFRIC”) that are mandatory but not yet effective for the three-month and nine-month periods ended December 31, 2018 and have not been applied in preparing the consolidated interim financial statements. The following standards have been issued by the IASB with effective dates in the future that have been determined by management to impact the consolidated financial statements:
IFRS 16, Leases
IFRIC 23, Uncertainty over Income Tax Treatments
Further information on these modifications can be found in Note 3 of the consolidated interim financial statements for the three-month and nine-month periods ended December 31, 2018 and 2017. The Corporation is currently assessing the extent of the impact of adoption of these standards.
17
management discussion and analysis of the financial situation and operating results
DISCLOSURE CONTROLS AND PROCEDURES ("DC&P") AND INTERNAL CONTROL OVER FINANCIAL REPORTING ("ICFR")
In compliance with the Canadian Securities Administrators’ National Instrument 52-109, the Corporation has filed certificates signed by Mr. Jim Hamilton, in his capacity as Chief Executive Officer (‟CEO”) and Mr. Mario Paradis, in his capacity as Chief Financial Officer (‟CFO”) that, among other things, report on the design of DC&P and the design of ICFR.
There have been no changes in the Corporation’s ICFR during the three-month period ended December 31, 2018 that have materially affected, or are reasonably likely materially affecting its ICFR.
RISKS AND UNCERTAINTIES
Investing in securities of the Corporation involves a high degree of risk. Prospective investors should carefully consider the risks and uncertainties described in our filings with securities regulators, including those described under the heading “Risk Factors” in our latest annual information form and Form 40-F, available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.shtml. Additional risks and uncertainties, including those that the Corporation is unaware of or that are currently deemed immaterial, may also become important factors that affect the Corporation and its business. If any such risks actually occur, the Corporation’s business, financial condition and results of operations could be materially adversely affected.
In addition to the risks set out in the Annual Information Form, the annual MD&A and the other risk factors presented in other continuous disclosure documents, the risks set out below should also be considered.
Risks Related to Our Business and the Cannabis Industry
Requirements for licenses and permits
Certain operations of the Company require it to obtain licenses for the production and distribution of cannabis products, and in some cases, renewals of existing licenses from, and the issuance of permits by Health Canada. The Company believes that it currently holds or has applied for all necessary licenses and permits to carry on the activities which it is currently conducting under applicable laws and regulations. In addition, the Company will apply for, as the need arises, all necessary licenses and permits to carry on the activities it expects to conduct in the future. However, the ability of the Company to obtain, sustain or renew any such licenses and permits on acceptable terms, or at all, is subject to changes in regulations and policies and to the sole discretion of the applicable authorities or other governmental agencies. Any loss of interest in any such required license or permit, or the failure of any governmental authority to issue or renew such licenses or permits upon acceptable terms, or at all, would have a material adverse effect on the business, financial condition and results of the operations of the Company.
As a holder of a license for standard processing, we will be subject to ongoing inspections by Health Canada to monitor our compliance with its licensing requirements. Our license(s) that we obtained, or may in the future obtain, in Canada may be revoked or restricted at any time in the event that we are found not to be in compliance. Should we fail to comply with the applicable regulatory requirements or with conditions set out under our license(s), should our license(s) not be renewed when required, or be renewed on different terms, or should our license(s) be revoked, we may not be able to produce, process or distribute cannabis products.
We operate out of our existing facility located in Sherbrooke, Québec, which is required to comply with Health Canada requirements. Our facility is therefore subject to the adherence of ongoing standards and thresholds in order to maintain the appropriate certificate. Although the Company believes it will continue to meet such ongoing requirements, there is no guarantee that the required certification will be maintained. Any loss in certification would have a material adverse effect on the business, financial condition and results of the operations of the Company.
Our current license with Health Canada expires on January 4, 2022. Prior to the expiration, we must submit to Health Canada an application for renewal of such license. There can be no assurance that we will be able to renew our existing license and any failure to renew such license would have a material adverse impact on our business, financial condition and operating results.
We are subject to risks inherent to the cannabis industry
We operate in a highly regulated and rapidly evolving market. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-
18
management discussion and analysis of the financial situation and operating results
looking statements. Failure to comply with the requirements of the license(s) or any failure to maintain the license(s) would have a material adverse impact on the business, financial condition and operating results of the Company.
The industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond our control and which cannot be predicted, such as changes to government regulations, including those relating to taxes and other government levies that may be imposed. Changes in government levies, including taxes, could reduce the Corporation’s earnings and could make future capital investments or the Corporation’s operations uneconomic.
We are subject to changes in laws, regulations and guidelines
The laws, regulations and guidelines generally applicable to the cannabis industry in Canada and other countries may change in ways that impact our ability to continue our business as currently conducted or proposed to be conducted.
The successful execution of our cannabis business objectives is contingent upon compliance with all applicable laws and regulatory requirements in Canada and other jurisdictions and obtaining all other required regulatory approvals for the processing, sale, import and export of our cannabis products. The commercial cannabis industry is a relatively new industry in Canada. The effect of Health Canada’s administration, application and enforcement of the regime established by the Cannabis Act and the Cannabis Regulations on us and our business in Canada, or the administration, application and enforcement of the laws of other countries by the appropriate regulators in those countries, may significantly delay or impact our ability to participate in the Canadian cannabis market or cannabis markets outside Canada, to develop cannabis products and produce and sell these cannabis products.
Further, Health Canada may change their administration, interpretation or application of the applicable regulations or their compliance or enforcement procedures at any time. Any such changes could require us to revise our ongoing compliance procedures, requiring us to incur increased compliance costs and expend additional resources. There is no assurance that we will be able to comply or continue to comply with applicable regulations.
Failure to comply with applicable regulations
Health Canada inspectors routinely assess cannabis license holders for compliance with applicable regulatory requirements and we will be subject to certain ongoing inspections and audits once we begin operations. Any failure by us to comply with the applicable regulatory requirements could require extensive changes to our operations; result in regulatory proceedings or investigations, increased compliance costs, damage awards, civil or criminal fines or penalties or restrictions on our operations; harm our reputation or give rise to material liabilities or a revocation of our licenses and other permits. There can be no assurance that any future regulatory proceedings, investigations or audits will not result in substantial costs, a diversion of management’s attention and resources or other adverse consequences to us and our business.
Limited standardized research on the effect of cannabis
To date, there is limited standardization in the research of the effects of cannabis, and future clinical research studies may lead to conclusions that dispute or conflict with our understanding and belief regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis.
Research in Canada, the United States and internationally regarding the medical benefits, viability, safety, efficacy and dosing of cannabis or isolated cannabinoids (such as CBD and THC) remains in relatively early stages.
Future research and clinical trials may draw opposing conclusions to statements made by the Company or could reach different or negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing or other facts and perceptions related to cannabis, which could adversely affect social acceptance of cannabis and the demand for our products.
The cannabis industry and market are relatively new in Canada, and this industry and market may not continue to exist or develop as anticipated or we may ultimately be unable to succeed in this industry and market
As a license holder authorized to process cannabis, we will be operating our business in a relatively new industry and market, and our success in the cannabis market will depend in part on our ability to attract and retain customers. In addition to being subject to general business risks applicable to a business involving an agricultural product and a regulated consumer product, we will need to make significant investments in our business strategy. These investments include the procurement of high value raw material, extraction equipment, site improvements and research and development projects. We expect that competitors will
19
management discussion and analysis of the financial situation and operating results
undertake similar investments to compete with us. Competitive conditions, consumer preferences, customer requirements and spending patterns in this industry and market are relatively unknown and may have unique circumstances that differ from other existing industries and markets and cause our future efforts to develop our business to be unsuccessful or to have undesired consequences for us. As a result, we may not be successful in our efforts to attract customers or to develop new cannabis products and produce and distribute these cannabis products, or these activities may require significantly more resources than we currently anticipate in order to be successful.
We will compete for market share with other companies licensed by Health Canada, some of which may have longer operating histories and more financial resources and manufacturing and marketing experience than we have.
As a holder of a license for standard processing, we expect to face competition from license holders and other potential competitors which may have longer operating histories and more financial resources and manufacturing and marketing experience than we have. In addition, it is possible that the cannabis industry will undergo consolidation, creating larger companies with financial resources, manufacturing and marketing capabilities and product offerings much greater than ours. As a result of this competition, we may be unable to develop our operations as currently proposed, on terms we consider acceptable, or at all.
There are currently a significant number of applications for cannabis licenses being processed by Health Canada. The number of licenses granted and the number of license holders ultimately authorized by Health Canada could have an adverse impact on our ability to compete for market share in Canada’s cannabis industry. We expect to face competition from new market entrants that are granted licenses under the Cannabis Act or existing license holders that are not yet active in the industry. If a significant number of new licenses are granted by Health Canada, we expect increased competition for market share and the competition may place downward price pressure on cannabis products as new entrants may increase extraction, purification and formulation capacity.
As a holder of a license for standard processing, we may also face competition from unlicensed and unregulated market participants, including individuals or groups that are able to process cannabis without a license and illegal dispensaries and black-market participants selling cannabis and cannabis-based products in Canada. These competitors may be able to offer products with higher concentrations of active ingredients than we may be authorized to produce and sell and using delivery methods, including edibles, concentrates and vaporizers, that we will be prohibited from currently offering to individuals in Canada. The competition presented by these participants, and any unwillingness by consumers currently utilizing these unlicensed distribution channels to begin purchasing from license holders for any reason, or any inability of law enforcement authorities to enforce existing laws prohibiting the unlicensed cultivation and sale of cannabis and cannabis-based products, could adversely affect the licit cannabis market, result in increased competition through the black market for cannabis, or may have an adverse impact on the public perception of cannabis use and licensed cannabis producers.
In addition, the Cannabis Act permits consumers in Canada to produce a limited amount of cannabis for their own medical or adult recreational purposes or to designate a person to produce a limited amount of cannabis on their behalf for medical purposes. Widespread reliance upon this allowance could reduce the current or future consumer demand for cannabis from license holders.
If the number of users of cannabis in Canada increases, the demand for products will increase. This could result in the competition in the cannabis industry becoming more intense as current and future competitors begin to offer an increasing number of diversified cannabis products. Conversely, if there is a contraction in the market for cannabis in Canada, competition for market share may increase. To remain competitive, we intend to invest in research and development; however, we may not have sufficient resources to establish research and development efforts on a competitive basis.
Reliance on a single facility
To date, our activities and resources have been primarily focused on our facility located in Sherbrooke, Québec, and we will continue to focus on such facility for the foreseeable future. Adverse changes or developments affecting this facility could have a material and adverse effect on our business and financial condition.
We may be unable to attract or retain key personnel with sufficient experience in the cannabis industry, and we may be unable to attract, develop and retain additional employees required for our development and future success
Our success will be largely dependent on the performance of our management team and certain employees and our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand,
20
management discussion and analysis of the financial situation and operating results
and we may incur significant costs to attract and retain them. The loss of the services of any key personnel, or an inability to attract other suitably qualified persons when needed, could prevent us from executing on our business plan and strategy, and we may be unable to find adequate replacements on a timely basis, or at all.
Each director and officer of a company that holds a license is subject to the requirement to obtain and maintain a security clearance from Health Canada. Under the Cannabis Act, certain additional key personnel are required to obtain and maintain a security clearance. Under the Cannabis Act, a security clearance cannot be valid for more than five years and must be renewed before the expiry of a current security clearance. There is no assurance that any of our existing personnel who presently or may in the future require a security clearance will be able to obtain or renew such clearances or that new personnel who require a security clearance will be able to obtain one. A failure by an individual in a key operational position to maintain or renew his or her security clearance could result in a reduction or complete suspension of our operations. In addition, if an individual in a key operational position leaves us, and we are unable to find a suitable replacement who is able to obtain a security clearance in a timely manner, or at all, we may not be able to conduct our operations at planned production volume levels or at all.
Unfavorable publicity or consumer perception
We believe the cannabis industry is highly dependent upon consumer perception regarding the safety, efficacy and quality of cannabis and related products distributed to such consumers. Consumer perception of our products can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favourable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favourable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for our products and the business, results of operations, financial condition and cash flows of our Company. Our dependence upon consumer perceptions means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether or not accurate or with merit, could have a material adverse effect on our Company, the demand for our products, and the business, results of operations, financial condition and cash flows of our Company.
Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of cannabis and related products in general, or our products specifically, or associating the consumption of cannabis or related products with illness or other negative effects or events, could have such a material adverse effect. Such adverse publicity reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products appropriately or as directed. The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share opinions and views in regard to our Company and our activities, whether true or not. Although we believe that we operate in a manner that is respectful to all stakeholders and that we take care in protecting our image and reputation, we do not ultimately have direct control over how it is perceived by others. Reputational loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations and an impediment to our overall ability to advance our projects, thereby having a material adverse impact on our financial performance, financial condition, cash flows and growth prospects.
We are subject to risks inherent to suppliers in an agricultural business, including the risk of crop failure
Cannabis is an agricultural product. As such, its supply is subject to the risks inherent in the agricultural business, including risks of crop failure presented by weather, insects, plant diseases, and similar agricultural risks. There can be no assurance that natural elements, such as insects and plant diseases, will not interrupt production activities with our suppliers and partners and have an adverse effect on our business.
Supply of cannabis
We do not cultivate cannabis to supply ourselves with cannabis leaves, flowers and trim to operate our extraction business. We currently obtain cannabis from third parties in amounts sufficient to operate our extraction business. However, there can be no assurance that there will continue to be a supply of cannabis available for us to process or purchase a sufficient amount of cannabis to operate our business. Additionally, the price of cannabis may rise which would increase our cost of goods. If we are unable to acquire the cannabis required to operate our extraction business or if the price of cannabis increases, it could have a material adverse impact on our business, our financial condition and results from operations.
21
management discussion and analysis of the financial situation and operating results
We may not be able to transport our cannabis products to customers in a safe and efficient manner
We will depend on fast and efficient third-party transportation services to distribute our cannabis products. Any prolonged disruption of third-party transportation services could have a material adverse effect on our sales volumes or our end users’ satisfaction with our services. Rising costs associated with third-party transportation services used by us to ship our products may also adversely impact our profitability, and more generally our business, financial condition and results of operations.
The security of products during transportation will be of the utmost concern. A breach of security during transport or delivery could result in the loss of high-value product. A failure to take steps necessary to ensure the safekeeping of cannabis could also have an impact on our ability to operate under our license(s), to renew or receive amendments to such licenses, or to receive required new licenses.
Our cannabis products may be subject to recalls for a variety of reasons, which could require us to expend significant management and capital resources
Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, adulteration, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labeling disclosure. If any of the cannabis products produced by us are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. As a result of any such recall, we may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin or at all. In addition, a product recall may require significant management attention or damage our reputation and goodwill or that of our products or brands.
Additionally, product recalls may lead to increased scrutiny of our operations by Health Canada, requiring further management attention, increased compliance costs and potential legal fees, fines, penalties and other expenses. Any product recall affecting the cannabis industry more broadly, whether or not involving us, could also lead consumers to lose confidence in the safety and security of the products sold by license holders generally.
We may be subject to product liability claims or regulatory action
As a manufacturer and distributor of products which are ingested by humans, we face the risk of exposure to product liability claims, regulatory action, and litigation if products we produce are alleged to have caused loss or injury. We may be subject to these types of claims due to allegations that our products caused or contributed to injury or illness, failed to include adequate instructions for use, or failed to include adequate warnings concerning possible side effects or interactions with other substances. This risk is exacerbated by the fact that cannabis use may increase the risk of experiencing adverse events or other side effects. Previously unknown adverse reactions resulting from human consumption of cannabis products alone or in combination with other medications or substances could also occur. In addition, the manufacture and sale of cannabis products, like the manufacture and sale of any ingested product, involves a risk of injury to consumers due to tampering by unauthorized third parties or product contamination. We may have to recall cannabis products we produce as a result of potential contamination and quality assurance concerns. A product liability claim or regulatory action against us could result in increased costs and could adversely affect our reputation and goodwill with our customers. There can be no assurance that we will be able to obtain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could result in us becoming subject to significant liabilities that are uninsured.
We may not meet timelines for project development
The Company’s business is dependent on a number of key inputs and their related costs including raw materials and supplies related to its operations, as well as electricity, water and other utilities. Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could materially impact the business, financial condition operating results, and timelines for project development of the Company. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse impact on the business, financial condition, operating results, and timelines for project development of the Company.
Difficulty to forecast revenues, costs and sales
We must rely largely on our own market research to forecast sales as detailed forecasts are not generally obtainable from other sources at this early stage of the cannabis industry in Canada. A failure in the demand for our products to materialize as a result
22
of competition, technological change or other factors could have a material adverse effect on the business, results of operations and financial condition of the Company.
We may also, from time to time, hold finished goods in inventory and such inventory has a shelf life. Finished goods in our inventory includes cannabis products that may reach expiration and not be sold. Even though on a regular basis, management reviews the amount of inventory on hand, reviews the remaining shelf life and estimates the time required to manufacture and sell such inventory, write-down of inventory may still be required. Any such write-down of inventory could have a material adverse effect on our business, financial condition, and results of operations.
Furthermore, the price of production and sale of cannabis will fluctuate widely due to how young the cannabis industry is and is affected by numerous factors beyond our control, including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production due to new production and distribution developments and improved production and distribution methods. The effect of these factors on the price of product produced by the Company and, therefore, the economic viability of any of the Company’s business, cannot accurately be predicted.
ADDITIONAL INFORMATION
Updated and additional Corporation information is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.shtml.
As at February 13, 2019, the total number of common shares issued and outstanding is 79,976,834 and the Corporation’s common shares were being traded on the TSX and on NASDAQ Capital Market under the symbol ‟NEPT”. There are also 750,000 warrants, 9,611,543 options and 454,983 deferred share units outstanding. Each warrant, option and deferred share unit is exercisable into one common share to be issued from treasury of the Corporation.
Exhibit 99.2
Consolidated Interim Financial Statements of
(Unaudited)
neptune WELLNESS SOLUTIONS Inc.
(formerly Neptune Technologies and Bioressources Inc. (note 1))
For the three-month and nine-month periods ended December 31, 2018 and 2017
neptune WELLNESS SOLUTIONS inc.
Consolidated Interim Financial Statements
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
Financial Statements
neptune WELLNESS SOLUTIONS inc.
Consolidated Interim Statements of Financial Position
(Unaudited)
As at December 31, 2018 and March 31, 2018
|
|
December 31, |
|
|
March 31, |
|
||
|
|
2018 |
|
|
2018 |
|
||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
15,595,388 |
|
|
$ |
24,287,107 |
|
Short-term investment (note 8) |
|
|
— |
|
|
|
2,350,000 |
|
Trade and other receivables |
|
|
3,898,148 |
|
|
|
5,590,847 |
|
Tax credits receivable |
|
|
37,286 |
|
|
|
49,597 |
|
Prepaid expenses |
|
|
949,149 |
|
|
|
372,944 |
|
Inventories (note 5) |
|
|
5,860,318 |
|
|
|
5,261,329 |
|
Other financial asset (note 14 (a)(ii)) |
|
|
— |
|
|
|
19,090 |
|
|
|
|
26,340,289 |
|
|
|
37,930,914 |
|
|
|
|
|
|
|
|
|
|
Restricted short-term investment |
|
|
48,000 |
|
|
|
60,000 |
|
Property, plant and equipment (note 6) |
|
|
45,874,202 |
|
|
|
41,809,576 |
|
Intangible assets (note 7) |
|
|
7,676,176 |
|
|
|
5,307,634 |
|
Goodwill |
|
|
6,750,626 |
|
|
|
6,750,626 |
|
Tax credits recoverable |
|
|
152,464 |
|
|
|
152,464 |
|
Other financial asset (note 14 (a)(i)) |
|
|
5,773,751 |
|
|
|
6,585,740 |
|
Total assets |
|
$ |
92,615,508 |
|
|
$ |
98,596,954 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Trade and other payables |
|
$ |
8,739,824 |
|
|
$ |
6,747,889 |
|
Loans and borrowings (note 8) |
|
|
3,106,716 |
|
|
|
4,661,356 |
|
Deferred revenues |
|
|
69,723 |
|
|
|
109,954 |
|
|
|
|
11,916,263 |
|
|
|
11,519,199 |
|
|
|
|
|
|
|
|
|
|
Deferred lease inducements |
|
|
222,584 |
|
|
|
267,101 |
|
Long-term payables (note 7) |
|
|
960,962 |
|
|
|
249,714 |
|
Deferred tax liabilities |
|
|
181,088 |
|
|
|
27,170 |
|
Total liabilities |
|
|
13,280,897 |
|
|
|
12,063,184 |
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
Share capital (note 9) |
|
|
131,025,150 |
|
|
|
128,483,507 |
|
Warrants (note 9 (d)) |
|
|
648,820 |
|
|
|
648,820 |
|
Contributed surplus |
|
|
38,253,772 |
|
|
|
36,355,549 |
|
Accumulated other comprehensive (loss) income |
|
|
(305,520 |
) |
|
|
525,559 |
|
Deficit |
|
|
(90,287,611 |
) |
|
|
(79,479,665 |
) |
Total equity |
|
|
79,334,611 |
|
|
|
86,533,770 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 15) |
|
|
|
|
|
|
|
|
Subsequent event (note 18) |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
92,615,508 |
|
|
$ |
98,596,954 |
|
See accompanying notes to unaudited consolidated interim financial statements.
|
|
|
1
NEPTUNE WELLNESS SOLUTIONS INC.
Consolidated Interim Statements of Earnings and Comprehensive Income (Loss)
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
|
|
|
Three-month periods ended |
|
Nine-month periods ended |
|
|||||||||||
|
|
|
December 31, 2018 |
|
|
December 31, 2017 |
|
|
December 31, 2018 |
|
|
December 31, 2017 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from sales (note 4) |
|
$ |
6,132,217 |
|
|
$ |
6,810,500 |
|
|
$ |
17,613,772 |
|
|
$ |
19,655,984 |
|
|
Royalty revenues |
|
|
405,951 |
|
|
|
504,164 |
|
|
|
1,164,125 |
|
|
|
984,413 |
|
|
Total revenues |
|
|
6,538,168 |
|
|
|
7,314,664 |
|
|
|
18,777,897 |
|
|
|
20,640,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (note 5) |
|
|
(4,310,187 |
) |
|
|
(5,299,684 |
) |
|
|
(12,699,400 |
) |
|
|
(14,054,719 |
) |
|
Other cost of sales - impairment loss on inventories (notes 4 and 5) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,719,362 |
) |
|
|
|
|
|
(4,310,187 |
) |
|
|
(5,299,684 |
) |
|
|
(12,699,400 |
) |
|
|
(15,774,081 |
) |
Gross margin |
|
|
2,227,981 |
|
|
|
2,014,980 |
|
|
|
6,078,497 |
|
|
|
4,866,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
|
(1,789,506 |
) |
|
|
(5,199,474 |
) |
|
|
(5,178,816 |
) |
|
|
(10,216,690 |
) |
|
Research tax credits and grants |
|
|
12,399 |
|
|
|
36,251 |
|
|
|
37,142 |
|
|
|
145,937 |
|
|
|
|
|
|
(1,777,107 |
) |
|
|
(5,163,223 |
) |
|
|
(5,141,674 |
) |
|
|
(10,070,753 |
) |
Selling, general and administrative expenses |
|
|
(4,078,377 |
) |
|
|
(3,674,343 |
) |
|
|
(11,420,069 |
) |
|
|
(11,324,346 |
) |
|
Other income - net gain on sale of assets |
|
|
— |
|
|
|
(147,397 |
) |
|
|
— |
|
|
|
23,723,680 |
|
|
Income (loss) from operating activities |
|
|
(3,627,503 |
) |
|
|
(6,969,983 |
) |
|
|
(10,483,246 |
) |
|
|
7,194,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on loss of control of subsidiary (note 14 (a)(i)) |
|
|
— |
|
|
|
8,783,613 |
|
|
|
— |
|
|
|
8,783,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income (note 10) |
|
|
120,021 |
|
|
|
99,606 |
|
|
|
201,435 |
|
|
|
146,671 |
|
|
Finance costs (note 10) |
|
|
(89,201 |
) |
|
|
(554,438 |
) |
|
|
(372,217 |
) |
|
|
(2,339,380 |
) |
|
Change in fair value of derivative assets and liabilities |
|
|
— |
|
|
|
35,629 |
|
|
|
— |
|
|
|
345,340 |
|
|
|
|
|
|
30,820 |
|
|
|
(419,203 |
) |
|
|
(170,782 |
) |
|
|
(1,847,369 |
) |
Income (loss) before income taxes |
|
|
(3,596,683 |
) |
|
|
1,394,427 |
|
|
|
(10,654,028 |
) |
|
|
14,131,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(61,344 |
) |
|
|
(52,778 |
) |
|
|
(153,918 |
) |
|
|
(39,581 |
) |
|
Net income (loss) |
|
|
(3,658,027 |
) |
|
|
1,341,649 |
|
|
|
(10,807,946 |
) |
|
|
14,091,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains on investment (note 14 (a)(i)) |
|
|
(2,837,867 |
) |
|
|
141,230 |
|
|
|
(811,989 |
) |
|
|
99,835 |
|
|
Net change in unrealized (losses) gains on derivatives designated as cash flow hedges (note 14 (a)(ii)) |
|
|
(7,945 |
) |
|
|
(4,967 |
) |
|
|
(19,090 |
) |
|
|
32,215 |
|
Total other comprehensive income (loss) |
|
|
(2,845,812 |
) |
|
|
136,263 |
|
|
|
(831,079 |
) |
|
|
132,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
(6,503,839 |
) |
|
$ |
1,477,912 |
|
|
$ |
(11,639,025 |
) |
|
$ |
14,223,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Corporation |
|
$ |
(3,658,027 |
) |
|
$ |
4,754,781 |
|
|
$ |
(10,807,946 |
) |
|
$ |
22,283,035 |
|
|
Non-controlling interest |
|
|
— |
|
|
|
(3,413,132 |
) |
|
|
— |
|
|
|
(8,191,475 |
) |
|
Net income (loss) |
|
$ |
(3,658,027 |
) |
|
$ |
1,341,649 |
|
|
$ |
(10,807,946 |
) |
|
$ |
14,091,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Corporation |
|
$ |
(6,503,839 |
) |
|
$ |
4,891,044 |
|
|
$ |
(11,639,025 |
) |
|
$ |
22,415,085 |
|
|
Non-controlling interest |
|
|
— |
|
|
|
(3,413,132 |
) |
|
|
— |
|
|
|
(8,191,475 |
) |
|
Total comprehensive income (loss) |
|
$ |
(6,503,839 |
) |
|
$ |
1,477,912 |
|
|
$ |
(11,639,025 |
) |
|
$ |
14,223,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share |
|
$ |
(0.05 |
) |
|
$ |
0.06 |
|
|
$ |
(0.14 |
) |
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of common shares (note 12) |
|
|
79,903,031 |
|
|
|
78,667,951 |
|
|
|
79,396,216 |
|
|
|
78,539,581 |
|
|
Diluted weighted average number of common shares (note 12) |
|
|
79,903,031 |
|
|
|
79,137,688 |
|
|
|
79,396,216 |
|
|
|
78,887,211 |
|
See accompanying notes to unaudited consolidated interim financial statements.
2
NEPTUNE WELLNESS SOLUTIONS INC.
Consolidated Interim Statements of Changes in Equity
(Unaudited)
For the nine-month periods ended December 31, 2018 and 2017
|
|
Attributable to equity holders of the Corporation |
|
|||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|||||
|
|
Share Capital |
|
|
|
|
|
|
|
|
|
|
other comprehensive |
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loss |
|
|
|
|
|
|
|
|
|
|||||
|
|
Number |
|
|
Dollars |
|
|
Warrants |
|
|
Contributed surplus |
|
|
Investment in equity instruments |
|
|
Cash flow hedges |
|
|
Deficit |
|
|
Total |
|
||||||||
Balance at March 31, 2018 |
|
|
78,804,212 |
|
|
$ |
128,483,507 |
|
|
$ |
648,820 |
|
|
$ |
36,355,549 |
|
|
$ |
506,469 |
|
|
$ |
19,090 |
|
|
$ |
(79,479,665 |
) |
|
$ |
86,533,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(10,807,946 |
) |
|
|
(10,807,946 |
) |
Other comprehensive loss for the period |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(811,989 |
) |
|
|
(19,090 |
) |
|
|
– |
|
|
|
(831,079 |
) |
Total comprehensive loss for the period |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(811,989 |
) |
|
|
(19,090 |
) |
|
|
(10,807,946 |
) |
|
|
(11,639,025 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with equity holders recorded directly in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by and distribution to equity holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payment transactions (note 11) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
2,784,910 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
2,784,910 |
|
DSU released (note 9 (b)) |
|
|
135,557 |
|
|
|
204,050 |
|
|
|
– |
|
|
|
(204,050 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Share options exercised (note 9 (a)) |
|
|
1,017,908 |
|
|
|
2,337,593 |
|
|
|
– |
|
|
|
(682,637 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,654,956 |
|
Total contributions by and distribution to equity holders |
|
|
1,153,465 |
|
|
|
2,541,643 |
|
|
|
– |
|
|
|
1,898,223 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
4,439,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018 |
|
|
79,957,677 |
|
|
$ |
131,025,150 |
|
|
$ |
648,820 |
|
|
$ |
38,253,772 |
|
|
$ |
(305,520 |
) |
|
$ |
– |
|
|
$ |
(90,287,611 |
) |
|
$ |
79,334,611 |
|
See accompanying notes to unaudited consolidated interim financial statements.
3
NEPTUNE wellness solutions INC.
Consolidated Interim Statements of Changes in Equity, Continued
(Unaudited)
For the nine-month periods ended December 31, 2018 and 2017
|
|
Attributable to equity holders of the Corporation |
|
|
Attributable to non-controlling interest |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Share Capital |
|
|
|
|
|
|
|
|
|
|
other comprehensive |
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income (loss) |
|
|
|
|
|
|
|
|
|
|
warrants, |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Number |
|
|
Dollars |
|
|
Warrants |
|
|
Contributed surplus |
|
|
Investment in equity instruments |
|
|
Cash flow hedges |
|
|
Deficit |
|
|
Total |
|
|
options and other equity |
|
|
Non- controlling interest |
|
|
Total |
|
|
Total equity |
|
||||||||||||
Balance at March 31, 2017 |
|
|
77,968,587 |
|
|
$ |
127,201,343 |
|
|
$ |
648,820 |
|
|
$ |
33,335,136 |
|
|
$ |
(420,052 |
) |
|
$ |
(7,298 |
) |
|
$ |
(97,010,523 |
) |
|
$ |
63,747,426 |
|
|
$ |
3,616,864 |
|
|
$ |
7,435,948 |
|
|
$ |
11,052,812 |
|
|
$ |
74,800,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the period |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
22,283,035 |
|
|
|
22,283,035 |
|
|
|
– |
|
|
|
(8,191,475 |
) |
|
|
(8,191,475 |
) |
|
|
14,091,560 |
|
Other comprehensive income for the period |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
99,835 |
|
|
|
32,215 |
|
|
|
– |
|
|
|
132,050 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
132,050 |
|
Total comprehensive income (loss) for the period |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
99,835 |
|
|
|
32,215 |
|
|
|
22,283,035 |
|
|
|
22,415,085 |
|
|
|
– |
|
|
|
(8,191,475 |
) |
|
|
(8,191,475 |
) |
|
|
14,223,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with equity holders recorded directly in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by and distribution to equity holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payment transactions (note 11) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
781,085 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
781,085 |
|
|
|
660,611 |
|
|
|
– |
|
|
|
660,611 |
|
|
|
1,441,696 |
|
DSUs released (note 9 (b)) |
|
|
55,944 |
|
|
|
80,000 |
|
|
|
– |
|
|
|
(80,000 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Share options exercised (note 9 (a)) |
|
|
66,000 |
|
|
|
168,860 |
|
|
|
– |
|
|
|
(56,594 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
112,266 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
112,266 |
|
Liability settled in shares (note 9 (c)) |
|
|
630,681 |
|
|
|
848,070 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
848,070 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
848,070 |
|
Loss of control of subsidiary (note 14 (a)(i)) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(2,739,050 |
) |
|
|
505,077 |
|
|
|
(2,233,973 |
) |
|
|
(2,233,973 |
) |
Total contributions by and distribution to equity holders |
|
|
752,625 |
|
|
|
1,096,930 |
|
|
|
– |
|
|
|
644,491 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,741,421 |
|
|
|
(2,078,439 |
) |
|
|
505,077 |
|
|
|
(1,573,362 |
) |
|
|
168,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in ownership interests in subsidiaries that do not result in a loss of control |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiry of Acasti options and call-options |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,466,459 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,466,459 |
|
|
|
(1,466,459 |
) |
|
|
– |
|
|
|
(1,466,459 |
) |
|
|
– |
|
Exercice of warrants |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
155,720 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
155,720 |
|
|
|
(71,966 |
) |
|
|
300,496 |
|
|
|
228,530 |
|
|
|
384,250 |
|
Fees related to past financing of Acasti |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(52,452 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(52,452 |
) |
|
|
– |
|
|
|
(102,011 |
) |
|
|
(102,011 |
) |
|
|
(154,463 |
) |
Convertible debenture interest settled in shares |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
5,019 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
5,019 |
|
|
|
– |
|
|
|
51,965 |
|
|
|
51,965 |
|
|
|
56,984 |
|
Total changes in ownership interest in subsidiaries |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,574,746 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,574,746 |
|
|
|
(1,538,425 |
) |
|
|
250,450 |
|
|
|
(1,287,975 |
) |
|
|
286,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total transactions with equity holders |
|
|
752,625 |
|
|
|
1,096,930 |
|
|
|
– |
|
|
|
2,219,237 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
3,316,167 |
|
|
|
(3,616,864 |
) |
|
|
755,527 |
|
|
|
(2,861,337 |
) |
|
|
454,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017 |
|
|
78,721,212 |
|
|
$ |
128,298,273 |
|
|
$ |
648,820 |
|
|
$ |
35,554,373 |
|
|
$ |
(320,217 |
) |
|
$ |
24,917 |
|
|
$ |
(74,727,488 |
) |
|
$ |
89,478,678 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
89,478,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated interim financial statements.
4
neptune wellness solutions inc.
Consolidated Interim Statements of Cash Flows
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
|
|
Three-month periods ended |
|
|
Nine-month periods ended |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the period |
|
$ |
(3,658,027 |
) |
|
$ |
1,341,649 |
|
|
$ |
(10,807,946 |
) |
|
$ |
14,091,560 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment |
|
|
622,489 |
|
|
|
671,232 |
|
|
|
1,747,634 |
|
|
|
2,030,591 |
|
Amortization of intangible assets |
|
|
181,263 |
|
|
|
180,723 |
|
|
|
543,789 |
|
|
|
743,333 |
|
Stock-based compensation |
|
|
900,583 |
|
|
|
528,736 |
|
|
|
2,784,910 |
|
|
|
1,441,696 |
|
Impairment loss on inventories (note 5) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,719,362 |
|
Gain on loss of control of subsidiary (note 14 (a)(i)) |
|
|
— |
|
|
|
(8,783,613 |
) |
|
|
— |
|
|
|
(8,783,613 |
) |
Recognition of deferred revenues |
|
|
— |
|
|
|
(319,769 |
) |
|
|
(107,635 |
) |
|
|
(540,029 |
) |
Amortization of deferred lease inducements |
|
|
(14,839 |
) |
|
|
(14,839 |
) |
|
|
(44,517 |
) |
|
|
(44,516 |
) |
Net finance (income) expense |
|
|
(30,820 |
) |
|
|
419,203 |
|
|
|
170,782 |
|
|
|
1,847,369 |
|
Realized foreign exchange loss |
|
|
(6,004 |
) |
|
|
(156,698 |
) |
|
|
(53,402 |
) |
|
|
(372,005 |
) |
Net gain on sale of assets, excluding transaction costs and severances |
|
|
— |
|
|
|
(82,090 |
) |
|
|
— |
|
|
|
(25,544,262 |
) |
Charge on settlement of liability |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
90,385 |
|
Income taxes expense |
|
|
61,344 |
|
|
|
52,778 |
|
|
|
153,918 |
|
|
|
39,581 |
|
Net loss from sale of property, plant and equipment |
|
|
— |
|
|
|
— |
|
|
|
32,333 |
|
|
|
— |
|
|
|
|
(1,944,011 |
) |
|
|
(6,162,688 |
) |
|
|
(5,580,134 |
) |
|
|
(13,280,548 |
) |
Changes in operating assets and liabilities (note 13 (a)) |
|
|
48,042 |
|
|
|
492,236 |
|
|
|
707,071 |
|
|
|
7,231,290 |
|
|
|
|
(1,895,969 |
) |
|
|
(5,670,452 |
) |
|
|
(4,873,063 |
) |
|
|
(6,049,258 |
) |
Cash flows from (used in) investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity of previously restricted short-term investments |
|
|
2,362,000 |
|
|
|
12,000 |
|
|
|
2,362,000 |
|
|
|
519,000 |
|
Acquisition of short-term investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(184,000 |
) |
Proceeds on sale of assets (note 4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
43,075,587 |
|
Interest received |
|
|
62,746 |
|
|
|
99,606 |
|
|
|
196,926 |
|
|
|
146,671 |
|
Acquisition of property, plant and equipment |
|
|
(2,070,876 |
) |
|
|
(366,190 |
) |
|
|
(5,929,622 |
) |
|
|
(668,495 |
) |
Acquisition of intangible assets |
|
|
(204,355 |
) |
|
|
(112,119 |
) |
|
|
(357,492 |
) |
|
|
(3,702,336 |
) |
Cash reduction related to loss of control of Acasti (note 14 (a)(i)) |
|
|
— |
|
|
|
(2,666,122 |
) |
|
|
— |
|
|
|
(2,666,122 |
) |
|
|
|
149,515 |
|
|
|
(3,032,825 |
) |
|
|
(3,728,188 |
) |
|
|
36,520,305 |
|
Cash flows used in financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variation of the bank line of credit (note 13 (c)) |
|
|
(590,000 |
) |
|
|
— |
|
|
|
(490,000 |
) |
|
|
— |
|
Repayment of loans and borrowings (note 13 (c)) |
|
|
(351,576 |
) |
|
|
(2,818,113 |
) |
|
|
(1,088,437 |
) |
|
|
(19,020,830 |
) |
Interest paid |
|
|
(73,131 |
) |
|
|
(123,998 |
) |
|
|
(224,897 |
) |
|
|
(794,942 |
) |
Penalty on debt reimbursement (note 10) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(263,483 |
) |
Settlement of derivative swap agreements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(58,999 |
) |
Issuance of shares costs (note 9 (c)) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,930 |
) |
Proceeds from exercise of options (note 9 (a)) |
|
|
239,504 |
|
|
|
112,266 |
|
|
|
1,654,956 |
|
|
|
112,266 |
|
Proceeds from Acasti warrants |
|
|
— |
|
|
|
384,250 |
|
|
|
— |
|
|
|
384,250 |
|
Payment of Acasti public offering and debt issuance transaction costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(421,070 |
) |
|
|
|
(775,203 |
) |
|
|
(2,445,595 |
) |
|
|
(148,378 |
) |
|
|
(20,072,738 |
) |
Foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies |
|
|
63,278 |
|
|
|
147,065 |
|
|
|
57,910 |
|
|
|
(24,777 |
) |
Net (decrease) increase in cash and cash equivalents |
|
|
(2,458,379 |
) |
|
|
(11,001,807 |
) |
|
|
(8,691,719 |
) |
|
|
10,373,532 |
|
Cash and cash equivalents beginning of periods |
|
|
18,053,767 |
|
|
|
37,177,702 |
|
|
|
24,287,107 |
|
|
|
15,802,363 |
|
Cash and cash equivalents end of periods |
|
$ |
15,595,388 |
|
|
$ |
26,175,895 |
|
|
$ |
15,595,388 |
|
|
$ |
26,175,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents is comprised of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
4,491,045 |
|
|
$ |
4,668,690 |
|
|
$ |
4,491,045 |
|
|
$ |
4,668,690 |
|
Cash equivalents |
|
|
11,104,343 |
|
|
|
21,507,205 |
|
|
|
11,104,343 |
|
|
|
21,507,205 |
|
See accompanying notes to unaudited consolidated interim financial statements.
5
NEPTUNE wellness solutions INC.
Notes to Consolidated interim Financial Statements
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
1. |
Reporting entity: |
Neptune Wellness Solutions Inc. (the "Corporation" or "Neptune"), previously known as Neptune Technologies and Bioressources Inc. before September 21, 2018, 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 subsidiary, Biodroga Nutraceuticals Inc. ("Biodroga"). The comparative period includes operating results of Acasti Pharma Inc. ("Acasti") until the loss of control of the subsidiary on December 27, 2017. As at December 31, 2018, the investment in Acasti is presented in "Other financial asset" in the consolidated interim statement of financial position (refer to note 14 (a)(i)). On August 7, 2017, Neptune exited bulk krill oil manufacturing and distribution activities (refer to note 4).
Neptune Wellness Solutions specializes in the extraction, purification and formulation of health and wellness products. Licensed by Health Canada (refer to note 18) to process cannabis at its 50,000 square foot facility located in Sherbrooke, Quebec, Neptune brings decades of experience in the natural products sector to the legal cannabis industry. Leveraging its scientific and technological expertise, Neptune focuses on the development of value-added and differentiated products for the Canadian and global cannabis markets. Neptune’s activities also include the development and commercialization of turnkey nutrition solutions and patented ingredients such as MaxSimil®, and of a variety of marine and seed oils.
2. |
Basis of preparation: |
|
(a) |
Statement of compliance: |
These consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting of International Financial Reporting Standards ("IFRS"), 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 otherwise disclosed in note 3. 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 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 March 31, 2018.
The consolidated interim financial statements were approved by the Board of Directors on February 13, 2019.
|
(b) |
Basis of measurement: |
The consolidated financial statements have been prepared on the historical cost basis, except for the following:
|
• |
Share-based compensation transactions which are measured pursuant to IFRS 2, Share-Based Payment (note 11); and |
|
• |
Financial asset which is measured at fair value (note 14 (a)(i)). |
Certain of the Corporation’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. In establishing fair value, the Corporation uses a fair value hierarchy based on levels as defined below:
|
• |
Level 1: defined as observable inputs such as quoted prices in active markets. |
|
• |
Level 2: defined as inputs other than quoted prices in active markets that are either directly or indirectly observable. |
|
• |
Level 3: defined as inputs that are based on little or no little observable market data, therefore requiring entities to develop their own assumptions. |
|
(c) |
Functional and presentation currency: |
These consolidated interim financial statements are presented in Canadian dollars, which is the Corporation and its subsidiary’s functional currency.
6
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, 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.
Estimates are based on 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 judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements include the following:
|
• |
Assessing the recognition of contingent liabilities, which requires judgment in evaluating whether there is a probable outflow of economic benefits that will be required to settle matters subject to litigation (note 15); |
|
• |
Assessing if performance criteria on options and DSU will be achieved in measuring the stock-based compensation expense; and |
|
• |
Assessing the criteria for recognition of tax assets. |
Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year include the following:
|
• |
Estimating the recoverable amount of non-financial assets. |
3. |
Significant accounting policies: |
The accounting policies and basis of measurement applied in these consolidated interim financial statements are the same as those applied by the Corporation in its consolidated financial statements for the year ended March 31, 2018, except as disclosed below.
New standards and interpretations adopted during the nine-month period ended December 31, 2018:
|
(a) |
Financial instruments: |
On July 24, 2014, the IASB issued the complete IFRS 9, Financial Instruments (IFRS 9 (2014)). It introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2014), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. The standard also introduces additional changes relating to financial liabilities and amends the impairment model by introducing a new “expected credit loss” model for calculating impairment. This standard replaces IAS 39, Financial Instruments: Recognition and Measurement.
The adoption of IFRS 9 has not had a significant effect on the Corporation’s accounting policies related to financial liabilities and derivative financial instruments. The impact of IFRS 9 on the classification and measurement of financial assets is set out below.
|
(i) |
Classification and measurement of financial assets and financial liabilities |
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for financial assets of held to maturity, loans and receivables and available for sale.
Under IFRS 9, a financial asset is measured at amortized cost if it is held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. If both of these conditions are not met, a financial asset is measured at fair value through profit or loss unless the Corporation initially designates it at fair value through other comprehensive income or loss when some conditions are respected.
Some assessments have been made on the basis of the facts and circumstances that existed at the date of initial application.
7
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
IFRS 9 replaces the “incurred loss” model in IAS 39 with an “expected credit loss” model. The new impairment model applies to financial assets measured at amortized costs, contracts assets and debt investments at fair value through other comprehensive income or loss, but not to investments in equity instruments. Under IFRS 9, credit losses are recognized earlier than under IAS 39. The Corporation establishes an impairment loss allowance using an expected credit loss model, by considering past events, current conditions and forecasts of future economic conditions. There was no material impact on the consolidated interim financial statements resulting from the adoption of an expected credit loss model.
The following table and the accompanying notes explain the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Corporation’s financial assets as at March 31, 2018:
|
Note |
Original classification under IAS 39 |
New classification under IFRS 9 |
Original carrying amount under IAS 39 |
|
New carrying amount under IFRS 9 |
|
||
|
|
|
|
$ |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
Financial Assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
Loans and receivables |
Amortized cost |
|
24 287 107 |
|
|
24 287 107 |
|
Short-term investments |
|
Loans and receivables |
Amortized cost |
|
2 410 000 |
|
|
2 410 000 |
|
Trade and other receivables |
(1) |
Loans and receivables |
Amortized cost |
|
5 590 847 |
|
|
5 590 847 |
|
Interest rate swap agreement |
(2) |
Fair value - hedging instrument |
Fair value - hedging instrument |
|
19 090 |
|
|
19 090 |
|
Investment in Acasti |
(3) |
Available-for-sale |
Fair value through other comprehensive income (loss) |
|
6 585 740 |
|
|
6 585 740 |
|
|
(1) |
IFRS 9 requires the Corporation to record expected credit losses on all its trade receivables and other financial assets, either on a 12-month or lifetime basis. The Corporation considered reasonable and supportable information that were relevant and available without undue costs or effort, which includes both quantitative and qualitative information and analysis, based on the Corporation’s historical experience and insurance. The Corporation determined that there was no impact on its consolidated financial statements. |
|
(2) |
IFRS 9 requires the Corporation to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. The hedging relationship designated under IAS 39 met the criteria for hedge accounting under IFRS 9 and is therefore regarded as continuing hedging relationship. The adoption of IFRS 9 had no impact on the Corporation’s hedge accounting. |
|
(3) |
On transition, the Corporation may irrevocably designate a financial asset at fair value through other comprehensive income or loss. The Corporation chose to designate the investment in Acasti as an investment in an equity instrument measured at fair value through other comprehensive income (loss). Therefore, there is no impact to opening retained earnings for the change in fair value recorded last year because the change in fair value was already recorded in other comprehensive income. The change in fair value continues to be recognized in other comprehensive income (loss) and will never be reclassified to net income or loss. |
|
(b) |
Revenue: |
On May 28, 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. IFRS 15 replaces IAS 18, Revenue, among other standards. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when, revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The new standard applies to contracts with customers. It does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of other IFRSs. The clarifications to IFRS 15 provide additional guidance with respect to the five-step analysis, transition, and the application of the Standard to licenses of intellectual property.
8
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
The Corporation’s normal business operations consist of offering turnkey solutions. Operations will also include the production of cannabis extracts and oils starting in upcoming months. The accounting policy described in the Corporation’s 2018 annual consolidated financial statements states that all income relating to sale of goods is recognized as revenue on delivery when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. The Corporation considers delivery to have occurred upon shipment, or in some cases, upon reception by the customer. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.
Having completed the five-step analysis, the Corporation identified contracts with customers and performance obligation therein, determined transaction price and confirmed the appropriateness of its revenue recognition policy being at a point in time when control of the assets is transferred to the customer, generally on delivery of the goods, consistent with the practice under IAS 18. The adoption of IFRS 15 did not affect the Corporation’s cash flows from operating, investing or financing activities. Furthermore, the impact on the timing of revenue recognition was not material as the treatment is consistent under IFRS 15 and IAS 18.
IFRS 15 provides presentation and disclosure requirements, which are more detailed than under IAS 18. The disclosures are included in note 16. Effective April 1st, 2018, the Corporation adopted IFRS 15 using the cumulative effect transition method, with the effect of adopting this standard recognized on April 1st, 2018, the date of the initial application. Accordingly, the information presented for fiscal year ended March 31, 2018 has not been restated. It remains as previously reported under IAS 18.
|
(c) |
Amendments to IFRS 2, Classification and Measurement of Share-Based Payment Transactions: |
On June 20, 2016, the IASB issued amendments to IFRS 2, Share-Based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for: the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; share-based payment transactions with a net settlement feature for withholding tax obligations; and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. Adoption of the amendments to IFRS 2 did not have material impact on the Corporation’s consolidated interim financial statements.
New standards and interpretations not yet adopted:
A number of new standards, and amendments to standards and interpretations, are not yet effective for the three-month and nine-month periods ended December 31, 2018 and 2017, and have not been applied in preparing these consolidated interim financial statements.
|
(a) |
Leases: |
In January 2016, the IASB issued IFRS 16, Leases, which will replace IAS 17, Leases. The standard will require all leases of more than 12 months to be reported on a company’s statement of financial position as assets and liabilities. The new standard is effective for fiscal years beginning on January 1, 2019, and is available for early adoption. The Corporation intends to adopt IFRS 16 in its consolidated financial statements for the annual period beginning on April 1, 2019. The Corporation is currently assessing the extent of the impact of adoption of the standard.
|
(b) |
Income tax: |
On June 7, 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments (the “Interpretation”). The Interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The Interpretation is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted.
The Interpretation requires an entity to:
|
• |
Contemplate whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution; |
|
• |
Reflect an uncertainty in the amount of income tax payable (recoverable) if it is probable that it will pay (or recover) an amount for the uncertainty; and |
|
• |
Measure a tax uncertainty based on the most likely amount or expected value depending on whichever method better predicts the amount payable (recoverable). |
The Corporation intends to adopt the Interpretation in its consolidated financial statements for the annual period beginning on April 1, 2019. The extent of the impact of adoption of the Interpretation has not yet been determined.
9
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
On August 7, 2017, Neptune and Aker BioMarine Antarctic AS (“Aker”) concluded an agreement whereby Aker acquired Neptune’s intellectual property, list of customers and krill oil inventory for a cash consideration of $43,075,587 (US$34 million) paid at closing. Under this agreement, Neptune exits bulk krill oil manufacturing and distribution activities and Aker becomes exclusive krill oil supplier to Neptune’s turnkey nutrition solutions business.
The assets sold were included in the Nutraceutical segment. The disposal of the krill oil manufacturing and distribution activities allows the Corporation to accelerate its efforts to position the Corporation in attractive growth opportunities and product lines such as the medical and wellness cannabis oil extraction project, in line with its growth strategy. The krill oil manufacturing and distribution sales were respectively $0.9 million and $3.0 million for the three-month and nine-month periods ended December 31, 2017 and the gross margin on sales, excluding the impairment loss on inventories of $1.7 million, were respectively nominal and $1.2 million for the three-month and nine-month periods ended December 31, 2017.
5. |
Inventories: |
|
|
December 31, |
|
|
March 31, |
|
||
|
|
2018 |
|
|
2018 |
|
||
|
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
3,437,600 |
|
|
$ |
3,358,264 |
|
Work in progress |
|
|
777,641 |
|
|
|
474,057 |
|
Finished goods |
|
|
903,158 |
|
|
|
675,031 |
|
Supplies and spare parts |
|
|
741,919 |
|
|
|
753,977 |
|
|
|
$ |
5,860,318 |
|
|
$ |
5,261,329 |
|
Cost of sales for the three-month period ended December 31, 2018 was comprised of inventory costs of $4,172,428 (2017 - $5,166,907) and other costs of $137,759 (2017 - $132,777).
Cost of sales for the nine-month period ended December 31, 2018 was comprised of inventory costs of $12,330,188 (2017 - $13,638,581), other costs of $369,212 (2017 - $416,138) and impairment loss on inventories of nil (2017 - $1,719,362).
6. |
Property, plant and equipment: |
|
|
|
|
|
|
Building |
|
|
Laboratory, |
|
|
Furniture |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
and building |
|
|
R&D and plant |
|
|
and office |
|
|
Computer |
|
|
|
|
|
||||
|
|
Land |
|
|
components |
|
|
equipment |
|
|
equipment |
|
|
equipment |
|
|
Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018 |
|
$ |
228,630 |
|
|
$ |
19,711,328 |
|
|
$ |
21,624,953 |
|
|
$ |
149,896 |
|
|
$ |
94,769 |
|
|
$ |
41,809,576 |
|
December 31, 2018 |
|
|
228,630 |
|
|
|
21,012,913 |
|
|
|
24,348,903 |
|
|
|
128,191 |
|
|
|
155,565 |
|
|
|
45,874,202 |
|
7. |
Intangible assets: |
|
|
Non-compete |
|
|
Customer |
|
|
License |
|
|
Computer |
|
|
|
|
|
||||
|
|
agreements |
|
|
relationships |
|
|
agreements |
|
|
software |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018 |
|
$ |
102,889 |
|
|
$ |
3,179,233 |
|
|
$ |
1,954,241 |
|
|
$ |
71,271 |
|
|
$ |
5,307,634 |
|
December 31, 2018 |
|
|
2,890 |
|
|
|
2,871,730 |
|
|
|
4,536,162 |
|
|
|
265,394 |
|
|
|
7,676,176 |
|
During the three-month and nine-month periods ended December 31, 2018, the Corporation entered into a multi-year IP licencing and capsule agreement with Lonza, a global leader in the life sciences industry. An intangible asset of $2,718,208 has been recorded related to the agreement with a corresponding amount in liabilities. The amount of liabilities consist of an upfront payment of $1,768,260 (US$1,300,000, which has been paid in February 2019) and payments in the next twelve months based on minimum volume commitments of $147,000
10
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
presented as trade and other payables and future royalty payments based on minimum volume commitments, irrespective of the volume achieved, with a present value of $802,948 presented as long-term payable. In addition, all royalties based on net sales of capsules greater than the minimum volume requirements will be recorded as incurred in cost of goods sold. The intangible asset will be amortized over a 33 months period and the expense will be presented in the cost of goods sold. This 5 year agreement also includes a supply agreement for empty capsules.
8. |
Loans and borrowings: |
This note provides information about the contractual terms of the Corporation’s loans and borrowings, which are measured at amortized cost.
|
|
|
December 31, |
|
|
March 31, |
|
||
|
|
|
2018 |
|
|
2018 |
|
||
|
|
|
|
|
|
|
|
|
|
Loans and borrowings: |
|
|
|
|
|
|
|
|
|
|
Loan, bearing interest at prime rate plus 1,70% (plus 2.25% before December 21, 2018), secured through a first-ranking mortgage on all movable assets of Biodroga current and future, corporeal and incorporeal, tangible and intangible, and reimbursable in monthly principal payments of $89,286 with a final payment of $2,242,844 on December 2019. The Corporation is subject to certain financial covenants under this secured loan. As at December 31, 2018, Neptune was in compliance with these financial covenants. The short-term investment of $2,350,000 reserved as pledge for the loan has been completely released on October 25, 2018. Amounts received are net of transaction costs of $119,433. |
|
$ |
3,105,558 |
|
|
$ |
3,891,077 |
|
|
|
|
|
|
|
|
|
|
|
|
Authorized bank line of credit of $2,500,000 bearing interest at prime rate plus 0.50%, expiring on August 31, 2019. |
|
|
— |
|
|
|
490,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease liabilities, interest rate of 7.13%, payable in monthly instalments of $386, maturing in March 2019. |
|
|
1,158 |
|
|
|
18,683 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance of purchase price bearing interest at 5%, reimbursed during the period. |
|
|
— |
|
|
|
261,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,106,716 |
|
|
|
4,661,356 |
|
Less current portion of loans and borrowings |
|
|
3,106,716 |
|
|
|
4,661,356 |
|
|
Loans and borrowings |
|
$ |
— |
|
|
$ |
— |
|
9. |
Capital and other components of equity: |
|
(a) |
Share options exercised: |
During the nine-month period ended December 31, 2018, Neptune issued 1,017,908 common shares of the Corporation at a weighted average exercise price of $1.63 per common share for a total cash consideration of $1,654,956.
During the nine-month period ended December 31, 2017, Neptune issued 66,000 common shares of the Corporation at a weighted average exercise price of $1.70 per common share for a total cash consideration of $112,266.
|
(b) |
DSUs released: |
During the nine-month period ended December 31, 2018, Neptune issued 135,557 common shares of the Corporation to former members of the Board of Directors at a weighted average price of $1.51 per common share for past services.
During the nine-month period ended December 31, 2017, Neptune issued 55,944 common shares of the Corporation to former members of the Board of Directors at a weighted average price of $1.43 per common share for past services.
11
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
On May 9, 2017, Neptune issued 630,681 common shares of the Corporation at a price of $1.35 per common share as final payment of a liability of $858,000 (US$625,000). Total issuance costs related to this transaction amounted to $9,930 and were recorded against share capital.
|
(d) |
Warrants: |
The warrants of the Corporation are composed of the following as at December 31, 2018 and March 31, 2018:
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
March 31, |
|
||
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
2018 |
|
||
|
|
Number |
|
|
|
|
|
|
Number |
|
|
|
|
|
||
|
|
outstanding |
|
|
|
|
|
|
outstanding |
|
|
|
|
|
||
|
|
and exercisable |
|
|
Amount |
|
|
and exercisable |
|
|
Amount |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants (i) |
|
|
750 000 |
|
|
$ |
648 820 |
|
|
|
750 000 |
|
|
$ |
648 820 |
|
|
(i) |
Exercise price of $3.37 per share and expiring on December 12, 2019. |
10. |
Finance income and finance costs: |
(a) Finance income:
|
|
Three-month periods ended |
|
|
Nine-month periods ended |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
62,746 |
|
|
$ |
99,606 |
|
|
$ |
196,926 |
|
|
$ |
146,671 |
|
Foreign exchange gain |
|
|
57,275 |
|
|
|
— |
|
|
|
4,509 |
|
|
|
— |
|
Finance income |
|
$ |
120,021 |
|
|
$ |
99,606 |
|
|
$ |
201,435 |
|
|
$ |
146,671 |
|
(b) Finance costs:
|
|
Three-month periods ended |
|
|
Nine-month periods ended |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest charges and other finance costs |
|
$ |
(89,201 |
) |
|
$ |
(97,725 |
) |
|
$ |
(372,217 |
) |
|
$ |
(972,413 |
) |
Interest expense on unsecured convertible debentures |
|
|
— |
|
|
|
(92,047 |
) |
|
|
— |
|
|
|
(275,140 |
) |
Penalty on reimbursement, loss on financing and discounted fees on debt reimbursement |
|
|
— |
|
|
|
(355,033 |
) |
|
|
— |
|
|
|
(920,429 |
) |
Foreign exchange loss |
|
|
— |
|
|
|
(9,633 |
) |
|
|
— |
|
|
|
(171,398 |
) |
Finance costs |
|
$ |
(89,201 |
) |
|
$ |
(554,438 |
) |
|
$ |
(372,217 |
) |
|
$ |
(2,339,380 |
) |
12
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
At December 31, 2018, the Corporation had the following share-based payment arrangements:
|
(a) |
Corporation stock option plan: |
|
(i) |
Stock option plan: |
The number and weighted average exercise prices of stock options are as follows:
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
2017 |
|
||
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
||
|
|
average |
|
|
|
|
|
|
average |
|
|
|
|
|
||
|
|
exercise |
|
|
Number of |
|
|
exercise |
|
|
Number of |
|
||||
|
|
price |
|
|
options |
|
|
price |
|
|
options |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at April 1, 2018 and 2017 |
|
$ |
1.92 |
|
|
|
10,091,546 |
|
|
$ |
1.92 |
|
|
|
3,765,000 |
|
Granted |
|
|
4.56 |
|
|
|
258,062 |
|
|
|
1.90 |
|
|
|
7,501,980 |
|
Exercised (note 9 (a)) |
|
|
1.66 |
|
|
|
(717,908 |
) |
|
|
1.70 |
|
|
|
(66,000 |
) |
Forfeited |
|
|
4.65 |
|
|
|
(26,000 |
) |
|
|
1.54 |
|
|
|
(816,435 |
) |
Expired |
|
|
— |
|
|
|
— |
|
|
|
2.91 |
|
|
|
(210,000 |
) |
Options outstanding at December 31, 2018 and 2017 |
|
$ |
2.00 |
|
|
|
9,605,700 |
|
|
$ |
1.92 |
|
|
|
10,174,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2018 and 2017 |
|
$ |
1.95 |
|
|
|
2,245,639 |
|
|
$ |
1.96 |
|
|
|
2,370,667 |
|
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 to employees during the periods ended:
|
|
Nine-month period ended December 31, 2018 |
|
|
Nine-month period ended December 31, 2017 |
|
||
|
|
|
|
|
|
|
|
|
Exercise price |
|
$ |
4.56 |
|
|
$ |
1.90 |
|
Share price |
|
$ |
4.81 |
|
|
$ |
1.81 |
|
Dividend |
|
‒ |
|
|
‒ |
|
||
Risk-free interest |
|
|
1.96 |
% |
|
|
1.50 |
% |
Estimated life (years) |
|
3.50 |
|
|
3.93 |
|
||
Expected volatility |
|
|
54.13 |
% |
|
|
48.59 |
% |
The weighted average fair value of the options granted to employees during the nine-month period ended December 31, 2018 is $2.04 (2017 - $0.68).
Stock-based compensation recognized under this plan amounted to $881,952 and $2,656,066, respectively, for the three-month and nine-month periods ended December 31, 2018 (2017 - $233,630 and $530,686).
|
(ii) |
Performance options: |
On October 16, 2015, the Corporation granted 625,000 performance options under the Corporation stock option plan at an exercise price of $1.55 per share expiring on October 16, 2020. The options vest after a two-year minimum service period and the attainment of market performance conditions within the following three years. As at December 31, 2018, all performance options were vested.
13
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
The number and weighted average exercise prices of performance options are as follow:
|
|
2018 |
|
|
2017 |
|
||||||||||
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
||
|
|
average |
|
|
|
|
|
|
average |
|
|
|
|
|
||
|
|
exercise |
|
|
Number of |
|
|
exercise |
|
|
Number of |
|
||||
|
|
price |
|
|
options |
|
|
price |
|
|
options |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at April 1, 2018 and 2017 |
|
$ |
1.55 |
|
|
|
325,000 |
|
|
$ |
1.55 |
|
|
|
475,000 |
|
Exercised (note 9 (a)) |
|
|
1.55 |
|
|
|
(300,000 |
) |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
1.55 |
|
|
|
(150,000 |
) |
Options outstanding at December 31, 2018 and 2017 |
|
$ |
1.55 |
|
|
|
25,000 |
|
|
$ |
1.55 |
|
|
|
325,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2018 and 2017 |
|
$ |
1.55 |
|
|
|
25,000 |
|
|
$ |
1.55 |
|
|
|
108,333 |
|
Stock-based compensation recognized under this plan amounted to nil and $40,942, respectively, for the three-month and nine-month periods ended December 31, 2018 (2017 – ($34,545) and ($17,485)).
|
(b) |
Deferred Share Unit (‘’DSUs’’): |
The Corporation has established an equity incentive plan for employees, directors and consultants of the Corporation. The plan provides for the issuance of restricted share units, performance share units, restricted shares, deferred share units and other share-based awards, subject to 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 awards outstanding through shares.
|
|
2018 |
|
|
2017 |
|
||||||||||
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
||
|
|
average |
|
|
|
|
|
|
average |
|
|
|
|
|
||
|
|
share |
|
|
Number of |
|
|
share |
|
|
Number of |
|
||||
|
|
price |
|
|
DSUs |
|
|
price |
|
|
DSUs |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DSUs outstanding at April 1, 2018 and 2017 |
|
$ |
1.50 |
|
|
|
570,752 |
|
|
$ |
1.60 |
|
|
|
425,354 |
|
Granted |
|
|
3.79 |
|
|
|
19,788 |
|
|
|
1.27 |
|
|
|
201,342 |
|
Released through the issuance of common shares (note 9 (b)) |
|
|
1.51 |
|
|
|
(135,557 |
) |
|
|
1.43 |
|
|
|
(55,944 |
) |
DSUs outstanding at December 31, 2018 and 2017 |
|
$ |
1.60 |
|
|
|
454,983 |
|
|
$ |
1.50 |
|
|
|
570,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DSUs exercisable at December 31, 2018 and 2017 |
|
$ |
1.43 |
|
|
|
276,844 |
|
|
$ |
1.50 |
|
|
|
356,630 |
|
Of the 454,983 DSUs outstanding as at December 31, 2018, 160,000 DSUs vest upon achievement of performance conditions to be achieved no later than June 30, 2019, 13,192 DSUs vest upon achievement of performance conditions to be achieved no later than March 31, 2019, 6,596 DSUs vest upon services to be rendered during a period of twelve months from date of grant and 275,195 vested DSUs were granted for past services. The fair value of the DSUs is determined to be the share price at the date of grant and is recognized as stock-based compensation, through contributed surplus, over the vesting period.
The weighted average fair value of the DSUs granted during the nine-month period ended December 31, 2018 was $3.79 (2017 - $1.27).
Stock-based compensation recognized under this plan amounted to $18,631 and $87,902, respectively, for the three-month and nine-month periods ended December 31, 2018 (2017 – ($127) and $267,884).
14
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
|
|
Three-month periods ended |
|
|
Nine-month periods ended |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares |
|
|
79,903,031 |
|
|
|
78,667,951 |
|
|
|
79,396,216 |
|
|
|
78,539,581 |
|
Dilutive effect of deferred share units |
|
|
— |
|
|
|
393,790 |
|
|
|
— |
|
|
|
347,630 |
|
Dilutive effect of stock options |
|
|
— |
|
|
|
75,947 |
|
|
|
— |
|
|
|
— |
|
Weighted average number of diluted shares |
|
|
79,903,031 |
|
|
|
79,137,688 |
|
|
|
79,396,216 |
|
|
|
78,887,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of anti-dilutive stock options, warrants and deferred share units excluded from diluted earnings per share calculation |
|
|
10,835,683 |
|
|
|
10,270,573 |
|
|
|
10,835,683 |
|
|
|
11,453,434 |
|
Stock options, deferred share units and warrants could be dilutive in the future.
13. |
Supplemental cash flow disclosure: |
|
(a) |
Changes in operating assets and liabilities: |
|
|
Three-month periods ended |
|
|
Nine-month periods ended |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
$ |
1,040,951 |
|
|
$ |
(1,253,723 |
) |
|
$ |
1,692,699 |
|
|
$ |
11,345,867 |
|
Tax credits receivable |
|
|
(446 |
) |
|
|
122,693 |
|
|
|
12,311 |
|
|
|
121,220 |
|
Prepaid expenses |
|
|
(212,112 |
) |
|
|
(952,594 |
) |
|
|
(576,205 |
) |
|
|
(922,068 |
) |
Inventories |
|
|
305,779 |
|
|
|
347,136 |
|
|
|
(598,989 |
) |
|
|
(5,416,158 |
) |
Trade and other payables |
|
|
(902,868 |
) |
|
|
2,157,991 |
|
|
|
109,851 |
|
|
|
2,020,051 |
|
Deferred revenues |
|
|
(183,262 |
) |
|
|
70,733 |
|
|
|
67,404 |
|
|
|
82,378 |
|
Changes in operating assets and liabilities |
|
$ |
48,042 |
|
|
$ |
492,236 |
|
|
$ |
707,071 |
|
|
$ |
7,231,290 |
|
|
(b) |
Non-cash transactions: |
|
December 31, |
|
|
December 31, |
|
||
|
2018 |
|
|
2017 |
|
||
|
|
|
|
|
|
|
|
Acquired property, plant and equipment included in trade and other payables |
$ |
371,745 |
|
|
$ |
45,949 |
|
Intangible assets included in trade and other payables |
|
2,297,027 |
|
|
|
267,377 |
|
Intangible assets included in long-term payables |
|
960,962 |
|
|
|
517,106 |
|
Liability settlement in shares |
|
— |
|
|
|
858,000 |
|
Acasti convertible debenture interest paid in shares of subsidiary |
|
— |
|
|
|
56,984 |
|
15
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
|
|
|
|
Cash used in financing activities |
|
|
Non-cash changes |
|
|
|
|
|||||||||||
|
Balance as at March 31, 2018 |
|
Proceeds |
|
Repayments |
|
|
Accretion of interest |
|
Financing and discounted fees |
|
Changes in fair value |
|
Balance as at December 31, 2018 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan |
$ |
3,891,077 |
|
$ |
– |
|
$ |
(803,574 |
) |
|
$ |
23,797 |
|
$ |
(5,742 |
) |
$ |
– |
|
$ |
3,105,558 |
|
Balance of purchase price |
|
261,596 |
|
|
– |
|
|
(261,596 |
) |
|
|
– |
|
|
– |
|
|
– |
|
|
– |
|
Bank line of credit |
|
490,000 |
|
|
– |
|
|
(490,000 |
) |
|
|
– |
|
|
– |
|
|
– |
|
|
– |
|
Finance lease liabilities |
|
18,683 |
|
|
– |
|
|
(17,525 |
) |
|
|
– |
|
|
– |
|
|
– |
|
|
1,158 |
|
Total long-term debt |
$ |
4,661,356 |
|
$ |
– |
|
$ |
(1,572,695 |
) |
|
$ |
23,797 |
|
$ |
(5,742 |
) |
$ |
– |
|
$ |
3,106,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap asset used for hedging |
$ |
(19,090 |
) |
$ |
– |
|
$ |
– |
|
|
$ |
– |
|
$ |
– |
|
$ |
19,090 |
|
$ |
– |
|
14. |
Financial instruments: |
|
(a) |
Financial instruments – carrying values and fair values: |
Financial assets and liabilities measured at fair value on a recurring basis are the investment in Acasti and derivative swap agreement.
|
(i) |
Investment in Acasti: |
On December 27, 2017, the Corporation determined that it had lost de facto control of its subsidiary Acasti and therefore ceased consolidating Acasti and derecognized the assets and liabilities of its former subsidiary and the non-controlling interest in Acasti. The Corporation recognized its remaining investment in Acasti at the fair value as at that date. The Corporation has 5,064,694 common shares of Acasti. The fair value of the investment in Acasti was determined to be $5,773,751 or $1.14 per share as at December 31, 2018 ($6,585,740 or $1.30 per share as at March 31, 2018). This investment was measured using Acasti’s stock market price, a level 1 input. The change in fair value of the investment amounted to a loss of $2,837,867 and $811,989, respectively for the three-month and nine-month periods ended December 31, 2018. These losses were recognized in other comprehensive income (loss).
|
(ii) |
Derivative swap agreement: |
The Corporation used interest rate swap agreement to lock-in a portion of its debt cost and reduce its exposure to the variability of interest rates by exchanging variable rate payments for fixed rate payments. The Corporation had designated its interest rate swap as a cash flow hedge for which it used hedge accounting. The interest rate swap, presented in current asset, expired on December 27, 2018 (asset of $19,090 as at March 31, 2018).
The level 2 fair value determination of the interest rate swap was measured using a generally accepted valuation technique which is the discounted value of the difference between the value of the swap based on variable interest rates (estimated using the yield curve for anticipated interest rates) and the value of the swap based on the swap’s fixed interest rate. The Corporation’s and the counterparty’s credit risk were also taken into consideration in determining fair value. The interest rate swap was decreasing at the same proportion of the debt covered. The change in fair value is recognized in other comprehensive income (loss).
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 carrying value of the short-term investment also approximates its fair value given the short-term maturity of the reinvested funds. For variable rate loans and borrowings, the fair value is considered to approximate the carrying amount.
The fair value of the fixed rate loans and borrowings is determined by discounting future cash flows using a rate that the Corporation could obtain for loans with similar terms, conditions and maturity dates. The fair value of these instruments approximates the carrying amounts and was measured using level 3 inputs.
16
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
|
(a) |
Commitments: |
|
(i) |
As at September 30, 2016, Neptune has entered into an exclusive commercial agreement for a speciality ingredient for a period of 11 years. According to this agreement, Neptune has to pay royalties on sales. To maintain the exclusivity, Neptune must reach minimum annual volumes of sales for the duration of the agreement for which minimum volumes are being reached. The corresponding total remaining amount of minimum royalties is $5,936,656 (US$4,353,345). |
|
(ii) |
In regards to the Phase 1 capital expenditures to convert the production facility for the extraction of cannabis oil, a total capital expenditure commitment of $23,861 remains as at December 31, 2018. Another capital expenditure of $4,800,000 was approved by the Board for Phase 2 capacity expansion. As at December 31, 2018, Neptune signed various capital expenditure contracts related to this second investment amounting to $3,441,364 of which $210,723 is included in trade and other payable and $1,531,333 has been paid. |
|
(iii) |
As at December 31, 2018, the Corporation has signed agreements with various partners to execute research and development projects for a total remaining amount of $496,057. |
|
(b) |
Contingencies: |
In the normal course of operations, the Corporation is involved in various claims and legal proceedings. The most significant of which are as follows:
|
(i) |
A former CEO of the Corporation is claiming the payment of approximately $8,500,000 and the issuance of equity instruments as severance entitlements under his employment contract. The Corporation intends to vigorously defend against this claim. Neptune also filed a counterclaim to recover approximately $530,000 from this former officer. All outstanding share-based payments held by the former CEO were cancelled in a prior year. A trial date is currently scheduled for hearing in May and June 2019. |
|
(ii) |
Under the terms of an agreement entered into with a corporation controlled by the former CEO of the Corporation, the Corporation should pay royalties of 1% of its krill oil revenues in semi-annual instalments, for an unlimited period, for a claim of approximately $1,700,000. Neptune filed a motion challenging the validity and interpretation of certain clauses of the agreement, which position is contested by the former CEO. The counterclaim amount that the Corporation is seeking from the former CEO is approximately $2,100,000. The Corporation intends to vigorously defend against the former CEO’s claim. Hearing of the case was completed on February 7, 2019. The case is pending judgment from the Court. |
|
(iii) |
The Corporation initiated arbitration against a krill oil customer that owed approximately $5,045,690 (US$3,700,000). The full amount of trade receivable has been written-off in February 2015. This customer is counterclaiming a sum in damages. During the nine-month period ended December 31, 2018, the counterclaim amount was amended to $193 million (AUD$201 million). The Corporation intends to continue to pursue its claim for unpaid receivable and to vigorously defend against this amended counterclaim. Arbitration is currently scheduled for hearing in July 2019. |
The outcome of these and various other claims and legal proceedings against the Corporation cannot be determined with certainty and is subject to future resolution, including the uncertainties of litigation. Based on currently available information, no additional provision has been recognised as of December 31, 2018.
16. |
Operating segments: |
In prior periods and until the loss of control of the subsidiary Acasti on December 27, 2017, the Corporation had three reportable segments which were the Corporation’s strategic business units, the nutraceutical, the cannabis and the cardiovascular segments. The nutraceutical segment that produces and commercializes nutraceutical products and turnkey solutions for primarly omega-3 softgel capsules and liquids, which includes the results of Biodroga, and the cannabis oil extraction project which began in October 2017 are the current strategic business segments of the Corporation.
Information regarding the results of each reportable segment is included below. The cardiovascular results are presented until the loss of control. Performance is measured based on segment income (loss) from operating activities before corporate costs, as included in the internal management reports that are reviewed by the Corporation’s Chief Operating Decision Maker, as management believes that such information is the most relevant in evaluating the results of our segments relative to other entities that operate within these industries. As a result, our segment reporting now presents segment income (loss) from operating activities before corporate costs, in order to better reflect the performance of each segment that are reviewed by the Chief Operating Decision Maker. The comparative period has been recast accordingly.
17
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
The Sherbrooke facility has been repurposed from the krill oil activities and will be used for the extraction, purification and formulation of cannabis oil extracts and is now presented under the cannabis segment information.
|
(a) |
Information about reportable segments: |
Three-month period ended December 31, 2018:
|
|
Nutraceutical |
|
|
Cannabis |
|
|
Corporate |
|
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external sales and royalties |
|
$ |
6,538,168 |
|
|
$ |
— |
|
|
|
|
|
|
$ |
6,538,168 |
|
Gross margin |
|
|
2,227,981 |
|
|
|
— |
|
|
|
|
|
|
|
2,227,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses net of credits and grants |
|
|
(130,405 |
) |
|
|
(1,646,702 |
) |
|
|
|
|
|
|
(1,777,107 |
) |
Selling, general and administrative expenses |
|
|
(1,203,067 |
) |
|
|
(497,045 |
) |
|
|
|
|
|
|
(1,700,112 |
) |
Segment income (loss) from operating activities before corporate expenses |
|
|
894,509 |
|
|
|
(2,143,747 |
) |
|
|
|
|
|
|
(1,249,238 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
|
|
$ |
(2,378,265 |
) |
|
|
(2,378,265 |
) |
Net finance income |
|
|
|
|
|
|
|
|
|
|
30,820 |
|
|
|
30,820 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
(61,344 |
) |
|
|
(61,344 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,658,027 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(187,914 |
) |
|
|
(560,675 |
) |
|
|
(55,163 |
) |
|
|
(803,752 |
) |
Stock-based compensation |
|
|
(125,708 |
) |
|
|
(277,252 |
) |
|
|
(497,623 |
) |
|
|
(900,583 |
) |
Reportable segment assets (1) |
|
|
21,097,207 |
|
|
|
49,433,716 |
|
|
|
22,084,585 |
|
|
|
92,615,508 |
|
Reportable segment liabilities |
|
|
7,721,642 |
|
|
|
3,619,992 |
|
|
|
1,939,263 |
|
|
|
13,280,897 |
|
|
(1) |
The corporate reportable segment assets include the investment in Acasti. |
18
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
Three-month period ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment |
|
|
|
|
|
|
|
|
Nutraceutical |
|
|
Cannabis |
|
|
Cardiovascular |
|
|
Corporate |
|
|
eliminations |
|
|
Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external sales and royalties |
|
$ |
7,314,664 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
— |
|
|
$ |
7,314,664 |
|
Gross margin |
|
|
2,014,980 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
2,014,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses net of tax credits and grants |
|
|
(42,257 |
) |
|
|
(1,441,134 |
) |
|
|
(4,260,539 |
) |
|
|
|
|
|
|
580,707 |
|
|
|
(5,163,223 |
) |
Selling, general and administrative expenses |
|
|
(1,022,688 |
) |
|
|
(289,174 |
) |
|
|
(907,984 |
) |
|
|
|
|
|
|
— |
|
|
|
(2,219,846 |
) |
Other income - net gain on sale of assets |
|
|
(147,397 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
(147,397 |
) |
Segment income (loss) from operating activities before corporate expenses |
|
|
802,638 |
|
|
|
(1,730,308 |
) |
|
|
(5,168,523 |
) |
|
|
|
|
|
|
580,707 |
|
|
|
(5,515,486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on loss of control of subsidiary |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
8,783,613 |
|
|
|
— |
|
|
|
8,783,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,454,497 |
) |
|
|
|
|
|
|
(1,454,497 |
) |
Net finance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(419,203 |
) |
|
|
|
|
|
|
(419,203 |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,778 |
) |
|
|
|
|
|
|
(52,778 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,341,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(186,232 |
) |
|
|
(524,464 |
) |
|
|
(670,225 |
) |
|
|
(51,741 |
) |
|
|
580,707 |
|
|
|
(851,955 |
) |
Stock-based compensation |
|
|
(3,811 |
) |
|
|
(65,859 |
) |
|
|
(329,779 |
) |
|
|
(129,287 |
) |
|
|
— |
|
|
|
(528,736 |
) |
Reportable segment assets |
|
|
24,636,134 |
|
|
|
41,381,171 |
|
|
|
6,079,271 |
|
|
|
27,660,733 |
|
|
|
— |
|
|
|
99,757,309 |
|
Reportable segment liabilities |
|
|
8,157,712 |
|
|
|
536,468 |
|
|
|
— |
|
|
|
1,584,451 |
|
|
|
— |
|
|
|
10,278,631 |
|
Nine-month period ended December 31, 2018:
|
|
Nutraceutical |
|
|
Cannabis |
|
|
Corporate |
|
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external sales and royalties |
|
$ |
18,777,897 |
|
|
$ |
— |
|
|
|
|
|
|
$ |
18,777,897 |
|
Gross margin |
|
|
6,078,497 |
|
|
|
— |
|
|
|
|
|
|
|
6,078,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses net of credits and grants |
|
|
(316,001 |
) |
|
|
(4,825,673 |
) |
|
|
|
|
|
|
(5,141,674 |
) |
Selling, general and administrative expenses |
|
|
(3,386,407 |
) |
|
|
(1,472,600 |
) |
|
|
|
|
|
|
(4,859,007 |
) |
Segment income (loss) from operating activities before corporate expenses |
|
|
2,376,089 |
|
|
|
(6,298,273 |
) |
|
|
|
|
|
|
(3,922,184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
|
|
$ |
(6,561,062 |
) |
|
|
(6,561,062 |
) |
Net finance costs |
|
|
|
|
|
|
|
|
|
|
(170,782 |
) |
|
|
(170,782 |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
(153,918 |
) |
|
|
(153,918 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,807,946 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(562,047 |
) |
|
|
(1,571,233 |
) |
|
|
(158,143 |
) |
|
|
(2,291,423 |
) |
Stock-based compensation |
|
|
(369,348 |
) |
|
|
(801,603 |
) |
|
|
(1,613,959 |
) |
|
|
(2,784,910 |
) |
Reportable segment assets (1) |
|
|
21,097,207 |
|
|
|
49,433,716 |
|
|
|
22,084,585 |
|
|
|
92,615,508 |
|
Reportable segment liabilities |
|
|
7,721,642 |
|
|
|
3,619,992 |
|
|
|
1,939,263 |
|
|
|
13,280,897 |
|
|
(1) |
The corporate reportable segment assets include the investment in Acasti. |
19
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
Nine-month period ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment |
|
|
|
|
|
|
|
|
Nutraceutical |
|
|
Cannabis |
|
|
Cardiovascular |
|
|
Corporate |
|
|
eliminations |
|
|
Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external sales and royalties |
|
$ |
20,640,397 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
— |
|
|
$ |
20,640,397 |
|
Gross margin |
|
|
4,866,316 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
4,866,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses net of tax credits and grants |
|
|
(780,234 |
) |
|
|
(1,441,135 |
) |
|
|
(9,591,505 |
) |
|
|
|
|
|
|
1,742,121 |
|
|
|
(10,070,753 |
) |
Selling, general and administrative expenses |
|
|
(3,949,419 |
) |
|
|
(289,174 |
) |
|
|
(2,761,477 |
) |
|
|
|
|
|
|
— |
|
|
|
(7,000,070 |
) |
Other income - net gain on sale of assets |
|
|
23,723,680 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
23,723,680 |
|
Segment income (loss) from operating activities before corporate expenses |
|
|
23,860,343 |
|
|
|
(1,730,309 |
) |
|
|
(12,352,982 |
) |
|
|
|
|
|
|
1,742,121 |
|
|
|
11,519,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on loss of control of subsidiary |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
8,783,613 |
|
|
|
— |
|
|
|
8,783,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,324,276 |
) |
|
|
|
|
|
|
(4,324,276 |
) |
Net finance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,847,369 |
) |
|
|
|
|
|
|
(1,847,369 |
) |
Income taxes expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,581 |
) |
|
|
|
|
|
|
(39,581 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,091,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(1,630,402 |
) |
|
|
(524,465 |
) |
|
|
(2,005,019 |
) |
|
|
(356,162 |
) |
|
|
1,742,121 |
|
|
|
(2,773,927 |
) |
Stock-based compensation |
|
|
(157,359 |
) |
|
|
(65,859 |
) |
|
|
(660,611 |
) |
|
|
(557,867 |
) |
|
|
— |
|
|
|
(1,441,696 |
) |
Reportable segment assets |
|
|
24,636,134 |
|
|
|
41,381,171 |
|
|
|
6,079,271 |
|
|
|
27,660,733 |
|
|
|
— |
|
|
|
99,757,309 |
|
Reportable segment liabilities |
|
|
8,157,712 |
|
|
|
536,468 |
|
|
|
— |
|
|
|
1,584,451 |
|
|
|
— |
|
|
|
10,278,631 |
|
|
(b) |
Geographical information: |
Revenue is attributed to geographical locations based on the origin of customers’ location.
|
|
Three-month period |
|
|
Three-month period |
|
||||||||||||||||||
|
|
ended December 31, 2018 |
|
|
ended December 31, 2017 |
|
||||||||||||||||||
|
|
Nutraceutical |
|
|
Royalties |
|
|
Total revenues |
|
|
Nutraceutical |
|
|
Royalties |
|
|
Total revenues |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
2,399,807 |
|
|
$ |
938 |
|
|
$ |
2,400,745 |
|
|
$ |
3,531,640 |
|
|
$ |
319,668 |
|
|
$ |
3,851,308 |
|
United States |
|
|
3,400,462 |
|
|
|
405,013 |
|
|
|
3,805,475 |
|
|
|
2,834,489 |
|
|
|
184,496 |
|
|
|
3,018,985 |
|
Other countries |
|
|
331,948 |
|
|
|
— |
|
|
|
331,948 |
|
|
|
444,371 |
|
|
|
— |
|
|
|
444,371 |
|
|
|
$ |
6,132,217 |
|
|
$ |
405,951 |
|
|
$ |
6,538,168 |
|
|
$ |
6,810,500 |
|
|
$ |
504,164 |
|
|
$ |
7,314,664 |
|
|
|
Nine-month period |
|
|
Nine-month period |
|
||||||||||||||||||
|
|
ended December 31, 2018 |
|
|
ended December 31, 2017 |
|
||||||||||||||||||
|
|
Nutraceutical |
|
|
Royalties |
|
|
Total revenues |
|
|
Nutraceutical |
|
|
Royalties |
|
|
Total revenues |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
6,389,366 |
|
|
$ |
3,220 |
|
|
$ |
6,392,586 |
|
|
$ |
8,689,670 |
|
|
$ |
425,853 |
|
|
$ |
9,115,523 |
|
United States |
|
|
9,676,305 |
|
|
|
1,160,905 |
|
|
|
10,837,210 |
|
|
|
9,258,320 |
|
|
|
558,560 |
|
|
|
9,816,880 |
|
Other countries |
|
|
1,548,101 |
|
|
|
— |
|
|
|
1,548,101 |
|
|
|
1,707,994 |
|
|
|
— |
|
|
|
1,707,994 |
|
|
|
$ |
17,613,772 |
|
|
$ |
1,164,125 |
|
|
$ |
18,777,897 |
|
|
$ |
19,655,984 |
|
|
$ |
984,413 |
|
|
$ |
20,640,397 |
|
The Corporation’s property, plant and equipment and intangible assets are mainly located in Canada.
20
NEPTUNE wellness solutions INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month and nine-month periods ended December 31, 2018 and 2017
Key management personnel compensation:
The key management personnel are the officers of the Corporation and members of the Board of Directors. They control 9% of the voting shares of the Corporation.
Key management personnel compensation includes the following for the three-month and nine-month periods ended December 31, 2018 and 2017:
|
|
Three-month periods ended |
|
|
Nine-month periods ended |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
||||
|
|
2018 |
|
|
|
2017 |
|
|
2018 |
|
|
|
2017 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term benefits (1) |
|
$ |
578,835 |
|
|
$ |
820,912 |
|
|
$ |
1,880,968 |
|
|
$ |
2,744,588 |
|
Share-based compensation costs (2) |
|
|
734,517 |
|
|
|
413,924 |
|
|
|
2,314,897 |
|
|
|
1,142,885 |
|
|
|
$ |
1,313,352 |
|
|
$ |
1,234,836 |
|
|
$ |
4,195,865 |
|
|
$ |
3,887,473 |
|
|
(1) |
Amounts of $244,604 and $735,244 respectively are included related to key management personnel of Acasti for the three-month and nine-month periods ended December 31, 2017. |
|
|
(2) |
Amounts of $230,667 and $444,556 respectively are included related to key management personnel of Acasti for the three-month and nine-month periods ended December 31, 2017. |
|
18. |
Subsequent event: |
|
On January 7, 2019, the Corporation announced that it has received its license to process cannabis from Health Canada. The Health Canada license enables Neptune to handle dried cannabis, to manufacture and purify cannabis extracts and cannabis oil, and to sell its products and services to other license holders.
21
Exhibit 99.3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, James S. Hamilton, Chief Executive Officer of Neptune Wellness Solutions Inc., certify the following:
1. |
Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Neptune Wellness Solutions Inc. (the “issuer”) for the interim period ended December 31st, 2018. |
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
4. |
Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in Regulation 52-109 respecting Certification of Disclosure in Issuers’ Annual and Interim Filings (c. V-1.1, r.27), for the issuer. |
5. |
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
|
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
|
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
|
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
|
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
|
5.1 |
Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the COSO (Committee of Sponsoring Organizations in the Treadway Commission) Internal Controls – Integrated Framework. |
|
5.2 |
– N/A |
|
5.3 |
– N/A |
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on October 1st, 2018 and ended on December 31st, 2018 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: February 13, 2019
/s/ James S. Hamilton
James S. Hamilton Chief Executive Officer
|
Exhibit 99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Mario Paradis, Chief Financial Officer of Neptune Wellness Solutions Inc., certify the following:
1. |
Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Neptune Wellness Solutions Inc. (the “issuer”) for the interim period ended December 31st, 2018. |
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
4. |
Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in Regulation 52-109 respecting Certification of Disclosure in Issuers’ Annual and Interim Filings (c. V-1.1, r.27), for the issuer. |
5. |
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
|
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
|
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
|
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
|
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
|
5.1 |
Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the COSO (Committee of Sponsoring Organizations in the Treadway Commission) Internal Controls – Integrated Framework. |
|
5.2 |
– N/A |
|
5.3 |
– N/A |
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on October 1st, 2018 and ended on December 31st, 2018 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: February 13, 2019
/s/ Mario Paradis
Mario Paradis Chief Financial Officer
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