EX-99.27 28 a18-26052_1ex99d27.htm EX-99.27

Exhibit 99.27

 

 

Aphria Inc.

 

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2017 AND AUGUST 31, 2016

 

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

 



 

Aphria Inc.

Condensed Interim Consolidated Statements of Financial Position

(Unaudited)

 

 

 

 

 

August 31,

 

May 31,

 

 

 

Note

 

2017

 

2017

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

38,229,855

 

$

79,910,415

 

Marketable securities

 

5

 

80,501,420

 

87,346,787

 

Accounts receivable

 

 

 

1,261,775

 

825,511

 

Other receivables

 

6

 

6,200,506

 

4,511,639

 

Inventory

 

7

 

5,968,503

 

3,886,607

 

Biological assets

 

8

 

3,434,505

 

1,362,749

 

Prepaid assets

 

 

 

2,198,743

 

1,059,624

 

Due from related parties

 

9

 

 

463,916

 

Note receivable

 

10

 

834,898

 

 

Land available for sale

 

11

 

3,160,426

 

 

Current portion of convertible notes receivable

 

13

 

2,507,200

 

 

 

 

 

 

144,297,831

 

179,367,248

 

Capital assets

 

11

 

92,358,204

 

72,500,148

 

Intangible assets

 

12

 

1,739,451

 

1,891,237

 

Convertible notes receivable

 

13

 

8,424,974

 

1,360,548

 

Embedded derivatives

 

13

 

5,155,750

 

173,000

 

Interest in equity accounted investee

 

14

 

27,430,588

 

28,376,092

 

Long-term investments

 

15

 

50,502,630

 

27,787,578

 

Deferred tax asset

 

4

 

 

3,314,570

 

Goodwill

 

 

 

1,200,000

 

1,200,000

 

 

 

 

 

331,109,428

 

315,970,421

 

LIABILITIES

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

 

$

4,647,009

 

$

5,872,962

 

Income taxes payable

 

4

 

365,148

 

 

Deferred gain on sale of intellectual property

 

 

 

2,566,667

 

2,800,000

 

Current portion of promissory note payable

 

17

 

814,840

 

877,500

 

Current portion of long-term debt

 

18

 

776,523

 

765,224

 

 

 

 

 

9,170,187

 

10,315,686

 

Long-term liabilities

 

 

 

 

 

 

 

Promissory note payable

 

17

 

135,807

 

365,625

 

Long-term debt

 

18

 

31,223,545

 

31,420,230

 

Deferred tax liability

 

4

 

86,634

 

 

 

 

 

 

40,616,173

 

42,101,541

 

Shareholders’ equity

 

 

 

 

 

 

 

Share capital

 

19

 

274,800,753

 

274,316,548

 

Warrants

 

20

 

444,912

 

444,912

 

Share-based payment reserve

 

21

 

5,650,329

 

3,229,929

 

Accumulated other comprehensive loss

 

 

 

(1,320,398

)

 

Retained earnings (deficit)

 

 

 

10,917,659

 

(4,122,509

)

 

 

 

 

290,493,255

 

273,868,880

 

 

 

 

 

$

331,109,428

 

$

315,970,421

 

 

Nature of operations (Note 1)

Commitments (Note 30)

Subsequent events (Note 31)

Approved on behalf of the Board:

 

“John Cervini”

 

“Cole Cacciavillani”

Signed: Director

 

Signed: Director

 

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

 

2



 

Aphria Inc.

Condensed Interim Consolidated Statements of Income and Comprehensive Income (Loss)

(Unaudited)

 

 

 

 

 

For the three months ended

 

 

 

 

 

August 31

 

 

 

Note

 

2017

 

2016

 

Revenue

 

 

 

$

6,120,359

 

$

4,375,512

 

 

 

 

 

 

 

 

 

Production costs

 

7

 

1,346,162

 

1,053,916

 

 

 

 

 

 

 

 

 

Gross profit before fair value adjustments

 

 

 

4,774,197

 

3,321,596

 

 

 

 

 

 

 

 

 

Fair value adjustment on sale of inventory

 

7

 

1,135,535

 

1,339,538

 

Fair value adjustment on growth of biological assets

 

8

 

(4,265,779

)

(1,800,087

)

 

 

 

 

 

 

 

 

Gross profit

 

 

 

7,904,441

 

3,782,145

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

General and administrative

 

23

 

1,735,217

 

959,592

 

Share-based compensation

 

24

 

2,508,901

 

203,095

 

Selling, marketing and promotion

 

 

 

1,947,586

 

1,380,647

 

Amortization

 

 

 

238,648

 

201,670

 

Research and development

 

 

 

90,367

 

249,313

 

 

 

 

 

6,520,719

 

2,994,317

 

 

 

 

 

 

 

 

 

 

 

 

 

1,383,722

 

787,828

 

Non-operating items:

 

 

 

 

 

 

 

Consulting revenue

 

 

 

292,478

 

 

Foreign exchange loss

 

 

 

(150,702

)

 

Loss on marketable securities

 

5

 

(1,746,367

)

 

(Loss) gain on sale of capital assets

 

11

 

(7,260

)

11,367

 

Gain on dilution of ownership in equity accounted investee

 

14

 

7,551,158

 

 

Loss from equity accounted investee

 

14

 

(8,840,264

)

 

Deferred gain on sale of intellectual property recognized

 

14

 

233,333

 

 

Finance income, net

 

25

 

479,719

 

96,074

 

Unrealized gain on embedded derivatives

 

13

 

532,750

 

 

Unrealized gain on long-term investments

 

26

 

19,081,556

 

 

 

 

 

 

17,426,401

 

107,441

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

 

18,810,123

 

895,269

 

 

 

 

 

 

 

 

 

Income taxes

 

4

 

3,769,955

 

 

Net income

 

 

 

15,040,168

 

895,269

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

Other comprehensive loss from equity accounted investee

 

14

 

(1,320,398

)

 

Net comprehensive income

 

 

 

$

13,719,770

 

$

895,269

 

Weighted average number of common shares basic

 

 

 

138,711,674

 

73,784,801

 

Weighted average number of common shares diluted

 

 

 

145,731,500

 

82,075,224

 

Earnings per share — basic

 

27

 

$

0.11

 

$

0.01

 

Earnings per share — diluted

 

27

 

$

0.10

 

$

0.01

 

 

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

 

3



 

Aphria Inc.

Condensed Interim Consolidated Statements of Changes in Equity (Deficiency)

(Unaudited)

 

 

 

 

 

 

 

 

 

Share-based

 

Accumulated other

 

Retained

 

 

 

 

 

Number of common

 

Share capital

 

Warrants

 

payment reserve

 

comprehensive

 

earnings

 

 

 

 

 

shares

 

(Note 19)

 

(Note 20)

 

(Note 21)

 

income (loss)

 

(deficit)

 

Total

 

Balance at May 31, 2016

 

70,053,933

 

$

40,916,880

 

$

693,675

 

$

1,723,903

 

$

 

$

(8,320,964

)

$

35,013,494

 

Share issuance August 2016 bought deal

 

17,250,000

 

31,968,824

 

 

 

 

 

31,968,824

 

Share issuance warrants exercised

 

2,626,253

 

3,874,568

 

(105,534

)

 

 

 

3,769,034

 

Share issuance options exercised

 

266,353

 

289,872

 

 

(69,571

)

 

 

220,301

 

Share-based payments

 

 

 

 

203,095

 

 

 

203,095

 

Net income for the period

 

 

 

 

 

 

895,269

 

895,269

 

Balance at August 31, 2016

 

90,196,539

 

$

77,050,144

 

$

588,141

 

$

1,857,427

 

$

 

$

(7,425,695

)

$

72,070,017

 

 

 

 

 

 

 

 

 

 

Share-based

 

Accumulated other

 

Retained

 

 

 

 

 

Number of common

 

Share capital

 

Warrants

 

payment reserve

 

comprehensive

 

earnings

 

 

 

 

 

shares

 

(Note 19)

 

(Note 20)

 

(Note 21)

 

loss

 

(deficit)

 

Total

 

Balance at May 31, 2017

 

138,628,704

 

$

274,316,548

 

$

444,912

 

$

3,229,929

 

$

 

$

(4,122,509

)

$

273,868,880

 

Share issuance — warrants exercised

 

228,467

 

343,951

 

 

 

 

 

343,951

 

Share issuance — options exercised

 

31,419

 

37,747

 

 

(19,712

)

 

 

18,035

 

Share-based payments

 

 

 

 

2,440,112

 

 

 

2,440,112

 

Share issuance costs incurred

 

 

(13,596

)

 

 

 

 

(13,596

)

Income tax recovery on share issuance costs

 

 

3,603

 

 

 

 

 

3,603

 

Shares held in escrow earned in exchange for services

 

 

112,500

 

 

 

 

 

112,500

 

Net income for the period

 

 

 

 

 

(1,320,398

)

15,040,168

 

13,719,770

 

Balance at August 31, 2017

 

138,888,590

 

$

274,800,753

 

$

444,912

 

$

5,650,329

 

$

(1,320,398

)

$

10,917,659

 

$

290,493,255

 

 

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

 

4



 

Aphria Inc.

Condensed Interim Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

Three months ended

 

 

 

 

 

August 31,

 

August 31,

 

 

 

Note

 

2017

 

2016

 

Cash generated from (used in) operating activities:

 

 

 

 

 

 

 

Net income for the period

 

 

 

$

15,040,168

 

$

895,269

 

Adjustments for:

 

 

 

 

 

 

 

Income taxes

 

4

 

3,769,955

 

 

Fair value adjustment on sale of inventory

 

7

 

1,135,535

 

1,339,538

 

Fair value adjustment on growth of biological assets

 

8

 

(4,265,779

)

(1,800,087

)

Loss on sale of marketable securities

 

5

 

131,000

 

 

Unrealized loss on marketable securities

 

5

 

1,615,367

 

 

Unrealized foreign exchange gain on notes receivable

 

 

 

(2,064

)

 

Unrealized foreign exchange gain on convertible notes receivable

 

13

 

(6,200

)

 

Amortization

 

11,12

 

627,771

 

454,878

 

Loss (gain) on sale of capital assets

 

11

 

7,260

 

(11,367

)

Disposition and usage of bearer plants

 

11

 

2,761

 

 

Accrued interest on convertible note receivable

 

13

 

(14,426

)

 

Unrealized gain on embedded derivatives

 

13

 

(532,750

)

 

Loss from equity accounted investee

 

14

 

8,840,264

 

 

Gain on dilution of ownership in equity accounted investee

 

14

 

(7,551,158

)

 

Deferred gain on sale of intellectual property recognized

 

14

 

(233,333

)

 

Consulting revenue

 

17

 

(292,478

)

 

Amortization of finance fees on long-term debt

 

 

 

1,250

 

833

 

Share-based compensation

 

24

 

2,508,901

 

203,095

 

Unrealized gain on long-term investments

 

26

 

(19,081,556

)

 

Change in non-cash working capital

 

28

 

(5,501,608

)

444,544

 

 

 

 

 

(3,801,120

)

1,526,703

 

Cash provided by financing activities:

 

 

 

 

 

 

 

Share capital issued, net of cash issuance costs

 

 

 

(13,596

)

31,968,824

 

Share capital issued on warrants exercised

 

 

 

343,951

 

3,769,034

 

Share capital issued on stock options exercised

 

 

 

18,035

 

220,301

 

Advances from related parties

 

9

 

1,583,079

 

195,368

 

Repayment of amounts due to related parties

 

9

 

(1,087,455

)

(195,368

)

Proceeds from long-term debt

 

18

 

 

7,825,000

 

Repayment of long-term debt

 

18

 

(186,636

)

(98,837

)

 

 

 

 

657,378

 

43,684,322

 

Cash used in investing activities:

 

 

 

 

 

 

 

Repayment of promissory notes receivable

 

 

 

 

376,569

 

Investment in capital assets

 

11

 

(23,694,817

)

(6,230,625

)

Proceeds from disposal of capital assets

 

11

 

199,650

 

32,823

 

Investment in intangible assets, net of shares issued

 

12

 

(9,321

)

(1,285,042

)

Notes advanced

 

10

 

(832,834

)

 

Convertible notes advanced

 

13

 

(14,001,000

)

 

Investment in marketable securities

 

5

 

(5,000,000

)

 

Proceeds from disposal of marketable securities

 

5

 

10,099,000

 

 

Investment in long-term investments

 

15

 

(5,297,496

)

(1,125,000

)

 

 

 

 

(38,536,818

)

(8,231,275

)

(Decrease) increase in cash and cash equivalents

 

 

 

(41,680,560

)

36,979,750

 

Cash and cash equivalents, beginning of the period

 

 

 

79,910,415

 

16,472,664

 

Cash and cash equivalents, end of the period:

 

 

 

$

38,229,855

 

$

53,452,414

 

 

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

 

5



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended August 31, 2017 and August 31, 2016

(Unaudited)

 

1.              Nature of operations

 

Aphria Inc. (the “Company” or “Aphria”) was continued in Ontario.

 

Pure Natures Wellness Inc. (o/a Aphria) (“PNW”), a wholly-owned subsidiary of the Company, is licensed to produce and sell medical marijuana under the provisions of the Access to Cannabis for Medical Purposes Regulations (“ACMPR”). The registered office is located at 5300 Commerce Court West, 199 Bay Street, Toronto, Ontario.

 

The Company’s common shares are listed under the symbol “APH” on the Toronto Stock Exchange (“TSX”) and under the symbol “APHQF” on the United States OTCQB Venture Market exchange.

 

These consolidated financial statements were approved by the Company’s Board of Directors on October 12, 2017.

 

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 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, 2017, 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 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

 

The Company and its subsidiaries’ functional currency, as determined by management is Canadian dollars. These consolidated financial statements are presented in Canadian dollars.

 

(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.

 

Wholly owned subsidiaries

Jurisdiction of incorporation

Pure Natures Wellness Inc. (o/a Aphria)

Ontario

Aphria (Arizona) Inc.

Arizona

 

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

 

6



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended August 31, 2017 and August 31, 2016

(Unaudited)

 

entity. Unrealized losses are eliminated to the extent of the gains, but only to the extent that there is no evidence of impairment.

 

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.

 

(e)                    Amalgamation

 

Effective June 1, 2017, CannWay Pharmaceuticals Ltd. (“CannWay”), a wholly-owned subsidiary of the company, was amalgamated with Pure Natures Wellness Inc. (o/a Aphria). The Company has historically presented all balances and activities of CannWay as a fully consolidated entity for financial statement presentation purposes. As of the date of amalgamation, CannWay did not have any assets or outstanding liabilities. There are no material changes to be considered prospectively or to the comparative consolidated statements as a result of the amalgamation.

 

(f)                     Interest in equity-accounted investees

 

The Company’s interest in equity accounted investees is comprised of its interest in associates.

 

Equity accounted investee

Jurisdiction of incorporation

Liberty Health Sciences Inc.

British Columbia

(formerly DFMMJ Investments, Ltd.)

 

 

In accordance with IFRS 10, associates are those in which the Company has significant influence, but not control or joint control over the financial and accounting policies.

 

Interests in associates are accounted for using the equity method in accordance with IAS 28. They are recognized initially at cost, which includes transaction costs. After initial recognition, the consolidated financial statements include the Company’s share of the profit or loss and other comprehensive income (“OCI”) of equity accounted investees until the date on which significant influence ceases.

 

If the Company’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the other entity.

 

Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company’s interest in these entities. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

 

The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in the annual audited financial statements.

 

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, 2017.

 

7



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended August 31, 2017 and August 31, 2016

(Unaudited)

 

New standards applicable during the reporting period

 

IFRS 5 Non-current Assets Held for Sale; Assets and liabilities held for disposal are no longer depreciated and are presented separately in the statement of financial position at the lower of their carrying amount and fair value less costs to sell. An asset is regarded as held for sale if its carrying amount will be recovered principally through a sale transaction, rather than through continuing use. For this to be the case, the asset must be available for immediate sale and its sale must be highly probable.

 

New standards and interpretations issued but not yet adopted:

 

IFRS 9 - Financial Instruments; Classification and Measurement, effective for annual periods beginning on or after January 1, 2018, with early adoption permitted, introduces new requirements for the classification, measurement and derecognition of financial instruments and introduces a new impairment model for financial assets. The Company is assessing the impact of the standard on its convertible notes receivable and its investments where it holds less than significant influence. The Company has determined that there will no impact on cash and cash equivalents, marketable securities, accounts receivable, other receivables, promissory notes receivable, accounts payable and accrued liabilities and promissory notes payable. Convertible notes receivable are currently recorded as available for sale. Investments are currently recorded at fair value. Upon implementation of IFRS 9, these investments will need to be recorded at fair value and the Company is currently assessing available information and methods to determine their fair value. Based on investments already reflected at fair value, no significant impact is anticipated from the new standard.

 

The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the Company’s disclosures about its financial instruments particularly in the period of the adoption of the new standard.

 

The Company will apply the new rules retrospectively from June 1, 2018 with the practical expedients permitted under the standards. Comparatives will not be restated.

 

IFRS 15 - Revenue from Contracts with Customers; effective for annual periods beginning on or after January 1, 2018, with early adoption permitted, specifies how and when to recognize revenue and enhances relevant disclosures to be applied to all contracts with customers. The Company continues to assess the impact of the standard on its investees with a focus on consulting contracts and royalty fees.

 

The Company is still considering the impact on its customer loyalty programme, which is currently under reconsideration. The new standard will require that the total consideration received be allocated to the points and goods based on relative stand-alone selling prices rather than based on the residual method.

 

The Company intends to adopt the standard using the modified retrospective approach which means that the cumulative impact of adoption will be recognized in retained earnings as of June 1, 2018 and that comparatives will not be restated.

 

IFRS 16 Leases; in January 2016, the IASB issued IFRS 16, which specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019, and a lessee shall either apply IFRS 16 with full retrospective effect or alternatively not restate comparative information but recognise the cumulative effect of initially applying IFRS 16 as an adjustment to opening

 

8



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended August 31, 2017 and August 31, 2016

(Unaudited)

 

equity at the date of initial application. Early adoption is permitted if IFRS 15 has also been adopted. Based on its current assets, interests and investments, no significant impact is anticipated from the new standard.

 

There are no other standards that are not yet effective and that would be expected to have a material impact on the Company in the current or future reporting periods and on foreseeable future transactions.

 

The Company has reclassified certain immaterial items on the comparative consolidated statements of income and comprehensive income to improve clarity.

 

4.              Income taxes and deferred income taxes

 

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

 

 

 

For the three months ended August 31,

 

 

 

2017

 

2016

 

Income before income taxes

 

$

18,810,123

 

$

895,269

 

Statutory rate

 

26.5

%

26.5

%

 

 

 

 

 

 

Expected income tax recovery at combined basic federal and provincial tax rate

 

4,984,683

 

237,246

 

 

 

 

 

 

 

Effect on income taxes of:

 

 

 

 

 

Non-deductible share-based compensation and other expenses

 

(1,194,497

)

59,929

 

Utilization of tax attributes not previously recognized

 

 

(978,718

)

Other

 

(20,231

)

(80,651

)

Tax assets not recognized

 

 

762,194

 

 

 

$

3,769,955

 

$

 

 

 

 

 

 

 

Income tax expense is comprised of:

 

 

 

 

 

Current

 

$

365,148

 

$

 

Future

 

3,404,807

 

 

 

 

$

3,769,955

 

$

 

 

The following table summarizes the components of deferred tax:

 

 

 

August 31,

 

May 31,

 

 

 

2017

 

2017

 

Deferred tax assets

 

 

 

 

 

Non-capital loss carry forward

 

$

1,361,332

 

$

1,312,849

 

Capital loss carry forward

 

397,719

 

380,362

 

Share issuance and financing fees

 

3,254,859

 

3,448,332

 

Other

 

50,058

 

34,138

 

Deferred tax liabilities

 

 

 

 

 

Net book value in excess of undepreciated capital cost

 

(178,040

)

(164,027

)

Intangible assets in excess of tax costs

 

(165,998

)

(193,890

)

Unrealized gain

 

(3,387,875

)

(914,019

)

Biological assets and inventory in excess of tax costs

 

(1,418,689

)

(589,175

)

Net deferred tax (liabilities) assets

 

$

(86,634

)

$

3,314,570

 

 

9



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended August 31, 2017 and August 31, 2016

(Unaudited)

 

5.              Marketable securities

 

Marketable securities are classified as fair value through profit or loss, and are comprised of:

 

 

 

S&P rating

 

 

 

Maturity

 

August 31,

 

May 31,

 

 

 

at purchase

 

Interest rate

 

date

 

2017

 

2017

 

Guaranteed Investment Certificate (GIC):

 

 

 

 

 

 

 

 

 

 

 

Vancouver City Savings Credit Union

 

 

 

1.150

%

06/08/18

 

$

5,013,233

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Income:

 

 

 

 

 

 

 

 

 

 

 

Molson Coors Brewing Company

 

BBB-

 

3.950

%

10/06/17

 

1,119,919

 

1,116,524

 

Ford Motor Credit Co. LLC

 

BBB

 

3.320

%

12/19/17

 

2,023,830

 

1,988,184

 

Goldman Sachs & Co. LLC

 

A+

 

3.375

%

02/01/18

 

 

5,078,194

 

The Manufacturer’s Life Insurance Company

 

AA-

 

2.819

%

02/26/18

 

1,458,832

 

1,471,818

 

Canadian Western Bank

 

A-

 

2.531

%

03/22/18

 

3,047,200

 

3,038,997

 

Ford Motor Credit Co. LLC

 

BBB

 

3.700

%

08/02/18

 

1,018,702

 

1,036,613

 

Sobeys Inc.

 

BB+

 

3.520

%

08/08/18

 

3,030,672

 

3,078,141

 

Royal Bank of Canada

 

AA-

 

2.770

%

12/11/18

 

 

5,179,711

 

Canadian Western Bank

 

A-

 

3.077

%

01/14/19

 

1,525,639

 

1,534,717

 

Sun Life Financial Inc.

 

A

 

2.770

%

05/13/19

 

3,053,076

 

3,063,816

 

Ford Motor Credit Co. LLC

 

BBB

 

3.140

%

06/14/19

 

5,111,921

 

5,206,828

 

Canadian Natural Resources Ltd.

 

BBB+

 

3.050

%

06/19/19

 

2,041,744

 

2,053,607

 

Canadian Western Bank

 

A-

 

3.463

%

12/17/19

 

1,020,254

 

1,027,752

 

Laurentian Bank of Canada

 

BBB

 

2.500

%

01/23/20

 

6,032,347

 

6,098,888

 

Enercare Solutions Inc.

 

BBB

 

4.600

%

02/03/20

 

3,973,131

 

4,007,550

 

Enbridge Inc.

 

BBB+

 

4.530

%

03/09/20

 

5,352,461

 

5,394,630

 

Central 1 Credit Union

 

A

 

1.870

%

03/16/20

 

4,997,072

 

5,020,565

 

Choice Properties REIT

 

BBB

 

3.600

%

04/20/20

 

5,202,690

 

5,236,870

 

Penske Truck Leasing Co., L.P.

 

BBB

 

2.950

%

06/12/20

 

5,111,419

 

5,145,483

 

Westcoast Energy Inc.

 

BBB+

 

4.570

%

07/02/20

 

5,342,167

 

5,429,820

 

Bank of Montreal (USD)

 

A+

 

1.400

%

04/10/18

 

3,780,666

 

4,051,775

 

Citigroup Inc. (USD)

 

BBB+

 

2.050

%

12/17/18

 

3,790,925

 

4,081,546

 

Royal Bank of Canada (USD)

 

AA-

 

1.625

%

04/15/19

 

3,775,989

 

4,039,998

 

Wells Fargo & Company (USD)

 

A

 

2.150

%

01/30/20

 

3,677,531

 

3,964,760

 

 

 

 

 

 

 

 

 

$

80,501,420

 

$

87,346,787

 

 

The cost of marketable securities as at August 31, 2017 was $ 78,064,435 (May 31, 2017 — $87,138,224). During the period, the company divested of certain marketable securities in its Canadian portfolio for proceeds of $10,099,000, resulting in a loss of $131,000 on disposal (2016 - $nil), and re-invested $ 5,000,000 in a short-term GIC. During the period, the Company recognized a loss of $1,746,367 on its marketable securities portfolio, of which $1,615,367 (2016 - $nil) represented unrealized fair value adjustments.

 

6.              Other receivables

 

Other receivables are comprised of:

 

 

 

August 31,

 

May 31,

 

 

 

2017

 

2017

 

HST receivable

 

$

5,361,703

 

$

3,675,188

 

Accrued interest

 

493,063

 

700,827

 

Credit card receivable

 

123,923

 

103,004

 

Other

 

221,817

 

32,620

 

 

 

$

6,200,506

 

$

4,511,639

 

 

10



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended August 31, 2017 and August 31, 2016

(Unaudited)

 

7.              Inventory

 

Inventory is comprised of:

 

 

 

Capitalized

 

Fair value

 

August 31,

 

May 31,

 

 

 

Cost

 

adjustment

 

2017

 

2017

 

Harvested cannabis

 

$

943,904

 

$

1,761,552

 

 

$

2,705,456

 

$

2,506,963

 

Harvested cannabis trim

 

394,434

 

849,624

 

 

1,244,058

 

420,322

 

Cannabis oil

 

586,192

 

987,327

 

 

1,573,519

 

682,056

 

Packaging and supplies

 

445,470

 

 

 

445,470

 

277,266

 

 

 

$

2,370,000

 

$

3,598,503

 

 

$

5,968,503

 

$

3,886,607

 

 

During the period, the Company recorded $1,346,162 (2016 - $1,053,916) related to production costs. Included in production costs for the period ended August 31, 2017 is $40,915 of cannabis oil conversion costs (2016 - $14,940) and $36,966 related to the cost of accessories (2016 - $nil). Included in cost of sales is amortization of $389,123 (2016 - $253,208) related to capital assets utilized in production. During the period, the Company expensed $1,135,535 (2016 $1,339,538) of fair value adjustments on the sale of its biological assets included in inventory.

 

The Company holds 721.5 kilograms of harvested cannabis (May 31, 2017 668.5 kgs), 414.7 kilograms of harvested cannabis trim (May 31, 2017 140.1 kgs) and 2,517.6 litres of cannabis oils or 419.1 kilograms equivalent (May 31, 2017 1,091.3 litres or 181.9 kilograms equivalent) at August 31, 2017.

 

8.              Biological assets

 

Biological assets are comprised of:

 

 

 

Amount

 

Balance as at May 31, 2017

 

$

1,362,749

 

Changes in fair value less costs to sell due to biological transformation

 

4,265,779

 

Production costs capitalized

 

1,434,869

 

Transferred to inventory upon harvest

 

(3,610,566

)

Transferred to capital assets

 

(18,326

)

Balance as at August 31, 2017

 

$

3,434,505

 

 

The Company values medical cannabis plants at cost from the date of initial clipping from mother plants until the end of the twelfth week of its growing cycle. Measurement of the biological asset at fair value less costs to sell and costs to complete begins at the thirteenth week until harvest. The Company has determined the fair value less costs to sell of harvested cannabis to be $3.75 per gram. The Company has determined the fair value less costs to sell of its harvested cannabis trim to be $3.00 per gram, upon harvest.

 

The net effect of the fair value less cost to sell over and above historical cost was an increase in non-cash value of biological assets and inventory of $4,265,779 during the three months ended August 31, 2017 (2016 increase of $1,800,087). In determining the fair value of biological assets, management is required to make several estimates, including: the expected cost required to grow the cannabis up to the point of harvest; harvesting costs; selling costs; sales price; and, expected yields for the cannabis plant. All of which represent Level 3 on the fair value hierarchy. These estimates are subject to volatility in market prices and several uncontrollable factors, which could significantly affect the fair value of biological assets in future periods.

 

11



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended August 31, 2017 and August 31, 2016

(Unaudited)

 

9.              Related party transactions

 

Prior to going public, the Company funded operations through the support of related parties. Since going public, the Company has continued to leverage the purchasing power of these related parties for certain of its operating expenditures. The balance owing from related parties as at August 31, 2017 was $nil (May 31, 2017 - $463,916). These parties are related as they are corporations that are controlled by certain officers and directors of the Company.

 

During the three months ended August 31, 2017, related party corporations charged or incurred expenditures on behalf of the Company (including rent) totaling $38,595 (2016 - $195,368). Included in this amount was rent of $8,178 charged during the three months ended August 31, 2017 (2016 - $24,855).

 

The Company funded the start-up costs and operations of Liberty Health Sciences Inc. (formerly DFMMJ Investments, Ltd.), a related party through an equity investment.

 

 

 

Amount

 

Balance due to (from) related parties as at May 31, 2017

 

$

(463,916

)

Related party charges in the period

 

38,595

 

Payments to related parties in the period

 

(38,595

)

Non-cash payments made on behalf of a related party in the period

 

(31,708

)

Payments made on behalf of related parties in the period

 

(1,048,860

)

Repayments made by related parties in the period

 

1,544,484

 

Balance due to (from) related parties as at August 31, 2017

 

$

 

 

During the prior year, the Company purchased 36 acres of farm land, with 9 acres of greenhouses located thereon, from F.M. and Cacciavillani Farms Ltd., a company controlled by a director, for $6.1 million. The purchase price was allocated as follows: (i) $1.3 million to land; (ii) $3.55 million to greenhouse infrastructure; and, (iii) $1.25 million to licenses and permits intangible assets.

 

Key management personnel compensation was comprised of:

 

 

 

For the three months ended August 31,

 

 

 

2017

 

2016

 

Salaries

 

$

306,030

 

$

212,309

 

Short-term employment benefits (included in office and general)

 

18,105

 

11,015

 

Share-based compensation

 

1,758,422

 

95,979

 

 

 

$

2,082,557

 

$

319,303

 

 

Directors and officers of the Company control 12.8% or 17,832,066 of the voting shares of the Company.

 

12



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended August 31, 2017 and August 31, 2016

(Unaudited)

 

10.       Note receivable

 

 

 

May 31,

 

 

 

 

 

August 31,

 

 

 

2017

 

Additions

 

Payments

 

2017

 

Copperstate Farms Investors, LLC - $666,000 USD ($832,834), non-interest bearing, no set terms of repayment

 

$

 

$

834,898

 

$

 

$

834,898

 

 

 

$

 

$

834,898

 

$

 

$

834,898

 

 

11.       Capital assets

 

 

 

 

 

Greenhouse

 

Bearer

 

 

 

Leasehold

 

Construction

 

Total capital

 

 

 

Land

 

infrastructure

 

plants

 

Equipment

 

improvements

 

in process

 

assets

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2016

 

$

 

$

 

$

 

$

3,499,528

 

$

4,812,153

 

$

64,806

 

$

8,376,487

 

Additions

 

10,724,551

 

4,018,080

 

112,225

 

1,699,989

 

16,129

 

49,957,556

 

66,528,530

 

Transfers

 

104,283

 

12,151,836

 

 

173,834

 

(4,565,987

)

(7,863,966

)

 

Disposals

 

 

 

(66,613

)

(32,823

)

 

 

(99,436

)

At May 31, 2017

 

10,828,834

 

16,169,916

 

45,612

 

5,340,528

 

262,295

 

42,158,396

 

74,805,581

 

Additions

 

1,548,713

 

 

18,326

 

624,654

 

 

21,503,124

 

23,694,817

 

Transfers

 

(3,160,426

)

169,362

 

 

 

 

(169,362

)

(3,160,426

)

Disposals

 

 

(206,910

)

(2,761

)

 

 

 

(209,671

)

At Aug 31, 2017

 

$

9,217,121

 

$

16,132,368

 

$

61,177

 

$

5,965,182

 

$

262,295

 

$

63,492,158

 

$

95,130,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2016

 

$

 

$

 

$

 

$

554,401

 

$

512,866

 

 

 

$

1,067,267

 

Amortization

 

 

457,891

 

 

717,207

 

74,435

 

 

1,249,533

 

Transfers

 

 

524,749

 

 

 

(524,749

)

 

 

Disposals

 

 

 

 

(11,367

)

 

 

(11,367

)

At May 31, 2017

 

 

982,640

 

 

1,260,241

 

62,552

 

 

2,305,433

 

Amortization

 

 

206,791

 

 

252,345

 

7,528

 

 

466,664

 

At Aug 31, 2017

 

$

 

$

1,189,431

 

$

 

$

1,512,586

 

$

70,080

 

$

 

$

2,772,097

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2016

 

$

 

$

 

$

 

$

2,945,127

 

$

4,299,287

 

$

64,806

 

$

7,309,220

 

At May 31, 2017

 

$

10,828,834

 

$

15,187,276

 

$

45,612

 

$

4,080,287

 

$

199,743

 

$

42,158,396

 

$

72,500,148

 

At Aug 31, 2017

 

$

9,217,122

 

$

14,942,937

 

$

61,177

 

$

4,452,596

 

$

192,215

 

$

63,492,158

 

$

92,358,204

 

 

During the period, the Company sold assets that were not yet in use prior to disposal with a cost of $206,910 and a net book value of $206,910, for proceeds of $199,650, resulting in a loss on sale of capital assets of $7,260.

 

On August 9, 2017, the Company entered into a series of agreements with Nuuvera Corp. (“Nuuvera”). Under the terms of one of the agreements, the Company agreed to sell 100 acres of land owned on Mersea Road 8 Leamington, Ontario in exchange for $4,000,000. The agreement is subject to standard closing conditions, including the severance of the 100 acres from the overall site owned by the Company on Mersea Road 8, Leamington, Ontario. The Company expects the transaction to close before the fiscal year-end. As a result of the agreement, the Company reclassified $3,160,426 of cost included in land to assets available for sale.

 

13



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended August 31, 2017 and August 31, 2016

(Unaudited)

 

12.       Intangible assets

 

 

 

 

 

 

 

 

 

Tokyo Smoke

 

 

 

Total

 

 

 

Corporate 

 

Licenses & 

 

Patents & 

 

licensing

 

CannWay

 

intangible

 

 

 

website

 

permits

 

trademarks

 

agreement

 

brand

 

assets

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2016

 

$

161,700

 

$

 

$

 

$

 

$

4,428,000

 

$

4,589,700

 

Additions

 

56,120

 

1,250,000

 

 

459,480

 

 

1,765,600

 

At May 31, 2017

 

217,820

 

1,250,000

 

 

459,480

 

4,428,000

 

6,355,300

 

Additions

 

 

 

9,321

 

 

 

9,321

 

At August 31, 2017

 

$

217,820

 

$

1,250,000

 

$

9,321

 

$

459,480

 

$

4,428,000

 

$

6,364,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2016

 

$

87,520

 

$

 

$

 

$

 

$

184,500

 

$

272,020

 

Amortization

 

67,845

 

152,879

 

 

56,939

 

414,380

 

692,043

 

Impairment

 

 

 

 

 

3,500,000

 

3,500,000

 

At May 31, 2017

 

155,365

 

152,879

 

 

56,939

 

4,098,880

 

4,464,063

 

Amortization

 

13,803

 

41,894

 

156

 

22,974

 

82,280

 

161,107

 

At August 31, 2017

 

$

169,168

 

$

194,773

 

$

156

 

$

79,913

 

$

4,181,160

 

$

4,625,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2016

 

$

74,180

 

$

 

$

 

$

 

$

4,243,500

 

$

4,317,680

 

At May 31, 2017

 

$

62,455

 

$

1,097,121

 

$

 

$

402,541

 

$

329,120

 

$

1,891,237

 

At August 31, 2017

 

$

48,652

 

$

1,055,227

 

$

9,165

 

$

379,567

 

$

246,840

 

$

1,739,451

 

 

13.       Convertible notes receivable

 

 

 

Notes receivable

 

Embedded derivatives

 

 

 

August 31,

 

May 31,

 

August 31,

 

May 31,

 

 

 

2017

 

2017

 

2017

 

2017

 

CannaRoyalty Corp.

 

$

1,374,974

 

$

1,360,548

 

$

705,750

 

$

173,000

 

Copperstate Farms Investors, LLC

 

2,507,200

 

 

 

 

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

 

7,050,000

 

 

4,450,000

 

 

 

 

10,932,174

 

1,360,548

 

5,155,750

 

173,000

 

Deduct principal portion included in current assets

 

(2,507,200

)

 

 

 

 

 

$

8,424,974

 

$

1,360,548

 

$

5,155,750

 

$

173,000

 

 

CannaRoyalty Corp.

 

On October 19, 2016, Aphria loaned $1,500,000 to CannaRoyalty Corp. (“CR”) as a convertible debenture. The convertible debenture bears interest at 5%, paid annually, matures in three years and includes the right to convert the debenture into common shares of CR at $2.00 per common share at any time before maturity. CR maintains the option of forced conversion of the convertible debenture if the common shares of CR trade on a stock exchange at a value of $4.00 or more.

 

The option to settle payments in common shares represents an embedded derivative in the form of a call option to the Company. The fair value of the derivative asset related to the convertible note is $705,750 at August 31, 2017.

 

During the period, the Company’s note receivable from CR increased by $14,426 representing the recognition of accrued interest on the note and the embedded derivative, representing the fair value of the conversion feature on the note, increased by $532,750.

 

As at August 31, 2017, the convertible note receivable totalled $2,080,724.

 

14



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended August 31, 2017 and August 31, 2016

(Unaudited)

 

Copperstate Farms Investors, LLC

 

Effective August 31, 2017, the Company lent Copperstate Farms Investors, LLC (“CSF”) $2,000,000 USD ($2,501,000 CAD) in exchange for a senior secured convertible loan. The convertible debenture bears interest at 9%, is due on May 15, 2018 (“Maturity Date”). The loan is pre-payable at any time by CSF, however no principal payments are due prior to the Maturity Date. If at least $500,000 USD of the outstanding loan balance is not repaid by February 28, 2018, then an automatic conversion would be triggered for $500,000 USD plus any accrued but unpaid interest, net of any repayments towards the principal, of the loan balance at $500 USD per unit. If the outstanding loan balance has not been repaid before the Maturity Date, an automatic conversion would be triggered for the remaining loan balance at $500 USD per unit. The convertible loan is secured by a first charge on CSF’s greenhouse assets and real property located in Snowflake, Arizona. Since the option to settle payments in membership units is solely at the discretion of CSF, no embedded derivative has been recognized.

 

As at August 31, 2017, the convertible note receivable totalled $2,507,200.

 

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

 

On August 14, 2017, Aphria lent $11,500,000 to Scientus Pharma (“SP”) as a convertible debenture. The convertible debenture bears interest at 8%, paid semi-annually, matures in two years and includes the right to convert the debenture into common shares of SP at $2.75 per common share at any time before maturity. SP maintains the option of forced conversion of the convertible debenture if the common shares of SP trade on a stock exchange at a value of $3.02 or more for 30 consecutive days.

 

The option to settle payments in common shares represents an embedded derivative in the form of a call option to the Company. The fair value of the derivative asset related to the convertible note is $4,450,000 at August 31, 2017.

 

As at August 31, 2017, the convertible note receivable totalled $11,500,000.

 

The fair value for the embedded derivatives was determined using the Black Scholes option pricing model using the following assumptions: the risk-free rate of 1.12-1.15%; 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.

 

14.       Interest in equity accounted investee

 

 

 

August 31,

 

May 31,

 

 

 

2017

 

2017

 

Associated company

 

 

 

 

 

Liberty Health Sciences Inc. (formerly DFMMJ Investments, Ltd.)

 

$

27,430,588

 

$

28,376,092

 

 

Liberty Health Sciences Inc. (formerly DFMMJ Investments, Ltd.)

 

On April 5, 2017 Aphria announced a strategic investment in DFMMJ Investments, Ltd. (“DFMMJ”), where DFMMJ, through a subsidiary, acquired all or substantially all of the assets of Chestnut Hill Tree Farm LLC (“Chestnut”) and would subsequently amalgamate into a subsidiary of SecureCom Mobile Inc. (“SecureCom”), as part of a business combination. As part of the steps involved in the business combination, Aphria first exchanged rights to use its intellectual property, Aphria’s Know-How-System, to DFMMJ as part of a licensing agreement in exchange for common shares, which through an arm’s length negotiation, was determined to have a fair value of $5,000,000. As a result of this in-kind transaction, Aphria was issued 192,400,000 common shares in DFMMJ. Aphria is

 

15



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended August 31, 2017 and August 31, 2016

(Unaudited)

 

deemed to have significant influence over DFMMJ due to its resulting equity interest (44.0%, at April 5, 2017), whereby the investment is valued under the equity method. For accounting purposes, the Company recorded the transaction as deferred revenue of $2,800,000, representing its non-owned interest in the equity accounted investee. Management determined that the intellectual property would have a useful life of 3 years and therefore the deferred income will be recognized straight-line over its remaining useful life. For the reporting period ended August 31, 2017, the Company recognized $233,333 of the deferred income.

 

On May 24, 2017, the Company released $25,311,794, comprised of $625,000 CAD and $18,340,857 USD, which itself was comprised of $24,375,000 CAD converted into USD in March 2017 as required in the business combination agreement ($24,686,794 CAD), from escrow to DFMMJ, after satisfaction of the escrow release conditions. In addition, the Company incurred $53,898 of transaction fees related to the investment. In exchange, the Company received 120,192,308 common shares of DFMMJ. Concurrently, DFMMJ issued a further 120,192,308 common shares to third parties in exchange for $25,000,000 CAD in cash. As a result of these transactions, the Company owned 312,592,308 common shares in DFMMJ, representing approximately 46.1% of DFMMJ’s issued and outstanding common shares, at May 31, 2017.

 

On July 20, 2017, as part of the business combination DFMMJ received an investment from a third party of $9,149,997 for 43,990,370 subscription shares at $ 0.208 per share. As a result, the Company’s interest in DFMMJ was diluted from 46.1% to 43.3%, with the Company realizing a dilution gain of $1,961,383 from the change in equity interest.

 

Further on July 20 2017, DFMMJ completed its business combination with SecureCom. After amalgamation, SecureCom changed its name to Liberty Health Sciences Inc. (“LHS”) and remained the resulting issuer. Management determined the Company should account for its investment in the newly consolidated LHS using the equity method as a continuation of the treatment previously applied to its investment in DFMMJ. Prior to the transaction, the Company held 8,000,000 shares directly in SecureCom, which have been historically treated as a Level 1 Long-Term Investment. As a result of the business combination, the 130,044,447 total outstanding common shares of SecureCom were added to the share base of LHS, and the fair value of the Company’s investment in SecureCom ($1,664,000) was added to the carrying value of its interest in the equity accounted investee. Upon completion of the business combination, all 852,063,664 outstanding shares were consolidated for Consideration Shares in LHS. As a result, the Company held 320,592,308 (37.6%) of the total outstanding shares of LHS. Due to the dilution of ownership in the combined entity, the Company recognized a further unrealized gain on dilution with respect to the outstanding shares owned by third parties of $5,589,775 and a corresponding increase to the cost base of its investment by the same value.

 

For the three months ended August 31, 2017, the Company reported a total gain on dilution of ownership in equity accounted investee of $7,551,158 (2016 - $nil). Upon the completion of the transaction, LHS consolidated its issued and outstanding common shares, broker warrants and existing stock options on the basis of three pre-consolidation common shares held for one post-consolidation common share. As a result of the three-for-one exchange, Aphria now holds 106,864,102 common shares of LHS, representing a 37.6% ownership, where no new shares were issued and there was no further dilution of ownership.

 

For the four months ended August 31, 2017 for the investee, LHS reported a net loss of $23,492,596 and a net comprehensive loss of $27,001,494 on its financial statements. In accordance with the equity method, Aphria recorded a loss of $8,840,264 and an other comprehensive loss of $1,320,398 from its investee relative to its ownership of the outstanding common shares at the time.

 

16



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended August 31, 2017 and August 31, 2016

(Unaudited)

 

The following table summarizes, in aggregate, the financial information of the Company’s associate as included in their own financial statements. The table also reconciles the summarized financial information to the carrying amount of the Company’s interest as at August 31, 2017:

 

 

 

August 31,

 

April 30,

 

 

 

2017

 

2017

 

Current assets

 

$

12,994,492

 

$

5,723,960

 

Non-current assets

 

50,612,784

 

5,000,000

 

Current liabilities

 

(433,115

)

 

Non-current liabilities

 

(20,457

)

 

Net assets

 

63,153,704

 

10,723,960

 

 

 

 

August 31,

 

May 31,

 

 

 

2017

 

2017

 

 

 

 

 

 

 

Reconciliation to carrying amount:

 

 

 

 

 

Opening net assets

 

56,438,400

 

 

Intangible asset contributed

 

 

5,000,000

 

Cash contributions, net of share issuance costs

 

5,987,404

 

50,960,200

 

Share-based payments

 

663,242

 

 

Contributions on business combination

 

27,066,152

 

 

Net comprehensive (loss) income for the reporting period

 

(27,001,494

)

478,200

 

Closing net assets

 

63,153,704

 

56,438,400

 

 

 

 

 

 

 

Company’s share in %

 

37.6

%

46.1

%

Company’s share of net assets

 

$

23,764,739

 

$

26,018,102

 

Fair value adjustment due to profit elimination

 

 

(2,200,000

)

Goodwill

 

3,665,849

 

4,557,990

 

Carrying amount of interest in associate

 

$

27,430,588

 

$

28,376,092

 

 

Based on its closing share price of $0.85 as at August 31, 2017, the LHS shares held by Aphria have a fair value of approximately $90,834,487.

 

 

 

August 31,

 

May 31,

 

 

 

2017

 

2017

 

 

 

 

 

 

 

Reconciliation to carrying amount:

 

 

 

 

 

Opening balance

 

$

28,376,092

 

$

 

Investment

 

 

28,165,692

 

Transfer of fair value of SecureCom shares on reverse takeover

 

1,664,000

 

 

Gain on account of dilution of ownership

 

7,551,158

 

 

Share of reported net (loss) income

 

(8,840,264

)

210,400

 

Share of reported comprehensive loss

 

(1,320,398

)

 

Closing balance

 

$

27,430,588

 

$

28,376,092

 

 

17



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months ended August 31, 2017 and August 31, 2016

(Unaudited)

 

15.       Long-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

Subtotal

 

 

 

Fair value

 

 

 

Cost

 

 

Fair value

 

 

 

Divestiture/

 

 

August 31,

 

Change in fair

 

August 31,

 

 

 

May 31, 2017

 

 

May 31, 2017

 

Investment

 

Transfer

 

 

2017

 

value

 

2017

 

Level 1 on fair value hierarchy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CannaRoyalty Corp.

 

$

1,379,488

 

 

$

1,793,000

 

$

 

$

 

 

$

1,793,000

 

$

671,000

 

$

2,464,000

 

Kalytera Therapeutics, Inc.

 

3,014,320

 

 

1,110,960

 

 

 

 

1,110,960

 

(339,460

)

771,500

 

MassRoots, Inc.

 

508,425

 

 

562,275

 

 

 

 

562,275

 

(114,867

)

447,408

 

SecureCom Mobile Inc.

 

520,000

 

 

1,664,000

 

 

(1,664,000

)

 

 

 

 

Tetra Bio-Pharma Inc.

 

2,300,000

 

 

9,500,000

 

 

 

 

9,500,000

 

(2,500,000

)

7,000,000

 

Canabo Medical Inc.

 

1,159,426

 

 

316,000

 

 

 

 

316,000

 

(16,000

)

300,000

 

Scythian Biosciences Inc.

 

 

 

 

 

2,000,000

 

 

2,000,000

 

(527,500

)

1,472,500

 

 

 

8,881,659

 

 

14,946,235