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: August 2019 |
Commission File Number: 001-33526 |
NEPTUNE WELLNESS 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: August 14, 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 Periods Ended June 30, 2019 and 2018 |
99.2 99.3 99.4 |
Consolidated Interim Financial Statements for the Three-Month Periods Ended June 30, 2019 and 2018 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 PERIODS ENDED JUNE 30, 2019 AND 2018
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”) including its subsidiaries, Biodroga Nutraceuticals Inc. (‟Biodroga”), 9354-7537 Québec Inc. and Neptune Holding USA, Inc. for the three-month periods ended June 30, 2019 and 2018. This MD&A should be read in conjunction with our consolidated interim financial statements for the three-month periods ended June 30, 2019 and 2018. 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 periods ended June 30, 2019 and 2018 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 August 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 2019 annual MD&A as filed with Canadian securities regulatory authorities on June 12, 2019. 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 and hemp-based products in the legal market.
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
1
management discussion and analysis of the financial situation and operating results
(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 (Adjusted Segment EBITDA) and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) 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 and Adjusted EBITDA 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 and Adjusted EBITDA may differ from that used by other corporations.
Neptune obtains its Adjusted Segment EBITDA 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 measurement by adding to net income (loss), net finance costs and depreciation and amortization and by subtracting income tax recovery. Other items such as stock-based compensation, litigation provisions, acquisition costs and severance and related costs that do not impact core operating performance of the Corporation are also added back as they may vary significantly from one period to another. Adjusting for 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 and a reconciliation of net income (loss) to Adjusted EBITDA are presented later in this document.
BUSINESS OVERVIEW AND CORPORATE RECENT DEVELOPMENT
Neptune specializes in the extraction, purification and formulation of health and wellness products. Neptune’s wholly owned subsidiary, 9354-7537 Québec Inc., is licensed by Health Canada to process cannabis at its 50,000 square foot facility located in Sherbrooke, Quebec. With the recent acquisition of assets of SugarLeaf Labs, LLC and Forest Remedies LLC (collectively "SugarLeaf"), subsequent to period-end as detailed below, the Corporation now has a U.S.-based hemp extract supply chain supported by a 24,000 square-foot facility located in North Carolina. Neptune and SugarLeaf bring decades of experience in the natural products sector to the legal cannabis and hemp industry. Leveraging its scientific and technological expertise, the Corporation as a whole focuses on the development of value-added and differentiated products for the Canadian, U.S. and global cannabis and hemp 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.
Change in Management Team
On July 8, 2019, we announced the appointment of Michael Cammarata, a successful entrepreneur and innovator in the wellness industry, as Chief Executive Officer (“CEO”) and Member of the Board of Directors. Jim Hamilton has stepped down from his role as CEO and Director of the Corporation but will remain as an advisor to the Board. According to his amended employment
2
management discussion and analysis of the financial situation and operating results
agreement, Jim Hamilton was entitled to a termination severance and his unvested options vest based on a pro-rata basis of his termination employment date.
Over the past 20 years, Mr. Cammarata has been a serial entrepreneur, developing businesses and successfully investing in various sectors such as wellness products, biotechnology, advertising, electronics and entertainment, through his own venture capital and private equity firm, Random Occurrence.
The Vice-President & Chief Financial Officer (“CFO”) of the Corporation, Mario Paradis, has decided to leave the Corporation but will remain as CFO at Neptune for the transition period until the appointment of the new CFO. According to his separation agreement, Mario Paradis is entitled to his unvested options with accelerated vesting date.
Completion of a Private Placement
On July 18, 2019, we announced the completion of a private placement with both existing and new institutional investors resulting in gross proceeds to the Company of $53.9 million (US$41.4 million) (“The Offering”). Upon closing of the Offering, the Company issued an aggregate of 9,415,910 common shares of the Company (“Shares”) at a purchase price of US$4.40 per Share. A portion of the net proceeds from the Offering was used by the Company to fund the initial cash consideration for the acquisition of the assets of SugarLeaf as explained below, while the balance of such net proceeds will be used for working capital and general corporate purposes.
Issuance of Shares
During the three-month period ended June 30, 2019, Neptune issued 130,826 common shares of the Corporation for stock options exercised and 600,000 common shares to a former CEO of the Corporation as part of a settlement regarding severance entitlements under his employment contract terminated in April 2014. During the three-month period ended June 30, 2019, Neptune issued 750,000 common shares of the Corporation for warrants exercised for a total cash consideration of $2,527,500. As at June 30, 2019, there are no outstanding and exercisable warrants (750,000 as at March 31, 2019).
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 two segments: (i) Legal cannabis products and services and (ii) Nutraceutical turnkey solutions.
Commercialization
Consistent with our strategic focus of providing wellness products while levering our know-how, large-scale extraction and application technology capabilities, our objective is to become a world leader in extraction, purification and formulation of value-added cannabis products and hemp extracts. We intend to pursue two business models: (i) Extract and purify cannabis and hemp biomass received from our customers and return concentrated crude oil in a bulk format back to the same customers, and, (ii) Provide turnkey formulation, manufacturing and packaging solutions where we transform cannabinoids extracts into finished products, after which we label, seal and package onsite. These finished products could include tinctures, sprays, topicals, vapor products and edibles and beverages.
Markets – Canada
According to a report published by RBC Capital Markets in December 2018, Canadian spending on cannabis is at similar levels to wine and spirits spending. RBC predicts that the shift away from the illicit market into the legal market is expected to exceed 80% by 2022. The Canadian recreational cannabis market at the wholesale level is expected to reach $3.4 billion by 2022 according to RBC, with the medical market representing an incremental $1 billion. Neptune believes that the Canadian nutraceutical and wellness market for CBD product is also a significant opportunity which could develop over time.
Markets – United-States
According to a report published by Cowen Washington Research Group in February 2019, the hemp extracts and CBD market in the United-States is expected to be a US$16 billion dollar category by 2025 which includes nutraceuticals, topicals, beverages, food, beauty and vapor products. In a summary report from HelloMD/Brightfield Group published in 2018, 58% of CBD users are
3
management discussion and analysis of the financial situation and operating results
women and the three main reasons for consuming are anxiety, pain and general relaxation.
Cannabis Business Updates
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. Neptune completed in March 2019 its initial commercial production lots and started shipping cannabis extracts from its licensed GPP (Good Production Practice) facility in Sherbrooke, Quebec to customers.
Our Sherbrooke GPP 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.
On June 14, 2019, Neptune received license amendments from Health Canada, which include the expansion of cannabis operation areas to include an additional extraction room where Neptune will perform cold ethanol extraction. Ethanol extraction is faster and more cost effective than the CO2 extraction technology currently used and will increase Neptune’s input capacity from 30,000 kg to 200,000 kg.
This seven-fold increase in the Company’s capacity will accelerate production and enable fulfilment of commercial commitments. Start-up activities began, including the final stages of commissioning the equipment, and Neptune will ramp up commercial operations on a progressive basis during the second fiscal quarter.
The amendment from Health Canada also includes expansion for an encapsulation room where Neptune will produce cannabis oil capsules using the Licaps® technology licensed from Lonza Group AG. The encapsulation equipment is commissioned and ready for commercial operations with a capacity of up to 200 million capsules annually. 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.
As the Canadian market readies itself for new, extract-based product categories expected in late 2019, Neptune announced its Phase 3A capacity expansion on June 12, 2019. Once completed, Phase 3A will add 1,300,000 kg of ethanol extraction capacity and bring Neptune’s total extraction capacity to 1,500,000 kg of biomass annually in Canada. This capacity expansion is necessary to support the execution of Neptune’s growth strategy to become the global leader in cannabis extraction and purification. Neptune will revisit further expansion plans as the global market evolves and demand for cannabis and hemp extracts increase.
The Corporation is also undergoing an expansion at its Sherbrooke facility to establish formulation, manufacturing and packaging infrastructure following the approval of the Board of Directors, on June 12, 2019, of a $7 million investment.
Multi-year extraction agreement with Tilray
On June 7, 2019, we entered into a definitive agreement to provide extraction, and purification services to Tilray Inc. ("Tilray"), a global leader in cannabis research, cultivation, production and distribution. We will receive, at our facility in Sherbrooke, cannabis and hemp biomass from Tilray. We will provide extraction services to produce various extract formats which include crude oil, winterized oil and distillate extracts. Under the terms of the agreement, the minimum volume of biomass to be processed over the three year term is 125,000 kg, of which the first year is expected to represent 20% of total volumes. We expect to receive our first shipment of biomass from Tilray in September 2019.
Multi-year Agreement with The Green Organic Dutchman ("TGOD")
On June 12, 2019, we entered into a definitive long-term agreement to provide extraction, formulation and packaging services to TGOD. We will extract and purify cannabinoids and terpenes from cannabis and hemp biomass received from TGOD. These extracts will be transformed into premium certified organic finished products. Under the terms of the contract, TGOD has committed to supply more than 230,000 kg of cannabis and hemp biomass to Neptune spanning a three-year period. Volumes are expected to be back-end loaded with the first year accounting for approximately 20% of the total volumes of the contract.
As part of this contract, most of the active ingredients extracted at Neptune’s Sherbrooke facility will be transformed into value added delivery forms onsite. Neptune will manufacture, package and provide formulation assistance, as required, in multiple product verticals to be sold under TGOD’s brands. Neptune will also formulate and package for TGOD capsules using its Licaps®
4
management discussion and analysis of the financial situation and operating results
technology licensed from Lonza. The first shipment of biomass from TGOD is expected to be received by Neptune in September 2019.
Acquisition of the Assets of Hemp Processor SugarLeaf
On July 24, 2019, Neptune announced that it has completed the acquisition of the assets of SugarLeaf. Neptune paid an initial consideration for SugarLeaf of $23.7 million (US$18 million), a combination of US$12 million in cash and US$6 million or 1,587,301 in common shares. Additionally, by achieving certain annual adjusted EBITDA and other performance targets, earnouts could reach $173.5 million (US$132 million), reflecting a valuation multiple below 5x EBITDA. The earnout payments over the next three years are to be paid with a combination of cash or common shares, with at least 50% in cash. The initial cash consideration of this transaction was funded with the proceeds of the private placement.
Through SugarLeaf, Neptune establishes a U.S.-based hemp extract supply chain, gaining a 24,000 square foot facility located in the important U.S. Southeast region. SugarLeaf's cutting-edge cold ethanol processing facility with a processing capacity of 1,500,000 kg uses hemp cultivated by licensed American growers consistent with federal and state regulations to yield high-quality full and broad-spectrum hemp extracts. The U.S. market for hemp is developing rapidly and represents a significant opportunity for the consumer products industry.
The passage of the 2018 Farm Bill in 2018, and simultaneous acknowledgment by the U.S. Food and Drug Administration (FDA) of the Generally Recognized As Safe (GRAS) status of three hemp seed-derived ingredients, fuelled the already heightened consumer demand for hemp products, and specifically, hemp extracts. Although the U.S. FDA is currently deliberating their approach on how consumer products containing hemp-derived CBD will be regulated, and the United States Department of Agriculture (USDA) is in the process of developing regulations governing the production of hemp in the U.S., numerous companies are initiating product development strategies to meet demand for these products once a clear path to market is provided by the regulatory agencies. Neptune intends to operate its activities in compliance with applicable state and federal U.S. laws.
On April 15, 2019, Neptune announced that its Solutions Business has begun offering turnkey product development solutions with hemp-derived ingredients to business customers in the United States. A U.S.-based supply chain of licenced hemp extract producers has been established, and initial purchase orders are now being processed. SugarLeaf will be the main supplier for the turnkey product development solutions with hemp-derived ingredients to business customers in the United States.
SEGMENT DISCLOSURES
The Corporation’s reportable segments are the nutraceutical and the cannabis segments. The nutraceutical segment offers turnkey solutions including services such as raw material sourcing, formulation, quality control and quality assurance primarily for omega-3 and hemp-derived ingredients under different delivery forms such as softgels, capsules and liquids. In the cannabis segment, Neptune provides extraction and purification services from cannabis and hemp biomass. The Company also offers formulation and manufacturing solutions for value added product forms such as tinctures, sprays, topicals, vapor products and edibles and beverages.
Information regarding the results of each reportable segment is included below. 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 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 Sherbrooke facility is used for the extraction, purification and formulation of cannabis oil extracts and is 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 June 30, 2019
|
Nutraceutical |
|
Cannabis |
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Corporate |
|
Total |
|
||||
|
$ |
|
$ |
|
$ |
|
$ |
|
||||
Total revenues |
|
4,293 |
|
|
38 |
|
|
30 |
|
|
4,361 |
|
Gross profit |
|
1,349 |
|
|
(2,091 |
) |
|
30 |
|
|
(712 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
R&D expenses, net of tax credits and grants |
|
(92 |
) |
|
(250 |
) |
|
|
|
|
(342 |
) |
SG&A expenses |
|
(1,012 |
) |
|
(349 |
) |
|
|
|
|
(1,361 |
) |
Segment income (loss) from operating activities before corporate expenses |
|
245 |
|
|
(2,690 |
) |
|
30 |
|
|
(2,415 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
(3,969 |
) |
|
(3,969 |
) |
Net finance costs |
|
|
|
|
|
|
|
(119 |
) |
|
(119 |
) |
Income tax recovery |
|
|
|
|
|
|
|
51 |
|
|
51 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(6,452 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Segment EBITDA1 reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) from operating activities before corporate expenses |
|
245 |
|
|
(2,690 |
) |
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
168 |
|
|
794 |
|
|
|
|
|
|
|
Stock-based compensation |
|
117 |
|
|
273 |
|
|
|
|
|
|
|
Adjusted Segment EBITDA1 |
|
530 |
|
|
(1,623 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA1 reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(6,452 |
) |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
1,084 |
|
Net finance costs |
|
|
|
|
|
|
|
|
|
|
119 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
857 |
|
Litigation provisions |
|
|
|
|
|
|
|
|
|
|
81 |
|
Acquisition costs |
|
|
|
|
|
|
|
|
|
|
367 |
|
Severance and related costs3 |
|
|
|
|
|
|
|
|
|
|
412 |
|
Income tax recovery |
|
|
|
|
|
|
|
|
|
|
(51 |
) |
Adjusted EBITDA1 |
|
|
|
|
|
|
|
|
|
|
(3,583 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
23,449 |
|
|
51,387 |
|
|
12,517 |
|
|
87,353 |
|
Cash, cash equivalents and short-term investment |
|
38 |
|
– |
|
|
5,337 |
|
|
5,375 |
|
|
Working capital2 |
|
3,090 |
|
|
(17 |
) |
|
414 |
|
|
3,487 |
|
1 The Adjusted Segment EBITDA and the Adjusted EBITDA 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 Refer to Change in Management Team section above.
6
management discussion and analysis of the financial situation and operating results
Three-month period ended June 30, 2018
|
Nutraceutical |
|
Cannabis |
|
Corporate |
|
Total |
|
||||
|
$ |
|
$ |
|
$ |
|
$ |
|
||||
Total revenues |
|
5,168 |
|
– |
|
|
|
|
|
5,168 |
|
|
Gross profit |
|
1,493 |
|
– |
|
|
|
|
|
1,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R&D expenses, net of tax credits and grants |
|
(87 |
) |
|
(1,589 |
) |
|
|
|
|
(1,676 |
) |
SG&A expenses |
|
(1,088 |
) |
|
(496 |
) |
|
|
|
|
(1,584 |
) |
Segment income (loss) from operating activities before corporate expenses |
|
318 |
|
|
(2,085 |
) |
|
|
|
|
(1,767 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
(2,268 |
) |
|
(2,268 |
) |
Net finance costs |
|
|
|
|
|
|
|
(148 |
) |
|
(148 |
) |
Income tax recovery |
|
|
|
|
|
|
|
83 |
|
|
83 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(4,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Segment EBITDA1 reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
Segment income (loss) from operating activities before corporate expenses |
|
318 |
|
|
(2,085 |
) |
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
186 |
|
|
515 |
|
|
|
|
|
|
|
Stock-based compensation |
|
129 |
|
|
268 |
|
|
|
|
|
|
|
Adjusted Segment EBITDA1 |
|
633 |
|
|
(1,302 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA1 reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(4,100 |
) |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
753 |
|
Net finance costs |
|
|
|
|
|
|
|
|
|
|
148 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
1,025 |
|
Income tax recovery |
|
|
|
|
|
|
|
|
|
|
(83 |
) |
Adjusted EBITDA1 |
|
|
|
|
|
|
|
|
|
|
(2,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
25,227 |
|
|
44,384 |
|
|
26,063 |
|
|
95,674 |
|
Cash, cash equivalents and short-term investments |
|
2,379 |
|
– |
|
|
20,486 |
|
|
22,865 |
|
|
Working capital2 |
|
3,337 |
|
|
(1,031 |
) |
|
19,645 |
|
|
21,951 |
|
1 The Adjusted Segment EBITDA and the Adjusted EBITDA 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.
7
management discussion and analysis of the financial situation and operating results
Key ratios of the nutraceutical segment
|
Three-month period ended June 30, 2019 |
|
Three-month period ended June 30, 2018 |
|
||
Key ratios (in % of total revenues): |
|
|
|
|
|
|
Gross margin |
|
31 |
% |
|
29 |
% |
R&D expenses net of tax credits and grants |
|
2 |
% |
|
2 |
% |
SG&A expenses |
|
24 |
% |
|
21 |
% |
OPERATING RESULTS OF THE NUTRACEUTICAL SEGMENT
Revenues
Total revenues for the three-month period ended June 30, 2019 amounted to $4,293, representing a decrease of $875 or 17% compared to $5,168 for the three-month period ended June 30, 2018. The decrease for the three-month period ended June 30, 2019 was attributable to timing of orders of our nutrition business. For the second quarter which will end on September 30, 2019, we are expecting a double digit percentage increase in the revenues of the nutraceutical segment in comparison with the three months period ended June 30, 2019.
Total revenues for the three-month period ended June 30, 2019 include $342 of royalty revenues compared to $270 for the three-month period ended June 30, 2018. Royalty streams come from licensing agreements on MaxSimil® and on an existing licensing agreement that was excluded from the sale of assets that occurred in 2017. The increase of royalty revenues for the three-month period ended June 30, 2019 is related to the timing of sales of our licensees which has an impact on royalty revenues.
Gross Profit
Gross profit 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 profit for the three-month period ended June 30, 2019 amounted to $1,349 compared to $1,493 for the three-month period ended June 30, 2018. The decrease in gross profit for the three-month period ended June 30, 2019 compared to the three-month period ended June 30, 2018 was directly related to the decrease in sales as explained above, partially offset by an increase in royalty revenues.
Gross margin increased from 29% for the three-month period ended June 30, 2018 to 31% for the three-month ended June 30, 2019. The increase of 2% in gross margin versus last year is mainly related to products revenue mix.
Selling, General and Administrative (SG&A) Expenses
SG&A expenses amounted to $1,012 in the three-month period ended June 30, 2019 compared to $1,088 for the three-month period ended June 30, 2018, mostly stable year-over-year.
Adjusted Segment EBITDA1 before corporate expenses
Adjusted Segment EBITDA of the nutraceutical segment amounted to $530 for the three-month period ended June 30, 2019, a decrease of $103 compared to an adjusted Segment EBITDA of $633 for the three-month period ended June 30, 2018. The decrease in Adjusted segment EBITDA for the three-month period ended June 30, 2019 compared to the three-month period ended June 30, 2018 is mainly attributable to the gross profit decrease as explained above, partially offset by a decrease in SG&A before stock-based compensation and depreciation and amortization.
|
1 The Adjusted Segment EBITDA is not a standard measure endorsed by IFRS requirements. |
8
management discussion and analysis of the financial situation and operating results
OPERATING RESULTS OF THE CANNABIS SEGMENT
Revenues
Neptune commenced commercial cannabis extraction at its Sherbrooke, Quebec facility during the fourth quarter of fiscal year 2019. Our CO2 extraction equipment was in operations during the current quarter to process cannabis biomass and extract cannabinoids. However, our cannabis extraction operations were constrained during the quarter due to several factors including limited biomass inventory to extract and constrained extraction capacity. Total revenues for the three-month period ended June 30, 2019 attributable to the cannabis segment amounted to $38. Neptune has received license amendments from Health Canada enabling the Corporation to expand its extraction capacity using cold ethanol extraction technology which should alleviate capacity constraints.
Gross Profit
Total gross profit attributable to the cannabis segment for the three-month period ended June 30, 2019 was negative $2,091. Included in cost of goods sold are the Corporation’s fixed costs and overhead of the Sherbrooke facility and related depreciation and amortization expenses, both of which represent the majority of the cost of goods sold for the three-month period ended June 30, 2019.
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 $250 in the three-month period ended June 30, 2019 compared to $1,589 for the three-month period ended June 30, 2018. The decrease for the three month-period ended June 30, 2019 is mainly related to the reclassification of salaries and benefits and facility costs and overhead which are now presented in cost of sales since commercial operations commenced.
Depreciation and amortization of nil and stock-based compensation of $69 for the three-month period ended June 30, 2019 are included in this R&D amount compared to respectively $515 and $106 for the three-month period ended June 30, 2018. Depreciation and amortization of the facility and extraction and laboratory equipment is now presented under cost of sales.
Selling, General and Administrative (SG&A) Expenses
SG&A expenses of the cannabis segment amounted to $349 in the three-month period ended June 30, 2019 compared to $496 for the three-month period ended June 30, 2018.
Stock-based compensation of $133 for the three-month period ended June 30, 2019 is also included in this SG&A amount compared to $162 for the three-month period ended June 30, 2018.
Adjusted Segment EBITDA1 before corporate expenses
Adjusted Segment EBITDA amounted to ($1,623) for the three-month period ended June 30, 2019 compared to ($1,302) for the three-month period ended June 30, 2018. The decrease in Adjusted Segment EBITDA for the three-month period ended June 30, 2019 is attributable to investments made in the cannabis segment to grow the workforce in anticipation of increased sales volumes.
CONSOLIDATED RESULTS
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. Corporate general and administrative expenses amounted to $3,969 for the three-month period ended June 30, 2019 compared to $2,268 for the three-month period ended June 30, 2019, an increase of $1,701. The increase for the three-month period ended June 30, 2019 is mainly attributable to an increase in litigation legal fees, acquisition costs and also due to severance and related costs related to the CEO change. Litigation fees are expected to decrease significantly in the second quarter of fiscal 2020.
|
1 The Adjusted Segment EBITDA is not a standard measure endorsed by IFRS requirements. |
9
management discussion and analysis of the financial situation and operating results
Net finance costs
The net finance costs amounted to $119 for the three-month period ended June 30, 2019 compared to $148 for the three-month period ended June 30, 2018, a decrease of $29. The decrease for the three-month period ended June 30, 2019 is mainly attributable to a loss on revaluation of long-term payable recorded in the comparative period. The decrease in net finance costs is partially offset by an increase in finance costs on lease liabilities following the adoption of IFRS 16 (refer to "Changes in Accounting Policies and Future Accounting Changes") and a decrease in finance income.
Income taxes
The net loss of the three-month period ended June 30, 2019 includes an income tax recovery of $51 compared to $83 for the three-month period ended June 30, 2018. The decrease in the income tax recovery is related to the lower results of the current quarter.
Adjusted EBITDA1
Adjusted EBITDA decreased by $1,326 for the three-month period ended June 30, 2019 to an Adjusted EBITDA of ($3,583) compared to the three-month period ended June 30, 2018. The decrease in Adjusted EBITDA for the three-month period ended June 30, 2019 compared to the three-month period ended June 30, 2018 is mainly attributable to investments made in the cannabis segment to grow the workforce in anticipation of increased sales volumes and to litigation legal fees. The decrease of Adjusted EBITDA is partially offset by a decrease in R&D expenses net of tax credits and grants and SG&A before stock-based compensation and depreciation and amortization.
Net loss
The Corporation realized a net loss for the three-month period ended June 30, 2019 of $6,452 compared to $4,100 for the three-month period ended June 30, 2018, an increase of $2,352. The increase in the net loss for the three-month period ended June 30, 2019 is attributable mainly to the same reasons as stated in the Adjusted EBITDA section above.
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
Our operations, R&D program, investment in cannabis activities, 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 June 30, 2019, the cash used in operating activities amounted to $6,159. The cash flows used by operations before the change in operating assets and liabilities amounted to $4,494. The change in operating assets and liabilities amounting to $1,665, mainly resulting from variations in inventories, prepaid expenses, trade and other payables and provisions reduced the cash flows used by operations to the negative said amount of $6,159. 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 June 30, 2018, the cash used in operating activities amounted to $2,258. The cash flows used by operations before the change in operating assets and liabilities amounted to $2,377. The change in operating assets and liabilities amounting to $119, mainly resulting from variations in trade and other receivables, inventories, prepaid expenses and trade and other payables, reduced the cash flows used by operations to the negative said amount of $2,258. This use of cash in operating activities mainly reflects the investment of the Corporation in the cannabis business development.
|
1 The Adjusted EBITDA is not a standard measure endorsed by IFRS requirements. |
10
management discussion and analysis of the financial situation and operating results
During the three-month period ended June 30, 2019, the cash flows used for investing activities were mainly for acquisition of property, plant and equipment (PPE) ($1,930) required at the Sherbrooke facility for the cannabis business and acquisition of intellectual property of ($76). Investing activities also include interest received of $19.
During the three-month period ended June 30, 2018, the cash flows used for investing activities were mainly for acquisition of PPE ($1,898) related to the work on site security and CO2 extraction equipment of the cannabis business. Investing activities also include interest received of $64.
Financing Activities
During the three-month period ended June 30, 2019, the financing activities generated $3,651 of cash mainly for the exercise of options and warrants of the Corporation for $2,726 and for the variation of the bank line of credit of $1,360, partially offset by the repayment of loans and borrowings of $268, payment of lease liabilities of $82 and for interest paid of $85.
During the three-month period ended June 30, 2018, the financing activities generated $271 of cash mainly for the exercise of options of the Corporation for $696, partially offset by the repayment of loans and borrowings of $368 and for interest paid of $77.
At June 30, 2019, the Corporation’s liquidity position, consisting of cash and cash equivalents, was $5,339. The Corporation also has a short-term investment of $36. The Corporation has an authorized bank line of credit of $2,500 (expiring on August 31, 2019), of which $520 was available as at June 30, 2019. Neptune is evaluating options to fund its growth with a focus on prudence and minimizing equity dilution. We are confident to have new credit facilities available by the second fiscal quarter 2020. Subsequent to quarter end, Neptune concluded a private placement. Refer to "Completion of a Private Placement" section above.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets out selected consolidated financial information for the three-month periods ended June 30, 2019 and 2018. Variations in these amounts have been explained in the segment disclosures section above.
|
|
Three-month period ended June 30, 2019 |
|
|
Three-month period ended June 30, 2018 |
|
||
|
|
$ |
|
|
$ |
|
||
Total revenues |
|
|
4,361 |
|
|
|
5,168 |
|
Adjusted EBITDA1 |
|
|
(3,583 |
) |
|
|
(2,257 |
) |
Net loss |
|
|
(6,452 |
) |
|
|
(4,100 |
) |
Net loss attributable to equity holders of the Corporation |
|
|
(6,452 |
) |
|
|
(4,100 |
) |
Basic and diluted loss per share |
|
|
(0.08 |
) |
|
|
(0.05 |
) |
|
|
|
|
|
|
|
|
|
Total assets |
|
|
87,353 |
|
|
|
95,674 |
|
Working capital2 |
|
|
3,487 |
|
|
|
21,951 |
|
Non-current financial liabilities |
|
|
1,669 |
|
|
|
264 |
|
Equity attributable to equity holders of the Corporation |
|
|
69,228 |
|
|
|
81,465 |
|
1 The Adjusted EBITDA 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.
11
management discussion and analysis of the financial situation and operating results
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
As explained in other sections, the Corporation revenues are almost entirely generated by the nutraceutical segment. Quarterly data is presented below.
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
||||
|
|
2019 |
|
|
2019 |
|
|
2018 |
|
|
2018 |
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total Revenues |
|
|
4,361 |
|
|
|
5,664 |
|
|
|
6,538 |
|
|
|
7,071 |
|
Adjusted EBITDA1 |
|
|
(3,583 |
) |
|
|
(2,707 |
) |
|
|
(1,923 |
) |
|
|
(1,228 |
) |
Net loss |
|
|
(6,452 |
) |
|
|
(12,384 |
) |
|
|
(3,658 |
) |
|
|
(3,050 |
) |
Net loss attributable to equity holders of the Corporation |
|
|
(6,452 |
) |
|
|
(12,384 |
) |
|
|
(3,658 |
) |
|
|
(3,050 |
) |
Basic and diluted loss per share |
|
|
(0.08 |
) |
|
|
(0.16 |
) |
|
|
(0.05 |
) |
|
|
(0.04 |
) |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
||||
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
2017 |
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total Revenues |
|
|
5,168 |
|
|
|
7,005 |
|
|
|
7,315 |
|
|
|
6,795 |
|
Adjusted EBITDA1 |
|
|
(2,257 |
) |
|
|
(1,802 |
) |
|
|
(5,442 |
) |
|
|
(3,588 |
) |
Net income (loss) |
|
|
(4,100 |
) |
|
|
(4,752 |
) |
|
|
1,341 |
|
|
|
16,117 |
|
Net income (loss) attributable to equity holders of the Corporation |
|
|
(4,100 |
) |
|
|
(4,752 |
) |
|
|
4,755 |
|
|
|
19,074 |
|
Basic and diluted income (loss) per share |
|
|
(0.05 |
) |
|
|
(0.06 |
) |
|
|
0.06 |
|
|
|
0.24 |
|
The net income for the quarter ended September 30, 2017 includes a gain on sale of assets of $23,871 and impairment loss on inventories of $1,719. The net income for the quarter ended December 31, 2017 includes a gain on loss of control of the subsidiary Acasti of $8,784. The net loss for the quarter ended March 31, 2018 includes an impairment loss on inventories of $658. The decrease in revenues for the quarter ended March 31, 2019 is related to a decrease in royalty revenues and in solutions business. The net loss for the quarter ended March 31, 2019 includes litigation provisions of $7,930. The net loss for the quarter ended June 30, 2019 includes severance and related costs of $412, acquisition costs of $367 and litigations legal fees.
1 The Adjusted EBITDA is not a standard measure endorsed by IFRS requirements. A reconciliation to the Corporation’s net loss is presented above.
12
management discussion and analysis of the financial situation and operating results
CONSOLIDATED FINANCIAL POSITION
The following table details the significant changes to the statement of financial position (other than equity) at June 30, 2019 compared to March 31, 2019:
Accounts |
Increase (Reduction) |
|
Comments |
|
Cash and cash equivalents |
|
(4,480 |
) |
Refer to "Consolidated liquidity and capital resources" |
Trade and other receivables |
|
(105 |
) |
Receipt of accounts receivables |
Prepaid expenses |
|
1,218 |
|
Renewal of services and prepaid on hemp raw materials |
Inventories |
|
1,371 |
|
Increase of raw materials for incoming sales orders |
Other assets |
|
(2,835 |
) |
Portion of investment in Acasti transferred as part of settlement of a litigation |
Property, plant and equipment |
|
866 |
|
Improvement to Sherbrooke facility for cannabis business net of depreciation |
Right-of-use of assets |
|
1,100 |
|
Adoption of IFRS 16 - Leases. Refer to "Changes in Accounting Policies and Future Accounting Changes" |
Intangible assets |
|
(316 |
) |
Amortization of intangible assets |
Other non-current asset |
|
326 |
|
Increase in fair value of the investment in Acasti |
Trade and other payables |
|
1,591 |
|
Increase in purchases related to inventories and PPE net of payment and acquisition costs |
Lease liabilities |
|
1,281 |
|
Adoption of IFRS 16 - Leases. Refer to "Changes in Accounting Policies and Future Accounting Changes" |
Loans and borrowings |
|
1,101 |
|
Increase in bank line of credit, net of repayments on loans |
Deferred revenues |
|
258 |
|
Increase of deferred revenues |
Provisions |
|
(6,956 |
) |
Reclassification in trade and other payables, settlement in common shares and transfer of investment in Acasti |
Deferred lease inducements |
|
(208 |
) |
Adoption of IFRS 16 - Leases. Refer to "Changes in Accounting Policies and Future Accounting Changes" |
Long-term payables |
|
(127 |
) |
Reclassification in trade and other payables |
See the statement of changes in equity in the consolidated financial statements for details of changes to the equity accounts from March 31, 2019.
CONSOLIDATED CONTRACTUAL OBLIGATIONS
The following are the contractual maturities of financial liabilities and other contracts as at June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 |
|
|
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 |
|
$ |
10,839 |
|
|
$ |
10,839 |
|
|
$ |
10,111 |
|
|
$ |
728 |
|
|
$ |
– |
|
|
$ |
– |
|
Lease liabilities* |
|
|
1,281 |
|
|
|
1,413 |
|
|
|
398 |
|
|
|
801 |
|
|
|
183 |
|
|
|
31 |
|
Loans and borrowings* |
|
|
4,567 |
|
|
|
4,638 |
|
|
|
4,638 |
|
|
– |
|
|
– |
|
|
– |
|
|||
Research and development contracts |
|
– |
|
|
|
575 |
|
|
|
525 |
|
|
|
50 |
|
|
– |
|
|
– |
|
|||
Purchase obligation |
|
– |
|
|
|
942 |
|
|
|
942 |
|
|
– |
|
|
– |
|
|
– |
|
||||
Other agreements |
|
– |
|
|
|
951 |
|
|
|
306 |
|
|
|
344 |
|
|
|
301 |
|
|
– |
|
||
|
|
$ |
16,687 |
|
|
$ |
19,358 |
|
|
$ |
16,920 |
|
|
$ |
1,923 |
|
|
$ |
484 |
|
|
$ |
31 |
|
*Includes interest payments to be made at the contractual rate for loans and borrowings and interest on lease liabilities corresponding to discounted effect.
Under the terms of its financing agreements, the Corporation is required to meet certain financial covenants. As of June 30, 2019, Neptune was compliant with all of its borrowing covenant requirements.
13
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) |
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 revenues in semi-annual instalments, for an unlimited period. Some of the terms of this agreement are being disputed. Based on currently available information, a provision of $1,008 has been recognized for this claim as of June 30, 2019 (refer to note 9 of the consolidated interim financial statements for the three-month periods ended June 30, 2019 and 2018). |
(ii) |
The Corporation initiated arbitration in August 2014 against a krill oil customer that owed approximately $4,845 (US$3,700). The full amount of trade receivable was written-off in February 2015. This customer is counterclaiming a sum in damages. During the year ended March 31, 2019, the counterclaim amount was amended to $185 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 for the hearing occurred in July 2019. The Corporation is waiting for the arbitral award. Based on currently available information, no provision has been recognized for this case as of June 30, 2019. |
The outcome of these claims and legal proceedings against the Corporation cannot be determined with certainty and is subject to future resolution, including the uncertainties of litigation.
PROVISIONS
On May 10, 2019, Neptune announced a settlement with the former CEO of the Corporation. Pursuant to the agreement entered, Neptune agreed to issue 600,000 common shares from treasury (in accordance with securities regulation) and transfer 2,100,000 shares of Acasti held by the Corporation to the Former CEO. As at March 31, 2019, the common shares of Acasti transferable to the Former CEO of $2,835 were presented as current other assets in the statement of financial position. In addition, Neptune agreed to reimburse nominal legal fees.
As at March 31, 2019, a provision of $5,835 was recorded in the consolidated statement of financial position relating to this settlement. During the three-month period ended June 30, 2019, the 2,100,000 shares in Acasti held by the Corporation were transferred and the 600,000 common shares from treasury were issued to the Former CEO. Neptune received full and final release on all claims in connection with this case.
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 periods ended June 30, 2019 and 2018 are the same as those applied by the Corporation in its consolidated financial statements for the year ended March 31, 2019, except as disclosed below.
The Corporation has initially adopted IFRS 16, Leases and IFRIC 23, Uncertainty over Income Tax Treatments as at April 1st, 2019.
Further information can be found in Note 3 of the consolidated interim financial statements for the three-month periods ended June 30, 2019 and 2018. The adoption of IFRS 16 had a significant effect on the Corporation’s consolidated interim financial statements.
A number of new standards, amendments to standards and interpretations, are not yet effective for the three-month period ended June 30, 2019, and have not been applied in preparing the consolidated interim financial statements. Management does not expect that any of the new standards and amendments to existing standards issued but not yet effective would have a material impact on the Corporation’s consolidated financial statements.
14
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. Michael Cammarata, 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 June 30, 2019 that have materially affected, or are reasonably likely to materially affect 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.
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 August 13, 2019, the total number of common shares issued and outstanding is 92,471,329 and the Corporation’s common shares were being traded on the TSX and on NASDAQ Capital Market under the symbol ‟NEPT”. There are also 19,438,397 options, 374,547 deferred share units and 2,800,000 restricted share units outstanding. Each option, restricted share unit and deferred share unit is exercisable into one common share to be issued from treasury of the Corporation. Some stock options granted subsequent to the end of the quarter are subject to shareholders approval.
Exhibit 99.2
Consolidated Interim Financial Statements of
(Unaudited)
neptune WELLNESS SOLUTIONS inc.
For the three-month periods ended June 30, 2019 and 2018
neptune WELLNESS SOLUTIONS inc.
Consolidated Interim Financial Statements
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
Financial Statements
neptune WELLNESS SOLUTIONS inc.
Consolidated Interim Statements of Financial Position
(Unaudited)
As at June 30, 2019 and March 31, 2019
|
|
June 30, |
|
|
March 31, |
|
||
|
|
2019 |
|
|
2019 (1) |
|
||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
5,339,468 |
|
|
$ |
9,819,351 |
|
Short-term investment |
|
|
36,000 |
|
|
|
48,000 |
|
Trade and other receivables |
|
|
5,701,512 |
|
|
|
5,806,388 |
|
Prepaid expenses |
|
|
2,311,224 |
|
|
|
1,093,677 |
|
Inventories (note 4) |
|
|
6,408,665 |
|
|
|
5,038,161 |
|
Other asset (note 14) |
|
|
— |
|
|
|
2,835,000 |
|
|
|
|
19,796,869 |
|
|
|
24,640,577 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment (note 5) |
|
|
47,889,795 |
|
|
|
47,023,973 |
|
Right-of-use assets (note 6) |
|
|
1,099,899 |
|
|
|
— |
|
Intangible assets (note 7) |
|
|
7,335,038 |
|
|
|
7,650,598 |
|
Goodwill |
|
|
6,750,626 |
|
|
|
6,750,626 |
|
Tax credits recoverable |
|
|
152,464 |
|
|
|
152,464 |
|
Other asset (note 14) |
|
|
4,328,454 |
|
|
|
4,002,337 |
|
Total assets |
|
$ |
87,353,145 |
|
|
$ |
90,220,575 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Trade and other payables |
|
$ |
10,110,674 |
|
|
$ |
8,519,239 |
|
Lease liabilities (note 6) |
|
|
339,776 |
|
|
|
— |
|
Loans and borrowings (note 8) |
|
|
4,567,445 |
|
|
|
3,466,501 |
|
Deferred revenues |
|
|
283,395 |
|
|
|
25,070 |
|
Provisions (note 9) |
|
|
1,008,368 |
|
|
|
7,964,576 |
|
|
|
|
16,309,658 |
|
|
|
19,975,386 |
|
|
|
|
|
|
|
|
|
|
Deferred lease inducements (note 6) |
|
|
— |
|
|
|
207,745 |
|
Lease liabilities (note 6) |
|
|
940,880 |
|
|
|
— |
|
Long-term payables |
|
|
727,999 |
|
|
|
855,337 |
|
Deferred tax liabilities |
|
|
146,235 |
|
|
|
197,181 |
|
Total liabilities |
|
|
18,124,772 |
|
|
|
21,235,649 |
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
Share capital (note 10) |
|
|
137,844,091 |
|
|
|
131,083,698 |
|
Warrants (note 10 (c)) |
|
|
— |
|
|
|
648,820 |
|
Contributed surplus |
|
|
39,948,611 |
|
|
|
39,165,706 |
|
Accumulated other comprehensive income |
|
|
559,183 |
|
|
|
758,066 |
|
Deficit |
|
|
(109,123,512 |
) |
|
|
(102,671,364 |
) |
Total equity |
|
|
69,228,373 |
|
|
|
68,984,926 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 15) |
|
|
|
|
|
|
|
|
Subsequent events (note 18) |
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
87,353,145 |
|
|
$ |
90,220,575 |
|
(1) |
The Corporation has initially applied IFRS 16 as at April 1, 2019. Under the transition method chosen, comparative information is not restated. Refer to note 3. |
See accompanying notes to unaudited consolidated interim financial statements.
1
NEPTUNE WELLNESS SOLUTIONS INC.
Consolidated Interim Statements of Earnings and Comprehensive Loss
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
|
|
|
June 30, 2019 |
|
|
June 30, 2018 (1) |
|
||
Revenue from sales |
|
$ |
3,989,498 |
|
|
$ |
4,898,149 |
|
|
Royalty revenues |
|
|
341,863 |
|
|
|
270,125 |
|
|
Other revenues |
|
|
29,647 |
|
|
|
— |
|
|
Total revenues |
|
|
4,361,008 |
|
|
|
5,168,274 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (note 4) |
|
|
(5,073,183 |
) |
|
|
(3,675,042 |
) |
|
Gross profit |
|
|
(712,175 |
) |
|
|
1,493,232 |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net of tax credits and grants of $20,052 (2018 - $49,899) |
|
|
(342,336 |
) |
|
|
(1,675,465 |
) |
|
Selling, general and administrative expenses |
|
|
(5,329,864 |
) |
|
|
(3,852,744 |
) |
|
Loss from operating activities |
|
|
(6,384,375 |
) |
|
|
(4,034,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
18,837 |
|
|
|
64,196 |
|
|
Finance costs (note 11) |
|
|
(137,557 |
) |
|
|
(211,740 |
) |
|
|
|
|
|
(118,720 |
) |
|
|
(147,544 |
) |
Loss before income taxes |
|
|
(6,503,095 |
) |
|
|
(4,182,521 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income tax recovery |
|
|
50,947 |
|
|
|
82,549 |
|
|
Net loss |
|
|
(6,452,148 |
) |
|
|
(4,099,972 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
Unrealized losses on investment (note 14) |
|
|
(198,883 |
) |
|
|
(2,684,288 |
) |
|
Net change in unrealized loss on derivatives designated as cash flow hedges |
|
|
— |
|
|
|
(5,742 |
) |
Total other comprehensive loss |
|
|
(198,883 |
) |
|
|
(2,690,030 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
$ |
(6,651,031 |
) |
|
$ |
(6,790,002 |
) |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
|
$ |
(0.08 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average number of common shares |
|
|
80,754,086 |
|
|
|
78,880,387 |
|
(1) |
The Corporation has initially applied IFRS 16 as at April 1, 2019. Under the transition method chosen, comparative information is not restated. Refer to note 3. |
See accompanying notes to unaudited consolidated interim financial statements.
2
NEPTUNE WELLNESS SOLUTIONS INC.
Consolidated Interim Statements of Changes in Equity
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
|
|
Attributable to equity holders of the Corporation |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
Share Capital |
|
|
|
|
|
|
|
|
|
|
other comprehensive |
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income |
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Dollars |
|
|
Warrants |
|
|
Contributed surplus |
|
|
Investment in equity instruments |
|
|
Deficit |
|
|
Total |
|
|||||||
Balance at March 31, 2019 |
|
|
79,987,292 |
|
|
$ |
131,083,698 |
|
|
$ |
648,820 |
|
|
$ |
39,165,706 |
|
|
$ |
758,066 |
|
|
$ |
(102,671,364 |
) |
|
$ |
68,984,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(6,452,148 |
) |
|
|
(6,452,148 |
) |
Other comprehensive loss for the period |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(198,883 |
) |
|
|
– |
|
|
|
(198,883 |
) |
Total comprehensive loss for the period |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(198,883 |
) |
|
|
(6,452,148 |
) |
|
|
(6,651,031 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with equity holders recorded directly in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by and distribution to equity holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payment transactions (note 12) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
856,926 |
|
|
|
– |
|
|
|
– |
|
|
|
856,926 |
|
Warrants exercised (note 10 (c)) |
|
|
750,000 |
|
|
|
3,176,320 |
|
|
|
(648,820 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
2,527,500 |
|
Share options exercised (note 10 (a)) |
|
|
130,826 |
|
|
|
272,073 |
|
|
|
– |
|
|
|
(74,021 |
) |
|
|
– |
|
|
|
– |
|
|
|
198,052 |
|
Provisions settled in shares (note 10 (b)) |
|
|
600,000 |
|
|
|
3,312,000 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
3,312,000 |
|
Total contributions by and distribution to equity holders |
|
|
1,480,826 |
|
|
|
6,760,393 |
|
|
|
(648,820 |
) |
|
|
782,905 |
|
|
|
– |
|
|
|
– |
|
|
|
6,894,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019 |
|
|
81,468,118 |
|
|
$ |
137,844,091 |
|
|
$ |
— |
|
|
$ |
39,948,611 |
|
|
$ |
559,183 |
|
|
$ |
(109,123,512 |
) |
|
$ |
69,228,373 |
|
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 three-month periods ended June 30, 2019 and 2018
|
|
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 |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(4,099,972 |
) |
|
|
(4,099,972 |
) |
Other comprehensive loss for the period |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(2,684,288 |
) |
|
|
(5,742 |
) |
|
|
– |
|
|
|
(2,690,030 |
) |
Total comprehensive loss for the period |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(2,684,288 |
) |
|
|
(5,742 |
) |
|
|
(4,099,972 |
) |
|
|
(6,790,002 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with equity holders recorded directly in equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by and distribution to equity holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payment transactions (note 12) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,025,283 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,025,283 |
|
Share options exercised (note 10 (a)) |
|
|
433,477 |
|
|
|
1,000,429 |
|
|
|
– |
|
|
|
(304,150 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
696,279 |
|
Total contributions by and distribution to equity holders |
|
|
433,477 |
|
|
|
1,000,429 |
|
|
|
– |
|
|
|
721,133 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,721,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018 |
|
|
79,237,689 |
|
|
$ |
129,483,936 |
|
|
$ |
648,820 |
|
|
$ |
37,076,682 |
|
|
$ |
(2,177,819 |
) |
|
$ |
13,348 |
|
|
$ |
(83,579,637 |
) |
|
$ |
81,465,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 periods ended June 30, 2019 and 2018
|
|
June 30, |
|
|
June 30, |
|
||
|
|
2019 |
|
|
2018 (1) |
|
||
Cash flows used in operating activities: |
|
|
|
|
|
|
|
|
Net loss for the period |
|
$ |
(6,452,148 |
) |
|
$ |
(4,099,972 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment |
|
|
657,255 |
|
|
|
571,995 |
|
Amortization of right-of-use of assets (note 6) |
|
|
76,845 |
|
|
|
— |
|
Amortization of intangible assets |
|
|
349,575 |
|
|
|
181,263 |
|
Stock-based compensation |
|
|
856,926 |
|
|
|
1,025,283 |
|
Recognition of deferred revenues |
|
|
(23,634 |
) |
|
|
(107,635 |
) |
Amortization of deferred lease inducements |
|
|
— |
|
|
|
(14,839 |
) |
Net finance expense |
|
|
118,720 |
|
|
|
147,544 |
|
Realized foreign exchange gain |
|
|
(26,997 |
) |
|
|
(30,836 |
) |
Income taxes recovery |
|
|
(50,947 |
) |
|
|
(82,549 |
) |
Net loss from sale of property, plant and equipment |
|
|
— |
|
|
|
32,333 |
|
|
|
|
(4,494,405 |
) |
|
|
(2,377,413 |
) |
Changes in operating assets and liabilities (note 13 (a)) |
|
|
(1,664,954 |
) |
|
|
119,022 |
|
|
|
|
(6,159,359 |
) |
|
|
(2,258,391 |
) |
Cash flows used in investing activities: |
|
|
|
|
|
|
|
|
Maturity of short-term investment |
|
|
12,000 |
|
|
|
— |
|
Interest received |
|
|
18,837 |
|
|
|
64,196 |
|
Acquisition of property, plant and equipment |
|
|
(1,930,334 |
) |
|
|
(1,897,985 |
) |
Acquisition of intangible assets |
|
|
(75,691 |
) |
|
|
(23,721 |
) |
|
|
|
(1,975,188 |
) |
|
|
(1,857,510 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Variation of the bank line of credit (note 13 (c)) |
|
|
1,360,000 |
|
|
|
20,000 |
|
Repayment of loans and borrowings (note 13 (c)) |
|
|
(267,858 |
) |
|
|
(368,376 |
) |
Payments of lease liabilities (note 6) |
|
|
(81,704 |
) |
|
|
— |
|
Interest paid |
|
|
(84,826 |
) |
|
|
(77,226 |
) |
Proceeds from exercise of warrants (note 10 (c)) |
|
|
2,527,500 |
|
|
|
— |
|
Proceeds from exercise of options (note 10 (a)) |
|
|
198,052 |
|
|
|
696,279 |
|
|
|
|
3,651,164 |
|
|
|
270,677 |
|
Foreign exchange gain on cash and cash equivalents held in foreign currencies |
|
|
3,500 |
|
|
|
13,014 |
|
Net decrease in cash and cash equivalents |
|
|
(4,479,883 |
) |
|
|
(3,832,210 |
) |
Cash and cash equivalents as at April 1, 2019 and 2018 |
|
|
9,819,351 |
|
|
|
24,287,107 |
|
Cash and cash equivalents as at June 30, 2019 and 2018 |
|
$ |
5,339,468 |
|
|
$ |
20,454,897 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents is comprised of: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
1,183,960 |
|
|
$ |
5,453,976 |
|
Cash equivalents |
|
|
4,155,508 |
|
|
|
15,000,921 |
|
(1) |
The Corporation has initially applied IFRS 16 as at April 1, 2019. Under the transition method chosen, comparative information is not restated. Refer to note 3. |
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 periods ended June 30, 2019 and 2018
1. |
Reporting entity: |
Neptune Wellness Solutions Inc. (the "Corporation" or "Neptune") is incorporated under the Business Corporations Act (Québec) (formerly Part 1A of the Companies Act (Québec)). The Corporation is domiciled in Canada and its registered office is located at 545 Promenade du Centropolis, Laval, Québec, H7T 0A3. The consolidated financial statements of the Corporation comprise the Corporation and its subsidiaries, Biodroga Nutraceuticals Inc. ("Biodroga"), 9354-7537 Québec Inc. and Neptune Holding USA, Inc.
Neptune specializes in the extraction, purification and formulation of health and wellness products. Neptune’s wholly owned subsidiary, 9354-7537 Québec Inc., is licensed by Health Canada to process cannabis at its 50,000 square foot facility located in Sherbrooke, Quebec. With the recent acquisition of assets of SugarLeaf Labs, LLC and Forest Remedies LLC (collectively "SugarLeaf") subsequent to period-end (refer to note 18 (c)), the Corporation now has a U.S.-based hemp extract supply chain supported by a 24,000 square-foot facility located in North Carolina. Neptune and SugarLeaf combined bring decades of experience in the natural products sector to the legal cannabis and hemp industry. Leveraging its scientific and technological expertise, the Corporation as a whole focuses on the development of value-added and differentiated products for the Canadian, U.S. and global cannabis and hemp 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, 2019.
The consolidated interim financial statements were approved by the Board of Directors on August 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 12); and |
|
• |
Financial asset which is measured at fair value (note 14). |
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 subsidiaries’s functional currency.
|
(d) |
Use of estimates and judgments: |
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.
6
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
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 and provisions, which requires judgment in evaluating whether there is a probable outflow of economic benefits that will be required to settle matters subject to litigation (notes 9 and 15); |
|
• |
Assessing if performance criteria on options and DSU will be achieved in measuring the stock-based compensation expense (note 12); 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; and |
|
• |
Estimating the litigation provision as it depends upon the outcome of proceedings (note 9). |
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, 2019, except as disclosed below.
New standards and interpretations adopted during the period:
|
(a) |
Leases: |
In January 2016, the IASB issued IFRS 16, Leases, which replaced IAS 17, Leases. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, the customer (lessee) and the supplier (lessor). IFRS 16 eliminates the classification of leases as either operating leases or finance leases, introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.
The Corporation has adopted IFRS 16 using the modified retrospective method of adoption, with the effect of initially applying this standard recognized at the date of initial application, i.e. April 1, 2019. Under this method, the Corporation elected to measure right-of-use of asset as equal to lease liability, adjusted for amounts previously recorded for deferred lease inducements or prepaid rent as at the date of adoption. Accordingly, the cumulative effect of initially applying IFRS 16 is nil on the opening balance of retained earnings as at April 1, 2019. The comparative information has not been restated, i.e. it is presented, as previously reported, under IAS 17 and related interpretations.
Transition options and practical expedients
The Corporation has elected to apply the following transition options and practical expedients available under IFRS 16:
|
• |
Lease definition: to grandfather the assessment of which transactions are leases on the date of initial application. Accordingly, the Corporation applied IFRS 16 only to contracts that were previously identified as leases under IAS 17, Leases, and IFRIC 4, Determining whether an Arrangement contains a Lease, and applied the definition of leases under IFRS 16 only to contracts entered on or after the date of initial application; |
|
|
• |
Short-term leases and leases of low-value items recognition exemptions: related lease payments are recognized as an expense on straight-line basis or another basis if that basis is more representative; and |
|
|
• |
Leases with a short remaining term: when lease term ends within 12 months of the date of initial application, the lease may be classified as short-term leases. |
|
7
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
The Corporation has elected not to apply the following transition options and practical expedients available under IFRS 16:
|
• |
Use of hindsight; |
|
|
• |
Impairment and onerous leases; |
|
|
• |
Initial direct costs; |
|
|
• |
Discount rates; and |
|
|
• |
Non-lease components. |
|
Impact of adopting IFRS 16
The most significant impact as a result of adopting IFRS 16 related to the accounting for the Corporation’s operating leases, as the nature of expenses related to most of the Corporation’s leases changed as IFRS 16 replaced the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities.
Under IAS 17, the Corporation classified each of its leases at the inception date as either a finance lease or an operating lease, based on the extent to which risks and rewards of ownership were transferred to the Corporation. Most of the Corporation’s leases were classified as operating leases as they did not transfer substantially all the risks and rewards of ownership to the Corporation. Lease payments related to the Corporation’s operating leases were recognized as rent expense in the consolidated income statements on a straight-line basis over the lease term and presented as part of cash flows from operating activities in the consolidated statements of cash flows. Any prepaid rent and deferred lease inducements were recognized under “Prepaid expenses” and “Deferred lease inducements”, respectively, in the consolidated statements of financial position as at March 31, 2019.
Upon adoption of IFRS 16, the Corporation recognized right-of-use assets for leases previously classified as operating leases. Right-of-use assets were measured for an amount equal to the lease liability adjusted for prepaid rent and deferred lease inducements. Lease liabilities were measured at the present value of the remaining lease payments on a discounted basis, using the incremental borrowing rate at the date of initial application.
The following table summarizes the impacts of adopting IFRS 16 on the Corporation’s consolidated statement of financial position as at April 1, 2019:
Impact of adopting IFRS 16 as at April 1, 2019 |
Note |
|
Increase (decrease) |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
Prepaid expenses |
(i) |
|
$ |
(22,127 |
) |
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
Right-of-use of assets |
(ii) |
|
|
1,176,744 |
|
|
|
|
|
|
|
Total assets |
|
|
$ |
1,154,617 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Lease liabilities |
(ii) |
|
$ |
334,872 |
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
|
Lease liabilities |
(ii) |
|
|
1,027,490 |
|
Deferred lease inducements |
(i) |
|
|
(207,745 |
) |
|
|
|
|
|
|
Total liabilities and equity |
|
|
$ |
1,154,617 |
|
8
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
|
(i) |
Prepaid expenses and deferred lease inducements related to previous operating leases were derecognized. |
|
(ii) |
Lease liabilities of $1,362,362 and related right-of-use assets of $1,176,745 were recognized and presented separately on the consolidated statement of financial position. There was no adjustment from the adoption of IFRS 16 on the opening retained earnings as at April 1, 2019 due to the Corporation choice on transition method. |
Reconciliation of operating lease commitments to lease liabilities recognized
When measuring lease liabilities, the Corporation discounted lease payments using its incremental borrowing rate as at April 1, 2019. The weighted average incremental borrowing rate applied as at April 1, 2019 was 5.14%. The lease liabilities as at April 1, 2019 can be reconciled to the operating lease commitments as at March 31, 2019 as follows:
Reconciliation of operating leases commitments liabilities recognized to operating lease commitments |
|
|
|
|
|
|
|
|
|
|
|
Operating lease commitments as at March 31, 2019 |
|
|
$ |
1,587,571 |
|
Non-lease components separated from lease components |
|
|
|
(60,755 |
) |
Other |
|
|
|
(15,189 |
) |
Effect of discounting |
|
|
|
(149,265 |
) |
Discounted lease liabilities as at April 1, 2019 |
|
|
$ |
1,362,362 |
|
Significant accounting policies
At inception, the Corporation assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Corporation recognizes a right-of-use asset and a lease liability at the commencement date of the lease, i.e. the date the underlying asset is available for use.
The details of the new significant accounting policies in relation to the Corporation’s leases are set out below.
Right-of-use assets
Right-of-use assets are measured at cost, less any accumulated depreciation and accumulated impairment losses, and adjusted for remeasurement of lease liabilities. Cost of right-of-use assets is comprised of:
|
• |
the initial measurement amount of the lease liabilities recognized; |
|
• |
any lease payments made at or before the commencement date, less any lease incentives received; |
|
• |
any initial direct costs incurred; and |
|
• |
an estimate of costs to dismantle and remove the underlying asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease contract. |
Right-of-use assets are depreciated on a straight-line basis over the lesser of i) the estimated useful life of the underlying assets; and ii) the lease term. Right-of-use assets are assessed for impairment whenever there is an indication that the right-of-use assets may be impaired.
Lease liabilities
Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date over the lease term. The present value of the lease payments is determined using the lessee’s incremental borrowing rate at the commencement date if the interest rate implicit in the lease is not readily determinable. The incremental borrowing rate is a function of the lessee’s incremental borrowing rate, the nature of the underlying asset, the location of the asset, the length of the lease and the currency of the lease contract. Generally, the Corporation uses the lessee’s incremental borrowing rate for the present value. At the commencement date, lease payments generally include fixed payments, less any lease incentives receivable, variable lease payments that depend on an index (e.g. based on inflation index) or a specified rate, and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising the option to terminate the lease. Lease payments also include amounts expected to be paid under residual value guarantees and the exercise price of a purchase option if the Corporation is reasonably certain to exercise that option.
9
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
Variable lease payments that do not depend on an index or a specified rate are not included in the measurement of lease liabilities but instead are recognized as expenses in the period in which the event or condition that triggers the payment occurs.
After the commencement date, the carrying amount of lease liabilities is increased to reflect the accretion of interest and reduced to reflect lease payments made. In addition, the carrying amount of lease liabilities is remeasured when there is a change in future lease payments arising from a change in an index or specified rate, if there is a modification to the lease terms and conditions, a change in the estimate of the amount expected to be payable under residual value guarantee, or if the Corporation changes its assessment of whether it will exercise a termination, extension or purchase option. The remeasurement amount of the lease liabilities is recognized as an adjustment to the right-of-use asset, or in the consolidated statement of earnings when the carrying amount of the right-of-use asset is reduced to zero.
Classification and presentation of lease-related expenses
Depreciation charge for right-of-use assets, expenses related to variable lease payments not included in the measurement of lease liabilities and loss (gain) related to lease modifications are allocated in the Corporation’s consolidated statement of earnings based on their function within the Corporation, while interest expense on lease liabilities is presented within finance costs.
Cash flows classification
Lease payments related to the principal portion of the lease liabilities are classified as cash flows from financing activities and lease payments related to the interest portion of the lease liabilities are classified as interest paid within cash flows from financing activities. Lease incentives received are classified as cash flows from investing activities. Variable lease payments not included in the measurement of lease liabilities are classified as cash flows from operating activities.
Significant judgment in determining the lease term of contracts with extension options and termination options
The Corporation determines the lease term as the non-cancellable period of the lease, together with any periods covered by an option to extend the lease, if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Corporation applies judgment in assessing whether it is reasonably certain to exercise its options to extend its leases or to not exercise its options to terminate its leases, by considering all facts and circumstances that create an economic incentive to exercise an extension option or not to exercise a termination option. The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the Corporation.
|
(b) |
Income tax: |
On June 7, 2017, the IASB issued IFRIC 23, Uncertainty over Income Tax Treatments (the “Interpretation”). The Interpretation provided 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 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 has adopted the Interpretation which did not have an impact on the Corporation’s consolidated 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 period ended June 30, 2019, and have not been applied in preparing these consolidated interim financial statements. Management does not expect that any of the new standards and amendments to existing standards issued but not yet effective would have a material impact on the Corporation’s consolidated financial statements.
10
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
|
|
June 30, |
|
|
March 31, |
|
||
|
|
2019 |
|
|
2019 |
|
||
|
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
4,620,180 |
|
|
$ |
3,410,613 |
|
Work in progress |
|
|
186,560 |
|
|
|
281,027 |
|
Finished goods |
|
|
981,961 |
|
|
|
635,914 |
|
Supplies and spare parts |
|
|
619,964 |
|
|
|
710,607 |
|
|
|
$ |
6,408,665 |
|
|
$ |
5,038,161 |
|
Cost of sales for the three-month period ended June 30, 2019 was comprised of inventory costs of $2,659,203 (2018 - $3,352,479), other costs of $292,990 (2018 - $322,563) and unallocated production overhead costs of $2,120,990 (2018 – nil).
5. |
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, 2019 |
|
$ |
228,630 |
|
|
$ |
21,230,473 |
|
|
$ |
25,289,413 |
|
|
$ |
119,839 |
|
|
$ |
155,618 |
|
|
$ |
47,023,973 |
|
June 30, 2019 |
|
|
228,630 |
|
|
|
21,616,975 |
|
|
|
25,776,876 |
|
|
|
112,445 |
|
|
|
154,869 |
|
|
|
47,889,795 |
|
6. Leases:
The Corporation has entered into lease contracts mainly for its premises, which expire through the year 2024.
|
(a) |
Right-of-use assets |
|
Buildings |
|
|
Office equipment |
|
|
Total |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at April 1, 2019 |
$ |
1,138,729 |
|
|
$ |
38,015 |
|
|
$ |
1,176,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation for the period |
|
(74,860 |
) |
|
|
(1,985 |
) |
|
|
(76,845 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June 30, 2019 |
$ |
1,063,869 |
|
|
$ |
36,030 |
|
|
$ |
1,099,899 |
|
Depreciation of right-of-use assets for the three-month period ended June 30, 2019 of $76,845 is included in selling, general and administrative expenses in the consolidated interim statement of earnings and comprehensive loss.
The Corporation recorded a revenue of $29,647 for the three-month period ended June 30, 2019 from subleasing right-of-use of assets. There is no contracts related to this sublease between the Corporation and the third party. Therefore, there is no lease term. Moreover, revenue varies depending on the use that is made by the third party.
11
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
The following table summarizes the lease liabilities amounts recognized in the consolidated interim statement of financial position as at June 30, 2019:
|
|
June 30, 2019 |
|
|
|
|
|
|
|
Current |
|
$ |
339,776 |
|
Non-current |
|
|
940,880 |
|
|
(c) |
Cash outflow for leases recognized in the consolidated interim statement of cash flows |
|
|
Three-month period ended June 30, 2019 |
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
Cash outflow for non-lease components not included in the measurement of lease liabilities |
|
$ |
(4,563 |
) |
Cash inflow for income from sublease |
|
|
29,647 |
|
|
|
$ |
25,084 |
|
Financing activities: |
|
|
|
|
Cash outflow for principal portion of lease liabilities |
|
$ |
(81,704 |
) |
Cash outflow for interest portion of lease liabilities - included within interest paid |
|
|
(17,154 |
) |
|
|
$ |
(98,858 |
) |
|
|
|
|
|
Total net cash outflow for leases |
|
$ |
(73,774 |
) |
|
|
|
|
|
Interest expense on leases liabilities for the three-month period ended June 30, 2019 of $17,154 is presented under finance costs (note 11).
Expense for non-lease components presented in selling, general and administrative expenses amounted to $4,563 for the three-month period ended June 30, 2019.
|
(d) |
Maturity analysis – contractual undiscounted cash flows |
|
|
June 30, 2019 |
|
|
|
|
|
|
|
Less than 1 year |
|
$ |
397,813 |
|
Between 1 and 5 years |
|
|
984,464 |
|
More than 5 years |
|
|
30,507 |
|
Total contractual undiscounted cash flows of lease liabilities |
|
$ |
1,412,784 |
|
|
|
|
|
|
12
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
|
|
Customer |
|
|
License |
|
|
Computer |
|
|
|
|
|
|||
|
|
relationships |
|
|
agreements |
|
|
Software |
|
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019 |
|
$ |
2,769,229 |
|
|
$ |
4,518,365 |
|
|
$ |
363,004 |
|
|
$ |
7,650,598 |
|
June 30, 2019 |
|
|
2,666,728 |
|
|
|
4,323,961 |
|
|
|
344,349 |
|
|
|
7,335,038 |
|
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.
|
|
|
June 30, |
|
|
March 31, |
|
||
|
|
|
2019 |
|
|
2019 |
|
||
|
|
|
|
|
|
|
|
|
|
Loans and borrowings: |
|
|
|
|
|
|
|
|
|
|
Loan, bearing interest at prime rate plus 1.70%, secured through a first-ranking mortgage on all movable assets of Biodroga current and future, corporeal and incorporeal, and tangible and intangible, reimbursable in monthly principal payments of $89,286 with a final payment of $2,242,844 in December 2019. The Corporation is subject to certain financial covenants under this secured loan. As at June 30, 2019, Neptune was in compliance with these financial covenants. Amounts presented are net of transaction costs of $101,829 (2019 - $110,631). |
|
$ |
2,587,445 |
|
|
$ |
2,846,501 |
|
|
|
|
|
|
|
|
|
|
|
|
Authorized bank line of credit of $2,500,000 bearing interest at prime rate plus 0.50%, expiring on August 31, 2019. |
|
|
1,980,000 |
|
|
|
620,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,567,445 |
|
|
|
3,466,501 |
|
Less current portion of loans and borrowings |
|
|
4,567,445 |
|
|
|
3,466,501 |
|
|
Loans and borrowings |
|
$ |
— |
|
|
$ |
— |
|
9. |
Provisions: |
|
(a) |
During the year ended March 31 ,2019, the Corporation received a judgment from the Superior Court of Québec (the “Court”) regarding certain previously disclosed claims made by a corporation controlled by the Corporation’s former chief executive officer (the “Former CEO”) against the Corporation in respect of certain royalty payments alleged to be owed and owing to the Former CEO pursuant to the terms of an agreement entered into on February 23, 2001 between Neptune and the Former CEO (the “Agreement”). The Corporation had also filed a counterclaim against the Former CEO disputing the validity and interpretation of certain clauses contained in the Agreement and claiming the repayment of certain amounts previously paid to the Former CEO pursuant to the terms of the Agreement. Under the terms of the Agreement, it was alleged by the Former CEO that annual royalties be payable to the Former CEO, with no limit to its duration, of 1% of the sales and other revenues made by Neptune; the interpretation of which was challenged by the Corporation. |
Pursuant to the judgment rendered on March 21, 2019, which Neptune has appealed, the Court ruled in favour of the Former CEO and rejected the counterclaim filed by the Corporation. As a result, the Court awarded the Former CEO payments determined by the Court to be owed under the Agreement of 1% of all sales and revenues of the Corporation incurred since March 1, 2014, which final payments remain to be determined taking into account interest, judicial costs and other expenses. The Court also declared that, pursuant to the terms of the Agreement, the royalty payments of 1% of the future sales and other revenue made by the Corporation on a consolidated basis are to be payable by the Corporation to the Former CEO biannually, but only to the extent that the cost of the royalty would not cause the Corporation to have a negative earnings before interest, taxes and amortization (in which case, the payments would be deferred to the following fiscal year).
A litigation provision of $2,130,074 was recorded in the consolidated statement of financial position in the year ended March 31, 2019 to cover the estimated cost of the judgement in accordance with the ruling above, including legal and administrative proceedings, and also estimated legal fees for the appeal. During the three-month period ended June 30, 2019, the Corporation paid an amount of $291,292
13
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
and recorded in Trade and other payables an amount of $911,374 related to the portion of the judgment not contested by Neptune. During the three-month period ended June 30, 2019, an additional amount of $80,958 has been recorded as provision for royalties payments on sales for the first quarter consolidated revenues and as expenses related to the litigation. The provision recorded for this litigation is totalling $1,008,368.
The timing of cash outflows of litigation provision is uncertain as it depends upon the outcome of the appeal. Management does not believe it is possible to make assumptions on the evolution of the cases beyond the statement of financial position date.
On May 17, 2019, the Corporation’s Motion for leave to appeal was presented to a judge of the Québec Court of Appeal, who expressed the opinion that the Corporation could appeal without necessity of obtaining leave. In order to ensure the protection of the Corporation’s rights, the judge deferred the motion to the panel who will hear the merits of the appeal. The Corporation filed its appeal factum on July 30, 2019.
|
(b) |
In addition to the above, the Former CEO of the Corporation was claiming the payment of approximately $8,500,000 and the issuance of equity instruments for severance entitlements under his employment contract terminated in April 2014. On May 10, 2019, Neptune announced a settlement regarding these claims. Pursuant to the agreement entered, Neptune agreed to issue 600,000 common shares from treasury (in accordance with securities regulation) and transfer 2,100,000 shares of Acasti held by the Corporation to the Former CEO. As at March 31, 2019, the common shares of Acasti transferable to the Former CEO of $2,835,000 were presented as current other assets in the statement of financial position (note 14). In addition, Neptune agreed to reimburse nominal legal fees. |
As at March 31, 2019, a provision of $5,834,502 was recorded in the consolidated statement of financial position relating to this settlement. During the three-month period ended June 30, 2019, the 2,100,000 shares in Acasti held by the Corporation were transferred and the 600,000 common shares from treasury were issued to the Former CEO. Neptune received full and final release on all claims in connection with this case.
10. |
Capital and other components of equity: |
|
(a) |
Share options exercised: |
During the three-month period ended June 30, 2019, Neptune issued 130,826 common shares of the Corporation upon exercise of options at a weighted average exercise price of $1.51 per common share for a total cash consideration of $198,052.
During the three-month period ended June 30, 2018, Neptune issued 433,477 common shares of the Corporation upon exercise of options at a weighted average exercise price of $1.60 per common share for a total cash consideration of $696,279.
|
(b) |
Provision settled in shares: |
During the three-month period ended June 30, 2019, Neptune issued 600,000 common shares of the Corporation to the Former CEO of the Corporation as part of a settlement regarding severance entitlements under his employment contract terminated in April 2014 (refer to note 9 (b)).
|
(c) |
Warrants: |
During the three-month period ended June 30, 2019, Neptune issued 750,000 common share of the Corporation for warrants exercised for a total cash consideration of $2,527,500. As at June 30, 2019, there are no outstanding and exercisable warrants (750,000 as at March 31, 2019).
14
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
|
|
Three-month periods ended |
|
|||||
|
|
June 30, |
|
|
June 30, |
|
||
|
|
2019 |
|
|
2018 (1) |
|
||
|
|
|
|
|
|
|
|
|
Interest charges and other finance costs |
|
$ |
(96,906 |
) |
|
$ |
(193,918 |
) |
Interest on lease liabilities (note 6) |
|
|
(17,154 |
) |
|
|
— |
|
Foreign exchange loss |
|
|
(23,497 |
) |
|
|
(17,822 |
) |
Finance costs |
|
$ |
(137,557 |
) |
|
$ |
(211,740 |
) |
|
(1) |
The Corporation has initially applied IFRS 16 as at April 1, 2019. Under the transition method chosen, comparative information is not restated. Refer to note 3. |
12. Share-based payments:
At June 30, 2019, the Corporation had the following share-based payment arrangements:
|
(a) |
Corporation stock option plan: |
|
(i) |
Stock option plan: |
The Corporation has established a stock option plan for directors, employees and consultants. Awards under the plan grants a participant the right to purchase a certain number of Common Shares, subject to certain conditions described below, at an exercise price equal to at least 100% of the Market Price (as defined below) of the Common Shares on the grant date. The “Market Price” of Common Shares as of a particular date shall generally mean the volume weighted average trading price of the Common Shares (VWAP), calculated by dividing the total value by the total volume of Common Shares traded for a relevant period on the TSX (and if listed on more than one stock exchange, then the highest of such closing prices) during the last ten (10) Business Days prior to the Grant Date (10-day VWAP). The terms and conditions for exercising options and purchasing the underlying Common Shares are set by the Board of Directors, and subject to, among others, the following limitations: the term of the options cannot exceed ten years and every stock option granted under the stock option plan will be subject to conditions no less restrictive than a minimum vesting period of 18 months with gradual and equal acquisition vesting on no less than a quarterly basis; the Corporation can issue a number of Common Shares not exceeding 15% of the number of Common Shares issued and outstanding at the time of any grant pursuant to the stock option plan; the total number of Common Shares issuable to a single holder pursuant to the stock option plan cannot exceed 5% of the Corporation’s total issued and outstanding Common Shares at the time of the grant, with the maximum of 2% for any one consultant.
The number and weighted average exercise prices of stock options are as follows:
|
|
|
|
|
|
2019 |
|
|
|
|
|
|
2018 |
|
||
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
||
|
|
average |
|
|
|
|
|
|
average |
|
|
|
|
|
||
|
|
exercise |
|
|
Number of |
|
|
exercise |
|
|
Number of |
|
||||
|
|
price |
|
|
options |
|
|
price |
|
|
options |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at April 1, 2019 and 2018 |
|
$ |
2.02 |
|
|
|
9,651,085 |
|
|
$ |
1.92 |
|
|
|
10,091,546 |
|
Granted |
|
|
5.71 |
|
|
|
706,639 |
|
|
|
4.65 |
|
|
|
203,800 |
|
Exercised (note 10 (a)) |
|
|
1.51 |
|
|
|
(130,826 |
) |
|
|
1.65 |
|
|
|
(233,477 |
) |
Forfeited |
|
|
5.44 |
|
|
|
(13,501 |
) |
|
|
— |
|
|
|
— |
|
Options outstanding at June 30, 2019 and 2018 |
|
$ |
2.28 |
|
|
|
10,213,397 |
|
|
$ |
1.98 |
|
|
|
10,061,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2019 and 2018 |
|
$ |
2.00 |
|
|
|
3,657,629 |
|
|
$ |
1.92 |
|
|
|
2,513,403 |
|
15
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
Subsequent to the period-end, 510,794 options were forfeited related to the former chief executive officer (refer to note 18 (a)). 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:
|
|
Three-month period ended June 30, 2019 |
|
|
Three-month period ended June 30, 2018 |
|
||
|
|
|
|
|
|
|
|
|
Exercise price |
|
$ |
5.71 |
|
|
$ |
4.65 |
|
Share price |
|
$ |
5.30 |
|
|
$ |
4.96 |
|
Dividend |
|
‒ |
|
|
‒ |
|
||
Risk-free interest |
|
|
1.51 |
% |
|
|
1.92 |
% |
Estimated life (years) |
|
3.57 |
|
|
3.50 |
|
||
Expected volatility |
|
|
60.35 |
% |
|
|
52.92 |
% |
The weighted average fair value of the options granted to employees during the three-month period ended June 30, 2019 is $2.25 (2018 - $2.08). No options were granted to non-employees during the three-month periods ended June 30, 2019 and 2018.
Stock-based compensation recognized under this plan amounted to $905,652 for the three-month period ended June 30, 2019 (2018 - $954,736).
|
(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 June 30, 2019, all performance options were vested.
The number and weighted average exercise prices of performance options are as follow:
|
|
2019 |
|
|
2018 |
|
||||||||||
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
||
|
|
average |
|
|
|
|
|
|
average |
|
|
|
|
|
||
|
|
exercise |
|
|
Number of |
|
|
exercise |
|
|
Number of |
|
||||
|
|
price |
|
|
options |
|
|
price |
|
|
options |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at April 1, 2019 and 2018 |
|
$ |
1.55 |
|
|
|
25,000 |
|
|
$ |
1.55 |
|
|
|
325,000 |
|
Exercised (note 10 (a)) |
|
|
— |
|
|
|
— |
|
|
|
1.55 |
|
|
|
(200,000 |
) |
Options outstanding at June 30, 2019 and 2018 |
|
$ |
1.55 |
|
|
|
25,000 |
|
|
$ |
1.55 |
|
|
|
125,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2019 and 2018 |
|
$ |
1.55 |
|
|
|
25,000 |
|
|
$ |
1.55 |
|
|
|
125,000 |
|
Stock-based compensation recognized under this plan amounted to nil for the three-month period ended June 30, 2019 (2018 - $40,942).
|
(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.
16
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
|
2019 |
|
|
2018 |
|
|||||||||||
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
||
|
|
average |
|
|
|
|
|
|
average |
|
|
|
|
|
||
|
|
exercise |
|
|
Number of |
|
|
exercise |
|
|
Number of |
|
||||
|
|
price |
|
|
DSUs |
|
|
price |
|
|
DSUs |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DSUs outstanding at April 1, 2019 and 2018 |
|
$ |
1.56 |
|
|
|
448,387 |
|
|
$ |
1.50 |
|
|
|
570,752 |
|
Forfeited |
|
|
1.63 |
|
|
|
(73,840 |
) |
|
|
— |
|
|
|
— |
|
DSUs outstanding at June 30, 2019 and 2018 |
|
$ |
1.55 |
|
|
|
374,547 |
|
|
$ |
1.50 |
|
|
|
570,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DSUs exercisable at June 30, 2019 and 2018 |
|
$ |
1.54 |
|
|
|
372,898 |
|
|
$ |
1.46 |
|
|
|
392,712 |
|
Of the 374,547 DSUs outstanding as at June 30, 2019, 92,756 DSUs vested upon achievement of performance conditions, 63,657 DSUs vested upon services to be rendered during a period of twelve months from date of grant and 218,134 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.
Stock-based compensation recognized under this plan amounted to ($48,726) for the three-month period ended June 30, 2019 (2018 - $29,605).
13. |
Supplemental cash flow disclosure: |
|
(a) |
Changes in operating assets and liabilities: |
|
|
Three-month periods ended |
|
|||||
|
|
June 30, |
|
|
June 30, |
|
||
|
|
2019 |
|
|
2018 |
|
||
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
$ |
104,876 |
|
|
$ |
699,891 |
|
Prepaid expenses |
|
|
(1,239,675 |
) |
|
|
(279,470 |
) |
Inventories |
|
|
(1,370,504 |
) |
|
|
(1,971,419 |
) |
Trade and other payables |
|
|
1,892,598 |
|
|
|
1,608,396 |
|
Provisions |
|
|
(1,334,208 |
) |
|
|
— |
|
Deferred revenues |
|
|
281,959 |
|
|
|
61,624 |
|
Changes in operating assets and liabilities |
|
$ |
(1,664,954 |
) |
|
$ |
119,022 |
|
|
(b) |
Non-cash transactions: |
|
|
Three-month periods ended |
|
|||||
|
|
June 30, |
|
|
June 30, |
|
||
|
|
2019 |
|
|
2018 |
|
||
|
|
|
|
|
|
|
|
|
Acquired property, plant and equipment included in trade and other payables |
|
$ |
909,310 |
|
|
$ |
1,337,785 |
|
Intangible assets included in trade and other payables |
|
|
655,768 |
|
|
|
415,195 |
|
Intangible assets included in long-term payables |
|
|
701,170 |
|
|
|
264,234 |
|
Provision settled in shares of the Corporation (note 9 (b)) |
|
|
3,312,000 |
|
|
|
— |
|
Deferred lease inducements against right-of-use assets for IFRS 16 transition (note 3) |
|
|
207,745 |
|
|
|
— |
|
Prepaid rent applied against right-of-use assets for IFRS 16 transition (note 3) |
|
|
22,127 |
|
|
|
— |
|
Common shares of Acasti held by the Corporation transferred to settle provision (note 9 (b)) |
|
|
2,310,000 |
|
|
|
— |
|
17
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
|
|
|
|
Cash (used in) provided by financing activities |
|
|
Non-cash changes |
|
|
|
|
|||||
|
Balance as at March 31, 2019 |
|
Proceeds |
|
Repayments |
|
|
Accretion of interest |
|
Balance as at June 30, 2019 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan |
$ |
2,846,501 |
|
$ |
– |
|
$ |
(267,858 |
) |
|
$ |
8,802 |
|
$ |
2,587,445 |
|
Bank line of credit |
|
620,000 |
|
|
1,360,000 |
|
|
– |
|
|
|
– |
|
|
1,980,000 |
|
Total long-term debt |
$ |
3,466,501 |
|
$ |
1,360,000 |
|
$ |
(267,858 |
) |
|
$ |
8,802 |
|
$ |
4,567,445 |
|
14.Financial instruments:
Financial assets and liabilities measured at fair value on a recurring basis are the investment in Acasti Pharma Inc. (“Acasti”).
As at June 30, 2019, the Corporation has 2,964,694 common shares of Acasti (5,064,694 as at March 31, 2019). The fair value of the investment in Acasti was determined to be $4,328,454 or $1.46 per share as at June 30, 2019 ($6,837,337 or $1.35 per share as at March 31, 2019). During the three-month period ended June 30, 2019, 2,100,000 Acasti shares held by the Corporation were transferred to settle a litigation provision with the Former CEO (refer to note 9 (b)) with a change in fair value loss of $525,000. The remaining investment was measured using Acasti’s stock market price, a level 1 input with a change in fair value gain of $326,117. The net change in fair value of the investment amounted to a $198,883 loss and was recognized in other comprehensive 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.
15. |
Commitments and contingencies: |
|
(a) |
Commitments: |
|
(i) |
As at September 30, 2016, Neptune 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 $5,515,392 (US$4,211,831). On November 2, 2017, Neptune entered into another exclusive commercial agreement for the same speciality ingredient in combination with cannabinoids coming from cannabis or hemp for a period of 11 years with minimum annual volumes of sales starting in 2019 corresponding to total royalties of $1,560,000 to maintain the exclusivity. |
|
(ii) |
On December 21, 2018, Neptune entered into a 5 year IP licencing and capsule agreement with Lonza. All royalties based on net sales of capsules greater than the minimum volume requirements will be recorded as incurred in cost of goods sold. |
|
(iii) |
Capital expenditures of $4,800,000 were approved by the Board for Phase 2 capacity expansion. As at June 30, 2019, Neptune signed various capital expenditure contracts related to this second investment amounting to $4,236,196 of which $2,602,955 has been paid and $691,235 is included in trade and other payables. |
|
(iv) |
During the year ended March 31, 2019, the Corporation has entered into a contract for security of its cannabis manufacturing facility. This contract will give rise to annual expense of approximately $172,000 for the next 5 years. The Corporation also entered into a contract for EU GMP consultation. The remaining commitment related to those contracts amounts to $950,742. |
|
(v) |
As at June 30, 2019, the Corporation has signed agreements with various partners to execute research and development projects for a total remaining amount of $574,697. |
18
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
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) |
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 revenues in semi-annual instalments, for an unlimited period. Some of the terms of this agreement are being disputed. Based on currently available information, a provision of $1,008,368 has been recognised (refer to note 9) for this claim as at June 30, 2019. |
|
(ii) |
The Corporation initiated arbitration in August 2014 against a krill oil customer that owed approximately $4,845,150 (US$3,700,000). The full amount of trade receivable was written-off in February 2015. This customer is counterclaiming a sum in damages. During the year ended March 31, 2019, the counterclaim amount was amended to $185 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 for the hearing occurred in July 2019. The Corporation is waiting for the arbitral award. Based on currently available information, no provision has been recognised for this case as at June 30, 2019. |
The outcome of these claims and legal proceedings against the Corporation cannot be determined with certainty and is subject to future resolution, including the uncertainties of litigation.
16. |
Operating segments: |
The Corporation’s reportable segments are the nutraceutical and the cannabis segments. The nutraceutical segment offers turnkey solutions including services such as raw material sourcing, formulation, quality control and quality assurance primarily for omega-3 and hemp-derived ingredients under different delivery forms such as softgels, capsules and liquids. In the cannabis segment, Neptune provides extraction and purification services from cannabis and hemp biomass. The Company also offers formulation and manufacturing solutions for value added product forms such as tinctures, sprays, topicals, vapor products and edibles and beverages.
Information regarding the results of each reportable segment is included below. 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 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 Sherbrooke facility is used for the extraction, purification and formulation of cannabis oil extracts and is presented under the cannabis segment information.
19
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
Three-month period ended June 30, 2019:
|
|
Nutraceutical |
|
|
Cannabis |
|
|
Corporate |
|
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external sales and royalties |
|
$ |
4,293,007 |
|
|
$ |
38,354 |
|
|
$ |
29,647 |
|
|
$ |
4,361,008 |
|
Gross profit |
|
|
1,349,512 |
|
|
|
(2,091,334 |
) |
|
|
29,647 |
|
|
|
(712,175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses net of credits and grants |
|
|
(92,698 |
) |
|
|
(249,638 |
) |
|
|
|
|
|
|
(342,336 |
) |
Selling, general and administrative expenses |
|
|
(1,011,806 |
) |
|
|
(349,152 |
) |
|
|
|
|
|
|
(1,360,958 |
) |
Segment income (loss) from operating activities before corporate expenses |
|
|
245,008 |
|
|
|
(2,690,124 |
) |
|
|
29,647 |
|
|
|
(2,415,469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
|
|
$ |
(3,968,906 |
) |
|
|
(3,968,906 |
) |
Net finance costs |
|
|
|
|
|
|
|
|
|
|
(118,720 |
) |
|
|
(118,720 |
) |
Income tax recovery |
|
|
|
|
|
|
|
|
|
|
50,947 |
|
|
|
50,947 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,452,148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(167,862 |
) |
|
|
(794,434 |
) |
|
|
(121,379 |
) |
|
|
(1,083,675 |
) |
Stock-based compensation |
|
|
(117,343 |
) |
|
|
(273,046 |
) |
|
|
(466,537 |
) |
|
|
(856,926 |
) |
Reportable segment assets |
|
|
23,449,123 |
|
|
|
51,386,555 |
|
|
|
12,517,467 |
|
|
|
87,353,145 |
|
Reportable segment goodwill |
|
|
6,750,626 |
|
|
|
— |
|
|
|
— |
|
|
|
6,750,626 |
|
Reportable segment liabilities |
|
|
9,154,045 |
|
|
|
2,316,720 |
|
|
|
6,654,007 |
|
|
|
18,124,772 |
|
20
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
Three-month period ended June 30, 2018:
|
|
Nutraceutical |
|
|
Cannabis |
|
|
Corporate |
|
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external sales and royalties |
|
$ |
5,168,274 |
|
|
$ |
— |
|
|
|
|
|
|
$ |
5,168,274 |
|
Gross profit |
|
|
1,493,232 |
|
|
|
— |
|
|
|
|
|
|
|
1,493,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses net of credits and grants |
|
|
(86,586 |
) |
|
|
(1,588,879 |
) |
|
|
|
|
|
|
(1,675,465 |
) |
Selling, general and administrative expenses |
|
|
(1,088,353 |
) |
|
|
(496,338 |
) |
|
|
|
|
|
|
(1,584,691 |
) |
Segment income (loss) from operating activities before corporate expenses |
|
|
318,293 |
|
|
|
(2,085,217 |
) |
|
|
|
|
|
|
(1,766,924 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate general and administrative expenses |
|
|
|
|
|
|
|
|
|
$ |
(2,268,053 |
) |
|
|
(2,268,053 |
) |
Net finance costs |
|
|
|
|
|
|
|
|
|
|
(147,544 |
) |
|
|
(147,544 |
) |
Income tax recovery |
|
|
|
|
|
|
|
|
|
|
82,549 |
|
|
|
82,549 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,099,972 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(186,121 |
) |
|
|
(515,377 |
) |
|
|
(51,760 |
) |
|
|
(753,258 |
) |
Stock-based compensation |
|
|
(129,350 |
) |
|
|
(267,904 |
) |
|
|
(625,029 |
) |
|
|
(1,022,283 |
) |
Reportable segment assets |
|
|
25,227,021 |
|
|
|
44,384,443 |
|
|
|
26,063,032 |
|
|
|
95,674,496 |
|
Reportable segment goodwill |
|
|
6,750,626 |
|
|
|
— |
|
|
|
— |
|
|
|
6,750,626 |
|
Reportable segment liabilities |
|
|
10,087,480 |
|
|
|
2,269,525 |
|
|
|
1,852,161 |
|
|
|
14,209,166 |
|
|
(b) |
Geographical information: |
Revenue is attributed to geographical locations based on the origin of customers’ location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month period |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended June 30, 2019 |
|
||
|
Nutraceutical |
|
|
Cannabis |
|
|
Royalties |
|
|
Corporate |
|
|
Total revenues |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
$ |
1,515,071 |
|
|
$ |
38,354 |
|
|
$ |
16,523 |
|
|
$ |
29,647 |
|
|
$ |
1,599,595 |
|
United States |
|
2,436,072 |
|
|
|
— |
|
|
|
325,341 |
|
|
|
— |
|
|
|
2,761,413 |
|
|
$ |
3,951,143 |
|
|
$ |
38,354 |
|
|
$ |
341,864 |
|
|
$ |
29,647 |
|
|
$ |
4,361,008 |
|
|
|
|
|
|
|
|
|
|
Three-month period |
|
|
|
|
|
|
|
|
|
|
|
ended June 30, 2018 |
|
|
|
Nutraceutical |
|
|
Royalties |
|
|
Total revenues |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
$ |
1,781,914 |
|
|
$ |
1,037 |
|
|
$ |
1,782,951 |
|
United States |
|
2,576,827 |
|
|
|
269,088 |
|
|
|
2,845,915 |
|
Other countries |
|
539,408 |
|
|
|
— |
|
|
|
539,408 |
|
|
$ |
4,898,149 |
|
|
$ |
270,125 |
|
|
$ |
5,168,274 |
|
The Corporation’s property, plant and equipment and intangible assets are mainly geographically located in Canada.
21
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)
For the three-month periods ended June 30, 2019 and 2018
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 periods ended June 30, 2019 and 2018:
|
|
Three-month periods ended |
|
|||||
|
|
June 30, |
|
|
June 30, |
|
||
|
|
2019 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
Short-term benefits |
|
$ |
608,487 |
|
|
$ |
756,720 |
|
Share-based compensation costs |
|
|
622,463 |
|
|
|
865,772 |
|
Severance (note 18 (a)) |
|
|
249,688 |
|
|
|
— |
|
|
|
$ |
1,480,638 |
|
|
$ |
1,622,492 |
|
18. |
Subsequent events: |
|
(a) |
Change in management team |
|
On July 8, 2019, Neptune announced the appointment of Michael Cammarata as its Chief Executive Officer (CEO) and Member of the Board of Directors. Jim Hamilton has stepped down from his role as CEO and Director of the Corporation but will remain as an advisor to the Board. According to his amended employment agreement, Jim Hamilton was entitled to a termination severance and his unvested options vest based on a pro-rata basis as of his termination employment date. As a result of applying the clauses of this agreement, 638,493 of his outstanding unvested options were accelerated vested and 510,794 of his unvested options were forfeited. In the three-month period ended June 30, 2019, a stock-based compensation expense of $32,854 and a severance expense of $249,688 were recorded in Selling, general and administration expenses in the Statement of Earnings and Comprehensive Loss.
At the next Shareholders Meeting in August 2019, amendments to the stock option plan will be submitted for approval in connection to options granted to the new CEO.
The Vice-President & Chief Financial Officer (CFO) of the Corporation, Mario Paradis, has decided to leave the Corporation but will remain as CFO at Neptune for the transition period until the appointment of the new CFO. According to his separation agreement, Mario Paradis is entitled to his unvested options with accelerated vesting date.
|
(b) |
Private placement |
|
On July 18, 2019, Neptune announced that it completed a private placement with both existing and new institutional investors resulting in gross proceeds to the Corporation of $53.9 million (US$41.4 million). Upon closing of the Offering, the Corporation issued an aggregate of 9,415,910 common shares of the Corporation at a purchase price of US$4.40 per Share.
|
(c) |
SugarLeaf Acquisition |
|
On July 24, 2019, Neptune announced that it has completed the acquisition of the assets of SugarLeaf. Neptune paid an initial consideration for SugarLeaf of $23.7 million (US$18 million), a combination of US$12 million in cash and US$6 million or 1,587,301 in common shares. Additionally, by achieving certain annual adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") and other performance targets, earnouts could reach $173.5 million (US$132 million). The earnout payments over the next three years are to be paid with a combination of cash or common shares, with at least 50% in cash. The initial cash consideration of this transaction was funded with the proceeds of the private placement. Acquisition costs of $367,000 were recorded in Selling, general and administration expenses in the Statement of Earnings and Comprehensive Loss during the three-month period ended June 30, 2019.
Through SugarLeaf, Neptune establishes a U.S.-based hemp extract supply chain, gaining a 24,000 square foot facility located in the U.S. Southeast region. SugarLeaf's cold ethanol processing facility with a processing capacity of 1,500,000 kg uses hemp cultivated by licensed American growers consistent with federal and state regulations to yield full and broad-spectrum hemp extracts.
22
Exhibit 99.3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Michael Cammarata, 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 June 30, 2019. |
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 April 1st, 2019 and ended on June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: August 14, 2019
/s/ Michael Cammarata
Michael Cammarata 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 June 30, 2019. |
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 April 1st, 2019 and ended on June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: August 14, 2019
/s/ Mario Paradis
Mario Paradis Chief Financial Officer
|