EX-99.3 8 nt10023917x2_ex99-3.htm EXHIBIT 99.3

Exhibit 99.3


Aphria Inc.

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2021 AND FEBRUARY 29, 2020

(Unaudited, expressed in Canadian Dollars, unless otherwise noted)

Aphria Inc.
Condensed Interim Consolidated Financial Statements of Financial Position
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)


   
Note
   
February 28,
2021
   
May 31,
2020
 
Assets
                 
Current assets
                 
Cash and cash equivalents
       
$
267,134
   
$
497,222
 
Accounts receivable
         
81,890
     
55,796
 
Prepaids and other current assets
   
4
     
34,732
     
42,983
 
Inventory
   
5
     
313,794
     
264,321
 
Biological assets
   
6
     
27,065
     
28,341
 
Current portion of convertible notes receivable
   
11
     
6,089
     
14,626
 
             
730,704
     
903,289
 
Capital assets
   
8
     
644,711
     
587,163
 
Intangible assets
   
9
     
669,703
     
363,037
 
Promissory notes receivable
           
3,000
     
--
 
Long-term investments
   
12
     
11,292
     
27,016
 
Goodwill
   
10
     
745,908
     
617,934
 
           
$
2,805,318
   
$
2,498,439
 
Liabilities
                       
Current liabilities
                       
Bank indebtedness
   
14
   
$
--
   
$
537
 
Accounts payable and accrued liabilities
   
15
     
168,230
     
153,652
 
Income taxes payable
           
21,246
     
6,410
 
Current portion of lease liabilities
           
1,756
     
1,315
 
Current portion of long-term debt
   
16
     
25,759
     
8,467
 
             
216,991
     
170,381
 
Long-term liabilities
                       
Lease liabilities
           
45,004
     
5,828
 
Long-term debt
   
16
     
233,356
     
129,637
 
Convertible debentures
   
17
     
622,796
     
270,783
 
Contingent consideration
   
10
     
76,196
     
--
 
Deferred tax liability, net
   
13
     
44,625
     
83,468
 
             
1,238,968
     
660,097
 
Shareholders’ equity
                       
Share capital
   
18
     
2,079,173
     
1,846,938
 
Warrants
   
19
     
360
     
360
 
Share-based payment reserve
           
29,661
     
27,721
 
Accumulated other comprehensive loss
           
(6,047
)
   
(1,269
)
Deficit
           
(595,182
)
   
(61,215
)
             
1,507,965
     
1,812,535
 
Non-controlling interests
   
21
     
58,385
     
25,807
 
             
1,566,350
     
1,838,342
 
           
$
2,805,318
   
$
2,498,439
 

Nature of operations (Note 1),
Commitments and contingencies (Note 32),
Subsequent events (Note 34)

Approved on behalf of the Board:
“Renah Persofsky”
“Irwin Simon”
Signed:  Director
Signed:  Director

The accompanying notes are an integral part of these condensed interim consolidated financial statements
2

Aphria Inc.
Condensed Interim Consolidated Financial Statements of Income (Loss) and Comprehensive Income (Loss)
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

         
For the three months ended
February 28,
   
For the nine months ended
February 28,
 
   
Note
   
2021
   
2020
   
2021
   
2020
 
Net revenue
   
22
   
$
153,638
   
$
144,424
   
$
459,859
   
$
391,136
 
Cost of goods sold
   
23
     
115,872
     
108,733
     
335,008
     
297,403
 
Gross profit before fair value adjustments
           
37,766
     
35,691
     
124,851
     
93,733
 
Fair value adjustment on sale of inventory
           
45,044
     
16,383
     
102,600
     
36,060
 
Fair value adjustment on growth of biological assets
   
6
     
(38,967
)
   
(40,267
)
   
(124,209
)
   
(86,912
)
Gross profit
           
31,689
     
59,575
     
146,460
     
144,585
 
Operating expenses:
                                       
General and administrative
   
24
     
26,095
     
27,920
     
82,239
     
72,301
 
Share-based compensation
   
25
     
36,271
     
5,126
     
54,127
     
17,645
 
Selling
           
7,632
     
5,089
     
22,383
     
12,731
 
Amortization
           
13,792
     
5,352
     
24,848
     
16,256
 
Marketing and promotion
           
4,041
     
4,185
     
15,421
     
16,611
 
Research and development
           
158
     
710
     
586
     
1,992
 
Transaction costs
           
12,013
     
2,478
     
37,637
     
3,904
 
             
100,002
     
50,860
     
237,241
     
141,440
 
Operating loss
           
(68,313
)
   
8,715
     
(90,781
)
   
3,145
 
Finance income (expense), net
   
26
     
(10,025
)
   
(7,352
)
   
(23,302
)
   
(17,615
)
Non-operating income (expense), net
   
27
     
(276,507
)
   
9,848
     
(383,626
)
   
34,719
 
(Loss) income before income taxes
           
(354,845
)
   
11,211
     
(497,709
)
   
20,249
 
Income taxes (recovery)
   
13
     
6,151
     
5,514
     
(11,020
)
   
6,040
 
Net (loss) income
           
(360,996
)
   
5,697
     
(486,689
)
   
14,209
 
Other comprehensive (loss) income
                                       
Other comprehensive (loss) income
           
(5,836
)
   
(734
)
   
(4,778
)
   
(2,729
)
Comprehensive (loss) income
         
$
(366,832
)
 
$
4,963
   
$
(491,467
)
 
$
11,480
 
Total comprehensive income (loss) attributable to:
                                       
Shareholders of Aphria Inc.
           
(385,279
)
   
5,893
     
(538,745
)
   
12,944
 
Non-controlling interests
   
21
     
18,447
     
(930
)
   
47,278
     
(1,464
)
           
$
(366,832
)
 
$
4,963
   
$
(491,467
)
 
$
11,480
 
Weighted average number of common shares - basic
           
316,670,951
     
257,517,234
     
299,130,624
     
253,477,710
 
Weighted average number of common shares - diluted
           
316,670,951
     
257,955,708
     
299,130,624
     
254,010,666
 
(Loss) income per share - basic
   
29
   
$
(1.14
)
 
$
0.02
   
$
(1.63
)
 
$
0.06
 
(Loss) income per share - diluted
   
29
   
$
(1.14
)
 
$
0.02
   
$
(1.63
)
 
$
0.06
 
 
The accompanying notes are an integral part of these condensed interim consolidated financial statements
3

Aphria Inc.
Condensed Interim Consolidated Statements of Changes in Equity
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

   
Number of common shares
   
Share capital
(Note 18)
   
Warrants
(Note 19)
   
Share-based payment reserve
   
Accumulated other comprehensive loss
   
Retained earnings
   
Non-controlling interests
(Note 21)
   
Total
 
Balance at May 31, 2019
   
250,989,120
   
$
1,655,273
   
$
1,336
   
$
36,151
   
$
(119
)
 
$
12,103
   
$
28,409
   
$
1,733,153
 
Share issuance - January 2020 bought deal
   
14,044,944
     
99,727
                                   
99,727
 
Share issuance - options exercised
   
1,105,901
     
6,783
           
(2,681
)
                     
4,102
 
Share issuance - RSUs exercised
   
667,529
     
4,428
                                   
4,428
 
Share issuance - DSUs exercised
   
60,342
     
392
                                   
392
 
Share issuance - warrants exercised
   
766,372
     
1,150
                                   
1,150
 
Cancelled shares
   
(500,000
)
   
(615
)
                     
615
             
Expired warrants
               
(976
)
               
976
             
Share-based payments
                     
9,693
                       
9,693
 
Nuuvera Malta Ltd. acquisition
                                 
(82
)
   
82
       
Comprehensive income (loss) for the period
                           
(2,729
)
   
15,673
     
(1,464
)
   
11,480
 
Balance at February 29, 2020
   
267,134,208
   
$
1,767,138
   
$
360
   
$
43,163
   
$
(2,848
)
 
$
29,285
   
$
27,027
   
$
1,864,125
 

   
Number of common shares
   
Share capital
(Note 18)
   
Warrants
(Note 19)
   
Share-based payment reserve
   
Accumulated other comprehensive income (loss)
   
Deficit
   
Non-controlling interests
(Note 21)
   
Total
 
Balance at May 31, 2020
   
286,520,265
   
$
1,846,938
   
$
360
   
$
27,721
   
$
(1,269
)
 
$
(61,215
)
 
$
25,807
   
$
1,838,342
 
Share issuance - legal settlement
   
2,259,704
     
12,963
                                   
12,963
 
Share issuance - equity financing
   
17,432,879
     
128,448
                                   
128,448
 
Share issuance - SweetWater acquisition
   
9,823,183
     
85,675
                                   
85,675
 
Share issuance - options exercised
   
232,539
     
1,929
           
(1,751
)
                     
178
 
Share issuance - RSUs exercised
   
526,849
     
3,220
                                   
3,220
 
Share-based payments
                     
3,691
                       
3,691
 
Dividend paid to non-controlling interest
                                       
(14,700
)
   
(14,700
)
Comprehensive income (loss) for the period
                           
(4,778
)
   
(533,967
)
   
47,278
     
(491,467
)
Balance at February 28, 2021
   
316,795,419
   
$
2,079,173
   
$
360
   
$
29,661
   
$
(6,047
)
 
$
(595,182
)
 
$
58,385
   
$
1,566,350
 
The accompanying notes are an integral part of these condensed interim consolidated financial statements
4

Aphria Inc.
Condensed Interim Consolidated Statements of Cash Flows
(Unaudited - in thousands of Canadian dollars)

         
For the nine months ended
February 28,
 
   
Note
   
2021
   
2020
 
Cash used in operating activities:
                 
Net (loss) income for the period
       
$
(486,689
)
 
$
14,209
 
Adjustments for:
                     
Future income taxes
   
13
     
(37,974
)
   
2,040
 
Fair value adjustment on sale of inventory
           
102,600
     
36,060
 
Fair value adjustment on growth of biological assets
   
6
     
(124,209
)
   
(86,912
)
Unrealized foreign exchange loss (gain)
           
24,744
     
3,136
 
Amortization
   
8,9
     
54,820
     
34,832
 
Loss on promisorry notes receivable
                 
12,000
 
Unrealized loss on convertible notes receivable
   
11
     
3,786
     
7,569
 
Transaction costs associated with business acquisitions
           
31,199
       
Other non-cash items
           
(641
)
   
(544
)
Share-based compensation
   
25
     
54,127
     
17,645
 
Loss on long-term investments
   
28
     
5,272
     
28,144
 
Loss (gain) on convertible debentures
           
352,013
     
(86,430
)
Change in non-cash working capital
   
30
     
(43,831
)
   
(102,941
)
             
(64,783
)
   
(121,192
)
Cash provided by (used in) financing activities:
                       
Share capital issued, net of cash issuance costs
           
127,163
     
99,727
 
Proceeds from warrants and options exercised
           
178
     
5,252
 
Proceeds from long-term debt
           
127,471
     
79,400
 
Repayment of long-term debt
           
(6,536
)
   
(9,730
)
Repayment of lease liabilities
           
(1,824
)
   
(912
)
(Decrease) increase in bank indebtedness
           
(537
)
   
6,948
 
Dividend paid to non-controlling interest
           
(14,700
)
     
             
231,215
     
180,685
 
Cash used in investing activities:
                       
Proceeds from disposal of marketable securities
                 
19,861
 
Investment in capital and intangible assets
           
(42,075
)
   
(104,397
)
Proceeds from disposal of capital and intangible assets
           
8,193
     
1,673
 
Promissory notes advances
           
(3,000
)
     
Repayment of convertible notes receivable
   
11
     
5,000
       
Investment in long-term investments and equity investees
                 
(605
)
Proceeds from disposal of long-term investments and equity investees
   
28
     
10,452
     
26,177
 
Net cash paid on business acquisitions
           
(354,396
)
   
(34,722
)
             
(375,826
)
   
(92,013
)
Effect of foreign exchange on cash and cash equivalents
           
(20,694
)
   
(3,175
)
Net decrease in cash and cash equivalents
           
(230,088
)
   
(35,695
)
Cash and cash equivalents, beginning of period
           
497,222
     
550,797
 
Cash and cash equivalents, end of period
         
$
267,134
   
$
515,102
 
Cash and cash equivalents are comprised of:
                       
Cash in bank
         
$
35,218
   
$
514,899
 
Short-term deposits
           
231,916
     
203
 
Cash and cash equivalents
         
$
267,134
   
$
515,102
 
The accompanying notes are an integral part of these condensed interim consolidated financial statements
5

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

1.
Nature of operations

Aphria Inc. (the "Company" or “Aphria”) is a leading global cannabis company inspiring and empowering the worldwide community to live their very best life. The Company exists under the laws of the Business Corporations Act (Ontario), is licensed to produce and sell medical and adult-use cannabis, cannabis-derived extracts, and derivative cannabis products in Canada under the provisions of The Cannabis Act.

Broken Coast Cannabis Ltd. (“Broken Coast”) is a wholly-owned subsidiary of the Company licensed to produce and sell cannabis under The Cannabis Act.

1974568 Ontario Ltd. (“Aphria Diamond”) is a 51% majority-owned subsidiary of the Company. Aphria Diamond is licensed to produce cannabis under the provisions of The Cannabis Act.

SweetWater Brewing Company, LLC (“SweetWater”) is a wholly-owned subsidiary operating in the beverage alcohol industry in the United States.

The registered office of the Company is located at 1 Adelaide Street East, Suite 2310, Toronto, Ontario.

The Company’s common shares are listed under the symbol “APHA” on the Toronto Stock Exchange (“TSX”) in Canada and the National Association of Securities Dealers Automated Quotations Exchange (“NASDAQ”) in the United States.

These condensed interim consolidated financial statements were approved by the Company’s Board of Directors on April 9, 2021.

2.
Basis of preparation


(a)
Statement of compliance

The Company’s condensed interim consolidated financial statements have been prepared in accordance with IAS 34, “Interim Financial Reporting”. These condensed interim consolidated financial statements do not include all notes of the type normally included within the annual financial report and should be read in conjunction with the audited financial statements of the Company for the year ended May 31, 2020, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and Interpretations of the IFRS Interpretations Committee.


(b)
Basis of measurement

These condensed interim consolidated financial statements have been prepared on the going concern basis, under the historical cost convention except for certain financial instruments that are measured at fair value and biological assets that are measured at fair value less costs to sell, as detailed in the Company’s accounting policies.


(c)
Functional currency

All figures presented in the consolidated financial statements are reflected in Canadian dollars; however, the functional currency of the Company includes the Canadian dollar, United States dollar and the Euro.

Foreign currency transactions are translated to the respective functional currencies of the Company’s entities at the exchange rates in effect on the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the foreign exchange rate applicable at the statement of financial position date. Non-monetary items carried at historical cost denominated in foreign currencies are translated to the functional currency at the date of the transactions. Non-monetary items carried at fair value denominated in foreign currencies are translated to the functional currency at the date when the fair value was determined. Realized and unrealized exchange gains and losses are recognized through profit and loss.
6

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)
On consolidation, the assets and liabilities of foreign operations reported in their functional currencies are translated into Canadian dollars, the Group’s presentation currency, at period-end exchange rates. Income and expenses, and cash flows of foreign operations are translated into Canadian dollars using average exchange rates. Exchange differences resulting from translating foreign operations are recognized in other comprehensive income and accumulated in equity. The Company and all of its subsidiaries’ functional currency is Canadian dollars, with the exception of SweetWater and CC Pharma GmbH whose functional currency is the United States Dollar and Euro respectively.


(d)
Basis of consolidation

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly and indirectly, to govern the financial and operating policies of an entity and be exposed to the variable returns from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The following is a list of the Company’s operating subsidiaries:

 
Subsidiaries
Jurisdiction of incorporation
Ownership interest
 
Broken Coast Cannabis Ltd.
British Columbia, Canada
100%
 
SweetWater Brewing Company, LLC
Georgia, United States of America
100%
 
ARA – Avanti Rx Analytics Inc.
Ontario, Canada
100%
 
FL Group S.r.l.
Italy
100%
 
ABP, S.A.
Argentina
100%
 
Aphria Germany GmbH
Germany
100%
 
Aphria RX GmbH
Germany
100%
 
CC Pharma GmbH
Germany
100%
 
CC Pharma Research and
Development GmbH
Germany
100%
 
Aphria Wellbeing GmbH
Germany
100%
 
Marigold Projects Jamaica Limited
Jamaica
95%1
 
ASG Pharma Ltd.
Malta
100%
 
ColCanna S.A.S.
Colombia
90%

 
CC Pharma Nordic ApS
Denmark
75%

 
1974568 Ontario Ltd.
Ontario, Canada
51%

Intragroup balances, and any unrealized gains and losses or income and expenses arising from transactions with jointly controlled entities are eliminated to the extent of the Company’s interest in the entity.

The Company treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Company. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognized in a separate reserve within equity attributable to the owners of the Company.

3.
Significant accounting policies

These condensed interim consolidated financial statements have been prepared following the same accounting policies used in the preparation of the audited financial statements of the Company for the year ended May 31, 2020. For comparative purposes, the Company has reclassified certain immaterial items on the condensed interim consolidated statements of financial position and the condensed interim consolidated statements of income (loss) and comprehensive income (loss) to conform with the current period’s presentation.



1 The Company holds 49% of the issued and outstanding shares of Marigold Projects Jamaica Limited through wholly-owned subsidiary Marigold Acquisitions Inc. The Company holds rights through a licensing agreement to 95% of the results of operations of Marigold Projects Jamaica Limited.
7

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

4.
Prepaids and other current assets

Prepaids and other current assets are comprised of:

   
February 28,
2021
   
May 31,
2020
 
Sales tax receivable
 
$
3,677
   
$
11,670
 
Prepaid assets
   
27,064
     
23,365
 
Other
   
3,991
     
7,948
 
   
$
34,732
   
$
42,983
 

5.
Inventory

Inventory is comprised of:

   
Capitalized
cost
   
Fair value adjustment
   
February 28,
2021
   
May 31,
2020
 
Cannabis
 
$
111,519
   
$
100,715
   
$
212,234
   
$
151,715
 
Cannabis trim
   
6,920
           
6,920
     
4,023
 
Cannabis oil
   
23,373
     
1,095
     
24,468
     
43,082
 
Cannabis vapes
   
7,288
     
319
     
7,607
     
7,551
 
Packaging and other inventory items
   
28,427
           
28,427
     
22,609
 
Beverage alcohol inventory
   
5,647
           
5,647
       
Distribution inventory
   
28,491
           
28,491
     
35,341
 
   
$
211,665
   
$
102,129
   
$
313,794
   
$
264,321
 

The Company’s capitalized cost (decreased) increased by $(3,377) and $25,890 for the three and nine months ended February 28, 2021. The (decrease) increase in capitalized costs is made up of the following: cannabis related inventory increased by $7,473 and $27,093, beverage alcohol inventory increased by $(975) and $5,647 and distribution inventory increased (decreased) by $(9,875) and $(6,850) for the three and nine months ended February 28, 2021.

6.
Biological assets

Biological assets are comprised of:

   
Amount
 
Balance at May 31, 2019
 
$
18,725
 
Changes in fair value less costs to sell due to biological transformation
   
115,255
 
Production costs capitalized
   
131,561
 
Transferred to inventory upon harvest
   
(237,200
)
Balance at May 31, 2020
 
$
28,341
 
Changes in fair value less costs to sell due to biological transformation
   
124,209
 
Production costs capitalized
   
94,157
 
Transferred to inventory upon harvest
   
(219,642
)
Balance at February 28, 2021
 
$
27,065
 

The Company values cannabis plants at cost, which approximates fair value from the date of initial clipping from mother plants until half-way through the flowering cycle of the plants. Measurement of the biological transformation of the plant at fair value less costs to sell begins in the fourth week prior to harvest and is recognized evenly until the point of harvest. The number of weeks in the growing cycle is between twelve and sixteen weeks from propagation to harvest. The Company has determined the fair value less costs to sell of cannabis to be between $2.40 and $2.90 per gram, upon harvest for greenhouse produced cannabis (May 31, 2020 – $3.00 per gram) and between $3.50 and $4.00 per gram (May 31, 2020 - $4.00 per gram), upon harvest for indoor produced cannabis. The Company has determined the fair value increment on cannabis trim to be $nil per gram (May 31, 2020 - $0.01 per gram).
8

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

The fair value of biological assets is determined using a valuation model to estimate expected harvest yield per plant applied to the estimated price per gram less processing and selling costs. Only when there is a material change from the expected fair value used for cannabis does the Company make any adjustments to the fair value used. During the period, the Company amended the fair value based on an expected lower average selling price with the release of the Company’s economy brands, which the Company is using to create demand for lower potency harvested cannabis.

In determining the fair value of biological assets, management has made the following estimates in this valuation model:

The harvest yield is between 20 grams and 60 grams per plant;

The selling price is between $1.50 and $6.50 per gram of cannabis;

Processing costs include drying and curing, testing, post-harvest overhead allocation, packaging and labelling costs between $0.30 and $0.80 per gram;

Selling costs include shipping, order fulfilment, patient acquisition and patient maintenance costs between $0.00 and $1.50 per gram;

Sales prices used in the valuation of biological assets is based on the average selling price of all cannabis products and can vary based on different strains being grown as well as the proportion of sales derived from wholesale compared to retail. Selling costs vary depending on methods of selling and are considered based on the expected method of selling and the determined additional costs which would be incurred. Expected yields for the cannabis plant is also subject to a variety of factors, such as strains being grown, length of growing cycle, and space allocated for growing. Management reviews all significant inputs based on historical information obtained as well as based on planned production schedules.

Management has quantified the sensitivity of the inputs and determined the following:

Selling price per gram – a decrease in the average selling price per gram by 5% would result in the biological asset value decreasing by $674 (May 31, 2020 - $682) and inventory decreasing by $12,215 (May 31, 2020 - $9,895)

Harvest yield per plant – a decrease in the harvest yield per plant of 5% would result in the biological asset value decreasing by $404 (May 31, 2020 - $439)

These inputs are level 3 on the fair value hierarchy and are subject to volatility in market prices and several uncontrollable factors, which could significantly affect the fair value of biological assets in future periods.

7.
Related party transactions

Key management personnel compensation for the three and nine months ended February 28, 2021 and February 29, 2020 was comprised of:

   
For the three months ended
February 28,
   
For the nine months ended
February 28,
 
   
2021
   
2020
   
2021
   
2020
 
Salaries
 
$
1,548
   
$
1,769
   
$
8,528
   
$
4,930
 
Stock options vested during the period
   
145
     
252
     
1,317
     
1,370
 
Deferred share units vested in the period
   
212
     
220
     
1,577
     
806
 
Deferred share units revalued in the period
   
4,039
     
(149
)
   
4,289
     
(491
)
Restricted share units vested in the period
   
2,043
     
331
     
7,183
     
474
 
Restricted share units revalued in the period
   
19,486
     
(42
)
   
24,971
     
(24
)
   
$
27,473
   
$
2,381
   
$
47,865
   
$
7,065
 

Directors and officers of the Company control 0.10% or 332,377 of the voting shares of the Company.

As at February 28, 2021, a balance paid to an officer and director of the Company of $nil (May 31, 2020 - $801) is included within prepaid and other current assets.

During the period, the Company issued 150,000 deferred share units to directors of the Company under the terms of the Company’s Omnibus Long-Term Incentive Plan, all of which vest over one year.
9

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

During the period, the Company issued 866,190 restricted share units to officers and directors of the Company under the terms of the Company’s Omnibus Long-Term Incentive Plan, all of which vest over two years.

During the period, the Company issued 50,000 stock options to officers of the Company, under the terms of the Company’s Omnibus Long-Term Incentive Plan, all of which vest over three years.

8.
Capital assets

   
Land
   
Production facility
   
Equipment
   
Leasehold improvements
   
Construction in process
   
Right-of-use assets
   
Total capital assets
 
Cost
                                         
At May 31, 2019
 
$
33,153
   
$
232,468
   
$
79,627
   
$
1,236
   
$
174,182
   
$
   
$
520,666
 
IFRS 16 Adjustment
                                 
8,606
     
8,606
 
Additions
         
4,480
     
21,034
     
1,240
     
101,284
     
677
     
128,715
 
Transfers
   
72
     
37,491
     
108,730
     
16,081
     
(162,414
)
   
40
       
Disposals
               
(7,157
)
   
--
     
(5,559
)
         
(12,716
)
Impairment
   
(15
)
   
(3,433
)
   
(46
)
   
(119
)
   
(2,147
)
   
(840
)
   
(6,600
)
Effect of foreign exchange
         
14
     
22
     
--
     
114
     
107
     
257
 
At May 31, 2020
   
33,210
     
271,020
     
202,210
     
18,438
     
105,460
     
8,590
     
638,928
 
Business Acquisition
               
13,502
     
523
     
2,017
     
39,992
     
56,034
 
Additions
   
314
     
3,755
     
5,419
     
434
     
28,576
     
1,449
     
39,947
 
Transfers
         
48,659
     
13,518
           
(62,177
)
           
Effect of foreign exchange
   
3
     
(37
)
   
(272
)
   
(11
)
   
29
     
(777
)
   
(1,065
)
At February 28, 2021
 
$
33,527
   
$
323,397
   
$
234,377
   
$
19,384
   
$
73,905
   
$
49,254
   
$
733,844
 
                                                         
Accumulated depreciation
                                                       
At May 31, 2019
 
$
   
$
7,660
   
$
8,919
   
$
189
   
$
   
$
   
$
16,768
 
Amortization
         
13,584
     
19,508
     
450
           
1,455
     
34,997
 
At May 31, 2020
         
21,244
     
28,427
     
639
           
1,455
     
51,765
 
Amortization
         
13,397
     
21,501
     
840
           
1,630
     
37,368
 
At February 28, 2021
 
$
   
$
34,641
   
$
49,928
   
$
1,479
   
$
   
$
3,085
   
$
89,133
 
                                                         
Net book value
                                                       
At May 31, 2019
 
$
33,153
   
$
224,808
   
$
70,708
   
$
1,047
   
$
174,182
   
$
   
$
503,898
 
At May 31, 2020
 
$
33,210
   
$
249,776
   
$
173,783
   
$
17,799
   
$
105,460
   
$
7,135
   
$
587,163
 
At February 28, 2021
 
$
33,527
   
$
288,756
   
$
184,449
   
$
17,905
   
$
73,905
   
$
46,169
   
$
644,711
 

10

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

9.
Intangible assets

   
Customer relationships
   
Corporate website
   
Licences, permits & applications
   
Non-compete agreements
   
Intellectual property, trademarks & brands
   
Total
intangible assets
 
Cost
                                   
At May 31, 2019
 
$
33,030
   
$
905
   
$
275,880
   
$
3,330
   
$
98,530
   
$
411,675
 
Additions
   
112
     
557
     
2,893
     
2
     
1,944
     
5,508
 
Impairment
               
(19,363
)
               
(19,363
)
Effect of foreign exchange
   
(540
)
   
(5
)
   
68
     
(55
)
   
(358
)
   
(890
)
At May 31, 2020
   
32,602
     
1,457
     
259,478
     
3,277
     
100,116
     
396,930
 
Business acquisition
   
201,547
                 
13,003
     
119,628
     
334,178
 
Additions
         
97
     
2,410
           
1,070
     
3,577
 
Disposals
                           
(8,193
)
   
(8,193
)
Effect of foreign exchange
   
(3,484
)
   
7
     
96
     
(204
)
   
(1,859
)
   
(5,444
)
At February 28, 2021
 
$
230,665
   
$
1,561
   
$
261,984
   
$
16,076
   
$
210,762
   
$
721,048
 
                                                 
Accumulated depreciation
                                         
At May 31, 2019
 
$
6,003
   
$
417
   
$
859
   
$
1,490
   
$
10,850
   
$
19,619
 
Amortization
   
6,040
     
437
     
176
     
1,348
     
6,273
     
14,274
 
At May 31, 2020
   
12,043
     
854
     
1,035
     
2,838
     
17,123
     
33,893
 
Amortization
   
7,558
     
218
     
387
     
538
     
8,751
     
17,452
 
At February 28, 2021
 
$
19,601
   
$
1,072
   
$
1,422
   
$
3,376
   
$
25,874
   
$
51,345
 
                                                 
Net book value
                                               
At May 31, 2019
 
$
27,027
   
$
488
   
$
275,021
   
$
1,840
   
$
87,680
   
$
392,056
 
At May 31, 2020
 
$
20,559
   
$
603
   
$
258,443
   
$
439
   
$
82,993
   
$
363,037
 
At February 28, 2021
 
$
211,064
   
$
489
   
$
260,562
   
$
12,700
   
$
184,888
   
$
669,703
 

Included in Licences, permits & applications is $254,216 of indefinite lived intangible assets. During the period, the Company disposed of $8,193 of trademarks for proceeds of $8,193.

10.
Business Acquisition

Acquisition of SW Brewing Company, LLC

On November 25, 2020, the Company, through its wholly-owned subsidiary Four Twenty Corporation, completed the purchase of all the shares of SW Brewing Company, LLC which is the holding company of 100% of the common shares of SweetWater. The purchase price consisted of cash consideration of $255,543 USD ($332,283 CAD), share consideration of 9,823,183 shares, and additional cash consideration of up to $66,000 USD contingent on SweetWater achieving specified EBITDA targets. The fair value of the shares on the date the Company closed the acquisition was $85,796, the fair value of the contingent consideration on the date the Company closed the acquisition was $58,959 USD ($76,664 CAD). During the quarter, the Company completed their review of the opening net working capital in accordance with the purchase agreement. Based on this review, the Company recorded an adjustment to the purchase price of $1,016 USD ($1,321 CAD) associated with the adjustment to the opening working capital acquired.

The Company is in the process of assessing the fair value of the net assets acquired and, as a result, the fair value of the net assets acquired may be subject to adjustments pending completion of final valuations and post-closing adjustments. The table below summarizes preliminary estimated fair value of the assets acquired and the liabilities assumed at the effective acquisition date.
11

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

   
Amount
 
Consideration
     
Cash
 
$
332,283
 
Shares
   
85,675
 
Contingent consideration
   
76,664
 
Total consideration
 
$
494,622
 
Net assets acquired
       
Current assets
       
Cash and cash equivalents
   
9,086
 
Accounts receivable
   
4,954
 
Prepaids and other current assets
   
686
 
Inventory
   
6,261
 
Long-term assets
       
Capital assets
   
56,034
 
Customer relationships
   
201,547
 
Intellectual property, trademarks & brands
   
119,628
 
Non-compete agreements
   
13,003
 
Goodwill
   
130,293
 
Total assets
   
541,492
 
Current liabilities
       
Accounts payable and accrued liabilities
   
6,878
 
Current portion of lease liabilities
   
564
 
Long-term liabilities
       
Lease liabilities
   
39,428
 
Total liabilities
   
46,870
 
Total net assets acquired
 
$
494,622
 

Revenue and net income and comprehensive net income for the Company would have been higher by approximately $40,000 and $16,000 for the nine months ended February 29, 2021 if the acquisition had taken place on June 1, 2020. In connection with this transaction, the Company expensed transaction costs of $20,870.

The contingent consideration from the acquisition of SweetWater is a fair value measurement and as such is carried at fair value. The fair value has been determined by discounting future expected cash outflows at a discount rate of 5%. The inputs into the future expected cash outflows are level 3 on the fair value hierarchy and are subject to volatility and uncertainty, which could significantly affect the fair value of the contingent consideration in future periods. As at February 28, 2021, the fair value of the contingent consideration was $76,196, expected to be paid in December 2023.

Goodwill is comprised of:
   
February 28,
2021
   
May 31,
2020
 
CannWay Pharmaceuticals Inc. acquisition
 
$
1,200
   
$
1,200
 
Broken Coast Cannabis Ltd. acquisition
   
146,091
     
146,091
 
Nuuvera Corp. acquisition
   
377,221
     
377,221
 
LATAM Holdings Inc. acquisition
   
87,188
     
87,188
 
CC Pharma GmbH acquisition
   
6,146
     
6,146
 
SweetWater acquisition
   
130,293
       
Effect of foreign exchange
   
(2,231
)
   
88
 
   
$
745,908
   
$
617,934
 
12

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)


During the period ended February 28, 2021, the Company completed its quarterly assessment of indicators of impairment of the Company’s cash-generating units (“CGUs”). The Company determined there were no indicators of impairment and therefore was not required to estimate the recoverable amount of the CGUs.

11.
Convertible notes receivable

   
February 28,
2021
   
May 31,
2020
 
HydRx Farms Ltd. (d/b/a Scientus Pharma)
 
$
   
$
6,000
 
10330698 Canada Ltd. (d/b/a Starbuds)
   
2,000
     
4,728
 
High Tide Inc.
   
4,089
     
3,898
 
     
6,089
     
14,626
 
Deduct - current portion
   
(6,089
)
   
(14,626
)
   
$
   
$
 

HydRx Farms Ltd. (d/b/a Scientus Pharma)

On August 14, 2017, Aphria purchased $11,500 in secured convertible debentures of Scientus Pharma (“SP”). The convertible debentures bore interest at 8%, paid semi-annually, matured in two years and included the right to convert the debentures into common shares of SP at $2.75 per common share at any time before maturity. During the period, the Company settled the note receivable for $5,000.

10330698 Canada Ltd. (d/b/a Starbuds)

On December 28, 2018, Aphria purchased $5,000 in secured convertible debentures of Starbuds. The convertible debentures bear interest at 8.5% per annum accruing daily until maturity on December 28, 2020. The debentures are secured against the assets of Starbuds. The debentures and any accrued and unpaid interest are convertible into common shares for $0.50 per common share and matured on December 28, 2020. Starbuds is currently in default under the convertible debentures.

As at February 28, 2021, the fair value of the Company’s secured convertible debentures was $2,000 (May 31, 2020 - $4,728), which includes $465 (May 31, 2020 - $216) of accrued interest. The remaining change resulted in a fair value gain (loss) for the three and nine months ended February 28, 2021 of $(3,384) and $(2,977) (2020 - $172 and (853)).

High Tide Inc.

On April 10, 2019, Aphria purchased $4,500 in unsecured convertible debentures of High Tide Inc. (“High Tide”). The convertible debentures bear interest at 10% per annum, payable annually up front in common shares of High Tide based on the 10-day volume weighted average price (the “Debentures”). The debentures mature on April 10, 2021 and are convertible into common shares of High Tide at a price of $0.75 at the option of the holder. In addition to the debentures, the Company received 6,000,000 warrants in High Tide as part of the purchase of the unsecured convertible debentures (Note 12).

As at February 28, 2021, the fair value of the unsecured convertible debentures was $4,089 (May 31, 2020 - $3,898), which resulted in a fair value gain (loss) for the three and nine months ended February 28, 2021 of $66 and $191 (2019 - $12 and (162)).

Convertible notes receivable

The gain (loss) on convertible notes receivable recognized in the results of operations amounts to $(3,318) and $(3,786) for the three and nine months ended February 28, 2021 (2020 - $(630) and $(7,569)).

The fair value was determined using the Black-Scholes option pricing model using the following assumptions: the risk-free rate of 1.25%; expected life of the convertible note; volatility of 70% based on comparable companies; forfeiture rate of nil; dividend yield of nil; and, the exercise price of the respective conversion feature.
13

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)


12.
Long-term investments

   
Cost
May 31,
2020
   
Fair value
May 31,
2020
   
Investment
   
Divesture/ Transfer
   
Subtotal
February 28, 2021
   
Change in
fair value
   
Fair value February 28, 2021
 
Level 1 on fair value hierarchy
                         
               
Tetra Bio-Pharma Inc.
   
19,057
     
5,784
             
 
5,784
     
(673
)
   
5,111
 
Aleafia Health Inc.
   
10,000
     
3,320
           
(3,320
)
                 
Rapid Dose Therapeutics Inc.
   
5,189
     
1,730
           
(1,730
)
                 
Fire & Flower Inc.
   
389
     
237
           
(237
)
                 
High Tide Inc.
   
450
     
165
           
-
     
165
     
561
     
726
 
Althea Group Holdings Ltd.
   
2,206
     
4,266
           
(4,266
)
                 
     
37,291
     
15,502
           
(9,553
)
   
5,949
     
(112
)
   
5,837
 
Level 3 on fair value hierarchy
                                                       
Resolve Digital Health Inc.
   
718
                                     
Resolve Digital Health Inc.
   
282
                                     
Green Acre Capital Fund I
   
2,000
     
2,373
                 
2,373
     
(173
)
   
2,200
 
Weekend Holdings Corp.
   
1,890
     
1,379
                 
1,379
     
(745
)
   
634
 
IBBZ Krankenhaus GmbH
   
1,956
     
1,993
           
(1,993
)
                 
Greenwell Brands GmbH
   
152
     
155
           
(155
)
                 
HighArchy Ventures Ltd.
   
9,995
     
4,997
                 
4,997
     
(2,997
)
   
2,000
 
Schroll Medical ApS
   
605
     
617
                 
617
     
4
     
621
 
     
17,598
     
11,514
           
(2,148
)
   
9,366
     
(3,911
)
   
5,455
 
     
54,889
     
27,016
           
(11,701
)
   
15,315
     
(4,023
)
   
11,292
 

Tetra Bio-Pharma Inc.
The Company owns 26,900,000 common shares and 6,900,000 warrants at a cost of $19,057, with a fair value of $5,111 as at February 28, 2021. Each warrant is exercisable at $1.29 per warrant expiring November 1, 2021.

Aleafia Health Inc. (formerly Emblem Corp.) (“Aleafia”)
During the period, the Company sold 5,823,831 common shares in Aleafia, for proceeds of $3,066 resulting in a loss of $254 (Note 28).

Rapid Dose Therapeutics Inc. (“RDT”)
During the period, the Company sold 6,918,500 common shares in RDT for proceeds of $1,360 resulting in a loss of $370 (Note 28).

Fire & Flower Inc.
During the period, the Company sold 334,525 common shares, for proceeds of $252 resulting in a gain of $15 (Note 28).

High Tide Inc.
The Company owns 943,396 common shares and 6,000,000 warrants in High Tide Inc. at a cost of $450, with a fair value of $726 as at February 28, 2021. Each warrant is exercisable at $0.85 per warrant expiring April 18, 2021.

Althea Group Holdings Ltd. (“Althea”)
During the period, the Company sold 12,250,000 common shares of Althea for proceeds of $5,022 AUD ($4,800 CAD), resulting in a gain of $534 (Note 28).

Resolve Digital Health Inc. (“Resolve”)
The Company owns 2,200,026 common shares and 2,200,026 warrants in Resolve at a total cost of $1,000, with a fair value of $nil as at February 28, 2021. The Company determined the fair value of its investment based on its net realizable value. Each warrant is exercisable at $0.65 per warrant expiring December 1, 2021.
14

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

Green Acre Capital Fund I
The Company invested $2,000 to Green Acre Capital Fund I. The Company determined the fair value of its investment, based on its proportionate share of net assets, to be $2,200 as at February 28, 2021. The Company has received $1,560 return of capital since its initial contribution.

Weekend Holdings Corp.
The Company owns 2,040,218 shares in Weekend Holdings Corp. for a total cost of $1,420 USD ($1,890 CAD), with a fair value of $500 USD ($634 CAD) as at February 28, 2021. The Company determined the fair value of its investment based on its net realizable value. The Company recognized a loss from the change in fair value of $745.

IBBZ Krankenhaus GmbH Klinik Hygiea (“Krankenhaus”)
During the period, the Company sold its 25.1% interest in Krankenhaus, which is the owner and operator of Berlin-based Schöneberg Hospital, for proceeds of €400 ($600 CAD), resulting in a loss of $1,393 (Note 28).

Greenwell Brands GmbH (“Greenwell”)
During the period, the Company sold 1,250 common shares of Greenwell for proceeds of €250 ($374 CAD), resulting in a gain of $219 (Note 28).

HighArchy Ventures Ltd. (“HighArchy”)
The Company owns 9,453,168 shares, and has an option to re-acquire control of 10,536,832 shares in HighArchy for a total cost of $9,995, with a fair value of $2,000 as at February 28, 2021. The Company determined the fair value of its investment based on its net realizable value.

Schroll Medical ApS
The Company has contributed capital of €403 ($605 CAD) and owns 3,000 shares in Schroll Medical ApS. The Company determined that the fair value of its investment, based on the most recent financing at the same price, is equal to its carrying value. The Company recognized a gain from the change in fair value of $4 due to changes in the foreign exchange rate.

13.
Income taxes and deferred income taxes

A reconciliation of income taxes at the statutory rate with the reported taxes is as follows:

   
For the nine months ended
February 28,
 
   
2021
   
2020
 
Net (loss) income before income taxes (recovery)
 
$
(497,709
)
 
$
20,249
 
Statutory rate
   
26.5
%
   
26.5
%
                 
Expected income tax (recovery) at combined basic federal and provincial tax rate
   
(131,893
)
   
5,366
 
                 
Effect on income taxes of:
               
Foreign tax differential
   
(417
)
   
(110
)
Permanent differences
   
45
     
(224
)
Non-deductible share-based compensation and other expenses
   
14,344
     
4,537
 
Non-taxable portion of loss (gains)
   
51,496
     
(4,759
)
Other
   
442
     
538
 
Tax assets not recognized
   
54,963
     
692
 
   
$
(11,020
)
 
$
6,040
 
                 
Income tax expense (recovery) is comprised of:
               
Current
 
$
27,143
   
$
4,000
 
Future
   
(38,163
)
   
2,040
 
   
$
(11,020
)
 
$
6,040
 
15

Aphria Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the three and nine months ended February 28, 2021 and February 29, 2020
(Unaudited - in thousands of Canadian dollars, except share and per share amounts)

The following table summarized the movement in deferred tax:

   
Amount
 
Balance at May 31, 2019
 
$
87,633
 
Future income tax recovery
   
(3,682
)
Income tax recovery on share issuance costs
   
(483
)
Balance at May 31, 2020
 
$
83,468
 
Future income tax recovery
   
(38,163
)
Income tax recovery on share issuance costs
   
(967
)
Effect of foreign exchange
   
287
 
Balance at February 28, 2021
 
$
44,625
 

The following table summarizes the components of deferred tax:

   
February 28,
2021
   
May 31,
2020
 
Deferred tax assets
           
Non-capital loss carry forward
 
$
95,464
   
$
46,904
 
Capital loss carry forward
   
2,220
     
2,556
 
Share issuance and financing fees
   
5,476
     
6,924
 
Unrealized loss
   
40,783
       
Other
   
8,604
     
2,483
 
Losses not recognized
   
(61,075
)
   
(6,112
)
Deferred tax liabilities
               
Net book value in excess of undepreciated capital cost
   
(12,798