nept-ex991_253.htm

Basis of Presentation		1
Market and Industry Data		1
Cautionary Note Regarding Forward-Looking Statements		2
Corporate Structure		3
General Development of the Corporation		4
Description of the Business		7
Risk Factors		17
Dividends		30
Description of Our Share Capital		30
Market for Our Securities		32
Directors and Officers		33
Cease Trade Orders, Bankruptcies, Penalties or Sanctions		37
Legal Proceedings and Regulatory Actions		38
Interest of Management and Others in Material Transactions		39
Escrowed Securities		39
Transfer Agents and Registrars		39
Material Contracts		39
Interest of Experts		39
Report on Audit Committee		40
Additional Information		41
Schedule “A” Charter of the Audit Committee of the Board of Directors		A-1

As used in this annual information form (“AIF”), unless the context otherwise requires, references to “Neptune”, the “Corporation”, “we”, “us”, “our” or similar expressions refer to Neptune Technologies & Bioressources Inc. and its subsidiaries, references to “Acasti” refer to Acasti Pharma Inc. and references to “Biodroga” refer to Biodroga Nutraceuticals Inc. and, as applicable, its predecessor, Biodroga Inc.

Unless otherwise noted, in this AIF, all information is presented as of March 31, 2018. All references in this AIF to “dollars”, “CDN$” and “$” refer to Canadian dollars and references to “US$” refer to United States dollars, unless otherwise expressly stated.

References in this AIF to our fiscal year refer to the fiscal year ended March 31. For example, references to “Fiscal 2018” refer to our fiscal year ended March 31, 2018.

We have proprietary rights to a number of company names, product names, trade names and trademarks used in this AIF that are important to our business, such as, NEPTUNE WELLNESS SOLUTIONS ®, MaxSimil^® and OCEANO3™. We may omit the registered trademark (®) and trademark (™) symbols and any other related symbols for such trademarks and all related trademarks, including those related to specific products or services, when used in this AIF.

Market data and certain industry data and forecasts included in this AIF were obtained or derived from internal company surveys, market research, publicly available information, reports of governmental agencies and industry publications and surveys. We have relied upon industry publications as our primary sources for third-party industry data and forecasts. Industry surveys, publications and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based upon management’s knowledge of the industry, have not been independently verified. By their nature, forecasts are particularly likely to be inaccurate, especially over long periods of time. In addition, we do not know what assumptions regarding general economic growth were used in preparing the forecasts cited in this AIF. While we are not aware of any misstatements regarding Neptune’s industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Risk Factors” and elsewhere in this AIF. While we believe our internal business research is reliable and market definitions are appropriate, neither such research nor definitions have been verified by any independent source. This AIF may only be used for the purpose for which it has been published.

This AIF contains certain information 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. 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, 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 Corporation 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 statements.

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 us and expressed or implied by the forward-looking statements contained in this AIF. Such statements are based on a number of assumptions and risks which may prove to be incorrect, including, without limitation, assumptions about: the performance of our production facility; our ability to maintain customer relationships and demand for our products; 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 pursue new business opportunities such as legal cannabis oil production; our ability to obtain additional 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 where we are currently doing business or intend to do business.

Many factors could cause our actual results, level of activity, performance or achievements or 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”. 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 Corporation cautions that the foregoing list of risk factors, as well as those risk factors presented under the heading “Risk Factors” and elsewhere in this AIF, 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 AIF are expressly qualified by this cautionary statement. Unless otherwise indicated, forward-looking statements in this AIF describe our expectations as of the date of this AIF 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.

Neptune was incorporated under Part IA of the Companies Act (Québec) on October 9, 1998 and is now governed by the Business Corporations Act (Québec). Neptune’s head office and registered office is located at 545 Promenade du Centropolis, Suite 100, Laval, Québec, Canada, H7T 0A3 and its website address is www.neptunecorp.com. The common shares of Neptune (“Common Shares”) are listed and posted for trading on the Toronto Stock Exchange (“TSX”) and on NASDAQ Stock Market under the symbol “NEPT”.

Since its incorporation, Neptune has amended its articles on numerous occasions. The Corporation first amended its articles on May 30, 2000 to convert its then issued and outstanding shares into newly-created classes of shares. The Corporation’s articles were also amended on May 31, 2000 to create Series A Preferred Shares. On August 29, 2000, the Corporation converted all its issued and outstanding Class A shares into Class B subordinate shares. On September 25, 2000, the Corporation 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 Corporation amended its articles of incorporation to reflect certain changes to items relating to board matters.

The activities of Neptune are conducted either directly or through its subsidiaries. The table below lists the principal subsidiaries of Neptune as at March 31, 2018, as well as their jurisdiction of organization and the percentage held by Neptune in each of them.

Biodroga Inc. was acquired by Neptune on January 7, 2016, and on March 1, 2016, it was amalgamated with an inactive subsidiary of Neptune, NeuroBioPharm Inc., and became Biodroga Nutraceutical Inc.

9354-7537 Québec Inc. was incorporated on February 6, 2017. It is a wholly-owned subsidiary of Neptune that was created with the intent of submitting an application to become a Licensed Producer under the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) and to obtain a Control Substance Licence (also referred to as a Dealer’s Licence) under the Controlled Drugs and Substances Act (“CDSA”) – see “Recent Business Developments” under the heading “General Development of the Corporation”, below.

In Fiscal 2016, we initiated a strategic review process and developed a set of initiatives to set the Corporation on a course to achieve a more diversified, stable business poised for further growth, including significant operating cost reduction measures at our production facility that were pursued throughout Fiscal 2017 (Project Turbo).

On January 7, 2016, consistent with our strategy to move up the value chain, we acquired all of the issued and outstanding shares of Biodroga for $14.8 million, consisting of $7.5 million paid in cash at closing, an additional cash consideration of $3.55 million bearing interest and payable over a period of three years and $3.75 million of Common Shares issued at closing, representing approximately 2.6 million Common Shares. A portion of these Common Shares are still under escrow and will be released over a period of three years from closing. See “Escrowed Securities”. We funded the cash portion of the purchase price payable at closing through a new $7.5 million secured bank loan.

The acquisition of Biodroga was fully in line with our strategy to move further up the value chain, and build on our current solution business by further progressing into specialized product development services, such as formulation and blending. The business combination was also highly complementary and further positioned Neptune for success, by adding a new growth vehicle in a significantly larger addressable market. The acquisition offered a scalable turnkey solutions platform, with a broad range of product development capabilities. It allows us to play a much broader role in the customer value chain, leveraging our collective capabilities with an expanded set of offerings. It also opens up an important window on innovation and enhances our capabilities to develop new nutraceutical products. This was a pivotal move and seen as a key cornerstone to support additional business development.

Project Turbo, a company-wide initiative introduced to drive efficiencies and heighten operating performance was well underway. Amongst other things, Neptune focused on optimizing business processes and reducing general and administrative expenditures. This initiative was put in place through the second quarter of Fiscal 2016 and the third quarter of Fiscal 2017. All of the approximately $5 million publicly targeted savings were realized.

On September 30, 2016, Neptune and Aker BioMarine (‟Aker”) entered into a broad patent cross-licensing agreement, thus ending all outstanding litigation between both companies. The agreement provided for continued access for Aker to Neptune’s previously-owned composition patents for the duration of the patents, in consideration of an upfront royalty payment of US$10 million payable over a period of 15 months. Neptune acquired rights to use Aker’s select krill oil-related patent portfolio for the duration of the patents in consideration of an upfront royalty payment of US$4 million payable over the same 15-month period.

On September 30, 2016, Neptune, through its wholly-owned subsidiary Biodroga, also signed an exclusive, worldwide and royalty-bearing commercial agreement with Ingenutra Inc. for its patented and clinically studied MaxSimil specialty ingredient. Designed as a unique delivery system, MaxSimil is believed to allow for enhanced bioavailability and absorption of lipid based and lipid soluble nutraceuticals ingredients such as omega-3 fish oils, vitamin A, D, K and E, CoQ10 and others. The agreement allows Neptune to manufacture, distribute and sell MaxSimil in the nutraceutical field worldwide. The terms also cover potential collaboration between both companies on clinical trials. In order to keep its exclusivity, the Corporation has to sell minimum volumes per year.

On March 31, 2017, Neptune and Enzymotec Ltd (“Enzymotec”) entered into a broad patent cross-licensing agreement, thus ending all outstanding litigation between both companies. The agreement provided continued access for Enzymotec to the krill-related patents previously-owned by Neptune for the duration of the patents, in consideration of an upfront royalty payment of US$1.63 million. The agreement also provided continued access for Neptune to Enzymotec’s krill-related patents for no consideration.

On September 15, 2016, in addition to the launch of MaxSimil, Neptune, as a pioneer of the krill oil market, pursued its commitment to science-based innovation with the addition of NKO® Omega Plus to its growing proprietary specialty ingredients portfolio, a product with one of the highest omega-3 concentrations of pure krill oil available on the market. Neptune’s proprietary extraction process enables NKO® Omega Plus to contain up to 30% more Omega-3 than krill oil products typically on the market today.

In April 2017, the Corporation submitted a written application to Health Canada to become a Licensed Producer of medical cannabis, which at this time has been confirmed by the agency as having cleared the Security Clearance Process and being in active review (stage 2 of 6). The Corporation is reliant upon obtaining the licence from Health Canada in order to pursue its cannabis-related activities. There is no guarantee that the Corporation’s medical marijuana licence application will be approved by Health Canada, or that any prospective projects in the industry will be successfully completed. See “We are subject to risks inherent to the cannabis industry” under the heading “Risk Factors”, below.

Neptune and Groupe DJB, in collaboration with the Université de Sherbrooke, announced in May 2017 the creation of the Sherbrooke-based Green Valley Consortium. The Consortium partners, with the assistance of Sherbrooke Innopole and the city of Sherbrooke, work to draw on their combined research, cultural and technical expertise to create a medical cannabis research and development hub that will be recognized both in Canada and abroad.

On August 7, 2017, Neptune and Aker BioMarine Antarctic AS (“Aker BioMarine”) concluded an agreement whereby Aker BioMarine acquired Neptune’s intellectual property, list of customers and krill oil inventory for a cash consideration of aproximately $43 million (US$34 million) paid at closing (the “Aker Transaction”). Under this agreement, Neptune exits bulk krill oil manufacturing and distribution activities and Aker BioMarine becomes the exclusive krill oil supplier to Neptune’s solutions business.

Neptune’s Sherbrooke facility was not part of the transaction, and it will be used for the development of unique extractions targeted towards high potential growth segments such as in the legal cannabis industry. A large number of our employees saw their employment terminated as part of this transaction. As a result, only a small team of people continues to work on special projects including the medical and wellness cannabis project at the facility as well as activities relating to exiting the bulk manufacturing krill oil business.

On November 14, 2017, Neptune announced a capital investment of $5 million for the payment of building improvements and specific equipment required for our current extraction facility under our cannabis oil venture, which is currently on track and on budget. We expect it will be completed on time to meet our licensing requirements with Health Canada during the summer 2018.

On November 27, 2017, we announced the signature of an exclusive, worldwide and royalty-bearing licensing agreement for the use of the MaxSimil® technology, a patented omega-3 fatty acid delivery technology and strong growth driver of Neptune’s Solutions business, in combination with cannabis-derived products. This new agreement allows us to research, manufacture, formulate, distribute and sell monoglyceride omega-3-rich ingredients in combination with cannabis and/or cannabinoid-rich hemp-derived ingredients for medical and adult use applications.

The Corporation believes the MaxSimil® technology has the ability to enhance absorption of lipid-based 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 cannabidiol (“CBD”).

On November 28, 2017, Neptune held a business update meeting in New York City to discuss its entry into the legal cannabis market in Canada via the extraction and commercialization of cannabis oil. Neptune CEO Jim Hamilton and other members of senior management conducted an in-depth overview of the cannabis market in Canada, the Corporation’s business plans, a timeline of anticipated milestones and the potential economics of this new business venture.

On December 27, 2017, Acasti concluded a public financing. Immediately before the transaction, Neptune owned 33.96% of Acasti’s common shares and had determined it had de facto control over Acasti and therefore consolidated Acasti’s financial results. After the financing, the ownership interest of the Corporation in Acasti decreased to 20.39% and 12.12% on a fully diluted basis. Therefore, management has determined that the Corporation lost de facto control of the subsidiary and stopped consolidating Acasti’s financial results. As of the date of this AIF, following the issuance of addtionnal shares by Acasti in connection with other public financings, the Corporation’s ownership is equal to approximately 14.01%.

On January 19, 2018, Neptune announced an exclusive research agreement with the purpose of developing new medical and wellness targeted cannabinoid-based products, such as CBD combined with krill oil whose combination use would be exclusive to Neptune. The new products will be aimed at the growing number of federal jurisdictions worldwide, such as Canada, that have or will legalize cannabinoids for medicinal and/or adult use.

On February 12, 2018, Neptune and Tetra Bio-Pharma Inc. announced that they entered into an agreement for the co-development, commercialization and marketing of purified cannabinoid oil-based products to address pain and inflammation relief applications for the natural health products and pet veterinary markets.

On June 19, 2018, the Corporation announced that it had entered into a multi-year agreement with Canopy Growth Corporation (“Canopy Growth”). Under the terms of the agreement, the Corporation will supplement Canopy Growth’s extraction, refinement, and extract product formulation capacity to provide extracted cannabis products.

We sustained an intense pace of activity in developing the cannabis business opportunity, meeting with potential suppliers and partners while continuing to move forward with the regulatory licensing process. As of today, having committed more than 90% of our $5 million approved capital plan to work on site security, licence compliance and CO₂ extraction, we remain on track and on budget to complete the Phase I of our cannabis commercialization strategy in the middle of 2018. Simultaneously, we began work on Phase II and successfully completed solvent lab scale trials. As a consequence, on June 5, 2018 the Board approved the $4.8 million investment for Phase 2 solvent-based capacity expansion.

The Corporation submitted an application to the Office of Controlled Substances (the “OCS”) for a Dealer’s Licence (“DL”) in early February 2018 and received confirmation of filing shortly thereafter. The OCS commits to a service delivery standard of 180 business days for the issuance of a decision on an application for a new DL for controlled substances, which begins upon receipt of a complete application. For a description of the regulatory context relating to such application, see “Regulatory Environment” and “Business Overview & Mission” under the heading “Description of the Business”, below.

Neptune is a wellness products company, with more than 50 years of combined experience in the industry. The Corporation, through its nutraceutical segment, formulates and develops turnkey solutions available in various unique delivery forms and offers specialty ingredients such as MaxSimil, a patented ingredient that may enhance the absorption of lipid-based nutraceuticals, and a variety of other marine and seed oils. Neptune also sells premium krill oil directly to consumers through web sales at www.oceano3.com. Leveraging our scientific, technological and innovation expertise, Neptune is working to develop unique extracts and formulations in high-potential growth segments, such as medical and wellness cannabinoid-based products. The Corporation’s expected growth in the medical and wellness cannabis field is an attractive method of utilizing the existing Sherbrooke facility, a key asset of the Corporation, following the sale of the Corporation’s krill oil business in August 2017.

Neptune’s vision is to provide great wellness solutions that deliver optimal health and wellness. Our mission is to leverage our scientific and innovation expertise to create and provide our global customers with the best-available nutritional products and wellness solutions. Neptune is active in five main areas: Legal Cannabis Products, Ingredients, Turnkey Solutions, Pet Supplements and Consumer Brand.

Consistent with our strategic focus of providing wellness products while levering our know-how, large-scale solvent extraction and application technology capabilities, our objective is to become the world’s leader in extraction, purification and formulation of cannabis products.

We are applying for a licence with Health Canada to produce cannabis oil under the ACMPR. In April 2017, the Corporation submitted a written application to Health Canada to become a Licensed Producer of medical cannabis, which at this time has been confirmed by the agency as having cleared the Security Clearance Process and being in active review (stage 2 of 6). The Corporation is reliant upon obtaining the licence from Health Canada in order to pursue its cannabis-related activities. There is no guarantee that the Corporation’s medical marijuana licence application will be approved by Health Canada, or that any prospective projects in the industry will be successfully completed. See “We are subject to risks inherent to the cannabis industry” under the heading “Risk Factors”, below.

Neptune is working to develop unique extracts and formulations in the legal wellness cannabis space.

Neptune offers a variety of specialty ingredients, including our specialty ingredient MaxSimil. Leveraging our global network of suppliers, we also source a variety of other marine oils, seed oils and specialty ingredients that are available for sale. Our specialty ingredients usually come in bulk soft gels or other finished forms, serve as a dietary supplement to consumers and are available under distributors’ private labels, primarily in the Canadian and U.S. nutraceutical markets.

MaxSimil is a novel, patented delivery platform that enhances the absorption of lipid-based and lipid-soluble nutraceuticals. MaxSimil mimics the human digestive process to deliver absorption-ready, pre-digested lipid-based products such as Omega-3 fish oils.

As described in “Licensing Agreements” under the heading “Intellectual Property”, below, Neptune has entered into a trademark licence agreement with Aker BioMarine, in connection with the Aker Transaction, pursuant to which Neptune is granted a licence to use certain NKO trademarks in furtherance of the manufacturing of products containing krill oil where all krill oil contained in such products is sourced or received by Neptune exclusively from Aker BioMarine, provided that Neptune may not manufacture and/or sell krill products for private label use (i..e, for sale or distribution under a brand owned, licensed or controlled by a retailer), unless expressly agreed to by Aker BioMarine, or engage in any service, product or involvement, directly or indirectly in the extraction of krill oil from any raw material containing krill biomass.

NKO is a marine oil extracted from krill (Euphasia superba) which we first commercialized in 2003. NKO’s elevated content of phospholipids rich in omega-3 fatty acids (EPA & DHA) and antioxidants such as astaxanthin, vitamin A and vitamin E offers a safe and effective product free of preservatives with clinically tested health benefits.

Formulations derived from NKO that target more specific conditions include NKO Beat™, which targets heart and circulation health, NKO Flex™, which targets bone and joint health, and NKO Focus™, which targets brain and vision health. Prior to the Aker Transaction, we launched these three formulations available in finished soft gels in the business-to-business (“B2B”) industry available under distributors’ private labels.

We offer a variety of natural grade (TG form) and concentrated fish oils. Carefully selected from the world’s highest quality sources and tested using the International Fish Oil Standards (IFOS), the industry’s most stringent quality control standards, our line of fish oil offers amongst the best value on today’s market.

Our seed oils, pressed from carefully selected and tested seeds, are pure and potent, derived from sources including camelia, chia seed, flaxseed, evening primrose, olive and coconut, our seed oils offer omega-3,5,6,7,9 and 11.

We offer a range of specilaty extracts and vitamins for sale in bulk. Some of our ingredients include vitamin E, asthaxanthin, phospholipids, plant sterols.

As a turnkey solution provider of omega-3’s and other functional ingredients, we provide specialized nutraceutical products to branded marketers in the nutraceutical industry, primarily in North America. We develop and distribute to branded marketers products which primarily include omega-3’s, along with other essential nutritional ingredients that are used in specialty formulations, such as vitamin E, astaxanthin, marine or vegetable based phospholipids and plant sterols. We develop, design and formulate these solutions to branded marketers as turnkey finished supplements that are ready for sale under their private label, primarily as softgel capsules and liquids, and occasionaly in bulk form. Through our global network of suppliers, we source ingredients and formulate the customized product. The ingredients are sent to third-party manufacturers, where the formula is developed in a liquid, powder or capsule form and then packaged. We are responsible for quality testing each product, which is then to be approved for sale.

From time to time, we reformulate existing products to address market developments and trends, and to respond to customer requests. We also seek to develop new products. New products ideas are derived from a number of sources, including internally, trade publications, scientific and health journals, consultants, distributors and other third parties. Prior to reformulating existing products or introducing new products, we investigate product formulations as they relate to regulatory compliance and other issues. Our management continually assesses and analyzes developing market trends to detect and proactively address what they believe are areas of unmet or growing demand that represent an opportunity for us.

Pet owners want to offer the best to their four-legged friends. As part of its turn-key solutions services, Neptune also develops human-grade omega-3 products and other customized formulations specifically for pets in order to answer the raising demand for human-grade omega-3 solutions for pets, containing low levels of contaminants and available in different concentration.

OCEANO3™ comes in softgel form. We sell OCEANO3™ directly to consumers in Canada and the U.S. through our online platform (www.oceano3.com), under our own proprietary brand name. We see it as an opportunity to get closer to the consumer, increase our knowledge of the business to customer (B2C) space, and transfer key learnings on the benefit of our products to our customers as an added value.

Neptune sells a wide range of specialty ingredients and turnkey solutions including omega-3 fatty acids derived from marine and plant sources, in the dietary supplement market.

The most predominant omega-3 fatty acids are DHA and EPA derived from marine sources. According to the GOED EPA & DHA Ingredient Market Overview for 2016, dietary supplements continued to be the largest market for marine-based omega-3 oils with a 57% market share and a total of US$677.4 million in revenue. This represents a 3.9% increase compared to the previous year. The worldwide sales of marine-based omega-3 ingredients was estimated to US$1.188bn (compared to US$377.9 million solely in the U.S.).

The nutraceutical industry is global, competitive and fragmented. Distribution channels include specialized and mass retail chains, multi-level marketing organizations, web-based retailers, direct to consumer, such as infomercials and mailing, heath food stores and healthcare practitioners. The world retail market for dietary supplements is highly fragmented, and is comprised of a large number of products and many small manufacturers. In retail and mass market channels, there are a great number of brands and price points are generally lower.

Part of our strategy is to move further up the value chain, and build on our current solution business by further progressing into specialized product development services, such as formulation and blending, which we believe follows market trends in the dietary supplement space. As the industry develops, we believe businesses are increasingly looking for tailored solutions, such as condition-specific formulations, something that we can facilitate. In turn this creates increased customer interaction, opportunity and “stickiness” due to the heightened partnering created through customized offerings.

We believe that health issues such as high (and in some cases low) cholesterol, heart disorders, cognitive function and brain performance disorders, eye health and joint issues (including inflammation) are driving components of the nutraceutical market. We believe the following factors, among others, should favor the growth of the nutraceutical market:

During the current fiscal year, our focus will be on building a viable B2B wholesale extraction, purification and formulation cannabis business. As the cannabis industry is rapidly evolving, we believe that speed is essential to gain a foothold. The first licence we receive, either under the ACMPR or the CDSA, should allow us to produce cannabis oil wholesale initially on a B2B basis. We intend to pursue two business models: (i) by buying dry cannabis and selling cannabis oil wholesale through extraction, refinement and formulations, and, (ii) by offering custom production services based on Neptune proprietary technology while capitalizing on long-term site utilization. Our long-term objective will be to create a cannabis consumer packaged goods brand with a strong wellness positioning, which we believe will offer higher margins longer term. An additional opportunity we are researching is the extraction of hemp. We anticipate that CBD-enriched oil could be produced from hemp in the Sherbrooke facility.

According to a Canaccord Genuity Report published in March 2017, the Canadian cannabis market is estimated to generate C$7.8B by 2021, of which C$6B represents adult use and C$1.8B medical use. According to BDS Canadian market data conducted in 2017 and published in Q1 of 2018, 21% of Canadians have used cannabis in the last 6 months and approximately 50% of adults are open to consuming in the next 6 months.

The US market is projected at US$40B by 2021, assuming 35 States have medical or adult-use legality as stated in the Arcview Market Research report published in 2018.

In 2017, BDS Analytics conducted a survey on Colorado cannabis consumers, demonstrating that 50% of consumers take cannabis for health and wellness reasons i.e.: sleep, anxiety, pain. Another BDS report published in 2017 demonstrated that flower represented approximately 50% of sales combining California, Colorado, Oregon and Washington. As the market evolves, other forms will continue to gain traction such as oil concentrates, edibles and topicals which represented in aggregate the remaining 50% of the market in 2017.

The nutraceutical, pharmaceutical and cannabis industries are highly competitive. There are many biotechnology and other 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.

The Corporation plans to compete in a growing cannabis industry with an increasing number of participants subject to rapid changes and developments. The Corporation will face the challenge of competing with companies of varying sizes and at varying stages of licensing and levels of development of related products in the cannabis industry. Other companies working in cannabinoid research may develop products targeting the same conditions that we may be focusing on, and such competing products may be superior to our potential 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 will enable us to effectively compete in the marketplace. For additional information regarding the competitive nature of the cannabis industry, see “We are subject to risks inherent to the cannabis industry” and “Our industry is subject to rapid technological change and competition” under the heading “Risk Factors”, below.

We are actively pursuing the retrofiting of our existing production facility located in Sherbrooke, Province of Québec, Canada to comply with Heath Canada requirements under the ACMPR, in order to produce our cannabis extracts and formulations at our existing site. Our GMP (Good Manufacturing Practices, mandated by the Natural Health Products Directorate 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.

As a condition for obtaining our licence to produce cannabis oil under the ACMPR, Health Canada requires multiple steps 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 Corporation’s existing Sherbrooke facility. The Sherbrooke facility will need to be reviewed to the satisfaction of Health Canada before a licence can be granted to the Corporation, after Neptune has taken all steps imposed by Health Canada in preparation for such review. For additional information regarding the regulatory context of the cannabis industry, see “We are subject to risks inherent to the cannabis industry” under the heading “Risk Factors”, below.

Based on our expected growth rate and planned investment in our equipments and facilities, we believe that our manufacturing capacity will be sufficient to meet our requirements for the near future. Our intention is to maximize the return on investment in our manufacturing unit.

Our other nutraceutial products are manufactured by third party manufacturers located in North America. In order to meet demand for our nutraceutical products, we have developed relationships with selected contract manufacturers. We believe that we are not dependent on any such contract manufacturer and that, if necessary, our current selected contract manufacturers could be replaced with minimal disruption to our operations, if need be.

We subcontract the encapsulation process and the packaging of our products to third parties in Canada and the United States,.

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.

We are constantly looking at ways to improve the logistics of our operations and optimize processes in place.

The Corporation sells its products mainly in bulk softgels or liquids to multiple distributors and customers, who commercialize these products under their private label. While the Corporation may have purchase orders in place with approximately 103 different distributors and customers at any one time, the majority of the Corporation’s sales are concentrated with a small group of distributors and customers. During Fiscal 2018, one customer represented 17% (Fiscal 2017 – one customer represented 16%) of total nutraceuticals consolidated results of the Corporation. Agreements with these distribution partners may be terminated or altered by them unilaterally in certain circumstances. See “Risk Factors - Risks Related to Our Business - We derive our revenues from a limited number of distributors and have a significant concentration of our accounts receivable.” In addition, the agreements between us and our distributors contain certain customary indemnification provisions with respect to liability incurred from claims resulting from items that are the responsibility of the distributor, such as encapsulation, blending or packaging.

We currently distribute all our products to our customers through contract and common carriers.

Online orders of OCEANO3™ are handled by our distribution personnel and a third party contractor retained by us. Once an internet order is completed, our computer system forwards the order to the distribution center, where all necessary distribution and shipping documents are printed to facilitate processing. Then, the orders are prepared, picked, packed and shipped continually throughout the business day. Completed orders are bar-coded and scanned and the merchandise and ship date are verified and entered automatically into the customer order file for access by sales associates before shipment. All orders are distributed through common carriers.

During Fiscal 2018, approximately 44% (Fiscal 2017 – 52%) of our consolidated revenues were made to customers in the United States, 44% to customers in Canada (Fiscal 2017 – 35%) and 12% to customers in other countries. Neptune’s consolidated revenues for Fiscal 2018 amounted to $26.2M, a decrease from $45.7M for Fiscal 2017. Our sales are not cyclical or seasonal.

The Corporation intends to initially manufacture, sell and distribute its cannabis products mainly to other autorized licensed producers, provincal agencies, such as the Ontario Cannabis Stores and the Société québécoise du cannabis, and other private distributors authorized to conduct business legally. As cannabis becomes legalized for medicinal and recreationnal purposes in other countries, the Corporation intends to also benefith from thoses business opportunities.

Neptune remains committed to only conduct business related to manufacturing cannabis oil products in jurisdictions where it is legal to do so. The Corporation will not conduct business, related to manufacturing cannabis related products, in jurisdictions, such as the United States, in which cannabis is federally illegal. Neptune believes that conducting activities which are federally illegal, or investing in companies which do, puts the Corporation at risk of prosecution, puts at risk its ability to operate freely, and potentially could jeopardize its listing on major exchanges now and in the future, limiting access to capital such as from reputable US-based funds.

As of March 31, 2018, we had 61 employees working at our business offices in Laval and Vaudreuil and at our production facility and laboratory in Sherbrooke. Our employees possess specialized skills and knowledge in the following fields, which we believe are valuable assets of the Corporation: (i) oil extraction processes, (iii) scientific knowledge, (iv) commercialization and business development, (v) regulatory affairs, (vi) corporate and legal matters, (vii) clinical validation of biological therapeutic properties, and (viii) quality assurance/quality control. We consider our relations with our employees to be good and our operations have never been interrupted as the result of a labor dispute.

Following the sale of Neptune’s krill oil inventory and krill oil intellectual property to Aker BioMarine in August 2017, only a small team of people were retained to continue work on special projects including the medical cannabis project at the Sherbrooke facility; thereofore, a large number of our employees (approximately 50 employees) saw their employment end as part of this transaction.

Our headquarters are located in leased-offices in both Laval and Vaudreuil, Province of Québec, Canada, where our general and administrative departments primarily operate. We also own a production facility in Sherbrooke, Québec, Canada where we also conduct laboratory activities.

In order to lever our existing GMP certified facility and extraction expertise, we announced a first phase (Phase I) of capital exenditures of $5 million for our Sherbrooke facilty to work on site security, licence compliance and CO₂ extraction equipements. After successfully completing, solvent lab scale trials, we also recently announced an additional capital expenditure of $4.8 million for our second phase (Phase II) solvent-based capacity expansion.

We consistently 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.

NEPTUNE^TM, NEPTUNE WELLNESS SOLUTIONS^TM, OCEAN03™, and Asta-Guard™ are trademarks of the Corporation. MaxSimil^®, NKO^®, NKO Beat^TM, NKO Flex^TM and NKO Focus^TM are trademarks authorized for use by the Corporation.

The terms of an agreement entered into with a corporation controlled by a former CEO of the Corporation in 2001 provide that the Corporation should pay royalties of 1% of its krill oil revenues in semi-annual instalments, for an unlimited period. Neptune filed a motion challenging the validity and the scope of certain clauses of the agreement.

On September 30, 2016, Neptune entered into an exclusive, worldwide and royalty-bearing licensing agreement for the use of the MaxSimil® technology, a patented omega-3 fatty acid delivery technology and strong growth driver of Neptune’s nutraceutical business. The agreement allows Neptune to manufacture, distribute and sell MaxSimil in the nutraceutical field worldwide. The terms also cover potential collaboration between Neptune and its co-contractant on clinical trials. In order to keep its exclusivity, Neptune has to sell a minimum volume per year or pay the minimal amount.

On November 27, 2017, Neptune entered into an exclusive, worldwide and royalty-bearing licensing agreement for the use of the MaxSimil® technology, in combination with cannabis-derived 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. As indicated in the past, the Corporation believes the MaxSimil® technology has the ability to enhance absorption of lipid-based 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.

In connection with the Aker Transaction, Aker BioMarine (as licensor) and Neptune (as licensee) entered into a trademark licence agreement effective as of August 7, 2017 (the “Aker Trademark Licence Agreement”), pursuant to which Neptune has the limited, exclusive, terminable (as permitted under such agreement), royalty-free, fully paid up, worldwide, non-transferable, non-sublicensable (except as provided in such agreement) right and licence to use the NKO Beat™, NKO Flex™ and NKO Focus™ trademarks, solely in furtherance of the manufacturing of products containing krill oil where all krill oil contained in such products is sourced or received by Neptune exclusively from Aker BioMarine, the whole under the terms of a patent licence agreement between Aker BioMarine and Neptune effective as of the same date (the “Aker Patent Licence Agreement”). Pursuant to the Aker Trademark Licence Agreement, Neptune also has a limited, non-exclusive, terminable (as permitted under such agreement), royalty-free, fully paid up, worldwide, non-transferable, non-sublicensable (except as provided in such agreement) right and licence to use the NKO and NKO & Design trademarks, the whole under the terms of the Aker Patent Licence Agreement.

Pursuant to the Aker Patent Licence Agreement, Aker BioMarine (as licensor) has granted to Neptune (as licensee) a limited, terminable (as permitted under such agreement), royalty-free, fully paid-up, non-exclusive, worldwide, non-transferable, nonsublicensable (except as provided under such agreement) right and license to use krill oil purchased only and exclusively Aker BioMarine, under a supply agreement entered into between Aker BioMarine and Neptune effective as of August 7, 2017 (the “Aker Supply Agreement”), to make, have made, use, offer to sell, sell and import licensed products solely in furtherance of Neptune’s business as described further therein. In the event that Aker BioMarine fails to supply the krill oil under the terms of the Supply Agreement, or

terminates the Supply Agreement, the Aker Patent Licence Agreement provides that Aker BioMarine will grant to Neptune a licence to use certain patents and/or trade secrets to enable Neptune to extract krill oil from any raw material containing krill biomass.

Commercial products developed or under development by the Corporation, directly or through its subsidiaries, can be categorized as ingredients to be used in, or directly as, foods, dietary/food supplements, natural health products, medical foods.

These ingredients and products may qualify as novel foods, depending on final applications and countries where they are or will be marketed. Generally speaking, novel foods are defined as food substances that do not have a prior history of safe use or result from a process previously not used for foods. In the United States, the Center for Food Safety and Applied Nutrition of the Food and Drug Administration (the “U.S. FDA”) regulates matters associated with the safety of ingredients for use in food, medical food, and dietary supplements. Any substance intentionally added to food is a food additive, thus requiring pre-market approval by the U.S. FDA, unless the substance is Generally Recognized As Safe (“GRAS”) under the conditions of its intended use, or is otherwise excluded from the definition of a food additive. GRAS status may be achieved through a self-determination by qualified experts, with subsequent voluntary notification to the U.S. FDA. A mandatory notification process for a new dietary ingredient (“NDI”), which is a substance not previously marketed as a dietary supplement prior to October 15, 1994, is in place pursuant to the Dietary Supplement Health and Education Act and requires that manufacturers or distributors who wish to market a dietary supplement that contains a NDI notify the U.S. FDA at least 75 days prior to marketing of the product.

In Canada, novel foods are regulated under the Food and Drug Regulations (under the Food and Drugs Act) which requires that a notification be made to the Food Directorate of the Health Products and Food Branch of Health Canada prior to the marketing or advertising of a novel food in the Canadian marketplace. Natural health products (equivalent to dietary or food supplements) sold in Canada are subject to the Natural Health Products Regulations, which came into force on January 1, 2004. All natural health products must have a product licence before they can be sold in Canada, which requires applicants to provide detailed information about the quality, safety and efficacy of a product to the Natural and Non-prescription Health Products Directorate (“NNHPD”) for pre-market approval. Moreover, the Natural Health Products Regulations require a manufacturer, packager, labeller and/or importer of a natural health product for sale in Canada to obtain a site licence, which also is issued by the NNHPD.

In the European Union, the legislation governing food supplements is enacted and enforced by each individual Member State governmental authorities. In 2002, in an effort to harmonize the often differing regulations of its Member States, the European Union adopted Directive 2002/46/EC 2002 on the approximation of the laws of the Member States relating to food supplements (Food Supplements Directive¹). This directive partially harmonizes the rules governing the composition, labelling and marketing of food supplements throughout the European Union. The Food Supplements Directive, upon recommendation by the European Food Safety Authority, specifies what nutrients and nutrient sources may be used in food supplements, identifies the levels at which these nutrients may be incorporated in a food supplement, and prescribes the labelling and other information which must be provided on food supplement packaging. Food supplements that contain ingredients other than permitted vitamins and minerals are considered foodstuffs and are governed by Regulation (EC) No 178/2002², which lays down general principles and requirements of food law and matters of food safety. Any foods and food ingredients, including those intended for use in food supplements, that had not been used for human consumption to a significant degree within the European Community prior May 14, 1997 are subject to pre-market authorization as a novel food³.

Regulatory Environment relating to the Cannabis Industry (including the Medical Cannabis Industry) in Canada

The market for cannabis (including medical marijuana) in Canada is regulated by the CDSA, the ACMPR, the Narcotic Control Regulations, and other applicable laws and regulations. Health Canada is the primary regulator of the medical cannabis industry as a whole. The ACMPR aims to treat cannabis like any other narcotic used for medical purposes by creating conditions for a commercial industry that is responsible for its production and distribution. The ACMPR allow for reasonable access to cannabis for Canadians who have been authorized to use cannabis for medical purposes by their health care practitioner or via registration with the Minister. Any applicant seeking to become a Licensed Producer under the ACMPR is subject to stringent Health Canada licensing requirements.

For a company to legally handle and conduct activities with controlled substances, a Controlled Substance Licence (also referred to as a Dealer’s Licence) (“DL”) must be obtained from the OCS within Health Canada. A DL is site-specific and is granted to companies that demonstrate the ability to comply with proper security practices and other related criteria. A company granted a DL will be able to conduct activities with those substances stipulated by the licence, and such permitted activities can include possession, research and development, processing, packaging and stability assessments, formulation development, clinical trials, and international trade.

To apply for a DL, an applicant is required to submit a completed application form with supporting documentation to OCS. Applications are screened for completeness, and an incomplete application may be returned to the applicant. Those applications deemed complete are reviewed in detail and, pending submission of additional information requested by the agency (if any), a licence is issued, or the application is refused. Reasons for why an application may be refused include, but are not limited to, identification of a potential risk to public health, safety and/or security, or false or misleading information submitted as part of the application process.

On April 13, 2017, the federal government of Canada introduced before parliament Bill C-45 An Act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and Other Acts (the “Cannabis Act”), the draft legislation setting out the regulatory framework for legalization of cannabis. Under the proposed Cannabis Act, the federal government would be responsible for regulating cannabis production, and cannabis, its preperations, and derivatives would be removed from Schedule II of the Controlled Drugs and Substances Act (CDSA) and instead be subject to the new act and relevent regulations. On October 3, 2017, the Parliamentary Standing Committee on Health adopted amendments to the Cannabis Act including, among other things, an amendment that would permit legal cannabis edibles and concentrates to be sold, to come into force no later than twelve months after the Cannabis Act comes into force. Moreover, in accordance with the Access to Cannabis for Medical Purposes Regulations (ACMPR) and the Industrial Hemp Regulations (IHR), the Cannabis Act and pending regulations also provide for licences and permits for the import or export of cannabis for medical or scientific purposes and for industrial hemp. On November 10, 2017, the Government of Canada proposed that federal tax on legal cannabis, including for medical purposes, should not exceed $1 per gram or 10% of the producer’s price, whichever is higher, with retail sales taxes levied on top of that amount.

On November 27, 2017, the House of Commons passed the Cannabis Act on its third reading, and the bill subsequently was introduced in the Senate on November 28, 2017.

The Cannabis Act passed second reading in the Senate on March 22, 2018, giving the bill approval in principle. As a result of this meeting, the bill was refered to five Standing Senate Committees for closer scrutiny, witness testimony, and proposed amendments before returning to the Senate for a final debate and vote. On June 7, 2018 the Cannabis Act, passed third reading in the Senate with several amendments, including stricter provisions for the marketing of cannabis products. The House of Commons voted to reject many of the material amendments that the Senate had proposed, but on June 19, 2018, the Senate ultimately voted to pass the Cannabis Act with a portion of their recommended amendments.

On June 19, 2018, Prime Minister Justin Trudeau announced that the Cannabis Act and its regulations will come into force in Canada on October 17, 2018 in order to provide the provinces time to prepare for retail sales. At that time, the ACMPR and the current IHR will be repealed under the CDSA, and certain regulations under the Food and Drugs Act also will be amended, including the Cannabis Exemption (Food and Drugs Act) Regulations and the Natural Health Products Regulations. The Cannabis Act passed its final legislative step and received Royal Assent on June 21, 2018.

Until the Cannabis Act is in force, existing laws remain in place and the provisions discussed below are subject to change.

While the Cannabis Act provides for the regulation of the commercial production and related matters of legal cannabis by the federal government, the provinces and territories of Canada have the authority to regulate other aspects of cannabis for adult use (similar to what is currently the case for liquor and tobacco products), such as sale and distribution, minimum age requirements, places where cannabis can be consumed, and a range of other matters. The governments of all of the provinces and territories of Canada have announced regulatory regimes for the distribution and sale of legal cannabis within their jurisdictions, which to date, have all received Royal Assent, with the exception of Nunavut and Prince Edward Island.

On November 22, 2017, Health Canada released for public consultation its document entitled, “Proposed Approach to the Regulation of Cannabis”. The purpose of the consultation paper was to solicit public feedback on an initial set of regulatory proposals that Health Canada was considering in order to facilitate the coming into force of the proposed Cannabis Act. Health Canada’s consultation document addressed licensing, security requirements for producers and their facilities, product standards, labelling and packaging, and a proposed cannabis tracking system. It also addressed cannabis for medical purposes and health products containing cannabis. Health Canada has proposed a risk‑based approach to regulation, which would balance the protection of the health and safety of Canadians while enabling a competitive legal cannabis industry made up of large and small enterprises producing legal and quality‑controlled cannabis in all regions of Canada. The consultations were open until January 20, 2018, and Health Canada utilized the comments received during this consultation period to develop the Cannabis Regulations, which are expected to be published in final form in the Canada Gazette Part II on July 11, 2018. In addition to the Cannabis Regulations, three other sets of regulations will fall under the Cannabis Act, including new Industrial Hemp Regulations, Qualifications for Designation as Analyst Regulations (Cannabis), and Cannabis Act (Police Enforcement) Regulations

There is no guarantee that any of the federal or provincial frameworks which have been announced prior to the date of this AIF supporting the legalization of cannabis in Canada will be implemented as currently announced. See “Risk Factors”.

Unlike Canada, which has federal legislation uniformly governing the cultivation, distribution, sale and possession of medical cannabis under the ACMPR, in the United States, cannabis is largely regulated at the state level. To date, a total of 46 states plus the District of Columbia and the teritories of Puerto Rico and Guam, have legalized cannabis in some form. Notwithstanding the permissive regulatory environment of medical and legal cannabis at the state level, cannabis continues to be categorized as a Schedule I controlled substance under the Controlled Substances Act (the “CSA”) and as such, activities relating to cannabis risk violating federal law in the United States.

This is why, on October 16, 2017, the Toronto Stok Exchange (“TSX”) provided clarity regarding the application of Sections 306 (Minimum Listing Requirements) and 325 (Management) and Part VII (Halting of Trading, Suspension and Delisting of Securities) of the TSX Company Manual (collectively, the ‘‘Requirements’’) to applicants and TSX-listed issuers with business activities in the cannabis sector. In TSX Staff Notice 2017-0009, the TSX noted that issuers with ongoing business activities that violate U.S. federal law regarding cannabis are not in compliance with the Requirements. These business activities may include (i) direct or indirect ownership of, or investment in, entities engaging in activities related to the cultivation, distribution or possession of cannabis in the U.S., (ii) commercial interests or arrangements with such entities, (iii) providing services or products specifically targeted to such entities, or (iv) commercial interests or arrangements with entities engaging in providing services or products to U.S. cannabis companies. The TSX reminded issuers that, among other things, should the TSX find that a listed issuer is engaging in activities contrary to the Requirements, the TSX has the discretion to initiate a delisting review.

For clarification purposes, we wish to reiterate that we remain committed to only conduct business related to manufacturing cannabis oil products in jurisdictions where it is federally legal to do so. We will not conduct business, related to manufacturing cannabis-related products in jurisdictions, such as the United States, in which cannabis is federally illegal. We believe that conducting activities which are federally illegal, or investing in

companies which do, puts the Corporation at risk of prosecution, puts at risk its ability to operate freely, and potentially could jeopardize its listing on major exchanges now and in the future, limiting access to capital from reputable U.S.-based funds.

Investing in our securities involves a high degree of risk. Prospective investors should carefully consider the following risks, as well as the other information contained in this AIF and the other information in our publicly filed documents before investing in our securities. If any of the following risks actually occurs, our business, financial condition, liquidity, results of operation and prospects could be materially harmed. Additional risks and uncertainties, including those of which we are currently unaware or that we deem immaterial, may also adversely affect our business, financial condition, liquidity, results of operation and prospects.

The Corporation’s ability to produce, store and sell cannabis oil is dependent on obtaining and maintaining a status of Licensed Producer (as defined in the ACMPR). There is no guarantee that we will obtain such status, as licensing is beyond the control of the Corporation and the sole discretion lies with Health Canada. Although management believes it meets the requirements of the ACMPR for obtaining the necessary licence to become a Licensed Producer (the “Licence”), there can be no guarantee that Health Canada will deliver the Licence or, if it is delivered, that it will be extended or renewed on the same or similar terms. Should Health Canada not deliver the Licence, or should it deliver the Licence on different terms, the business, financial condition and results of the operations of the Corporation will be materially adversely affected.

We operate in a highly regulated and rapidly evolving market. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. Failure to comply with the requirements of the Licence or any failure to maintain this Licence would have a material adverse impact on the business, financial condition and operating results of the Corporation.

The industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond our control and which cannot be predicted, such as changes to government regulations, including those relating to taxes and other government levies which may be imposed. Changes in government levies, including taxes, could reduce the Corporation’s earnings and could make future capital investments or the Corporation’s operations uneconomic. The industry is also subject to numerous legal challenges which may significantly affect the financial condition of market participants and which cannot be reliably predicted.

The cannabis industry is highly competitive. There is potential that the Corporation will face intense competition from other companies, some of which can be expected to have longer operating histories and more financial resources and manufacturing and marketing experience than the Corporation. Increased competition by larger and better-financed competitors could materially and adversely affect the business, financial condition and results of operations of the Corporation.

We have been reporting losses since our inception, except for Fiscal 2018 and, as at March 31, 2018, we have an accumulated deficit of $79.5M. It is expected that during the start-up period preceeding the reception of our licence to produce cannabis oil under the ACMPR from Health Canada, we will likely continue to report net losses. For more information, please refer to the financial statements for Fiscal 2018, available on SEDAR at www.sedar.com and EDGAR at www.sec.gov/edgar.html.

Unfavorable publicity or consumer perception of our products, the ingredients they contain and any similar products distributed by other companies could cause fluctuations in our operating results and could have a material

adverse effect on our reputation, the demand for our products and our ability to generate revenues and the market price of our securities.

We are highly dependent upon consumer perception of the safety and quality of our products and the ingredients they contain, as well as that of similar products distributed by other companies. Consumer perception of products and the ingredients they contain can be significantly influenced by scientific research or findings, national media attention and other publicity about product use. A product may be received favorably, resulting in high sales associated with that product that may not be sustainable as consumer preferences change. Future scientific research or publicity could be unfavorable to our industry or any of our particular products or the ingredients they contain and may not be consistent with earlier favorable research or publicity. A future research report or publicity that is perceived by our consumers as less favorable or that questions earlier research or publicity could have a material adverse effect on our ability to generate revenues. As such, period-to-period comparisons of our results should not be relied upon as a measure of our future performance. Adverse publicity in the form of published scientific research or otherwise, whether or not accurate, that associates consumption of our products or the ingredients they contain or any other similar products distributed by other companies with illness or other adverse effects, that questions the benefits of our or similar products, or that claims that such products are ineffective could have a material adverse effect on our reputation, the demand for our products, our ability to generate revenues and the market price of our securities.

As of March 31, 2018, Neptune had approximately $24.3 million of cash and cash equivalents and $2.4 million of restricted short-term investments. We had negative operating cash flows of approximately $7.6 million during Fiscal 2018. However, considering the net proceed generated from the sale of the bulk krill oil manufactruing business less the repayment of loans and borrowings, our cash position increased during Fiscal 2018 by approximately $8.5 million. 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. Our failure to obtain any required additional financing on favourable terms, or at all, would have a material adverse effect on our business, financial condition and results of operations.

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 and 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 organizations. 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.

If we fail to further penetrate existing markets or if we fail our business expension into new markets, the growth in our sales, along with our operating results, could be negatively impacted. Our ability to further penetrate our existing markets or to expand our business into the cannabis market, to the extent we believe that we have identified attractive expansion opportunities in the future, is subject to numerous factors, many of which are beyond our

control. We cannot assure that our efforts to increase market penetration in our existing markets and to expend into the cannabis market will be successful. Our failure to do so could have a material adverse effect on our operating results.

To expand our operations into new geographic markets, and new business markets, we may enter into business combination transactions, make acquisitions or enter into strategic partnerships, joint ventures or alliances, any of which may be material. We may enter into these transactions to acquire other businesses or products to expand our products or take advantage of new developments and potential changes in the industry. Our lack of experience operating in new international markets and our lack of familiarity with local economic, political and regulatory systems, as well as our lack of experience in the cannabis market, could prevent us from achieving the results that we expect on our anticipated time frame or at all. If we are unsuccessful in expanding into new markets, it could adversely affect our operating results and financial condition. We may experience difficulty entering new markets due to regulatory barriers, and the necessity of adapting to new regulatory systems.

Both our current and expected activities are in a sector that is subject to rapid and substantial change. There can be no assurance that products developed by others will not render our products, product candidates or technologies non-competitive or that we will be able to keep pace with technological developments. Competitors may have developed or may be in the process of developing technologies that could be the basis for competitive products. Some of these products may prove more effective and less costly than products we developed. Scientific and technological developments and regulatory requirements may, within a relatively short timeframe, render the products and processes we developed or planned obsolete.

Competition in the nutraceutical market, as well as in the cannabis market, is extremely intense. Many companies, as well as research organizations, currently engage in, or have in the past engaged in, efforts related to the development of products similar to our products and product candidates. We compete with companies that produce similar or identical products.

These and other competitors may have greater resources than us. Accordingly, no assurance can be given that products developed by these other companies or their technology will not affect our ability to compete in the nutraceutical market and the cannabis market. There is a risk that one or more of our competitors may develop more effective or more affordable products than us, or may achieve earlier patent protection or product commercialization than us, or that such competitors will commercialize products that will render our products obsolete, possibly before we are able to commercialize them.

Our future success depends on the continued sales of our specilaty ingredient and turnkey solutions products.

We derive a large portion of our revenues from the sale of our specialty ingredients, and turnkey solutions 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:

We derive our revenues from a limited number of customerss and have a significant concentration of our accounts receivable.

For Fiscal 2018, the Corporation realized sales from the nutraceutical segment totaling $4.5M from one customer, representing 17% of the Corporation’s consolidated revenues. The percentage aging of trade receivable balances as of March 31, 2018 is 70% current, 17% past due 0 – 30 days and 1% past due 31-120 days. During Fiscal 2018, we recorded a bad debt expense of $Nil. Adverse changes in a customer’s financial position could cause us to assume more credit risk relating to that customer’s future purchases or result in uncollectable accounts receivable from that customer. Agreements with these or other significant distribution partners may be terminated or altered by them unilaterally in certain circumstances. Any adverse change in the relationship with our principal distributors, including non-payment of amounts owing from a distributer, could have a material adverse effect on our business, consolidated results of operations, financial condition and cash flows.

Because we will rely on our manufacturing operations to produce a significant amount of the cannabis products we expect to sell, disruptions in our manufacturing system or losses of manufacturing certifications could adversely affect our sales and customer relationships.

We own, manage and operate a manufacturing, processing facility in Sherbrooke, Québec, where we plan to produce all or nearly all of the cannabis oil that we expect to sell to our customers. Accordingly, we will be highly dependent on the uninterrupted and efficient operation of our Sherbrooke facility. Any significant disruption in our operations at our Sherbrooke facility for any reason, including as a result of regulatory requirements, quality of raw material, equipment failures, natural disasters, fires, accidents, work stoppages, power outages or other reasons, could disrupt our supply of products to our customers, adversely affecting our sales and customer relationships, and our business financial condition and/or results of operations could be materially adversely affected. Lost sales or increased costs that we may experience during a disruption of operations may not be recoverable under our insurance policies. Additionally, our ability to meet a significant increase in demand for our cannabis oil products, or to supply our customers during a significant disruption, would be dependent on our ability to secure and maintain appropriate third-party manufacturing or supply arrangements. There is no assurance that we would be able to maintain such supply arrangements on terms favourable to us, or at all. Should we fail to maintain such arrangements or to replace them on terms favourable to us, our business, financial condition and operations would be negatively impacted.

We 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.

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.

We purchase the majority of raw materials from manufacturers and distributors globally, and while all or nearly all of the cannabis oil that we expect to sell to our customers will be produced at our facility in Sherbrooke, our other products are produced by contract manufacturers. 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.

Some of our current and future customer partners may decide to compete with us, refuse or be unable to fulfill or honour 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 customer partners will market our products successfully or that any such third-party collaboration will be on favourable terms. We may not be able to control the amount and timing of resources our customer partners devote to our products. In addition, we may incur liabilities relating to the distribution and commercialization of our products by our customers. While the agreements with such customers generally include customary indemnification provisions indemnifying us for liabilities relating to third-party manufacturing, encapsulation or packaging of our 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 distributors’ handling and use of our products. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition or results of operations.

We depend on the services of key executives and personnel, and any failure to attract or retain key executives or personnel could affect our business strategy and adversely impact our performance and results of operations.

Our senior executives are instrumental in setting our strategic direction, operating our business, identifying, recruiting and training key personnel, identifying opportunities and arranging necessary financing. Losing the services of any of these individuals could adversely affect our business. Furthermore, to the extent that we must replace one or more executives or hire additional senior executives or other professionals to support our business, we may be unable to identify candidates of sufficient experience and capabilities in a timely fashion, which could negatively impact our business and operations.

Furthermore, if we were to lose key management personnel, we would lose a portion of our institutional knowledge and technical know-how, potentially causing a substantial delay in one or more of our development programs until adequate replacement personnel could be hired and trained. We do not have key man life insurance policies on the lives of most of our key personnel.

Our ability to maintain operations at our Sherbrooke facility depends in part on our ability to attract and retain skilled manufacturing workers, equipment operators, engineers and other technical personnel. Demand for these workers is currently high and the supply is limited, particularly in the case of skilled and experienced machinists and engineers. Further, we may be faced with increased training costs and reduced productivity as it trains new employees hired to meet our production needs. Additionally, a significant increase in the wages paid by competing employers could result in a reduction in our skilled labor force, increases in the rates of wages we must pay or both. If our compensation costs increase or we cannot attract and retain skilled labor, including engineers and machinists, our earnings could be reduced, and production capacity at our Sherbrooke facility and growth potential could be impaired.

Insurance coverage, even where available, may not be sufficient to cover losses we may incur.

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, 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.

If our risk management methods are not effective, our business, reputation and financial results may be adversely affected.

We have methods to identify, monitor and manage our risks; however, these methods may not be fully effective. Some of our risk management methods may depend upon evaluation of information regarding markets, customers or other matters that are publicly available or otherwise accessible by us. That information may not in all cases be accurate, complete, up-to-date or properly evaluated. If our methods are not fully effective or we are not successful in monitoring or evaluating the risks to which we are or may be exposed, our business, reputation, financial condition and operating results could be materially and adversely affected. In addition, our insurance policies may not provide adequate coverage.

We may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues and operating income.

As a distributor and manufacturer of products designed for human consumption, we are subject to product liability claims if the use of our products is alleged to have resulted in injury. Our products generally consist of nutraceuticals products, and our new products are expected to contain cannabis oil. Our current and future products could contain contaminated substances, or could contain ingredients that do not have long histories of human consumption. Previously unknown adverse reactions resulting from human consumption of these ingredients alone or in combination with other medications or substances could occur.

In addition, third-party manufacturers produce many of the products we sell. We rely on these manufacturers to ensure the integrity of their ingredients and formulations. As a distributor of products manufactured by third parties, we may also be liable for various product liability claims for products we do not manufacture.

Although our purchase agreements with our third-party vendors typically require the vendor to indemnify us to the extent of any such claims, any such indemnification is limited by its terms. Moreover, as a practical matter, any such indemnification is dependent on the creditworthiness of the indemnifying party and its insurer, and the absence of significant defenses by the insurers. We may be unable to obtain full recovery from the insurer or any indemnifying third-party in respect of any claims against us in connection with products manufactured by such third-party.

We may be subject to various product liability claims, including, among others, that our products include inadequate instructions for use or inadequate warnings concerning possible side effects and interactions with other substances. We have a product liability insurance, renewable on an annual basis, to cover civil liability claims relating to our products in an amount equal to $10M per year for all such claims. Even with adequate insurance and indemnification, product liability claims could significantly damage our reputation and consumer confidence in our products. Our litigation expenses could increase as well, which also could have a material adverse effect on our results of operations even if a product liability claim is unsuccessful or is not fully pursued.

We may experience product recalls, which could reduce our sales and margin and adversely affect our results of operations.

We may be subject to product recalls, withdrawals or seizures if any of the products we formulate, manufacture or sell are believed to cause injury or illness or if we are alleged to have violated governmental regulations in the manufacturing, labeling, promotion, sale or distribution of such products. Any recall, withdrawal or seizure of any of the products we formulate, manufacture or sell would require significant management attention, could result in substantial and unexpected expenditures and could materially and adversely affect our business, financial condition or results of operations.

Furthermore, a recall, withdrawal or seizure of any of our products could materially and adversely affect consumer confidence in our brands and decrease demand for our products and the market price of our securities. As is common in our industry, we rely on our third-party vendors to ensure that the products they manufacture and sell to us comply with all applicable regulatory and legislative requirements as well as the integrity of ingredients and proper formulation. In general, we seek representations and warranties, indemnification and/or insurance from our vendors. However, even with adequate insurance and indemnification, any claims of non-compliance could significantly damage our reputation and consumer confidence in our products, and could materially and adversely

affect the market price of our common stock. In addition, the failure of such products to comply with the representations and warranties regarding such products that we receive from our third-party vendors, including compliance with applicable regulatory and legislative requirements, could prevent us from marketing the products or require us to recall or remove such products from the market, which in certain cases could materially and adversely affect our business, financial condition and results of operation.

Our operations are subject to environmental and health and safety laws and regulations that may increase our cost of operations or expose us to environmental liabilities.

Our expected cannabis oil extraction process will involve the use of certain hazardous materials, including solvent such as acetone or ethanol. Our operations will be subject to environmental and health and safety laws and regulations, and some of our operations will require environmental permits and controls to prevent and limit pollution of the environment. We could incur significant costs as a result of violations of, or liabilities under, such laws and regulations, or to maintain compliance with such laws or regulations. New laws, changes in existing laws or the interpretation thereof, or the development of new facts or changes in their processes could also cause us to incur additional capital and operating expenditures to maintain compliance with such laws and regulations. There can be no assurance that we will not be required to incur significant costs to comply with regulatory requirements in the future, or that our operations, business or assets will not be materially adversely affected by current or future legislative or regulatory requirements. We have no immediate plans for major capital expenditures in respect of environmental protection installations.

Should we want to increase the production capacity of our Sherbrooke facility, we could be required to obtain regulatory permits from regulatory authorities. We may not be successful in obtaining such permits on favourable terms or at all, or in a timely manner. Any of the foregoing could have a material adverse effect on our business, operations and financial condition.

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 protection of customer, employee, suppliers and other business data is critical to us. Federal, state, provincial and international laws and regulations govern the collection, retention, sharing and security of data that we receive from and about our employees, customers and suppliers. 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 addition, customers have a high expectation that we will adequately protect their personal information. If we or our service providers fail to comply with these laws and regulations or experience a significant breach of customer, employee, supplier or other company data, our reputation could be damaged and result in an increase in service charges, suspension of service, lost sales, fines or lawsuits.

The use of credit payment systems makes us more susceptible to a risk of loss in connection with these issues, particularly with respect to an external security breach of customer information that we or third parties (including those with whom we have strategic alliances) under arrangements with us control. 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 information, including credit card information, securely over public networks. In the event of a security breach, theft, leakage, accidental release or other illegal activity with respect to employee, customer, supplier 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. In addition, 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.

Given the nature of our expected business activities and the concentration of cannabis products in inventory in our facility, despite meeting or exceeding Health Canada’s security requirements, there remains a risk of shrinkage as well as theft. A security breach at our facility could expose us to additional liability and to potentially costly litigation, increase expenses relating to the resolution and future prevention of these breaches.

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. During Fiscal 2018, approximately 63% of our revenues were in U.S. dollars, while the majority of our costs were in Canadian dollars. If the values of foreign currencies including the United States dollar and Euro fluctuate significantly more than expected in the foreign exchange markets, our operating results and financial condition may be adversely affected.

From time to time, we may publicly announces the timing of certain events we expect to occur. These statements are forward-looking and are based on the best estimate of management at the time relating to the occurrence of such events. However, the actual timing of such events may differ from what has been publicly disclosed. The timing of events may ultimately vary from what is publicly disclosed. We undertake no obligation to update or revise any foward-looking information, whether as a result of new information, future events or otherwise, after the distribution of this AIF, except as otherwise required by law. Any variation in the timing of certain events having the effect of postponing such events could have a material adverse effect on the Corporation’s business plan, financial condition or operating results.

We are party to existing litigation cases and could become party to litigation from time to time in the ordinary course of business, which could adversly affect our business. Should any litigation in which Neptune is or becomes involved be decided against us, such a decision could adversely affect our ability to continue operating and the market price for the Common Shares and could require the use of significant resources. Even if Neptune is involved in litigation and is successful, litigation can redirect significant company resources and attention away from our business and may have a material adverse effect on our business, financial condition, financial performance or financial prospects.

We are required to review the carrying value of our intangible assets for impairment annually or when events change. Intangible assets include net book value of product rights, trademarks and process know-how covered by certain patented and non-patented information. Management reviews the carrying value based on projected future results. If events such as generic competition or inability to manufacture or obtain supply of product occur that may cause sales of the related products to decline, we adjust the projected results accordingly. Any impairment in the carrying value results in a write-down of the intangible asset that is charged to income during the period in which the impairment is determined. Any write-down of intangible assets may have a material adverse effect on our results of operations in the period in which the write-down occurs.

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 licence. 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 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 licences 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 its products. Inability to obtain such licences 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.

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.

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 will be able to protect our intellectual property rights from unauthorized use by third parties only to the extent that our intellectual property rights are covered and protected by valid and enforceable patents or are effectively maintained as trade secrets. We try to protect our intellectual property position by, among other things, filing patent applications related to our proprietary technologies, inventions and improvements that are important to the development of our business.

Because the patent position of companies involves complex legal and factual questions, the issuance, scope, validity, and enforceability of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated, reexamined or circumvented. If our patents are invalidated or found to be unenforceable, we would lose the ability to exclude others from making, using or selling the inventions claimed. Moreover, an issued patent does not guarantee us the right to use the patented technology or commercialize a product using that technology. Third parties may have blocking patents that could be used to prevent us from developing our product candidates, selling our products or commercializing our patented technology. As a result, patents that we own may not allow us to exploit the rights conferred by our intellectual property protection.

We also rely on trade secrets, know-how and technology, which are not protected by patents, to maintain our competitive position. We try to protect this information by entering into confidentiality agreements with parties who have access to such confidential information, such as our current and prospective suppliers, distributors, manufacturers, commercial partners, employees and consultants. Any of these parties may breach the agreements and disclose confidential information to our competitors. It is possible that a competitor will make unauthorized use of such information, and that our competitive position could be disadvantaged.

Enforcing a claim that a third party infringes on, has illegally obtained or is using an intellectual property right, including a trade secret or know-how, is expensive and time-consuming and the outcome is unpredictable. In addition, enforcing such a claim could divert management’s attention from our business. If any intellectual property right were to be infringed by, disclosed to or independently developed by a competitor, our competitive position could be harmed. 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 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.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. For example, confidential information may be disclosed, inadvertently or as ordered by the court, in the form of documents or testimony in connection with discovery requests, depositions or trial testimony. This disclosure would provide our competitors with access to our proprietary information and may harm our competitive position.

The research, development, production and commercialization of our products is subject to comprehensive regulations under legislation and regulations enforced by Health Canada and other regulatory bodies in Canada and various regional, national and local regulatory bodies, including the U.S. FDA. See “Description of the Business ‑ Regulatory Environment”. These regulations may require the (i) approval of manufacturing facilities, including adhering to GMPs during the production, storage, controlled research and quality testing of products, (ii) review and approval of applications to establish the safety and efficacy of the product for each marketing claim sought, and (iii) the control of marketing activities. The process of obtaining required approvals (such as from the U.S. FDA and Health Canada) can be costly, time consuming and without guaranteed certainty of approval. Regulatory authorities may change processes, laws, regulations and policies related to product development or commercialization and business operations and require us to make changes to the product, our claims or our operations. We could encounter difficulties or incur excessive costs in obtaining the necessary approvals or permits, which could delay or prevent the commercialization and production of our new products.

We will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may result in additional costs for corrective measures, penalties or restrictions of our operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to the Corporation’s operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, results of operations and financial condition of the Corporation. Moreover, failure to obtain the necessary regulatory approvals, the suspension or revocation of current approvals or any failure to comply with regulatory requirements may have a material adverse effect on our operations, financial situation and operating results.

In December 2006, the U.S. Congress passed legislation requiring companies that manufacture or distribute dietary supplements to report serious adverse events allegedly associated with their products to the U.S. FDA and institute recordkeeping procedures for all alleged adverse events (serious and non-serious). The legislation requires manufacturers and distributors of dietary supplements to report to the U.S. FDA any serious adverse event reports received, even if the party making the report provides no medical or other information to the manufacturer or distributor. There is a risk that consumers, the press or government regulators could misinterpret adverse event reports as evidence of causation by the ingredient or product complained of, which could lead to consumer confusion, damage to our reputation, banned or recalled ingredients or products, increased insurance costs, class action litigation and a potential increase in product liability litigation, among other things. Distribution of our products outside Canada and the United States is also subject to comprehensive government regulation. Regulations, specifically requirements in respect of product releases on the market and the time involved in respect of regulatory assessment and the sanctions imposed in the event of infringement vary from country to country. No assurance can be given that we will obtain the requisite approvals in the relevant countries or that we will not incur significant expense in obtaining regulatory approvals or maintaining them in effect.

We are heavily dependent on the export of products to the United States. The U.S. FDA is able to block the import entry of any product that “appears” to violate U.S. law, which represents a low evidentiary standard for the U.S. FDA. Future changes in U.S. requirements and interpretations of those requirements, coupled with the “appears” to violate 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 believe that products based on our core technology will have numerous applications and that there is a market for the products that we have developed. However, there can be no assurance that these assumptions will prove justified, particularly considering competition from existing or new products and considering the uncertain commercial viability of our products. Therefore, there can be no assurance that any of our products in development or products recently launched will achieve market acceptance.

The degree of market acceptance for our products and those of our customers will depend upon a number of factors, including competitive pricing, the extent to which the products fulfill customer expectations and demands, the receipt of regulatory approvals, the establishment and demonstration of the efficacy and safety of the products, the establishment and demonstration of the potential advantages over competing products and, the acceptance of the listing of the product and appropriate distribution with large retailers. There can be no assurance that consumers, physicians, patients, payers, the medical community in general, distributors or retailers will accept and utilize any existing or new products that may be developed by the Corporation.

Our projected business will involve the purchase of cannabis, which is an agricultural product. As such, we are indirectly subject to the risks inherent in the agricultural business, including but not limited to, pests, plant diseases, crop failure and similar agricultural risks. Although our suppliers grow their products indoors under climate controlled conditions and carefully monitor the growing conditions with trained personnel, there can be no assurance that natural elements will not have a material adverse effect on the volume, quality and consistency of their products and consequently on the Corporation’s cannabis oil production, profitability and financial condition.

Tax regimes, including excise taxes and sales taxes, can disproportionately affect the price of our products, or disproportionately affect the relative price of our products versus other cannabis products. Because our expected products are targeted at the premium cannabis market, tax regimes based on sales price can place us at a competitive disadvantage in certain price-sensitive markets. As a result, our volume and profitability may be adversely affected in these markets.

Market prices for securities in general, and that of nutraceutical and cannabis companies in particular, tend to fluctuate. Factors such as the announcement to the public or in various scientific or industry forums of technological innovations, new commercial products, patents, patent infringement claims (whether brought by us against third parties or claimed against us), exclusive rights obtained by us or others, results of studies by us or others, a change of regulations, publications, financial results, public concerns over the risks of cannabis products and dietary supplements, future sales of securities by us or our shareholders and many other factors could have considerable effects on the price of our securities. There can be no assurance that the market price of the Common Shares will not experience significant fluctuations in the future.

The market price of our shares could decline as a result of future issuances or actual or potential sales.

The market price of the Common Shares could decline as a result of future issuances by us or sales by existing holders of Common Shares, or the perception that these sales could occur. Sales by shareholders might also make it more difficult for us to sell equity securities at a time and price that we deem appropriate, which could reduce our ability to raise capital and have an adverse effect on our business.

The market price of our shares could decline as a result of operating results falling below the expectations of investors or fluctuations in operating results each quarter.

Our revenues and expenses may fluctuate significantly and any failure to meet financial expectations may disappoint securities analysts or investors and result in a decline in the price of our Common Shares. Our revenues and expenses have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our share price to decline. Some of the factors that could cause revenues and expenses to fluctuate include the following:

If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our Common Shares could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.

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.

There can be no assurance that an active market for our securities will be sustained.

There can be no assurance that an active market for our Common Shares will be sustained. Holders of our Common Shares may be unable to sell their investments on satisfactory terms. As a result of any risk factor discussed herein, the market price of our securities at any given point in time may not accurately reflect the long-term value of the Corporation. Furthermore, responding to these risk factors could result in substantial costs and divert management’s attention and resources. Substantial and potentially permanent declines in the value of the Common Shares may result and adversely affect the liquidity of the market for our Common Shares.

Other factors unrelated to our performance that may have an effect on the price and liquidity of our Common Shares include: extent of analytical coverage; lessening in trading volume and general market interest in the securities; the size of our public float; and any event resulting in a delisting of securities.

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. 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.

We may pursue opportunities or transactions that may adversely affect our business and financial condition.

Our management, in the ordinary course of our business, regularly explores potential strategic opportunities and transactions. These opportunities and transactions may include strategic joint venture relationships, significant debt or equity investments in Neptune by third parties, the acquisition or disposition of material assets, the licensing, acquisition or disposition of material intellectual property, the development of new product lines or new applications for our existing products, significant distribution arrangements, the sale of all of the shares of Neptune and other similar opportunities and transactions. The public announcement of any of these or similar strategic opportunities or transactions might have a significant effect on the price of our securities. Our policy is to not publicly disclose the pursuit of a potential strategic opportunity or transaction unless we are required to do so by applicable law, including applicable securities laws relating to continuous disclosure obligations. There can be no assurance that investors who buy or sell our securities are doing so at a time when we are not pursuing a particular strategic opportunity or transaction that, when announced, would have a significant effect on the price of our securities.

In addition, any such future corporate development may be accompanied by certain risks, including exposure to unknown liabilities of the strategic opportunities and transactions, higher than anticipated transaction costs and expenses, the difficulty and expense of integrating operations and personnel of any acquired companies, disruption of our ongoing business, diversion of management’s time and attention, and possible dilution to shareholders. We may not be able to successfully overcome these risks and other problems associated with any future acquisitions and this may adversely affect our business and financial condition.

As a foreign private issuer, we are subject to different U.S. Securities laws and regulations than a domestic U.S. issuer, which may limit the information publicly available to our U.S. shareholders.

We are a foreign private issuer under applicable U.S. federal securities laws. As a result, we do not file the same reports that a U.S. domestic issuer would file with the SEC, although we are required to file with or furnish to the SEC the continuous disclosure documents that we are required to file in Canada under Canadian securities laws. In addition, our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the U.S. Exchange Act. Therefore, our shareholders may not know on as timely a basis when our officers, directors and principal shareholders purchase or sell Common Shares as the reporting periods under the corresponding Canadian insider reporting requirements are longer. In addition, as a foreign private issuer, we are exempt from the proxy rules under the U.S. Exchange Act.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses to us.

We may in the future lose our foreign private issuer status if a majority of our Common Shares are held in the United States and we fail to meet the additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. federal securities laws as a U.S. domestic issuer may be significantly more than the costs we incur as a Canadian foreign private issuer.

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 Corporation or upon its directors and officers. Execution by United States courts of any judgment obtained against the Corporation or any of the Corporation’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 predicated upon civil liability and the civil liability of the Corporation’s directors and executive officers under the United States federal securities laws. The Corporation has been advised that a judgment of a U.S. court predicated solely upon civil liability under U.S. 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.

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.

Our authorized share capital is comprised of an unlimited number of Common Shares and an unlimited number of preferred shares (“Preferred Shares”), issuable in one or more series. In accordance with our articles of incorporation, we created the “Series A Preferred Shares”, which are non-voting shares.

As at March 31, 2018, there were a total of (i) 78,804,212 Common Shares and no Preferred Shares issued and outstanding, (ii) 750,000 warrants to purchase Common Shares issued and outstanding, (iii) 10,416,546 options to purchase Common Shares issued outstanding, and (iv) 570,752 deferred share units issued and outstanding.

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 Corporation. 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.

Subject to the prior rights of the holders of Preferred Sha res ranking before the Common Shares as to dividends, the holders of Common Shares are entitled to receive dividends as declared by the board of directors of the Corporation from the Corporation’s funds that are duly available for the payment of dividends.

In the event of the Corporation’s voluntary or involuntary winding-up or dissolution, or any other distribution of the Corporation’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 Corporation to the holders of Preferred Shares ranking prior to Common Shares regarding the distribution of the Corporation’s assets in the case of winding-up or dissolution, share for share, the remainder of the property of the Corporation, with neither preference nor distinction.

The Preferred Shares carry no voting rights. Preferred Shares may be issued at any time, in one or more series. The Corporation’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 Corporation with regard to payment of dividends, reimbursement of capital and division of assets in the event of the Corporation’s 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 Corporation’s omission to pay the number of periodical dividends, whether consecutive or not, as applicable to any series.

The board of directors of the Corporation 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 Corporation of other companies or material 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.

The Common Shares are listed and posted for trading on the TSX under the symbol “NEPT” and NASDAQ under the symbol “NEPT”.

The following table sets out the high and low prices and total trading volume of the Common Shares as reported by the TSX and NASDAQ for each month of our Fiscal 2018.

Period	TSX (CDN$)				NASDAQ (US$)
	High	Low	Average Daily Volume	Total Monthly Volume	High	Low	Average Daily Volume	Total Monthly Volume
March 2018	3,99	3,10	170,919	3,589,300	3,08	2,38	624,643	13,117,500
February 2018	4,27	3,11	236,421	4,492,000	3,40	2,41	991,063	18,830,200
January 2018	4,33	2,98	352,350	7,751,700	3,48	2,39	1,131,843	23,768,700
December 2017	2,96	1,86	271,468	5,157,900	2,36	1,40	813,555	16,271,100
November 2017	1,99	1,21	166,068	3,653,500	1,57	0,96	636,619	13,369,000
October 2017	1,24	1,06	28,829	605,400	0,99	0,84	109,414	2,407,100
September 2017	1,15	0,99	25,090	501,800	0,92	0,82	113,760	2,275,200
August 2017	1,16	0,90	49,109	1,080,400	0,91	0,72	278,213	6,398,900
July 2017	1,12	1,00	21,740	434,800	0,90	0,80	121,400	2,428,000
June 2017	1,53	1,10	47,623	1,047,700	1,13	0,81	165,982	3,651,600
May 2017	1,56	1,28	54,795	1,205,500	1,15	0,95	121,818	2,680,000
April 2017	1,37	1,30	25,868	491,500	1,03	0,98	82,258	1,562,900
March 2017	1,41	1,31	26,713	614,400	1,07	0,99	79,591	1,830,600

For information in respect of options and warrants to purchase Common Shares and Common Shares issued or issuable upon the exercise of options and warrants, see the notes to our Fiscal 2018 financial statements. We did not otherwise issue any class of securities of Neptune that is not listed or quoted on a marketplace during Fiscal 2018.

The table below sets out the name, place of residence, principal occupation and security holding in the Corporation and the period during which each such director has so served as well as the member of each committee of the Board of Directors as of the date hereof. Directors are elected at each annual shareholders meeting for a term that expires on the date of the Corporation’s next annual shareholders meeting or until his or her successor is duly elected, unless prior thereto the director resigns or otherwise vacates office.

Name and Place of Residence	Principal Occupation	Position Within the Corporation	Year of Nomination as Director of the Corporation	Common Shares, Directly or Indirectly, Beneficially Owned as of March 31, 2018
John Moretz ⁽¹⁾ North Carolina, United States	Chief Executive Officer and President, Moretz Marketing LLC	Director and Chairman of the Board	2014	2,689,763
Katherine Crewe ⁽²⁾ Québec, Canada	Chair, Tec Canada	Director, and Chair of the Governance and Human Resources Committee	2015	-
Ronald Denis ⁽²⁾ Québec, Canada	Chief of Surgery at Hôpital du Sacré-Coeur, Montréal	Director	2000	87,915
James S. Hamilton Québec, Canada	President and Chief Executive Officer of the Corporation	Director, President and Chief Executive Officer	2015	83,000
François R. Roy ^{(1) (2)} Québec, Canada	Corporate Director	Director and Chair of the Audit Committee	2015	-
Richard P. Schottenfeld ⁽¹⁾ New York, United States	Managing Partner & CEO of Schottenfeld Group, LLC	Director	2016	3,574,655
Leendert H. Staal Mariland, United States	Independent consultant and owner of Staal Consulting LLC.	Director	2015	-
(1) Member of the Audit Committee of the Corporation (2) Member of the Governance and Human Resources Committee

The information as to outstanding Common Shares beneficially owned or over which the above-named individuals exercise control or direction and the foregoing information is not within the knowledge of the Corporation and has been furnished by the respective persons.

The following table sets out the name, place of residence and position held with us for each of our executive officers and key members of our management as of March 31, 2018.


Name and Place of Residence	Position Held	With the Corporation Since	Common Shares, Directly or Indirectly, Beneficially Owned
James S. Hamilton Québec, Canada	President and Chief Executive Officer	2015	83,000
Mario Paradis Québec, Canada	Vice President & Chief Financial Officer	2015	150,000
Michel Timperio Québec, Canada	President, Cannabis Business	2010	42,857
Jean-Daniel Bélanger Qébec, Canada	Vice President, Legal Affairs & Corporate Secretary	2012	465
François-Karl Brouillette Québec, Canada	Vice President, Science and Innovation	2016	331,252
Jackie Khayat Québec, Canada	Vice President, Business Development – Cannabis	2014	-
Marc Vaugeois Québec, Canada	Vice President, Sales	2016	283,052

As of March 31, 2018, the directors and executive officers and key members of our management, as a group, beneficially owned or exercised control or direction over approximately 7,242,959 (10.88%) of the outstanding Common Shares of Neptune.

The following are brief biographies of Neptune’s directors and executive officers and key members of our management as of the date hereof:

Mr. Moretz currently serves as Chief Executive Officer and President of Moretz Marketing, LLC and is Managing Director for Kathy Ireland, LLC. In addition, he is the managing director for various real estate entities, including LaMoe, LLC and Moretz Mills, LLC. Mr. Moretz spent 39 years in the hosiery industry. He served as the Chairman and Chief Executive Officer of Gold Toe Moretz Holdings Corp. and its subsidiaries prior to its acquisition by Gildan Activewear Inc. in 2011. Mr. Moretz also founded Moretz Marketing in 1987 to create and manage lifestyle brands and create licensing opportunities.

Ms. Crewe is a strong and proactive leader with a consistent track record for identifying and maximizing manufacturing and business processes. She has spent 30 years in the medical device and pharmaceutical manufacturing space for companies with sales and distribution networks spanning the globe. During her career, she held several executive positions in various operations and quality management positions. Most recently, Ms. Crewe was Managing Director, Canadian operations, at Mallinckrodt Pharmaceuticals and prior to this she was Vice President, Operations, at Cryocath Technologies. Ms. Crewe is currently a Chair with TEC Canada, where she works with entrepreneurs, executives and business owners in understanding current challenges and opportunities and helps set objectives and goals, in order to meet new milestones. Ms. Crewe holds the Institiute of Corporate Directors ICD.D, a Master of Engineering (Biomedical), from McMaster University and a Bachelor of Science (Chemical Engineering) from Queen’s University.

Dr. Ronald Denis 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

Mr. Jim Hamilton became Neptune’s President and CEO in 2015. Prior to this, he was Vice President of Human Nutrition and Health, North America, and President of DSM Nutritional Products USA. He also served on the global management team of DSM Nutritional Product's Human Nutrition Business, an organization with over $2 billion in sales and operations in more than 40 countries. During the course of his over 30-year career, Jim has played a leading role in nutritional ingredients for the dietary supplement, food, animal-feed and personal-care industries. Mr. Hamilton's industry knowledge and innovative approach have made him a valuable contributor to several trade associations. He is a past Chairman of the Board of Directors of CRN, the dietary supplement industry's leading trade association. He currently sits on the Board of Directors of Vitamin Angels, a not-for-profit organization that provides life-changing vitamins to children in need. He has also been an invited speaker to numerous industry and governmental events in the field, including to the United Nations General Assembly to present on “The role of partnerships in the implementation of the UN’s post 2015 development agenda”. Mr. Hamilton is a graduate of Concordia University in Montreal and has attended numerous business and leadership programs at the London Business School and INSEAD.

Mr. Roy has extensive experience as a corporate director and executive in the private and public sectors. Most recently, Mr. Roy was Vice Principal (Administration and Finance) at McGill University, and also held the positions of Chief Financial Officer at Télémedia, and Executive Vice President and Chief Financial Officer at Québecor Inc. He currently sits on the boards of numerous public companies and the advisory boards of several private corporations, including, Transcontinental Inc., and Noranda Income Fund. He previously sat on the board of Ovivo Inc. and resigned when it was privatized in Fall of 2016, Mr. Roy is also a strong supporter of arts and culture. He has served on the boards of several not-for-profit organizations, including the Montreal Museum of Fine Arts, the Canadian Centre for Architecture and the Opéra de Montréal. Mr. Roy holds a Bachelor of Arts and a Master of Business Administration degree from the University of Toronto.

Mr. Schottenfeld is the founder and Chairman of Schottenfeld Group holding, the parent company of Koyote Capital which is a proprietary trading firm in New York City. He has also served as the general partner of Schottenfeld Associates and the Schottenfeld Opportunity Fund. Mr. Schottenfeld is a graduate of Franklin & Marshall College with degrees in both Economics and Government. Mr. Schottenfeld has been a frequent guest on CNBC and other business news programs.

Dr. Staal is a seasoned and accomplished senior executive with a strong track record of value creation. Dr. Staal has held numerous senior level positions within the DSM group, most recently as President and Chief Executive Officer of DSM Nutritional Products and previously as President and Chief Executive Officer of DSM Pharmaceuticals. Dr. Staal also held the position of Group Vice President of Quest International and was Chairman of Unipath (a wholly owned subsidiary of Unilever). He is currently an independent consultant and owner of Staal Consulting LLC, focusing on Mergers & Acquisitions and business strategy. He also currently sits on the boards of a few companies, including OmniActive Health Technologies Ltd. (in Mumbai and New Jersey). In 2015 he has provided consulting services in connection with the Sherbrooke facility, enhancing and optimizing plant output. Dr Staal has a Ph.D in Chemistry from the University of Amsterdam.

Mr. Timperio was appointed President of Neptune’s Cannabis Business in 2017 where he plays an essential role in helping position the Corporation in business segments characterized by larger size and growth. During his 16-year career at Neptune, he held positions of chairman of the Board of Directors from 2000-2008 and VP of Business Development where he was instrumental in the Corporation’s early development and growth by helping create a new nutrition products category, omega-3 krill oil. His entrepreneurial drive lead him to build a start-up venture in residential construction components. He previously worked for large corporations, including Armstrong World Industries and Reichhold Chemicals, where he held senior management business development positions. Mr. Timperio also had a political career; he was active as alderman for 20 years for one of the largest cities in Québec. He obtained his Bachelor of Commerce at Concordia University.

Mr. Paradis became Neptune’s Chief Financial Officer in 2015. Prior to this, he was Vice President and Chief Financial Officer at Atrium, which was acquired in 2014 by Permira funds in a transaction valued at over $1.1 billion. Prior to this, he held roles of increasingly authority at Aeterna Zentaris, most notably as Vice President Finance and Administration & Corporate Secretary. Mr. Paradis began his career at PricewaterhouseCoopers (PwC), where he successfully held senior positions primarily in audit and tax. He is a member of the Canadian Chartered Professional Accountants (CPA) and member of the Institute of Corporate Directors (ICD.D). He holds a Bachelor's degree in Business, with a specialty in Accounting, from the Université du Québec at Trois-Rivières.

Mr. Jean-Daniel Bélanger – Vice President, Legal Affairs & Corporate Secretary

Mr. Bélanger joined the Corporation as Director Corporate Affairs in November 2012 and has been acting as Secretary of the Board since June 2014. Appointed VP Legal Affairs in June 2017, he is in charge of all legal, corporate governance, human resources, information technology and securities law matters reporting directly to the President and Chief Executive Officer. A finalist at the 2015 Canadian General Counsel Awards as “Leader of Tomorrow”, he holds a law degree from the Université de Montréal (2005) and is a member of the Québec Bar since 2006. Prior to joining the Corporation, Mr. Bélanger was a partner in a Montreal boutique securities law firm, where he practiced in the areas of mergers and acquisitions, corporate finance and securities, and general corporate and commercial law. He is also a member of the Board of Québec Bourse.

Mr. François-Karl Brouillette – Vice President, Science and Innovation - Nutraceutical Business

Mr. Brouillette joined Neptune in 2016 as VP of Scientific Affairs following the acquisition of Biodroga Nutraceuticals. He was appointed to VP of Science & Innovation of Neptune’s Nutrition Business in 2017, where he oversees product development, quality assurance and research & development programs. He began his career in 2001 as a Research Chemist for a Québec-based pharmaceutical company. In 2005, he transitioned into the Natural Health Product industry as the Director of Scientific Affairs for Biodroga and later on as Vice President, where he was instrumental in the Corporation’s growth. Mr. Brouillette holds a Master’s degree in Organic Chemistry, from the Université de Montréal.

Ms. Jackie Khayat – Vice President, Business Development – Cannabis Business

Ms. Khayat joined Neptune in 2014 as Director of Sales. With more than 15 years of combined nutraceutical and healthcare sales experience, she has played a key role in the execution of global strategies and development of new markets. In 2017, she was promoted to the role of VP International Sales and most recently to the role of VP Business Development for Neptune’s Cannabis Business where she plays a strategic role in the commercialization of this important business category. Prior to joining Neptune, Ms. Khayat has held several key positions in global companies such as 3M Canada. She graduated from the Faculty of Medicine at the Université de Montréal in 2001 with a Science degree specializing in Nutrition. She has also earned a Graduate Degree in Management from HEC Montreal and is now completing her Executive Master of Business Administration at Concordia University.

Mr. Vaugeois joined the Corporation in 2016 as Vice President of Sales following the acquisition of Biodroga Nutraceuticals. In 2018, he became responsible for the global sales of Neptune’s Nutrition Business and now oversees the entire nutrition sales team. His career in the health and nutrition industry began over 25 years ago in consumer health brands. He also has experience working with Bioriginal Corporation and an ecommerce company specialized in omega-3. Mr. Vaugeois became VP of Sales of Biodroga in 2009, where he largely contributed to the growth of the Corporation. He studied commerce at Concordia University.

Except as set forth below, to the knowledge of Neptune, none of the directors or executive officers of the Corporation:

Except as set forth below, to the knowledge of Neptune, no director or executive officer of the Corporation, or shareholder holding a sufficient number of securities of the Corporation to affect materially the control of the Corporation:

To the knowledge of Neptune, no director, executive officer or shareholder holding a sufficient number of securities of the Corporation to affect materially the control of the Corporation has been subject to:

We and our subsidiaries are engaged in legal proceedings from time to time, arising in the ordinary course of business. The most significant legal proceedings involving us are as follow:

Although the outcome of these and various other claims and legal proceedings against the Corporation as at March 31, 2018 cannot be determined with certainty, based on currently available information, management believes that the ultimate outcome of these matters, individually and in aggregate, would not have a material adverse effect on the Corporation’s financial position or overall trends in results of operations

On November 6, 2015, Neptune and its insurers filed a motion to institute proceedings before the Superior Court of Montreal against 17 defendants (engineering firms and engineers), alleging that the defendants had not taken all the appropriate measures to ensure that Neptune’s plant met the safety standards and the required construction standards, and were therefore jointly responsible for the explosion that took place on November 8, 2012. The total claim of the plaintiffs amounts to $24.4 million, with approximately $7 million representing Neptune’s claim. No trial date has been set.

To the Corporation’s knowledge and other than as set forth herein, there are no material interests, direct or indirect, of directors, executive officers, any shareholder who beneficially owns, directly or indirectly, more than 10% of any class or series of voting securities of the Corporation, or any associate or affiliate of such persons, in any transaction within the last three most recently completed fiscal years or in any proposed transaction which has materially affected or would reasonably be expected to materially affect the Corporation.

To the knowledge of the Corporation, as of the date hereof, no securities of any class of securities of the Corporation are held in escrow or subject to contractual restrictions on transfer or are anticipated to be held in escrow or subject to contractual restrictions on transfer other than as described below.

On January 7, 2016, in connection with the Corporation’s acquisition of Biodroga, an aggregate of 2,575,017 Common Shares were issued at closing to the vendors of Biodroga as partial payment of the purchase price for the acquisition, which Common Shares were placed into escrow with Computershare Trust Company of Canada, as escrow agent, under an escrow agreement dated January 7, 2016 between the escrow agent, the Corporation and the vendors, of which 386,252 Common Shares were respectively issued to each of François-Karl Brouillette and Marc Vaugeois. On a bi-annual basis, 1/6 of the initial number of Common Shares placed under escrow will be released to the vendors, beginning July 7, 2016, the whole subject to and in accordance with the terms of the escrow agreement. In the event that the employment of François-Karl Brouillette or Marc Vaugeois, as applicable, is terminated without cause under his employment contract during the release period, such person will be entitled to immediately receive all of his shares still held under escrow. The holders of the escrowed shares retain the right to exercise all voting rights attached to, and to receive and retain any dividends paid on, their escrowed shares.

The following table sets out the number of escrowed shares as at the date hereof:

Computershare Trust Company of Canada, at its offices in Montreal, is the transfer agent and registrar for our Common Shares.

The Corporation has not entered into any material contract, other than those entered into in the normal course of business, within the most recently completed financial year, or before the most recently completed financial year, which is still in effect except for (i) an asset purchase agreement entered into with Aker Biomarine and (ii) a multi-year agreement entered into with Canopy Growth. See “Transaction Concluded with Aker BioMarine” under the heading “Fiscal Year Ended March 31, 2018”, above and “Transaction Concluded with Canopy Growth Corporation” under the heading “Recent Business Developments”, above, respecitvely.

KPMG LLP (“KPMG”) has audited our consolidated financial statements for the years ended March 31, 2018 and for the 13-month period ended March 31, 2017. KPMG is independent with respect to Neptune Technologies & Bioressources Inc. within the meaning of the relevant rules and related interpretation prescribed by the releveant professional bodies in Canada.

The Charter of the Audit Committee is annexed to this circular as Schedule A. The Charter was adopted by the Board of Directors on June 6, 2007 and lastly amended on November 14, 2017.

The Audit Committee is currently composed of three (3) members of Board of Directors: Mr. François R. Roy, acting as Chair person of the Committee, Mr. John M. Moretz and Mr. Richard P. Schottenfeld. From the experience set forth below, the Corporation believes that these persons have sufficient knowledge and background to actively participate on the Audit Committee. Under National Instrument 52-110 - Audit Committees, a member of an Audit Committee is “independent” if he or she has no direct or indirect material relationship with the issuer, that is, a relationship which could, in the view of the Board of Directors, reasonably interfere with the exercise of the member’s independent judgment.

All members of the Audit Committee are considered to be “financially literate” within the meaning of applicable Canadian securities regulations in that they each have the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raided by the Corporation financial statements.

The following describes the relevant education and experience of each member of the Audit Committee that shows their (a) understanding of the accounting principles used by the Corporation to prepare its financial statements, (b) ability to assess the general application of such accounting principles, (c) experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to those that can reasonably be expected to be raised by the Corporation’s financial statements or experience actively supervising one or more persons engaged in such activities, and (d) understanding of internal controls and procedures for financial reporting.

Mr. François R. Roy – Mr. Roy has extensive experience as a corporate director and executive in the private and public sectors. Most recently, Mr. Roy was Vice Principal (Administration and Finance) at McGill University, and also held the positions of Chief Financial Officer at Télémedia, and Executive Vice President and Chief Financial Officer at Québecor Inc. He currently sits on the boards of numerous public companies and the advisory boards of several private corporations, including, Transcontinental Inc., and Noranda Income Fund. He previously sat on the board of Ovivo Inc. and resigned when it was privatized in Fall of 2016, Mr. Roy is also a strong supporter of arts and culture. He has served on the boards of several not-for-profit organizations, including the Montreal Museum of Fine Arts, the Canadian Centre for Architecture and the Opéra de Montréal. Mr. Roy holds a Bachelor of Arts and a Master of Business Administration degree from the University of Toronto.

Mr. John Moretz – Mr. Moretz currently serves as Chief Executive Officer and President of Moretz Marketing, LLC and is Managing Director for Kathy Ireland, LLC. In addition, he is the managing director for various real estate entities, including LaMoe, LLC and Moretz Mills, LLC. Mr. Moretz spent 39 years in the hosiery industry. He served as the Chairman and Chief Executive Officer of Gold Toe Moretz Holdings Corp. and its subsidiaries prior to its acquisition by Gildan Activewear Inc. in 2011. Mr. Moretz also founded Moretz Marketing in 1987 to create and manage lifestyle brands and create licensing opportunities.

Mr. Richard P. Schottenfeld – Mr. Schottenfeld is the founder and Chairman of Schottenfeld Group holding, the parent company of Koyote Capital which is a proprietary trading firm in New York City. He has also served as the general partner of Schottenfeld Associates and the Schottenfeld Opportunity Fund. Mr. Schottenfeld is a graduate of Franklin & Marshall College with degrees in both Economics and Government. Mr. Schottenfeld has been a frequent guest on CNBC and other business news programs.

Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Corporation’s securities, options to purchase securities and interests of informed persons in material transactions, if applicable, is contained in Neptune’s management proxy circular for its 2018 annual and special meeting of shareholders held on August 15, 2017 and will be contained in Neptune’s management proxy circular for its annual and special meeting of shareholders to be held on August 15, 2018. Additional financial information is also provided in the Corporation’s financial statements and MD&A for the most recently completed fiscal year. These documents and additional information related to Neptune are available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.html.

The Audit Committee of the Board of Directors assists the Board in fulfilling its oversight responsibilities relating to the quality and integrity of the accounting, auditing and reporting practices of the Corporation and such other duties as directed by the Board of Directors or imposed by legislative authorities or stock exchanges.

Responsibilities for Oversight of the Quality and Integrity of Accounting, Auditing and Reporting Practices of the Corporation

Designation of class	Number of securities held in escrow	Percentage of class
Common Shares	257,500	0.327%

	Financial Year Ended March 31, 2018	Financial Year Ended March 31, 2017
Audit Fees ⁽¹⁾	$369,875	$380,425
Audit-Related Fees ⁽²⁾	$0	$0
Tax Fees⁽³⁾	$64,100	$43,800

Total Fees Paid	$420,475	$424,225

Name	Jurisdiction of Organization	Percentage Held by Neptune
Biodroga Nutraceuticals Inc.	Québec	100%
9354-7537 Québec Inc.	Québec	100%