Table of Contents

As filed with the Securities and Exchange Commission on November 

7
, 2022
May 9, 2023

Registration

No. 333-            
333-271403

​

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1

To

FORM

S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

NEPTUNE WELLNESS SOLUTIONS INC.

(Exact name of registrant as specified in its charter)

​

Quebec

2836

Not Applicable

Quebec
2836
Not Applicable

(State or Other Jurisdiction of


Incorporation or Organization)

(Primary Standard Industrial


Classification Code Number)

(I.R.S. Employer


Identification No.)

​

545 Promenade du Centropolis

Suite 100

Laval, Quebec, Canada H7T 0A3

(450)

687-2262

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

CT Corporation System

28 Liberty Street

New York, NY 10005

(212)

894-8800

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies of all communications, including communication sent to agent for service, should be sent to

​

François Paradis

​

​

John S. Wirt

​

Thomas M. Rose

​

François Paradis
Osler, Hoskin & Harcourt LLP

General Counsel
Nicole Edmonds

1000 De La GauchetiéGauchetière Street West

Suite 2100
Montréal, Québec, H3B 4W5
Canada
(514) 904-8100

c/o

John S. Wirt
General Counsel
Neptune Wellness Solutions Inc.


545 Promenade du
Centropolis, Suite 100
Laval, Quebec, H7T 0A3
Canada
(450) 687-2262

Thomas M. Rose,Shona Smith
Troutman Pepper Hamilton Sanders LLP

Suite 2100
545 Promenade du Centropolis, Suite 100

401 9th Street, NW, Suite
1000
Montréal, Québec, H3B 4W5
Laval, Quebec, H7T 0A3

Washington, DC 20004
Canada
Canada

United States
(514)
904-8100

(757) 687-7715

(450)
687-2262
(757)
687-7715

Daniel A. Bagliebter, Esq.

Ivan K. Blumenthal, Esq.

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

919 Third Avenue

New York, NY 10022

(212) 935-3000

​

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐

☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2
of the Exchange Act.

​

​

​

​

​

​

Large accelerated filer

☐

☐

Accelerated filer

☐

​

​

​

​

​

Non-accelerated

filer

☒

☒

​

Smaller reporting company

☒

​

​

​

​

​

​

​

​

Emerging Growth Company

☐

​

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

​

​

​

​

Table of Contents

The information in this preliminary prospectus is not complete and may be changed. The securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated November 7, 2022.May 9, 2023.

PRELIMINARY PROSPECTUS

Graphic

LOGO

Neptune Wellness Solutions Inc.

Up to 6,417,11412,068,966 Common Shares

Up to 12,068,966 Pre-Funded Warrants to Purchase up to 12,068,966 Common Shares

Up to 12,068,966 Common Warrants to Purchase up to 12,068,966 Common Shares

Up to 24,137,932 Common Shares Underlying the Common Warrants

and Pre-Funded Warrants

This prospectus relates to the issuance by us and the resale by the selling security holders named in this prospectus (the “Selling Shareholders”) ofWe are offering on a “reasonable best efforts basis” up to an aggregate of 6,417,114$7.0 million of our common shares, no par value per share (“Common Shares”Shares”), upontogether with warrants (“Common Warrants”) to purchase up to 12,068,966 common shares pursuant to this prospectus at an assumed public offering price of $0.58 per Common Share and accompanying Common Warrant, which was the exerciseclosing price of warrants to purchase our common shares (the “Warrants”on The Nasdaq Capital Market of the Nasdaq Stock Market LLC (“Nasdaq”) on May 5, 2023. Each Common Share, or a pre-funded warrant in lieu thereof, is being sold together with a Common Warrant to purchase one Common Share. Each Common Warrant is exercisable to purchase one Common Share at an exercise price of $      will be exercisable upon issuance and will expire five years from the date of issuance.

We are also offering to certain purchasers whose purchase of Common Shares in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding Common Shares immediately following the consummation of this offering or if the purchaser shall otherwise elect, the opportunity to purchase, if any such purchaser so chooses, pre-funded warrants (“Pre-Funded Warrants” and, collectively with the Common Warrants, the “Warrants”), in lieu of Common Shares that would otherwise result in such purchaser’s beneficial ownership exceeding 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding Common Shares or as such purchaser shall otherwise elect. Each Pre-Funded Warrant will be exercisable for one Common Share. The purchase price of each Pre-Funded Warrant and the accompanying Common Warrant will be equal to the price at which one Common Share and the accompanying Common Warrant are sold to the public in this offering, minus $0.0001, and the exercise price of each Pre-Funded Warrant will be $0.0001 per Common Share. The Pre-Funded Warrants will be immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. For each Pre-Funded Warrant we issued to Selling Shareholderssell, the number of Common Shares we are offering will be decreased on a one-for-one basis. Because we will issue one Common Warrant for each Common Share and for each Pre-Funded Warrant sold in this offering, the number of Common Warrants sold in this offering will not change as a private placement that closed pursuant to that certain Securities Purchase Agreement dated October 6, 2022 (the “Purchase Agreement”) with certain institutional investors, pursuant to which Neptune Wellness Solutions Inc. (the “Company”) agreed to issue and sell,result of a change in a registered direct offering, 3,208,557the mix of itsthe Common Shares and Pre-Funded Warrants sold. The Common Shares and Common Warrants will be separately issued, but the Common Shares and Common Warrants in a concurrent private placement (the “Private Placement”will be issued and sold together to purchasers as common units (“Common Units”), and the Pre-Funded Warrants and Common Warrants will be separately issued, but the Pre-Funded Warrants and Common Warrants will be issued and sold together to purchasers as pre-funded units (“Pre-Funded Units”).

Our registrationThis offering will terminate on                 , 2023, unless we decide to terminate the offering (which we may do at any time in our discretion) prior to that date. We will have one closing for all the securities purchased in this offering. The combined public offering price per Common Share (or Pre-Funded Warrant) and Common Warrants will be fixed for the duration of this offering.

This prospectus also relates to the offering of the securities covered by this prospectus does not mean that either we or the Selling Shareholders will issue, offer or sell, as applicable, anyCommon Shares issuable upon exercise of the securities hereby registered. The Selling Shareholders may offer, sell, or distribute all or a portion ofCommon Warrants and the securities hereby registered publicly or through private transactions at prevailing market prices or at negotiated prices. We will not receive any of the proceeds from such sales of our Common Shares by the Selling Shareholders pursuant to this prospectus. We will, however, receive the net proceeds of any Warrants exercised for cash. We will bear all costs, expenses and fees in connection with the registration of these securities, including with regard to compliance with state securities or “blue sky” laws. The Selling Shareholders will bear all commissions and discounts, if any, attributable to their sale of our common shares. See “Plan of Distribution” beginning on page 101 of this prospectus.Pre-Funded Warrants.

You should read this prospectus and any prospectus supplement or amendment carefully before you invest in our securities.

1

Table of Contents

We have engaged A.G.P./Alliance Global Partners (the “Placement Agent”) to act as our exclusive placement agent in connection with this offering. The Placement Agent has agreed to use its reasonable best efforts to arrange for the sale of the securities offered by this prospectus. The Placement Agent is not purchasing or selling any of the securities we are offering and the Placement Agent is not required to arrange the purchase or sale of any specific number of securities or dollar amount. We have agreed to pay to the Placement Agent the fees set forth in the table below, which assumes that we sell all of the securities offered by this prospectus. There is no arrangement for funds to be received in escrow, trust or similar arrangement. There is no minimum offering requirement. We will bear all costs associated with the offering. See “Plan of Distribution” on page 110 of this prospectus for more information regarding these arrangements.

Our Common Shares are listed on The Nasdaq Capital Market (“Nasdaq”) under the symbol “NEPT”. On November 4, 2022,May 5, 2023, the last reported sale price of our Common Shares was $1.10$0.58 per share on the Nasdaq. The combined public offering price per Common Shares (or Pre-Funded Warrant) and accompanying Common Warrants will be determined between us and investors based on market conditions at the time of pricing, and may be at a discount to the current market price of our common shares. Therefore, the recent market price used throughout this prospectus may not be indicative of the actual offering price. There is no established public trading market for the Pre-Funded Warrants or Common Warrants, and we do not expect a market to develop. In addition, we do not intend to apply for a listing of the Pre-Funded Warrants or Common Warrants on any national securities exchange.

Our business and investing in our securities involve a high degree of risk. See “Risk Factors” beginning on page 1416 of this prospectus and in the other documents that are incorporated by reference in this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Per

Per Pre-

​

​

​

​

Common

​

Funded

​

​

​

​

​

Share and

​

Warrant and

​

​

​

​

​

Common Warrant

​

Common Warrant

​

Total

Public offering price

​

$

​

​

$

​

​

$

​

Placement Agent’s fees(1)

​

$

​

​

$

​

​

$

​

Net proceeds to us, before expenses(1)

​

$

​

​

$

​

​

$

​

(1)

We have agreed to pay the Placement Agent a total cash fee equal to 5.5% of the gross proceeds of the offering. We will also reimburse the Placement Agent for non-accountable expenses in the amount of $50,000 and for legal and out-of-pocket expenses in the amount of $100,000. See “Plan of Distribution”.

The Placement Agent expects to deliver the securities to the purchasers in the offering on or about                 , 2023, subject to satisfaction of certain conditions.

Sole Placement Agent

A.G.P.

The date of this prospectus is November 7, 2022., 2023.

​

​

2

Table of Contents

TABLE OF CONTENTS

​

​

TABLE OF CONTENTS

3

MARKET AND OTHER INDUSTRY DATA

1

4

TRADEMARKS AND COPYRIGHTS

1

4

ABOUT THIS PROSPECTUS

2

4

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

4

5

RISK FACTORFACTORS SUMMARY

7

PROSPECTUS SUMMARY

9

10

THE OFFERING

12

14

MARKET AND INDUSTRY DATA AND FORECASTSRISK FACTORS

13

16

RISK FACTORSUSE OF PROCEEDS

14

35

USE OF PROCEEDSCAPITALIZATION

35

36

DETERMINATION OF OFFERING PRICEDILUTION

36

37

MARKET INFORMATION FOR SECURITIES AND DIVIDEND POLICY

37

39

BUSINESS

39

40

LEGAL PROCEEDINGS

49

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

54

51

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS, AND DIRECTOR INDEPENDENCE

82

MANAGEMENT

84

EXECUTIVE COMPENSATION

88

87

DESCRIPTION OF THE REGISTRANT’S SECURITIES TO BE REGISTERED

94

91

CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

97

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

99

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

96

108

SELLING SHAREHOLDERSPLAN OF DISTRIBUTION

98

110

PLAN OF DISTRIBUTIONLEGAL MATTERS

101

112

LEGAL MATTERSEXPERTS

103

112

EXPERTS

103

WHERE YOU CAN FIND MORE INFORMATION

103

113

INDEX TO FINANCIAL STATEMENTS AND EXHIBITS

F-1

​

​

​

3

Table of Contents

MARKET AND OTHER INDUSTRY DATA

Certain market and industry data included in this prospectus, including the size of certain markets and our size or position within these markets, including our products, are based on estimates of our management and third-party reports. Management estimates have been derived from our management’s knowledge and experience in the markets in which we operate, as well as information obtained from surveys, reports by market research firms, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate, which, in each case, we believe are reliable.

We are responsible for all of the disclosure in this prospectus and while we believe the data from these sources to be accurate and complete, we have not independently verified data from these sources or obtained third-party verification of market share data and this information may not be reliable. In addition, these sources may use different definitions of the relevant markets. Data regarding our industry is intended to provide general guidance but is inherently imprecise.

Assumptions and estimates of our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk“Risk Factors-Risks Relating to our Business and Industry.Industry.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Cautionary Note Regarding Forward-Looking Statements.”

TRADEMARKS AND COPYRIGHTS

We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the services that we offer. This prospectus may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this prospectus is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this prospectus are listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trade names and trademarks. All other trademarks, service marks and trade names are the property of their respective owners.

1

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission (the “Commission”“Commission” or the “SEC”“SEC”) using the “shelf” registration process. Under this shelf registration process, the Selling Shareholders may, from time to time, sellregister the securities offered by them described in this prospectus. We will not receive any proceeds fromhereby under the sale by such Selling ShareholdersSecurities Act of the securities offered by them described in this prospectus. We will not receive any proceeds from the sale of Common Shares underlying the Warrants pursuant to this prospectus, except with respect to amounts received by us upon the exercise of the Warrants.

1933, as amended (the “Securities Act”). We may also file a prospectus supplement or post-effective amendment to the registration statement of which this prospectus forms a part that may contain material information relating to these offerings. The prospectus supplement or post-effective amendment may also add, update or change information contained in this prospectus with respect to that offering. If there is any inconsistency between the information in this prospectus and the applicable prospectus supplement or post-effective amendment, you should rely on the prospectus supplement or post-effective amendment, as applicable. Before purchasing any securities, you should carefully read this prospectus, any post-effective amendment, and any applicable prospectus supplement, together with the additional information described under the heading “Where You Can Find More Information.”

Neither we, nor the Selling Shareholders,Placement Agent, have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus, any post-effective amendment, or any applicable prospectus supplement prepared by or on behalf of us or to which we have referred you. We and the Selling ShareholdersPlacement Agent take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the Selling ShareholdersPlacement Agent will not make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus, any post-effective amendment and any applicable prospectus supplement to this prospectus is accurate only as of the date on its respective cover. Our business, financial condition, results of operations and prospects may have changed since those dates. This prospectus contains, and any post-effective amendment or any prospectus supplement may contain, market data and industry statistics and forecasts that are based on independent industry publications and other publicly available information. Although we believe these sources are reliable, we do not guarantee the accuracy or completeness of this information and we have not independently verified this information. In addition, the market and industry data and forecasts that may be included in this prospectus, any post-effective amendment or any prospectus supplement may involve estimates, assumptions and other risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” contained in this prospectus, any post-effective amendment and the applicable prospectus supplement. Accordingly, investors should not place undue reliance on this information.

4

Table of Contents

This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under “Where You Can Find More Information.”

Unless otherwise indicated, all references to “$” or “US$” in this registration statement refer to U.S. dollars, and all references to “C$” refer to Canadian dollars.

We own or have rights to trademarks, trade names and service marks that we use in connection with the operation of our business. In addition, our name, logos and website name and address are our trademarks or service marks. Solely for convenience, in some cases, the trademarks, trade names and service marks referred to in this prospectus are listed without the applicable ®, ™ and SM symbols, but we will assert, to the fullest extent under applicable law, our rights to these trademarks, trade names and service marks. Other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.

2

Unless the context indicates otherwise, references in this prospectus to the “Company,” the “Corporation,” “Neptune,” “we,” “us,” “our,” and similar terms refer to Neptune Wellness Solutions Inc. and its consolidated subsidiaries.

3

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains or incorporates by reference certain information and statements that may constitute forward-looking information within the meaning of Canadian securities laws and forward-looking statements within the meaning of U.S. federal securities laws, both of which we refer to as forward-looking statements, including, without limitation, statements relating to certain expectations, projections, new or improved product introductions, market expansion efforts, and other information related to our business strategy and future plans. Forward-looking statements can, but may not always, be identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “would”, “should”, “believe”, “objective”, “ongoing”, “assumes”, “goal”, “likely” and similar references to future periods or the negatives of these words and expressions and by the fact that these statements do not relate strictly to historical or current matters. The statements we make regarding the following matters are forward-looking by their nature and are based on certain of the assumptions noted below. Forward-looking statements in this prospectus may include, but are not limited to, statements about expectations regarding being subject to taxation in both Canada and the United States; our ability to obtain additional financing in the future and continue as a going concern; uncertainties related to general economic, political, business, industry, and market conditions, including the ongoing COVID-19 pandemic and military conflict between Russia and Ukraine, inflationary pressures, and geopolitical conflicts, the plannedanticipated benefits from the divestiture of our cannabis business, our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; our expectations regarding potential pursuit of strategic acquisitions, joint venture or partnerships, our ability to retain members of our management team and our employees; competition existing today or that will likely arise in the future; and our ability to satisfy the continued listing requirements of the NASDAQ Capital MarketNasdaq or any other exchange on which our securities may trade on.

These forward-looking statements are based on management’s current expectations and are subject to a number of risks, uncertainties, and assumptions, including market and economic conditions, the effect of the COVID-19 pandemic, business prospects or opportunities, future plans and strategies, projections, technological developments, anticipated events and trends and regulatory changes that affect us, our customers and our industries. Although the Company and management believe that the expectations reflected in such forward-looking statements are reasonable and based on reasonable assumptions and estimates, there can be no assurance that these assumptions or estimates are accurate or that any of these expectations will prove accurate. Forward-looking statements are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies that could cause actual events to differ materially from those expressed or implied in such statement.

Undue reliance should not be placed on forward-looking statements. Actual results and developments are likely to differ, and may differ materially, from those anticipated by the Company and expressed or implied by the forward-looking statements contained or incorporated by reference in this prospectus. Such statements are based on a number of assumptions and risks that may prove to be incorrect, including, without limitation, assumptions about:

●our ability to successfully manage our liquidity and expenses, and continue as a going concern;
●the anticipated benefits of the divestiture of our cannabis business;
●our ability to maintain customer relationships and demand for our products;
●the impact of current and future substantial litigation, investigations and proceedings;
●the overall business and economic conditions;
●the potential financial opportunity of our addressable markets;
●the competitive environment;
●the protection of our current and future intellectual property rights;
●our ability to recruit and retain the services of our key personnel;
●our ability to develop commercially viable products;

our ability to successfully manage our liquidity and expenses, and continue as a going concern;

our ability to complete the planned divestiture of our cannabis business;

our ability to maintain customer relationships and demand for our products;

the impact of current and future substantial litigation, investigations and proceedings;

the overall business and economic conditions;

the potential financial opportunity of our addressable markets;

the competitive environment;

the protection of our current and future intellectual property rights;

45

our ability to recruit and retain the servicesTable of our key personnel;Contents

our ability to develop commercially viable products;

●our ability to pursue new business opportunities;
●our ability to obtain financing on reasonable terms or at all;
●our ability to integrate our acquisitions and generate synergies; and
●the impact of new laws and regulations in Canada, the United States or any other jurisdiction in which we currently do or intend to do business.

our ability to pursue new business opportunities;

our ability to obtain financing on reasonable terms or at all;

our ability to integrate our acquisitions and generate synergies; and

the impact of new laws and regulations in Canada, the United States or any other jurisdiction in which we currently do or intend to do business.

Certain forward-looking statements contained herein and incorporated by reference concerning the cannabis industry and the general expectations of the Company concerning the cannabis industry and the Company’s business and operations are based on estimates prepared by the Company using data from publicly available governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of thisthe industry in which the Company operates which the Company believes to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. While the Company is not aware of any misstatement regarding any industry or government data presented herein, the cannabis industry in which the Company operates involves risks and uncertainties and is subject to change based on various factors.

Many factors could cause our actual results, level of activity, performance, achievements, future events or developments to differ materially from those expressed or implied by forward-looking statements, including, without limitation, the factors discussed under “Risk Factors” beginning on page 14 and16, in our Annual Report on Form 10-K for the year ended March 31, 2022, as amended.amended, and in our Quarterly Report on Form 10-Q for the quarter ended December 31, 2022. In particular, you should consider the following risks that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements:

●our inability to achieve the anticipated benefits of the divestiture of our cannabis business;
●our inability to continue as a going concern;
●geopolitical events, such as terrorism, war or other military conflict, including increased uncertainty regarding the ongoing hostility between Russia and the Ukraine and the related impact on macroeconomic conditions as a result of such conflict;
●changes in our industry;
●increased competition within the industries that we operate, particularly the nutraceutical, beauty & personal care and organic foods and beverages industries;
●changes in laws and/or government regulations affecting our business, including tax laws;
●the political environments in the U.S. and Canada;
●the COVID-19 pandemic and the efforts to mitigate its effects;
●systems failures or cybersecurity incidents;
●exposure to current and future claims and litigation, including product liability claims;
●exposure to currency fluctuations and restrictions as well as credit risks;
●potential significant increases in tax liabilities;
●product liability claims;
●our inability to attract or retain key personnel or additional employees required for the development and future success of our business;
●our inability to protect our intellectual property rights;
●changes in intellectual property laws;
●our inability to obtain adequate insurance coverage;
●our reliance on sales to a limited number of customers;
●our failure to maintain any regulatory approvals, licenses and/or permits required for operating our business;
●adverse actions by governmental bodies that regulate our products, business or operations;
●our inability to maintain our liquidity position and manage expenses; and
●our failure to comply with, or remedy deficiencies with, the listing standards of Nasdaq or other securities exchanges on which our Common Shares are listed and trade.

our inability to complete the planned divestiture of our cannabis business;

our inability to continue as a going concern;

geopolitical events, such as terrorism, war or other military conflict, including increased uncertainty regarding the ongoing hostility between Russia and the Ukraine and the related impact on macroeconomic conditions as a result of such conflict;

changes in our industry;

increased competition within the industries that we operate, particularly the nutraceutical, beauty & personal care and organic foods and beverages industries;

changes in laws and/or government regulations affecting our business;

the political environments in the U.S. and Canada;

systems failures or cybersecurity incidents;

exposure to current and future claims and litigation, including product liability claims;

exposure to currency fluctuations and restrictions as well as credit risks;

potential significant increases in tax liabilities;

product liability claims;

our inability to attract or retain key personnel or additional employees required for the development and future success of our business;

our inability to protect our intellectual property rights;

changes in intellectual property laws;

5

our inability to obtain adequate insurance coverage;

significant sales to a limited number of customers;

our failure to maintain any regulatory approvals, licenses and/or permits required for operating our business;

adverse actions by governmental bodies that regulate our products, business or operations;

our inability to maintain our liquidity position and manage expenses; and

our failure to comply with, or remedy deficiencies with, the listing standards of The Nasdaq Capital Market or other securities exchange in which our Common Shares are listed and trade on.

There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those expressly or impliedly expected or estimated in such statements. Shareholders and investors should not place undue reliance on forward-looking statements as the plans, intentions or expectations upon which they are based might not occur. Although the Company cautions that the foregoing list of risk factors, as well as those risk factors presented under the heading “Risk Factors” and elsewhere in this prospectus, are not exhaustive, shareholders and investors should carefully consider them and the uncertainties they represent and the risks they entail. The forward-looking statements contained in this prospectus are expressly qualified in their entirety by this cautionary statement. Unless otherwise indicated, forward-looking statements in this prospectus describe our expectations as of the date of this prospectus and, accordingly, are subject to change after such date. We do not undertake to update or revise any forward-looking statements for any reason, except as required by applicable securities laws.

​

6

Table of Contents

RISK FACTORS SUMMARY

Investing in our securities involves risks. You should carefully consider the risks described under the heading “Risk Factors” beginning on page 1416 before deciding to invest in our securities. If any of these risks actually occurs, our business, financial condition and results of operations would likely be materially adversely affected. In such case, the trading price of our securities would likely decline, and you may lose all or part of your investment. Set forth below is a summary of the principal risks we face:

Risks Relating to our Business and Industry

If we are unable to complete the planned divestiture of our cannabis business, our results of operations and financial condition could be adversely affected.

●•We are exposed to risks associated with the divestiture of our cannabis business
●If we do not manage our supply chain effectively or if there are disruptions in our supply chain, our business and results of operations may be adversely affected.
●

Our future results of operations may be adversely affected by input cost inflation.

●Our future results of operations may be adversely affected by the availability of natural and organic ingredients.
●We may not be successful in achieving savings and efficiencies from cost reduction initiatives and related strategic initiatives.
●COVID-19 has and will continue to impact our operations and could have a material adverse effect on our business, results of operations and financial condition.

●Increasing awareness of health and wellness are driving changes in the consumer products industry, and if we are unable to react in a timely and cost-effective manner, our results of operations and future growth may be adversely affected.
●Markets for our products and services are highly competitive, and we may be unable to compete effectively.
●We may be unable to manage our growth effectively.
●We depend on significant customers for a substantial portion of our revenue. If we fail to retain or expand our customer relationships or significant customers reduce their purchases, our revenue could decline significantly.
●Significant interruptions in our access to certain supply chains, for key inputs such as raw materials, electricity, water, and other utilities may impair our operations.
●Our future success depends on the sales of our consumer products and turnkey solutions products.
●Our activities rely on certain third-party suppliers, contract manufacturers and distributors, and such reliance may adversely affect us if the third parties are unable or unwilling to fulfill their obligations.
●Our products may be subject to recalls for a variety of reasons, which could require us to expend significant management and capital resources.
●We may not meet timelines for project development.
●Product contamination or tampering or issues or concerns with respect to product quality, safety and integrity could adversely affect our business, reputation, financial condition or results of operations.
●The Company may have difficulty obtaining insurance to cover its operational risks and, even where available, may not be sufficient to cover losses we may incur.

Increasing awareness of health and wellness are driving changes in the consumer products industry, and if we are unable to react in a timely and cost-effective manner, our results of operations and future growth may be adversely affected.

Markets for our products and services are highly competitive, and we may be unable to compete effectively.

We may be unable to manage our growth effectively.

We depend on significant customers for a substantial portion of our revenue. If we fail to retain or expand our customer relationships or significant customers reduce their purchases, our revenue could decline significantly.

Significant interruptions in our access to certain supply chains, for key inputs such as raw materials, electricity, water, and other utilities may impair our operations.

Our future success depends on the sales of our consumer products and turnkey solutions products.

Our activities rely on certain third-party suppliers, contract manufacturers and distributors, and such reliance may adversely affect us if the third parties are unable or unwilling to fulfill their obligations.

Our products may be subject to recalls for a variety of reasons, which could require us to expend significant management and capital resources.

We may not meet timelines for project development.

Product contamination or tampering or issues or concerns with respect to product quality, safety and integrity could adversely affect our business, reputation, financial condition or results of operations.

The Company may have difficulty obtaining insurance to cover its operational risks and, even where available, may not be sufficient to cover losses we may incur.

Risks Relating to Our Accounting and Financial Policies

●Although our consolidated financial statements have been prepared on a going concern basis, our management believe that our recurring losses and negative cash flows from operations and other factors have raised substantial doubt about our ability to continue as a going concern.
●We have recorded long-lived asset impairment charges and may be required to record additional charges to future earnings if our long-lived assets become impaired.

Although our consolidated financial statements have been prepared on a going concern basis, our management believe that our recurring losses and negative cash flows from operations and other factors have raised substantial doubt about our ability to continue as a going concern for the twelve-month period ended March 31, 2022 and three-month period ended June 30, 2022.

We have recorded long-lived asset impairment charges and may be required to record additional charges to future earnings if our long-lived assets become impaired.

Risks Relating to Our Liquidity

●We are actively managing our liquidity and expenses, including by extending payables due and reducing investment in our businesses, and it is not certain that we will be ultimately successful in developing our business and remaining a going concern.
●As a result of our failure to timely file our Quarterly Report on Form 10-Q for the quarter ended December 31, 2022, we are currently ineligible to file new short form registration statements on Form S-3, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.
●The Company may have difficulty accessing public and private capital and banking services, which could negatively impact its ability to finance its operations.

We are actively managing our liquidity and expenses, including by extending payables due and reducing investment in our businesses, and it is not certain that we will be ultimately successful in developing our business and remaining a going concern.7

We are actively managing our liquidity and expenses, including by extending payables due and reducing investment in our businesses, and it is not certain that we will be ultimately successful in developing our business and remaining a going concern.Table of Contents

The Company may have difficulty accessing public and private capital and banking services, which could negatively impact its ability to finance its operations.

Legal and Regulatory Risks Relating to Our Business

We identified material weaknesses in our internal control over financial reporting. This may adversely affect the accuracy and reliability of our financial statements and, if we fail to maintain effective internal control over financial reporting, it could impact our reputation, business, and the price of our common shares, as well as lead to a loss of investor confidence in us.

●•We identified material weaknesses in our internal control over financial reporting. This may adversely affect the accuracy and reliability of our financial statements and, if we fail to maintain effective internal control over financial reporting, it could impact our reputation, business, and the price of our common shares, as well as lead to a loss of investor confidence in us.
●

As a non-accelerated filer, we are not required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act.

Sources of hemp-derived CBD depend upon legality of cultivation, processing, marketing and sales of products derived from those plants under state law.

We must comply with requirements for licenses and permits in Canada and the failure to maintain these could adversely affect our operations.

7

We expect to be subject to taxation in both Canada and the United States, which could have a material adverse effect on our financial condition and results of operations.

We are subject to laws and regulations and guidelines, changes in which could increase our costs and individually or
●The Corporation may be classified as a “passive foreign investment company” for U.S. federal income tax purposes, which would subject U.S. investors that hold the Corporation’s Common Shares to potentially significant adverse U.S. federal income tax consequences.
●We are subject to laws and regulations and guidelines, including the Food, Drug, and Cosmetic Act in the aggregate adversely affect our business.

We are subject to risks inherent to the nutraceutical industry.

We are subject to anti-money laundering laws and regulations in multiple jurisdictions.

Potential regulation by the FDA could have a material adverse effect on our business, financial condition and results of operations.

We could be materially adversely impacted due to restrictions under U.S. border entry laws.

•

We may not have access to United States bankruptcy protections availableand regulations and guidance promulgated thereunder, changes in which could increase our costs and individually or in the aggregate adversely affect our business.

●We are subject to non-cannabisrisks inherent to the nutraceutical industry. businesses.

●We are subject to anti-money laundering laws and regulations in multiple jurisdictions.
●Our inability to maintain our regulatory approvals and permits could adversely affect our business and financial results.
●We are currently, and may in the future be, subject to substantial litigation, investigations and proceedings that could cause us to incur significant legal expenses and result in harm to our business.

There is doubt regarding our ability to enforce contracts.

Our inability to maintain our regulatory approvals and permits could adversely affect our business and financial results.

We are currently, and may in the future be, subject to substantial litigation, investigations and proceedings that could cause us to incur significant legal expenses and result in harm to our business.

Risks Relating to Our Human Resources

●We may be unable to attract or retain key personnel, and we may be unable to attract, develop and retain additional employees required for our development and future success.
●We face exposure to fraudulent or illegal activity by officers, directors, employees, contractors, consultants and agents, which may subject us to investigations and legal actions.

We may be unable to attract or retain key personnel, and we may be unable to attract, develop and retain additional employees required for our development and future success.

We face exposure to fraudulent or illegal activity by employees, contractors, consultants and agents, which may subject us to investigations and actions.

Risks Relating to Our Information Technology

●We must successfully maintain and/or upgrade our information technology systems, and our failure to do so could have a material adverse effect on our business, financial condition or results of operations.
●We may be exposed to risks and costs associated with security breaches, data loss, credit card fraud and identity theft that could cause us to incur unexpected expenses and loss of revenue as well as other risks.

We must successfully maintain and/or upgrade our information technology systems, and our failure to do so could have a material adverse effect on our business, financial condition or results of operations.

We may be exposed to risks and costs associated with security breaches, data loss, credit card fraud and identity theft that could cause us to incur unexpected expenses and loss of revenue as well as other risks.

Risks Relating to Our Intellectual Property

●Our commercial success depends, in part, on our intellectual property rights and a failure by us to protect our intellectual property may have a material adverse effect on our ability to develop and commercialize our products.

Our commercial success depends, in part, on our intellectual property rights and a failure by us to protect our intellectual property may have a material adverse effect on our ability to develop and commercialize our products.

We have limited trademark protection.

Risks Relating to This Offering and Ownership of Our Common Shares

We do not currently intend to pay any cash dividends on our Common Shares in the foreseeable future.

If there is insufficient liquidity in our Common Shares, it could adversely affect your ability to sell your shares.

U.S. investors may be unable to enforce certain judgments against us in Canada.

Certain Canadian laws could delay or deter a change of control.

Our shareholders may be subject to dilution resulting from future offerings of Common Shares by us.

●•We do not currently intend to pay any cash dividends on our Common Shares in the foreseeable future.
●We have broad discretion in the use of proceeds from the offering.
●

If there is insufficient liquidity in our Common Shares, it could adversely affect your ability to sell your shares.

●There is currently no established public trading market for the Warrants.
●U.S. investors may be unable to enforce certain judgments against us in Canada.
●Certain Canadian laws could delay or deter a change of control.
●Our failure to meet the continued listing requirements of Nasdaq could result in a de-listing of our Common Shares.

●Our shareholders may be subject to dilution resulting from future offerings of Common Shares by us.
●Our constating documents permit us to issue an unlimited amount of additional Common Shares or Preferred Shares, which may prevent a third-party takeover or cause our shareholders to experience dilution in the future.
●Because the Company is a “smaller reporting company,” we may take advantage of certain scaled disclosures available to us, resulting in holders of our securities receiving less Company information than they would receive from a public company that is not a smaller reporting company
●Any acquisitions, strategic investments, divestures, mergers, or joint ventures we make may require the issuance of a significant amount of equity or debt securities and may not be successful.
●We have reported negative cash flows from operating activities and may do so in future periods.

Our constating documents permit us to issue an unlimited amount8

Table of additional Common Shares or Preferred Shares, which may prevent a third-party takeover or cause our shareholders to experience dilution in the future.Contents

Because the Company is a “smaller reporting company,” we may take advantage of certain scaled disclosures available to us, resulting in holders of our securities receiving less Company information than they would receive from a public company that is not a smaller reporting company

●We may not be able to maintain our operations without additional funding.
●We are subject to foreign currency fluctuations, which could adversely affect our financial results.
●This is a best efforts offering, no minimum amount of securities is required to be sold, and we may not raise the amount of capital we believe is required for our business plans, including our near-term business plans.
●Purchasers who purchase our securities in this offering pursuant to a securities purchase agreement may have rights not available to purchasers that purchase without the benefit of a securities purchase agreement

Any acquisitions, strategic investments, divestures, mergers, or joint ventures we make may require the issuance of a significant amount of equity or debt securities and may not be successful.

We have reported negative cash flows from operating activities and may do so in future periods.

We may not be able to maintain our operations without additional funding.

We are subject to foreign currency fluctuations, which could adversely affect our financial results.

General Risk Factors

●Catastrophic events outside of our control, including pandemics, may harm our results of operations or damage our facilities.
●The market price of the Company’s Common Shares may be highly volatile.

​

​

Catastrophic events outside of our control, including pandemics, may harm our results of operations or damage our facilities.

The market price of the Company’s Common Shares may be highly volatile.

89

Table of Contents

PROSPECTUS SUMMARY

The following summary highlights selected information included in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider or that may be important to you in making an investment decision. You should carefully read the entire prospectus before making an investment in our common shares. You should carefully read this entire prospectus, including the information under, “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements included elsewhere in this prospectus.

Overview

We are a modern consumer packaged goods (“CPG”CPG”) company driven by a singular purpose: to transform the everyday for a healthier tomorrow. Neptune is a diversified and fully integrated health and wellness company with multiple brand units. With a mission to redefine health and wellness, Neptune is focused on building a broad portfolio of high quality, affordable consumer products in response to long-term secular trends and market demand for natural, plant-based, sustainable and purpose-driven lifestyle brands. The Company utilizes a highly flexible, cost efficient manufacturing and supply chain infrastructure that can be scaled up and down or into adjacent product categories to identify new innovation opportunities, quickly adapt to consumer preferences and demand, and bring new products to market through its mass retail partners and e-commerce channels. Leveraging decades of expertise in extraction and product formulation, Neptune is a provider of turnkey product development and supply chain solutions to business customers across several health and wellness verticals, including nutraceuticals and white label consumer packaged goods. Neptune has expanded its operations since June 2020 into several brand units in order to better address its markets. The main brand units are the following: Nutraceuticals, Beauty & Personal Care, and Organic Foods & Beverages. All amounts in this prospectus are in US dollars, unless otherwise noted.

Our Business Strategy

Neptune’s vision is to change consumer habits through the creation and distribution of environmentally friendly, ethical and innovative consumer product goods. Our mission is to redefine health and wellness and help humanity thrive by providing sustainable consumer focused solutions. Despite the decline in global economic activity since the outbreak of the COVID-19 virus, Neptune has taken transformative, and successful, actions to increase its sales, distribution and reach in both the business-to-business (“B2B”B2B”) and business-to-consumer (“B2C”B2C”) model in the consumer-packaged goods (“CPG”)CPG market. Neptune has a dual go-to market B2B and B2C strategy focused on expanding its global distribution reach. TheWe believe the strategy sets Neptune apart from its competition and has started to yield consistent, long-term revenue opportunities for the Company.

The Company’s long-term strategy is focused on the health and wellness sector with an emphasis on select CPG verticals, including Nutraceuticals, Beauty & Personal Care, and Organic Foods & Beverages. Neptune’s current brand portfolio across these verticals include Sprout®, Neptune Wellness™, Forest Remedies®, and MaxSimil®.

Our Products and Markets

Our Nutraceutical, Beauty and Personal Care products and Organic Foods and Beverages are manufactured by third party manufacturers. In order to meet demand for our products, we have developed relationships with selected contract manufacturers. We believe that we are not dependent on any single contract manufacturer and that, if necessary, our current selected contract manufacturers could be replaced with minimal disruption to our operations.

Nutraceuticals

9

Nutraceuticals

Neptune offers a variety of specialty ingredients, including our licensed specialty ingredient MaxSimil®, a technology that helps increase digestion and absorption of fat-soluble and nutritional ingredients. Additionally, the Company sources a variety of other marine oils, seed oils and specialty ingredients that are available for sale as raw material or transformed into finished products. The Company has recently launched a new line of Vitamin Sprays and Pumps for both children and adults. Neptune is focused on expanding its exclusive Omega-3 delivery technology MaxSimil® while improving growth and profitability in its Nutraceuticals vertical through its brand Biodroga.

Neptune’s core strength is product innovation with a focus on specialty ingredients offered in bulk soft gels and liquid delivery systems. The Company continues to expand its delivery system capabilities with projects for pumps, sprays roll-onsand CBD enhancements.roll-ons. All of Neptune’s Nutraceutical products are available under distributors’ private labels, primarily sold in the Canadian and U.S. nutraceutical markets. Neptune, through its nutraceuticals products business, also formulates, develops and provides customers with turnkey nutrition solutions.

10

Beauty & Personal CareTable of Contents

The Company sells wellness products to the Beauty & Personal Care market through its Forest Remedies brand. Forest Remedies offers plant-based supplements, including first-of-its kind multi-omega gummies and soft gels with packaging that is 100% plastic-free.

Organic Foods and Beverages

In February 2021, Neptune acquired a controlling interest in Sprout Foods, Inc., an organic plant-based baby food and toddler snack company. Sprout is an integral piece of Neptune’s health and wellness portfolio and represents a key brand within the Organic Foods and Beverages vertical. Since completing the Sprout acquisition, the Company has begun expansion efforts in Sprout’s distribution across substantially all of Target’s U.S. retail stores. The Company also announced, on July 27, 2021, the initial launch of Sprout products into Canada, in Metro grocery stores in the province of Ontario. Neptune further expects to launch Sprout products in North America throughout the remainder of the fiscal year. The Company expects the Neptune/Sprout combination to result in significant incremental revenue growth, with several near and long-term revenue synergy opportunities identified within Neptune’s existing relationships and current sales channels. As described above, Neptune also announced on June 9, 2021, an exclusive multi-year licensing agreement between Sprout and CoComelon, the #1 children’s entertainment and educational show in the world with more than 110 million subscribers worldwide. This co-branded product line is now available on Walmart.com and in 900 Walmart stores. With this launch, Sprout Organics now sells into the top organic baby food retailers in the U.S., accounting for approximately 90 percent of the overall market.

Competition

The nutraceutical, beauty & personal care and organic foods and beverages industries are highly competitive. There are many companies, public and private universities, and research organizations actively engaged in the research and development of products that may be similar to our products. It is probable that the number of companies seeking to develop products similar to our products will increase. Many of these and other existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market products.

Recent Developments

Liquidity and Going Concern—We are actively managing our liquidity and expenses, including by extending payables due and reducing investment in our businesses. There is substantial doubt about our ability to continue as a going concern. As of November 1, 2022,May 8, 2023, we had approximately $4.6$1.4 million in cash and cash equivalents. We believe our current cash position will be sufficient to operate our business for twosix to three monthseight weeks under our current business plan. In addition, we are pursuing several cash generating transactions as well as planning for further expense reductions. There can be no assurance that any cash generating transaction will be completed or that our expense reductions measures will be sufficient to allow as to continue operating our business. We need substantial additional funding to continue operating our business. If we are unable to continue as a going concern, we may have to liquidate our assets, and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. We may have to liquidate our assets in the very near term if additional funding is not received in the upcoming months.

10Our management has concluded that substantial doubt exists about our ability to continue as a going concern for one year from the issuance date of our latest financial statements, which substantial doubt continues to exist. The net proceeds from this offering are not expected to remove that substantial doubt and as such, there will remain substantial doubt about our ability to continue as a going concern after this offering. If we were to receive net proceeds of $6.23 million from this offering, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will meet our cash needs for approximately six months.

On July 13, 2022, Sprout Foods, Inc., a Delaware corporation (“Sprout”Sprout”), a subsidiary of the Company, issued an amended and restated secured promissory note (the “Amended Note”“Amended Note”) in favor of NH Expansion Credit Fund Holdings LP, an investment fund managed by Morgan Stanley Expansion Capital (“MSEC”MSEC”), in the principal amount of $13,000,000. The Amended Note amended and restated the prior promissory note in the principal amount of $10,000,00 in connection with a loan of an additional $3,000,000 to Sprout from MSEC.

On October 17, 2022,May 1, 2023, the Company announced that it had entered into a binding agreement forMSEC Note maturity date was extended to December 31, 2024, which will bear interest at the salerate of its Canadian cannabis business,15.0% per annum through and including the Sherbrooke building, for C$5.15 million to be paid to the CompanyDecember 31, 2023, payable in cash. The Company expects to record a loss on remeasurement of the assets to fair value less cost of salekind, and 10.0% per annum, payable in the approximate amount of $15 millionkind, and 5.0% per annum payable in the second quarter interim financial statements for the threecash, from and six-monthsafter January 1, 2024. ended September 30, 2022. In addition, in our upcoming financial statements for the three and six-months ended September 30, 2022, it is possible we may incur additional impairment charges of intangibles and goodwill.

On October 11, 2022, the Company announced the closing of a registered direct offering of 3,208,557 of its Common Shares and the Warrantswarrants in thea concurrent Private Placement.private placement. The Company received gross proceeds of approximately $6.0 million in connection with the offering, before deducting placement agent fees and related offering expenses. The net proceeds to the Company from the offering, after deducting the placement agent fees and expenses, and the Company’s estimated offering expenses, were approximately $5.15 million.

11

Table of Contents

On October 16, 2022, Neptune entered into an asset sale and purchase agreement (the “ASPA”) with a third-party, for its Canadian cannabis business including the Sherbrooke facility, following the planned divestiture of this business announced on June 8, 2022. The aggregate purchase price of the assets sold, net of liabilities assumed, amounted to $3.8 million ($5.15 million CAD). The ASPA closed on November 9, 2022. Some assets were excluded from the ASPA and were written down accordingly. The Company recorded an impairment loss on assets held for sale of $14.5 million in the second quarter interim financial statements for the three and six-months ended September 30, 2022. On November 10, 2022, the Company filed a notice of cessation of cannabis activities with Health Canada and requested that its cannabis processing and research licenses be revoked. As of November 11, 2022, all cannabis was removed from the Sherbrooke facility and the Company no longer possesses or conducts any activities with cannabis. The Company remains liable for the pre- closing activities of the divested cannabis business.

On October 21, 2022, the Company announced that it had agreed to settle and resolve a putative shareholder class action lawsuit filed against Neptune and certain of its current and former officers and directors, captioned Gong v. Neptune Wellness Solutions, Inc. (Case No. 2:21-cv-01386-ENV-ARL) pending in the United States District Court for the Eastern District of New York, for a gross payment to the class of between $4 and $4.25 million, with the exact amount being within the Company’s control and dependent on the type of consideration used. The settlement is subject to court approval and certification by the court of the class,class.

On January 12, 2023, the Company entered into a Note Purchase Agreement among the purchasers named therein and the Company, pursuant to which the Company issued and sold $4 million in aggregate principal amount of senior secured promissory notes. The notes may be prepaid or redeemed in whole or in part by the Company, subject to the payment of a premium in an amount equal to ten percent of the principal amount of notes being repaid (other than principal in respect of PIK interest), less the aggregate amount of cash interest paid on the Notes being repaid on or before the date of such prepayment.

The notes are due and payable no later than January 12, 2024, unless earlier accelerated in accordance with the terms of the Note Purchase Agreement, with interest accruing at a rate of 16.5% per annum from the date of issuance and payable on the last business day of each calendar month in which the notes are outstanding. For the first six interest payment dates following the initial closing, interest will be paid in kind and thereafter payments shall be made in cash on the interest payment date in arrears. Under the terms of the Note Purchase Agreement, the Company issued to the purchasers of the initial notes warrants to purchase a total of 850,000 common shares of the Company exercisable at an exercise price of $0.53 per share at any time until January 12, 2028. On March 9, 2023, the Company entered into a Waiver and First Amendment to the Notes (the "Waiver Agreement"). The Waiver Agreement waives certain administrative, regulatory and financial statement related covenants as further described in the Waiver Agreement as required by the terms of the Notes. The lender has athe right to terminatedemand immediate repayment in the event of default. Furthermore, in connection with the Waiver Agreement, the Notes were amended to provide that the Purchasers shall be paid an exit fee in the aggregate amount of $0.2 million, payable as follows: (i) on or prior to May 15, 2023, $0.1 million and (ii) on the Maturity Date (as defined in the Note Purchase Agreement), $0.1 million and the interest rate was increased to 24% for a period extending until the Company meets specified criteria in the Waiver Agreement.

On April 17, 2023, the Company advised the minority stockholders of Sprout that it intends to exercise its call option (the “Call Option”) to purchase the remaining 49.9% of outstanding equity interests of Sprout, and entered into an agreement within 30 days under certain circumstances. The Company will record a litigation settlement expensewith the representative of the minority stockholders of Sprout that provides that the purchase price for the full amountremaining minority shares of common stock, if the option is exercised prior to June 15, 2023, would be $13.0 million, consisting of at least $10.5 million in cash with the second quarter interim financial statements forremainder payable in Common Shares. The exercise of this Call Option by the three and six-months ended September 30, 2022.Company is subject to the receipt of additional funds, which may include funds borrowed from lenders.

History of the Company

Neptune was incorporated under Part IA of the Companies Act (Québec) on October 9, 1998 under the name Neptune Technologies & BioressourcesBioresources Inc. Since its incorporation, Neptune has amended its articles of incorporation on numerous occasions. The Company first amended its articles on May 30, 2000 to convert its then issued and outstanding shares into newly-created classes of shares. The Company’s articles were also amended on May 31, 2000 to create Series A Preferred Shares. On August 29, 2000, the Company converted all its issued and outstanding Class A shares into Class B subordinate shares. On September 25, 2000, the Company further amended its share capital to eliminate its Class A shares and converted its Class B subordinate shares into Common Shares. On November 1, 2013, the Company amended its articles of incorporation to reflect certain changes to items relating to board matters. On June 9, 2022, we effected a one for thirty five thirty-five (1-for-35) reverse split of our common shares, which we refer to as the “Share“Share Consolidation,” as approved by our Board of Directors. Trading of our common shares on both the Toronto Stock Exchange (“TSX”TSX”) and Nasdaq on a post-consolidated basis commenced as of the open of markets on June 13, 2022. On August 15, 2022, the Company voluntarily delisted its Common Shares from the TSX.

12

Table of Contents

Corporate Information

Our principal executive offices are located at 545 Promenade du Centropolis, Suite 100, Laval, Québec, Canada, H7T 0A3 and the telephone number to our offices is (450) 687-2262.

​

​

1113

Table of Contents

THE OFFERING

Issuer:

Neptune Wellness Solutions Inc.

​

​

Common sharesShares offered by the Selling Shareholders:us:

6,417,114Up to 12,068,966 Common Shares based on the sale of our Common Shares at an assumed combined public offering price of $0.58 per Common Share and accompanying Common Warrants, which is the closing price of our common shares thatstock on May 5, 2023.

​

​

Pre-Funded Warrants offered by us:

We are issuable or potentially issuable uponalso offering each purchaser the opportunity to purchase, if the purchaser so chooses, Pre-Funded Warrants, in lieu of Common Shares, exercisable into up to an aggregate of 12,068,966 Common Shares. Each Pre-Funded Warrant will be exercisable for one Common Share. The purchase price of each Pre-Funded Warrant will equal the price per share at which the Common Shares are being sold to the public in this offering, minus $0.0001, and the exercise of all the Warrants (after giving effect to certain potential anti-dilution adjustments)

Shares of common shares outstanding prior to this offering:

11,725,451 shares (as of November , 2022)

Exercise price of Warrants:

$1.62each Pre-Funded Warrant will be $0.0001 per share

TermsCommon Share. For additional information, see “Description of the Registrant’s Securities to be Registered — Pre-Funded Warrants” on page 92 of this prospectus. This prospectus also relates to the offering

The Selling Shareholders will determine when and how they will dispose of the Common Shares registered underissuable upon exercise of the Pre-Funded Warrants.

​

​

Common Warrants offered by us:

We are also offering Common Warrants exercisable into an aggregate of up to 12,068,966 common shares. Each Common Warrant will have an exercise price of $      per share, will be exercisable upon issuance and will expire on the five-year anniversary of the original issuance date. The Common Shares and Common Warrants can only be purchased together in this offering but will be issued separately and will be immediately separable upon issuance. For additional information, see “Description of the Registrant’s Securities to be Registered — Common Warrants” on page 93 of this prospectus. This prospectus for resale.also relates to the offering of the Common Shares issuable upon exercise of the Common Warrants.

​

​

Common Shares outstanding after this offering:(1)

24,065,306 Common Shares (assuming none of the Common Warrants issued in this offering are exercised and the exercise in full of any Pre-Funded Warrants)

​

​

Amendment to outstanding common warrants

In connection with this offering, we may amend the terms of the common warrants, which were previously issued pursuant to the securities purchase agreement that we entered into with certain investors in August 2022 to reduce the exercise price of such warrants and to extend the term during which those warrants could remain exercisable.

​

​

14

Table of Contents

Use of proceedsproceeds:

The Selling Shareholders will receiveWe estimate that the net proceeds to us from the sale of shares of common shares offered hereby. We will not receive any proceeds from the sale ofour Common Shares in this offering will be approximately $6.23 million, and after deducting estimated Placement Agent fees and expenses and estimated offering expenses payable by us. We plan to use the Selling Shareholders.proceeds of the offering, after repayment of debt, for general corporate purposes, which may include (i) working capital, (ii) capital expenditures, (iii) operational purposes, including working capital to accelerate growth of our business and (iv) potential acquisitions in complementary businesses. We may use certain of the proceeds in connection with the exercise of the option to purchase the minority interest of Sprout Foods, Inc. See “Use of Proceeds.”

​

​

Risk factorsfactors:

See “Risk Factors” on page 1416 and other information included in this prospectus for a discussion of factors you should consider before investing in our securities.

​

​

Term of the offering:

This offering will terminate on      , unless we decide to terminate the offering (which we may do at any time in our discretion) prior to that date.

​

We have agreed to issue and sell the securities offered hereby to the purchasers through the placement agent. The placement agent is not required to buy or sell any specific number or dollar amount of the securities offered hereby, but it will use its reasonable best efforts to solicit offers to purchase the securities offered by this prospectus. See “Plan of Distribution” on page 110 of this prospectus.

​

​

Ticker symbolssymbol:

Our Common Shares are listed on the Nasdaq under the symbol “NEPT”. There is no established trading market for the Warrants and we do not expect a market to develop. In addition, we do not intend to apply for the listing of the Warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the Warrants will be limited.

​

12

(1)The number of Common Shares to be outstanding immediately after this offering as shown above is based on 11,996,340 Common Shares outstanding as of May 5, 2023. Unless otherwise indicated, the number of Common Shares presented in this prospectus excludes:
●680,786 Common Shares issuable upon the exercise of outstanding stock options having a weighted-average exercise price of $70.10 per Common Share;
●12,197,670 Common Shares issuable upon the exercise of outstanding warrants having a weighted-average exercise price of $10.64 per Common Share;
●4,308 deferred share units;
●2,789 restricted share units; and
●any additional Common Shares that are available for future issuance under our equity compensation plans.

MARKET AND INDUSTRY DATA AND FORECASTS

We obtained the industry and market data used throughoutUnless otherwise indicated, this prospectus from our own internal estimates and research, as well as from independent market research, industry and general publications and surveys, governmental agencies, publicly available information and research, surveys and studies conducted by third parties. Internal estimates are derived from publicly available information released by industry analysts and third-party sources, our internal research and our industry experience, and are based on assumptions made by us based on such data and our knowledgeassumes no exercise of our industry and market, which we believe to be reasonable. In some cases, we do not expressly refer to the sources from which this data is derived. In addition, while we believe the industry and market data included in this prospectus is reliable and based on reasonable assumptions, such data involve material risks and other uncertainties and are subject to change based on various factors, including those discussed in the section entitled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent partiesCommon Warrants or by us.Pre-Funded Warrants.

​

1315

Table of Contents

RISK FACTORS

Investing in our securities involves a high degree of risk. Investors should carefully consider the risks described below and all of the other information set forth in this registration statement, including our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our Common Shares. If any of the events or developments described below occur, our business, financial condition, or results of operations could be materially or adversely affected. As a result, the market price of our Common Shares could decline, and investors could lose all or part of their investment. The risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See “Cautionary Notes Regarding Forward-Looking Statements.”

Risks Relating to our Business and Industry

If weWe are unableexposed to complete risks associated with the divestiture of our cannabis business our results of operations and financial condition could be adversely affected..

On October 16, 2022, we entered into an Asset Purchase Agreement with PurCann Pharma, Inc. (“Purchaser”), pursuant to which PurchaserPurCann Pharma, Inc. agreed to purchase substantially all of the assets relating to our Canadian cannabis business, including the our processing plant and property located in Sherbrooke, Quebec. Generally,The sale of our cannabis business closed on November 9, 2022. We may not fully realize the anticipated benefits of this disposition. Further, we believe this divestiture will allow us to focus our resources on our CPG strategy and accelerate cost savings through the Company. However, there is no assurance that this contemplated divestiture will be completed, will be completed within our contemplated timeframe, or will be completed on terms favorable to us or on terms sufficient to allow us to achieve our strategy. Additionally, the results of operationsface continued liability for the pre-closing activities of the divested cannabis business, and the potential losses on the salewhich we agreed to assume as part of the cannabis businesstransaction. Additionally, we may adversely affect our profitability. The Company expectsbe unable to record a loss on remeasurement of the assets to fair value less cost of sale in the approximate amount of $15 million in the second quarter interim financial statements for the three and six-months ended September 30, 2022.

Our planned divestiture activities may present financial, managerial, and operational risks. Those risks include diversion of management attention from improving existing operations; additional restructuring charges and the related impact from separating personnel, renegotiating contracts, and restructuring financial and other systems; adverse effects on existing business relationships with patients and third-party payors; and the potential that the collectability ofcollect any accounts receivable retained from our cannabis business.

The terms of our indebtedness restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

The Note Purchase Agreement, as amended (the “Note Purchase Agreement”), governing the cannabis businesspromissory notes (the “2023 Notes”) that we issued on January 12, 2023 contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be adversely impacted. Anyin our long-term best interest, including restrictions on our ability to incur liens, make investments, loans, advances and acquisitions, incur additional indebtedness or guarantees, pay dividends on capital stock or redeem, repurchase or retire capital stock, engage in transactions with affiliates, sell assets, including capital stock of our subsidiaries, alter the business we conduct, alter their organizational documents, and consolidate or merge.

We defaulted on the conditions of the Note Purchase Agreement and entered into a Waiver and First Amendment to the Notes (the "Waiver Agreement") on March 9, 2023. The Waiver Agreement waives certain administrative, regulatory and financial statement related covenants as required by the terms of the Notes. Furthermore, in connection with the Waiver Agreement, the Notes were amended to provide that the Purchasers shall be paid an exit fee in the aggregate amount of $200,000, payable as follows: (i) on or prior to May 15, 2023, $100,000 and (ii) on the Maturity Date (as defined in the Note Purchase Agreement), $100,000 and the interest rate has increased to 24% for a period extending until the Company meets specified criteria in the Waiver Agreement.

A breach of the covenants under the Note Purchase Agreement, or any replacement facility, could result in an event of default under the applicable indebtedness, unless we obtain a waiver to avoid such default. If we are unable to obtain a waiver, such an event of default may allow the creditors to accelerate the related debt and may result in the acceleration of or default under any other debt to which a cross-acceleration or cross-default provision applies. In the event that we breach one or more covenants, our lender may declare an event of default and require that we immediately repay all amounts outstanding, terminate any commitment to extend further credit and foreclose on the collateral granted to it to collateralize such indebtedness. The occurrence of any of these factorsevents could adversely affectrestrict our operations, which could have a material adverse effect on our business, financial condition and results of operations. In the event our lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.

While the Note Purchase Agreement was amended to provide for a waiver of certain defaults, there can be no guarantee that we will not breach covenants in the Note Purchase Agreement or the 2023 Notes in the future. In the event that we breach one or more covenants, our lender may declare an event of default and require that we immediately repay all amounts outstanding, terminate any commitment to extend further credit and foreclose on the collateral granted to it to collateralize such indebtedness. The occurrence of any of these events could restrict our operations, which could have a material adverse effect on our business, financial condition and results of operations.

16

Table of Contents

If we do not manage our supply chain effectively or if there are disruptions in our supply chain, our business and results of operations may be adversely affected.

The success of our business depends, in part, on maintaining a strong sourcing and manufacturing platform and efficient distribution channels. The inability of any supplier of raw materials, independent contract manufacturer or third-party distributor to deliver or perform for us in a timely or cost-effective manner could cause our operating costs to increase and our profit margins to decrease, especially as it relates to our products that have a short shelf life. We must continuously monitor our inventory and product mix against forecasted demand or risk having inadequate supplies to meet consumer demand as well as having too much inventory on hand that may reach its expiration date and become unsaleable.

We must also manage our third-party distribution, warehouse and transportation providers to ensure they are able to support the efficient distribution of our products to retailers. A disruption in transportation services could result in an inability to supply materials to our or our co-manufacturers’ facilities or finished products to our distribution centers or customers. Activity at third-party distribution centers could be disrupted by a number of factors, including labor issues, failure to meet customer standards, natural disasters or financial issues affecting the third-party providers. In particular, the Russia-Ukraine war and recent labor market shortages impacting our industry have created operating challenges in making our products available to customers and consumers, and such challenges may persist.

Our future results of operations may be adversely affected by input cost inflation.

Many aspects of our business have been, and may continue to be, directly affected by volatile commodity costs and other inflationary pressures. Agricultural commodities and ingredients are subject to price volatility which can be caused by commodity market fluctuations, crop yields, seasonal cycles, weather conditions, temperature extremes and natural disasters (including due to the effects of climate change), pest and disease problems, changes in currency exchange rates, imbalances between supply and demand, and government programs and policies among other factors. Volatile fuel costs translate into unpredictable costs for the products and services we receive from our third-party providers including, but not limited to, distribution costs for our products and packaging costs.

Our future results of operations may be adversely affected by the availability of natural and organic ingredients.

Our ability to ensure a continuing supply of natural and organic ingredients at competitive prices depends on many factors beyond our control, such as the number and size of farms that grow natural and organic crops, climate conditions, increased demand for natural and organic ingredients by our competitors, changes in national and world economic conditions, currency fluctuations and forecasting adequate need of seasonal ingredients.

The natural and organic ingredients that we use in the production of our products (including, among others, vegetables, fruits, nuts and grains) are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, water scarcity, temperature extremes, wildfires, frosts, earthquakes and pestilences. Natural disasters and adverse weather conditions can lower crop yields and reduce crop size and crop quality, which in turn could reduce our supplies of natural and organic ingredients or increase the prices of those ingredients. Such natural disasters and adverse weather conditions can be caused or exacerbated by climate change, and the spate of recent extreme weather events, including historic droughts, heatwaves, extreme cold and flooding, presents an alarming trend. If our supplies of natural and organic ingredients are reduced, we may not be able to find enough supplemental supply sources on favorable terms, if at all, which could impact our ability to supply products to our customers and adversely affect our business, financial condition and results of operations.

We also compete with other manufacturers in the procurement of natural and organic product ingredients, which may be less plentiful in the open market than conventional product ingredients. This competition may increase in the future if consumer demand for natural and organic products increases. This could cause our expenses to increase or could limit the amount of products that we can manufacture and sell.

We may not be successful in achieving savings and efficiencies from cost reduction initiatives and related strategic initiatives.

Our strategy includes identifying areas of cost savings and operating efficiencies to expand profit margins and cash flow. As part of our identification of operating efficiencies, we may continue to seek to dispose of businesses and brands that are less profitable or are otherwise less of a strategic fit within our core portfolio.

We may not be successful in fully implementing our productivity plans or realizing our anticipated savings and efficiencies, including potentially as a result of factors outside our control. Additionally, we may not be able to identify or negotiate divestiture opportunities

17

Table of Contents

on terms acceptable to us. If we are unable to fully realize the anticipated savings and efficiencies of our cost reduction initiatives and related strategic initiatives, our profitability may be materially and adversely impacted.

COVID-19 has and will continue to impact our operations and could have a material adverse effect on our business, results of operations and financial condition.

The global outbreak of the novel strain of the coronavirus known as COVID-19 has resulted in governments worldwide enacting emergency measures to combat the spread of the virus, including public health directives and orders in the United States, or the U.S., Canada and the European Union that, among other things and for various periods of time, directed individuals to shelter at their places of residence, directed businesses and governmental agencies to cease non-essential operations at physical locations, prohibited certain non-essential gatherings and events and ordered cessation of non-essential travel. The public health crisis caused by COVID-19 and the measures taken and continuing to be taken by governments, businesses and the public have, and we expect will continue to have, certain negative impacts on our business operations, and could have a material adverse effect on our business, results of operations and financial condition. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions.

The full extent to which COVID-19 may impact our business, including our operations and the market for our securities and our financial condition, will depend on future developments, which are highly uncertain and cannot

14

be predicted at this time. These include the duration, severity and scope of the outbreak, and further action taken by the government and other third parties in response to COVID-19 or new variants thereof. In particular, COVID-19 and government efforts to curtail COVID-19 could impede our production facilities, increase operating expenses, result in loss of sales, affect our supply chains, impact performance of contractual obligations or could require additional expenditures to be incurred. While most of these restrictions have since been lifted or eased, increases in new COVID-19 cases, including as a result of new COVID-19 variants, may lead to restrictions being reinstated, or new restrictions imposed.

Future remote work policies and similar government orders or other restrictions on the conduct of business operations related to the COVID-19 pandemic may negatively impact productivity and may disrupt our ongoing research and development activities, and our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. We have and continue to update our operational procedures and safety protocols at our facilities to comply with mandates and guidance from governmental authorities. If such measures are not effective or governmental authorities implement further restrictions, we may be required to take more extreme action, which could include short or long-term closures of our facilities or reductions in workforce. These measures may impair our production levels or cause us to close or severely limit production at one or more facilities. Further, our operations could be adversely impacted if suppliers, contractors, customers and/or transportation carriers are restricted or prevented from conducting business activities.

Consumer demand for our products may also be impacted by COVID-19 as a result of reductions in consumers’ disposable income associated with layoffs, and work or pay limitations due to mandatory social distancing and lockdown measures implemented by government authorities. As demand for our products decreases, we may be required to record additional asset impairments, including an impairment of the carrying value of our goodwill, along with other accounting charges.

Given the ongoing and dynamic nature and significance of COVID-19 and its impact globally, we are not able to enumerate all potential risks and uncertainties to our business or financial condition. Any of the negative impacts of COVID-19, including those described above, alone or in combination with others, may have a material adverse effects on our business, results of operations or financial condition. Further, any of these negative impacts, alone or in combination with others, could exacerbate many of the other risk factors outlined in this prospectus, our annual report on Form 10-K filed with the Commission on July 8, 2022 and in other reports that we file with the Commission from time to time.

Increasing awareness of health and wellness are driving changes in the consumer products industry, and if we are unable to react in a timely and cost-effective manner, our results of operations and future growth may be adversely affected.

We must continually anticipate and react, in a timely and cost-effective manner, to changes in consumer preferences and demands, including changes in demand driven by increasing awareness of health and wellness and demands for transparency or cleaner labels with respect to product ingredients by consumers and regulators. Consumers, especially in developed economies such as the U.S. and Canada, are rapidly shifting away from products containing artificial ingredients to all-natural, healthier alternatives. In addition, there has been a growing demand by consumers, non-governmental organizations and, to a lesser extent, governmental agencies to provide more transparency in product labeling and our customers have been taking steps to address this demand, including by voluntarily providing product-specific ingredients disclosure. These two trends could affect the types and volumes of our ingredients and compounds

18

Table of Contents

that our customers include in their consumer product offerings and, therefore, affect the demand for our products. If we are unable to react to or anticipate these trends in a timely and cost-effective manner, our results of operations and future growth may be materially adversely affected.

15

Markets for our products and services are highly competitive, and we may be unable to compete effectively.

Our products and services, including our consumer products, are offered in highly competitive markets that may be characterized by aggressive price competition and resulting downward pressure on gross margins, frequent introduction of new products and services, short product life cycles, evolving industry standards and government regulations, continual improvement in product price and performance characteristics, rapid adoption of technological advancements by competitors and price sensitivity on the part of consumers and businesses.

Additionally, our consumer products may compete on the basis of product performance, brand recognition and price. Advertising, promotion, merchandising and packaging also have significant impacts on consumer purchasing decisions. A newly introduced consumer product (whether improved or newly developed) usually encounters intense competition requiring substantial expenditures for advertising, sales promotion and trade merchandising. If a product gains consumer acceptance, it typically requires continued advertising, promotional support and product innovations to maintain its relative market position. If our advertising, marketing and promotional programs are not effective or adequate, our net sales may be negatively impacted.

Some of our competitors are larger than us and have greater financial resources. These competitors may be able to spend more aggressively on advertising and promotional activities, introduce competing products more quickly and respond more effectively to changing business and economic conditions than we can. Competitive activity may require the Company to increase its spending on advertising and promotions and/or reduce prices, which could lead to reduced sales, margins and net earnings.

We may be unable to manage our growth effectively.

Our future financial performance and our ability to commercialize our products and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to continue to improve our operational and financial systems, managerial controls and procedures and we will need to continue to expand, train and manage our technology and workforce. We must also maintain close coordination among our technology, compliance, accounting, finance, marketing and sales functions. We cannot assure you that we will manage our growth effectively. If we fail to do so, our business could be materially harmed.

To support our growth, we may have to further increase our investment in technology, facilities, personnel and financial and management systems and controls. We may also have to further expand our procedures for monitoring and assuring our compliance with applicable regulations, and may need to integrate, train and manage a growing employee base. The expansion of our existing businesses, and expansion into new businesses and the resulting growth of our employee base will increase our need for internal audit and monitoring processes that are more extensive and broader in scope than those we have historically required. We may not be successful in identifying or implementing all of the processes that are necessary. Further, unless our growth results in an increase in our revenues that is proportionate to the increase in our costs associated with this growth, our operating margins and profitability will be adversely affected.

We depend on a few significant customers for a substantial portion of our revenue. If we fail to retain or expand our customer relationships or significant customers reduce their purchases, our revenue could decline significantly.

For the twelve-month period ended March 31, 2022 and three-monthnine-month period ended June 30,December 31, 2022, one customer accounted for 10.26% and 8.71%10.7% of revenue, respectively, and one customer accounted for 14.86% and 10.75%13.99% of revenue for the twelve-month period ended March 31, 2021 and three-monthnine-month period ended June 30, 2022,December 31, 2021, respectively.

We believe that our operating results for the foreseeable future will continue to depend on sales to a small number of customers. These customers have no purchase commitments and may cancel, change or delay

16

purchases with little or no notice or penalty. As a result of this customer concentration, our revenue could fluctuate materially and could be materially and disproportionately impacted by purchasing decisions of these customers or any other significant customer. In the future, these customers may decide to purchase less product from us than they have in the past, may alter purchasing patterns at any time with limited notice, or may decide not to continue to purchase our products at all, any of which could cause our revenue to decline materially and materially harm our financial condition and results of operations. If we are unable to diversify our customer base, we will continue to be susceptible to risks associated with customer concentration.

19

Table of Contents

In addition, the Company is subject to credit risk of its customers, and its profitability and cash flow are dependent on receipt of timely payments from clients. Any delay in payment by the Company’s customers may have an adverse effect on the Company’s profitability, working capital and cash flow. There is no assurance that the Company will be able to collect all or any of its trade receivables in a timely matter. If any of the Company’s clients face unexpected situations such as financial difficulties, the Company may not be able to receive full or any payment of the uncollected sums or enforce any judgment debts against such clients, and the Company’s business, results of operations and financial condition could be materially and adversely affected.

Significant interruptions in our access to certain supply chains, for key inputs such as raw materials, electricity, water, and other utilities may impair our operations.

Our business is dependent on a number of key inputs and their related costs (certain of which are sourced in other countries and on different continents), including raw materials, supplies and equipment related to our operations, as well as electricity, water and other utilities. Governments may regulate or restrict the flow of our labor or our products, and the Company’s operations, suppliers, customers, and distribution channels could be severely impacted. Any significant future government-mandated or market-related interruption, price increase or negative change in the availability or economics of the supply chain for key inputs and, in particular, rising or volatile energy costs could curtail or preclude our ability to continue production. In addition, our operations would be significantly affected by a prolonged power outage.

No assurances can be given that we will be successful in maintaining our required supply of materials, labor, equipment, parts, and components. See also “COVID-19 has and will continue to impact our operations and could have a material adverse effect on our business, results of operations and financial condition”.

Our future success depends on the sales of our consumer products and turnkey solutions products.

We derive a large portion of our revenues from the sale of our turnkey solutions products and expect to derive an increasing portion of our revenues from the sale of consumer products. Our investments in and strategies used for our brand marketing are critical to achieve brand awareness with current customers, educate potential new customers and convert potential new customers into customers. However, there can be no assurance that our principal products will continue to receive, maintain or increase market acceptance. The inability to successfully commercialize our turnkey solutions and specialty ingredient products, in the future, for any reason, would have a material adverse effect on our financial condition, prospects and ability to continue operations. The overall commercialization success of our products depends on several factors, including:

●continued market acceptance of our products by the nutraceutical market;
●the amount of resources devoted by our distribution partners to continue the commercialization efforts of our products in our core geographic markets;
●maintaining supply of our products to meet the purchase orders of our distribution partners;
●receipt of regulatory approvals, as applicable, for our products from regulatory agencies in certain territories in which we wish to expand our commercialization efforts;
●continuing compliance with applicable regulations;
●the number of competitors in our market; and
●protecting and enforcing our intellectual property and avoiding patent infringement claims.

continued market acceptance of our products by the nutraceutical market;

the amount of resources devoted by our distribution partners to continue the commercialization efforts of our products in our core geographic markets;

maintaining supply of our products to meet the purchase orders of our distribution partners;

receipt of regulatory approvals for our products from regulatory agencies in certain territories in which we wish to expand our commercialization efforts;

the number of competitors in our market; and

protecting and enforcing our intellectual property and avoiding patent infringement claims.

1720

Table of Contents

Our activities rely on certain third-party suppliers, contract manufacturers and distributors, and such reliance may adversely affect us if the third parties are unable or unwilling to fulfill their obligations.

For our consumer product and nutraceutical activities, we purchase certain important ingredients and raw materials from third-party suppliers and, in certain cases, we engage contract manufacturers to supply us with finished products. Part of our strategy is to enter into and maintain arrangements with third parties related to the development, testing, production, packaging, and commercialization of our products to our customers which are then responsible for the marketing and distribution of the products. Our revenues are dependent to a great extent on the successful efforts of these third parties. Entering into strategic relationships can be a complex process and our interests and the interests of our partners may not be or remain aligned with our interests.

Real or perceived quality control problems with raw materials outsourced from certain regions or finished products manufactured by contract manufacturers could negatively impact consumer confidence in our products or expose us to liability. In addition, disruption in the operations of any such supplier or manufacturer or material increases in the price of raw materials, for any reason, such as changes in economic and political conditions, tariffs, trade disputes, regulatory requirements, import restrictions, loss of certifications, power interruptions, fires, hurricanes, drought or other climate-related events, war, or other events, could have a material adverse effect on our business, results of operations, financial condition and cash flows. Also, currency fluctuations could result in higher costs for raw materials purchased abroad.

The Company’sCompany and any third-party manufacturers engaged by the Company to perform manufacturing services are subject to laws and regulations, including current Good Manufacturing Practices regulations (“cGMP”), which are enforced by the U.S. Food and Drug Administration, or the FDA, and other regulatory authorities. The Company’sCompany and its third-party manufacturers may be unable to comply with cGMP or other regulatory requirements. A failure to comply with these requirements may result in fines, product recalls or seizures and related publicity requirements, injunctions, total or partial suspension of production, civil penalties, warning or untitled letters, import or export bans or restrictions and criminal prosecution and penalties. Any of these penalties could delay or prevent the promotion, marketing, or sale of the Company’s products. If the safety of any products manufactured by or supplied to the Company is compromised due to a third-partythe manufacturer’s failure to adhere to applicable laws or for other reasons, the Company may not be able to successfully sell its products and our business, financial condition and operations may be materially adversely affected.

Some of our current and future partners may decide to compete with us, refuse or be unable to fulfill or honor their contractual obligations to us, or change their plans to reduce their commitment to, or even abandon, their relationships with us. There can be no assurance that our partners will market our products successfully or that any such third-party collaboration will be on favorable terms. We may not be able to control the amount and timing of resources our partners devote to our potential products. In addition, we may incur liabilities relating to the distribution and commercialization of our products. While the agreements with such customers generally include customary indemnification provisions indemnifying us for liabilities relating to third-party manufacturing or packaging of our potential products, there can be no assurance that these indemnification rights will be sufficient in amount, scope or duration to fully offset the potential liabilities associated with our potential products. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition or results of operations.

Our products may be subject to recalls for a variety of reasons, which could require us to expend significant management and capital resources.

Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, adulteration, unintended harmful side effects, or interactions with other substances, packaging safety, and inadequate or inaccurate labeling disclosure. If any of the products produced by or for us are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in

18

connection with the recall. As a result of any such recall, our sales may be significantly affected and may not be able to replace those sales at an acceptable margin or at all. In addition, a product recall may require significant management attention or damage our reputation and goodwill or that of our products or brands.

Additionally, product recalls may lead to increased scrutiny of our operations by regulatory agencies and authorities, requiring further management attention, increased compliance costs and potential legal fees, fines, penalties and other expenses. Any product recall affecting the cannabis or hemp industry more broadly, whether or not involving us, could also lead consumers to lose confidence in the safety and security of the products sold by us generally.

We may not meet timelines for project development.

The Company’s business is dependent on a number of key inputs and their related costs including raw materials and supplies related to its operations, as well as electricity, water and other utilities. Any significant interruption or negative change in the availability or

21

Table of Contents

economics of the supply chain for key inputs could materially impact the business, financial condition operating results, and timelines for project development of the Company. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse impact on the business, financial condition, operating results, and timelines for project development of the Company.

Product contamination or tampering or issues or concerns with respect to product quality, safety and integrity could adversely affect our business, reputation, financial condition or results of operations.

Product contamination or tampering, or allegations of product contamination or tampering or product quality issues (whether or not valid) with respect to products in our portfolio may reduce demand for such products, and cause production and delivery disruptions or increase costs, which could adversely affect our business, reputation, financial condition or results of operations. Moreover, even if allegations of product contamination or tampering or suggestions that our products were not fit for consumption or use are meritless, the negative publicity surrounding assertions against us or products in our portfolio or processes could adversely affect our reputation or brands. Our business could also be adversely affected if consumers lose confidence in product quality, safety and integrity generally, even if such loss of confidence is unrelated to products in our portfolio.

Any of the foregoing could adversely affect our business, reputation, financial condition or results of operations. In addition, if we do not have adequate insurance, if we do not have enforceable indemnification from suppliers, manufacturers, distributors, joint venture partners or other third parties or if indemnification is not available, the liability relating to such product claims or disruption as a result of recall efforts could materially adversely affect our business, financial condition or results of operations.

The Company may have difficulty obtaining insurance to cover its operational risks and, even where available, may not be sufficient to cover losses we may incur.

Due to the Company’s involvement in the hemp industry, itThe Company may have difficulty obtaining the various insurances that are desired to operate its business, which may expose the Company to additional risk and financial liability. Insurance that is otherwise readily available, such as general liability, and directors’ and officers’ insurance, may be more difficult to find, and more expensive, because of the regulatory regime applicable to our industry. There are no guarantees that the Company will be able to find such insurance coverage in the future, or that the cost will be affordable. If the Company is unable to obtain insurance coverage on acceptable terms, it may prevent it from entering into certain business sectors, may inhibit growth, and may expose the Company to additional risks and financial liabilities.

Moreover, our current and expected business activities expose us to the risk of liabilities arising from our operations. For example, we may be liable for claims brought by users of our products or by employees,

19

customers or other third parties for personal injury or property damage occurring in the course of our operations. We seek to minimize these risks through various insurance contracts from third-party insurance carriers. However, our insurance coverage is subject to large individual claim deductibles, individual claim and aggregate policy limits, and other terms and conditions. We retain an insurance risk for the deductible portion of each claim and for any gaps in insurance coverage. We do not view insurance, by itself, as a material mitigant to these business risks.

We cannot assure that our insurance will be sufficient to cover our losses. Any losses that insurance does not substantially cover could have a material adverse effect on our business, results of operations, financial condition and cash flows. The insurance industry has become more selective in offering some types of insurance, such as product liability, product recall, property and directors’ and officers’ liability insurance. Our current insurance program is consistent with both our past level of coverage and our risk management policies. However, we cannot assure that we will be able to obtain comparable insurance coverage on favorable terms, or at all, in the future.

Risks Relating to Our Accounting and Financial Policies

Although our consolidated financial statements have been prepared on a going concern basis, our management believe that our recurring losses and negative cash flows from operations and other factors have raised substantial doubt about our ability to continue as a going concern.

Our consolidated financial statements for the twelve-month period ended March 31, 2022 and three-month periodthree and nine-month periods ended June 30,December 31, 2022were prepared on a going concern basis, which presumes that the Company will continue realizing its assets and discharging its liabilities in the normal course of business for the foreseeable future. Thus, our consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Our recurring losses, negative cash flow, need for additional financing and the uncertainties surrounding our ability to raise such financing, raise substantial doubt about our ability to continue as a going concern. For the twelve-month period ended March 31, 2022 and three-monthnine-month period ended June 30,

22

Table of Contents

December 31, 2022, the Company incurred a net loss of $84.4 million and $6.5$44.3 million, respectively, negative cash flows from operations of $54.3 million and $7.2$20.7 million, respectively, and had an accumulated deficit of $323.2 million and $327.5$357.1 million as at March 31, 2022 and June 30,December 31, 2022, respectively. Our lack of cash resources and our potential inability to continue as a going concern may materially adversely affect our share price and our ability to raise new capital, enter into critical contractual relations with third parties, meet our obligations as they become due and otherwise execute our business strategy. The Company currently has no committed sources of financing available. If we are unable to raise additional financing, increase sales or reduce expenses we will be unable to continue to fund our operations, develop our products, realize value from our assets, or discharge our liabilities in the normal course of business. If we become unable to continue as a going concern, we could have to liquidate our assets, and potentially realize significantly less than the values at which they are carried on our financial statements, and shareholders could lose all or part of their investment in our Common Shares.

This offering is being made on a best efforts basis and we may sell fewer than all of the securities offered hereby and may receive significantly less in net proceeds from this offering. Assuming that we receive net proceeds of $6.23 million from this offering (assuming an offering with gross proceeds of $7.0 million), we believe that the net proceeds from this offering will meet our cash needs for approximately six months. The net proceeds from this offering are not expected to remove that substantial doubt and as such, there will remain substantial doubt about our ability to continue as a going concern after this offering. If we have insufficient capital to operate our business under our current business plan, we have contingency plans for our business that include, among other things, the delay of the introduction of new products, a reduction in headcount, and a reduction of the expansion of our distribution networks, which is expected to substantially reduce revenue growth and delay our profitability. There can be no assurance that our implementation of these contingency plans will not have a material adverse effect on our business.

We have recorded significant long-lived asset impairment charges and may be required to record additional charges to future earnings if our long-lived assets become impaired.

As of June 30,December 31, 2022, our goodwill balance was $22.1$14.4 million and our intangible asset balance was $21.0$17.3 million, which represented 22.6%22.5% and 21.5%27.1% respectively of total consolidated assets. The Company recorded an impairment loss of $7.6 million for goodwill and $2.6 million for intangibles in the nine months ended December 31, 2022. We are required to review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our intangible assets and/or goodwill may not be recoverable include a decline in share price and market capitalization, slower growth rates in our industry or our own operations, and/or other materially adverse events that have implications on the profitability of our business or business verticals.

In addition, the Company announced that it had entered into a binding agreement for the sale of its Canadian cannabis business, including the Sherbrooke building, for C$5.15 million to be paid to the Company in cash.cash, which transaction closed on November 9, 2022. The

20

Company expects to recordrecorded a loss on remeasurement of the assets to fair value less cost of sale in the approximate amount of $15$15.3 million in the second quarter interim financial statements for the three and six-monthsnine-months ended September 30,December 31, 2022.

We may be required to record additional charges during the period in which any impairment of our goodwill, intangible assets or other long-lived assets is determined which could have a material adverse impact on our results of operations. Even though these charges may be non-cash items and may not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities.

In some cases, we cannot determine with any certainty whether we have priority of invention in relation to any new product or new process covered by a patent application or if we were the first to file a patent application for any such new invention. Furthermore, in the event of patent litigation there can be no assurance that our patents would be held valid or enforceable by a court of competent jurisdiction or that a court would rule that the competitor’s products or technologies constitute patent infringement.

Moreover, part of our technological know-how constitutes trade secrets. We require that our employees, consultants, advisers and collaborators sign confidentiality agreements. However, these agreements may not provide adequate protection in the event of unauthorized use or disclosure of our trade secrets, know-how or other proprietary information.

Claims that our technology or products infringe on intellectual property rights of others could be costly to defend or settle, could cause reputational injury and would divert the attention of our management and key personnel, which in turn could have a material adverse effect on our business, results of operations, financial condition and cash flows. Any adverse outcome of such litigation or settlement of such a dispute could subject us to significant liabilities, could put one or more of our patents at risk of being invalidated or interpreted

23

Table of Contents

narrowly, could put one or more of our pending patent applications at risk of not issuing, or could facilitate the entry of generic products. Any such litigation could also divert our research, technical and management personnel from their normal responsibilities.

Risks Relating to Our Liquidity

We are actively managing our liquidity and expenses, including by extending payables due and reducing investment in our businesses, and it is not certain that we will be ultimately successful in developing our business and remaining a going concern.

As of the date of this prospectus, we are actively managing our liquidity and expenses, and there is substantial doubt that our current cash position will be sufficient to continue as a going concern. The Company currently has minimal available cash balances, and we are also continuing to incur expenses that will cause us to expend cash in the short term. Payables are now in excess of available cash balances and payments of payables are not being made as the amounts become due for certain suppliers. As of the date of this prospectus,May 8, 2023, we have approximately $4.6$1.4 million in cash and cash equivalents, which is expected to be sufficient to operate the business for the next twosix to three monthseight weeks under the current business plan. The Company requires funding in the very near term in order to continue its operations. If the Company is unable to obtain funding in the near-term, it may have to cease operations and liquidate its assets. We have no arranged sources of financing available to us. Our failure to obtain any required additional financing on favorable terms, or at all, would have a material adverse effect on our business, financial condition and results of operations. We are pursuing several cash generating transactions, including the strategic plan described herein, as well as further expense reduction measures, but there can be no assurance that any transaction will be completed or that our expense reduction measures will be sufficient to continue as a going concern.

As a result of our failure to timely file our Quarterly Report on Form 10-Q for the quarter ended December 31, 2022, we are currently ineligible to file new short form registration statements on Form S-3, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.

Form S-3 permits eligible issuers to conduct registered offerings using a short form registration statement that allows the issuer to incorporate by reference its past and future filings and reports made under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, Form S-3 enables eligible issuers to conduct primary offerings “off the shelf” under Rule 415 of the Securities Act. The shelf registration process, combined with the ability to forward incorporate information, allows issuers to avoid delays and interruptions in the offering process and to access the capital markets in a more expeditious and efficient manner than raising capital in a standard registered offering pursuant to a Registration Statement on Form S-1. The ability to register securities for resale may also be limited as a result of the loss of Form S-3 eligibility.

As a result of our failure to timely file our Quarterly Report on Form 10-Q for the quarter ended December 31, 2022, we are currently ineligible to file new short form registration statements on Form S-3 and, absent a waiver of the Form S-3 eligibility requirements, we will no longer be permitted to use our existing registration statement on Form S-3. As a consequence, we might not be permitted to sell all of the amount of securities we could otherwise sell prior to such time, subject to the limits of General Instruction I.B.6. of Form S-3, which could adversely affect our operations and financial results.

Our inability to use Form S-3 may significantly impair our ability to raise necessary capital to run our operations and execute on our strategy. If we seek to access the capital markets through a registered offering during the period of time that we are unable to use Form S-3, we may be required to publicly disclose the proposed offering and the material terms thereof before the offering commences, we may experience delays in the offering process due to SEC review of a Form S-1 registration statement and we may incur increased offering and transaction costs and other considerations. Disclosing a public offering prior to the formal commencement of an offering may result in downward pressure on our share price. If we are unable to raise capital through a registered offering, we would be required to conduct our equity financing transactions on a private placement basis, which may be subject to pricing, size and other limitations imposed under Nasdaq rules, or seek other sources of capital.

The Company may have difficulty accessing public and private capital and banking services, which could negatively impact its ability to finance its operations.

The Company anticipates that funding sources may be available pursuant to private and public offerings of equity and/or debt and bank lending. However, if equity and/or debt financing was not available in the public capital

21

markets, then the Company expects that it would have access to raise equity and/or debt financing privately. Commercial banks, private equity firms and venture capital firms have approached the cannabis industry cautiously to date. Although there has been an increase in the amount of financing available to companies in the cannabis industry over the last several years, there is neither a broad nor deep pool of institutional capital that is available to cannabis industry participants. There can be no assurance that additional financing, if raised privately or publicly, will be available to the Company when needed or on terms which are acceptable.acceptable, or that the Company’s existing indebtedness would not impact its ability to obtain such additional financing. The Company’s inability to raise financing to fund capital expenditures

24

Table of Contents

or acquisitions could limit its growth and may have a material adverse effect upon future profitability. If the Company cannot achieve profitability, it may be forced to cease operations and you may suffer a total loss of your investment.

Legal and Regulatory Risks Relating to Our Business

We identified material weaknesses in our internal control over financial reporting. This may adversely affect the accuracy and reliability of our financial statements and, if we fail to maintain effective internal control over financial reporting, it could impact our reputation, business, and the price of our common shares, as well as lead to a loss of investor confidence in us.

The Company has and may continue to fail to maintain the adequacy of its internal controls over financial reporting as such standards are modified, supplemented or amended from time to time, and the Company cannot ensure that it will conclude on an ongoing basis that it has effective internal controls over financial reporting. The Company’s failure to satisfy the requirements of Canadian and United States legislation on an ongoing, timely basis could result in the loss of investor confidence in the reliability of its financial statements or in a cease trade order, which in turn could harm the Company’s business and negatively impact the trading price and market value of its shares or other securities. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Company’s operating results or cause it to fail to meet its reporting obligations.

The Company also has and may continue to fail to maintain the adequacy of its disclosure controls. Disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in reports filed with securities regulatory agencies is recorded, processed, summarized and reported on a timely basis and is accumulated and communicated to the Company’s management, as appropriate, to allow timely decisions regarding required disclosure.

No evaluation can provide complete assurance that the Company’s financial and disclosure controls will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be reported. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance with respect to the reliability of financial reporting and financial statement preparation. The effectiveness of the Company’s controls and procedures could also be limited by simple errors or faulty judgements.

Material weaknesses in the Company’s internal control over financial reporting were determined to exist at March 31, 2022 and these material weaknesses have not been remediated to date. The Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that our internal control over financial reporting was not effective as of March 31, 2022 due to the presence of these material weaknesses.weaknesses, and during the quarter ended September 30, 2022, additional material weaknesses were identified. While intend to adopt new and revised controls are being adopted to remediate these weaknesses, if these and other controls fail to adequately remediate these material weaknesses, it could result loss of investor confidence, which could lead to a decline in our share price. In addition, if we do not maintain adequate financial and management personnel, processes, and controls, we may not be able to accurately report our financial performance on a timely basis, which could cause a decline in our share price and harm our ability to raise capital. Failure to accurately report our financial performance on a timely basis could also jeopardize our continued listing on Nasdaq or any other exchange on which our common shares may be listed.

22

As a non-accelerated filer, we are not required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act.

We are a non-accelerated filer under the Securities Exchange Act of 1934 (the “Exchange Act”“Exchange Act”) and we are not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. Therefore, our internal controls over financial reporting will not receive the level of review provided by the process relating to the auditor attestation included in annual reports of issuers that are subject to the auditor attestation requirements. In addition, we cannot predict if investors will find our common shares less attractive because we are not required to comply with the auditor attestation requirements. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and trading price for our common shares may be negatively affected.

Sources of hemp-derived CBD depend upon legality of cultivation, processing, marketing and sales of products derived from those plants under state law.

Hemp-derived cannabidiol, or CBD, can only be legally produced in states that have laws and regulations that allow for such production and that comply with the Agricultural Improvement Act of 2018 (the “2018 Farm Act”), apart from state laws legalizing and regulating medical and recreational cannabis or marijuana, which remains illegal under federal law and regulations. We purchase all of our hemp-derived CBD from licensed growers and processors in states where such production is legal. In the event of repeal or amendment of laws and regulations which are now favorable to the cannabis/hemp industry in such states, we would be required to locate new suppliers in states with laws and regulations that qualify under the 2018 Farm Act. If we were to be unsuccessful in arranging new sources of supply of our raw ingredients, or if our raw ingredients were to become legally unavailable, our intended business plan with respect to such products could be adversely impacted.

We must comply with requirements for licenses and permits in Canada and the failure to maintain these could adversely affect our operations.

As a holder of a license for standard processing, we will be subject to ongoing inspections by Health Canada to monitor our compliance with its licensing requirements. Our license(s) that we obtained, orThe Corporation may in the future obtain, in Canada may be revoked or restricted at any time in the event that we are found not to be in compliance. Should we fail to comply with the applicable regulatory requirements or with conditions set out under our license(s), should our license(s) not be renewed when required, or be renewed on different terms, or should our license(s) be revoked, we may not be able to produce, process or distribute cannabis products.

We operate in Canada out of our existing facility located in Sherbrooke, Québec, which is required to comply with Health Canada requirements. Our facility is therefore subject to the adherence of ongoing standards and thresholds in order to maintain the appropriate certificate. Although the Company believes it will continue to meet such ongoing requirements, there is no guarantee that the required certification will be maintained. Any loss in certification would have a material adverse effect on the business, financial condition, and results of the operations of the Company.

Prior to the expiration of our current license, we must submit to Health Canada an application for renewal of such license. There can be no assurance that we will be able to renew our existing license and any failure to renew such license would have a material adverse impact on our business, financial condition, and operating results.

We expect to be subject to taxation in both Canada and the United States, which could have a material adverse effect on our financial condition and results of operations.

We are a Canadian corporation, and as a result generally would be classified as a non-United States corporation under the general rules of U.S. federal income taxation. Section 7874 of the Code, however, contains rules that can cause a non-United States corporation to be taxed as a United States corporation for U.S. federal income tax purposes. Under Section 7874 of the Code, a corporation created or organized outside of the United States will

23

nevertheless be treated as a United States corporation“passive foreign investment company” for U.S. federal income tax purposes, which is referredwould subject U.S. investors that hold the Corporation’s Common Shares to as an inversion, if each ofpotentially significant adverse U.S. federal income tax consequences.

If the following three conditions are met: (i) the non-United States corporation acquires, directly or indirectly, orCorporation is treated as acquiring under applicable U.S. Treasury regulations, substantially all of the assets held, directly or indirectly, by a United States corporation, (ii) after the acquisition, the former shareholders of the acquired United States corporation hold at least 80% (by vote or value) of the shares of the non-United States corporation by reason of holding shares of the acquired United States corporation, and (iii) after the acquisition, the non-United States corporation’s expanded affiliated group does not have substantial business activities in the non-United States corporation’s country of organization or incorporation when compared to the expanded affiliated group’s total business activities.

Pursuant to Section 7874 of the Code, we are classified as a U.S. corporationpassive foreign investment company (“PFIC”) for U.S. federal income tax purposes in any taxable year, U.S. investors holding the Corporation’s Common Shares generally will be subject, in that taxable year and are subjectall subsequent taxable years (whether or not the Corporation continued to be a PFIC), to certain adverse

25

Table of Contents

U.S. federal income tax consequences. The Corporation will be classified as a PFIC in respect of any taxable year in which, after taking into account its income and gross assets (including the income and assets of 25% or more owned subsidiaries), either (i) 75% or more of its gross income consists of certain types of “passive income” or (ii) 50% or more of the average quarterly value of its assets is attributable to “passive assets” (assets that produce or are held for the production of passive income). Based on our worldwide income. Regardlesscurrent operations, income, assets and certain estimates and projections, including as to the relative values of our assets, including goodwill, which is based on the expected price of our Common Shares, the Corporation believes that it was not a PFIC for the taxable year ended March 31, 2022. The determination of the Corporation’s status as a PFIC for the fiscal year ending March 31, 2023 cannot be made at this time. Because the Corporation’s PFIC status must be determined annually with respect to each taxable year and will depend on the composition and character of the Corporation’s assets and income, including the Corporation’s use of proceeds from offerings, and the value of the Corporation’s assets (which may be determined, in part, by reference to the market value of Common Shares, which may be volatile) over the course of such taxable year, the Corporation may be a PFIC in any taxable year. Because there are uncertainties in the application of Section 7874, however, we expectthe relevant rules and PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that the Corporation will not be a PFIC for any future taxable year. In addition, it is possible that the U.S. Internal Revenue Service may challenge the Corporation’s classification of certain income and assets as non-passive, which may result in the Corporation being or becoming a PFIC in the current or subsequent years.

If the Corporation is a PFIC for any year during a U.S. Holder’s (as defined below in “Certain U.S. Federal Income Tax Considerations”) holding period, then such U.S. Holder generally will be required to be treatedtreat any gain realized upon a disposition of Common Shares, or any “excess distribution” received on its Common Shares, as ordinary income, and to pay an interest charge on a Canadian resident company for purposesportion of such gain or distribution, unless the U.S. Holder makes a timely and effective “qualified electing fund” election (“QEF Election”) or a “mark-to-market” election with respect to its Common Shares. A U.S. Holder who makes a QEF Election generally must report on a current basis its share of the Canadian Income Tax Act,Corporation’s net capital gain and ordinary earnings for any year in which the Corporation is a PFIC, whether or not the Corporation distributes any amounts to its shareholders. However, U.S. Holders should be aware that if the Corporation determines that it is a PFIC for this year or any future taxable year, the Corporation can make no assurances that it would provide the information necessary for U.S. Holders to make a QEF Election. Thus, U.S. Holders may not be able to make a QEF Election with respect to their Common Shares. A U.S. Holder who makes a mark-to-market election generally must include as amended. As a result, we are subject to taxation both in Canadaordinary income each year the excess of the fair market value of the Common Shares over the taxpayer’s basis therein. Each U.S. Holder should consult its own tax advisors regarding the PFIC rules and the U.S., which could have a material adverse effect on our financial condition federal income tax consequences of the acquisition, ownership, and resultsdisposition of operations.Common Shares.

We are subject to laws and regulations and guidelines, changes in which could increase our costs and individually or in the aggregate adversely affect our business.

We are subject to laws and regulations affecting our operations in a number of areas. These laws and regulations affect the Company’s activities in areas including, but not limited to, the cannabis industry in Canada, the hemp, organic food and beverage products, dietary supplements, consumer protection, labor, intellectual property ownership and infringement, import and export requirements, and environmental, health and safety.

The successful execution of our business objectives is contingent upon compliance with all applicable laws and regulatory requirements and obtaining all other required regulatory approvals, which may be onerous and expensive. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation and the expansion of the Company’s business, could individually or in the aggregate make the Company’s products and services less attractive to our customers, delay the introduction of new products, or cause the Company to implement policies and procedures designed to ensure compliance with applicable laws and regulations. There can be no assurance that the Company’s officers, directors, employees, contractors, or agents will not violate such laws and regulations or our policies and procedures.

We are subject to risks inherent to the nutraceutical industry.

We are heavily dependent on the export of products to the United States. The FDA is able to block the import entry of any product that “appears”violates or appears to violate U.S. law, which represents a low evidentiary standard for the FDA.law.  Future changes in U.S. requirements and interpretations of those requirements, coupled with the “appears”FDA’s authority to violateblock import entry based only on an apparent violation of the law, standard for refusing entry of imported products, increases the possibility that our products may not have full access to the U.S. market and poses additional risks to our business.

We are subject to anti-money laundering laws and regulations in multiple jurisdictions.

The Company will be subject to a variety of laws and regulations in Canada and in the United States that involve money laundering, financial recordkeeping and proceeds of crime, including the U.S. Currency and Foreign Transactions Reporting Act of 1970 (commonly

26

Table of Contents

known as the Bank Secrecy Act), as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), the Criminal Code (Canada), as amended and the rules and regulations thereunder, and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States and Canada.

24

If any of the Company’s investments, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such investments in the United States or Canada were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize the ability of the Company to declare or pay dividends, effect other distributions or subsequently repatriate such funds back to Canada. Furthermore, while the Company has no current intention to declare or pay dividends on its Common Shares in the foreseeable future, the Company may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.

Potential regulation by the FDA could have a material adverse effect on our business, financial condition and results of operations.

Should the United States federal government legalize cannabis, it is possible that the FDA would seek to regulate it under the Federal Food, Drug, and Cosmetic Act. Additionally, the FDA may issue rules and regulations, including good manufacturing practices related to the growth, cultivation, harvesting and processing of medical cannabis. Clinical trials may be needed to verify efficacy and safety of our medical cannabis products. It is also possible that the FDA would require that facilities where medical-use cannabis is grown register with the agency and comply with certain federally prescribed regulations. In the event that some or all of these regulations are imposed, the impact on the cannabis industry is uncertain and could include the imposition of new costs, requirements, and prohibitions. If we are unable to comply with the regulations or registration as prescribed by the FDA, it may have an adverse effect on our business, operating results, and financial condition.

We could be materially adversely impacted due to restrictions under U.S. border entry laws.

Because cannabis remains illegal under U.S. federal law, those investing in Canadian companies with operations in the U.S. cannabis industry could face detention, denial of entry or lifetime bans from the United States as a result of their business associations with U.S. cannabis businesses. Entry into the United States happens at the sole discretion of United States Customs and Border Patrol, or CBP, officers on duty, and these officers have wide latitude to ask questions to determine the admissibility of a non-U.S. citizen or foreign national. The government of Canada has started warning travelers on its website that previous use of cannabis, or any substance prohibited by U.S. federal law, could mean denial of entry to the United States. Business or financial involvement in the cannabis industry in the United States could also be reason enough for denial of entry into the United States. On September 21, 2018, the CBP released a statement outlining its current position with respect to enforcement of the laws of the United States. It stated that Canada’s legalization of cannabis will not change CBP enforcement of U.S. laws regarding controlled substances. According to the statement, because cannabis continues to be a controlled substance under U.S. law, working in or facilitating the proliferation of the marijuana industry in U.S. states where it is legal under state law may affect admissibility to the United States. On October 9, 2018, the CBP released an additional statement regarding the admissibility of Canadian citizens working in the legal cannabis industry in Canada. CBP stated that a Canadian citizen working in or facilitating the proliferation of the legal cannabis industry in Canada who seeks to come into the United States for reasons unrelated to the cannabis industry will generally be admissible to the United States; however, if such person is found to be coming into the United States for reasons related to the cannabis industry, such person may be deemed inadmissible. As a result, the CBP has affirmed that employees, directors, officers, and managers of and investors in companies involved in business activities related to cannabis in the United States who are not U.S. citizens face the risk of being barred from entry into the United States for life.

We may not have access to United States bankruptcy protections available to non-cannabis businesses.

Because cannabis is a Schedule I controlled substance under the CSA, many courts have denied cannabis businesses federal bankruptcy protections, which has made it difficult for lenders to be made whole on their investments in the cannabis industry in the event of a bankruptcy. If we were to experience a bankruptcy, there is no guarantee that United States federal bankruptcy protections would be available to us, which would have a material adverse effect on us and may make it more difficult for us to obtain debt financing.

25

There is doubt regarding our ability to enforce contracts.

A fundamental principle of law is that a contract will not be enforced if it involves a violation of law or public policy. Because cannabis remains illegal at a federal level in the United States, judges in multiple states have on a number of occasions refused to enforce contracts for the repayment of money when the loan was used in connection with activities that violate U.S. federal law, even if there is no violation of state law. There remains doubt and uncertainty that we will be able to legally enforce our contracts. If we are unable to realize the benefits of or otherwise enforce the contracts into which we enter, it could have a material adverse effect on our business, financial condition and results of operations.

Our inability to maintain our regulatory approvals and permits or failure to comply with applicable regulations could adversely affect our business and financial results.

The Company is required to obtain and maintain certain federal and state permits, licenses and approvals in the jurisdictions where its products are manufactured and/or sold.sold and to comply with extensive regulations governing its business, including FDA regulations. There can be no assurance that the Company will be able to obtain or maintain necessary licenses, permits or approvals.approvals or continue to comply with applicable regulations. Any material delay or inability to receive these items is likely to delay and/or inhibit the Company’s ability to conduct its business, and would have an adverse effect on its business, financial condition and results of operations.

We are currently, and may in the future be, subject to substantial litigation, investigations and proceedings that could cause us to incur significant legal expenses and result in harm to our business.

We and our subsidiaries are subject to federal, state, local, foreign and provincial health, safety, and labeling laws and regulations, including but not limited to the federal Food, Drug, and Cosmetic Act and regulations promulgated by the federal Food and Drug Administration;FDA; laws and regulations promulgated by the United States Department of Agriculture; the National Organic Program; and state, local, foreign, and provincial law equivalents. In addition, the California Safe Drinking Water and Toxic Enforcement Act of 1986 (Proposition 65) and implementing regulations impose testing and warning requirements for products containing any chemical known to the State of California to cause cancer and/or reproductive toxicity. Product recall laws and regulations also apply to our products.

The failure by us to comply with applicable health, safety, and labeling requirements could result in fines, penalties, injunctions, product recalls, enforcement actions, third-party claims for property damage and personal injury, regulatory or judicial orders requiring corrective measures, and attorneys’ fees associated with prosecuting such actions, which could have a material adverse effect on our business, financial condition, or results of operations.

We rely on contract manufacturers to produce products in compliance with applicable health, safety, and labeling requirements. Further, as with any consumer-facing company selling food or nutraceutical products, there is always a chance of microbial contamination even under the most stringent manufacturing practices; thus, the risk of fines, penalties, injunctions, product recalls, enforcement actions, third-party claims for property damage and personal injury, regulatory or judicial orders requiring corrective measures, and attorneys’ fees associated with prosecuting such actions is heightened where the company is not actively involved in the manufacturing practices.

On February 4, 2021, the United States House of Representatives Subcommittee on Economic and Consumer Policy, Committee on Oversight and Reform (“Subcommittee”Subcommittee”), published a report, “Baby Foods Are Tainted with Dangerous Levels of Arsenic, Lead, Cadmium, and Mercury” (the “Report”“Report”), which stated that, with respect to Sprout, a company in which Neptune acquired a 50.1% stake, “Independent testing of Sprout Organic Foods”Foods has confirmed that their baby foods contain concerning levels of toxic heavy metals.” The Report further stated that after receiving reports alleging high levels of toxic metals in baby foods, the Subcommittee requested information from Sprout but did not receive a response. On February 11, 2021, the Subcommittee contacted Sprout, reiterating its requests for documents and information about toxic heavy metals in Sprout’s baby foods.

26

Sprout provided an initial response to the Subcommittee on February 25, 2021. The pending inquiries and potential findings could have a material adverse effect on our business, financial condition, or results of operations.

On March 16, 2021, a purported class action, captioned Marvin Gong v. Neptune Wellness Solutions, et al., was filed in the United States District Court for the Eastern District of New York against the Company and certain of its current and former officers. On

27

Table of Contents

October 21, 2022, the Company announced that it had agreed to settle and resolve the lawsuit for a gross payment to the class of between $4 and $4.25 million, with the exact amount being within the Company’s control and dependent on the type of consideration used. The settlement iswas subject to court approval and certification by the court of the class,class. On March 16, 2023, the settlement offer was accepted and the Company has a right to terminatefirst payment in the agreement withinamount of $500,000 was paid on March 22, 2023. Two additional payments of $500,000 each are due 30 days under certain circumstances.and 60 days after the first payment. The rest is payable either in cash ($2,500,000) or in shares ($2,750,000) at Neptune’s election, within 31 days after the Final Approval Order is entered.

We also are subject to federal, state, local, foreign and provincial laws, rules and regulations concerning advertising and marketing, including but not limited to those prohibiting unfair, deceptive, and/or abusive trade practices. Violations of advertising and marketing requirements can result in fines, penalties, injunctions, disgorgement of profits, full restitution for injury suffered by consumers, rescission of contracts, enforcement actions, regulatory or judicial orders requiring corrective measures, and attorneys’ fees associated with prosecuting such actions.

Accordingly, we are exposed to potential liabilities and reputational risk associated with litigation, regulatory proceedings and government investigations and enforcement actions for the failure of us to comply with applicable health, safety, and labeling requirements and advertising and marketing requirements. Any adverse judgment in or settlement of any pending or any future litigation or investigation could result in payments, fines and penalties that could adversely affect our business, results of operations and financial condition and which may not be covered by insurance. Regardless of the merits of the claims and the outcome, legal proceedings have resulted in, and may continue to result in, significant legal fees and expenses as well as diversion of management’s and employee time and other resources, and adverse publicity. Such proceedings could also adversely affect our business, results of operations and financial condition. If the Company is unsuccessful in its defense of material litigation claims or is unable to settle the claims, the Company may be faced with significant monetary damage awards or other remedies against it including injunctive relief that could have a material adverse effect on the Company’s business, financial condition and results of operations. Administrative or regulatory actions against the Company or its employees could also have a material adverse effect on the Company’s business, financial condition and results of operations. For more information on our pending legal proceedings, see “Legal Proceedings.”

Risks Relating to Our Human Resources

We may be unable to attract or retain key personnel, and we may be unable to attract, develop and retain additional employees required for our development and future success.

Our success is largely dependent on the performance of our management team and certain employees and our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. The loss of the services of any key personnel, or an inability to attract other suitably qualified persons when needed, could prevent us from executing on our business plan and strategy, and we may be unable to find adequate replacements on a timely basis, or at all. We do not currently maintain key-person insurance on the lives of any of our key personnel.

Further, officers, directors, and certain key personnel at our facility that is licensed by Health Canada are subject to the requirement under the Cannabis Act to obtain and maintain a security clearance from Health Canada. Moreover, an individual with security clearance must be physically present on site when other individuals are conducting activities with cannabis. A security clearance is valid for a limited time and must be renewed before the expiry of a current security clearance. There is no assurance that any of our existing personnel who presently

27

or may in the future require a security clearance will be able to obtain or renew such clearances or that new personnel who require a security clearance will be able to obtain one. A failure by an individual in a key operational position to maintain or renew his or her security clearance could result in a reduction or complete suspension of our operations. In addition, if an individual in a key operational position leaves us, and we are unable to find a suitable replacement who is able to obtain a security clearance in a timely manner, or at all, we may not be able to conduct our operations at planned production volume levels or at all.

We face exposure to fraudulent or illegal activity by officers, directors, employees, contractors, consultants and agents, which may subject us to investigations and actions.

We are exposed to the risk that any of our officers, directors, employees, independent contractors and consultants and our subsidiaries may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violate (i) government regulations, (ii) manufacturing standards, (iii) federal, state, local, and localforeign healthcare fraud and abuse laws and regulations, or (iv) laws that require the true, complete and accurate reporting of financial information or data. It may not always be possible for us to identify and deter misconduct by our officers, directors, employees and other third parties, and the precautions taken by us to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance withcomply such laws or regulations. We cannot provide assurance that our internal controls and compliance systems will protect us from acts committed by our officers, directors, employees, agents or business partners in violation of U.S. or Canadian federal, provincial or state or local laws. If any such actions are instituted against us, and we are not successful in defending or asserting our rights, those actions could have a material impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects.

28

Table of Contents

Risks Relating to Our Information Technology

We must successfully maintain and/or upgrade our information technology systems, and our failure to do so could have a material adverse effect on our business, financial condition or results of operations.

We rely on various information technology systems to manage our operations. Over the last several years, we have implemented, and we continue to implement, modifications and upgrades to such systems, including changes to legacy systems, replacing legacy systems with successor systems with new functionality, and acquiring new systems with new functionality. These types of activities subject us to inherent costs and risks associated with replacing and changing these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time and other risks and costs of delays or difficulties in transitioning to or integrating new systems into our current systems. These implementations, modifications, and upgrades may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, the difficulties with implementing new technology systems may cause disruptions in our business operations and have a material adverse effect on our business, financial condition, or results of operations.

We may be exposed to risks and costs associated with security breaches, data loss, credit card fraud and identity theft that could cause us to incur unexpected expenses and loss of revenue as well as other risks.

The Company’s operations are increasingly dependent on IT systems and the management of information; thus, the protection of customers, employees, suppliers and other business data is critical. A portion of our sales require the collection of certain customer data, such as credit card information. In order for our sales channel to function, we and other parties involved in processing customer transactions must be able to transmit confidential

28

information, including credit card information, securely over public networks. The use of credit payment systems makes us more susceptible to a risk of loss, particularly with respect to an external security breach of customer information controlled by us, or by third parties under arrangements with us (including those with whom we have strategic alliances). Despite of all efforts, the Company experienced a cyber-attack in July 2021 as a consequence of increased digital interactions with customers, suppliers and consumers, and changes in ways of working of our employees and these external stakeholders due to the COVID-19 outbreak. Also, we are particularly reliant on service providers and thus the impact of COVID-19 on their operations also imposed a risk for us. Cyber-attacks will continue to impose threats to our operations.

In addition, federal, state, provincial and international laws and regulations govern the collection, retention, sharing, and security of data that we manage. The regulatory environment surrounding information security and privacy has been increasingly demanding in recent years and may see the imposition of new and additional requirements by provincial, state, and federal governments as well as foreign jurisdictions in which we do business. Compliance with these requirements may result in cost increases due to necessary systems changes and the development of new processes to meet these requirements by us.

In the event of a security breach, theft, leakage, accidental release or other illegal activity with respect to employees, customers, suppliers or other company data, we could become subject to various claims, including those arising out of thefts and fraudulent transactions, and may also result in the suspension of credit card services. This could cause consumers to lose confidence in our security measures, harm our reputation as well as divert management attention, and expose us to potentially unreserved claims and litigation. Any loss in connection with these types of claims could be substantial. If our electronic payment systems are damaged or cease to function properly, we may have to make significant investments to fix or replace them, and we may suffer interruptions in our operations in the interim. In addition, we are reliant on these systems, not only to protect the security of the information stored, but also to appropriately track and record data. Any failures or inadequacies in these systems could expose us to significant unreserved losses, which could materially and adversely affect our earnings and the market price of securities. Our brand reputation would likely be damaged as well.

Risks Relating to Our Intellectual Property

Our commercial success depends, in part, on our intellectual property rights and a failure by us to protect our intellectual property may have a material adverse effect on our ability to develop and commercialize our products.

Our success depends in part on our ability to develop products, obtain patents, protect our trade secrets and operate without infringing third-party exclusive rights or without others infringing our exclusive rights or those granted to us under license. The patent position of a corporation is generally uncertain and involves complex legal, factual and scientific issues, several of which remain unresolved. We do not know whether we will be able to develop other patentable proprietary technology and/or products. Furthermore, we cannot be completely certain that our future patents, if any, will provide a definitive and competitive advantage or afford protection against

29

Table of Contents

competitors with similar technology. Furthermore, we cannot give any assurance that such patents will not be challenged or circumvented by others using alternative technology or whether existing third-party patents will prevent us from marketing our products. In addition, competitors or potential competitors may independently develop, or have independently developed products as effective as ours or invent or have invented other products based on our patented products.

If third-party licenses are required, we may not be able to obtain them, or if obtainable, they may not be available on reasonable terms. Furthermore, we could develop or obtain alternative technologies related to third-party patents that may inadvertently cover their products. Inability to obtain such licenses or alternative technologies could delay the market launch of certain of our products, or even prevent us from developing, manufacturing or selling certain products. In addition, we could incur significant costs in defending ourselves in patent infringement proceedings initiated against us or in bringing infringement proceedings against others.

29

We have limited trademark protection.

We will not be able to register any federal trademarks in the United States for our cannabis products. Because producing, manufacturing, processing, possessing, distributing, selling and using cannabis currently illegal under the Controlled Substances Act, as amended (the “CSA”), the U.S. Patent and Trademark Office will not permit the registration of any trademark that identifies cannabis products. As a result, we likely will be unable to protect our cannabis product trademarks beyond the geographic areas in which we conduct business. The use of our trademarks outside the states in which we operate by one or more other persons could have a material adverse effect on the value of such trademarks.

Risks Relating to This Offering and Ownership of Our Common Shares

We do not currently intend to pay any cash dividends on our Common Shares in the foreseeable future.

We have never paid any cash dividends on our Common Shares. We do not anticipate paying any cash dividends on our Common Shares in the foreseeable future because, among other reasons, we currently intend to retain any future earnings to finance our business. The future payment of cash dividends will be dependent on factors such as cash on hand and achieving profitability, the financial requirements to fund growth, our general financial condition and other factors our board of directors may consider appropriate in the circumstances. Until we pay cash dividends, which we may never do, our shareholders will not be able to receive a return on their Common Shares unless they sell them.

We have broad discretion in the use of proceeds from the offering.

Our management will have broad discretion with respect to the application of net proceeds received by us from the sale of the Common Shares and Warrants under this prospectus supplement and may spend such proceeds in ways that do not improve our results of operations or enhance the value of the Common Shares and Warrants. Any failure by management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business or cause the price of our Common Shares to decline.

If there is insufficient liquidity in our Common Shares, it could adversely affect your ability to sell your shares.

Shareholders of the Company may be unable to sell significant quantities of Common Shares into the public trading markets without a significant reduction in the price of their Common Shares, or at all. There can be no assurance that there will be sufficient liquidity of the Common Shares on the trading market, and that the Company will continue to meet the listing requirements of the NASDAQNasdaq or achieve listing on any other public stock exchange. There can be no assurance that an active and liquid market for the Common Shares will be maintained and an investor may find it difficult to resell Common Shares.

There is currently no established public trading market for the Warrants.

There is no established public trading market for the Warrants, and we do not expect such a market to develop. In addition, we do not plan on making an application to list the Warrants on the Nasdaq, or any other securities exchange or other trading system. This may affect the pricing of the Warrants in the secondary market, the transparency and availability of trading prices, the liquidity of the Warrants, and the extent of issuer regulation. Except in limited circumstances specified in the Warrants, holders of the Warrants will not be entitled to any voting rights, dividends or other rights as shareholders of the Company, prior to the exercise of their Warrants. In addition, the Warrants have an exercise price of $      per Common Share, will be exercisable immediately, and will expire five years following the date of issuance. If the price of the Common Shares does not exceed the exercise price of the Warrants during the period when the Warrants are exercisable, the Warrants may not have any value.

U.S. investors may be unable to enforce certain judgments against us in Canada.

Neptune is a corporation existing under the Business Corporations Act (Québec). A number of our directors and officers are residents of Canada or other jurisdictions outside of the United States, and substantially all of our assets are located outside the United States. As a result, it may be difficult to effect service within the United States upon the Company or upon its directors and officers. Execution by United States courts of any judgment obtained against the Company or any of the Company’s directors or officers in United States courts may be limited to the assets of such companies or such persons, as the case may be, located in the United States. It may also be difficult for holders of securities who reside in the United States to realize in the United States upon judgments of courts of the United States

30

Table of Contents

predicated upon civil liability and the civil liability of the Company’s directors and executive officers under the United States federal securities laws. The Company has been advised that a judgment of a U.S. court predicated solely upon civil liability under U.S.United States federal securities laws or the securities or “blue sky” laws of any state within the United States, would likely be enforceable in Canada if the United States court in which the judgment was obtained has a basis for jurisdiction in the matter that would be recognized by a Canadian court for the same purposes. However, there may be doubt as to the enforceability in Canada against these non-U.S. entities or their controlling persons, directors and officers who are not residents of the United States, in original actions or in actions for enforcement of judgments of courts of the United States, of liabilities predicated solely upon U.S. federal or state securities laws.

Certain Canadian laws could delay or deter a change of control.

The Investment Canada Act (Canada) subjects an acquisition of control of a corporation by a non-Canadian to government review if the value of the assets as calculated pursuant to the legislation exceeds a threshold amount.

30

A reviewable acquisition may not proceed unless the relevant minister is satisfied that the investment is likely to be a net benefit to Canada. Any of the foregoing could prevent or delay a change of control and may deprive or limit strategic opportunities for our shareholders to sell their shares.

Our failure to meet the continued listing requirements of Nasdaq could result in a de-listing of our Common Shares.

If we fail to continue to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq will take steps to de-list our Common Shares. The per share price of our Common Shares has declined below the minimum bid price threshold required for continued listing. Such a de-listing would likely have a negative effect on the price of our Common Shares and would impair your ability to sell or purchase our Common Shares when you wish to do so, as well as adversely affect our ability to issue additional securities and obtain additional financing in the future.

On December 29, 2022, we received a deficiency notice from Nasdaq (the “Deficiency Notice”) informing us that our Common Shares have failed to comply with the $1.00 minimum bid price required for continued listing under Nasdaq Listing Rule 5550(a)(2) (“Rule 5550(a)(2)”) based upon the closing bid price of our Common Shares for the 30 consecutive business days prior to the date of the Deficiency Notice. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were given 180 calendar days from December 29, 2022, or until June 27, 2023, to regain compliance with Rule 5550(a)(2). If at any time before June 27, 2023, the bid price of our Common Shares closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Nasdaq will provide written confirmation that we have regained compliance.

Our common shares may be de-listed if we do not regain compliance with Rule 5550(a)(2) by June 27, 2023 and our shareholders could face significant material adverse consequences, including:

●Limited availability or market quotations for our common shares;
●Reduced liquidity of our common shares;
●Determination that our common shared are “penny stock”, which would require brokers trading in our common shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our common shares;
●Limited amount of news and analysts’ coverage of us; and
●Decreased ability for us to issue additional equity securities or obtain additional equity or debt financing in the future.

In the event of a de-listing, however, we would take actions to restore our compliance with Nasdaq Marketplace Rules, but we can provide no assurances that the listing of our Common Shares would be restored, that our Common Shares will remain above the Nasdaq minimum bid price requirement or that we otherwise will remain in compliance with the Nasdaq Marketplace Rules.

Our shareholders may be subject to dilution resulting from future offerings of Common Shares by us.

We may raise additional funds in the future by issuing Common Shares or equity-linked securities. Holders of our securities have no pre-emptive rights in connection with such further issuances. Our board of directors has the discretion to determine if an issuance of our

31

Table of Contents

capital stock is warranted, the price at which such issuance is to be affected and the other terms of any future issuance of capital stock. In addition, additional common shares will be issued by us in connection with the exercise of warrants, options or grant of other equity awards granted by us. Such additional equity issuances could, depending on the price at which such securities are issued, substantially dilute the interests of the holders of our existing securities.

Our failure to meet the continued listing requirements of Nasdaq could result in a de-listing of our Common Shares.

If we fail to continue to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq will take steps to de-list our Common Shares. As a result of several factors, including but not limited to our financial performance, the ongoing outbreak of COVID-19, recent volatility in the financial markets generally due After giving effect to the expectationsale by us of a tightening in monetary policy by the U.S. Federal Reserve and other geopolitical events, the per share price of our Common Shares has declined below the minimum bid price threshold required for continued listing. Such a de-listing would likely have a negative effect on the price(i) 12,068,966 shares of our Common Shares and would impair your abilityaccompanying Common Warrants to sell or purchase our Common Shares when you wish to do so, as well as adversely affect our ability to issue additional securities and obtain additional financing in the future.

On August 30, 2021, we received a deficiency notice from Nasdaq (the “Deficiency Notice”) informing us that our Common Shares have failed to comply with the $1.00 minimum bid price required for continued listing under Nasdaq Listing Rule 5550(a)(2) (“Rule 5550(a)(2)”) based upon the closing bid price12,068,966 shares of our Common Shares forat the 30 consecutive business days priorassumed public offering price of $0.58 per Common Share and accompanying Common Warrant, and (ii) Pre-Funded Warrants to purchase Common Shares and accompanying Common Warrants at a the dateassumed public offering price of $0.58 per Pre-Funded Warrant and accompanying Common Warrant, and after deducting Placement Agent fees and expenses and estimated offering expenses payable by us and assuming full exercise of the Deficiency Notice. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were initially given 180 calendar days from August 30, 2021, or until February 28 2022, to regain compliance with Rule 5550(a)(2). On March 1, 2022, the Company was granted an additional 180 calendar day period to regain compliance. If at any time before August 30, 2022, the bid pricePre-Funded Warrants, you will experience immediate dilution of our Common Shares closes at $1.00$1.28 per share, or morerepresenting the difference between the public offering price per share and our as adjusted net tangible book value per share as of December 31, 2022 after giving effect to this offering. See the section entitled “Dilution” appearing elsewhere in this prospectus supplement for a minimum of 10 consecutive business days, the Nasdaq will provide written confirmation that we have regained compliance.

Our common shares may be de-listed if we do not regain compliance with Rule 5550(a)(2) by August 30, 2022 and our shareholders could face significant material adverse consequences, including:

Limited availability or market quotations for our common shares;

Reduced liquidity of our common shares;

Determination that our common shared are “penny stock”, which would require brokers trading in our common shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our common shares;

Limited amount of news an analysts’ coverage of us; and

Decreased ability for us to issue additional equity securities or obtain additional equity or debt financing in the future.

In the event of a de-listing, however, we would take actions to restore our compliance with Nasdaq Marketplace Rules, but we can provide no assurances that the listing of our Common Shares would be restored, that our

31

Common Shares will remain above the Nasdaq minimum bid price requirement or that we otherwise will remain in compliance with the Nasdaq Marketplace Rules.

On June 9, 2022, Neptune announced the completiondetailed illustration of the Company’s proposed consolidation of its common shares (the “Common Shares”) on the basis of one (1) post-consolidation Common Share for every thirty-five (35) pre-consolidation Common Shares (the “Share Consolidation”). The post-Share Consolidation Common Shares commenced trading on the NASDAQ and the TSX at the market open on June 13, 2022. The Share Consolidation reduced the number of Common Shares issued and outstanding from approximately 198 million Common Shares to approximately 5.7 million Common Shares as at June 13, 2022.

As of the date ofdilution you would incur if you participate in this prospectus, the Company has regained compliance with the Nasdaq minimum bid price requirement.offering.

Our constating documents permit us to issue an unlimited amount of additional Common Shares or Preferred Shares, which may prevent a third-party takeover or cause our shareholders to experience dilution in the future.

Our constating documents authorize us to issue an unlimited number of Common Shares and an unlimited number of preferred shares (“Preferred Shares”Shares”). Our board of directors has the authority to cause us to issue additional Common Shares and Preferred Shares and to determine the special rights and restrictions of the shares of one or more series of our Preferred Shares, each without consent of our shareholders. The issuance of any such securities may result in a reduction of the book value or market price of our Common Shares. Given the fact that we operate in a capital-intensive industry with significant working capital requirements, we may be required to issue additional Common Shares or other securities that are dilutive to existing shareholders in the future in order to continue our operations, which may result in dilution to existing shareholders. Further, any such issuances could result in a change of control or a reduction in the market price for our Common Shares. Additionally, the rights of the holders of Common Shares will be subject to, and may be adversely affected by, the rights of holders of any Preferred Shares that may be issued in the future. For example, Preferred Shares typically rank senior to Common Shares as to dividend rights, liquidation preference or both and may be convertible into Common Shares. Lastly, our ability to issue Preferred Shares could make it more difficult for a third-party to acquire a majority of our outstanding voting shares, particularly in the event we issue Preferred Shares with special voting rights, the effect of which may be to deprive our shareholders of a control premium that might otherwise be realized in connection with an acquisition of us.

Because the Company is a “smaller reporting company,” we may take advantage of certain scaled disclosures available to us, resulting in holders of our securities receiving less Company information than they would receive from a public company that is not a smaller reporting company

We are a “smaller reporting company” as defined in the Exchange Act. As a smaller reporting company, we may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our common shares held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and our common shares held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter. To the extent we take advantage of any reduced disclosure obligations, it may make it harder for investors to analyze the Company’s results of operations and financial prospectus in comparison with other public companies.

As a smaller reporting company, we are permitted to comply with scaled-back disclosure obligations in our SEC filings compared to other issuers, including with respect to disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We have elected to adopt the accommodations available to smaller reporting companies. Until we cease to be a smaller reporting company, the scaled-back disclosure in our SEC filings will result in less information about our company being available than for other public companies.

32

If investors consider our common shares less attractive as a result of our election to use the scaled-back disclosure permitted for smaller reporting companies, there may be a less active trading market for our common shares and our share price may be more volatile.

Any acquisitions, strategic investments, divestures, mergers, or joint ventures we make may require the issuance of a significant amount of equity or debt securities and may not be successful.

As part of our business strategy, we expect to selectively pursue strategic acquisitions, as well as additional strategic and other investments such as joint ventures or partnerships, to obtain additional businesses, products and/or technologies, capabilities, and

32

Table of Contents

personnel. Acquisitions and other investments present challenges, including geographical coordination, personnel integration and retention of key management personnel, systems integration, the potential disruption of each company’s respective ongoing businesses, possible inconsistencies in standards, controls, procedures, and policies, unanticipated costs of terminating or relocating facilities and operations, unanticipated expenses relating to such integration, contingent obligations, and the reconciliation of corporate cultures. Those operations could divert management’s attention from the business, cause a temporary interruption of or loss of momentum in the business, and adversely affect our results of operations and financial condition. The inability to consummate and integrate new acquisitions on advantageous terms, or the failure to achieve a favorable return on our strategic and other investments, could adversely affect our ability to grow and compete effectively. Additionally, if we make one or more acquisitions in which the consideration includes the Company’s securities, we may be required to issue a substantial amount of equity, debt, warrants, convertible instruments, or other similar securities. Such an issuance could result in dilution to shareholders or increase our interest expense and other expenses.

We have reported negative cash flows from operating activities and may do so in future periods.

The Company reported negative cash flow from operating activities of $54.3 million, $56.6 million, and $7.2$20.7 million for the fiscal years ended March 31, 2022 and March 31, 2021 and the three-monthnine-month period ended June 30,December 31, 2022, respectively. The Company has historically and may also continue to have negative cash flow from operating activities until sufficient levels of sales are achieved. The Company cannot guarantee that future positive cash flow from operating activities will be obtained. In addition, negative cash flows may continue longer than the Company has planned for which could cause liquidity issues.

The Company may also be unable to obtain borrowings in an amount sufficient to enable them to pay debt or to fund other liquidity needs. If sufficient liquidity is not obtained, the Company may need to refinance or restructure all or a portion of its debt on or before maturity, sell assets or borrow money or issue equity, which may not be possible on terms satisfactory to the Company, or at all. If the Company continues to report negative cash flows from operating activities, or any failure to obtain any required additional financing on favorable terms, or at all, such events could have a material adverse effect on the business, financial condition, and results of operation of the Company.

We may not be able to maintain our operations without additional funding.

As of June 30,December 31, 2022, Neptune had $6.2$3.4 million of cash and cash equivalents. We had negative cash flows from operating activities of $54.3 million during the twelve-month period ended March 31, 2022 and $7.2$20.7 million during the three-monthnine-month period ended June 30,December 31, 2022. As of May 8, 2023 the cash balance is expected to be sufficient to operate the business for the next six to eight weeks under the current business plan. The Company requires funding in the very near term in order to continue its operations. If the Company is unable to obtain funding in the near-term, it may have to cease operations and liquidate its assets. We may be unable to generate sufficient cash flow from operations or to obtain future borrowings in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs. If we do not have sufficient liquidity, we may need to refinance or restructure all or a portion of our debt on or before maturity, sell assets or borrow more money or issue equity, which we may not be able to do on terms satisfactory to us or at all. In addition, any refinancing could be at higher interest rates and may require us to comply with more onerous covenants which could further restrict our business operations. We may also try to raise the necessary capital through securities offerings.offerings, however these may entail significant downsides, due to limitations on use of registration statements on Form S-3. For more information on our inability to use Form S-3, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial and Capital Management—Capital Resources." Such offerings are subject to market conditions and are beyond our control.

​

33

Table of Contents

We are subject to foreign currency fluctuations, which could adversely affect our financial results.

We are exposed to the financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those rates. Currency risk relates to the portion of our business transactions denominated in currencies other than the Canadian dollar.

For the twelve-month period ended March 31, 2022, approximately 70% of our revenues were in U.S. dollars, and most of our expenses, including the purchase of raw materials, were in U.S. dollars. If the value of the United States dollar fluctuates significantly more than expected in the foreign exchange markets, our operating results and financial condition may be adversely affected.

This is a best efforts offering, no minimum amount of securities is required to be sold, and we may not raise the amount of capital we believe is required for our business plans, including our near-term business plans.

The Placement Agent has agreed to use its reasonable best efforts to solicit offers to purchase the securities in this offering. The Placement Agent has no obligation to buy any of the securities from us or to arrange for the purchase or sale of any specific number or dollar amount of the securities. There is no required minimum number of securities that must be sold as a condition to completion of this offering. Because there is no minimum offering amount required as a condition to the closing of this offering, the actual offering amount, Placement Agent fees and proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth herein. We may sell fewer than all of the securities offered hereby, which may significantly reduce the amount of proceeds received by us, and investors in this offering will not receive a refund in the event that we do not sell an amount of securities sufficient to support our continued operations, including our near-term continued operations. Thus, we may not raise the amount of capital we believe is required for our operations in the short-term and may need to raise additional funds to complete such short-term operations. Such additional fundraises may not be available or available on terms acceptable to us.

Purchasers who purchase our securities in this offering pursuant to a securities purchase agreement may have rights not available to purchasers that purchase without the benefit of a securities purchase agreement.

In addition to rights and remedies available to all purchasers in this offering under federal securities and state law, the purchasers that enter into a securities purchase agreement will also be able to bring claims of breach of contract against us. The ability to pursue a claim for breach of contract provides those investors with the means to enforce the covenants uniquely available to them under the securities purchase agreement including: (i) timely delivery of shares; (ii) agreement to not enter into variable rate financings for one year from closing, subject to certain exceptions; (iii) agreement to not enter into any financings for 90 days from closing; and (iv) indemnification for breach of contract.

General Risk Factors

Catastrophic events outside of our control, including pandemics, may harm our results of operations or damage our facilities.

A catastrophic events, or the perception of such events, such as earthquakes, tsunamis, floods, typhoons, fires, power disruptions or other natural or manmade disasters, computer viruses, cyber-attacks, terrorist attacks, wars (such as the ongoing military conflict between Russia and Ukraine), riots, civil unrest or other conflicts, or an outbreak of a public health crisis including epidemics, pandemics (such as the COVID-19 pandemic), outbreaks of new infectious diseases or viruses, or related events that can result in volatility and disruption to global supply chains, operations, mobility of people, patterns of consumption and service, and the financial markets could disrupt the Company’s operations, or those of its material contractors. Such disruptions could impair production or distribution of the Company’s potential products, damage inventory or our facilities, interrupt critical functions or otherwise materially adversely affect its business, which could materially harm the Company’s financial condition or results of operations.

The market price of the Company’s Common Shares may be highly volatile.

The stock market, from time-to-time, experiences significant price and volume fluctuations unrelated to the operating performance of particular companies. Future announcements concerning the Company, its competitors, including those pertaining to financing arrangements, government regulations, developments concerning regulatory actions affecting the Company, litigation, additions or departures of key personnel, cash flow, and economic conditions and political factors in Canada and the United States may have a significant impact on the market price of the Company’s Common Shares. In addition, there can be no assurance that the Company’s Common Shares will continue to be listed on Nasdaq.

34

Table of Contents

The market price of the Company’s Common Shares could fluctuate significantly for many other reasons, including for reasons unrelated to the Company’s specific performance, such as reports by industry analysts, investor perceptions, or negative announcements by its subscribers, competitors or suppliers regarding their own performance, as well as general economic and industry conditions. For example, to the extent that other large companies within its industry experience declines in their stock price, the share price of the Company’s Common Shares may decline as well. In addition, when the market price of a company’s shares drops significantly, shareholders often institute securities class action lawsuits against the company.

Litigation resulting from these claims could be costly and time-consuming and could divert the attention of management and other key personnel from the Company’s business and operations. The complexity of any such claims and the inherent uncertainty of commercial or class action, litigation increases these risks. In recognition of these considerations, the Company could suffer significant litigation expenses in defending any of these claims and enter into settlement agreements. If the Company is unsuccessful in its defense of material litigation claims or is unable to settle the claims, the Company may be faced with significant monetary damage awards or other remedies against it including injunctive relief that could have a material adverse effect on the Company’s business, financial condition and results of operations. Administrative or regulatory actions against the Company or its employees could also have a material adverse effect on the Company’s business, financial condition and results of operations.

34

USE OF PROCEEDS

We estimate the net proceeds to us in this offering will not receive anybe approximately $6.23 million, after deducting the Placement Agent fees and expenses and estimated offering expenses payable by us. This assumes a public offering price of the proceeds from the$0.58 per Common Share and Warrant (the last reported sale price of our Common Shares on Nasdaq on May 5, 2023). However, because this is a best efforts offering and there is no minimum offering amount required as a condition to the closing of this offering, the actual offering amount, the Placement Agent’s fees and net proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth on the cover page of this prospectus. The table below depicts how we plan to utilize the proceeds in the event that 50% and 100% of the securities in this offering are sold, after deducting Placement Agent fees and expenses and estimated offering expenses payable by us.

​

​

​

Use of Proceeds

    

​

100%

    

​

50%(1)

​

Repayment of debt(2)

​

$

2,100,000

​

$

2,100,000

​

General corporate purposes

​

$

4,130,000

​

$

822,500

​

Total:

​

$

6,230,000

​

$

2,922,500

​

(1) If fewer than 50% of the securities in this offering are sold, the amount of debt repaid is expected to be subject to negotiations with the Company, the lenders and the investors in this offering. We will receive

(2) Represents a mandatory prepayment of $2.0 million, together with an exit fee of $100,000 (the “Mandatory Repayment”), payable pursuant to a senior secured notes financing for gross proceeds of $4.0 million with CCUR Holdings, Inc. and Symbolic Logic, Inc. that was entered into on January 12, 2023. The notes mature on January 12, 2024 and bear interest at a rate of 16.5% per annum. Proceeds from the notes were used for general corporate purposes. For purposes of this table, the full amount of this Mandatory Repayment has been specified, but we may seek a reduction of the amount required to be prepaid.

These estimates exclude the proceeds, if any, from the exercise of theCommon Warrants but not on the saleissued in this offering. If all of the Common Shares underlying the Warrants. The Selling Shareholders willWarrants issued in this offering were to be exercised in cash at an assumed exercise price of $0.58 per common share, we would receive all of the proceeds from this offering. We will, however, receive the netadditional proceeds of any Warrants exercised for cash. Proceeds,approximately $7.0 million. We cannot predict when or if any, received from the exercise of suchthese Common Warrants will be usedexercised. It is possible that these Common Warrants may expire and may never be exercised. Additionally, the Common Warrants contain a cashless exercise provision that permit exercise of Common Warrants on a cashless basis at any time where there is no effective registration statement under the Securities Act of 1933, as amended, covering the issuance of the underlying shares.

We plan to use the proceeds of the offering, after repayment of debt, for general corporate purposes, which may include (i) working capital, (ii) capital expenditures, (iii) operational purposes, including working capital to accelerate growth of our business and (iv) potential acquisitions in complementary businesses. While we do not currently have any agreement with respect to an acquisition, we intend to evaluate potential opportunities and could use proceeds of the offering to invest in one or more complementary businesses. The principal reasons for this offering are to increase our working capital, improve our ability to access the capital markets in the future, and to provide capital for general corporate purposes. No assurances can

Pursuant to the Third Amended and Restated Stockholders’ Agreement entered into with the minority shareholders of Sprout, we have the option to purchase the minority shares of common stock (the “Call Option”) at any time until December 31, 2023, or March 31, 2024 if we provide notice of an extension. We have entered into an agreement with the representative of the minority stockholders of

35

Table of Contents

Sprout that provides that the purchase price for the remaining minority shares of common stock, if the Call Option is exercised prior to June 15, 2023, would be given$13.0 million, consisting of at least $10.5 million in cash with the remainder payable in Common Shares. We may use certain proceeds of this offering towards the exercise the Option, subject to the receipt of additional funds, which may include funds borrowed from lenders.

Due to the uncertainties inherent in our business, we cannot estimate with certainty the exact amounts of the net proceeds from this offering that may be used for any purpose. As a result, our management will have broad discretion in applying the net proceeds from this offering.

CAPITALIZATION

The following table sets forth our capitalization as of suchDecember 31, 2022 as follows:

·

on an actual basis;

·

on a pro forma basis to give effect to the issuance of an aggregate of 217,995 common shares to investors in January and February 2023 and the incurrence of additional debt subsequent to December 31, 2022; and

·

on a pro forma as adjusted basis to reflect our receipt of the net proceeds our sale and issuance of 12,068,966 Common Shares (assuming no sale of any Pre-Funded Warrants and no exercise of the Common Warrants) in this offering based on the assumed public offering price of $0.58 per common share (the last reported sale price of our Common Shares on Nasdaq on May 5, 2023) after deducting estimated Placement Agent fees and expenses and estimated offering expenses payable by us.

The as adjusted information set forth below is illustrative only and will be exercised.adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in, or incorporated by reference into, this prospectus.

​

​

​

​

​

​

​

​

​

As of December 31, 2022

​

​

​

​

​

​

​

Pro forma as

​

​

    

Actual

    

Pro forma(1)

    

Adjusted (2)

​

​

​

(In thousands, except share and per share data)

​

Liability related to warrants

​

$

1,444

​

$

1,780

​

​

8,780

​

Operating lease liabilities (including current portion)

​

$

2,720

​

$

2,720

​

​

2,720

​

Loans and borrowings (including current portion)

​

$

15,937

​

$

19,901

​

$

19,901

​

Other liability

​

$

23

​

$

(74)

​

​

(74)

​

Shareholders’ equity:

​

​

​

​

​

​

​

​

—

​

Share capital, without par value, 11,778,392 shares issued and outstanding as of December 31, 2022, actual; 11,996,387 shares issued and outstanding, proforma; shares issued and 24,065,353 outstanding, proforma as adjusted

​

​

321,792

​

​

322,006

​

​

322,006

​

Preferred shares, no par value; no shares outstanding, actual; no shares outstanding, proforma; and no shares outstanding proforma as adjusted

​

​

—

​

​

—

​

​

—

​

Warrants

​

$

6,118

​

$

6,118

​

​

6,118

​

Additional paid-in capital

​

$

57,303

​

$

57,303

​

​

57,303

​

Accumulated other comprehensive loss

​

$

(14,539)

​

$

(14,539)

​

​

(14,539)

​

Deficit

​

$

(357,075)

​

$

(357,192)

​

​

(357,965)

​

Total equity attributable to equity holders of the Company

​

$

13,599

​

$

13,695

​

​

12,922

​

Non-controlling interest

​

$

2,326

​

$

2,326

​

​

2,326

​

Total shareholders’ equity

​

$

15,924

​

$

16,021

​

​

15,248

​

Total capitalization

​

$

36,048

​

$

40,348

​

​

46,575

​

(1)  The Selling Shareholders will pay any underwriting discountsPro forma basis includes several assumptions related to the effect on capitalization of events occurring after December 31, 2022. The Pro forma basis gives effect to: (1) the issuance of an aggregate of 217,995 common shares to investors in January and commissionsFebruary 2023; (2) the issuance on January 13, 2023 of senior secured notes financing for gross proceeds of $4,000,000 with CCUR Holdings, Inc. and Symbolic Logic, Inc. and warrants to purchase an aggregate of 850,000 of our Common Shares. The fair value

36

Table of Contents

of the warrants are estimated for purposes of this table and recorded as “liability related to warrants”; and (3) In March 2023, $300,000 of secured promissory notes and warrants to purchase an aggregate of 111,111 common share, which for purposes of this table has been presented fully within the “Loans and Borrowing”.

(2)  As the accounting treatment of the Warrants and the allocation between equity and liability components has not yet been determined, it is assumed for the purposes of the Pro forma as Adjusted capitalization that all of the proceeds have been allocated to the derivative warrant liabilities and therefore, all of the estimate placement agent fees and expenses incurredand estimated offering expenses have been allocated to deficit. In addition, if the fair value of the derivative warrant liabilities exceeds the total proceeds of this offering, a loss would be recorded upon initial recognition of this offering, which loss is not reflected in the deficit in the above table.

A $0.25 increase or decrease in the assumed public offering price of $0.58 per share, as set forth on the cover page of this prospectus, would increase or decrease the expected net proceeds to us from this offering by them for brokerage, accounting, taxapproximately $2.9 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated Placement Agent fees and expenses and estimated offering expenses payable by us.

Similarly, a 100,000 share increase or legal servicesdecrease in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or any otherdecrease the net proceeds to us by approximately $5,500, assuming the assumed public offering price of $0.58 per share remains the same, and after deducting estimated Placement Agent fees and expenses incurredand estimated offering expenses payable by us.

The number of our Common Shares to be outstanding immediately after this offering is based on 11,778,392 Common Shares outstanding as of December 31, 2022 and excludes:

●680,786 Common Shares issuable upon the exercise of stock options outstanding as of December 31, 2022, at a weighted average exercise price of $70.10 per Common Share;
●11,236,554 Common Shares issuable upon the exercise of warrants outstanding as of December 31, 2022, at a weighted average exercise price of $11.50 per Common Share;
●4,308 deferred share units;
●2,789 restricted share units;
●217,995 Common Shares and 961,111 Common Shares issuable upon the exercise of warrants issued after December 31, 2022; and
●any additional Common Shares that are available for future issuance under our equity compensation plans.

​

​

DILUTION

If you purchase Common Shares and Warrants in this offering, you will experience dilution to the extent of the difference between the combined public offering price per Common Share and related Warrant in this offering and our net tangible book value (deficit)  per Common Share. Net tangible book value (deficit) per Common Share is equal to the amount of our total tangible assets, less total liabilities, divided by the Selling Shareholdersnumber of outstanding Common Shares. As of December 31, 2022, our net tangible book value (deficit) was approximately $(15.8 million), or approximately $(1.34) per Common Share.

After giving effect to the assumed sale by us of Common Shares and Warrants in disposingthis offering at an assumed combined public offering price of $0.58 per Common Share and related Warrant (the last reported sale price of our Common Shares on Nasdaq on May 5, 2023), after deducting the estimated Placement Agent fees and expenses and estimated offering expenses payable by us, our as adjusted net tangible book value (deficit) as of December 31, 2022 would have been approximately $(16.6 million), or approximately $(0.70) per Common Share. The as adjusted net tangible book value has been computed assuming exercise in full of the Pre-Funded Warrants and no exercise of the Common Shares. We will bear all other costs,Warrants. This represents an immediate increase in net tangible book value (deficit) of $0.64 per Common Share to existing shareholders and an immediate dilution of $1.28 per share to new investors purchasing Common Shares and related

37

Table of Contents

Warrants in this offering, attributing none of the assumed combined public offering price to the Common Warrants offered hereby. The following table illustrates this per Common Share dilution:

​

​

​

​

​

​

​

​

    

Per Common

    

​

​

​

​

Share and

​

​

​

​

​

Warrant

​

Total

Assumed combined public offering price per Common Share and related Common Warrant

 

$

0.58

​

$

​

Net tangible book value (deficit) per Common Share as of December 31, 2022

​

$

(1.34)

​

 

​

Increase in net tangible book value per Common Share after this offering

​

$

0.64

​

 

​

As adjusted net tangible book value (deficit) per Common Share after this offering

​

$

0.70

​

 

​

Dilution per Common Share to new investors

​

$

1.28

​

$

(15,815,705)

​

A $0.25 increase (decrease) in the assumed combined public offering price of $0.58 per Common Share and Common Warrant would result in an increase (decrease) in our as adjusted net tangible book value (deficit) of approximately $0.8 million or approximately $0.64 per Common Share, and would result in an increase (decrease) in the dilution to new investors of approximately $1.28 per Common Share, assuming that the number of Common Shares and Common Warrants sold by us remains the same, after deducting the estimated Placement Agent fees and expenses incurredand estimated offering expenses payable by us.

Similarly, a decrease of 100,000 in effecting the registration of the Common Shares covered by this prospectus, including all registration and filing fees, and fees and expenses for our counsel and our independent registered public accountants.

35

DETERMINATION OF OFFERING PRICE

The offering price of the Common Shares underlying the Warrants offered hereby is determined by reference to their exercise price of $1.62 per share.

We cannot currently determine the price or prices at which sharesnumber of Common Shares offered by us would decrease our as adjusted net tangible book value by approximately $0.8 million or $0.64 per share, and increase the dilution per share to investors participating in this offering by $1.28 per share, assuming the assumed offering price per share remains the same and after deducting the estimated Placement Agent commissions and estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the actual offering price, the actual number of Common Shares we offer in this offering, and other terms of this offering determined at pricing.

The foregoing discussion and table do not take into account further dilution to new investors that could occur upon the exercise of outstanding options or warrants having a per share exercise price less than the per Common Share and related Common Warrant offering price to the public in this offering. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our shareholders.

The number of our Common Shares to be sold by the Selling Shareholders underoutstanding immediately after this prospectus.offering is based on 11,778,392 Common Shares outstanding as of December 31, 2022 and excludes:

●680,786 Common Shares issuable upon the exercise of stock options outstanding as of December 31, 2022, at a weighted average exercise price of $70.10 per Common Share;
●11,236,554 Common Shares issuable upon the exercise of warrants outstanding as of December 31, 2022, at a weighted average exercise price of $11.50 per Common Share;
●4,308 deferred share units;
●2,789 restricted share units;
●217,995 Common Shares and 961,111 Common Shares issuable upon the exercise of warrants issued after December 31, 2022; and
●any additional Common Shares that are available for future issuance under our equity compensation plans.

3638

Table of Contents

MARKET INFORMATION FOR SECURITIES AND DIVIDEND POLICY

Our common sharesCommon Shares trade under the symbol “NEPT” on Nasdaq.

The following table sets forth the high and low intraday sales prices per Common Share as reported on Nasdaq beginning on April 1, 2020 and taking into account the Share Consolidation that took effect on June 13, 2022:

​

​

​

​

​

​

​

​

​

​

​

​

    

Low Trading Price

    

High Trading Price

Period

     

​

​

($)

​

($)

Year Ending March 31, 2023

 

  

 

​

  

 

​

  

Fourth Quarter

 

(March 31, 2023)

​

$

0.29

​

$

1.04

Third Quarter

 

(December 31, 2022)

​

$

0.23

​

$

1.92

Second Quarter

 

(September 30, 2022)

​

$

1.00

​

$

3.74

First Quarter

 

(June 30, 2022)

​

$

1.34

​

$

1.41

Year Ended March 31, 2022

 

  

​

 

  

​

 

  

Fourth Quarter

 

(March 31, 2022)

​

$

7.35

​

$

19.60

Third Quarter

 

(December 31, 2021)

​

$

12.25

​

$

22.40

Second Quarter

 

(September 30, 2021)

​

$

19.25

​

$

41.30

First Quarter

 

(June 30, 2021)

​

$

37.10

​

$

55.30

Year Ended March 31, 2021

 

  

​

 

  

​

 

  

Fourth Quarter

 

(March 31, 2021)

​

$

45.15

​

$

110.25

Third Quarter

 

(December 31, 2020)

​

$

52.15

​

$

86.80

Second Quarter

 

(September 30, 2020)

​

$

73.85

​

$

113.05

First Quarter

 

(June 30, 2020)

​

$

35.70

​

$

110.25

​

Period  Low Trading Price   High Trading Price 
      ($)   ($) 

Year Ending March 31, 2023

    

Third Quarter

  (through November 2,2022)  $1.21   $1.92 

Second Quarter

  (September 30, 2022)  $1.00   $3.74 

First Quarter

  (June 30, 2022)  $1.34   $1.41 

Year Ended March 31, 2022

    

Fourth Quarter

  (March 31, 2022)  $7.35   $19.60 

Third Quarter

  (December 31, 2021)  $12.25   $22.40 

Second Quarter

  (September 30, 2021)  $19.25   $41.30 

First Quarter

  (June 30, 2021)  $37.10   $55.30 

Year Ended March 31, 2021

    

Fourth Quarter

  (March 31, 2021)  $45.15   $110.25 

Third Quarter

  (December 31, 2020)  $52.15   $86.80 

Second Quarter

  (September 30, 2020)  $73.85   $113.05 

First Quarter

  (June 30, 2020)  $35.70   $110.25 

As of November 3, 2022,May 8, 2023, we had 3942 shareholders of record based on the records of our transfer agent, which does not include beneficial owners of our Common Shares whose shares are held in the names of various securities brokers, dealers and registered clearing agencies.

Dividends

We do not anticipate paying any dividend on our Common Shares in the foreseeable future. We presently intend to retain future earnings to finance the expansion and growth of our business. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements and other factors the Board of Directors deems relevant. In addition, the terms of any future debt or credit facility may preclude us from paying dividends.

Securities Authorized for Issuance under Equity Compensation Plans

Information about our equity compensation plans, as set forth in this prospectus under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters”, is incorporated herein by reference.

Unregistered Sales of Equity Securities

Except as set forth below, since November 3, 2019,May 8, 2020, we have not sold any securities that were not registered under the Securities Act.

​

(1)(1)In March 2023, we issued warrants to purchase common shares of the Company to one accredited investor which permits the investor to purchase an aggregate of 111,111 of our common shares at an exercise price of $0.54.
(2)In February 2023, we issued to three accredited investors an aggregate of 146,330 of our common shares in connection with loans to Sprout Foods, Inc.

(3)

In January 2023, we issued (i) 71,665 common shares to our financial advisor in connection with our strategic review and (ii) to two accredited investors the January 2023 Warrants, which permits the investors to purchase an aggregate of 850,000 of our common shares at an exercise price of $0.53 per common share.

(4)

In October 2022, we issued to accredited investors the Series E Warrants in the Private Placement, which permits the investors to purchase an aggregate of 6,417,114 of our common shares at an exercise price of $1.62 per common share.

(2)

(5)

In July and September 2022, we issued to two accredited investors an aggregate of 409,435 common shares in connection with loans to Sprout Foods, Inc.

3739

Table of Contents

(3)

(6)

In June 2022 we issued 7,104 common shares to our financial advisor in connection with our proposed divestiture of our Canadian cannabis business.

(4)

(7)

In October 2020, we issued 462,963 common shares and 300,926 warrants to purchase common shares at an offering of $75.60 per share to institutional investors.

​

Repurchases of Equity Securities

We did not repurchase any of our equity securities during the years ended March 31, 2022 and 2021 or the interim period ended September 30,December 31, 2022.

38

BUSINESS

OVERVIEWOverview

GENERALGeneral

Neptune Wellness Solutions Inc. (“Neptune”Neptune”, the “Company”“Company”, “we”“we”, “us”“us” or “our”“our”) is a modern consumer packaged goods (“CPG”CPG”) company driven by a singular purpose: to transform the everyday for a healthier tomorrow. Neptune is a diversified and fully integrated health and wellness company with multiple brand units. With a mission to redefine health and wellness, Neptune is focused on building a broad portfolio of high quality, affordable consumer products in response to long-term secular trends and market demand for natural, plant-based, sustainable and purpose-driven lifestyle brands. The Company utilizes a highly flexible, cost efficientcost-efficient manufacturing and supply chain infrastructure that can be scaled up and down or into adjacent product categories to identify new innovation opportunities, quickly adapt to consumer preferences and demand, and bring new products to market through its mass retail partners and e-commerce channels. Leveraging decades of expertise in extraction and product formulation, Neptune is a provider of turnkey product development and supply chain solutions to business customers across several health and wellness verticals, including nutraceuticals and white label consumer packaged goods. Neptune has expanded its operations since June 2020 into several brand units in order to better address its markets. The main brand units are the following: Nutraceuticals, Beauty & Personal Care, and Organic Foods & Beverages. All amounts in this prospectus are in US dollars, unless otherwise noted.

HISTORYHistory

Neptune was incorporated under Part IA of the Companies Act (Québec) on October 9, 1998 under the name Neptune Technologies & BioressourcesBioresources Inc. Since its incorporation, Neptune has amended its articles of incorporation on numerous occasions. The Company first amended its articles on May 30, 2000 to convert its then issued and outstanding shares into newly-created classes of shares. The Company’s articles were also amended on May 31, 2000 to create Series A Preferred Shares. On August 29, 2000, the Company converted all its issued and outstanding Class A shares into Class B subordinate shares. On September 25, 2000, the Company further amended its share capital to eliminate its Class A shares and converted its Class B subordinate shares into Common Shares. On November 1, 2013, the Company amended its articles of incorporation to reflect certain changes to items relating to board matters. The Company’s Common Shares are listed and posted for trading on the NASDAQ Stock Market LLC (“NASDAQ”)Nasdaq under the symbol, “NEPT”.

On June 9, 2022, we effected a one for thirty five thirty-five (1-for-35) reverse split of our common shares, which we refer to as the “Share Consolidation,” as approved by our Board of Directors. Trading of our common shares on both the Toronto Stock ExchangeTSX and NASDAQNasdaq on a post-consolidated basis commenced as of the open of markets on June 13, 2022. On August 15, 2022, the Company voluntarily delisted its Common Shares from the TSX.

OUR PROPERTIES AND OPERATIONSOur Properties and Operations

The following table sets forth the Company’s principal physical properties:

Type

Material Properties Location

Leased / Owned

Office

​

Laval, Québec

​

Leased

Office

​

Vaudreuil, Québec

​

Leased

Office / Laboratory

​

Laval, Québec

​

Leased

Office

​

Jupiter, Florida

​

Leased

​

40

Table of Contents

Our headquarters is located in leased offices in Laval, Québec, where our general and administrative departments primarily operate. We also lease laboratory space in Laval, Quebec where testing and development of many of our products takes place. We lease officesOn December 5, 2022, our U.S. operations opened an office in Jupiter, Florida which will serveserves as the U.S. headquarters once leasehold improvements are completed which is expected to be in the second quarter of fiscal year 2023.headquarters.

We ownpreviously owned a production facility in Sherbrooke, Quebec where we conductconducted our cannabis operations including laboratory testing. On June 8, 2022, we announced the planned accelerated divestiture of our cannabis business, and on October 17, 2022, we announced that we had entered into a binding agreement for the sale of our cannabis business, which would include the sale of our cannabis brands and the Sherbrooke building in one or more transactions. The disposition of our cannabis operations occurred on November 9, 2022. We believe the divestment of the cannabis assets will allow us to realize significant cost savings and operational streamlining from redirected resources towards our simplified corporate structure.

We also have leased offices in Vaudreuil, Province of Québec, Canada, which is unoccupied facility housed our SugarLeaf operations, and we are in the process of selling the remaining equipment and prepare the buildinghave been sub-leased to a third-party tenant.

39

be returned to the lessor in the third quarter of our fiscal year 2023. The Vaudreuil offices were previously used for the Company’s Biodroga business. The Company intends to sub-lease the Vaudreuil offices.

BUSINESS STRATEGYBusiness Strategy

Neptune’s vision is to change consumer habits through the creation and distribution of environmentally friendly, ethical and innovative consumer product goods. Our mission is to redefine health and wellness and help humanity thrive by providing sustainable consumer focused solutions. Despite the decline in global economic activity since the outbreak of the COVID-19 virus, Neptune has taken transformative, and successful, actions to increase its sales, distribution and reach in both the business-to-business (“B2B”)B2B and business-to-consumer (“B2C”)B2C model in the consumer-packaged goods (“CPG”)CPG market. Neptune has a dual go-to market B2B and B2C strategy focused on expanding its global distribution reach. The strategy sets Neptune apart from its competition and has started to yield consistent, long-term revenue opportunities for the Company.

The Company’s long-term strategy is focused on the health and wellness sector with an emphasis on select CPG verticals, including Nutraceuticals, Beauty & Personal Care, and Organic Foods & Beverages. Neptune’s current brand portfolio across these verticals include Sprout®, Neptune Wellness™, Forest Remedies®, and MaxSimil®.

On June 9,May 28, 2021, Neptune announced a multi-year licensing agreement between Sprout and CoComelon, the world’s leading children’s entertainment brand, owned and operated by Moonbug Entertainment. In addition, on July 27, 2021, an initial launch was announced for Sprout products into Canada, in Metro grocery stores in the province of Ontario. In September 2022, Sprout launched its up-age meal products.

Neptune’s future will be focused on brand creation, accelerating organic growth with emphasis on increased efficiency and margin expansion. This will be complimentedcomplemented by accretive acquisitions with a proven track record of operational excellence. On July 22, 2021, the Company launched Forest Remedies’ plant-based Omega 3-6-9 gummies and soft gels. Neptune is focused on expanding its exclusive Omega-3 delivery technology MaxSimil® while improving growth and profitability in its Nutraceuticals vertical. The MaxSimil® product lineup will be expanded with the launch of two new consumer products: MaxSimil® with CoQ10 and MaxSimil® with Curcumin. Additionally, the Company launched a new consumer line of Vitamin Sprays and Pumps for both children and adults with selected retail partners. To support anticipated accelerated growth, the Nutraceuticals U.S. sales force has been expanded to maximize awareness and distribution of the capabilities and expertise in CBD formulation,nutraceuticals, including prebiotics and probiotics, and proteins within this important vertical.

PRODUCTS, PRINCIPAL MARKETS, METHODS OF DISTRIBUTION AND BRANDSProducts, Principal Markets, Methods of Distribution and Brands

Products

Our Nutraceutical, Beauty and Personal care products and Organic Foods and Beverages are manufactured by third party manufacturers. In order to meet demand for our products, we have developed relationships with selected contract manufacturers. For Biodroga we mainly buy all the raw materials we supply to our third-party manufacturers Our largest co-manufacturers for Biodroga makes approximately 35% of our annual production requirements. For Sprout, 90% of raw materials are purchased by the third-party manufacturers based on our specifications. The largest Sprout co-manufacturer makes about 40% of our annual requirements. We believe that we are not dependent on any single contract manufacturer and that, if necessary, our current selected contract manufacturers could be replaced with minimal disruption to our operations.

We currently purchase raw materials for the manufacturing of our products from suppliers recognized for their quality and consistency. Our quality control staff requires full disclosure on the part of our suppliers and we periodically conduct on-site audits of their facilities. For strategic reasons, certain of our key raw materials are sourced from single suppliers. However, in the event that we were unable to source an ingredient from a current supplier, we believe that we could generally obtain the same ingredient or an equivalent from an alternative supplier, with minimal disruption to our operations.

Canadian Cannabis Products—Extracts and Formulations

We retrofitted our existing production facility located in Sherbrooke, Province of Québec, Canada to comply with Health Canada requirements under the Cannabis Act, in order to produce our cannabis extracts and

4041

formulations at our existing site. Our GMP (Good Manufacturing Practices, mandated by the Natural Health Products DirectorateTable of Health Canada) 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.Contents

Markets

As a condition for obtaining our license to produce cannabis oil under the Cannabis Act, Health Canada required multiple compliance measures to be taken, including the addition of physical barriers, visual monitoring, recording devices, intrusion detection, as well as other important controls around access to the Company’s existing Sherbrooke facility.Nutraceuticals

On June 8, 2022, the Company announced a planned accelerated divestiture of the Canadian cannabis business including the sale of our cannabis brands and the Sherbrooke building in one or more transactions, and on October 17, 2022 we announced that we had entered into a binding agreement for the sale of our cannabis business.

MARKETS

Nutraceuticals

Neptune offers a variety of specialty ingredients, including our licensed specialty ingredient MaxSimil®, a technology that helps increase digestion and absorption of fat-soluble and nutritional ingredients. Additionally, the Company sources a variety of other marine oils, seed oils and specialty ingredients that are available for sale as raw material or transformed into finished products. The Company has recently launched a new line of Vitamin Sprays and Pumps for both children and adults. Neptune is focused on expanding its exclusive Omega-3 delivery technology MaxSimil® while improving growth and profitability in its Nutraceuticals vertical through its brand Biodroga.

Neptune’s core strength is product innovation with a focus on specialty ingredients offered in bulk soft gels and liquid delivery systems. The Company continues to expand its delivery system capabilities with projects for pumps, sprays roll-onsand CBD enhancements.roll-ons. All of Neptune’s Nutraceutical products are available under distributors’ private labels, primarily sold in the Canadian and U.S. nutraceutical markets. Neptune, through its nutraceuticals products business, also formulates, develops and provides customers with turnkey nutrition solutions.

Beauty & Personal Care

The Company sells wellness products to the Beauty & Personal Care market through its Forest Remedies brand. Forest Remedies offers plant-based supplements, including first-of-its kind multi-omega gummies and soft gels with packaging that is 100% plastic-free. Neptune announced, on March 10, 2022, the launch of its Forest Remedies Multi Omega 3-6-9 line of supplements into more than 340 Sprouts Farmers Market stores across the U.S. This distribution agreement marks another important milestone in our efforts to transform Neptune into a high-growth branded CPG company.

Organic Foods and Beverages

In February 2021, Neptune acquired a controlling interest in Sprout Foods, Inc., an organic plant-based baby food and toddler snack company. Sprout is an integral piece of Neptune’s health and wellness portfolio and represents a key brand within the Organic Foods and Beverages vertical. Since completing the Sprout acquisition, the Company has begun expansion efforts in Sprout’s distribution across substantially all of Target’s U.S. retail stores. The Company also announced, on July 27, 2021, the initial launch of Sprout products into Canada, in Metro grocery stores in the province of Ontario. Neptune further expects to launch Sprout products in North America throughout the remainder of the fiscal year. The Company expects the Neptune/Sprout combination to

41

result in significant incremental revenue growth, with several near and long-term revenue synergy opportunities identified within Neptune’s existing relationships and current sales channels. As described above, Neptune also announced on June 9, 2021, an exclusive multi-year licensing agreement between Sprout and CoComelon, the #1 children’s entertainment and educational show in the world with more than 110 million subscribers worldwide. We expect to announceThis co-branded product availabilityline is now available on Walmart.com and provide additional information aboutin 900 Walmart stores and has been very well-received. With this launch, Sprout Organics now sells into the rollout of CoComelon licensed productstop organic baby food retailers in the near future.U.S., accounting for approximately 90 percent of the overall market.

SALES AND DISTRIBUTIONSales and Distribution

Nutraceutical Products

The Company sells its nutraceutical products mainly in bulk softgels or liquids to multiple distributors and customers, who commercialize these products under their private label. While the Company may have orders in place with approximately 100 different distributors and customers at any one time, the majority of the Company’s sales are concentrated with a small group of distributors and customers. Agreements with these distribution partners may be terminated or altered by them unilaterally in certain circumstances.

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

The Company, though its Sprout subsidiary, sells its products to mass retailers, grocery stores and other retail outlets, as well as online through e-commerce sites and its own website sproutorganics.com.

OUR42

Table of Contents

Our B2C BRAND PORTFOLIO STRATEGYBrand Portfolio Strategy

We are currently working on accelerating brand equity for our brand portfolio:

LOGO

Graphic

Biodroga™Biodroga™. Neptune, through its Biodroga subsidiary, provides product development and turnkey solutions (4PL) to its customers throughout North America. Biodroga offers a full range of services, whether it is leveraging our global network of suppliers to find the best ingredients or developing unique formulations that set our customercustomers apart from their competition. Biodroga’s core products are MaxSimil, various Omega-3 fish oils and a line of CBD enhancedother nutritional products, as well as softgel solutions.

​

​

LOGO

Graphic

MaxSimil. Neptune’sNeptune has an exclusive license to use the patented nutritional ingredient, MaxSimil, is an omega-3 fatty acid delivery technology that uses enzymes that mimic the natural human digestive system to predigest omega-3 fatty acids. The Journal of Nutrition, by the Oxford University Press, recently released the results of a clinical study that evidences MaxSimil’s superior absorption as compared with standard fish oil supplements. MaxSimil was first introduced to the market in 2018, and is sold as a straight omega-3 supplement with standard and unique concentration of EPA/DHA. MaxSimil is also starting to be presented in combination with specialty ingredients such as Curcumin and Vitamin K2 and CBD.K2.

42

LOGO​

​

Graphic

Forest Remedies®. ®.Under our Forest Remedies®Remedies® brand, we offer first-of-their kind vegan multi-omega gummies and soft gels with packaging that is 100% plastic-free. Launched on March 10, 2022, our Forest Remedies Multi Omega 3-6-9 line of supplements is available into more than 340 Sprouts Farmers Market stores across the U.S. This distribution agreement marks another important milestone in our efforts to transform Neptune into a high-growth branded CPG company.

​

​

LOGO

Graphic

Sprout®Sprout®. Neptune entered a new market with the Neptune/Sprout combination. Sprout has created a trusted organic baby food brand with a comprehensive range of products that are always USDA certified organic, non-GMO and contain nothing artificial. Sprout’s products target four segments: Stage 2 (children 6 months and up), Stage 3 (children 8 months and up), Toddler (children aged 12 months and up) and Snacks (children 8 months and up). Since our acquisition of a controlling interest in Sprout, the Company has begun expansion efforts in Sprouts’ distribution substantially in all of Target’s U.S. retail stores. The Company also announced on July 27, 2021, its initial launch into the Canadian market through its partnership with food retailer Metro Inc. Certain toddler snacks under this brand label are now available in Metro grocery stores in the province of Ontario.

COMPETITION​

Competition

The nutraceutical, beauty & personal care and organic foods and beverages industries are highly competitive. There are many companies, public and private universities, and research organizations actively engaged in the research and development of products that may be similar to our products. It is probable that the number of companies seeking to develop products similar to our products will increase. Many of these and other existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market products.

We seek to differentiate our products and marketing from our competitors based on product quality, customer service, marketing support, pricing and innovation, and believe that our strategy enables us to effectively compete in the marketplace. For additional information regarding the competitive nature of our businesses, see “Risks Related to Our Business” under the heading “Risk Factors” of this prospectus.

REGULATORYRegulatory

Our Nutraceutical, Beauty, Personal Care and Organic Food and Beverage businesses are subject to varying degrees of regulation by a number of government authorities in Canada and the U.S., including Health Canada, the FDA, the Federal Trade Commission (FTC), the Consumer Product Safety Commission, the U.S. Department of Agriculture, and the Environmental Protection Agency. Various

43

Table of Contents

provincial, state and local agencies in areas where we operate and in which our products are sold also regulate our business. The areas of our business regulated by both these and other authorities include, among others:

·

product claims and advertising;

·

product labels;

·

product ingredients;

·

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.

​

product claims and advertising;

product labels;

product ingredients;

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.

43

Health Canada and the FDA, in particular, regulate the formulation, manufacturing, packaging, storage, labeling, promotion, distribution and sale of vitamins and other nutritional supplements in Canada and the U.S., while other agencies regulate marketing and advertising claims. Under Health Canada and FDA rules, companies that manufacture, package, label, distribute or hold nutritional supplements are required to meet certain GMP’s to ensure such products are of the quality specified and are properly packaged and labeled. We are committed to meeting or exceeding the standards set by Health Canada and the FDA and believe we are currently operating within the mandated GMP.

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.

​

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.

We are also subject to a variety of other regulations in Canada and the U.S., including those relating to health, safety, bioterrorism, taxes, labor, employment, import and export, the environment and intellectual property. All of these regulations require significant financial and operational resources to ensure compliance, and we cannot assure you we will always be in compliance despite our best efforts to do so or that being in compliancecomplying will not become prohibitively costly to our business.

Cannabis Regulatory Framework

On June 8, 2022, we announced the planned accelerated divestiture of our cannabis business including the sale of our brands as well as the Sherbrooke building in one or more transactions. On October 17, 2022, we announced that we had entered into a binding agreement for the sale of our cannabis business.

On October 17, 2018, the Cannabis Act (Canada) and the Cannabis Regulations came into force in Canada, legalizing the sale of cannabis for adult recreational use. Prior to the promulgation of the Cannabis Act and the Cannabis Regulations, only the sale of cannabis for medical purposes was legal, which was regulated by the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) under the Controlled Drugs and Substances Act (“CDSA”). The Cannabis Act and the Cannabis Regulations replaced the CDSA and the ACMPR as the governing laws and regulations in respect of the production, processing, sale and distribution of cannabis for medical and adult recreational use.

The Cannabis Regulations, among other things, set out regulations relating to the following matters: (1) licences, permits and authorizations; (2) security clearances and physical security measures; (3) good production practices; (4) cannabis products; (5) packaging and labelling; (6) cannabis for medical purposes; (7) drugs containing cannabis; (8) combination products and devices; (9) importation and exportation for medical or scientific purposes; (10) document retention; and (11) reporting and disclosure.

INTELLECTUAL PROPERTYIntellectual Property

We constantly evaluate the importance of obtaining intellectual property protection for our technology brands, products, applications and processes and maintaining trade secrets. When applicable to our business and

44

products, we seek to obtain, license and enforce patents, protect our proprietary information and maintain trade secret protection without infringing the proprietary rights of third parties. We also make use of trade secrets, proprietary unpatented information and trademarks to protect our technology and enhance our competitive position.

Brand Names and Trademarks

Mood Ring™, PanHash™, Sprout®, NurturMe®, Nosh!®, Neptune Wellness™, MaxSimil®, Forest Remedies®, and Ocean Remedies® are trademarks of the Company. On June 8, 2022 we announced the planned accelerated divestiture of our cannabis business including the sale of our Cannabis Brands, Mood Ring and PanHash, as well as the Sherbrooke building in one or more transactions, and on October 17, 2022 we announced that we had entered into a binding agreement for the sale of our cannabis business.

Patent Applications

On August 9, 2018, Neptune filed two applications with the United States Patent and Trademark Office (USPTO) for patents related to the extraction of cannabis material. The extraction processes provide highly-efficient methods to obtain cannabinoids and other desired compounds from the cannabis plant at a greater purity than conventional methods. Both processes are applicable to marijuana and hemp and have been incorporated into the Company’s GMP-certified extraction facility in Sherbrooke. The first patent application outlines a method of extracting and isolating compounds from plants of the Cannabis genus at low temperature by using a cold organic solvent. The second patent application similarly provides for a method for extracting compounds from cannabis at low temperature, but without the use of organic solvents. Specifically, this patent relates to a process for high recovery of cannabinoids and terpenes by using natural solvents.

Licenses

On November 27, 2017,January 31, 2020, Neptune entered into an exclusive, worldwide, and royalty-bearing licensing agreement with SCF Pharma Inc. for the usedevelopment, manufacturing, formulation, distribution, sub-licensing and sale of the MaxSimil® technology in combination with cannabis-derivednutraceutical products. This new agreement allows Neptune to research, manufacture, formulate, distribute, and sell monoglyceride omega-3-rich ingredients in combination with cannabis and/or cannabinoid-rich or hemp derived ingredients for medical and adult use applications. The Company believes the MaxSimil® technology has the ability to enhance absorption of lipidbased and lipid soluble ingredients such as cannabinoids, essential fatty acids including EPA and DHA omega-3s, vitamins A, D, K and E, CoQ10 and others. This could be especially beneficial in increasing the absorption of ingredients which are not easily absorbed, such as CBD.

On June 9,May 28, 2021, Sprout Foods entered into a multi-year licensing agreement with Moonbug, providing Sprout with an exclusive license to utilize certain properties relating to CoComelon®, the world’s leading children’s entertainment brand, owned and operated by Moonbug, with Sprout products. The licensing agreement, which expires December 31, 2023, will automatically extend until December 31, 2026 provided there has not been a material breach of the agreement, the Company does not provide notice of an intent to not extend

44

Table of Contents

by October 1, 2023, and the Company has accrued royalties of $195,000 or more under the agreement before October 1, 2023.  The Company expects to meet the minimum royalty threshold later this year, on time.

EMPLOYEESEmployees

As of September 30,December 31, 2022, we had 6673 employees working at our business offices in Jupiter and Laval, or remotely, down from 161 employees at our facility in Sherbrooke or remotely.March 31, 2022. Our employees possess specialized skills and knowledge, in the following fields, which we believe are valuable assets of the Company. 3 of our employees occupy executive management positions while 11 were employed in research, laboratory and quality, 13 were in sales and marketing and 4 were in production and administration. As of September 30,December 31, 2022, 3225 of our employees were in Canada while 3448 were in the United States. We also had 322 temporary personnel. OneNone of our employees werewas represented by a union. We consider our relations with our employees to be good and our operations have never been interrupted as the result of a labor dispute.

45

SEASONALITYSeasonality

In addition to general economic factors, we are impacted by seasonal factors and trends such as major cultural events and other unpredictable matters. Although we believe the impact or seasonality on our consolidated results of operations is minimal, our quarterly results may vary significantly in the future due to the timing of nutraceutical contract manufacturing orders as well promotions and ordering patterns of our other customers. We cannot provide assurance future revenues will follow historical patterns. The market price of our common shares may be adversely affected by these factors.

BUSINESS UPDATEBusiness Update

Financial Positioning

We are taking the steps necessary to shore up cash reserves in the immediate term and position our balance sheet properly to fund our growth initiatives as we push towards profitability. To this end, we have explored multiple options to balance the need for providing near-term financial stability while ensuring we continue to build long-term shareholder value. As a result, we have entered into twothree agreements for the purchase and sale of shares of our common stockCommon Shares and pre-funded warrants. warrants in October 2022, June 2022 and March 2022. Taking into account all considerations, we believe these actions are in the best interest of the company and will benefit shareholders in the long-term. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations  –  Going Concern. Unless otherwise specified, all dollar amounts are in US dollars (“USD”USD”).

Growth Drivers

We remain enthusiastic about the growth prospects of our business, with opportunity across all three of our core verticals. We have successfully made the transition to a fully-integrated consumer packaged goods company with a diverse suite of better-for-you brands, available in some of the country’s largest retail chains. At the same time, we are driving consumer relevance by pursuing the right strategic partnerships for co-branded product lines and expanding our product offerings in key wellness categories.

Major Distribution Gains

Since acquiring a majority stake in Sprout Organics in February 2021, we have expanded Sprout baby foods and toddler snacks substantially, both online and in store at major retailers like Target and Wal-Mart.Walmart. Earlier in March 2022, we announced the launch of our Forest Remedies Multi Omega 3-6-9 line of supplements into more than 340 Sprouts Farmers Market stores across the U.S. This distribution agreement marks another important milestone in our efforts to transform Neptune into a high-growth branded CPG company.

Strategic Partnerships

In February 2022, we brought Walmart a first-of-its-kind collaboration between Sprout Organics and popular kids’ entertainment platform CoComelon. This co-branded product line is now available on Walmart.com and in 900 Walmart stores, next month, and has been very well-received. With this launch, Sprout Organics now sells into the top organic baby food retailers in the U.S., accounting for approximately 90 percent of the overall market.

Investing in Our Prospects

On November 15, 2021 we initiated a strategic review and made some big changes to get on track to becoming a profitable diversified CPG company. These actions have taken effect, and we are starting to see the results. The third quarter of fiscal year 2022 was the first

45

Table of Contents

quarter where we posted a positive gross marginsmargin since transitioning to a CPG-focused model. We also delivered four consecutiveThe third quarter of sequentialfiscal year 2022 was the first quarter where we posted a positive gross margin since transitioning to a CPG-focused model. The third quarter of fiscal year 2023, consolidated gross profit margin was 15.4% of net sales up from 11.3% for the same period last year. For the nine-month period ended December 31, 2022 the gross profit margin was 0.2% up from (4.9)% for the same period of the prior year. However, there can be no assurances that revenue growth before a decrease in the fourth quarter of the year ended March 31, 2022.

46

We expect these positive trends to continue in fiscal year 2023. We are very excited about what the future holds for Neptune Wellness, and we are putting our money where our mouth is. Neptune’s executive management team, including the Board of Directors, recently completed the purchase of more than one million common shares in the public market, reinforcing our confidence in the direction we’re headed.will continue.

While the global market can be unstable during turbulent times, we are taking steps to ensure we remain well-positionedwell- positioned to execute against our stated plan: controlling our costs while pursuing high-growth opportunities. To that effect, Neptune announced on June 8, 2022 the launch of a new Consumer Packaged Goods (“CPG”)CPG focused strategic plan to reduce costs, improve the Company’s path to profitability and enhance current shareholder value. This plan focuses on two primary actions: (1) planned acceleratedthe divestiture of the Canadian cannabis business and (2) a realignment of focus and operational resources toward increasing the value of Neptune’s consumer products business. With the planned divestiture of its cannabis business, Neptune is renewing its focus on the core brands – Sprout Organics and Biodroga Solutions – that align closely with future consumer trends and show a greater potential for future growth and profitability.

On October 16, 2022, Neptune entered into an asset sale and purchase agreement (the “ASPA”) with a third- party, for its Canadian cannabis business including the Sherbrooke facility, following the divestiture of this business announced on June 8, 2022. The intendedaggregate purchase price of the assets sold, net of liabilities assumed, amounted to approximately $3.8 million ($5.15 million CAD). The ASPA closed on November 9, 2022. Some assets were excluded from the ASPA and were written down accordingly. The completion of the divestiture of our cannabis business is a critical milestone in executing upon our strategy to become a leading CPG company. The sale of the cannabis business would include the sale of the Mood Ring™ and PanHash™ brands, along with the Company’s Sherbrooke, Quebec facility, in one or more transactions. The value of the facility was recently appraised at $21 million CAD by a third-party appraisal company. Neptune has retained Stifel GMPassets will allow us to support the divestiture efforts, with a focus on maximizing the value to Neptune shareholders. In order to accelerate its cost savings, the Company will focus on winding up its cannabis operations pending a transaction. This planned action is intended to providerealize significant cost savings and help maximize operational efficiencies, resulting in a 50% reduction in workforce, over 30% reduction of total payroll costs and an estimated annual cost savings of $5.8 million CAD. In addition,streamlining from redirected resources towards our simplified corporate structure, as we focus on Sprout as the Company expects to see additional cost savings from corresponding reductions in corporate overhead costs and professional fees.key growth driver for Neptune going forward.

Finally, the exit of the Canadian cannabis business may impact the amount and structure of financing the company is currently seeking. It is expected to reduce the amount of financing the Company seeks, given a lower anticipated expense structure, along with anticipated cash inflows from the planned divestiture. Additionally, the divestiture is expected to facilitate working with a broader set of financing sources – including traditional banks and financial institutions that have policies restricting dealing with businesses exposed to regulated cannabis operation.

RECENT CORPORATE DEVELOPMENTSRecent Corporate Developments

Neptune’s Presence in Canada’s Cannabis Market

During the year ended on March 31, 2022, Neptune supplied the market with premium cannabis extracts and dried flower, under its Mood Ring™Ring™ and PanHash™PanHash™ brands, and completed its launch of all significant regulated product categories. All cannabis products were manufactured and packaged at the Company’s purpose-built facility in Sherbrooke, Quebec. On June 8, 2022, the Company announced a planned accelerated divestiture of the Canadian cannabis business and that the Company willwould focus on winding up its cannabis operations pending one or more sales transactions,transactions. Following this announcement, all assets and liabilities related to the Canadian cannabis business were respectively shown under assets held for sale and liabilities directly associated with assets held for sale on Neptune’s balance sheet. Further information on those assets and liabilities can be found in note 2(d) of the condensed consolidated interim financial statements for the nine-month period ended December 31, 2022. On October 16, 2022, Neptune entered into an asset sale and purchase agreement (the “ASPA”) with a third-party, for its Canadian cannabis business including the Sherbrooke facility, following the planned divestiture of this business announced on June 8, 2022. The aggregate purchase price of the assets sold, net of liabilities assumed, amounted to approximately $3.8 million ($5.15 million CAD). The ASPA closed on November 9, 2022. Some assets were excluded from the ASPA and were written-down accordingly, on October 17, 2022 we announced that we had entered into a binding agreement for the sale of our cannabis business.

Neptune Completes its Strategic Transition from Extraction to Consumer Packaged Goods

In April 2021, Neptune completed its transition from revenue derived from hemp and cannabis extraction to revenue from consumer packaged goods and branded products, such as Mood Ring™ — an end-to-end developed and manufactured cannabinoid-based product portfolio targeting both wellness-focused CBD consumers looking for natural products,business and the recreational market with multiple high THC products.sale closed on November 9, 2022.

Launch of a New CPG Focused Strategic Plan

47

On June 8, 2022, Neptune announced that the launch of a new Consumer Packaged Goods (“CPG”CPG”) focused strategic plan to reduce costs, improve the Company’s path to profitability and enhance current shareholder value. This plan builds on the Company’s initial strategic review that took place in fall of 2021 and focuses on two primary actions: (1)  planned accelerated divestiture  of  the Canadian cannabis business and (2)  a realignment of focus and operational resources toward increasing the value of Neptune’s consumer products business. With the planned divestiture of its cannabis business, Neptune is renewinghas renewed its focus on theits core brands – Sprout Organics and Biodroga Solutions – that align closely with future consumer trends and show a greater potential for future growth and profitability. The strategic plan is expected to lower costs and reduce global headcount by approximately 50%.

Changes to the Board of Directors

On May 17, 2021, Neptune announced that Richard Schottenfeld resigned as a director of the Company for personal considerations.

Jane Pemberton and Frank Rochon did not stand for re-election at the Annual General Meeting (“AGM”) that was held on August 26, 2021 and their mandates ceased on that date.

Ms. Julie Phillips was elected as Director at the AGM. Ms. Phillips currently serves as Vice President for Herschend Family Entertainment where she has held this and prior roles since 2013. Ms. Phillips also serves since April 2019 as a member of the Board of Directors of the Lane Thomas Foundation, which is dedicated to supporting families of children needing lifesaving organ transplants.

Mr. John Moretz, the previous Chairman of the Board of Directors, announced his retirement from the Company’s Board of Directors on February 9, 2022 and Ms. Julie Phillips was appointed as the successor Chair of the Board of Directors.

On May 19, 2022, Neptune announced that Phil Sanford has joined the Neptune Board of Directors and will serve as Audit Chair. Mr. Sanford previously served on the executive team at N3 LLC, a global technology-enabled inside sales organization that was acquired by Accenture in 2020. He has advised a number of leading private equity firms and investment banks on mergers and acquisitions and going-private transactions in the consumer sector. This includes Bain Capital, Carlyle, Moelis, Blackstone, Kelso, Mid-Ocean Partners, Morgan Stanley Private Equity and Morgan Stanley Expansion Capital. He currently serves on the Advisory Board of Morgan Stanley Expansion Capital Funds, as well as the Boards of Ecentria, CMX and Image Skincare and formerly served as Chairman of the Board of Sprout Organics. Mr. Sanford has previously served on the Boards of Chattem, Inc and Caribou Coffee.

Neptune Announces Exclusive Licensing Agreement Between Sprout Foods and CoComelon®New Line of CoComelon® Co-Branded Products

On June 9, 2021, the Company announced a multi-year licensing agreement between Sprout and CoComelon®, the world’s leading children’s entertainment brand, owned and operated by Moonbug Entertainment Ltd (“Moonbug”). With more than 110 million subscribers worldwide, CoComelon is the #1 children’s entertainment and educational show in the world claiming a #1 ranking on YouTube with its top three episodes generating nearly nine billion views around the world. Additionally, the show was #1 on Netflix and maintains a Top 10 ranking across all genres with the recent launch of Season 3. Sprout products bearing the licensed property are expected to launch in the near future in North America.

Further to this agreement, Neptune announced on May 26, 2022 a new line up of CoComelon co-branded organic snack bars for toddlers. The snack bars are the latest innovation in the Sprout Organics x CoComelon product line launched earlier this year,in 2022, which features a range of organic baby and toddler food pouches and toddler snacks. New snack bars will be available online and at select retailers nationwide. Sprout Organics CoComelon Snack Bars are available in two flavor combinations: Banana and Banana with Peas and Carrots. Each snack bar

48

contains a blend of

46

Table of Contents

unsweetened fruits, veggies and gluten-free oats and packs an impressive 4g of plant-based protein and 2g of dietary fiber to help fuel growing bodies.

Neptune Launches Forest Remedies Plant-Based Omega 3-6-9 Supplements

On July 22, 2021, Neptune announced the launch of Forest Remedies’ plant-based Multi Omega 3-6-9 gummies and soft gels. Forest Remedies’ new plant-based multi-omega soft gels and gummies use all natural oil from Ahiflower® grown in the United Kingdom, which is a much sustainable and eco-friendly source of omegas 3, 6, and 9 in contrast to fish or krill oil. The product is vegan.

Neptune Launches Sprout Foods, Inc. Products in Canada

On July 27, 2021, Neptune announced the initial launch of Sprout Organic Foods products into Canada, in Metro grocery stores in the province of Ontario. The initial launch includes Broccoli Curlz and White Cheddar Curlz toddler snacks as well as Blueberry Apple and Pumpkin Butter & Jelly Wafflez toddler snacks. The Company will expand its Metro offerings with additional products from its Crinklez toddler snacks.

ChangesUSE OF PROCEEDS

We estimate the net proceeds to Managementus in this offering will be approximately $6.23 million, after deducting the Placement Agent fees and expenses and estimated offering expenses payable by us. This assumes a public offering price of $0.58 per Common Share and Warrant (the last reported sale price of our Common Shares on Nasdaq on May 5, 2023). However, because this is a best efforts offering and there is no minimum offering amount required as a condition to the closing of this offering, the actual offering amount, the Placement Agent’s fees and net proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth on the cover page of this prospectus. The table below depicts how we plan to utilize the proceeds in the event that 50% and 100% of the securities in this offering are sold, after deducting Placement Agent fees and expenses and estimated offering expenses payable by us.

​

​

​

Use of Proceeds

    

​

100%

    

​

50%(1)

​

Repayment of debt(2)

​

$

2,100,000

​

$

2,100,000

​

General corporate purposes

​

$

4,130,000

​

$

822,500

​

Total:

​

$

6,230,000

​

$

2,922,500

​

(1) If fewer than 50% of the securities in this offering are sold, the amount of debt repaid is expected to be subject to negotiations with the Company, the lenders and the investors in this offering.

On August 19, 2021, Neptune announced(2) Represents a mandatory prepayment of $2.0 million, together with an exit fee of $100,000 (the “Mandatory Repayment”), payable pursuant to a senior secured notes financing for gross proceeds of $4.0 million with CCUR Holdings, Inc. and Symbolic Logic, Inc. that was entered into on January 12, 2023. The notes mature on January 12, 2024 and bear interest at a rate of 16.5% per annum. Proceeds from the appointmentnotes were used for general corporate purposes. For purposes of John S. Wirt asthis table, the Company’s Executive Vice Presidentfull amount of Business and Legal Affairs, Chief Legal Officer and General Counsel. Mr. Wirt comes to Neptune Wellness from Epic Sports & Entertainment, a sports and entertainment company, where he served as President and General Counsel. Prior to that, Mr. Wirt served as the Chief Executive Officer and General Counsel for Roy Jones, Jr.’s Square Ring Promotions, a global sports and entertainment promotion company. Hethis Mandatory Repayment has been specified, but we may seek a director of publicly traded corporations, including, the audit chair of a NASDAQ-listed company. As General Counsel, Mr. Wirt leads Neptune’s internal legal department in addition to managing Neptune’s businesses generally.

On September 27, 2021, the Company appointed Randy Weaver as Interim Chief Financial Officer. Mr. Weaver joins Neptune as Interim Chief Financial Officer with a successful track record of leading numerous CPG companies as a senior executive, bringing the knowledge and experience to help Neptune build a solid foundation of growth.

As partreduction of the Company’s renewed focus on its CPG brands and Sprout Organicsamount required to be prepaid.

These estimates exclude the proceeds, if any, from the exercise of Common Warrants issued in particular, Neptune announced on June 8, 2022 that Sarah Tynan, Sprout’s Chief Customer Officer, was promotedthis offering. If all of the Common Warrants issued in this offering were to CEObe exercised in cash at an assumed exercise price of Sprout. Ms. Tynan has been instrumental in garnering big distribution gains for Sprout, including Walmart and Target, and leading the highly successful CoComelon partnership. She brings deep sales experience and business acumen, including previous roles at Newell Brands and Unilever, and will continue to drive the Sprout business forward.

On June 14, 2022, Neptune announced the appointment$0.58 per common share, we would receive additional proceeds of Raymond Silcock as Chief Financial Officer, effective July 25, 2022. Mr. Silcock, whoapproximately $7.0 million. We cannot predict when or if these Common Warrants will be based outexercised. It is possible that these Common Warrants may expire and may never be exercised. Additionally, the Common Warrants contain a cashless exercise provision that permit exercise of Neptune’s Jupiter, Florida office, previously servedCommon Warrants on a cashless basis at any time where there is no effective registration statement under the Securities Act of 1933, as Executive Vice Presidentamended, covering the issuance of the underlying shares.

We plan to use the proceeds of the offering, after repayment of debt, for general corporate purposes, which may include (i) working capital, (ii) capital expenditures, (iii) operational purposes, including working capital to accelerate growth of our business and Chief Financial Officer(iv) potential acquisitions in complementary businesses. While we do not currently have any agreement with respect to an acquisition, we intend to evaluate potential opportunities and could use proceeds of the offering to invest in one or more complementary businesses. The principal reasons for this offering are to increase our working capital, improve our ability to access the capital markets in the future, and to provide capital for general corporate purposes.

Pursuant to the Third Amended and Restated Stockholders’ Agreement entered into with the minority shareholders of Sprout, we have the option to purchase the minority shares of common stock (the “Call Option”) at Perrigo Plc, as well as CFO at Diamond Foods, The Great Atlantic and Pacific Tea Company, US Tobacco Inc., and Cott Corporation. In addition, he has previously served as Chairany time until December 31, 2023, or March 31, 2024 if we provide notice of both Audit and Strategy Committees on several Boards including Pinnacle Foods Inc, American Italian Pasta Company, Prestige Brands and Bacardi Limited.

Receiptan extension. We have entered into an agreement with the representative of Nasdaq Notificationthe minority stockholders of

On August 31, 2021, Neptune announced35

Table of Contents

Sprout that provides that the Company has received a written notification (the “Notification Letter”) from the Nasdaq Stock Market LLC (“Nasdaq”) on August 30, 2021, notifying the Company that it is not in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule

49

5550(a)(2), which requires that the closing bidpurchase price for the Company’sremaining minority shares of common shares listed on Nasdaq be maintained at a minimum of US$1.00.

Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement existsstock, if the deficiency continues for a period of 30 consecutive business days. Based on the closing bid price of the Company’s common shares for the 30 consecutive business days from July 16, 2021,Call Option is exercised prior to August 27, 2021, the Company no longer met the minimum bid price requirement.

The Notification Letter has no immediate effect on the listing of the Company’s common shares on Nasdaq.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided 180 calendar days, or until February 28, 2022, to regain compliance with the minimum bid price requirement, during which time the Company’s common shares will continue to trade on the Nasdaq Capital Market. To regain compliance, the Company’s common shares must have a closing bid priceJune 15, 2023, would be $13.0 million, consisting of at least US$1.00 for a minimum of 10 consecutive trading days. The Company has requested and received an additional 180-day period to regain compliance, and now has until August 27, 2022 to comply.

On June 9, 2022, Neptune announced$10.5 million in cash with the completion of the Company’s proposed consolidation of its common shares (the “Common Shares”) on the basis of one (1) post-consolidationremainder payable in Common Share for every thirty-five (35) pre-consolidation Common Shares (the “Share Consolidation”). The post-Share Consolidation Common Shares commenced trading on the NASDAQ and the TSX at the market open on June 13, 2022. The Share Consolidation reduced the number of Common Shares issued and outstanding from approximately 198 million Common Shares to approximately 5.7 million Common Shares as at June 13, 2022.

As of the dateShares. We may use certain proceeds of this prospectus,offering towards the Company has regained complianceexercise the Option, subject to the receipt of additional funds, which may include funds borrowed from lenders.

Due to the uncertainties inherent in our business, we cannot estimate with certainty the Nasdaq minimum bid price requirement.

Change in Auditor

On November 4, 2021, the Company announced the appointmentexact amounts of KPMG LLP (“KPMG”) as its independent registered public accounting firm, effective October 22, 2021, following the resignation of Ernst & Young LLP (“EY”) on September 23, 2021. The appointment of KPMG was made after a thorough evaluation process and has been approved by Neptune’s Board of Directors and its Audit Committee. KPMG replaces EY as Neptune’s independent registered public accounting firm for the fiscal year ending March 31, 2022. Previously, on July 10, 2020, the Company dismissed KPMG and proposed EY as its independent registered public accounting firm, which was effective following the Company’s annual and special meeting of shareholders held on August 12, 2020.

Loss of Foreign Private Issuer Status

As of September 30, 2021, the Company was no longer considered a foreign private issuer and accordingly, such change in status required the Company to file as a U.S. domestic filer, effective April 1, 2022, and comply with all periodic disclosures and reporting requirements of the Exchange Act applicable to U.S. domestic issuers including the requirement to transition from IFRS to US GAAP for the year ended March 31, 2022. The Company was also required to modify certain of its policies to comply with governance practices associated with U.S. domestic issuers. As a result, the loss of foreign private issuer status increases the Company’s legal and financial compliance costs and make some activities more time consuming and costly.

Neptune Launches Forest Remedies Multi-Omega 3-6-9 Supplements in 340+ Sprouts Farmers Market Stores Across U.S.

On March 8, 2022, Neptune announced the launch of Forest Remedies Multi Omega 3-6-9, a line of innovative supplements made with Ahiflower oil, in Sprouts Farmers Market stores nationwide. A plant-based, vegan

50

alternative to fish oil, Ahiflower oil delivers more quality omegas than other natural plants or seed oils, proven up to four times more effective than flaxseed oil*. The Forest Remedies Multi Omega product line also comes in compostable, plastic-free packaging. Forest Remedies Multi-Omega supplements contain a balanced blend of 100 percent plant-based omega 3, 6 and 9 fatty acids, with no unpleasant aftertaste or fish smell. As part of Neptune Wellness’ dedication to plant-based products, a portion of the proceeds from the sales of Forest Remedies products will be donated to One Tree Planted, a non-profit tree planting charity, to help rebuild forests around the world.

Closing of a $8,000,000 Registered Direct Offering

On March 14, 2022, Neptune announced that it has closed a registered direct offering with a single strategic consumer-focused institutional investor for the purchase and sale of (i) 18,500,000 common shares of the Company (“Common Shares”) and (ii) 6,500,000 pre-funded warrants (the “Pre-Funded Warrants”), with each Pre-Funded Warrant exercisable for one Common Share. The Common Shares and the Pre-Funded Warrants were sold together with Series A Warrants (the “Series A Warrants”) to purchase up to an aggregate of 25,000,000 Common Shares and Series B Warrants (the “Series B Warrants” and collectively with the Series A Warrants, the “Common Warrants”) to purchase up to an aggregate of 25,000,000 Common Shares. Each Common Share and the accompanying Common Warrants were sold together at a combined offering price of $0.32 , and each Pre-funded Warrant and accompanying Common Warrants were sold together at a combined offering price of $0.32 , for aggregate gross proceeds of $8.0 million before deducting fees and other estimated offering expenses. The Pre-Funded Warrants are funded in full at closing except for a nominal exercise price of $0.0001 and are exercisable commencing on the closing date, and will terminate when such Pre-Funded Warrant is exercised in full. The Series A Warrants have an exercise price of $0.32 per share and are exercisable six months after the closing date, and will expire five and one half years from the date of issuance. The Series B Warrants have an exercise price of $0.32 per share and are exercisable six months after the closing date, and expire 18 months from the date of issuance (collectively the “Offering”). The Company expects to use the net proceeds from the Offeringthis offering that may be used for working capital and other general corporate purposes. The Pre-Funded Warrants were exercisedany purpose. As a result, our management will have broad discretion in full on March 29, 2022 for gross proceeds of $650.

Closing of a $5,000,000 Registered Direct Offering Priced At-The-Market Under Nasdaq Rules

On June 22, 2022, Neptune announced that it entered into definitive agreements with several institutional investors for the purchase and sale of an aggregate of 1,945,526 common shares (including common share equivalents) of the Company, and accompanying two series of warrants to purchase up to an aggregate of 3,891,052 common shares per series of warrants, at an offering price of $2.57 per share and accompanying warrants in a registered direct offering priced at-the-market under Nasdaq rules. Each series of warrants have an exercise price of $2.32 per share and are immediately exercisable upon issuance. One series of warrants will expire two years following the date of issuance and one series of warrants will expire five years following the date of issuance. The gross proceeds from the offering are $5 million, prior to deducting placement agent’s fees and other offering expenses payable by Neptune and assuming none of the warrants issued in the offering are exercised for cash. Neptune intends to useapplying the net proceeds from the offering for working capital and other general corporate purposes. this offering.

CAPITALIZATION

The offering closed on June 23, 2022. The pre-funded warrants issued in the offering were fully exercised on June 24,following table sets forth our capitalization as of December 31, 2022 for $64.55.

Closing of a $6,000,000 Offering

On October 11, 2022, Neptune announced that it had closed an offering of 3,208,557 of common shares of the Company pursuant to a registered direct offering priced at-the-marketas follows: under Nasdaq rules, and warrants to

*·

on an actual basis;

·

on a pro forma basis to give effect to the issuance of an aggregate of 217,995 common shares to investors in January and February 2023 and the incurrence of additional debt subsequent to December 31, 2022; and

·

Consumptionon a pro forma as adjusted basis to reflect our receipt of Buglossoides arvensis seed oil is safethe net proceeds our sale and increases tissue long-chain n-3 fatty acid content more than flax seed oil – resultsissuance of a phase I randomised clinical trial”; Journal12,068,966 Common Shares (assuming no sale of Nutritional Science , Volumeany Pre-Funded Warrants and no exercise of the Common Warrants) in this offering based on the assumed public offering price of $0.58 per common share (the last reported sale price of our Common Shares on Nasdaq on May 5, , 2016 , e22023) after deducting estimated Placement Agent fees and expenses and estimated offering expenses payable by us.

51

purchase up to 6,417,114 of common shares ofThe as adjusted information set forth below is illustrative only and will be adjusted based on the Company in a concurrent private placement with institutional investors, at a combinedactual public offering price for one common share and one warrant of $1.87, for aggregate gross proceeds of $6 million before deducting fees and other offering expenses. The warrants have an exercise price of $1.62 per common share, are exercisable immediately following the date of issuance and will expire five years from the date of issuance.

ADDITIONAL INFORMATION

The Company’s head office and registered office is located at 545 Promenade du Centropolis, Suite 100, Laval, Québec, Canada, H7T 0A3. The Company’s website address is www.neptunecorp.com. The information provided on the Neptune website is not partterms of this or any other report we fileoffering determined at pricing. You should read this table in conjunction with or furnish to the SEC. The Exchange Act requires us to file reports, proxy“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and other information with the SEC. These materials may be obtained electronically by accessing the SEC’s home page at www.sec.gov.

Our Code of Conduct is available on our website, www.neptunewellness.com. We will post on our website amendments to the Code of Conductrelated notes included elsewhere in, or waivers from its provisions, if any, which are applicable to any of our directors or executive officers in accordance with the requirements of the SEC or Nasdaq.

The information on our website is not a part of, nor is it incorporated by reference into, this prospectus. Further, our references

​

​

​

​

​

​

​

​

​

As of December 31, 2022

​

​

​

​

​

​

​

Pro forma as

​

​

    

Actual

    

Pro forma(1)

    

Adjusted (2)

​

​

​

(In thousands, except share and per share data)

​

Liability related to warrants

​

$

1,444

​

$

1,780

​

​

8,780

​

Operating lease liabilities (including current portion)

​

$

2,720

​

$

2,720

​

​

2,720

​

Loans and borrowings (including current portion)

​

$

15,937

​

$

19,901

​

$

19,901

​

Other liability

​

$

23

​

$

(74)

​

​

(74)

​

Shareholders’ equity:

​

​

​

​

​

​

​

​

—

​

Share capital, without par value, 11,778,392 shares issued and outstanding as of December 31, 2022, actual; 11,996,387 shares issued and outstanding, proforma; shares issued and 24,065,353 outstanding, proforma as adjusted

​

​

321,792

​

​

322,006

​

​

322,006

​

Preferred shares, no par value; no shares outstanding, actual; no shares outstanding, proforma; and no shares outstanding proforma as adjusted

​

​

—

​

​

—

​

​

—

​

Warrants

​

$

6,118

​

$

6,118

​

​

6,118

​

Additional paid-in capital

​

$

57,303

​

$

57,303

​

​

57,303

​

Accumulated other comprehensive loss

​

$

(14,539)

​

$

(14,539)

​

​

(14,539)

​

Deficit

​

$

(357,075)

​

$

(357,192)

​

​

(357,965)

​

Total equity attributable to equity holders of the Company

​

$

13,599

​

$

13,695

​

​

12,922

​

Non-controlling interest

​

$

2,326

​

$

2,326

​

​

2,326

​

Total shareholders’ equity

​

$

15,924

​

$

16,021

​

​

15,248

​

Total capitalization

​

$

36,048

​

$

40,348

​

​

46,575

​

(1)  The Pro forma basis includes several assumptions related to the URLseffect on capitalization of events occurring after December 31, 2022. The Pro forma basis gives effect to: (1) the issuance of an aggregate of 217,995 common shares to investors in January and February 2023; (2) the issuance on January 13, 2023 of senior secured notes financing for these websitesgross proceeds of $4,000,000 with CCUR Holdings, Inc. and Symbolic Logic, Inc. and warrants to purchase an aggregate of 850,000 of our Common Shares. The fair value

36

Table of Contents

of the warrants are intendedestimated for purposes of this table and recorded as “liability related to warrants”; and (3) In March 2023, $300,000 of secured promissory notes and warrants to purchase an aggregate of 111,111 common share, which for purposes of this table has been presented fully within the “Loans and Borrowing”.

(2)  As the accounting treatment of the Warrants and the allocation between equity and liability components has not yet been determined, it is assumed for the purposes of the Pro forma as Adjusted capitalization that all of the proceeds have been allocated to the derivative warrant liabilities and therefore, all of the estimate placement agent fees and expenses and estimated offering expenses have been allocated to deficit. In addition, if the fair value of the derivative warrant liabilities exceeds the total proceeds of this offering, a loss would be recorded upon initial recognition of this offering, which loss is not reflected in the deficit in the above table.

A $0.25 increase or decrease in the assumed public offering price of $0.58 per share, as set forth on the cover page of this prospectus, would increase or decrease the expected net proceeds to us from this offering by approximately $2.9 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated Placement Agent fees and expenses and estimated offering expenses payable by us.

Similarly, a 100,000 share increase or decrease in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us by approximately $5,500, assuming the assumed public offering price of $0.58 per share remains the same, and after deducting estimated Placement Agent fees and expenses and estimated offering expenses payable by us.

The number of our Common Shares to be inactive textual references only.outstanding immediately after this offering is based on 11,778,392 Common Shares outstanding as of December 31, 2022 and excludes:

●680,786 Common Shares issuable upon the exercise of stock options outstanding as of December 31, 2022, at a weighted average exercise price of $70.10 per Common Share;
●11,236,554 Common Shares issuable upon the exercise of warrants outstanding as of December 31, 2022, at a weighted average exercise price of $11.50 per Common Share;
●4,308 deferred share units;
●2,789 restricted share units;
●217,995 Common Shares and 961,111 Common Shares issuable upon the exercise of warrants issued after December 31, 2022; and
●any additional Common Shares that are available for future issuance under our equity compensation plans.

​

​

DILUTION

If you purchase Common Shares and Warrants in this offering, you will experience dilution to the extent of the difference between the combined public offering price per Common Share and related Warrant in this offering and our net tangible book value (deficit)  per Common Share. Net tangible book value (deficit) per Common Share is equal to the amount of our total tangible assets, less total liabilities, divided by the number of outstanding Common Shares. As of December 31, 2022, our net tangible book value (deficit) was approximately $(15.8 million), or approximately $(1.34) per Common Share.

After giving effect to the assumed sale by us of Common Shares and Warrants in this offering at an assumed combined public offering price of $0.58 per Common Share and related Warrant (the last reported sale price of our Common Shares on Nasdaq on May 5, 2023), after deducting the estimated Placement Agent fees and expenses and estimated offering expenses payable by us, our as adjusted net tangible book value (deficit) as of December 31, 2022 would have been approximately $(16.6 million), or approximately $(0.70) per Common Share. The as adjusted net tangible book value has been computed assuming exercise in full of the Pre-Funded Warrants and no exercise of the Common Warrants. This represents an immediate increase in net tangible book value (deficit) of $0.64 per Common Share to existing shareholders and an immediate dilution of $1.28 per share to new investors purchasing Common Shares and related

37

Table of Contents

Warrants in this offering, attributing none of the assumed combined public offering price to the Common Warrants offered hereby. The following table illustrates this per Common Share dilution:

​

​

​

​

​

​

​

​

    

Per Common

    

​

​

​

​

Share and

​

​

​

​

​

Warrant

​

Total

Assumed combined public offering price per Common Share and related Common Warrant

 

$

0.58

​

$

​

Net tangible book value (deficit) per Common Share as of December 31, 2022

​

$

(1.34)

​

 

​

Increase in net tangible book value per Common Share after this offering

​

$

0.64

​

 

​

As adjusted net tangible book value (deficit) per Common Share after this offering

​

$

0.70

​

 

​

Dilution per Common Share to new investors

​

$

1.28

​

$

(15,815,705)

​

A $0.25 increase (decrease) in the assumed combined public offering price of $0.58 per Common Share and Common Warrant would result in an increase (decrease) in our as adjusted net tangible book value (deficit) of approximately $0.8 million or approximately $0.64 per Common Share, and would result in an increase (decrease) in the dilution to new investors of approximately $1.28 per Common Share, assuming that the number of Common Shares and Common Warrants sold by us remains the same, after deducting the estimated Placement Agent fees and expenses and estimated offering expenses payable by us.

Similarly, a decrease of 100,000 in the number of Common Shares offered by us would decrease our as adjusted net tangible book value by approximately $0.8 million or $0.64 per share, and increase the dilution per share to investors participating in this offering by $1.28 per share, assuming the assumed offering price per share remains the same and after deducting the estimated Placement Agent commissions and estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the actual offering price, the actual number of Common Shares we offer in this offering, and other terms of this offering determined at pricing.

The foregoing discussion and table do not take into account further dilution to new investors that could occur upon the exercise of outstanding options or warrants having a per share exercise price less than the per Common Share and related Common Warrant offering price to the public in this offering. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our shareholders.

The number of our Common Shares to be outstanding immediately after this offering is based on 11,778,392 Common Shares outstanding as of December 31, 2022 and excludes:

●680,786 Common Shares issuable upon the exercise of stock options outstanding as of December 31, 2022, at a weighted average exercise price of $70.10 per Common Share;
●11,236,554 Common Shares issuable upon the exercise of warrants outstanding as of December 31, 2022, at a weighted average exercise price of $11.50 per Common Share;
●4,308 deferred share units;
●2,789 restricted share units;
●217,995 Common Shares and 961,111 Common Shares issuable upon the exercise of warrants issued after December 31, 2022; and
●any additional Common Shares that are available for future issuance under our equity compensation plans.

38

Table of Contents

MARKET INFORMATION FOR SECURITIES AND DIVIDEND POLICY

Our Common Shares trade under the symbol “NEPT” on Nasdaq.

The following table sets forth the high and low intraday sales prices per Common Share as reported on Nasdaq beginning on April 1, 2020 and taking into account the Share Consolidation that took effect on June 13, 2022:

​

​

​

​

​

​

​

​

​

​

​

​

    

Low Trading Price

    

High Trading Price

Period

     

​

​

($)

​

($)

Year Ending March 31, 2023

 

  

 

​

  

 

​

  

Fourth Quarter

 

(March 31, 2023)

​

$

0.29

​

$

1.04

Third Quarter

 

(December 31, 2022)

​

$

0.23

​

$

1.92

Second Quarter

 

(September 30, 2022)

​

$

1.00

​

$

3.74

First Quarter

 

(June 30, 2022)

​

$

1.34

​

$

1.41

Year Ended March 31, 2022

 

  

​

 

  

​

 

  

Fourth Quarter

 

(March 31, 2022)

​

$

7.35

​

$

19.60

Third Quarter

 

(December 31, 2021)

​

$

12.25

​

$

22.40

Second Quarter

 

(September 30, 2021)

​

$

19.25

​

$

41.30

First Quarter

 

(June 30, 2021)

​

$

37.10

​

$

55.30

Year Ended March 31, 2021

 

  

​

 

  

​

 

  

Fourth Quarter

 

(March 31, 2021)

​

$

45.15

​

$

110.25

Third Quarter

 

(December 31, 2020)

​

$

52.15

​

$

86.80

Second Quarter

 

(September 30, 2020)

​

$

73.85

​

$

113.05

First Quarter

 

(June 30, 2020)

​

$

35.70

​

$

110.25

​

As of May 8, 2023, we had 42 shareholders of record based on the records of our transfer agent, which does not include beneficial owners of our Common Shares whose shares are held in the names of various securities brokers, dealers and registered clearing agencies.

Dividends

We do not anticipate paying any dividend on our Common Shares in the foreseeable future. We presently intend to retain future earnings to finance the expansion and growth of our business. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements and other factors the Board of Directors deems relevant. In addition, the terms of any future debt or credit facility may preclude us from paying dividends.

Securities Authorized for Issuance under Equity Compensation Plans

Information about our equity compensation plans, as set forth in this prospectus under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters”, is incorporated herein by reference.

Unregistered Sales of Equity Securities

Except as set forth below, since May 8, 2020, we have not sold any securities that were not registered under the Securities Act.

​

(1)In March 2023, we issued warrants to purchase common shares of the Company to one accredited investor which permits the investor to purchase an aggregate of 111,111 of our common shares at an exercise price of $0.54.
(2)In February 2023, we issued to three accredited investors an aggregate of 146,330 of our common shares in connection with loans to Sprout Foods, Inc.

(3)

In January 2023, we issued (i) 71,665 common shares to our financial advisor in connection with our strategic review and (ii) to two accredited investors the January 2023 Warrants, which permits the investors to purchase an aggregate of 850,000 of our common shares at an exercise price of $0.53 per common share.

(4)

In October 2022, we issued to accredited investors the Series E Warrants in the Private Placement, which permits the investors to purchase an aggregate of 6,417,114 of our common shares at an exercise price of $1.62 per common share.

(5)

In July and September 2022, we issued to two accredited investors an aggregate of 409,435 common shares in connection with loans to Sprout Foods, Inc.

39

Table of Contents

(6)

In June 2022 we issued 7,104 common shares to our financial advisor in connection with our proposed divestiture of our Canadian cannabis business.

(7)

In October 2020, we issued 462,963 common shares and 300,926 warrants to purchase common shares at an offering of $75.60 per share to institutional investors.

​

Repurchases of Equity Securities

We did not repurchase any of our equity securities during the years ended March 31, 2022 and 2021 or the interim period ended December 31, 2022.

BUSINESS

Overview

General

Neptune Wellness Solutions Inc. (“Neptune”, the “Company”, “we”, “us” or “our”) is a modern consumer packaged goods (“CPG”) company driven by a singular purpose: to transform the everyday for a healthier tomorrow. Neptune is a diversified and fully integrated health and wellness company with multiple brand units. With a mission to redefine health and wellness, Neptune is focused on building a broad portfolio of high quality, affordable consumer products in response to long-term secular trends and market demand for natural, plant-based, sustainable and purpose-driven lifestyle brands. The Company utilizes a highly flexible, cost-efficient manufacturing and supply chain infrastructure that can be scaled up and down or into adjacent product categories to identify new innovation opportunities, quickly adapt to consumer preferences and demand, and bring new products to market through its mass retail partners and e-commerce channels. Leveraging decades of expertise in extraction and product formulation, Neptune is a provider of turnkey product development and supply chain solutions to business customers across several health and wellness verticals, including nutraceuticals and white label consumer packaged goods. Neptune has expanded its operations since June 2020 into several brand units in order to better address its markets. The main brand units are the following: Nutraceuticals, Beauty & Personal Care, and Organic Foods & Beverages. All amounts in this prospectus are in US dollars, unless otherwise noted.

History

Neptune was incorporated under Part IA of the Companies Act (Québec) on October 9, 1998 under the name Neptune Technologies & Bioresources Inc. Since its incorporation, Neptune has amended its articles of incorporation on numerous occasions. The Company first amended its articles on May 30, 2000 to convert its then issued and outstanding shares into newly-created classes of shares. The Company’s articles were also amended on May 31, 2000 to create Series A Preferred Shares. On August 29, 2000, the Company converted all its issued and outstanding Class A shares into Class B subordinate shares. On September 25, 2000, the Company further amended its share capital to eliminate its Class A shares and converted its Class B subordinate shares into Common Shares. On November 1, 2013, the Company amended its articles of incorporation to reflect certain changes to items relating to board matters. The Company’s Common Shares are listed and posted for trading on the Nasdaq under the symbol, “NEPT”.

On June 9, 2022, we effected a one for thirty-five (1-for-35) reverse split of our common shares, which we refer to as the “Share Consolidation,” as approved by our Board of Directors. Trading of our common shares on both the TSX and Nasdaq on a post-consolidated basis commenced as of the open of markets on June 13, 2022. On August 15, 2022, the Company voluntarily delisted its Common Shares from the TSX.

Our Properties and Operations

The following table sets forth the Company’s principal physical properties:

Type

Material Properties Location

Leased / Owned

Production Facility

Office

​

Sherbrooke,

Laval, Québec

​

Owned

Leased

Office

​

Laval,

Vaudreuil, Québec

​

Leased

OfficeVaudreuil, QuébecLeased

Office / Laboratory

​

Laval, Québec

​

Leased

Office

​

Jupiter, Florida

​

Leased

​

40

Table of Contents

Our headquarters is located in leased offices in Laval, Québec, where our general and administrative departments primarily operate. We also ownlease laboratory space in Laval, Quebec where testing and development of many of our products takes place. On December 5, 2022, our U.S. operations opened an office in Jupiter, Florida which serves as the U.S. headquarters.

We previously owned a production facility in Sherbrooke, Québec,Quebec where we also conductconducted our cannabis operations including laboratory activities, and lease laboratory offices in Laval, Québec. We also have leased offices in Vaudreuil, Province of Québec, Canada, which was previously used for the Company’s Biodroga business. The Company intends to sub-lease the Vaudreuil offices. In addition, Neptune has leased office space in Jupiter, Florida.testing. On June 8,October 17, 2022, we announced that we had entered into a binding agreement for the planned accelerated divestituresale of our cannabis business, which would include the sale of our cannabis brands and the Sherbrooke building in one or more transactions. The disposition of our cannabis operations occurred on November 9, 2022. We believe the divestment of the cannabis assets will allow us to realize significant cost savings and operational streamlining from redirected resources towards our simplified corporate structure.

Legal ProceedingsWe also have leased offices in Vaudreuil, Province of Québec, Canada, which have been sub-leased to a third-party tenant.

Business Strategy

Neptune’s vision is to change consumer habits through the creation and distribution of environmentally friendly, ethical and innovative consumer product goods. Our mission is to redefine health and wellness and help humanity thrive by providing sustainable consumer focused solutions. Despite the decline in global economic activity since the outbreak of the COVID-19 virus, Neptune has taken transformative, and successful, actions to increase its sales, distribution and reach in both the B2B and B2C model in the CPG market. Neptune has a dual go-to market B2B and B2C strategy focused on expanding its global distribution reach. The strategy sets Neptune apart from its competition and has started to yield consistent, long-term revenue opportunities for the Company.

The Company’s long-term strategy is focused on the health and wellness sector with an emphasis on select CPG verticals, including Nutraceuticals, Beauty & Personal Care, and Organic Foods & Beverages. Neptune’s current brand portfolio across these verticals include Sprout®, Neptune Wellness™, Forest Remedies®, and MaxSimil®.

On May 28, 2021, Neptune announced a multi-year licensing agreement between Sprout and CoComelon, the world’s leading children’s entertainment brand, owned and operated by Moonbug Entertainment. In addition, on July 27, 2021, an initial launch was announced for Sprout products into Canada, in Metro grocery stores in the province of Ontario. In September 2022, Sprout launched its up-age meal products.

Neptune’s future will be focused on brand creation, accelerating organic growth with emphasis on increased efficiency and margin expansion. This will be complemented by accretive acquisitions with a proven track record of operational excellence. On July 22, 2021, the Company launched Forest Remedies’ plant-based Omega 3-6-9 gummies and soft gels. Neptune is focused on expanding its exclusive Omega-3 delivery technology MaxSimil® while improving growth and profitability in its Nutraceuticals vertical. The MaxSimil® product lineup will be expanded with the launch of two new consumer products: MaxSimil® with CoQ10 and MaxSimil® with Curcumin. Additionally, the Company launched a new consumer line of Vitamin Sprays and Pumps for both children and adults with selected retail partners. To support anticipated accelerated growth, the Nutraceuticals U.S. sales force has been expanded to maximize awareness and distribution of the capabilities and expertise in nutraceuticals, including prebiotics and probiotics, and proteins within this important vertical.

Products, Principal Markets, Methods of Distribution and Brands

Products

Our Nutraceutical, Beauty and Personal care products and Organic Foods and Beverages are manufactured by third party manufacturers. In order to meet demand for our products, we have developed relationships with selected contract manufacturers. For Biodroga we mainly buy all the raw materials we supply to our third-party manufacturers Our largest co-manufacturers for Biodroga makes approximately 35% of our annual production requirements. For Sprout, 90% of raw materials are purchased by the third-party manufacturers based on our specifications. The largest Sprout co-manufacturer makes about 40% of our annual requirements. We believe that we are not dependent on any single contract manufacturer and that, if necessary, our current selected contract manufacturers could be replaced with minimal disruption to our operations.

Our quality control staff requires full disclosure on the part of our suppliers and we periodically conduct on-site audits of their facilities. For strategic reasons, certain of our key raw materials are sourced from single suppliers. However, in the event that we were unable to source an ingredient from a current supplier, we believe that we could generally obtain the same ingredient or an equivalent from an alternative supplier, with minimal disruption to our operations.

41

Table of Contents

Markets

Nutraceuticals

Neptune offers a variety of specialty ingredients, including our licensed specialty ingredient MaxSimil®, a technology that helps increase digestion and absorption of fat-soluble and nutritional ingredients. Additionally, the Company sources a variety of other marine oils, seed oils and specialty ingredients that are available for sale as raw material or transformed into finished products. The Company has recently launched a new line of Vitamin Sprays and Pumps for both children and adults. Neptune is focused on expanding its exclusive Omega-3 delivery technology MaxSimil® while improving growth and profitability in its Nutraceuticals vertical through its brand Biodroga.

Neptune’s core strength is product innovation with a focus on specialty ingredients offered in bulk soft gels and liquid delivery systems. The Company continues to expand its delivery system capabilities with projects for pumps, sprays and roll-ons. All of Neptune’s Nutraceutical products are available under distributors’ private labels, primarily sold in the Canadian and U.S. nutraceutical markets. Neptune, through its nutraceuticals products business, also formulates, develops and provides customers with turnkey nutrition solutions.

The Company sells wellness products to the Beauty & Personal Care market through its Forest Remedies brand. Forest Remedies offers plant-based supplements, including first-of-its kind multi-omega gummies and soft gels with packaging that is engaged from time-to-time100% plastic-free. Neptune announced, on March 10, 2022, the launch of its Forest Remedies Multi Omega 3-6-9 line of supplements into more than 340 Sprouts Farmers Market stores across the U.S. This distribution agreement marks another important milestone in various legal proceedingsour efforts to transform Neptune into a high-growth branded CPG company.

Organic Foods and claims that have arisenBeverages

In February 2021, Neptune acquired a controlling interest in Sprout Foods, Inc., an organic plant-based baby food and toddler snack company. Sprout is an integral piece of Neptune’s health and wellness portfolio and represents a key brand within the ordinary course of business. The outcome of such proceedingsOrganic Foods and claims againstBeverages vertical. Since completing the Sprout acquisition, the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company, the most significant outstanding proceedings and claims are as follows:

(i) In September 2020, Neptune submitted a claim and demand for arbitration against Peter M. Galloway and PMGSL Holdings, LLC (collectively “PMGSL”)has begun expansion efforts in accordance with the SugarLeaf Asset Purchase Agreement (“APA”) dated May 9, 2019 between Neptune, PMGSL, Peter M. Galloway and Neptune Holding USA, Inc. Separately, PMGSL submitted a claim and demand for arbitration against Neptune. The Neptune claims and PMGSL claims have been consolidated into a single arbitration and each are related to the purchase by Neptune ofSprout’s distribution across substantially all of Target’s U.S. retail stores. The Company also announced, on July 27, 2021, the initial launch of Sprout products into Canada, in Metro grocery stores in the province of Ontario. Neptune further expects to launch Sprout products in North America throughout the remainder of the fiscal year. The Company expects the Neptune/Sprout combination to result in significant incremental revenue growth, with several near and long-term revenue synergy opportunities identified within Neptune’s existing relationships and current sales channels. As described above, Neptune also announced on June 9, 2021, an exclusive multi-year licensing agreement between Sprout and CoComelon, the #1 children’s entertainment and educational show in the world with more than 110 million subscribers worldwide. This co-branded product line is now available on Walmart.com and in 900 Walmart stores and has been very well-received. With this launch, Sprout Organics now sells into the top organic baby food retailers in the U.S., accounting for approximately 90 percent of the overall market.

Sales and Distribution

Nutraceutical Products

The Company sells its nutraceutical products mainly in bulk softgels or liquids to multiple distributors and customers, who commercialize these products under their private label. While the Company may have orders in place with approximately 100 different distributors and customers at any one time, the majority of the Company’s sales are concentrated with a small group of distributors and customers. Agreements with these distribution partners may be terminated or altered by them unilaterally in certain circumstances.

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

The Company, though its Sprout subsidiary, sells its products to mass retailers, grocery stores and other retail outlets, as well as online through e-commerce sites and its own website sproutorganics.com.

42

Table of Contents

Our B2C Brand Portfolio Strategy

We are currently working on accelerating brand equity for our brand portfolio:

Graphic

Biodroga™. Neptune, through its Biodroga subsidiary, provides product development and turnkey solutions (4PL) to its customers throughout North America. Biodroga offers a full range of services, whether it is leveraging our global network of suppliers to find the best ingredients or developing unique formulations that set our customers apart from their competition. Biodroga’s core products are MaxSimil, various Omega-3 fish oils and other nutritional products, as well as softgel solutions.

​

​

Graphic

MaxSimil. Neptune has an exclusive license to use the patented nutritional ingredient, MaxSimil, an omega-3 fatty acid delivery technology that uses enzymes that mimic the natural human digestive system to predigest omega-3 fatty acids. The Journal of Nutrition, by the Oxford University Press, recently released the results of a clinical study that evidences MaxSimil’s superior absorption as compared with standard fish oil supplements. MaxSimil was first introduced to the market in 2018, and is sold as a straight omega-3 supplement with standard and unique concentration of EPA/DHA. MaxSimil is also starting to be presented in combination with specialty ingredients such as Curcumin and Vitamin K2.

​

​

Graphic

Forest Remedies®. Under our Forest Remedies® brand, we offer first-of-their kind vegan multi-omega gummies and soft gels with packaging that is 100% plastic-free. Launched on March 10, 2022, our Forest Remedies Multi Omega 3-6-9 line of supplements is available into more than 340 Sprouts Farmers Market stores across the U.S. This distribution agreement marks another important milestone in our efforts to transform Neptune into a high-growth branded CPG company.

​

​

Graphic

Sprout®. Neptune entered a new market with the Neptune/Sprout combination. Sprout has created a trusted organic baby food brand with a comprehensive range of products that are always USDA certified organic, non-GMO and contain nothing artificial. Sprout’s products target four segments: Stage 2 (children 6 months and up), Stage 3 (children 8 months and up), Toddler (children aged 12 months and up) and Snacks (children 8 months and up). Since our acquisition of a controlling interest in Sprout, the Company has begun expansion efforts in Sprouts’ distribution substantially in all of Target’s U.S. retail stores. The Company also announced on July 27, 2021, its initial launch into the Canadian market through its partnership with food retailer Metro Inc. Certain toddler snacks under this brand label are now available in Metro grocery stores in the province of Ontario.

​

Competition

The nutraceutical, beauty & personal care and organic foods and beverages industries are highly competitive. There are many companies, public and private universities, and research organizations actively engaged in the research and development of products that may be similar to our products. It is probable that the number of companies seeking to develop products similar to our products will increase. Many of these and other existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market products.

We seek to differentiate our products and marketing from our competitors based on product quality, customer service, marketing support, pricing and innovation, and believe that our strategy enables us to effectively compete in the marketplace. For additional information regarding the competitive nature of our businesses, see “Risks Related to Our Business” under the heading “Risk Factors” of this prospectus.

Regulatory

Our Nutraceutical, Beauty, Personal Care and Organic Food and Beverage businesses are subject to varying degrees of regulation by a number of government authorities in Canada and the U.S., including Health Canada, the FDA, the Federal Trade Commission (FTC), the Consumer Product Safety Commission, the U.S. Department of Agriculture, and the Environmental Protection Agency. Various

43

Table of Contents

provincial, state and local agencies in areas where we operate and in which our products are sold also regulate our business. The areas of our business regulated by both these and other authorities include, among others:

·

product claims and advertising;

·

product labels;

·

product ingredients;

·

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 the FDA, in particular, regulate the formulation, manufacturing, packaging, storage, labeling, promotion, distribution and sale of vitamins and other nutritional supplements in Canada and the U.S., while other agencies regulate marketing and advertising claims. Under Health Canada and FDA rules, companies that manufacture, package, label, distribute or hold nutritional supplements are required to meet certain GMP’s to ensure such products are of the quality specified and are properly packaged and labeled. We are committed to meeting or exceeding the standards set by Health Canada and the FDA and believe we are currently operating within the mandated GMP.

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.

​

We are also subject to a variety of other regulations in Canada and the U.S., including those relating to health, safety, bioterrorism, taxes, labor, employment, import and export, the environment and intellectual property. All of these regulations require significant financial and operational resources to ensure compliance, and we cannot assure you we will always be in compliance despite our best efforts to do so or that complying will not become prohibitively costly to our business.

Intellectual Property

We constantly evaluate the importance of obtaining intellectual property protection for our technology brands, products, applications and processes and maintaining trade secrets. When applicable to our business and products, we seek to obtain, license and enforce patents, protect our proprietary information and maintain trade secret protection without infringing the proprietary rights of third parties. We also make use of trade secrets, proprietary unpatented information and trademarks to protect our technology and enhance our competitive position.

Brand Names and Trademarks

Sprout®, NurturMe®, Nosh!®, Neptune Wellness™, MaxSimil®, Forest Remedies®, and Ocean Remedies® are trademarks of the Company.

Licenses

On January 31, 2020, Neptune entered into an exclusive, worldwide, and royalty-bearing licensing agreement with SCF Pharma Inc. for the development, manufacturing, formulation, distribution, sub-licensing and sale of the MaxSimil® technology in nutraceutical products.

On May 28, 2021, Sprout Foods entered into a multi-year licensing agreement with Moonbug, providing Sprout with an exclusive license to utilize certain properties relating to CoComelon®, the world’s leading children’s entertainment brand, owned and operated by Moonbug, with Sprout products. The licensing agreement, which expires December 31, 2023, will automatically extend until December 31, 2026 provided there has not been a material breach of the agreement, the Company does not provide notice of an intent to not extend

44

Table of Contents

by October 1, 2023, and the Company has accrued royalties of $195,000 or more under the agreement before October 1, 2023.  The Company expects to meet the minimum royalty threshold later this year, on time.

Employees

As of December 31, 2022, we had 73 employees working at our business offices in Jupiter and Laval, or remotely, down from 161 employees at March 31, 2022. Our employees possess specialized skills and knowledge, which we believe are valuable assets of the predecessor entitiesCompany. As of PMGSL Holdings, LLC. Neptune is claiming,

52

among other things, breachDecember 31, 2022, 25 of contract and negligent misrepresentation by PMGSLour employees were in connection with the APA and is seeking, among other things, equitable restitution and any and all damages recoverable under law. PMGSL is claiming, among other things, breach of contract by Neptune and is seeking, among other things, payment of certain compensation contemplated by the APA. A merit hearingCanada while 48 were in the arbitration took place in April 2022United States. We also had 22 temporary personnel. None of our employees was represented by a union. We consider our relations with our employees to be good and August 1, 2022. While Neptune believes there is no merit toour operations have never been interrupted as the claims brought by PMGSL, a judgment in favor of PMGSL may have a material adverse effect on our business and Neptune intends to continue vigorously defending itself. Based on currently available information, a provision of $0.6 million has been recognized for this case as at March 31, 2022 ($ 0.6 million as at March 31, 2021).

(ii) On February 4, 2021, the United States House of Representatives Subcommittee on Economic and Consumer Policy, Committee on Oversight and Reform (the “Subcommittee”), published a report, “Baby Foods Are Tainted with Dangerous Levels of Arsenic, Lead, Cadmium, and Mercury” (the “Report”), which stated that, with respect to Sprout, “Independent testing of Sprout Organic Foods” has confirmed that their baby foods contain concerning levels of toxic heavy metals.” The Report further stated that after receiving reports alleging high levels of toxic metals in baby foods, the Subcommittee requested information from Sprout but did not receive a response.

On February 11, 2021, following the acquisitionresult of a 50.1% stake in Sprout by Neptune, the Subcommittee contacted Sprout, reiterating its requests for documents and information about toxic heavy metals in Sprout’s baby foods. Sprout provided an initial response to the Subcommittee on February 25, 2021 and is cooperating with the Subcommittee requests. Further, on February 24, 2021, the Office of the Attorney General of the State of New Mexico (“NMAG”) delivered to Sprout a civil investigative demand requesting similar documents and information with regards to the Report and the NMAG’s investigation into possible violations of the False Advertising Act of New Mexico. Sprout has responded to the requests of the NMAG.labor dispute.

Since February 2021, several putative consumer class action lawsuits have been brought against Sprout alleging that its products (the “Products”) contain unsafe and undisclosed levels of various naturally-occurring heavy metals, namely lead, arsenic, cadmium and mercury. Sprout has denied the allegations in these lawsuits and contends that its baby foods are safe and properly labeled. The claims raised in these lawsuits were brought in the wake of the highly publicized Report. All such putative class actions have since been dismissed.Seasonality

In addition to the consumer class actions discussed above, Sprout is currently named in one lawsuit filed on June 16, 2021 in California state court alleging some form of personal injury from the ingestion of Sprout’s Products, purportedly due to unsafegeneral economic factors, we are impacted by seasonal factors and undisclosed levels of various naturally occurring heavy metals. This lawsuit generally alleges injuries related to neurological development disorderstrends such as autism spectrum disordermajor cultural events and attention deficit hyperactivity disorder. Sprout denies that its Products contributed to any of these injuries and will defendother unpredictable matters. Although we believe the cases vigorously. In addition, the Office of the Attorney General for the District of Columbia (“OAG”) recently sent a letter to Sprout, similar to letters sent to other baby food manufacturers, alleging potential labeling and marketing misrepresentations and omissions regarding the health and safety of its baby food products, constituting an unlawful trade practice. Sprout has agreed to meet with the OAG and will vigorously defend against the allegations. No provision has been recorded in the financial statements for this matter. This matter may have a material adverse effectimpact or seasonality on our business, financial results or results of operations.

(iii) On March 16, 2021, a purported shareholder class action was filed in United States District Court for the Eastern District of New York against the Company and certain of its current and former officers alleging violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, with respect to the Company’s acquisition of SugarLeaf Labs, Inc. On October 21, 2022, the Company announced that it had agreed to settle and resolve the lawsuit for a gross payment to the class of between $4 and $4.25 million, with the exact amount being within the Company’s control and dependent on the type of consideration used. The settlement is subject to court approval and certification by the court of the class.

53

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All references in this management’s discussion and analysis of financial condition andconsolidated results of operations or MD&A,is minimal, our quarterly results may vary significantly in the future due to the “Company”, “Neptune”, “we”, “us”, or “our” refertiming of nutraceutical contract manufacturing orders as well promotions and ordering patterns of our other customers. We cannot provide assurance future revenues will follow historical patterns. The market price of our common shares may be adversely affected by these factors.

Business Update

Financial Positioning

We are taking the steps necessary to Neptune Wellness Solutions Inc., unless otherwise indicated orshore up cash reserves in the context requires otherwise. The following MD&A isimmediate term and position our balance sheet properly to fund our growth initiatives as we push towards profitability. To this end, we have explored multiple options to balance the need for providing near-term financial stability while ensuring we continue to build long-term shareholder value. As a result, we have entered into three agreements for the year ended March 31, 2022purchase and for the three months ended June 30, 2022 and should be read in conjunction with the audited consolidated financial statements for the year ended March 31, 2022 and 2021 and the unaudited condensed consolidated interim financial statements for the three months ended June 30, 2022 and 2021 included in this Registration Statement/prospectus (collectively, the “Financial Statements”), which have been prepared by management in accordance with GAAP as issued by the FASB. All dollar amounts refer to U.S. dollars, except as stated otherwise. Unless otherwise stated herein, all share and per share numbers relating to the Company’s Common Shares prior to the effectiveness of the Reverse Share Split have been adjusted to give effect to the Reverse Share Split.

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.

GOING CONCERN

The Company’s condensed consolidated interim financial statements have been prepared on a going concern basis, which presumes that the Company will continue realizing its assets and discharging its liabilities in the normal course of business for the foreseeable future. The Company has incurred significant operating losses and negative cash flows from operations since inception. To date, the Company has financed its operations through the public offering and private placement of Common Shares, units consistingsale of Common Shares and pre-funded warrants in October 2022, June 2022 and convertible debt,March 2022. Taking into account all considerations, we believe these actions are in the proceedsbest interest of the company and will benefit shareholders in the long-term. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations  –  Going Concern. Unless otherwise specified, all dollar amounts are in US dollars (“USD”).

Growth Drivers

We remain enthusiastic about the growth prospects of our business, with opportunity across all three of our core verticals. We have successfully made the transition to a fully-integrated consumer packaged goods company with a diverse suite of better-for-you brands, available in some of the country’s largest retail chains. At the same time, we are driving consumer relevance by pursuing the right strategic partnerships for co-branded product lines and expanding our product offerings in key wellness categories.

Major Distribution Gains

Since acquiring a majority stake in Sprout Organics in February 2021, we have expanded Sprout baby foods and toddler snacks substantially, both online and in store at major retailers like Target and Walmart. Earlier in March 2022, we announced the launch of our Forest Remedies Multi Omega 3-6-9 line of supplements into more than 340 Sprouts Farmers Market stores across the U.S. This distribution agreement marks another important milestone in our efforts to transform Neptune into a high-growth branded CPG company.

Strategic Partnerships

In February 2022, we brought Walmart a first-of-its-kind collaboration between Sprout Organics and popular kids’ entertainment platform CoComelon. This co-branded product line is now available on Walmart.com and in 900 Walmart stores, and has been very well-received. With this launch, Sprout Organics now sells into the top organic baby food retailers in the U.S., accounting for approximately 90 percent of the overall market.

Investing in Our Prospects

On November 15, 2021 we initiated a strategic review and made some big changes to get on track to becoming a profitable diversified CPG company. These actions have taken effect, and we are starting to see the results. The third quarter of fiscal year 2022 was the first

45

Table of Contents

quarter where we posted a positive gross margin since transitioning to a CPG-focused model. The third quarter of fiscal year 2022 was the first quarter where we posted a positive gross margin since transitioning to a CPG-focused model. The third quarter of fiscal year 2023, consolidated gross profit margin was 15.4% of net sales up from research grants and research tax credits, and11.3% for the exercises of warrants, rights and options.same period last year. For the three-monthnine-month period ended June 30, 2022, the Company incurred a net loss of $6.5 million and negative cash flows from operations of $7.2 million, and had an accumulated deficit of $327.5 million as at June 30, 2022. For the year ended MarchDecember 31, 2022 the Company incurred a net loss of $84.4 million and negative cash flowsgross profit margin was 0.2% up from operations of $54.3 million. Furthermore, as at June 30, 2022, the Company’s current liabilities and expected level of expenses(4.9)% for the next twelve months exceed cash on hand of $6.2 million. The Company currently has no committed sources of financing available.

Assame period of the date of this prospectus, the Company is required to actively manage its liquidity and expenses. The Company currently has minimal available cash balances. Payables are now in excess of available cash balances and payments of payables are not being made as the amounts become due for certain suppliers. The Company requires immediate funding in order to continue its operations. As of the date of this prospectus, the cash balance is expected toprior year. However, there can be sufficient to operate the business for only the next two to three months under the current business plan. The Company requires funding in the very near term in order to continue its operations. If the Company is unable to obtain funding in the upcoming days, it may have to liquidate its assets.

These conditions cast substantial doubt about the Corporation’s ability to continue as a going concern.

Going forward, the Companyno assurances that revenue growth will seek additional financing in various forms as part of its plan to have the right funding structure in place to support its growth trajectory and path to profitability. To achieve the objectives of its business plan, Neptune plans to raise the necessary funds through additional securities offerings and the establishment of strategic alliances as well as additional research grants and research tax credits. While the Company has limited debt, all of which is subordinated, assets available for financing include real estate, accounts receivable and inventories. The ability of the Company to complete the needed financing and ultimately achieve profitable operations is dependent on a number of factors outside of the Company’s control. The Company’s business plan is dependent upon, amongst other things, its ability to achieve and maintain profitability, and/or continue to obtain adequate ongoing debt and/or equity financing with creditors, officers, directors and stakeholders to finance operations within and beyond the next twelve months, and the Company has a right to terminate the agreement within 30 days under certain circumstances.continue.

54

While the Company has been successful in obtaining financing from public issuances, private placements, and related parties in the past, there is no certainty asglobal market can be unstable during turbulent times, we are taking steps to future financings.

The consolidated financial statements do not include any adjustmentsensure we remain well- positioned to the recoverability and classification of recorded asset amounts and classification of liabilitiesexecute against our stated plan: controlling our costs while pursuing high-growth opportunities. To that might be necessary should the going concern basis not be valid. These adjustments could be material.

SUBSEQUENT EVENTS

effect, Neptune announced on June 8, 2022 the intendedlaunch of a new CPG focused strategic plan to reduce costs, improve the Company’s path to profitability and enhance current shareholder value. This plan focuses on two primary actions: (1) the divestiture of the Canadian cannabis business which would includeand (2) a realignment of focus and operational resources toward increasing the salevalue of Neptune’s consumer products business. With the Mood Ring™divestiture of its cannabis business, Neptune is renewing its focus on the core brands – Sprout Organics and PanHash™ brands, alongBiodroga Solutions – that align closely with the Company’s Sherbrooke, Quebec facility, in one or more transactions. future consumer trends and show a greater potential for future growth and profitability.

On October 17,16, 2022, the Company announced that it hadNeptune entered into an asset sale and purchase agreement (the “ASPA”) with a binding agreementthird- party, for the sale of its Canadian cannabis business including the Sherbrooke building, for C$5.15 million to be paid tofacility, following the Company in cash.divestiture of this business announced on June 8, 2022. The Company expects to record a loss on remeasurementaggregate purchase price of the assets sold, net of liabilities assumed, amounted to fair value less costapproximately $3.8 million ($5.15 million CAD). The ASPA closed on November 9, 2022. Some assets were excluded from the ASPA and were written down accordingly. The completion of salethe divestiture of our cannabis business is a critical milestone in the approximate amount of $15 million in the second quarter interim financial statements for the three and six-months ended September 30, 2022. In addition, inexecuting upon our upcoming financial statements for the three and six-months ended September 30, 2022, it is possible we may incur additional impairment charges of intangibles and goodwill.

On June 22, 2022, Neptune announced that it entered into definitive agreements with several institutional investors for the purchase andstrategy to become a leading CPG company. The sale of an aggregate of 1,945,526 common shares (including common share equivalents) of the Company,cannabis assets will allow us to realize significant cost savings and accompanying two series of warrants to purchase up to an aggregate of 3,891,052 common shares per series of warrants, at an offering price of $2.57 per share and accompanying warrantsoperational streamlining from redirected resources towards our simplified corporate structure, as we focus on Sprout as the key growth driver for Neptune going forward.

Recent Corporate Developments

Neptune’s Presence in a registered direct offering priced at-the-market under Nasdaq rules. Each series of warrants have an exercise price of $2.32 per share and are immediately exercisable upon issuance. One series of warrants will expire two years following the date of issuance and one series of warrants will expire five years following the date of issuance. The gross proceeds from the offering are $5 million, prior to deducting placement agent’s fees and other offering expenses payable by Neptune and assuming none of the warrants issued in the offering are exercised for cash. Neptune intends to use the net proceeds from the offering for working capital and other general corporate purposes. The offering closed on June 23, 2022.Canada’s Cannabis Market

On October 11, 2022, the Company announced the closing of a registered direct offering of 3,208,557 of its Common Shares and the Warrants in the concurrent Private Placement. The Company received gross proceeds of approximately $6.0 million in connection with the offering, before deducting placement agent fees and related offering expenses. The net proceeds to the Company from the offering, after deducting the placement agent fees and expenses, and the Company’s offering expenses were approximately $5.15 million.

On October 21, 2022, the Company announced that it had agreed to settle and resolve a putative shareholder class action lawsuit filed against Neptune and certain of its current and former officers and directors, captioned Gong v. Neptune Wellness Solutions, Inc. (Case No. 2:21-cv-01386-ENV-ARL) pending in the United States District Court for the Eastern District of New York, for a gross payment to the class of between $4 and $4.25 million, with the exact amount being within the Company’s control and dependent on the type of consideration used. The settlement is subject to court approval and certification by the court of the class, and the Company has a right to terminate the agreement within 30 days under certain circumstances. The Company will record a litigation settlement expense for the full amount in the second quarter interim financial statements for the three and six-months ended September 30, 2022.

55

SELECTED CONSOLIDATED ANNUAL AND QUARTERLY INFORMATION

SELECTED CONSOLIDATED FINANCIAL INFORMATION (in thousands)

The following tables set out selected consolidated financial information and are prepared in accordance with US GAAP.

   Three-month periods
ended		   Twelve-month periods
ended		 
   March 31,
2022
$		   March 31,
2021
$		   March 31,
2022
$		   March 31,
2021
$		 

Total revenues

   11.532    4.669    48.797    35.400 

Adjusted EBITDA1

   (14.283)    (18.081)    (42.284)    (39.444) 

Net loss

   (36.237)    (43.540)    (84.425)    (124.264) 

Net loss attributable to equity holders of the Corporation

   (31.536)    (42.445)    (74.972)    (123.170) 

Net loss attributable to non-controlling interest

   (4.701)    (1.094)    (9.453)    (1.094) 

Basic and diluted loss per share

   (7.25)    (0.29)    (17.50)    (35.86) 

Basic and diluted loss per share attributable to equity holders of the Corporation

   (6.31)    (0.29)    (15.54)    (35.55) 

Basic and diluted loss per share attributable to non-controlling interest

   (0.94)    (0.01)    (1.96)    (0.32) 

   As at
March 31, 2022
$		   As at
March 31, 2021
$		   As at
March 31, 2020
$		 

Total assets

   104.955    186.948    120.060 

Working capital2

   7.071    54.718    15.346 

Non-current financial liabilities

   13.800    14.593    4.854 

Equity attributable to equity holders of the Corporation

   48.116    115.368    102.962 

Equity attributable to non-controlling interest

   12.722    22.178    —   

1

The Adjusted EBITDA is a non-GAAP measure. It is not a standard measure endorsed by US GAAP requirements. A reconciliation to the Company’s net loss is presented below.

2

Working capital is calculated by subtracting current liabilities from current assets. Because there is no standard method endorsed by US GAAP, the results may not be comparable to similar measurements presented by other public companies. Current assets as at March 31, 2022, 2021 and 2020 were $37.388, $89.528 and $27.589 respectively, and current liabilities as at March 31, 2022, 2021 and 2020 were $30.317, $34.809 and $12.243 respectively.

56

The following table sets out selected consolidated financial information.

   Three-month periods ended 
   June 30,
2022
$		   June 30,
2021
$		 

Total revenues

   16.272    10.079 

Adjusted EBITDA1

   (9.779)    (12.916) 

Net loss

   (6.504)    (18.856) 

Net loss attributable to equity holders of the Corporation

   (4.284)    (16.908) 

Net loss attributable to non-controlling interest

   (2.220)    (1.948) 

Basic and diluted loss per share

   (1.09)    (3.97) 

Basic and diluted loss per share attributable to equity holders of the Corporation

   (0.72)    (3.56) 

Basic and diluted loss per share attributable to non-controlling interest

   (0.37)    (0.41) 

   As at
June 30, 2022
$		   As at
March 31, 2022
$		   As at
March 31, 2021
$		 

Total assets

   97.756    104.955    186.948 

Working capital2

   20.981    7.071    54.718 

Non-current financial liabilities

   13.768    13.800    14.593 

Equity attributable to equity holders of the Corporation

   43.277    48.116    115.368 

Equity attributable to non-controlling interest

   10.502    12.722    22.178 

1

The Adjusted EBITDA is a non-GAAP measure. It is not a standard measure endorsed by US GAAP requirements. A reconciliation to the Company’s net loss is presented below.

2

Working capital is calculated by subtracting current liabilities from current assets. Because there is no standard method endorsed by US GAAP, the results may not be comparable to similar measurements presented by other public companies. Current assets as at June 30, 2022, March 31, 2022 and March 31, 2021 were $51.190, $37.388 and $89.528 respectively, and current liabilities as at June 30, 2022, March 31, 2022 and March 31, 2021 were $30.209, $30.317 and $34.809 respectively.

CONSOLIDATED FINANCIAL ANALYSIS

NON-GAAP FINANCIAL PERFORMANCE MEASURES

The Company uses one adjusted financial measure, Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) to assess its operating performance. This non-GAAP financial measure is presented in a consistent manner, unless otherwise disclosed. The Company uses this measure for the purposes of evaluating its historical and prospective financial performance, as well as its performance relative to competitors. The measure also helps the Company to plan and forecast for future periods as well as to make operational and strategic decisions. The Company believes that providing this information to investors, in addition to GAAP measures, allows them to see the Company’s results through the eyes of Management, and to better understand its historical and future financial performance. Neptune’s method for calculating Adjusted EBITDA may differ from that used by other corporations.

A reconciliation of net loss to Adjusted EBITDA is presented below.

57

ADJUSTED EBITDA

Although the concept of Adjusted EBITDA is not a financial or accounting measure defined under US GAAP and it may not be comparable to other issuers, it is widely used by companies. Neptune obtains its Adjusted EBITDA measurement by adding to net loss, net finance costs (income) and depreciation and amortization, and income tax expense (recovery). Other items such as stock-based compensation, non-employee compensation related to warrants, litigation provisions, business acquisition and integration costs, signing bonuses, severances and related costs, impairment losses on non-financial assets, write-downs of non-financial assets, costs related to a cybersecurity incident, revaluations of derivatives, system migration, conversion and implementation, CEO directors and officers insurance, costs related to conversion from IFRS to US GAAP and other changes in fair values are also added back. The exclusion of net finance costs (income) eliminates the impact on earnings derived from non-operational activities. The exclusion of depreciation and amortization, stock-based compensation, non-employee compensation related to warrants, litigation provisions, impairment losses, write-downs revaluations of derivatives and other changes in fair values eliminates the non-cash impact, and the exclusion of acquisition costs, integration costs, signing bonuses, severance and related costs, costs related to cybersecurity and costs related to conversion from IFRS to US GAAP present the results of the on-going business. From time to time, the Company may exclude additional items if it believes doing so would result in a more effective analysis of underlying operating performance. In Q4 2022, the Company added the costs related to the conversion from IFRS to US GAAP as an adjustment to the definition of Adjusted EBITDA. Adjusting for these items does not imply they are non-recurring. For purposes of this analysis, the Net finance costs (income) caption in the reconciliation below includes the impact of the revaluation of foreign exchange rates.

Adjusted EBITDA1 reconciliation, in millions of dollars

   Three-month periods ended   Twelve-month periods
ended		 
   March 31,
2022		   March 31,
2021		   March 31,
2022		   March 31,
2021		 

Net loss for the period

  $(36.237)   $(43.540)   $(84.425)   $(124.264) 

Add (deduct):

        

Depreciation and amortization

   1.656    2.425    6.791    8.830 

Acceleration of amortization of long-lived non-financial assets

   —      (0.156)    —      10.552 

Revaluation of derivatives

   1.247    (3.856)    (7.035)    (7.975) 

Net finance costs

   1.266    1.119    2.823    5.012 

Equity classified stock-based compensation

   1.565    2.505    7.817    9.885 

Non-employee compensation related to warrants

   —      0.244    0.179    1.904 

Litigation provisions

   (0.024)    0.859    0.627    1.290 

Business acquisition and integration costs

   (0.003)    0.300    1.027    0.300 

System migration, conversion, implementation

   (0.001)    —      0.327    —   

CEO D&O insurance

   (2.267)    —      4.697    —   

Signing bonuses, severances and related costs

   (0.003)    (0.007)    0.851    0.454 

Costs related to cybersecurity incident

   —      (0.022)    —      1.500 

Write-down of inventories and deposits

   0.776    13.290    3.772    18.962 

Impairment loss on long-lived assets

   17.177    8.814    19.581    37.753 

Costs related to conversion from IFRS to US GAAP

   0.577    —      0.577    —   

Change in revaluation of marketable securities

   —      (0.178)    0.107    (0.169) 

Income tax expense (recovery)

   (0.012)    0.122    —      (3.478) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA1

  $(14.283)   $(18.081)   $(42.284)   $(39.444) 
  

 

 

   

 

 

   

 

 

   

 

 

 

1

The Adjusted EBITDA is not a standard measure endorsed by US GAAP requirements.

58

Adjusted EBITDA1 reconciliation, in millions of dollars

   Three-month periods ended 
   June 30,
2022		   June 30,
2021		 

Net loss for the period

  $(6.504)   $(18.856) 

Add (deduct):

    

Depreciation and amortization

   1.039    1.344 

Revaluation of derivatives

   (9.524)    (1.933) 

Net finance costs

   1.635    1.638 

Equity classified stock-based compensation

   2.706    3.080 

Non-employee compensation related to warrants

   —       0.093 

Litigation provisions

   (0.263)    0.116 

Business acquisition and integration costs

   —       1.048 

CEO D&O insurance

   (3.154)    —    

Signing bonuses, severances and related costs

   0.390    —    

Write-down of inventories and deposits

   3.080    —    

Impairment loss on long-lived assets

   0.816    0.530 

Change in revaluation of marketable securities

   —       0.012 

Income tax expense (recovery)

   —       0.012 
  

 

 

   

 

 

 

Adjusted EBITDA1

  $(9.779)   $(12.916) 
  

 

 

   

 

 

 

1

The Adjusted EBITDA is not a standard measure endorsed by US GAAP requirements.

OPERATING SEGMENTS

The Company’s management structure and performance is measured based on a single segment, which is the consolidated level, as this is the level of information used in internal management reports that are reviewed by the Company’s Chief Operating Decision Maker.

Geographical information forDuring the year ended March 31, 2022

Revenue is attributed to geographical locations based on the origin of customers’ location.

   Three-month periods ended   Twelve-month periods ended 
   March 31,
2022		   March 31,
2021		   March 31,
2022		   March 31,
2021		 
   Total
Revenues		   Total
Revenues		   Total
Revenues		   Total
Revenues		 

Canada

  $3.527   $0.512   $12.447   $13.434 

United States

   7.686    3.982    35.330    20.856 

Other countries

   0.319    0.175    1.020    1.110 
  

 

 

   

 

 

   

 

 

   

 

 

 
   $11.532   $4.669   $48.797   $35.400 
  

 

 

   

 

 

   

 

 

   

 

 

 

59

The Company’s property plant and equipment, intangible assets and goodwill are attributed to geographical locations based on the location of the assets.

           As at
March 31, 2022		 
   Property, plant
and equipment		   Goodwill   Intangible assets 

Canada

  $20.725   $2.626   $2.353 

United States

   0.723    19.542    19.302 
  

 

 

   

 

 

   

 

 

 

Total

  $21.448   $22.168   $21.655 
  

 

 

   

 

 

   

 

 

 

           As at
March 31, 2021		 
   Property,
plant and
equipment		   Goodwill   Intangible assets 

Canada

  $35.645   $2.614   $3.793 

United States

   1.701    22.839    22.164 
  

 

 

   

 

 

   

 

 

 

Total

  $ 37.346   $ 25.453   $ 25.957 
  

 

 

   

 

 

   

 

 

 

Geographical information for the quarter ended June 30, 2022

Revenue is attributed to geographical locations based on the origin of customers’ location.

   Three-month periods ended 
   June 30,
2022		   June 30,
2021		 
   Total
Revenues		   Total
Revenues		 

Canada

  $5.056   $2.283 

United States

   10.932    7.560 

Other countries

   0.284    0.236 
  

 

 

   

 

 

 
  $16.272   $10.079 
  

 

 

   

 

 

 

The Company’s property plant and equipment, intangible assets and goodwill are attributed to geographical locations based on the location of the assets.

               As at
June 30, 2022		 
   Property,
plant and
equipment		   Goodwill   Intangible
assets		   Assets held
for sale		 

Canada

  $0.309   $2.551   $2.066   $21.834 

United States

   1.103    19.542    18.948    —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $1.412   $22.093   $21.014   $21.834 
  

 

 

   

 

 

   

 

 

   

 

 

 

               As at
March 31, 2022		 
   Property,
plant and
equipment		   Goodwill   Intangible
assets		   Assets held
for sale		 

Canada

  $20.725   $2.626   $2.353   $—   

United States

   0.723    19.542    19.302    —   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $21.448   $22.168   $21.655   $—   
  

 

 

   

 

 

   

 

 

   

 

 

 

60

RESULTS ANALYSIS FOR THE YEAR ENDED MARCH 31, 2022

Adoption of US GAAP—Comparative Period Amounts

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). Comparative figures, which were previously presented in accordance with International Financial Reporting Standards (”IFRS”) as issued by the International Accounting Standards Board, have been adjusted as required to be compliant with the Company’s accounting policies under US GAAP.

Revenues

Consolidated revenue summary, in millions of dollars:

   March 31,   Changes 
   2022   2021   Changes in $   Changes in % 

Three-month periods ended

   11.5    4.7    6.9    147% 

Twelve-month periods ended

   48.8    35.4    13.4    38% 

Total consolidated revenues for the three-month period ended March 31, 2022, amounted to $11.5 million representing an increaseNeptune supplied the market with premium cannabis extracts and dried flower, under its Mood Ring™ and PanHash™ brands, and completed its launch of $6.9 million or 147% compared to $4.7 million for the three-month period ended March 31, 2021.

For the twelve-month period ended March 31, 2022, consolidated revenues totaled $48.8 million representing an increase of $13.4 million or 38% compared to $35.4 million for the twelve-month period ended March 31, 2021.

When compared to the previous quarter, the consolidated revenues decreased by $3.1 million or 21%, which was mainly attributable to timing of shipping of nutraceuticals products (decrease of $1.3 million) as well as decrease ofall significant regulated product categories. All cannabis products sales ($1.5 million) due towere manufactured and packaged at the Company’s cash restrictions preventing prepayment to its suppliers.

Three-month period ended March 31, 2022 compared to March 31, 2021

Food and beverages revenues represented a $3.8 million increase in comparison to the three-month period ended March 31, 2021, resulting from the sales growth efforts as well as the Cocomelon partnership. Revenues for the cannabis market increased by $1.9 million as Neptune has expanded its product portfolio in its existing markets with new cannabis products in comparison to last year.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

For the twelve-month period ended March 31, 2022, the $13.4 million increase was mainly attributable to decreases of revenues from Health and Wellness products offset by an increase in the Food and Beverages revenues. Health and Wellness revenues decreased by $10.9 million due to a reduction in sales in hand sanitizers and other COVID-19 related products by the Company. This was offset by the addition of $23.2 million of Food and Beverages revenues, representing average quarterly sales for the first three quarters of fiscal 2022 of over $8 million, which were due to the acquisition of Sprout in the last quarter of fiscal 2021 that were not present in full in the comparative fiscal year.

Geographic Revenues

From a geographic point of view, revenues for the current quarter increased by $3.0 million or 589% in Canada, increased by $3.7 million or 93% in the United States and increased by $0.1 million or 82% for other countries (all royalty revenues) compared to the quarter ended March 31, 2021.

61

Revenues for the year decreased by $1.0 million or 7% in Canada, increased by $14.5 million or 69% in the United States and decreased by $0.1 million or 8% for other countries (all royalty revenues) compared to the twelve-month period ended March 31, 2021.

The increase of revenue in Canada for the quarter variance is mainly due to the repositioning of the Cannabis business from the B2B Cannabis market to the B2C Cannabis market, which is in a growth state. However, the Company announced its planned divestiture of Cannabis business in June 2022. The decrease in revenue in Canada for the year to date variance is mainly due to timing of shipment to customers for nutraceutical products. The increase in revenues for the twelve month period ended March 31, 2022 in the United States is due to an increase in sales in Sprout (acquired on February 10, 2021).

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

   March 31,   Changes 
   2022   2021   Changes in $   Changes in % 

Three-month periods ended

   (5.7)    (18.6)    12.9    69% 

Twelve-month periods ended

   (7.5)    (27.4)    19.8    72% 

The consolidated gross profit (loss) for the three-month period ended March 31, 2022 amounted to $(5.7) million compared to $(18.6) million for the three-month period ended March 31, 2021, an improvement of $12.9 million or 69%.

As for the twelve-month period ended March 31, 2022, the consolidated gross profit (loss) amounted to $(7.5) million compared to $(27.4) million for the twelve-month period ended March 31, 2021, an improvement of $19.8 million or 72%.

Three-month period ended March 31, 2022 compared to March 31, 2021

The change for the quarter is mainly attributable to reduction in sales and related cost of sales from the Health and Wellness products, increases in volumes of sales from cannabis products, and an increase in sales from food and beverages resulting from the acquisition of Sprout on February 10, 2021. For Health and Wellness products, there was a $15.0 million reduction in the gross loss of Health and Wellness products in the December 31, 2021 period, resulting from a reduction in sales in hand sanitizers and other COVID-19 related products by the Company as part of its strategic review plan. The gross margin for cannabis products declined by $1.9 million for the March 31, 2022 period which was driven by the repositioning of the business.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

As for the twelve-month period ended March 31, 2022, the improvement is mainly attributable to reduction in sales and related cost of sales from the Health and Wellness products and partially offset by inventory write-downs as well as government wage subsidies. For the March 31, 2022 period, the gross loss improved by $20.2 million for the Health and Wellness products resulting from the reduction in sales in hand sanitizers and other COVID-19 related products, a gross margin improvement of $25.6 million. The gross loss improvement was partially offset by an increased gross loss from cannabis sales of $3.6 million. During the last six months of fiscal 2021, the Company was also ceasing placing order in its SugarLeafpurpose-built facility in North Carolina for the B2B market in the USA, due to a continuous decline in pricing and demand. This resulted in a decrease of gross margin loss of $1.0 million for the period ended March 31, 2022 in comparison to 2021.

62

Gross Margin Percentage

For the three-month periods ended March 31, 2022 and 2021, the consolidated gross margin went from (398.8)% in 2021 to (49.4)% in 2022, an increase of 349.4%. As for the twelve-month periods ended March 31, 2022 and 2021, the consolidated gross margin went from (28.5)% in 2021 to (15.4%) in 2022, an increase of 61.9%.

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 March 31, 2022 compared to March 31, 2021

For the quarter ended March 31, 2022, the consolidated R&D expenses net of tax credits and grants amounted to $0.2 million, compared to $0.6 million for the quarter ended March 31, 2021, a decrease of $0.4 million or 61% mainly due to the recognition of the warrants issued to non-employees for co-development recognized over the services rendered.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

Consolidated R&D expenses net of tax credits and grants amounted to $0.9 million in the twelve-month period ended March 31, 2022 compared to $1.9 million for the same period the prior year, a decrease of $1 million or 54% mainly due to the recognition of the warrants issued to non-employees for co-development recognized over the services rendered.

Selling, General and Administrative (“SG&A”) Expenses

Three-month period ended March 31, 2022 compared to March 31, 2021

Consolidated SG&A expenses net of subsidies for the quarter ended March 31, 2022 amounted to $10.6 million compared to $18.3 million for the same period the prior year, a decrease of $7.7 million or 42% primarily due to the benefits of the strategic review and continued cost controls.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

Regarding the twelve-month period ended March 31, 2022 compared to the same period in 2021, consolidated SG&A expenses net of subsidies amounted to $60.5 million compared to $63.8 million, a decrease of $3.3 million or 5% primarily from cost reduction measures related to the previously announced strategic review partially offset by higher legal and other costs.

Finance costs

Three-month period ended March 31, 2022 compared to March 31, 2021

Net finance costs, foreign exchange and derivatives revaluations amounted to a loss of $2.5 million for the quarter ended March 31, 2022, compared to a gain of $2.9 million for the three-month period ended March 31, 2021, a change of $5.4 million or 186% for the quarter ended March 31, 2022. The variation for this period is mainly attributable to the revaluation of warrant liabilities as well as foreign exchange impact. The gain on revaluation of the warrants was primarily driven by the decrease in the Company’s stock price.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

As for the twelve-month period ended March 31, 2022, the net finance costs, foreign exchange and derivatives revaluations amounted to a gain of $4.1 million, compared to a gain of $3.1 million for the twelve-month period ended March 31, 2021, a change of $1 million or 31% for the twelve-month period ended March 31, 2022. The variation for this period is mainly attributable to an improvement in foreign currency losses partially offset by lower gains on the revaluation of warrants.

63

Income taxes

For the three-month periods ended March 31, 2022 and 2021, income tax expense (recovery) were nil. As the other entities are in carry forward loss positions, there is no impact to income taxes for the twelve-month period ended March 31, 2022.

Adjusted EBITDA

Three-month period ended March 31, 2022 compared to March 31, 2021

Consolidated Adjusted EBITDA loss decreased by $3.8 million or 21% for the quarter ended March 31, 2022 to an Adjusted EBITDA loss of $14.3 million compared to $18.1 million for the quarter ended March 31, 2021. The decrease in Adjusted EBITDA loss for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was driven by the quarter’s improved performance over the comparative quarter as explained in the net loss section.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

Consolidated Adjusted EBITDA loss increased by $2.8 million or 7% for the twelve-month period ended March 31, 2022 to an Adjusted EBITDA loss of $42.3 million compared to $39.4 million for the twelve-month period ended March 31, 2021. The increase in Adjusted EBITDA loss for the twelve-month period ended March 31, 2022 compared to the twelve-month period ended March 31, 2021 is explained by the Company’s execution of its strategic review plan of refocusing over its core products, including additional costs for settlements with suppliers, warehousing of legacy products as well as legacy litigations.

Net loss

Three-month period ended March 31, 2022 compared to March 31, 2021

For the quarter ended March 31, 2022, the net loss amounted to $36.2 million compared to $43.5 million for the quarter ended March 31, 2021, a decrease of $7.3 million or 17%. The Company’s execution of its strategic review plan by refocusing on its core businesses is primarily responsible for the lower loss.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

The net loss for the twelve-month period ended March 31, 2022 totaled $84.4 million compared to $124.3 million for the twelve-month period ended March 31, 2021, a decrease of $39.8 million or 32%. The Company’s execution of its strategic review plan of refocusing over its core products and businesses and lower impairments and asset write-downs have decreased the loss.

RESULTS ANALYSIS FOR THE QUARTER ENDED JUNE 30, 2022

Adoption of US GAAP—Comparative Period Amounts

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). Comparative figures, which were previously presented in accordance with International Financial Reporting Standards (”IFRS”) as issued by the International Accounting Standards Board, have been adjusted as required to be compliant with the Company’s accounting policies under US GAAP.

Revenues

Consolidated revenue summary, in millions of dollars:

   June 30,   Changes 
   2022   2021   Changes in $   Changes in % 

Three-month periods ended

   16.3    10.1    6.2    61% 

64

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.

When compared to the previous quarter, the consolidated revenues increased by $4.7 million or 41%, which was mainly attributable to timing of shipping of nutraceuticals products (increase of $2.5 million) as well as increase in food and beverages products sales ($1.9 million) partially derived from the CoComelon partnership as well as organic growth.

Food and beverages revenues represented a $2.5 million increase in comparison to the three-month period ended June 30, 2021, resulting from organic sales growth as well as derived from the CoComelon partnership. Nutraceutical products sales increased by $1.9 million due to timing of shipping as well as sales growth. Revenues for the cannabis market increased by $1.7 million as Neptune had expanded its product portfolio in its existing markets with new cannabis products in comparison to last year.Sherbrooke, Quebec. On June 8, 2022, the Company announced thea planned accelerated divestiture of the Canadian cannabis business and that the Company willwould focus on winding up its cannabis operations pending one or more sales transactions. Revenues from cannabis products will decrease in the future.

Geographic Revenues

From a geographic point of view, revenues for the current quarter increased by $2.8 million or 121% in Canada, increased by $3.4 million or 45% in the United StatesFollowing this announcement, all assets and increased by $0.048 million or 20% for other countries (all royalty revenues) comparedliabilities related to the quarter ended June 30, 2021.

The increase of revenue in Canada for the quarter variance is mainly due to theCanadian cannabis product sales. However, the Company announced its planned divestiture of Cannabis business in June 2022. The increase of revenue in the United States for the quarter variance is derived from timing of shipments and sales growth of nutraceutical products as well as food and beverages products.

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

   June 30,   Changes 
   2022   2021   Changes
in $		   Changes
in %		 

Three-month periods ended

   (2.9)    (2.3)    (0.6)    -25% 

The consolidated gross profit (loss) for the three-month period ended June 30, 2022 amounted to $(2.9) million compared to $(2.3) million for the three-month period ended June 30, 2021, a deterioration of $0.6 million or 25%.

The gross loss net increase was mainly attributable to two factors. Stronger product mixes from cannabis, nutraceuticals, and food and beverages products as well as continued cost controls measures improved gross margin for the quarter, which was offset by write-downs of inventories for cannabis products of $3.1 million, resulting in the net gross loss of $(2.9) million. The write-down of inventories during the quarter ended June 30, 2022 is related towere respectively shown under assets held for sale inventoriesand liabilities directly associated with assets held for sale on Neptune’s balance sheet. Further information on those assets and liabilities can be found in note 2(d) of the condensed consolidated interim financial statements for the nine-month period ended December 31, 2022. On October 16, 2022, Neptune entered into an asset sale and purchase agreement (the “ASPA”) with a third-party, for its Canadian cannabis business including the Sherbrooke facility, following the planned divestiture of this business announced on June 8, 2022. The aggregate purchase price of the assets sold, net of liabilities assumed, amounted to approximately $3.8 million ($5.15 million CAD). The ASPA closed on November 9, 2022. Some assets were excluded from the cannabis disposal groupASPA and were written-down accordingly, on October 17, 2022 we announced that are not expected to be realized.

65

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

For the quarter ended June 30, 2022, the consolidated R&D expenses net of tax credits and grants amounted to $0.2 million, compared to $0.3 millionwe had entered into a binding agreement for the quarter endedsale of our cannabis business and the sale closed on November 9, 2022.

Launch of a New CPG Focused Strategic Plan

On June 30,8, 2022, Neptune announced the launch of a new Consumer Packaged Goods (“CPG”) focused strategic plan to reduce costs, improve the Company’s path to profitability and enhance current shareholder value. This plan builds on the Company’s initial strategic review that took place in fall of 2021 a decrease of $0.045 million or 17% mainly due to the vesting in prior fiscal yearand focuses on two primary actions: (1)  divestiture  of  the warrants issued to non-employees.

Selling, GeneralCanadian cannabis business and Administrative (“SG&A”) Expenses

Consolidated SG&A expenses net(2)  a realignment of subsidies forfocus and operational resources toward increasing the quarter ended June 30, 2022 amounted to $10.6 million compared to $16.0 million forvalue of Neptune’s consumer products business. With the same period the prior year, a decrease of $5.5 million or 34%. The decrease is mainly explained by decreases in legal fees by approximately $1.5 million as well as decreases in integration costs of $1.0 million related to the acquisition of Sprout that occurred in the last quarter of fiscal 2021. Further decreases in SG&A expenses are due to the benefits of the strategic review and continued cost controls.

Finance costs

Net finance costs, foreign exchange and derivatives revaluations amounted to a gain of $10.0 million for the quarter ended June 30, 2022, compared to a gain of $0.3 million for the three-month period ended June 30, 2021, a change of $9.7 million for the quarter ended June 30, 2022. The variation for this period is mainly attributable to the revaluation of warrant liabilities as well as foreign exchange impact. The gain on revaluation of the warrants was primarily driven by the decrease in the Company’s stock price.

Income taxes

For the three-month periods ended June 30, 2022 and 2021, income tax expense (recovery) were nil. As the other entities are in carry forward loss positions, there is no impact to income taxes for the three-month period ended June 30, 2022.

Adjusted EBITDA

Consolidated Adjusted EBITDA loss decreased by $3.1 million or 24% for the quarter ended June 30, 2022 to an Adjusted EBITDA loss of $9.8 million compared to $12.9 million for the quarter ended June 30, 2021. The decrease in Adjusted EBITDA loss for the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 was driven by the quarter’s improved performance over the comparative quarter as explained in the net loss section.

Net loss

For the quarter ended June 30, 2022, the net loss amounted to $6.5 million compared to $18.9 million for the quarter ended June 30, 2021, a decrease of $12.4 million or 66%. Foreign exchange and derivatives revaluations contributed significantly to the improvement of the net loss. The Company’s continuous executiondivestiture of its strategic review plan by refocusingcannabis business, Neptune has renewed its focus on its core businesses is additionally responsiblebrands – Sprout Organics and Biodroga Solutions – that align closely with future consumer trends and show a greater potential for future growth and profitability.

Neptune Announces New Line of CoComelon® Co-Branded Products

Neptune announced on May 26, 2022 a new line up of CoComelon co-branded organic snack bars for toddlers. The snack bars are the lower loss.latest innovation in the Sprout Organics x CoComelon product line launched in 2022, which features a range of organic baby and toddler food pouches and toddler snacks. New snack bars will be available online and at select retailers nationwide. Sprout Organics CoComelon Snack Bars are available in two flavor combinations: Banana and Banana with Peas and Carrots. Each snack bar contains a blend of

6646

FINANCIAL AND CAPITAL MANAGEMENT FOR THE YEAR ENDED MARCH 31, 2022Table of Contents

unsweetened fruits, veggies and gluten-free oats and packs an impressive 4g of plant-based protein and 2g of dietary fiber to help fuel growing bodies.

USE OF PROCEEDS

The use of proceeds for the three and twelve-month periods ended March 31, 2022 and 2021, in millions of dollars, was as follows:

   Three-month periods
ended		   Twelve-month periods
ended		 
   March 31,
2022		   March 31,
2021		   March 31,
2022		   March 31,
2021		 

Sources:

        

Proceeds from the issuance of shares through an At-The-Market Offering

  $—     $—     $—     $13.737 

Proceeds from the issuance of shares through a Direct Offering

   8.000    —      8.000    12.834 

Proceeds from the issuance of shares and warrants through a Private Placement

   —      —      —      35.301 

Proceeds from the issuance of shares and warrants through a Direct Offering Priced At-The-Market and Concurrent Private Placement

   —      55.000    —      55.000 

Proceeds from exercise of options

   0.001    2.653    0.001    7.479 

Proceeds from sale of property, plant and equipment

   —      0.015    —   ��  0.015 

Proceeds from sale of Acasti shares1

   —      (0.236)    0.044    —   

Maturity of short-term investment1

   —      —      —      0.009 

Foreign exchange gain on cash and cash equivalents held in foreign currencies

   0.072    —      0.001    (0.001) 
  

 

 

   

 

 

   

 

 

   

 

 

 
   8.073   57.432   8.046   124.374 
  

 

 

   

 

 

   

 

 

   

 

 

 

Uses:

        

Acquisition of a subsidiary, net of cash acquired

   —      3.137    —      3.137 

Acquisition of property, plant and equipment

   0.904    1.937    1.939    6.618 

Acquisition of intangible assets

   (0.001)    0.156    0.433    0.390 

Repayment of loans and borrowings

   —      2.458    —      2.458 

Costs of issuance of shares

   0.637    2.705    0.637    6.174 

Withholding taxes paid pursuant to the settlement of non-treasury RSUs

   0.440    0.092    1.412    0.717 

Foreign exchange loss on cash and cash equivalents held in foreign currencies

   (0.001)    6.232    0.390    0.187 

Cash flows used in operating activities

   10.526    6.187    54.346    56.645 
  

 

 

   

 

 

   

 

 

   

 

 

 
   12.505   22.904   59.157   76.326 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (outflows)

  $(4.432)   $34.528   $(51.111)   $48.048 

Sources of Funds

For the three-month period ended March 31, 2022, gross proceeds from a direct offering totaling $8.0 million were raised, and the proceeds were used for operating activities resulting in cash outflows of $4.4 million. For the three-month period ended March 31, 2021, gross proceeds from a direct offering of $55.0 million were raised. In the same period, funds were used for the acquisition of a subsidiary, acquisition of equipment, loan repayments and operating activities. During the quarter, there were net cash proceeds of $34.7 million.

67

For the twelve-month period ended March 31, 2022, gross proceeds of $8.0 million were raised with $53.3 million of cash being used for operating activities and an additional $5.9 million for other purposes bringing net cash outflows in the year to $51.1 million. During the twelve month period ending March 31, 2021, proceeds from financings and other sources totaled $124.4 million with $55.9 million being used to fund operating expenses and an additional $20.4 million for other purposes. Net cash proceeds for the twelve months ended March 31, 2021 were $48.0 million.

At-The-Market Offering

During the three-month period ended June 30, 2020, the Company sold a total of 154,619 shares (5,411,649 pre-consolidation shares) through the At-The-Market offering (the “ATM Offering”) over the NASDAQ stock market, for gross proceeds of $19.0 million and net proceeds of $18.2 million. The shares were sold at the prevailing market prices which resulted in an average of approximately $88.55 per share (or $2.53 per pre-consolidation share). Effective February 16, 2021, the ATM Offering was terminated and Neptune will make no further sales under the ATM Offering. As of that date, Neptune had sold 273,450 of its common shares (9,570,735 pre-consolidation shares) under the ATM Offering, raising approximately $18.6 million in gross proceeds.

Direct Offerings

On March 14, 2022, Neptune issued a total of 528,572 (18,500,000 pre-consolidation) common shares of the Company (“Common Shares”), along with 185,715 (6,500,000 pre-consolidation) pre-funded warrants (“Pre-Funded Warrants”), as part of a registered direct offering (“Direct Offering”), with each Pre-Funded Warrant exercisable for one Common Share. The Common Shares and the Pre-Funded Warrants were sold together with 714,286 (25,000,000 pre-consolidation) Series A Warrants (the “Series A Warrants”) and 714,286 (25,000,000 pre-consolidation) Series B Warrants (the “Series B Warrants” and collectively with the Series A Warrants, the “Common Warrants”) to purchase up to an aggregate of 1,428,572 (50,000,000 pre-consolidation) Common Shares. Each Common Share and Pre-Funded Warrants and the accompanying Common Warrants were sold together at a combined offering price of $11.20 (or $0.32 pre-consolidation), for aggregate gross proceeds of $5.0 million before deducting fees and other estimated offering expenses. The Pre-Funded Warrants a funded in full at closing except for a nominal exercise price of $0.0035 (or $0.0001 pre-consolidation) and are exercisable commencing on the closing date, and will terminate when such Pre-Funded Warrants are exercised in full. The Series A Warrants have an exercise price of $11.20 per share and are exercisable six months after the closing date, and will expire five and one half years from the date of issuance. The Series B Warrants have an exercise price of $11.20 per share and are exercisable six months after the closing date, and expire 18 months from the date of issuance. The net proceeds of the transaction amounted to $3.6 million.

On July 13, 2020, Neptune entered into definitive agreements with certain healthcare-focused institutional investors for the sale of 136,389 common shares (4,733,584 pre-consolidation shares) at an offering price of $92.75 per share ($2.65 per pre-consolidation share) for gross proceeds of approximately $12.65 million before deducting fees and other estimated offering expenses, pursuant to a registered direct offering (the “Offering”). The Offering closed on July 15, 2020 with one of its existing institutional investors and two new U.S. institutional investors. The net proceeds of the direct offering were of $12.0 million.

Private Placement

On October 20, 2020, Neptune entered into definitive agreements with certain US healthcare focused institutional investors for a private placement of 462,963 (16,203,700 pre-consolidation) common shares and 300,926 (10,532,401 pre-consolidation) warrants to purchase 300,926 (10,532,401 pre-consolidation) common shares for gross proceeds of approximately $35 million before deducting fees and other estimated offering expenses (the “Private Placement”). Each warrant will entitle the holder thereof to acquire one common share at an exercise price of $78.75 (or $2.25 pre-consolidation) per share for a period beginning on April 22, 2021 through

68

October 22, 2025. The Company used the net proceeds from the Private Placement, which closed on October 22, 2020, for purchase order fulfilment, working capital and other general corporate purposes. The net proceeds of the Private Placement amounted to $32.9 million.

Registered Direct Offering Priced At-The-Market Under Nasdaq Rules and Concurrent Private Placement

On February 17, 2021, Neptune announced it had entered into definitive agreements with institutional investors for the purchase of 785,715 common shares (27,500,000 pre-consolidation shares). The Company also agreed to issue to the investors, in a concurrent private placement, unregistered common share purchase warrants (the “Warrants”) to purchase an aggregate of 196,429 common shares (6,875,000 pre-consolidation shares). Each common share and accompanying quarter of a Warrant were sold together at a combined offering price of $70.00 (or $2.00 pre-consolidation), pursuant to a registered direct offering, priced at-the-market under Nasdaq rules, for aggregate gross proceeds of approximately $55.0 million before deducting fees and other estimated offering expenses (the “Offering”). The Warrants will have an exercise price of $78.75 per share (or $2.25 per pre-consolidation share), will be exercisable commencing on the six-month anniversary of the date of issuance, and will expire 5.5 years from the date of issuance. Proceeds were allocated first to the warrants based on their fair value and then the residual to the common shares, resulting in an initial warrant liability of $6.3 million and $48.7 million recorded in the equity of the Corporation. Purchase warrants are recognized as liabilities, as the exercise price of the warrants is in USD, whereas the Corporation’s functional currency is the Canadian dollar. The net proceeds of the registered direct offering were of $52.9 million. The Offering closed on February 19, 2021, following the satisfaction of customary closing conditions and the receipt of regulatory approvals, including the approval of the Toronto Stock Exchange.

Offerings subsequent to the year end

On June 23, 2022, Neptune closed agreements with several institutional investors for the purchase and sale of an aggregate of 1,300,000 common shares of the Corporation, 645,526 pre-funded warrants and accompanying series of warrants to purchase up to an aggregate of 2,591,052 common shares warrants, at an offering price of $2.57 per share and accompanying warrants in a registered direct offering priced at-the-market under Nasdaq rules. Each series of warrants have an exercise price of $2.32 per share and are immediately exercisable upon issuance. One series of warrants will expire two years following the date of issuance and one series of warrants will expire five years following the date of issuance. The gross proceeds from the offering are $5 million, prior to deducting placement agent’s fees and other offering expenses payable by Neptune. The Prefunded warrants were fully exercised on June 24, 2022 for $64.55.

69

FINANCIAL AND CAPITAL MANAGEMENT FOR THE QUARTER ENDED JUNE 30, 2022

USE OF PROCEEDS

We estimate the net proceeds to us in this offering will be approximately $6.23 million, after deducting the Placement Agent fees and expenses and estimated offering expenses payable by us. This assumes a public offering price of $0.58 per Common Share and Warrant (the last reported sale price of our Common Shares on Nasdaq on May 5, 2023). However, because this is a best efforts offering and there is no minimum offering amount required as a condition to the closing of this offering, the actual offering amount, the Placement Agent’s fees and net proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth on the cover page of this prospectus. The table below depicts how we plan to utilize the proceeds in the event that 50% and 100% of the securities in this offering are sold, after deducting Placement Agent fees and expenses and estimated offering expenses payable by us.

​

​

​

Use of Proceeds

    

​

100%

    

​

50%(1)

​

Repayment of debt(2)

​

$

2,100,000

​

$

2,100,000

​

General corporate purposes

​

$

4,130,000

​

$

822,500

​

Total:

​

$

6,230,000

​

$

2,922,500

​

(1) If fewer than 50% of the securities in this offering are sold, the amount of debt repaid is expected to be subject to negotiations with the Company, the lenders and the investors in this offering.

(2) Represents a mandatory prepayment of $2.0 million, together with an exit fee of $100,000 (the “Mandatory Repayment”), payable pursuant to a senior secured notes financing for gross proceeds of $4.0 million with CCUR Holdings, Inc. and Symbolic Logic, Inc. that was entered into on January 12, 2023. The notes mature on January 12, 2024 and bear interest at a rate of 16.5% per annum. Proceeds from the notes were used for general corporate purposes. For purposes of this table, the full amount of this Mandatory Repayment has been specified, but we may seek a reduction of the amount required to be prepaid.

These estimates exclude the proceeds, if any, from the exercise of Common Warrants issued in this offering. If all of the Common Warrants issued in this offering were to be exercised in cash at an assumed exercise price of $0.58 per common share, we would receive additional proceeds of approximately $7.0 million. We cannot predict when or if these Common Warrants will be exercised. It is possible that these Common Warrants may expire and may never be exercised. Additionally, the Common Warrants contain a cashless exercise provision that permit exercise of Common Warrants on a cashless basis at any time where there is no effective registration statement under the Securities Act of 1933, as amended, covering the issuance of the underlying shares.

We plan to use the proceeds of the offering, after repayment of debt, for general corporate purposes, which may include (i) working capital, (ii) capital expenditures, (iii) operational purposes, including working capital to accelerate growth of our business and (iv) potential acquisitions in complementary businesses. While we do not currently have any agreement with respect to an acquisition, we intend to evaluate potential opportunities and could use proceeds of the offering to invest in one or more complementary businesses. The principal reasons for this offering are to increase our working capital, improve our ability to access the capital markets in the future, and to provide capital for general corporate purposes.

Pursuant to the Third Amended and Restated Stockholders’ Agreement entered into with the minority shareholders of Sprout, we have the option to purchase the minority shares of common stock (the “Call Option”) at any time until December 31, 2023, or March 31, 2024 if we provide notice of an extension. We have entered into an agreement with the representative of the minority stockholders of

35

Table of Contents

Sprout that provides that the purchase price for the remaining minority shares of common stock, if the Call Option is exercised prior to June 15, 2023, would be $13.0 million, consisting of at least $10.5 million in cash with the remainder payable in Common Shares. We may use certain proceeds of this offering towards the exercise the Option, subject to the receipt of additional funds, which may include funds borrowed from lenders.

Due to the uncertainties inherent in our business, we cannot estimate with certainty the exact amounts of the net proceeds from this offering that may be used for any purpose. As a result, our management will have broad discretion in applying the net proceeds from this offering.

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2022 as follows:

·

on an actual basis;

·

on a pro forma basis to give effect to the issuance of an aggregate of 217,995 common shares to investors in January and February 2023 and the incurrence of additional debt subsequent to December 31, 2022; and

·

on a pro forma as adjusted basis to reflect our receipt of the net proceeds our sale and issuance of 12,068,966 Common Shares (assuming no sale of any Pre-Funded Warrants and no exercise of the Common Warrants) in this offering based on the assumed public offering price of $0.58 per common share (the last reported sale price of our Common Shares on Nasdaq on May 5, 2023) after deducting estimated Placement Agent fees and expenses and estimated offering expenses payable by us.

The as adjusted information set forth below is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in, or incorporated by reference into, this prospectus.

​

​

​

​

​

​

​

​

​

As of December 31, 2022

​

​

​

​

​

​

​

Pro forma as

​

​

    

Actual

    

Pro forma(1)

    

Adjusted (2)

​

​

​

(In thousands, except share and per share data)

​

Liability related to warrants

​

$

1,444

​

$

1,780

​

​

8,780

​

Operating lease liabilities (including current portion)

​

$

2,720

​

$

2,720

​

​

2,720

​

Loans and borrowings (including current portion)

​

$

15,937

​

$

19,901

​

$

19,901

​

Other liability

​

$

23

​

$

(74)

​

​

(74)

​

Shareholders’ equity:

​

​

​

​

​

​

​

​

—

​

Share capital, without par value, 11,778,392 shares issued and outstanding as of December 31, 2022, actual; 11,996,387 shares issued and outstanding, proforma; shares issued and 24,065,353 outstanding, proforma as adjusted

​

​

321,792

​

​

322,006

​

​

322,006

​

Preferred shares, no par value; no shares outstanding, actual; no shares outstanding, proforma; and no shares outstanding proforma as adjusted

​

​

—

​

​

—

​

​

—

​

Warrants

​

$

6,118

​

$

6,118

​

​

6,118

​

Additional paid-in capital

​

$

57,303

​

$

57,303

​

​

57,303

​

Accumulated other comprehensive loss

​

$

(14,539)

​

$

(14,539)

​

​

(14,539)

​

Deficit

​

$

(357,075)

​

$

(357,192)

​

​

(357,965)

​

Total equity attributable to equity holders of the Company

​

$

13,599

​

$

13,695

​

​

12,922

​

Non-controlling interest

​

$

2,326

​

$

2,326

​

​

2,326

​

Total shareholders’ equity

​

$

15,924

​

$

16,021

​

​

15,248

​

Total capitalization

​

$

36,048

​

$

40,348

​

​

46,575

​

(1)  The Pro forma basis includes several assumptions related to the effect on capitalization of events occurring after December 31, 2022. The Pro forma basis gives effect to: (1) the issuance of an aggregate of 217,995 common shares to investors in January and February 2023; (2) the issuance on January 13, 2023 of senior secured notes financing for gross proceeds of $4,000,000 with CCUR Holdings, Inc. and Symbolic Logic, Inc. and warrants to purchase an aggregate of 850,000 of our Common Shares. The fair value

36

Table of Contents

of the warrants are estimated for purposes of this table and recorded as “liability related to warrants”; and (3) In March 2023, $300,000 of secured promissory notes and warrants to purchase an aggregate of 111,111 common share, which for purposes of this table has been presented fully within the “Loans and Borrowing”.

(2)  As the accounting treatment of the Warrants and the allocation between equity and liability components has not yet been determined, it is assumed for the purposes of the Pro forma as Adjusted capitalization that all of the proceeds have been allocated to the derivative warrant liabilities and therefore, all of the estimate placement agent fees and expenses and estimated offering expenses have been allocated to deficit. In addition, if the fair value of the derivative warrant liabilities exceeds the total proceeds of this offering, a loss would be recorded upon initial recognition of this offering, which loss is not reflected in the deficit in the above table.

A $0.25 increase or decrease in the assumed public offering price of $0.58 per share, as set forth on the cover page of this prospectus, would increase or decrease the expected net proceeds to us from this offering by approximately $2.9 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated Placement Agent fees and expenses and estimated offering expenses payable by us.

Similarly, a 100,000 share increase or decrease in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us by approximately $5,500, assuming the assumed public offering price of $0.58 per share remains the same, and after deducting estimated Placement Agent fees and expenses and estimated offering expenses payable by us.

The number of our Common Shares to be outstanding immediately after this offering is based on 11,778,392 Common Shares outstanding as of December 31, 2022 and excludes:

●680,786 Common Shares issuable upon the exercise of stock options outstanding as of December 31, 2022, at a weighted average exercise price of $70.10 per Common Share;
●11,236,554 Common Shares issuable upon the exercise of warrants outstanding as of December 31, 2022, at a weighted average exercise price of $11.50 per Common Share;
●4,308 deferred share units;
●2,789 restricted share units;
●217,995 Common Shares and 961,111 Common Shares issuable upon the exercise of warrants issued after December 31, 2022; and
●any additional Common Shares that are available for future issuance under our equity compensation plans.

​

​

DILUTION

If you purchase Common Shares and Warrants in this offering, you will experience dilution to the extent of the difference between the combined public offering price per Common Share and related Warrant in this offering and our net tangible book value (deficit)  per Common Share. Net tangible book value (deficit) per Common Share is equal to the amount of our total tangible assets, less total liabilities, divided by the number of outstanding Common Shares. As of December 31, 2022, our net tangible book value (deficit) was approximately $(15.8 million), or approximately $(1.34) per Common Share.

After giving effect to the assumed sale by us of Common Shares and Warrants in this offering at an assumed combined public offering price of $0.58 per Common Share and related Warrant (the last reported sale price of our Common Shares on Nasdaq on May 5, 2023), after deducting the estimated Placement Agent fees and expenses and estimated offering expenses payable by us, our as adjusted net tangible book value (deficit) as of December 31, 2022 would have been approximately $(16.6 million), or approximately $(0.70) per Common Share. The as adjusted net tangible book value has been computed assuming exercise in full of the Pre-Funded Warrants and no exercise of the Common Warrants. This represents an immediate increase in net tangible book value (deficit) of $0.64 per Common Share to existing shareholders and an immediate dilution of $1.28 per share to new investors purchasing Common Shares and related

37

Table of Contents

Warrants in this offering, attributing none of the assumed combined public offering price to the Common Warrants offered hereby. The following table illustrates this per Common Share dilution:

​

​

​

​

​

​

​

​

    

Per Common

    

​

​

​

​

Share and

​

​

​

​

​

Warrant

​

Total

Assumed combined public offering price per Common Share and related Common Warrant

 

$

0.58

​

$

​

Net tangible book value (deficit) per Common Share as of December 31, 2022

​

$

(1.34)

​

 

​

Increase in net tangible book value per Common Share after this offering

​

$

0.64

​

 

​

As adjusted net tangible book value (deficit) per Common Share after this offering

​

$

0.70

​

 

​

Dilution per Common Share to new investors

​

$

1.28

​

$

(15,815,705)

​

A $0.25 increase (decrease) in the assumed combined public offering price of $0.58 per Common Share and Common Warrant would result in an increase (decrease) in our as adjusted net tangible book value (deficit) of approximately $0.8 million or approximately $0.64 per Common Share, and would result in an increase (decrease) in the dilution to new investors of approximately $1.28 per Common Share, assuming that the number of Common Shares and Common Warrants sold by us remains the same, after deducting the estimated Placement Agent fees and expenses and estimated offering expenses payable by us.

Similarly, a decrease of 100,000 in the number of Common Shares offered by us would decrease our as adjusted net tangible book value by approximately $0.8 million or $0.64 per share, and increase the dilution per share to investors participating in this offering by $1.28 per share, assuming the assumed offering price per share remains the same and after deducting the estimated Placement Agent commissions and estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the actual offering price, the actual number of Common Shares we offer in this offering, and other terms of this offering determined at pricing.

The foregoing discussion and table do not take into account further dilution to new investors that could occur upon the exercise of outstanding options or warrants having a per share exercise price less than the per Common Share and related Common Warrant offering price to the public in this offering. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our shareholders.

The number of our Common Shares to be outstanding immediately after this offering is based on 11,778,392 Common Shares outstanding as of December 31, 2022 and excludes:

●680,786 Common Shares issuable upon the exercise of stock options outstanding as of December 31, 2022, at a weighted average exercise price of $70.10 per Common Share;
●11,236,554 Common Shares issuable upon the exercise of warrants outstanding as of December 31, 2022, at a weighted average exercise price of $11.50 per Common Share;
●4,308 deferred share units;
●2,789 restricted share units;
●217,995 Common Shares and 961,111 Common Shares issuable upon the exercise of warrants issued after December 31, 2022; and
●any additional Common Shares that are available for future issuance under our equity compensation plans.

38

Table of Contents

MARKET INFORMATION FOR SECURITIES AND DIVIDEND POLICY

Our Common Shares trade under the symbol “NEPT” on Nasdaq.

The following table sets forth the high and low intraday sales prices per Common Share as reported on Nasdaq beginning on April 1, 2020 and taking into account the Share Consolidation that took effect on June 13, 2022:

​

​

​

​

​

​

​

​

​

​

​

​

    

Low Trading Price

    

High Trading Price

Period

     

​

​

($)

​

($)

Year Ending March 31, 2023

 

  

 

​

  

 

​

  

Fourth Quarter

 

(March 31, 2023)

​

$

0.29

​

$

1.04

Third Quarter

 

(December 31, 2022)

​

$

0.23

​

$

1.92

Second Quarter

 

(September 30, 2022)

​

$

1.00

​

$

3.74

First Quarter

 

(June 30, 2022)

​

$

1.34

​

$

1.41

Year Ended March 31, 2022

 

  

​

 

  

​

 

  

Fourth Quarter

 

(March 31, 2022)

​

$

7.35

​

$

19.60

Third Quarter

 

(December 31, 2021)

​

$

12.25

​

$

22.40

Second Quarter

 

(September 30, 2021)

​

$

19.25

​

$

41.30

First Quarter

 

(June 30, 2021)

​

$

37.10

​

$

55.30

Year Ended March 31, 2021

 

  

​

 

  

​

 

  

Fourth Quarter

 

(March 31, 2021)

​

$

45.15

​

$

110.25

Third Quarter

 

(December 31, 2020)

​

$

52.15

​

$

86.80

Second Quarter

 

(September 30, 2020)

​

$

73.85

​

$

113.05

First Quarter

 

(June 30, 2020)

​

$

35.70

​

$

110.25

​

As of May 8, 2023, we had 42 shareholders of record based on the records of our transfer agent, which does not include beneficial owners of our Common Shares whose shares are held in the names of various securities brokers, dealers and registered clearing agencies.

Dividends

We do not anticipate paying any dividend on our Common Shares in the foreseeable future. We presently intend to retain future earnings to finance the expansion and growth of our business. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements and other factors the Board of Directors deems relevant. In addition, the terms of any future debt or credit facility may preclude us from paying dividends.

Securities Authorized for Issuance under Equity Compensation Plans

Information about our equity compensation plans, as set forth in this prospectus under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters”, is incorporated herein by reference.

Unregistered Sales of Equity Securities

Except as set forth below, since May 8, 2020, we have not sold any securities that were not registered under the Securities Act.

​

(1)In March 2023, we issued warrants to purchase common shares of the Company to one accredited investor which permits the investor to purchase an aggregate of 111,111 of our common shares at an exercise price of $0.54.
(2)In February 2023, we issued to three accredited investors an aggregate of 146,330 of our common shares in connection with loans to Sprout Foods, Inc.

(3)

In January 2023, we issued (i) 71,665 common shares to our financial advisor in connection with our strategic review and (ii) to two accredited investors the January 2023 Warrants, which permits the investors to purchase an aggregate of 850,000 of our common shares at an exercise price of $0.53 per common share.

(4)

In October 2022, we issued to accredited investors the Series E Warrants in the Private Placement, which permits the investors to purchase an aggregate of 6,417,114 of our common shares at an exercise price of $1.62 per common share.

(5)

In July and September 2022, we issued to two accredited investors an aggregate of 409,435 common shares in connection with loans to Sprout Foods, Inc.

39

Table of Contents

(6)

In June 2022 we issued 7,104 common shares to our financial advisor in connection with our proposed divestiture of our Canadian cannabis business.

(7)

In October 2020, we issued 462,963 common shares and 300,926 warrants to purchase common shares at an offering of $75.60 per share to institutional investors.

​

Repurchases of Equity Securities

We did not repurchase any of our equity securities during the years ended March 31, 2022 and 2021 or the interim period ended December 31, 2022.

BUSINESS

Overview

General

Neptune Wellness Solutions Inc. (“Neptune”, the “Company”, “we”, “us” or “our”) is a modern consumer packaged goods (“CPG”) company driven by a singular purpose: to transform the everyday for a healthier tomorrow. Neptune is a diversified and fully integrated health and wellness company with multiple brand units. With a mission to redefine health and wellness, Neptune is focused on building a broad portfolio of high quality, affordable consumer products in response to long-term secular trends and market demand for natural, plant-based, sustainable and purpose-driven lifestyle brands. The Company utilizes a highly flexible, cost-efficient manufacturing and supply chain infrastructure that can be scaled up and down or into adjacent product categories to identify new innovation opportunities, quickly adapt to consumer preferences and demand, and bring new products to market through its mass retail partners and e-commerce channels. Leveraging decades of expertise in extraction and product formulation, Neptune is a provider of turnkey product development and supply chain solutions to business customers across several health and wellness verticals, including nutraceuticals and white label consumer packaged goods. Neptune has expanded its operations since June 2020 into several brand units in order to better address its markets. The main brand units are the following: Nutraceuticals, Beauty & Personal Care, and Organic Foods & Beverages. All amounts in this prospectus are in US dollars, unless otherwise noted.

History

Neptune was incorporated under Part IA of the Companies Act (Québec) on October 9, 1998 under the name Neptune Technologies & Bioresources Inc. Since its incorporation, Neptune has amended its articles of incorporation on numerous occasions. The Company first amended its articles on May 30, 2000 to convert its then issued and outstanding shares into newly-created classes of shares. The Company’s articles were also amended on May 31, 2000 to create Series A Preferred Shares. On August 29, 2000, the Company converted all its issued and outstanding Class A shares into Class B subordinate shares. On September 25, 2000, the Company further amended its share capital to eliminate its Class A shares and converted its Class B subordinate shares into Common Shares. On November 1, 2013, the Company amended its articles of incorporation to reflect certain changes to items relating to board matters. The Company’s Common Shares are listed and posted for trading on the Nasdaq under the symbol, “NEPT”.

On June 9, 2022, we effected a one for thirty-five (1-for-35) reverse split of our common shares, which we refer to as the “Share Consolidation,” as approved by our Board of Directors. Trading of our common shares on both the TSX and Nasdaq on a post-consolidated basis commenced as of the open of markets on June 13, 2022. On August 15, 2022, the Company voluntarily delisted its Common Shares from the TSX.

Our Properties and Operations

The following table sets forth the Company’s principal physical properties:

Type

Material Properties Location

Leased / Owned

Office

​

Laval, Québec

​

Leased

Office

​

Vaudreuil, Québec

​

Leased

Office / Laboratory

​

Laval, Québec

​

Leased

Office

​

Jupiter, Florida

​

Leased

​

40

Table of Contents

Our headquarters is located in leased offices in Laval, Québec, where our general and administrative departments primarily operate. We also lease laboratory space in Laval, Quebec where testing and development of many of our products takes place. On December 5, 2022, our U.S. operations opened an office in Jupiter, Florida which serves as the U.S. headquarters.

We previously owned a production facility in Sherbrooke, Quebec where we conducted our cannabis operations including laboratory testing. On October 17, 2022, we announced that we had entered into a binding agreement for the sale of our cannabis business, which would include the sale of our cannabis brands and the Sherbrooke building in one or more transactions. The disposition of our cannabis operations occurred on November 9, 2022. We believe the divestment of the cannabis assets will allow us to realize significant cost savings and operational streamlining from redirected resources towards our simplified corporate structure.

We also have leased offices in Vaudreuil, Province of Québec, Canada, which have been sub-leased to a third-party tenant.

Business Strategy

Neptune’s vision is to change consumer habits through the creation and distribution of environmentally friendly, ethical and innovative consumer product goods. Our mission is to redefine health and wellness and help humanity thrive by providing sustainable consumer focused solutions. Despite the decline in global economic activity since the outbreak of the COVID-19 virus, Neptune has taken transformative, and successful, actions to increase its sales, distribution and reach in both the B2B and B2C model in the CPG market. Neptune has a dual go-to market B2B and B2C strategy focused on expanding its global distribution reach. The strategy sets Neptune apart from its competition and has started to yield consistent, long-term revenue opportunities for the Company.

The Company’s long-term strategy is focused on the health and wellness sector with an emphasis on select CPG verticals, including Nutraceuticals, Beauty & Personal Care, and Organic Foods & Beverages. Neptune’s current brand portfolio across these verticals include Sprout®, Neptune Wellness™, Forest Remedies®, and MaxSimil®.

On May 28, 2021, Neptune announced a multi-year licensing agreement between Sprout and CoComelon, the world’s leading children’s entertainment brand, owned and operated by Moonbug Entertainment. In addition, on July 27, 2021, an initial launch was announced for Sprout products into Canada, in Metro grocery stores in the province of Ontario. In September 2022, Sprout launched its up-age meal products.

Neptune’s future will be focused on brand creation, accelerating organic growth with emphasis on increased efficiency and margin expansion. This will be complemented by accretive acquisitions with a proven track record of operational excellence. On July 22, 2021, the Company launched Forest Remedies’ plant-based Omega 3-6-9 gummies and soft gels. Neptune is focused on expanding its exclusive Omega-3 delivery technology MaxSimil® while improving growth and profitability in its Nutraceuticals vertical. The MaxSimil® product lineup will be expanded with the launch of two new consumer products: MaxSimil® with CoQ10 and MaxSimil® with Curcumin. Additionally, the Company launched a new consumer line of Vitamin Sprays and Pumps for both children and adults with selected retail partners. To support anticipated accelerated growth, the Nutraceuticals U.S. sales force has been expanded to maximize awareness and distribution of the capabilities and expertise in nutraceuticals, including prebiotics and probiotics, and proteins within this important vertical.

Products, Principal Markets, Methods of Distribution and Brands

Products

Our Nutraceutical, Beauty and Personal care products and Organic Foods and Beverages are manufactured by third party manufacturers. In order to meet demand for our products, we have developed relationships with selected contract manufacturers. For Biodroga we mainly buy all the raw materials we supply to our third-party manufacturers Our largest co-manufacturers for Biodroga makes approximately 35% of our annual production requirements. For Sprout, 90% of raw materials are purchased by the third-party manufacturers based on our specifications. The largest Sprout co-manufacturer makes about 40% of our annual requirements. We believe that we are not dependent on any single contract manufacturer and that, if necessary, our current selected contract manufacturers could be replaced with minimal disruption to our operations.

Our quality control staff requires full disclosure on the part of our suppliers and we periodically conduct on-site audits of their facilities. For strategic reasons, certain of our key raw materials are sourced from single suppliers. However, in the event that we were unable to source an ingredient from a current supplier, we believe that we could generally obtain the same ingredient or an equivalent from an alternative supplier, with minimal disruption to our operations.

41

Table of Contents

Markets

Nutraceuticals

Neptune offers a variety of specialty ingredients, including our licensed specialty ingredient MaxSimil®, a technology that helps increase digestion and absorption of fat-soluble and nutritional ingredients. Additionally, the Company sources a variety of other marine oils, seed oils and specialty ingredients that are available for sale as raw material or transformed into finished products. The Company has recently launched a new line of Vitamin Sprays and Pumps for both children and adults. Neptune is focused on expanding its exclusive Omega-3 delivery technology MaxSimil® while improving growth and profitability in its Nutraceuticals vertical through its brand Biodroga.

Neptune’s core strength is product innovation with a focus on specialty ingredients offered in bulk soft gels and liquid delivery systems. The Company continues to expand its delivery system capabilities with projects for pumps, sprays and roll-ons. All of Neptune’s Nutraceutical products are available under distributors’ private labels, primarily sold in the Canadian and U.S. nutraceutical markets. Neptune, through its nutraceuticals products business, also formulates, develops and provides customers with turnkey nutrition solutions.

The Company sells wellness products to the Beauty & Personal Care market through its Forest Remedies brand. Forest Remedies offers plant-based supplements, including first-of-its kind multi-omega gummies and soft gels with packaging that is 100% plastic-free. Neptune announced, on March 10, 2022, the launch of its Forest Remedies Multi Omega 3-6-9 line of supplements into more than 340 Sprouts Farmers Market stores across the U.S. This distribution agreement marks another important milestone in our efforts to transform Neptune into a high-growth branded CPG company.

Organic Foods and Beverages

In February 2021, Neptune acquired a controlling interest in Sprout Foods, Inc., an organic plant-based baby food and toddler snack company. Sprout is an integral piece of Neptune’s health and wellness portfolio and represents a key brand within the Organic Foods and Beverages vertical. Since completing the Sprout acquisition, the Company has begun expansion efforts in Sprout’s distribution across substantially all of Target’s U.S. retail stores. The Company also announced, on July 27, 2021, the initial launch of Sprout products into Canada, in Metro grocery stores in the province of Ontario. Neptune further expects to launch Sprout products in North America throughout the remainder of the fiscal year. The Company expects the Neptune/Sprout combination to result in significant incremental revenue growth, with several near and long-term revenue synergy opportunities identified within Neptune’s existing relationships and current sales channels. As described above, Neptune also announced on June 9, 2021, an exclusive multi-year licensing agreement between Sprout and CoComelon, the #1 children’s entertainment and educational show in the world with more than 110 million subscribers worldwide. This co-branded product line is now available on Walmart.com and in 900 Walmart stores and has been very well-received. With this launch, Sprout Organics now sells into the top organic baby food retailers in the U.S., accounting for approximately 90 percent of the overall market.

Sales and Distribution

Nutraceutical Products

The Company sells its nutraceutical products mainly in bulk softgels or liquids to multiple distributors and customers, who commercialize these products under their private label. While the Company may have orders in place with approximately 100 different distributors and customers at any one time, the majority of the Company’s sales are concentrated with a small group of distributors and customers. Agreements with these distribution partners may be terminated or altered by them unilaterally in certain circumstances.

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

The Company, though its Sprout subsidiary, sells its products to mass retailers, grocery stores and other retail outlets, as well as online through e-commerce sites and its own website sproutorganics.com.

42

Table of Contents

Our B2C Brand Portfolio Strategy

We are currently working on accelerating brand equity for our brand portfolio:

Graphic

Biodroga™. Neptune, through its Biodroga subsidiary, provides product development and turnkey solutions (4PL) to its customers throughout North America. Biodroga offers a full range of services, whether it is leveraging our global network of suppliers to find the best ingredients or developing unique formulations that set our customers apart from their competition. Biodroga’s core products are MaxSimil, various Omega-3 fish oils and other nutritional products, as well as softgel solutions.

​

​

Graphic

MaxSimil. Neptune has an exclusive license to use the patented nutritional ingredient, MaxSimil, an omega-3 fatty acid delivery technology that uses enzymes that mimic the natural human digestive system to predigest omega-3 fatty acids. The Journal of Nutrition, by the Oxford University Press, recently released the results of a clinical study that evidences MaxSimil’s superior absorption as compared with standard fish oil supplements. MaxSimil was first introduced to the market in 2018, and is sold as a straight omega-3 supplement with standard and unique concentration of EPA/DHA. MaxSimil is also starting to be presented in combination with specialty ingredients such as Curcumin and Vitamin K2.

​

​

Graphic

Forest Remedies®. Under our Forest Remedies® brand, we offer first-of-their kind vegan multi-omega gummies and soft gels with packaging that is 100% plastic-free. Launched on March 10, 2022, our Forest Remedies Multi Omega 3-6-9 line of supplements is available into more than 340 Sprouts Farmers Market stores across the U.S. This distribution agreement marks another important milestone in our efforts to transform Neptune into a high-growth branded CPG company.

​

​

Graphic

Sprout®. Neptune entered a new market with the Neptune/Sprout combination. Sprout has created a trusted organic baby food brand with a comprehensive range of products that are always USDA certified organic, non-GMO and contain nothing artificial. Sprout’s products target four segments: Stage 2 (children 6 months and up), Stage 3 (children 8 months and up), Toddler (children aged 12 months and up) and Snacks (children 8 months and up). Since our acquisition of a controlling interest in Sprout, the Company has begun expansion efforts in Sprouts’ distribution substantially in all of Target’s U.S. retail stores. The Company also announced on July 27, 2021, its initial launch into the Canadian market through its partnership with food retailer Metro Inc. Certain toddler snacks under this brand label are now available in Metro grocery stores in the province of Ontario.

​

Competition

The nutraceutical, beauty & personal care and organic foods and beverages industries are highly competitive. There are many companies, public and private universities, and research organizations actively engaged in the research and development of products that may be similar to our products. It is probable that the number of companies seeking to develop products similar to our products will increase. Many of these and other existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market products.

We seek to differentiate our products and marketing from our competitors based on product quality, customer service, marketing support, pricing and innovation, and believe that our strategy enables us to effectively compete in the marketplace. For additional information regarding the competitive nature of our businesses, see “Risks Related to Our Business” under the heading “Risk Factors” of this prospectus.

Regulatory

Our Nutraceutical, Beauty, Personal Care and Organic Food and Beverage businesses are subject to varying degrees of regulation by a number of government authorities in Canada and the U.S., including Health Canada, the FDA, the Federal Trade Commission (FTC), the Consumer Product Safety Commission, the U.S. Department of Agriculture, and the Environmental Protection Agency. Various

43

Table of Contents

provincial, state and local agencies in areas where we operate and in which our products are sold also regulate our business. The areas of our business regulated by both these and other authorities include, among others:

·

product claims and advertising;

·

product labels;

·

product ingredients;

·

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 the FDA, in particular, regulate the formulation, manufacturing, packaging, storage, labeling, promotion, distribution and sale of vitamins and other nutritional supplements in Canada and the U.S., while other agencies regulate marketing and advertising claims. Under Health Canada and FDA rules, companies that manufacture, package, label, distribute or hold nutritional supplements are required to meet certain GMP’s to ensure such products are of the quality specified and are properly packaged and labeled. We are committed to meeting or exceeding the standards set by Health Canada and the FDA and believe we are currently operating within the mandated GMP.

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.

​

We are also subject to a variety of other regulations in Canada and the U.S., including those relating to health, safety, bioterrorism, taxes, labor, employment, import and export, the environment and intellectual property. All of these regulations require significant financial and operational resources to ensure compliance, and we cannot assure you we will always be in compliance despite our best efforts to do so or that complying will not become prohibitively costly to our business.

Intellectual Property

We constantly evaluate the importance of obtaining intellectual property protection for our technology brands, products, applications and processes and maintaining trade secrets. When applicable to our business and products, we seek to obtain, license and enforce patents, protect our proprietary information and maintain trade secret protection without infringing the proprietary rights of third parties. We also make use of trade secrets, proprietary unpatented information and trademarks to protect our technology and enhance our competitive position.

Brand Names and Trademarks

Sprout®, NurturMe®, Nosh!®, Neptune Wellness™, MaxSimil®, Forest Remedies®, and Ocean Remedies® are trademarks of the Company.

Licenses

On January 31, 2020, Neptune entered into an exclusive, worldwide, and royalty-bearing licensing agreement with SCF Pharma Inc. for the development, manufacturing, formulation, distribution, sub-licensing and sale of the MaxSimil® technology in nutraceutical products.

On May 28, 2021, Sprout Foods entered into a multi-year licensing agreement with Moonbug, providing Sprout with an exclusive license to utilize certain properties relating to CoComelon®, the world’s leading children’s entertainment brand, owned and operated by Moonbug, with Sprout products. The licensing agreement, which expires December 31, 2023, will automatically extend until December 31, 2026 provided there has not been a material breach of the agreement, the Company does not provide notice of an intent to not extend

44

Table of Contents

by October 1, 2023, and the Company has accrued royalties of $195,000 or more under the agreement before October 1, 2023.  The Company expects to meet the minimum royalty threshold later this year, on time.

Employees

As of December 31, 2022, we had 73 employees working at our business offices in Jupiter and Laval, or remotely, down from 161 employees at March 31, 2022. Our employees possess specialized skills and knowledge, which we believe are valuable assets of the Company. As of December 31, 2022, 25 of our employees were in Canada while 48 were in the United States. We also had 22 temporary personnel. None of our employees was represented by a union. We consider our relations with our employees to be good and our operations have never been interrupted as the result of a labor dispute.

Seasonality

In addition to general economic factors, we are impacted by seasonal factors and trends such as major cultural events and other unpredictable matters. Although we believe the impact or seasonality on our consolidated results of operations is minimal, our quarterly results may vary significantly in the future due to the timing of nutraceutical contract manufacturing orders as well promotions and ordering patterns of our other customers. We cannot provide assurance future revenues will follow historical patterns. The market price of our common shares may be adversely affected by these factors.

Business Update

Financial Positioning

We are taking the steps necessary to shore up cash reserves in the immediate term and position our balance sheet properly to fund our growth initiatives as we push towards profitability. To this end, we have explored multiple options to balance the need for providing near-term financial stability while ensuring we continue to build long-term shareholder value. As a result, we have entered into three agreements for the purchase and sale of Common Shares and pre-funded warrants in October 2022, June 2022 and March 2022. Taking into account all considerations, we believe these actions are in the best interest of the company and will benefit shareholders in the long-term. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations  –  Going Concern. Unless otherwise specified, all dollar amounts are in US dollars (“USD”).

Growth Drivers

We remain enthusiastic about the growth prospects of our business, with opportunity across all three of our core verticals. We have successfully made the transition to a fully-integrated consumer packaged goods company with a diverse suite of better-for-you brands, available in some of the country’s largest retail chains. At the same time, we are driving consumer relevance by pursuing the right strategic partnerships for co-branded product lines and expanding our product offerings in key wellness categories.

Major Distribution Gains

Since acquiring a majority stake in Sprout Organics in February 2021, we have expanded Sprout baby foods and toddler snacks substantially, both online and in store at major retailers like Target and Walmart. Earlier in March 2022, we announced the launch of our Forest Remedies Multi Omega 3-6-9 line of supplements into more than 340 Sprouts Farmers Market stores across the U.S. This distribution agreement marks another important milestone in our efforts to transform Neptune into a high-growth branded CPG company.

Strategic Partnerships

In February 2022, we brought Walmart a first-of-its-kind collaboration between Sprout Organics and popular kids’ entertainment platform CoComelon. This co-branded product line is now available on Walmart.com and in 900 Walmart stores, and has been very well-received. With this launch, Sprout Organics now sells into the top organic baby food retailers in the U.S., accounting for approximately 90 percent of the overall market.

Investing in Our Prospects

On November 15, 2021 we initiated a strategic review and made some big changes to get on track to becoming a profitable diversified CPG company. These actions have taken effect, and we are starting to see the results. The third quarter of fiscal year 2022 was the first

45

Table of Contents

quarter where we posted a positive gross margin since transitioning to a CPG-focused model. The third quarter of fiscal year 2022 was the first quarter where we posted a positive gross margin since transitioning to a CPG-focused model. The third quarter of fiscal year 2023, consolidated gross profit margin was 15.4% of net sales up from 11.3% for the same period last year. For the nine-month period ended December 31, 2022 the gross profit margin was 0.2% up from (4.9)% for the same period of the prior year. However, there can be no assurances that revenue growth will continue.

While the global market can be unstable during turbulent times, we are taking steps to ensure we remain well- positioned to execute against our stated plan: controlling our costs while pursuing high-growth opportunities. To that effect, Neptune announced on June 8, 2022 the launch of a new CPG focused strategic plan to reduce costs, improve the Company’s path to profitability and enhance current shareholder value. This plan focuses on two primary actions: (1) the divestiture of the Canadian cannabis business and (2) a realignment of focus and operational resources toward increasing the value of Neptune’s consumer products business. With the divestiture of its cannabis business, Neptune is renewing its focus on the core brands – Sprout Organics and Biodroga Solutions – that align closely with future consumer trends and show a greater potential for future growth and profitability.

On October 16, 2022, Neptune entered into an asset sale and purchase agreement (the “ASPA”) with a third- party, for its Canadian cannabis business including the Sherbrooke facility, following the divestiture of this business announced on June 8, 2022. The aggregate purchase price of the assets sold, net of liabilities assumed, amounted to approximately $3.8 million ($5.15 million CAD). The ASPA closed on November 9, 2022. Some assets were excluded from the ASPA and were written down accordingly. The completion of the divestiture of our cannabis business is a critical milestone in executing upon our strategy to become a leading CPG company. The sale of the cannabis assets will allow us to realize significant cost savings and operational streamlining from redirected resources towards our simplified corporate structure, as we focus on Sprout as the key growth driver for Neptune going forward.

Recent Corporate Developments

Neptune’s Presence in Canada’s Cannabis Market

During the year ended on March 31, 2022, Neptune supplied the market with premium cannabis extracts and dried flower, under its Mood Ring™ and PanHash™ brands, and completed its launch of all significant regulated product categories. All cannabis products were manufactured and packaged at the Company’s purpose-built facility in Sherbrooke, Quebec. On June 8, 2022, the Company announced a planned accelerated divestiture of the Canadian cannabis business and that the Company would focus on winding up its cannabis operations pending one or more sales transactions. Following this announcement, all assets and liabilities related to the Canadian cannabis business were respectively shown under assets held for sale and liabilities directly associated with assets held for sale on Neptune’s balance sheet. Further information on those assets and liabilities can be found in note 2(d) of the condensed consolidated interim financial statements for the nine-month period ended December 31, 2022. On October 16, 2022, Neptune entered into an asset sale and purchase agreement (the “ASPA”) with a third-party, for its Canadian cannabis business including the Sherbrooke facility, following the planned divestiture of this business announced on June 8, 2022. The aggregate purchase price of the assets sold, net of liabilities assumed, amounted to approximately $3.8 million ($5.15 million CAD). The ASPA closed on November 9, 2022. Some assets were excluded from the ASPA and were written-down accordingly, on October 17, 2022 we announced that we had entered into a binding agreement for the sale of our cannabis business and the sale closed on November 9, 2022.

Launch of a New CPG Focused Strategic Plan

On June 8, 2022, Neptune announced the launch of a new Consumer Packaged Goods (“CPG”) focused strategic plan to reduce costs, improve the Company’s path to profitability and enhance current shareholder value. This plan builds on the Company’s initial strategic review that took place in fall of 2021 and focuses on two primary actions: (1)  divestiture  of  the Canadian cannabis business and (2)  a realignment of focus and operational resources toward increasing the value of Neptune’s consumer products business. With the divestiture of its cannabis business, Neptune has renewed its focus on its core brands – Sprout Organics and Biodroga Solutions – that align closely with future consumer trends and show a greater potential for future growth and profitability.

Neptune Announces New Line of CoComelon® Co-Branded Products

Neptune announced on May 26, 2022 a new line up of CoComelon co-branded organic snack bars for toddlers. The snack bars are the latest innovation in the Sprout Organics x CoComelon product line launched in 2022, which features a range of organic baby and toddler food pouches and toddler snacks. New snack bars will be available online and at select retailers nationwide. Sprout Organics CoComelon Snack Bars are available in two flavor combinations: Banana and Banana with Peas and Carrots. Each snack bar contains a blend of

46

Table of Contents

unsweetened fruits, veggies and gluten-free oats and packs an impressive 4g of plant-based protein and 2g of dietary fiber to help fuel growing bodies.

Changes to Management

As part of the Company’s renewed focus on its CPG brands and Sprout Organics in particular, Neptune announced on June 8, 2022 that Sarah Tynan, Sprout’s Chief Customer Officer, was promoted to CEO of Sprout. Ms. Tynan has been instrumental in garnering big distribution gains for Sprout, including Walmart and Target, and leading the highly successful CoComelon partnership. She brings deep sales experience and business acumen, including previous roles at Newell Brands and Unilever, and will continue to drive the Sprout business forward.

On June 14, 2022, Neptune announced the appointment of Raymond Silcock as Chief Financial Officer, effective July 25, 2022. Mr. Silcock, who is based out of Neptune’s Jupiter, Florida office, previously served as Executive Vice President and Chief Financial Officer at Perrigo Plc, as well as CFO at Diamond Foods, The Great Atlantic and Pacific Tea Company, UST Inc., and Cott Corporation. In addition, he has previously served as Chair of both Audit and Strategy Committees on several Boards including Pinnacle Foods Inc., American Italian Pasta Company, Prestige Brands and Bacardi Limited. Mr. Silcock replaces Randy Weaver who was Interim CFO up to July 22, 2022.

Receipt of Nasdaq Notifications

On November 15, 2022, the Company filed a Notification of Late Filing on Form 12b-25 (the “Form 12b-25”) with the SEC, which stated that it was unable to file its Form 10-Q for the quarter ended September 30, 2022 by the prescribed due date without unreasonable effort or expense because it required additional time to finalize its financial statements to be included in the Form 10-Q. The Company did not file its Form 10-Q by the fifth calendar day delay after the prescribed due date. On November 22, 2022, the Company received a Deficiency Notice from Nasdaq indicating that, as a result of not having timely filed the Form 10-Q with the SEC, the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1) (the “Listing Rule”), which requires timely filing of all required periodic financial reports with the SEC. The Deficiency Notice had no immediate effect on the listing or trading of the Company’s common shares on the Nasdaq. The Deficiency Notice indicated that the Company could regain compliance with the Listing Rule at any time prior to January 23, 2023 by filing the Form 10-Q. If the Company failed to file the Form 10-Q by such date, the Company could submit a plan to regain compliance with the Listing Rule prior to such date and, following receipt of such plan, Nasdaq may grant an extension of 180 calendar days from the Form 10-Q due date, or until May 15, 2023, for the Company to regain compliance. On December 20, 2022, the Company filed its Form 10-Q for the quarter ended December   31, 2022 and, thereby, regained compliance with the Listing Rule.

On February 15, 2023, the Company filed a Form 12b-25 with the SEC, which stated that it was unable to file its Form 10-Q for the quarter ended December 31, 2022 by the prescribed due date without unreasonable effort or expense because it required additional time to finalize its financial statements to be included in the Form 10-Q. The Company did not file its Form 10-Q by the fifth calendar day delay after the prescribed due date. On February 23, 2023, the Company received a Deficiency Notice from Nasdaq indicating that, as a result of not having timely filed the Form 10-Q with the SEC, the Company is not in compliance with the Listing Rule, which requires timely filing of all required periodic financial reports with the SEC. The Deficiency Notice had no immediate effect on the listing or trading of the Company’s common shares on the Nasdaq. The Deficiency Notice indicated that the Company could regain compliance with the Listing Rule at any time prior to April 24, 2023 by filing the Form 10-Q. If the Company failed to file the Form 10-Q by such date, the Company may submit a plan to regain compliance with the Listing Rule prior to such date and, following receipt of such plan, Nasdaq may grant an extension of 180 calendar days from the Form 10-Q due date, or until August 21, 2023, for the Company to regain compliance. On March 30, 2023, the Company filed its Form 10-Q for the quarter ended December 31, 2022 and, thereby, regained compliance with the Listing Rule.

On December 29, 2022, we received a Deficiency Notice from Nasdaq informing us that our Common Shares have failed to comply with the $1.00 minimum bid price required for continued listing under Nasdaq Listing Rule 5550(a)(2) based upon the closing bid price of our Common Shares for the 30 consecutive business days prior to the date of the Deficiency Notice. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were given 180 calendar days from December 29, 2022, or until June 27, 2023, to regain compliance with Rule 5550(a)(2). If at any time before June 27, 2023, the bid price of our Common Shares closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Nasdaq will provide written confirmation that we have regained compliance.

47

Table of Contents

Change in Auditor

On November 4, 2021, the Company announced the appointment of KPMG LLP (“KPMG”) as its independent registered public accounting firm, effective October 22, 2021, following the resignation of Ernst & Young LLP (“EY”) on September 23, 2021. The appointment of KPMG was made after a thorough evaluation process and has been approved by Neptune’s Board of Directors and its Audit Committee. KPMG replaces EY as Neptune’s independent registered public accounting firm for the fiscal year ending March 31, 2022. Previously, on July 10, 2020, the Company dismissed KPMG and proposed EY as its independent registered public accounting firm, which was effective following the Company’s annual and special meeting of shareholders held on August 12, 2020.

Loss of Foreign Private Issuer Status

As of September 30, 2021, the Company was no longer considered a foreign private issuer and accordingly, such change in status required the Company to file as a U.S. domestic filer, effective April 1, 2022, and comply with all periodic disclosures and reporting requirements of the Exchange Act applicable to U.S. domestic issuers, including the requirement to transition from IFRS to US GAAP for the year ended March 31, 2022. The Company was also required to modify certain of its policies to comply with governance practices associated with U.S. domestic issuers. As a result, the loss of foreign private issuer status increases the Company’s legal and financial compliance costs and make some activities more time consuming and costly.

Closing of a $5,000,000 Registered Direct Offering Priced At-The-Market Under Nasdaq Rules

On June 22, 2022, Neptune announced that it entered into definitive agreements with several institutional investors for the purchase and sale of an aggregate of 1,300,000 Common Shares and 645,526 pre-funded warrants to purchase up to an aggregate of 645,526 Common Shares (the “June 2022 Pre-Funded Warrants”) of the Company, and two series of warrants each to purchase up to 1,945,526 Common Shares (for an aggregate of 3,891,052 Common Shares) (the “Series C Warrants ” and “Series D Warrants ,” and together, the “June 2022 Warrants ”), at an offering price of $2.57 per share and accompanying warrants in a registered direct offering priced at-the-market under Nasdaq rules (the “June 2022 Offering”). The June 2022 Warrants each have an exercise price of $2.32 per share and were immediately exercisable upon issuance. The Series D Warrants will expire two years following the date of issuance and the Series C Warrants will expire five years following the date of issuance. The gross proceeds from the June 2022 Offering were $5 million, prior to deducting placement agent’s fees and other offering expenses payable by Neptune and assuming none of the June 2022 Warrants are exercised for cash. Neptune intends to use the net proceeds from the offering for working capital and other general corporate purposes. The offering closed on June 23, 2022. The June 2022 Pre-Funded Warrants issued in the offering were fully exercised on June 24, 2022 for $64.55. Additionally, on October 6, 2022, 972,763 Series C common share purchase warrants were amended to provide for an extended expiration date of June 23, 2029.

Expansion of the Existing Secured Promissory Notes

On July 13, 2022, Neptune announced that Sprout Foods Inc. (“Sprout”), the Company’s organic plant-based baby food and toddler snack company, has entered into an amendment of each of its existing Secured Promissory Notes to expand from $22.5 million to a maximum of $37.5 million, allowing for up to $13 million of future lending. In connection with this amendment, investment funds managed by Morgan Stanley Expansion Capital (“Morgan Stanley” or “MSEC”) have agreed to immediately commit an additional $3 million under the expanded Secured Promissory Notes to Sprout. This amount was received July 13, 2022. The funds from the expanded facility are intended to be used for the general working capital needs of Sprout and the repayment of certain existing Sprout debt payable to Neptune. Effective April 18, 2023, the MSEC Note maturity date was extended to December 31, 2024, and which will bear interest at the rate of 15.0% per annum through and including December 31, 2023, payable in kind, and 10.0% per annum, payable in kind, and 5.0% per annum payable in cash, from and after January 1, 2024. The other Notes will mature on February 1, 2024 and will bear interest at 10% per annum, increasing by 1.00% every three months during the term of the Secured Promissory Notes. MSEC was issued 372,670 common shares of Neptune, of an approximate value of $0.6 million in connection with this expansion. On November 8, 2022, Sprout entered into an agreement to issue an additional $525,000 of Secured Promissory Notes, on the same terms as the Secured Promissory Note discussed. In connection with this financing, Neptune issued common shares to the holders of these Secured Promissory Notes for a value of $105,000.

Closing of a $6,000,000 Registered Direct Offering Priced At-The-Market Under Nasdaq Rules and Concurrent Private Placement

On October 6, 2022, Neptune announced that it entered into definitive agreements with institutional investors for the purchase and sale of 3,208,557 Common Shares pursuant to a registered direct offering priced at-the-market under Nasdaq rules and warrants to purchase up to 6,417,114 Common Shares in a concurrent private placement. The combined purchase price for one Common Share and one

48

Table of Contents

warrant was $1.87. The warrants have an exercise price of $1.62 per Common Share, are exercisable immediately following the date of issuance and expire five years from the date of issuance. The aggregate gross proceeds from the offering and the concurrent private placement were approximately $6.0 million, before deducting fees and other estimated expenses, for net proceeds of approximately $5.1 million.  The offering and concurrent private placement closed on October 11, 2022.

Closing of a Debt Financing

On January 13, 2023, Neptune announced that it has closed on a senior secured notes financing (such notes, the "Notes") for gross proceeds of $4.0 million with CCUR Holdings, Inc. and Symbolic Logic, Inc. (collectively, the "Noteholders"). The Notes will mature 12 months from the initial closing and bear interest at a rate of 16.5% per annum. The notes are secured by the assets of Neptune excluding the assets of Sprout. Interest will be payable in kind on the first 6 monthly payment dates after the initial closing date and thereafter will be payable in cash. Pursuant to the terms of the Notes, the Company also issued to the Noteholders warrants to purchase an aggregate of 850,000 shares of Neptune Common Shares, with each warrant exercisable for 5 years following the initial issuance at a price of $0.53 per common share. On March 9, 2023, the Company entered into a Waiver and First Amendment to the Notes (the "Waiver Agreement"). The Waiver Agreement waives certain administrative, regulatory and financial statement related covenants as further described in the Waiver Agreement as required by the terms of the Notes. The lender has the right to demand immediate repayment in the event of default. Furthermore, in connection with the Waiver Agreement, the Notes were amended to provide that the Purchasers shall be paid an exit fee in the aggregate amount of $0.2 million, payable as follows: (i) on or prior to May 15, 2023, $0.1 million and (ii) on the Maturity Date (as defined in the Note Purchase Agreement), $0.1 million and the interest rate was increased to 24% for a period extending until the Company meets specified criteria in the Waiver Agreement.

Accounts Receivable Factoring Facility

On January 25, 2023, Neptune announced that its organic baby food brand subsidiary, Sprout Organics, has entered into an accounts receivable factoring facility with Alterna Capital Solutions, LLC ("Alterna"). The maximum available is $5 million. The terms of the agreement include a Funds Usage Fee of prime plus 1% with a minimum interest rate of 8% per annum. Alterna was granted a security interest in Sprout’s accounts receivable. The agreement will remain in effect for a 12-month period, effective January 23, 2023, and will be automatically renewed. Neptune provided a commercial guaranty in connection with this agreement.

Additional Information

The Company’s head office and registered office is located at 545 Promenade du Centropolis, Suite 100, Laval, Québec, Canada, H7T 0A3. The Company’s website address is www.neptunecorp.com. The information provided on the Neptune website is not part of this or any other report we file with or furnish to the SEC. The Exchange Act requires us to file reports, proxy statements, and other information with the SEC. These materials may be obtained electronically by accessing the SEC’s home page at www.sec.gov.

Our Code of Conduct is available on our website, www.neptunewellness.com. We will post on our website amendments to the Code of Conduct or waivers from its provisions, if any, which are applicable to any of our directors or executive officers in accordance with the requirements of the SEC or Nasdaq.

The information on our website is not a part of, nor is it incorporated by reference, into this prospectus. Further, our references to the URLs for these websites are intended to be inactive textual references only.

LEGAL PROCEEDINGS

The Company is engaged from time-to-time in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of such proceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company, the most significant outstanding proceedings and claims are as follows:

(i)In September 2020, Neptune submitted a claim and demand for arbitration against Peter M. Galloway and PMGSL Holdings, LLC (collectively “PMGSL”) in accordance with the SugarLeaf Asset Purchase Agreement (“APA”) dated May 9, 2019 between Neptune, PMGSL, Peter M. Galloway and Neptune Holding USA, Inc. Separately, PMGSL submitted a claim and demand for arbitration against Neptune. The Neptune claims and PMGSL claims have been consolidated into a single arbitration and each are related to the purchase by Neptune of substantially all of the assets of the predecessor entities of PMGSL Holdings, LLC. Neptune is claiming, among other things, breach of contract and negligent misrepresentation by PMGSL in connection with the APA and is

49

Table of Contents

seeking, among other things, equitable restitution and any and all damages recoverable under law. PMGSL is claiming, among other things, breach of contract by Neptune and is seeking, among other things, payment of certain compensation contemplated by the APA. A merit hearing in the arbitration started in April 2022 with a further week of testimony from August 1-5, 2022. On June 15, 2022, a one-day hearing took place on Neptune’s motion to enforce a settlement agreement reached on April 2021 (which was repudiated by PMGSL in June 2021). Following oral argument on July 7, 2022, that motion was denied. While Neptune believes there is no merit to the claims brought by PMGSL, a judgment in favor of PMGSL may have a material adverse effect on our business and Neptune intends to continue vigorously defending itself.
(ii)On February 4, 2021, the United States House of Representatives Subcommittee on Economic and Consumer Policy, Committee on Oversight and Reform (the “Subcommittee”), published a report, “Baby Foods Are Tainted with Dangerous Levels of Arsenic, Lead, Cadmium, and Mercury” (the “Report”), which stated that, with respect to Sprout, “independent testing of Sprout Organic Foods has confirmed that their baby foods contain concerning levels of toxic heavy metals.” The Report further stated that after receiving reports alleging high levels of toxic metals in baby foods, the Subcommittee requested information from Sprout but did not receive a response. On February 11, 2021, following the acquisition of a 50.1% stake in Sprout by Neptune, the Subcommittee contacted Sprout, reiterating its requests for documents and information about toxic heavy metals in Sprout’s baby foods. Sprout provided an initial response to the Subcommittee on February 25, 2021 and is cooperating with the Subcommittee requests.
(iii)Further, on February 24, 2021, the Office of the Attorney General of the State of New Mexico (“NMAG”) delivered to Sprout a civil investigative demand requesting similar documents and information with regards to the Report and the NMAG’s investigation into possible violations of the False Advertising Act of New Mexico. Sprout is responding to the requests of the NMAG.
(iv)Since February 2021, several putative consumer class action lawsuits have been brought against Sprout alleging that its products (the “Products”) contain unsafe and undisclosed levels of various naturally occurring heavy metals, namely lead, arsenic, cadmium and mercury. Sprout has denied the allegations in these lawsuits and contends that its baby foods are safe and properly labeled. The claims raised in these lawsuits were brought in the wake of the highly publicized Report. All such putative class actions have since been dismissed.
(v)In addition to the consumer class actions discussed above, Sprout is currently named in three lawsuits (filed in California State Court on June 16, 2021, filed in Hawaii State Court on January 9, 2023 and filed in Nevada Federal Court on March 3, 2023, respectively) alleging some form of personal injury from the ingestion of Sprout’s Products, purportedly due to unsafe and undisclosed levels of various naturally occurring heavy metals. These lawsuits generally allege injuries related to neurological development disorders such as autism spectrum disorder and attention deficit hyperactivity disorder. Sprout denies that its Products contributed to any of these injuries. In addition, the Office of the Attorney General for the District of Columbia (“OAG”) sent a letter to Sprout dated October 1, 2021, similar to letters sent to other baby food manufacturers, alleging potential labeling and marketing misrepresentations and omissions regarding the health and safety of its baby food products, constituting an unlawful trade practice. Sprout has agreed to meet with the OAG and will vigorously defend against the allegations.
(vi)On March 16, 2021, a purported shareholder class action was filed in United States District Court for the Eastern District of New York against the Company and certain of its current and former officers alleging violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, with respect to the Company’s acquisition of SugarLeaf Labs, Inc. On October 21, 2022, the Company announced that it had agreed to settle and resolve the purported shareholder class action for a gross payment to the class of between $4 and $4.25 million, with the exact amount being within the Company’s control and dependent on the type of consideration used. The settlement was subject to court approval and certification by the court of the class. On March 16, 2023 the settlement offer was accepted and the first payment in the amount of $500,000 was paid on March 22, 2023. Two additional payments of $500,000 each are due 30 days and 60 days after the first payment. The rest is payable either in cash ($2,500,000) or in shares ($2,750,000) at Neptune’s election, within 31 days after the Final Approval Order is entered.

​

50

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All references in this management’s discussion and analysis of financial condition and results of operations, or MD&A, to the “Company”, “Neptune”, “we”, “us”, or “our” refer to Neptune Wellness Solutions Inc., unless otherwise indicated or the context requires otherwise. The following MD&A is for the year ended March 31, 2022 and for the three and nine months ended December 31 2022 and should be read in conjunction with the audited consolidated financial statements for the year ended March 31, 2022 and 2021 and the unaudited condensed consolidated interim financial statements for the three and nine months ended December 31, 2022 and 2021 included in this Registration Statement/prospectus (collectively, the “Financial Statements”), which have been prepared by management in accordance with GAAP as issued by the FASB. All dollar amounts refer to U.S. dollars, except as stated otherwise. Unless otherwise stated herein, all share and per share numbers relating to the Company’s Common Shares prior to the effectiveness of the Reverse Share Split have been adjusted to give effect to the Reverse Share Split.

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.

Going Concern

The Company’s condensed consolidated interim financial statements have been prepared on a going concern basis, which presumes that the Company will continue realizing its assets and discharging its liabilities in the normal course of business for the foreseeable future. The Company has incurred significant operating losses and negative cash flows from operations since inception. To date, the Company has financed its operations primarily through the public offering and private placement of Common Share units, consisting of Common Shares and warrants, and convertible debt, the proceeds from research grants and research tax credits, and the exercises of warrants, rights and options. For the  nine-month period ended December 31, 2022, the Company incurred a net loss of $44.3 million and negative cash flows from operations of $20.7 million, and had an accumulated deficit of $357.1 million as of December 31, 2022. For the year ended March 31, 2022, the Company incurred a net loss of $84.4 million and negative cash flows from operations of $54.3 million. Furthermore, as at December 31, 2022, the Company’s current liabilities and expected level of expenses for the next twelve months exceed cash on hand of $3.4 million and its total current liabilities exceed its total current assets. Accordingly, the Company is required to actively manage its liquidity and expenses and payments of payables are not being made as the amounts become due for certain suppliers.

The Company currently has no committed sources of financing available other than from transactions completed after period-end from the sale of its Canadian cannabis business (see note 2(d)) and the debt financing and the accounts receivable factoring facility (see note 18 to the financial statements for the three and nine months ended December 31, 2022).

As of the date the financial statements for the three and nine months ended December 31, 2022 were authorized for issuance, the cash balance is expected to be sufficient to operate the business for the next one to two months under the current business plan. The Company requires funding in the very near term in order to continue its operations. If the Company is unable to obtain funding in the near-term, it may have to cease operations and liquidate its assets.

These conditions cast substantial doubt about the Company’s ability to continue as a going concern.

Going forward, the Company will seek additional financing in various forms. To achieve the objectives of its business plan, Neptune plans to raise the necessary funds through additional securities offerings and the establishment of strategic alliances. The ability of the Company to complete the needed financing and ultimately achieve profitable operations is dependent on a number of factors outside of the Company’s control. The Company’s business plan is dependent upon, among other things, its ability to achieve and maintain profitability, continue to obtain adequate ongoing debt and/or equity financing to finance operations within and beyond the next twelve months. See note 18 to the financial statements for the three and nine months ended December 31, 2022 regarding a new debt issuance in January 2023 and related waiver.

While the Company has been successful in obtaining financing from public issuances and private placements, there is no certainty as to future financings.

The consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the going concern basis not be valid. These adjustments could be material.

51

Table of Contents

Recent Financings

On January 25, 2023, Neptune announced that its organic baby food brand subsidiary, Sprout Organics, has entered into an accounts receivable factoring facility with Alterna. The maximum available is $5 million. The terms of the agreement include a Funds Usage Fee of prime plus 1% with a minimum interest rate of 8% per annum. Alterna was granted a security interest in Sprout's accounts receivable. The agreement will remain in effect for a 12-month period, effective January 23, 2023, and will be automatically renewed. Neptune provided a commercial guaranty in connection with this agreement.

On January 13, 2023, Neptune announced that it has closed on a senior secured notes financing (such notes, the "Notes") for gross proceeds of $4.0 million with CCUR Holdings, Inc. and Symbolic Logic, Inc. (collectively, the "Noteholders"). The Notes will mature 12 months from the initial closing and bear interest at a rate of 16.5% per annum. The notes are secured by the assets of Neptune excluding the assets of Sprout. Interest will be payable in kind on the first 6 monthly payment dates after the initial closing date and thereafter will be payable in cash.  Pursuant to the terms of the Notes, the Company also issued to the Noteholders warrants to purchase an aggregate of 850,000 shares of Neptune Common Shares, with each warrant exercisable for 5 years following the initial issuance at a price of $0.53 per common share (the “January 2023 Warrants ”). On March 9, 2023, the Company entered into a Waiver and First Amendment to the Notes (the "Waiver Agreement"). The Waiver Agreement waives certain administrative, regulatory and financial statement related covenants as further described in the Waiver Agreement as required by the terms of the Notes. The lender has the right to demand immediate repayment in the event of default. Furthermore, in connection with the Waiver Agreement, the Notes were amended to provide that the Purchasers shall be paid an exit fee in the aggregate amount of $0.2 million, payable as follows: (i) on or prior to May 15, 2023, $0.1 million and (ii) on the Maturity Date (as defined in the Note Purchase Agreement), $0.1 million and the interest rate was increased to 24% for a period extending until the Company meets specified criteria in the Waiver Agreement.

On November 8, 2022, Sprout entered into three agreements to issue an additional $550,000 of Secured Promissory Notes, on the same terms as the Secured Promissory Note entered into with MSEC discussed in note 9. In connection with this financing, Neptune issued, on February 15, 2023, 144,330 Common Shares to the holders of these Secured Promissory Notes for a value of $0.1 million.

On October 16, 2022, Neptune entered into an asset sale and purchase agreement (the “ASPA“) with a third-party, for its Canadian cannabis business including the Sherbrooke facility, following the planned divestiture of this business announced on June 8, 2022.  The purchase price of the assets sold, net of liabilities assumed, amounted to approximately $3.8 million ($5.15 million CAD). The ASPA closed on November 9, 2022.  Some assets were excluded from the ASPA, and were written-down accordingly. The completion of the divestiture of our cannabis business is a critical milestone in executing upon our strategy to become a leading CPG company. The sale of the cannabis assets will allow us to realize significant cost savings and operational streamlining from redirected resources towards our simplified corporate structure, as we focus on Sprout as the key growth driver for Neptune going forward.

On October 11, 2022, Neptune announced that it entered into definitive agreements with institutional investors for the purchase and sale of 3,208,557 Common Shares pursuant to a registered direct offering priced at-the-market under Nasdaq rules (the “October 2022 RDO”), and warrants to purchase up to 6,417,114 Common Shares (the “Series E Warrants”) in a concurrent private placement (the "October 2022 Private Placement,” and with the October 2022 RDO, the “October 2022 Offerings”). The combined purchase price for one Common Share and one Series E Warrant is $1.87. The Series E Warrants have an exercise price of $1.62 per Common Share, will be exercisable immediately following the date of issuance and will expire five years from the date of issuance. The aggregate gross proceeds from the October 2022 Offerings were approximately $6.0 million, before deducting fees and other estimated expenses, for net proceeds of approximately $5.1 million. The Company expects to use the net proceeds from the October 2022 Offerings for working capital and other general corporate purposes. The October 2022 Offerings closed on October 11, 2022.

On August 26, 2022, Sprout entered into an additional $250,000 Secured Promissory Note, which is on the same terms as the Secured Promissory Note entered into with MSEC discussed above. Neptune issued 36,765 common shares for a value of $75,736 in connection with this Secured Promissory Note in connection with this commitment.

On July 13, 2022, Sprout entered into an amendment of each of its existing Secured Promissory Notes. In connection with this amendment, investment funds managed by Morgan Stanley Expansion Capital (“Morgan Stanley” or “MSEC”) agreed to immediately commit an additional $3.0 million in Secured Promissory Notes to Sprout. On May 1, 2023, the MSEC Note maturity date was extended to December 31, 2024, which will bear interest at the rate of 15.0% per annum through and including December 31, 2023, payable in kind, and 10.0% per annum, payable in kind, and 5.0% per annum payable in cash, from and after January 1, 2024. The amended Secured Promissory Notes may be converted, in whole or in part, at any time upon the mutual consent of Sprout, the Company and MSEC, into common shares of the Company. MSEC was issued 372,670 common shares of Neptune, of a value of $570,185, in connection with this commitment.

52

Table of Contents

On June 22, 2022, Neptune announced the closing of the June 2022 Offering for the purchase and sale of an aggregate of 1,300,000 Common Shares, 645,526 June 2022 Pre-Funded Warrants and the Series C Warrants and Series D Warrants, with each series eligible to purchase up to an aggregate of 1,945,526 Common Shares, at an offering price of $2.57 per share and accompanying warrants in a registered direct offering priced at-the-market under Nasdaq rules. The June 2022 Warrants each have an exercise price of $2.32 per share and are immediately exercisable upon issuance. The Series D Warrants will expire two years following the date of issuance and the Series C Warrants will expire five years following the date of issuance. The gross proceeds from the June 2022 Offering were $5 million, prior to deducting placement agent’s fees and other offering expenses payable by Neptune and assuming none of the June 2022 Warrants are exercised for cash. Neptune intends to use the net proceeds from the offering for working capital and other general corporate purposes. The June 2022 Pre-Funded Warrants issued in the offering were fully exercised on June 24, 2022 for $64.55. Additionally, on October 6, 2022, 972,763 Series C common share purchase warrants were amended to provide for an extended expiration date of June 23, 2029.

On March 14, 2022, Neptune announced that it had closed a registered direct offering (the “March 2022 Offering”) with a single strategic consumer-focused institutional investor for the purchase and sale of (i) 528,572 Common Shares and (ii) 185,714 pre-funded warrants (the “March 2022 Pre-Funded Warrants”), with each Pre-Funded Warrant exercisable for one Common Share. The Common Shares and the March 2022 Pre-Funded Warrants were sold together with Series A Warrants (the “Series A Warrants”) to purchase up to an aggregate of 714,286 Common Shares and Series B Warrants (the “Series B Warrants” and collectively with the Series A Warrants, the “March 2022 Warrants”) to purchase up to an aggregate of 714,286 Common Shares. Each Common Share and the accompanying March 2022 Common Warrants were sold together at a combined offering price of $11.20, and each March 2022 Pre-Funded Warrant and the accompanying March 2022 Warrants were sold together at a combined offering price of $11.20, for aggregate gross proceeds of $8.0 million before deducting fees and other offering expenses. The March 2022 Pre-Funded Warrants were funded in full at closing except for a nominal exercise price of $0.0035 and were exercisable commencing on the closing date. The Series A Warrants have an exercise price of $11.20 per share and are exercisable six months after the closing date, and will expire five and one-half years from the date of issuance. The Series B Warrants have an exercise price of $11.20 per share and are exercisable six months after the closing date, and expire 18 months from the closing date. The March 2022 Pre-Funded Warrants were exercised in full on March 29, 2022 for gross proceeds of $650.

​

53

Table of Contents

Selected Consolidated Annual and Quarterly Information

Selected Consolidated Financial Information (in millions, except per share data)

The following tables set out selected consolidated financial information and are prepared in accordance with US GAAP.

​

​

​

​

​

​

​

​

​

​

    

Three-month periods ended

    

Twelve-month periods ended

 

​

​

March 31,

​

March 31,

​

March 31,

​

March 31,

​

​

​

2022

​

2021

​

2022

​

2021

​

​

​

$

    

$

​

$

    

$

​

Total revenues

​

​

11.532

​

​

4.669

​

​

48.797

​

​

35.400

​

Adjusted EBITDA (recasted)1

​

​

(12.762)

​

​

(32.523)

​

​

(53.258)

​

​

(60.450)

​

Net loss

​

​

(36.662)

​

​

(43.540)

​

​

(84.425)

​

​

(124.264)

​

Net loss attributable to equity holders of the Corporation

​

​

(31.942)

​

​

(42.445)

​

​

(74.972)

​

​

(123.170)

​

Net loss attributable to non-controlling interest

​

​

(4.720)

​

​

(1.094)

​

​

(9.453)

​

​

(1.094)

​

Basic and diluted loss per share

​

​

(7.47)

​

​

(0.29)

​

​

(17.50)

​

​

(35.86)

​

Basic and diluted loss per share attributable to equity holders of the Corporation

​

​

(6.51)

​

​

(0.29)

​

​

(15.54)

​

​

(35.55)

​

Basic and diluted loss per share attributable to non-controlling interest

​

​

(0.96)

​

​

(0.01)

​

​

(1.96)

​

​

(0.32)

​

​

​

​

​

​

​

​

​

​

As at

​

As at

​

As at

​

​

    

March 31, 2022

    

March 31, 2021

    

March 31, 2020

​

​

​

$

​

$

​

$

​

Total assets

​

104.955

​

186.948

​

120.060

​

Working capital2

​

7.071

​

54.718

​

15.346

​

Non-current financial liabilities

​

13.800

​

14.593

​

4.854

​

Equity attributable to equity holders of the Corporation

​

48.116

​

115.368

​

102.962

​

Equity attributable to non-controlling interest

​

12.722

​

22.178

​

—

​

1 

The Adjusted EBITDA is a non-GAAP measure. It is not a standard measure endorsed by US GAAP requirements. A reconciliation to the Company’s net loss is presented below. In the quarter ended September 30, 2022, the Company recast comparative Adjusted EBITDA to conform to its current definition. As a result, the following adjustments were removed in the current and comparative quarters: litigation provisions, business acquisition and integration costs, signing bonus, severance and related costs, D&O insurance and write-down of inventories and deposits.

2 

Working capital is calculated by subtracting current liabilities from current assets. Because there is no standard method endorsed by US GAAP, the results may not be comparable to similar measurements presented by other public companies. Current assets as at March 31, 2022, 2021 and 2020 were $37.388, $89.528 and $27.589 respectively, and current liabilities as at March 31, 2022, 2021 and 2020 were $30.317, $34.809 and $12.243 respectively.

​

The following table sets out selected consolidated financial information (in millions, except per share data).

​

​

​

​

​

​

​

​

​

​

​

Three-month periods ended

​

Nine-month periods ended

​

    

December 31, 2022

    

December 31, 2021

    

December 31, 2022

    

December 31, 2021

​

​

$

​

$

​

$

​

$

Total revenues

​

12.209

​

14.668

​

40.468

​

37.265

Adjusted EBITDA1

 

(5.057)

 

(14.188)

 

(30.087)

 

(40.483)

Net loss

 

(0.497)

 

(16.805)

 

(44.290)

 

(47.763)

Net loss attributable to equity holders of the Company

 

1.288

 

(15.009)

 

(33.894)

 

(43.030)

Net income (loss) attributable to non-controlling interest

 

(1.786)

 

(1.796)

 

(10.396)

 

(4.733)

Basic and diluted income (loss) per share attributable to common shareholders of the Company

 

0.06

 

(3.14)

 

(4.01)

 

(9.03)

​

54

Table of Contents

​

​

​

​

​

​

​

​

​

    

As at

    

As at

    

As at

​

​

December 31,

​

March 31,

​

March 31,

​

​

2022

​

2022

​

2021

​

​

$

​

$

​

$

Total assets

 

63.968

 

104.955

 

186.948

Working capital2

 

(1.633)

 

7.071

 

54.718

Non-current financial liabilities

 

18.189

 

13.800

 

14.593

Equity attributable to equity holders of the Company

 

13.598

 

48.116

 

115.368

Equity attributable to non-controlling interest

 

2.326

 

12.722

 

22.178

1

The Adjusted EBITDA is a non-GAAP measure. It is not a standard measure endorsed by US GAAP requirements. A reconciliation to the Company’s net loss is presented below.

2

Working capital is calculated by subtracting current liabilities from current assets. Because there is no standard method endorsed by US GAAP, the results may not be comparable to similar measurements presented by other public companies. Current assets as at December 31, 2022, March 31, 2022 and March 31, 2021 were $28.222, $37.388 and $89.528 respectively, and current liabilities as at December 31, 2022, March 31, 2022 and March 31, 2021 were $29.855, $30.317 and $34.809 respectively.

Consolidated Financial Analysis

Non-GAAP Financial Performance Measures

The Company uses one adjusted financial measure, Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) to assess its operating performance. This non-GAAP financial measure is presented in a consistent manner, unless otherwise disclosed. The Company uses this measure for the purposes of evaluating its historical and prospective financial performance, as well as its performance relative to competitors. The measure also helps the Company to plan and forecast for future periods as well as to make operational and strategic decisions. The Company believes that providing this information to investors, in addition to its GAAP financial statements, allows them to see the Company’s results through the eyes of management, and to better understand its historical and future financial performance. Neptune’s method for calculating Adjusted EBITDA may differ from that used by other corporations.

A reconciliation of net loss to Adjusted EBITDA is presented below.

Adjusted EBITDA

Although the concept of Adjusted EBITDA is not a financial or accounting measure defined under US GAAP and it may not be comparable to other issuers, it is widely used by companies. Neptune obtains its Adjusted EBITDA measurement by excluding from its net loss the following items: net finance costs (income), depreciation and amortization, and income tax expense (recovery). Other items such as equity classified stock-based compensation, non-employee compensation related to warrants, impairment losses on non-financial assets, revaluations of derivatives, costs related to conversion from IFRS to US GAAP and other changes in fair values are also added back to Neptune’s net loss. The exclusion of net finance costs (income) eliminates the impact on earnings derived from non-operational activities. The exclusion of depreciation and amortization, stock-based compensation, non-employee compensation related to warrants, impairment losses, revaluations of derivatives and other changes in fair values eliminates the non-cash impact of such items, and the exclusion of costs related to conversion from IFRS to US GAAP, together with the other exclusions discussed above, present the results of the on-going business. From time to time, the Company may exclude additional items if it believes doing so would result in a more effective analysis of underlying operating performance. Adjusting for these items does not imply they are non-recurring. For purposes of this analysis, the Net finance costs (income) caption in the reconciliation below includes the impact of the revaluation of foreign exchange rates.

In Q4 2022, the Company added the costs related to the conversion from IFRS to US GAAP as an adjustment to the definition of Adjusted EBITDA.

In the quarter ended September 30, 2022, the Company recast comparative Adjusted EBITDA to conform to the current definition. As a result, the following adjustments were removed in the current and comparative quarters: litigation provisions, business acquisition and integration costs, signing bonus, severance and related costs, D&O insurance and write-down of inventories and deposits.

55

Table of Contents

Adjusted EBITDA1 reconciliation, in millions of dollars, for the year ended March 31, 2022

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

Three-month periods ended

    

Twelve-month periods ended

​

​

Recast -March 31, 2022

    

Recast -March 31, 2021

​

Recast -March 31, 2022

    

Recast -March 31, 2021

Net loss for the period

​

$

(36.662)

​

$

(43.540)

​

$

(84.425)

​

$

(124.264)

Add (deduct):

​

  

​

​

  

​

​

  

​

​

  

​

Depreciation and amortization

 

​

1.656

 

​

2.425

 

​

6.791

 

​

8.830

Acceleration of amortization of long-lived non-financial assets

 

​

—

 

​

(0.156)

 

​

—

 

​

10.552

Revaluation of derivatives

 

​

1.247

 

​

(3.856)

 

​

(7.035)

 

​

(7.975)

Net finance costs

 

​

1.691

 

​

1.119

 

​

2.823

 

​

5.012

Equity classified stock-based compensation

 

​

1.565

 

​

2.505

 

​

7.817

 

​

9.885

Non-employee compensation related to warrants

 

​

—

 

​

0.244

 

​

0.179

 

​

1.904

System migration, conversion, implementation

 

​

(0.001)

 

​

—

 

​

0.327

 

​

—

Costs related to cybersecurity incident

 

​

—

 

​

(0.022)

 

​

—

 

​

1.500

Impairment loss on long-lived assets

​

​

17.177

​

​

8.814

​

​

19.581

​

​

37.753

Costs related to conversion from IFRS to US GAAP

 

​

0.577

 

​

—

 

​

0.577

 

​

—

Change in revaluation of marketable securities

 

​

—

 

​

(0.178)

 

​

0.107

 

​

(0.169)

Income tax expense (recovery)

 

​

(0.012)

 

​

0.122

 

​

—

 

​

(3.478)

Adjusted EBITDA1

​

$

(12.762)

​

$

(32.523)

​

$

(53.258)

​

$

(60.450)

1 The Adjusted EBITDA is not a standard measure endorsed by US GAAP requirements.

Adjusted EBITDA reconciliation, in millions of dollars, for the three-month and nine-month periods ended December 31, 2022

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

Three-month periods ended

    

Nine-month periods ended

​

​

December 31, 2022

    

Recast - December 31, 2021

​

December 31, 2022

    

Recast - December 31, 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

Net loss for the period

​

$

(0.497)

​

$

(16.805)

​

$

(44.290)

​

$

(47.763)

Add (deduct):

​

 

  

​

 

  

​

 

  

​

 

  

Depreciation and amortization

​

 

0.662

​

 

1.515

​

 

2.391

​

 

5.136

Revaluation of derivatives

​

 

(8.368)

​

 

(1.245)

​

 

(16.084)

​

 

(8.707)

Net finance costs (income)

​

 

1.868

​

 

0.962

​

 

(0.732)

​

 

1.557

Equity classified stock-based compensation

​

 

1.005

​

 

1.014

​

 

2.832

​

 

6.252

Non-employee compensation related to warrants

​

 

—

​

 

0.025

​

 

—

​

 

0.179

System migration, conversion, implementation

​

​

—

​

​

0.328

​

​

—

​

​

0.328

Impairment loss on long-lived assets

​

 

0.271

​

 

—

​

 

25.781

​

 

2.415

Change in revaluation of marketable securities

​

 

—

​

 

0.018

​

 

—

​

 

0.108

Income tax expense

​

 

0.002

​

 

—

​

 

0.015

​

 

0.012

Adjusted EBITDA1

​

$

(5.057)

​

$

(14.188)

​

$

(30.087)

​

$

(40.483)

1 The Adjusted EBITDA is not a standard measure endorsed by US GAAP requirements.

Operating Segments

The Company’s management structure and performance is measured based on a single segment, which is the consolidated level, as this is the level of information used in internal management reports that are reviewed by the Company’s Chief Operating Decision Maker.

56

Table of Contents

Geographical information for the year ended March 31, 2022

Revenue is attributed to geographical locations based on the origin of customers’ location.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

Three-month periods ended

    

Twelve-month periods ended

​

​

March 31, 2022

    

March 31, 2021

​

March 31, 2022

    

March 31, 2021

​

​

Total Revenues

​

Total Revenues

​

Total Revenues

​

Total Revenues

Canada

​

$

3.527

​

$

0.512

​

$

12.447

​

$

13.434

United States

 

​

7.686

 

​

3.982

 

​

35.330

 

​

20.856

Other countries

 

​

0.319

 

​

0.175

 

​

1.020

 

​

1.110

​

​

$

11.532

​

$

4.669

​

$

48.797

​

$

35.400

​

The Company’s property plant and equipment, intangible assets and goodwill are attributed to geographical locations based on the location of the assets.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

Property, plant 

    

​

​

    

As at March 31, 2022

​

​

and equipment

​

Goodwill

​

Intangible assets

Canada

​

$

20.725

​

$

2.626

​

$

2.353

United States

​

 

0.723

​

 

19.542

​

 

19.302

Total

​

$

21.448

​

$

22.168

​

$

21.655

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

Property, plant 

    

​

​

    

As at March 31, 2021

​

​

and equipment

​

Goodwill

​

Intangible assets

Canada

​

$

35.645

​

$

2.614

​

$

3.793

United States

​

 

1.701

​

 

22.839

​

 

22.164

Total

​

$

37.346

​

$

25.453

​

$

25.957

​

Geographical information for the quarter ended December 31, 2022

Revenue is attributed to geographical locations based on the origin of customers’ location.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

Three-month periods ended

    

Nine-month periods ended

​

​

December 31, 2022

    

December 31, 2021

​

December 31, 2022

    

December 31, 2021

​

​

Total Revenues

​

Total Revenues

​

Total Revenues

​

Total Revenues

​

​

​

​

​

​

​

​

​

​

​

​

​

Canada

​

$

1.348

​

$

4.560

​

$

7.075

​

$

8.920

United States

​

 

10.597

​

 

9.832

​

 

32.626

​

 

27.644

Other countries

​

 

0.264

​

 

0.276

​

 

0.767

​

 

0.701

​

​

$

12.209

​

$

14.668

​

$

40.468

​

$

37.265

​

The Company’s property plant and equipment, intangible assets, goodwill and assets held for sale are attributed to geographical locations based on the location of the assets.

​

​

​

​

​

​

​

​

​

​

​

    

​

​

    

    

​

    

As at

​

​

Property, plant

​

​

​

​

December 31, 2022

​

​

and equipment

​

Goodwill

​

Intangible assets

Canada

​

$

0.537

​

$

2.424

​

$

1.688

United States

​

 

1.326

​

 

11.972

​

 

15.655

Total

​

$

1.863

​

$

14.396

​

$

17.343

​

​

​

​

​

​

​

​

​

​

​

​

    

​

​

    

    

​

    

As at

​

​

Property, plant

​

​

​

​

March 31, 2022

​

​

and equipment

​

Goodwill

​

Intangible assets

Canada

​

$

20.725

​

$

2.626

​

$

2.353

United States

​

 

0.723

​

 

19.542

​

 

19.302

Total

​

$

21.448

​

$

22.168

​

$

21.655

​

57

Table of Contents

Results Analysis for the Year Ended March 31, 2022

Adoption of US GAAP—Comparative Period Amounts

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). Comparative figures, which were previously presented in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, have been adjusted as required to be compliant with the Company’s accounting policies under US GAAP.

Revenues

Consolidated revenue summary, in millions of dollars:

​

​

​

​

​

​

​

​

​

​

​

    

March 31,

    

Changes

 

​

​

2022

​

2021

​

Changes in $

​

Changes in %

 

Three-month periods ended

 

11.5

 

4.7

 

6.9

 

147

%

Twelve-month periods ended

 

48.8

 

35.4

 

13.4

 

38

%

​

Total consolidated revenues for the three-month period ended March 31, 2022 amounted to $11.5 million representing an increase of $6.9 million or 147% compared to $4.7 million for the three-month period ended March 31, 2021.

For the twelve-month period ended March 31, 2022, consolidated revenues totaled $48.8 million representing an increase of $13.4 million or 38% compared to $35.4 million for the twelve-month period ended March 31, 2021.

When compared to the previous quarter, the consolidated revenues decreased by $3.1 million or 21%, which was mainly attributable to timing of shipping of nutraceuticals products (decrease of $1.3 million) as well as decrease of cannabis products sales ($1.5 million) due to the Company’s cash restrictions preventing prepayment to its suppliers.

Three-month period ended March 31, 2022 compared to March 31, 2021

Food and beverages revenues represented a $3.8 million increase in comparison to the three-month period ended March 31, 2021, resulting from the sales growth efforts as well as the CoComelon partnership. Revenues for the cannabis market increased by $1.9 million as Neptune has expanded its product portfolio in its existing markets with new cannabis products in comparison to last year.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

For the twelve-month period ended March 31, 2022, the $13.4 million increase was mainly attributable to decreases of revenues from Health and Wellness products offset by an increase in the Food and Beverages revenues. Health and Wellness revenues decreased by $10.9 million due to a reduction in sales in hand sanitizers and other COVID-19 related products by the Company. This was offset by the addition of $23.2 million of Food and Beverages revenues, representing average quarterly sales for the first three quarters of fiscal 2022 of over $8 million, which were due to the acquisition of Sprout in the last quarter of fiscal 2021 that were not present in full in the comparative fiscal year.

Geographic Revenues

From a geographic point of view, revenues for the current quarter increased by $3.0 million or 589% in Canada, increased by $3.7 million or 93% in the United States and increased by $0.1 million or 82% for other countries (all royalty revenues) compared to the quarter ended March 31, 2021.

Revenues for the year decreased by $1.0 million or 7% in Canada, increased by $14.5 million or 69% in the United States and decreased by $0.1 million or 8% for other countries (all royalty revenues) compared to the twelve-month period ended March 31, 2021.

The increase of revenue in Canada for the quarter variance is mainly due to the repositioning of the Cannabis business from the B2B Cannabis market to the B2C Cannabis market, which is in a growth state. However, the Company announced its planned divestiture of Cannabis business in June 2022. The decrease in revenue in Canada for the year to date variance is mainly due to timing of shipment to

58

Table of Contents

customers for nutraceutical products. The increase in revenues for the twelve month period ended March 31, 2022 in the United States is due to an increase in sales in Sprout (acquired on February 10, 2021).

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

​

​

​

​

​

​

​

​

​

​

​

    

March 31,

    

Changes

 

​

​

2022

​

2021

​

Changes in $

​

Changes in %

​

Three-month periods ended

 

(5.7)

 

(18.6)

 

12.9

 

69

%

Twelve-month periods ended

 

(7.5)

 

(27.4)

 

19.8

 

72

%

​

The consolidated gross profit (loss) for the three-month period ended March 31, 2022 amounted to $(5.7) million compared to $(18.6) million for the three-month period ended March 31, 2021, an improvement of $12.9 million or 69%.

As for the twelve-month period ended March 31, 2022, the consolidated gross profit (loss) amounted to $(7.5) million compared to $(27.4) million for the twelve-month period ended March 31, 2021, an improvement of $19.8 million or 72%.

Three-month period ended March 31, 2022 compared to March 31, 2021

The change for the quarter is mainly attributable to reduction in sales and related cost of sales from the Health and Wellness products, increases in volumes of sales from cannabis products, and an increase in sales from food and beverages resulting from the acquisition of Sprout on February 10, 2021. For Health and Wellness products, there was a $15.0 million reduction in the gross loss of Health and Wellness products in the December 31, 2021 period, resulting from a reduction in sales in hand sanitizers and other COVID-19 related products by the Company as part of its strategic review plan. The gross margin for cannabis products declined by $1.9 million for the March 31, 2022 period which was driven by the repositioning of the business.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

As for the twelve-month period ended March 31, 2022, the improvement is mainly attributable to reduction in sales and related cost of sales from the Health and Wellness products and partially offset by inventory write-downs as well as government wage subsidies. For the March 31, 2022 period, the gross loss improved by $19.8 million for the Health and Wellness products resulting from the reduction in sales in hand sanitizers and other COVID-19 related products, a gross margin improvement of $25.6 million. The gross loss improvement was partially offset by an increased gross loss from cannabis sales of $3.6 million. During the last six months of fiscal 2021, the Company was also ceasing placing order in its SugarLeaf facility in North Carolina for the B2B market in the USA, due to a continuous decline in pricing and demand. This resulted in a decrease of gross margin loss of $1.0 million for the period ended March 31, 2022 in comparison to 2021.

Gross Margin Percentage

For the three-month periods ended March 31, 2022 and 2021, the consolidated gross margin went from (398.8)% in 2021 to (49.4)% in 2022, an increase of 349.4%. As for the twelve-month periods ended March 31, 2022 and 2021, the consolidated gross margin went from (77.3)% in 2021 to (15.4%) in 2022, an increase of 61.9%.

All changes in gross margins result from the changes in revenues and gross profit (loss), and are described above.

59

Table of Contents

Research and Development (“R&D”) Expenses

Three-month period ended March 31, 2022 compared to March 31, 2021

For the quarter ended March 31, 2022, the consolidated R&D expenses net of tax credits and grants amounted to $0.2 million, compared to $0.6 million for the quarter ended March 31, 2021, a decrease of $0.4 million or 67% mainly due to the recognition of the warrants issued to non-employees for co-development recognized over the services rendered.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

Consolidated R&D expenses net of tax credits and grants amounted to $0.9 million in the twelve-month period ended March 31, 2022 compared to $1.9 million for the same period the prior year, a decrease of $1 million or 54% mainly due to the recognition of the warrants issued to non-employees for co-development recognized over the services rendered.

Selling, General and Administrative (“SG&A”) Expenses

Three-month period ended March 31, 2022 compared to March 31, 2021

Consolidated SG&A expenses net of subsidies for the quarter ended March 31, 2022 amounted to $10.6 million compared to $18.3 million for the same period the prior year, a decrease of $7.7 million or 42% primarily due to the benefits of the strategic review and continued cost controls.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

Regarding the twelve-month period ended March 31, 2022 compared to the same period in 2021, consolidated SG&A expenses net of subsidies amounted to $60.5 million compared to $63.8 million, a decrease of $3.3 million or 5% primarily from cost reduction measures related to the previously announced strategic review partially offset by higher legal and other costs.

Finance costs

Three-month period ended March 31, 2022 compared to March 31, 2021

Net finance costs, foreign exchange, change in revaluation of marketable securities and derivatives revaluations amounted to a loss of $2.9 million for the quarter ended March 31, 2022, compared to a gain of $2.9 million for the three-month period ended March 31, 2021, a change of $5.9 million or 201% for the quarter ended March 31, 2022. The variation for this period is mainly attributable to the revaluation of warrant liabilities as well as foreign exchange impact. The gain on revaluation of the warrants was primarily driven by the decrease in the Company’s stock price.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

As for the twelve-month period ended March 31, 2022, the net finance costs, foreign exchange, change in revaluation of marketable securities and derivatives revaluations amounted to a gain of $4.1 million, compared to a gain of $3.1 million for the twelve-month period ended March 31, 2021, a change of $1 million or 31% for the twelve-month period ended March 31, 2022. The variation for this period is mainly attributable to an improvement in foreign currency losses partially offset by lower gains on the revaluation of warrants.

Income taxes

For the three-month periods ended March 31, 2022 and 2021, income tax expense (recovery) were nil. As the other entities are in carry forward loss positions, there is no impact to income taxes for the twelve-month period ended March 31, 2022.

60

Table of Contents

Net loss

Three-month period ended March 31, 2022 compared to March 31, 2021

For the quarter ended March 31, 2022, the net loss amounted to $36.7 million compared to $43.5 million for the quarter ended March 31, 2021, a decrease of $6.8 million or 16%. The Company’s execution of its strategic review plan by refocusing on its core businesses is primarily responsible for the lower loss.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

The net loss for the twelve-month period ended March 31, 2022 totaled $84.4 million compared to $124.3 million for the twelve-month period ended March 31, 2021, a decrease of $39.8 million or 32%. The Company’s execution of its strategic review plan of refocusing over its core products and businesses and lower impairments and asset write-downs have decreased the loss.

Adjusted EBITDA

Three-month period ended March 31, 2022 compared to March 31, 2021

Recasted Consolidated Adjusted EBITDA loss decreased by $19.7 million or 60.6% for the quarter ended March 31, 2022 to a recasted Adjusted EBITDA loss of $12.8 million compared to $32.5 million for the quarter ended March 31, 2021. The decrease in recasted Adjusted EBITDA loss for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 was driven by the quarter’s improved performance over the comparative quarter as explained in the net loss section.

Twelve-month period ended March 31, 2022 compared to March 31, 2021

Recasted Consolidated Adjusted EBITDA loss decreased by $7.2 million or 11.9% for the twelve-month period ended March 31, 2022 to a recasted Adjusted EBITDA loss of $53.3 million compared to $60.5 million for the twelve-month period ended March 31, 2021. The decrease in recasted Adjusted EBITDA loss for the twelve- month period ended March 31, 2022 compared to the twelve-month period ended March 31, 2021 was driven by the quarter’s improved performance over the comparative quarter as explained in the net loss section.

61

Table of Contents

Results Analysis for the Quarter Ended December 31, 2022

Summary of Changes to the Condensed Consolidated Interim Statements of Loss

Three-month period ended December 31, 2022 compared to December 31, 2021

​

​

​

For the three-month period ended

​

Changes

​

​

​

December 31, 2022

​

December 31, 2021

​

Changes in $

​

Changes in %

​

​

​

​

​

​

​

​

​

​

​

Total revenues

    

$

12.209

    

$

14.668

    

(2.459)

    

-16.8

%

Total cost of sales

​

​

(10.328)

​

​

(13.014)

​

2.686

​

20.6

%

Gross profit

​

​

1.881

​

​

1.654

​

0.227

​

13.7

%

Gross profit margin

​

​

15.4

%  

​

11.3

%  

4.1

%  

36.6

%

​

​

​

​

​

​

​

​

​

​

​

​

Research and development expenses, net of tax credits and grants

​

​

(0.029)

​

​

(0.302)

​

0.273

​

90.4

%

Selling, general and administrative expenses

​

​

(8.727)

​

​

(18.429)

​

9.702

​

52.6

%

Impairment losses

​

​

(0.271)

​

​

—

​

(0.271)

​

100.0

%

Other elements of the operating loss

​

​

0.085

​

​

0.006

​

0.079

​

1316.7

%

Loss from operating activities

​

​

(7.061)

​

​

(17.071)

​

10.010

​

58.6

%

​

​

​

​

​

​

​

​

​

​

​

​

Net finance costs

​

​

(1.363)

​

​

(0.361)

​

(1.002)

​

-277.6

%

Foreign exchange gain (loss)

​

​

0.525

​

​

(0.601)

​

1.126

​

187.4

%

Loss on issuance and change in fair value of derivatives

​

​

7.338

​

​

1.246

​

6.092

​

488.9

%

Other changes in revaluation and fair value

​

​

—

​

​

(0.018)

​

0.018

​

100.0

%

Other elements of the loss before income taxes

​

​

0.066

​

​

—

​

0.066

​

100.0

%

​

​

​

6.566

​

​

0.266

​

6.300

​

2368.4

%

Loss before income taxes

​

​

(0.495)

​

​

(16.805)

​

16.310

​

97.1

%

​

​

​

​

​

​

​

​

​

​

​

​

Income tax recovery (expense)

​

​

(0.002)

​

​

—

​

(0.002)

​

100.0

%

Net loss

​

​

(0.497)

​

​

(16.805)

​

16.308

​

97.0

%

​

​

​

​

​

​

​

​

​

​

​

​

Adjusted EBIDTA

​

​

(5.057)

​

​

(14.188)

​

9.131

​

64.4

%

​

Revenues

Consolidated revenue summary, in millions of dollars:

​

​

​

​

​

    

December 31,

    

Changes

 

​

​

2022

    

2021

​

Changes in $

    

Changes in %

​

Three-month periods ended

​

12.209

​

14.668

​

(2.459)

​

(16.8)

%

Nine-month periods ended

​

40.468

​

37.265

​

3.203

​

8.6

%

​

Three-month period ended December 31, 2022 compared to December 31, 2021

Total consolidated revenues for the three-month period ended December 31, 2022 amounted to $12.2 million representing a decrease of $2.5 million or 17% compared to $14.7 million for the three-month period ended December 31, 2021. This decrease was primarily due to the Corporation having exited the cannabis business ahead of selling all cannabis assets on November 9, 2022. Cannabis sales were nil, down $3.5 million versus prior year quarter. Partially offsetting this decline, Organic Foods and Beverages revenues in Q3 FY 2023 were up $1.5 million in comparison to the quarter ended December 31, 2021. The principal reason for this increase is higher sales to Walmart, as well as the introduction of the CoComelon license products in additional stores.

62

Table of Contents

Nine-month period ended December 31, 2022 compared to December 31, 2021

For the nine-month period ended December 31, 2022, consolidated revenues totaled $40.5 million, an increase of $3.2 million or 8.6% compared to $37.3 million for the nine-month period ended December 31, 2021. Cannabis sales of $2.7 million were down $3.0 million or 52%, Nutraceutical Products sales increased $0.8 million to $11.8 million while Organic Foods and Beverages sales were up $5.5 million to $25.1 million an increase of 28%. This latter increase was mainly attributable to the expansion of Organic Foods and Beverages Sprout product at Walmart, as well as the introduction of the CoComelon license products in additional stores, and as a result of distribution gains in all markets.

Geographic Revenues

Revenues for the current quarter decreased by $3.2 million or 70.0% in Canada, increased by $0.8 million or 8% in the United States and decreased by $0.01 million or 4% for other countries (royalty revenues) as compared to the quarter ended December 31, 2021.

For the nine-month period ended December 31, 2022 compared to December 31, 2021, revenues decreased by $1.8 million or (21)% in Canada to $7.1 million from $8.9 million. In the United States revenues increased by $5 million or 18% from $27.6 million in 2021 to $32.6 million in 2022 and increased by $0.1 million or 9% from $0.7 million in 2021 to $0.8 million in 2022 for other countries (royalty revenues).

The decrease of revenue in Canada for the current quarter is mainly due to exiting our cannabis business as previously discussed. Increased first half year revenue in the United States is from sales growth of both Nutraceutical Products and Organic Foods and Beverages.

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

​

​

​

​

​

    

December 31,

    

Changes

 

​

​

2022

    

2021

​

Changes in $

    

Changes in %

​

Three-month periods ended

​

1.881

​

1.654

​

0.227

​

13.7

%

Nine-month periods ended

​

0.094

​

(1.841)

​

1.935

​

105.1

%

​

Three-month period ended December 31, 2022 compared to December 31, 2021

The gross profit improvement was mainly attributable to improved product mix and a Sprout price increase, as well as continued cost control measures.

Nine-month period ended December 31, 2022 compared to December 31, 2021

For the nine-month period ended December 31, 2022, the consolidated gross profit amounted to $0.09 million compared to $(1.8) million loss for the nine-month period ended December 31, 2021, an improvement of $1.9 million, mainly attributable to increased sales volumes and a price increase on Sprout, together with costs reductions.

Gross Margin Percentage

For the three-month periods ended December 31, 2022 and 2021, the consolidated gross margin went from 11.3% in 2021 to 15.4% in 2022. Changes in gross margins resulted from price increases together with cost reductions.

For the nine-month periods ended December 31, 2022 and 2021, the consolidated gross margin was 0.2% in 2022 from (4.9)% in 2021. A change of 5.2% resulting from increased sales volumes and price increases together with cost reductions.

63

Table of Contents

Research and Development (“R&D”) Expenses

Three-month period ended December 31, 2022 compared to December 31, 2021

For the quarter ended December 31, 2022, the consolidated R&D expenses amounted to $0.03 million, compared to $0.30 million for the quarter ended December 31, 2021.

Nine-month period ended December 31, 2022 compared to December 31, 2021

Consolidated R&D expenses amounted to $0.5 million in the nine-month period ended December 31, 2022, compared to $0.7 million for the same period last year.

Selling, General and Administrative (“SG&A”) Expenses

Three-month period ended December 31, 2022 compared to December 31, 2021

Consolidated SG&A expenses for the quarter ended December 31, 2022, amounted to $8.7 million compared to $18.4 million for the same period prior year, a reduction of $9.7 million or 52.6% primarily from headcount reductions at Sprout and Neptune Wellness (corporate and cannabis.)

Nine-month period ended December 31, 2022 compared to December 31, 2021

For the nine-month period ended December 31, 2022, consolidated SG&A expenses amounted to $35.2 million, compared to $49.9 in the same period in 2021, a decrease of $14.7 million or 29.5%, primarily due to cost reductions from the restructuring and continued cost controls, partly offset by severance and other expenses.

Impairment losses

For the nine-month period ended December 31, 2022, aggregate impairment losses amounted to $25.8 million compared to $2.4 million for the same period last year, an increase of $23.4 million. This increase is primarily due to the divesture from the Cannabis business and the impairment of the goodwill related to Sprout.

Finance costs

Three-month period ended December 31, 2022 compared to December 31, 2021

Net finance costs, foreign exchange and derivatives revaluations amounted to a gain of $6.6 million for the quarter ended December 31, 2022, compared to a gain of $0.3 million for the three-month period ended December 31, 2021, an increase of $6.3 million. The variation for this period is mainly attributable to the impact of the drop in the Company’s share price on the revaluation of derivatives.

Nine-month period ended December 31, 2022 compared to December 31, 2021

For the nine-month period ended December 31, 2022, the net finance costs, foreign exchange and derivatives revaluations amounted to a gain of $16.9 million, compared to a gain of $7.0 million for the same period the previous year, an increase of $9.9 million. The variation for this period is mainly attributable to the effect of the decline in the share price on the revaluation of derivatives.

Income taxes

Income tax expense (recovery) was nominal. As entities are in carry forward loss positions, there is a nominal impact to income taxes for the three and nine-month periods ended December 31, 2022.

64

Table of Contents

Net profit/loss

Three-month period ended December 31, 2022 compared to December 31, 2021

For the quarter ended December 31, 2022, the net loss amounted to $0.5 million compared to a $16.8 million loss for the same quarter last year. This $16.3 million improvement is primarily due to a combination of SG&A reductions ($9.7) million and the gain on the reevaluation of the derivatives, net of the day-one loss on issuance ($7.3) million.

Nine-month period ended December 31, 2022 compared to December 31, 2021

The net loss for the nine-month period ended December 31, 2022 totaled ($44.3) million compared to ($47.8) million for the nine-month period ended December 31, 2021, an improvement of $3.4 million or 7.2%. The improvement is primarily due to reduced SG&A ($14.7) million, foreign exchange gains ($6.9) million, gain on the revaluation of the derivatives, net of the day-one loss on issuance ($12.9) million, mostly offset by impairment losses of ($23.4) million.

Adjusted EBITDA

Three-month period ended December 31, 2022 compared to December 31, 2021

Consolidated Adjusted EBITDA loss improved by $9.1 million for the quarter ended December 31, 2022 to an Adjusted EBITDA loss of ($5.1) million compared to a ($14.2) million loss for the same quarter last year mainly as a result of SG&A reductions as compared to prior year, as discussed above.

Nine-month period ended December 31, 2022 compared to December 31, 2021

Consolidated Adjusted EBITDA loss improved by $10.4 million for the nine-month period ended December 31, 2022 to ($30.1) million compared to a ($40.5) million loss for the same period last year. The decrease in Adjusted EBITDA loss for the nine-month period is due to a reduction in gross loss and SG&A.

65

Table of Contents

Financial and Capital Management for the Year Ended March 31, 2022

Use of Proceeds

The use of proceeds for the three-monththree and twelve-month periods ended June 30,March 31, 2022 and 2021, in millions of dollars, was as follows:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

Three-month periods ended

    

Twelve-month periods ended

​

​

March 31, 2022

​

March 31, 2021

​

March 31, 2022

​

March 31, 2021

Sources:

 

​

  

 

​

  

 

​

  

 

​

  

Proceeds from the issuance of shares through an At-The-Market Offering

​

$

—

​

$

—

​

$

—

​

$

13.737

Proceeds from the issuance of shares through a Direct Offering

​

 

8.000

​

 

—

​

 

8.000

​

 

12.834

Proceeds from the issuance of shares and warrants through a Private Placement

​

 

—

​

 

—

​

 

—

​

 

35.301

Proceeds from the issuance of shares and warrants through a Direct Offering Priced At-The-Market and Concurrent Private Placement

​

 

—

​

 

55.000

​

 

—

​

 

55.000

Proceeds from exercise of options

​

 

0.001

​

 

2.653

​

 

0.001

​

 

7.479

Proceeds from sale of property, plant and equipment

​

 

—

​

 

0.015

​

 

—

​

 

0.015

Proceeds from sale of Acasti shares1

​

 

—

​

 

(0.236)

​

 

0.044

​

 

—

Maturity of short-term investment1

​

 

—

​

 

—

​

 

—

​

 

0.009

Foreign exchange gain on cash and cash equivalents held in foreign currencies

​

 

0.052

​

 

—

​

 

0.001

​

 

(0.001)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

 

8.053

​

 

57.432

​

 

8.046

​

 

124.374

​

​

​

​

​

​

​

​

​

​

​

​

​

Uses:

​

 

  

​

 

  

​

 

  

​

 

  

Acquisition of a subsidiary, net of cash acquired

​

 

—

​

 

3.137

​

 

—

​

 

3.137

Acquisition of property, plant and equipment

​

 

0.904

​

 

1.937

​

 

1.939

​

 

6.618

Acquisition of intangible assets

​

 

(0.001)

​

 

0.156

​

 

0.433

​

 

0.390

Repayment of loans and borrowings

​

 

—

​

 

2.458

​

 

—

​

 

2.458

Costs of issuance of shares

​

 

0.637

​

 

2.705

​

 

0.637

​

 

6.174

Withholding taxes paid pursuant to the settlement of non-treasury RSUs

​

​

0.440

​

​

0.092

​

​

1.412

​

​

0.717

Foreign exchange loss on cash and cash equivalents held in foreign currencies

​

​

(0.001)

​

​

6.232

​

​

0.390

​

​

0.187

Cash flows used in operating activities

​

​

10.526

​

​

6.187

​

​

54.346

​

​

56.645

​

​

​

12.505

​

​

22.904

​

​

59.157

​

​

76.326

Net cash (outflows)

​

$

(4.452)

​

$

34.528

​

$

(51.111)

​

$

48.048

​

   

Three-month periods ended

 
   June 30,
2022		   June 30,
2021		 

Sources:

    

Proceeds from the issuance of shares through a Direct Offering

  $5.000   $—   

Foreign exchange gain on cash and cash equivalents held in foreign currencies

   0.169    0.133 
  

 

 

   

 

 

 
   5.169   0.133 
  

 

 

   

 

 

 

Uses:

    

Acquisition of property, plant and equipment

   —      0.470 

Acquisition of intangible assets

   —      0.074 

Costs of issuance of shares

   0.465    —   

Withholding taxes paid pursuant to the settlement of non-treasury RSUs

   —      0.979 

Cash flows used in operating activities

   7.198    19.270 
  

 

 

   

 

 

 
   7.663   20.793 
  

 

 

   

 

 

 

Net cash (outflows)

  $(2.494)   $(20.660) 
  

 

 

   

 

 

 

Sources and Uses of Funds

For the three-month period ended June 30,March 31, 2022, gross proceeds from a direct offering totaling $5.0$8.0 million were raised, and the proceeds were used for operating activities primarily inventory procurement, salariesresulting in cash outflows of $10.5 million. For the three-month period ended March 31, 2021, gross proceeds from a direct offering of $55.0 million were raised. In the same period, funds were used for the acquisition of a subsidiary, acquisition of equipment, loan repayments and professional fees, resulting inoperating activities. During the quarter, there were net cash proceeds of $34.7 million.

For the twelve-month period ended March 31, 2022, gross proceeds of $8.0 million were raised with $54.3 million of cash being used for operating activities and an additional $5.9 million for other purposes bringing net cash outflows of $2.5in the year to $51.1 million. During the twelve month period ending March 31, 2021, proceeds from financings and other sources totaled $124.4 million with $55.9 million being used to fund operating expenses and an additional $20.4 million for other purposes. Net cash proceeds for the twelve months ended March 31, 2021 were $48.0 million.

ForAt-The-Market Offering

During the three-month period ended June 30, 2020, the Company sold a total of 154,619 shares (5,411,649 pre-consolidation shares) through the At-The-Market offering (the “ATM Offering”) over the Nasdaq stock market, for gross proceeds of $13.7 million and net

66

Table of Contents

proceeds of $13.1 million. The shares were sold at the prevailing market prices which resulted in an average of approximately $88.55 per share (or $2.53 per pre-consolidation share). Effective February 16, 2021, therethe ATM Offering was terminated and Neptune will make no further sales under the ATM Offering. As of that date, Neptune had sold 273,450 of its common shares (9,570,735 pre-consolidation shares) under the ATM Offering, raising approximately $18.6 million in gross proceeds.

Direct Offerings

On March 14, 2022, Neptune issued a total of 528,572 (18,500,000 pre-consolidation) Common Shares, along with 185,715 (6,500,000 pre-consolidation) March 2022 Pre-Funded Warrants, as part of the March 2022 Offering, with each March 2022 Pre-Funded Warrant exercisable for one Common Share. The Common Shares and the March 2022 Pre-Funded Warrants were no significant sourcessold together with 714,286 (25,000,000 pre-consolidation) Series A Warrants and 714,286 (25,000,000 pre-consolidation) Series B Warrants to purchase up to an aggregate of funds. In1,428,572 (50,000,000 pre-consolidation) Common Shares. Each Common Share and March 2022 Pre-Funded Warrants and the sameaccompanying March 2022 Warrants were sold together at a combined offering price of $11.20 (or $0.32 pre-consolidation), for aggregate gross proceeds of $8.0 million before deducting fees and other estimated offering expenses. The March 2022 Pre-Funded Warrants were funded in full at closing except for a nominal exercise price of $0.0035 (or $0.0001 pre-consolidation) and are exercisable commencing on the closing date, and will terminate when such March 2022 Pre-Funded Warrants are exercised in full. The Series A Warrants have an exercise price of $11.20 per share and are exercisable six months after the closing date, and will expire five and one half years from the date of issuance. The Series B Warrants have an exercise price of $11.20 per share and are exercisable six months after the closing date, and expire 18 months from the date of issuance. The March 2022 Pre-Funded Warrants were exercised in full on March 29, 2022 for gross proceeds of $650. The net proceeds of the transaction amounted to $3.6 million.

On July 13, 2020, Neptune entered into definitive agreements with certain healthcare-focused institutional investors for the sale of 136,389 common shares (4,733,584 pre-consolidation shares) at an offering price of $92.75 per share ($2.65 per pre-consolidation share) for gross proceeds of approximately $12.65 million before deducting fees and other estimated offering expenses, pursuant to a registered direct offering. The offering closed on July 15, 2020 with one of its existing institutional investors and two new U.S. institutional investors. The net proceeds of the direct offering were of $12.0 million.

Private Placement

On October 20, 2020, Neptune entered into definitive agreements with certain US healthcare focused institutional investors for a private placement of 462,963 (16,203,700 pre-consolidation) common shares and 300,926 (10,532,401 pre-consolidation) warrants to purchase 300,926 (10,532,401 pre-consolidation) common shares for gross proceeds of approximately $35 million before deducting fees and other estimated offering expenses (the “Private Placement”). Each warrant will entitle the holder thereof to acquire one common share at an exercise price of $78.75 (or $2.25 pre-consolidation) per share for a period usesbeginning on April 22, 2021 through October 22, 2025. The Company used the net proceeds from the Private Placement, which closed on October 22, 2020, for purchase order fulfilment, working capital and other general corporate purposes. The net proceeds of fundsthe Private Placement amounted to $32.9 million.

Registered Direct Offering Priced At-The-Market Under Nasdaq Rules and Concurrent Private Placement

On February 17, 2021, Neptune announced it had entered into definitive agreements with institutional investors for the purchase of 785,715 common shares (27,500,000 pre-consolidation shares). The Company also agreed to issue to the investors, in a concurrent private placement, unregistered common share purchase warrants to purchase an aggregate of 196,429 common shares (6,875,000 pre-consolidation shares). Each common share and accompanying quarter of a warrant were usedsold together at a combined offering price of $70.00 (or $2.00 pre-consolidation), pursuant to a registered direct offering, priced at-the-market under Nasdaq rules, for operating activities, primarily inventory procurement, payments for legacy Healthaggregate gross proceeds of approximately $55.0 million before deducting fees and Wellness COVID-19 related products, salariesother estimated offering expenses. The warrants will have an exercise price of $78.75 per share (or $2.25 per pre-consolidation share), will be exercisable commencing on the six-month anniversary of the date of issuance, and professional fees, as well as acquisitionwill expire 5.5 years from the date of issuance. Proceeds were allocated first to the warrants based on their fair value and integration costs,then the residual to the common shares, resulting in an initial warrant liability of $6.3 million and $48.7 million recorded in the equity of the Corporation. Purchase warrants are recognized as liabilities, as the exercise price of the warrants is in USD, whereas the Corporation’s functional currency is the Canadian dollar. The net cash outflowsproceeds of $20.7the registered direct offering were of $52.0 million. The offering closed on February 19, 2021, following the satisfaction of customary closing conditions and the receipt of regulatory approvals, including the approval of the TSX.

67

Direct OfferingTable of Contents

Offerings subsequent to the year end

On June 23, 2022, Neptune closed agreements with several institutional investors for the purchase and sale of an aggregate of 1,300,000 common shares of the Corporation, 645,526 pre-funded warrants and accompanying series of warrants to purchase up to an aggregate of 2,591,052 common shares warrants, at an offering price of $2.57 per share and accompanying warrants in a registered direct offering priced at-the-market under Nasdaq rules. Each series of warrants have an exercise price of $2.32 per share and are immediately exercisable upon issuance. One series of warrants will expire two years following the date of issuance and one series of warrants will expire five years following the date of issuance. The gross proceeds from the offering are $5 million, prior to deducting placement agent’s fees and other offering expenses payable by Neptune. The Prefunded warrants were fully exercised on June 24, 2022 for $64.55.

Financial and Capital Management for the Quarter Ended December 31, 2022

Use of proceeds

The use of proceeds for the three and nine month periods ended December 31, 2022 and 2021, in millions of dollars, was as follows:

​

​

​

​

​

​

​

​

​

Nine-month periods ended

​

​

December 31,

​

December 31,

​

​

2022

​

2021

Sources:

    

​

  

    

​

  

Proceeds from the issuance of shares and warrants through a Direct Offering

​

$

5.000

​

$

—

Proceeds from the issuance of shares and warrants through a Direct Offering Priced At-The-Market and Concurrent Private Placement

​

 

6.000

​

 

—

Proceeds from sale of Cannabis assets

​

 

3.122

​

 

—

Proceeds from sale of assets

​

 

0.170

​

 

—

Proceeds from sale of Acasti shares1

​

 

—

​

 

0.045

Increase in loans and borrowings

​

 

3.800

​

 

—

​

​

 

18.092

​

 

0.045

​

​

​

​

​

​

​

Uses:

​

 

  

​

 

  

Acquisition of property, plant and equipment

​

 

0.602

​

 

1.035

Acquisition of intangible assets

​

 

—

​

 

0.434

Costs of issuance of shares

​

 

1.330

​

 

—

Withholding taxes paid pursuant to the settlement of non-treasury RSUs

​

 

0.574

​

 

0.979

Foreign exchange loss on cash and cash equivalents held in foreign currencies

​

 

0.238

​

 

0.454

Cash flows used in operating activities

​

 

20.670

​

 

43.821

​

​

 

23.414

​

 

46.723

​

​

​

​

​

​

​

Net cash (outflows)

​

$

(5.322)

​

$

(46.678)

​

Sources and Uses of Funds

Nine-month period ended December 31, 2022 compared to December 31, 2021

For the nine-month period ended December 31, 2022, the increase in loans and borrowings was $3.8 million and direct offerings of $11.0 million; in addition, the Company received $3.3 million for the sale of assets. The proceeds were used for operating activities, primarily inventory procurement, salaries and professional fees.

For the nine-month period ended December 31, 2021, there were no significant sources of funds. In the same period, uses of funds were for operating activities, primarily inventory procurement.

Direct Offering

On June 23, 2022, Neptune closed agreements with several institutional investors for the purchase and sale of an aggregate of 1,300,000 common shares of the Company, 645,526 pre-funded warrants and accompanying series of warrants to purchase up to an aggregate of 2,591,052 common shares warrants, at an offering price of $2.57 per share and accompanying warrants in a registered direct offering

68

Table of Contents

priced at-the-market under Nasdaq rules. Each series of warrants have an exercise price of $2.32 per share and are immediately exercisable upon issuance. One series of warrants will expire two years following the date of issuance and one series of warrants will expire five years following the date of issuance. The gross proceeds from the offering were $5.0 million, prior to deducting placement agent’s fees and other offering expenses payable by Neptune. The pre-funded warrants were fully exercised on June 24, 2022 for $65.

On October 11, 2022, the Company closed the October 2022 RDO of 3,208,557 of its Common Shares and Series E Warrants to purchase up to 6,417,114 Common Shares in the October 2022 Private Placement. The combined purchase price for one Common Share and one warrant was $1.87. The Series E Warrants have an exercise price of $1.62 per Common Share, are exercisable immediately following the date of issuance and will expire five years from the date of issuance. The Company received gross proceeds from the October 2022 Offerings of $6.0 million and net proceeds of $5.1 million after deducting the placement agent fees and expenses, and the Company’s offering expenses.

70Secured Promissory Notes

On July 13, 2022, Neptune announced that Sprout Foods Inc. ("Sprout"), the Company’s organic plant-based baby food and toddler snack company, entered into an amendment of each of its existing Secured Promissory Notes. In connection with this amendment, investment funds managed by Morgan Stanley Expansion Capital ("Morgan Stanley" or "MSEC") have agreed to immediately commit an additional $3 million in Secured Promissory Notes to Sprout. On May 1, 2023, the MSEC Note maturity date was extended to December 31, 2024, and which will bear interest at the rate of 15.0% per annum through and including December 31, 2023, payable in kind, and 10.0% per annum, payable in kind, and 5.0% per annum payable in cash, from and after January 1, 2024. The amended Secured Promissory Notes may be converted, in whole or in part, at any time upon the mutual consent of Sprout, the Company and MSEC, into common shares of the Company. MSEC was issued 372,670 common shares of Neptune, having a value of $0.6 million in connection with this commitment, for the payment of borrowing costs.

CAPITAL RESOURCES FOR THE FISCAL YEAR ENDED MARCHOn September 9, 2022, Neptune’s Sprout subsidiary entered in a new $0.25 million Secured Promissory Note agreement. The maturity date of the new note facility is February 1, 2024. The $0.25 million Secured Promissory Note has a 10% interest rate per annum, increasing by 1% per annum every three months during the term of this Secured Promissory Note. The interest will be compounded and added to the principal amount on a quarterly basis. This Secured Promissory Note may be converted, in whole or in part, at any time upon the mutual consent of Sprout, the Company and the holder, into common shares of the Company. Neptune issued 36,765 common shares having a value of $0.1 million in connection with this Secured Promissory Note, for the payment of borrowing costs.

On November 8, 2022, Sprout entered into two agreements to issue an additional $0.55 million of Secured Promissory Notes, on the same terms as the previous Secured Promissory Note discussed above. In connection with these financings, Neptune issued 146,330 common shares for a value of $0.1 million to the holders of these Secured Promissory Notes on February 15, 2023, for the payment of borrowing costs.

Sale of assets

On June 8, 2022, the Company announced a planned divestiture of the Canadian cannabis business and that the Company would focus on winding up its cannabis operations pending one or more sales transactions. The net proceeds from the asset sale and purchase agreement (the “ASPA”) signed with a third-party on October 16, 2022 were $3.1 million. The transaction closed on November 9, 2022. In addition, Neptune received $0.2 million for the sale of assets unrelated to the cannabis business.

Capital Resources for the Fiscal Year Ended March 31, 2022

Liquidity position

As at March 31, 2022, the Company’s liquidity position, consisting of cash and cash equivalents, was $8.7 million. The Company also has a short-term investment of $0.02 million.

Liquidity and Capital Resources

Cash flows and financial condition between the three-month periods ended March 31, 2022 and 20212021.

Summary

As at March 31, 2022, cash and cash equivalent totaled $8.7 million, a decrease of $51.1 million or 85% compared to cash and cash equivalents totaling $59.8 million as at March 31, 2021.

Operating activities

During the three-month period ended March 31, 2022 our operating activities used cash of $10.5 million compared to $6.2 million in the three-month period ended March 31, 2021. For the twelve months ended March 31, 2022, our operating activities used cash of $54.3 million compared to $56.6 million in the prior year.

69

Table of Contents

Investing activities

The Company’s business models require low capital expenditures future investments. For the year ended March 31, 2022, $2.3 million was used for investing activities. In the prior year, $10.1 million was used for investing activities.

Financing activities

The Company has been successful in obtaining financing from public issuances, private placements, and related parties. The Company also previously had a term facility for one of its subsidiaries, which was repaid in its entirety during the last quarter of fiscal year 2021 and since then, it has not incurred financing until the $8.0 million Registered Direct Offering closed on March 14, 2022. The Company has limited debt, all of which is subordinated.

On January 28, 2022, a shelf registration statement on Form F-3 (the “Form F-3”“Form F-3”) was filed with the SEC, allowing the Company to issue up to $50 million in publicly traded securities within a three-year timeframe. In connection with the Company’s loss of foreign private issuer status, the Company intended to withdraw the Form F-3 following the date of its Annual Report. The Company has preferred shares authorized (none issued) as well unlimited class A shares. As part of financing options, we may choose to issue such classes of shares subject to securities laws restrictions.

TheAs of May 8, 2023, the Company’s current cash position will be sufficient to support its financial needs for twothe next six to three months.eight weeks. Should the Company’s financing initiatives discussed above not materialize, further actions such as further cost reduction initiatives and Company spinoffs of subsidiaries remain as viable options. These represent short-term and long-term financing options to management. Management believes that, absent any unexpected economic circumstances or other unknown factors, Neptune will be able to obtain sufficient financial resources to fund its current operations to make the investments needed to execute on the Company’s strategic plans. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Going Concern.

The financial commitments and obligations of the Company are limited. Furthermore, certain liabilities, such as the warrant liabilities, are dependent on Neptune’s share price and would only become payable if they are in the

71

money. The warrants, if exercised, settle in common shares of the Company and therefore do impact on the Company’s cash. Indeed, warrant holders are required to pay the cash strike price to exercise the warrant and thus the exercise of warrants would result in a cash infusion to the Company.

Loans and borrowings

On February 10, 2021, as part of the Sprout acquisition, Sprout issued a promissory note of $10.0 million guaranteed by the Company and secured by a first-ranking mortgage on all movable assets of Sprout current and future, corporeal and incorporeal, and tangible and intangible. The outstanding principal balance bears interest at the rate of 10.0% per annum. Interest is accrued and added to the principal amount of the loan. The principal is payable on February 1, 2024.

On July 13, 2022, Neptunewe announced that Sprout Foods Inc. (“Sprout”), the Corporation’s organic plant-based baby food and toddler snack company, has entered into an amendment of each of its existing Secured Promissory Notes. In connection with this amendment, investment funds managed by Morgan Stanley Expansion Capital (“Morgan Stanley” or “MSEC”) invested an additional $3 million in Sprout in exchange for Secured Promissory Notes. TheOn May 1, 2023, the MSEC Note maturity date was extended to December 31, 2024, and which will bear interest at the rate of the note facility of February 1, 2024 is consistent with the maturity date of the existing Secured Promissory Notes with MSEC and Neptune. The $13.0 million of amended Secured Promissory Notes have a 10% interest rate15.0% per annum increasing by 1%through and including December 31, 2023, payable in kind, and 10.0% per annum, every three months during the term of the Secured Promissory Notes. The interest will be compoundedpayable in kind, and added to the principal amount on a quarterly basis.5.0% per annum payable in cash, from and after January 1, 2024. The amended Secured Promissory Notes may be converted, in whole or in part, at any time upon the mutual consent of Sprout, the CorporationCompany and MSEC, into common sharesCommon Shares of the Corporation.Company. MSEC was issued 372,670 common shares of Neptune, of an approximateCommon Shares, with a value of $500,000,$570,185, in connection with this commitment.

In September 2022, we issued to one additional accredited investor 36,765 common sharesCommon Shares in connection with loans to Sprout Foods, Inc. and the issuance of a Secured Promissory Note.

In June 2022 we issued 7,104 common sharesCommon Shares to our financial advisor in connection with our proposed divestiture of our Canadian cannabis business.

Equity

Equity consists of the following items:

​

   March 31,
2022		   March 31,
2021		 

Share capital

  $ 317.051   $ 306.618 

Warrants

   6.080    5.901 

Additional paid-in capital

   55.981    59.625 

Accumulated other comprehensive loss

   (7.814)    (8.567) 

Deficit

   (323.182)    (248.210) 
  

 

 

   

 

 

 

Total equity attributable to equity holders of the Corporation

  $ 48.116   $ 115.367 

Total equity attributable to non-controlling interest

   12.722    22.178 
  

 

 

   

 

 

 

Total equity

  $ 60.838   $ 137.545 
  

 

 

   

 

 

 

CAPITAL RESOURCES FOR THE QUARTER ENDED JUNE 30,70

Table of Contents

Capital Resources for the Quarter Ended December 31, 2022

Liquidity position

​

​

​

​

​

​

​

​

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Share capital

​

$

317.051

​

$

306.618

Warrants

​

 

6.080

​

 

5.901

Additional paid-in capital

​

 

55.981

​

 

59.625

Accumulated other comprehensive loss

​

 

(7.814)

​

 

(8.567)

Deficit

​

 

(323.182)

​

 

(248.210)

Total equity attributable to equity holders of the Corporation

​

$

48.116

​

$

115.367

Total equity attributable to non-controlling interest

​

 

12.722

​

 

22.178

Total equity

​

$

60.838

​

$

137.545

​

As at June 30,December 31, 2022, the Company’s liquidity position, consisting of cash and cash equivalents, was $6.2$3.4 million. Furthermore, as at December 31, 2022, the Company’s current liabilities and expected level of expenses for the next twelve months exceed cash on hand of $3.4 million and its total current liabilities exceed its total current assets. Accordingly, the Company is required to actively manage its liquidity and expenses and payments of payables are not being made as the amounts become due for certain suppliers. As of the date the financial statements are authorized for issuance, the cash balance is expected to be sufficient to operate the business for only the next one to two months under the current business plan. The Company also has a short-term investment of $0.02 million.requires funding in the very near term in order to continue its operations. If the Company is unable to obtain funding in the near-term, it may have to cease operations and liquidate its assets.

72

Liquidity and Capital Resources

Cash flows and financial condition betweenfor the three-monththree and six-month periods ended June 30,December 31, 2022 and 2021

Summary

As at June 30,of December 31, 2022, cash and cash equivalent totaled $6.2$3.4 million, a decrease of $2.5$5.3 million or 29%61% compared to cash and cash equivalents totaling $8.7 million as at June 30,of December 31, 2021.

Operating activities

DuringFor the three-monthquarter ended December 31, 2022, increase in loans and borrowings was $0.55 million and the proceeds from a direct offering of $6.0 million were used for operating activities, primarily inventory procurement, salaries and professional fees.

For the quarter ended December 31, 2021, there were no significant sources of funds. In the same period, funds were used for operating activities, primarily inventory procurement.

For the nine-month period ended June 30,December 31, 2022, ourthe increase in loans and borrowings was $3.8 million and direct offerings of $11.0 million. The proceeds were for operating activities, used cash of $7.2 million compared to $19.3 million inprimarily inventory procurement, salaries and professional fees.

For the three-monthnine-month period ended June 30, 2021. The mainDecember 31, 2021, there were no significant sources of decrease in cash flows used infunds. In the same period, uses of funds were for operating activities, of $13.1 million are derived from payments related to legacy Health and Wellness COVID-19 related products as well as acquisition and integration costs during the first quarter of fiscal 2022.primarily inventory procurement.

Investing activities

The Company’s business models require low capital expenditures ("CAPEX") future investments. For the quarter ended June 30,December 31, 2022, $0.0$3.1 million was used forprovided by investing activities.activities, mainly coming from the proceeds from the sale of the Cannabis assets. In the same period the prior year, $0.5 million was used for investing activities. As for the nine-month period ended December 31, 2022, $2.7 million was provided by investing activities, compared to $1.4 million used by investing activities for the same period the prior year.

71

Table of Contents

Financing activities

The Company has been successful in obtaining financing from public issuances and private placements, and related parties.placements. The Company also previously had a term facility for one of its subsidiaries, which was repaid in its entirety during the last quarter of fiscal year 2021 and since2021. Since then, it has not incurred financing until the Company entered into Registered Direct Offerings that closed on March 14, 2022 ($8.0 million) and, June 23, 2022 ($5.0 million) and October 11, 2022 ($6.0 million). The Company has limited debt, allSecured promissory notes totaling $3.8 million were also issued during the nine-month period ended December 31, 2022 by Sprout (including $0.55 million during the last quarter). Subsequently to the quarter ended December 31, 2022, Sprout entered into an accounts receivable factoring facility, for which the maximum available is $5 million, and issued secured senior notes for gross proceeds of which is subordinated.$4 million.

On January 28, 2022, a shelf registration statement on Form F-3 (the “Form F-3”) was filed with the SEC, allowing the Company to issue up to $50 million in publicly traded securities within a three-year timeframe. In connection with the Company’s lossAs of foreign private issuer status,May 8, 2023, the Company has withdrawn the Form F-3. The Company has preferred shares authorized (none issued) as well unlimited class A shares. As part of financing options, we may choose to issue such classes of shares subject to securities laws restrictions.

The Company’s current cash position will be sufficient to support its financial needs for twothe next six to three months.eight weeks. Should the Company’s various financing initiatives such as potential public issuances, private placements, related parties financings, preferred shares issuances, or debt financings not materialize, further actions such as further cost reduction initiatives and Company spinoffs of subsidiaries remain as viable options. These represent short-term and long-term financing options to management. Management believes that, absent any unexpected economic circumstances or other unknown factors, Neptune will be able to obtain sufficient financial resources to fund its current operations to make the investments needed to execute on the Company’s strategic plans. See the Going Concern section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The financial commitments and debt of the Company are limited. Furthermore, certain liabilities, such as the warrant liabilities, are dependent on Neptune’s share price and would only become payable if they are in the money. The warrants, if exercised, settle in common shares of the Company and therefore do impact on the Company’s cash. Indeed,Unless exercised on a cashless basis (where permitted), warrant holders are required to pay the cash strike price to exercise the warrant and thus the exercise of warrants wouldcould result in a cash infusion to the Company.

73

Loans and borrowings

On February 10, 2021, as part of the Sprout acquisition, Sprout issued a promissory note of $10.0 million guaranteed by the Company and secured by a first-ranking mortgage on all movable assets of Sprout current and future, corporeal and incorporeal, and tangible and intangible. The outstanding principal balance bears interest at the rate of 10.0% per annum. Interest is accrued and added to the principal amount of the loan. The principal is payable on February 1, 2024.

On July 13, 2022, Neptune announced that Sprout Foods Inc. (“Sprout”), the Corporation’s organic plant-based baby food and toddler snack company, has entered into an amendment of each of its existing Secured Promissory Notes. In connection with this amendment, investment funds managed by Morgan Stanley Expansion Capital (“Morgan Stanley” or “MSEC”) have agreed to immediately commit an additional $3 million in Secured Promissory Notes to Sprout. The maturity date of the note facility of February 1, 2024 is consistent with the maturity date of the existing Secured Promissory Notes with MSEC and Neptune. The $13.0 million of amended Secured Promissory Notes have a 10% interest rate per annum, increasing by 1% per annum every three months during the term of the Secured Promissory Notes. The interest will be compounded and added to the principal amount on a quarterly basis. The amendedprincipal is payable on February 1, 2024.

On September 9, 2022, Sprout entered in a new $0.25 million Secured Promissory NotesNote agreement. The maturity date of the new note facility is February 1, 2024. The $250,000 Secured Promissory Note has a 10% interest rate per annum, increasing by 1% per annum every three months during the term of this Secured Promissory Note. The interest will be compounded and added to the principal amount on a quarterly basis. This Secured Promissory Note may be converted, in whole or in part, at any time upon the mutual consent of Sprout, the CorporationCompany and MSEC,the holder, into common shares of the Corporation. MSEC wasCompany. Neptune issued 372,67036,765 common shares of Neptune, of an approximatefor a value of $500,000,$0.1 million in connection with this commitment.Secured Promissory Note, for the payment of borrowing costs.

On November 8, 2022, Sprout entered into an agreement to issue an additional $0.55 million of Secured Promissory Notes, on the same terms as the Secured Promissory Note entered into with MSEC. On February 15, 2023, in connection with this financing, Neptune issued 146,330 common shares to the holders of these Secured Promissory Notes for a value of $0.1 million.

On January 13, 2023, Neptune announced that it has closed on a senior secured notes financing (such notes, the "Notes") for gross proceeds of $4.0 million with CCUR Holdings, Inc. and Symbolic Logic, Inc. (collectively, the "Noteholders"). The Notes will mature 12 months from the initial closing and bear interest at a rate of 16.5% per annum. The notes are secured by the assets of Neptune excluding the assets of Sprout. Interest will be payable in kind on the first 6 monthly payment dates after the initial closing date and thereafter will be payable in cash. Pursuant to the terms of the Notes, the Company also issued to the Noteholders the January 2023 Warrants to purchase an aggregate of 850,000 shares of Neptune Common Shares, with each warrant exercisable for 5 years following the initial issuance at a price of $0.53 per common share. On March 9, 2023, the Company entered into a Waiver and First Amendment to the Notes (the "Waiver Agreement"). The Waiver Agreement waives certain administrative, regulatory and financial statement related covenants as further described in the Waiver Agreement as required by the terms of the Notes. The lender has the right to demand immediate repayment in the event of default. Furthermore, in connection with the Waiver Agreement, the Notes were amended to provide that the Purchasers shall be paid an exit fee in the aggregate amount of $0.2 million, payable as follows: (i) on or prior to May 15, 2023, $0.1 million and (ii) on the Maturity Date (as defined in the Note Purchase Agreement), $0.1 million and the interest rate was increased to 24% for a period extending until the Company meets specified criteria in the Waiver Agreement.

On January 25, 2023, Neptune announced that its organic baby food brand subsidiary, Sprout Organics, has entered into an accounts receivable factoring facility with Alterna. The maximum available is $5 million. The terms of the agreement include a Funds Usage Fee

72

Table of Contents

of prime plus 1% with a minimum interest rate of 8% per annum. Alterna was granted a security interest in Sprout’s accounts receivable. The agreement will remain in effect for a 12-month period, effective January 23, 2023, and will be automatically renewed. Neptune provided a commercial guaranty in connection with this agreement.

Form S-3 Limitations

As a result of our inability to timely file the Quarterly Report for the three and six-months periods ended September 30, 2022 and the three and nine-months periods ended December 31, 2022 under the Securities Exchange Act of 1934, as amended, we will not be eligible to use a registration statement on Form S-3 to conduct public offerings of our securities until we have timely filed all periodic reports with the SEC for a period of twelve months. Our inability to use Form S-3 during this time period may have a negative impact on our ability to access the public capital markets in a timely fashion because we would be required to file a long-form registration statement on Form S-1 and have it reviewed and declared effective by the SEC. This may limit our ability to access the public markets to raise debt or equity.

Equity

Equity consists of the following items:items (in millions):

​

​

​

​

​

​

​

​

    

December 31,

    

March 31,

​

​

2022

​

2022

Share capital

​

$

321.792

​

$

317.051

Warrants

​

 

6.118

​

 

6.080

Additional paid-in capital

​

 

57.303

​

 

55.981

Accumulated other comprehensive loss

​

 

(14.540)

​

 

(7.814)

Deficit

​

 

(357.075)

​

 

(323.182)

Total equity attributable to equity holders of the Company

​

$

13.598

​

$

48.116

Total equity attributable to non-controlling interest

​

 

2.326

​

 

12.722

Total equity

​

$

15.924

​

$

60.838

​

   June 30,
2022		   March 31,
2022		 

Share capital

  $ 318.922   $ 317.051 

Warrants

   6.080    6.080 

Additional paid-in capital

   56.347    55.981 

Accumulated other comprehensive loss

   (10.606)    (7.814) 

Deficit

   (327.466)    (323.182) 
  

 

 

   

 

 

 

Total equity attributable to equity holders of the Corporation

  $ 43.277   $ 48.116 

Total equity attributable to non-controlling interest

   10.502    12.722 
  

 

 

   

 

 

 

Total equity

  $ 53.779   $ 60.838 
  

 

 

   

 

 

 

CONTRACTUAL OBLIGATIONS FOR THE FISCAL YEAR ENDED MARCHContractual Obligations for the Fiscal Year Ended March 31, 2022

The following are the contractual maturities of financial liabilities and other contracts as at March 31, 2022:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Required payments per year

  Carrying
amount		   Contractual
Cash flows		   Less than
1 year		   1 to
3 years		   4 to
5 years		   March 31,
2022
More
than
5 years		 

    

Carrying
amount

    

Contractual
Cash flows

    

Less than
1 year

    

1 to 3
years

    

4 to 5
years

    

March 31, 2022
More than
5 years

Trade and other payables and long-term payables

  $22.701   $22.701   $22.701   $—     $—     $—   

​

$

22.701

​

$

22.701

​

$

22.701

​

$

—

​

$

—

​

$

—

Lease liabilities1

   2.705    3.861    0.798    1.612    1.091    0.360 

Loans and borrowings2

   11.648    12.088    1.000    11.088    —      —   

Other liability3

   0.089    15.000    —      —      —      15.000 
  

 

   

 

   

 

   

 

   

 

   

 

 
  $37.143   $53.650   $24.499   $12.700   $1.091   $15.360 
  

 

   

 

   

 

   

 

   

 

   

 

 

Lease liabilities1

​

 

2.705

​

 

3.861

​

 

0.798

​

 

1.612

​

 

1.091

​

 

0.360

Loans and borrowings2

​

 

11.648

​

 

12.088

​

 

1.000

​

 

11.088

​

 

—

​

 

—

Other liability3

​

 

0.089

​

 

15.000

​

 

—

​

 

—

​

 

—

​

 

15.000

​

​

$

37.143

​

$

53.650

​

$

24.499

​

$

12.700

​

$

1.091

​

$

15.360

​

74

(1)

Includes interest payments to be made on lease liabilities corresponding to discounted effect.

(2)

Includes interest payments to be made on loans and borrowings.

(3)

According to the employment agreement with the CEO, a long-term incentive is payable if the Company reaches a level of market capitalization.

​

Liabilities related to warrants are excluded from the table above, as they are to settled in shares.

Under the terms of its financing agreements, the Company is not required to meet financial covenants.

On November 14, 2021, the Company and its CEO entered into an agreement pursuant to which the CEO’s existing employment agreement was amended to waive the Company’s obligation to procure directors and officers insurance coverage of up to $15 million for the period covering July 1, 2021 to July 31, 2022. The parties agreed that if the Company had successfully completed a strategic partnership prior to December 31, 2021, the CEO would have been entitled to approximately $6.9 million in cash and would have been

73

Table of Contents

granted fully vested options to purchase 8.5 million shares of the Company’s common stock.Common Shares. The parties also agreed that if certain contingencies did not occur by December 31, 2021, the parties would negotiate for a period of 30 days and, in the absence of an agreement, would be entitled to a grant of vested restricted stock units (“RSUs”RSUs”) with a value of approximately $4.7 million (or if the Company is unable to grant such RSUs, then a combination of cash and vested RSUs with equivalent value). On January 31, 2022, the parties agreed to extend the 30-day negotiation period for an additional 30 days. As the strategic partnership was not consummated by December 31, 2021, the CEO will be entitled to the compensation mentioned above. The Company has accrued in trade and other payable the liability to the CEO of $4.7 million as at March 31, 2022. The related charge for the three-month and twelve-month periods ended March 31, 2022 is nil and $4.7 million, respectively, is included in selling general and administrative expenses.

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 $0.4 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 11, commitments disclosed in note 22(a) and legal proceedings in note 22(b) of the consolidated financial statements for the years ended March 31, 2022 and 2021.

The Company has no significant off-balance sheet arrangements as at March 31, 2022, other than those mentioned above and the commitments disclosed in note 22 of the consolidated financial statements for the years ended March 31, 2022 and 2021.

CONTRACTUAL OBLIGATIONS FOR THE QUARTER ENDED JUNE 30,Contractual Obligations for the Quarter Ended December 31, 2022

The following are the contractual obligations as at June 30,December 31, 2022:

Required payments per year

  Carrying
amount		   Contractual
Cash flows		   Less than
1 year		   1 to
3 years		   4 to
5 years		   June 30,
2022
More
than
5 years		 

Trade and other payables and long-term payables

  $21.296   $21.296   $21.296   $—   $—   $— 

Lease liabilities1

   2.501    2.900    0.673    1.130    0.273    0.824 

Loans and borrowings2

   11.882    10.496    —    10.496    —    — 

Other liability3

   0.013    15.000    —    —    —    15.000 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $35.692   $49.692   $21.969   $11.626   $0.273   $15.824 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

​

    

​

​

    

​

​

    

​

​

    

​

​

    

December 31,

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

2022

​

​

Carrying

​

Contractual

​

Less than

​

1 to 3

​

4 to 5

​

More than

Required payments per year

​

amount

​

Cash flows

​

1 year

​

years

​

years

​

5 years

Trade and other payables and provisions

​

$

21.984

​

$

21.984

​

$

21.984

​

$

—

​

$

—

​

$

—

Lease liabilities1

​

 

2.719

​

 

2.719

​

 

0.490

​

 

1.054

​

 

0.272

​

 

—

Loans and borrowings2

​

 

15.937

​

 

16.477

​

 

—

​

 

16.477

​

 

—

​

 

—

Other liability3

​

 

0.023

​

 

15.000

​

 

—

​

 

—

​

 

—

​

 

—

​

​

$

40.663

​

$

56.180

​

$

22.474

​

$

17.531

​

$

0.272

​

$

—

(1)

Includes interest payments to be made on lease liabilities corresponding to discounted effect.

75

(2)

Includes interest payments to be made on loans and borrowings.

(3)

According to the employment agreement with the CEO, a long-term incentive is payable if the Company reaches a level of market capitalization.

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.

On November 14, 2021, the Company and its CEO entered into an agreement pursuant to which the CEO’s existing employment agreement was amended to waive the Company’s obligation to procure directors and officers insurance coverage of up to $15 million for the period covering July 1, 2021 to July 31, 2022. The parties agreed that if the Company had successfully completed a strategic partnership prior to December 31, 2021, the CEO would have been entitled to approximately $6.9 million in cash and would have been granted fully vested options to purchase 8.5 million shares of the Company’s common stock.Common Shares. As the strategic partnership was not consummated by December 31, 2021, the CEO will beis entitled to a grant of vested RSUs with a value of approximately $0.8$0.0 million. The balance of the liability accrual to the CEO is $833,786$0.0 million as at June 30,December 31, 2022, in trade and other payables. The revaluation of the liability amounted to a gain (loss) of $3,154,328$0.1 million and  $3.3 million for the three-month periodthree and nine-month periods ended June 30,December 31, 2022 and waswere recorded into SG&A.&A (2021 - losses of $6.9 million and $6.9 million, respectively). During the three-monthsthree and nine-month periods ended June 30,December 31, 2022, settlementsettlements in RSUs waswere of $1,187,221.$0.1 million and $1.6 million respectively. The compensation is to be settled in RSUs or if the CorporationCompany is unable to grant such RSUs, then a combination of cash and vested RSUs with equivalent value, is not reflected in the number of RSUs outstanding above.

74

Table of Contents

The Company is required to pay royalties of 1% of its revenues in semi-annual instalments,installments, for an unlimited period to the former CEO. A provision of $0.5$0.6 million for royalty payments is included in the table above for amounts currently due andbut such obligation is not otherwise included in table above.

ReferThe Company has no significant off-balance sheet arrangements as at December 31, 2022, other than those mentioned above and the commitments disclosed in note 15 of the condensed consolidated interim financial statements for the three and nine-month periods ended December 31, 2022 and 2021.

Please 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-monththree and nine-month periods ended June 30,December 31, 2022 and 2021.

The Company has no significant off-balance sheet arrangements as at June 30, 2022, other than those mentioned above and the commitments disclosed in note 15 of the condensed consolidated interim financial statements for the three-month periods ended June 30, 2022 and 2021.Accounting Policies

ACCOUNTING POLICIES

OUR ACCOUNTING POLICIESOur Accounting Policies

Please refer to Note 3 of the annual consolidated financial statements as at March 31, 2022 for more information about significant accounting policies used to prepare the financial statements.

When preparing the financial statements in accordance with US GAAP, the management of Neptune must make estimates and judgements that affect the amounts reported in the financial statements and the notes thereto. Such estimates are based on Management’smanagement’s knowledge of current events and actions that the Company may take in the future.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTSCritical Accounting Estimates and Judgments

The condensed consolidated interim financial statements are prepared in accordance with US GAAP. In preparing the condensed consolidated interim financial statements for the yearsthree and nine-month periods ended MarchDecember 31, 2022 and 2021, and for the three-month periods ended June 30, 2022 and 2021, Managementmanagement made estimates in determining transaction amounts and statement of financial position balances. Certain policies have more importance than others. We consider them critical if their

76

application entails a substantial degree of judgment or if they result from a choice between numerous accounting alternatives and the choice has a material impact on reported results of operation or financial position. Please refer to the annual consolidated financial statements as at March 31, 2022 for more information about the Company’s most significant accounting policies and the items for which critical estimates were made in the financial statements and should be read in conjunction with the notes to the consolidated financial statements for the years ended March 31, 2022 and 2021.

Estimates are based on management’s best knowledge of current events and actions that the Company 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 accounting estimates are:

Estimating the write down of inventories

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. As necessary, the Corporation records write-downs for excess, slow moving and obsolete inventory. To determine these amounts, the Corporation regularly reviews inventory quantities on hand and compares them to estimates of historical utilization, future product demand, and production requirements. Write-downs of inventories to net realizable value are recorded in cost of sales in the consolidated financial statements.

In the years ended March 31, 2022 and 2021, inventories have been reduced by $3.7 million and $19.0 million respectively, as a result of a write-down to their net realizable value, which is included in cost of sales. In the quarter ended June 30, 2022 and 2021, inventories have been reduced by $3.1 million and $0 million respectively, as a result of a write-down to their net realizable value, which is included in cost of sales.

The write-off of inventory in fiscal 2022 was largely related to the completion of inventory write-downs of legacy Health and Wellness products as well as inventory write downs for legacy products related to the SugarLeaf facility. Both write offs of inventories occurred in the first six months of fiscal 2022, resulting in $3.7 million of expense.

The write-off of inventory in fiscal 2021 was largely related to hand sanitizer products. sanitizers.

75

Table of Contents

In the nine-months ended December 31, 2022 and 2021, inventories have been reduced by $3.1 million and $3.0 million respectively, as a result of a write-down to their net realizable value, which is included in cost of sales.

The write-off of inventory in the quarternine-month period ended June 30,December 31, 2022 was related to cannabis products. The write-down of inventories during the quarter ended June 30, 2022 is related to assets held for sale inventories that are not expected to be realized.

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

An allowance for current expected credit losses is maintained to reflect credit risk for trade accounts receivable based on a current expected credit loss model which factors in changes in credit quality since the initial recognition of trade accounts receivable based on customer risk categories. Current expected credit losses also consider collection history and specific risks identified on a customer-by-customer basis. Trade accounts receivable are presented net of allowances for current expected credit losses.

Most of the Company’s customers are distributors for a given territory and are privately-held, provincially owned and publicly owned companies. The profile and credit quality of the Corporation’s customers vary significantly. Adverse changes in a customer’s financial position could cause the Corporation to limit or discontinue conducting business with that customer, require the Corporation to assume more credit risk relating to that customer’s future purchases or result in uncollectible accounts receivable from that customer. Such changes could have a material adverse effect on business, consolidated results of operations, financial condition and cash flows.

77

The Corporation’sCompany’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.

During the year ended March 31, 2022, the Corporation transacted with a few new customers for which financial positions deteriorated during the year. The Corporation has recorded specific provisions related to these customers.

The expected credit loss for the year ended March 31, 2022 was $1.7 million and for March 31, 2021 was $7.0 million. As at March 31, 2022, 69% of our trade receivables are past due (March 31, 2021 – 83%). We have provided for 58% of past due receivables as at March 31, 2022 (March 31, 2021—68%). Most of the past due trade receivables are from legacy customers of B2B cannabis services revenues as well as legacy Health and Wellness customers, for which they were provided for in fiscal 2021. Expected credit loss is subject to estimation risk and measurement uncertainty because the financial health of certain customers is difficult to predict.

The expected credit losslosses for the quarterquarters ended June 30,December 31, 2022 and 2021 $0.02were $2.9 million and $0.04$1.0 million, respectively. As for the nine-month periods ended December 31, 2022 and 2021, the expected credit losses were $3.1 million and $3.0 million, respectively. Expected credit loss is subject to estimation risk and measurement uncertainty because the financial health of certain customers is difficult to predict.

Estimating the recoverable amount of non-financial assets, to determine and measure impairment losses on goodwill, intangibles, and property, plant and equipment.

•

Estimating the recoverable amount of non-financial assets, to determine and measure impairment losses on goodwill, intangibles, and property, plant and equipment.

The Company assesses at each reporting date whether there is an indication that an asset group or a reporting unit may be impaired.

In the third quarter of 2022 due to the Company’s sustained decrease in share price, the Company concluded a triggering event occurred and performed a quantitative impairment test for the Sprout reporting unit. As part of the impairment testing process, the Company considered a number of factors including, but not limited to, current macroeconomic conditions such as inflation, economic growth, and interest rate movements, industry and market considerations, stock price performance (including performance relative to peers) and overall financial performance of the Sprout reporting unit. Although management used its best estimate to assess the potential impact of the changes in the general economic conditions on the Company’s business, management exercised significant judgment to estimate forecasted cash flows and discount rate, using assumptions which are subject to significant uncertainties. Based on the results of the Company’s third quarter 2022 impairment analysis, the estimated fair value of the Sprout reporting unit exceeded its carrying value, and no impairment was recognized.

76

Table of Contents

During the second quarter of 2022, there were changes in the general economic and financial conditions of the markets the Company serves. The Company’s Sprout reporting unit was adversely impacted during the second quarter of 2022 by these conditions, which impacted the operating results. Accordingly, management concluded that these factors were indicators of impairment.

As a result, management performed an impairment test for the Sprout reporting unit, for which it revised its assumptions on projected earnings and cash flows growth, as well as its assumptions on discount rates used to apply to the forecasted cash flows, using its best estimate of the conditions existing at September 30, 2022. Although management used its best estimate to assess the potential impact of the changes in the general economic conditions on the Company’s business, management exercised significant judgment to estimate forecasted cash flows and discount rate, using assumptions which are subject to significant uncertainties. Accordingly, differences in estimates could affect whether a reporting unit is impaired and the dollar amount of that impairment, which could be material. The Company compared the carrying amount of the reporting unit to the fair value. The fair value of the Sprout reporting unit was determined to be lower than the carrying value and a $7,570,471 goodwill impairment expense was recorded in the quarter ended September 30, 2022. Due to the impairment losses recorded during the second quarter of 2023, there is no headroom between the fair value of the reporting unit and its carrying value and therefore, changes in assumptions in future periods may result in additional impairment charges.

The fair value of the reporting unit was estimated using a discounted cash flow model with a WACC post-tax discount rate of 11.0% and a market multiples valuation approach. The discount rate represents the risk adjusted WACC of the reporting unit, based on publicly available information and that of comparable companies operating in similar industries. Determination of the WACC requires separate analysis of the cost of equity and debt, and considers a risk premium based on an assessment of risks related to the projected cash flows of the reporting unit.

Cash flows were projected based on past experience, actual operating results and the three-year business plan including a terminal growth rate of 3.5%.

The most significant assumptions used to estimate the fair values using a discounted cash flow model included the forecasted revenue, gross margins, net working capital investment, terminal value as well as the discount rate. These significant assumptions are classified as Level 3 in the fair value hierarchy, signifying that they are not based on observable market data. A decrease in the projected cash flow or an increase in discount rate could have resulted in a higher impairment charge. Should these projections not be realized, or the discount rate needs to be increased, an impairment loss may be needed in future periods.

As of March 31, 2022, the Company made the following assessments:

Biodroga – As part of its annual impairment test, Managementmanagement determined that the fair value of Biodroga was higher than its carrying value and thus no impairment charge was recorded for the reporting unit. The most significant assumptions used to estimate the fair values using discounted cash flow model included the forecasted revenue, gross margins, net working capital investment, terminal value as well as the discount rate. These significant assumptions are classified as Level 3 in the fair value hierarchy, signifying that they are not based on observable market data. A decrease in the projected cash flow or an increase in discount rate could have resulted in an impairment charge. Should these projections not be realized, an impairment loss may be needed in future periods. As at March 31, 2022, the assumptions used in determining the fair value were not subject to a degree of uncertainty that would have caused impairment to be recorded as there was sufficient headroom between the fair value of the reporting unit and its carrying value.

Sprout – In 2022, as part of the annual impairment test of Sprout, Managementmanagement determined that the fair value of the reporting unit was lower than its carrying amount. As a result, an impairment charge of $1.5 million was allocated to the Sprout tradename and an impairment charge of $3.3 million was allocated to the goodwill of Sprout. The most significant assumptions used to estimate the fair values using discounted cash flow model included the forecasted revenue, gross margins, net working capital investment, terminal value as well as the discount rate. These significant assumptions are classified as Level 3 in the fair value hierarchy, signifying that they are not based on observable market data. A decrease in the projected cash flow or an increase in discount rate could have resulted in an impairment charge. Should these projections not be realized, an impairment loss may be needed in future periods. Due to the impairment losses recorded in the fourth quarter of fiscal 2022, there is no headroom between the fair value of the reporting unit and its carrying value and therefore, changes in assumptions in future periods may result in additional impairment charges.

Cannabis – The Corporation identified a trigger of impairment related to its Canadian cannabis asset group. Impairment indicators such as increased operating losses, decline in the share price and negative industry and economic trends were identified in the fourth quarter. The fair value of the asset group was determined to be less than the carrying value, resulting in an impairment loss of $12.3 million allocated between the building and components ($3.1 million) and the laboratory and plant equipment ($9.2 million). Management

77

Table of Contents

announced on June 8, 2022 the divestiture of the Canadian cannabis business. As a result, if the Corporation is unable to sell the asset of the Canadian cannabis group at their fair value, additional impairment charges may be required in fiscal 2023.

78

There were no impairment triggers identified in quarter ended June 30, 2022 and no impairment losses on goodwill, intangibles, and property, plant and equipment recorded, except as noted in following paragraph.

Estimating the fair value less costs to sell of our assets held for sale.

On June 8, 2022, the Company announced a planned divestiture of the Canadian cannabis business and that the Corporation willCompany would focus on winding up its cannabis operations pending one or more sales transactions. Following this announcement, the CorporationCompany had Canadian disposal group assets that met the criteria to be classified as held for sale. As at JuneSeptember 30, 2022, allnon-current assets and liabilities related to the Canadian cannabis business are now respectively shownpresented under assets held for sale and liabilities directly associated with assets held for sale on Neptune’s balance sheetsheet. Comparative balance sheet amounts have not been reclassified. The disposal group has been measured at fair value less cost to sell using market pricesand impaired to reflect the asset sale and purchase agreement (the “ASPA”) signed with a third-party on October 16, 2022 for comparativeapproximately $3,790,340 ($5,150,000 CAD), with expected cost to sell the Canadian cannabis disposal group asset in the amount of $586,783, for net assets (level 3)held for sale of $3,203,557, resulting in impairment losses of $14,530,458 and an estimate of disposal costs which resulted in an impairment loss of $815,661$15,346,119 respectively for the three-month periodthree and six-month periods ended JuneSeptember 30, 2022. The transaction closed on November 9, 2022.

Estimating the revenue from contracts with customers subject to variable consideration. Refer(Refer to note 2(c) of the consolidated financial statements for more details).

The Corporation’s revenue-generating activities from the sale of products in the course of ordinary activities are recognized at a point in time when control of the products is transferred to the customer and the Corporation’s obligations have been fulfilled. The Corporation transfers control generally on shipment of the goods or in some cases, upon reception by the customer. Revenue is measured as the amount of consideration the Corporation expects to receive in exchange for the Corporation’s product as specified in the customer contract. Certain of the Corporation’s customer contracts, most notably those with the Canadian provincial and territorial agencies, may provide the customer with a right of return. In certain circumstances, the Corporation may also provide a retrospective price adjustment to a customer. These items give rise to variable consideration, which is recognized as a reduction of the transaction price based upon the expected amounts of the product returns and price adjustments at the time revenue for the corresponding product sale is recognized. The determination of the reduction of the transaction price for variable consideration requires that the Corporation make certain estimates and assumptions that affect the timing and amounts of revenue recognized. The Corporation estimates this variable consideration by taking into account factors such as historical information, current trends, forecasts, provincial and territorial inventory levels, availability of actual results and expectations of demand. For fiscal 2022, the Corporation revised its estimated provision for returns of the cannabis sales as a result of new information and experience with sales returns. The impact of the revised estimate for year ended March 31, 2022 is a reduction of the provision of $1.1 million and an increase in revenue from sales and services.

The Corporation recognizes a liability for sales refunds within other current liabilities with a corresponding decrease in revenues. Furthermore, the Corporation recognizes an asset for the value of inventory which is expected to be returned within prepaid expenses and other assets on the consolidated balance sheets with a corresponding reduction of cost of sale.

Judgment related to revenue recognition in determining whether the Company is the principal or the agent for the arrangements with suppliers of products the Corporation does not manufacture.

The Corporation may be involved with other parties, including suppliers of products, in providing goods or services to a customer when it enters into revenue transactions for the sale of products that it does not manufacture. In these instances, the Corporation must determine whether it is a principal in these transactions by evaluating the nature of its promise to the customer. The Corporation is a principal and records revenue on a gross basis if it controls a promised good before transferring that good to the customer. On the other hand, the Corporation records revenue as the net amount when it does not meet the criteria to be considered a principal.

Estimating the fair value of bonus based on market conditions (note 16 of the annual consolidated financial statements and note 12(c) of the interim condensed consolidated financial statements)

79

According to the employment agreement with the CEO, a long-term incentive of $15 million is payable if the Corporation’sCompany’s US market capitalization is at least $1 billion. The Corporation values the long-term incentive with theCompany uses a risk-neutral Monte Carlo simulation method. Based onto estimate the model,fair-value of this instrument and recognizes the Corporation couldincentive over the estimated period to reach thisthe market capitalization in 6.51 years.capitalization. The incentive is being recognized over the estimated period to reach the market capitalization. The risk-neutral Monte-CarloMonte Carlo simulation uses level 3 inputs. The assumptions used in the simulation include a risk free-rate of 3.88% and a volatility of 75.09% for the nine-month period ended December 31, 2022 (respectively 1.52% and 66.18% for the nine-month period ended December 31, 2021) and a risk free-rate of 2.32% and a volatility of

78

Table of Contents

67.35% for the twelve-month period ended March 31, 2022 (respectively 1.74% and 66.46% for the previous year). The assumptions used in the simulation include a risk free-rate of 2.98% and a volatility of 70.32% for the quarter ended June 30, 2022 (respectively 1.45% and 65.48% for the quarter ended June 30, 2021). An increase or decrease in the volatility assumption significantly impacts the fair value of the long-term incentive.

Judgment related to the recognition period to be used in recording stock-based compensation that is based on market and non-market conditions and measurement of warrants issued in securities offerings (notes 14 and 16 of the annual consolidated financial statements and notes 8, 10 and 12 of the interim condensed consolidated financial statements)

•

Judgment related to the recognition period to be used in recording stock-based compensation that is based on market and non-market conditions and measurement of warrants issued in securities offerings (notes 14 and 16 of the consolidated financial statements)

On July 8, 2019, the Corporation granted 157,143 market performance options under the Corporation stock option plan at an exercise price of $4.43 per share to the CEO, expiring on July 8, 2029. The options were vest after the attainment of market performance conditions within the following ten years. The market condition was factored into the fair value. Some of these market performance options required the approval of amendments to the stock option plan and therefore the fair value of these options was revaluated up to the date of approval of the amendments (grant date).

On July 8, 2019, the Corporation granted 100,000 non-market performance options under the Corporation stock option plan at an exercise price of $4.43 per share to the CEO, expiring on July 8, 2029. These options vest after the attainment of non-market performance conditions within the following ten years. These non-market performance options required the approval of amendments to the stock option plan and therefore the fair value of these options was revalued up to the date of approval of the amendments (grant date).

On July 8, 2019, the Company granted 100,000 non-market performance options under the Company stock option plan at an exercise price of $4.43 per share to the CEO, expiring on July 8, 2029. These options vest after the attainment of non-market performance conditions within the following ten years. These non-market performance options required the approval of amendments to the stock option plan and therefore the fair value of these options was revalued up to the date of approval of the amendments (grant date). These options are valued based on level 3 inputs. During the twelve-month period ended March 31, 2022, changes in estimated probability of achievement of the non-market performance conditions or the expected number of years to achieve the performance conditions resulted in a recovery of stock-based compensation recognized under this plan. None of these non-market performance options have vested as at MarchDecember 31, 2022 or June 30, 2022. Changes in these assumptions would impact the timing of which the expense is recognized. Changes in these assumptions would impact the timing of which the expense is recognized. These options were not exercisable as at June 30,December 31, 2022 and March 31, 2022 and 2021.2022.

On June 23, 2022, Neptune issued a total of 645,526 pre-funded warrants (“June 2022 Pre-Funded Warrants”), Warrants, along with 1,300,000 common sharesCommon Shares of the Corporation, as part of a registered direct offering (“the June 2022 Direct Offering”).Offering. Each June 2022 Pre-Funded Warrant was exercisable for one Common Share. The common sharesCommon Shares and the June 2022 Pre-Funded Warrants were sold together with 1,945,526 Series C Warrants (the “Series C Warrants”), and 1,945,526 Series D Warrants (the “Series D Warrants”) and collectively, the “June 2022 Common Warrants”.Warrants. Each common share and Pre-Funded Warrants and the accompanying June 2022 Common Warrants were sold together at a combined offering price of $2.57, for aggregate gross proceeds of $5.0 million before deducting fees and other estimated offering expenses. The June 2022 Pre-Funded Warrants are funded in full at closing except for a nominal exercise price of $0.0001 and are exercisable commencing on the closing date and will terminate when such June 2022 Pre-Funded Warrants are exercised in full. The Series C Warrants and the Series D Warrants have an exercise price of $2.32 per share and can be exercised for a period of 5 years and 2 years respectively from the date of issuance.

Proceeds of the June 2022 Direct Offering were allocated between common shares and warrants first by allocating proceeds to the warrants classified as a liability based on their fair value and then allocating the residual to the equity instruments, which includes the Pre-Funded Warrants. The fair value of the liability-classified warrants was determined using the Black-Scholes model, resulting in an initial warrant liability of $4,046,836 for the Series C Warrants and $3,080,121 for the Series D Warrants. Because the fair value of the liability classified warrant exceeds the total proceeds, no consideration was allocated to the CommonCommon.

80

Shares and Pre-Funded Warrants and a loss of $2,126,955 was immediately recognized in the net loss of the period as there were no additional rights or privileges identified. Total issue costs related to this private placement of $465,211, was recorded under finance costs.

On October 11, 2022, the Company closed the October 2022 Offerings  of 3,208,557 of its Common Shares and Series E Warrants  to purchase up to 6,417,114 Common Shares in the concurrent October 2022 Private Placement. The combined purchase price for one Common Share and one warrant was $1.87. The Series E Warrants have an exercise price of $1.62 per Common Share, are exercisable immediately following the date of issuance and will expire five years from the date of issuance. The Company received gross proceeds of $6,000,002 and net proceeds of $5,135,002 after deducting the placement agent fees and expenses, and the Company’s offering expenses. Based on the fair value of the warrants as at the date of closing, which was determined using a Black-Scholes model, the Company recorded the full proceeds to liabilities, with an initial liability of $7,029,614 and a loss on initial recognition of $1,029,614.

79

Table of Contents

Because the fair value of the liability classified warrant exceeded the total proceeds, no consideration was allocated to the Common Shares. Total issue costs related to this offering of $865,000 were recorded under finance costs.

Estimating the fair value of the identifiable assets acquired, liabilities assumed, and consideration transferred of the acquired business, including the related call option (the “Call Option”) (note 4 of the annual consolidated financial statements).

The allocation of the purchase price was based on management’s estimate of the fair values of the acquired identifiable assets and assumed liabilities using valuation techniques including income, cost and market approaches (Level 3). The Corporation utilized both the cost and market approaches to value fixed assets, which consider external transactions and other comparable transactions, estimated replacement and reproduction costs, and estimated useful lives and consideration for physical, functional and economic obsolescence. We utilized the income approach to value intangible assets, which considers the present value of the net cash flows expected to be generated by the intangible assets, and excluding cash flows related to contributory assets.

As at the close of the transaction, the value of the asset related to the Call Option was determined to be $5.5 million, representing the difference between the market price and the contract value of the Call Option, discounted at a rate of 8.9% and assuming the transaction would take place on January 1, 2023. To establish the market price, the multiples selected were 2.3x for revenues and 12.0x for EBITDA, based on analysis of average and median industry multiples, and were adjusted to consider a 20% discount; the multiples to be used as per the contract are 3.0x for revenues and 15.0x for EBITDA, weighted at 50%.

CHANGES IN ACCOUNTING POLICIES AND FUTURE ACCOUNTING CHANGESChanges in Accounting Policies and Future Accounting Changes

The accounting policies and basis of measurement applied in the consolidated financial statements for the years ended March 31, 2022 and 2021 and for the three months ended June 30,December 31, 2022 and 2021 are the same other than as disclosed, if any, in note 3 to the consolidated financial statements.

ISSUED AND OUTSTANDING SECURITIESAs a result of a significant portion of its revenues, expenses, assets and liabilities being denominated in US dollars and the increasing American scope of its operations, Neptune changed its functional currency from Canadian dollars (“CAD”) to U.S. dollars (“USD”), effective October 1, 2022. This change in functional currency has been applied prospectively from the date of the change.

Issued and Outstanding Securities

The following table details the number of issued and outstanding securities as at the date of this prospectus, and taking into account the 35-to-1 consolidation that went into effect on June 13, 2022:

prospectus:

​

​

​

​

Number of Securities

​

​

Issued and Outstanding

​

​

​

Common shares

11,725,451

11,996,340

Share options

733,933

677,978

Deferred share units

4,308

Restricted share units

2,790

2,789

Warrants

11,236,559

 

12,197,665

Total number of securities

23,703,041

 

24,879,080

​

The Company’s common shares are being traded on NASDAQNasdaq Capital Market under the symbol “NEPT”. Effective August 15, 2022, the Company’s common shares no longer trade on the TSX. Each option, restricted share, restricted share unit, deferred share unit and warrant is exercisable into one common share to be issued from the treasury of the Company.

Internal Controls Disclosure

Management evaluated the design and effectiveness of the Company’s internal control over financial reporting as of March 31, 2022 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated Framework 2013. Based on its evaluation, management concluded that our internal control over financial reporting was not effective as of March 31, 2022 due to material weaknesses in our internal control over financial reporting. This conclusion remains accurate at December 31, 2022. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

80

Table of Contents

The Company did not effectively design, implement and operate effective process-level control activities related to its key processes, such as the financial reporting process (including consolidation and journal entries), the purchase to pay process (including cutoff), the inventory process, the order to cash process and the equity process (financial instruments and stock-based compensation), account level assertions and disclosures, including entity level controls and information technology general controls (“ITGCs”).

Further, there were inadequate controls over user and privileged access to information technology (IT) systems for multiple components to adequately restrict access to appropriate finance and IT personnel and enforce appropriate segregation of duties. As a result, process-level automated control activities and manual control activities that are dependent upon information derived from IT systems were also ineffective. The pervasive nature of these deficiencies contributed to the other material weaknesses below:

●Inadequate oversight processes and procedures to guide individuals in applying internal control over financial reporting to prevent or timely detect material accounting errors and ensuring adherence to applicable accounting standards.
●Ineffective risk assessment process, including (i) potential for fraud and (ii) identification and assessment of changes in the business that could impact our system of internal controls.
●Ineffective design and implementation of control activities, general controls over technology and deployment of policies and procedures.
●Relevant and quality information to support the functioning of internal controls was not consistently generated, used, or reviewed by the Company.
●The Company did not sufficiently select, develop, and perform ongoing evaluations to determine that components of internal control are present and functioning.
●The evaluation and communication process of internal control deficiencies was not timely.

​

During the quarter ended September 30, 2022, the following additional material weaknesses were identified:

●Inability to prepare on a timely basis the financial statements, supporting accounting records and account reconciliations; and
●Lack of sufficient complement of personnel with an appropriate level of knowledge and experience.

Remediation Plan

Beginning during the year ended March 31, 2021, and under the direction of our CEO and CFO, we have been developing a comprehensive plan to remediate the identified material weaknesses. We began implementing certain measures as part of the remediation plan including: (i) development of a detailed remediation plan addressing the material weaknesses related to the control environment, risk assessment and monitoring, (ii) institution of policies and processes to support the functioning of internal controls over financial reporting, (iii) design of a comprehensive risk assessment process, (iv) process level and IT general controls design enhancement and (v) hiring of individuals with appropriate skills and experience.

The turnover in accounting personnel experienced in the last nine months has delayed the implementation of the remediation plan. We remain committed to the identification, design and implementation of steps still needed to remediate the material weaknesses in our internal controls and to ensure that our internal controls over financial reporting will be designed and operating effectively by:

●Addressing the material weaknesses related to information and communication.
●Continuing to institute policies and processes to support the functioning of internal controls over financial reporting.
●Implementing a comprehensive and continuous risk assessment process to identify and assess risks of material misstatement (including fraud risks).
●Ensuring the proper implementation and operating effectiveness of process-level and IT general controls that support automated and manual control activities.
●Establishing an adequate reporting structure to ensure authority guidelines and reinforcing communications protocols, including required information and expectations, to enable personnel to carry out their responsibilities and producing accurate financial reports.
●Reinforcing internal control and financial reporting expertise across the organization.
●Holding individuals accountable for their role related to internal control and providing continuous training.
●Designing and implementing additional monitoring controls to assess the consistent operation of controls and to remediate deficiencies in a timely manner.

81

Table of Contents

The material weaknesses being addressed by the above-mentioned remediation plan will not be considered remediated until the applicable controls operate for a sufficient period of time, and management concludes, through testing, that these controls are operating effectively. This has not occurred to date.

Although we have commenced the remediation process and intend to complete it as promptly as possible, we cannot estimate how long it will take to remediate these material weaknesses. In addition, new material weaknesses may be discovered that require additional time and resources to remediate. Until the remediation is complete, we plan to continue to perform additional analyses and other procedures to ensure that our consolidated financial statements are prepared in accordance with US GAAP.

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Certain Relationships and Transactions

Other than the compensation agreements and other arrangements described under “Executive Compensation” and “Director Compensation” discussed below in this prospectus and the transactions described below, since April 1, 2020,2022, there has not been and there is not currently proposed, any transaction or series of similar transactions to which we were, or will be, a party in which the amount involved exceeded, or will exceed, $120,000 and in which any director, executive officer, holder of five percent or more of any class of our capital stock or any member of the immediate family of, or entities affiliated with, any of the foregoing persons, had, or will have, a direct or indirect material interest.

In March 2022, we completed a registered direct offering (the “March Offering”“March Offering”), pursuant to which we issued and sold an aggregate of 528,572 common shares and equivalents and 1,428,572 warrants to purchase common shares, at a price equal to $11.20 per share and accompanying warrants. Armistice Capital Master Fund Ltd., a beneficial owner of more than 5% of our voting securities, was the sole investor in the March Offering.

In June 2022, we completed a registered direct offering (the “June Offering”“June Offering”), pursuant to which we issued and sold an aggregate of 1,945,526 common shares and equivalents and 3,891,052 warrants to purchase common shares, at a price equal to $2.57 per share and accompanying warrants. Armistice Capital Master Fund Ltd. and Sabby Volatility Warrant Master Fund, Ltd., beneficial owners of more than 5% of our voting securities, each purchased 972,763 common shares and equivalents and were each issued warrants to purchase 1,945,526 common shares in the June Offering.

On October 11, 2022, the Company announced the closing of a registered direct offeringOctober 2022 RDO of 3,208,557 of its Common Shares and the Series E Warrants in the concurrent October 2022 Private Placement. Armistice Capital Master Fund Ltd., Sabby Volatility Warrant Master Fund, Ltd., and Empery Asset Master, LTD (and related entities), beneficial owners of more than 5% of our voting securities, each purchased 1,069,519 common shares, in the registered direct offering and were each issued warrants to purchase 2,139,048 common shares, respectively, in the Private Placement.

Director Independence

Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act and that compensation committee members satisfy independence criteria set forth in Rule 10C-1 under the Exchange Act. Under applicable Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of the listed company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries. In addition, in affirmatively determining the independence of any director who will serve on a company’s compensation committee, Rule 10C-1 under the Exchange Act requires that a company’s board of directors must consider all factors specifically relevant to determining whether a director has a relationship to such company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including: the source of compensation to the director, including any consulting, advisory or other compensatory fee paid by such company to the director, and whether the director is affiliated with the company or any of its subsidiaries or affiliates.

82

Table of Contents

Our board of directors has determined that all members of the board of directors, except Michael Cammarata, are independent directors, including for purposes of the rules of Nasdaq and the SEC. In making such independence determination, our board of directors considered the relationships that each non-employee director has with us and all other facts and circumstances that our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. In considering the independence of the directors listed above, our board of directors considered the association of our directors with the holders of more than 5% of our common shares. There are no family relationships among any of our directors or executive officers. Mr. Cammarata is not an independent director under these rules because he is an executive officer of the Company.

​

83

Table of Contents

MANAGEMENT

Director and Executive Officer Biographies

The following table provides information regarding our executive officers and directors as of October 31, 2022:

April 20, 2023:

Name

Age

Position(s)

Executive Officers and Employee Director:

:​

​

​

​

Michael Cammarata

​

36

37

​

President and Chief Executive Officer, Director

Raymond Silcock

​

71

​

Chief Financial Officer

John S. Wirt

​

58

59

​

Executive Vice President, Legal & Business Affairs (Chief Legal Officer)

Non-Employee Directors:

​

​

​

​

Julie Phillips

​

40

​

Chairperson of the Board

Joseph Buaron

​

41

​

Director

Michael Dede Geus

​

45

46

​

Director

Ronald Denis

​

70

​

Director

Philip Sanford

​

68

69

​

Director

​

Executive Officers

Michael Cammarata was appointed as President, Chief Executive Officer and a director of Neptune on July 8, 2019. He invested in and cofounded Schmidt’s Naturals, one of the world’s fastest growing wellness brands, leading it from fledgling start-up to acquisition in 2017 by Unilever and onto record breaking growth in 2018. He remained CEO of Schmidt’s Naturals until June 2019, leading its rapid expansion into new and innovative products, retailers and global markets. Mr. Cammarata is a new breed of unconventional CEO with a personal mission to invest and scale companies globally that will make sustainable innovation and modern wellness solutions accessible to the world. He believes that natural products are the future and that every person deserves natural products that work and minimize their harm to people, the planet and animals. Through all his investments, Mr. Cammarata is looking toward future technologies, including AI and machine learning, to create stronger connections and personalized products for customers. He is a passionate advocate for ending animal testing in cosmetics. Raised in New York, Mr. Cammarata’s dyslexia made school challenging, but that perspective allowed him to identify opportunities others missed. We believe that Mr. Cammarata is qualified to serve as a member of our board of directors based on the perspective and experience he brings as our President and Chief Executive Officer.

​

84

Table of Contents

Raymond Silcock was named Chief Financial Officer in July 2022. Prior to joining Neptune, Mr. Silcock served as Executive Vice President and Chief Financial Officer of Perrigo Company PLC from March 2019, Chief Financial Officer at INW Holdings from 2018 to 2019 and as Executive Vice President and Chief Financial Officer of CTI Foods from 2016 to 2018. In March 2019, CTI Foods filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court in Delaware. From 2013 until the company’s sale in 2016, Mr. Silcock was Executive Vice President and Chief Financial Officer of Diamond Foods, Inc. and previously held Chief Financial Officer roles at UST, Inc., Swift & Co. and Cott Corporation. He also served on the board of Pinnacle Foods Inc. from 2008 until the company was sold in 2018. His early career was highlighted by an 18-year tenure in positions of increasing responsibility at Campbell Soup Company. Mr. Silcock is a Fellow of the Chartered Institute of Management Accountants (UK).

John S. Wirt became Chief Legal Officer, Executive Vice President of Legal and Business Affairs, and General Counsel of Neptune in August 2021. Prior to joining Neptune, Mr. Wirt served as the President of Epic Sports & Entertainment, Inc. from 2018 and the CEO of Square Ring, Inc. from 2008, both companies engaged in the sports and entertainment industries. He has also served as the President of the law firm of Wirt & Wirt, P.A.

84

since 2014. Mr. Wirt is an AV-rated Martindale Hubble Martindale-Hubbell attorney who has been practicing law for over thirty years. Mr. Wirt began his legal career as an associate at Jenner & Block and followed that as an associate at Sidley & Austin. He earned his B.A., graduating magna cum laude from Knox College in 1985. In 1986, he received his CPA certificate from the University of Illinois, and in 1989, he graduated with honors from the University of Illinois, where he earned his Jurisprudence degree. Mr. Wirt’s previous business experience includes serving on the Board of Directors for Interactive Television Networks, a NASDAQNasdaq listed public company, where he also served as Chair of the Audit Committee. He presently serves as a director of Epic Sports, Square Ring, Wirt & Wirt, and tmc Content Group AG, a publicly-traded Swiss corporation involved in the motion picture and video industries.

Non-Employee Directors

Julie Phillips has been a director of Neptune since August 2021. She currently serves as Chief Operating Officer and Chief Creative Officer for Blackhall, a new streaming video on demand service, launching in 2024. Prior, she served as Vice President for Herschend Entertainment Studios, the media and franchise arm of Herschend Enterprises, which owns, operates and manages family-oriented themtheme parks, aquariums, attractions and hospitality properties in the United States in Canada, where she had held this and prior roles since 2013. Ms. Phillips also has served since April 2019 as a member of the Board of Directors of the Lane Thomas Foundation, which is dedicated to supporting families of children needing life-saving organ transplants. Previously, she served as a business development manager for Miramax and as a senior financial analyst for Raytheon (NYSE: RTX). Ms. Phillips holds an MBA from Harvard Business School and a Bachelor of Arts in Business Administration from Pepperdine University. We believe that Ms. Phillips is qualified to serve as a member of our board of directors based on her experience in marketing and her educational background.

Joseph Buaron has been a director of Neptune since April 2020. He is co-founder and CTO of goPeer, Canada’s first regulated consumer peer-to-peer lender, he additionally serves as Chief Strategy Officer to Loti Wellness Inc., a Canadian self-care consumer brand. Prior, Mr. Buaron served as CTO of Schmidt’s Naturals, where he led the technology, AI, digital marketing and consumer support divisions through transition from start-up to enterprise, and subsequently through the acquisition by Unilever, and the integration that followed. Mr. Buaron is a seasoned CTO with over two-decades related experience as an entrepreneur, investor, programmer, solutions architect, and DevOps engineer. His passion for technology reflects his recognition for the tremendous impact it has on our lives and its potential for creating a better tomorrow. Immersed in technology, Mr. Buaron strives to provide vision, leadership, form relationships, and eliminate barriers to allow the brightest minds to flourish. We believe that Mr. Buaron is qualified to serve on our board of directors due to his experience as a leader in technology roles.

Michael De Geus has been a director of Neptune since April 2020. He is a highly accomplished security executive with domestic and international cyber investigative and physical security experience. He is the founder and Chief Executive Officer of Leatherback Gear, LLC., a producer of bullet proof backpacks. He also served as a Special Agent in federal law enforcement with the Department of Homeland Security and has served on various assignments both physically and with cyber security since 2008. Previously, he served as the Director of Sales at Koro Sun Resort in the Fiji Islands and as a consultant for MD Consulting, working on various projects from developing branding and new store layouts to helping with various start-up companies. Mr. De Geus is a Ph.D. Candidate in Public Policy specializing in Homeland Security at Walden University, holds a Master of Science in International Relations from Troy State University and holds a Bachelor of Science in Criminal Justice from California State University Fullerton. We believe that Mr. De Geus is qualified to serve on our board of directors due to his management and leadership experience.

Ronald Denis has been a director of Neptune since January 2001. He has been Chief of Surgery and director of the Trauma Program at Hôpital du Sacré-Coeur in Montréal since 1997. Also, since 1987, Dr. Denis has occupied the position of medical co-director of the Canadian Formula 1 Grand Prix. Dr. Denis sits on several scientific boards and management committees. We believe that Dr. Denis is qualified to serve on our board of directors because of his extensive scientific experience.

85

Table of Contents

Philip Sanford has been a director of Neptune since May 2022. He previously served on the executive team at N3 LLC, a global technology-enabled inside sales organization that was acquired by Accenture in 2020. He has advised a number of leading private equity firms and investment banks on mergers and acquisitions and going-private transactions in the consumer sector, including Bain Capital, Carlyle, Moelis, Blackstone, Kelso, Mid-Ocean Partners, Morgan Stanley Private Equity and Morgan Stanley Expansion Capital. He currently serves on the Advisory Board of Morgan Stanley Expansion Capital Funds, as well as the Boards of Ecentria, CMX and Image Skincare and formerly served as Chairman of the Board of Sprout Organics. Mr. Sanford has previously served on the Boards of Chattem, Inc and Caribou Coffee. He holds a Bachelor of Science degree in Finance, Economics and Philosophy from Austin Peay State University in Clarksville, Tenn. We believe that Mr. Sanford is qualified to serve on our board of directors due to his business and leadership experience, merger and acquisition experience, and extensive financial, accounting and governance knowledge.

Legal Proceedings with Directors or Executive Officers

There are no legal proceedings related to any of our directors or executive officers that require disclosure pursuant to Items 103 or 401(f) of Regulation S-K.

Family Relationships

There are no family relationships between or among any of our directors or executive officers. There is no arrangement or understanding between any of our directors and any other person or persons pursuant to which he or she is to be selected as a director.

Board Leadership Structure and Board’s Role in Risk Oversight

Ms. Phillips is the current chairperson of the board of directors. We believe that separating the positions of Chief Executive Officer and chairperson of the board of directors allows our Chief Executive Officer to focus on our day-to-day business, while allowing a chairperson of the board of directors to lead the board of directors in its fundamental role of providing advice to and independent oversight of management. Our board of directors recognizes the time, effort and energy that the Chief Executive Officer is required to devote to his position in the current business environment, as well as the commitment required to serve as our chairperson, particularly as the board of directors’ oversight responsibilities continue to grow. While our bylaws and corporate governance guidelines do not require that our chairperson and Chief Executive Officer positions be separate, our board of directors believes that having separate positions is the appropriate leadership structure for us at this time and demonstrates our commitment to good corporate governance.

Risk is inherent to every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including risks relating to our financial condition, development and commercialization activities, operations, strategic direction, and intellectual property. Management is responsible for the day-to-day management of risks we face, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

The role of the board of directors in overseeing the management of our risks is conducted primarily through committees of the board of directors, as disclosed in the descriptions of each of the committees below and in the charters of each of the committees. The full board of directors (or the appropriate board of directors committee in the case of risks that are under the purview of a particular committee) discusses with management our major risk exposures, their potential impact on us, and the steps we take to manage them. When a board of directors committee is responsible for evaluating and overseeing the management of a particular risk or risks, the chairperson of the relevant committee reports on the discussion to the full board of directors during the

86

committee reports portion of the next board meeting. This enables the board of directors and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.

Information Regarding Committees of the Board

Our board of directors has established an audit committee, a compensation and human resources committee, a nominating committee, and a governance committee. Each of the audit committee, compensation committee, and nominating and corporate governance committee operates under a charter that satisfies the applicable standards of the SEC and Nasdaq. A current copy of the charter for each of the audit committee, compensation committee, nominating and corporate governance committee, and research and development committee is posted on the corporate governance section of our website, http:https://ir.checkmatepharma.com/corporate-governance/documents-and-charters.www.investors.neptunewellness.com/governance/governance-documents/default.aspx.

​

8786

Table of Contents

EXECUTIVE COMPENSATION

The information in this section summarizes the compensation earned by our executive officers.

Our named executive officers for the year ended March 31, 2022, which consist of our principal executive officer, up to two other most highly compensated executive officers who were serving as executive officers as of March 31, 2022 and up to two additional individuals who would have been another most highly compensated executive officer but for the fact that such individual was not serving as an executive officer as of March 31, 2022, are:

Michael Cammarata, our President and Chief Executive Officer;

Randy Weaver, our former Interim Chief Financial Officer*;

John S. Wirt, our Executive Vice President, Legal & Business Affairs (Chief Legal Officer and General Counsel); and

Toni Rinow, our former Chief Financial Officer and Chief Operating Officer**.

  

·

Michael Cammarata, our President and Chief Executive Officer;

·

Randy Weaver, our former Interim Chief Financial Officer*;

​

·

John S. Wirt, our Executive Vice President, Legal & Business Affairs (Chief Legal Officer and General Counsel); and

·

Toni Rinow, our former Chief Financial Officer and Chief Operating Officer**.

*

Mr. Weaver left the Company on July 25, 2022.

**

Dr. Rinow left the Company on November 15, 2021.

​

2022 Summary Compensation Table

The following table presents the compensation awarded to, earned by or paid to each of our named executive officers for the years indicated.

   Year   Salary
($)		  Bonus
($)		   Stock
Awards
($)(1)		  Option
Awards
($)(1)		  All Other
Compensation
($)		  Total
($)		 

Michael Cammarata

          

President and Chief Executive Officer

   2022    1,103,628   750,000    1,252,600(2)   —     58,612(3)   3,164,840 
   2021    1,083,333   750,000    2,762,841(2)   1,966,117(2)   1,500,000(2)   8,062,291 

Randy Weaver(4)

          

Former Interim Chief Financial Officer

   2022    144,000   —      —     273,386   —     417,386 
   2021    —     —      —     —     —     —   

John S. Wirt

          

Executive Vice President, Legal & Business Affairs

   2022    373,653   —      —     978,453   —     1,352,106 

Chief Legal Officer and General Counsel

   2021    —     —      —     —     —     —   

Toni Rinow(5)

          

Former Chief Financial Officer and

   2022    612,237(6)   —      —     —     —     612,237 

Chief Operating Officer

   2021    292,979   135,260    —     628,063   —     1,056,302 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

​

    

​

    

Stock

    

Option

    

All Other

    

​

​

​

​

​

Salary

​

Bonus

​

Awards

​

Awards

​

Compensation

​

Total

​

​

Year

​

($)

​

($)

​

($)(1)

​

($)(1)

​

($)

​

($)

Michael Cammarata

 

  

 

  

 

  

 

  

 

  

 

  

 

  

President and Chief Executive Officer

 

2022

 

1,103,628

​

750,000

 

1,252,600

(2)​

—

 

58,612

(3)​

3,164,840

​

 

2021

 

1,083,333

​

750,000

 

2,762,841

(2)​

1,966,117

(2)​

1,500,000

(2)​

8,062,291

Randy Weaver(4)

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Former Interim Chief Financial Officer

 

2022

 

144,000

 

—

 

—

 

273,386

 

—

 

417,386

​

 

2021

 

—

 

—

 

—

 

—

 

—

 

—

John S. Wirt

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Executive Vice President, Legal & Business Affairs

 

2022

 

373,653

 

—

 

—

 

978,453

 

—

 

1,352,106

Chief Legal Officer and General Counsel

 

2021

 

—

 

—

 

—

 

—

 

—

 

—

Toni Rinow(5)

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Former Chief Financial Officer and

 

2022

 

612,237

(6)​

—

 

—

 

—

 

—

 

612,237

Chief Operating Officer

 

2021

 

292,979

 

135,260

 

—

 

628,063

 

—

 

1,056,302

(1)

The amounts in these columns represent the aggregate grant date fair value of the awards computed in accordance with Financial Accounting Standards Board (“FASB”FASB”) Accounting Standard Codification (“ASC”ASC”) Topic 718. Assumptions used in the calculation of these amounts are included in Note 16 to our consolidated financial statements included in this prospectus. These amounts do not reflect the actual economic value that will be realized by the named executive officer upon the vesting of the awards or the sale of the common shares underlying such awards.

88

(2)

Represents compensation in lieu of additional directors and officers’ insurance required by Mr. Cammarata’s employment agreement.

(3)

All Other Compensation for Mr. Cammarata includes contributions to Mr. Cammarata’s account under retirement plans, country club dues, premiums on group term life insurance, and occasional use of his Company-provided assistant for personal reasons.

(4)

Mr. Weaver was appointed Interim Chief Financial Officer on September 27, 2021 and was replaced by Mr. Raymond Silcock on July 25, 2022.

(5)

Dr. Rinow ceased serving as Chief Financial Officer of the Company on September 27, 2021 but remained in her position as Chief Operating Officer until her separation on November 15, 2021.

(6)

Includes $178,353 for severance pay in connection with Dr. Rinow’s separation.

​

87

Table of Contents

Narrative Disclosure to Summary Compensation Table

Our board of directors and compensation committee review compensation annually for our chief executive officer and his direct reports. In setting executive base salaries and bonuses, and granting equity incentive awards, board of directors or compensation committee considers compensation for comparable positions in the market, the historical compensation levels of our executives, individual performance as compared to our expectations and objectives, our desire to motivate our employees to achieve short-and long-term results that are in the best interests of our shareholders, and a long-term commitment to our Company. We target a generally competitive position, based on independent third-party benchmark analytics to inform the mix of compensation of base salary, bonus or long-term incentives.

Our board of directors has historically determined our executives’ compensation. Our compensation committee typically reviews and discusses management’s proposed compensation with the chief executive officer for all of his direct reports. Based on those discussions and its discretion, taking into account the factors noted above, the compensation committee determines the compensation for each executive officer other than the chief executive officer. Our board of directors discusses the compensation committee’s recommendations and ultimately approves the compensation of our chief executive officer without the chief executive officer and chief financial officer present.

Annual base salary

Each named executive officer’s base salary is a fixed component of annual compensation for performing specific duties and functions and has been established by our board of directors taking into account each individual’s role, responsibilities, skills, and experience. Base salaries for our named executive officers are reviewed annually by our compensation committee, typically in connection with our annual performance review process, and adjusted from time to time, based on the recommendation of the compensation committee, to realign salaries with market levels after taking into account individual responsibilities, performance, and experience. The base salary of each named executive officer is noted below for fiscal 2022:

​

​

​

​

​

    

2022 Base

Name

​

Salary

Michael Cammarata

​

$

1,050,000

John S. Wirt

​

$

600,000

Toni Rinow

​

$

338,602

​

Name

  2022 Base
Salary		 

Michael Cammarata

  $1,050,000 

John S. Wirt

  $600,000 

Toni Rinow

  $338,602 

Mr. Weaver did not earn a base salary as he provided services as Interim Chief Financial Officer pursuant to an independent contractor agreement, as discussed further below.

Bonuses

For the year ended March 31, 2022, Mr. Cammarata was awarded an annual bonus of $750,000. No annual bonuses were paid to our other named executive officers and, except as discussed below, none of our named executive officers received any non-equity incentive compensation.

89

On September 9, 2021, our board of directors approved the payment to Mr. Cammarata of  (i) a cash retention bonus of $750,000 for fiscal year 2022.

Long-term equity incentives

Our equity grant program is intended to align the interests of our named executive officers with those of our shareholders and to motivate them to make important contributions to our performance. In fiscal 2022, we did not grant any long-term equity incentive awards to our named executive officers, with the exception of inducement grants.

Employment and Severance Agreements

Michael Cammarata

The Company entered into an agreement with Mr. Cammarata on July 8, 2019 in connection with his appointment as the President and Chief Executive Officer of the Company (the “Cammarata“Cammarata Employment Agreement”Agreement”). The Cammarata Employment Agreement

88

Table of Contents

provided for an initial annual base salary of $1 million, an annual target bonus opportunity of at least 75% of his base salary, inducement equity incentive awards granted in the form of options and restricted share units, and a one-time cash award of $15 million payable only when the Corporation’s United States market capitalization based on the 30 day volume weighted average trading price of the Common Shares on Nasdaq is at least $1 billion (the “LTIP Award”“LTIP Award”). His employment agreement contains a 12 month post-employment non-compete covenant and 18 month post-employment customer and employee non-solicit covenants.

The Cammarata Employment Agreement further provides that the Company must maintain certain levels of directors’ and officers’ liability insurance. For fiscal 2020 and 2021, in light of the expense associated with obtaining this coverage, Mr. Cammarata received (i) in fiscal 2020, $1.5 million in cash and 49,954 RSUs, each representing a right to receive one (1) Common Share, and 47,094 options to purchase Common Shares of the Corporation, and (ii) in fiscal 2021, 87,290 RSUs. Mr. Cammarata and the Company signed an amendment to the Cammarata Employment Agreement providing that Mr. Cammarata shall be issued an aggregate of 523,740 RSUs, including the 87,290 RSUs issued in fiscal 2021, in connection with this requirement. Subsequent to the end of fiscal 2021, the Company obtained the required directors’ and officers’ liability coverage.

Mr. Cammarata’s employment may be terminated at any time and for any reason. If Mr. Cammarata’s employment is terminated by the Company without Cause or by Mr. Cammarata for Good Reason, as those terms are defined in the Cammarata Employment Agreement, Mr. Cammarata will, subject to certain conditions, be entitled to (a) an amount equal to (i) 18 months of his then-current base salary; and (ii) one-half times his then current target bonus, payable in substantially equal installments for 18 months, (b) a pro-rated bonus equal to the then-current target bonus for the year in which Mr. Cammarata’s employment was terminated, (c) a lump-sum payment equal to 18 months’ premiums for health coverage, (d) the continued vesting of all of Mr. Cammarata’s unvested equity awards for 18 months and the continued exercisability of all stock options for the remainder of their full term, and (e) continued eligibility for the LTIP Award for 18 months following the date of termination if the conditions of such LTIP Award is met in such period.

Upon a Change in Control (as such term is defined in the Equity Incentive Plan), Mr. Cammarata will be entitled to (a) payment of the LTIP award, if the condition to such award has been met based on the implied valuation under the Change in Control Transaction, and (b) (i) vesting of all unvested equity awards, and (ii) all stock options that have vested shall remain exercisable for the remainder of their full term, in any event only for equity awards that constitute deferred compensation within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended if the Change of Control constitutes a “change of control event” within the meaning of Treasury Regulation section 1.409A-3(i)(5)(i). In the event Mr. Cammarata’s employment is terminated within 24 months following a Change in Control (as defined in the Equity Incentive Plan), Mr. Cammarata will be

90

entitled to (a) an amount equal to the sum of (i) 24 months of his then-current base salary, (ii) two (2) times his then-current target bonus, and (iii) a pro-rated bonus equal to the then current target bonus for the year in which he is terminated, payable as a lump sum, and (b) a lump-sum payment equal to 18 months’ premiums for health coverage.

Randy Weaver

The Company entered into an interim services agreement with CSuite Financial Partners (“CSuite”CSuite”) on September 23, 2021 (the “Weaver“Weaver Services Agreement”Agreement”), pursuant to which Mr. Weaver, a resource of CSuite, was engaged as Interim Chief Financial Officer of the Company. The Weaver Services Agreement provided that CSuite would be paid a monthly fee of $40,000 for the services, and that the Weaver Services Agreement could be terminated upon at least five days’ written notice. Mr. Weaver’s services were terminated as of July 25, 2022.

John S. Wirt

The Company entered into an agreement with Mr. Wirt on August 10, 2021 in connection with his appointment as Executive Vice President, Legal & Business Affairs (Chief Legal Officer and General Counsel) (the “Wirt“Wirt Employment Agreement”Agreement”). The Wirt Employment Agreement provided for an initial annual base salary of $600,000, an annual target bonus opportunity of approximately 75% of his base salary, subject to targets set by the board of directors, and an inducement grant of options to purchase 85,715 common shares of the Company. His employment agreement contains a 12 month post-employment non-compete and customer and employee non-solicit covenants.

Mr. Wirt’s employment may be terminated at any time and for any reason. If Mr. Wirt’s employment is terminated by the Company without Cause, as that term is defined in the Wirt Employment Agreement, Mr. Wirt will, subject to certain conditions, be entitled to (a) an amount equal to (i) 12 months of his then-current base salary; and (ii) any unpaid bonus for the immediately prior year, based on actual performance and payable when others are paid, and (b) reimbursement of COBRA premiums for health coverage. Upon a

89

Table of Contents

termination in anticipation of or on or following a “Change in Control”, Mr. Wirt will be entitled to 18 months of his then-current base salary.

Toni Rinow

Effective as of November 15, 2021, we entered into a separation agreement (the “Separation Agreement”“Separation Agreement”) with Dr. Rinow in connection with her departure from the Company in her role as Chief Operating Officer of the Company. Pursuant to the Separation Agreement, Dr. Rinow was entitled to receive (i) an amount equal to 26 weeks of her base salary, payable as salary continuation over such period, (ii) reimbursement of the cost of private benefits coverage up to the earlier of 26 weeks or upon her acceptance of employment with another company and (iii) all accrued salary and vacation days. The Separation Agreement also contains a reaffirmation of Dr. Rinow’s confidentiality and non-solicitation obligations to the Company and a general release of claims by Dr. Rinow.

91

Outstanding Equity Awards at Fiscal Year End

The following table presents information regarding all outstanding common share awards and options to purchase common shares held by each of our named executive officers as of March 31, 2022.

  Option awards  Share awards 
Name Grant Date  Number of
securities
underlying
unexercised
options (#)
exercisable		  

Number of
securities
underlying
unexercised
options (#)

unexercisable

  Number of
securities
underlying
unexercised
unearned
options
(#)		  Option
exercise
price
per
share
($)		  Option
expiration
date		  Number
of
shares
or
units of
stock
that
have
not
vested
(#)		  Market
value
of
shares
or
units of
stock
that
have not
vested(1)
($)		 

Michael Cammarata

  7/8/2019(2)   5,239   477    155.05   7/8/2029   —     —   
  7/8/2019(3)   21,429   —     235,715   155.05   7/8/2029   —     —   
  7/8/2019(2)   —     —     —     —     —     6,667   51,336 
  12/16/2020(2)   20,674   26,163   —     55.65   12/16/2030   —     —   

Randy Weaver

  2/14/2022(4)   —     14,286   28,572   10.50   2/14/2027   —     —   

John S. Wirt

  8/13/2021(5)   28,572   57,143   —     25.55   8/13/2026   —     —   

​

​

Option awards

​

Share awards

​

    

​

    

​

    

​

    

​

    

​

    

​

    

​

    

Market

​

​

​

​

​

​

​

​

Number of

​

​

​

​

​

Number of

​

value of

​

​

​

​

Number of

​

Number of

​

securities

​

​

​

​

​

shares or

​

shares or

​

​

​

​

securities

​

securities

​

underlying

​

Option

​

​

​

units of

​

units of

​

​

​

​

underlying

​

underlying

​

unexercised

​

exercise

​

​

​

stock that

​

stock that

​

​

​

​

unexercised

​

unexercised

​

unearned

​

price per

​

Option

​

have not

​

have not

​

​

​

​

options (#)

​

options (#)

​

options

​

share

​

expiration

​

vested

​

vested(1)

Name

​

Grant Date

​

exercisable

​

unexercisable

​

(#)

​

($)

​

date

​

(#)

​

($)

Michael Cammarata

 

7/8/2019

(2)

5,239

 

477

 

​

 

155.05

 

7/8/2029

 

—

 

—

​

 

7/8/2019

(3)

21,429

 

—

 

235,715

 

155.05

 

7/8/2029

 

—

 

—

​

 

7/8/2019

(2)

—

 

—

 

—

 

—

 

—

 

6,667

 

51,336

​

 

12/16/2020

(2)

20,674

 

26,163

 

—

 

55.65

 

12/16/2030

 

—

 

—

Randy Weaver

 

2/14/2022

(4)

—

 

14,286

 

28,572

 

10.50

 

2/14/2027

 

—

 

—

John S. Wirt

 

8/13/2021

(5)

28,572

 

57,143

 

—

 

25.55

 

8/13/2026

 

—

 

—

(1)

Represents the market value of the unvested shares underlying the share awards as of March 31, 2022, based on the closing price of our common shares on such date, as reported on the Nasdaq, Capital Market, which was $7.70 per share. These amounts do not reflect the actual economic value that will be realized by the named executive officer upon the vesting of the share awards or the sale of the common stockshares underlying such share awards.

(2)

Vests in equal monthly installments over three years, subject to the terms, conditions and restrictions of the award agreement governing the grant.

(3)

Vest in accordance with market-based performance criteria, subject to the terms, conditions and restrictions of the award agreement governing the grant.

(4)

Vests (i) as to 14,286 common share options, in three equal annual installments over three years, and (ii) as to the remaining 28,572 common share options, following the achievement of certain performance criteria, each subject to the terms, conditions and restrictions of the award agreement governing the grants. The grant was canceled following Mr. Weaver’s separation from the Company.

(5)

Vests in equal annual installments over three years, with the first tranche vesting on the date of grant, subject to the terms, conditions and restrictions of the award agreement governing the grant.

​

Non-Employee Director Compensation

Effective July 21, 2021, our board of directors approved an amended non-employee director compensation policy. Pursuant to such policy, our non-employee directors were paid the following amounts for the year ended March 31, 2022 (prorated for service for a partial year): (i) CDN$100,000 per year to the chairperson of the board; (ii) CDN$50,000 per year to each other non-employee director; (iii) an additional CDN$10,000 per year to the chairperson of the each committee (other than the Audit Committee); (iv) an additional CDN$25,000 per year to the chairperson of the audit committee; and (iv) an additional CDN$10,000 per year to each member of a committee (per committee).

9290

Table of Contents

The following table sets forth summary information concerning compensation paid or accrued to the members of our Board of Directors for services rendered to us for the fiscal year ended March 31, 2022.

Name(1)  Fees
Earned
or Paid
in Cash
($)		   Option
Awards
($)(2)		   Stock
Awards
($)(2)(3)		   All Other
Compensation
($)		   Total
($)		 

Joseph Buaron

   67,830    —      18,841    —      86,671 

Michael De Geus

   35,910    —      18,841    —      54,751 

Ronald Denis

   60,648    —      —      —      60,648 

John Moretz(4)

   127,680    —      —      —      127,680 

Jane Pemberton(5)

   21,945    —      —      —      21,945 

Frank Rochon(5)

   34,912    —      —      —      34,912 

Richard Schottenfeld(6)

   7,980    —      —      —      7,980 

Julie Phillips(7)

   61,845    15,329    18,841    —      96,015 

​

​

​

​

​

​

​

​

​

​

​

​

    

Fees

    

​

    

​

    

​

    

​

​

​

Earned

​

​

​

​

​

​

​

​

​

​

or Paid

​

Option

​

Stock

​

All Other

​

​

​

​

in Cash

​

Awards

​

Awards

​

Compensation

​

Total

Name(1)

​

($)

​

($)(2)

​

($)(2)(3)

​

($)

​

($)

Joseph Buaron

 

67,830

 

—

 

18,841

 

—

 

86,671

Michael De Geus

 

35,910

 

—

 

18,841

 

—

 

54,751

Ronald Denis

 

60,648

 

—

 

—

 

—

 

60,648

John Moretz(4)

 

127,680

 

—

 

—

 

—

 

127,680

Jane Pemberton(5)

 

21,945

 

—

 

—

 

—

 

21,945

Frank Rochon(5)

 

34,912

 

—

 

—

 

—

 

34,912

Richard Schottenfeld(6)

 

7,980

 

—

 

—

 

—

 

7,980

Julie Phillips(7)

 

61,845

 

15,329

 

18,841

 

—

 

96,015

(1)

Michael Cammarata, our President and Chief Executive Officer and one of our named executive officers, is not included in this table as he is an employee of ours and therefore receives no compensation for his service as a director. Mr. Cammarata’s compensation is included in the section entitled “Summary Compensation Table” of this prospectus above. Philip Sanford joined our board of directors on May 19, 2022 and is therefore excluded from this table as he did not serve on our board of directors during fiscal 2022.

(2)

The amounts in these columns represent the aggregate grant date fair value of the awards computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 16 to our consolidated financial statements included in this prospectus. These amounts do not reflect the actual economic value that will be realized by the director upon the vesting of the awards or the sale of the common shares underlying such awards.

(3)

Represents grants of deferred share units awarded on November 26, 2021 that vest in four equal tranches until August 26, 2022.

(4)

Mr. Moretz resigned from our board of directors on February 10, 2022.

(5)

Ms. Pemberton and Mr. Rochon ceased to be directors as of the 2021 annual shareholder meeting.

(6)

Mr. Schottenfeld resigned from our board of directors on May 17, 2021.

(7)

Ms. Phillips was elected to our board of directors at the 2021 annual shareholder meeting and was named Chair of the board of directors on February 10, 2022.

​

Compensation Committee Interlocks and Insider Participation

None of our executive officers serve, or have served during the last fiscal year, as a member of the board of directors, compensation committee, or other board committee performing equivalent functions of any other entity that has one or more executive officers serving as one of our directors or on our compensation committee.

93

DESCRIPTION OF THE REGISTRANT’S SECURITIES TO BE REGISTERED

DESCRIPTION OF COMMON SHARES AND PREFERRED SHARESDescription of Common Shares, Preferred Shares and Warrants

The authorized share capital of the Company is comprised of an unlimited number of Common Shares and an unlimited number of Preferred Shares, issuable in one or more series. As permitted by the by-laws, in accordance with its articles of incorporation, the Company created the “Series A Preferred Shares”, which are non-voting shares. The Company is offering an aggregate of 6,417,114up to 12,068,966 Common Shares which underlyand up to 12,068,966 Common Warrants. We are also offering up 12,068,966 to Pre-Funded Warrants to those purchasers whose purchase of Common Shares in this offering would result in the Warrants.purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding Common Shares, or as such purchaser shall otherwise elect, following the consummation of this offering in lieu of the Common Shares that would result in such excess ownership.

91

Table of Contents

Common Shares

Voting Rights

Each Common Share entitles its holder to receive notice of, and to attend and vote at, all annual or special meetings of the shareholders of the Company. Each Common Share entitles its holder to one vote at any meeting of the shareholders, other than meetings at which only the holders of a particular class or series of shares are entitled to vote due to statutory provisions or the specific attributes of this class or series.

Dividends

Subject to the prior rights of the holders of Preferred Shares ranking before the Common Share as to dividends, the holders of Common Shares are entitled to receive dividends as declared by the board of directors of the Company from the Company’s funds that are duly available for the payment of dividends.

Winding-up and Dissolution

In the event of the Company’s voluntary or involuntary winding-up or dissolution, or any other distribution of the Company’s assets among its shareholders for the purposes of winding up its affairs, the holders of Common Shares shall be entitled to receive, after payment by the Company to the holders of Preferred Shares ranking prior to Common Shares regarding the distribution of the Company’s assets in the case of winding-up or dissolution, share for share, the remainder of the property of the Company, with neither preference nor distinction.

The foregoing description of the terms of the Common Shares does not purport to be complete and is subject to and qualified in its entirety by reference to the articles and general by-laws of the Company, each of which is attached hereto as an exhibit.

Preferred Shares

The Preferred Shares carry no voting rights. Preferred Shares may be issued at any time, in one or more series. The Company’s board of directors has the power to set the number of Preferred Shares and the consideration per share, as well as to determine the provisions attaching to each series of Preferred Shares (including dividends, redemption rights and conversion rights, where applicable). The shares in each series of Preferred Shares rank prior to the Common Shares of the Company with regard to payment of dividends, reimbursement of capital and division of assets in the event of the Company winding-up or dissolution. The holders of Preferred Shares shall not be entitled to receive notice of, or to attend or vote at the meetings of the shareholders, except: (i) in the event of a separate meeting or vote by class or by series as specified by law, (ii) where entitled to vote by class or series on amendments to the attributes attaching to the class or series, or (iii) where applicable, in the event of the Company’s omission to pay the number of periodical dividends, whether consecutive or not, as applicable to any series.

The board of directors of the Company has passed a by-law creating the Series A Preferred Shares. Series A Preferred Shares may be issued only as part of an acquisition by the Company of other companies or material

94

assets. Series A Preferred Shares are non-voting, and entitle holders thereof to a fixed, preferential and non-cumulative annual dividend of 5% of the amount paid for the said shares.

As of the date of this prospectus, there are no Preferred Shares outstanding.

The foregoing description of the terms of the Preferred Shares does not purport to be complete and is subject to and qualified in its entirety by reference to the articles and general by-laws of the Company, each of which is attached hereto as an exhibit.

Pre-Funded Warrants

The Pre-Funded Warrants issued under the offering will be issued in certificated form. The following description is subject to the detailed provisions of the form of certificate for the Pre-Funded Warrants (the “Pre-Funded Warrant Certificate”). Reference should be made to the Pre-Funded Warrant Certificate for the full text of attributes of the Pre-Funded Warrants.

Each whole Pre-Funded Warrant will entitle the holder to acquire, subject to adjustment as summarized below, one Pre-Funded Warrant Share at any time until the Pre-Funded Warrants are exercised in full. The exercise price will be pre-funded except for a nominal exercise price of US$0.0001 per Pre-Funded Warrant. The Pre-Funded Warrants will be exercisable, at the option of the holder, in whole or in

92

Table of Contents

part, by delivering to the Company a duly executed notice of exercise, thereby canceling all or a portion of such holder’s Pre-Funded Warrants. The Pre-Funded Warrants may be exercised on a “net” or “cashless” basis at any time.

The Pre-Funded Warrant Certificate will provide that the number of underlying Pre-Funded Warrant Shares and exercise price of the Pre-Funded Warrants will be subject to adjustment in the event of certain share dividends or distributions or of a subdivision or consolidation of the common shares or similar events.

The Pre-Funded Warrant Certificate will also provide that, during the period in which the Pre-Funded Warrants are exercisable, it will give notice to holders of Pre-Funded Warrants of certain stated events, at least 5 days prior to the record date or effective date, as the case may be, of such events.

In connection with certain specified mergers, sales, business combinations, recapitalizations or similar events (a “Fundamental Transaction”), holders of the Pre-Funded Warrants will have the right to receive, upon exercise, the same consideration as holders of common shares in respect of the Pre-Funded Warrant Shares that would be issuable upon exercise of the Pre-Funded Warrants immediately prior to such Fundamental Transaction, in addition to any additional consideration receivable by holders of common shares in connection with such Fundamental Transaction.

There is currently no market through which the Pre-Funded Warrants may be sold, and Purchasers may not be able to resell the Pre-Funded Warrants purchased under this prospectus supplement. The Pre-Funded Warrant Certificate will also contain restrictions on the number of Pre-Funded Warrant Shares that may be acquired by the holder of Pre-Funded Warrants upon any exercise of the Pre-Funded Warrants that would result in the holder and its affiliates holding in excess of 9.99% of the number of common shares outstanding immediately after giving effect to the issuance of common shares upon exercise of such Pre-Funded Warrants, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to us, provided that any increase in the beneficial ownership limitation shall not be effective until 61 days following notice to us. No fractional Pre-Funded Warrant Shares will be issuable upon the exercise of any Pre-Funded Warrants. Holders of Pre-Funded Warrants will not have any voting or pre-emptive rights or any other rights which a holder of common shares would have, except as set forth in the Pre-Funded Warrants.

Common Warrants

The following is a summary of certain terms and provisions of the Common Warrants that are being offered hereby is not complete and is subject to, and qualified in its entirety by, the provisions of the Common Warrant, the form of which will be filed as an exhibit to the registration statement of which this prospectus forms a part. Prospective investors should carefully review the terms and provisions of the form of Common Warrant for a complete description of the terms and conditions of the Common Warrants.

Duration and Exercise Price

Each Common Warrant offered hereby will have an exercise price equal to $        . The Common Warrants will be immediately exercisable and may be exercised until the five-year anniversary of the issuance date. The exercise price and number of Common Shares upon exercise is subject to appropriate adjustment in the event of share dividends, share splits, reorganizations or similar events affecting our Common Shares and the exercise price. The Common Warrants will be issued separately from the Common Shares or Pre-Funded Warrants, respectively, and may be transferred separately immediately thereafter. Common Warrants will be issued in certificated form only.

Exercisability

The Common Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full for the number of Common Shares purchased upon such exercise (except in the case of a cashless exercise as discussed below). A holder (together with its affiliates) may not exercise any portion of such holder’s Common Warrants to the extent that the holder would own more than 4.99% of the outstanding Common Shares immediately after exercise, except that upon at least 61 days’ prior notice from the holder to us, the holder may increase the amount of ownership of outstanding stock after exercising the holder’s Common Warrants up to 9.99% of the number of Common Shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Common Warrants.

93

Table of Contents

Cashless Exercise

If, at the time a holder exercises its Common Warrants, a registration statement registering the issuance of the Common Shares underlying the Common Warrants under the Securities Act is not then effective or available for the issuance of such shares, then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of Common Shares determined according to a formula set forth in the Common Warrant.

Fundamental Transactions

In the event of any fundamental transaction, as described in the Common Warrants and generally including any merger or consolidation with or into another entity, sale of all or substantially all of our assets, tender offer or exchange offer, or reclassification of our Common Shares, then upon any subsequent exercise of a Common Warrant, the holder will have the right to receive as alternative consideration, for each share of our Common Shares that would have been issuable upon such exercise immediately prior to the occurrence of such fundamental transaction, the number of Common Shares of the successor or acquiring corporation or of our company, if it is the surviving corporation, and any additional consideration receivable upon or as a result of such transaction by a holder of the number of Common Shares for which the Common Warrant is exercisable immediately prior to such event. Notwithstanding the foregoing, in the event of a fundamental transaction, the holders of the Common Warrants have the right to require us or a successor entity to redeem the Common Warrants for cash in the amount of the Black-Scholes Value (as defined in each Common Warrant) of the remaining unexercised portion of the Common Warrants on the date of the consummation of such fundamental transaction, concurrently with or within 30 days following the consummation of a fundamental transaction.

However, in the event of a fundamental transaction which is not in our control, including a fundamental transaction not approved by our board of directors, the holders of the Common Warrants will only be entitled to receive from us or our successor entity, as of the date of consummation of such fundamental transaction the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of the Common Warrant that is being offered and paid to the holders of our Common Shares in connection with the fundamental transaction, whether that consideration is in the form of cash, stock or any combination of cash and stock, or whether the holders of our Common Shares are given the choice to receive alternative forms of consideration in connection with the fundamental transaction.

Transferability

Subject to applicable laws, a Common Warrant may be transferred at the option of the holder upon surrender of the Common Warrant to us together with the appropriate instruments of transfer.

Fractional Shares

No fractional Common Shares will be issued upon the exercise of the Common Warrants. Rather, the number of Common Shares to be issued will, at our election, either be rounded up to the nearest whole number or we will pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the exercise price.

Right as a Shareholder

Except as otherwise provided in the Common Warrants or by virtue of the holder’s ownership of Common Shares, such holder of Common Warrants does not have the rights or privileges of a holder of our Common Shares, including any voting rights, until such holder exercises such holder’s Common Warrants.

Waivers and Amendments

No term of the Common Warrants may be amended or waived without the written consent of each holder of the Common Warrants purchased in this offering.

Pre-Funded Warrants

The following summary of certain terms and provisions of the Pre-Funded Warrants that are being offered hereby is not complete and is subject to, and qualified in its entirety by, the provisions of the Pre-Funded Warrant, the form of which will be filed as an exhibit to

94

Table of Contents

the registration statement of which this prospectus forms a part. Prospective investors should carefully review the terms and provisions of the form of Pre-Funded Warrant for a complete description of the terms and conditions of the Pre-Funded Warrants.

Duration and Exercise Price

Each Pre-Funded Warrant offered hereby will have an initial exercise price per Common Share equal to $0.0001. The Pre-Funded Warrants will be immediately exercisable and will expire when exercised in full. The exercise price and number of Common Shares issuable upon exercise is subject to appropriate adjustment in the event of share dividends, share splits, reorganizations or similar events affecting our Common Shares and the exercise price. Subject to the rules and regulations of the applicable trading market, we may at any time during the term of the Pre-Funded Warrant, subject to the prior written consent of the holders, reduce the then current exercise price to any amount and for any period of time deemed appropriate by our board of directors.

Exercisability

The Pre-Funded Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full for the number of Common Shares purchased upon such exercise (except in the case of a cashless exercise as discussed below). A holder (together with its affiliates) may not exercise any portion of the Pre-Funded Warrant to the extent that the holder would own more than 4.99% of the outstanding Common Shares immediately after exercise, except that upon at least 61 days’ prior notice from the holder to us, the holder may increase the amount of beneficial ownership of outstanding shares after exercising the holder’s Pre-Funded Warrants up to 9.99% of the number of our Common Shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Pre-Funded Warrants. Purchasers of Pre-Funded Warrants in this offering may also elect prior to the issuance of the Pre-Funded Warrants to have the initial exercise limitation set at 9.99% of our outstanding Common Shares.

Cashless Exercise

In lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of Common Shares determined according to a formula set forth in the Pre-Funded Warrants.

Fractional Shares

No fractional Common Shares will be issued upon the exercise of the Pre-Funded Warrants. Rather, at the Company’s election, the number of Common Shares to be issued will be rounded up to the nearest whole number or the Company will pay a cash adjustment in an amount equal to such fraction multiplied by the exercise price.

Transferability

Subject to applicable laws, a Pre-Funded Warrant may be transferred at the option of the holder upon surrender of the Pre-Funded Warrants to us together with the appropriate instruments of transfer.

Right as a Shareholder

Except as otherwise provided in the Pre-Funded Warrants or by virtue of such holder’s ownership of Common Shares, the holders of the Pre-Funded Warrants do not have the rights or privileges of holders of our Common Shares, including any voting rights, until they exercise their Pre-Funded Warrants. The Pre-Funded Warrants will provide that holders have the right to participate in distributions or dividends paid on our Common Shares.

Fundamental Transaction

In the event of a fundamental transaction, as described in the Pre-Funded Warrants and generally including any reorganization, recapitalization or reclassification of our Common Shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding securities, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding shares of securities, the holders of the Pre-Funded Warrants will be entitled to receive upon exercise of the Pre-Funded Warrants the kind and amount of

95

Table of Contents

securities, cash or other property that the holders would have received had they exercised the Pre-Funded Warrants immediately prior to such fundamental transaction on a net exercise basis.

Amendment to Common Warrants Issued in August 2022

In connection with this offering, we may amend the terms of the common warrants, which were previously issued pursuant to the securities purchase agreement that we entered into with certain investors in August 2022 to reduce the exercise price of such warrants and to extend the term during which those warrants could remain exercisable.

Listing of Securities

Our Common Shares are listed on the Nasdaq under the symbol “NEPT.”  There is no trading market available for the Common Warrants or Pre-Funded Warrants on any securities exchange or nationally recognized trading system. We do not intend to list the Common Warrants or Pre-Funded Warrants on any securities exchange or nationally recognized trading system.

Transfer Agent and Warrant Agent

The transfer agent for our Common Shares is Computershare Investor Services Inc.

9596

Table of Contents

CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

The following summarizes the principal Canadian federal income tax consequences applicable to the acquisition, holding, and disposition of Common Shares (including a Common Share issued on the exercise of a Common Warrant or a Pre-Funded Warrant), Common Warrants, and Pre-Funded Warrants by a holder who (1) is not, and is not deemed to be, a resident of Canada for the purposes of the Income Tax Act (Canada) (the "Tax Act"), (2) deals at arm’s length with the Company and is not affiliated with the Company in each case for purpose of the Tax Act, (3) holds and beneficially owns such Common Shares, Common Warrants or Pre-Funded Warrants solely as capital property, (4) does not use or hold, and is not deemed to use or hold, the Common Shares, Common Warrants or Pre-Funded Warrants in connection with a business carried on, or deemed to be carried on, in Canada, and (5) for purposes of the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the "Canada-U.S. Tax Convention"), is a resident of the U.S., has never been a resident of Canada, does not have an has not had, at any time, a permanent establishment or fixed base in Canada, and is a qualifying person or otherwise qualifies for the full benefits of the Canada-U.S. Tax convention and (6) has not acquired such Common Shares, Common Warrants or Pre-Funded Warrants in a transaction or transactions considered to be an adventure in the nature of trade, referred to in this summary as a "U.S. Holder".

This summary is not applicable to a U.S. Holder that is (i) an insurer carrying on an insurance business in Canada and elsewhere, or (ii) an “authorized foreign bank” (as defined in the Tax Act) or (iii) another U.S. Holder of special status.  Such U.S. Holders should consult their own Tax Advisors.

This summary is based on the current provisions of the Tax Act, the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of the Canada Revenue Agency, and the current provisions of the Canada-U.S. Tax Convention. Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including without limitation, any United States) tax law or treaty. It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although no assurance can be given in these respects.

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular purchaser, and no representations with respect to the income tax consequences to any purchaser are made.  Prospective purchasers should consult their own tax advisors for advice with respect to the tax consequences to them or acquiring Common Shares, Common Warrants or Pre-Funded Warrants pursuant to this offering having regard to their particular circumstances.

Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Holder’s particular circumstances.

Currency Conversion

In general, for purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of the Common Shares, Common Warrants, and Pre-Funded Warrants must be converted into Canadian dollars based on the applicable exchange rate quoted by the Bank of Canada for the relevant day or such other rate of exchange that is acceptable to the Canada Revenue Agency.

Allocation of Cost for Common Shares and Common Warrants

A U.S. Holder who acquires Common Shares and Common Warrants pursuant to this Offering will be required to allocate the price paid for a Common Share and Warrant on a reasonable basis between the Common Share and the Common Warrant in order to determine their respective costs to such U.S. Holder for the purposes of the Tax Act.

For our purposes, we intend to allocate $    to each Common Share and $0.0001 to each Common Warrant that is being sold in combination with a Common Share based on a combined public offering price of $    , and believe that such allocation is reasonable. The Company's allocation, however, is not binding on the Canada Revenue Agency or on a U.S. Holder.

No gain or loss will be realized by a U.S. Holder of a Common Warrant upon the exercise of such Common Warrant. When a Common Warrant is exercised, the U.S. Holder’s cost of the Common Share acquired thereby will be equal to the adjusted cost base of the Common Warrant to such U.S. Holder, plus the amount paid on the exercise of the Common Warrant.

97

Table of Contents

The adjusted cost base to a U.S. Holder of each Common Share (including a Common Share acquired on the exercise of a Common Warrant) acquired pursuant to this Offering will be determined by averaging the cost of such Common Share with the adjusted cost base to such U.S. Holder of all other Common Shares (if any) held by the U.S. Holder as capital property immediately prior to the acquisition.

Allocation of Cost for Pre-Funded Warrants and Common Warrants

A U.S. Holder who acquires Pre-Funded Warrants and Common Warrants pursuant to this Offering will be required to allocate the price paid for a Pre-Funded Warrant and Common Warrant on a reasonable basis between the Pre-Funded Warrant and the Common Warrant in order to determine their respective costs to such U.S. Holder for the purposes of the Tax Act.

For our purposes, we intend to allocate $    to each Pre-Funded Warrant and $0.0001 to each Common Warrant that is being sold in combination with a Pre-Funded Warrant based on a combined public offering price of $        and believe that such allocation is reasonable. The Company's allocation, however, is not binding on the Canada Revenue Agency or on a U.S. Holder.

No gain or loss will be realized by a U.S. Holder of a Pre-Funded Warrant upon the exercise of such Pre-Funded Warrant. When a Pre-Funded Warrant is exercised, the U.S. Holder’s cost of the Common Share acquired thereby will be equal to the adjusted cost base of the Pre-Funded Warrant to such U.S. Holder, plus the amount paid on the exercise of the Pre-Funded Warrant.

The adjusted cost base to a U.S. Holder of each Common Share acquired on the exercise of a Pre-Funded Warrant acquired pursuant to this Offering will be determined by averaging the cost of such Common Share with the adjusted cost base to such U.S. Holder of all other Common Shares (if any) held by the U.S. Holder as capital property immediately prior to the acquisition.

For the income tax consequences of the exercise of a Common Warrant, see “Allocation of Cost for Common Shares and Common Warrants” above.

Dividends

Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder’s Common Shares. The statutory rate of withholding tax is 25% of the gross amount of the dividend paid. The Canada-U.S. Tax Convention reduces the statutory rate with respect to dividends paid to a U.S. Holder, if that U.S. Holder is a resident of the U.S. for purposes of, and is eligible for and entitled to benefits under, the Canada-U.S. Tax Convention. Where applicable, the rate of withholding tax is generally reduced under the Canada-U.S. Tax Convention to 15% of the gross amount of the dividend if the recipient of the dividend is a resident of the U.S. for purposes of, and is eligible for and entitled to benefits under, the Canada-U.S. Tax Convention and is the beneficial owner of the dividend. If the U.S. Holder is a company that is a resident of the U.S. for purposes of, and is eligible for and entitled to benefits under, the Canada-U.S. Tax Convention, and that owns at least 10% of the voting stock of the Company and beneficially owns the dividend, the rate of withholding tax is 5% for dividends paid or credited to such corporate U.S. Holder. The Company is required to withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of Canada for the account of the U.S. Holder.

Disposition of Common Shares, Common Warrants or Pre-Funded Warrants

A U.S. Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the disposition or deemed disposition of a Common Share (including a Common Share issued on the exercise of a Common Warrant or a Pre-Funded Warrant), Common Warrant or Pre- Funded Warrant unless such securities constitute "taxable Canadian property" of the U.S. Holder for purposes of the Tax Act and the gain is not exempt from tax pursuant to the terms of the Canada-U.S. Tax Convention.

Provided that the Common Shares are listed on a “designated stock exchange” for purposes of the Tax Act at the time of disposition (which currently includes Nasdaq), the Common Shares, Common Warrants and Pre-Funded Warrants generally will not constitute “taxable Canadian property” of a U.S. Holder, unless at any time during the 60 month period immediately preceding the disposition: (i) the U.S. Holder, persons with whom the U.S. Holder did not deal at “arm’s length” for the purposes of the Tax Act, partnerships in which the U.S. Holder or a person with whom the U.S. Holder did not deal at “arm’s length” for the purposes of the Tax Act holds a membership interest directly or indirectly through one or more partnerships, or the U.S. Holder together with all such persons, owned 25% or more of the issued shares of any class of the Company and; (ii) more than 50% of the fair market value of the Common Shares was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, “Canadian resource properties” (as defined in the Tax Act), “timber resource properties” (as defined in the Tax Act), or options in respect of, or interests in, or for civil law rights in, such property whether or not such property exists. Notwithstanding the foregoing, the Common Shares,

98

Table of Contents

Common Warrants and Pre-Funded Warrants may otherwise in certain circumstances be deemed to be taxable Canadian property to a U.S. Holder for the purposes of the Tax Act.

Even if a Common Share, Common Warrant or Pre-Funded Warrant is considered to be “taxable Canadian property” to a U.S. Holder, the U.S. Holder may be exempt from tax under the Tax Act if such securities are “treaty-protected property” for the purposes of the Tax Act. Common Shares, Common Warrants or Pre-Funded Warrants owned by a U.S. Holder will generally be “treaty-protected property” if the gain from the disposition of such securities would, because of the Canada-U.S. Tax Convention, be exempt from tax under Part I of the Tax Act.

U.S. Holders who may hold Common Shares, Common Warrants or Pre-Funded Warrants as “taxable Canadian property” should consult their own tax advisors.

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a general summary of certain U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership and disposition of Common Shares, Common Units and Pre-Funded Units (such Common Units and Pre-Funded Units, collectively, “Units”) acquired pursuant to this offering and exercise, disposition, and lapse of Pre-Funded Warrants or Common Warrants acquired pursuant to this offering, and the acquisition, ownership, and disposition of the Common Shares received upon exercise of such Pre-Funded Warrants or Common Warrants, as the case may be (the “Warrant Shares”). The term “securities” as used in this summary includes the Units, Common Shares, Pre-Funded Warrants, Common Warrants, and Warrant Shares, as applicable.

This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder as a result of the acquisition of securities pursuant to this offering. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any particular U.S. Holder. This summary does not address the U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of the securities. In addition, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of the securities.

No opinion from legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax considerations applicable to U.S. Holders as discussed in this summary. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.

Scope of this Summary

Authorities

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed) promulgated under the Code, published rulings of the IRS, published administrative positions of the IRS and U.S. court decisions, that are in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied retroactively. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.

99

Table of Contents

U.S. Holders

For purposes of this summary, the term “U.S. Holder” means a beneficial owner of the securities acquired pursuant to this offering that is for U.S. federal income tax purposes:

●a citizen or individual resident of the United States;
●a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;
●an estate whose income is subject to U.S. federal income taxation regardless of its source; or
●a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are brokers or dealers in securities or currencies or U.S. Holders that are traders in securities that elect to apply a mark-to-market accounting method; (d) have a “functional currency” other than the U.S. dollar; I own securities as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other integrated transaction; (f) acquired the securities in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold the securities other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) are partnerships and other pass-through entities (and investors in such partnerships and entities); (i) are subject to special tax accounting rules; (j) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of our outstanding shares; (k) are U.S. expatriates or former long-term residents of the U.S.; or (l) are subject to taxing jurisdictions other than, or in addition to, the United States. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own tax advisors regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of the securities.

If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds the securities, the U.S. federal income tax consequences to such entity or arrangement and the owners of such entity or arrangement generally will depend on the activities of such entity or arrangement and the status of such owners. This summary does not address the tax consequences to any such entity or arrangement or owner. Owners of entities or arrangements that are classified as partnerships for U.S. federal income tax purposes should consult their own tax advisor regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of the securities.

U.S. Federal Income Tax Consequences of the Acquisition of a Unit

No statutory, administrative or judicial authority directly addresses the treatment of a Unit or instruments similar to a Unit for U.S. federal income tax purposes and, therefore, that treatment is not entirely clear. The acquisition of a Unit should be treated for U.S. federal income tax purposes as the acquisition of a Common Share and a Common Warrant (in the case of a Common Unit) or a Common Warrant and a Pre-Funded Warrant (in the case of a Pre-Funded Unit). The purchase price for each Unit will be allocated between a Common Share and a Common Warrant (in the case of a Common Unit) or a Common Warrant and a Pre-Funded Warrant (in the case of a Pre-Funded Unit) in proportion to their relative fair market values at the time such securities are issued to the U.S. Holder. Each investor must make his or her own determination of such value based on all the relevant facts and circumstances. This allocation of the purchase price for each such Unit will establish a U.S. Holder’s initial tax basis for U.S. federal income tax purposes in the Common Share and a Common Warrant (in the case of a Common Unit) or a Common Warrant and a Pre-Funded Warrant (in the case of a Pre-Funded Unit) that comprise each such type of Unit. Any disposition of a Unit should be treated for U.S. federal income tax purposes as a disposition of a Common Share and a Common Warrant (in the case of a Common Unit) or a Common Warrant and a Pre-Funded Warrant (in the case of a Pre-Funded Unit) and the amount realized on the disposition should be allocated between the Common Share and the Common Warrant (in the case of a Common Unit) or the Common Warrant and the Pre-Funded Warrant (in the case of a Pre-

100

Table of Contents

Funded Unit) based on their respective relative fair market values at the time of disposition (as determined by each such Unit holder based on all relevant facts and circumstances).

The foregoing treatment of the Unit and a holder’s purchase price allocation are not binding on the IRS or the courts. Because there are no authorities that directly address instruments that are similar to the Units, no assurance can be given that the IRS or the courts will agree with the characterization described above or the discussion below. Accordingly, each prospective investor is urged to consult its own tax advisors regarding the tax consequences of an investment in a Unit (including alternative characterizations of a Unit). The balance of this discussion assumes that the characterization of the Units described above is respected for U.S. federal income tax purposes.

Treatment of Pre-Funded Warrants

Although it is not entirely free from doubt, we believe a Pre-Funded Warrant should be treated as a separate class of common shares for U.S. federal income tax purposes and a U.S. Holder of Pre-Funded Warrants should generally be taxed in the same manner as a holder of Common Shares except as described below. Accordingly, no gain or loss should be recognized upon the exercise of a Pre-Funded Warrant and, upon exercise, the holding period of a Pre-Funded Warrant should carry over to the Warrant Shares received. Similarly, the tax basis of the Pre-Funded Warrant should carry over to the Warrant Shares received upon exercise, increased by the exercise price of US$0.0001 per share. However, such characterization is not binding on the IRS, and the IRS may treat the Pre-Funded Warrant as warrants to acquire Common Shares. If so, the amount and character of a U.S. Holder’s gain with respect to an investment in Pre-Funded Warrant could change, and a U.S. Holder may not be entitled to make the “QEF Election” or “Mark-to-Market Election” described below to mitigate PFIC consequences in the event that we are classified as a PFIC. Accordingly, each U.S. Holder should consult its own tax advisor regarding the risks associated with the acquisition of a Pre-Funded Warrant pursuant to this offering (including potential alternative characterizations). The balance of this discussion generally assumes that the characterization described above is respected for U.S. federal income tax purposes.

Passive Foreign Investment Company Rules

If we are considered a “passive foreign investment company” within the meaning of Section 1297 of the Code (a “PFIC”) at any time during a U.S. Holder’s holding period, the following sections will generally describe the potentially adverse U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of the securities.

In any year in which we are classified as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. In addition to penalties, a failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.

We generally will be a PFIC for any tax year in which (a) 75% or more of our gross income for such tax year is passive income (the “PFIC income test”) or (b) 50% or more of the value of our assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the “PFIC asset test”). “Gross income” generally includes sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all of a foreign corporation’s commodities are stock in trade or inventory, depreciable property used in a trade or business, or supplies regularly used or consumed in the ordinary course of its trade or business, and certain other requirements are satisfied.

For purposes of the PFIC income test and PFIC asset test described above, if we own, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, we will be treated as if we (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and PFIC asset test described above, “passive income” does not include any interest, dividends, rents, or royalties that are received or accrued by us from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.

Under certain attribution rules, if we are a PFIC, U.S. Holders will be deemed to own their proportionate share of any of our subsidiaries which is also a PFIC (a “Subsidiary PFIC”), and will generally be subject to U.S. federal income tax under the “Default PFIC

101

Table of Contents

Rules Under Section 1291 of the Code” discussed below on their proportionate share of any (i) distribution on the shares of a Subsidiary PFIC and (ii) disposition or deemed disposition of shares of a Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. Accordingly, U.S. Holders should be aware that they could be subject to tax under the PFIC rules even if no distributions are received and no redemptions or other dispositions of the securities are made. In addition, U.S. Holders may be subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of the securities.

Based on our current operations, income, assets and certain estimates and projections, including as to the relative values of our assets, including goodwill, which is based on the expected price of our Common Shares, we believe that we were not a PFIC for the taxable year ended March 31, 2022. The determination of our status as a PFIC for the taxable year ending March 31, 2023 cannot be made at this time. The determination of PFIC status for any year is very fact specific, being based on the types of income we earn and the types and value of our assets from time to time, all of which are subject to change, as well as, in part, the application of complex U.S. federal income tax rules, which are subject to differing interpretations. As a result, there can be no assurance in this regard, and the IRS may challenge our classification. Accordingly, it is possible that we may be classified as a PFIC in a past year, in the current taxable year, or in future years. If we are classified as a PFIC in any year during which a U.S. Holder holds the securities, we generally will continue to be treated as a PFIC as to such U.S. Holder in all succeeding years, regardless of whether we continue to meet the PFIC income test or PFIC asset test discussed above.

Default PFIC Rules Under Section 1291 of the Code

If we are a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of the securities will depend on whether such U.S. Holder makes a “qualified electing fund” or “QEF” election (a “QEF Election”) or makes a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”) with respect to the Common Shares, Pre-Funded Warrants, or the Warrant Shares. A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election (a “Non-Electing U.S. Holder”) will be taxable as described below.

A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to (a) any gain recognized on the sale or other taxable disposition of the securities and (b) any excess distribution received on the securities. A distribution generally will be an “excess distribution” to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder’s holding period for the securities, if shorter).

Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of the securities of a PFIC (including an indirect disposition of shares of a Subsidiary PFIC), and any excess distribution received on such securities (or a distribution by a Subsidiary PFIC to its shareholder that is deemed to be received by a U.S. Holder) must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the securities. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income (and not eligible for certain preferential tax rates, as discussed below). The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal interest,” which is not deductible.

If we are a PFIC for any tax year during which a Non-Electing U.S. Holder holds the securities, it will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether it ceases to be a PFIC in one or more subsequent tax years. If we cease to be a PFIC, a Non-Electing U.S. Holder may terminate this deemed PFIC status with respect to the Common Shares, Pre-Funded Warrants, and Warrant Shares by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code as discussed above) as if such securities were sold on the last day of the last tax year for which we were a PFIC. No such election, however, may be made with respect to the Common Warrants.

Under proposed Treasury Regulations, if a U.S. Holder has an option, warrant, or other right to acquire stock of a PFIC (such as the Common Warrants), such option, warrant or right is considered to be PFIC stock subject to the default rules of Section 1291 of the Code. Under rules described below, the holding period for the Warrant Shares will begin on the date a U.S. Holder acquires the related Common Warrant. This will impact the availability of the QEF Election and Mark-to-Market Election with respect to the Warrant Shares. Thus, a U.S. Holder will have to account for the Warrant Shares, Common Shares and Pre-Funded Warrants under the PFIC rules and the applicable elections differently.

102

Table of Contents

QEF Election

A U.S. Holder that makes a QEF Election for the first tax year in which its holding period of its Common Shares or Pre-Funded Warrants begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its Common Shares or Pre-Funded Warrants. However, a U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) our net capital gain, which will be taxed as long-term capital gain to such U.S. Holder, and (b) our ordinary earnings, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which we are a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by us. However, for any tax year in which we are a PFIC and have no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.

A U.S. Holder that makes a timely QEF Election generally (a) may receive a tax-free distribution from us to the extent that such distribution represents “earnings and profits” that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the Common Shares or Pre-Funded Warrants to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of Common Shares or Pre-Funded Warrant.

The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” for purposes of avoiding the default PFIC rules discussed above if such QEF Election is made for the first year in the U.S. Holder’s holding period for the Common Shares or Pre-Funded Warrants in which we were a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year.

A QEF Election will apply to the tax year for which such QEF Election is made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, we cease to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which we are not a PFIC. Accordingly, if we become a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which we qualify as a PFIC.

As discussed above, under proposed Treasury Regulations, if a U.S. Holder has an option, warrant or other right to acquire stock of a PFIC (such as the Common Warrants), such option, warrant or right is considered to be PFIC stock subject to the default rules of Section 1291 of the Code. However, a U.S. Holder of an option, warrant or other right to acquire stock of a PFIC may not make a QEF Election that will apply to the option, warrant or other right to acquire PFIC stock. In addition, under proposed Treasury Regulations, if a U.S. Holder holds an option, warrant or other right to acquire stock of a PFIC, the holding period with respect to shares of stock of the PFIC acquired upon exercise of such option, warrant or other right will include the period that the option, warrant or other right was held.

Consequently, under the proposed Treasury Regulations, if a U.S. Holder of the Common Shares or Pre-Funded Warrants makes a QEF Election, such election generally will not be treated as a timely QEF Election with respect to Warrant Shares and the rules of Section 1291 of the Code discussed above will continue to apply with respect to such U.S. Holder’s Warrant Shares. However, a U.S. Holder of Warrant Shares should be eligible to make a timely QEF Election if such U.S. Holder makes a “purging” or “deemed sale” election to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such Warrant Shares were sold for fair market value. As a result of the “purging” or “deemed sale” election, the U.S. Holder will have a new basis and holding period in the Warrant Shares acquired upon the exercise of the Warrants for purposes of the PFIC rules. In addition, gain recognized on the sale or other taxable disposition (other than by exercise) of the Common Warrants by a U.S. Holder will be subject to the rules of Section 1291 of the Code discussed above. Each U.S. Holder should consult its own tax advisor regarding the application of the PFIC rules to the securities.

Upon the exercise of a Pre-Funded Warrant, a U.S. Holder may be required to make a new QEF Election with respect to the Warrant Shares received. Each U.S. Holder should consult its own tax advisor regarding the application of the QEF Election rules to the Pre-Funded Warrants and Warrant Shares upon exercise thereof.

103

Table of Contents

If we determine that we are a PFIC for this year or any future taxable year, we can make no assurances that we would provide the information necessary for U.S. Holders to make a QEF Election. U.S. Holders should consult with their own tax advisors regarding the potential application of the PFIC rules to the ownership and disposition of the securities, and the availability of certain U.S. tax elections under the PFIC rules.

A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed U.S. federal income tax return. However, if we do not provide the required information with regard to us or any of our Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules of Section 1291 of the Code discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions.

Mark-to-Market Election

A U.S. Holder may make a Mark-to-Market Election with respect to the Common Shares, Pre-Funded Warrants, and Warrant Shares only if such shares are marketable stock. The Common Shares and Warrant Shares generally will be “marketable stock” if the Common Shares and Warrant Shares are regularly traded on (a) a national securities exchange that is registered with the SEC, (b) the national market system established pursuant to Section 11A of the Exchange Act or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange ensure active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be considered “regularly traded” for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Provided that the Common Shares and Warrant Shares are “regularly traded” as described in the preceding sentence, such shares are expected to be marketable stock. There can be no assurance that such shares will be “regularly traded” in subsequent calendar quarters. U.S. Holders should consult their own tax advisors regarding the marketable stock rules. A Mark-to-Market Election will likely not be available with respect to the Common Warrants and Pre-Funded Warrants. Accordingly, each U.S. Holder should consult its own tax advisor regarding the availability of a Mark-to-Market Election with respect to the Common Warrants and Pre-Funded Warrants. The balance of this discussion generally assumes that a Mark-to-Market Election may be made with respect a Pre-Funded Warrant.

A U.S. Holder that makes a Mark-to-Market Election with respect to its Common Shares, Warrant Shares or Pre-Funded Warrants generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such Common Shares, Warrant Shares or Pre-Funded Warrants. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder’s holding period for the Common Shares, Warrant Shares or Pre-Funded Warrants and such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, the Common Shares, Warrant Shares and Pre-Funded Warrants.

Any Mark-to-Market Election made by a U.S. Holder for the Common Shares will also apply to such U.S. Holder’s Warrant Shares. As a result, if a Mark-to-Market Election has been made by a U.S. Holder with respect to its Common Shares, any Warrant Shares received will automatically be marked-to-market in the year of exercise. Because, under the proposed Treasury Regulations, a U.S. Holder’s holding period for Warrant Shares includes the period during which such U.S. Holder held the Common Warrants, a U.S. Holder will be treated as making a Mark-to-Market Election with respect to its Warrant Shares after the beginning of such U.S. Holder’s holding period for the Warrant Shares unless the Warrant Shares are acquired in the same tax year as the year in which the U.S. Holder acquired its securities. Consequently, the default rules under Section 1291 described above generally will apply to the mark-to-market gain realized in the tax year in which Warrant Shares are received. However, the general mark-to-market rules will apply to subsequent tax years.

A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which we are a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the Common Shares, Pre-Funded Warrants, and any Warrant Shares as of the close of such tax year over (b) such U.S. Holder’s tax basis in such securities. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (i) such U.S. Holder’s adjusted tax basis in the Common Shares, Pre-Funded Warrants, and any Warrant Shares, over (ii) the fair market value of such securities (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax years).

A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in the Common Shares, Pre-Funded Warrants, and Warrant Shares to reflect the amount included in gross income or allowed as a deduction because of such

104

Table of Contents

Mark-to-Market Election. In addition, upon a sale or other taxable disposition of such securities, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years).

A U.S. Holder makes a Mark-to-Market Election by attaching a completed IRS Form 8621 to a timely filed U.S. federal income tax return. A timely Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless the securities cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.

Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to the Common Shares, Pre-Funded Warrants, and Warrant Shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning because such stock is not marketable. Hence, the Mark-to-Market Election will not be effective to eliminate the interest charge and other income inclusion rules described above with respect to deemed dispositions of Subsidiary PFIC stock or distributions from a Subsidiary PFIC to its shareholder.

Because the U.S. federal income tax characterization of the Pre-Funded Warrants is unclear, U.S. Holders of Pre-Funded Warrants should consult with their tax advisors as to the availability of a QEF Election or Mark-to-Market election with respect to the Pre-Funded Warrants.

Other PFIC Rules

Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of securities that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which the securities are transferred.

If finalized in their current form, the proposed Treasury Regulations applicable to PFICs would be effective for transactions occurring on or after April 1, 1992. Because the proposed Treasury Regulations have not yet been adopted in final form, they are not currently effective, and there is no assurance that they will be adopted in the form and with the effective date proposed. Nevertheless, the IRS has announced that, in the absence of final Treasury Regulations, taxpayers may apply reasonable interpretations of the Code provisions applicable to PFICs and that it considers the rules set forth in the proposed Treasury Regulations to be reasonable interpretations of those Code provisions. The PFIC rules are complex, and the implementation of certain aspects of the PFIC rules requires the issuance of Treasury Regulations which in many instances have not been promulgated and which, when promulgated, may have retroactive effect. U.S. Holders should consult their own tax advisors about the potential applicability of the proposed Treasury Regulations.

Certain additional adverse rules will apply with respect to a U.S. Holder if we are a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example, under Section 1298(b)(6) of the Code, a U.S. Holder that uses the securities as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such securities.

In addition, a U.S. Holder who acquires securities from a decedent will not receive a “step up” in tax basis of such securities to fair market value.

Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with their own tax advisor regarding the availability of the foreign tax credit with respect to distributions by a PFIC.

The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules (including the applicability and advisability of a QEF Election and Mark-to-Market Election) and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of the securities.

U.S. Federal Income Tax Consequences of the Exercise and Disposition of Common Warrants

The following discussion describes the general rules applicable to the ownership and disposition of the Common Warrants but is subject in its entirety to the special rules described above under the heading “Passive Foreign Investment Company Rules.”

105

Table of Contents

Exercise of Common Warrants

A U.S. Holder should not recognize gain or loss on the exercise of a Common Warrant and related receipt of a Warrant Share (unless cash is received in lieu of the issuance of a fractional Warrant Share). A U.S. Holder’s initial tax basis in the Warrant Share received on the exercise of a Common Warrant should be equal to the sum of (a) such U.S. Holder’s tax basis in such Common Warrant plus (b) the exercise price paid by such U.S. Holder on the exercise of such Common Warrant. It is unclear whether a U.S. Holder’s holding period for the Warrant Share received on the exercise of a Common Warrant would commence on the date of exercise of the Common Warrant or the day following the date of exercise of the Common Warrant. If we are a PFIC, a U.S. Holder’s holding period for the Warrant Share for PFIC purposes will begin on the date on which such U.S. Holder acquired its Common Warrant. If the acquisition of a Pre-Funded Warrant is not treated as an acquisition of Common Shares for U.S. federal income tax purposes as described above in under the heading “Treatment of Pre-Funded Warrants”, then the foregoing rules described in this paragraph would also apply to the exercise of a Pre-Funded Warrant.

Disposition of Common Warrants

A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of a Common Warrant in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in the Common Warrant sold or otherwise disposed of. Subject to the PFIC rules discussed above, any such gain or loss generally will be a capital gain or loss, which will be long-term capital gain or loss if the Common Warrant is held for more than one year. Deductions for capital losses are subject to complex limitations under the Code.

Expiration of Common Warrants Without Exercise

Upon the lapse or expiration of a Common Warrant, a U.S. Holder will recognize a loss in an amount equal to such U.S. Holder’s tax basis in the Common Warrant. Any such loss generally will be a capital loss and will be long-term capital loss if the Common Warrants are held for more than one year. Deductions for capital losses are subject to complex limitations under the Code.

Certain Adjustments to the Common Warrants

Under Section 305 of the Code, an adjustment to the number of Warrant Shares that will be issued on the exercise of the Common Warrants, or an adjustment to the exercise price of the Common Warrants, may be treated as a constructive distribution to a U.S. Holder of the Common Warrants if, and to the extent that, such adjustment has the effect of increasing such U.S. Holder’s proportionate interest in the “earnings and profits” or our assets, depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution of cash or other property to the shareholders). Adjustments to the exercise price of Common Warrants made pursuant to a bona fide reasonable adjustment formula that has the effect of preventing dilution of the interest of the holders of the Common Warrants should generally not be considered to result in a constructive distribution. Any such constructive distribution would be taxable whether or not there is an actual distribution of cash or other property. (See more detailed discussion of the rules applicable to distributions made by us at “— Distributions on the Common Shares, Pre-Funded Warrants, and Warrant Shares” below).

General Rules Applicable to U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of the Common Shares, Pre-Funded Warrants, and Warrant Shares

The following discussion describes the general rules applicable to the ownership and disposition of the Common Shares, Pre-Funded Warrants, and Warrant Shares, but is subject in its entirety to the special rules described above under the heading “Passive Foreign Investment Company Rules.”

Distributions on the Common Shares, Pre-Funded Warrants, and Warrant Shares

A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a Common Share,

Pre-Funded Warrant, or Warrant Share (as well as any constructive distribution on a Common Warrant as described above) will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of our current and accumulated “earnings and profits”, as computed under U.S. federal income tax principles. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if we are a PFIC for the tax year of such distribution or the preceding tax year. To the extent that a distribution exceeds our current and accumulated “earnings and profits,” such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in such securities

106

Table of Contents

and thereafter as gain from the sale or exchange of such securities (see “Sale or Other Taxable Disposition of the Common Shares, Pre-Funded Warrants and Warrant Shares” below). However, we may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may be required to assume that any distribution by us with respect to such securities will constitute ordinary dividend income. Dividends received on such securities generally will not be eligible for the “dividends received deduction” generally applicable to corporations. Subject to applicable limitations and provided we are eligible for the benefits of the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended, or the Common Shares or Warrant Shares are readily tradable on a United States securities market, dividends paid by us to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that we not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.

Sale or Other Taxable Disposition of the Common Shares, Pre-Funded Warrants, and Warrant Shares

Upon the sale or other taxable disposition of the Common Shares, Pre-Funded Warrants, or Warrant Shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in such securities sold or otherwise disposed of. Gain or loss recognized on such sale or other taxable disposition generally will be long-term capital gain or loss if, at the time of the sale or other taxable disposition, such securities have been held for more than one year. Preferential tax rates may apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.

Additional Tax Considerations

Receipt of Foreign Currency

The amount of any distribution paid to a U.S. Holder in foreign currency or on the sale, exchange or other taxable disposition of the securities generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). If the foreign currency received is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who receives payment in foreign currency and engages in a subsequent conversion or other disposition of the foreign currency may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method of tax accounting. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.

Foreign Tax Credit

Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the securities (or with respect to any constructive dividend on the Common Warrants) generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid or accrued (whether directly or through withholding) by a U.S. Holder during a year. The foreign tax credit rules are complex and involve the application of rules that depend on a U.S. Holder’s particular circumstances. Accordingly, each U.S. Holder should consult its own tax advisor regarding the foreign tax credit rules.

107

Table of Contents

Net Investment Income Tax

U.S. Holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on the lesser of (1) the U.S. Holder’s “net investment income” for the relevant taxable year and (2) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold. A U.S. Holder’s “net investment income” generally includes, among other things, dividends and net gains from disposition of property (other than property held in the ordinary course of the conduct of a trade or business). Accordingly, dividends on and capital gain from the sale, exchange or other taxable disposition of the securities may be subject to this additional tax. U.S. Holders are urged to consult their own tax advisors regarding the additional tax on passive income.

Information Reporting; Backup Withholding Tax

Under U.S. federal income tax laws certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person. U. S. Holders may be subject to these reporting requirements unless the securities are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult their own tax advisors regarding the requirements of filing information returns, including the requirement to file IRS Form 8938.

Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of the securities generally may be subject to information reporting and backup withholding tax, currently at the rate of 24%, if a U.S. Holder (a) fails to furnish its correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that it has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons, such as U.S. Holders that are corporations, generally are excluded from these information reporting and backup withholding tax rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.

The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.

THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF THE SECURITIES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR OWN PARTICULAR CIRCUMSTANCES.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of October 31, 2022,May 5, 2023, with respect to the beneficial ownership of our common shares by:

●each of our directors;
●each of the named executive officers;
●all of our current directors and executive officers as a group; and
●each person, or group of affiliated persons, known to us to be the beneficial owner of more than five percent of our common shares.

each108

Table of our directors;Contents

each of the named executive officers;

all of our current directors and executive officers as a group; and

each person, or group of affiliated persons, known to us to be the beneficial owner of more than five percent of our common shares.

The column entitled “Beneficial Ownership of Common Shares” is based on a total of 11,725,45111,996,387 common shares outstanding as of October 31, 2022.May 5, 2023.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to our common stock.Common Shares. Common shares subject to options that are currently exercisable or exercisable within 60 days of October 31, 2022May 5, 2023 are considered outstanding and beneficially owned by the person holding the options for the purpose of calculating the percentage ownership of that person but not for the purpose of calculating the percentage ownership of any other person. Except as otherwise noted, the persons and entities in this table have sole voting and investing power with respect to all of the shares of our common stockCommon Shares beneficially owned by them, subject to community property laws, where applicable. Unless otherwise indicated below, the address for each natural person listed below is care of Neptune Wellness Solutions Inc., 100-545 Promenade du Centropolis, Laval, Quebec H7T 0A3 Canada.

​

   Beneficial Ownership of
Common Shares		 
   Number of Shares   % 

Greater than 5% Shareholders:

    

Armistice Capital Master Fund Ltd(1)

   975,295    8.3% 

Sabby Volatility Warrant Master Fund, Ltd.(2)

   910,278    7.8% 

Empery Asset Management, LP(3)

   1,716,329    13.8% 

Named Executive Officers and Directors

    

Michael Cammarata(4)

   468,109    4.0% 

Raymond Silcock(5)

   9,524    * 

John S. Wirt(6)

   58,099    * 

Joseph Buaron(7)

   2,245    * 

Michael De Geus(8)

   2,425    * 

Ronald Denis

   —      —   

Julie Phillips(9)

   5,449    * 

Philip Sanford(10)

   5,618    * 

All current executive officers and directors as a group (8 persons)

   551,469    4.7% 

​

​

​

​

    

Beneficial Ownership of

​

​

​

Common Shares

​

​

​

Number of Shares

    

%

​

Greater than 5% Shareholders:

​

​

​

​

​

Armistice Capital Master Fund Ltd(1)

​

975,295

​

7.8

%

Sabby Volatility Warrant Master Fund, Ltd.(2)

​

1,095,913

​

8.7

%

Empery Asset Management, LP(3)

​

989,812

​

7.9

%

Shohaib Kassam Sumar(4)

​

600,000

​

5.0

%

Named Executive Officers and Directors

​

​

​

​

​

Michael Cammarata(5)

​

530,205

​

4.2

%

Raymond Silcock(6)

​

38,095

​

*

​

John S. Wirt(7)

​

58,100

​

*

​

Joseph Buaron(8)

​

2,246

​

*

​

Michael De Geus(9)

​

2,426

​

*

​

Ronald Denis

​

—

​

—

​

Julie Phillips(10)

​

3,306

​

*

​

Philip Sanford(11)

​

5,618

​

*

​

All current executive officers and directors as a group (8 persons)

​

608,333

​

4.8

%

*

Denotes less than 1%.

(1)

Comprised of 975,295 common shares held directly (based upon information available to the Company as of October 31, 2022). The amounts presented exclude 5,608,375 common shares issuable upon exercise of warrants (the “Armistice Warrants”“Armistice Warrants”) that are currently exercisable (based upon information available to the Company as of October 31, 2022). The Armistice Warrants provide that the holder may not exercise the warrants to the extent such exercise would cause the holder, together with its affiliates, to beneficially own a number of common shares which would exceed 4.99% of the then-outstanding common shares following such exercise, excluding for purposes of such determination shares of common stockCommon Shares issuable upon exercise

96

of the Armistice Warrants which have not been exercised. The address of this entity is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor New York, NY 10022. Steven Boyd has voting and dispositive power over the securities held by Armistice Capital Master Fund Ltd.

(2)

Comprised of 910,2781,095,913 common shares held directly (based upon information available to the Company as of October 27, 2022)January 9, 2023). The amounts presented exclude 3,111,8022,910,594 common shares issuable upon exercise of warrants (the “Sabby Warrants”“Sabby Warrants”) that are currently exercisable (based upon information available to the Company as of October 27, 2022)January 9, 2023). The Sabby Warrants provide that the holder may not exercise the warrants to the extent such exercise would cause the holder, together with its affiliates, to beneficially own a number of common shares which would exceed 4.99% of the then-outstanding common shares following such exercise, excluding for purposes of such determination shares of common stockCommon Shares issuable upon exercise of the Sabby Warrants which have not been exercised. The address of this entity is c/o Sabby Management, LLC, 115 Hidden Hills Dr, Spicewood TX 78669. Hal Mintz has voting and dispositive power over the securities held by Sabby Volatility Warrant Master Fund, Ltd.

(3)

Based upon information available to the Company as of October 31, 2022, comprised of (i) 624,158 common shares held by Empery Asset Master Ltd., (ii) 154,207 common shares held by Empery Tax Efficient, LP, and (iii) 211,447 common shares held by Empery Tax Efficient III, LP; (iv) 333,240 common shares issuable upon exercise of warrants held by Empery Tax Efficient, LP; and (v) 393,277 common shares issuable upon exercise of warrants held by Empery Tax Efficient III, LP. The amounts presented exclude 1,348,846all common shares issuable upon exercise of warrants held by Empery Asset Master Ltd., Empery Tax Efficient, LP and 63,685 common shares issuable upon exercise of warrants held by Empery Tax Efficient III, LP, which warrants provide that the holder may not exercise the warrants to the extent such exercise would cause the holder, together with its affiliates, to beneficially own a number of common shares which would exceed 4.99% of the then-outstanding common shares following such exercise, excluding for purposes of such

109

Table of Contents

determination shares of common stockCommon Shares issuable upon exercise of the warrants which have not been exercised. The address of these entities is c/o Empery Asset Management, LP, One Rockefeller Plaza, Suite 1205, New York City, NY 10020. Based upon information available to the Company as of October 31, 2022, Empery Asset Management LP is the authorized agent of each of Empery Asset Master Ltd., Empery Tax Efficient, LP and Empery Tax Efficient III, LP, has discretionary authority to vote and dispose of the securities held by each of these entities and may be deemed to be the beneficial owner of these securities. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the securities held by each of Empery Asset Master Ltd., Empery Tax Efficient, LP and Empery Tax Efficient III, LP. Each of Empery Asset Master Ltd., Empery Tax Efficient, LP and Empery Tax Efficient III, LP, Martin Hoe and Ryan Lane disclaim any beneficial ownership of these securities.

(4)

Based upon information contained in a Schedule 13D filed with the SEC on December 27, 2022 by Mr. Shohaib Kassam Sumar. The principal business address of the investor is 13100 Rock Canyon Road, Oklahoma City, OK 73142.

(5)Mr. Cammarata’s holdings consist of (i) 409,569462,510 common shares held directly, and (ii) 58,54067,695 common shares issuable pursuant to common share options that are exercisable within 60 days after October 31, 2022.

May 5, 2023.
(5)(6)

Mr. Silcock’s holdings consist of 9,52438,095 common shares issuable pursuant to common share options that are exercisable within 60 days after October 31, 2022.

May 5, 2023.
(6)(7)

Mr. Wirt’s holdings consist of (i) 956 common shares owned by John S. Wirt IRA and (ii) 57,14357,144 common shares issuable pursuant to common share options that are exercisable within 60 days after October 31, 2022.

May 5, 2023.
(7)(8)

Mr. Buaron’s holdings consist of (i) 1,454 common shares issuable pursuant to deferred share units that will be vested within 60 days after October 31, 2022May 5, 2023, and (ii) 791792 common shares issuable pursuant to common share options that are exercisable within 60 days after October 31, 2022.

May 5, 2023.
(8)(9)

Mr. De Geus’ holdings consist of (i) 180 common shares held directly, (ii) 1,454 common shares issuable pursuant to deferred share units that will be vested within 60 days after October 31, 2022May 5, 2023 and (iii) 791792 common shares issuable pursuant to common share options that are exercisable within 60 days after October 31, 2022.

May 5, 2023.
(9)(10)

Ms. Phillips’ holdings consist of (i) 1,793 common shares held directly, (ii) 1,036 common shares issuable pursuant to deferred share units that will be vested within 60 days after October 31, 2022May 5, 2023 and (iii) 2,620477 common shares issuable pursuant to common share options that are exercisable within 60 days after October 31, 2022.

May 5, 2023.
(10(11)

Mr. Sanford’s holdings consist of 5,618 common shares held directly.

PLAN OF DISTRIBUTION

97

SELLING SHAREHOLDERS

This prospectus relatesA.G.P./Alliance Global Partners, who we refer to herein as the Placement Agent, has agreed to act as our exclusive placement agent in connection with this offering subject to the resale by the Selling Shareholders from time to time of up to 6,417,114of our common shares. The Selling Shareholders may from time to time offerterms and sell any or allconditions of the common shares set forth below pursuant to this prospectus and any accompanying prospectus supplement. As used in this prospectus, the term “Selling Shareholders” includes the persons listed in the table below, together with any additionalplacement agent agreement dated May      , 2023. The Placement Agent is not purchasing or selling shareholders listed in a subsequent amendment to this prospectus, and their pledgees, donees, transferees, assignees, successors, designees and others who later come to hold any of the Selling Shareholders’ interests in the common shares, other than through a public sale.

Except as set forth in the footnotes below, the following table sets forth, based on written representations from the Selling Shareholders, certain information as of October 31, 2022 regarding the beneficial ownership of our common shares by the Selling Shareholders and the common shares beingsecurities offered by this prospectus, nor is it required to arrange the Selling Shareholders. The applicable percentage ownershippurchase or sale of common shares is based on approximately 11,725,451 common shares outstanding asany specific number or dollar amount of October 31, 2022. Information with respectsecurities, but has agreed to common shares owned beneficially after the offering assumesuse its reasonable best efforts to arrange for the sale of all of the common shares registeredsecurities offered hereby. The Selling ShareholdersTherefore, we will enter into a securities purchase agreement directly with certain investors in connection with this offering and we may offernot sell the entire amount of securities offered pursuant to this prospectus.

We will deliver the securities being issued to each investor upon receipt of such investor’s funds for the purchase of the securities offered pursuant to this prospectus. We expect to deliver the securities being offered pursuant to this prospectus on or about May   , 2023.

We have agreed to indemnify the Placement Agent and sell some, allspecified other persons against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the Placement Agent may be required to make in respect thereof, to the extent permitted by applicable law.

Fees and Expenses

We have engaged A.G.P./Alliance Global Partners as our exclusive placement agent in connection with this offering. This offering is being conducted on a “reasonable best efforts” basis and the Placement Agent has no obligation to buy any of the securities from us or none

110

Table of their common shares.Contents

Exceptto arrange for the purchase or sale of any specific number or dollar amount of securities. We have agreed to pay the Placement Agent a fee based on the aggregate proceeds as set forth in the footnotes below, nonetable below:

​

​

​

​

​

​

​

​

Per Common Share
and Accompanying
Common
Warrant

Per Pre-
Funded
Warrant and
Accompanying
Common
Warrant

Total

Public offering price

​

$

​

​

$

​

​

$

​

​

Placement Agent fees(1)

​

$

​

​

$

​

​

$

​

​

Proceeds to us, before expenses(2)

​

$

​

​

$

​

​

$

​

​

​

(1)We have agreed to pay the Placement Agent a cash placement commission equal to 5.5% of the Selling Shareholders has had a material relationship with us other than as a shareholder at any time within the past three years or has ever been an officer or director of one of our affiliates. Each of the Selling Shareholders has acquired (or will acquire) the common shares to be resold hereunder in the ordinary course of business and, at the time of acquisition, none of the Selling Shareholders was a party to any agreement or understanding, directly or indirectly, with any person to distribute the common shares to be resold by such Selling Shareholders under this Registration Statement of which this prospectus forms a part.

Since a Selling Shareholder may sell, some or none of the common shares that it holds that are covered by this prospectus, and because the offering contemplated by this prospectus is not underwritten, no estimate can be given as to the number of our common shares that will be held by Selling Shareholders upon the termination of the offering. The information set forth in the following table regarding the beneficial ownership after the resale of shares is based upon the assumption that the Selling Shareholders will sell all of the common shares covered by this prospectus.

We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us that Selling Shareholders have sole voting and investment power with respect to all common shares that they beneficially own, subject to applicable community property laws. Except as otherwise described below, based on the information provided to us by the Selling Shareholders, no Selling Shareholders is a broker-dealer or an affiliate of a broker dealer.

Please see the section titled “Plan of Distribution” in this prospectus for further information regarding the Selling Shareholders’ method of distributing these shares.

   Shares Underlying the Warrants 

Name

  Number
Beneficially
Owned
Prior to
Offering		  Number
Registered
For Sale
Hereby		   Number
Beneficially
Owned
After
Offering		  Percent
Owned
After
Offering		 

Empery Asset Master, Ltd.

   624,158(1)   1,348,846    624,158   3.4% 

Empery Tax Efficient, LP

   487,447(2)   333,240    154,207   *% 

Empery Tax Efficient III, LP

   604,724(3)   456,952    147,772   1.2% 

Sabby Volatility Warrant Master Fund, Ltd.

   910,278(4)   2,139,038    910,278(5)   5.0% 

Armistice Capital Master Fund Ltd.

   975,295(6)   2,139,038    975,038(7)   5.4% 

98

*

Represents less than 1%.

(1)

Comprised of 624,158 common shares held by Empery Asset Master Ltd. directly (based upon information available to the Company as of October 31, 2022). The amounts presented exclude 1,348,846 common shares issuable upon exercise of warrants (the “Empery Asset Master Ltd. Warrants”) that are currently exercisable (based upon information available to the Company as of October 31, 2022). The Empery Asset Master Ltd. Warrants provide that the holder may not exercise the warrants to the extent such exercise would cause the holder, together with its affiliates, to beneficially own a number of common shares which would exceed 4.99% of the then-outstanding common shares following such exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of the Empery Asset Master Ltd. Warrants which have not been exercised. The address of this entity is c/o Empery Asset Management, LP, One Rockefeller Plaza, Suite 1205, New York City, NY 10020. Based upon information available to the Company as of October 31, 2022, Empery Asset Management LP is the authorized agent of Empery Asset Master Ltd., has discretionary authority to vote and dispose of the securities held by this entity and may be deemed to be the beneficial owner of these securities. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the securities held by Empery Asset Master Ltd. Empery Asset Master Ltd., Martin Hoe and Ryan Lane disclaim any beneficial ownership of these securities.

(2)

Comprised of (i) 624,158 common shares held by Empery Tax Efficient, LP directly and (ii) 333,240 common shares issuable upon exercise of warrants held by Empery Tax Efficient, LP (based upon information available to the Company as of October 31, 2022). The address of this entity is c/o Empery Asset Management, LP, One Rockefeller Plaza, Suite 1205, New York City, NY 10020. Based upon information available to the Company as of October 31, 2022, Empery Asset Management LP is the authorized agent of Empery Tax Efficient, LP, has discretionary authority to vote and dispose of the securities held by this entity and may be deemed to be the beneficial owner of these securities. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Tax Efficient, LP, may also be deemed to have investment discretion and voting power over the securities held by Empery Tax Efficient, LP. Empery Tax Efficient, LP, Martin Hoe and Ryan Lane disclaim any beneficial ownership of these securities.

(3)

Comprised of (i) 211,447 common shares held by Empery Tax Efficient III, LP directly and (ii) 393,277 common shares issuable upon exercise of warrants held by Empery Tax Efficient III, LP (based upon information available to the Company as of October 31, 2022). The amounts presented exclude 63,675 common shares issuable upon exercise of warrants (the “Empery Tax Efficient III, LP Warrants”) that are currently exercisable (based upon information available to the Company as of October 31, 2022). The Empery Tax Efficient III, LP Warrants provide that the holder may not exercise the warrants to the extent such exercise would cause the holder, together with its affiliates, to beneficially own a number of common shares which would exceed 4.99% of the then-outstanding common shares following such exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of the Empery Tax Efficient III, LP Warrants which have not been exercised. The address of this entity is c/o Empery Asset Management, LP, One Rockefeller Plaza, Suite 1205, New York City, NY 10020. Based upon information available to the Company as of October 31, 2022, Empery Asset Management LP is the authorized agent of Empery Tax Efficient III, LP, has discretionary authority to vote and dispose of the securities held by this entity and may be deemed to be the beneficial owner of these securities. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Tax Efficient III, LP, may also be deemed to have investment discretion and voting power over the securities held by Empery Tax Efficient III, LP. Empery Tax Efficient III, LP, Martin Hoe and Ryan Lane disclaim any beneficial ownership of these securities.

(4)

Comprised of 910,278 common shares held directly (based upon information available to the Company as of October 27, 2022). The amounts presented exclude 3,111,802 common shares issuable upon exercise of warrants (the “Sabby Warrants”) that are currently exercisable (based upon information available to the Company as of October 27, 2022). The Sabby Warrants provide that the holder may not exercise the warrants to the extent such exercise would cause the holder, together with its affiliates, to beneficially own a

99

number of common shares which would exceed 49.99% of the then-outstanding common shares following such exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of the Sabby Warrants which have not been exercised. The address of this entity is c/o Sabby Management, LLC, 115 Hidden Hills Dr, Spicewood TX 78669. Hal Mintz has voting and dispositive power over the securities held by Sabby Volatility Warrant Master Fund, Ltd. Includes 2,910,594 common shares underlying currently exercisable warrants.

(5)

Comprised of 910,278 common shares held directly (based upon information available to the Company as of October 27, 2022). The amounts presented exclude 3,111,802 common shares issuable upon exercise of Sabby Warrants that are currently exercisable (based upon information available to the Company as of October 27, 2022).

(6)

Comprised of 975,295 common shares held directly (based upon information available to the Company as of October 31, 2022). The amounts presented exclude 5,608,375 common shares issuable upon exercise of warrants (the “Armistice Warrants”) that are currently exercisable (based upon information available to the Company as of October 31, 2022). The Armistice Warrants provide that the holder may not exercise the warrants to the extent such exercise would cause the holder, together with its affiliates, to beneficially own a number of common shares which would exceed 94.99% of the then-outstanding common shares following such exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of the Armistice Warrants which have not been exercised. Steven Boyd has voting and dispositive power over the securities held by Armistice Capital Master Fund Ltd.

(7)

Comprised of 975,295 common shares held directly (based upon information available to the Company as of October 31, 2022). The amounts presented exclude 3,469,337 common shares issuable upon exercise of Armistice Warrants that are currently exercisable (based upon information available to the Company as of October 31, 2022).

100

PLAN OF DISTRIBUTION

We are registering 6,417,114Common Shares underlying Warrants previously issued to the Selling Shareholders to permit the resale of these shares by the holders of such shares from time to time after the date of this prospectus. We will not receive any of theaggregate proceeds from the sale by the Selling Shareholders of the Common Shares. We will bear all fees and expenses incident to our obligation to register the Common Shares.

The Selling Shareholders may sell all or a portion of the Common Shares beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the Common Shares are sold through underwriters or broker-dealers, the Selling Shareholders will be responsible for underwriting discounts or commissions or agent’s commissions. The Common Shares may bePre-Funded Warrants sold in one or more transactions at fixed prices, at prevailing market prices atthis offering. We have also agreed to reimburse the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. The Selling Shareholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. These sales may be effected in transactions, which may involve crosses or block transactions:

on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;

•

in the over-the-counter market;

•

in transactions otherwise than on these exchanges or systems or in the over-the-counter market;

through the writing of options, whether such options are listed on an options exchange or otherwise;

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

purchases by a broker-dealer as principal and resale by the broker-dealerPlacement Agent for its account;

an exchange distribution in accordance with the rules of the applicable exchange;

privately negotiated transactions;

short sales;

through the distribution of the Common Shares by any Selling Shareholders to its partners, members or shareholders;

through one or more underwritten offerings on a firm commitment or best efforts basis;

sales pursuant to Rule 144;

broker-dealers may agree with the Selling Shareholders to sell a specified number of such shares at a stipulated price per share;

a combination of any such methods of sale; and

any other method permitted pursuant to applicable law.

If the Selling Shareholders effect such transactions by selling Common Shares to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the Selling Shareholders or commissions from purchasers of the Common Shares for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the Common Shares or otherwise, the Selling Shareholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Common Shares in the course of hedging in positions they assume. The Selling Shareholders

101

may also sell Common Shares short and deliver Common Shares covered by this prospectus to close out short positions and to return borrowed sharescertain expenses incurred in connection with such short sales. this offering.

(2)The Selling Shareholders may also loan or pledge Common Shares to broker-dealers that in turn may sell such shares.

The Selling Shareholders may pledge or grant a security interest in some or allamount of the offering proceeds to us presented in this table does not give effect to any exercise of the Pre-Funded Warrants or Common Shares ownedWarrants being issued in this offering.

​

We have also agreed to reimburse the Placement Agent at closing (i) for legal and other expenses incurred by them in connection with the offering in an aggregate amount up to $100,000, and if they default in(ii) non-accountable expenses payable to the performancePlacement Agent of their secured obligations,up to $50,000. We estimate the pledgees or secured parties may offertotal expenses payable by us for this offering, excluding the Placement Agent fees and sell the Common Shares from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the list of Selling Shareholders to include the pledgee, transferee or other successors in interest as Selling Shareholders under this prospectus. The Selling Shareholders also may transfer and donate the Common Shares in other circumstances in which case the transferees, donees, pledgees or other successors in interestexpenses, will be the selling beneficial owners for purposes of this prospectus.approximately $385,000.

The Selling Shareholders and any broker-dealer participating in the distribution of the Common SharesPlacement Agent may be deemed to be “underwriters”an underwriter within the meaning of Section 2(a)(11) of the Securities Act, and any commission paid, orcommissions received by it and any discounts or concessions allowed to, any such broker-dealer mayprofit realized on the resale of the securities sold by it while acting as principal might be deemed to be underwriting commissionsdiscounts or discountscommissions under the Securities Act. AtAs an underwriter, the time a particular offeringPlacement Agent would be required to comply with the requirements of the Common Shares is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of Common Shares being offeredSecurities Act and the terms of the offering,Exchange Act, including, the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the Selling Shareholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers. The Selling Shareholders may indemnify any broker-dealer that participates in transactions involving the sale of the Common Shares against certain liabilities, including liabilities arisingwithout limitation, Rule 415(a)(4) under the Securities Act.

UnderAct and Rule 10b-5 and Regulation M under the securities laws of some states, the Common Shares may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the Common Shares may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

There can be no assurance that any Selling Shareholder will sell any or all of the Common Shares registered pursuant to the Registration Statement of which this prospectus forms a part.

The Selling Shareholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934 and theAct. These rules and regulations thereunder, including, without limitation, Regulation M of the Securities Exchange Act of 1934, which may limit the timing of purchases and sales of securities by the Placement Agent acting as principal. Under these rules and regulations, the Placement Agent:

●may not engage in any stabilization activity in connection with our securities; and
●may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until it has completed its participation in the distribution.

Listing

Our Common Shares are listed on The Nasdaq Capital Market under the trading symbol “NEPT.” We do not plan to list the Pre-Funded Warrants or the Common Warrants on The Nasdaq Capital Market or any other securities exchange or trading market.

Standstill

We have agreed that, subject to certain exceptions, (i) we will not conduct any issuances of our Common Shares for a period of 45 days following closing of this offering and that (ii) we will not enter into a variable rate transaction for a period of 12 months following the closing of this offering.

Determination of Offering Price

The public offering price of the securities we are offering was negotiated between us and the investors, in consultation with the Placement Agent based on the trading of our Common Shares prior to the offering, among other things. Other factors considered in determining the public offering price of the securities we are offering include our history and prospects, the industry in which we operate, our past and present operating results, the stage of development of our business, our business plans for the future and the extent to which they have been implemented, the previous experience of our executive officers, general conditions of the securities markets at the time of the offering and such other factors as were deemed relevant.

111

Table of Contents

Discretionary Accounts

The Placement Agent does not intend to confirm sales of the securities offered hereby to any accounts over which it has discretionary authority.

Other Activities and Relationships

The Placement Agent and certain of its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The Placement Agent and certain of its affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for us and our affiliates, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the Placement Agent and certain of its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments issued by us and our affiliates. If the Placement Agent or its affiliates have a lending relationship with us, they routinely hedge their credit exposure to us consistent with their customary risk management policies. The Placement Agent and its affiliates may hedge such exposure by entering into transactions that consist of either the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the Common Shares offered hereby, in accordance with all applicable securities laws. Any such short positions could adversely affect future trading prices of the Common Shares by the Selling Shareholdersoffered hereby. The Placement Agent and any other participating person. Regulation Mcertain of its affiliates may also restrict the abilitycommunicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any person engagedtime hold, or recommend to clients that they acquire, long and/or short positions in the distributionsuch securities and instruments.

The foregoing does not purport to be a complete statement of the Common Sharesterms and conditions of the placement agency agreement or the securities purchase agreement, copies of which are attached to engagethe registration statement of which this prospectus is a part. See “Where You Can Find More Information.”

LEGAL MATTERS

Troutman Pepper Hamilton Sanders LLP has acted as our United States counsel in market-making activitiesconnection with this offering and will pass on certain legal matters with respect to United States law in connection with this offering. Osler, Hoskin & Harcourt LLP, Canadian counsel for the Common Shares. All ofCompany, has passed upon the foregoing may affect the marketabilityvalidity of the Common Shares and the ability of any person or entity to engage in market-making activities with respect to the Common Shares.

We will pay all expenses of the registration of the Common Shares pursuant to the Registration Statement to whichWarrants offered by this prospectus forms a part; provided, however, that a Selling Shareholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the Selling Shareholders against liabilities, including some liabilities under the Securities Act,certain legal matters as to Canadian law. The Placement Agent is being represented by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., New York, New York in accordanceconnection with any registration rights agreement entered into between us and a Selling Shareholder, or the Selling Shareholders will be entitled to contribution. We may be indemnified by the Selling Shareholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the Selling Shareholders specifically for use in this prospectus, in accordance with any registration rights agreement entered into between us and a Selling Shareholder, or we may be entitled to contribution.offering.

Once sold under the Registration Statement of which this prospectus forms a part, the Common Shares will be freely tradable in the hands of persons other than our affiliates.

102

LEGAL MATTERS

The validity of the securities offered hereby will be passed upon for us by Osler, Hoskin & Harcourt LLP. Any underwriters or agents will be advised about other issues relating to the offering by counsel to be named in the applicable prospectus supplement.

EXPERTS

KPMG, an independent registered public accounting firm, audited the consolidated financial statements of Neptune as of March 31, 2022 and for the year ended March 31, 2022, which consolidated financial statements have been included herein and in the registration statement in reliance on the report of KPMG LLP, and upon the authority of said firm as experts in accounting and auditing. The audit report contains an explanatory paragraph that states there is substantial doubt about Neptune Wellness Solutions Inc.’s ability to continue as a going concern, including that it requires funding in the very near term in order to continue its operations and if it is unable to obtain funding in the upcoming days, it may have to liquidate its assets. The consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the going concern basis not be valid. The audit report also refers to the adoption of U.S. generally accepted accounting principles and change in its reporting currency from Canadian dollars to U.S. dollars.

The consolidated financial statements of Neptune as of March 31, 2021 and for the year ended March 31, 2021 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, predecessor independent registered public accounting firm, as set forth in their report thereon (which contains an explanatory paragraph describing conditions that raise substantial doubt about Neptune’s ability to continue as a going concern as described in Note 1 to the consolidated financial statements), included therein.appearing elsewhere herein. Such consolidated financial statements are included herein in reliance upon such report given on the authority of such firm as experts in auditing and accounting.

112

Table of Contents

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-1, including exhibits, under the Securities Act of 1933, as amended, with respect to the securities offered by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information pertaining to us and our securities, you should refer to the Registration Statement/prospectus and our exhibits.

In addition, we file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public on a website maintained by the SEC located at www.sec.gov. We also maintain a website at www.promisneurosciences.com.www.neptunecorp.com. Through our website, we make available, free of charge, annual, quarterly and current reports, proxy statements and other information as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained on, or that may be accessed through, our website is not part of, and is not incorporated into, this prospectus.

​

103​

113

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Consolidated Financial Statements
For the years ended March 31, 2022 and 2021

​

​

Consolidated Financial Statements

​

For the years ended March 31, 2022 and 2021

​

Report of Independent Registered Public Accounting Firm (Auditor PCAOB Firm ID: 85)

F-2

Report of Predecessor Independent Registered Public Accounting Firm (Auditor PCAOB Firm ID: 1263)

F-5

F-4

Consolidated Balance Sheets

F-6

F-5

Consolidated Statements of Loss and Comprehensive Loss

F-7

F-6

Consolidated Statements of Changes in Equity

F-8

F-7

Consolidated Statements of Cash Flows

F-10

F-9

Notes to Consolidated Financial Statements

F-11

F-10

Condensed Consolidated Interim Financial Statements
(Unaudited)
For the three-month periods ended June 30, 2022 and 2021

​

​

Condensed Consolidated Interim Financial Statements

​

(Unaudited)

​

For the three and nine-month periods ended December 31, 2022 and 2021

​

Condensed Consolidated Interim Balance Sheets

F-61

F-49

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss

F-62

F-50

Condensed Consolidated Interim Statements of Changes in Equity

F-63

F-51

Condensed Consolidated Interim Statements of Cash Flows

F-65

F-55

Notes to Condensed Consolidated Financial Statements

F-66

F-57

​

​

​

​

F-1

F-1

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Neptune Wellness Solutions Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Neptune Wellness Solutions Inc. (the Corporation) as of March 31, 2022, the related consolidated statements of loss and comprehensive loss, changes in equity, and cash flows for the year ended March 31, 2022 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as of March 31, 2022, and the results of its operations and its cash flows for the year ended March 31, 2022, in conformity with U.S. generally accepted accounting principles.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Corporation will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Corporation incurred a net loss and negative cash flows from operations for the year ended March 31, 2022, had an accumulated deficit at March 31, 2022 and has no committed sources of financing available. As of the date the financial statements are authorized for issuance, the cash balance is expected to be sufficient to operate the business for only the next two to three months under the current business plan. The Corporation requires funding in the very near term in order to continue its operations. If the Corporation is unable to obtain funding in the upcoming days, it may have to liquidate its assets. These conditions cast substantial doubt about the Corporation’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Change in Accounting Framework and Reporting Currency

As discussed in Note 2 to the consolidated financial statements, in the year ended March 31, 2022, the Corporation has retrospectively adopted U.S. generally accepted accounting principles. The financial statements were previously prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

As discussed in Note 2 to the consolidated financial statements, the Corporation has changed its reporting currency from Canadian dollars to U.S. dollars, which has been applied retrospectively.

Basis for Opinion

These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion.

F-2
Table of Contents

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The

F-2

Table of Contents

communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of goodwill and tradenames related to Sprout

As discussed in note 9 to the consolidated financial statements, the Corporation’s tradenames intangible asset balance was $19,272,574 and the goodwill balance was $19,550,590 related to Sprout as of March 31, 2022. As discussed in note 3(k), the Corporation’s long-lived assets, including amortizable tradename intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Corporation identified a trigger of impairment related to its long-lived assets and recorded an impairment charge of $1,527,000 for trademarks. The Corporation also assesses goodwill impairment annually in the fourth quarter. As part of the goodwill impairment test, the Corporation compared the carrying amount of the reporting unit to the fair value and recorded an impairment charge of $3,288,847. The fair value was determined using a discounted cash flow model and for goodwill, the Corporation also used the market multiples valuation approach. Significant assumptions used to estimate the fair values included the forecasted revenue, gross margins and net working capital investment, weighted average cost of capital and terminal value. For the goodwill impairment test, the market revenue multiple was also a significant assumption.

We identified the evaluation of tradenames and goodwill impairment analysis as a critical audit matter. Subjective auditor judgement was involved in evaluating the valuation models used and the significant assumptions used to determine the fair values. Minor changes to certain of the significant assumptions had a significant effect on the Corporation’s estimate of the fair value. Additionally, the audit effort associated with the estimate requires specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter. We compared gross margins, working capital investment and revenue growth rates to historical actual results and to the Corporation’s most recent plans. In addition, we involved valuation professionals with specialized skills and knowledge who assisted in:

assessing the appropriateness of the valuation models used by the Corporation;

●assessing the appropriateness of the valuation models used by the Corporation;
●comparing the discount rate used by the Corporation in the valuation to discount rate ranges that were independently developed using publicly available market data for comparable companies;
●comparing the terminal value used by the Corporation to economic growth forecast;
●assessing the appropriateness of the revenue market multiples used in the valuation model by comparing to multiples of publicly traded comparable companies.
comparing the discount rate used by the Corporation in the valuation to discount rate ranges that were independently developed using publicly available market data for comparable companies;
comparing the terminal value used by the Corporation to economic growth forecast;
assessing the appropriateness of the revenue market multiples used in the valuation model by comparing to multiples of publicly traded comparable companies.
F-3
Table of Contents

Valuation of Canadian cannabis long-lived assets

As discussed in note 3(k) to the consolidated financial statements, long-lived assets, such as property plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As discussed in note 7, the carrying value of the Canadian cannabis asset group as of March 31, 2022 was $20,290,929 which included the production facility land and building of $17,101,160 and equipment of $3,189,769. Indicators of impairment such as increased operating losses, decline in the share price and negative industry and economic trends were identified in the fourth quarter. The fair value of the asset group was determined to be less than the carrying value, resulting in an impairment loss of $3,150,663 to the building and components and $9,210,460 to the laboratory and plant equipment. The fair value of the asset group was determined using the market multiple valuation approach with the significant assumption of market revenue multiple. The fair value of the individual assets of land, building and equipment was determined using market prices for comparable asset.

We identified the evaluation of the fair value of the long-lived assets as a critical audit matter. Subjective auditor judgement was involved in evaluating the market revenue multiples and market prices for comparable assets.

The following are the primary procedures we performed to address this critical audit matter. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating certain assumptions used in the fair value of the asset group and land, building and equipment. They did so by comparing (1) market revenue multiples used in evaluating the asset group to external market data for comparable businesses and (2) market prices to external market data for comparable assets.

/s/ KPMG LLP

We have served as the Corporation’s auditor since 2021.

Montreal, Quebec

July 7, 2022

F-4

F-3

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Neptune Wellness Solutions Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of

Neptune Wellness Solutions Inc.
(the (the Corporation) as of March 31, 2021, the related consolidated statements of loss and comprehensive loss, changes in equity and cash flows for the year ended March 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation at March 31, 2021, and the results of its operations and its cash flows for the year ended March 31, 2021, in conformity with U.S. generally accepted accounting principles.

The Corporation’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Corporation will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Corporation has suffered recurring losses from operations, has negative cash flows from operations, and has stated that substantial doubt exists about the Corporation’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on the Corporation’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Corporation’s auditor from 2020 to 2021.

Montréal, Canada

July 7, 2022

​

F-5

F-4

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Consolidated Balance Sheets

(in U.S. dollars)

   Notes   As at
March 31,
2022		  As at
March 31,
2021		 
Assets
     
Current assets:
     
Cash and cash equivalents
    $8,726,341  $59,836,889 
Short-term investment
     19,255   19,145 
Trade and other receivables
   5    7,599,584   8,667,209 
Prepaid expenses
     3,983,427   3,686,851 
Inventories
   6    17,059,406   17,317,423 
    
 
 
  
 
 
 
Total current assets
     37,388,013   89,527,517 
Property, plant and equipment
   7    21,448,123   37,345,716 
Operating lease
right-of-use
assets
   8    2,295,263   2,899,199 
Intangible assets
   9    21,655,035   25,956,830 
Goodwill
   9    22,168,288   25,453,372 
Marketable securities
   21    —     150,000 
Other financial assets
   4    —     5,615,167 
    
 
 
  
 
 
 
Total assets
    $104,954,722  $186,947,801 
    
 
 
  
 
 
 
Liabilities and Equity
     
Current liabilities:
     
Trade and other payables
   10   $22,700,849  $19,881,995 
Current portion of operating lease liabilities
   8    641,698   230,016 
Deferred revenues
     285,004   1,989,632 
Provisions
   11    1,118,613   2,245,658 
Liability related to warrants
   12    5,570,530   10,462,137 
    
 
 
  
 
 
 
Total current liabilities
     30,316,694   34,809,438 
Operating lease liabilities
   8    2,063,421   2,886,940 
Loans and borrowings
   13    11,648,320   11,312,959 
Other liability
   16(c)    88,688   393,155 
    
 
 
  
 
 
 
Total liabilities
     44,117,123   49,402,492 
    
 
 
  
 
 
 
Shareholders’ Equity:
     
Share capital—without par value (5,554,456 shares issued and outstanding as of March 31, 2022; 4,732,090 shares issued and outstanding as of March 31, 2021)
   14    317,051,125   306,618,482 
Warrants
   14(f)    6,079,890   5,900,973 
Additional
paid-in
capital
     55,980,367   59,625,356 
Accumulated other comprehensive loss
     (7,814,163)   (8,567,106) 
Deficit
     (323,181,697)   (248,209,952) 
    
 
 
  
 
 
 
Total equity attributable to equity holders of the Corporation
     48,115,522   115,367,753 
    
 
 
  
 
 
 
Non-controlling
interest
   15    12,722,077   22,177,556 
    
 
 
  
 
 
 
Total shareholders’ equity
     60,837,599   137,545,309 
    
 
 
  
 
 
 
Commitments and contingencies
   22    
Subsequent events
   25    
    
 
 
  
 
 
 
Total liabilities and shareholders’ equity
    $104,954,722  $186,947,801 
    
 
 
  
 
 
 

​

​

​

​

​

​

​

​

​

​

​

    

​

​

    

As at

    

As at

​

​

​

​

​

March 31,

​

March 31,

​

​

Notes

​

2022

​

2021

Assets

​

​

​

​

​

​

​

​

​

Current assets:

 

​

  

 

​

  

 

​

  

Cash and cash equivalents

​

​

​

​

$

8,726,341

 

$

59,836,889

Short-term investment

​

 

​

​

 

19,255

 

​

19,145

Trade and other receivables

​

 

5

​

 

7,599,584

 

​

8,667,209

Prepaid expenses

​

 

​

​

 

3,983,427

 

​

3,686,851

Inventories

​

 

6

​

 

17,059,406

 

​

17,317,423

Total current assets

​

 

​

​

 

37,388,013

 

​

89,527,517

​

​

​

​

​

​

​

​

​

​

Property, plant and equipment

​

 

7

​

 

21,448,123

 

​

37,345,716

Operating lease right-of-use assets

​

 

8

​

 

2,295,263

 

​

2,899,199

Intangible assets

​

 

9

​

 

21,655,035

 

​

25,956,830

Goodwill

​

 

9

​

 

22,168,288

 

​

25,453,372

Marketable securities

​

 

21

​

 

—

 

​

150,000

Other financial assets

​

 

4

​

 

—

 

​

5,615,167

​

​

​

​

​

​

​

​

​

​

Total assets

​

​

​

​

$

104,954,722

 

$

186,947,801

​

​

​

​

​

​

​

​

​

​

Liabilities and Equity

​

 

  

​

 

  

 

​

  

​

​

​

​

​

​

​

​

​

​

Current liabilities:

​

 

  

​

 

  

 

​

  

Trade and other payables

​

 

10

​

$

22,700,849

​

$

19,881,995

Current portion of operating lease liabilities

​

 

8

​

 

641,698

​

 

230,016

Deferred revenues

​

 

​

​

 

285,004

​

 

1,989,632

Provisions

​

 

11

​

 

1,118,613

​

 

2,245,658

Liability related to warrants

​

 

12

​

 

5,570,530

​

 

10,462,137

Total current liabilities

​

 

​

​

 

30,316,694

​

 

34,809,438

​

​

​

​

​

​

​

​

​

​

Operating lease liabilities

​

 

8

​

 

2,063,421

​

 

2,886,940

Loans and borrowings

​

 

13

​

 

11,648,320

​

 

11,312,959

Other liability

​

 

16(c)

​

 

88,688

​

 

393,155

Total liabilities

​

 

​

​

 

44,117,123

​

 

49,402,492

Shareholders’ Equity:

​

 

  

​

 

  

​

 

  

Share capital—without par value (5,554,456 shares issued and outstanding as of March 31, 2022; 4,732,090 shares issued and outstanding as of March 31, 2021)

​

 

14

​

 

317,051,125

​

 

306,618,482

Warrants

​

 

14(f)

​

 

6,079,890

​

 

5,900,973

Additional paid-in capital

​

 

​

​

 

55,980,367

​

 

59,625,356

Accumulated other comprehensive loss

​

 

​

​

 

(7,814,163)

​

 

(8,567,106)

Deficit

​

 

​

​

 

(323,181,697)

​

 

(248,209,952)

Total equity attributable to equity holders of the Corporation

​

 

​

​

 

48,115,522

​

 

115,367,753

Non-controlling interest

​

 

15

​

 

12,722,077

​

 

22,177,556

Total shareholders’ equity

​

 

​

​

 

60,837,599

​

 

137,545,309

Commitments and contingencies

​

 

22

​

 

  

​

 

  

Subsequent events

​

 

25

​

 

  

​

 

  

Total liabilities and shareholders’ equity

​

​

​

​

$

104,954,722

​

$

186,947,801

​

See accompanying notes to the consolidated financial statements.

On behalf of the Board:

​

​

​

​

​

/s/ Julie Philips

/s/ Michael Cammarata

Julie Philips

​

Michael Cammarata

Chairman of the Board

​

President and CEO

​

​

​

F-5

F-6

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Consolidated Statements of Loss and Comprehensive Loss

(in U.S. dollars)

      Years ended 
   Notes  March 31,
2022		  March 31,
2021		 
Revenue from sales and services, net of excise taxes of $1,877,543 (2021—$38,056)
    $47,695,828  $34,261,647 
Royalty revenues
     1,019,861   1,109,678 
Other revenues
     81,435   28,994 
    
 
 
  
 
 
 
Total revenues
  23   48,797,124   35,400,319 
Cost of sales other than loss on inventories, net of subsidies of $924,644 (2021—$932,483 )
     (52,561,404)   (30,964,709) 
Cost of services
     —     (12,846,937) 
Impairment loss on inventories
  6   (3,772,066)   (18,962,254) 
    
 
 
  
 
 
 
Total Cost of sales and services
     (56,333,470)   (62,773,900) 
    
 
 
  
 
 
 
Gross profit (loss)
     (7,536,346)   (27,373,581) 
Research and development expenses, net of tax credits and grants of nil (2021—$12,272 )
     (880,151)   (1,922,195) 
Selling, general and administrative expenses, net of subsidies of $99,840 (2021—$1,431,033)
     (60,538,424)   (63,824,118) 
Impairment loss related to intangible assets
  9   (1,527,000)   —   
Impairment loss related to property, plant and equipment
  7   (14,765,582)   (10,747,692) 
Impairment loss related to
right-of-use
assets
     —     (107,650) 
Impairment loss related to goodwill
  9   (3,288,847)   (26,898,016) 
Net gain on sale of assets
     6,469   —   
    
 
 
  
 
 
 
Loss from operating activities
     (88,529,881)   (130,873,252) 
    
 
 
  
 
 
 
Finance income
  17   7,123   825,745 
Finance costs
  17   (2,143,978)   (1,786,781) 
Foreign exchange loss
     (685,708)   (4,051,418) 
Change in revaluation of marketable securities
     (107,203)   169,216 
Gain on revaluation of derivatives
  4, 12, 21   7,035,118   7,974,549 
    
 
 
  
 
 
 
     4,105,352   3,131,311 
    
 
 
  
 
 
 
Loss before income taxes
     (84,424,529)   (127,741,941) 
Income tax recovery
  18   —     3,477,711 
    
 
 
  
 
 
 
Net loss
     (84,424,529)   (124,264,230) 
    
 
 
  
 
 
 
Other comprehensive income
     
Net change in unrealized foreign currency gains on translation of net investments in foreign operations (tax effect of nil for both periods)
     750,248   6,737,947 
    
 
 
  
 
 
 
Total other comprehensive income
     750,248   6,737,947 
    
 
 
  
 
 
 
Total comprehensive loss
    $(83,674,281)  $(117,526,283) 
    
 
 
  
 
 
 
Net loss attributable to:
     
Equity holders of the Corporation
    $(74,971,745)  $(123,170,020) 
Non-controlling
interest
  15   (9,452,784)   (1,094,210) 
    
 
 
  
 
 
 
Net loss
    $(84,424,529)  $(124,264,230) 
    
 
 
  
 
 
 
Total comprehensive loss attributable to:
     
Equity holders of the Corporation
    $(74,218,802)  $(116,206,145) 
Non-controlling
interest
     (9,455,479)   (1,320,138) 
    
 
 
  
 
 
 
Total comprehensive loss
    $(83,674,281)  $(117,526,283) 
    
 
 
  
 
 
 
Basic and diluted loss per share attributable to:
     
Equity holders of the Corporation
    $(15.54)  $(35.55) 
Non-controlling
interest
    $(1.96)  $(0.32) 
    
 
 
  
 
 
 
Total loss per share
  19  $(17.50)  $(35.86) 
    
 
 
  
 
 
 
Basic and diluted weighted average number of common shares
     4,824,336   3,465,059 
    
 
 
  
 
 
 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Years ended

​

    

​

​

    

March 31,

    

March 31,

​

​

Notes

​

2022

​

2021

Revenue from sales and services, net of excise taxes of $1,877,543 (2021—$38,056)

​

​

​

​

$

47,695,828

 

$

34,261,647

Royalty revenues

​

​

​

​

 

1,019,861

 

​

1,109,678

Other revenues

​

​

​

​

 

81,435

 

​

28,994

Total revenues

​

 

23

​

 

48,797,124

 

​

35,400,319

​

​

​

​

​

​

​

​

​

​

Cost of sales other than loss on inventories, net of subsidies of $924,644 (2021—$932,483 )

​

 

​

​

 

(52,561,404)

 

​

(30,964,709)

Cost of services

​

 

​

​

 

—

 

​

(12,846,937)

Impairment loss on inventories

​

 

6

​

 

(3,772,066)

 

​

(18,962,254)

Total Cost of sales and services

​

 

​

​

 

(56,333,470)

 

​

(62,773,900)

Gross profit (loss)

​

 

​

​

 

(7,536,346)

 

​

(27,373,581)

​

​

​

​

​

​

​

​

​

​

Research and development expenses, net of tax credits and grants of nil (2021—$12,272 )

​

 

​

​

 

(880,151)

 

​

(1,922,195)

Selling, general and administrative expenses, net of subsidies of $99,840 (2021—$1,431,033)

​

 

​

​

 

(60,538,424)

 

​

(63,824,118)

Impairment loss related to intangible assets

​

 

9

​

 

(1,527,000)

 

​

—

Impairment loss related to property, plant and equipment

​

 

7

​

 

(14,765,582)

 

​

(10,747,692)

Impairment loss related to right-of-use assets

​

 

​

​

 

—

 

​

(107,650)

Impairment loss related to goodwill

​

 

9

​

 

(3,288,847)

 

​

(26,898,016)

Net gain on sale of assets

​

 

​

​

 

6,469

 

​

—

Loss from operating activities

​

 

​

​

 

(88,529,881)

 

​

(130,873,252)

​

​

​

​

​

​

​

​

​

​

Finance income

​

 

17

​

 

7,123

 

​

825,745

Finance costs

​

 

17

​

 

(2,143,978)

 

​

(1,786,781)

Foreign exchange loss

​

 

​

​

 

(685,708)

 

​

(4,051,418)

Change in revaluation of marketable securities

​

 

​

​

 

(107,203)

 

​

169,216

Gain on revaluation of derivatives

​

 

4, 12, 21

​

 

7,035,118

 

​

7,974,549

​

​

 

​

​

 

4,105,352

​

​

3,131,311

Loss before income taxes

​

 

​

​

 

(84,424,529)

 

​

(127,741,941)

Income tax recovery

​

 

18

​

 

—

 

​

3,477,711

Net loss

​

 

​

​

 

(84,424,529)

 

​

(124,264,230)

​

​

​

​

​

​

​

​

​

​

Other comprehensive income

​

 

  

​

 

  

 

​

  

Net change in unrealized foreign currency gains on translation of net investments in foreign operations (tax effect of nil for both periods)

​

​

​

​

 

750,248

 

 

6,737,947

Total other comprehensive income

​

​

​

​

 

750,248

 

 

6,737,947

Total comprehensive loss

​

​

​

​

$

(83,674,281)

 

$

(117,526,283)

Net loss attributable to:

​

 

  

​

 

  

 

​

  

Equity holders of the Corporation

​

​

​

​

$

(74,971,745)

 

$

(123,170,020)

Non-controlling interest

​

 

15

​

 

(9,452,784)

 

​

(1,094,210)

Net loss

​

​

​

​

$

(84,424,529)

 

$

(124,264,230)

Total comprehensive loss attributable to:

​

 

  

​

 

  

 

​

  

Equity holders of the Corporation

​

​

​

​

$

(74,218,802)

 

$

(116,206,145)

Non-controlling interest

​

​

​

​

 

(9,455,479)

 

 

(1,320,138)

Total comprehensive loss

​

​

​

​

$

(83,674,281)

 

$

(117,526,283)

Basic and diluted loss per share attributable to:

​

 

  

​

 

  

 

​

  

Equity holders of the Corporation

​

​

​

​

$

(15.54)

 

$

(35.55)

Non-controlling interest

​

​

​

​

$

(1.96)

 

$

(0.32)

Total loss per share

​

 

19

​

$

(17.50)

​

$

(35.86)

Basic and diluted weighted average number of common shares

​

 

​

​

 

4,824,336

​

 

3,465,059

​

See accompanying notes to the consolidated financial statements.

​

​

F-7

F-6

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Consolidated Statements of Changes in Equity

(in U.S. dollars)

    Share Capital        Accumulated
other
comprehensive
income (loss)		             
  
Notes
 Number  Dollars  Warrants  Additional
paid-in

capital		  Cumulative
translation
account		  Deficit  Equity
attributable
to equity
holders of the
Corporation		  Equity
attributable to
non-controlling

interest		  Total 
Balance as at March 31, 2021
   4,732,090  $306,618,482  $5,900,973  $59,625,356  $(8,567,106)  $(248,209,952)  $115,367,753  $22,177,556  $137,545,309 
Net loss for the period
   —     —     —       —     —     (74,971,745)   (74,971,745)   (9,452,784)   (84,424,529) 
Other comprehensive income for the period
   —     —     —     —     752,943   —     752,943   (2,695)   750,248 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total comprehensive loss for the period
   —     —     —     —     752,943   (74,971,745)   (74,218,802)   (9,455,479)   (83,674,281) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Transaction with equity holders recorded directly in equity
          
Contributions by and distribution to equity holders
          
Share-based payment
 16  —     —     —     7,816,845   —     —     7,816,845   —     7,816,845 
Warrants in exchange of services rendered by
non-employees
 14(f)  —     —     178,917   —     —     —     178,917   —     178,917 
RSUs released, net of withholding taxes
 14(d), 16(b)(ii)  108,079   10,050,319   —     (11,461,834)   —     —     (1,411,515)   —     (1,411,515) 
Direct Offering, net of issuance costs
 14(h)  714,287   382,324   —     —     —     —     382,324   —     382,324 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total contributions by and distribution to equity holders
   822,366   10,432,643   178,917   (3,644,989)   —     —     6,966,571   —     6,966,571 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance as at March 31, 2022
   5,554,456  $317,051,125  $6,079,890  $55,980,367  $(7,814,163)  $(323,181,697)  $48,115,522  $12,722,077  $60,837,599 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Accumulated  

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

other

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

comprehensive 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Share Capital

​

​

​

​

income (loss)

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

​

    

​

​

    

​

​

    

​

​

    

​

​

    

​

​

    

Equity

    

​

​

​

    

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

attributable

​

Equity

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

to equity

​

attributable

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Additional

​

Cumulative

​

​

​

​

holders of

​

to

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

paid-in

​

translation

​

​

​

​

the

​

non-controlling

​

​

​

​

    

Notes

    

Number

    

Dollars

    

Warrants

    

capital

    

account

    

Deficit

    

Corporation

    

interest

    

Total

Balance as at March 31, 2021

​

​

​

4,732,090

​

$

306,618,482

​

$

5,900,973

​

$

59,625,356

​

$

(8,567,106)

​

$

(248,209,952)

​

$

115,367,753

​

$

22,177,556

​

$

137,545,309

Net loss for the period

​

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

(74,971,745)

​

​

(74,971,745)

​

​

(9,452,784)

​

​

(84,424,529)

Other comprehensive income for the period

 

​

 

—

 

​

—

 

​

—

 

​

—

 

​

752,943

 

​

—

 

​

752,943

 

​

(2,695)

​

 

750,248

Total comprehensive loss for the period

 

​

 

—

 

​

—

 

​

—

 

​

—

 

​

752,943

 

​

(74,971,745)

 

​

(74,218,802)

 

​

(9,455,479)

​

 

(83,674,281)

Transaction with equity holders recorded directly in equity

 

  

 

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

​

 

  

Contributions by and distribution to equity holders

 

  

 

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

​

 

  

Share-based payment

 

16

 

—

 

​

—

 

​

—

 

​

7,816,845

 

​

—

 

​

—

 

​

7,816,845

 

​

—

​

 

7,816,845

Warrants in exchange of services rendered by non-employees

 

14(f)

 

—

 

​

—

 

​

178,917

 

​

—

 

​

—

 

​

—

 

​

178,917

 

​

—

​

 

178,917

RSUs released, net of withholding taxes

 

14(d), 16(b)(ii)

 

108,079

 

​

10,050,319

 

​

—

 

​

(11,461,834)

 

​

—

 

​

—

 

​

(1,411,515)

 

​

—

​

 

(1,411,515)

Direct Offering, net of issuance costs

 

14(h)

 

714,287

 

​

382,324

 

​

—

 

​

—

 

​

—

 

​

—

 

​

382,324

 

​

—

​

 

382,324

Total contributions by and distribution to equity holders

 

​

 

822,366

 

​

10,432,643

 

​

178,917

 

​

(3,644,989)

 

​

—

 

​

—

 

​

6,966,571

 

​

—

​

 

6,966,571

Balance as at March 31, 2022

 

​

​

5,554,456

​

$

317,051,125

​

$

6,079,890

​

$

55,980,367

​

$

(7,814,163)

​

$

(323,181,697)

​

$

48,115,522

​

$

12,722,077

​

$

60,837,599

​

See accompanying notes to the consolidated financial statements.

​

F-8

F-7

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Consolidated Statements of Changes in Equity (Continued)

(in U.S. dollars)

    Share Capital        Accumulated
other
comprehensive
income (loss)		             
  
Notes
 Number  Dollars  Warrants  Additional
paid-in

capital		  Cumulative
translation
account		  Deficit  Equity
attributable to
equity holders
of the
Corporation		  Equity
attributable to
non-controlling

interest		  Total 
Balance as at March 31, 2020
   2,838,233  $181,970,882  $3,997,402  $57,565,035  $(15,530,981)  $(125,039,932)  $102,962,406  $—    $102,962,406 
Net loss for the period
   —     —     —     —     —     (123,170,020)   (123,170,020)   (1,094,210)   (124,264,230) 
Other comprehensive income (loss) for the period
   —     —     —     —     6,963,875   —     6,963,875   (225,928)   6,737,947 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total comprehensive loss for the period
   —     —     —     —     6,963,875   (123,170,020)   (116,206,145)   (1,320,138)   (117,526,283) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Transaction with equity holders recorded directly in equity
          
Contributions by and distribution to equity holders
          
Share-based payment
 16  —     —     —     9,885,138   —     —     9,885,138   —     9,885,138 
Warrants in exchange of services rendered by
non-employees
 14(f)  —     —     1,903,571   —     —     —     1,903,571   —     1,903,571 
Share options exercised
 14(b), 16(a)  142,909   10,992,879   —     (3,513,919)   —     —     7,478,960   —     7,478,960 
DSUs released
 14(c), 16(b)(i)  1,381   98,093   —     (98,093)   —     —     —     —     —   
RSUs released, net of withholding taxes
 14(d), 16(b)(ii)  16,414   3,402,824   —     (4,119,959)   —     —     (717,135)   —     (717,135) 
Restricted shares issued
 14(e), 16(b)(iii)  850   92,846   —     (92,846)   —     —     —     —     —   
At-The-Market
Offering, net of issuance costs
 14(g)  154,619   13,069,149   —     —     —     —     13,069,149   —     13,069,149 
Direct Offering, net of issuance costs
 14(h)  136,389   12,017,902   —     —     —     —     12,017,902   —     12,017,902 
Private Placement, net of issuance costs
 14(i)  462,963   21,608,448   —     —     —     —     21,608,448   —     21,608,448 
Business combinations
 4, 14(j)  192,617   17,595,505   —     —     —     —     17,595,505   23,497,694   41,093,199 
Registered Direct Offering Priced
At-The-Market
and Concurrent Private Placement, net of issuance costs
 14(k)  785,715   45,769,954   —     —     —     —     45,769,954   —     45,769,954 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total contributions by and distribution to equity holders
   1,893,857   124,647,600   1,903,571   2,060,321   —     —     128,611,492   23,497,694   152,109,186 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance as at March 31, 2021
   4,732,090  $306,618,482  $5,900,973  $59,625,356  $(8,567,106)  $(248,209,952)  $115,367,753  $22,177,556  $137,545,309 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Accumulated

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

other

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

comprehensive

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Share Capital

​

​

​

​

income (loss)

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

​

    

​

​

    

​

​

    

​

​

    

​

​

    

​

​

    

Equity

    

​

​

    

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

attributable

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

to

​

Equity

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

equity

​

attributable

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Additional

​

Cumulative

​

​

​

​

holders

​

to

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

paid-in

​

translation

​

​

​

​

of the

​

non-controlling

​

​

​

​

​

Notes

​

Number

​

Dollars

​

Warrants

​

capital

​

account

​

Deficit

 

Corporation

​

interest

​

Total

Balance as at March 31, 2020

 

​

​

2,838,233

​

$

181,970,882

​

$

3,997,402

​

$

57,565,035

​

$

(15,530,981)

​

$

(125,039,932)

​

$

102,962,406

​

$

—

​

$

102,962,406

Net loss for the period

 

​

​

—

​

 

—

​

 

—

​

 

—

​

 

—

​

 

(123,170,020)

​

 

(123,170,020)

 

​

(1,094,210)

​

 

(124,264,230)

Other comprehensive income (loss) for the period

 

​

​

—

​

 

—

​

 

—

​

 

—

​

 

6,963,875

​

 

—

​

 

6,963,875

 

​

(225,928)

​

 

6,737,947

Total comprehensive loss for the period

 

​

​

—

​

 

—

​

 

—

​

 

—

​

 

6,963,875

​

 

(123,170,020)

​

 

(116,206,145)

 

​

(1,320,138)

​

 

(117,526,283)

Transaction with equity holders recorded directly in equity

 

  

​

  

​

 

  

​

 

  

​

 

  

​

 

  

​

 

  

​

 

  

 

​

  

​

 

  

Contributions by and distribution to equity holders

 

  

​

  

​

 

  

​

 

  

​

 

  

​

 

  

​

 

  

​

 

  

 

​

  

​

 

  

Share-based payment

 

16

​

—

​

 

—

​

 

—

​

 

9,885,138

​

 

—

​

 

—

​

 

9,885,138

 

​

—

​

 

9,885,138

Warrants in exchange of services rendered by non-employees

 

14(f)

​

—

​

 

—

​

 

1,903,571

​

 

—

​

 

—

​

 

—

​

 

1,903,571

 

​

—

​

 

1,903,571

Share options exercised

 

14(b), 16(a)

​

142,909

​

 

10,992,879

​

 

—

​

 

(3,513,919)

​

 

—

​

 

—

​

 

7,478,960

 

​

—

​

 

7,478,960

DSUs released

 

14(c), 16(b)(i)

​

1,381

​

 

98,093

​

 

—

​

 

(98,093)

​

 

—

​

 

—

​

 

—

 

​

—

​

 

—

RSUs released, net of withholding taxes

 

14(d), 16(b)(ii)

​

16,414

​

 

3,402,824

​

 

—

​

 

(4,119,959)

​

 

—

​

 

—

​

 

(717,135)

 

​

—

​

 

(717,135)

Restricted shares issued

 

14(e), 16(b)(iii)

​

850

​

 

92,846

​

 

—

​

 

(92,846)

​

 

—

​

 

—

​

 

—

 

​

—

​

 

—

At-The-Market Offering, net of issuance costs

 

14(g)

​

154,619

​

 

13,069,149

​

 

—

​

 

—

​

 

—

​

 

—

​

 

13,069,149

 

​

—

​

 

13,069,149

Direct Offering, net of issuance costs

 

14(h)

​

136,389

​

 

12,017,902

​

 

—

​

 

—

​

 

—

​

 

—

​

 

12,017,902

 

​

—

​

 

12,017,902

Private Placement, net of issuance costs

 

14(i)

​

462,963

​

 

21,608,448

​

 

—

​

 

—

​

 

—

​

 

—

​

 

21,608,448

 

​

—

​

 

21,608,448

Business combinations

 

4, 14(j)

​

192,617

​

 

17,595,505

​

 

—

​

 

—

​

 

—

​

 

—

​

 

17,595,505

 

​

23,497,694

​

 

41,093,199

Registered Direct Offering Priced At-The-Market and Concurrent Private Placement, net of issuance costs

 

14(k)

​

785,715

​

 

45,769,954

​

 

—

​

 

—

​

 

—

​

 

—

​

 

45,769,954

 

​

—

​

 

45,769,954

Total contributions by and distribution to equity holders

 

​

​

1,893,857

​

​

124,647,600

​

 

1,903,571

​

 

2,060,321

​

​

—

​

 

—

​

​

128,611,492

​

 

23,497,694

​

 

152,109,186

Balance as at March 31, 2021

 

​

​

4,732,090

​

$

306,618,482

​

$

5,900,973

​

$

59,625,356

​

$

(8,567,106)

​

$

(248,209,952)

​

$

115,367,753

​

$

22,177,556

​

$

137,545,309

​

See accompanying notes to the consolidated financial statements.

​

​

F-9

F-8

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Consolidated Statements of Cash Flows

(in U.S. dollars)

       Years ended 
   Notes   March 31,
2022		  March 31,
2021		 
Cash flows from operating activities:
     
Net loss for the period
    $(84,424,529)  $(124,264,230) 
Adjustments:
     
Depreciation of property, plant and equipment
     2,723,751   3,961,317 
Non-cash
lease expense
     710,984   320,669 
Amortization of intangible assets
     3,356,728   15,100,717 
Impairment loss on goodwill
   9    3,288,847   26,898,016 
Share-based payment
   16    7,816,845   9,885,138 
Impairment loss on inventories
   6    3,772,066   18,962,254 
Expected credit losses
     1,675,390   6,995,747 
Non-employee
compensation related to warrants
   14(f)    178,917   1,903,571 
Net finance expense
     2,136,855   961,036 
Unrealized foreign exchange gain
     (117,297)   (1,794,737) 
Change in revaluation of marketable securities
     107,203   (169,216) 
Interest received
     8,649   37,911 
Interest paid
     (970,900)   (689,574) 
Revaluation of derivatives
     (7,035,118)   (7,974,549) 
Impairment loss on property, plant and equipment
   7    14,765,582   10,747,692 
Impairment loss on
right-of-use
assets
     —     107,650 
Impairment loss on intangibles
     1,527,000   —   
Payment of lease liabilities
     (703,686)   (343,064) 
Income taxes expense (recovery)
     —     (3,477,711) 
Net loss from sale of property, plant and equipment
     —     (2,635) 
Changes in operating assets and liabilities
   20    (3,163,414)   (13,811,460) 
    
 
 
  
 
 
 
Net cash used in operating activities
     (54,346,127)   (56,645,458) 
    
 
 
  
 
 
 
Cash flows from investing activities:
     
Maturity of previously restricted short-term investments
     —     9,037 
Acquisition of a subsidiary, net of cash acquired
   4    —     (3,137,242) 
Acquisition of property, plant and equipment
     (1,938,870)   (6,618,016) 
Acquisition of intangible assets
     (432,714)   (389,784) 
Proceeds from sale of property, plant and equipment
     —     14,503 
Sales of Acasti shares
   21    44,360   —   
    
 
 
  
 
 
 
Net cash used in investing activities:
     (2,327,224)   (10,121,502) 
    
 
 
  
 
 
 
Cash flows from financing activities:
     
Repayment of loans and borrowings
     —     (2,457,839) 
Withholding taxes paid pursuant to the settlement of
non-treasury
RSUs
     (1,411,515)   (717,135) 
Proceeds from the issuance of shares through an
At-The-Market
Offering
   14(g)    —     13,736,868 
Proceeds from the issuance of shares and warrants through a Direct Offering
   14(h)    8,000,000   12,833,713 
Proceeds from the issuance of shares and warrants through a Private Placement
   14(i)    —     35,300,844 
Proceeds from the issuance of shares and warrants through a Registered Direct Offering Priced
At-The-Market
and Concurrent Private Placement
   14(k)    —     55,000,000 
Issuance of shares and warrants costs
   14    (636,847)   (6,174,452) 
Proceeds from exercise of options and
pre-funded
warrants
   14(b)    650   7,478,960 
    
 
 
  
 
 
 
Net cash provided by financing activities:
     5,952,288   115,000,959 
    
 
 
  
 
 
 
Foreign exchange loss on cash and cash equivalents
     (389,485)   (185,672) 
    
 
 
  
 
 
 
Net increase (decrease) in cash and cash equivalents
     (51,110,548)   48,048,327 
Cash and cash equivalents, beginning of period
     59,836,889   11,788,562 
    
 
 
  
 
 
 
Cash and cash equivalents as at March 31, 2022 and 2021
    $8,726,341  $59,836,889 
    
 
 
  
 
 
 
Cash and cash equivalents is comprised of:
     
Cash
    $8,726,341  $59,836,889 
    
 
 
  
 
 
 

​

​

​

​

​

​

​

​

​

​

    

​

​

Years ended

​

​

​

​

March 31,

​

March 31,

​

​

Notes

​

2022

​

2021

Cash flows from operating activities:

​

​

​

  

​

​

​

  

Net loss for the period

​

​

​

$

(84,424,529)

 

$

(124,264,230)

Adjustments:

​

​

​

 

  

 

​

  

Depreciation of property, plant and equipment

​

​

​

 

2,723,751

 

​

3,961,317

Non-cash lease expense

​

​

​

 

710,984

 

​

320,669

Amortization of intangible assets

​

​

​

 

3,356,728

 

​

15,100,717

Impairment loss on goodwill

​

9

​

 

3,288,847

 

​

26,898,016

Share-based payment

​

16

​

 

7,816,845

 

​

9,885,138

Impairment loss on inventories

​

6

​

 

3,772,066

 

​

18,962,254

Expected credit losses

​

​

​

 

1,675,390

 

​

6,995,747

Non-employee compensation related to warrants

​

14(f)

​

 

178,917

 

​

1,903,571

Net finance expense

​

​

​

 

2,136,855

 

​

961,036

Unrealized foreign exchange gain

​

​

​

 

(117,297)

 

​

(1,794,737)

Change in revaluation of marketable securities

​

​

​

 

107,203

 

​

(169,216)

Interest received

​

​

​

 

8,649

 

​

37,911

Interest paid

​

​

​

 

(970,900)

 

​

(689,574)

Revaluation of derivatives

​

​

​

 

(7,035,118)

 

​

(7,974,549)

Impairment loss on property, plant and equipment

​

7

​

 

14,765,582

 

​

10,747,692

Impairment loss on right-of-use assets

​

​

​

 

—

 

​

107,650

Impairment loss on intangibles

​

​

​

 

1,527,000

 

​

—

Payment of lease liabilities

​

​

​

 

(703,686)

 

​

(343,064)

Income taxes expense (recovery)

​

​

​

 

—

 

​

(3,477,711)

Net loss from sale of property, plant and equipment

​

​

​

 

—

 

​

(2,635)

Changes in operating assets and liabilities

​

20

​

 

(3,163,414)

 

​

(13,811,460)

Net cash used in operating activities

​

​

​

 

(54,346,127)

 

​

(56,645,458)

Cash flows from investing activities:

​

  

​

 

  

 

​

  

Maturity of previously restricted short-term investments

​

​

​

 

—

 

​

9,037

Acquisition of a subsidiary, net of cash acquired

​

4

​

 

—

 

​

(3,137,242)

Acquisition of property, plant and equipment

​

​

​

 

(1,938,870)

 

​

(6,618,016)

Acquisition of intangible assets

​

​

​

 

(432,714)

 

​

(389,784)

Proceeds from sale of property, plant and equipment

​

​

​

 

—

 

​

14,503

Sales of Acasti shares

​

21

​

 

44,360

 

​

—

Net cash used in investing activities:

​

​

​

 

(2,327,224)

 

​

(10,121,502)

Cash flows from financing activities:

​

  

​

 

  

 

​

  

Repayment of loans and borrowings

​

​

​

 

—

 

​

(2,457,839)

Withholding taxes paid pursuant to the settlement of non-treasury RSUs

​

​

​

 

(1,411,515)

 

​

(717,135)

Proceeds from the issuance of shares through an At-The-Market Offering

​

14(g)

​

 

—

 

​

13,736,868

Proceeds from the issuance of shares and warrants through a Direct Offering

​

14(h)

​

 

8,000,000

 

​

12,833,713

Proceeds from the issuance of shares and warrants through a Private Placement

​

14(i)

​

 

—

 

​

35,300,844

Proceeds from the issuance of shares and warrants through a Registered Direct Offering Priced At-The-Market and Concurrent Private Placement

​

14(k)

​

 

—

 

​

55,000,000

Issuance of shares and warrants costs

​

14

​

 

(636,847)

 

​

(6,174,452)

Proceeds from exercise of options and pre-funded warrants

​

14(b)

​

 

650

 

​

7,478,960

Net cash provided by financing activities:

​

​

​

 

5,952,288

 

​

115,000,959

Foreign exchange loss on cash and cash equivalents

​

​

​

 

(389,485)

 

​

(185,672)

Net increase (decrease) in cash and cash equivalents

​

​

​

 

(51,110,548)

 

​

48,048,327

Cash and cash equivalents, beginning of period

​

​

​

 

59,836,889

 

​

11,788,562

Cash and cash equivalents as at March 31, 2022 and 2021

​

​

​

$

8,726,341

 

$

59,836,889

Cash and cash equivalents is comprised of:

​

​

​

 

  

 

​

  

Cash

​

​

​

$

8,726,341

 

$

59,836,889

​

See accompanying notes to the consolidated financial statements.

​

F-10

F-9

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Notes to Consolidated Financial Statements (Audited)

For the years ended March 31, 2022 and 2021

1.

Reporting entity:

Neptune Wellness Solutions Inc. (the “Corporation”“Corporation” or “Neptune”“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

100-545
Promenade du Centropolis, Laval, Québec, with a 50,000 square-foot production facility located in Sherbrooke, Quebec and a 24,000 square-foot facility located in North Carolina. The consolidated financial statements of the Corporation comprise the Corporation and its subsidiaries, Biodroga Nutraceuticals Inc. (“Biodroga”Biodroga”), SugarLeaf Labs, Inc. (“SugarLeaf”SugarLeaf”), 9354-7537 Québec Inc., Neptune Holding USA, Inc., Neptune Health & Wellness Innovation, Inc., Neptune Forest, Inc., Neptune Care, Inc. (formerly known as Neptune Ocean, Inc.), Neptune Growth Ventures, Inc., 9418-1252 Québec Inc., Neptune Wellness Brands Canada, Inc. and Sprout Foods, Inc. (“Sprout”).

Neptune is a diversified and fully integrated health and wellness company. Through its flagship consumer-facing brands, Neptune Wellness, Forest Remedies

™
, Biodroga, MaxSimil
®
, MoodRing
™
, PanHash
™
, Sprout
®
, Nosh
®
and NurturMe
®
, Neptune is redefining health and wellness by building a broad portfolio of natural, plant-based, sustainable and purpose-driven lifestyle brands and consumer packaged goods products in key health and wellness markets, including cannabis, hemp, nutraceuticals, organic baby food, personal care and home care.

Share consolidation

On June 9, 2022, Neptune announced the completion of the Corporation’s proposed consolidation of its common shares (the “Common Shares”“Common Shares”) on the basis of one (1) post-consolidation Common Share for every thirty-five (35) pre-consolidation Common Shares (the “Share Consolidation”“Share Consolidation”). The post-Share Consolidation Common Shares commenced trading on the NASDAQNasdaq and the TSX at the market open on June 13, 2022. The Share Consolidation reduced the number of Common Shares issued and outstanding from approximately

198 million Common Shares to approximately 5.7 million Common Shares as at June 13, 2022. These consolidated financial statements have been retrospectively adjusted to reflect the Share Consolidation. As a result, the number of common shares, options, deferred share units (“DSUs”DSUs”), restricted share units (“RSUs”RSUs”), restricted shares and warrants, issuance and exercise prices of options, DSUs, RSUs, restricted shares and warrants, loss per share reflect the Share Consolidation.

Going concern

These consolidated financial statements have been prepared on a going concern basis, which presumes that the Corporation will continue realizing its assets and discharging its liabilities in the normal course of business for the foreseeable future. The Corporation has incurred significant operating losses and negative cash flows from operations since inception. To date, the Corporation has financed its operations through the public offering and private placement of Common Shares, units consisting of Common Shares and warrants, and convertible debt, the proceeds from research grants and research tax credits, and the exercises of warrants, rights and options. For the year ended March 31, 2022, the Corporation incurred a net loss of $84.4 million and negative cash flows from operations of $54.3 million, and had an accumulated deficit of $323.2 million as at March 31, 2022. Furthermore, as at March 31, 2022, the Corporation’s current liabilities and expected level of expenses for the next twelve months exceed cash on hand of $8.7 million. The Corporation currently has no committed sources of financing available.

As of the date these financial statements are authorized for issuance, the Corporation is required to actively manage its liquidity and expenses. The Corporation currently has minimal available cash balances. Payables

F-11
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
are now in excess of available cash balances and payments of payables are not being made as the amounts become due for certain suppliers. As of the date these financial statements are authorized for issuance, the cash balance is expected to be sufficient to operate the business for only the next two to three months under the current business plan. The Corporation requires funding in the very near term in order to continue its operations. If the Corporation is unable to obtain funding in the upcoming days, it may have to liquidate its assets.

These conditions cast substantial doubt about the Corporation’s ability to continue as a going concern.

Going forward, the Corporation will seek additional financing in various forms as part of its plan to have the right funding structure in place. To achieve the objectives of its business plan, Neptune plans to raise the necessary funds through additional financings and the establishment of strategic alliances as well as additional research grants and research tax credits. While the Corporation has limited debt,

F-10

Table of Contents

all of which is subordinated, assets available for financing include real estate, accounts receivable and inventories. The ability of the Corporation to complete the needed financing and ultimately achieve profitable operations is dependent on a number of factors outside of the Corporation’s control. The Corporation’s business plan is dependent upon, amongst other things, its ability to achieve and maintain profitability, and continue to obtain adequate ongoing debt and/or equity financing with creditors, officers, directors and stakeholders to finance operations within and beyond the next twelve months.

While the Corporation 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.

Neptune announced on June 8, 2022 the intended divestiture of the cannabis business, which would include the sale of the Mood Ring

™
and PanHash
™
brands, along with the Corporation’s Sherbrooke, Quebec facility, in one or more transactions. In order to accelerate its cost savings, the Corporation will focus on winding up its cannabis operations pending a transaction. This planned action is intended to provide significant cost savings and help maximize operational efficiencies. Finally, the exit of the Canadian cannabis business (see note 25) is expected to reduce the amount of financing the Corporation seeks and is expected to facilitate working with a broader set of financing sources.

On June 23, 2022, Neptune closed an offering with several institutional investors for the purchase and sale of an aggregate of 1,945,526 common shares (including common share equivalents) of the Corporation, and accompanying two series of warrants to purchase up to an aggregate of 2,591,052 common share warrants, at an offering price of $2.57 per share and accompanying warrants in a registered direct offering priced

at-the-market
under Nasdaq rules. The gross proceeds from the offering are $5 million, and the net proceeds are $4.3 million.

These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the going concern basis not be valid. These adjustments could be material.

2.

Basis of preparation:

(a)

(a)

Adoption of U.S. GAAP:

In the year ended March 31, 2022, the Corporation has retrospectively adopted United States generally accepted accounting principles (“US GAAP”GAAP”). The consolidated financial statements of the Corporation have been prepared in accordance with US GAAP for all periods presented. Comparative figures, which were previously prepared in accordance with International Financial Reporting Standards (”IFRS”(“IFRS”) as issued by the International Accounting Standards Board, have been adjusted as required to be compliant with the Corporation’s accounting policies under US GAAP.


F-12
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

(b)

(b)

Functional and reporting currency:

Effective March 31, 2022, the Corporation has changed its reporting currency from Canadian dollars (“CAD”) to U.S. dollars (“USD”USD”). This change in reporting currency has been applied retrospectively such that all amounts in the consolidated financial statements of the Corporation and the accompanying notes thereto are expressed in U.S. dollars. References to “$” and “USD” are U.SU.S. dollars and references to “CAD $” and “CAD” are to Canadian dollars. For comparative purposes, historical consolidated financial statements were recast in U.S. dollars by translating assets and liabilities at the closing exchange rate in effect at the end of the respective period, revenues, expenses and cash flows at the average exchange rate in effect for the respective period and equity transactions at historical exchange rates. Translation gains and losses are included as part of the cumulative foreign currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive loss.

The assets and liabilities of foreign operations with a functional currency other than the U.S. dollar are translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenue and expenses are translated at the monthly average exchange rates for the period. Differences arising from the exchange rate changes are recorded within foreign currency translation adjustments, a component of other comprehensive income (loss).

Transactions in foreign currencies are translated to the respective functional currencies of the Corporation’s subsidiaries at the average exchange rates for the period. The monetary items denominated in currencies other than the functional currency of a subsidiary are translated at the exchange rates prevailing at the balance sheet date.

Non-monetary
items denominated in currencies other than the functional currency are translated at historical rates. Gains and losses resulting from
re-measurement
are recorded in the Corporation’s consolidated statement of loss as foreign exchange gain (loss).

F-11

Table of Contents

(c)

(c)

Use of estimates:

The preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from the estimates made by management.

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.

Estimates include the following:

●Estimating the write down of inventory;
●Estimating expected credit losses for receivables;
●Estimating the recoverable amount of non-financial assets, to determine and measure impairment losses on goodwill, intangibles, and property, plant and equipment;
●Estimating the lease term of contracts with extension options and termination options;
●Estimating the revenue from contracts with customers subject to variable consideration. For the year ended March 31, 2022, the Corporation revised its estimated provision for returns of the write down of inventory;
Estimating expected credit losses for receivables;
Estimating the recoverable amount of
non-financial
assets, to determine and measure impairment losses on goodwill, intangibles, and property, plant and equipment;
Estimating the lease term of contracts with extension options and termination options;
Estimating the revenue from contracts with customers subject to variable consideration. For the year ended March 31, 2022, the Corporation revised its estimated provision for returns of the
F-13
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
cannabis sales as a result of new information and experience with sales returns. The impact of the revised estimate for year ended March 31, 2022 is a reduction of the provision of $1.1 million and an increase in revenue from sales and services;
●Estimating the fair value of bonus, options and warrants that are based on market and non-market conditions (note 16);
●Estimating the fair value of the identifiable assets acquired, liabilities assumed, and consideration transferred of the acquired business, including the related contingent consideration and call option (note 4); and
●Estimating the litigation provision as it depends upon the outcome of proceedings (note 22).
Estimating the fair value of bonus, options and warrants that are based on market and
non-market
conditions (note 16);
Estimating the fair value of the identifiable assets acquired, liabilities assumed, and consideration transferred of the acquired business, including the related contingent consideration and call option (note 4); and
Estimating the litigation provision as it depends upon the outcome of proceedings (note 22).

3.Significant accounting policies:

3.

(a)

Significant accounting policies:
(a)

Basis of consolidation:

These consolidated financial statements include the accounts of the Corporation and its subsidiaries in which the Corporation has a controlling financial interest. All intercompany balances and transactions have been eliminated from the Corporation’s consolidated financial statements. On February 10, 2021, Neptune acquired a 50.1% interest in Sprout Foods, Inc. (“Sprout”Sprout” or “Sprout Foods”“Sprout Foods”). The accounts of the subsidiary are included in the consolidated financial statements from that date.

(b)

(b)

Business combinations and related goodwill:

Business combinations are accounted for using the acquisition method as at the acquisition date when control is transferred. The consideration transferred for the acquisition of a business is the fair value of the assets transferred, and any liability and equity interests issued by the Corporation to the former owners of the acquired business on the date control of the acquired company is obtained. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are generally measured initially at their fair values at the acquisition date. Restructuring, transaction costs other than those associated with the issue of debt or equity securities, and other direct costs of a business combination are not considered part of the business acquisition transaction and are expensed as incurred.

The Corporation measures goodwill as the fair value for the consideration transferred less the net recognized amount of the identifiable assets acquired and liabilities assumed, including the recognized amount of any

non-controlling
interest in the acquiree, all measured at the acquisition date.

(c)

(c)

Derivative over its own equity:

The Corporation has issued liability-classified derivatives over its own equity and has a call option on the

non-controlling
interest of a subsidiary.

F-12

Table of Contents

An embedded derivative is separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss.

Derivatives and separable embedded derivatives are recognized initially at fair value and attributable transaction costs are expensed as incurred. Subsequent to the initial recognition, derivatives and separable embedded derivatives are measured at fair value and all changes in the fair value are recognized in profit or loss, in the line item “Gain on revaluation of derivatives”.

F-14
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

(d)

(d)

Cash and cash equivalents:

The Corporation considers all highly liquid, short-term investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash equivalents consist of time deposits with a number of U.S. and

non-U.S.
commercial banks and money market fund investments.

(e)

(e)

Investments:

Investments in equity investments in publicly traded companies in which the Corporation does not exercise significant influence are classified as

available-for-sale
securities. These securities are reported at fair values; based upon quoted market prices, and subsequent changes in the fair value are recognized in profit or loss, in the line item “Change in revaluation of marketable securities”.

(f)

(f)

Trade accounts receivable:

Trade accounts receivable consist of amounts due from normal business activities. An allowance for current expected credit losses is maintained to reflect credit risk for trade accounts receivable based on a current expected credit loss model which factors in changes in credit quality since the initial recognition of trade accounts receivable based on customer risk categories. Current expected credit losses also consider collection history and specific risks identified on a

customer-by-customer
basis. Trade accounts receivable are presented net of allowances for current expected credit losses.

(g)

(g)

Inventories:

Inventories are measured at the lower of cost and net realizable value. The cost of finished goods, raw materials, supplies and spare parts is based on the weighted-average cost method. The cost of finished goods and work in progress includes expenditures incurred in acquiring the inventories, production or conversion costs,

sub-contractor
costs and other costs incurred in bringing them to their existing location and condition, as well as any appropriate share of production overheads based on normal operating capacity.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

As necessary, the Corporation records write-downs for excess, slow moving and obsolete inventory. To determine these amounts, the Corporation regularly reviews inventory quantities on hand and compares them to estimates of historical utilization, future product demand, and production requirements.

Write-downs of inventories to net realizable value are recorded in cost of sales in the consolidated financial statements.

(h)

(h)

Property, plant and equipment, net:

Property, plant and equipment are measured at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditures that are directly attributable to the acquisition of the asset, including all costs incurred in bringing the asset to its present location and condition.

Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

Depreciation is calculated on the cost of an asset using either a straight-line basis or a declining basis over the estimated useful lives of each item of property, plant and equipment.

F-15

F-13

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

The estimated useful lives are as follows:

Asset

​

​

Method

​

​

Period/Rate

​

​

Asset

Method

Period/Rate

Building and building components

Straight-line

20 to 40 years

​

Laboratory, and plant equipment

Straight-line

10 to 20 years

​

Furniture and office equipment

Declining balance

20% to 30%30

%

Computer equipment

Straight-line

2 to 5 years

​

​

(i)

(i)

Goodwill and other Intangible assets:

(i)

(i)

Initial recognition:

Goodwill represents the excess purchase price over the estimated fair value of net assets acquired in a business combination. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.


Intangible assets with finite lives are carried at cost less accumulated amortization and impairment losses, if any, and are amortized on a straight-line basis over the estimated useful life of the intangible asset.

The estimated useful lives are as follows:

​

​

​

​

​

Asset

Method

Period/Rate

Customer relationships

(1)

Straight-line

10 years

Farmer relationships

(1)

Straight-line

3 years

License agreements

Straight-line

31 months to 12 years

Website and trademarks

Straight-line

4 years

Tradenames

Straight-line

15 years

Computer software

Straight-line

3 to 5 years

(1)

(1)

During the year ended March 31, 2021, the amortization of customer relationships and farmer relationships, both related to SugarLeaf, was accelerated and those assets were then fully amortized.

(ii)

Subsequent expenditure:

(ii)
Subsequent expenditure:

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditure on internally generated goodwill and brands, are recognized in profit or loss as incurred.

(j)

(j)

Research and development:

Research and development expenditures are expensed as incurred. These costs primarily consist of employees’ salaries and benefits related to research and development activities, consultants that conduct the Corporation’s clinical trials, independent auditors and consultants to perform investigation activities on behalf of the Corporation, clinical trial materials, stock-based compensation expense, and other

non-clinical
costs and regulatory approvals. Advance payments for goods and services that will be used in future research and development are recognized in prepaids or other assets and are expensed when the services are performed, or the goods are used.

(k)

(k)

Impairment:

(i)

(i)

Long-lived assets:

Long-lived assets, such as property, plant, and equipment, and finite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying

F-16
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Corporation first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Any impairment loss recognized is not reversed in future periods.

F-14

(ii)
Goodwill:

Table of Contents

(ii)

Goodwill:

Goodwill is assessed for impairment annually in the fourth quarter or more frequently if events or changes in circumstances indicate that the carrying value of a reporting unit more likely than not exceeds its fair value. Goodwill is tested for impairment at the reporting unit level, which is the operating segment, or a component, which is one level below that operating segment. Components are aggregated as a single reporting unit if they have similar economic characteristics.

Goodwill is tested for impairment when there is a triggering event indicating that the carrying amount may be impaired. When impairment indicators are identified, the Corporation compares the reporting unit’s fair value to its carrying amount, including goodwill. An impairment loss is recognized as the difference, if any, between the reporting unit’s carrying amount and its fair value, to the extent the difference does not exceed the total amount of goodwill allocated to the reporting unit. Any impairment loss recognized is not reversed in future periods.

For the purposes of annual impairment testing, the carrying amounts of goodwill are allocated to the reporting units. In conducting its annual impairment test, the Corporation first reviews qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. Factors considered in a qualitative assessment include, among other things, macroeconomic conditions, industry and market considerations, financial performance of the respective reporting unit and other relevant entity and reporting-unit specific considerations. If factors indicate that the fair value of the reporting unit is less than its carrying amount, the Corporation performs a quantitative assessment. The fair value of the reporting unit is determined by analyzing scenarios of business projections and sensitivities attempting to model various assumptions as to how the revenues and cash flows of the business may evolve depending on factors including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance specific to the reporting unit. The Corporation estimates the fair values of its reporting units based on discounted cash flow (“DCF”DCF”) methodology reflecting the latest projections.

(l)

(l)

Revenue:

The Corporation’s revenue is comprised of sales of (i) nutraceutical products, (ii) cannabis and hemp products, (iii) food and beverages products, (iv) innovation products and (v) processing services. Payment terms are short-term in nature and are generally less than one year. In addition, if the good is transferred and payment is received within one year, the Company does not determine significant financing components.

Sale of products:

The Corporation’s revenue-generating activities from the sale of products in the course of ordinary activities are recognized at a point in time when control of the products is transferred to the customer

F-17
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
and the Corporation’s obligations have been fulfilled. The Corporation transfers control generally on shipment of the goods or in some cases, upon reception by the customer. Revenue is measured as the amount of consideration the Corporation expects to receive in exchange for the Corporation’s product as specified in the customer contract. Certain of the Corporation’s customer contracts, most notably those with the Canadian provincial and territorial agencies, may provide the customer with a right of return. In certain circumstances, the Corporation may also provide a retrospective price adjustment to a customer. These items give rise to variable consideration, which is recognized as a reduction of the transaction price based upon the expected amounts of the product returns and price adjustments at the time revenue for the corresponding product sale is recognized. The determination of the reduction of the transaction price for variable consideration requires that the Corporation make certain estimates and assumptions that affect the timing and amounts of revenue recognized. The Corporation estimates this variable consideration by taking into account factors such as historical information, current trends, forecasts, provincial and territorial inventory levels, availability of actual results and expectations of demand. The Corporation recognizes a liability for sales refunds within other current liabilities with a corresponding decrease in revenues. Furthermore, the Corporation recognizes an asset for the value of inventory which is expected to be returned within prepaid expenses and other assets on the consolidated balance sheets with a corresponding reduction of cost of sale.

Processing services:

The Corporation is involved in the extraction, purification and formulation of health and wellness products. Revenue earned on processing services is recognized as the services are rendered in accordance with contractual terms, recovery of the consideration is probable and the amount of revenue can be measured reliably. The Corporation recognizes revenue from processing services in proportion to the stage of completion of the service at the reporting date. The stage of completion is assessed based on surveys of work performed. All related production costs are expensed as incurred.

F-15

Table of Contents

Royalty revenues:

Royalties are earned under the terms of the applicable agreement and are recognized when it is probable that the economic benefits associated with the transaction will be received and the amount can be measured reliably.

Principal versus agent arrangements:

The Corporation may be involved with other parties, including suppliers of products, in providing goods or services to a customer when it enters into revenue transactions for the sale of products that it does not manufacture. In these instances, the Corporation must determine whether it is a principal in these transactions by evaluating the nature of its promise to the customer. The Corporation is a principal and records revenue on a gross basis if it controls a promised good before transferring that good to the customer. On the other hand, the Corporation records revenue as the net amount when it does not meet the criteria to be considered a principal.

(m)

(m)

Cost of revenue:

Cost of revenue includes all costs directly related to the manufacturing of products, including the cost of raw materials, direct labor, packaging, direct production costs, plant overhead, depreciation expense related to manufacturing and corresponding

right-of-use
assets. For manufacturing outsourced to third-party contractors, cost of revenue represents the amount invoiced by the contractors. Cost of revenue
F-18
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
also includes the costs relating to warehousing, maintenance, inspection activities, freight and inventory write-downs.​​​​​​​

(n)

(n)

Selling, general and administrative expenses:

Selling, general and administrative (“SG&A”&A”) expenses include selling and administrative personal costs, sales and marketing expenses, professional fees, depreciation expense related to

non-manufacturing
assets, operating lease rent expense,
non-manufacturing
overhead, gains and losses on the sale of property, plant and equipment, and other general and administrative expenses. Additionally, SG&A expenses include a portion of costs related to employee benefits, share-based compensation expense and amortization of customer relationships and other intangibles.

(o)

(o)

Government grants:

Government grants, consisting of grants, subsidies and Quebec provincial investment tax credits, are recorded as a reduction of the related expense or cost of the asset acquired. Government grants are recognized when there is reasonable assurance that the Corporation has met or will meet the requirements of the approved grant program and there is reasonable assurance that the grant will be received.

Grants that compensate the Corporation for expenses incurred are recognized in profit or loss in reduction thereof on a systematic basis in the same years in which the expenses are recognized. Grants that compensate the Corporation for the cost of an asset are recognized in profit or loss on a systematic basis over the useful life of the asset.

(p)

(p)

Leases:

The Corporation determines if an arrangement is or contains a lease at contract inception and classifies it as either an operating or finance lease. In addition to lease agreements, the Corporation reviews all material contracts that could contain an embedded lease for potential embedded lease obligations. The Corporation recognizes a

right-of-use
(ROU) asset and a lease liability at the lease commencement date.

The lease liability is recognized based on the present value of the remaining fixed or

in-substance
fixed lease payments discounted using the Corporation’s incremental borrowing rates unless the lessor’s rate implicit in the lease is readily determinable, in which case it is used. The Corporation uses a specific incremental borrowing rate for leases, which is determined based on the geography and term of the lease. These rates are determined based on inputs provided by external banks and updated periodically. The lease liability includes the exercise of a purchase option only if the Corporation is reasonably certain to exercise as of the commencement date of the lease. The residual value guarantee amount is only included in the lease liability calculation to the extent payment is probable to the lessor as of the commencement of the lease. The
right-of-use
(“ROU”ROU”) asset is calculated based on the lease liability adjusted for any lease payments paid to the lessor at or before the commencement date (i.e., prepaid rent) and initial direct costs incurred by the Corporation and excluding any lease incentives received from the lessor.

F-16

Table of Contents

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.

The lease term for purposes of lease accounting may include options to extend or terminate the lease when it is reasonably certain that the Corporation will exercise that option as of the commencement date of the lease. For operating leases, the lease expense is recognized on a straight-line basis over the

F-19
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
lease term as rent expense. For finance leases, the Corporation amortizes the ROU asset on a straight-line basis and records interest expense on the lease liability created at lease commencement over the lease term.

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

re-measurement
amount of the lease liabilities is recognized as an adjustment to the
right-of-use
asset, or in the consolidated statement of loss when the carrying amount of the
right-of-use
asset is reduced to zero.

Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheets; the Corporation recognizes lease expense for these leases over their lease term.

(q)

(q)

Share-based payment:

The Corporation offers a stock option plan, which is further described in Note 16, Share-based payments.

For equity-settled awards, the grant date fair value of share-based payment awards is recognized as an expense, with a corresponding increase in equity, over the applicable vesting period of the awards. The grant date fair value takes into consideration market performance conditions when applicable. The Corporation has elected to record awards that vest on multiple instalments as multiple awards, otherwise referred to as graded vesting. For performance-based options issued, the fair value of the instrument is measured at the grant date and expensed over the vesting term when the performance targets are considered probable of being achieved. The Corporation also elected to adjust the amount recognized as an expense to reflect the number of awards for which the related service and

non-market
performance vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service and
non-market
performance conditions at the vesting date.

Equity based awards, consisting of RSUs, DSUs and cash bonus based on the price of the Corporation common share price, are initially measured based on the fair value of the share-based payment awards at grant date. The cash bonus is remeasured at the end of each reporting period, until settlement.

The fair value of the share-based payment transactions is measured using the Black-Scholes model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on the historical volatility), weighted average expected life of the instruments (based on contractual life, tranche vesting term and general option holder behavior), expected dividends, and the risk-free interest rate (based on government bonds). Service and

non-market
performance conditions attached to the transactions, if any, are not taken into account in determining fair value. Certain instruments have a market condition considered in the determination of the fair value of the award. The fair value of those awards considers the market con
d
itioncondition and is determined generally using a Monte Carlo simulation model.

(r)

(r)

Income tax:

Income taxes are comprised of current and deferred taxes. These taxes are accounted for using the liability method. Current tax is recognized in connection with income for tax purposes, unrealized tax

F-20
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
benefits and the recovery of tax paid in a prior period and measured using the enacted tax rates and laws applicable to the taxation period during which the income for tax purposes arose.

Deferred tax is recognized on the difference between the carrying amount of an asset or a liability, as reflected in the financial statements, and the corresponding tax base, used in the computation of income for tax purposes (temporary differences) and measured using the enacted tax rates and laws as at the balance sheet date that are expected to apply to the income that the Corporation expects to arise for tax purposes in the period during which the difference is expected to reverse. Management assesses the likelihood that a deferred tax asset will be realized, and a valuation allowance is provided to the extent that it is more likely than not that all or a portion of a deferred

F-17

Table of Contents

tax asset will not be realized. The determination of both current and deferred taxes reflects the Corporation’s interpretation of the relevant tax rules and judgement.

An unrealized tax benefit may arise in connection with a period that has not yet been reviewed by the relevant tax authority. A change in the recognition or measurement of an unrealized tax benefit is reflected in the period during which the change occurs.

Income taxes are recognized in the consolidated statement of loss, except when they relate to an item that is recognized in other comprehensive income (loss) or directly in equity, in which case, the taxes are also recognized in other comprehensive income (loss) or directly in equity respectively. Where income taxes arise from the initial accounting for a business combination, these are included in the accounting for the business combination.

Interest and penalties in respect of income taxes are not recognized in the consolidated statement of loss as a component of income taxes but as a component of interest expense.

(s)

(s)

Net earnings or loss per share:

Basic net earnings or loss per share is calculated by dividing the profit or loss attributable to common shareholders of the Corporation by the weighted average number of common shares outstanding during the period. Diluted net earnings or loss per share is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding, adjusted for own shares held, for the effects of all dilutive potential common shares, which comprise warrants, share options, deferred share units, restricted share units and restricted shares granted to employees and directors.

(t)

(t)

New standards and interpretations not yet adopted:

Accounting pronouncements not yet adopted

In March 2020, the FASB issued ASU

2020-04,
Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which amends ASC Topic 848, Reference Rate Reform. This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This new guidance is optional and may be elected over time through December 31, 2022 as reference rate reform activities occur. This new guidance is not expected to have a material impact on the Corporation’s consolidated financial statements.

In August 2020, the FASB issued ASU

2020-06,
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
, which amends ASC Subtopic
470-20,
Debt with Conversion and Other Options
and ASC Subtopic
815-40,
Derivatives and Hedging – Contracts in Entity’s Own Equity. The ASU simplifies the accounting for convertible instruments by reducing the number of
F-2
1
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
accounting models for convertible debt instruments and convertible preferred stock. In addition, the ASU enhances information transparency by making targeted improvements to the disclosures for convertible instruments and
earnings-per-share
guidance and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU
2020-06
is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2021. Management has not yet evaluated the impact of this ASU on the consolidated financial statements.

In October 2021, the FASB issued ASU

2021-08,
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
, which amends ASC Topic 805, Business Combinations, The ASU improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the (1) recognition of an acquired contract liability and (2) payment terms and their direct effect on subsequent revenue recognized by the acquirer. ASU
2021-08
is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2022. Management has not yet evaluated the impact of this ASU on the consolidated financial statements.

The Corporation does not intend to early adopt any of the above amendments.

4.
Business combination:

4.Business combination:

The Corporation had no business acquisitions for the year ended March 31, 2022. The Corporation acquired the following business for the year ended March 31, 2021:

F-18

Table of Contents

(a)

(a)

Acquisition of a controlling interest in Sprout Foods:

On February 10, 2021, Neptune acquired a 50.1% equity interest in Sprout Foods, Inc. (“Sprout”Sprout” or “Sprout Foods”“Sprout Foods”). Through Sprout Foods, Neptune entered a new market: the organic baby food market. Sprout is committed to offering products that contain whole foods, no preservatives, no concentrates, no added sugar, are USDA certified organic and are

non-GMO.
Sprout’s products target four markets: Stage 2 (children 6 months and up), Stage 3 (children 8 months and up), Toddler (children aged 12 months and up) and Snacks (children 8 months and up).

Upon the acquisition of 50.1% of the outstanding equity of Sprout in February 2021, the Corporation assessed its control of Sprout through its exposure and rights to variable returns from its involvement with Sprout and its ability to affect those returns through its power over Sprout. The former controlling shareholder retained a participation of 39.7% and is a minority representative through the execution of their voting power on Sprout’s Board of Directors, as long as it holds more than half of its current investment. Based on the contractual terms of the acquisition agreement, the Corporation assessed that the voting rights in Sprout, in combination with its majority representation on the Board of Directors, are the dominant factors in deciding who controls Sprout. Therefore, Sprout is consolidated in the Corporation’s consolidated financial statements

statements.

The transaction consideration includes a cash payment of $6,000,000 and the issuance of 192,617 Neptune common shares (or 6,741,573

pre-consolidation
shares) having a value of $17,595,505.
Additionally, Neptune is guaranteeing a $10,000,000 note issued by Sprout in favor of Morgan Stanley Expansion Capital (“MSEC”MSEC”).

Furthermore, Sprout’s other equity interest owners granted Neptune a call option (the “Call Option”“Call Option”) to purchase the remaining 49.9% outstanding equity interests of Sprout, at any time beginning on January 1, 2023 and ending on December 31, 2023. The total consideration payable for the additional

F-22
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
shares (“Call Shares”Shares”) upon the exercise of the Call Option and the closing of Neptune’s acquisition of the Call Shares would be equal to the total equity value of the Call Shares, which would be based upon the applicable percentage acquired by Neptune of the total enterprise value for Sprout.

As at the close of the transaction, the value of the asset related to the Call Option was determined to be $5,523,255, representing the difference between the market price and the contract value of the Call Option, discounted at a rate of 8.9% and assuming the transaction would take place on January 1, 2023. To establish the market price, the multiples selected were 2.3x for revenues and 12.0x for EBITDA, based on analysis of average and median industry multiples, and were adjusted to consider a 20% discount; the multiples to be used as per the contract are 3.0x for revenues and 15.0x for EBITDA, weighted at 50%. As at March 31, 2022, the fair value of the asset was remeasured to nil (2021 – $5,615,167), generating a loss on

re-measurement
of $5,598,198 (2021 – gain of $83,428) accounted under revaluation of derivatives for the year ended on that date.

The cash consideration of this transaction was funded with the proceeds of the previous issuances of shares.

The allocation of the purchase price was based on management’s estimate of the fair values of the acquired identifiable assets and assumed liabilities using valuation techniques including income, cost and market approaches (Level 3). The Corporation utilized both the cost and market approaches to value fixed assets, which consider external transactions and other comparable transactions, estimated replacement and reproduction costs, and estimated useful lives and consideration for physical, functional and economic obsolescence. We utilized the income approach to value intangible assets, which considers the present value of the net cash flows expected to be generated by the intangible assets, and excluding cash flows related to contributory assets.

F-2
3

F-19

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

The following table summarizes the final purchase price allocation of the Sprout Foods assets acquired and liabilities assumed at the acquisition date


   
Fair value recognized
on acquisition
 
Assets acquired
     
Cash and cash equivalents
  $2,862,758 
Trade receivables
   2,062,773 
Inventories
   7,705,273 
Prepaid expenses and other current assets
   178,229 
Property and equipment
   140,619 
Right-of-use
asset
   892,472 
Tradenames
   22,364,000 
Other assets
   5,550,279 
   
 
 
 
    41,756,403 
Liabilities assumed
     
Trade and other payables
  $5,163,813 
Lease liability
   892,472 
Promissory note
   11,446,356 
   
 
 
 
    17,502,641 
Total identifiable net assets at fair value
   24,253,762 
Non-controlling
interest measured at fair value (49.9%)
   (23,497,694) 
Goodwill arising on acquisition
   22,839,437 
   
 
 
 
Purchase price
  $23,595,505 
   
 
 
 
Consist of:
     
Cash
  $6,000,000 
Common shares issued, at fair value
   17,595,505 
   
 
 
 
Total consideration
  $23,595,505 
   
 
 
 

​

​

​

​

​

    

Fair value recognized

​

 

on acquisition

Assets acquired

​

​

​

Cash and cash equivalents

​

$

2,862,758

Trade receivables

​

 

2,062,773

Inventories

​

 

7,705,273

Prepaid expenses and other current assets

​

 

178,229

Property and equipment

​

 

140,619

Right-of-use asset

​

 

892,472

Tradenames

​

 

22,364,000

Other assets

​

 

5,550,279

​

​

 

41,756,403

Liabilities assumed

​

 

  

Trade and other payables

​

$

5,163,813

Lease liability

​

 

892,472

Promissory note

​

 

11,446,356

​

​

 

17,502,641

Total identifiable net assets at fair value

​

 

24,253,762

Non-controlling interest measured at fair value (49.9%)

​

 

(23,497,694)

Goodwill arising on acquisition

​

 

22,839,437

Purchase price

​

$

23,595,505

Consist of:

​

 

  

Cash

​

$

6,000,000

Common shares issued, at fair value

​

 

17,595,505

Total consideration

​

$

23,595,505

​

Note:

Note:

As part of the acquisition of Sprout, net deferred tax assets of $15,251,439$15,251,439 were acquired for which a full valuation allowance was recognized.

The pending inquiries and potential findings described under note 22(b)(ii) could result in material litigation and may have a material adverse effect on Sprout’s business, financial condition, or results of operations.

From the date of acquisition to March 31, 2021, Sprout Foods has contributed $2,403,074 to the total revenues from sales and services and a net loss of $2,192,805 to the consolidated loss from operating activities.

The following unaudited pro forma information for the years ended March 31, 2021, represents the results of operations of the Corporation as if the acquisition of Sprout Foods had occurred on April 1, 2020. This pro forma information does not purport to be indicative of the results that would have occurred for the periods presented or that may be expected in the future.

​

​

​

(unaudited)

​

March 31,
2021

Total revenues

(unaudited)

​

53,823,888

2021

Total revenues

53,823,888

Net loss

(150,267,710) 

(150,267,710)

F-24
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

​

Acquisition-related costs for the year ended March 31, 2021 of $314,122 have been excluded from the consideration transferred and have been recognized as an expense within selling, general and administrative expenses in the consolidated statement of loss.


The gross amount of the trade accounts receivable amount to $

3,826,350
$3,826,350 of which $
1,763,577
$1,763,577 was expected to be uncollectible at the acquisition date.

The goodwill recognized in connection with this acquisition is primarily attributable to synergies with existing business, and other intangibles that do not qualify for separate recognition including assembled workforce. Goodwill and intangible assets are not deductible for income tax purposes.

F-20

5.
Trade and other receivables:

Table of Contents

   March 31,
2022		   March 31,
2021		 
Trade receivables
  $6,987,865   $6,099,627 
Sales taxes receivable
   497,824    740,201 
Accrued and other receivables
   47,985    547,039 
Tax credits receivable
   14,487    —   
Grants and subsidies receivables
   51,423    1,280,342 
   
 
 
   
 
 
 
   $7,599,584   $8,667,209 
   
 
 
   
 
 
 

5.Trade and other receivables:

​

​

​

​

​

​

​

​

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Trade receivables

​

$

6,987,865

​

$

6,099,627

Sales taxes receivable

​

 

497,824

​

 

740,201

Accrued and other receivables

​

 

47,985

​

 

547,039

Tax credits receivable

​

 

14,487

​

 

—

Grants and subsidies receivables

​

 

51,423

​

 

1,280,342

​

​

$

7,599,584

​

$

8,667,209

​

Wage and rent subsidies related to the Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) were recorded during the year ended March 31, 2022 in the amount of $1,024,484 with $51,423 receivable as at March 31, 2022 (2021 – $2,363,516 and $1,280,342 respectively). This has been recorded in cost of goods sold and selling, general and administrative expenses, against the related salary and rent expenses, in the amounts of $924,644 and $99,840, respectively, compared to $932,483 and $1,431,033 for the previous year.

The aging of trade receivable balances and the allowance for doubtful accounts as at March 31, 2022 and 2021 were as follows:


   March 31,
2022		   March 31,
2021		 
Current
  $4,898,533   $2,372,855 
Past due
0-30
days
   909,643    1,002,752 
Past due
31-120
days
   423,836    1,001,901 
Past due over 121 days
   10,388,106    9,637,609 
   
 
 
   
 
 
 
Trade receivables
   16,620,118    14,015,117 
Less expected credit loss
   (9,632,253)    (7,915,490) 
   
 
 
   
 
 
 
   $6,987,865   $6,099,627 
   
 
 
   
 
 
 
F-25
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

​

​

​

​

​

​

​

​

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Current

​

$

4,898,533

​

$

2,372,855

Past due 0-30 days

​

 

909,643

​

 

1,002,752

Past due 31-120 days

​

 

423,836

​

 

1,001,901

Past due over 121 days

​

 

10,388,106

​

 

9,637,609

Trade receivables

​

 

16,620,118

​

 

14,015,117

Less expected credit loss

​

 

(9,632,253)

​

 

(7,915,490)

​

​

$

6,987,865

​

$

6,099,627

​

The movement in expected credit loss in respect of trade receivables was as follows:

   March 31,
2022		   March 31,
2021		 
Balance, beginning of year
  $7,915,490   $514,595 
Bad debt expenses
   2,505,738    7,339,626 
Foreign exchange loss
   41,373    405,148 
Recoveries collected
   (830,348)    (343,879) 
   
 
 
   
 
 
 
Balance, end of year
  $9,632,253   $7,915,490 
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

​

    

March 31, 

    

March 31, 

​

​

2022

​

2021

Balance, beginning of year

​

$

7,915,490

​

$

514,595

Bad debt expenses

​

 

2,505,738

​

 

7,339,626

Foreign exchange loss

​

 

41,373

​

 

405,148

Recoveries collected

​

 

(830,348)

​

 

(343,879)

Balance, end of year

​

$

9,632,253

​

$

7,915,490

​

Credit risk is the risk of a loss if a customer or counterparty to a financial asset fails to meet its contractual obligations, and arises primarily from the Corporation’s trade receivables. The Corporation may also have credit risk relating to cash and cash equivalents and short-term investments, which are managed by dealing only with highly-rated Canadian institutions. The carrying amount of these financial assets, as disclosed in the consolidated statements of financial position, represents the Corporation’s credit exposure at the reporting date. The Corporation’s trade receivables and credit exposure fluctuate throughout the year. The Corporation’s average trade receivables and credit exposure during the year may be higher than the balance at the end of that reporting period.

As

at March 
31,
,
2022,
,
no
customers accounted for more than
10
% 10% of total trade receivables included in trade and other receivables. As at March 
31,
,
2021,
,
one
customer accounted for
23.3
% 23.3% of total trade accounts included in trade and other receivables.

Most of the Corporation’s customers are distributors for a given territory and are privately-held, provincially owned and publicly owned companies. The profile and credit quality of the Corporation’s customers vary significantly. Adverse changes in a customer’s financial position could cause the Corporation to limit or discontinue conducting business with that customer, require the Corporation to assume more credit risk relating to that customer’s future purchases or result in uncollectible accounts receivable from that customer. Such changes could have a material adverse effect on business, consolidated results of operations, financial condition and cash flows.

F-21

Table of Contents

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.

During the year ended March 31, 2022, the Corporation transacted with a few new customers, for which financial positions deteriorated during the year. The Corporation has recorded specific provisions related to these customers.

6.
Inventories:
   March 31,
2022		   March 31,
2021		 
Raw materials
  $7,920,190   $6,917,716 
Work in progress
   1,016,916    5,912,935 
Finished goods
   7,974,690    3,455,365 
Supplies and spare parts
   147,610    1,031,407 
   
 
 
   
 
 
 
   $17,059,406   $17,317,423 
   
 
 
   
 
 
 
F-26

Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

6.Inventories:

​

​

​

​

​

​

​

​

​

    

March 31, 

    

March 31,

​

​

2022

​

2021

Raw materials

​

$

7,920,190

​

$

6,917,716

Work in progress

​

 

1,016,916

​

 

5,912,935

Finished goods

​

 

7,974,690

​

 

3,455,365

Supplies and spare parts

​

 

147,610

​

 

1,031,407

​

​

$

17,059,406

​

$

17,317,423

​

During the years ended March 31, 2022 and 2021, inventories have been reduced by $3,772,066 and $18,962,254 respectively, as a result of a write-down to their net realizable value, which is included in cost of sales.

7.
Property, plant and equipment:

7.Property, plant and equipment:

The Corporation’s property, plant and equipment balances consisted of the following:

   Years ended 
   March 31,
2022		   March 31,
2021		 
Land
  $182,831   $182,001 
Building and building components
   27,226,065    26,499,100 
Laboratory and plant equipment
   37,372,148    36,583,756 
Furniture and office equipment
   597,075    539,648 
Computer equipment
   878,101    692,855 
   
 
 
   
 
 
 
Total
  $66,256,220   $64,497,360 
Less: Accumulated depreciation and impairment loss
   (44,808,097)    (27,151,644) 
   
 
 
   
 
 
 
   $21,448,123   $37,345,716 
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

​

​

Years ended

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Land

​

$

182,831

​

$

182,001

Building and building components

​

 

27,226,065

​

 

26,499,100

Laboratory and plant equipment

​

 

37,372,148

​

 

36,583,756

Furniture and office equipment

​

 

597,075

​

 

539,648

Computer equipment

​

 

878,101

​

 

692,855

Total

​

$

66,256,220

​

$

64,497,360

Less: Accumulated depreciation and impairment loss

​

 

(44,808,097)

​

 

(27,151,644)

​

​

$

21,448,123

​

$

37,345,716

​

Depreciation expense has been recorded in the following accounts in the consolidated statements of loss:

   Years ended 
   March 31,
2022		   March 31,
2021		 
Cost of sales
  $1,902,214   $2,442,208 
Selling, general and administrative expenses
   821,537    1,519,109 
   
 
 
   
 
 
 
   $2,723,751   $3,961,317 
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

​

​

Years ended

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Cost of sales

​

$

1,902,214

​

$

2,442,208

Selling, general and administrative expenses

​

 

821,537

​

 

1,519,109

​

​

$

2,723,751

​

$

3,961,317

​

As of March 31, 2022, the Corporation identified a trigger of impairment related to its Canadian cannabis asset group and recorded an impairment charge of $12,361,123. Impairment indicators such as increased operating losses, decline in the share price and negative industry and economic trends were identified in the fourth quarter. The fair value of the asset group was determined to be less than the carrying value, resulting in an impairment loss of $3,150,663 of the building and components and $9,210,460 to the laboratory and plant equipment. After impairment, the carrying value of the Canadian cannabis asset group as of March 31, 2022 was $20,290,929 which included the production facility land and building of $17,101,160 and equipment of $3,189,769. The fair value of the asset group was determined using the market multiple valuation approach with the significant assumption of market revenue multiple. The fair value of the individual assets of land, building and equipment was determined using market prices for comparable asset (level 3).

During the quarter ended September 30, 2021, the Corporation impaired the equipment of the Canadian cannabis long-lived assets that were subject to impairment write downs as of March 31, 2021. As at September 30, 2021, the fair value of these long-lived assets was established to be nil and as such an impairment charge of $1,424,517 was recorded.

F-22

Table of Contents

During the quarter ended September 30, 2021, the Corporation impaired the long-lived assets of the SugarleafSugarLeaf reporting unit as they were no longer generating economic benefits. The fair value of these long-lived assets was established to be nil and as such an impairment charge of $979,942 was recorded.

F-27
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

As of March 31, 2021, as result of Neptune’s transition into the Consumer Packaged Good (“CPG”CPG”) industry, the Corporation tested its property, plant and equipment related to its cannabis processing business for impairment. As of March 31, 2021, certain equipment with a carrying value of $10,689,806 were no longer expected to be used. The fair value was estimated to $1,475,880 based on comparable transactions and market data (level 3). Consequently, an impairment loss of $9,213,926 was recognized as at March 31, 2021 on the consolidated statement of loss and comprehensive loss, under impairment loss related to property, plant and equipment.

During the year ended March 31, 2021, the Corporation also impaired $1,533,766 of property, plant, and equipment related to the SugarLeaf reporting unit (refer to note 9). Subsequent to the impairment, the Corporation revised the useful life of certain plant equipment and as a result, an amount of $951,540 of accelerated amortization for these property, plant and equipment was recorded.

8.
Leases:

8.Leases:

The Corporation has operating leases for a variety of different assets, which include land, and buildings and certain manufacturing and office equipment.

The operating lease costs, included within cost of sales and general and administrative expenses amounted to $710,984 (2021 – $320,669).

During the year ended March 31, 2021, the Corporation entered into the following significant operating leases:

In January 2021, the Corporation entered into a new building lease and recorded a

right-of-use
asset and a lease liability of $1,350,240. Annual payments start at $168,267 and end at $219,540. The lease term is 10
years, which includes the initial lease term of 5 years and a renewal option of 5 years that is reasonably certain to be exercised.

In

February 2021, the Corporation entered into a new building lease and recorded a
right-of-use
asset and a lease liability of $
892,472
.$892,472. Annual payments start at $
192,772
$192,772 and end at $
225,153
.$225,153. The initial lease term expires in
November 2025
.2025. There is
one
renewal option of
5 years
that is not reasonably certain to be exercised.

Additional information related to operating leases was as follows:

The following table summarizes the lease liabilities amounts recognized in the consolidated balance sheets:

   March 31,
2022		   March 31,
2021		 
Current
  $641,698   $230,016 
Non-current
   2,063,421    2,886,940 
   
 
 
   
 
 
 
Total
  $2,705,119   $3,116,956 
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Current

​

$

641,698

​

$

230,016

Non-current

​

 

2,063,421

​

 

2,886,940

Total

​

$

2,705,119

​

$

3,116,956

​

The following table summarizes the movements in cash and

non-cash
flows from operating leases:

​

​

​

​

​

​

​

​

​

​

Years ended

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Operating cash flow payments for operating lease liabilities

​

$

(25,201)

​

$

(36,445)

Operating cash inflow payments for sublease classified as operating lease

​

 

61,166

​

 

21,320

Operating leases from business combination

​

 

—

​

 

892,472

Operating lease right-of-use assets obtained in exchange for operating lease liabilities

​

 

275,840

​

 

1,282,743

​

   Years ended 
   March 31,
2022		  March 31,
2021		 
Operating cash flow payments for operating lease liabilities
  $(25,201)  $(36,445) 
Operating cash inflow payments for sublease classified as operating lease
   61,166   21,320 
Operating leases from business combination
   —     892,472 
Operating lease
right-of-use
assets obtained in exchange for operating lease liabilities
   275,840   1,282,743 
F-28

F-23

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

The Corporation has calculated the weighted-average remaining lease term, presented in years below, and the weighted-average discount rate for the operating lease population. The Corporation uses the incremental borrowing rate as the lease discount rate, unless the lessor’s rate implicit in the lease is readily determinable, in which case it is used.

   March 31,
2022		  March 31,
2021		 
Weighted-average remaining operating lease term (in years)
   6.34   5.38 
Weighted-average operating lease discount rate
   5.69%   6.12% 

​

​

​

​

​

​

​

​

    

March 31,

    

March 31,

 

​

​

2022

​

2021

​

Weighted-average remaining operating lease term (in years)

 

6.34

 

5.38

​

Weighted-average operating lease discount rate

 

5.69

%  

6.12

%

​

(a)

(a)

Maturity analysis – contractual undiscounted cash flows:

​

​

​

​

​

​

    

March 31,

​

​

2022

2023

​

$

753,444

2024

​

 

575,223

2025

​

 

457,263

2026

​

 

340,263

2027

​

 

194,593

2028 and thereafter

​

 

878,569

Total lease liabilities payments

​

$

3,199,355

Less: Imputed interest

​

 

(494,236)

Total operating lease liabilities

​

$

2,705,119

​

​

​

9.Intangible assets and goodwill:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

​

    

​

​

    

​

​

    

​

​

    

Weighted   

​

​

​

​

​

​

​

​

Accumulated 

​

​

​

​

remaining

​

​

​

​

​

Accumulated

​

impairment

​

​

​

​

average useful

As at March 31, 2022

​

Cost

​

amortization

​

losses

​

Net

​

life (in years)

Customer relationships

​

​

11,127,771

​

​

(9,896,889)

​

​

—

​

​

1,230,882

​

4.75

Farmer relationships

​

​

10,446,700

​

​

(10,446,700)

​

​

—

​

​

—

​

—

Patents

​

​

288,541

​

​

(288,541)

​

​

—

​

​

—

​

—

License agreements

 

​

4,088,843

 

​

(3,050,053)

 

​

—

 

​

1,038,790

 

3.79

Website and trademarks

 

​

529,441

 

​

(457,836)

 

​

—

 

​

71,605

 

1.00

Computer software

 

​

710,525

 

​

(669,341)

 

​

—

 

​

41,184

 

0.25

Tradenames

 

​

22,504,329

 

​

(1,704,755)

 

​

(1,527,000)

 

​

19,272,574

 

14.00

Intangible assets

​

$

49,696,150

​

$

(26,514,115)

​

$

(1,527,000)

​

$

21,655,035

 

7.73

Goodwill

​

$

127,442,658

​

$

—

​

$

(105,274,370)

​

$

22,168,288

 

N/A

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

​

    

​

​

    

​

​

    

​

​

    

Weighted

​

​

​

​

​

​

​

​

Accumulated

​

​

​

​

remaining

​

​

​

​

​

Accumulated

​

impairment

​

​

​

​

average useful

As at March 31, 2021

​

Cost

​

amortization

​

losses

​

Net

​

life (in years)

Customer relationships

​

​

11,077,278

​

​

(9,525,598)

​

​

—

​

​

1,551,680

​

5.75

Farmer relationships

​

​

10,399,298

​

​

(10,399,298)

​

​

—

​

​

—

​

—

Patents

​

​

287,231

​

​

(287,231)

​

​

—

​

​

—

​

—

License agreements

 

​

4,070,290

 

​

(2,309,950)

 

​

—

 

​

1,760,340

 

4.79

Website and trademarks

 

​

95,221

 

​

(24,554)

 

​

—

 

​

70,667

 

2.00

Computer software

 

​

707,301

 

​

(297,006)

 

​

—

 

​

410,295

 

1.25

Tradenames

 

​

22,364,201

 

​

(200,353)

 

​

—

 

​

22,163,848

 

15.00

Intangible assets

​

$

49,000,820

​

$

(23,043,990)

​

$

—

​

$

25,956,830

 

8.57

Goodwill

​

$

126,864,388

​

$

—

​

$

(101,411,016)

​

$

25,453,372

 

N/A

​

F-24

   March 31,
2022		 
2023
  $753,444 
2024
   575,223 
2025
   457,263 
2026
   340,263 
2027
   194,593 
2028 and thereafter
   878,569 
   
 
 
 
Total lease liabilities payments
  $3,199,355 
Less: Imputed interest
   (494,236) 
   
 
 
 
Total operating lease liabilities
  $2,705,119 
   
 
 
 
F-2
9

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
9.
Intangible assets and goodwill:
As at March 31, 2022
  Cost   Accumulated
amortization		  Accumulated
impairment
losses		  Net   Weighted
remaining
average useful
life (in years)		 
Customer relationships
   11,127,771    (9,896,889)   —     1,230,882    4.75 
Farmer relationships
   10,446,700    (10,446,700)   —     —      —   
Patents
   288,541    (288,541)   —     —      —   
License agreements
   4,088,843    (3,050,053)   —     1,038,790    3.79 
Website and trademarks
   529,441    (457,836)   —     71,605    1.00 
Computer software
   710,525    (669,341)   —     41,184    0.25 
Tradenames
   22,504,329    (1,704,755)   (1,527,000)   19,272,574    14.00 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
 
Intangible assets
  $49,696,150   $(26,514,115)  $(1,527,000)  $21,655,035    7.73 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
 
Goodwill
  $127,442,658   $—    $(105,274,370)  $22,168,288    N/A 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
 
As at March 31, 2021
  Cost   Accumulated
amortization		  Accumulated
impairment
losses		  Net   Weighted
remaining
average useful
life (in years)		 
Customer relationships
   11,077,278    (9,525,598)   —     1,551,680    5.75 
Farmer relationships
   10,399,298    (10,399,298)   —     —      —   
Patents
   287,231    (287,231)   —     —      —   
License agreements
   4,070,290    (2,309,950)   —     1,760,340    4.79 
Website and trademarks
   95,221    (24,554)   —     70,667    2.00 
Computer software
   707,301    (297,006)   —     410,295    1.25 
Tradenames
   22,364,201    (200,353)   —     22,163,848    15.00 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
 
Intangible assets
  $49,000,820   $(23,043,990)  $—    $25,956,830    8.57 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
 
Goodwill
  $126,864,388   $—    $(101,411,016)  $25,453,372    N/A 
   
 
 
   
 
 
  
 
 
  
 
 
   
 
 
 

Amortization expense has been recorded in the following accounts in the consolidated statement of loss:

   Years ended 
   March 31,
2022		   March 31,
2021		 
Cost of sales
  $582,096   $901,856 
Selling, general and administrative expenses
   2,774,632    14,198,861 
   
 
 
   
 
 
 
   $3,356,728   $15,100,717 
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

​

    

Years ended

​

​

March 31, 

​

March 31, 

​

​

2022

    

2021

Cost of sales

​

$

582,096

​

$

901,856

Selling, general and administrative expenses

 

​

2,774,632

 

​

14,198,861

​

​

$

3,356,728

​

$

15,100,717

​

The estimated aggregate amortization expense related to intangible assets with finite useful life for each of the next five fiscal years is as follows:

   2023   2024   2025   2026   2027 
Estimated aggregate amortization expense
  $2,514,571   $2,442,943   $2,442,943   $2,342,144   $2,032,939 
F-
30
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

2023

    

2024

    

2025

    

2026

    

2027

Estimated aggregate amortization expense

​

$

2,514,571

​

$

2,442,943

​

$

2,442,943

​

$

2,342,144

​

$

2,032,939

​

Goodwill as of March 31, 2022 and March 31, 2021 was as follows:

   Notes   Goodwill 
Balance as at March 31, 2020
       $30,104,661 
Business acquisition
   4    22,839,437 
Impairment loss
        (26,898,016) 
Effect of movements in exchange rates
        (592,710) 
        
 
 
 
Balance as at March 31, 2021
        25,453,372 
Impairment loss
        (3,288,847) 
Effect of movements in exchange rates
        3,763 
        
 
 
 
Balance as at March 31, 2022
       $22,168,288 
        
 
 
 

​

​

​

​

​

​

​

​

​

Notes

    

Goodwill

Balance as at March 31, 2020

​

​

​

$

30,104,661

Business acquisition

​

4

​

 

22,839,437

Impairment loss

​

​

​

 

(26,898,016)

Effect of movements in exchange rates

​

​

​

 

(592,710)

Balance as at March 31, 2021

​

​

​

 

25,453,372

Impairment loss

​

​

​

 

(3,288,847)

Effect of movements in exchange rates

​

​

​

 

3,763

Balance as at March 31, 2022

​

​

​

$

22,168,288

​

An impairment test of goodwill is performed on an annual basis, or more frequently if an impairment indicator is triggered. Impairment is determined by assessing the recoverable amount of the reporting unit to which goodwill is allocated and comparing it to the reporting units’ carrying amount. For the purpose of impairment testing, this represents the lowest level within the Corporation at which the goodwill is monitored for internal management purposes.

The aggregate amount of goodwill is allocated to each reporting unit as follows:

   March 31,
2022		   March 31,
2021		 
Biodroga
  $2,617,698   $2,613,935 
Sprout
   19,550,590    22,839,437 
   
 
 
   
 
 
 
   $22,168,288   $25,453,372 
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

​

    

March 31, 

    

March 31, 

​

​

2022

​

2021

Biodroga

​

$

2,617,698

​

$

2,613,935

Sprout

 

​

19,550,590

 

​

22,839,437

​

​

$

22,168,288

​

$

25,453,372

​

(a)

(a)

Annual impairment testing of Biodroga:

The Corporation performed its annual impairment testing of the Biodroga goodwill as at March 31, 2022 and 2021. The fair value of the Biodroga reporting unit’s operations was determined to be higher than the carrying value and resulted in no impairment of goodwill recorded in the year ended March 31, 2022 and March 31, 2021.

The fair value of the reporting unit was estimated using discounted cash flow model with a WACC

pre-tax
discount rate of 15.175% (2021 – 12.13%) and also used the market multiples valuation approach. The discount rate represents the WACC for comparable companies operating in similar industries as the reporting unit, based on publicly available information. Determination of the WACC requires separate analysis of the cost of equity and debt, and considers a risk premium based on an assessment of risks related to the projected cash flows of the reporting unit. We believe these assumptions are consistent with the assumptions that a hypothetical marketplace participant would use.

Cash flows were projected based on past experience, actual operating results and the three-year business plan including a terminal growth rate of 2.5% (2021 – 2.5%).

F-25

Table of Contents

The most significant assumptions used to estimate the fair values using discounted cash flow model included the forecasted revenue, gross margins, net working capital investment, terminal value as well as the discount rate. These significant assumptions are classified as Level 3 in the fair value hierarchy, signifying that they are not based on observable market data. A decrease in the projected cash flow or an increase in discount rate could have resulted in an impairment charge. Should these projections not be realized, an impairment loss may be needed in future periods. As at March 31, 2022, the


F-
31
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
assumptions used in determining the fair value were not subject to a degree of uncertainty that would have caused impairment to be recorded as there was sufficient headroom between the fair value of the reporting unit and its carrying value.

These significant assumptions are classified as Level 3 in the fair value hierarchy, signifying that they are not based on observable market data. The model is particularly sensitive to the future expected cash flows in the upcoming periods, should these not be realized, an impairment loss may be needed in future periods.

(b)

(b)

Accelerated amortization and impairment of SugarLeaf Labs:

During the year ended March 31, 2021, the downturn in oil prices for cannabis persisted (as was the case for the previous year), and the commercial viability of the SugarLeaf reporting unit was reviewed. Management noted that the customers for which a customer relationship intangible asset was acquired with the SugarLeaf reporting unit had ceased placing orders and there were minimal active business relationships with these customers. As the reporting unit was no longer viable given declining pricing and demand, the Corporation would not benefit from these relationships and thus decided to take accelerated amortization for this intangible asset, in the amount of $5,803,135 during the year ended March 31, 2021.

Also, Neptune was not producing or selling any products resulting from the farmer relationships acquired with the SugarLeaf reporting unit. Furthermore, SugarLeaf did not have any contracts with customers and there was no commercial viability to these supplier relationships with the farmers. Neptune will not realize future economic benefits from these relationships and thus, Managementmanagement decided to take accelerated amortization for this intangible asset, in the amount of $4,749,174 during the year ended March 31, 2021.

Amortization charges are recorded in selling, general and administrative expenses.

As a result of the above events, Managementmanagement determined there were impairment indicators during the quarter ended December 31, 2020 and performed an impairment test of the SugarLeaf reporting unit, for which the fair value of goodwill of the SugarLeaf reporting unit was estimated at $6.0 million, which resulted in an impairment of goodwill of $26,898,016. Management also tested other long-lived assets for impairment and consequently, Neptune recorded an impairment loss on property, plant and equipment and

right-of-use
assets in the amount of $1,533,766 and $107,650 respectively, during the year ended March 31, 2021.

Fair value was determined using the market approach using Level 3 inputs. Significant assumptions used in determining the fair value were the revenue of the SugarLeaf reporting unit and revenue multiples derived from comparable company transactions.

During the year ended March 31, 2022, negative industry and economic trends were identified in the second quarter. The fair value of the asset group was determined to be less than the carrying value, resulting in an impairment loss of $2,323,062 to other long-lived assets. The fair value of the asset group was determined using market multiple valuation approach with the significant assumption of market revenue multiple. The fair value of the individual assets of land, building and equipment was determined using market prices for comparable asset.

(c)

(c)

Impairment testing of Sprout:

The Corporation performed an annual impairment testing of the Sprout goodwill in the fourth quarter. The Corporation compared the carrying amount of the reporting unit to the fair value. The fair value of the Sprout reporting unit was determined to be lower than the carrying value and $3,288,847 goodwill impairment expense was recorded in the year ended March 31, 2022.

F-32
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

The fair value of the reporting unit was estimated using a discounted cash flow model with a WACC

pre-tax
discount rate of 9.4% and also used the market multiples valuation approach. The discount rate represents the WACC for comparable companies operating in similar industries as the reporting unit, based on publicly available information. Determination of the WACC requires separate analysis of the cost of equity and debt, and considers a risk premium based on an assessment of risks related to the projected cash flows of the reporting unit.

F-26

Table of Contents

Cash flows

were projected based on past experience, actual operating results and the three-year business plan including a terminal growth rate of 3%.

The Corporation also identified a trigger of impairment related to its long-lived assets and recorded an impairment charge of $1,527,000 for trademarks. The fair value was determined using a discounted cash flow model.

The most significant assumptions used to estimate the fair values using discounted cash flow model included the forecasted revenue, gross margins, net working capital investment, terminal value as well as the discount rate. These significant assumptions are classified as Level 3 in the fair value hierarchy, signifying that they are not based on observable market data. A decrease in the projected cash flow or an increase in discount rate could have resulted in an impairment charge. Should these projections not be realized, an impairment loss may be needed in future periods. Due to the impairment losses recorded in the fourth quarter of fiscal 2022, there is no headroom between the fair value of the reporting unit and its carrying value and therefore, changes in assumptions in future periods may result in additional impairment charges.

The assumptions used by the Corporation in the cash flow forecast discounting model are classified as Level 3 in the fair value hierarchy, signifying that they are not based on observable market data. The model is particularly sensitive to the future expected cash flows in the upcoming periods, should these not be realized, an impairment loss may be needed in future periods.

10.Trade and other payables:

​

​

​

​

​

​

​

​

​

    

March 31, 

    

March 31, 

​

​

2022

​

2021

Trade payables

​

$

10,667,780

​

$

12,154,734

Accrued liabilities and other payables

​

 

11,211,335

​

 

5,841,675

Employee salaries and benefits payable

​

 

576,826

​

 

1,750,375

Short-term portion of long-term payables

​

 

244,908

​

 

135,211

​

​

$

22,700,849

​

$

19,881,995

​

​

​

11.Provisions

10.

(a)

Trade and other payables:
   March 31,
2022		   March 31,
2021		 
Trade payables
  $10,667,780   $12,154,734 
Accrued liabilities and other payables
   11,211,335    5,841,675 
Employee salaries and benefits payable
   576,826    1,750,375 
Short-term portion of long-term payables
   244,908    135,211 
   
 
 
   
 
 
 
   $22,700,849   $19,881,995 
   
 
 
   
 
 
 
11.
Provisions
(a)

During the year ended March 31, 2019, the Corporation received a judgment from the Superior Court of Québec (the “Court”“Court”) in respect of certain royalty payments alleged to be owed and owing to a former chief executive officer of the Corporation (the “Former CEO”“Former CEO”) pursuant to the terms of an agreement entered into on February 23, 2001 between Neptune and the Former CEO (the “Royalty Agreement”“Royalty Agreement”). The Corporation appealed the judgment which was dismissed by the Court of Appeal of Québec in February 2021. Under the terms of the Royalty Agreement and as maintained by the court, annual royalties of 1

%1% of the sales and other revenue made by the Corporation on a consolidated basis are payable by the Corporation to the Former CEO biannually, but only to the extent that the cost of the
F-33
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
royalty would not cause the Corporation to have a loss before interest, taxes and amortization (in which case, the payments would be deferred to the following fiscal year).

As of

March 31, 2022, a provision of $362,809 (March 31, 2021 - $1,489,854) has been recorded by the Corporation. During the current fiscal year, the Corporation increased the provision by $626,914, recorded foreign currency translation adjustments of $4,122 and made payments totaling $1,758,081 to the Former CEO in relation to this provision. During the prior fiscal year, the Corporation increased the provision by $571,619, recorded foreign currency translation adjustments of $124,818 and made no payments to the Former CEO in relation to this provision.

(b)

(b)

In September 2020, Neptune submitted a claim and demand for arbitration against Peter M. Galloway and PMGSL Holdings, LLC (collectively “PMGSL”“PMGSL”) in accordance with the SugarLeaf Asset Purchase Agreement (“APA”APA”) dated May 9, 2019 between Neptune, PMGSL, Peter M. Galloway and Neptune Holding USA, Inc. Separately, PMGSL submitted a claim and demand for arbitration against Neptune. The Neptune claims and PMGSL claims have been consolidated into a single arbitration and each are related to the purchase by Neptune of substantially all of the assets of the predecessor entities of PMGSL Holdings, LLC. Neptune is claiming, among other things, breach of contract and negligent misrepresentation by PMGSL in connection with the APA and is seeking, among other things, equitable restitution and any and all damages recoverable under law. PMGSL is claiming, among other things, breach of contract by Neptune and is seeking, among other things, payment of certain compensation contemplated by the APA. A merit hearing in the arbitration started in April 2022 with a further week of testimony starting August 1, 2022. On June 15, 2022, a one-day hearing took place on Neptune’s motion to enforce a settlement agreement reached on April 2021 (which was repudiated by PMGSL in June 2021). Final oral argument is scheduled for July

7,
2022, after which the arbitrator will issue a decision on whether the settlement is enforceable. While Neptune believes there is no merit to the claims brought by PMGSL, a judgment in favor of PMGSL may have a material adverse effect on our business and Neptune intends to continue vigorously defending itself. Based on currently available information,
a provision of
$600,000 has been recognized for this case as at March 31, 2022 ($600,000 as at March 31, 2021).

F-27

Table of Contents

is scheduled for July 7, 2022, after which the arbitrator will issue a decision on whether the settlement is enforceable. While Neptune believes there is no merit to the claims brought by PMGSL, a judgment in favor of PMGSL may have a material adverse effect on our business and Neptune intends to continue vigorously defending itself. Based on currently available information, a provision of $600,000 has been recognized for this case as at March 31, 2022 ($600,000 as at March 31, 2021).

(c)

(c)

A supplier of cannabis initiated a lawsuit against 9354-7537 Quebec Inc. (operating as Neptune Wellness Solutions, Inc.) (“Neptune”Neptune”) for breach of a Wholesale Cannabis Supply Agreement (the “Supply Agreement”“Supply Agreement”) for the purchase of cannabis trim. The purchased trim was rejected by Neptune due to quality concerns. The supplier refused to refund the purchase price and ultimately sued Neptune for breach of the Supply Agreement. The matter proceeded to trial in November 2021, and on March 23, 2022, an arbitrator entered an arbitration award against Neptune for the full purchase price of the trim. With fees and costs, the final arbitrator’s award entered against Neptune is of $1,127,024, plus applicable interest. A provision of $1,127,024 has been recognized in trade and other payables.

(d)

(d)

On November 15, 2021, the Corporation announced restructuring initiatives. These initiatives resulted in immediate reductions in personnel and a severance charge of $850,799 and was paid before

year-end.

(e)

(e)

As at March 31, 2022, the Corporation has various additional other provisions for legal obligations for an aggregate amount of $155,804 (March 31, 2021 – $155,804).

12.
Liability related to warrants:

12.Liability related to warrants:

During the years ended March 31, 2022 and 2021, the Corporation issued common share,

pre-funded
warrants and warrants as part of its financing arrangements which are exercisable for a variable number of
F-34
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
shares. Common shares and
pre-funded
warrants are classified as equity. Warrants are classified as liabilities rather than equity.

On March 14, 2022, Neptune issued a total of 185,715

pre-funded
warrants
(“ (“Pre-Funded
Warrants” Warrants”), along with 528,572 common shares of the Corporation , as part of a registered direct offering (“Direct Offering”Offering”), and with each
Pre-Funded
Warrant, which qualified as equity, exercisable for one Common Share. The common shares and the
Pre-Funded
Warrants were sold together with 714,286 Series A Warrants (the “Series“Series A Warrants”Warrants”) to purchase up to an aggregate of 714,286 common shares, and with 714,286 Series B Warrants (the “Series“Series B Warrants”Warrants” and collectively with the Series A Warrants, the “Common Warrants”“Common Warrants”) to purchase up to another aggregate of 714,286 common shares. Each common share and
Pre-Funded
Warrants and the accompanying Common Warrants were sold together at a combined offering price of $11.20, for aggregate gross proceeds of $8.0 million before deducting fees and other estimated offering expenses. The
Pre-Funded
Warrants are funded in full at closing except for a nominal exercise price of $0.0035 and are exercisable commencing on the Closing Date and will terminate when such
Pre-Funded
Warrants are exercised in full. The Series A Warrants have an exercise price of $11.20
per share and are exercisable six months after the closing date and will expire five and a half years from the date of issuance. The Series B Warrants have an exercise price of $11.20 per share and are exercisable six months after the closing date and expire 18 months from the date of issuance.

Proceeds of the Direct Offering were allocated between common shares and warrants first by allocating proceeds to the warrants classified as a liability and measured at fair value each period with changes in fair value recorded in the income statement based on their fair value and then allocating the residual to the equity instruments, which includes the

Pre-Funded
Warrants. The fair value of the liability-classified warrants was determined using the Black-Scholes model, resulting in an initial warrant liability of $
4,757,559
$4,757,559 for the Series A Warrants and $
2,857,755
$2,857,755 for the Series B Warrants. The residual amount of $
306,868
$306,868 and $
107,818
$107,818 was then allocated to the Common Share and
Pre-Funded
Warrants on a relative fair value basis. The
Pre-Funded
Warrants were exercised in full on March 30, 2022 for gross proceeds of $
650
.
$650.

The Series A Warrants and Series B Warrants liability was determined using the Black-Scholes model. Series A Warrants and Series B Warrants are revalued each

period-end
at fair value through profit and loss in “gain on revaluation of derivatives”. The change in fair value of the warrant liability between the issuance date and the end of the fiscal year was a decrease of $1,572,299.

During the previous fiscal year, on October 22, 2020, Neptune issued a total of 300,926 warrants (“2020 Warrants”Warrants”) with an exercise price of $78.75 expiring on October 22, 2025. The warrants, issued as part of the Private Placement entered into on October 20, 2020 (see note 14 (i)), are exercisable beginning anytime on or after April 22, 2021 until October 22, 2025. Proceeds were allocated between common shares and warrants first by allocating proceeds to the warrants classified as liability and measured at fair value and then allocating the residual to the equity instruments. The fair value of the warrants was determined using the Black-Scholes model, resulting in an initial warrant liability of $11,831,000. The residual amount of $23,169,000 was then allocated to the Common Share. Warrants

F-28

Table of Contents

are revalued each

period-end
at fair value through profit and loss. The change in fair value of this warrant liability for the twelve-month period ended March 31, 2022 was a decrease of $5,877,802 (2021—a decrease of $5,893,160).

On February 19, 2021, the Corporation issued 196,429 warrants (“2021 Warrants”Warrants”) with an exercise price of $78.75 expiring on August 19, 2026. The warrants, issued as part of a Registered Direct Offering entered into on February 17, 2021 (see note 14(f)(ii)), are exercisable beginning anytime on or after August 19, 2021 until August 19, 2026. Proceeds were allocated between common shares and first by allocating proceeds to the warrants classified as liability and measured at fair value with changes in fair value recorded in the income statement based on their fair value and then allocating the residual to the equity

instruments.
F-35
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

The fair

value of the warrants was determined using the Black-Scholes model, resulting in an initial warrant liability of $6,288,998. The residual amount of $48,711,002 was then allocated to the Common Shares. Warrants are revalued each
period-end
at fair value through profit and loss. The change in fair value of this warrant liability for the twelve-month period ended March 31, 2022 was a decrease of $3,990,948 (2021 -1,976,093).

Changes in the value of the liability related to the warrants for the years ended March 31, 2022 and 2021 were as follows:

   Warrants   Amount 
Outstanding as at March 31, 2020
   —     $—   
Warrants issued during the year
   497,355    18,119,998 
Revaluation
        (7,869,253) 
Movements in exchange rates
        211,392 
   
 
 
   
 
 
 
Outstanding as at March 31, 2021
   497,355    10,462,137 
Warrants issued during the year
   1,428,574    7,585,314 
Revaluation
        (12,633,316) 
Movements in exchange rates
        156,395 
   
 
 
   
 
 
 
Outstanding as at March 31, 2022
   1,925,929    5,570,530 
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

    

Warrants

    

Amount

Outstanding as at March 31, 2020

 

—

​

$

—

Warrants issued during the year

 

497,355

​

 

18,119,998

Revaluation

 

​

​

 

(7,869,253)

Movements in exchange rates

 

​

​

 

211,392

Outstanding as at March 31, 2021

 

497,355

​

 

10,462,137

Warrants issued during the year

 

1,428,574

​

 

7,585,314

Revaluation

 

​

​

 

(12,633,316)

Movements in exchange rates

 

​

​

 

156,395

Outstanding as at March 31, 2022

 

1,925,929

​

 

5,570,530

​

The following table

provides the relevant information on the outstanding warrants as at March 31, 2022:
Reference
  
Date of issuance
  
Number of
warrants
outstanding
   
Number of
warrants
exercisable
   
Exercise
price
   
Expiry date
2020 Warrants
  October 22, 2020   300,926    300,926    $78.75   October 22, 2025
2021 Warrants
  February 19, 2021   196,429    196,429    $78.75   August 19, 2026
Series A Warrants
  March 14, 2022   714,287    —      $11.20   September 14, 2027
Series B Warrants
  March 14, 2022   714,287    —      $11.20   March 14, 2028
      
 
 
   
 
 
   
 
 
    
       1,925,929    497,355    $28.64    
      
 
 
   
 
 
   
 
 
    

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

Number of

    

Number of

    

​

​

    

​

​

​

​

​

warrants

​

warrants

​

Exercise

​

​

Reference

​

Date of issuance

​

outstanding

​

exercisable

​

price

​

Expiry date

2020 Warrants

​

October 22, 2020

 

300,926

 

300,926

​

$

78.75

​

October 22, 2025

2021 Warrants

​

February 19, 2021

 

196,429

 

196,429

​

$

78.75

​

August 19, 2026

Series A Warrants

​

March 14, 2022

 

714,287

 

—

​

$

11.20

​

September 14, 2027

Series B Warrants

​

March 14, 2022

 

714,287

 

—

​

$

11.20

​

March 14, 2028

​

​

​

 

1,925,929

 

497,355

​

$

28.64

​

​

​

The derivative warrant liabilities are measured at fair value at each reporting period and the reconciliation of changes in fair value is presented in the following tables:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

2020 Warrants

    

2021 Warrants

​

​

March 31,

​

March 31,

​

March 31,

    

March 31,

​

​

2022

    

2021

​

2022

​

2021

Balance - beginning of year

​

$

6,174,137

​

$

—

​

$

4,288,000

​

$

—

Warrants issued during the year

​

 

—

​

 

11,831,000

​

 

—

​

 

6,288,998

Change in fair value

​

 

(5,877,802)

​

 

(5,893,160)

​

 

(3,990,948)

​

 

(1,976,093)

Translation effect

​

 

13,434

​

 

236,297

​

 

9,652

​

 

(24,905)

Balance - end of year

​

$

309,769

​

$

6,174,137

​

$

306,704

​

$

4,288,000

​

F-29

   2020 Warrants   2021 Warrants 
   March 31,
2022		   March 31,
2021		   March 31,
2022		   March 31,
2021		 
Balance - beginning of year
  $6,174,137   $—     $4,288,000   $—   
Warrants issued during the year
   —      11,831,000    —      6,288,998 
Change in fair value
   (5,877,802)    (5,893,160)    (3,990,948)    (1,976,093) 
Translation effect
   13,434    236,297    9,652    (24,905) 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance - end of year
  $309,769   $6,174,137   $306,704   $4,288,000 
   
 
 
   
 
 
   
 
 
   
 
 
 
F-36

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

   Series A Warrants   Series B Warrants 
   March 31,
2022		   March 31,
2021		   March 31,
2022		   March 31,
2021		 
Balance - beginning of year
  $—     $—     $—     $—   
Warrants issued during the year
   4,757,559    —      2,827,755    —   
Change in fair value
   (1,572,299)    —      (1,192,267)    —   
Translation effect
   85,556    —      47,753    —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance - end of year
  $3,270,816   $—     $1,683,241   $—   
   
 
 
   
 
 
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

    Series A Warrants

    

    Series B Warrants

​

​

March 31,

    

March 31,

​

March 31,

    

March 31,

​

​

2022

​

2021

​

2022

​

2021

Balance - beginning of year

​

$

—

​

$

—

​

$

—

​

$

—

Warrants issued during the year

​

 

4,757,559

​

 

—

​

 

2,827,755

​

 

—

Change in fair value

​

 

(1,572,299)

​

 

—

​

 

(1,192,267)

​

 

—

Translation effect

​

 

85,556

​

 

—

​

 

47,753

​

 

—

Balance - end of year

​

$

3,270,816

​

$

—

​

$

1,683,241

​

$

—

​

The fair value of the derivative warrant liabilities was estimated using the Black-Scholes option pricing model and based on the following assumptions:

   2020 Warrants  2021 Warrants 
   March 31,
2022		  March 31,
2021		  March 31,
2022		  March 31,
2021		 
Share price
  $7.70  $45.85  $7.70  $45.85 
Exercise price
  $78.75  $78.75  $78.75  $78.75 
Dividend yield
   0.00%   0.00%   0.00%   0.00% 
Risk-free interest
   2.44%   0.80%   2.49%   1.01% 
Remaining contractual life (years)
   3.57   4.57   4.39   5.39 
Expected volatility
   83.2%   76.1%   83.5%   72.0% 
   
 
 
  
 
 
  
 
 
  
 
 
 

   Series A Warrants  Series B Warrants 
   March 31,
2022		  March 14, 2022
(Issue date)		  March 31,
2022		  March 14, 2022
(Issue date)		 
Share price
  $7.70  $45.85  $7.70  $45.85 
Exercise price
  $11.20  $11.20  $11.20  $11.20 
Dividend yield
   0.00%   0.00%   0.00%   0.00% 
Risk-free interest
   1.94%   2.12%   1.46%   1.58% 
Remaining contractual life (years)
   5.46   5.50   1.46   1.50 
Expected volatility
   77.5%   76.1%   87.0%   83.3% 
   
 
 
  
 
 
  
 
 
  
 
 
 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

2020 Warrants

    

2021 Warrants

 

​

​

March 31,

    

March 31,

​

March 31,

    

March 31,

 

​

​

2022

​

2021

​

2022

​

2021

​

Share price

​

$

7.70

​

$

45.85

​

$

7.70

​

$

45.85

​

Exercise price

​

$

78.75

​

$

78.75

​

$

78.75

​

$

78.75

​

Dividend yield

​

 

0.00

%  

 

0.00

%  

 

0.00

%  

 

0.00

%

Risk-free interest

​

 

2.44

%  

 

0.80

%  

 

2.49

%  

 

1.01

%

Remaining contractual life (years)

​

 

3.57

​

 

4.57

​

 

4.39

​

 

5.39

​

Expected volatility

​

 

83.2

%  

 

76.1

%  

 

83.5

%  

 

72.0

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

    Series A Warrants

    

    Series B Warrants

 

​

​

March 31,

    

March 14, 2022

​

March 31,

    

March 14, 2022

 

​

​

2022

​

(Issue date)

​

2022

​

(Issue date)

​

Share price

​

$

7.70

​

$

45.85

​

$

7.70

​

$

45.85

​

Exercise price

​

$

11.20

​

$

11.20

​

$

11.20

​

$

11.20

​

Dividend yield

​

 

0.00

%  

 

0.00

%  

 

0.00

%  

 

0.00

%

Risk-free interest

​

 

1.94

%  

 

2.12

%  

 

1.46

%  

 

1.58

%

Remaining contractual life (years)

​

 

5.46

​

 

5.50

​

 

1.46

​

 

1.50

​

Expected volatility

​

 

77.5

%  

 

76.1

%  

 

87.0

%  

 

83.3

%

​

The Corporation measured its derivative warrant liabilities at fair value

on
a recurring basis. These financial liabilities were measured using level 3 inputs. The Corporation uses the historical volatility of the underlying share to establish the expected volatility of the warrants. An increase or decrease in this assumption to estimate the fair values using the Black-Scholes option pricing model would result in a decrease or an increase in the fair value of the instruments, respectively.

F-37

Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022

13.Loans and 2021


13.
Loans and borrowings:
   March 31,
2022		   March 31,
2021		 
Loans and borrowings:
          
Promissory note of $10,000,000 issued by Sprout, guaranteed by the Corporation and secured through a first-ranking mortgage on all movable assets of Sprout current and future, corporeal and incorporeal, and tangible and intangible. The outstanding principal balance bears interest at the rate of 10.0% per annum, payable quarterly in arrears on the last day of each fiscal quarter during the term, commencing March 31, 2021. The principal is payable on February 1, 2024.
  $11,648,320   $11,312,959 
    11,648,320    11,312,959 
Less current portion of loans and borrowings
   —      —   
   
 
 
   
 
 
 
Loans and borrowings
  $11,648,320   $11,312,959 
   
 
 
   
 
 
 
borrowings:

​

​

​

​

​

​

​

​

​

    

​

March 31,

    

​

March 31,

​

    

​

2022

    

​

2021

Loans and borrowings:

​

​

​

​

​

​

Promissory note of $10,000,000 issued by Sprout, guaranteed by the Corporation and secured through a first-ranking mortgage on all movable assets of Sprout current and future, corporeal and incorporeal, and tangible and intangible. The outstanding principal balance bears interest at the rate of 10.0% per annum, payable quarterly in arrears on the last day of each fiscal quarter during the term, commencing March 31, 2021. The principal is payable on February 1, 2024.

​

$

11,648,320

​

$

11,312,959

​

​

 

11,648,320

​

 

11,312,959

Less current portion of loans and borrowings

​

 

—

​

 

—

Loans and borrowings

​

$

11,648,320

​

$

11,312,959

​

During the years ended March 31, 2022 and 2021, interest expense of $1,000,000 and $293,250 respectively were recognized on loans and borrowings. There are no covenants to be met for the loans and borrowings outstanding as at March 31, 2022 and 2021.

F-30

Table of Contents

14.

Capital and other components of equity:

(a)

(a)

Share capital:

Authorized capital stock:

Unlimited number of shares without par value:

Common shares

●Common shares

Preferred shares, issuable in series, rights, privileges and restrictions determined at time of issuance:

Series A preferred shares,
non-voting,
non-participating,
fixed, preferential, and
non-cumulative
dividend of 5% of
paid-up
capital, exchangeable at the holder’s option under certain conditions into common shares (none issued and outstanding).

●Series A preferred shares, non-voting, non-participating, fixed, preferential, and non-cumulative dividend of 5% of paid-up capital, exchangeable at the holder’s option under certain conditions into common shares (none issued and outstanding).

All issued shares are fully paid.

(b)

(b)

Share options exercised:

During the twelve-month period ended March 31, 2022, Neptune issued no common shares of the Corporation upon exercise of stock options.

During the twelve-month period ended March 31, 2021, Neptune issued 142,909 common shares of the Corporation upon exercise of stock options at a weighted average exercise price of $54.61 per common; including, 714 common shares were issued upon exercise of market performance options at a weighted average exercise price of $43.19 per common share, for a total cash consideration of $7,478,960.

(c)

(c)

DSUs released:

During the twelve-month period ended March 31, 2022, Neptune issued no common shares of the Corporation to former and current members of the Board of Directors.

F-38
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For During the years ended March 31, 2022 and 2021
During the
twelve-month period ended March 31, 2021, Neptune issued 1,381 common shares of the Corporation to a former member of the Board of Directors at a weighted average price of $72.44 per common share for past services.

(d)

(d)

RSUs released:

During the twelve-month period ended March 31, 2022, Neptune issued 108,079 common shares of the Corporation to the CEO as part of his employment agreement at a weighted average price of $39.74 per common share. Withholding taxes of $1,411,515 were paid by the Corporation pursuant to the issuance of these RSUs resulting in the Corporation not issuing an additional 64,105 RSUs.

During the twelve-month period ended March 31, 2021, Neptune issued 16,414 common shares of the Corporation to the CEO as part of his employment agreement at a weighted average price of $155.05 per common share. Withholding taxes of $717,135 were paid by the Corporation pursuant to the issuance of these RSUs resulting in the Corporation not issuing an additional 10,254 RSUs.

(e)

(e)

Restricted shares:

During the twelve-month period ended March 31, 2022, Neptune issued no restricted common shares of the Corporation to employees.

During the twelve-month period ended March 31, 2021, Neptune issued 850 common shares of the Corporation to employees at a weighted average price of $116.74 per common share for past services. Although issued as restricted shares under the equity incentive plan, there was no actual restriction nor restricted period on the shares, and they immediately converted into registered shares upon acceptance by the employees.

(f)

(f)

Warrants:

On March 14, 2022, as part of the Direct Offering described under note 14(h), Neptune issued a total of 185,715

pre-funded
warrants
(“ (“Pre-Funded
Warrants” Warrants”), with each
Pre-Funded
Warrant exercisable for one Common Share. The
Pre-Funded
Warrants are funded

F-31

Table of Contents

in full at closing except for a nominal exercise price of $0.0035 and are exercisable commencing on the Closing Date, and will terminate when such

Pre-Funded
Warrants are exercised in full. The
Pre-Funded
Warrants were exercised in full on March 30, 2022 for gross proceeds of $650.
C
hanges

Changes in the

value of equity related to the warrants for the years ended March 31, 2022 and 2021 were as follows:
   March 31, 2022   March 31, 2021 
   Weighted
average
exercise price		   Number of
warrants		   Weighted
average
exercise price		   Number of
warrants		 
Warrants outstanding at April 1, 2021 and 2020
  $325.34    176,429   $325.34    176,429 
Issued
   0.0035    185,715    —      —   
Exercised
   0.0035    (185,715)    —      —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Warrants outstanding at March 31, 2022 and 2021
  $325.34    176,429   $325.34    176,429 
   
 
 
   
 
 
   
 
 
   
 
 
 
Warrants exercisable at March 31, 2022 and 2021
  $325.34    176,429   $325.34    147,858 
   
 
 
   
 
 
   
 
 
   
 
 
 
F-39
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

March 31, 2022

    

March 31, 2021

​

​

Weighted average

​

Number of

​

Weighted average

​

Number of

​

    

 exercise price

    

 warrants

    

exercise price

    

 warrants

Warrants outstanding at April 1, 2021 and 2020

​

$

325.34

 

​

176,429

​

$

325.34

 

​

176,429

Issued

​

 

0.0035

 

​

185,715

​

 

—

 

​

—

Exercised

​

 

0.0035

 

​

(185,715)

​

 

—

 

​

—

Warrants outstanding at March 31, 2022 and 2021

​

$

325.34

 

​

176,429

​

$

325.34

 

​

176,429

Warrants exercisable at March 31, 2022 and 2021

​

$

325.34

 

​

176,429

​

$

325.34

 

​

147,858

​

Warrants of the Corporation classified as equity are composed of the following as at March 31, 2022 and March 31, 2021:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

March 31, 2022

​

​

​

​

​

​

March 31, 2021

​

    

Number

    

Number

    

​

​

    

Number

    

Number

    

​

​

​

​

outstanding

​

exercisable

​

​

Amount

​

outstanding

​

exercisable

​

​

Amount

Warrants IFF (i)

​

57,143

​

57,143

​

$

1,630,210

​

57,143

​

28,572

​

$

1,451,293

Warrants AMI (ii)

 

119,286

 

119,286

 

​

4,449,680

 

119,286

 

119,286

 

​

4,449,680

​

 

176,429

 

176,429

​

$

6,079,890

 

176,429

 

147,858

​

$

5,900,973

           March 31,
2022		           March 31,
2021		 
   Number
outstanding		   Number
exercisable		   Amount   Number
outstanding		   Number
exercisable		   Amount 
Warrants IFF
(i)
   57,143    57,143   $1,630,210    57,143    28,572   $1,451,293 
Warrants AMI
(ii)
   119,286    119,286    4,449,680    119,286    119,286    4,449,680 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    176,429    176,429   $6,079,890    176,429    147,858   $5,900,973 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 

(i)

(i)

During the year ended March 31, 2020, Neptune granted 57,143 warrants (“Warrants IFF”IFF”) with an exercise price of $420.00 expiring on November 7, 2024. The warrants, granted in exchange for services to be rendered by

non-employees,
vest proportionally to the services rendered. An expense of $178,917 was recognized during the twelve-month period ended March 31, 2022 (2021 - $822,316) under the research and development expenses.

(ii)

(ii)

During the year ended March 31, 2020, Neptune granted 119,286 warrants (“Warrants AMI”AMI”) with an exercise price of $280.00 with 85,715 expiring on October 3, 2024 and 33,572 expiring on February 5, 2025. The warrants, granted in exchange for services to be rendered by

non-employees,
vest proportionally to the services rendered. The warrants fully vested in fiscal year ended March 31, 2021 and as such no expense was recognized in relation to those instruments in the year ended March 31, 2022. During the twelve-month period ended March 31, 2021, expenses of $1,113,884 were recognized in selling, general and administrative expenses.

(g)

(g)

At-The-Market

Offering:

On March 11, 2020, Neptune entered into an Open Market Sale Agreement with Jefferies LLC pursuant to which the Corporation may from time to time sell, through

at-the-market
(ATM) offerings with Jefferies LLC acting as sales agent, such common shares as would have an aggregate offer price of up to $50 million.

During the twelve-month period ended March 31, 2021, the Corporation sold a total of 154,619 shares through the ATM program over the NASDAQNasdaq stock market, for gross proceeds of $13,736,868 and net proceeds of $13,069,149. The 3% commissions paid and other transaction costs amounted to $667,719. The shares were sold at the prevailing market prices which resulted in an average of approximately $88.55 per share. The ATM Offering was terminated as of February 16, 2021.



(h)

(h)

Direct Offerings:

On March 14, 2022, Neptune issued a total of 528,572 common shares of the Corporation , along with 185,715

pre-funded
warrants
(“ (“Pre-Funded
Warrants” Warrants”), as part of a registered direct offering (“Direct Offering”Offering”), with each
Pre-Funded
Warrant exercisable for one Common Share. The common shares and the
Pre-Funded
Warrants were sold together with 714,287 Series A Warrants (the “Series“Series A Warrants”Warrants”) and 714,287 Series B Warrants (the “Series“Series B Warrants”Warrants” and collectively with the Series A Warrants, the “Common Warrants”“Common Warrants”) to purchase up to an aggregate of 1,428,572 common shares. Each common share and Pre FundedPre-Funded Warrants and the accompanying Common Warrants were sold together at a combined offering price of $11.20, for aggregate gross proceeds of $8.0 million before deducting fees and other estimated offering expenses. The
Pre-Funded
Warrants are funded in full at closing except for a nominal exercise price of $0.0035
and are exercisable commencing on the Closing Date, and will terminate when such Pre-Funded

Pre-Funded

F-32

Table of Contents

Warrants are exercised in full. The Series A Warrants have

F-40
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
an exercise price of
$11.20 $11.20 per share and are exercisable six months after the closing date, and will expire five and one half years from the date of issuance. The Series B Warrants have an exercise price of $11.20 per share and are exercisable six months after the closing date, and expire 18 months from the date of issuance. Common Warrants are recognized as liabilities, as the exercise price of the warrants is in USD, whereas the Corporation’s functional currency is the Canadian dollar. The proceeds were allocated amongst common shares and Pre FundedPre-Funded Warrants using the relative fair value approach after allocating proceeds to the Common Warrants corresponding to their fair value. The residual amount of $306,868 and $107,818 was then allocated to the Common Share and
Pre-Funded
Warrants. Total issue costs related to this private placement amounted to $636,847, of which $33,012 were recorded against share capital and the portion related to the warrants, in the amount of $603,835, was recorded under finance costs.

On July 13, 2020, the Corporation issued 136,389 common shares at an offering price of $92.75 per share for gross proceeds of $12,649,998 and net proceeds of $12,017,902. The transaction costs amounted to $801,462.

(i)

(i)

Private placement:

During the year ended March 31, 2021, Neptune completed a private placement with certain US healthcare focused institutional investors for a private placement of 462,963 common shares and 300,926 warrants. Each warrant is exercisable for one common share at an exercise price of $78.75. The gross proceeds of this offering were $35,000,000 before deducting fees and other offering expenses.

Proceeds were allocated first to the warrants based on their fair value and then the residual to the common shares, resulting in an initial warrant liability of $11,831,000 (note 12) and $23,169,000 recorded in the equity of the Corporation. Purchase warrants are recognized as liabilities, as the exercise price of the warrants is in USD, whereas the Corporation’s functional currency is the Canadian dollar. Total issue costs related to this private placement amounted to $2,081,879, of which $1,560,552 were recorded against share capital and the portion related to the warrants, in the amount of $521,327, was recorded under finance costs.

(j)

(j)

Business combination:

On February 10, 2021, as part of the consideration paid for the acquisition of a 50.1% interest in Sprout Foods, Inc., Neptune issued 192,617 common shares of the Corporation, for a total consideration of $17,595,505 representing the fair value of the common shares at the date of acquisition (note 4).

(k)

(k)

Registered Direct Offering Priced

At-The-Market
and Concurrent Private Placement:

On February 17, 2021, Neptune entered into definitive agreements with institutional investors for the purchase of

785,715
common shares. The Corporation has also agreed to issue to the investors, in a concurrent private placement, unregistered common share purchase warrants to purchase an aggregate
of
196,429
common shares. Each common share and accompanying quarter of a warrant are being sold together at a combined offering price
of $
70.00
,
$70.00, pursuant to a registered direct offering, priced at-the-market under Nasdaq rules, for aggregate gross proceeds of approximately
 $
55.0
$55.0 million before deducting fees and other estimated offering expenses (the “Offering”).expenses. The warrants will have an exercise price
of $
78.75
$78.75 per share, will be exercisable commencing on the six-month anniversary of the date of issuance, and will expire
5.5
years from the date of issuance. The Offeringoffering closed on February 19, 2021.

Proceeds

were allocated first to the warrants based on their fair value and then the residual to the common shares, resulting in an initial warrant liability of $6,288,998 (note 12) and $48,711,002
F-41
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
recorded in the equity of the Corporation. Purchase warrants are recognized as liabilities, as the exercise price of the warrants is in USD, whereas the Corporation’s functional currency is the Canadian dollar. Total issue costs related to this private placement amounted to
$2,958,406, $2,958,406, of which $2,609,043 were recorded against share capital and the portion related to the warrants, in the amount of $349,363, was recorded under finance costs.
15.
Non-controlling
interest:

​

15.Non-controlling interest:

The summarized financial information of Sprout Foods, Inc. subsidiary is provided below, based on their financial statements prepared in accordance with US GAAP. This information is based on amounts before inter-company eliminations and include the effects of the Corporation’s purchase price adjustments.

F-33

Table of Contents

Summarized statement of loss and comprehensive loss:

   Year ended
March 31, 2022		   February 10, 2021
to March 31, 2021		 
Revenue from contracts with customers
  $25,971,480   $2,403,074 
Cost of sales
   (28,200,621)    (3,192,259) 
Selling, general and administrative expenses
   (9,459,448)    (1,253,251) 
Impairment loss on intangible assets
   (1,527,000)    —   
Impairment loss on goodwill
   (3,288,847)    —   
Finance costs
   (2,427,165)    (140,218) 
   
 
 
   
 
 
 
Loss before tax
   (18,931,601)    (2,182,654) 
Income tax
   (11,854)    (1,398) 
   
 
 
   
 
 
 
Net loss
   (18,943,455)    (2,184,052) 
   
 
 
   
 
 
 
Total comprehensive loss
   (18,948,855)    (2,635,006) 
   
 
 
   
 
 
 
Loss attributable to the subsidiary’s
non-controlling
interest
   (9,452,784)    (1,094,210) 
   
 
 
   
 
 
 
Comprehensive loss attributable to the subsidiary’s
non-controlling
interest
  $(9,455,479)   $(1,320,138) 
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

    

Year ended

    

February 10, 2021

​

​

March 31, 2022

​

to March 31, 2021

Revenue from contracts with customers

​

$

25,971,480

​

$

2,403,074

Cost of sales

​

 

(28,200,621)

​

 

(3,192,259)

Selling, general and administrative expenses

​

 

(9,459,448)

​

 

(1,253,251)

Impairment loss on intangible assets

​

 

(1,527,000)

​

 

—

Impairment loss on goodwill

​

 

(3,288,847)

​

 

—

Finance costs

​

 

(2,427,165)

​

 

(140,218)

Loss before tax

​

 

(18,931,601)

​

 

(2,182,654)

Income tax

​

 

(11,854)

​

 

(1,398)

Net loss

​

 

(18,943,455)

​

 

(2,184,052)

Total comprehensive loss

​

 

(18,948,855)

​

 

(2,635,006)

Loss attributable to the subsidiary’s non-controlling interest

​

 

(9,452,784)

​

 

(1,094,210)

Comprehensive loss attributable to the subsidiary’s non-controlling interest

​

$

(9,455,479)

​

$

(1,320,138)

​

Summarized statement of balance sheets:

   March 31,
2022		   March 31,
2021		 
Current assets
  $12,260,375    11,338,209 
Non-current
assets
   39,000,367    51,263,341 
Current liabilities
   5,991,483    6,125,690 
Non-current
liabilities
   25,362,259    12,031,860 
Total equity
   19,907,000    44,444,000 
   
 
 
   
 
 
 
Attributable to:
          
Equity holders to parent
  $7,184,923   $22,266,444 
Non-controlling
interest
   12,722,077    22,177,556 
   
 
 
   
 
 
 
F-42
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

​

​

​

​

​

​

​

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Current assets

​

$

12,260,375

 

​

11,338,209

Non-current assets

​

 

39,000,367

 

​

51,263,341

Current liabilities

​

 

5,991,483

 

​

6,125,690

Non-current liabilities

​

 

25,362,259

 

​

12,031,860

Total equity

​

 

19,907,000

 

​

44,444,000

Attributable to:

​

 

  

 

​

  

Equity holders to parent

​

$

7,184,923

​

$

22,266,444

Non-controlling interest

​

 

12,722,077

​

 

22,177,556

​

Summarized statement of cash flow:

​

​

​

​

​

​

​

​

    

Year ended

    

February 10, 2021

​

​

March 31, 2022

​

to March 31, 2021

Cash flow used in operating activities

​

$

(10,214,243)

​

$

(2,225,032)

Cash flow used in investment activities

​

 

(122,136)

​

 

—

Cash flow from (used in) financing activities(1)

​

 

11,280,528

​

 

(26,286)

Net increase (decrease) in cash and cash equivalents

​

$

944,149

​

$

(2,251,318)

   Year ended
March 31, 2022		   February 10, 2021
to March 31, 2021		 
Cash flow used in operating activities
  $(10,214,243)   $(2,225,032) 
Cash flow used in investment activities
   (122,136)    —   
Cash flow from (used in) financing activities
(1)
   11,280,528    (26,286) 
   
 
 
   
 
 
 
Net increase (decrease) in cash and cash equivalents
  $944,149   $(2,251,318) 
   
 
 
   
 
 
 
(1) 
Cash flow from financing activities is provided through intercompany advances.
 
 
16.
(1)
Share-based payment:
Cash flow from financing activities is provided through intercompany advances.

​

​

​

F-34

Table of Contents

16.Share-based payment:

Under the Corporation’s share-based payment arrangements, a total stock-based compensation of $7,816,845 was recognized in the consolidated statement of loss and comprehensive loss for the twelve-month period ended March 31, 2022 (2021 - $9,885,138).

As at March 31, 2022, the Corporation had the following share-based payment arrangements:

(a)

(a)

Corporation stock option plan:

(i)

(i)

Stock option plan:

The Corporation has established a stock option plan for directors, officers, employees and consultants. The exercise price of the stock options granted under the plan is not lower than the closing price of the common shares listed on the TSX on the eve of the grant. The terms and conditions for acquiring and exercising options are set by the Board of Directors, subject, among others, to the following limitations: the term of the options cannot exceed ten years and every stock option granted under the stock option plan will be subject to conditions no less restrictive than a minimum vesting period of

18 months
and a gradual and equal acquisition of vesting rights at least on a quarterly basis. The Corporation’s stock-option plan allows the Corporation to issue a number of stock options not exceeding
15
% 15% of the number of common shares issued and outstanding at the time of any grant. The total number of stock options issuable to a single holder 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.
F-4
3
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

The number and weighted average exercise prices of stock options are as follows:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

2022

    

2021

​

​

​

​

​

Weighted 

    

​

​

​

Weighted 

    

​

​

​

​

​

​

average 

​

​

​

​

average 

​

​

​

​

​

​

​

exercise 

​

Number of 

​

​

exercise 

​

Number of 

​

​

Notes

​

​

price

​

options

​

​

price

​

options

Options outstanding at April 1st, 2022 and 2021

​

​

​

$

65.91

 

121,208

 

$

65.76

 

229,784

Granted

​

​

​

​

25.41

 

286,554

 

​

56.91

 

57,839

Exercised

 

14

(b)

​

—

 

—

 

​

51.88

 

(142,193)

Forfeited

​

​

​

​

37.41

 

(94,298)

 

​

127.32

 

(24,222)

Expired

​

​

​

​

89.90

 

(7,143)

 

​

—

 

—

Options outstanding at March 31, 2022 and 2021

​

​

​

$

37.41

 

306,321

 

$

65.91

 

121,208

Options exercisable at March 31, 2022 and 2021

​

​

​

$

56.68

 

102,883

 

$

67.23

 

61,526

​

​

​

​

​

​

​

​

​

​

​

​

    

2022

 

​

​

Options outstanding

​

Exercisable options

 

​

​

Weighted

    

​

    

​

    

​

    

​

​

remaining

​

​

​

Weighted

​

Weighted

 

​

​

contractual

​

Number of

​

number of

​

average

 

Exercise

​

life

​

options

​

options

​

exercise

 

price

​

outstanding

​

outstanding

​

exercisable

​

price

 

$43.40 - $66.85

 

4.87

 

67,858

 

—

 

—

​

$66.86 - $71.75

 

4.35

 

135,071

 

29,665

 

69.30

​

$71.76 - $82.60

 

5.18

 

86,294

 

60,131

 

74.55

​

$82.61 - $181.65

 

2.61

 

10,350

 

7,102

 

149.45

​

$181.66 - $232.75

 

6.50

 

6,748

 

5,985

 

210.00

​

​

 

​

 

306,321

​

102,883

​

​

​

​

F-35

Table of Contents

      2022  2021 
   Notes  Weighted
average
exercise
price		   Number of
options		  Weighted
average
exercise
price		   Number of
options		 
Options outstanding at April 1st, 2022 and 2021
      $65.91    121,208  $65.76    229,784 
Granted
       25.41    286,554   56.91    57,839 
Exercised
   14(b)   —      —     51.88    (142,193) 
Forfeited
       37.41    (94,298)   127.32    (24,222) 
Expired
       89.90    (7,143)   —      —   
       
 
 
   
 
 
  
 
 
   
 
 
 
Options outstanding at March 31, 2022 and 2021
      $37.41    306,321  $65.91    121,208 
       
 
 
   
 
 
  
 
 
   
 
 
 
Options exercisable at March 31, 2022 and 2021
      $56.68    102,883  $67.23    61,526 
       
 
 
   
 
 
  
 
 
   
 
 
 
   2022 
   Options outstanding   Exercisable options 
Exercise
price
  Weighted
remaining
contractual
life
outstanding		   Number of
options
outstanding		   Weighted
number of
options
exercisable		   Weighted
average
exercise
price		 
$43.40 - $66.85
   4.87    67,858    —      —   
$66.86 - $71.75
   4.35    135,071    29,665    69.30 
$71.76 - $82.60
   5.18    86,294    60,131    74.55 
$82.61 - $181.65
   2.61    10,350    7,102    149.45 
$181.66 - $232.75
   6.50    6,748    5,985    210.00 
        
 
 
   
 
 
      
         306,321    102,883      
        
 
 
   
 
 
      

The fair value of options granted has been estimated using the Black-Scholes option pricing model and based on the weighted average of the following assumptions for options granted to employees during the twelve-month period ended March 31, 2022 and 2021 as at the date of grant:

   Year ended
March 31, 2022		  Year ended
March 31, 2021		 
Exercise price and share price
  $25.41  $56.91 
Dividend yield
   —     —   
Risk-free interest
   0.94%   0.46% 
Estimated life (years)
   4.29   3.74 
Expected volatility
   82.73%   98.65% 

​

​

​

​

​

​

​

​

​

​

    

Year ended 

    

Year ended 

 

​

​

March 31, 2022

​

March 31, 2021

 

Exercise price and share price

​

$

25.41

​

$

56.91

​

Dividend yield

​

 

—

​

 

—

​

Risk-free interest

​

 

0.94

%  

 

0.46

%

Estimated life (years)

​

 

4.29

​

 

3.74

​

Expected volatility

​

 

82.73

%  

 

98.65

%

​

The weighted average fair value of the options granted to employees during the twelve-month period ended March 31, 2022 was $13.68 (2021 - $54.00).

Stock-based compensation recognized under this plan amounted to $2,101,474 for the twelve-month period ended March 31, 2022 (2021 - $1,363,318). Unrecognized compensation cost of $1,408,530 as at March 31, 2022 with a weighted average period remaining of 1.16 years. Unrecognized compensation cost of $1,662,751 as at March 31, 2021 with a weighted average period remaining of 1.55 years.

F-44
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

(ii)

(ii)

Non-market

performance options:

On July 8, 2019, the Corporation granted 100,000

non-market
performance options under the Corporation stock option plan at an exercise price of $155.05 per share to the CEO, expiring on
July 8, 2029
.
2029. These options vest after the attainment of
non-market
performance conditions within the following ten years.
These
non-market
performance options required the approval of amendments to the stock option plan and therefore the fair value of these options was revalued up to the date of approval of the amendments (grant date).
None
of these
non-market
performance options have vested as at March 31, 2022. These options were
no
t not exercisable as at March 31, 2022 and 2021.

During the

twelve-month period ended March 31, 2022, changes in estimated probability of achievement of the
non-market
performance conditions or the expected number of years to achieve the performance conditions resulted in a recovery of stock-based compensation recognized under this plan amounted to $(689,464). Stock-based compensation expense of $88,621 was recognized for the year ended March 31, 2021.

(iii)

(iii)

Market performance options:

On July 8, 2019, the Corporation granted 157,142 market performance options under the Corporation stock option plan at an exercise price of $155.05$155.05 per share to the CEO, expiring on July 8, 2029. These options vest after the attainment of market performance conditions within the following ten years. Some of these market performance options required the approval of amendments to the stock option plan and therefore the fair value of these options was revaluated up to the date of approval of the amendments (grant date).

The number and weighted average exercise prices of market performance options are as follows:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

2022

​

2021

​

​

​

​

Weighted 

​

​

​

Weighted 

​

​

​

​

​

​

average 

​

​

​

average 

​

​

​

​

​

​

exercise 

​

Number of 

​

exercise 

​

Number of 

​

​

Notes

​

price

​

options

​

price

​

options

Options outstanding at April 1, 2021 and 2020

​

​

 

$

155.05

 

157,142

 

$

154.12

 

157,857

Exercised

 

14

(b)

​

—

 

—

 

​

40.64

 

(715)

Options outstanding at March 31, 2022 and 2021

​

​

 

$

155.05

 

157,142

 

$

155.05

 

157,142

Options exercisable at March 31, 2022 and 2021

​

​

 

$

155.05

 

21,429

 

$

155.05

 

21,429

​

F-36

      2022   2021 
   Notes  Weighted
average
exercise
price		   Number of
options		   Weighted
average
exercise
price		   Number of
options		 
Options outstanding at April 1, 2021 and 2020
      $155.05    157,142   $154.12    157,857 
Exercised
   14(b)   —      —      40.64    (715) 
       
 
 
   
 
 
   
 
 
   
 
 
 
Options outstanding at March 31, 2022 and 2021
      $155.05    157,142   $155.05    157,142 
       
 
 
   
 
 
   
 
 
   
 
 
 
Options exercisable at March 31, 2022 and 2021
      $155.05    21,429   $155.05    21,429 
       
 
 
   
 
 
   
 
 
   
 
 
 

Table of Contents

Stock-based compensation recognized under this plan amounted to $2,465,163 and $2,337,085 respectively for the years ended March 31, 2022 and 2021. Unrecognized compensation cost at March 31, 2022 is $12,134,126 with a weighted average period remaining of 1.16 years.years (2021 - $14,539,128 with a weighted average period remaining of 2.16 years)

.

(b)

(b)

Deferred Share Units, Restricted Share Units and Restricted Shares:

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.

F-4
5
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

(i)

(i)

Deferred Share Units (“DSUs”DSUs”)

The number and weighted average share prices of DSUs are as follows:

      2022   2021 
   Notes  Weighted
average
share
price		   Number of
DSUs		   Weighted
average
share
price		   Number of
DSUs		 
DSUs outstanding at April 1, 2022 and 2021
      $63.00    3,362   $68.39    3,544 
Granted
       19.26    3,106    63.00    1,199 
Released through the issuance of common shares
   14(c)   —      —      68.82    (1,381) 
       
 
 
   
 
 
   
 
 
   
 
 
 
DSUs outstanding at March 31, 2022 and 2021
      $66.45    6,468   $63.00    3,362 
       
 
 
   
 
 
   
 
 
   
 
 
 
DSUs exercisable at March 31, 2022 and 2021
      $39.93    2,753   $58.50    809 
       
 
 
   
 
 
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

2022

​

2021

​

    

​

    

Weighted

    

​

    

Weighted

    

​

​

​

​

​

average

​

​

​

average

​

​

​

​

​

​

share

​

Number of

​

share

​

Number of

​

​

Notes

​

price

​

DSUs

​

price

​

DSUs

DSUs outstanding at April 1, 2022 and 2021

 

  

  

$

63.00

 

3,362

​

$

68.39

 

3,544

Granted

 

  

  

 

19.26

 

3,106

​

 

63.00

 

1,199

Released through the issuance of common shares

 

14

(c)  

 

—

 

—

​

 

68.82

 

(1,381)

DSUs outstanding at March 31, 2022 and 2021

 

  

  

$

66.45

 

6,468

​

$

63.00

 

3,362

DSUs exercisable at March 31, 2022 and 2021

 

  

  

$

39.93

 

2,753

​

$

58.50

 

809

​

Of the 6,468 DSUs outstanding as at March 31, 2022 (2021 – 3,362), 1,944 DSUs vested upon services to be rendered during a period of twelve months from date of grant (2021 – 809)809). 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 additional

paid-in
capital, over the vesting period.

Stock-based compensation recognized under this plan amounted to $49,826 and $63,407 respectively for the years ended March 31, 2022 and 2021.Unrecognized compensation cost of $11,873 as at March 31, 2022 with a weighted average period remaining of 0.31 years. ($4,992 unrecognized compensation cost as at March 31, 2021 with a weighted average period remaining of 0.11 years).

(ii)

(ii)

Restricted Share Units (‘’RSUs’’(“RSUs”)

During the year ended March 31, 2020, as part of the employment agreement of the CEO, the Corporation granted RSUs which vest over three years in 36 equal instalments. During the year ended March 31, 2021, Neptune granted additional RSUs to the CEO and to executives of the Corporation, which vest over periods ranging from 6 months to 3 years. The fair value of the RSUs is determined to be the share price at the date of grant and is recognized as stock-based compensation, through additional

paid-in
capital, over the vesting period. The fair value of the RSUs granted during the twelve-month period ended March 31, 2022 was $16.19 per unit (2021 - $58.50)
      2022  2021 
   Notes  Weighted
average
share
price		   Number of
RSUs		  Weighted
average
share
price		   Number of
RSUs		 
RSUs outstanding at April 1st, 2022 and 2021
      $92.08    95,845  $155.05    59,999 
Granted
       16.19    111,915   58.50    62,514 
Forfeited
       51.65    (10,538)   —      —   
Released through the issuance of common shares
   14(d)   50.53    (108,079)   155.05    (16,414) 
Withheld as payment of withholding taxes
   14(d)   10.61    (64,105)   155.05    (10,254) 
       
 
 
   
 
 
  
 
 
   
 
 
 
RSUs outstanding at March 31, 2022 and 2021
      $59.75    25,038  $92.08    95,845 
       
 
 
   
 
 
  
 
 
   
 
 
 
F-46
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

2022

​

2021

​

    

​

    

Weighted

    

​

    

Weighted

    

​

​

​

​

​

average

​

​

​

average

​

​

​

​

​

​

share

​

Number of

​

share

​

Number of

​

    

Notes

    

price

    

RSUs

    

price

    

RSUs

RSUs outstanding at April 1st, 2022 and 2021

 

  

  

$

92.08

 

95,845

​

$

155.05

 

59,999

Granted

 

  

  

 

16.19

 

111,915

​

 

58.50

 

62,514

Forfeited

 

  

  

 

51.65

 

(10,538)

​

 

—

 

—

Released through the issuance of common shares

 

14

(d)  

 

50.53

 

(108,079)

​

 

155.05

 

(16,414)

Withheld as payment of withholding taxes

 

14

(d)  

 

10.61

 

(64,105)

​

 

155.05

 

(10,254)

RSUs outstanding at March 31, 2022 and 2021

 

  

  

$

59.75

 

25,038

​

$

92.08

 

95,845

​

Stock-based

compensation recognized under this plan amounted to $3,889,846 and $5,931,983 respectively for the years ended March 31, 2022 and 2021. Unrecognized compensation cost at March 31, 2022 is $235,075 with a weighted average remaining life of 1.30 years (2021 - $5,081,038 unrecognized compensation cost with a weighted average remaining life of 0.6 years).

F-37

Table of Contents

On November 14, 2021, the Corporation and its CEO entered into an agreement pursuant to which the CEO’s existing employment agreement was amended to waive the Corporation’s obligation to procure directors and officers insurance coverage of up to $15 million for the period covering July 1, 2021 to July 31, 2022. The parties agreed that if the Corporation had successfully completed a strategic partnership prior to December 31, 2021, the CEO would have been entitled to approximately $6.9 million in cash and would have been granted fully vested options to purchase 8.5 million shares of the Corporation’s common stock. As the strategic partnership was not consummated by December 31, 2021, the CEO will be entitled to a grant of vested RSUs with a value of approximately $4.7 million. The Corporation has accrued the liability to the CEO $4,708,063 as at March 31, 2022 in trade and other payables, with a charge to selling general and administrative expenses. The compensation to be settled in RSUs or if the Corporation is unable to grant such RSUs, then a combination of cash and vested RSUs with equivalent value, is not reflected in the number of RSUs outstanding above.

(iii)

(iii)

Restricted Shares

During the year ended March 31, 2021, the Corporation granted restricted shares to employees for past services. The fair value of the restricted shares is determined to be the higher of the

10-day
VWAP on TSX and Nasdaq prior to the date of grant and is recognized as stock-based compensation, through additional
paid-in
capital on date of release.

The number and weighted average share prices of restricted shares are as follows:

      2022   2021 
   Notes  Weighted
average
share
price		   Number of
RSUs		   Weighted
average
share
price		   Number of
RSUs		 
Restricted shares outstanding at April 1st, 2022 and 2021
      $—      —     $—      —   
Granted
       —      —      146.65    1,004 
Forfeited
       —      —      146.65    (154) 
Released through the issuance of common shares
   14(e)   —      —      146.65    (850) 
       
 
 
   
 
 
   
 
 
   
 
 
 
Restricted shares outstanding at March 31, 2022 and 2021
      $—      —     $—      —   
       
 
 
   
 
 
   
 
 
   
 
 
 
Restricted shares exercisable at March 31, 2022 and 2021
      $—      —   $—      —   
       
 
 
   
 
 
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

2022

​

2021

​

    

​

    

Weighted

    

​

    

Weighted

    

​

​

​

​

​

average

​

​

​

average

​

​

​

​

​

​

share

​

Number of

​

share

​

Number of

​

​

Notes

​

price

​

RSUs

​

price

​

RSUs

Restricted shares outstanding at April 1st, 2022 and 2021

​

​

​

$

—

 

—

​

$

—

 

—

Granted

​

​

​

 

—

 

—

​

 

146.65

 

1,004

Forfeited

​

​

​

 

—

 

—

​

 

146.65

 

(154)

Released through the issuance of common shares

 

14

(e)  

 

—

 

—

​

 

146.65

 

(850)

Restricted shares outstanding at March 31, 2022 and 2021

​

​

​

$

—

 

—

​

$

—

 

—

Restricted shares exercisable at March 31, 2022 and 2021

​

​

​

$

—

 

—

​

$

—

 

—

​

Stock-based compensation recognized under this plan amounted to nil and $100,724 for the years ended March 31, 2022 and 2021.

(c)

(c)

Long term cash bonus:

According to the employment agreement with the CEO, a long-term incentive of $15 million is payable if the Corporation’s US market capitalization is at least $1 billion. Based on the risk-neutral Monte Carlo simulation, the Corporation could reach this market capitalization in 6.51 years (2021 – 5.56

years). The incentive is recognized over the estimated period to reach the market capitalization. The
F-47
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
assumptions used in the simulation include a risk free-rate o
fof 2.32% and a volatility of 67.35% (respectively 1.74% and 66.46% for the previous year). As at March 31, 2022, the liability related to this long-term incentive of $88,688 ($393,155 as at March 31, 2021) is presented in Other liability in the consolidated balance sheets. During the year ended March 31, 2022, a recovery of $304,467 (2021- a recovery of $471,341) was recorded in connection with the long-term incentive under selling, general and administrative expenses in the consolidated statement of loss.

17.Finance income and finance costs:

17.

(a)

Finance income and finance costs:

income:

​

​

​

​

​

​

​

​

​

​

Years ended

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Interest income

​

$

7,123

​

$

38,327

Other finance income

​

 

—

​

 

787,418

Finance income

​

$

7,123

​

$

825,745

​

F-38

Table of Contents

(b)

(a)

Finance income:

costs:

   Years ended 
   March 31,
2022		   March 31,
2021		 
Interest income
  $7,123   $38,327 
Other finance income
   —      787,418 
   
 
 
   
 
 
 
Finance income
  $7,123   $825,745 
   
 
 
   
 
 
 
(b)
Finance costs:
       Years ended 
   Notes   March 31,
2022		   March 31,
2021		 
Interest charges and other finance costs
       $540,143   $622,841 
Interest expense on loans and borrowings
   13    1,000,000    293,250 
Warrants issuance costs
   12    603,835    870,690 
        
 
 
   
 
 
 
Finance costs
       $2,143,978   $1,786,781 
        
 
 
   
 
 
 
18.
Income taxes:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Years ended

​

    

​

    

March 31,

    

March 31,

​

​

Notes

​

2022

​

2021

Interest charges and other finance costs

​

​

 

$

540,143

 

$

622,841

Interest expense on loans and borrowings

 

13

​

​

1,000,000

​

​

293,250

Warrants issuance costs

 

12

​

​

603,835

​

​

870,690

Finance costs

​

​

 

$

2,143,978

 

$

1,786,781

​

​

​

18.Income taxes:

Income tax (recovery) expense:

   2022   2021 
Current
  $—     $—   
Deferred taxes recovery
   —      (3,477,711) 
   
 
 
   
 
 
 
Total tax recovery
  $—     $(3,477,711) 
   
 
 
   
 
 
 
F-48
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

​

​

​

​

​

​

​

​

​

    

2022

    

2021

Current

​

$

—

​

$

—

Deferred taxes recovery

​

 

—

​

 

(3,477,711)

Total tax recovery

​

$

—

​

$

(3,477,711)

​

Reconciliation of effective tax rate:

​

​

​

​

​

​

​

​

​

​

    

2022

    

2021

 

Loss before income taxes

​

$

(84,424,529)

​

$

(127,741,941)

​

Basic combined Canadian statutory income tax rate 1

​

 

26.50

%  

 

26.50

%

Income tax

​

$

(22,372,500)

​

$

(33,851,614)

​

Increase (decrease) resulting from:

​

 

  

​

 

  

​

Change in valuation allowance

​

 

18,982,099

​

 

26,696,339

​

Permanent difference on impairment on goodwill

​

 

788,642

​

 

999,782

​

Permanent difference related to derivative

​

 

(1,656,038)

​

 

(2,004,305)

​

Non deductible and tax exempt items

​

 

71,653

​

 

(347,773)

​

Non-deductible stock-based compensation

​

 

2,050,909

​

 

2,660,390

​

Foreign exchange

​

 

236,512

​

 

(101,188)

​

Difference in statutory tax rates of foreign subsidiaries

​

 

1,121,068

​

 

2,778,258

​

Other permanent differences

​

 

474,339

​

 

(571,275)

​

Adjustments in relation to prior years

​

 

303,316

​

 

263,675

​

Total tax recovery

​

$

—

​

$

(3,477,711)

​

   2022  2021 
Loss before income taxes
  $(84,424,529)  $(127,741,941) 
   
 
 
  
 
 
 
Basic combined Canadian statutory income tax rate
1
   26.50%   26.50% 
Income tax
  $(22,372,500)  $(33,851,614) 
Increase (decrease) resulting from:
         
Change in valuation allowance
   18,982,099   26,696,339 
Permanent difference on impairment on goodwill
   788,642   999,782 
Permanent difference related to derivative
   (1,656,038)   (2,004,305) 
Non deductible and tax exempt items
   71,653   (347,773) 
Non-deductible
stock-based compensation
   2,050,909   2,660,390 
Foreign exchange
   236,512   (101,188) 
Difference in statutory tax rates of foreign subsidiaries
   1,121,068   2,778,258 
Other permanent differences
   474,339   (571,275) 
Adjustments in relation to prior years
   303,316   263,675 
   
 
 
  
 
 
 
Total tax recovery
  $—    $(3,477,711) 
   
 
 
  
 
 
 

1

The Canadian combined statutory income tax rate.

​

F-39

F-4
9

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

Components of the net deferred tax asset (liability)

   March 31,
2022		   March 31,
2021		 
Net operating losses (“NOL”) and tax credit carryforwards
  $76,346,005   $61,321,242 
Intangible assets and goodwill
   554,187    653,006 
Reserves and accruals not currently deductible for tax purposes
   290,413    389,037 
Financing fees not currently deductible for tax purposes
   1,446,462    22,651 
Research and development costs
   3,098,560    533,372 
Non-deductible
interest
   3,349,307    3,985,157 
Other
   1,693,301    1,723,027 
   
 
 
   
 
 
 
Subtotal
   86,778,235    68,627,492 
Less: valuation allowance
   83,934,321    64,418,752 
   
 
 
   
 
 
 
Total net deferred tax assets
   2,843,914    4,208,740 
   
 
 
   
 
 
 
Property, plant and equipment
   —      (2,991,756) 
Intangible assets and goodwill
   (1,921,815)    —   
Right-of-use
assets
   (767,164)    (748,475) 
Other
   (154,935)    (468,509) 
   
 
 
   
 
 
 
Total deferred tax liabilities
   (2,843,914)    (4,208,740) 
   
 
 
   
 
 
 
Net deferred tax
  $—     $—   
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Net operating losses (“NOL”) and tax credit carryforwards

​

$

76,346,005

​

$

61,321,242

Intangible assets and goodwill

​

 

554,187

​

 

653,006

Reserves and accruals not currently deductible for tax purposes

​

 

290,413

​

 

389,037

Financing fees not currently deductible for tax purposes

​

 

1,446,462

​

 

22,651

Research and development costs

​

 

3,098,560

​

 

533,372

Non-deductible interest

​

 

3,349,307

​

 

3,985,157

Other

​

 

1,693,301

​

 

1,723,027

Subtotal

​

 

86,778,235

​

 

68,627,492

Less: valuation allowance

​

 

83,934,321

​

 

64,418,752

Total net deferred tax assets

​

 

2,843,914

​

 

4,208,740

Property, plant and equipment

​

 

—

​

 

(2,991,756)

Intangible assets and goodwill

​

 

(1,921,815)

​

 

—

Right-of-use assets

​

 

(767,164)

​

 

(748,475)

Other

​

 

(154,935)

​

 

(468,509)

Total deferred tax liabilities

​

 

(2,843,914)

​

 

(4,208,740)

Net deferred tax

​

$

—

​

$

—

​

Management assesses the available positive and negative evidence to determine the valuation allowance required with respect to the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the years. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, as of March 31, 2022, a valuation allowance of $83,934,321 has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized.

F-
50
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

Tax losses carried forward

We have income tax NOL carryforwards which will expire on various dates in the next 20 years as follows:

   Federal   Provincial/State 
2027
   46,000      
2028
   —        
2029
   —        
2030
   —      149,000 
2031
   474,000    1,523,000 
2032
   4,249,000    741,000 
2033
   11,099,000    11,210,000 
2034
   16,244,000    15,247,000 
2035
   11,275,000    10,429,000 
2036
   18,956,000    18,399,000 
2037
   9,835,000    9,178,000 
2038
   22,000    18,000 
2039
   7,974,000    8,473,000 
2040
   32,672,000    39,443,000 
2041
   42,380,000    40,506,000 
2042
   38,544,000    38,149,000 
   
 
 
   
 
 
 
   $193,770,000   $193,465,000 
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

​

    

Federal

    

Provincial/State

2027

 

​

46,000

 

​

  

2028

 

​

—

 

​

  

2029

 

​

—

 

​

  

2030

 

​

—

 

​

149,000

2031

 

​

474,000

 

​

1,523,000

2032

 

​

4,249,000

 

​

741,000

2033

 

​

11,099,000

 

​

11,210,000

2034

 

​

16,244,000

 

​

15,247,000

2035

 

​

11,275,000

 

​

10,429,000

2036

 

​

18,956,000

 

​

18,399,000

2037

 

​

9,835,000

 

​

9,178,000

2038

 

​

22,000

 

​

18,000

2039

 

​

7,974,000

 

​

8,473,000

2040

 

​

32,672,000

 

​

39,443,000

2041

 

​

42,380,000

 

​

40,506,000

2042

 

​

38,544,000

 

​

38,149,000

​

​

$

193,770,000

​

$

193,465,000

​

As at March 31, 2022, the Corporation had NOL that can be carried forward indefinitely ($101,174,000 for federal purposes and $96,884,000 for States purposes).

As at March 31, 2022, the Corporation had realized and unrealized capital losses of $2,060,000 ($2,709,000 in 2021) that can be carried forward indefinitely.


F-51

F-40

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

Tax credits receivable and recoverable

Unused federal Investment tax credits may be used to reduce federal income tax payable and expire as follows:

2023
  $174,000 
2024
   60,000 
2025
   43,000 
2026
   73,000 
2027
   116,000 
2028
   51,000 
2029
   113,000 
2030
   179,000 
2031
   216,000 
2032
   126,000 
2033
   104,000 
2034
   94,000 
2035
   234,000 
2036
   168,000 
2037
   127,000 
2038
   50,000 
2039
   58,000 
   
 
 
 
   $1,986,000 
   
 
 
 

​

​

​

​

​

2023

    

$

174,000

2024

​

 

60,000

2025

​

 

43,000

2026

​

 

73,000

2027

​

 

116,000

2028

​

 

51,000

2029

​

 

113,000

2030

​

 

179,000

2031

​

 

216,000

2032

​

 

126,000

2033

​

 

104,000

2034

​

 

94,000

2035

​

 

234,000

2036

​

 

168,000

2037

​

 

127,000

2038

​

 

50,000

2039

​

 

58,000

​

​

$

1,986,000

​

The amounts

recorded as tax credits receivable or recoverable are subject to a government tax audit and the final amount received may differ from those recorded.
19.
Loss per share:

19.Loss per share:

Diluted loss per share was the same amount as basic loss per share, as the effect of options, DSUs, RSUs and warrants would have been anti-dilutive, as the Corporation has incurred losses in each of the periods presented. All outstanding options, DSUs, RSUs and warrants could potentially be dilutive in the future.

20.Supplemental Cash Flow Disclosure

20.

(a)

Supplemental cash flow disclosure:
(a)

Changes in operating assets and liabilities:

​

​

​

​

​

​

​

​

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Trade and other receivables

​

$

(163,066)

​

$

(8,518,941)

Prepaid expenses

​

 

(279,770)

​

 

(994,471)

Inventories

​

 

(2,674,208)

​

 

(17,631,474)

Trade and other payables

​

 

2,654,024

​

 

11,965,278

Deferred revenues

​

 

(1,563,113)

​

 

634,393

Provisions

​

 

(1,137,281)

​

 

733,755

Changes in operating assets and liabilities

​

$

(3,163,414)

​

$

(13,811,460)

​

(b)

Non-cash transactions:

​

​

​

​

​

​

​

​

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Acquired property, plant and equipment included in trade and other payables

​

$

155,352

​

$

158,309

Intangible assets included in trade and other payables

​

 

109,971

​

 

72,043

​

​

​

F-41

   March 31,
2022		   March 31,
2021		 
Trade and other receivables
  $(163,066)   $(8,518,941) 
Prepaid expenses
   (279,770)    (994,471) 
Inventories
   (2,674,208)    (17,631,474) 
Trade and other payables
   2,654,024    11,965,278 
Deferred revenues
   (1,563,113)    634,393 
Provisions
   (1,137,281)    733,755 
   
 
 
   
 
 
 
Changes in operating assets and liabilities
  $(3,163,414)   $(13,811,460) 
   
 
 
   
 
 
 
F-52

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
(b)
Non-cash
transactions:
   March 31,
2022		   March 31,
2021		 
Acquired property, plant and equipment included in trade and other payables
  $155,352   $158,309 
Intangible assets included in trade and other payables
   109,971    72,043 
21.
Fair-value:

21.Fair-value:

The Corporation uses various methods to estimate the fair value recognized in the consolidated financial statements. The fair value, hierarchy reflects the significance of inputs used in determining the fair values:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date;

●Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date;
●Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices);
●Level 3 – Fair value based on valuation techniques which includes inputs related to the asset or liability that are not based on observable market data (unobservable inputs).
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
Level 3 – Fair value based on valuation techniques which includes inputs related to the asset or liability that are not based on observable market data (unobservable inputs).

Financial assets and liabilities measured at fair value on a recurring basis are the investment in Acasti Pharma Inc. (“Acasti”Acasti”), the call option granted to Neptune by Sprout’s

non-controlling
interest owners of equity (the “Call Option”“Call Option”), the liability to CEO for long-term incentive, and liability related to warrants.

The following

table presents the Corporation’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and 2021:
       March 31, 2022 
   Notes   Level 1   Level 2   Level 3   Total 
Assets
                         
Other financial assets - Sprout Call Option
   4   $—     $—     $—     $—   
        
 
 
   
 
 
   
 
 
   
 
 
 
Total
       $—     $—     $—     $—   
        
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities
                         
Liability related to warrants
   12   $—     $—     $5,570,530   $5,570,530 
        
 
 
   
 
 
   
 
 
   
 
 
 
Total
       $—     $—     $5,570,530   $5,570,530 
        
 
 
   
 
 
   
 
 
   
 
 
 
   
       March 31, 2021 
   Notes   Level 1   Level 2   Level 3   Total 
Assets
                         
Marketable securities - Acasti Shares
       $150,000   $—     $—     $150,000 
Other financial assets - Sprout Call Option
   4    —      —      5,615,167    5,615,167 
        
 
 
   
 
 
   
 
 
   
 
 
 
Total
       $150,000   $—     $5,615,167   $5,765,167 
        
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities
                         
Liability related to warrants
   12   $—     $—     $10,462,137   $10,462,137 
        
 
 
   
 
 
   
 
 
   
 
 
 
Total
       $—     $—     $10,462,137   $10,462,137 
        
 
 
   
 
 
   
 
 
   
 
 
 
F-53
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

March 31, 2022

​

    

Notes

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

 

  

 

​

  

 

​

  

 

​

  

 

​

  

Other financial assets - Sprout Call Option

 

4

​

$

—

​

$

—

​

$

—

​

$

—

Total

 

  

​

$

—

​

$

—

​

$

—

​

$

—

Liabilities

 

  

​

 

  

​

 

  

​

 

  

​

 

  

Liability related to warrants

 

12

​

$

—

​

$

—

​

$

5,570,530

​

$

5,570,530

Total

 

  

​

$

—

​

$

—

​

$

5,570,530

​

$

5,570,530

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

March 31, 2021

​

    

Notes

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

​

​

 

​

  

 

​

  

 

​

  

 

​

  

Marketable securities - Acasti Shares

​

​

​

$

150,000

​

$

—

​

$

—

​

$

150,000

Other financial assets - Sprout Call Option

 

4

​

 

—

​

 

—

​

 

5,615,167

​

 

5,615,167

Total

​

​

​

$

150,000

​

$

—

​

$

5,615,167

​

$

5,765,167

Liabilities

​

​

​

 

  

​

 

  

​

 

  

​

 

  

Liability related to warrants

 

12

​

$

—

​

$

—

​

$

10,462,137

​

$

10,462,137

Total

 

  

​

$

—

​

$

—

​

$

10,462,137

​

$

10,462,137

​

As at

March 31, 2022, the Corporation has no common shares of Acasti (31,250 as at March 31, 2021, considering the 8 to 1 reverse stock split). The investment was measured using Acasti’s stock market price. The fair value of the investment in Acasti was $150,000 or $4.80 per share as at March 31, 2021.

During the year ended March 31, 2021, 750,000 Acasti

pre-consolidation
shares were sold on the market for net proceeds of $420,219. During the year ended March 31, 2022, the remaining 31,250 shares, were sold on the market for net proceeds of $55,610.

The net change in fair value of the investment including any gain or loss on the sale of the shares amounted to a $101,634 loss and a $151,799 gain respectively for the years ended March 31, 2022 and 2021 and were recognized in the profit and loss statement.

As at the close of the acquisition of Sprout, 2021, the fair value of the asset related to the Call Option was determined to be $5,523,255, representing the excess of the market price over the contract value of the Call Option, discounted at a rate of 8.9% and assuming the exercise of the Call Option to acquire the remaining interest in Sprout would take place on January 1, 2023. To establish the market price, the multiples selected were 2.3x for revenues and 12.0x for EBITDA, based on analysis of average and median industry multiples, and were adjusted for a 20% discount; the multiples to be used as per the contract are 3.0x for revenues and 15.0x for EBITDA, weighted at 50%. Changes in the underlying assumptions of budgeted revenues as well as lower revenue market multiples resulted in a revaluation of the Call Option to nil during the year ended March 31, 2022. The measurement is based on level 3 inputs.

F-42

Table of Contents

The following table presents a reconciliation of the beginning and ending balance of the Call Option:

       Years ended 
   Notes   March 31,
2022		   March 31,
2021		 
Balance as at April 1st 2021 and 2020
       $5,615,167   $—   
Increase arising from business combination
   4    —      5,523,255 
Change in fair value
        (5,606,683)    83,428 
Effect of movements in exchange rate
        (8,484)    8,484 
        
 
 
   
 
 
 
Balance as at March 31, 2022 and 2021
       $—     $5,615,167 
        
 
 
   
 
 
 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Years ended

​

    

​

    

March 31,

    

March 31,

​

​

Notes

​

2022

​

2021

Balance as at April 1st 2021 and 2020

 

  

​

$

5,615,167

​

$

—

Increase arising from business combination

 

4

​

 

—

​

 

5,523,255

Change in fair value

 

  

​

 

(5,606,683)

​

 

83,428

Effect of movements in exchange rate

 

  

​

 

(8,484)

​

 

8,484

Balance as at March 31, 2022 and 2021

 

  

​

$

—

​

$

5,615,167

​

The liabilities related to warrants were recorded at their fair value using a Black-Scholes pricing model. Warrants are revalued each

period-end
at fair value through profit and loss using level 3 inputs (note 12).

The Corporation has determined that the carrying values of its short-term financial assets and liabilities approximate their fair values 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 and long-term payable 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.

22.Commitments and contingencies:

22.

(a)

Commitments and contingencies:

Commitments:

(a)
Commitments:
(i)
On November 2, 2017, Neptune entered into an exclusive commercial agreement for a specialty ingredient in combination with cannabinoids coming from cannabis or hemp for a period of 11
F-54
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
years with minimum annual volumes of sales starting in 2019. On January 31, 2020, Neptune entered into other commercial agreements for the same specialty ingredient in combination with fish oil products for a period
of 8 years in replacement of a previous terminated agreement. According to these agreements signed with the same third-party’s beneficial owner, Neptune will pay royalties on sales. To maintain the exclusivity, Neptune must reach minimum annual volumes of sales for the duration of the agreements for which minimum volumes are being reached. The corresponding total remaining amount of minimum royalties is $3,878,449.
(ii)
On April 14, 2020, the Corporation signed a
two-year
agreement with the Jane Goodall Institute (“JGI”JGI”) in which Neptune agreed to donate 5% of the net sales of products branded as Forest Remedies with the JGI identification to support continued research, conservation and education efforts. For the year ended March 31, 2022 and 2021, the donations on sales were negligeable.
(iii)
On March 21, 2019, the Corporation received a judgment from the Court regarding certain previously disclosed claims made by a corporation controlled by the former CEO against the Corporation in respect to 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”“Agreement”). The Court declared that under the terms of the agreement, the Corporation is required to pay royalties of 1% of its revenues in semi-annual instalments, for an unlimited period. Based on currently available information, a provision of $362,809 for royalty payments has been recognized as of March 31, 2022 ($1,489,854 as at March 31, 2021). Refer to note 11.
(iv)
(iv)
On May 28, 2021, Sprout entered into a license agreement with Moonbug Entertainment Limited (“Moonbug”Moonbug”), pursuant to which it would license certain intellectual property, relating to characters from the children’s entertainment property CoComelon, for use on certain Sprout products
through December 31, 2023 in exchange for a royalty on net sales. Sprout is required to make minimum guaranteed annual payments to Moonbug of $200,000 over the term of the agreement. The agreement may be extended for an additional three years in exchange for an additional minimum guaranteed annual payment to Moonbug of $200,000 over the extended term of the agreement. Royalties payable under the agreement are set off against minimum guaranteed payments made.

F-43

(b)
Contingencies:

Table of Contents

(b)

Contingencies:

In the normal course of business, the Corporation is involved in various claims and legal proceedings, for which the outcomes, inflow or outflow of economic benefits, are uncertain. The most significant of which are ongoing are as follows:

(i)In September 2020, Neptune submitted a claim and demand for arbitration against Peter M. Galloway and PMGSL Holdings, LLC (collectively “PMGSL”) in accordance with the SugarLeaf Asset Purchase Agreement (“APA”) dated May 9, 2019 between Neptune, PMGSL, Peter M. Galloway and Neptune Holding USA, Inc. Separately, PMGSL submitted a claim and demand for arbitration against Neptune. The Neptune claims and PMGSL claims have been consolidated into a single arbitration and each are related to the purchase by Neptune of substantially all of the assets of the predecessor entities of PMGSL Holdings, LLC. Neptune is claiming, among other things, breach of contract and negligent misrepresentation by PMGSL in connection with the APA and is seeking, among other things, equitable restitution and any and all damages recoverable under law. PMGSL is claiming, among other things, breach of contract by Neptune and is seeking, among other things, payment of certain compensation contemplated by the APA. A merit hearing in the arbitration started in April 2022 with a further week of testimony starting August 1, 2022. On June 15, 2022, a one-day hearing took place on Neptune’s motion to enforce a settlement agreement reached on April 2021 (which was repudiated by PMGSL in June 2021). Final oral argument is scheduled for July 7, 2022, after which the arbitrator will issue a decision on whether the settlement is enforceable. While Neptune believes there is no merit to the claims brought by PMGSL, a judgment in favor of PMGSL may have a material adverse effect on our business and Neptune intends to continue vigorously defending itself. Based on currently available information, a provision of $600,000 has been recognized for this case as at March 31, 2022 ($600,000 as at March 31, 2021).
(ii)On February 4, 2021, the United States House of Representatives Subcommittee on Economic and Consumer Policy, Committee on Oversight and Reform (the “Subcommittee”), published a report, “Baby Foods Are Tainted with Dangerous Levels of Arsenic, Lead, Cadmium, and Mercury” (the “Report”), which stated that, with respect to Sprout, “independent testing of Sprout Organic Foods has confirmed that their baby foods contain concerning levels of toxic heavy metals.” The Report further stated that after receiving reports alleging high levels of toxic metals in baby foods, the Subcommittee requested information from Sprout but did not receive a response.

On February 11, 2021, following the acquisition of a 50.1% stake in Sprout by Neptune, the Subcommittee contacted Sprout, reiterating its requests for documents and information about toxic heavy metals in Sprout’s baby foods. Sprout provided an initial response to the Subcommittee on February 25, 2021 and is cooperating with the Subcommittee requests.

Further, on February 24, 2021, the Office of the Attorney General of the State of New Mexico (“NMAG”) delivered to Sprout a civil investigative demand requesting similar documents and information with regards to the Report and the NMAG’s investigation into possible violations of the False Advertising Act of New Mexico. Sprout is responding to the requests of the NMAG.

Since February 2021, several putative consumer class action lawsuits have been brought against Sprout alleging that its products (the “Products”) contain unsafe and undisclosed levels of various naturally occurring heavy metals, namely lead, arsenic, cadmium and mercury. There are currently two active putative class action lawsuits, which allege that Sprout violated various state consumer protection laws and make other state and common law warranty and for unjust enrichment claims related to the alleged failure to disclose the presence of these metals, whereas consumers would have allegedly either not purchased the Products or would have paid less had Sprout made adequate disclosures. These putative class actions seek to certify a nationwide class of consumers as well as various state subclasses. These kinds of class actions have also been separately filed against all of the major baby food manufacturers in federal courts across the country. The U.S. Judicial Panel on Multidistrict Litigation (“JPML”) declined a request to centralize all of the consumer class action lawsuits against all of the baby food manufacturers into a single multidistrict proceeding. One of the class actions is currently pending in New Jersey Superior Court. The other class action is currently pending in the U.S. District Court for the Central District of California, but has been ordered to be transferred to the U.S. District for the District of New Jersey. Sprout denies the allegations in these lawsuits and contends that its baby foods are safe and properly labeled. No provision has been recorded in the financial statements for these cases.

In addition to the consumer class actions discussed above, Sprout is currently named in a lawsuit filed on June 16, 2021 in the state court of California alleging some form of personal injury from the ingestion of Sprout’s Products, purportedly due to unsafe and undisclosed levels of various naturally occurring heavy metals. This lawsuit alleges injuries related to neurological development disorders, such as autism spectrum disorder and attention deficit hyperactivity disorder. Sprout denies that its Products contributed to any of these injuries and will defend the case vigorously. No provision has been recorded in the financial statements for this matter.

F-44

Table of Contents

In addition, the Office of the Attorney General for the District of Columbia (“OAG”) recently sent a letter to Sprout, similar to letters sent to other baby food manufacturers, alleging potential labeling and marketing misrepresentations and omissions regarding the health and safety of its baby food products, constituting an unlawful trade practice. Sprout has agreed to meet with the OAG and will vigorously defend against the allegations. No provision has been recorded in the financial statements for this matter.

These matters may have a material adverse effect on Sprout’s, financial condition, or results of operations.

(iii)On March 16, 2021, a purported shareholder class action was filed in United States District Court for the Eastern District of New York against the Corporation and certain of its current and former officers alleging violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 with respect to the Corporation’s acquisition of SugarLeaf Labs, Inc. The Corporation believes these claims are without merit and intends to vigorously defend itself. No provision has been recorded in the financial statements for this matter.
(iv)A supplier of cannabis initiated a lawsuit against 9354-7537 Quebec Inc. (operating as Neptune Wellness Solutions, Inc.) (“Neptune”) for breach of a Wholesale Cannabis Supply Agreement (the “Supply Agreement”) for the purchase of cannabis trim. The purchased trim was rejected by Neptune due to quality concerns. The supplier refused to refund the purchase price and ultimately sued Neptune for breach of the Supply Agreement. The matter proceeded to trial in November 2021, and on March 23, 2022, an arbitrator entered an arbitration award against Neptune for the full purchase price of the trim. With fees and costs, the final arbitrator’s award entered against Neptune is of $1,127,024, plus applicable interest. A provision of $1,127,024 has been recognized in trade and other payables.

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.

23.Operating Segments:

The Corporation measures its performance based on a single segment, which is the consolidated level, as the previous segment income (loss) before corporate expenses is not used in internal management reports that are reviewed by the Corporation’s Chief Operating Decision Maker, management believing that such information is no longer relevant in evaluating the results of the Corporation.

a)

Geographical information:

Revenue is attributed to geographical locations based on the origin of customers’ location:

​

​

​

​

​

​

​

​

​

​

Years ended

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Canada

​

$

12,447,125

​

$

13,433,549

United States

​

 

35,330,138

​

 

20,857,092

Other countries

​

 

1,019,861

​

 

1,109,678

​

​

$

48,797,124

​

$

35,400,319

​

b)

Information about major customers:

During the year ended March 31, 2022, the Corporation realized revenues amounting to $5,005,000 from one customer accounting for 10.26% of consolidated revenues. During the year ended March 31, 2021, the Corporation realized revenues amounting to $5,261,979 from one customer accounting for 14.86% of consolidated revenues.

F-45

Table of Contents

c)

Revenues

The Corporation derives revenue from the sales of goods which are recognized at a point in time and the processing services which are recognized over time as follows:

​

​

​

​

​

​

​

​

​

​

Years ended

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Recognized at a point in time

 

​

  

 

​

  

Nutraceutical products

​

$

13,622,744

​

$

12,183,362

Cannabis and hemp products

​

 

7,779,092

​

 

314,827

Food and beverages products

​

 

26,220,519

​

 

2,403,075

Innovation products

​

 

73,473

​

 

10,960,359

Recognized over time

​

 

  

​

 

  

Processing services

​

 

—

​

 

8,400,024

​

​

$

47,695,828

​

$

34,261,647

​

d)

Geographical information on long-lived assets:

Long-lived assets of the Corporation are located in the following geographical location:

​

​

​

​

​

​

​

​

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Canada

​

$

20,724,674

​

$

35,644,781

United States

​

 

723,449

​

 

1,700,935

Total property, plant and equipment

​

$

21,448,123

​

$

37,345,716

​

​

​

​

​

​

​

​

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Canada

​

$

2,353,054

​

$

3,792,982

United States

​

 

19,301,981

​

 

22,163,848

Total intangible assets

​

$

21,655,035

​

$

25,956,830

​

​

​

​

​

​

​

​

​

    

March 31,

    

March 31,

​

​

2022

​

2021

Canada

​

$

2,625,851

​

$

2,613,935

United States

​

 

19,542,437

​

 

22,839,437

Total goodwill

​

$

22,168,288

​

$

25,453,372

​

​

24.Related parties:

Related party transactions and balances not disclosed elsewhere in these notes of the financial statements are as follows:

On November 11, 2019, Neptune announced that the Corporation entered into a collaboration agreement with International Flavors & Fragrances Inc. (“IFF”) to co-develop hemp-derived products for the mass retail and health and wellness markets. App Connect Service, Inc. (“App Connect”), a company indirectly controlled by Michael Cammarata, CEO and Director of Neptune, is also a party to the agreement to provide related branding strategies and promotional activities.

Neptune will be responsible for the marketing and the sales of the products and will receive the amounts from the product sales. Neptune will in turn pay a royalty to IFF and App Connect associated with the sales of the co-developed products. The payment of royalties to App Connect, subject to certain conditions, has been approved by the TSX.

During the years ended March 31, 2022 and 2021, the Corporation recorded a negligeable amount of royalty expense pursuant to the co-development contract and no royalties were paid to date.

F-46

Table of Contents

25.Subsequent events:

On June 8, 2022, Neptune announced that the launch of a new Consumer Packaged Goods (“CPG”) focused strategic plan to reduce costs, improve the Corporation’s path to profitability and enhance current shareholder value. This plan builds on the Corporation’s initial strategic review that took place in fall of 2021 and focuses on two primary actions: (1) planned accelerated divestiture of the Canadian cannabis business and (2) a realignment of focus and operational resources toward increasing the value of Neptune’s consumer products business. With the planned divestiture of its cannabis business, Neptune is renewing its focus on the core brands – Sprout Organics and Biodroga Solutions.

On June 9, 2022, Neptune announced the completion of the Corporation’s proposed consolidation of its common shares (the “Common Shares”) on the basis of one (1) post-consolidation Common Share for every thirty-five (35) pre-consolidation Common Shares (the “Share Consolidation”). The post-Share Consolidation Common Shares commenced trading on the Nasdaq and the TSX at the market open on June 13, 2022. The Share Consolidation reduced the number of Common Shares issued and outstanding from approximately 198 million Common Shares to approximately 5.7 million Common Shares as at June 13, 2022.

On June 23, 2022, Neptune closed agreements with several institutional investors for the purchase and sale of an aggregate of 1,300,000 common shares of the Corporation, 645,526 pre-funded warrants and accompanying series of warrants to purchase up to an aggregate of 2,591,052 common shares warrants, at an offering price of $2.57 per share and accompanying warrants in a registered direct offering priced at-the-market under Nasdaq rules. Each series of warrants have an exercise price of $2.32 per share and are immediately exercisable upon issuance. One series of warrants will expire two years following the date of issuance and one series of warrants will expire five years following the date of issuance. The gross proceeds from the offering are $5 million, prior to deducting placement agent’s fees and other offering expenses payable by Neptune. The Pre-funded warrants were fully exercised on June 24, 2022 for $64.55.

(b)

(Unaudited)

On July 13, 2022, Neptune announced that Sprout has entered into an amendment of each of its existing Promissory notes. In connection with this amendment, investment funds managed by MSEC have financed an additional $3 million in Promissory notes to Sprout. The maturity date of the note facility of February 1, 2024 is consistent with the maturity date of the existing Promissory notes with MSEC and Neptune. The $13.0 million of amended Promissory notes are secured, have a 10% interest rate per annum, increasing by 1% per annum every three months during the term of the Promissory notes. The interest will be compounded and added to the principal amount on a quarterly basis. The amended Promissory notes may be converted, in whole or in part, at any time upon the mutual consent of Sprout, the Corporation and MSEC, into common shares of the Corporation. MSEC was issued 372,670 common shares of Neptune, of an approximate value of $570,000, in connection with this financing.

On October 11, 2022, the Corporation closed a registered direct offering of 3,208,557 common shares and 6,417,114 warrants in a concurrent private placement. The Corporation received gross proceeds of approximately $6.0 million in connection with the offering, before deducting placement agent fees and related offering expenses. The net proceeds to the Corporation from the offering, after deducting the placement agent fees and expenses, and the Corporation’s offering expenses were approximately $5.15 million.

On October 17, 2022, the Corporation announced that it had entered into a binding agreement for the sale of its Canadian cannabis business, including the Sherbrooke building, for $3.8 million (C$5.15 million) to be paid to the Corporation in cash. The transaction closed on November 9, 2022. The Corporation recorded a loss on remeasurement of the assets to fair value less cost of sale in the in the amount of $15.3 million in the six-months ended September 30, 2022.

On October 21, 2022, the Corporation announced that it had agreed to settle and resolve a putative shareholder class action lawsuit filed against Neptune and certain of its current and former officers and directors (refer to note 22(b)iii), captioned Gong v. Neptune Wellness Solutions, Inc. pending in the United States District Court for the Eastern District of New York, for a gross payment to the class of between $4 and $4.25 million, with the exact amount being within the Corporation’s control and dependent on the type of consideration used. The settlement is subject to court approval and certification by the court of the class. The Corporation recorded a litigation settlement expense of $4.0 million in the six-months ended September 30, 2022.

On August 26, 2022, Sprout entered into an additional $250,000 Secured Promissory Note, which is on the same terms as the Secured Promissory Note entered into with MSEC discussed above. Neptune issued 36,765 common shares for a value of $75,736 in connection with this Secured Promissory Note in connection with this commitment. On November 8, 2022, Sprout entered into an agreement to issue an additional $525,000 of Secured Promissory Notes, on the same terms as the Secured Promissory Note entered into with MSEC discussed above. In connection with this financing, Neptune will issue common shares to the holders of these Secured Promissory

F-47

Table of Contents

Notes for a value of $105,000. On March 10, 2023, Sprout entered into an additional $300,000 Secured Promissory Note, on the same terms as the Secured Promissory Note entered into with MSEC discussed above. Neptune issued a warrant to purchase up to 111,111 common shares at an exercise price of $0.54. The warrant expires March 10, 2028.

On January 13, 2023, Neptune announced that it has closed on a senior secured notes financing (such notes, the “Notes”) for gross proceeds of $4,000,000 with CCUR Holdings, Inc. and Symbolic Logic, Inc. (collectively, the “Noteholders”). The Notes will mature 12 months from the initial closing and bear interest at a rate of 16.5% per annum. The notes are secured by the assets of Neptune excluding the assets of Sprout. Interest will be payable in kind on the first 6 monthly payment dates after the initial closing date and thereafter will be payable in cash. Pursuant to the terms of the Notes, the Company also issued to the Noteholders warrants to purchase an aggregate of 850,000 shares of Neptune common stock, with each warrant exercisable for 5 years following the initial issuance at a price of $0.53 per common share. Subject to certain conditions, a prepayment of up to $2,000,000 was required no later than March 31, 2023. On March 9, 2023, the Company entered into a Waiver and First Amendment to the Notes (the “Waiver Agreement”). The Waiver Agreement waives certain administrative, regulatory and financial statement related covenants as further described in the Waiver Agreement as required by the terms of the Notes. The lender has the right to demand immediate repayment in the event of default. Furthermore, in connection with the Waiver Agreement, the Notes were amended to provide that the Purchasers shall be paid an exit fee in the aggregate amount of $200,000, payable as follows: (i) on or prior to May 15, 2023, $100,000 and (ii) on the Maturity Date (as defined in the Note Purchase Agreement), $100,000 and the interest rate was increased to 24% for a period extending until the Company meets specified criteria in the Waiver Agreement. In addition, the mandatory prepayment of $2,000,000 previously due March 31, 2023 was extended to be due no later than May 15, 2023.

On January 25, 2023, Neptune announced that its organic baby food brand subsidiary, Sprout Organics, has entered into an accounts receivable factoring facility with Alterna Capital Solutions, LLC (“Alterna”). The maximum available is $5 million. The terms of the agreement include a Funds Usage Fee of prime plus 1% with a minimum interest rate of 8% per annum. Alterna was granted a security interest in Sprout’s accounts receivable. The agreement will remain in effect for a 12-month period, effective January 23, 2023, and will be automatically renewed. Neptune provided a commercial guaranty in connection with this agreement.

​

On April 17, 2023, the Company entered into an agreement with the representative of the minority stockholders of Sprout that provides that the purchase price for the Call Option to purchase the remaining 49.9% of outstanding equity interests of Sprout, if the option is exercised prior to June 15, 2023, would be $13.0 million, consisting of at least $10.5 million in cash with the remainder payable in Common Shares.

​

Effective April 18, 2023, Sprout and MSEC amended the MSEC promissory note, providing that the maturity date was extended to December 31, 2024, and that the note will bear interest at the rate of 15.0% per annum through and including December 31, 2023, payable in kind, and 10.0% per annum, payable in kind, and 5.0% per annum payable in cash, from and after January 1, 2024. The foregoing amendment did not amend the terms of the other notes payable by Sprout.

​

​

​

​

​

F-48

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Condensed Consolidated Interim Balance Sheets

(Unaudited) (in U.S. dollars)

​

​

​

​

​

​

​

​

​

​

    

​

    

As at

    

As at

​

​

​

​

December 31,

​

March 31,

​

    

Notes

    

2022

    

2022

​

​

​

​

​

​

​

​

​

Assets

 

  

 

​

  

 

​

  

​

​

​

​

​

​

​

​

​

Current assets:

 

  

 

​

  

 

​

  

Cash and cash equivalents

​

​

​

$

3,404,023

​

$

8,726,341

Short-term investment

​

​

​

 

17,540

​

 

19,255

Trade and other receivables

​

​

​

 

4,919,568

​

 

7,599,584

Prepaid expenses

​

​

​

 

2,937,662

​

 

3,983,427

Inventories

 

4

​

 

16,942,808

​

 

17,059,406

Total current assets

​

​

​

 

28,221,601

​

 

37,388,013

​

​

​

​

​

​

​

​

​

Property, plant and equipment

 

5

​

 

1,862,667

​

 

21,448,123

Operating lease right-of-use assets

​

​

​

 

2,144,362

​

 

2,295,263

Intangible assets

 

6

​

 

17,343,178

​

 

21,655,035

Goodwill

 

6

​

 

14,396,380

​

 

22,168,288

Total assets

​

​

​

$

63,968,188

​

$

104,954,722

​

​

​

​

​

​

​

​

​

Liabilities and Equity

 

  

​

 

  

​

 

  

​

​

​

​

​

​

​

​

​

Current liabilities:

 

  

​

 

  

​

 

  

Trade and other payables

​

​

​

$

21,984,254

​

$

22,700,849

Current portion of operating lease liabilities

​

​

​

 

489,849

​

 

641,698

Deferred revenues

​

​

​

 

—

​

 

285,004

Provisions

 

7

​

 

5,936,933

​

 

1,118,613

Liability related to warrants

 

8

​

 

1,444,058

​

 

5,570,530

Total current liabilities

​

​

​

 

29,855,094

​

 

30,316,694

​

​

​

​

​

​

​

​

​

Operating lease liabilities

​

​

​

 

2,229,583

​

 

2,063,421

Loans and borrowings

 

9

​

 

15,936,658

​

 

11,648,320

Other liability

 

12(c)

​

 

23,000

​

 

88,688

Total liabilities

​

​

​

 

48,044,335

​

 

44,117,123

​

​

​

​

​

​

​

​

​

Shareholders' Equity:

 

  

​

 

  

​

 

  

Share capital - without par value (11,778,392 shares issued and outstanding as of December 31, 2022; 5,560,829 shares issued and outstanding as of March 31, 2022)

 

10(a)

​

 

321,791,727

​

 

317,051,125

Warrants

 

10(f)

​

 

6,117,600

​

 

6,079,890

Additional paid-in capital

​

​

​

 

57,303,078

​

 

55,980,367

Accumulated other comprehensive loss

​

​

​

 

(14,539,294)

​

 

(7,814,163)

Deficit

​

​

​

 

(357,075,395)

​

 

(323,181,697)

Total equity attributable to equity holders of the Company

​

​

​

 

13,597,716

​

 

48,115,522

​

​

​

​

​

​

​

​

​

Non-controlling interest

 

11

​

 

2,326,137

​

 

12,722,077

Total shareholders' equity

​

​

​

 

15,923,853

​

 

60,837,599

​

​

​

​

​

​

​

​

​

Commitments and contingencies

 

15

​

 

  

​

 

  

Subsequent events

 

18

​

 

  

​

 

  

Total liabilities and shareholders' equity

​

​

​

$

63,968,188

​

$

104,954,722

​

See accompanying notes to the condensed consolidated interim financial statements.

​

​

​

On behalf of the Board:

​

​

​

​

/s/ Julie Philips

​

/s/ Michael Cammarata

​

​

​

Julie Philips

​

Michael Cammarata

​

​

​

Chair of the Board

​

President and CEO

​

​

F-49

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss

(Unaudited) (in U.S. dollars)

For the three and nine-month periods ended December 31, 2022 and 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

Three-month periods ended

    

Nine-month periods ended

​

    

Notes

    

December 31, 2022

    

December 31, 2021

    

December 31, 2022

    

December 31, 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Revenue from sales net of excise taxes of nil and $643,476 (2021 - $746,870 and $1,127,569 )

​

​

​

$

11,945,092

​

$

14,371,095

​

$

39,668,246

​

$

36,502,490

Royalty revenues

​

​

​

 

263,816

​

 

276,670

​

 

766,736

​

 

701,330

Other revenues

​

​

​

 

—

​

 

20,164

​

 

32,996

​

 

61,249

Total revenues

​

16

​

 

12,208,908

​

 

14,667,929

​

 

40,467,978

​

 

37,265,069

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Cost of sales other than impairment loss on inventories, net of subsidies of nil and nil (2021 - ($3,952) and $927,753 )

​

​

​

 

(10,328,349)

​

 

(13,026,604)

​

 

(37,293,901)

​

 

(36,109,528)

Impairment gain (loss) on inventories

​

4

​

 

—

​

 

12,765

​

 

(3,079,997)

​

 

(2,996,333)

Total Cost of sales

​

​

​

 

(10,328,349)

​

 

(13,013,839)

​

 

(40,373,898)

​

 

(39,105,861)

Gross profit (loss)

​

​

​

 

1,880,559

​

 

1,654,090

​

 

94,080

​

 

(1,840,792)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Research and development expenses

​

​

​

 

(28,836)

​

 

(301,645)

​

 

(451,121)

​

 

(652,421)

Selling, general and administrative expenses, net of subsidies of nil and nil (2021 - ($427)and $100,178 )

​

12(c)

​

 

(8,727,323)

​

 

(18,429,528)

​

 

(35,188,695)

​

 

(49,902,087)

Impairment loss related to intangible assets

​

6

​

 

—

​

 

—

​

 

(2,593,529)

​

 

—

Impairment loss related to property, plant and equipment

​

5

​

 

—

​

 

—

​

 

—

​

 

(2,404,459)

Impairment loss on assets held for sale

​

2(d)

​

 

—

​

 

—

​

 

(15,346,119)

​

 

—

Impairment loss on right of use assets

​

​

​

 

(271,057)

​

 

—

​

 

(271,057)

​

 

—

Impairment loss related to goodwill

​

6

​

 

—

​

 

—

​

 

(7,570,471)

​

 

—

Net gain on sale of property, plant and equipment

​

​

​

 

84,998

​

 

6,490

​

 

170,000

​

 

6,490

Loss from operating activities

​

​

​

 

(7,061,659)

​

 

(17,070,593)

​

 

(61,156,912)

​

 

(54,793,269)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Finance income

​

​

​

 

—

​

 

2,956

​

 

1,440

​

 

10,299

Finance costs

​

​

​

 

(1,362,776)

​

 

(363,466)

​

 

(2,658,305)

​

 

(1,180,368)

Loss on issuance of derivatives

​

8

​

 

(1,029,614)

​

 

—

​

 

(3,156,569)

​

 

—

Foreign exchange gain (loss)

​

​

​

 

524,571

​

 

(601,347)

​

 

6,545,401

​

 

(386,865)

Change in revaluation of marketable securities

​

​

​

 

—

​

 

(17,640)

​

 

—

​

 

(107,564)

Gain on revaluation of derivatives

​

8, 14

​

 

8,367,871

​

 

1,245,134

​

 

16,083,681

​

 

8,706,973

Gain on settlement of liability

​

​

​

 

66,169

​

 

—

​

 

66,169

​

 

—

​

​

​

​

 

6,566,221

​

 

265,637

​

 

16,881,817

​

 

7,042,475

Loss before income taxes

​

​

​

 

(495,438)

​

 

(16,804,956)

​

 

(44,275,095)

​

 

(47,750,794)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Income tax (recovery) expense

​

​

​

 

(2,013)

​

 

50

​

 

(14,543)

​

 

(11,894)

Net loss

​

​

​

 

(497,451)

​

 

(16,804,906)

​

 

(44,289,638)

​

 

(47,762,688)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Other comprehensive loss

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Net change in unrealized foreign currency gains (losses) on translation of net investments in foreign operations  (tax effect of nil for all periods)

​

​

​

 

(231,490)

​

 

332,074

​

 

(6,725,131)

​

 

(384,432)

Total other comprehensive loss

​

​

​

 

(231,490)

​

 

332,074

​

 

(6,725,131)

​

 

(384,432)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Total comprehensive loss

​

​

​

$

(728,941)

​

$

(16,472,832)

​

$

(51,014,769)

​

$

(48,147,120)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Net income (loss) attributable to:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Equity holders of the Company

​

​

​

$

1,288,110

​

$

(15,009,015)

​

$

(33,893,698)

​

$

(43,029,506)

Non-controlling interest

​

11

​

 

(1,785,561)

​

 

(1,795,891)

​

 

(10,395,940)

​

 

(4,733,182)

Net loss

​

​

​

$

(497,451)

​

$

(16,804,906)

​

$

(44,289,638)

​

$

(47,762,688)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Total comprehensive income (loss) attributable to:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Equity holders of the Company

​

​

​

$

1,056,620

​

$

(14,676,941)

​

$

(40,618,829)

​

$

(43,413,938)

Non-controlling interest

​

​

​

 

(1,785,561)

​

 

(1,795,891)

​

 

(10,395,940)

​

 

(4,733,182)

Total comprehensive loss

​

​

​

$

(728,941)

​

$

(16,472,832)

​

$

(51,014,769)

​

$

(48,147,120)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic income (loss) per share attributable to:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Common Shareholders of the Company

​

13

​

$

0.06

​

$

(3.14)

​

$

(4.01)

​

$

(9.03)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Diluted income (loss) per share attributable to:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Common Shareholders of the Company

​

13

​

$

0.06

​

$

(3.14)

​

$

(4.01)

​

$

(9.03)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic weighted average number of common shares

​

​

​

 

11,030,838

​

 

4,781,190

​

 

8,462,761

​

 

4,765,762

Diluted weighted average number of common shares

​

​

​

 

11,094,967

​

 

4,781,190

​

 

8,462,761

​

 

4,765,762

​

The Company has removed certain captions compared to prior filings, as they are not required by US GAAP.

See accompanying notes to the condensed consolidated interim financial statements.

​

​

F-50

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Condensed Consolidated Interim Statements of Changes in Equity

(Unaudited) (in U.S. dollars)

For the three and nine-month periods ended December 31, 2022 and 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Accumulated

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

other 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

comprehensive

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

Share Capital

​

​

​

​

​

​

​

loss

​

​

​

​

Equity

​

Equity

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Additional

​

Cumulative

​

​

​

​

attributable to

​

attributable to

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

paid-in

​

translation

​

​

​

​

equity holders

​

non-controlling

​

​

​

​

    

Notes

    

Number

    

Dollars

    

Warrants

    

capital

    

account

    

Deficit

    

of the Company

    

interest

    

Total

Balance as at March 31, 2022

​

​

​

5,560,829

​

$

317,051,125

​

$

6,079,890

​

$

55,980,367

​

$

(7,814,163)

​

$

(323,181,697)

​

$

48,115,522

​

$

12,722,077

​

$

60,837,599

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Net loss for the period

​

​

 

—

 

​

—

 

​

—

 

​

—

 

​

—

 

​

(33,893,698)

 

​

(33,893,698)

 

​

(10,395,940)

 

​

(44,289,638)

Other comprehensive loss for the period

​

​

 

—

 

​

—

 

​

—

 

​

—

 

​

(6,725,131)

 

​

—

 

​

(6,725,131)

 

​

—

 

​

(6,725,131)

Total comprehensive loss for the period

​

​

 

—

 

​

—

 

​

—

 

​

—

 

​

(6,725,131)

 

​

(33,893,698)

 

​

(40,618,829)

 

​

(10,395,940)

 

​

(51,014,769)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Transaction with equity holders recorded directly in equity

​

​

 

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

Contributions by and distribution to equity holders

​

​

 

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

Share-based payment

 

12

 

—

 

​

—

 

​

—

 

​

2,832,438

 

​

—

 

​

—

 

​

2,832,438

 

​

—

 

​

2,832,438

Common shares issued in connection with debt financing

​

9, 10(g)

​

409,435

​

​

645,921

​

​

—

​

​

—

​

​

—

​

​

—

​

​

645,921

​

​

—

​

​

645,921

Warrants reclassified from liability

 

8

 

—

 

​

—

 

​

37,710

 

​

—

 

​

—

 

​

—

 

​

37,710

 

​

—

 

​

37,710

Warrants exercised

​

8

​

384,446

​

​

1,769,000

​

​

—

​

​

—

​

​

—

​

​

—

​

​

1,769,000

​

​

—

​

​

1,769,000

RSUs released, net of withholding taxes

 

10(d), 12(b)(ii)

 

269,599

 

​

2,325,681

 

​

—

 

​

(1,509,727)

 

​

—

 

​

—

 

​

815,954

 

​

—

 

​

815,954

Direct Offering, net of issuance costs

​

8

​

5,154,083

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Total contributions by and distribution to equity holders

​

​

 

6,217,563

 

​

4,740,602

 

​

37,710

 

​

1,322,711

 

​

—

 

​

—

 

​

6,101,023

 

​

—

 

​

6,101,023

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Balance as at December 31, 2022

​

​

 

11,778,392

​

$

321,791,727

​

$

6,117,600

​

$

57,303,078

​

$

(14,539,294)

​

$

(357,075,395)

​

$

13,597,716

​

$

2,326,137

​

$

15,923,853

​

See accompanying notes to the condensed consolidated interim financial statements.

​

F-51

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Condensed Consolidated Interim Statements of Changes in Equity

(Unaudited) (in U.S. dollars)

For the three and nine-month periods ended December 31, 2022 and 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

​

Attributable to equity holders of the Company

    

    

​

    

    

​

    

    

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Accumulated

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

other 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

comprehensive

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

Share Capital

​

​

​

​

​

​

​

loss

​

​

​

​

Equity

​

Equity

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Additional

​

Cumulative

​

​

​

​

attributable to

​

attributable to

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

paid-in

​

translation

​

​

​

​

equity holders

​

non-controlling

​

​

​

​

    

​

    

Number

    

Dollars

    

Warrants

    

capital

    

account

    

Deficit

    

of the Company

    

interest

    

Total

Balance as at September 30, 2022

​

​

​

8,516,894

​

$

321,769,905

​

$

6,079,890

​

$

56,306,211

​

$

(14,307,804)

​

$

(358,363,505)

​

$

11,484,697

​

$

4,111,698

​

$

15,596,395

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Net loss for the period

​

​

 

—

 

​

—

 

​

—

 

​

—

 

​

—

 

​

1,288,110

 

​

1,288,110

 

​

(1,785,561)

 

​

(497,451)

Other comprehensive loss for the period

​

​

 

—

 

​

—

 

​

—

 

​

—

 

​

(231,490)

 

​

—

 

​

(231,490)

 

​

—

 

​

(231,490)

Total comprehensive loss for the period

​

​

 

—

 

​

—

 

​

—

 

​

—

 

​

(231,490)

 

​

1,288,110

 

​

1,056,620

 

​

(1,785,561)

 

​

(728,941)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Transaction with equity holders recorded directly in equity

​

​

 

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

Contributions by and distribution to equity holders

​

​

 

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

Share-based payment

 

12

 

—

 

​

—

 

​

—

 

​

1,005,455

 

​

—

 

​

—

 

​

1,005,455

 

​

—

 

​

1,005,455

Warrants reclassified from liability

 

8

 

—

 

​

—

 

​

37,710

 

​

—

 

​

—

 

​

—

 

​

37,710

 

​

—

 

​

37,710

RSUs released, net of withholding taxes

 

10(d), 12(b)(ii)

 

52,941

 

​

21,822

 

​

—

 

​

(8,588)

 

​

—

 

​

—

 

​

13,234

 

​

—

 

​

13,234

Direct Offering, net of issuance costs

​

8

​

3,208,557

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Total contributions by and distribution to equity holders

​

​

 

3,261,498

 

​

21,822

 

​

37,710

 

​

996,867

 

​

—

 

​

—

 

​

1,056,399

 

​

—

 

​

1,056,399

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Balance as at December 31, 2022

​

​

 

11,778,392

​

$

321,791,727

​

$

6,117,600

​

$

57,303,078

​

$

(14,539,294)

​

$

(357,075,395)

​

$

13,597,716

​

$

2,326,137

​

$

15,923,853

​

See accompanying notes to the condensed consolidated interim financial statements.

​

F-52

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Condensed Consolidated Interim Statements of Changes in Equity (Continued)

(Unaudited) (in U.S. dollars)

For the three and nine-month periods ended December 31, 2022 and 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Accumulated

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

other 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

comprehensive

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

Share Capital

​

​

​

​

​

​

​

loss

​

​

​

​

Equity

​

Equity

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Additional

​

Cumulative

​

​

​

​

attributable to

​

attributable to

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

paid-in

​

translation

​

​

​

​

equity holders

​

non-controlling

​

​

​

​

    

Notes

    

Number

    

Dollars

    

Warrants

    

capital

    

account

    

Deficit

    

of the Company

    

interest

    

Total

Balance as at March 31, 2021

​

​

​

4,732,090

​

$

306,618,482

​

$

5,900,973

​

$

59,625,356

​

$

(8,567,106)

​

$

(248,209,952)

​

$

115,367,753

​

$

22,177,556

​

$

137,545,309

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Net loss for the period

​

​

 

—

 

​

—

 

​

—

 

​

—

 

​

—

 

​

(43,029,506)

 

​

(43,029,506)

 

​

(4,733,182)

 

​

(47,762,688)

Other comprehensive loss for the period

​

​

 

—

 

​

—

 

​

—

 

​

—

 

​

(384,432)

 

​

—

 

​

(384,432)

 

​

—

 

​

(384,432)

Total comprehensive loss for the period

​

​

 

—

 

​

—

 

​

—

 

​

—

 

​

(384,432)

 

​

(43,029,506)

 

​

(43,413,938)

 

​

(4,733,182)

 

​

(48,147,120)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Transaction with equity holders recorded directly in equity

​

​

 

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

Contributions by and distribution to equity holders

​

​

 

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

 

​

​

Share-based payment

 

12

 

—

 

​

—

 

​

—

 

​

6,251,713

 

​

—

 

​

—

 

​

6,251,713

 

​

—

 

​

6,251,713

Warrants in exchange of services rendered by non-employees

 

10(f)(i)

 

—

 

​

—

 

​

178,917

 

​

—

 

​

—

 

​

—

 

​

178,917

 

​

—

 

​

178,917

RSUs released, net of withholding taxes

 

10(d), 12(b)(ii)

 

51,095

 

​

6,639,592

 

​

—

 

​

(7,618,291)

 

​

—

 

​

—

 

​

(978,699)

 

​

—

 

​

(978,699)

Total contributions by and distribution to equity holders

​

​

 

51,095

 

​

6,639,592

 

​

178,917

 

​

(1,366,578)

 

​

—

 

​

—

 

​

5,451,931

 

​

—

 

​

5,451,931

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Balance as at December 31, 2021

​

​

 

4,783,185

​

$

313,258,074

​

$

6,079,890

​

$

58,258,778

​

$

(8,951,538)

​

$

(291,239,458)

​

$

77,405,746

​

$

17,444,374

​

$

94,850,120

​

See accompanying notes to the condensed consolidated interim financial statements.

​

F-53

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Condensed Consolidated Interim Statements of Changes in Equity (Continued)

(Unaudited) (in U.S. dollars)

For the three and nine-month periods ended December 31, 2022 and 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

​

Attributable to equity holders of the Company

    

    

​

    

    

​

    

    

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Accumulated

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

other 

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

comprehensive

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

Share Capital

​

​

​

​

​

​

​

loss

​

​

​

​

Equity

​

Equity

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Additional

​

Cumulative

​

​

​

​

attributable to

​

attributable to

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

paid-in

​

translation

​

​

​

​

equity holders

​

non-controlling

​

​

​

​

    

​

    

Number

    

Dollars

    

Warrants

    

capital

    

account

    

Deficit

    

of the Company

    

interest

    

Total

Balance as at September 30, 2021

​

​

​

4,779,141

​

$

312,187,161

​

$

6,054,623

​

$

58,316,478

​

$

(9,283,612)

​

$

(276,230,443)

​

$

91,044,207

​

$

19,240,265

​

$

110,284,472

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Net loss for the period

​

​

 

—

 

​

—

 

​

—

 

​

—

 

​

—

 

​

(15,009,015)

 

​

(15,009,015)

 

​

(1,795,891)

 

​

(16,804,906)

Other comprehensive income for the period

​

​

 

—

 

​

—

 

​

—

 

​

—

 

​

332,074

 

​

—

 

​

332,074

 

​

—

 

​

332,074

Total comprehensive income for the period

​

​

 

—

 

​

—

 

​

—

 

​

—

 

​

332,074

 

​

(15,009,015)

 

​

(14,676,941)

 

​

(1,795,891)

 

​

(16,472,832)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Transaction with equity holders recorded directly in equity

​

​

 

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

Contributions by and distribution to equity holders

​

​

 

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

 

​

  

Share-based payment

 

12

 

—

 

​

—

 

​

—

 

​

1,013,795

 

​

—

 

​

—

 

​

1,013,795

 

​

—

 

​

1,013,795

Warrants in exchange of services rendered by non-employees

 

10(f)(i)

 

—

 

​

—

 

​

25,267

 

​

—

 

​

—

 

​

—

 

​

25,267

 

​

—

 

​

25,267

RSUs released, net of withholding taxes

 

10(d), 12(b)(ii)

 

4,044

 

​

1,070,913

 

​

—

 

​

(1,071,495)

 

​

—

 

​

—

 

​

(582)

 

​

—

 

​

(582)

Total contributions by and distribution to equity holders

​

​

 

4,044

 

​

1,070,913

 

​

25,267

 

​

(57,700)

 

​

—

 

​

—

 

​

1,038,480

 

​

—

 

​

1,038,480

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Balance as at December 31, 2021

​

​

 

4,783,185

​

$

313,258,074

​

$

6,079,890

​

$

58,258,778

​

$

(8,951,538)

​

$

(291,239,458)

​

$

77,405,746

​

$

17,444,374

​

$

94,850,120

​

See accompanying notes to the condensed consolidated interim financial statements.

​

​

F-54

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited) (in U.S. dollars)

For the three and nine-month periods ended December 31, 2022 and 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

Nine-month periods ended

​

​

​

​

December 31,

​

December 31,

​

    

Notes

    

2022

    

2021

​

​

​

​

​

​

​

​

​

Cash flows from operating activities:

​

​

​

​

​

​

​

​

Net loss for the period

​

​

​

$

(44,289,638)

​

$

(47,762,688)

Adjustments:

​

​

​

​

​

​

​

​

Depreciation of property, plant and equipment

​

​

​

 

652,196

​

 

2,135,961

Non-cash lease expense

​

​

​

 

385,800

​

 

563,428

Amortization of intangible assets

​

​

​

 

1,352,787

​

 

2,436,219

Impairment loss on goodwill

​

6

​

 

7,570,471

​

 

—

Share-based payment

​

12

​

 

2,832,438

​

 

6,251,713

Impairment loss on inventories

​

4

​

 

3,079,997

​

 

2,996,333

Expected credit losses

​

​

​

 

496,846

​

 

1,978,705

Non-employee compensation related to warrants

​

10(f)(i)

​

 

—

​

 

178,917

Loss on issuance of derivatives

​

​

​

 

3,156,569

​

 

—

Net finance expense

​

​

​

 

2,656,865

​

 

1,170,069

Unrealized foreign exchange (gain) loss

​

​

​

 

(6,545,401)

​

 

10,568

Change in revaluation of marketable securities

​

​

​

 

—

​

 

107,564

Interest received

​

​

​

 

1,440

​

 

7,796

Interest paid

​

​

​

 

(215,019)

​

 

(961,463)

Gain on settlement of liability

​

​

​

 

(66,169)

​

 

—

Revaluation of derivatives

​

​

​

 

(16,083,681)

​

 

(8,706,973)

Impairment loss on property, plant and equipment

​

5

​

 

—

​

 

2,404,459

Impairment loss on assets held for sale

​

5

​

 

15,346,119

​

 

—

Impairment loss on right-of-use assets

​

​

​

 

271,057

​

 

—

Impairment loss on intangibles

​

​

​

 

2,593,529

​

 

—

Payment of lease liabilities

​

​

​

 

(253,795)

​

 

(236,802)

Income tax expense

​

​

​

 

14,543

​

 

11,894

Net gains from sale of property, plant and equipment

​

​

​

 

(170,000)

​

 

—

Changes in operating assets and liabilities

​

​

​

 

6,543,514

​

 

(6,394,409)

Income taxes paid

​

​

​

 

(360)

​

 

(11,894)

Net cash used in operating activities

​

​

​

 

(20,669,892)

​

 

(43,820,603)

Cash flows from investing activities:

​

​

​

​

​

​

​

​

Proceeds on sale of assets

​

​

​

 

170,000

​

 

—

Proceeds from the sale of Cannabis assets

​

2(d)

​

 

3,121,778

​

 

—

Acquisition of property, plant and equipment

​

​

​

 

(601,743)

​

 

(1,034,982)

Acquisition of intangible assets

​

​

​

 

—

​

 

(434,168)

Sales of Acasti shares

​

21

​

 

—

​

 

44,509

Net cash provided by (used in) investing activities:

​

​

​

 

2,690,035

​

 

(1,424,641)

Cash flows from financing activities:

​

​

​

​

​

​

​

​

Increase in loans and borrowings, net of financing fees

​

​

​

 

3,800,000

​

 

—

Withholding taxes paid pursuant to the settlement of non-treasury RSUs

​

​

​

 

(574,153)

​

 

(978,699)

Gross proceeds from the issuance of shares and warrants through a Direct Offering

​

8

​

 

5,000,002

​

 

—

Proceeds from the issuance of shares and warrants through a Registered Direct Offering Priced At-The-Market and Concurrent Private Placement

​

8

​

 

6,000,002

​

 

—

Warrants issuance costs

​

8

​

 

(1,330,211)

​

 

—

Proceeds from exercise of options and pre-funded warrants

​

8

​

 

65

​

 

—

Net cash provided by (used in) financing activities:

​

​

​

 

12,895,705

​

 

(978,699)

Foreign exchange loss on cash and cash equivalents

​

​

​

 

(238,166)

​

 

(454,341)

Net decrease in cash and cash equivalents

​

​

​

 

(5,322,318)

​

 

(46,678,284)

Cash and cash equivalents, beginning of period

​

​

​

 

8,726,341

​

 

59,836,889

Cash and cash equivalents as at December 31, 2022 and 2021

​

​

​

$

3,404,023

​

$

13,158,605

​

​

​

​

​

​

​

​

​

Cash and cash equivalents are comprised of:

​

​

​

 

  

​

 

  

Cash

​

​

​

$

3,404,023

​

$

13,158,605

​

See accompanying notes to the condensed consolidated interim financial statements.

​

F-55

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.

Condensed Consolidated Interim Statements of Cash Flows (continued)

(Unaudited) (in U.S. dollars)

For the three and nine-month periods ended December 31, 2022 and 2021

Additional cash flow disclosure:

Changes in operating assets and liabilities:

​

​

​

​

​

​

​

​

​

Nine-month periods ended

​

​

December 31,

​

December 31,

​

    

2022

    

2021

​

​

​

​

​

​

​

Trade and other receivables

​

$

2,489,793

​

$

(2,541,426)

Prepaid expenses

​

 

798,493

​

 

(2,162,076)

Inventories

​

 

(2,544,635)

​

 

(2,720,569)

Trade and other payables

​

 

1,599,623

​

 

2,684,869

Deferred revenues

​

 

(285,006)

​

 

(303,765)

Provisions

​

 

4,550,934

​

 

(1,112,762)

Other liabilities

​

 

(65,688)

​

 

(238,680)

Changes in operating assets and liabilities

​

$

6,543,514

​

$

(6,394,409)

​

​

​

​

​

F-56

Table of Contents

1.Reporting entity:

Neptune Wellness Solutions Inc. (the “Company” or “Neptune”) is incorporated under the Business Corporations Act (Québec) (formerly Part 1A of the Companies Act (Québec)). The Company is domiciled in Canada and its registered office is located at 100-545 Promenade du Centropolis, Laval, Québec. The condensed consolidated interim financial statements of the Company comprise the Company and its subsidiaries, Biodroga Nutraceuticals Inc. (“Biodroga”), SugarLeaf Labs, Inc. (“SugarLeaf”), 9354-7537 Québec Inc., Neptune Holding USA, Inc., Neptune Health & Wellness Innovation, Inc., Neptune Forest, Inc., Neptune Care, Inc. (formerly known as Neptune Ocean, Inc.), Neptune Growth Ventures, Inc., 9418-1252 Québec Inc., Neptune Wellness Brands Canada, Inc. and Sprout Foods, Inc. (“Sprout”). All subsidiaries are wholly-owned, except for Sprout for which the Company has a 50.1% interest.

Neptune is a diversified and fully integrated health and wellness company. Through its flagship consumer-facing brands, Neptune Wellness, Forest Remedies™, Biodroga, MaxSimil®, Sprout®, Nosh® and NurturMe®, Neptune is redefining health and wellness by building a broad portfolio of natural, plant-based, sustainable and purpose-driven lifestyle brands and consumer packaged goods products in key health and wellness markets, including nutraceuticals, organic baby food, personal care and home care.

On June 8, 2022, Neptune announced the launch of a new Consumer Packaged Goods (“CPG”) focused strategic plan to reduce costs, improve the Company’s path to profitability and enhance current shareholder value. This plan builds on the Company’s initial strategic review that took place in fall of 2021 and focuses on two primary actions: (1) the divestiture of the Company’s Canadian cannabis business and (2) a realignment of focus and operational resources toward increasing the value of Neptune’s CPG business.

Sale of Cannabis Assets

On October 17, 2022, Neptune announced an agreement to sell substantially all of its Cannabis assets (including, but not limited to, the production facility located in Sherbrooke, Québec and certain legal entities including various related brand names and trademarks, including MoodRing and PanHash) to PurCann Pharma Inc. These assets were reported as Assets Held For Sale (“AHFS”) as of September 30, 2022. On November 9, 2022 the sale to PurCann Pharma Inc. was completed.

Share consolidation and delisting from TSX

On June 9, 2022, Neptune announced the completion of the Company’s proposed consolidation of its common shares (the “Common Shares”) on the basis of one (1) post-consolidation Common Share for every thirty-five (35) pre-consolidation Common Shares (the “Share Consolidation”). The post-consolidation Common Shares commenced trading on the Nasdaq and the TSX at the market open on June 13, 2022. The Share Consolidation reduced the number of Common Shares issued and outstanding from approximately 198 million Common Shares to approximately 5.7 million Common Shares as at June 13, 2022. These consolidated financial statements have been retroactively adjusted to reflect the Share Consolidation. As a result, the number of common shares, options, deferred share units (“DSUs”), restricted share units (“RSUs”), restricted shares and warrants, issuance and exercise prices of options, DSUs, RSUs, restricted shares and warrants, loss per share reflect the Share Consolidation.

On July 29, 2022, Neptune announced that it has applied and received approval for a voluntary delisting of its common shares from the Toronto Stock Exchange (“TSX”). The delisting from the TSX will not affect the Company’s listing on the Nasdaq Capital Market (“Nasdaq”). Neptune’s common shares were delisted from the TSX at the close of trading on August 15, 2022.

Going concern

These condensed consolidated interim financial statements have been prepared on a going concern basis, which presumes that the Company will continue realizing its assets and discharging its liabilities in the normal course of business for the foreseeable future. The Company has incurred significant operating losses and negative cash flows from operations since inception. To date, the Company has financed its operations primarily through the public offering and private placement of Common Share units, consisting of Common Shares and warrants, and convertible debt, the proceeds from research grants and research tax credits, and the exercises of warrants, rights and options. For the nine-month period ended December 31, 2022, the Company incurred a net loss of $44.3 million and negative cash flows from operations of $20.7 million, and had an accumulated deficit of $357.1 million as of December 31, 2022. For the year ended March 31, 2022, the Company incurred a net loss of $84.4 million and negative cash flows from operations of $54.3 million. Furthermore, as at December 31, 2022, the Company’s current liabilities and expected level of expenses for the next twelve months exceed cash on hand of $3.4 million and its total current liabilities exceed its total current assets. Accordingly, the Company is required to actively manage its liquidity and expenses and payments of payables are not being made as the amounts become due for certain suppliers.

F-57

Table of Contents

The Company currently has no committed sources of financing available other than from the transactions completed after period-end from the debt financing and the accounts receivable factoring facility (see note 18).

As of the date these financial statements are authorized for issuance, the cash balance is expected to be sufficient to operate the business for the next one to two months under the current business plan. The Company requires funding in the very near term in order to continue its operations. If the Company is unable to obtain funding in the near-term, it may have to cease operations and liquidate its assets.

These conditions cast substantial doubt about the Company’s ability to continue as a going concern.

Going forward, the Company will seek additional financing in various forms. To achieve the objectives of its business plan, Neptune plans to raise the necessary funds through additional securities offerings and the establishment of strategic alliances. The ability of the Company to complete the needed financing and ultimately achieve profitable operations is dependent on a number of factors outside of the Company’s control. The Company’s business plan is dependent upon, among other things, its ability to achieve and maintain profitability, continue to obtain adequate ongoing debt and/or equity financing to finance operations within and beyond the next twelve months. See note 18 regarding a new debt issuance in January 2023 and related waiver.

While the Company has been successful in obtaining financing from public issuances and private placements, there is no certainty as to future financings.

These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the going concern basis not be valid. These adjustments could be material.

2.Basis of preparation:

(a)Adoption of U.S. GAAP:

As at March 31, 2022, the Company retroactively adopted United States generally accepted accounting principles (“US GAAP”). The consolidated financial statements of the Company have been prepared in accordance with US GAAP for all periods presented. Comparative figures, which were previously prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, have been adjusted as required to be compliant with the Company’s accounting policies under US GAAP.

(b)Functional and reporting currency:

Effective March 31, 2022, the Company changed its reporting currency from Canadian dollars (“CAD”) to U.S. dollars (“USD”). This change in reporting currency has been applied retroactively such that all amounts in the consolidated financial statements of the Company and the accompanying notes thereto are expressed in U.S. dollars. References to “$” and “USD” are U.S. dollars and references to “CAD $” and “CAD” are to Canadian dollars. For comparative purposes, historical consolidated financial statements were recast in U.S. dollars by translating (i) assets and liabilities at the closing exchange rate in effect at the end of the respective period, (ii) revenues, expenses and cash flows at the average exchange rate in effect for the respective period and (iii) equity transactions at historical exchange rates. Translation gains and losses are included as part of the cumulative foreign currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive loss.

The assets and liabilities of foreign operations with a functional currency other than the U.S. dollar are translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenue and expenses are translated at the monthly average exchange rates for the period. Differences arising from the exchange rate changes are recorded within foreign currency translation adjustments, a component of other comprehensive income (loss).

Transactions in foreign currencies are translated to the respective functional currencies of the Company’s subsidiaries at the average exchange rates for the period. The monetary items denominated in currencies other than the functional currency of a subsidiary are translated at the exchange rates prevailing at the balance sheet date. Non-monetary items denominated in currencies other than the functional currency are translated at historical rates. Gains and losses resulting from re-measurement are recorded in the Company’s consolidated statement of loss as foreign exchange gain (loss).

As a result of the divesture of its Canadian cannabis business, a significant portion of its remaining revenues, expenses, assets and liabilities are denominated in US dollars. In addition, and as a result of the increasing operations in the U.S., Neptune changed its

F-58

Table of Contents

functional currency from Canadian dollars (“CAD”) to U.S. dollars (“USD”), effective October 1, 2022. This change in functional currency has been applied prospectively from the date of the change.

All assets and liabilities were reported using the same USD values as previously reported under the USD reporting currency described above. The cumulative translation account in Neptune was effectively frozen and the accumulated balance as at September 30, 2022 is carried forward. Changes in the cumulative translation account after October 1, 2022 relate to conversion of subsidiary financial statements whose functional currency is not USD. As of October 1, 2022, the 2020 Warrants and 2021 Warrants no longer met the criteria for liability classification and therefore were reclassified to equity on this date (see note 10(f)).

(c)Use of estimates:

The preparation of the condensed consolidated interim financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from the estimates made by management.

Estimates are based on management’s best knowledge of current events and actions that the Company 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.

Estimates include the following:

●Estimating the write down of inventory.
●Estimating expected credit losses for receivables.
●Estimating the recoverable amount of non-financial assets, to determine and measure impairment losses on goodwill, intangibles, and property, plant and equipment.
●Estimating the lease term of contracts with extension options and termination options.
●Estimating the revenue from contracts with customers subject to variable consideration.
●Estimating the fair value of bonus, options and warrants that are based on market and non-market conditions (note 12).
●Estimating the fair value of the identifiable assets acquired, liabilities assumed, and consideration transferred of the acquired business, including the related contingent consideration and call option.
●Estimating the litigation provision as it depends upon the outcome of proceedings (note 7).
(d)(i)Assets held for sale:

On June 8, 2022, the Company announced a planned divestiture of the Canadian cannabis business and that the Company would focus on winding up its cannabis operations pending one or more sales transactions. Following this announcement, the Canadian cannabis disposal group assets met the criteria to be classified as held for sale. At September 30, 2022, the disposal group had been measured at fair value less cost to sell and impaired to reflect the asset sale and purchase agreement (the “ASPA”) signed with a third-party on October 16, 2022 for $3,790,340 ($5,150,000 CAD), with cost to sell the Canadian cannabis disposal group asset in the amount of $586,783, for net assets held for sale of $3,203,557, resulting in impairment losses of nil and $15,346,119 respectively for the three and nine-month periods ended December 31, 2022. The transaction closed on November 9, 2022.

3.Significant accounting policies:

These unaudited Consolidated Interim Financial Statements have been prepared in accordance U.S. GAAP and on a basis consistent with those accounting principles followed by the Company and disclosed in note 2 of its Annual Consolidated Financial Statements for the year ended March 31, 2022, (except as disclosed in note 3(c) to these financial statements) and should be read in conjunction with and Notes thereto.

(a)

Basis of consolidation:

These consolidated financial statements include the accounts of the Company and its subsidiaries in which the Company has a controlling financial interest. All intercompany balances and transactions have been eliminated from the Company’s consolidated financial statements. On February 10, 2021, Neptune acquired a 50.1% interest in Sprout Foods, Inc. (“Sprout” or “Sprout Foods”). The accounts of the subsidiary are included in the consolidated financial statements from that date.

F-59

Table of Contents

(b)

New standards and interpretations not yet adopted:

Accounting pronouncements not yet adopted

In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC Topic 805, Business Combinations, ASU 2021-18 improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the (1) recognition of an acquired contract liability and (2) payment terms and their direct effect on subsequent revenue recognized by the acquirer. ASU 2021-08 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2022. Management has not yet evaluated the impact of this ASU on the Company’s consolidated financial statements and the Company does not intend to adopt ASU 2021-18 until its fiscal year beginning April 1, 2023.

In June 2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, and earlier adoption is permitted beginning in the first quarter of fiscal 2019. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (“ASU 2019-10”). The purpose of this amendment is to create a two-tier rollout of major updates, staggering the effective dates between larger public companies and all other entities. This granted certain classes of companies, including Smaller Reporting Companies (“SRCs”), additional time to implement major FASB standards, including ASU 2016-13. Larger public companies will still have an effective date for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All other entities are permitted to defer adoption of ASU 2016-13, and its related amendments, until the earlier of fiscal periods beginning after December 15, 2022. The Company will adopt ASU 2016-13 for its fiscal year beginning April 1, 2023, and the Company’s evaluation of the potential impact of adoption is in process.

(c)

Assets held for sale:

The Company classifies long-lived assets or disposal groups to be sold as assets held for sale in the period in which all of the following conditions are met: management, having the authority to approve the action, commits to a plan to sell the asset or disposal group; the asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets or disposal groups; an active program to locate a buyer and other actions required to complete the plan to sell the asset or disposal group have been initiated; the sale of the asset or disposal group is probable, and transfer of the asset or disposal group is expected to qualify for recognition of a completed sale within one year; the assets of disposal group are subject to an asset sale and purchase agreement (see notes 2(d)); and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Assets and liabilities directly associated with assets held for sale are measured at the lower of carrying amount and fair value less costs to sell immediately prior to their classification. Any loss resulting from this measurement is recognized in the period in which the held-for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset or disposal group until the date of the sale.

Assets classified as held for sale, and the assets and liabilities included within the disposal group classified as held for sale are presented separately on the face of the balance sheet. Non-current assets that are classified as held for sale are not depreciated.

4.Inventories:

​

​

​

​

​

​

​

​

​

    

December 31,

    

March 31,

​

​

2022

​

2022

​

​

​

​

​

​

​

Raw materials

​

$

5,154,170

​

$

7,920,190

Work in progress

​

 

—

​

 

1,016,916

Finished goods

​

 

11,433,593

​

 

7,974,690

Supplies and spare parts

​

 

355,045

​

 

147,610

​

​

$

16,942,808

​

$

17,059,406

​

During the three and nine-month periods ended December 31, 2022, the Company recorded impairment losses of nil and $3,079,997 respectively (2021 – impairment losses of $2,996,333 and $2,996,333, respectively) as a result of inventory measurements to their net

F-60

Table of Contents

realizable value. The impairment loss during the nine-month period ended December 31, 2022 is related to cannabis inventories that were impaired because they were subsequently sold or expected to be sold at prices lower than costs.

5.Property, plant and equipment:

As at September 30, 2022, property, plant and equipment related to the Canadian cannabis asset group were classified as assets held for sale on the balance sheet (refer to note 2(d)). As indicated in note 2(d), the Cannabis related assets were written down, resulting in impairment losses of nil and $15,346,119 respectively for the three and nine-month periods ended December 31, 2022.

During the three-month and nine-month period ended December 31, 2021 the Company recognized impairment losses of nil and $2,404,459, respectively. The Company impaired certain equipment of the Canadian cannabis long-lived assets to nil resulting in an impairment charge of $1,424,517 for the nine-month period ended December 31, 2021 and an impairment reversal gain of $10,243 for the three-month period ended December 31, 2021. In addition, the Company impaired the long-lived assets of the SugarLeaf reporting unit as they were no longer generating economic benefits. The fair value of these long-lived assets was established to be nil and as such an impairment charge of $979,942 was recorded during the nine-month period ended December 31, 2021.

6.Goodwill and intangible assets:

The Company assesses at each reporting date whether there is an indication that an asset group or a reporting unit may be impaired.

In the third quarter of 2022 due to the Company’s sustained decrease in share price, the Company concluded a triggering event occurred and performed a quantitative impairment test for the Sprout reporting unit. As part of the impairment testing process, the Company considered a number of factors including, but not limited to, current macroeconomic conditions such as inflation, economic growth, and interest rate movements, industry and market considerations, stock price performance (including performance relative to peers) and overall financial performance of the Sprout reporting unit. Although management used its best estimate to assess the potential impact of the changes in the general economic conditions on the Company’s business, management exercised significant judgment to estimate forecasted cash flows and discount rate, using assumptions which are subject to significant uncertainties. Based on the results of the Company’s third quarter 2022 impairment analysis, the estimated fair value of the Sprout reporting unit exceeded its carrying value, and no impairment was recognized.

During the second quarter of 2022, there were changes in the general economic and financial conditions of the markets the Company serves. The Company’s Sprout reporting unit was adversely impacted during the second quarter of 2022 by these conditions, which impacted the operating results. Accordingly, management concluded that these factors were indicators of impairment.

As a result, management performed an impairment test for the Sprout reporting unit, for which it revised its assumptions on projected earnings and cash flows growth, as well as its assumptions on discount rates used to apply to the forecasted cash flows, using its best estimate of the conditions existing at September 30, 2022. Although management used its best estimate to assess the potential impact of the changes in the general economic conditions on the Company’s business, management exercised significant judgment to estimate forecasted cash flows and discount rate, using assumptions which are subject to significant uncertainties. Accordingly, differences in estimates could affect whether a reporting unit is impaired and the dollar amount of that impairment, which could be material. The Company compared the carrying amount of the reporting unit to the fair value. The fair value of the Sprout reporting unit was determined to be lower than the carrying value and a $7,570,471 goodwill impairment expense was recorded in the quarter ended September 30, 2022.

The fair value of the reporting unit was estimated using a discounted cash flow model with a WACC post-tax discount rate of 11.0% and a market multiples valuation approach. The discount rate represents the risk adjusted WACC of the reporting unit, based on publicly available information and that of comparable companies operating in similar industries. Determination of the WACC requires separate analysis of the cost of equity and debt, and considers a risk premium based on an assessment of risks related to the projected cash flows of the reporting unit.

Cash flows were projected based on past experience, actual operating results and the three-year business plan including a terminal growth rate of 3.5%.

The most significant assumptions used to estimate the fair values using a discounted cash flow model included the forecasted revenue, gross margins, net working capital investment, terminal value as well as the discount rate. These significant assumptions are classified as Level 3 in the fair value hierarchy, signifying that they are not based on observable market data. A decrease in the projected cash

F-61

Table of Contents

flow or an increase in discount rate could have resulted in a higher impairment charge. Should these projections not be realized, or the discount rate needs to be increased, an impairment loss may be needed in future periods. Due to the impairment losses recorded during the second quarter of 2023, there is no headroom between the fair value of the reporting unit and its carrying value and therefore, changes in assumptions in future periods may result in additional impairment charges.

The aggregate amount of goodwill is allocated to each reporting unit as follows:

​

​

​

​

​

​

​

​

​

December 31,

​

March 31,

​

    

2022

    

2022

​

​

​

​

​

​

​

Biodroga

​

$

2,424,414

​

$

2,625,851

Sprout

​

 

11,971,966

​

 

19,542,437

​

​

$

14,396,380

​

$

22,168,288

​

The Company also identified a trigger of impairment related to its intangible assets and recorded impairment charges of nil and $2,593,529 respectively for Sprout trademarks during the three and six-month periods ended September 30, 2022. The fair value was determined using a relief from royalty discounted cash flow model.

7.Provisions

(a)During the year ended March 31, 2019, the Company received a judgment from the Superior Court of Québec (the “Court”) in respect of certain royalty payments alleged to be owed and owing to a former chief executive officer of the Company (the “Former CEO”) pursuant to the terms of an agreement entered into on February 23, 2001 between Neptune and the Former CEO (the “Royalty Agreement”). The Company appealed the judgment which was dismissed by the Court of Appeal of Québec in February 2021. Under the terms of the Royalty Agreement and as maintained by the court, annual royalties of 1% of the sales and other revenue made by the Company on a consolidated basis are payable by the Company to the Former CEO biannually, but only to the extent that the cost of the royalty would not cause the Company to have a loss before interest, taxes and amortization (in which case, the payments would be deferred to the following fiscal year).

As of December 31, 2022, a provision of $606,346 (March 31, 2022 - $362,809) has been recorded by the Company. During the three and nine-month periods ended December 31, 2022, the Company increased the provision by $64,415 and $281,244 respectively, recorded foreign currency translation adjustments of $9,317 and $(37,707) respectively, and made no payments to the Former CEO in relation to this provision. During the three and nine-month periods ended December 31, 2021, the Company increased the provision by $135,757 and $651,229 respectively, recorded foreign currency translation adjustments of $(6,061) and $3,750 respectively, and made payments totaling $7,515 and $1,763,991 respectively to the Former CEO in relation to this provision.

Effective as of September 20, 2022, the Company notified the Former CEO that it was exercising its legal rights to terminate the Royalty Agreement. In response to such termination, the Former CEO is seeking a declaratory judgment that the Company did not have the legal right to terminate the Royalty Agreement.

(b)In September 2020, Neptune submitted a claim and demand for arbitration against Peter M. Galloway and PMGSL Holdings, LLC (collectively “PMGSL”) in accordance with the SugarLeaf Asset Purchase Agreement (“APA”) dated May 9, 2019 between Neptune, PMGSL, Peter M. Galloway and Neptune Holding USA, Inc. Separately, PMGSL submitted a claim and demand for arbitration against Neptune. The Neptune claims and PMGSL claims have been consolidated into a single arbitration and each are related to the purchase by Neptune of substantially all of the assets of the predecessor entities of PMGSL Holdings, LLC. Neptune is claiming, among other things, breach of contract and negligent misrepresentation by PMGSL in connection with the APA and is seeking, among other things, equitable restitution and any and all damages recoverable under law. PMGSL is claiming, among other things, breach of contract by Neptune and is seeking, among other things, payment of certain compensation contemplated by the APA. A merit hearing
F-55
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
in the arbitration startedtook place in April 2022 with a further week of testimony startingand August 1, 2022. On June 15, 2022, a one-day hearing took place on Neptune’s motion to enforce a settlement agreement reached on April 2021 (which was repudiated by PMGSL in June 2021). Final oral argument is scheduled for July 7, 2022, after which the arbitrator will issue a decision on whether the settlement is enforceable. While Neptune believes there is no merit to the claims brought by PMGSL, a judgment in favor of PMGSL may have a material adverse effect on our business and Neptune intends to continue vigorously defending itself. Based on currently available information, a provision of
$600,000$600,000 has been recognized for this case as at MarchDecember 31, 2022 ($600,000 as at March 31, 2021)2022).
(ii)
On February 4, 2021, the United States House of Representatives Subcommittee on Economic and Consumer Policy, Committee on Oversight and Reform (the “Subcommittee”), published a report, “Baby Foods Are Tainted with Dangerous Levels of Arsenic, Lead, Cadmium, and Mercury” (the “Report”), which stated that, with respect to Sprout, “independent testing of Sprout Organic Foods” has confirmed that their baby foods contain concerning levels of toxic heavy metals.” The Report further stated that after receiving reports alleging high levels of toxic metals in baby foods, the Subcommittee requested information from Sprout but did not receive a response.
On February 11, 2021, following the acquisition of a 50.1% stake in Sprout by Neptune, the Subcommittee contacted Sprout, reiterating its requests for documents and information about toxic heavy metals in Sprout’s baby foods. Sprout provided an initial response to the Subcommittee on February 25, 2021 and is cooperating with the Subcommittee requests.
Further, on February 24, 2021, the Office of the Attorney General of the State of New Mexico (“NMAG”) delivered to Sprout a civil investigative demand requesting similar documents and information with regards to the Report and the NMAG’s investigation into possible violations of the False Advertising Act of New Mexico. Sprout is responding to the requests of the NMAG.
Since February 2021, several putative consumer class action lawsuits have been brought against Sprout alleging that its products (the “Products”) contain unsafe and undisclosed levels of various naturally occurring heavy metals, namely lead, arsenic, cadmium and mercury. There are currently two active putative class action lawsuits, which allege that Sprout violated various state consumer
protection laws and make other state and common law warranty and for unjust enrichment claims related to the alleged failure to disclose the presence of these metals, whereas consumers would have allegedly either not purchased the Products or would have paid less had Sprout made adequate disclosures. These putative class actions seek to certify a nationwide class of consumers as well as various state subclasses. These kinds of class actions have also been separately filed against all of the major baby food manufacturers in federal courts across the country. The U.S. Judicial Panel on Multidistrict Litigation (“JPML”) declined a request to centralize all of the consumer class action lawsuits against all of the baby food manufacturers into a single multidistrict proceeding. One of the class actions is currently pending in New Jersey Superior Court. The other class action is currently pending in the U.S. District Court for the Central District of California, but has been ordered to be transferred to the U.S. District for the District of New Jersey. Sprout denies the allegations in these lawsuits and contends that its baby foods are safe and properly labeled. No provision has been recorded in the financial statements for these cases.

F-62

In addition to the consumer class actions discussed above, Sprout is currently named in a lawsuit filed on June 16, 2021 in the state court of California alleging some form of personal injury from the ingestion of Sprout’s Products, purportedly due to unsafe and undisclosed levels of various naturally occurring heavy metals. This lawsuit alleges injuries related to neurological development
F-56

Table of Contents

NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
disorders, such as autism spectrum disorder and attention deficit hyperactivity disorder. Sprout denies that its Products contributed to any of these injuries and will defend the case vigorously. No provision has been recorded in the financial statements for this matter.
In addition, the Office of the Attorney General for the District of Columbia (“OAG”) recently sent a letter to Sprout, similar to letters sent to other baby food manufacturers, alleging potential labeling and marketing misrepresentations and omissions regarding the health and safety of its baby food products, constituting an unlawful trade practice. Sprout has agreed to meet with the OAG and will vigorously defend against the allegations. No provision has been recorded in the financial statements for this matter.
These matters may have a material adverse effect on Sprout’s, financial condition, or results of operations.
(c)(iii)A supplier of cannabis initiated a lawsuit against the Company’s subsidiary, 9354-7537 Quebec Inc., (“9354”) for breach of a Wholesale Cannabis Supply Agreement (the “Supply Agreement”) for the purchase of cannabis trim. The purchased trim was rejected by 9354 due to quality concerns. The supplier refused to refund the purchase price and ultimately sued 9354 for breach of the Supply Agreement. The matter proceeded to trial in November 2021, and on March 23, 2022, an arbitrator entered an arbitration award against 9354 for the full purchase price of the trim. With fees and costs, the final arbitrator’s award entered against 9354 was $1,127,024, plus applicable interest. During the quarter ended June 30, 2022, the parties engaged into settlement negotiations which resulted in the execution of a settlement agreement dated July 13, 2022. As at June 30, 2022, the payable was revised to the settlement amount of $543,774 which resulted in the recognition of a settlement gain of $583,430 under Selling, general and administrative expenses for the three-month period ended June 30, 2022. During the three-month period ended September 30, 2022, the Company made a payment of $187,025 to the supplier, and recorded foreign currency translation adjustments of $(12,496). This provision was included in trade and other payables. The Company made the final payment on October 12, 2022. As at December 31, 2022, the balance of this payable was nil.
(d)
On March 16, 2021, a purported shareholder class action was filed in United States District Court for the Eastern District of New York against the CorporationCompany and certain of its current and former officers alleging violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, with respect to the Corporation’sCompany’s acquisition of SugarLeaf Labs, Inc. On October 21, 2022, the Company announced that it had agreed to settle and resolve the purported shareholder class action for a gross payment to the class of between $4 and $4.25 million, with the exact amount being within the Company’s control and dependent on the type of consideration used. The Corporation believes these claimssettlement was subject to court approval and certification by the court of the class. On March 16, 2023 the settlement offer was accepted and the first payment in the amount of $500,000 was paid on March 22, 2023. Two additional payments of $500,000 each are without meritdue 30 days and intends to vigorously defend itself. No60 days after the first payment. The rest is payable either in cash ($2,500,000) or in shares ($2,750,000) at Neptune’s election, within 31 days after the Final Approval Order is entered. As of December 31, 2022, a provision and an expense within selling, general administration of $4,000,000 (March 31, 2022 - nil) has been recorded inby the financial statementsCompany.
(e)As at December 31, 2022, the Company has various additional other provisions for this matter.legal fees obligations for an aggregate amount of $730,587 (March 31, 2022 – $155,804).
(iv)
A supplier of cannabis initiated a lawsuit against 9354-7537 Quebec Inc. (operating as Neptune Wellness Solutions, Inc.) (“Neptune”) for breach of a Wholesale Cannabis Supply Agreement (the “Supply Agreement”) for the purchase of cannabis trim. The purchased trim was rejected by Neptune due to quality concerns. The supplier refused to refund the purchase price and ultimately sued Neptune for breach of the Supply Agreement. The matter proceeded to trial in November 2021, and on March 23, 2022, an arbitrator entered an arbitration award against Neptune for the full purchase price of the trim. With fees and costs, the final arbitrator’s award entered against Neptune is of $1,127,024, plus applicable interest. A provision of $1,127,024 has been recognized in trade and other payables.

8.Liability related to warrants:

The outcomeCompany has issued common shares, pre-funded warrants and warrants as part of these claimsits financing arrangements which are exercisable for a variable number of shares. Common shares and legal proceedings againstpre-funded warrants are classified as equity. Warrants are classified as liabilities rather than equity. As of October 1, 2022, as a result of the Corporation cannot be determined with certaintychange in functional currency of Neptune, the 2020 Warrants and is subject to future resolution, including the uncertainties of litigation.

23.
Operating Segments:
The Corporation measures its performance based on a single
segment, which is the consolidated level, as the previous segment income (loss) before corporate expenses is not used in internal management reports that are reviewed by the Corporation’s Chief Operating Decision Maker, management believing that such information is2021 Warrants no longer relevantmet the criteria for liability classification and therefore were reclassified as equity prospectively (see note10(f)).

On October 11, 2022, the Company closed a registered direct offering (“October 2022 Direct Offering”) of 3,208,557 of its Common Shares and warrants (“Series E Warrants”) to purchase up to 6,417,114 Common Shares in evaluating the resultsconcurrent Private Placement. The combined purchase price for one Common Share and one warrant was $1.87. The Series E Warrants have an exercise price of $1.62 per Common Share, are exercisable immediately following the date of issuance and will expire five years from the date of issuance. The Company received gross proceeds of $6,000,002 and net proceeds of $5,135,002 after deducting the placement agent fees and expenses, and the Company’s offering expenses. Based on the fair value of the Corporation.

a)
Geographical information:
Revenue is attributedwarrants as at the date of closing, which was determined using a Black-Scholes model, the Company recorded the full proceeds to geographical locations basedliabilities, with an initial liability of $7,029,614 and a loss on initial recognition of $1,029,614. Because the origin of customers’ location:

   Years ended 
   March 31,
2022		   March 31,
2021		 
Canada
  $12,447,125   $13,433,549 
United States
   35,330,138    20,857,092 
Other countries
   1,019,861    1,109,678 
   
 
 
   
 
 
 
   $48,797,124   $35,400,319 
   
 
 
   
 
 
 
F-57
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
b)
Information about major customers:
During the year ended March 31, 2022, the Corporation realized revenues amounting to $5,005,000 from one customer accounting for 10.26% of consolidated revenues. During the year ended March 31, 2021, the Corporation realized revenues amounting to $5,261,979 from one customer accounting for 14.86% of consolidated revenues.
c)
Revenues
The Corporation derives revenue from the sales of goods which are recognized at a point in time and the processing services which are recognized over time as follows:
   Years ended 
   March 31,
2022		   March 31,
2021		 
Recognized at a point in time
          
Nutraceutical products
  $13,622,744   $12,183,362 
Cannabis and hemp products
   7,779,092    314,827 
Food and beverages products
   26,220,519    2,403,075 
Innovation products
   73,473    10,960,359 
   
Recognized over time
          
Processing services
   —      8,400,024 
   
 
 
   
 
 
 
   $47,695,828   $34,261,647 
   
 
 
   
 
 
 
d)
Geographical information on long-lived assets:
Long-lived assetsfair value of the Corporation are located inliability classified warrant exceeded the following geographical location:
   March 31,
2022		   March 31,
2021		 
Canada
  $20,724,674   $35,644,781 
United States
   723,449    1,700,935 
   
 
 
   
 
 
 
Total property, plant and equipment
  $21,448,123   $37,345,716 
   
 
 
   
 
 
 
   March 31,
2022		   March 31,
2021		 
Canada
  $2,353,054   $3,792,982 
United States
   19,301,981    22,163,848 
   
 
 
   
 
 
 
Total intangible assets
  $21,655,035   $25,956,830 
   
 
 
   
 
 
 

   March 31,
2022		   March 31,
2021		 
Canada
  $2,625,851   $2,613,935 
United States
   19,542,437    22,839,437 
   
 
 
   
 
 
 
Total goodwill
  $22,168,288   $25,453,372 
   
 
 
   
 
 
 
F-58
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
24.
Related parties:
Related party transactions and balances not disclosed elsewhere in these notes of the financial statements are as follows:
On November 11, 2019, Neptune announced that the Corporation entered into a collaboration agreement with International Flavors & Fragrances Inc. (“IFF”) to
co-develop
hemp-derived products for the mass retail and health and wellness markets. App Connect Service, Inc. (“App Connect”), a company indirectly controlled by Michael Cammarata, CEO and Director of Neptune, is also a partytotal proceeds, no consideration was allocated to the agreementCommon Shares. Total issue costs related to provide related branding strategies and promotional activities.
Neptune will be responsible for the marketing and the salesthis offering of the products and will receive the amounts from the product sales. Neptune will in turn pay a royalty to IFF and App Connect associated with the sales of the
co-developed
products. The payment of royalties to App Connect, subject to certain conditions, has been approved by the TSX.
During the years ended March 31, 2022 and 2021, the Corporation$865,000 were recorded a negligeable amount of royalty expense pursuant to the
co-development
contract and no royalties were paid to date.
25.
Subsequent events:
On June 8, 2022, Neptune announced that the launch of a new Consumer Packaged Goods (“CPG”) focused strategic plan to reduce costs, improve the Corporation’s path to profitability and enhance current shareholder value. This plan builds on the Corporation’s initial strategic review that took place in fall of 2021 and focuses on two primary actions: (1) planned accelerated divestiture of the Canadian cannabis business and (2) a realignment of focus and operational resources toward increasing the value of Neptune’s consumer products business. With the planned divestiture of its cannabis business, Neptune is renewing its focus on the core brands – Sprout Organics and Biodroga Solutions.
On June 9, 2022, Neptune announced the completion of the Corporation’s proposed consolidation of its common shares (the “Common Shares”) on the basis of one (1) post-consolidation Common Share for every thirty-five
(35) pre-consolidation
Common Shares (the “Share Consolidation”). The post-Share Consolidation Common Shares commenced trading on the NASDAQ and the TSX at the market open on June 13, 2022 . The Share Consolidation reduced the number of Common Shares issued and outstanding from approximately 198 million Common Shares to approximately 5.7 million Common Shares as at June 13, 2022.
under finance costs.

On June 23, 2022, Neptune closed agreementsissued a total of 645,526 pre-funded warrants (“Pre-Funded Warrants”), along with several institutional investors for the purchase and sale of an aggregate of 1,300,000 common shares of the Corporation, 645,526

pre-funded
warrants and accompanying seriesCompany, as part of warrants to purchase up to an aggregate of 2,591,052a registered direct offering (“June 2022 Direct Offering”). Each Pre-Funded Warrant was exercisable for one Common Share. The common shares warrants,and the Pre-Funded Warrants were sold together with 1,945,526 Series C Warrants (the “Series C Warrants”), and 1,945,526 Series D Warrants (the “Series D Warrants”) and collectively, the “June 2022 Common Warrants”. Each of the June 2022 Common Warrant is exercisable for one common share. Each of the common share and Pre-Funded Warrants and the accompanying June 2022 Common Warrants were sold together at ana combined offering price of $2.57, per sharefor aggregate gross proceeds of $5,000,002 before deducting fees and accompanying warrantsother estimated offering expenses. The Pre-Funded Warrants are funded in full at closing except for a registered direct offering priced
at-the-market
under Nasdaq rules. Each seriesnominal exercise price of warrants$0.0001 and are exercisable commencing on the Closing Date and will terminate when such Pre-Funded Warrants are exercised in full. The Series C Warrants and the Series D Warrants have an exercise price of $2.32 per share and are immediately exercisable upon issuance. One seriescan be exercised for a period of warrants will expire two5 years following the date of issuance and one series of warrants will expire five2 years followingrespectively from the date of issuance. On October 6, 2022, the Company agreed to extend the termination date of 972,763 Series C Warrants by two years.

F-63

Table of Contents

Proceeds of the June 2022 Direct Offering were allocated between common shares and warrants first by allocating proceeds to the warrants classified as a liability based on their fair value and then allocating the residual to the equity instruments, which includes the Pre-Funded Warrants. The grossfair value of the liability-classified warrants was determined using the Black-Scholes model, resulting in an initial warrant liability of $4,046,836 for the Series C Warrants and $3,080,121 for the Series D Warrants. Because the fair value of the liability classified warrant exceeded the total proceeds, fromno consideration was allocated to the offering are $5 million, priorCommon Shares and Pre-Funded Warrants and a loss $2,126,955 was immediately recognized in the net loss of the period as there were no additional rights or privileges identified. The Company is in need of financing to deducting placement agent’s fees and other offering expenses payable by Neptune.be able to continue its activities as described in note 1. The

Pre-funded
warrants Pre-Funded Warrants were fully exercised in full on June 24, 2022 for $64.55.gross proceeds of $65. Total issue costs related to this private placement of $465,211, were recorded under finance costs.

During the month of August 2022, a total of 201,207 Series C Warrants and 972,763 Series D Warrants were exercised at $2.32 each in cashless transactions, which resulted in an aggregate total of 384,446 shares being issued for an aggregate value of $1,769,000.

The fair value of the Series C Warrants and Series D Warrants liability was determined using the Black-Scholes model. Warrants are revalued each period-end at fair value and accounted for in the Company’s profit and loss statement under “gain on revaluation of derivatives”.

Changes in the value of the liability related to the warrants for the nine-month period ended December 31, 2022 and 2021 were as follows:

​

​

​

​

​

​

​

    

Warrants

    

Amount

​

​

​

​

​

​

Outstanding as at March 31, 2021

 

497,355

​

$

10,462,137

Revaluation

 

(8,853,111)

​

 

  

Movements in exchange rates

 

32,916

​

 

  

Outstanding as at December 31, 2021

 

497,355

​

 

1,641,942

​

​

​

​

​

​

Outstanding as at March 31, 2022

 

1,925,929

​

$

5,570,530

Warrants issued during the period

 

10,308,166

​

 

14,156,571

Warrants exercised during the period

 

(1,173,970)

​

 

(1,769,000)

Warrants reclassified to equity during the period

 

(497,355)

​

 

(37,710)

Revaluation gain

 

(16,083,681)

​

 

  

Movements in exchange rates

 

(392,652)

​

 

  

Outstanding as at December 31, 2022

 

10,562,770

​

 

1,444,058

​

The following table provides the relevant information on the outstanding warrants as at December 31, 2022:

​

​

​

​

​

​

​

​

​

​

​

​

​

    

​

    

Number of

    

Number of

    

​

​

    

​

​

​

​

​

warrants

​

warrants

​

​

​

​

​

Reference

​

Date of issuance

​

outstanding

​

exercisable

​

Exercise price

​

Expiry date

​

​

​

​

​

​

​

​

​

​

​

​

Series A Warrants

​

March 14, 2022

 

714,287

 

714,287

​

$

11.20

​

September 14, 2027

Series B Warrants

​

March 14, 2022

 

714,287

 

714,287

​

$

11.20

​

March 14, 2028

Series C Warrants

​

June 23, 2022

 

771,556

 

771,556

​

$

2.32

​

June 23, 2027

Series C Warrants

​

June 23, 2022

 

972,763

 

972,763

​

$

2.32

​

June 23, 2029

Series D Warrants

​

June 23, 2022

 

972,763

 

972,763

​

$

2.32

​

June 24, 2024

Series E Warrants

​

October 11, 2022

 

6,417,114

 

6,417,114

​

$

1.62

​

October 11, 2027

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

 

10,562,770

 

10,562,770

​

$

3.10

​

​

​

The holders of warrants listed above will be entitled to participate in dividends and other distributions of assets by the Company to its holders of common shares as though the holder then held common shares.

F-64

(b)
(Unaudited)

Table of Contents

The derivative warrant liabilities are measured at fair value at each reporting period and the reconciliation of changes in fair value for the respective nine-month periods is presented in the following tables:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

2020 Warrants

    

2021 Warrants

​

​

December 31, 2022

    

December 31, 2021

​

December 31, 2022

    

December 31, 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

Balance - beginning of period

​

$

309,769

​

$

6,174,137

​

$

306,704

​

$

4,288,000

​

​

​

​

​

​

​

​

​

​

​

​

​

Warrants reclassified to equity during the period

​

 

(19,058)

​

 

—

​

 

(18,652)

​

 

—

Change in fair value to date of transfer to equity

​

 

(279,056)

​

 

(5,300,014)

​

 

(276,527)

​

 

(3,553,097)

Translation effect

​

 

(11,655)

​

 

20,701

​

 

(11,525)

​

 

12,215

​

​

​

​

​

​

​

​

​

​

​

​

​

Balance - end of period

​

$

—

​

$

894,824

​

$

—

​

$

747,118

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

Series A Warrants

​

Series B Warrants

​

​

December 31, 2022

    

December 31, 2021

    

December 31, 2022

    

December 31, 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

Balance - beginning of period

​

$

3,270,816

​

$

—

​

$

1,683,241

​

$

—

​

​

​

​

​

​

​

​

​

​

​

​

​

Change in fair value

​

 

(3,099,783)

​

 

—

​

 

(1,622,926)

​

 

—

Translation effect

​

 

(136,418)

​

 

—

​

 

(59,975)

​

 

—

​

​

​

​

​

​

​

​

​

​

​

​

​

Balance - end of period

​

$

34,615

​

$

—

​

$

340

​

$

—

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

Series C Warrants

​

Series D Warrants

​

​

December 31, 2022

    

December 31, 2021

    

December 31, 2022

    

December 31, 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

Balance - beginning of period

​

$

—

​

$

—

​

$

—

​

$

—

​

​

​

​

​

​

​

​

​

​

​

​

​

Warrants issued during the period

​

 

4,046,836

​

 

—

​

 

3,080,121

​

 

—

Warrants exercised during the period

​

 

(365,224)

​

 

—

​

 

(1,403,776)

​

 

—

Change in fair value

​

 

(3,339,370)

​

 

—

​

 

(1,337,675)

​

 

—

Translation effect

​

 

(121,760)

​

 

—

​

 

(51,319)

​

 

—

​

​

​

​

​

​

​

​

​

​

​

​

​

Balance - end of period

​

$

220,482

​

$

—

​

$

287,351

​

$

—

​

​

​

​

​

​

​

​

​

​

​

Series E Warrants

​

    

December 31, 2022

    

December 31, 2021

​

​

​

​

​

​

​

Balance - beginning of period

​

$

—

​

$

—

​

​

​

​

​

​

​

Warrants issued during the period

​

 

7,029,614

​

 

—

Change in fair value

​

 

(6,128,344)

​

 

—

​

​

​

​

​

​

​

Balance - end of period

​

$

901,270

​

$

—

​

F-65

Table of Contents

The fair value of the derivative warrant liabilities was estimated using the Black-Scholes option pricing model and based on the following assumptions:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

2020 Warrants

​

2021 Warrants

 

​

​

December 31, 2022

​

December 31, 2021

​

December 31, 2022

​

December 31, 2021

 

​

​

​

​

​

​

​

​

​

​

​

 

Share price

    

N/A

    

$

14.35

    

N/A

    

$

14.35

​

Exercise price

 

N/A

​

$

78.75

 

N/A

​

$

78.75

​

Dividend yield

 

N/A

​

 

—

 

N/A

​

 

—

​

Risk-free interest

 

N/A

​

 

1.10

%  

N/A

​

 

1.22

%

Remaining contractual life (years)

 

N/A

​

 

3.81

 

N/A

​

 

4.64

​

Expected volatility

 

N/A

​

 

80.4

%  

N/A

​

 

79.2

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Series A Warrants

​

Series B Warrants

​

​

December 31, 2022

​

December 31, 2021

​

December 31, 2022

​

December 31, 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

Share price

    

$

0.32

    

$

—

    

$

0.32

    

$

—

Exercise price

​

$

11.20

​

$

—

​

$

11.20

​

$

—

Dividend yield

​

 

—

​

 

—

​

 

—

​

 

—

Risk-free interest

​

 

4.02

%  

 

—

​

 

4.75

%  

 

—

Remaining contractual life (years)

​

 

4.71

​

 

—

​

 

0.71

​

 

—

Expected volatility

​

 

94.2

%  

 

—

​

 

135.7

%  

 

—

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Series C Warrants

​

Series D Warrants

 

​

​

​

​

​

June 23, 2022

​

​

​

​

June 23, 2022

​

​

​

December 31, 2022

​

(Grant date)

​

December 31, 2022

​

(Grant date)

 

​

​

​

​

​

​

​

​

​

​

​

​

​

 

Share price

    

$

0.32

    

$

2.90

    

$

0.32

    

$

2.90

​

Exercise price

​

$

2.32

​

$

2.32

​

$

2.32

​

$

2.32

​

Dividend yield

​

 

—

​

 

—

​

 

—

​

 

—

​

Risk-free interest

​

 

4.05

%  

 

3.38

%  

 

4.58

%  

 

3.21

%

Remaining contractual life (years)

​

 

4.48

​

 

5.00

​

 

1.48

​

 

2.00

​

Expected volatility

​

 

94.1

%  

 

84.0

%  

 

112.4

%  

 

88.7

%

​

​

​

​

​

​

​

​

​

​

​

​

Series E Warrants

 

​

​

​

​

​

October 11, 2022

​

​

​

December 31, 2022

​

(Grant date)

 

​

​

​

​

​

​

​

 

Share price

    

$

0.32

    

$

1.54

​

Exercise price

​

$

1.62

​

$

1.62

​

Dividend yield

​

 

—

​

 

—

​

Risk-free interest

​

 

4.02

%  

 

4.14

%

Remaining contractual life (years)

​

 

4.78

​

 

5.00

​

Expected volatility

​

 

93.6

%  

 

90.4

%

​

The Company measured its derivative warrant liabilities at fair value on a recurring basis. These financial liabilities were measured using level 3 inputs. The Company uses the historical volatility of the underlying share to establish the expected volatility of the warrants. An increase or decrease in this assumption to estimate the fair values using the Black-Scholes option pricing model would result in an increase or a decrease in the fair value of the instruments, respectively.

9.Loans and borrowings:

​

F-66

Table of Contents

​

​

​

​

​

​

​

​

    

December 31, 2022

    

March 31, 2022

​

​

​

​

​

​

​

Loans and borrowings:

 

​

  

 

​

  

Promissory note originally of $10,000,000 and increased to $13,000,000 on July 13, 2022, issued by Sprout, guaranteed by the Company and secured through a first-ranking mortgage on all movable current and future, corporeal and incorporeal, and tangible and intangible assets of Sprout. The outstanding principal balance bears interest at the rate of 10.0% per annum, increasing by 1.00% every three months commencing September 30, 2022. Interest is accrued and added to the principal amount of the loan and is presented net of borrowing costs. The principal and accrued interest may also be converted, in whole or in part, at any time before February 1, 2024, upon the mutual consent of Sprout, the Company and MSEC, into common shares of the Company.

​

$

15,261,355

​

$

11,648,320

​

​

​

​

​

​

​

Promissory note of $250,000 issued by Sprout on August 26, 2022, guaranteed by the Company and secured by the issued and outstanding capital stock of Sprout. The outstanding principal balance bears interest at the rate of 10.0% per annum, increasing by 1.00% every three months commencing September 30, 2022. Interest is accrued and added to the principal amount of the loan and is presented net of borrowing costs. The principal is payable on February 1, 2024 in cash, or, upon the prior consent of the holder, fully or partially in common shares of Neptune at the Company's discretion.

​

 

201,428

​

 

—

​

​

​

​

​

​

​

Promissory notes totaling $550,000 issued by Sprout on November 8, 2022, guaranteed by the Company and secured by the issued and outstanding capital stock of Sprout. The outstanding principal balance bears interest at the rate of 10.0% per annum, increasing by 1.00% every three months commencing December 31, 2022. Interest is accrued and added to the principal amount of the loan and is presented net of borrowing costs. The principal is payable on February 1, 2024 in cash, or, upon the prior consent of the holder, fully or partially in common shares of Neptune at the Company's discretion.

​

 

473,875

​

 

—

​

​

​

​

​

​

​

​

​

 

15,936,658

​

 

11,648,320

Less current portion of loans and borrowings

​

 

—

​

 

—

Loans and borrowings

​

$

15,936,658

​

$

11,648,320

​

On July 13, 2022, Neptune announced that Sprout has entered into an amendment of each of its existing Secured Promissory notes.Notes. In connection with this amendment, investment funds managed by MSEC have financedMorgan Stanley Expansion Capital (“Morgan Stanley” or “MSEC”) agreed to immediately commit an additional $3 million in Secured Promissory notesNotes to Sprout. The maturity date of the note facility of February 1,,

F-5
9
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to Consolidated Financial Statements (Audited)
For the years ended March 31, 2022 and 2021
2024 is consistent with the maturity date of the existing Secured Promissory notesNotes with MSEC and Neptune. The $13.0 million of amended Secured Promissory notes are secured,Notes have a 10% interest rate per annum, increasing by 1% per annum every three months during the term of the Secured Promissory notes.Notes. The interest will be compounded and added to the principal amount on a quarterly basis. The amended Promissory notes may be converted, in whole or in part, at any time upon the mutual consent of Sprout, the Corporation and MSEC, into common shares of the Corporation. MSEC was issued 372,670 common shares of Neptune, of an approximatea value of $570,000,$570,185, in connection with this financing.
commitment.

On October 11,August 26, 2022, Sprout entered into an additional $250,000 Secured Promissory Note, which is on the Corporation closed a registered direct offering of 3,208,557same terms as the Secured Promissory Note entered into with MSEC discussed above. Neptune issued 36,765 common shares for a value of $75,736 in connection with this Secured Promissory Note in connection with this commitment.

On November 8, 2022, Sprout entered into three agreements to issue an additional aggregate $550,000 of Secured Promissory Notes, on the same terms as the Secured Promissory Note entered into with MSEC discussed above. In connection with these financings, Neptune issued 146,330 common shares for a value of $96,578 to the holders of these Secured Promissory Notes on February 15, 2023.

During the three and 6,417,114nine-month periods ended December 31, 2022, interest expense of $311,679 and $786,311 respectively were recognized on loans and borrowings (2021 - $252,055 and $756,888). All covenants for the loans and borrowings outstanding as at December 31, 2022 and March 31, 2022 were respected.

10.Capital and other components of equity:

(a)Share capital:

Authorized capital stock:

Unlimited number of shares without par value:

●Common shares

Preferred shares, issuable in series, rights, privileges and restrictions determined at time of issuance:

F-67

Table of Contents

●Series A preferred shares, non-voting, non-participating, fixed, preferential, and non-cumulative dividend of 5% of paid-up capital, exchangeable at the holder’s option under certain conditions into common shares (none issued and outstanding).

All issued shares are fully paid.

(b)Share options exercised:

During the three and nine-month periods ended December 31, 2022 and 2021, Neptune issued no common shares of the Company upon exercise of stock options.

(c)DSUs released:

During the three and nine-month periods ended December 31, 2022 and 2021 , Neptune issued no common shares of the Company for the release of DSUs to former and current members of the Board of Directors.

(d)RSUs released:

During the nine-month period ended December 31, 2022, Neptune issued 269,599 common shares of the Company for RSUs released to the CEO as part of his employment agreement at a weighted average price of $5.60 per common share. The Company, with the consent of the CEO delayed issuance of an additional 173,493 RSUs. Withholding taxes of $815,953 were paid by the Company pursuant to the issuance of these RSUs.

During the nine-month period ended December 31, 2021, Neptune issued 51,095 common shares of the Company to the CEO as part of his employment agreement at a weighted average price of $155.05 per common share. Withholding taxes of $978,699 were paid by the Company pursuant to the issuance of these RSUs, resulting in the Company not issuing an additional 27,133 RSUs.

(e)Restricted shares:

During the three and nine-month periods ended December 31, 2022 and 2021, Neptune issued no restricted common shares of the Company to employees.

(f)Warrants:

As of October 1, 2022, as a result of the change in functional currency of Neptune, the 2020 Warrants and 2021 Warrants no longer met the criteria for liability classification and therefore were reclassified as equity prospectively. The reclassification did not impact the net earnings for the period.

On June 23, 2022, as part of the June 2022 Direct Offering described under note 8, Neptune issued a total of 645,526 pre-funded warrants (“Pre-Funded Warrants”), with each Pre-Funded Warrant exercisable for one Common Share. The Pre-Funded Warrants were funded in full at closing except for a concurrent private placement.nominal exercise price of $0.001 and were exercisable commencing on the Closing Date, and were to terminate when such Pre-Funded Warrants would be exercised in full. The Corporation received gross proceedsPre-funded warrants were fully exercised on June 24, 2022 for $65.

F-68

Table of approximately $6.0 millionContents

Changes in the value of equity related to the warrants were as follows:

​

​

​

​

​

​

​

​

​

​

​

​

​

December 31, 2022

​

December 31, 2021

​

​

Weighted

​

​

​

Weighted

​

​

​

​

average

​

Number of

​

average

​

Number of

​

 

exercise price

 

warrants

 

exercise price

 

warrants

​

​

​

​

​

​

​

​

​

​

​

Warrants outstanding at April 1, 2022 and 2021

    

$

325.34

  �� 

176,429

    

$

325.34

    

176,429

Issued

​

 

0.0001

 

645,526

​

 

—

 

—

Reclassification from liability related to warrants

​

 

78.75

 

497,355

​

 

—

 

—

Exercised

​

 

0.0001

 

(645,526)

​

 

—

 

—

Warrants outstanding at December 31, 2022 and December 31, 2021

​

$

120.36

 

673,784

​

$

325.34

 

176,429

​

​

​

​

​

​

​

​

​

​

​

Warrants exercisable at December 31, 2022 and December 31, 2021

​

$

143.32

 

673,784

​

$

325.34

 

176,429

​

Warrants of the Company classified as equity are composed of the following as at December 31, 2022 and March 31, 2022:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

December 31, 2022

​

March 31, 2022

​

​

Number

​

Number

​

Number

​

Number

​

​

​

​

​

​

​

outstanding

​

exercisable

​

Amount

​

outstanding

​

exercisable

​

Amount

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Warrants IFF (i)

    

57,143

    

57,143

    

​

1,630,210

    

57,143

    

57,143

    

​

1,630,210

Warrants AMI (ii)

 

119,286

 

119,286

 

​

4,449,680

 

119,286

 

119,286

 

​

4,449,680

2020 Warrants (iii)

 

300,926

 

300,926

 

​

19,058

 

—

 

—

 

​

—

2021 Warrants (iv)

 

196,429

 

196,429

 

​

18,652

 

—

 

—

 

​

—

​

 

673,784

 

673,784

​

$

6,117,600

 

176,429

 

176,429

​

$

6,079,890

(i)During the year ended March 31, 2020, Neptune granted 57,143 warrants (“Warrants IFF”) with an exercise price of $420.00 expiring on November 7, 2024. The warrants, granted in exchange for services to be rendered by non-employees, vest proportionally to the services rendered. No expense was recognized during the three and nine-month periods ended December 31, 2022 (2021 - $25,267 and $178,917 respectively) under the research and development expenses.
(ii)During the year ended March 31, 2020, Neptune granted 119,286 warrants (“Warrants AMI”) with an exercise price of $280.00 with 85,715 expiring on October 3, 2024 and 33,572 expiring on February 5, 2025. The warrants, granted in exchange for services to be rendered by non-employees, vest proportionally to the services rendered. The warrants fully vested in fiscal year ended March 31, 2021 and as such no expense was recognized in relation to those instruments since then.
(iii)During the year ended March 31, 2021, Neptune issued a total of 300,926 warrants (“2020 Warrants”) with an exercise price of $78.75 expiring on October 22, 2025. The warrants, issued as part of the Private Placement entered into on October 20, 2020, are exercisable beginning anytime on or after April 22, 2021 until October 22, 2025. Initially classified as liability, the 2020 Warrants which had a fair value of $19,058 were reclassified as equity on October 1, 2022 as a result of the change in functional currency. The holders of these warrants will be entitled to participate in dividends and other distributions of assets by the Company to its holders of common shares as though the holder then held common shares.
(iv)On February 19, 2021, the Corporation issued 196,429 warrants (“2021 Warrants”) with an exercise price of $78.75 expiring on August 19, 2026. The warrants, issued as part of a Registered Direct Offering entered into on February 17, 2021, are exercisable beginning anytime on or after August 19, 2021 until August 19, 2026. Initially classified as liability, the 2021 Warrants which had a fair value of $18,652 were reclassified as equity on October 1, 2022 as a result of the change in functional currency. The holders of these warrants will be entitled to participate in dividends and other distributions of assets by the Company to its holders of common shares as though the holder then held common shares.
(g)Common shares issued in connection with debt financing:

On July 13, 2022, Neptune issued 372,670 common shares for a value of $570,185 in connection with the offering,amendment of the Secured Promissory Notes that were issued by Sprout for the payment of borrowing costs. In connection with this amendment, investment funds managed by MSEC have provided an additional $3 million in Secured Promissory Notes to Sprout.

F-69

Table of Contents

On September 9, 2022, Neptune issued 36,765 common shares for a value of $75,736 in connection with a new $250,000 Secured Promissory Notes that were issued by Sprout, for the payment of borrowing costs.

11.Non-controlling interest:

The summarized financial information of Sprout is provided below. This information is based on amounts before deducting placement agent feesinter-company eliminations and related offering expenses. The net proceeds toinclude the Corporation fromeffects of the offering, after deductingCompany’s purchase price adjustments.

Summarized statement of loss and comprehensive loss:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Three-month period ended

​

Nine-month period ended

​

    

December 31,

    

December 31,

    

December 31,

    

December 31,

​

​

2022

​

2021

​

2022

​

2021

Revenue from contracts with customers

​

$

8,380,966

​

$

6,791,703

​

$

24,903,038

​

$

19,456,048

Cost of sales

​

 

(7,825,211)

​

 

(7,020,841)

​

 

(23,748,469)

​

 

(19,914,902)

Selling, general and administrative expenses

​

 

(3,184,805)

​

 

(2,185,582)

​

 

(9,412,606)

​

 

(7,157,115)

Impairment loss on goodwill and intangible assets

​

 

—

​

 

—

​

 

(10,164,000)

​

 

—

Finance costs

​

 

(934,685)

​

 

(1,184,310)

​

 

(2,396,967)

​

 

(1,857,471)

Loss before tax

​

 

(3,563,735)

​

 

(3,599,030)

​

 

(20,819,004)

​

 

(9,473,440)

Income tax (expense) recovery

​

 

(14,543)

​

 

50

​

 

(14,543)

​

 

(11,894)

Net loss

​

 

(3,578,278)

​

 

(3,598,980)

​

 

(20,833,547)

​

 

(9,485,334)

Total comprehensive loss

​

 

(3,578,278)

​

 

(3,598,980)

​

 

(20,833,547)

​

 

(9,485,334)

Loss attributable to the subsidiary's non-controlling interest

​

 

(1,785,561)

​

 

(1,803,089)

​

 

(10,395,940)

​

 

(4,752,152)

Comprehensive loss attributable to the subsidiary's non-controlling interest

​

$

(1,785,561)

​

$

(1,795,891)

​

$

(10,395,940)

​

$

(4,733,182)

​

Summarized statement of balance sheets:

​

​

​

​

​

​

​

​

    

December 31,

    

March 31,

​

​

2022

​

2022

Current assets

​

$

13,911,380

 

​

12,260,375

Non-current assets

​

 

28,184,381

 

​

39,000,367

Current liabilities

​

 

8,010,791

 

​

5,991,483

Non-current liabilities

​

 

34,454,862

 

​

25,362,259

Total equity

​

 

(369,892)

 

​

19,907,000

Attributable to:

​

 

  

 

​

  

Equity holders of the Company

​

$

(2,696,029)

​

$

7,184,923

Non-controlling interest

​

 

2,326,137

​

 

12,722,077

​

Summarized statement of cash flow:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Three-month period ended

​

Nine-month period ended

​

    

December 31,

    

December 31,

    

December 31,

    

December 31,

​

​

2022

​

2021

​

2022

​

2021

Cash flow used in operating activities

​

$

(1,873,210)

​

$

(531,533)

​

$

(5,798,310)

​

$

(8,605,043)

Cash flow used in investment activities

​

 

—

​

 

(55,519)

​

 

—

​

 

(56,765)

Cash flow from financing activities(1)

​

 

1,999,408

​

 

859,130

​

 

5,249,408

​

 

8,831,765

Net increase (decrease) in cash and cash equivalents

​

$

126,198

​

$

272,078

​

$

(548,902)

​

$

169,957

(1)Cash flow from financing activities is partially provided through intercompany advances.

​

​

12.Share-based payment:

Under the placement agent feesCompany’s share-based payment arrangements, stock-based compensation expenses of $1,005,455 and $2,832,438 were recognized on equity share based awards and expenses of $110,859 and the Corporation’s offering expenses were approximately $5.15 million.

On October 17, 2022, the Corporation announced that it had entered into a binding agreement for the sale of its Canadian cannabis business, including the Sherbrooke building, for $3.8 million (C$5.15 million) to be paid to the Corporation in cash. The Corporation expects to record a loss$3,263,437 on remeasurement of the assets to fair value less cost of saleliability based awards in the approximate amountconsolidated statement of $15 million in the second quarter interim financial statementsloss and comprehensive loss for the three and six-monthnine-month periods ended September 30, 2022.December 31, 2022 respectively (2021 - equity

F-70

On October 21, 2022, the Corporation announced that it had agreed to settle

Table of Contents

expenses of $1,013,795 and resolve a putative shareholder class action lawsuit filed against Neptune$6,251,713 respectively) and certain of its current and former officers and directors (refer to note 22(b)iii) , captioned Gong v. Neptune Wellness Solutions, Inc. pending in the United States District Courtnil for the Eastern District of New York, for a gross payment to the class of between $4 and $4.25 million, with the exact amount being within the Corporation’s control and dependent on the type of consideration used. The settlement is subject to court approval and certification by the court of the class, and the Corporation has a right to terminate the agreement within 30 days under certain circumstances. The Corporation will record a litigation settlement expense for the full amount in the second quarter interim financial statementsliability based awards for the three and six-monthnine-month periods ended September 30, 2022.

F-
60 
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Condensed Consolidated Interim Balance Sheets
(Unaudited) (in U.S. dollars)
   
Notes
  As at
June 30,
2022		  As at
March 31,
2022		 
Assets
     
Current assets:
     
Cash and cash equivalents
    $6,231,968  $8,726,341 
Short-term investment
     18,715   19,255 
Trade and other receivables
     6,182,876   7,599,584 
Prepaid expenses
     2,865,974   3,983,427 
Inventories
  4   14,056,514   17,059,406 
Assets held for sale
  2(d)   21,834,039   —   
    
 
 
  
 
 
 
Total current assets
     51,190,086   37,388,013 
Property, plant and equipment
  5   1,412,323   21,448,123 
Operating lease
right-of-use
assets
     2,046,835   2,295,263 
Intangible assets
     21,013,953   21,655,035 
Goodwill
  6   22,093,222   22,168,288 
    
 
 
  
 
 
 
Total assets
    $97,756,419  $104,954,722 
    
 
 
  
 
 
 
Liabilities and Equity
     
Current liabilities:
     
Trade and other payables
    $21,296,277  $22,700,849 
Current portion of operating lease liabilities
     626,928   641,698 
Deferred revenues
     351,551   285,004 
Provisions
  7   1,229,462   1,118,613 
Liability related to warrants
  8   3,167,947   5,570,530 
Liabilities directly associated with assets held for sale
  2(d)   3,537,176   —   
    
 
 
  
 
 
 
Total current liabilities
     30,209,341   30,316,694 
Operating lease liabilities
     1,873,919   2,063,421 
Loans and borrowings
  9   11,881,589   11,648,320 
Other liability
  12(c)   12,931   88,688 
    
 
 
  
 
 
 
Total liabilities
     43,977,780   44,117,123 
    
 
 
  
 
 
 
Shareholders’ Equity:
     
Share capital - without par value (7,614,434 shares issued and outstanding as of June 30, 2022; 5,560,829 shares issued and outstanding as of March 31, 2022)
  10(a)   318,921,917   317,051,125 
Warrants
  10(f)   6,079,890   6,079,890 
Additional
paid-in
capital
     56,346,589   55,980,367 
Accumulated other comprehensive loss
     (10,605,642)   (7,814,163) 
Deficit
     (327,466,047)   (323,181,697) 
Total equity attributable to equity holders of the Corporation
     43,276,707   48,115,522 
    
 
 
  
 
 
 
Non-controlling
interest
  11   10,501,932   12,722,077 
    
 
 
  
 
 
 
Total shareholders’ equity
     53,778,639   60,837,599 
    
 
 
  
 
 
 
Commitments and contingencies
  15   
Subsequent event
  18   
    
 
 
  
 
 
 
Total liabilities and shareholders’ equity
    $97,756,419  $104,954,722 
    
 
 
  
 
 
 
See accompanying notes toDecember 31, 2021.

As at December 31, 2022, the condensed consolidated interim financial statements.

Company had the following share-based payment arrangements:

(a)
On behalf of the Board:
/s/ Julie Philips
/s/ Michael Cammarata
Julie Philips
Michael Cammarata
Chair of the Board
President and CEO
Company stock option plan:
F-
6
1
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
(Unaudited) (in U.S. dollars)
For the three-month periods ended June 30, 2022 and 2021
   
Notes
  June 30,
2022		  June 30,
2021		 
Revenue from sales, net of excise taxes of $641,877
(2021 - $140,620 )
    $15,968,098  $9,821,640 
Royalty revenues
     284,189   236,067 
Other revenues
     19,941   20,802 
    
 
 
  
 
 
 
Total revenues
  16   16,272,228   10,078,509 
Cost of sales other than loss on inventories, net of subsidies of nil
(2021 - $662,495 )
     (16,086,578)   (12,401,043) 
Impairment loss on inventories
  4   (3,079,997)   —   
    
 
 
  
 
 
 
Total Cost of sales
     (19,166,575)   (12,401,043) 
    
 
 
  
 
 
 
Gross profit (loss)
     (2,894,347)   (2,322,534) 
Research and development expenses
     (214,687)   (259,666) 
Selling, general and administrative expenses, net of subsidies of nil
(2021 - $64,299 )
     (10,553,734)   (16,014,634) 
Impairment loss related to property, plant and equipment
  2(d), 5   (815,661)   (529,732) 
Net gain on sale of assets
     85,002   —   
    
 
 
  
 
 
 
Loss from operating activities
     (14,393,427)   (19,126,566) 
    
 
 
  
 
 
 
Finance income
     1,424   7,339 
Finance costs
     (916,522)   (358,116) 
Loss on issuance of derivatives
  8   (2,126,955)   —   
Foreign exchange gains (losses)
     1,407,285   (1,287,387) 
Change in revaluation of marketable securities
     —     (12,212) 
Gain on revaluation of derivatives
  8, 14   9,523,700   1,933,330 
    
 
 
  
 
 
 
     7,888,932   282,954 
    
 
 
  
 
 
 
Loss before income taxes
     (6,504,495)   (18,843,612) 
Income tax expense
     —     (12,098) 
    
 
 
  
 
 
 
Net loss
     (6,504,495)   (18,855,710) 
    
 
 
  
 
 
 
Other comprehensive (loss) income
     
Net change in unrealized foreign currency (losses) gains on translation of net investments in foreign operations (tax effect of nil for both periods)
     (2,791,479)   1,976,562 
    
 
 
  
 
 
 
Total other comprehensive (loss) income
     (2,791,479)   1,976,562 
    
 
 
  
 
 
 
Total comprehensive loss
    $(9,295,974)  $(16,879,148) 
    
 
 
  
 
 
 
Net loss attributable to:
     
Equity holders of the Corporation
    $(4,284,350)  $(16,907,628) 
Non-controlling
interest
  11   (2,220,145)   (1,948,082) 
    
 
 
  
 
 
 
Net loss
    $(6,504,495)  $(18,855,710) 
    
 
 
  
 
 
 
Total comprehensive loss attributable to:
     
Equity holders of the Corporation
    $(7,075,829)  $(14,931,066) 
Non-controlling
interest
     (2,220,145)   (1,948,082) 
    
 
 
  
 
 
 
Total comprehensive loss
    $(9,295,974)  $(16,879,148) 
    
 
 
  
 
 
 
Basic and diluted loss per share attributable to:
     
Equity holders of the Corporation
    $(0.72)  $(3.56) 
Non-controlling
interest
    $(0.37)  $(0.41) 
    
 
 
  
 
 
 
Total loss per share
  13  $(1.09)  $(3.97) 
    
 
 
  
 
 
 
Basic and diluted weighted average number of common shares
     5,958,266   4,744,685 
    
 
 
  
 
 
 
See accompanying notes to the condensed consolidated interim financial statements.
F-
6
2
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Condensed Consolidated Interim Statements of Changes in Equity
(Unaudited) (in U.S. dollars)
For the three-month periods ended June 30, 2022 and 2021
    Share Capital        Accumulated
other
comprehensive
income (loss)		             
  
Notes
 Number  Dollars  Warrants  Additional
paid-in

capital		  Cumulative
translation
account		  Deficit  Equity
attributable to
equity holders
of the
Corporation		  Equity
attributable to
non-controlling

interest		  Total 
Balance as at March 31, 2022
   5,560,829  $317,051,125  $6,079,890  $55,980,367  $(7,814,163)  $(323,181,697)  $48,115,522  $12,722,077  $60,837,599 
Net loss for the period
   —     —     —     —     —     (4,284,350)   (4,284,350)   (2,220,145)   (6,504,495) 
Other comprehensive loss for the period
   —     —     —     —     (2,791,479)   —     (2,791,479)   —     (2,791,479) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total comprehensive loss for the period
   —     —     —     —     (2,791,479)   (4,284,350)   (7,075,829)   (2,220,145)   (9,295,974) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Transaction with equity holders recorded directly in equity
          
Contributions by and distribution to equity holders
          
Share-based payment
 12  —     —     —     2,706,153   —     —     2,706,153   —     2,706,153 
RSUs released, net of withholding taxes
 10(d), 12(b)(ii)  108,079   1,870,792   —     (2,339,931)   —     —     (469,139)   —     (469,139) 
Direct Offering, net of issuance costs
 10(g)  1,945,526   —     —     —     —     —     —     —     —   
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total contributions by and distribution to equity holders
   2,053,605   1,870,792   –   366,222   —     —     2,237,014   —     2,237,014 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance as at June 30, 2022
   7,614,434  $318,921,917  $6,079,890  $56,346,589  $(10,605,642)  $(327,466,047)  $43,276,707  $10,501,932  $53,778,639 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
See accompanying notes to the condensed consolidated interim financial statements.
F-
6
3
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Condensed Consolidated Interim Statements of Changes in Equity (Continued)
(Unaudited) (in U.S. dollars)
For the three-month periods ended June 30, 2022 and 2021
    Share Capital        Accumulated
other
comprehensive
income (loss)		             
  
Notes
 Number  Dollars  Warrants  Additional
paid-in

capital		  Cumulative
translation
account		  Deficit  Equity
attributable to
equity holders
of the
Corporation		  Equity
attributable to
non-controlling

interest		  Total 
Balance as at March 31, 2021
   4,732,090  $306,618,482  $5,900,973  $59,625,356  $(8,567,106)  $(248,209,952)  $115,367,753  $22,177,556  $137,545,309 
Net loss for the period
   —     —     —     —     —     (16,907,628)   (16,907,628)   (1,948,082)   (18,855,710) 
Other comprehensive income for the period
   —     —     —     —     1,976,562   —     1,976,562   —     1,976,562 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total comprehensive loss for the period
   —     —     —     —     1,976,562   (16,907,628)   (14,931,066)   (1,948,082)   (16,879,148) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Transaction with equity holders recorded directly
in equity
          
Contributions by and distribution to equity holders
          
Share-based payment
 12  —     —     —     3,080,269   —     —     3,080,269   —     3,080,269 
Warrants in exchange of services rendered by
non-employees
 10(f)  —     —     92,685   —     —     —     92,685   —     92,685 
RSUs released, net of withholding taxes
 10(d), 12(b)(ii)  41,660   4,161,800   —     (5,140,497)   —     —     (978,697)   —     (978,697) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total contributions by and distribution to equity holders
   41,660   4,161,800   92,685   (2,060,228)   —     —     2,194,257   —     2,194,257 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance as at June 30, 2021
   4,773,750  $310,780,282  $5,993,658  $57,565,128  $(6,590,544)  $(265,117,580)  $102,630,944  $20,229,474  $122,860,418 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
See accompanying notes to the condensed consolidated interim financial statements.
F-
6
4
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited) (in U.S. dollars)
For the three-month periods ended June 30, 2022 and 2021
   
Three-month periods ended
 
   
Notes
  June 30,
2022		  June 30,
2021		 
Cash flows from operating activities:
     
Net loss for the period
    $(6,504,495)  $(18,855,710) 
Adjustments:
     
Depreciation of property, plant and equipment
     401,548   755,675 
Non-cash
lease expense
     157,881   96,290 
Amortization of intangible assets
     479,209   491,565 
Share-based payment
  12   2,706,153   3,080,269 
Impairment loss on inventories
  4   3,079,997   —   
Expected credit losses
     15,000   37,485 
Non-employee
compensation related to warrants
  10(f)   —     92,685 
Loss on issuance of derivatives
     2,126,955   —   
Net finance expense
     915,098   350,777 
Unrealized foreign exchange (gain) loss
     (137,909)   868,195 
Change in revaluation of marketable securities
     —     12,212 
Interest received
     —     5,303 
Interest paid
     —     (302,781) 
Revaluation of derivatives
     (9,523,700)   (1,933,330) 
Impairment loss on property, plant and equipment
  5   —     529,732 
Payment of lease liabilities
     —     (74,304) 
Income tax expense
     —     12,098 
Net gains from sale of property, plant and equipment
     (85,002)   —   
Changes in operating assets and liabilities
     (828,526)   (4,424,058) 
Income taxes paid
     —     (12,098) 
    
 
 
  
 
 
 
Net cash used in operating activities
     (7,197,791)   (19,269,995) 
    
 
 
  
 
 
 
Cash flows from investing activities:
     
Acquisition of property, plant and equipment
     —     (470,408) 
Acquisition of intangible assets
     —     (73,679) 
    
 
 
  
 
 
 
Net cash used in investing activities:
     —     (544,087) 
    
 
 
  
 
 
 
Cash flows from financing activities:
     
Withholding taxes paid pursuant to the settlement of
non-treasury
RSUs
     —     (978,697) 
Proceeds from the issuance of shares and warrants through a Direct Offering
  10(g)   5,000,002   —   
Issuance of shares and warrants costs
  10(g)   (465,211)   —   
Proceeds from exercise of options and
pre-funded
warrants
  10(g)   65   —   
    
 
 
  
 
 
 
Net cash provided by (used in) financing activities:
     4,534,856   (978,697) 
    
 
 
  
 
 
 
Foreign exchange loss on cash and cash equivalents
     168,562   132,415 
    
 
 
  
 
 
 
Net decrease in cash and cash equivalents
     (2,494,373)   (20,660,364) 
Cash and cash equivalents, beginning of period
     8,726,341   59,836,889 
    
 
 
  
 
 
 
Cash and cash equivalents as at June 30, 2022 and 2021
    $6,231,968  $39,176,525 
    
 
 
  
 
 
 
Cash and cash equivalents is comprised of:
     
Cash
    $6,231,968  $39,176,525 
    
 
 
  
 
 
 
See accompanying notes to the condensed consolidated interim financial statements.
F-
6
5
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
1.
(i)
Reporting entity:
Stock option plan:
Neptune Wellness Solutions Inc. (the “Corporation” or “Neptune”) is incorporated

The Company has established a stock option plan for directors, officers, employees and consultants. The exercise price of the stock options granted under the Business Corporations Act (Québec) (formerly Part 1Aplan is not lower than the closing price of the Companies Act (Québec)).common shares listed on the Nasdaq on the eve of the grant. The Corporation is domiciled in Canadaterms and its registered office is located at

100-545
Promenade du Centropolis, Laval, Québec, withconditions for acquiring and exercising options are set by the Board of Directors, 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 50,000 square-foot production facility located in Sherbrooke, Quebecminimum vesting period of 18 months and a 24,000 square-foot facility located in North Carolina.gradual and equal acquisition of vesting rights at least on a quarterly basis. The condensed consolidated interim financial statements ofCompany’s stock-option plan allows the Corporation comprise the Corporation and its subsidiaries, Biodroga Nutraceuticals Inc. (“Biodroga”), SugarLeaf Labs, Inc. (“SugarLeaf”), 9354-7537 Québec Inc., Neptune Holding USA, Inc., Neptune Health & Wellness Innovation, Inc., Neptune Forest, Inc., Neptune Care, Inc. (formerly known as Neptune Ocean, Inc.), Neptune Growth Ventures, Inc., 9418-1252 Québec Inc., Neptune Wellness Brands Canada, Inc. and Sprout Foods, Inc. (“Sprout”).
Neptune isCompany to issue a diversified and fully integrated health and wellness company. Through its flagship consumer-facing brands, Neptune Wellness, Forest Remedies
™
, Biodroga, MaxSimil
®
, MoodRing
™
, PanHash
™
, Sprout
®
, Nosh
®
and NurturMe
®
, Neptune is redefining health and wellness by building a broad portfolio of natural, plant-based, sustainable and purpose-driven lifestyle brands and consumer packaged goods products in key health and wellness markets, including cannabis, hemp, nutraceuticals, organic baby food, personal care and home care.
On June 8, 2022, Neptune announced the launch of a new Consumer Packaged Goods (“CPG”) focused strategic plan to reduce costs, improve the Company’s path to profitability and enhance current shareholder value. This plan builds on the Company’s initial strategic review that took place in fall of 2021 and focuses on two primary actions: (1) planned divestiture of the Canadian cannabis business and (2) a realignment of focus and operational resources toward increasing the value of Neptune’s consumer products business. Refer to note 2(d).
Share consolidation and delisting from TSX
On June 9, 2022, Neptune announced the completion of the Corporation’s proposed consolidation of its common shares (the “Common Shares”) on the basis of one (1) post-consolidation Common Share for every thirty-five
(35) pre-consolidation
Common Shares (the “Share Consolidation”). The post-Share Consolidation Common Shares commenced trading on the NASDAQ and the TSX at the market open on June 13, 2022 . The Share Consolidation reduced the number of Common Shares issued and outstanding from approximately 198 million Common Shares to approximately 5.7 million Common Shares as at June 13, 2022. These consolidated financial statements have been retroactively adjusted to reflect the Share Consolidation. As a result,stock options not exceeding 15% of the number of common shares issued and outstanding at the time of any grant. The total number of stock options issuable to a single holder cannot exceed 5% of the Company’s total issued and outstanding common shares at the time of the grant, provided that the maximum number of stock options issuable to a single consultant cannot exceed 2% of the Company’s total issued and outstanding common shares at the time of the grant.

The number and weighted average exercise prices of stock options are as follows:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

2022

​

2021

​

    

​

    

Weighted

    

​

    

Weighted

    

​

​

​

​

​

average

​

​

​

average

​

​

​

​

​

​

exercise

​

Number of

​

exercise

​

Number of

​

​

Notes

​

price

​

options

​

price

​

options

Options outstanding at April 1st, 2022 and 2021

​

​

 

$

37.41

​

306,321

 

$

65.91

 

121,208

Granted

​

​

 

 

1.60

​

229,715

 

 

29.97

 

220,125

Forfeited/Cancelled

​

​

 

 

16.00

​

(65,361)

 

 

37.82

 

(86,815)

Expired

​

​

 

 

50.71

​

(47,033)

 

 

90.20

 

(7,143)

Options outstanding at December 31, 2022 and 2021

​

​

 

$

18.55

​

423,642

 

$

45.10

 

247,375

​

​

​

​

​

​

​

​

​

​

​

​

​

Options exercisable at December 31, 2022 and 2021

​

​

 

$

39.25

​

131,119

 

$

56.59

 

98,387

​

​

​

​

​

​

​

​

​

​

​

​

​

December 31, 2022

​

​

Options outstanding

​

Exercisable options

​

​

Weighted

​

​

​

​

​

​

​

​

remaining

​

​

​

Weighted

​

Weighted

​

​

contractual

​

Number of

​

Number of

​

average

​

 

life

 

options

 

options

 

exercise

Exercise price

    

outstanding

    

outstanding

    

exercisable

    

price

​

​

​

​

​

​

​

​

​

$1.55 - $1.59

​

4.63

    

115,715

    

19,048

    

1.55

$1.60 - $6.07

 

4.74

 

114,000

 

—

 

—

$6.08 - $27.90

 

3.71

 

106,431

 

57,621

 

25.51

$27.91 - $42.96

 

3.55

 

28,669

 

10,804

 

30.23

$42.97 - $157.38

 

7.21

 

58,827

 

43,646

 

76.08

​

 

​

 

423,642

​

131,119

​

​

​

The fair value of options granted has been estimated using the Black-Scholes option pricing model and based on the weighted average of certain assumptions. The Company granted respectively no options and 114,000 options to non-employees during the three and nine-

F-71

Table of Contents

month periods ended December 31, 2022 (none for the three and nine-month periods ended December 31, 2021) resulting in a $128,680 and a nil stock-based compensation expense, respectively for the nine-month periods ended December 31, 2022 and 2021.

​

​

​

​

​

​

​

​

​

​

    

Nine-month periods ended

​

​

​

December 31,

    

December 31,

​

Black-Scholes assumptions used

​

2022

​

2021

​

​

​

​

​

​

​

​

​

Share price

​

$

10.50-$155.05

​

$

18.20-$155.05

​

Exercise price

​

$

10.50-$155.05

​

$

19.25-$155.05

​

Dividend yield

​

​

nil

​

​

nil

​

Risk-free interest

​

​

0.13% - 2.04

%  

​

0.13% - 2.04

%

Expected life (years)

​

​

3.54

​

​

3.47

​

Expected volatility

​

​

53.52% - 91.94

%  

​

53.52% - 86.04

%

​

Stock-based compensation recognized under this plan amounted to $299,406 and $774,679 respectively for the three and nine-month periods ended December 31, 2022 (2021 - $162,735 and $1,598,378). Unrecognized compensation cost at December 31, 2022 is $399,386 with a weighted average period remaining of 1.03 years (2021 - $1,584,133 with a weighted average period remaining of 1.29 years).

(ii)

Non-market performance options:

On July 8, 2019, the Company granted 100,000 non-market performance options under the Company stock option plan at an exercise price of $4.43 per share to the CEO, expiring on July 8, 2029. These options vest after the attainment of non-market performance conditions within the following ten years. These non-market performance options required the approval of amendments to the stock option plan and therefore the fair value of these options was revalued up to the date of the approval of the amendments (grant date). None of these non-market performance options have vested as at December 31, 2022. These options were not exercisable as at December 31, 2022 and 2021.

No stock-based compensation expense was recognized during the three and nine-month periods ended December 31, 2022 (three and nine-month periods ended December 31, 2021- $99,849 and $301,013 respectively).

(iii)

Market performance options:

On July 8, 2019, the Company granted 157,142 market performance options under the Company stock option plan at an exercise price of $4.43 per share to the CEO, expiring on July 8, 2029. These options vest after the attainment of market performance conditions within the following ten years. Some of these market performance options required the approval of amendments to the stock option plan and therefore the fair value of these options was revaluated up to the date of the approval of the amendments (grant date).

The number and weighted average exercise prices of market performance options are as follows:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

2022

​

2021

​

​

​

​

Weighted

​

​

​

Weighted

​

​

​

​

​

​

average

​

​

​

average

​

​

​

​

​

​

exercise

​

Number of

​

exercise

​

Number of

​

​

Notes

​

price

​

options

​

price

​

options

​

​

​

​

​

​

​

​

​

​

​

​

​

Options outstanding at April 1, 2022 and 2021

    

  

    

$

155.05

    

157,142

    

$

155.05

    

157,142

Options outstanding at December 31, 2022 and 2021

 

  

​

$

155.05

 

157,142

​

$

155.05

 

157,142

​

​

​

​

​

​

​

​

​

​

​

​

​

Options exercisable at December 31, 2022 and 2021

 

  

​

$

155.05

 

21,429

​

$

155.05

 

21,429

​

Stock-based compensation recognized under this plan amounted to $573,588 and $1,776,579 respectively for the three and nine-month periods ended December 31, 2022. Stock-based compensation expenses of $618,162 and $1,863,558 were recognized for three and nine-month periods ended December 31, 2021 respectively. Unrecognized compensation cost at December 31, 2022 is $9,484,197 with a weighted average period remaining of 6.76 years (2021 - $12,610,370 with a weighted average period remaining of 7.76 years).

(b)Deferred Share Units and Restricted Share Units:

F-72

Table of Contents

The Company has established an equity incentive plan for employees, directors and consultants of the Company. 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.

(i)Deferred Share Units (“DSUs”)

The number and weighted average share prices of DSUs are as follows:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

2022

​

2021

​

​

​

​

Weighted

​

​

​

Weighted

​

​

​

​

​

​

average

​

​

​

average

​

​

​

​

​

​

share

​

Number of

​

share

​

Number of

​

    

Notes

    

price

    

DSUs

    

price

    

DSUs

​

​

​

​

​

​

​

​

​

​

​

​

​

DSUs outstanding at April 1, 2022 and 2021

​

​

 

$

66.45

​

4,308

 

$

63.00

 

1,202

DSUs outstanding at December 31, 2022 and 2021

​

​

 

$

66.45

​

4,308

 

$

19.00

 

4,308

​

​

​

​

​

​

​

​

​

​

​

​

​

DSUs exercisable at December 31, 2022 and 2021

​

​

 

$

66.45

​

4,308

 

$

48.18

 

1,976

​

Of the 4,308 DSUs outstanding as at December 31, 2022 (2021 – 4,308), restricted1,555 DSUs vested during the nine-month period ended December 31, 2021 upon services to be rendered during a period of twelve months from date of grant (2021 – 1,108). The fair value of the DSUs is determined to be the share units (“RSUs”price at the date of grant and is recognized as stock-based compensation, through additional paid-in capital, over the vesting period.

Stock-based compensation recognized under this plan amounted to $— and $13,025 respectively for the three and nine-month periods ended December 31, 2022. Stock-based compensation expenses of $23,928 and $29,235 were recognized for three and nine-month periods ended December 31, 2021 respectively.

(ii)Restricted Share Units (‘‘RSUs’’), restricted

During the year ended March 31, 2020, as part of the employment agreement of the CEO, the Company granted RSUs which vest over three years in 36 equal instalments. During the year ended March 31, 2021, Neptune granted additional RSUs to the CEO and to executives of the Company, which vest over periods ranging from 6 months to 3 years. The fair value of the RSUs is determined to be the share price at the date of grant and is recognized as stock-based compensation, through additional paid-in capital, over the vesting period. The fair value of the RSUs granted during the nine-month period ended December 31, 2022 was $3.31 per unit.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

2022

​

2021

​

​

​

​

Weighted

​

​

​

Weighted

​

​

​

​

​

​

average

​

​

​

average

​

​

​

​

​

​

share

​

Number of

​

share

​

Number of

​

    

Notes

    

price

    

RSUs

    

price

    

RSUs

​

​

​

​

​

​

​

​

​

​

​

​

​

RSUs outstanding at April 1st, 2022 and 2021

 

  

​

$

59.75

 

25,038

​

$

92.08

 

95,845

Granted

 

  

​

 

3.31

 

436,449

​

 

—

 

11,751

Forfeited

 

  

​

 

19.25

 

(15,606)

​

 

—

 

(2,858)

Released through the issuance of common shares

 

10(d)

​

 

5.60

 

(269,599)

​

 

155.05

 

(51,095)

Withheld as payment of withholding taxes

 

10(d)

​

 

5.60

 

(173,493)

​

 

155.05

 

(27,133)

RSUs outstanding at December 31, 2022 and 2021

 

  

​

$

60.04

 

2,789

​

$

148.49

 

26,510

​

Stock-based compensation recognized under this plan amounted to $132,461 and $268,155 respectively for the three and nine-month periods ended December 31, 2022. Stock-based compensation expenses of $109,121 and $2,459,529 were recognized for three and nine-month periods ended December 31, 2021 respectively. There is no unrecognized compensation cost at December 31, 2022 (2021 - $501,720 unrecognized compensation cost with a weighted average remaining life of 0.76 years).

On November 14, 2021, the Company and its CEO entered into an agreement pursuant to which the CEO’s existing employment agreement was amended to waive the Company’s obligation to procure directors and officers insurance coverage of up to $15 million for the period covering July 1, 2021 to July 31, 2022. The parties agreed that if the Company had successfully completed a strategic

F-73

Table of Contents

partnership prior to December 31, 2021, the CEO would have been entitled to approximately $6.9 million in cash and would have been granted fully vested options to purchase 8.5 million shares of the Company’s common stock. As the strategic partnership was not consummated by December 31, 2021, the CEO was entitled to monthly cash payments for an aggregate value of approximately $6.9 million or the issuance over time of a fixed amount of fully vested RSUs, at the option of the Company.

The balance of the liability accrual to the CEO is $8,587 (including withholding taxes) as at December 31, 2022, in trade and other payables. The revaluation of the liability amounted to a loss of $110,859 and a gain of $3,263,437 respectively for the three and nine-month periods ended December 31, 2022 and were recorded into selling, general and administrative expenses (2021 – nil for both periods). During the three and nine-month periods ended December 31, 2022, settlements in RSUs were of $132,681 and $1,555,585 respectively. The compensation to be settled in RSUs or if the Company is unable to grant such RSUs, then a combination of cash and vested RSUs with equivalent value, is not reflected in the number of RSUs outstanding above.

(c)Long term cash bonus:

According to the employment agreement with the CEO, a long-term incentive of $15 million is payable if the Company’s US market capitalization is at least $1 billion. The Company uses a risk-neutral Monte Carlo simulation to estimate the fair-value of this instrument and recognizes the incentive over the estimated period to reach the market capitalization.

As at December 31, 2022, the liability related to this long-term incentive of $23,000 ($88,688 as at March 31, 2022) is presented in Other liability in the consolidated balance sheets. During the nine-month period ended December 31, 2022, a recovery of $65,688 (2021 – a recovery of $238,155) was recorded in connection with the long-term incentive under selling, general and administrative expenses in the consolidated statement of loss. During the three-month period ended December 31, 2022, the Company recorded a recovery of $1,000 (2021 – a recovery of $85,468).

13.Income (Loss) per share:

The Company presents basic net income per share using the two-class method. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to equity holders and that determines basic net income per share for each class of stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings that would have been available to equity holders. A participating security is defined as a security that may participate in undistributed earnings with shares.

The Company’s capital structure includes securities that participate with shares on a one-for-one basis for distribution of dividends. The following classes of warrants issuanceare considered participating securities as they are entitled to participate in dividend distributions alongside equity holders for which the two-class method is applied in computing earnings per share: Series A Warrants, Series B Warrants, Series C Warrants, Series D Warrants, Series E Warrants, 2020 Warrants and exercise prices2021 Warrants. The Company determines the diluted net income per share by using the more dilutive of the two class-method or the treasury stock method. The issued and unexercised liability and equity classified warrants do not participate in losses of the Company, thus an allocation of losses is not performed when the Company is in a loss position.

The effects of options, DSUs, RSUs restricted shares and warrants are excluded from the calculation of diluted loss per share reflectfor periods in which a company sustains a loss. Accordingly, diluted loss per share was the Share Consolidation.same as basic loss per share, except for the three-month period

On July 29, 2022, Neptune announced that it has applied and received approval for a voluntary delisting of its common shares from the Toronto Stock Exchange (“TSX”). The delisting from the TSX will not affect the Corporation’s listing on the Nasdaq Capital Market (“Nasdaq”). Neptune’s common shares will be delisted from the TSX at the close of trading on August 15, 2022.
Going concern

F-74

Table of Contents

These condensed consolidated interim financial statements

ended December 31, 2022, because the Company has incurred losses in each of the other periods presented. All outstanding options, DSUs, RSUs and warrants could potentially be dilutive in the future.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Three-month periods ended

​

Nine-month periods ended

​

    

December 31,

    

December 31,

    

December 31,

    

December 31,

​

​

2022

​

2021

​

2022

​

2021

Net income (loss) attributed to equity holders

​

$

1,288,110

​

$

(15,009,015)

​

$

(33,893,698)

​

$

(43,029,506)

Less: Undistributed earnings attributed to warrant holders

​

 

(631,070)

​

 

—

​

 

—

​

 

—

Basic net income (loss) attributed to common shareholders

​

$

657,040

​

$

(15,009,015)

​

$

(33,893,698)

​

$

(43,029,506)

Dilutive net income (loss) attributed to common shareholders

​

$

657,040

​

$

(15,009,015)

​

$

(33,893,698)

​

$

(43,029,506)

Basic weighted-average number of common shares outstanding

​

 

11,030,838

​

 

4,781,190

​

 

8,462,761

​

 

4,765,762

Effect of dilutive securities

​

 

  

​

 

  

​

 

  

​

 

  

Options, RSUs, DSUs

​

 

64,129

​

 

—

​

 

—

​

 

—

Dilutive weighted-average number of common shares outstanding

​

 

11,094,967

​

 

4,781,190

​

 

8,462,761

​

 

4,765,762

Net income (loss) per share attributable to common shareholders of the Company

​

​

​

​

​

​

​

​

​

​

​

​

Basic earnings (loss) per share

​

$

0.06

​

$

(3.14)

​

$

(4.01)

​

$

(9.03)

Dilutive earnings (loss) per share

​

$

0.06

​

$

(3.14)

​

$

(4.01)

​

$

(9.03)

​

The following table summarizes outstanding securities not included in the computation of diluted net income (loss) per share as the effect would have been prepared on a going concern basis, which presumes thatanti-dilutive for each respective period.

​

​

​

​

​

​

​

​

​

​

​

​

Three-month periods ended

​

Nine-month periods ended

​

    

December 31,

    

December 31,

    

December 31,

    

December 31,

Securities

​

2022

​

2021

​

2022

​

2021

Options, RSUs, DSUs

 

523,752

 

435,335

 

587,881

 

435,335

Warrants

 

11,236,554

 

673,784

 

11,236,554

 

673,784

​

​

14.Fair-value:

The Company uses various methods to estimate the Corporation will continue realizing its assets and discharging its liabilities in the normal course of business for the foreseeable future. The Corporation has incurred significant operating

F-6
6
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
losses
and negative cash flows from operations since inception. To date, the Corporation has financed its operations through the public offering and private placement of Common Shares, units consisting of Common Shares and warrants, and convertible debt, the proceeds from research grants and research tax credits, and the exercises of warrants, rights and options. For the three-month period ended June 30, 2022,
the Corporation incurred a net loss of $
6.5
 million and negative cash flows from operations of $
7.2
 million, and had an accumulated deficit of $
327.5
 million as at June 
30
,
2022
. For the year ended March 
31
,
2022
, the Corporation incurred a net loss of $
84.4
 million and negative cash flows from operations of $
54.3
 million. Furthermore, as at June 
30
,
2022
, the Corporation’s current liabilities and expected level of expenses for the next
twelve
months exceed cash on hand of $
6.2
 million. The Corporation currently has
no
committed sources of financing available.
As of the date these financial statements are authorized for issuance, the Corporation is required to actively manage its liquidity and expenses. The Corporation currently has minimal available cash balances. Payables are now in excess of available cash balances and payments of payables are not being made as the amounts become due for certain suppliers. As of the date these financial statements are authorized for issuance, the cash balance is expected to be sufficient to operate the business for only the next two to three months under the current business plan. The Corporation requires funding in the very near term in order to continue its operations. If the Corporation is unable to obtain funding in the upcoming days, it may have to liquidate its assets.
These conditions cast substantial doubt about the Corporation’s ability to continue as a going concern.
Going forward, the Corporation will seek additional financing in various forms as part of its plan to have the right funding structure in place. To achieve the objectives of its business plan, Neptune plans to raise the necessary funds through additional financings and the establishment of strategic alliances as well as additional research grants and research tax credits. While the Corporation has limited debt, all of which is subordinated, assets available for financing include real estate, accounts receivable and inventories. The ability of the Corporation to complete the needed financing and ultimately achieve profitable operations is dependent on a number of factors outside of the Corporation’s control. The Corporation’s business plan is dependent upon, amongst other things, its ability to achieve and maintain profitability, and continue to obtain adequate ongoing debt and/or equity financing with creditors, officers, directors and stakeholders to finance operations within and beyond the next twelve months.
While the Corporation 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.
Neptune announced on June 8, 2022 the intended divestiture of the cannabis business, which would include the sale of the Mood Ring
™
and PanHash
™
brands, along with the Corporation’s Sherbrooke, Quebec facility, in one or more transactions. In order to accelerate its cost savings, the Corporation will focus on winding up its cannabis operations pending a transaction. This planned action is intended to provide significant cost savings and help maximize operational efficiencies. Finally, the exit of the Canadian cannabis business is expected to reduce the amount of financing the Corporation seeks and is expected to facilitate working with a broader set of financing sources.
These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the going concern basis not be valid. These adjustments could be material.
F-6
7
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
2.
Basis of preparation:
(a)
Adoption of U.S. GAAP:
As at March 31, 2022, the Corporation has retroactively adopted United States generally accepted accounting principles (“US GAAP”). The consolidated financial statements of the Corporation have been prepared in accordance with US GAAP for all periods presented. Comparative figures, which were previously prepared in accordance with International Financial Reporting Standards (”IFRS”) as issued by the International Accounting Standards Board, have been adjusted as required to be compliant with the Corporation’s accounting policies under US GAAP.


(b)
Functional and reporting currency:
Effective March 31, 2022, the Corporation has changed its reporting currency from Canadian dollars (“CAD”) to U.S. dollars (“USD”). This change in reporting currency has been applied retroactively such that all amountsfair value recognized in the consolidated financial statementsstatements. The fair value hierarchy reflects the significance of inputs used in determining the Corporation and the accompanying notes thereto are expressed in U.S. dollars. References to “$” and “USD” are U.S dollars and references to “CAD $” and “CAD” are to Canadian dollars. For comparative purposes, historical consolidated financial statements were recast in U.S. dollars by translatingfair values:

●Level 1 ‒ Unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date;
●Level 2 ‒ Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices);
●Level 3 ‒ Fair value based on valuation techniques which includes inputs related to the asset or liability that are not based on observable market data (unobservable inputs).

Financial assets and liabilities measured at the closing exchange rate in effect at the end of the respective period, revenues, expenses and cash flows at the average exchange rate in effect for the respective period and equity transactions at historical exchange rates. Translation gains and losses are included as part of the cumulative foreign currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive loss.

The assets and liabilities of foreign operations with a functional currency other than the U.S. dollar are translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenue and expenses are translated at the monthly average exchange rates for the period. Differences arising from the exchange rate changes are recorded within foreign currency translation adjustments, a component of other comprehensive income (loss).
Transactions in foreign currencies are translated to the respective functional currencies of the Corporation’s subsidiaries at the average exchange rates for the period. The monetary items denominated in currencies other than the functional currency of a subsidiary are translated at the exchange rates prevailing at the balance sheet date.
Non-monetary
items denominated in currencies other than the functional currency are translated at historical rates. Gains and losses resulting from
re-measurement
are recorded in the Corporation’s consolidated statement of loss as foreign exchange gain (loss).
The functional currency of the Corporation is the Canadian dollars.
(c)
Use of estimates:
The preparation of the condensed consolidated interim financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from the estimates made by management.
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
F-6
8
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Estimates include the following:
Estimating the write down of inventory;
Estimating expected credit losses for receivables;
Estimating the recoverable amount of
non-financial
assets, to determine and measure impairment losses on goodwill, intangibles, and property, plant and equipment;
Estimating the lease term of contracts with extension options and termination options;
Estimating the revenue from contracts with customers subject to variable consideration.
Estimating the fair value of bonus, options and warrants thaton a recurring basis are based on market and
non-market
conditions (note 12);

Estimating the fair value of the identifiable assets acquired, liabilities assumed, and consideration transferred of the acquired business, including the related contingent consideration and call option;
Estimating the litigation provision as it depends upon the outcome of proceedings (note 7); and
Estimating fair value less costs to sell of assets held for sale, (note 2 (d)the call option granted to Neptune by Sprout’s non-controlling interest owners of equity (the “Call Option”). and the liability related to warrants.

F-75

(d)
Assets and liabilities held for sale:

Table of Contents

The following table presents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and March 31, 2022:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

December 31, 2022

​

    

Notes

    

Level 1

    

Level 2

    

Level 3

    

Total

Liabilities

 

  

 

​

  

 

​

  

 

​

  

 

​

  

Liability related to warrants

 

8

​

$

—

​

$

—

​

$

1,444,058

​

$

1,444,058

Total

 

  

​

$

—

​

$

—

​

$

1,444,058

​

$

1,444,058

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

March 31, 2022

​

    

Notes

    

Level 1

    

Level 2

    

Level 3

    

Total

Liabilities

 

  

 

​

  

 

​

  

 

​

  

 

​

  

Liability related to warrants

 

8

​

$

—

​

$

—

​

$

5,570,530

​

$

5,570,530

Total

 

  

​

$

—

​

$

—

​

$

5,570,530

​

$

5,570,530

​

On June 8, 2022, the Company announced a planned divestiture of the Canadian cannabis business and the CorporationCompany will focus on winding up its cannabis operations pending one or more sales transactions. Following this announcement, the Corporation had Canadian cannabis disposal group assets that met the criteria to be classified as held for sale. As at June 30, 2022, all assets and liabilities related to the Canadian cannabis business are now respectively shown under assets held for sale and liabilities directly associated with assets held for salewas first measured based on Neptune’s balance sheet. Comparative balance sheet amounts have not been reclassified. The disposal group has been measuredlevel 3 inputs, at fair value less cost to sell using market prices for comparative assets, (level 3) and an estimate of disposal costs which resulted in an impairment loss of $815,661 forthen based on level 1 inputs during the three-month periodquarter ended June 30, 2022.

The Corporation expects that the cannabis disposal group will be sold within the next twelve months through a sale.
F-6
9
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended JuneSeptember 30, 2022, and 2021
The following table presents information related toas per the major classes of assets and liabilities that were classified as held for sale:
   June 30,
2022		 
Trade and other receivables
  $2,096,537 
Prepaid expenses
   204,610 
Inventories
   791,105 
Building and building components
   15,629,366 
Laboratory and plant equipment
   3,015,218 
Intangible assets
   97,203 
   
 
 
 
Assets held for sale
  $21,834,039 
   
 
 
 
Trade and other payables
   3,314,508 
Deferred revenues
   12,928 
Provisions
   209,740 
   
 
 
 
Liabilities directly associated with assets held for sale
  $3,537,176 
   
 
 
 
3.
Significant accounting policies:
These unaudited Consolidated Interim Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”ASPA (note 2(d)) and on a basis consistent with those accounting principles followed by the Corporation and disclosed in note 2 of its Annual Consolidated Financial Statements for the year ended March 31, 2022, except as disclosed in note 3 – Significant accounting policies and should be read in conjunction with and Notes thereto.
(a)
Basis of consolidation:
These consolidated financial statements include the accounts of the Corporation and its subsidiaries in which the Corporation has a controlling financial interest. All intercompany balances and transactions have been eliminated from the Corporation’s consolidated financial statements. .

On February 10, 2021, Sprout’s other equity interest owners granted Neptune acquired a 50.1% interest incall option (the “Call Option”) to purchase the remaining 49.9% outstanding equity interests of Sprout, Foods, Inc. (“Sprout” or “Sprout Foods”). The accounts of the subsidiary are included in the consolidated financial statements from that date.



(b)
New standards and interpretations not yet adopted:
Accounting pronouncements not yet adopted
In March 2020, the FASB issued ASU
2020-04,
Facilitation of the Effects of Reference Rate Reformat any time beginning on Financial Reporting, which amends ASC Topic 848, Reference Rate Reform. This ASU provides optional expedientsJanuary 1, 2023 and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This new guidance is optional and may be elected over time throughending on December 31, 2023. On December 31, 2022 as reference rate reform activities occur. This new guidance is not expectedand March 31, 2022, the Call Option was measured based on level 3 inputs to have a material impactnil. For the three and nine-month periods ended December 31, 2022, the Company recorded gains on the Corporation’s consolidated financial statements.
In October 2021, the FASB issued ASU
2021-08,
Accounting for Contract Assetsre-measurement of nil (2021 – losses of $(376,753) and Contract Liabilities from Contracts with Customers
, which amends ASC Topic 805, Business Combinations, $(146,138) respectively).

The ASU improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistencyliabilities related to the (1) recognition of an

F-
70
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022warrants were recorded at their fair value using a Black-Scholes pricing model. Warrants are revalued each period end at fair value through profit and 2021
acquired contract liability and (2) payment terms and their direct effect on subsequent revenue recognized by the acquirer. ASU
2021-08
is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2022. Managementloss using level 3 inputs (note 8).

The Company has not yet evaluated the impact of this ASU on the Corporation’s consolidated financial statements.

The Corporation does not intend to early adopt any of the above amendments.
(c)
Assets held for sale:
The Corporation classifies long-lived assets or disposal groups to be sold as held for sale in the period in which all of the following criteria are met: management, having the authority to approve the action, commits to a plan to sell the asset or disposal group; the asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets or disposal groups; an active program to locate a buyer and other actions required to complete the plan to sell the asset or disposal group have been initiated; the sale of the asset or disposal group is probable, and transfer of the asset or disposal group is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset or disposal group beyond one year; the asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made ordetermined that the plan will be withdrawn.
Assets and liabilities directly associated with assets held for sale are measured at the lowercarrying values of carrying amount and fair value less costs to sell immediately prior to their classification. Any loss resulting from this measurement is recognized in the period in which the
held-for-sale
criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset or disposal group until the date of sale.
Assets classified as held for sale, and theits short-term financial assets and liabilities included within a disposal group classified as held for sale are presented separately onapproximate their fair values given the faceshort-term nature of these instruments. The carrying value of the statementshort-term investment also approximates its fair value given the short-term maturity of balance sheet.
Non-current
assetsthe 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 and long-term payable is determined by discounting future cash flows using a rate that are classified as heldthe Company could obtain for sale are not depreciated.

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:

4.
(a)
Inventories:
Commitments:
   June 30,
2022		   March 31,
2022		 
Raw materials
  $6,231,095   $7,920,190 
Work in progress
   —      1,016,916 
Finished goods
   7,825,419    7,974,690 
Supplies and spare parts
   —      147,610 
   
 
 
   
 
 
 
   $14,056,514   $17,059,406 
   
 
 
   
 
 
 
During
the three-month periods ended June 30, 2022 and 2021, inventories have been reduced by $3,079,997 and nil respectively. The write-down of inventories during the quarter ended June 30, 2022 is related to assets held for sale inventories that are not expected to be realized.

5.
(i)
Property, plant and equipment:
On January 31, 2020, Neptune entered into an exclusive license agreement for a specialty ingredient in combination with fish oil products in nutraceutical products for a period of 8 years. Neptune is required to pay royalties on sales for these products. To maintain exclusivity, Neptune must reach annual minimum volumes of sales for the duration of the agreement or make corresponding minimum royalty payments. The total remaining amount of minimum royalties under the license agreement is $1,148,564. Failure to make the minimum royalty payments will solely result in the license granted thereunder becoming non-exclusive.
As at June 30, 2022, property, plant and equipment in the amount of $18.6 million related to the Canadian cannabis asset group were reclassified to assets held for sale on the balance sheet (refer to note 2(d)).
F-7
1
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
During the first quarter of June 30, 2021, the Corporation impaired certain cannabis property, plant and equipment in the amount of $529,732.
6.
(ii)
Goodwill:
The aggregate amount of goodwill is allocated to each reporting unit as follows:
   June 30,
2022		   March 31,
2022		 
Biodroga
  $2,550,785   $2,625,851 
Sprout
   19,542,437    19,542,437 
   
 
 
   
 
 
 
   $22,093,222   $22,168,288 
   
 
 
   
 
 
 
7.
Provisions
(a)
During the year endedOn March 31,21, 2019, the CorporationCompany received a judgment from the Superior Court of Québec (the “Court”)regarding certain previously disclosed claims made by a corporation controlled by the former CEO against the Company in respect ofto certain royalty payments alleged to be owed and owing to athe former chief executive officer of the Corporation (the “Former CEO”)CEO pursuant to the terms of an agreement entered into on February 23, 2001 between Neptune and the Formerformer CEO (the “Royalty Agreement”“Agreement”). The Corporation appealed the judgment which was dismissed by the Court of Appeal of Québec in February 2021. Underdeclared that under the terms of the Royalty Agreement and as maintained byagreement, the court, annualCompany is required to pay royalties of 1% of its revenues in semi-annual instalments, for an unlimited period. Based on currently available information, a provision of $606,346 for royalty payments has been recognized as of December 31, 2022 ($362,809 as at March 31, 2022). Refer to note 7.
(iii)On May 28, 2021, Sprout entered into a license agreement with Moonbug Entertainment Limited (“Moonbug”), pursuant to which it would license certain intellectual property, relating to characters from the sales and other revenue made bychildren’s entertainment property

F-76

Table of Contents

CoComelon, for use on certain Sprout products through December 31, 2023 in exchange for a royalty on net sales. Sprout is required to make minimum guaranteed annual payments to Moonbug of $200,000 over the Corporation on a consolidated basis are payable by the Corporation to the Former CEO biannually, but only to the extent that the costterm of the royalty would not causeagreement. The agreement may be extended for an additional three years in exchange for an additional minimum guaranteed annual payment to Moonbug of $200,000 over the Corporation to have a loss before interest, taxes and amortization (in which case,extended term of the agreement. Royalties payable under the agreement are set off against minimum guaranteed payments would be deferred to the following fiscal year).made.
As of June 30, 2022, a provision of $477,982 (March 31, 2022 - $362,809) has been recorded by the Corporation. During the current quarter, the Corporation increased the provision by $126,204, recorded foreign currency translation adjustments of $(11,031) and made no payments to the Former CEO in relation to this provision. During the period ended June 30, 2021, the Corporation increased the provision by $116,467, recorded foreign currency translation adjustments of $31,773 and made payments totaling $1,417,219 to the Former CEO in relation to this provision.
(b)
Contingencies:

In the normal course of business, the Company is involved in various claims and legal proceedings, for which the outcomes, inflow or outflow of economic benefits, are uncertain. The most significant of which are ongoing are as follows:

(i)In September 2020, Neptune submitted a claim and demand for arbitration against Peter M. Galloway and PMGSL Holdings, LLC (collectively “PMGSL”) in accordance with the SugarLeaf Asset Purchase Agreement (“APA”) dated May 9, 2019 between Neptune, PMGSL, Peter M. Galloway and Neptune Holding USA, Inc. Separately, PMGSL submitted a claim and demand for arbitration against Neptune. The Neptune claims and PMGSL claims have been consolidated into a single arbitration and each are related to the purchase by Neptune of substantially all of the assets of the predecessor entities of PMGSL Holdings, LLC. Neptune is claiming, among other things, breach of contract and negligent misrepresentation by PMGSL in connection with the APA and is seeking, among other things, equitable restitution and any and all damages recoverable under law. PMGSL is claiming, among other things, breach of contract by Neptune and is seeking, among other things, payment of certain compensation contemplated by the APA. A merit hearing in the arbitration started in April 2022 with a
further week of testimony from August 1-5, 2022. On June 15, 2022, a one-day hearing took place on Neptune’s motion to enforce a settlement agreement reached on April 2021 (which was repudiated by PMGSL in June 2021). Following oral argument on July 7, 2022, that motion was denied. While Neptune believes there is no merit to the claims brought by PMGSL, a judgment in favor of PMGSL 
F-
7
2
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
may have a material adverse effect on our business and Neptune intends to continue vigorously defending itself. Based on currently available information, a provision of $600,000 has been recognized for this case as at June 30, 2022 ($600,000 as at March 31, 2022).
(c)
A supplier of cannabis initiated a lawsuit against 9354-7537 Quebec Inc. (operating as Neptune Wellness Solutions, Inc.) (“Neptune”) for breach of a Wholesale Cannabis Supply Agreement (the “Supply Agreement”) for the purchase of cannabis trim. The purchased trim was rejected by Neptune due to quality concerns. The supplier refused to refund the purchase price and ultimately sued Neptune for breach of the Supply Agreement. The matter proceeded to trial in November 2021, and on March 23, 2022, an arbitrator entered an arbitration award against Neptune for the full purchase price of the trim. With fees and costs, the final arbitrator’s award entered against Neptune is of $1,127,024, plus applicable interest. During the quarter ended June 30, 2022, the parties engaged into settlement negotiations which resulted in the signature of a settlement agreement dated July 13, 2022. As at June 30, 2022, the payable was revised to the settlement amount of $543,774 which resulted in the recognition of a settlement gain of $583,430 under Selling, general and administrative expenses for the three-month period ended June 30, 2022.
(d)
As at June 30, 2022, the Corporation has various additional other provisions for legal obligations for an aggregate amount of $361,221 (March 31, 2022 – $155,804), of which $209,740 (March 31, 2022 - nil) are related to liabilities directly associated with assets held for sale (refer to note 2(d)).
8.
Liability related to warrants:
The Corporation has issued common share,
pre-funded
warrants and warrants as part of its financing arrangements which are exercisable for a variable number of shares. Common shares and
pre-funded
warrants are classified as equity. Warrants are classified as liabilities rather than equity.
On June 23, 2022, Neptune issued a total of 645,526
pre-funded
warrants
(“Pre-Funded
Warrants”), along with 1,300,000 common shares of the Corporation, as part of a registered direct offering (“June 2022 Direct Offering”). Each
Pre-Funded
Warrant was exercisable for one Common Share. The common shares and the
Pre-Funded
Warrants were sold together with 1,945,526 Series C Warrants (the “Series C Warrants”), and 1,945,526 Series D Warrants (the “Series D Warrants”) and collectively, the “June 2022 Common Warrants”. Each of the June 2022 Common Warrant is exercisable for one common share. Each common share and
Pre-Funded
Warrants and the accompanying June 2022 Common Warrants were sold together at a combined offering price of $2.57, for aggregate gross proceeds of $5.0 million before deducting fees and other estimated offering expenses. The
Pre-Funded
Warrants are funded in full at closing except for a nominal exercise price of $0.0001 and are exercisable commencing on the Closing Date and will terminate when such
Pre-Funded
Warrants are exercised in full. The Series C Warrants and the Series D Warrants have an exercise price of $2.32 per share and can be exercised for a period of 5 years and 2 years respectively from the date of issuance.
Proceeds of the June 2022 Direct Offering were allocated between common shares and warrants first by allocating proceeds to the warrants classified as a liability based on their fair value and then allocating the residual to the equity instruments, which includes the
Pre-Funded
Warrants. The fair value of the liability-classified warrants was determined using the Black-Scholes model, resulting in an initial warrant liability of $4,046,836 for the Series C Warrants and $3,080,121 for the Series D Warrants. Because the fair value of the liability classified warrant exceeds the total proceeds, no consideration was allocated to the Common Shares and
Pre-Funded
Warrants and a loss $2,126,955 was immediately recognized in the net loss of the period as there were no additional rights or privileges identified. The Corporation is in need of financing to be able to continue its activities as described in note 1. The
Pre-Funded
Warrants were exercised in full on
F-
7
3
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
June 24, 2022 for gross proceeds of $65. Total issue costs related to this private placement of $465,211, was recorded under finance costs.
The fair value of the Series C Warrants and Series D Warrants liability was determined using the Black-Scholes model. Warrants are revalued each
period-end
at fair value through profit and loss in “gain on revaluation of derivatives”.
Changes in the value of the liability related to the warrants for the three-month periods ended June 30, 2022 and 2021 were as follows:
   Warrants   Amount 
Outstanding as at March 31, 2021
   497,355   $10,462,000 
   
 
 
   
 
 
 
Warrants issued during the period
   —      —   
Revaluation
        (1,829,330) 
Movements in exchange rates
        156,669 
   
 
 
   
 
 
 
Outstanding as at June 30, 2021
   497,355    8,789,339 
   
Outstanding as at March 31, 2022
   1,925,929   $5,570,530 
   
 
 
   
 
 
 
Warrants issued during the period
   3,891,052    7,126,957 
Revaluation
        (9,523,700) 
Movements in exchange rates
        (5,840) 
   
 
 
   
 
 
 
Outstanding as at June 30, 2022
   5,816,981    3,167,947 
   
 
 
   
 
 
 
The following table provides the relevant information on the outstanding warrants as at June 30, 2022:
Reference
 Date of issuance  Number of warrants
outstanding		  Number of warrants
exercisable		  Exercise price  Expiry date 
2020 Warrants
  October 22, 2020   300,926   300,926  $78.75   October 22, 2025 
2021 Warrants
  February 19, 2021   196,429   196,429  $78.75   August 19, 2026 
Series A Warrants
  March 14, 2022   714,287   714,287  $11.20   September 14, 2027 
Series B Warrants
  March 14, 2022   714,287   714,287  $11.20   March 14, 2028 
Series C Warrants
  June 23, 2022   1,945,526   1,945,526  $2.32   June 23, 2027 
Series D Warrants
  June 23, 2022   1,945,526   1,945,526  $2.32   June 24, 2024 
      
 
 
  
 
 
  
 
 
     
       5,816,981   5,816,981  $11.04     
      
 
 
  
 
 
  
 
 
     
The derivative warrant liabilities are measured at fair value at each reporting period and the reconciliation of changes in fair value is presented in the following tables:
   2020 Warrants   2021 Warrants 
   June 30,
2022		   June 30,
2021		   June 30,
2022		   June 30,
2021		 
Balance - beginning of period
  $309,769   $6,174,000   $306,704   $4,288,000 
Change in fair value
   (288,585)    (1,100,996)    (284,062)    (728,334) 
Translation effect
   (1,598)    93,052    (8,985)    63,617 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance - end of period
  $19,586   $5,166,056   $13,657   $3,623,283 
   
 
 
   
 
 
   
 
 
   
 
 
 
F-
7
4
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
   Series A Warrants   Series B Warrants 
   June 30,
2022		   June 30,
2021		   June 30,
2022		   June 30,
2021		 
Balance - beginning of period
  $3,270,816   $—     $1,683,241   $—   
Warrants issued during the period
   —      —      —      —   
Change in fair value
   (2,862,450)    —      (1,608,960)    —   
Translation effect
   (17,994)    —      (7,900)    —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance - end of period
  $390,372   $—     $66,381   $—   
   
 
 
   
 
 
   
 
 
   
 
 
 
   Series C Warrants   Series D Warrants 
   June 30,
2022		   June 30,
2021		   June 30,
2022		   June 30,
2021		 
Balance - beginning of period
  $—     $—     $—     $—   
Warrants issued during the period
   4,046,836    —      3,080,121    —   
Change in fair value
   (2,415,483)    —      (2,064,160)    —   
Translation effect
   17,379    —      13,258    —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance - end of period
  $1,648,732   $—     $1,029,219   $—   
   
 
 
   
 
 
   
 
 
   
 
 
 
F-7
5
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
The fair value of the derivative warrant liabilities was estimated using the Black-Scholes option pricing model and based on the following assumptions:
   2020 Warrants  2021 Warrants 
   June 30,
2022		  June 30,
2021		  June 30,
2022		  June 30,
2021		 
Share price
  $1.40  $40.95  $1.40  $40.95 
Exercise price
  $78.75  $78.75  $78.75  $78.75 
Dividend yield
   —     —     —     —   
Risk-free interest
   2.99%   0.73%   3.00%   0.89% 
Remaining contractual life (years)
   3.32   4.32   4.14   5.14 
Expected volatility
   92.6%   77.6%   89.2%   73.6% 
   
 
 
  
 
 
  
 
 
  
 
 
 
   Series A Warrants   Series B Warrants 
   June 30,
2022		  June 30,
2021		   June 30,
2022		  June 30,
2021		 
Share price
  $1.40  $—     $1.40  $—   
Exercise price
  $11.20  $—     $11.20  $—   
Dividend yield
   —     —      —     —   
Risk-free interest
   3.01%   —      2.83%   —   
Remaining contractual life (years)
   5.21   —      1.21   —   
Expected volatility
   85.4%   —      96.4%   —   
   
 
 
  
 
 
   
 
 
  
 
 
 
   Series C Warrants  Series D Warrants 
   June 30,
2022		  June 23, 2022
(Grant date)		  June 30,
2022		  June 23, 2022
(Grant date)		 
Share price
  $1.40  $2.90  $1.40  $2.90 
Exercise price
  $2.32  $2.32  $2.32  $2.32 
Dividend yield
   —     —     —     —   
Risk-free interest
   3.01%   3.38%   2.92%   3.21% 
Remaining contractual life (years)
   4.98   5.00   1.98   2.00 
Expected volatility
   86.3%   84.0%   93.5%   88.7% 
   
 
 
  
 
 
  
 
 
  
 
 
 
The Corporation measured its derivative warrant liabilities at fair value on a recurring basis. These financial liabilities were measured using level 3 inputs. The Corporation uses the historical volatility of the underlying share to establish the expected volatility of the warrants. An increase or decrease in this assumption to estimate the fair values using the Black-Scholes option pricing model would result in a decrease or an increase in the fair value of the instruments, respectively.
F-
7
6
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
9.
Loans and borrowings:
   June 30,
2022		   March 31,
2022		 
Loans and borrowings:
          
Promissory note of $10,000,000 issued by Sprout, guaranteed by the Corporation and secured through a first-ranking mortgage on all movable assets of Sprout current and future, corporeal and incorporeal, and tangible and intangible. The outstanding principal balance bears interest at the rate of 10.0% per annum. Interest is accrued and added to the principal amount of the loan. The principal is payable on February 1, 2024.
  $11,881,589   $11,648,320 
   
 
 
   
 
 
 
    11,881,589    11,648,320 
Less current portion of loans and borrowings
   —      —   
   
 
 
   
 
 
 
Loans and borrowings
  $11,881,589   $11,648,320 
   
 
 
   
 
 
 
During the three-month periods ended June 30, 2022 and 2021, interest expense of $250,000 and $252,778 respectively were recognized on loans and borrowings. There are no covenants to be met for the loans and borrowings outstanding as at June 30, 2022 and March 31, 2022.
10.
Capital and other components of equity:
(a)
Share capital:
Authorized capital stock:
Unlimited number of shares without par value:
Common shares
Preferred shares, issuable in series, rights, privileges and restrictions determined at time of issuance:
Series A preferred shares,
non-voting,
non-participating,
fixed, preferential, and
non-cumulative
dividend of 5% of
paid-up
capital, exchangeable at the holder’s option under certain conditions into common shares (none issued and outstanding).
All issued shares are fully paid.
(b)
Share options exercised:
During the three-month periods ended June 30, 2022 and 2021, Neptune issued no common shares of the Corporation upon exercise of stock options.
(c)
DSUs released:
During the three-month periods ended June 30, 2022 and 2021, Neptune issued no common shares of the Corporation for the release of DSUs to former and current members of the Board of Directors.
(d)
RSUs released:
During the three-month period ended June 30, 2022, Neptune issued 108,079 common shares of the Corporation for RSUs released to the CEO as part of his employment agreement at a weighted average price of $8.74 per common share. The Corporation did not issue an additional 68,697 RSUs since withholding taxes of $469,139 will be paid pursuant to the issuance of the common shares.
F-
7
7
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
During
the
three
-month period ended June 
30
,
2021
, Neptune issued
41,660
common shares of the Corporation to the CEO as part of his employment agreement at a weighted average price of $
155.05
per common share. Withholding taxes of $
978,697
were paid by the Corporation pursuant to the issuance of these RSUs resulting in the Corporation not issuing an additional
21,011
RSUs.
(e)
Restricted shares:
During the three-month periods ended June 30, 2022 and 2021, Neptune issued no restricted common shares of the Corporation to employees.
(f)
Warrants:
On June 23, 2022, as part of the June 2022 Direct Offering described under note 8, Neptune issued a total of 645,526
pre-funded
warrants
(“Pre-Funded
Warrants”), with each
Pre-Funded
Warrant exercisable for one Common Share. The
Pre-Funded
Warrants were funded in full at closing except for a nominal exercise price of $0.001 and were exercisable commencing on the Closing Date, and were to terminate when such
Pre-Funded
Warrants would be exercised in full. The
Pre-funded
warrants were fully exercised on June 24, 2022 for $65.
Changes in the value of equity related to the warrants were as follows:
   June 30, 2022  March 31, 2022 
   Weighted
average
exercise price		   Number of
warrants		  Weighted
average
exercise price		   Number of
warrants		 
Warrants outstanding at April 1, 2022 and 2021
  $325.34    176,429  $325.34    176,429 
Issued
   0.0001    645,526   0.0035    185,715 
Exercised
   0.0001    (645,526)   0.0035    (185,715) 
   
 
 
   
 
 
  
 
 
   
 
 
 
Warrants outstanding at June 30, 2022 and March 31, 2022
  $325.34    176,429  $325.34    176,429 
   
 
 
   
 
 
  
 
 
   
 
 
 
Warrants exercisable at June 30, 2022 and March 31, 2022
  $325.34    176,429  $325.34    176,429 
   
 
 
   
 
 
  
 
 
   
 
 
 
Warrants of the Corporation classified as equity are composed of the following as at June 30, 2022 and March 31, 2022:
   June 30, 2022   March 31, 2022 
   Number
outstanding		   Number
exercisable		   Amount   Number
outstanding		   Number
exercisable		   Amount 
Warrants IFF
(i)
   57,143    57,143   $1,630,210    57,143    57,143   $1,630,210 
Warrants AMI
(ii)
   119,286    119,286    4,449,680    119,286    119,286    4,449,680 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    176,429    176,429   $6,079,890    176,429    176,429   $6,079,890 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
(i)
During the year ended March 31, 2020, Neptune granted 57,143 warrants (“Warrants IFF”) with an exercise price of $420.00 expiring on November 7, 2024. The warrants, granted in exchange for services to be rendered by
non-employees,
vest proportionally to the services rendered. No expense was recognized during the three-month period ended June 30, 2022 (2021 - $92,685) under the research and development expenses.
(ii)
During the year ended March 31, 2020, Neptune granted 119,286 warrants (“Warrants AMI”) with an exercise price of $280.00 with 85,715 expiring on October 3, 2024 and 33,572 expiring on February 5, 2025. The warrants, granted in exchange for services to be rendered by
non-employees,
vest proportionally to the services rendered. The warrants fully vested in fiscal year ended March 31, 2021 and as such no expense was recognized in relation to those instruments since then.
F-7
8
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
11.
Non-controlling
interest:
The summarized financial information of Sprout Foods, Inc. subsidiary is provided below. This information is based on amounts before inter-company eliminations and include the effects of the Corporation’s purchase price adjustments.
Summarized statement of loss and comprehensive loss:
   Three-month period ended 
   June 30, 2022   June 30, 2021 
Revenue from contracts with customers
  $8,157,597   $5,647,427 
Cost of sales
   (8,312,289)    (5,569,279) 
Selling, general and administrative expenses
   (3,755,529)    (4,041,149) 
Finance income (costs)
   (538,967)    71,128 
   
 
 
   
 
 
 
Loss before tax
   (4,449,188)    (3,891,873) 
Income tax
   —      (12,098) 
   
 
 
   
 
 
 
Net loss
   (4,449,188)    (3,903,971) 
   
 
 
   
 
 
 
Total comprehensive loss
   (4,449,188)    (3,903,971) 
   
 
 
   
 
 
 
Loss attributable to the subsidiary’s
non-controlling
interest
   (2,220,145)    (1,948,082) 
   
 
 
   
 
 
 
Comprehensive loss attributable to the subsidiary’s
non-controlling
interest
  $(2,220,145)   $(1,948,082) 
   
 
 
   
 
 
 
Summarized statement of balance sheets:
   June 30,
2022		   March 31,
2022		 
Current assets
  $11,430,620    12,260,375 
Non-current
assets
   38,751,184    39,000,367 
Current liabilities
   7,963,838    5,991,483 
Non-current
liabilities
   26,760,154    25,362,259 
Total equity
   15,457,812    19,907,000 
   
 
 
   
 
 
 
Attributable to:
          
Equity holders of the Corporation
  $4,955,880   $7,184,923 
Non-controlling
interest
   10,501,932    12,722,077 
   
 
 
   
 
 
 
Summarized statement of cash flow:
   Three-month period ended 
   June 30, 2022   June 30, 2021 
Cash flow used in operating activities
  $(2,082,940)   $(3,749,412) 
Cash flow used in investment activities
   —      —   
Cash flow from financing activities
(1)
   648,022    3,663,605 
   
 
 
   
 
 
 
Net decrease in cash and cash equivalents
  $(1,434,918)   $(85,807) 
   
 
 
   
 
 
 
(1)
Cash flow from financing activities is provided through intercompany advances.
F-7
9
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
12.
Share-based payment:
Under the Corporation’s share-based payment arrangements, a total stock-based compensation expense of $2,706,153 was recognized on equity based share based awards and a gain $3,154,328 on liability based awards and were recognized in the consolidated statement of loss and comprehensive loss for the three-month period ended June 30, 2022 (three-month period ended June 30, 2021 - equity expense of $3,080,269 and liability of nil).

As
at June 
30
,
2022
, 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, officers, employees and consultants. The exercise price of the stock options granted under the plan is not lower than the closing price of the common shares listed on the TSX on the eve of the grant. The terms and conditions for acquiring and exercising options are set by the Board of Directors, subject, among others, to the following limitations: the term of the options cannot exceed ten years and every stock option granted under the stock option plan will be subject to conditions no less restrictive than a minimum vesting period of 18 months and a gradual and equal acquisition of vesting rights at least on a quarterly basis. The Corporation’s stock-option plan allows the Corporation to issue a number of stock options not exceeding 15% of the number of common shares issued and outstanding at the time of any grant. The total number of stock options issuable to a single holder 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.
F-
80
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
The number and weighted average exercise prices of stock options are as follows:
      2022  2021 
   Notes  Weighted
average
exercise
price		   Number of
options		  Weighted
average
exercise
price		   Number of
options		 
Options outstanding at April 1st, 2022 and 2021
      $37.41    306,321  $65.91    121,208 
Granted
       —      —     —      —   
Exercised
   11(b)   —      —     —      —   
Forfeited/Cancelled
       10.60    (14,286)   4.88    (166) 
Expired
       36.98    (1,094)   —      —   
       
 
 
   
 
 
  
 
 
   
 
 
 
Options outstanding at June 30, 2022 and 2021
      $36.98    290,941  $70.38    121,042 
       
 
 
   
 
 
  
 
 
   
 
 
 
Options exercisable at June 30, 2022 and 2021
      $56.82    106,476  $72.38    67,612 
       
 
 
   
 
 
  
 
 
   
 
 
 
   June 30, 2022 
   Options outstanding   Exercisable options 
Exercise price
  Weighted
remaining
contractual
life
outstanding		   Number of
options
outstanding		   Weighted
number of
options
exercisable		   Weighted
average
exercise
price		 
$17.57 - $55.42
   4.48    187,549    28,571    42.35 
$55.43 - $92.36
   4.93    84,150    61,912    90.42 
$92.37 - $106.33
   0.45    2,143    2,143    95.97 
$106.34 - $233.84
   2.36    10,350    7,101    178.11 
$233.85 - $274.39
   6.25    6,749    6,749    259.65 
        
 
 
   
 
 
      
         290,941    106,476      
        
 
 
   
 
 
      
The fair value of options granted has been estimated using the Black-Scholes option pricing model and based on the weighted average of certain assumptions. There were no options granted to employees during the three-month period ended June 30, 2022 and 2021.
Stock-based compensation recognized under this plan amounted to $480,411 for the three-month period ended June 30, 2022 (three-month period ended June 30, 2021 - $400,544). Unrecognized compensation cost at June 2022 is $918,873 with a weighted average period remaining of 1.18 years (2021 - $1,357,686 with a weighted average period remaining of 1.47 years)

(ii)
Non-market
performance options:
On July 8, 2019, the Corporation granted 100,000
non-market
performance options under the Corporation stock option plan at an exercise price of $155.05 per share to the CEO, expiring on July 8, 2029. These options vest after the attainment of
non-market
performance conditions within the following ten years. These
non-market
performance options required the approval of amendments to the stock option plan and therefore the fair value of these options was revalued up to the date of approval of the amendments (grant date). None of these
non-market
performance options have vested as at June 30, 2022. These options were not exercisable as at June 30, 2022 and 2021.
No stock-based compensation expense was recognized during the three-month period ended June 30, 2022 (three-month period ended June 30, 2021- $101,319).
F-8
1
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
(iii)
Market performance options:
On July 8, 2019, the Corporation granted 157,142 market performance options under the Corporation stock option plan at an exercise price of $155.05 per share to the CEO, expiring on July 8, 2029. These options vest after the attainment of market performance conditions within the following ten years. Some of these market performance options required the approval of amendments to the stock option plan and therefore the fair value of these options was revaluated up to the date of approval of the amendments (grant date).
The number and weighted average exercise prices of market performance options are as follows:
       2022   2021 
   Notes   Weighted
average
exercise
price		   Number
of options		   Weighted
average
exercise
price		   Number
of options		 
Options outstanding at April 1, 2022 and 2021
       $155.05    157,142   $155.05    157,142 
        
 
 
   
 
 
   
 
 
   
 
 
 
Options outstanding at June 30, 2022 and 2021
       $155.05    157,142   $155.05    157,142 
        
 
 
   
 
 
   
 
 
   
 
 
 
Options exercisable at June 30, 2022 and 2021
       $155.05    21,429   $155.05    21,429 
        
 
 
   
 
 
   
 
 
   
 
 
 
Stock-based compensation recognized under this plan amounted to $601,034 and $627,261 respectively for the three-month periods ended June 30, 2022 and 2021. Unrecognized compensation cost at June 30, 2022 is $11,188,736 with a weighted average period remaining of 7.26 years (2021 - $14,110,008 with a weighted average period remaining of 8.26 years).
(b)
Deferred Share Units and Restricted Share Units:
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.
(i)
Deferred Share Units (“DSUs”)
The number and weighted average share prices of DSUs are as follows:
       2022   2021 
   Notes   Weighted
average
share
price		   Number of
DSUs		   Weighted
average
share
price		   Number of
DSUs		 
DSUs outstanding at April 1, 2022 and 2021
       $66.45    6,468   $63.00    3,362 
        
 
 
   
 
 
   
 
 
   
 
 
 
DSUs outstanding at June 30, 2022 and 2021
       $66.45    6,468   $63.00    3,362 
        
 
 
   
 
 
   
 
 
   
 
 
 
DSUs exercisable at June 30, 2022 and 2021
       $39.93    2,753   $67.82    1,917 
        
 
 
   
 
 
   
 
 
   
 
 
 
Of
the
6,468
DSUs outstanding as at June 30, 2022 (2021 –
3,362
),
1,944
DSUs vested upon services to be rendered during a period of twelve months from date of grant (2021 –
1,108
). 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 additional
paid-in
capital, over the vesting period.
Stock-based compensation recognized under this plan amounted to $9,194 and $4,204 respectively for the three-month periods ended June 30, 2022 and 2021.
F-8
2
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
(ii)
Restricted Share Units (‘’RSUs’’)
During the year ended March 31, 2020, as part of the employment agreement of the CEO, the Corporation granted RSUs which vest over three years in 36 equal instalments. During the year ended March 31, 2021, Neptune granted additional RSUs to the CEO and to executives of the Corporation, which vest over periods ranging from 6 months to 3 years. The fair value of the RSUs is determined to be the share price at the date of grant and is recognized as stock-based compensation, through additional
paid-in
capital, over the vesting period. The fair value of the RSUs granted during the three-month period ended June 30, 2022 was $6.83 per unit (2021 - $—)
      2022  2021 
   Notes  Weighted
average
share
price		   Number of
RSUs		  Weighted
average
share
price		   Number of
RSUs		 
RSUs outstanding at April 1st, 2022 and 2021
      $59.75    25,038  $92.08    95,845 
Granted
       6.83    174,579   —      —   
Released through the issuance of common shares
   10(d)   8.74    (108,079)   155.05    (41,660) 
Withheld as payment of withholding taxes
   10(d)   5.31    (68,697)   155.05    (21,011) 
       
 
 
   
 
 
  
 
 
   
 
 
 
RSUs outstanding at June 30, 2022 and 2021
      $50.57    22,841  $148.49    33,174 
       
 
 
   
 
 
  
 
 
   
 
 
 
Stock-based compensation recognized under this plan amounted to $1,615,514 and $1,946,941 respectively for the three-month periods ended June 30, 2022 and 2021. Unrecognized compensation cost at June 30, 2022 is $142,141 with a weighted average remaining life of 1.55 years (2021 - $1,061,082 unrecognized compensation cost with a weighted average remaining life of 0.8 years).
In addition to above, on November 14, 2021, the Corporation and its CEO entered into an agreement pursuant to which the CEO’s existing employment agreement was amended to waive the Corporation’s obligation to procure directors and officers insurance coverage of up to $15 million for the period covering July 1, 2021 to July 31, 2022. The parties agreed that if the Corporation had successfully completed a strategic partnership prior to December 31, 2021, the CEO would have been entitled to approximately $6.9 million in cash and would have been granted fully vested options to purchase 8.5 million shares of the Corporation’s common stock. As the strategic partnership was not consummated by December 31, 2021, the CEO will be entitled to a grant of vested RSUs with a value of approximately $0.8 million. The balance of the liability accrual to the CEO is $833,786 as at June 30, 2022, in trade and other payables. The revaluation of the liability amounted to a gain of $3,154,328 for the three-month period ended June 30, 2022 and was recorded into SG&A. During the three-months ended June 30, 2022, settlement in RSUs was of $1,187,221. The compensation to be settled in RSUs or if the Corporation is unable to grant such RSUs, then a combination of cash and vested RSUs with equivalent value, is not reflected in the number of RSUs outstanding above.
(c)
Long term cash bonus:
According to the employment agreement with the CEO, a long-term incentive of $15 million is payable if the Corporation’s US market capitalization is at least $1 billion. The Company uses a risk-neutral Monte Carlo simulation to estimate the fair-value of this instrument and recognizes the incentive over
the estimated period to reach the market capitalization. As at June 30, 2022, the liability related to this long-term incentive of $12,931 ($88,688 as at March 31, 2022) is presented in Other liability in the consolidated balance sheets. During the three-month period ended June 30, 2022, a recovery of
F-8
3
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
$
75,757
(2021 - an expense of $
95,845
) was recorded in connection with the long-term incentive under selling, general and administrative expenses in the consolidated statement of loss.
13.
Loss per share:
Diluted loss per share was the same amount as basic loss per share, as the effect of options, DSUs, RSUs and warrants are anti-dilutive, as the Corporation has incurred losses in each of the periods presented. All outstanding options, DSUs, RSUs and warrants could potentially be dilutive in the future.
14.
Fair-value:
The Corporation uses various methods to estimate the fair value recognized in the consolidated financial statements. The fair value, hierarchy reflects the significance of inputs used in determining the fair values:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
Level 3 – Fair value based on valuation techniques which includes inputs related to the asset or liability that are not based on observable market data (unobservable inputs).
Financial assets and liabilities measured at fair value on a recurring basis are the investment in Acasti Pharma Inc. (“Acasti”), the call option granted to Neptune by Sprout’s
non-controlling
interest owners of equity (the “Call Option”), and liability related to warrants.
The following table presents the Corporation’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and March 31, 2022:
       June 30, 2022 
   Notes   Level 1   Level 2   Level 3   Total 
Liabilities
                         
Liability related to warrants
   8   $—     $—     $3,167,947   $3,167,947 
        
 
 
   
 
 
   
 
 
   
 
 
 
Total
       $—     $—     $3,167,947   $3,167,947 
        
 
 
   
 
 
   
 
 
   
 
 
 
       March 31, 2022 
   Notes   Level 1   Level 2   Level 3   Total 
Liabilities
                         
Liability related to warrants
   8   $—     $—     $5,570,530   $5,570,530 
        
 
 
   
 
 
   
 
 
   
 
 
 
Total
       $—     $—     $5,570,530   $5,570,530 
        
 
 
   
 
 
   
 
 
   
 
 
 
On February 10, 2021, Sprout’s other equity interest owners granted Neptune a call option (the “Call Option”) to purchase the remaining 49.9% outstanding equity interests of Sprout, at any time beginning on January 1, 2023 and ending on December 31, 2023. On June 30, 2022 and March 31, 2022, the Call Option was measured based on level 3 inputs to nil. For the three months ended June 30, 2022, the Company recorded a gain on
re-measurement
of nil (gain of $104,000 for the three months ended June 30, 2021). The liabilities related to warrants were recorded at their fair value using a Black-Scholes pricing model. Warrants are revalued each
period-end
at fair value through profit and loss using level 3 inputs (note 8).
F-
8
4
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
The Corporation has determined that the carrying values of its short-term financial assets and liabilities approximate their fair values 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 and long-term payable 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)
On November 2, 2017, Neptune entered into an exclusive commercial agreement for a specialty 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. On January 31, 2020, Neptune entered into other commercial agreements for the same specialty ingredient in combination with fish oil products for a period of 8 years in replacement of a previous terminated agreement. According to these agreements signed with the same third-party’s beneficial owner, Neptune will pay royalties on sales. To maintain the exclusivity, Neptune must reach minimum annual volumes of sales for the duration of the agreements for which minimum volumes are being reached. The corresponding total remaining amount of minimum royalties is $3,767,576.
(ii)
On March 21, 2019, the Corporation received a judgment from the Court regarding certain previously disclosed claims made by a corporation controlled by the former CEO against the Corporation in respect to 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 Court declared that under the terms of the agreement, the Corporation is required to pay royalties of 1% of its revenues in semi-annual instalments, for an unlimited period. Based on currently available information, a provision of $477,982 for royalty payments has been recognized as of June 30, 2022 ($362,809 as at March 31, 2022). Refer to note 7.
(iii)
On May 28, 2021, Sprout entered into a license agreement with Moonbug Entertainment Limited (“Moonbug”), pursuant to which it would license certain intellectual property, relating to characters from the children’s entertainment property CoComelon, for use on certain Sprout products through December 31, 2023 in exchange for a royalty on net sales. Sprout is required to make minimum guaranteed annual payments to Moonbug of $200,000 over the term of the agreement. The agreement may be extended for an additional three years in exchange for an additional minimum guaranteed annual payment to Moonbug of $200,000 over the extended term of the agreement. Royalties payable under the agreement are set off against minimum guaranteed payments made.
(b)
Contingencies:
In the normal course of business, the Corporation is involved in various claims and legal proceedings, for which the outcomes, inflow or outflow of economic benefits, are uncertain. The most significant of which are ongoing are as follows:
(i)
In September 2020, Neptune submitted a claim and demand for arbitration against Peter M. Galloway and PMGSL Holdings, LLC (collectively “PMGSL”) in accordance with the SugarLeaf
F-
8
5
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
Asset Purchase Agreement (“APA”) dated May 9, 2019 between Neptune, PMGSL, Peter M. Galloway and Neptune Holding USA, Inc. Separately, PMGSL submitted a claim and demand for arbitration against Neptune. The Neptune claims and PMGSL claims have been consolidated into a single arbitration and each are related to the purchase by Neptune of substantially all of the assets of the predecessor entities of PMGSL Holdings, LLC. Neptune is claiming, among other things, breach of contract and negligent misrepresentation by PMGSL in connection with the APA 
and is seeking, among other things, equitable restitution and any and all damages recoverable under law. PMGSL is claiming, among other things, breach of contract by Neptune and is seeking, among other things, payment of certain compensation contemplated by the APA. A merit hearing in the arbitration started in April 2022 with a further week of testimony from August
1-5,
2022. On June 15, 2022, a
one-day
hearing took place on Neptune’s motion to enforce a settlement agreement reached on April 2021 (which was repudiated by PMGSL in June 2021). Following oral argument on July 7, 2022, that motion was denied. While Neptune believes there is no merit to the claims brought by PMGSL, a judgment in favor of PMGSL may have a material adverse effect on our business and Neptune intends to continue vigorously defending itself. Based on currently available information, a provision of $600,000 has been recognized for this case as at June 30,December 31, 2022 ($600,000 as at March 31, 2022).
(ii)
On February 4, 2021, the United States House of Representatives Subcommittee on Economic and Consumer Policy, Committee on Oversight and Reform (the “Subcommittee”), published a report, “Baby Foods Are Tainted with Dangerous Levels of Arsenic, Lead, Cadmium, and Mercury” (the “Report”), which stated that, with respect to Sprout, “independent testing of Sprout Organic Foods”Foods has confirmed that their baby foods contain concerning levels of toxic heavy metals.” The Report further stated that after receiving reports alleging high levels of toxic metals in baby foods, the Subcommittee requested information from Sprout but did not receive a response.
On February 11, 2021, following the acquisition of a 50.1% stake in Sprout by Neptune, the Subcommittee contacted Sprout, reiterating its requests for documents and information about toxic heavy metals in Sprout’s baby foods. Sprout provided an initial response to the Subcommittee on February 25, 2021 and is cooperating with the Subcommittee requests.
On February 11, 2021, following the acquisition of a 50.1% stake in Sprout by Neptune, the Subcommittee contacted Sprout, reiterating its requests for documents and information about toxic heavy metals in Sprout’s baby foods. Sprout provided an initial response to the Subcommittee on February 25, 2021 and is cooperating with the Subcommittee requests.

Further, on February 24, 2021, the Office of the Attorney General of the State of New Mexico (“NMAG”) delivered to Sprout a civil investigative demand requesting similar documents and information with regards to the Report and the NMAG’s investigation into possible violations of the False Advertising Act of New Mexico. Sprout is responding to the requests of the NMAG.

Since February 2021, several putative consumer class action lawsuits have been brought against Sprout alleging that its products (the “Products”) contain unsafe and undisclosed levels of various naturally occurring heavy metals, namely lead, arsenic, cadmium and mercury. There are currently two active putative class action lawsuits, which allege that Sprout violated various state consumer protection laws and make other state and common law warranty and for unjust enrichment claims related to the alleged failure to disclose the presence of these metals, whereas consumers would have allegedly either not purchased the Products or would have paid less had Sprout made adequate disclosures. These putative class actions seek to certify a nationwide class of consumers as well as various state subclasses. These kinds of class actions have also been separately filed against all of the major baby food manufacturers in federal courts across the country. The U.S. Judicial Panel on Multidistrict Litigation (“JPML”) declined a request to centralize all of the consumer class action lawsuits against all of the baby food manufacturers into a single multidistrict proceeding. One of the class actions is currently pending in New Jersey Superior Court. The other class action is currently pending in the U.S. District Court for the Central District

F-8
6
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
of California, but has been ordered to be transferred to the U.S. District for the District of New Jersey. Sprout deniesdenied the allegations in these lawsuits and contends that its baby foods are safe and properly labeled. The claims raised in these lawsuits were brought in the wake of the highly publicized Report. All such putative class actions have since been dismissed. No provision has been recorded in the financial statements for these cases.

In addition to the consumer class actions discussed above, Sprout is currently named in a lawsuit filedthree lawsuits (filed in California State Court on June 16, 2021, filed in the state court of CaliforniaHawaii State Court on January 9, 2023 and filed in Nevada Federal Court on March 3, 2023, respectively) alleging some form of personal injury from the ingestion of Sprout’s Products, purportedly due to unsafe and undisclosed levels of various naturally occurring heavy metals. This lawsuit allegesThese lawsuits generally allege injuries related to neurological development disorders such as autism spectrum disorder and attention deficit hyperactivity disorder. Sprout denies that its Products contributed to any of these injuries and will defend the case vigorously. No provision has been recorded in the financial statements for this matter.


Furthermore,injuries. In addition, the Office of the Attorney General for the District of Columbia (“OAG”) in October 2021 sent a letter to Sprout dated October 1, 2021, similar to letters sent to other baby food manufacturers, alleging potential labeling and marketing misrepresentations and omissions regarding

F-77

Table of Contents

the health and safety of its baby food products, constituting an unlawful trade practice. Sprout has agreed to meet with the OAG and will vigorously defend against the allegations. No provision has been recorded in the financial statements for this matter.

These matters may have a material adverse effect on Sprout’s financial condition, or results of operations.

(iii)
On March 16, 2021, a purported shareholder class action was filed in United States District Court for the Eastern District of New York against the Corporation and certain of its current and former officers alleging violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 with respect to the Corporation’s acquisition of SugarLeaf Labs, Inc. The Corporation believes these claims are without merit and intends to vigorously defend itself. No provision has been recorded in the financial statements for this matter.

The outcome of these claims and legal proceedings against the CorporationCompany cannot be determined with certainty and is subject to future resolution, including the uncertainties of litigation.

16.
Operating Segments:

16.Operating Segments:

The CorporationCompany measures its performance based on a single segment, which is the consolidated level used in internal management reports that are reviewed by the Corporation’sCompany’s Chief Operating Decision Maker.

a)
Geographical information:

Revenue is attributed to geographical locations based on the origin of customers’ location:

   Three-month periods ended 
   June 30,
2022		   June 30,
2021		 
Canada
  $5,056,502   $2,283,224 
United States
   10,931,537    7,559,218 
Other countries
   284,189    236,067 
   
 
 
   
 
 
 
   $16,272,228   $10,078,509 
   
 
 
   
 
 
 
F-8
7
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Three-month periods ended

​

Nine-month periods ended

​

    

December 31,

    

December 31,

    

December 31,

    

December 31,

​

​

2022

​

2021

​

2022

​

2021

Canada

​

$

1,347,700

​

$

4,560,116

​

$

7,074,759

​

$

8,920,392

United States

​

 

10,597,392

​

 

9,831,143

​

 

32,626,483

​

 

27,643,347

Other countries

​

 

263,816

​

 

276,670

​

 

766,736

​

 

701,330

​

​

$

12,208,908

​

$

14,667,929

​

$

40,467,978

​

$

37,265,069

​

Long-lived assets of the CorporationCompany are located in the following geographical location:

   June 30,
2022		   March 31,
2022		 
Canada
  $308,743   $20,724,674 
United States
   1,103,580    723,449 
   
 
 
   
 
 
 
Total property, plant and equipment
  $1,412,323   $21,448,123 
   
 
 
   
 
 
 
   June 30,
2022		   March 31,
2022		 
Canada
  $2,066,151   $2,353,054 
United States
   18,947,802    19,301,981 
   
 
 
   
 
 
 
Total intangible assets
  $21,013,953   $21,655,035 
   
 
 
   
 
 
 
   June 30,
2022		   March 31,
2022		 
Canada
  $2,550,785   $2,625,851 
United States
   19,542,437    19,542,437 
   
 
 
   
 
 
 
Total goodwill
  $22,093,222   $22,168,288 
   
 
 
   
 
 
 
Assets held for sale by the Corporation are located in the following geographical location:
   June 30,
2022		   March 31,
2022		 
Canada
  $21,834,039   $—   
   
 
 
   
 
 
 
Total assets held for sale
  $21,834,039   $—   
   
 
 
   
 
 
 

​

​

​

​

​

​

​

​

​

    

December 31,

    

March 31,

​

​

2022

​

2022

Canada

​

$

536,905

​

$

20,724,674

United States

​

 

1,325,762

​

 

723,449

Total property, plant and equipment

​

$

1,862,667

​

$

21,448,123

​

​

​

​

​

​

​

​

​

    

December 31,

    

March 31,

​

​

2022

​

2022

Canada

​

$

1,688,339

​

$

2,353,054

United States

​

 

15,654,839

​

 

19,301,981

Total intangible assets

​

$

17,343,178

​

$

21,655,035

​

​

​

​

​

​

​

​

​

    

December 31,

    

March 31,

​

​

2022

​

2022

Canada

​

$

2,424,414

​

$

2,625,851

United States

​

 

11,971,966

​

 

19,542,437

Total goodwill

​

$

14,396,380

​

$

22,168,288

​

b)
Revenues

The CorporationCompany derives revenue from the sales of goods which are recognized at a point in time as follows:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Three-month periods ended

​

Nine-month periods ended

​

    

December 31,

    

December 31,

    

December 31,

    

December 31,

​

​

2022

​

2021

​

2022

​

2021

Nutraceutical products

​

$

3,541,002

​

$

3,927,334

​

$

11,844,529

​

$

11,168,555

Cannabis and hemp products

​

 

23,337

​

 

3,516,488

​

 

2,740,664

​

 

5,659,039

Food and beverages products

​

 

8,380,753

​

 

6,927,617

​

 

25,083,053

​

 

19,606,381

Innovation products

​

 

—

​

 

(344)

​

 

—

​

 

68,515

​

​

$

11,945,092

​

$

14,371,095

​

$

39,668,246

​

$

36,502,490

​

F-78

   Three-month periods ended 
   June 30,
2022		   June 30,
2021		 
Nutraceutical products
  $5,126,114   $3,200,668 
Cannabis and hemp products
   2,699,970    939,065 
Food and beverages products
   8,142,014    5,647,427 
Innovation products
   —      34,480 
   
 
 
   
 
 
 
   $15,968,098   $9,821,640 
   
 
 
   
 
 
 
17.
Related parties:

Table of Contents

​

17.Related parties:

Related party transactions and balances not disclosed elsewhere in these notes of the financial statements are as follows:

On November 11, 2019, Neptune announced that the CorporationCompany entered into a collaboration agreement with International Flavors & Fragrances Inc. (“IFF”) to

co-develop
hemp-derived products for the mass retail and health and wellness markets. App Connect Service, Inc. (“App Connect”), a company indirectly controlled by Michael Cammarata, CEO and Director of Neptune, is also a party to the agreement to provide related branding strategies and promotional activities.
F-8
8
Table of Contents
NEPTUNE WELLNESS SOLUTIONS INC.
Notes to the Unaudited Condensed Consolidated Interim Financial Statements
For the three-month periods ended June 30, 2022 and 2021
Neptune will be responsible for the marketing and the sales of the products and will receive the amounts from the product sales. Neptune will in turn pay a royalty to IFF and App Connect associated with the sales of the
co-developed
products. The payment of royalties to App Connect, subject to certain conditions, has been approved by the TSX.
During the three-monththree and nine-month periods ended June 30,December 31, 2022 and 2021, the CorporationCompany recorded a negligible amount of royalty expense pursuant to the
co-development
contract and no royalties were paid to date.
18.
Subsequent event:

18.Subsequent events:

On JulyJanuary 13, 2022,2023, Neptune announced that Sprout Foodsit has closed on a senior secured notes financing (such notes, the “Notes”) for gross proceeds of $4,000,000 with CCUR Holdings, Inc. (“Sprout”and Symbolic Logic, Inc. (collectively, the “Noteholders”). The Notes will mature 12 months from the initial closing and bear interest at a rate of 16.5% per annum. The notes are secured by the assets of Neptune excluding the assets of Sprout. Interest will be payable in kind on the first 6 monthly payment dates after the initial closing date and thereafter will be payable in cash. Pursuant to the terms of the Notes, the Company also issued to the Noteholders warrants to purchase an aggregate of 850,000 shares of Neptune common stock, with each warrant exercisable for 5 years following the initial issuance at a price of $0.53 per common share. Subject to certain conditions, a prepayment of up to $2,000,000 was required no later than March 31, 2023. On March 9, 2023, the Company entered into a Waiver and First Amendment to the Notes (the “Waiver Agreement”). The Waiver Agreement waives certain administrative, regulatory and financial statement related covenants as further described in the Waiver Agreement as required by the terms of the Notes. The lender has the right to demand immediate repayment in the event of default. Furthermore, in connection with the Waiver Agreement, the Notes were amended to provide that the Purchasers shall be paid an exit fee in the aggregate amount of $200,000, payable as follows: (i) on or prior to May 15, 2023, $100,000 and (ii) on the Maturity Date (as defined in the Note Purchase Agreement), $100,000 and the Corporation’sinterest rate was increased to 24% for a period extending until the Company meets specified criteria in the Waiver Agreement. In addition, the mandatory prepayment of $2,000,000 previously due March 31, 2023 was extended to be due no later than May 15, 2023.

On January 25, 2023, Neptune announced that its organic plant-based baby food and toddler snack company,brand subsidiary, Sprout Organics, has entered into an amendment of each of its existing Secured Promissory Notes. In connectionaccounts receivable factoring facility with this amendment, investment funds managed by Morgan Stanley ExpansionAlterna Capital Solutions, LLC (“Morgan Stanley” or “MSEC”Alterna”) have agreed to immediately commit an additional $3 million in Secured Promissory Notes to Sprout.. The maturity datemaximum available is $5 million. The terms of the note facilityagreement include a Funds Usage Fee of February 1, 2024 is consistentprime plus 1% with the maturity date of the existing Secured Promissory Notes with MSEC and Neptune. The $13.0 million of amended Secured Promissory Notes have a 10%minimum interest rate of 8% per annum, increasing by 1% per annum every three months during the term of the Secured Promissory Notes.annum. Alterna was granted a security interest in Sprout’s accounts receivable. The interestagreement will remain in effect for a 12-month period, effective January 23, 2023, and will be compounded and added to the principal amount onautomatically renewed. Neptune provided a quarterly basis. The amended Secured Promissory Notes may be converted, in whole or in part, at any time upon the mutual consent of Sprout, the Corporation and MSEC, into common shares of the Corporation. MSEC was issued 372,670 common shares of Neptune, of an approximate value of $570,000,commercial guaranty in connection with this commitment.

agreement.

On October 11, 2022,March 10, 2023, Sprout entered into an additional $300,000 secured promissory note, on the Corporation closed a registered direct offeringsame terms as the secured promissory notes issued to MSEC described in these notes of 3,208,557 common shares and 6,417,114 warrants in a concurrent private placement. The Corporation received gross proceeds of approximately $6.0 million inthe financial statements. In connection with the offering, before deducting placement agent fees and related offering expenses.Secured Promissory Note, Neptune issued a warrant to purchase up to 111,111 common shares at an exercise price of $0.54. The net proceeds towarrant expires March 10, 2028.

On April 17, 2023, the Corporation from the offering, after deducting the placement agent fees and expenses, and the Corporation’s offering expenses were approximately $5.15 million.

On October 17, 2022, the Corporation announced that it hadCompany entered into a bindingan agreement with the representative of the minority stockholders of Sprout that provides that the purchase price for the saleCall Option to purchase the remaining 49.9% of its Canadian cannabis business,outstanding equity interests of Sprout, if the option is exercised prior to June 15, 2023, would be $13.0 million, consisting of at least $10.5 million in cash with the remainder payable in Common Shares.

Effective April 18, 2023, Sprout and MSEC amended the MSEC promissory note, providing that the maturity date was extended to December 31, 2024, and that the note will bear interest at the rate of 15.0% per annum through and including December 31, 2023, payable in kind, and 10.0% per annum, payable in kind, and 5.0% per annum payable in cash, from and after January 1, 2024. The foregoing amendment did not amend the Sherbrooke building, for $3.8 million (C$5.15 million) to be paid to the Corporation in cash. The Corporation expects to record a loss on remeasurementterms of the assetsother notes payable by Sprout.

​

​

F-79

Table of Contents

Up to fair value less cost12,068,966 Common Shares

Up to 12,068,966 Pre-Funded Warrants to Purchase up to  12,068,966 Common Shares

Up to 12,068,966 Common Warrants to Purchase up to  12,068,966 Common Shares

Up to  24,137,932 Common Shares Underlying the Common Warrants and Pre-Funded Warrants

Graphic

PRELIMINARY PROSPECTUS

Sole Placement Agent

A.G.P.

The date of sale in the approximate amountthis prospectus is   , 2023.

​

​

​

​

Table of $15 million in the second quarter interim financial statements for the three and six-month periods ended September 30, 2022.

Contents

On October 21, 2022, the Corporation announced that it had agreed to settle and resolve a putative shareholder class action lawsuit filed against Neptune and certain of its current and former officers and directors (refer to note 22(b)iii) , captioned Gong v. Neptune Wellness Solutions, Inc. pending in the United States District Court for the Eastern District of New York, for a gross payment to the class of between $4 and $4.25 million, with the exact amount being within the Corporation’s control and dependent on the type of consideration used. The settlement is subject to court approval and certification by the court of the class, and the Corporation has a right to terminate the agreement within 30 days under certain circumstances. The Corporation will record a litigation settlement expense for the full amount in the second quarter interim financial statements for the three and six-month periods ended September 30, 2022.

F-
8
9

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following is a statement of estimated expenses payable by the registrant in connection with the offering described in this registration statement. All amounts are estimates except the SEC registration fee.

​

​

​

​

​

SEC registration fee

    

$

2,204

 

FINRA filing fee

​

​

3,500

​

Accounting fees and expenses

​

​

150,000

​

Legal fees and expenses

​

​

220,000

​

Miscellaneous

​

​

9,296

​

Total

​

$

385,000

​

​

SEC expenses

  $1,145 

Accounting fees and expenses

  $100,000 

Legal fees and expenses

   * 

Miscellaneous

   

*

 
  

 

 

 

Total(1)

  $* 
  

 

 

 

*

To be provided by an amendment.

(1)

Discounts, concessions, commissions and similar selling expenses attributable to the sale of common shares covered by this prospectus will be borne by the Selling Shareholders. We will pay all expenses (other than discounts, concessions, commissions and similar selling expenses) relating to the registration of the shares with the Securities and Exchange Commission, as estimated in the table above.

Item 14. Indemnification of Directors and Officers

Under the Business Corporations Act (Québec) (the “QBCA”“QBCA”), a corporation must indemnify a director or officer of the corporation, a former director or officer of the corporation or any other person who acts or acted at the corporation’s request as a director or officer of another group, against all costs, charges and expenses reasonably incurred in the exercise of their functions, including an amount paid to settle an action or satisfy a judgment, or arising from any investigative or other proceeding in which the person is involved if (1) the person acted with honesty and loyalty in the interest of the corporation or, as the case may be, in the interest of the other group for which the person acted as director or officer or in a similar capacity at the corporation’s request; and (2) in the case of a proceeding that is enforced by a monetary penalty, the person had reasonable grounds for believing that his or her conduct was lawful. The corporation must also advance moneys to such a person for the costs, charges and expenses of a proceeding referred to above. In the event that a court or any other competent authority judges that the conditions set out in (1) and (2) are not fulfilled, the corporation may not indemnify the person and the person must repay to the corporation any moneys advanced for such purposes. Furthermore, the corporation may not indemnify such person if the court determines that the person has committed an intentional or gross fault. In such a case, the person must repay to the corporation any moneys advanced. A corporation may also, with the approval of the court, in respect of an action by or on behalf of the corporation or other group as referred to above, against such a person, advance the necessary moneys to the person or indemnify the person against all costs, charges and expenses reasonably incurred by the person in connection with the action, if the person fulfills the conditions set out in this paragraph.

In accordance with and subject to the QBCA, the by-laws of the Registrant provide that the Registrant shall indemnify a director or officer of the Registrant, a former director or officer of the Registrant, or a person who acts or acted at the Registrant’s request as a director or officer of a body corporate of which the Registrant is or was a shareholder or creditor, and his or her heirs and legal representatives, to the extent permitted by the QBCA, as set forth above.

II-1

The Registrant maintains directors’ and officers’ liability insurance which insures the directors and officers of the Registrant and its subsidiaries against certain losses resulting from any wrongful act committed in their official capacities for which they become obligated to pay, to the extent permitted by applicable law.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that, in the opinion of the U.S. Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

​

II-1

​

Table of Contents

Item 15. Recent Sales of Unregistered Securities.

Note Purchase Agreement

On January 12, 2023, the Company entered into a Note Purchase Agreement with certain purchasers pursuant to which it issued and sold $4 million in aggregate principal amount of senior secured promissory notes. Under the terms of the Note Purchase Agreement, the Company issued to the purchasers 850,000 January 2023 Warrants registered in a registration statement on Form S-1 (File No. 333-268196) filed with the SEC on November 7, 2022, as amended on November 9, 2022 and January 30, 2023 and declared effective on February 1, 2023. The January 2023 Warrants and the Common Shares underlying the January 2023 Warrants were issued in a private placement under Section 4(a)(2) of the Securities Act, and Rule 506(b) of Regulation D promulgated thereunder. Each January 2023 Warrant is exercisable for one Common Share at an exercise price of $0.53 per share. The January 2023 Warrants are immediately exercisable and expire five years from the issuance date.

A holder (together with its affiliates) may not exercise any portion of the January 2023 Warrants to the extent that the holder would own more than 4.99% (or, at the holder’s option upon issuance, 9.99%) of the Company’s outstanding Common Shares immediately after exercise, as such percentage ownership is determined in accordance with the terms of the January 2023 Warrant. The January 2023 Warrants are subject to full ratchet anti-dilution protection with respect to the first offering, if any, of securities registered under the Securities Act of 1934, as amended, with net proceeds of at least $5,000,000 consummated by the Company subsequent to the initial closing, as well as customary adjustments for the term of the warrants.

In January 2023, the Company issued 71,665 common shares to the Company’s financial advisor in connection with its strategic review. The common shares were issued in a private placement under Section 4(a)(2) under the Securities Act as consideration for the services provided by the financial advisor.

Registered Direct Offering and Concurrent Private Placement

On October 6, 2022, the Company entered into the Purchase Agreementa purchase agreement with certain institutional investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering (the “Offering”),the October 2022 RDO 3,208,557 of its common shares (the “Common Shares”),Common Shares and 6,417,114 Series E Warrants through the 6,417,114Warrants being registered in this Registration Statement/prospectus in theOctober 2022 Private Placement. The combined purchase price of each Common Share and accompanying Warrants was $1.87. The Purchase Agreement contains customary representations, warranties, covenants and indemnification rights and obligations of the Company and each of the purchasers. The OfferingOctober 2022 Offerings closed on October 11, 2022. A.G.P./Alliance Global Partners served as exclusive placement agent in connection with the Offering.October 2022 Offerings.

On October 11, 2022, the Company closed the October 2022 RDO of 3,208,557 of its Common Shares and Series E Warrants to purchase up to 6,417,114 Common Shares in the October 2022 Private Placement. The combined purchase price for one Common Share and one warrant was $1.87. The Series E Warrants have an exercise price of $1.62 per Common Share, are exercisable immediately following the date of issuance and will expire five years from the date of issuance. The Company received gross proceeds from the October 2022 Offerings of $6.0 million and net proceeds of $5.1 million after deducting the placement agent fees and expenses, and the Company’s offering expenses.

The Company received gross proceeds of approximately $6.0 million in connection with the Offering,October 2022 Offerings, before deducting placement agent fees and related offering expenses. The net proceeds to the Company from the Offering,October 2022 Offerings, after deducting the placement agent fees and expenses, and the Company’s estimated offering expenses, were approximately $5.15 million.

The Common Shares were offered by the Company pursuant to a registration statement on Form S-3S 3 (File No. 333-267070)333 267070) filed with the SEC and declared effective by the SEC on September 23, 2022, (the “Registration Statement”), and a prospectus supplement thereto dated October 11, 2022.

The Series E Warrants and the Common Shares underlying the Series E Warrants sold in the October 2022 Private Placement were issued in a private placement under Section 4(a)(2) of the Securities Act, and Rule 506(b) of Regulation D promulgated thereunder Each Series E Warrant is exercisable for one Common Share at an exercise price of $1.62 per share. The Series E Warrants are immediately exercisable and expire five years from the issuance date. A holder (together with its affiliates) may not exercise any portion of the Series E Warrant or Pre-Funded Warrant, as applicable, to the extent that the holder would own more than 4.99% (or, at the holder’s option upon issuance, 9.99%) of the Company’s outstanding Common Shares immediately after exercise, as such percentage ownership is determined in accordance with the terms of the Series E Warrant.

II-2

​

Table of Contents

In lieu of making the cash payment otherwise contemplated to be made to the Company upon exercise of a Series E Warrant in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of Common Shares determined according to a formula set forth in the Series E Warrants, provided that such cashless exercise shall only be permitted if a registration statement registering the issuance of the Common Shares underlying the Series E Warrants is not effective at the time of such exercise or if the prospectus to which the registration statement is a part is not available for the issuance of Common Shares to the Series E Warrant holder.

In July and September 2022, the Company issued to two accredited investors an aggregate of 409,435 common shares in connection with loans to Sprout Foods, Inc. Additionally, on March 10, 2023, the Company issued to one accredited investor warrants to purchase up to an aggregate of 111,111 common shares in connection with a loan to Sprout Foods, Inc. On July 13, 2022, the Company issued an amended and restated secured promissory note in favor of NH Expansion Credit Fund Holdings LP, an investment fund managed by Morgan Stanley Expansion Capital, in the principal amount of $13,000,000. The amended note amended and restated the prior promissory note in the principal amount of $10,000,00 in connection with a loan of an additional $3,000,000 to Sprout from Morgan Stanley Expansion Capital. The common shares and warrants were issued in a private placementplacements under Section 4(a)(2) under the Securities Act.

In June 2022, the Company issued 7,104 common shares to the Company’s financial advisor in connection with its proposed divestiture of our Canadian cannabis business. The common shares were issued in a private placement under Section 4(a)(2) under the Securities Act as consideration for the services provided by the financial advisor.

In October 2020, the Company issued 462,963 common shares and 300,926 warrants to purchase common shares at an offering of $75.60 per share to institutional investors for gross proceeds of $35 million. The warrants and the common shares underlying the warrants were issued in a private placement under Section 4(a)(2) of the Securities Act, and Rule 506(b) of Regulation D promulgated thereunder.

The Company’s use of proceeds from the above referenced offerings is for general corporate purposes.

​

II-3

​

Table of Contents

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits.

The exhibits listed below are filed as part of this registration statement.

II-2

​

​

​

Exhibit
No.

Description of Exhibit

3.1

  3.1

​

Translation of Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form F-3 filed on January 28, 2022, and incorporated by reference herein)

​

​

​

3.2

​

Translation of Articles of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 13, 2022, and incorporated by reference herein)

​

​

​

3.3

​

Amended & Restated General By-Law (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 27, 2022, and incorporated by reference herein)

​

​

​

3.4

​

Advance Notice By-Law (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form F-3 filed on January 28, 2022, and incorporated by reference herein)

​

​

​

4.1

​

Specimen Common Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K filed on July 8, 2022, and incorporated by reference herein)

​

​

​

4.2

​

Amended and Restated Promissory Note, dated July 13, 2022, issued in favor of NH Expansion Credit Fund Holdings LP by Sprout Foods, Inc. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on July 13, 2022, and incorporated by reference herein)

​

​

​

4.3

​

Form of Pre-Funded Common Share Purchase Warrant (March 2022 Pre-Funded Warrant) (incorporated by reference to Exhibit 99.4 to the Company’s Form 6-K filed on March 14, 2022, and incorporated by reference herein)

​

​

​

4.4

​

Form of Series A Common Share Purchase Warrant (incorporated by reference to Exhibit 99.5 to the Company’s Form 6-K filed on March 14, 2022, and incorporated by reference herein)

​

​

​

4.5

​

Form of Series B Common Share Purchase Warrant (incorporated by reference to Exhibit 99.6 to the Company’s Form 6-K filed on March 14, 2022, and incorporated by reference herein)

​

​

​

4.6

​

Form of Series C and D Common Share Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 24, 2022, and incorporated by reference herein)

​

​

​

  4.4

4.7

​

Form of Pre-Funded Common Share Purchase Warrant (June 2022 Pre-Funded Warrant) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 24, 2022, and incorporated by reference herein)

​

​

​

  4.5

4.8

​

Form of Series E Common Share purchasePurchase Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 12, 2022, and incorporated by reference herein)

​

​

​

  4.6

4.9

​

Amendment No. 1 to Series C Common Stock Purchase Warrant between Neptune Wellness Solutions Inc. and Armistice Capital Master Fund Ltd, dated October 6, 2022 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 12, 2022, and incorporated by reference herein)

​

​

​

  5.1

4.10

​

Form of Warrant, dated January 12, 2023 (including a schedule of all executed warrants adopting the same form in respect of each of the purchasers) (January 2023 Warrant) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated January 13, 2023)

​

​

​

4.11**

​

Form of Common Warrant

​

​

​

4.12**

​

Form of Pre-Funded Warrant

​

​

​

5.1**

​

Opinion of Osler, Hoskin & Harcourt LLP

​

​

​

10.1#

​

Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form F-3 filed on January 28, 2022, and incorporated by reference herein)

​

​

​

10.2#

​

Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form F-3 filed on January 28, 2022, and incorporated by reference herein)

​

​

​

II-4

​

Table of Contents

10.3#

​

Form of Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form F-3 filed on January 28, 2022, and incorporated by reference herein)

​

​

​

10.4#

​

Form of Award Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form F-3 filed on January 28, 2022, and incorporated by reference herein)

​

​

​

10.5#

​

Form of Indemnification Agreement between the Registrant and its directors and officers (incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form F-3 filed on January 28, 2022, and incorporated by reference herein)

​

​

​

10.6#

​

Employment Agreement by and between the Registrant and Michael Cammarata dated July 7, 2019 (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form F-3 filed on January 28, 2022, and incorporated by reference herein)

​

​

​

10.7#†

​

Letter Agreement by and between the Registrant and Michael Cammarata dated November 14, 2021 (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form F-3 filed on January 28, 2022, and incorporated by reference herein)

​

​

​

10.8#

​

Interim Services Agreement by and among the Registrant, CSuite Financial Partners and Randy Weaver dated September 23, 2021 (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form F-3 filed on January 28, 2022, and incorporated by reference herein)

​

​

​

10.9#

​

Employment Agreement by and between the Registrant and John Wirt dated August 10, 2021 (incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form F-3 filed on January 28, 2022, and incorporated by reference herein)

​

​

​

10.10

​

Amended and Restated Secured Promissory Note issued by Sprout Foods, Inc. to NH Expansion Credit Fund Holdings LP, dated July 13, 2022 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on July 18, 2022, and incorporated by reference herein)

​

​

​

10.11#

​

Employment Agreement by and between the Registrant and Raymond Silcock dated June 13, 2022 (incorporated by reference to the Company’s Current Report on Form 8-K filed on June 14, 2022, and incorporated by reference herein)

​

​

​

10.12*

10.12

​

Form of Securities Purchase Agreement, dated March 10, 2022, between Neptune Wellness Solutions Inc., and each purchaser identified therein (incorporated by reference to Exhibit 99.2 to the Company’s Form 6-K filed on March 14, 2022, and incorporated by reference herein)

​

​

​

10.13

​

Securities Purchase Agreement, dated June 21, 2022, by and between Neptune Wellness Solutions Inc. and certain institutional investors.investors (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1, as amended, filed on November 7, 2022, and incorporated by reference herein).

​

​

​

10.13*

10.14

​

Securities Purchase Agreement between Neptune Wellness Solutions Inc. and the Purchasers, dated October 6, 2022.2022 (incorporated by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S-1, as amended, filed on November 7, 2022, and incorporated by reference herein).

​

​

​

10.14*

10.15

​

Leak-Out Agreement between Neptune Wellness Solutions Inc. and the Purchasers, dated October 6, 2022.2022 (incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-1, as amended, filed on November 7, 2022, and incorporated by reference herein).

​

​

​

10.15

10.16

​

Letter Agreement between Neptune Wellness Solutions Inc. and A.G.P./Alliance Global Partners, dated March 10, 2022 (incorporated by reference to Exhibit 99.3 to the Company’s Form 6-K filed on March 14, 2022, and incorporated by reference herein)

​

​

​

10.17

​

Placement Agency Agreement between Neptune Wellness Solutions Inc. and A.G.P./Alliance Global Partners (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 12, 2022, and incorporated by reference herein)

​

​

​

10.16

10.18

​

Asset Purchase Agreement by and among N Real Estate L.P., Neptune Wellness Solutions Inc., 9354-7537 Quebec Inc. and PurCann Pharma Inc., dated October 16, 2022 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed October 18, 2022, and incorporated by reference herein)

​

​

​

10.17

10.19

​

Stock Purchase Agreement by and among Sprout Foods, Inc., Neptune Growth Ventures, Inc. and NH Expansion Credit Fund Holdings LP, dated February 10, 2021 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed August 15, 2022, and incorporated by reference herein)

​

​

​

II-5

​

Table of Contents

10.18

10.20

​

First Amendment to Stock Purchase Agreement by and among Sprout Foods, Inc., Neptune Growth Ventures, Inc. and NH Expansion Credit Fund Holdings LP, dated July 13, 2022 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed August 15, 2022, and incorporated by reference herein)

​

​

​

21.1*

10.21

​

Note Purchase Agreement, dated January 12, 2023, by and among the Company and each of the Purchasers named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 13, 2023)

​

​

​

10.22

​

Form of Promissory Note, dated January 12, 2023 (including a schedule of all executed promissory notes adopting the same form in respect of each of the Purchasers) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 13, 2023)

​

​

​

10.23

​

Registration Rights Agreement, dated January 12, 2023, by and among the Company and each of the Purchasers named therein (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated January 13, 2023)

​

​

​

10.24

​

Invoice Purchase and Security Agreement between Sprout Foods, Inc. and the Alterna Capital Solutions LLC dated effective January 20, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 26, 2023)

​

​

​

10.25

​

Commercial Guaranty by the Company in favor of Alterna Capital Solutions LLC dated effective January 20, 2023 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 26, 2023)

​

​

​

10.26

​

Waiver and First Amendment to Note Purchase Agreement, dated March 9, 2023, by and among the Company and each of the Purchasers named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 14, 2023)

​

​

​

10.27*

​

Third Amended and Restated Stockholders’ Agreement, dated as of February 10, 2021, by and among Sprout Foods, Inc., Neptune Growth Ventures, Inc., NH Expansion Credit Fund Holdings L.P., and the other Stockholders listed on the signature pages thereto.

​

​

​

10.28**

​

Form of Securities Purchase Agreement

​

​

​

21.1

​

Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Registration Statement on Form S-1, as amended, filed November 7, 2022, and incorporated by reference herein)

​

​

​

23.1**

​

Consent of Independent Registered Public Accounting Firm

​

​

​

23.2**

​

Consent of Independent Registered Public Accounting Firm

II-3

23.3*

​

​

​

23.3**

​

Consent of Osler, Hoskin & Harcourt LLP (included in Exhibit 5.1)

​

​

​

24.1*

​

Power of Attorney (included on the signature page hereto)

​

​

​

101.INS*

​

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

​

​

​

101.SCH*

​

Inline XBRL Taxonomy Extension Schema Document

​

​

​

101.CAL*

​

Inline XBRL Taxonomy Extension Calculation Linkbase Document

​

​

​

101.DEF*

​

Inline XBRL Taxonomy Extension Definition Linkbase Document

​

​

​

101.LAB*

​

Inline XBRL Taxonomy Extension Label Linkbase Document

​

​

​

101.PRE*

​

Inline XBRL Taxonomy Extension Presentation Linkbase Document

​

​

​

107*

​

Filing Fee Table

#

Indicates a management contract or compensatory plan or arrangement.

†

Certain identified information has been excluded from the exhibit pursuant to Item 601(a) (6) and/or Item 601(b) (10) (iv) of Regulation S-K

S-K*

Previously filed

**

Filed herewith

​

II-6

​

Table of Contents

Item 17. Undertakings.

The undersigned registrant hereby undertakes:

(1)

To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement (notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement); and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2)

That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3)

To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4)

That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of securities, in a primary offering of securities of the registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) any preliminary prospectus or prospectus of the registrant relating to the offering required to be filed pursuant to Rule 424; (ii) any free writing prospectus relating to the offering prepared by or on behalf of the registrant or used or referred to by the registrant; (iii) the portion of any other free writing prospectus relating to the offering containing material information about the registrant or its securities provided by or on behalf of the registrant; and (iv) any other communication that is an offer in the offering made by the registrant to the purchaser.

II-4

(5)

That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(6)

That, prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the registrant undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

(8)(7)

That every prospectus (i) that is filed pursuant to the immediately preceding paragraph, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment has become effective, and that for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-7

​

Table of Contents

(9)(8)

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

(9)The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

​

II-8

II-5​

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this amended registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the United States, on November 7, 2022.May 9, 2023.

​

​

​

​

​

NEPTUNE WELLNESS SOLUTIONS INC.

​

​

​

By:

​

​

By:

/s/ Raymond Silcock

​

​

Raymond Silcock

​

​

Chief Financial Officer

POWER OF ATTORNEY​

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and appoints each of Michael Cammarata, Raymond Silcock, and John S. Wirt, or any of them, each acting alone, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in his name, place and stead, in any and all capacities, to sign this Registration Statement on Form S-1 (including all pre-effective and post-effective amendments and registration statements filed pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that any such attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities indicated on November 7, 2022.

May 9, 2023.

​

​

NAME​

POSITIONDATE

/s/ Michael CammarataNAME

POSITION

​

​

​

*

​

​

Michael Cammarata

​

President, Chief Executive Officer and Director

November 7, 2022

​

​

​

/s/ Raymond Silcock

​

​

Raymond Silcock

​

Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

November 7, 2022

/s/ Julie Phillips​

​

​

*

​

​

Julie Phillips

​

Director

November 7, 2022

/s/ Joseph Buaron​

​

​

*

​

​

Joseph Buaron

​

Director

November 7, 2022

/s/ Michael de Geus​

​

​

*

​

​

Michael de Geus

​

Director

November 7, 2022

/s/ Dr. Ronald Denis​

​

​

*

​

​

Dr. Ronald Denis

​

Director

November 7, 2022

/s/ Philip Sanford​

​

​

*

​

​

Philip Sanford

​

Director

November 7, 2022

​

​

​

​

* Pursuant to Power of Attorney

​

​

​

​

By:

/s/ Raymond Silcock

​

​

Raymond Silcock

​

​

As Attorney-in-Fact

​

​

II-6​

​

​

​

​

II-9

​

Table of Contents

AUTHORIZED REPRESENTATIVE

Pursuant to the requirements of Section 6(a) of the Securities Act of 1933, the undersigned has signed this amended Registration Statement, in the capacity of the duly authorized representative of the Registrant in the United States, on November 7, 2022.May 9, 2023.

​

​

​

​

​

NEPTUNE WELLNESS SOLUTIONS INC.

​

​

​

By:

​

​

By:

/s/ Raymond Silcock

​

​

Name: Raymond Silcock

​

​

Title: Chief Financial Officer

​

II-7​

​

​

​

II-10

​