All amounts in the tables contained in this MD&A are in millions of dollars, except for basic and diluted income (loss) per share which are shown in dollars.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
GOING CONCERN
These conditions cast substantial doubt about the Corporation’s ability to continue as a going concern.
While the Company has been successful in obtaining financing from public issuances, private placements, and related parties in the past, there is no certainty as to future financings.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
HISTORY
OUR PROPERTIES AND OPERATIONS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
PRODUCTS, PRINCIPAL MARKETS, METHODS OF DISTRIBUTION AND BRANDS
Products
Canadian Cannabis Products – Extracts and Formulations
MARKETS
Nutraceuticals
Beauty & Personal Care
Organic Foods and Beverages
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Beauty & Personal Care
The Company sells its Beauty and Personal Care products through distributors and directly to retail outlets in the United States. It also sells its products online through its own website forestremedies.com as well as e-commerce sites.
Organic Foods and Beverages
OUR B2C BRAND PORTFOLIO STRATEGY
We are currently working on accelerating brand equity for our brand portfolio: [[Image Removed: img135228531_0.jpg]] Biodroga™. Neptune, through its Biodroga subsidiary, provides
solutions (4PL) to its customers
ingredients or developing unique
apart from their competition.
MaxSimil, various Omega-3 fish oils
as well as softgel
[[Image Removed: img135228531_1.jpg]] MaxSimil. Neptune’s patented MaxSimil is an omega-3 fatty acid
enzymes that mimic the natural
omega-3 supplement with standard
[[Image Removed: img135228531_2.jpg]] Forest Remedies®. Under our Forest Remedies® brand, we offer
multi-omega gummies and soft gels with
[[Image Removed: img135228531_3.jpg]] Sprout®. Neptune entered a new market with the Neptune/Sprout
contain nothing artificial.
segments: Stage 2 (children 6
expansion efforts in Sprouts’
Target’s U.S. retail
on July 27, 2021, its initial
through its partnership with
toddler snacks under this brand
grocery stores in the province
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
REGULATORY
•
product claims and advertising;
how we manufacture, package, distribute, import, export, sell and store our products; and
•
our classification as an essential business and our right to continue operations during government shutdowns.
Health Canada and he FDA also regulate the labeling and marketing of dietary supplements and nutritional products, including the following:
•
the identification of dietary supplements or nutritional products and their nutrition and ingredient labeling;
•
requirements related to the wording used for claims about nutrients, health claims, and statements of nutritional support;
•
labeling requirements for dietary supplements or nutritional products for which “high potency” and “antioxidant” claims are made;
•
notification procedures for statements on dietary supplements or nutritional products; and
•
premarket notification procedures for new dietary ingredients in nutritional supplements.
Cannabis Regulatory Framework
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTELLECTUAL PROPERTY
Patent Applications
EMPLOYEES
SEASONALITY
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Closing of a $8,000,000 Registered Direct Offering
Closing of a $5,000,000 Registered Direct Offering Priced At-The-Market Under Nasdaq Rules
Expansion of the Existing Secured Promissory Notes
Major Distribution Gains
Strategic Partnerships
Investing in Our Prospects
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
RECENT CORPORATE DEVELOPMENTS
Neptune’s Presence in Canada’s Cannabis Market
Launch of a New CPG Focused Strategic Plan
Neptune Announces New Line of CoComelon® Co-Branded Products
Changes to Management
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
SELECTED CONSOLIDATED ANNUAL AND QUARTERLY INFORMATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION (in millions)
The following table sets out selected consolidated financial information.
Net loss attributable to equity holders of the
(16.908)
Net loss attributable to non-controlling interest (2.220) (1.948) Basic and diluted loss per share
(3.97)
Basic and diluted loss per share attributable
(3.56)
Basic and diluted loss per share attributable
14.593
115.368
22.178
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
CONSOLIDATED FINANCIAL ANALYSIS
NON-GAAP FINANCIAL PERFORMANCE MEASURES
A reconciliation of net loss to Adjusted EBITDA is presented below.
ADJUSTED EBITDA
Adjusted EBITDA1 reconciliation, in millions of dollars
3.080
0.093
0.116
1.048
–
–
–
0.530
0.012
1 The Adjusted EBITDA is not a standard measure endorsed by US GAAP requirements.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
OPERATING SEGMENTS
Revenue is attributed to geographical locations based on the origin of customers’ location.
The Company’s property plant and equipment, intangible assets and goodwill are attributed to geographical locations based on the location of the assets.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
RESULTS ANALYSIS
Adoption of US GAAP – Comparative Period Amounts
Revenues
Consolidated revenue summary, in millions of dollars:
Three-month periods ended 16.3 10.1 6.2 61%
Total consolidated revenues for the three-month period ended June 30, 2022 amounted to $16.3 million representing an increase of $6.2 million or 61% compared to $10.1 million for the three-month period ended June 30, 2021.
Geographic Revenues
Gross Profit (Loss)
Gross profit (loss) 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 to acquire finished goods.
Consolidated gross profit (loss) summary, in millions of dollars
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Gross Margin Percentage
For the three-month periods ended June 30, 2022 and 2021, the consolidated gross margin went from (23.0)% in 2021 to (17.8)% in 2022, an increase of 5.3%.
All changes in gross margins result from the changes in revenues and gross profit (loss), and are described above.
Research and Development (“R&D”) Expenses
three-month period ended June 30, 2022 compared to June 30, 2021
Selling, General and Administrative (“SG&A”) Expenses
Finance costs
Income taxes
Net loss
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
FINANCIAL AND CAPITAL MANAGEMENT
USE OF PROCEEDS
The use of proceeds for the three-month periods ended June 30, 2022 and 2021, in millions of dollars, was as follows:
Proceeds from the issuance of shares through a Direct Offering
$-
0.470
0.074
–
Withholding taxes paid pursuant to the settlement of non-treasury RSUs
0.979
For the three-month period ended June 30, 2021, there were no significant sources of funds. In the same period, uses of funds were used for operating activities, primarily inventory procurement, payments for legacy Health and Wellness COVID-19 related products, salaries and professional fees, as well as acquisition and integration costs, resulting in net cash outflows of $20.7 million.
Direct Offering
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
Cash flows and financial condition between the three-month periods ended June 30, 2022 and 2021
As at June 30, 2022, cash and cash equivalent totaled $6.2 million, a decrease of $2.5 million or 29% compared to cash and cash equivalents totaling $8.7 million as at June 30, 2021.
Operating activities
Investing activities
Loans and borrowings
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Equity
Equity consists of the following items:
(7.814)
(323.182)
Total equity attributable to equity holders of the Corporation
48.116
The following are the contractual obligations as at June 30, 2022:
Liabilities related to warrants are excluded from the table above, as they are to settle in shares.
Under the terms of its financing agreements, the Company is not required to meet financial covenants.
The Company is required to pay royalties of 1% of its revenues in semi-annual instalments, for an unlimited period to the former CEO. A provision of $0.5 million for royalty payments is included in the table above for amounts currently due and is not otherwise included in table above.
Refer also to provisions disclosed in note 7, commitments disclosed in note 15(a) and legal proceedings in note 15(b) of the condensed consolidated interim financial statements for the three-month periods ended June 30, 2022 and 2021.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
ACCOUNTING POLICIES
OUR ACCOUNTING POLICIES
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Critical accounting estimates are:
•
Estimating the write down of inventories
Net realizable value is subject to measurement uncertainty because it can be difficult to predict market demands and timing of supply due to logistics.
•
Estimating the expected credit losses for trade receivables
The Corporation’s extension of credit to customers involves judgment and is based on an evaluation of each customer’s financial condition and payment history. From time to time, the Corporation will temporarily transact with customers on a prepayment basis where circumstances warrant. The Corporation’s credit controls and processes cannot eliminate credit risk.
The expected credit loss for the quarter ended June 30, 2022 and 2021 $0.02 million and $0.04 million respectively. Expected credit loss is subject to estimation risk and measurement uncertainty because the financial health of certain customers is difficult to predict.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
•
Estimating the recoverable amount of non-financial assets, to determine and measure impairment losses on goodwill, intangibles, and property, plant and equipment.
•
Estimating the fair value less costs to sell of our assets held for sale.
•
Estimating the revenue from contracts with customers subject to variable consideration. Refer to note 2(c) of the consolidated financial statements for more details).
•
•
Estimating the fair value of bonus-based on market conditions (note 10 of the consolidated financial statements)
•
CHANGES IN ACCOUNTING POLICIES AND FUTURE ACCOUNTING CHANGES
ISSUED AND OUTSTANDING SECURITIES
The following table details the number of issued and outstanding securities as at the date of this MD&A:
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