EX-99.80 81 a18-26052_1ex99d80.htm EX-99.80

Exhibit 99.80

 

 

Aphria Inc.

 

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2018 AND FEBRUARY 28, 2017

 

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

 



 

Aphria Inc.

Condensed Interim Consolidated Statements of Financial Position

(Unaudited — In thousands of Canadian dollars)

 

 

 

 

 

February 28,

 

 

 

 

 

Note

 

2018

 

May 31, 2017

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

119,435

 

$

79,910

 

Marketable securities

 

4

 

54,248

 

87,347

 

Accounts receivable

 

 

 

4,362

 

826

 

Other current assets

 

5

 

10,133

 

5,571

 

Inventory

 

6

 

11,761

 

3,887

 

Biological assets

 

7

 

3,101

 

1,363

 

Due from related parties

 

8

 

 

464

 

Assets available for sale

 

9

 

40,851

 

 

Current portion of convertible notes receivable

 

12

 

1,921

 

 

Promissory note receivable

 

13

 

33,395

 

 

 

 

 

 

279,207

 

179,368

 

Capital assets

 

9

 

236,504

 

72,500

 

Intangible assets

 

10

 

93,445

 

1,891

 

Convertible notes receivable

 

12

 

14,765

 

1,534

 

Interest in equity investee

 

13

 

 

28,376

 

Long-term investments

 

14

 

86,789

 

27,788

 

Deferred tax asset

 

15

 

 

3,315

 

Goodwill

 

11

 

143,907

 

1,200

 

 

 

 

 

$

854,617

 

$

315,972

 

Liabilities

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

 

$

22,495

 

$

5,874

 

Income taxes payable

 

15

 

2,719

 

 

Deferred revenue

 

 

 

4,100

 

2,800

 

Current portion of promissory note payable

 

17

 

555

 

878

 

Current portion of long-term debt

 

18

 

8,009

 

765

 

Current portion derivative liability

 

13

 

6,740

 

 

 

 

 

 

44,618

 

10,317

 

Long-term liabilities

 

 

 

 

 

 

 

Promissory note payable

 

17

 

623

 

366

 

Long-term debt

 

18

 

29,473

 

31,420

 

Derivative liability

 

13

 

10,110

 

 

Deferred tax liability

 

15

 

23,898

 

 

 

 

 

 

108,722

 

42,103

 

Shareholders’ equity

 

 

 

 

 

 

 

Share capital

 

19

 

695,135

 

274,317

 

Warrants

 

20

 

445

 

445

 

Share-based payment reserve

 

 

 

10,999

 

3,230

 

Accumulated other comprehensive loss

 

 

 

(801

)

 

Non-controlling interest

 

22

 

9,799

 

 

Retained earnings (deficit)

 

 

 

30,318

 

(4,123

)

 

 

 

 

745,895

 

273,869

 

 

 

 

 

$

854,617

 

$

315,972

 

 

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 condensed interim consolidated financial statements

 

2



 

Aphria Inc.

Condensed Interim Consolidated Statements of Income and Comprehensive Income

(Unaudited — In thousands of Canadian dollars, except share and per share amounts)

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

 

 

February 28,

 

February 28,

 

 

 

Note

 

2018

 

2017

 

2018

 

2017

 

Revenue

 

 

 

$

10,267

 

$

5,119

 

$

24,891

 

$

14,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production costs

 

6

 

2,355

 

1,536

 

6,447

 

3,770

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit before fair value adjustments

 

 

 

7,912

 

3,583

 

18,444

 

10,951

 

Fair value adjustment on sale of inventory

 

6

 

3,443

 

1,104

 

7,250

 

3,676

 

Fair value adjustment on growth of biological assets

 

7

 

(4,101

)

(1,090

)

(11,481

)

(4,197

)

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

8,570

 

3,569

 

22,675

 

11,472

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

23

 

2,794

 

1,231

 

6,502

 

3,415

 

Share-based compensation

 

24

 

5,959

 

1,256

 

10,668

 

1,711

 

Selling, marketing and promotion

 

 

 

2,991

 

1,855

 

7,758

 

5,054

 

Amortization

 

 

 

755

 

263

 

1,270

 

715

 

Research and development

 

 

 

110

 

96

 

280

 

434

 

Impairment of intangible asset

 

 

 

 

3,500

 

 

3,500

 

 

 

 

 

12,609

 

8,201

 

26,478

 

14,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,039

)

(4,632

)

(3,803

)

(3,357

)

Non-operating items:

 

 

 

 

 

 

 

 

 

 

 

Consulting revenue

 

17

 

213

 

217

 

689

 

217

 

Foreign exchange (loss) gain

 

 

 

(62

)

65

 

69

 

65

 

(Loss) gain on marketable securities

 

4

 

(502

)

14

 

(2,193

)

14

 

(Loss) gain on sale of capital assets

 

9

 

(184

)

 

(191

)

11

 

Gain on dilution of ownership in equity investee

 

13

 

 

 

7,535

 

 

Loss from equity investee

 

13

 

 

 

(9,281

)

 

Gain on sale of equity investee

 

13

 

26,347

 

 

26,347

 

 

Deferred gain on sale of intellectual property recognized

 

 

 

233

 

 

700

 

 

Finance income, net

 

25

 

1,621

 

406

 

3,533

 

698

 

Unrealized (loss) gain on embedded derivatives

 

12

 

(52

)

 

576

 

 

Gain on long-term investments

 

26

 

14,544

 

8,880

 

39,701

 

9,143

 

Unrealized loss on derivative liability

 

13

 

(16,850

)

 

(16,850

)

 

Transaction costs

 

 

 

(4,253

)

 

(4,253

)

 

 

 

 

 

21,055

 

9,582

 

46,382

 

10,148

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

 

17,016

 

4,950

 

42,579

 

6,791

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

15

 

4,072

 

 

8,139

 

 

Net income

 

 

 

12,944

 

4,950

 

34,440

 

6,791

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss from equity investee

 

13

 

 

 

(801

)

 

Net comprehensive income

 

 

 

$

12,944

 

$

4,950

 

$

33,639

 

$

6,791

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income is attributable to:

 

 

 

 

 

 

 

 

 

 

 

Owners of Aphria Inc.

 

 

 

12,945

 

4,950

 

33,640

 

6,791

 

Non-controlling interest

 

22

 

(1

)

 

(1

)

 

 

 

 

 

$

12,944

 

$

4,950

 

$

33,639

 

$

6,791

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares - basic

 

 

 

161,120,698

 

111,976,759

 

147,274,372

 

93,655,328

 

Weighted average number of common shares - diluted

 

 

 

167,494,603

 

118,298,038

 

153,189,773

 

99,976,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - basic

 

27

 

$

0.08

 

$

0.04

 

$

0.23

 

$

0.07

 

Earnings per share - diluted

 

27

 

$

0.08

 

$

0.04

 

$

0.22

 

$

0.07

 

 

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 amounts)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based

 

other

 

controlling

 

Retained

 

 

 

 

 

Number of

 

Share capital

 

Warrants

 

payment

 

comprehensive

 

interest

 

earnings

 

 

 

 

 

common shares

 

(Note 19)

 

(Note 20)

 

reserve

 

loss

 

(Note 22)

 

(deficit)

 

Total

 

Balance at May 31, 2016

 

70,053,933

 

$

40,917

 

$

694

 

$

1,724

 

$

 

$

 

$

(8,321

)

$

35,014

 

Share issuance - August 2016 bought deal

 

17,250,000

 

31,959

 

 

 

 

 

 

31,959

 

Share issuance - November 2016 bought deal

 

10,062,500

 

37,263

 

 

 

 

 

 

37,263

 

Share issuance - February 2017 bought deal

 

11,500,000

 

53,869

 

 

 

 

 

 

53,869

 

Share issuance - warrants exercised

 

14,558,932

 

22,601

 

(608

)

 

 

 

 

21,993

 

Share issuance - options exercised

 

572,596

 

762

 

 

(311

)

 

 

 

451

 

Share issuance - intangible asset acquisition

 

38,759

 

100

 

359

 

 

 

 

 

459

 

Share-based payments

 

37,500

 

186

 

 

1,509

 

 

 

 

1,695

 

Net comprehensive income for the period

 

 

 

 

 

 

 

6,791

 

6,791

 

Balance at February 28, 2017

 

124,074,220

 

$

187,657

 

$

445

 

$

2,922

 

$

 

$

 

$

(1,530

)

$

189,494

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Non-

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based

 

other

 

controlling

 

Retained

 

 

 

 

 

Number of

 

Share capital

 

Warrants

 

payment

 

comprehensive

 

interest

 

earnings

 

 

 

 

 

common shares

 

(Note 19)

 

(Note 20)

 

reserve

 

loss

 

(Note 22)

 

(deficit)

 

Total

 

Balance at May 31, 2017

 

138,628,704

 

$

274,317

 

$

445

 

$

3,230

 

$

 

$

 

$

(4,123

)

$

273,869

 

Share issuance - November 2017 bought deal

 

12,689,675

 

86,661

 

 

 

 

 

 

86,661

 

Share issuance - January 2018 bought deal

 

8,363,651

 

109,000

 

 

 

 

 

 

109,000

 

Share issuance - Broken Coast acquisition

 

14,373,675

 

214,168

 

 

 

 

 

 

214,168

 

Share issuance - warrants exercised

 

1,584,036

 

2,400

 

 

 

 

 

 

2,400

 

Share issuance - options exercised

 

2,053,000

 

5,338

 

 

(2,000

)

 

 

 

3,338

 

Share issuance - deferred share units

 

5,050

 

62

 

 

 

 

 

 

62

 

Income tax recovery on share issuance costs

 

 

3,002

 

 

 

 

 

 

3,002

 

Share-based payments

 

 

 

 

9,769

 

 

 

 

9,769

 

Shares held in escrow earned in exchange for services

 

 

187

 

 

 

 

 

 

187

 

Non-controlling interest

 

 

 

 

 

 

9,800

 

 

9,800

 

Net comprehensive income for the period

 

 

 

 

 

(801

)

(1

)

34,441

 

33,639

 

Balance at February 28, 2018

 

177,697,791

 

$

695,135

 

$

445

 

$

10,999

 

$

(801

)

$

9,799

 

$

30,318

 

$

745,895

 

 

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

 

2018

 

2017

 

Cash generated from (used in) operating activities:

 

 

 

 

 

 

 

Net income for the period

 

 

 

$

34,440

 

$

6,791

 

Adjustments for:

 

 

 

 

 

 

 

Future income taxes

 

15

 

6,030

 

 

Fair value adjustment on sale of inventory

 

6

 

7,250

 

3,676

 

Fair value adjustment on growth of biological assets

 

7

 

(11,481

)

(4,197

)

Loss (gain) on marketable securities

 

4

 

2,193

 

(14

)

Unrealized foreign exchange gain on convertible notes receivable

 

12

 

(60

)

 

Amortization

 

9,10

 

2,869

 

1,433

 

Loss (gain) on sale of capital assets

 

9

 

191

 

(11

)

Impairment of intangible asset

 

10

 

 

3,500

 

Accretion interest on convertible note receivable

 

12

 

(1,155

)

 

Unrealized gain on embedded derivatives

 

12

 

(576

)

 

Gain on dilution of ownership in equity investee

 

13

 

(7,535

)

 

Loss from equity investee

 

13

 

9,281

 

 

Gain on sale of equity investee

 

13

 

(26,347

)

 

Deferred gain on sale of intellectual property recognized

 

13

 

(700

)

 

Consulting revenue

 

17

 

(689

)

 

Other non-cash items

 

 

 

6

 

67

 

Share-based compensation

 

24

 

10,668

 

1,711

 

Gain on long-term investments

 

26

 

(39,701

)

(9,143

)

Unrealized loss on derivative liability

 

13

 

16,850

 

 

Transaction costs

 

 

 

4,253

 

 

Change in non-cash working capital

 

28

 

(5,217

)

1,433

 

 

 

 

 

570

 

5,246

 

Cash provided by financing activities:

 

 

 

 

 

 

 

Share capital issued, net of cash issuance costs

 

 

 

195,661

 

123,091

 

Share capital issued on warrants, options and deferred share units exercised

 

 

 

5,800

 

22,444

 

Proceeds from non-controlling interest

 

 

 

9,800

 

 

Advances from related parties

 

8

 

9,260

 

350

 

Repayment of amounts due to related parties

 

8

 

(8,764

)

(350

)

Proceeds from long-term debt

 

18

 

 

7,825

 

Repayment of long-term debt

 

18

 

(620

)

(459

)

 

 

 

 

211,137

 

152,901

 

Cash used in investing activities:

 

 

 

 

 

 

 

Investment in marketable securities

 

4

 

(7,365

)

(53,366

)

Proceeds from disposal of marketable securities

 

4

 

38,271

 

15,702

 

Investment in capital and intangible assets, net of shares issued

 

9,10

 

(153,605

)

(35,879

)

Proceeds from disposal of capital assets

 

9

 

200

 

33

 

Convertible notes advances

 

12

 

(14,001

)

 

Repayment of convertible notes receivable

 

 

 

640

 

 

Repayment of promissory notes receivable

 

 

 

 

503

 

Investment in long-term investments

 

 

 

(45,746

)

(21,401

)

Proceeds from disposal of long-term investments

 

 

 

7,468

 

4,140

 

Net cash received on business acquisition

 

11

 

1,956

 

 

 

 

 

 

(172,182

)

(90,268

)

Net increase in cash and cash equivalents

 

 

 

39,525

 

67,879

 

Cash and cash equivalents, beginning of period

 

 

 

79,910

 

16,473

 

Cash and cash equivalents, end of period

 

 

 

$

119,435

 

$

84,352

 

 

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 months and nine months ended February 28, 2018 and February 28, 2017

(Unaudited — In thousands of Canadian dollars, except share and per share amounts)

 

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 cannabis under the provisions of the Access to Cannabis for Medical Purposes Regulations (“ACMPR”). During the three months ended February 28, 2018, the Company acquired Broken Coast Cannabis Ltd. (“Broken Coast”) (note 11), Broken Coast is licensed to produce and sell medical cannabis under the provision of the Access to Cannabis for Medical Purposes Regulations (“ACMPR”).

 

1974568 Ontario Ltd. is a 51% marjority owned subsidiary of the Company, incorporated in November 2017. This entity is the Company’s venture with Double Diamond Farms. 1974568 Ontario Ltd. has applied for its cultivation licence under the provisions of the ACMPR. The registered office of the Company 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 condensed interim consolidated financial statements were approved by the Company’s Board of Directors on April 13, 2018.

 

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, 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 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

 

The Company and its subsidiaries’ functional currency, as determined by management is Canadian dollars. These condensed interim 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 condensed interim consolidated financial statements from the date that control commences until the date that control ceases.

 

Subsidiaries

 

Jurisdiction of incorporation

 

Ownership interest

 

Pure Natures Wellness Inc. (o/a Aphria)

 

Ontario

 

100

%

Aphria (Arizona) Inc.

 

Arizona

 

100

%

Cannan Growers Inc.

 

British Columbia

 

100

%

Broken Coast Cannabis Ltd.

 

British Columbia

 

99.86

%

1974568 Ontario Ltd.

 

Ontario

 

51

%

 

6



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2018 and February 28, 2017

(Unaudited — In thousands of Canadian dollars, except share and per share amounts)

 

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.

 

(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 investees

 

The Company’s interest in equity investees is comprised of its interest in Liberty Health Sciences Inc. During the quarter, the Company entered into an agreement which has changed the classification of this investment from equity investee to assets held for sale (note 13).

 

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 condensed interim consolidated financial statements include the Company’s share of the profit or loss and other comprehensive income (“OCI”) of equity investees until the date on which significant influence ceases.

 

If the Company’s share of losses in an equity 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 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.

 

New standards applicable during the reporting period

 

IFRS 3 — Business Combinations; The Company has applied the acquisition method in accounting for business combinations. The Company measures goodwill as the difference between the fair value of the consideration transferred, including contingent consideration and the recognized amount of any non-controlling interest in the acquiree, and the fair value of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. Transaction costs that the Company incurs in connection with a business combination, such as finders’ fees, legal fees, due diligence fees and other professional and consulting fees, are expensed in the period as incurred.

 

7



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2018 and February 28, 2017

(Unaudited — In thousands of Canadian dollars, except share and per share amounts)

 

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 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, 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 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 financial position, consolidated statements of income and comprehensive income, and consolidated statements of cash flows to improve clarity.

 

8



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2018 and February 28, 2017

(Unaudited — In thousands of Canadian dollars, except share and per share amounts)

 

4.                              Marketable securities

 

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

 

 

 

S&P rating at

 

Interest

 

Maturity

 

February 28,

 

 

 

 

 

purchase

 

rate

 

date

 

2018

 

May 31, 2017

 

Money Market Investments:

 

 

 

 

 

 

 

 

 

 

 

Central 1 Credit Union

 

 

 

1.600

%

4/19/18

 

$

2,138

 

$

 

Enbridge Inc.

 

 

 

1.810

%

3/20/18

 

179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Income:

 

 

 

 

 

 

 

 

 

 

 

Molson Coors Brewing Company

 

BBB-

 

3.950

%

10/06/17

 

 

1,116

 

Ford Motor Credit Co. LLC

 

BBB

 

3.320

%

12/19/17

 

 

1,988

 

Goldman Sachs & Co. LLC

 

A+

 

3.375

%

2/01/18

 

 

5,078

 

The Manufacturer’s Life Insurance Company

 

AA-

 

2.819

%

2/26/18

 

 

1,472

 

Canadian Western Bank

 

A-

 

2.531

%

3/22/18

 

3,035

 

3,039

 

Ford Motor Credit Co. LLC

 

BBB

 

3.700

%

8/02/18

 

1,010

 

1,037

 

Sobeys Inc.

 

BB+

 

3.520

%

8/08/18

 

3,023

 

3,078

 

Royal Bank of Canada

 

AA-

 

2.770

%

12/11/18

 

 

5,180

 

Canadian Western Bank

 

A-

 

3.077

%

1/14/19

 

1,519

 

1,535

 

Sun Life Financial Inc.

 

A

 

2.770

%

5/13/19

 

3,038

 

3,064

 

Ford Motor Credit Co. LLC

 

BBB

 

3.140

%

6/14/19

 

5,075

 

5,207

 

Canadian Natural Resources Ltd.

 

BBB+

 

3.050

%

6/19/19

 

 

2,054

 

Canadian Western Bank

 

A-

 

3.463

%

12/17/19

 

1,022

 

1,028

 

Laurentian Bank of Canada

 

BBB

 

2.500

%

1/23/20

 

2,996

 

6,099

 

Enercare Solutions Inc.

 

BBB

 

4.600

%

2/03/20

 

3,941

 

4,008

 

Enbridge Inc.

 

BBB+

 

4.530

%

3/09/20

 

5,294

 

5,395

 

Central 1 Credit Union

 

A

 

1.870

%

3/16/20

 

 

5,020

 

Choice Properties REIT

 

BBB

 

3.600

%

4/20/20

 

5,155

 

5,237

 

Penske Truck Leasing Co., L.P.

 

BBB

 

2.950

%

6/12/20

 

 

5,145

 

Westcoast Energy Inc.

 

BBB+

 

4.570

%

7/02/20

 

5,283

 

5,430

 

Bank of Montreal (USD)

 

A+

 

1.400

%

4/10/18

 

3,857

 

4,052

 

Citigroup Inc. (USD)

 

BBB+

 

2.050

%

12/17/18

 

3,850

 

4,081

 

Royal Bank of Canada (USD)

 

AA-

 

1.625

%

4/15/19

 

3,833

 

4,040

 

Wells Fargo & Company (USD)

 

A

 

2.150

%

1/30/20

 

 

3,964

 

 

 

 

 

 

 

 

 

$

54,248

 

$

87,347

 

 

The cost of marketable securities as at February 28, 2018 was $55,128 (May 31, 2017 — $87,138). During the three and nine months ended February 28, 2018, the company divested of certain marketable securities in its Canadian portfolio for proceeds of $3,470 and $38,271, resulting in a gain (loss) on disposal of $10 and $(377) (2017 - $14 and $14), and re-invested $2,365 and $7,365 (2017 - $nil and $nil). During the three and nine months ended February 28, 2018, the Company recognized a gain (loss) of $(502) and $(2,193) (2017 - $14 and $14) on its marketable securities portfolio, of which $(512) and $(1,816) (2017 - $nil and $nil) represented unrealized fair value adjustments.

 

9



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2018 and February 28, 2017

(Unaudited — In thousands of Canadian dollars, except share and per share amounts)

 

5.                              Other current assets

 

Other current assets are comprised of:

 

 

 

February 28,

 

 

 

 

 

2018

 

May 31, 2017

 

HST receivable

 

$

6,319

 

$

3,675

 

Accrued interest

 

1,227

 

701

 

Credit card receivable

 

196

 

103

 

Prepaid assets

 

1,365

 

1,060

 

Other

 

1,026

 

32

 

 

 

$

10,133

 

$

5,571

 

 

6.                              Inventory

 

Inventory is comprised of:

 

 

 

Capitalized

 

Fair value

 

 

February 28,

 

 

 

 

 

cost

 

adjustment

 

 

2018

 

May 31, 2017

 

Harvested cannabis

 

$

2,367

 

$

4,149

 

 

$

6,516

 

$

2,507

 

Harvested cannabis trim

 

506

 

775

 

 

1,281

 

421

 

Cannabis oil

 

1,591

 

1,668

 

 

3,259

 

682

 

Packaging and supplies

 

705

 

 

 

705

 

277

 

 

 

$

5,169

 

$

6,592

 

 

$

11,761

 

$

3,887

 

 

During the three and nine months ended February 28, 2018, the Company recorded $2,355 and $6,447 (2017 - $1,536 and $3,770) related to production costs. Included in production costs for the three and nine months ended February 28, 2018 is $62 and $157 of cannabis oil conversion costs (2017 - $50 and $93) and $71 and $169 related to the cost of accessories (2017 - $27 and $27). Included in cost of sales is amortization of $473 and $1,362 (2017 - $236 and $718). The Company also included $237 of amortization in inventory for the three and nine months ended February 28, 2018 related to capital assets utilized in production. During the three and nine months ended February 28, 2018, the Company expensed $3,443 and $7,250 (2017 — $1,104 and $3,676) of fair value adjustments on the sale of its biological assets included in inventory.

 

The Company holds 1,738.1 kilograms of harvested cannabis (May 31, 2017 — 668.5 kgs), 426.9 kilograms of harvested cannabis trim (May 31, 2017 — 140.1 kgs) and 5,053.8 litres of cannabis oils or 842.3 kilograms equivalent (May 31, 2017 — 1,091.3 litres or 181.9 kilograms equivalent) at February 28, 2018.

 

7.                              Biological assets

 

Biological assets are comprised of:

 

 

 

Amount

 

Balance as at May 31, 2017

 

$

1,363

 

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

 

11,481

 

Purchased as part of business acquisition

 

767

 

Production costs capitalized

 

5,524

 

Transferred to inventory upon harvest

 

(15,968

)

Transferred to capital assets

 

(66

)

Balance at February 28, 2018

 

$

3,101

 

 

The Company values medical cannabis plants at cost from the date of initial clipping from mother plants until the end of the ninth or 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 ninth, and thirteenth week until harvest. The Company has determined the fair value less costs to sell of harvested cannabis to be

 

10



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2018 and February 28, 2017

(Unaudited — In thousands of Canadian dollars, except share and per share amounts)

 

$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 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 $4,101 and $11,481 during the three and nine months ended February 28, 2018 (2017 — increase of $1,090 and $4,197). 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. Increases in cost required up to the point of harvest, harvesting costs and selling costs will decrease the fair value of biological assets, while increases in sales price and expected yield for the cannabis plant will increase the fair value of biological assets. All of these significant estimates 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.

 

Sales price 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 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 variety of factors, such as strains being grown, length of growing cycle, and space allocated for growings. Management reviews all significant inputs based on historical information obtained as well as based on planned production schedules. Only when there is a material change from the existing expected fair value used for cannabis does the Company make any adjustments to the fair value used. During the period, there was no material change to these inputs and therefore there has been no change in the determined fair value per plant.

 

8.                              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 February 28, 2018 was $nil (May 31, 2017 - $464). These parties are related as they are corporations that are controlled by certain officers and directors of the Company.

 

During the three and nine months ended February 28, 2018, related party corporations charged or incurred expenditures on behalf of the Company (including rent) totaling $112 and $205 (2017 - $83 and $350). Included in this amount was rent of $10 and $36 charged during the three and nine months ended February 28, 2018 (2017 - $7 and $40).

 

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

 

 

 

Amount

 

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

 

$

(464

)

Related party charges in the period

 

205

 

Payments to related parties in the period

 

(205

)

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

 

(32

)

Payments made on behalf of related parties in the period

 

(8,559

)

Repayments made by related parties in the period

 

9,055

 

Balance at February 28, 2018

 

$

 

 

During the three months ended February 28, 2018, the Company entered into a definitive agreement with respect to the sale of Aphria’s subsidiary Aphria (Arizona) Inc. and its sole holdings being the minority interests in Copperstate and CSF to Liberty Health Sciences Inc. for a purchase price of $20,000 (note 14). Liberty Health Sciences Inc., a related party through an equity investment, which the Company has entered into an agreement which has changed the classification of this investment from equity investee to assets held for sale (note 13).

 

During the nine months ended February 28, 2018, the Company purchased capital assets for $995 from a company controlled by a director. 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 $6,100. The purchase price was allocated as follows: (i) $1,300 to land; (ii) $3,550 to greenhouse infrastructure; and, (iii) $1,250 to licences and permits — intangible assets.

 

11



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2018 and February 28, 2017

(Unaudited — In thousands of Canadian dollars, except share and per share amounts)

 

Key management personnel compensation for the nine months ended February 28, 2018 and 2017 was comprised of:

 

 

 

For the nine months ended

 

 

 

February 28,

 

 

 

2018

 

2017

 

Salaries

 

$

1,197

 

$

620

 

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

 

49

 

35

 

Share-based compensation

 

4,276

 

423

 

 

 

$

5,522

 

$

1,078

 

 

Key management personnel compensation for the three months ended February 28, 2018 and 2017 was comprised of:

 

 

 

For the three months ended

 

 

 

February 28,

 

 

 

2018

 

2017

 

Salaries

 

$

537

 

$

203

 

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

 

13

 

16

 

Share-based compensation

 

2,059

 

158

 

 

 

$

2,609

 

$

377

 

 

Directors and officers of the Company control 10.5% or 18,594,172 of the voting shares of the Company.

 

9.                              Capital assets

 

 

 

 

 

Production

 

 

 

 

 

Leasehold

 

Construction

 

Total capital

 

 

 

Land

 

Facility

 

Bearer plants

 

Equipment

 

improvements

 

in process

 

assets

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2016

 

$

 

$

 

$

 

$

3,499

 

$

4,812

 

$

65

 

$

8,376

 

Additions

 

10,725

 

4,018

 

112

 

1,700

 

16

 

49,958

 

66,529

 

Transfers

 

104

 

12,152

 

 

174

 

(4,566

)

(7,864

)

 

Disposals

 

 

 

(67

)

(33

)

 

 

(100

)

At May 31, 2017

 

10,829

 

16,170

 

45

 

5,340

 

262

 

42,159

 

74,805

 

Business acquisition

 

736

 

6,128

 

19

 

764

 

 

5,291

 

12,938

 

Additions

 

8,724

 

40,293

 

66

 

3,471

 

 

101,042

 

153,596

 

Transfers

 

 

6,990

 

 

697

 

 

(8,102

)

(415

)

Disposals

 

 

(207

)

(3

)

 

 

 

(210

)

At February 28, 2018

 

$

20,289

 

$

69,374

 

$

127

 

$

10,272

 

$

262

 

$

140,390

 

$

240,714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2016

 

$

 

$

 

$

 

$

554

 

$

513

 

$

 

$

1,067

 

Amortization

 

 

458

 

 

717

 

74

 

 

1,249

 

Transfers

 

 

525

 

 

 

(525

)

 

 

Disposals

 

 

 

 

(11

)

 

 

(11

)

At May 31, 2017

 

 

983

 

 

1,260

 

62

 

 

2,305

 

Amortization

 

 

866

 

 

1,014

 

25

 

 

1,905

 

At February 28, 2018

 

$

 

$

1,849

 

$

 

$

2,274

 

$

87

 

$

 

$

4,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2016

 

$

 

$

 

$

 

$

2,945

 

$

4,299

 

$

65

 

$

7,309

 

At May 31, 2017

 

$

10,829

 

$

15,187

 

$

45

 

$

4,080

 

$

200

 

$

42,159

 

$

72,500

 

At February 28, 2018

 

$

20,289

 

$

67,525

 

$

127

 

$

7,998

 

$

175

 

$

140,390

 

$

236,504

 

 

12



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2018 and February 28, 2017

(Unaudited — In thousands of Canadian dollars, except share and per share amounts)

 

During the three and nine months ended February 28, 2018, the Company sold assets that were not yet in use prior to disposal with a cost of $nil and $207 (2017 - $nil and $33) and a net book value of $nil and $207 (2017 - $nil and $22), for proceeds of $nil and $200 (2017 - $nil and $33), resulting in a loss (gain) on sale of capital assets of $nil and $7 (2017 - $nil and $(11)).

 

During the three months ended February 28, 2018, the Company entered into an agreement to sell a piece of equipment, which was not in use and classified within construction in process, for $180 USD ($231 CAD). As a result of this agreement, the Company recognized a loss on sale of capital assets of $184, transferred $415 of cost included in construction, and included the recoverable value of $231 in assets available for sale. During the three and nine months ended February 28, 2018, the company recognized a total loss (gain) on sale of capital assets of $7 and $191 (2017 - $nil and $(11)).

 

Included in assets available for sale is $231 recoverable value for the sale of a piece of equipment, $20,000 fair value of long-term investments (note 14), and $20,620 carrying value of an equity investment classified as available for sale (note 13).

 

10.                       Intangible assets

 

 

 

 

 

 

 

 

 

 

 

Tokyo Smoke

 

 

 

Total

 

 

 

Customer

 

Corporate

 

Licences &

 

 

 

licensing

 

Trademarks &

 

intangible

 

 

 

relationships

 

website

 

permits

 

Non-compete

 

agreement

 

brands

 

assets

 

Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2016

 

$

 

$

162

 

$

 

$

 

$

 

$

4,428

 

$

4,590

 

Additions

 

 

56

 

1,250

 

 

459

 

 

1,765

 

At May 31, 2017

 

 

218

 

1,250

 

 

459

 

4,428

 

6,355

 

Business acquisition

 

11,730

 

39

 

6,320

 

1,930

 

 

72,490

 

92,509

 

Additions

 

 

 

 

 

 

9

 

9

 

At February 28, 2018

 

$

11,730

 

$

257

 

$

7,570

 

$

1,930

 

$

459

 

$

76,927

 

$

98,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2016

 

$

 

$

88

 

$

 

$

 

$

 

$

184

 

$

272

 

Amortization

 

 

68

 

153

 

 

57

 

414

 

692

 

Impairment

 

 

 

 

 

 

3,500

 

3,500

 

At May 31, 2017

 

 

156

 

153

 

 

57

 

4,098

 

4,464

 

Amortization

 

98

 

43

 

124

 

80

 

69

 

550

 

964

 

At February 28, 2018

 

$

98

 

$

199

 

$

277

 

$

80

 

$

126

 

$

4,648

 

$

5,428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2016

 

$

 

$

74

 

$

 

$

 

$

 

$

4,244

 

$

4,318

 

At May 31, 2017

 

$

 

$

62

 

$

1,097

 

$

 

$

402

 

$

330

 

$

1,891

 

At February 28, 2018

 

$

11,632

 

$

58

 

$

7,293

 

$

1,850

 

$

333

 

$

72,279

 

$

93,445

 

 

11.                       Acquisition of Broken Coast

 

On February 13, 2018 the Company entered into a share purchase agreement to purchase all of the shares of Cannan Growers Inc. (“Cannan”), a holding company owning shares of Broken Coast Cannabis Ltd. (“Broken Coast”), and to acquire the remaining shares for a combined total of 99.86% of the issued and outstanding shares of Broken Coast. The combined purchase price was $214,168 satisfied through the issuance of an aggregate 14,373,675 common shares. The share purchase agreement entitled the Company to control over Broken Coast on February 1, 2018, which became the effective acquisition date.

 

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 the preliminary estimated fair value of the assets acquired and the liabilities assumed at the acquisition date:

 

13



 

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2018 and February 28, 2017

(Unaudited — In thousands of Canadian dollars, except share and per share amounts)

 

 

 

Note

 

Number of shares

 

Share price

 

Amount

 

Consideration paid

 

 

 

 

 

 

 

 

 

Shares issued

 

(i)

 

14,373,675

 

$

14.90

 

$

214,168

 

Total consideration paid

 

 

 

 

 

 

 

$

214,168

 

Net assets acquired

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

1,956

 

Accounts receivable

 

 

 

 

 

 

 

305

 

Other current assets

 

 

 

 

 

 

 

43

 

Inventory

 

 

 

 

 

 

 

2,149

 

Biological assets

 

 

 

 

 

 

 

767

 

Long-term assets

 

 

 

 

 

 

 

 

 

Capital assets

 

 

 

 

 

 

 

12,938

 

Customer relationships

 

 

 

 

 

 

 

11,730

 

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