EX-99.91 92 a18-26052_1ex99d91.htm EX-99.91

Exhibit 99.91

 

EXPLANATORY NOTE

 

The business acquisition report of Aphria Inc. (the “Company”) originally dated March 1, 2018 (the “Original BAR”) has been amended and restated by this amended and restated business acquisition report (the “Amended and Restated BAR”) in order to supersede the financial statements included with the Original BAR and replace them with the following: (i) the audited financial statements of Broken Coast (as such term is defined in the Amended and Restated BAR) as at and for the years ended December 31, 2017 and 2016 and the notes thereto, together with the independent auditor’s report thereon; (ii) the audited financial statements of Cannan (as such term is defined in the Amended and Restated BAR) as at and for the years ended December 31, 2017 and 2016 and the notes thereto, together with the independent auditor’s report thereon; and (iii) the unaudited pro forma consolidated financial statements of Aphria for the year ended May 31, 2017 and six month period ended November 30, 2017.

 

This Amended and Restated BAR also updates certain information in Item 2.7 and Item 3 of the Original BAR. Other than the amendments referred to above, this Amended and Restated BAR does not change any of the information contained in the Original BAR or reflect any events that have occurred after the date of the Original BAR. This explanatory note does not form a part of, and is not incorporated by reference in, the Amended and Restated BAR.

 



 

Form 51-102F4

 

Amended and Restated Business Acquisition Report

 

Item 1 Identity of Company

 

1.1                               Name and Address of Company

 

Aphria Inc. (the “Company” or “Aphria”)

245 Talbot St. W., Suite 103

Leamington, ON N8H 1N8

 

1.2                               Executive Officer

 

For further information, please contact Carl Merton, Chief Financial Officer, by telephone at (519) 398-8800.

 

Item 2 Details of Acquisition

 

2.1                               Nature of Business Acquired

 

On February 13, 2018 Aphria acquired 99.86% of all of the issued and outstanding Class A common shares of Broken Coast Cannabis Inc. (“Broken Coast”), a leading premium cannabis producer located in British Columbia as well as all of the issued and outstanding shares of Cannan Growers Inc. (“Cannan”) (the “Transaction”).

 

The closing was effected pursuant to the terms of a definitive share purchase agreement dated February 13, 2018 (the “SPA”) by and among the Company and the vendors party thereto (collectively, the “Vendors”). Pursuant to the SPA, the Company has acquired 99.86% of the Class A common shares of Broken Coast and all of the issued and outstanding shares of Cannan held by the Vendors, as applicable, for an aggregate purchase price of approximately CAN$217 million, subject to customary adjustments. The purchase price has been satisfied by Aphria issuing to the Vendors today an aggregate of 14,373,675 common shares in the capital of the Company.

 

2.2                               Acquisition Date

 

February 13, 2018.

 

2.3                               Consideration

 

As consideration for the Transaction, the purchase price was satisfied by issuing to the Vendors an aggregate of 14,373,675 common shares in the capital of the Company.

 

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2.4                               Effect on Financial Position

 

The Company does not have any plans or proposals for material changes in its business affairs, or the affairs of Broken Coast or Cannan, which would have a significant effect on the financial performance or position of the Company.

 

2.5                               Prior Valuations

 

To the knowledge of the Company, there has not been any valuation opinion obtained within the last 12 months by the Company, Broken Coast or Cannan.

 

2.6                               Parties to Transaction

 

The Transaction was not with an informed person (as such term is defined in section 1.1 of National Instrument 51-102 -Continuous Disclosure Obligations), associate or affiliate of the Company.

 

2.7                               Date of Report

 

May 10, 2018.

 

Item 3 Financial Statements and Other Information

 

The following financial statements are attached as schedules to this Amended and Restated Business Acquisition Report and form an integral part of this Amended and Restated Business Acquisition Report:

 

Exhibit A — Selected Unaudited Pro Forma Consolidated Financial Data

 

Attached as Exhibit A are the Unaudited Pro Forma Consolidated Financial Statements of Aphria for the year ended May 31, 2017 and six month period ended November 30, 2017, by combining the actual results of Aphria with the constructed results of Broken Coast and Cannan for the year ended June 30, 2017.

 

The constructed statements of net income for both Broken Coast and Cannan have been constructed with a period from July 1, 2016 to June 30, 2017. To arrive at this constructed period, Broken Coast and Cannan’s three months and nine months ended September 30, 2017 and 2016 were utilized to calculate results for the six months ended June 30, 2017 and June 30, 2016. The six months ended June 30, 2016 were removed from Broken Coast and Cannan’s twelve months ended December 31, 2016 results. The resulting amounts were then added to the result for the six months ended June 30, 2017.

 

Similarly, the constructed results for the six month period ended November 30, 2017 were calculated by combining Aphria’s actual results from June 1 to November 30, 2017 with the constructed results for Broken Coast and Cannan for the six months ended December 31, 2017. To arrive at this constructed period, Broken Coast and Cannan’s three months and nine months ended September 30, 2017 were utilized to calculate results for the six months ended June 30, 2017. The six months ended June 30, 2017 were removed from Broken Coast

 

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and Cannan’s twelve months ended December 31, 2017 results. All giving the effect to the successful completion of the Transaction as if the Transaction occurred on June 1, 2016.

 

Exhibit B - Audited Financial Statements of Broken Coast

 

Attached as Exhibit B hereto are the audited financial statements of Broken Coast as at and for the years ended December 31, 2017 and 2016 and the notes thereto, together with the independent auditor’s report thereon.

 

Exhibit C - Audited Financial Statements of Cannan

 

Attached as Exhibit C hereto are the audited financial statements of Cannan as at and for the years ended December 31, 2017 and 2016 and the notes thereto, together with the independent auditor’s report thereon.

 

Caution Regarding Unaudited Pro Forma Condensed Combined Financial Statements

 

This Amended and Restated Business Acquisition Report contains the unaudited pro forma consolidated financial statements of the Company comprised of the pro forma consolidated statements of net income of the Company for the six months ended November 30, 2017 and the year ended May 31, 2017, giving effect to the Transaction.

 

Such unaudited pro forma condensed combined financial statements have been prepared using certain of the Company’s, Broken Coast’s and Cannan’s respective historical financial statements as more particularly described in the notes to such unaudited pro forma consolidated financial statements. In preparing such unaudited pro forma consolidated financial statements, the Company has not independently verified the financial statements of Broken Coast or Cannan that were used to prepare the unaudited pro forma condensed combined financial statements. The historical unaudited consolidated and historical audited consolidated financial information has been adjusted in the unaudited pro forma consolidated financial statements to give effect to events that are: (i) directly attributable to the pro forma events, for which there are firm commitments and for which the complete financial effects are objectively determinable and (ii) with respect to the unaudited pro forma consolidated statements of earnings, expected to have a continuing impact on the combined company’s results. As such, the impact from merger-related expenses is not included in the unaudited pro forma condensed combined statements of earnings. The unaudited pro forma consolidated financial statements do not reflect any cost savings from operational efficiencies or synergies that could result from the Transaction or for liabilities that may result from integration planning. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and do not necessarily reflect what the combined company’s financial condition and results of operations would have been had the Transaction occurred on the dates indicated.

 

They also may not be useful in predicting the future financial condition and results of the operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The pro forma adjustments and purchase price allocation for Broken Coast and

 

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Cannan are based on preliminary estimates of the fair value of the consideration paid and the fair value of the assets acquired and liabilities assumed, currently available information and certain assumptions that the Company believes are reasonable in the circumstances, as described in the notes to the unaudited pro forma condensed combined financial statements. As a result of these factors, the actual adjustments will differ from the pro forma adjustments, and the differences may be material.

 

Forward-Looking Statements

 

This Amended and Restated Business Acquisition Report may contain certain “forward-looking statements” or “forward-looking information” under applicable securities laws. Forward-looking terms such as “may,” “will,” “could,” “should,” “would,” “plan,” “potential,” “intend,” “anticipate,” “project,” “target,” “believe,” “estimate” or “expect” and other words, terms and phrases of similar nature are often intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made and represent management’s best judgment based on facts and assumptions that management considers reasonable.

 

Any such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results and expectations to differ materially from the anticipated results or expectations expressed in this Amended and Restated Business Acquisition Report. The Company cautions readers that should certain risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary significantly from those expected. You are referred to the risk factors described in the Company’s most recent annual Management’s Discussion and Analysis, Annual Information Form and other documents on file with the Canadian securities regulatory authorities, which are available online under the Company’s SEDAR profile at www.sedar.com or on the Company’s website at www.aphria.com. The forward-looking statements and information contained in this Amended and Restated Business Acquisition Report represent the Company’s views only as of today’s date. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether because of new information, future events or otherwise, other than as required by law, rule or regulation. You should not place undue reliance on forward-looking statements.

 

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Exhibit “A”

Selected Unaudited Pro Forma Consolidated Financial Data

 

(See attached)

 



 

 

Aphria Inc.

 

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED MAY 31, 2017 AND SIX MONTHS ENDED NOVEMBER 30, 2017

 

(Expressed in Canadian Dollars, unless otherwise noted)

 



 

Aphria Inc.

Pro Forma Consolidated Statements of Net Income

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

 

 

 

Aphria

 

Broken Coast

 

Cannan

 

 

 

 

 

 

 

 

 

six months

 

six months

 

six months

 

 

 

 

 

 

 

 

 

November 30,

 

December 31,

 

December 31,

 

 

 

Pro forma

 

 

 

 

 

2017

 

2017

 

2017

 

Note 5

 

adjustments

 

Pro forma

 

Revenue

 

$

14,624

 

$

3,717

 

$

 

 

 

$

 

$

18,341

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production costs

 

4,092

 

3,239

 

 

(f)

 

(1,749

)

5,582

 

Gross profit before fair value adjustments

 

10,532

 

478

 

 

 

 

1,749

 

12,759

 

Fair value adjustment on sale of inventory

 

3,807

 

 

 

(f)

 

1,749

 

5,556

 

Fair value adjustment on growth of biological assets

 

(7,380

)

(3,578

)

 

 

 

 

(10,958

)

Gross profit

 

14,105

 

4,056

 

 

 

 

 

18,161

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

3,708

 

1,187

 

1

 

 

 

 

4,896

 

Share-based compensation

 

4,709

 

 

 

 

 

 

4,709

 

Selling, marketing and promotion

 

4,767

 

350

 

 

 

 

 

5,117

 

Amortization

 

515

 

231

 

 

(b)

 

4,250

 

4,996

 

Research and development

 

170

 

 

 

 

 

 

170

 

 

 

13,869

 

1,768

 

1

 

 

 

4,250

 

19,888

 

 

 

236

 

2,288

 

(1

)

 

 

(4,250

)

(1,727

)

Non-operating items:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting revenue

 

476

 

19

 

 

 

 

 

495

 

Foreign exchange gain

 

131

 

 

 

 

 

 

131

 

Gain (loss) on marketable securities

 

(1,691

)

 

 

 

 

 

(1,691

)

(Loss) gain on sale of capital assets

 

(7

)

 

 

 

 

 

(7

)

(Loss) gain on dilution of ownership in equity investee

 

7,535

 

 

 

 

 

 

7,535

 

(Loss) gain from equity investee

 

(9,281

)

 

744

 

(d)

 

(744

)

(9,281

)

Deferred gain on sale of intellectual property recognized

 

467

 

 

 

 

 

 

467

 

Finance income, net

 

1,912

 

(61

)

 

 

 

 

1,851

 

Unrealized gain on embedded derivatives

 

628

 

 

 

 

 

 

628

 

Gain on long-term investments

 

25,157

 

 

 

 

 

 

25,157

 

 

 

25,327

 

(42

)

744

 

 

 

(744

)

25,285

 

Income before income taxes

 

25,563

 

2,246

 

743

 

 

 

(4,994

)

23,558

 

Income taxes

 

4,067

 

720

 

102

 

(c)

 

(1,126

)

3,661

 

 

 

 

 

 

 

 

 

(e)

 

(102

)

 

 

Net income

 

21,496

 

1,526

 

641

 

 

 

(3,766

)

19,897

 

Weighted average number of common shares - basic

 

138,775,253

 

 

 

 

 

(a)

 

14,373,675

 

153,148,928

 

Weighted average number of common shares - diluted

 

146,075,449

 

 

 

 

 

(a)

 

14,373,675

 

160,449,124

 

Earnings per share - basic

 

$

0.15

 

 

 

 

 

 

 

 

 

$

0.13

 

Earnings per share - diluted

 

$

0.15

 

 

 

 

 

 

 

 

 

$

0.12

 

 

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

 

2



 

Aphria Inc.

Pro Forma Consolidated Statements of Net Income

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

 

 

 

For the year ended

 

 

 

Aphria

 

Broken Coast

 

Cannan

 

 

 

 

 

 

 

 

 

May 31,

 

June 30,

 

June 30,

 

 

 

Pro forma 

 

 

 

 

 

2017

 

2017

 

2017

 

Note 5

 

adjustments

 

Pro forma

 

Revenue

 

$

20,438

 

$

6,193

 

$

 

 

 

$

 

$

26,631

 

Production costs

 

4,585

 

6,387

 

 

(f)

 

(3,449

)

7,523

 

Gross profit before fair value adjustments

 

15,853

 

(194

)

 

 

 

3,449

 

19,108

 

Fair value adjustment on sale of inventory

 

3,561

 

 

 

(f)

 

3,449

 

7,010

 

Fair value adjustment on growth of biological assets

 

(5,005

)

(6,387

)

 

 

 

 

(11,392

)

Gross profit

 

17,297

 

6,193

 

 

 

 

 

23,490

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

4,678

 

1,594

 

23

 

 

 

 

6,295

 

Share-based compensation

 

2,399

 

30

 

 

 

 

 

2,429

 

Selling, marketing and promotion

 

6,664

 

561

 

 

 

 

 

7,225

 

Amortization

 

956

 

395

 

 

(b)

 

8,500

 

9,851

 

Research and development

 

492

 

 

 

 

 

 

492

 

Impairment of intangible asset

 

3,500

 

 

 

 

 

 

3,500

 

 

 

18,689

 

2,580

 

23

 

 

 

8,500

 

29,792

 

 

 

(1,392

)

3,613

 

(23

)

 

 

(8,500

)

(6,302

)

Non-operating items:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting revenue

 

512

 

19

 

 

 

 

 

531

 

Foreign exchange gain

 

483

 

 

 

 

 

 

483

 

Gain (loss) on marketable securities

 

209

 

 

 

 

 

 

209

 

(Loss) gain on sale of capital assets

 

11

 

 

 

 

 

 

11

 

Gian from equity investee

 

210

 

 

1,010

 

(d)

 

(1,010

)

210

 

Finance income, net

 

728

 

(128

)

 

 

 

 

600

 

Gain on long-term investments

 

3,571

 

 

 

 

 

 

3,571

 

 

 

5,724

 

(109

)

1,010

 

 

 

(1,010

)

5,615

 

Income before income taxes

 

4,332

 

3,504

 

987

 

 

 

(9,510

)

(687

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

134

 

949

 

132

 

(c)

 

(2,252

)

(1,169

)

 

 

 

 

 

 

 

 

(e)

 

(132

)

 

 

Net income

 

4,198

 

2,555

 

855

 

 

 

(7,126

)

483

 

Weighted average number of common shares - basic

 

104,341,319

 

 

 

 

 

(a)

 

14,373,675

 

118,714,994

 

Weighted average number of common shares - diluted

 

111,427,893

 

 

 

 

 

(a)

 

14,373,675

 

125,801,568

 

Earnings per share - basic

 

$

0.04

 

 

 

 

 

 

 

 

 

$

0.00

 

Earnings per share - diluted

 

$

0.04

 

 

 

 

 

 

 

 

 

$

0.00

 

 

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

 

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Aphria Inc.

Notes to the unaudited pro forma consolidated financial statements

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

 

1.             Basis of presentation

 

The accompanying unaudited pro forma consolidated financial statements are based on the historical financial statements of Aphria Inc. (“Aphria”), Broken Coast Cannabis Ltd. (“Broken Coast”), and Cannan Growers Inc. (“Cannan”), consolidated and adjusted to give effect to the acquisition by Aphria, of approximately 99.86% of the issued and outstanding shares of Broken Coast and all of the issued and outstanding shares of Cannan (the “Acquisitions”). They are presented for illustrative purposes only and may not be indicative of the consolidated company’s financial position or results of operations that would have actually occurred had the Acquisitions been completed at or as of the dates indicated, nor is it indicative of our future operating results or financial position.

 

The data in the unaudited pro forma consolidated statements of net income for the year ended May 31, 2017 and the six month period ended November 30, 2017 assumes that the Acquisitions took place at June 1, 2016, the beginning of the financial year.

 

The historical consolidated financial information has been adjusted in the unaudited pro forma consolidated financial statements to give effect to pro forma events that are (1) directly attributable to the Acquisitions, (2) objectively determinable, and (3) with respect to the statements of net income, expected to have a continuing impact on the consolidated results. The unaudited pro forma consolidated financial statements was based on and should be read in conjunction with the following historical financial statements and accompanying notes of Broken Coast and Cannan for the applicable periods, which are included elsewhere in the business acquisition report, and the financial statements of Aphria:

 

·                  Historical audited consolidated financial statements of Aphria for the year ended May 31, 2017 and the related notes;

·                  Historical unaudited condensed interim consolidated financial statements of Aphria for the three and six months ended November 30, 2017 and the related notes;

·                  Historical audited financial statements of Broken Coast for the year ended December 31, 2017 and the related notes;

·                  Historical audited financial statements of Cannan for the year ended December 31, 2017 and the related notes; and

 

The unaudited pro forma consolidated financial statements is presented for informational purposes only. The unaudited pro forma consolidated financial statements may not be indicative of the financial position that would have prevailed and operating results that would have been obtained if the Acquisitions had been completed on those dates or for the periods presented, nor do they claim to project the financial position or operating results which may be obtained in the future. The unaudited pro forma consolidated financial statements are not forecast or projection of future results. The actual financial position and results of operation of Aphria for any period following the closing of the Acquisitions will vary from the amounts set forth in the unaudited pro forma consolidated financial statements and such variations may be material. Any potential integration gains that may be realized and integration costs that may be incurred upon completion of the Acquisitions, have been excluded from the unaudited pro forma consolidated financial statements.

 

In the opinion of management, the accounting policies used in the preparation of the unaudited pro forma consolidated interim statements of net income for the six months ended November 30, 2017 and for the year ended May 31, 2017, include all the adjustments necessary for the fair presentation of the Acquisitions in accordance with the recognition and measurement principles of International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and incorporate the significant accounting policies expected to be used to prepare Aphria’s consolidated financial statements. Certain financial statement line items included in Broken Coast and Cannan’s historical presentation have been disaggregated or condensed to conform to corresponding financial statement line items included in Aphria’s historical presentation.

 

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Aphria Inc.

Notes to the unaudited pro forma consolidated financial statements

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

 

The unaudited pro forma consolidated financial statements have been prepared using the acquisition method of accounting in accordance with IFRS 3, Business Combinations (“IFRS 3”), as described in the unaudited condensed interim consolidated financial statements of Aphria for the three and nine months ended February 28, 2017. Under the acquisition method of accounting, the total estimated purchase price of an acquisition is allocated to the net tangible and intangible assets and liabilities assumed based on their estimated fair values. The pro forma adjustments related to the purchase price allocation in connection with the Acquisitions are preliminary and based upon information obtained to date and assumptions that we believe are reasonable. The actual purchase accounting adjustments are described in the unaudited condensed interim consolidated financial statements of Aphria for the three and nine months ended February 28, 2017 are preliminary and will be finalized as information becomes available, but limited to one year after the acquisition date, and may differ from those reflected in the unaudited pro forma consolidated financial statements presented above. The actual amounts that we record are based on our final allocation of the purchase price, after giving effect to the final purchase price adjustments at the closing date, and our final assessment of fair values may differ materially from those recorded in our unaudited pro forma consolidated financial statements. The unaudited pro forma consolidated statements of net income do not reflect any acquisition costs in connection with the Acquisitions.

 

The unaudited pro forma consolidated statements of net income for the year ended May 31, 2017 has been derived as follows:

 

(i)            the consolidated statements of income and comprehensive income of Aphria for the year ended May 31, 2017 from the audited consolidated financial statements of Aphria as at May 31, 2017 and for the year then ended;

(ii)           the statement of comprehensive income of Broken Coast for the year ended December 31, 2016 from the audited financial statements of Broken Coast as at and for the year ended December 31, 2017, which was adjusted to remove the unaudited statement of comprehensive income for the six month period ended June 30, 2016 and to add the unaudited financial statement of comprehensive income for the six month period ended June 30, 2017; and

(iii)          the statement of comprehensive income of Cannan for the year ended December 31, 2016 from the audited financial statements of Cannan as at and for the year ended December 31, 2017, which was adjusted to remove the unaudited statement of comprehensive income for the six month period ended June 30, 2016 and to add the unaudited statement of comprehensive income for the six month period ended June 30, 2017.

 

The unaudited pro forma consolidated statements of net income for the six month period ended November 30, 2017 has been derived as follows:

 

(i)            the unaudited condensed interim consolidated statements of income and comprehensive income of Aphria for the six month period ended November 30, 2017 from the unaudited condensed interim consolidated financial statements of Aphria as at and for the periods ended November 30, 2017;

(ii)           the statement of comprehensive income of Broken Coast for the year ended December 31, 2017 from the audited financial statements of Broken Coast as at and for the year ended December 31, 2017, which was adjusted to remove the unaudited statement of comprehensive income for the six month period ended June 30, 2017; and

(iii)          the statement of comprehensive income of Cannan for the year ended December 31, 2017 from the audited financial statements of Cannan as at and for the year ended December 31, 2017, which was adjusted to remove the unaudited statement of comprehensive income for the six month period ended June 30, 2017.

 

The unaudited pro forma consolidated statements of net income for the year ended May 31, 2017 include the results Broken Coast and Cannan for the year ended June 30, 2017. The unaudited pro forma consolidated statements of net income for the six month period ended November 30, 2017 include the results Broken Coast and Cannan for the six months ended December 31, 2017.

 

The unaudited pro forma consolidate financial statements are only a summary and are not necessarily indicative of the results of Aphria’s, Broken Coast’s or Cannan’s future operations.

 

5



 

Aphria Inc.

Notes to the unaudited pro forma consolidated financial statements

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

 

2.              Description of Transaction

 

Effective February 1, 2018, Aphria entered into a definitive purchase agreement and acquired 99.86% of the outstanding shares of Broken Coast, through a direct acquisition of 132,576.59 shares of Broken Coast and the acquisition of 100% of the shares of Cannan which owned the remaining 33,576 outstanding shares of Broken Coast. Pursuant to the terms and conditions set forth in the definitive agreement between Aphria, Broken Coast and Cannan that was entered into effective February 1, 2017 (the “Transaction”). The total consideration transferred was $216,899 to be paid in 14,373,675 Aphria shares issued at a deemed price of $15.09 representing the 20-day VWAP of Aphria at market close on the business day immediately prior to signing of the parties initial non-binding letter of intent.

 

3.              Significant accounting policies

 

The accounting policies used in preparing the unaudited pro forma consolidated financial statements are set out in Aphria’s audited consolidated financial statements for the year ended May 31, 2017 and as described in Aphria’s unaudited condensed interim consolidated financial statements for the three months and six months ended November 30, 2017. The financial statements of Broken Coast and Cannan (which form the basis of the unaudited pro forma consolidated financial statements) were prepared in accordance with IFRS.

 

The pro forma consolidated financial statements do not include all the information and disclosures required by IFRS for annual financial statements and should be read in conjunction with the financial statements of Aphria, the financial statements of Broken Coast, and the financial statements of Cannan that are incorporated by reference or included herein. These pro forma statements have been prepared in thousands of Canadian dollars unless otherwise noted.

 

6



 

Aphria Inc.

Notes to the unaudited pro forma consolidated financial statements

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

 

4.              Fair value of consideration transferred in connection with the Acquisitions

 

The following table summarizes the purchase price for the Acquisitions:

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

Number of 

 

 

 

preliminary fair

 

 

 

Note

 

shares

 

Share price

 

value

 

Consideration paid

 

 

 

 

 

 

 

 

 

Shares issued

 

(i)

 

14,373,675

 

$

14.90

 

214,168

 

Total consideration paid

 

 

 

 

 

 

 

214,168

 

 

 

 

 

 

 

 

 

 

 

Net assets acquired

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash

 

 

 

 

 

 

 

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

 

Corporate website

 

 

 

 

 

 

 

39

 

Licence

 

 

 

 

 

 

 

6,320

 

Non-competition agreements

 

 

 

 

 

 

 

1,930

 

Trademark & brands

 

 

 

 

 

 

 

72,490

 

Goodwill

 

 

 

 

 

 

 

142,707

 

Total assets

 

 

 

 

 

 

 

253,374

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

 

 

 

 

 

8,475

 

Income taxes payable

 

 

 

 

 

 

 

632

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

Deferred tax liability

 

 

 

 

 

 

 

24,185

 

Long-term debt

 

 

 

 

 

 

 

5,914

 

Total liabilities

 

 

 

 

 

 

 

39,206

 

 

 

 

 

 

 

 

 

 

 

Total net assets acquired

 

 

 

 

 

 

 

$

214,168

 

 


(i)                           Share price based on the closing price of the shares on February 1, 2018.

 

5.              Pro forma adjusments in connection with the Acquisitions

 

This note should be read in conjunction with Note 1 Basis of presentation; Note 2 Description of transaction; and Note 4 Fair value of consideration transferred in connection with the Acquisitions. The following summarizes the pro forma adjustments in connection with the Acquisitions to give effect to the acquisition as if it had occurred on June 1, 2016 for purposes of the pro

 

7



 

Aphria Inc.

Notes to the unaudited pro forma consolidated financial statements

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

 

forma consolidated statements of net income for the year ended May 31, 2017, and the pro forma consolidated statements of net income for the six months ended November 30, 2017.

 

(a)                   An increase in weighted average number of common shares basic and diluted to record the 14,373,675 shares issued for the Acquisitions.

 

(b)                   An increase in amortization of $8,500 for the year ended May 31, 2017 and $4,250 for the six months ended November 30, 2017 representing the amortization of the preliminary fair value of the intangible assets acquired from the Acquisitions.

 

(c)                    A reduction in income tax expense of $2,252 for the year ended May 31, 2017 and $1,126 for the six months ended November 30, 2017 representing the deferred tax impact of the the increase in amortization of the preliminary fair value of intangible assets acquired from the Acquisitions.

 

(d)                   A reduction in the gain from equity investee of $744 for the six months ended December 31, 2017 and $1,010 for the year ended June 30, 2017 to eliminate Cannan’s share of the income of Broken Coast.

 

(e)                    reduction in income tax expense of $132 for the year ended May 31, 2017 and $102 for the six months ended November 30, 2017 to eliminate the deferred tax expense recognized on Cannan’s share of the income in Broken Coast.

 

(f)                     A reduction in production costs of $1,749 for the three months ended September 30, 2017 and $3,449 for the year ended June 30, 2017, with a corresponding increase in fair value adjustment on sale of inventory representing the expected fair value adjustment included in cost of inventory sold, to align the accounting presentation of Broken Coast with Aphria.

 

6.              Pro forma net income per share

 

The pro forma basic and diluted earnings per share have been calculated as follows:

 

 

 

For the year

 

For the six

 

 

 

ended

 

months ended

 

 

 

May 31,

 

November 30,

 

 

 

2017

 

2017

 

Basic earnings per share:

 

 

 

 

 

Pro forma net income for the period

 

$

483

 

$

19,897

 

Average number of common shares outstanding during the period

 

118,714,994

 

153,148,928

 

Pro forma earnings per share - basic

 

$

0.00

 

$

0.13

 

 

 

 

For the year

 

For the six

 

 

 

ended

 

months ended

 

 

 

May 31,

 

November 30,

 

 

 

2017

 

2017

 

Diluted earnings per share:

 

 

 

 

 

Pro forma net income for the period

 

$

483

 

$

19,897

 

 

 

 

 

 

 

Average number of common shares outstanding during the period

 

118,714,994

 

153,148,928

 

“In the money” warrants outstanding during the period

 

2,697,681

 

2,796,468

 

“In the money” options outstanding during the period

 

4,388,893

 

4,503,728

 

 

 

125,801,568

 

160,449,124

 

pro forma earnings per share - diluted

 

$

0.00

 

$

0.12

 

 

8



 

Exhibit “B”

Audited Financial Statements of Broken Coast

 

(See attached)

 



 

BROKEN COAST CANNABIS LTD.

 

FINANCIAL STATEMENTS

 

31 DECEMBER 2017 AND 2016

 

Stated in Canadian Dollars

 



 

 

May 9, 2018

 

Independent Auditor’s Report

 

To the Shareholders of

Broken Coast Cannabis Ltd.

 

We have audited the accompanying financial statements of Broken Coast Cannabis Ltd., which comprise the statement of financial position as at December 31, 2017 and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.

 

Management’s responsibility for the financial statements

 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

PricewaterhouseCoopers LLP

245 Ouellette Avenue, Suite 300, Windsor, Ontario, Canada N9A 7J4

T: +1 519 985 8900, F: +1 519 258 5457

 

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

 



 

Opinion

 

In our opinion, the financial statements present fairly, in all material respects, the financial position of Broken Coast Cannabis Ltd. as at December 31, 2017 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

(Signed) “PricewaterhouseCoopers LLP”

 

Chartered Professional Accountants, Licensed Public Accountants

 

Windsor, Ontario, Canada

 



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

STATEMENTS OF FINANCIAL POSITION

 

 

 

 

 

 

As at

 

As at

 

 

 

 

 

 

31 December

 

31 December

 

 

 

 

 

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash

 

 

 

 

$

2,112,182

 

$

653,121

 

Restricted cash

 

 

 

 

250,000

 

 

Accounts receivable

 

(7)

 

 

342,449

 

188,139

 

Biological assets

 

(8)

 

 

544,006

 

536,514

 

Inventory

 

(8)

 

 

2,442,367

 

1,394,656

 

Prepaid expenses

 

 

 

 

25,041

 

34,869

 

 

 

 

 

 

5,716,045

 

2,807,299

 

Non-current Assets

 

 

 

 

 

 

 

 

Property, plant, and equipment

 

(9)

 

 

12,757,310

 

3,723,098

 

Intangible assets

 

(10)

 

 

40,558

 

46,646

 

 

 

 

 

 

12,797,868

 

3,769,744

 

 

 

 

 

 

$

18,513,913

 

$

6,577,043

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

(13)

 

 

$

1,756,612

 

$

421,569

 

Goods and services tax payable

 

 

 

 

40,839

 

50,339

 

Corporate taxes payable

 

(17)

 

 

817,382

 

264,907

 

Deferred revenue

 

(3)

 

 

64,926

 

14,867

 

Bank loans payable

 

(11)

 

 

5,749,754

 

1,329,524

 

Note payable

 

(12)

 

 

250,000

 

250,000

 

 

 

 

 

 

8,679,513

 

2,331,206

 

Non-current Liabilities

 

 

 

 

 

 

 

 

Deferred income tax liability

 

(17)

 

 

487,156

 

197,746

 

 

 

 

 

 

9,166,669

 

2,528,952

 

EQUITY

 

 

 

 

 

 

 

 

Share capital

 

(14)

 

 

4,255,530

 

1,749,856

 

Retained earnings

 

 

 

 

5,091,714

 

2,298,235

 

 

 

 

 

 

9,347,244

 

4,048,091

 

 

 

 

 

 

$

18,513,913

 

$

6,577,043

 

 

 

 

 

 

 

 

 

 

Related party transactions

 

(13)

 

 

 

 

 

 

Contingent liability

 

(18)

 

 

 

 

 

 

Subsequent events

 

(19)

 

 

 

 

 

 

 

The financial statements were approved by the board of directors on 8 May 2018 and were signed on its behalf by:

 

“Roberto Bresciani”

 

Roberto Bresciani, Director

 

 

— The accompanying notes form an integral part of the financial statements —

 

1



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

 

Year ended

 

Year ended

 

 

 

 

31 December

 

31 December

 

 

 

 

2017

 

2016

 

CONTINUING OPERATIONS

 

 

 

 

 

 

Sales

 

 

$

9,976,536

 

$

4,596,387

 

Cost of sales (recovery)

 

 

 

 

 

 

Gain on changes in fair value of biological asset

(8)

 

(7,477,300

)

(4,422,779

)

Inventory expense to cost of sales

 

 

7,962,273

 

4,254,624

 

Processing fees

 

 

192,587

 

78,552

 

Production costs

 

 

327,304

 

551,905

 

Cost of sales

 

 

1,004,864

 

462,302

 

Gross margin

 

 

8,971,672

 

4,134,085

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

 

 

 

 

Salaries and wages

 

 

2,302,033

 

651,714

 

Advertising and promotion

 

 

958,328

 

403,864

 

Amortization of property, plant and equipment

(9)

 

670,306

 

186,980

 

Rental

 

 

96,943

 

161,210

 

Sub-contracts and consulting

 

 

79,098

 

150,655

 

Professional fees

 

 

109,177

 

65,558

 

Interest on long-term debt

 

 

102,091

 

58,274

 

Supplies

 

 

142,699

 

37,280

 

Office

 

 

190,717

 

36,729

 

Share based payments

(14)

 

 

29,634

 

Licenses and memberships

 

 

28,244

 

28,586

 

Interest and bank charges

 

 

18,391

 

16,996

 

Travel

 

 

32,614

 

15,228

 

Insurance

 

 

43,245

 

12,279

 

Amortization of intangible assets

(10)

 

16,356

 

11,517

 

Utilities

 

 

5,085

 

9,172

 

Bad debts

(7)

 

43,245

 

3,947

 

 

 

 

4,838,572

 

1,879,623

 

 

 

 

 

 

 

 

Income from operations

 

 

4,133,100

 

2,254,462

 

Other income

 

 

87,280

 

 

Other expenses

 

 

(38,648

)

 

 

 

 

48,632

 

 

Net income and comprehensive income before income taxes

 

 

4,181,732

 

2,254,462

 

Deferred income tax expense

(17)

 

(289,410

)

(128,820

)

Current income tax expense

(17)

 

(1,098,843

)

(264,907

)

Net income and comprehensive income for the year

 

 

$

2,793,479

 

$

1,860,735

 

 

— The accompanying notes form an integral part of the financial statements —

 

2



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

STATEMENTS OF CHANGES IN EQUITY

 

 

 

 

 

 

 

Retained

 

Shareholders’

 

 

 

Shares

 

Amount

 

Earnings

 

Equity

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT 31 DECEMBER 2015

 

121,107

 

$

945,504

 

$

437,500

 

$

1,383,004

 

Issuance of shares for services

 

140

 

29,634

 

 

29,634

 

Issuance of shares for cash

 

3,660

 

774,718

 

 

774,718

 

Net income for the year

 

 

 

1,860,735

 

1,860,735

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT 31 DECEMBER 2016

 

124,907

 

$

1,749,856

 

$

2,298,235

 

$

4,048,091

 

Issuance of shares for assets

 

10,669

 

2,255,674

 

 

2,255,674

 

Issuance of shares for cash

 

184

 

250,000

 

 

250,000

 

Net income for the year

 

 

 

2,793,479

 

2,793,479

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT 31 DECEMBER 2017

 

135,760

 

$

4,255,530

 

$

5,091,714

 

$

9,347,244

 

 

— The accompanying notes form an integral part of the financial statements —

 

3



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

STATEMENTS OF CASH FLOWS

 

 

 

Year

 

Year

 

 

 

Ended

 

Ended

 

 

 

31 December

 

31 December

 

 

 

2017

 

2016

 

 

 

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

 

Income for the Year

 

$

2,793,479

 

$

1,860,735

 

Items not Affecting Cash

 

 

 

 

 

Gain on change in fair value of biological assets

 

(7,477,300

)

(4,422,779

)

Share-based payments

 

 

29,634

 

Amortization of property, plant and equipment

 

670,306

 

186,980

 

Amortization of intangible assets

 

16,356

 

11,517

 

Accretion of interest

 

 

7,192

 

Deferred income tax expense

 

289,410

 

128,820

 

 

 

(3,707,749

)

(2,197,901

)

Net Change in Non-cash Working Capital

 

 

 

 

 

Accounts receivable

 

(154,310

)

(67,780

)

Inventory

 

6,422,097

 

3,470,409

 

Prepaid expenses

 

9,828

 

(23,211

)

Accounts payable and accrued liabilities

 

1,335,043

 

221,088

 

Goods and services tax payable

 

(9,500

)

3,184

 

Corporate taxes payable

 

552,475

 

264,907

 

Deferred revenue

 

50,059

 

(33,141

)

 

 

8,205,692

 

3,835,456

 

 

 

4,497,943

 

1,637,555

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

Education grants received (advanced)

 

 

21,000

 

Purchase of property, plant and equipment

 

(5,688,844

)

(3,196,081

)

Purchase of intangible assets

 

(10,268

)

(1,151

)

 

 

(5,699,112

)

(3,176,232

)

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

Proceeds on promissory note

 

250,000

 

350,000

 

Repayment of promissory note

 

(250,000

)

(350,000

)

Advances from (to) related parties

 

 

(385,030

)

Proceeds from sale of shares

 

250,000

 

774,718

 

Proceeds on bank loans payable

 

2,815,908

 

1,329,524

 

Repayment of bank loans payable

 

(155,678

)

 

 

 

2,910,230

 

1,719,212

 

Net Increase in Cash

 

1,709,061

 

180,535

 

Cash position — beginning of year

 

653,121

 

472,586

 

Cash Position — End of Year

 

$

2,362,182

 

$

653,121

 

Supplementary Disclosure of Cash Flow Information

 

 

 

 

 

Shares issued for property acquisition (Note 9)

 

$

2,255,674

 

$

 

Assumption of mortgage for property acquisition (Note 9)

 

$

1,760,000

 

$

 

 

— The accompanying notes form an integral part of the financial statements —

 

4



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

NOTES TO THE FINANCIAL STATEMENTS

 

1)             Nature of operations

 

Broken Coast Cannabis Ltd. (the “Company”, or “Broken Coast”), formerly Greenleaf Medicinals Ltd., was incorporated under the Canada Business Corporations Act of British Columbia on 21 February 2013.

 

The registered and records office of the Company is 4th Floor, 931 Fort Street, Victoria, BC, V8V 3K3.

 

The Company is a licensed producer of medical marihuana based in Duncan, British Columbia, licensed under the Controlled Drugs and Substances Act (Canada). The principal activities of the Company are the production and sale of medical marihuana as regulated by the Access to Cannabis for Medicinal Purposes Regulations (“ACMPR”)

 

2)             Basis of preparation — Statement of Compliance

 

The financial statements of the Company have been prepared in accordance with IFRS and related IFRS Interpretations Committee (“IFRICs”) as issued by the International Accounting Standards Board (“IASB”).

 

These financial statements were approved by the board of directors and authorized for issue on 8 May 2018.

 

The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgments, and assumptions that affect the application of the Company’s accounting policies and reported amounts of assets and liabilities, profit and expenses. The areas involving a higher degree of judgements or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed Note 4. The estimates and associated assumptions are based on current facts and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

3)             Summary of significant accounting policies

 

a)             Basis of measurement

 

These financial statements have been prepared in Canadian dollars on a historical cost basis except for biological assets, which are measured at fair value. Historical cost is generally based upon the fair value of the consideration given in exchange for assets. These financial statements are presented in Canadian dollars, which is the functional and presentation currency of the Company.

 

b)             Biological assets

 

The Company measures biological assets consisting of medicinal cannabis plants at fair value less costs to sell up to the point of harvest, which becomes the basis for the cost of finished goods inventories after harvest.

 

c)              Inventory

 

Inventories of harvested finished goods and packing materials are recorded at the lower of cost and net realizable value. Inventories of harvested cannabis are transferred from biological assets at their fair value at harvest, which becomes deemed cost. Any subsequent post-harvest costs are capitalized to inventory to the extent that cost is less than net realizable value. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

 

5



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

NOTES TO THE FINANCIAL STATEMENTS

 

d)             Measurement uncertainty

 

The preparation of these financial statements, in conformity with IFRS, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period.

 

The Company’s key estimates relate to the valuation and estimated useful lives of property, plant and equipment, and the fair value measurement of inventory and biological assets. Actual results may differ from these estimates.

 

The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. These estimates require the extensive use of judgment about the nature, cost and timing of the work to be completed, and may change with future changes to costs, environmental laws and regulations. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

e)              Property, plant and equipment and intangibles

 

Amortization is charged so as to write off the cost of the asset using the stated method over the estimated useful lives as follows:

 

Computer equipment

 

Straight-line

 

3 years

 

Equipment

 

Straight-line

 

5 years

 

Security equipment

 

Straight-line

 

5 years

 

Building

 

Straight-line

 

10 years

 

Website

 

Straight-line

 

5 years

 

Construction in progress

 

No term

 

Not amortized

 

 

Where an item of property, plant and equipment is comprised of major components with different useful lives, the components are accounted for as separate items of property, plant and equipment.

 

Expenditures incurred to replace a component of an item of property, plant and equipment that is accounted for separately, are capitalized. Directly attributable expenses incurred for major capital projects and site preparation are capitalized until the asset is brought to a working condition for its intended use.

 

The costs of day-to-day servicing are recognized in profit or loss as incurred. These costs are more commonly referred to as “maintenance and repairs.”

 

Financing costs directly associated with the construction or acquisition of qualifying assets are capitalized at interest rates relating to loans specifically raised for that purpose, or at the average borrowing rate where the general pool of group borrowings is utilized. Capitalization of borrowing costs ceases when the asset is substantially complete.

 

6



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

NOTES TO THE FINANCIAL STATEMENTS

 

The amortization method, useful life and residual values are assessed annually.

 

Subsequent costs

 

The cost of replacing part of an item within property, plant and equipment is recognized when the cost is incurred if it is probable that the future economic benefits will flow to the Company and the cost of the item can be measured reliably. All other costs are recognized as an expense as incurred.

 

Impairment

 

The Company’s tangible and intangible assets are reviewed for an indication of impairment at each statement of financial position date. If indication of impairment exists, the asset’s recoverable amount is estimated.

 

An impairment loss is recognized when the carrying amount of an asset, or its cash-generating unit, exceeds its recoverable amount. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Impairment losses are recognized in profit and loss for the period.

 

Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.

 

The recoverable amount is the greater of the asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

 

Reversal of impairment

 

An impairment loss is reversed if there is an indication that there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of amortization or amortization, if no impairment loss had been recognized. An impairment loss with respect to goodwill is never reversed.

 

7



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

NOTES TO THE FINANCIAL STATEMENTS

 

f)               Revenue recognition

 

Revenue is recognized at the fair value consideration received or receivable. Revenue from the sale of goods is recognized when all of the following conditions have been satisfied, which is generally met once the products are shipped to customers.

 

·                  The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

 

·                  The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

 

·                  The amount of revenue can be reliably measured;

 

·                  It is probable that the economic benefits associated with the transaction will flow to the entity; and

 

·                  The costs incurred or to be incurred in respect of the transaction can be reliably measured.

 

As at 31 December 2017 the Company recognized deferred revenue totaling $64,926 (2016 - $14,867) for sales made to customers via the Company’s website for which products have not been shipped to customers.

 

g)             Research and development

 

Research costs are expensed as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred. To date, no development costs have been capitalized.

 

h)             Share-based payments

 

Share-based payments to employees are measured at the fair value of the instruments issued and are amortized over the vesting periods using a graded attribution approach. Share-based payments to non-employees are measured at the fair value of the goods or services received or at the fair value of the equity instruments issued (if it is determined the fair value of the goods or services cannot be reliably measured), and are recorded at the date the goods or services are received.

 

i)                Joint arrangements

 

The Company applies IFRS 11 to all joint arrangements. Under IFRS 11 investments in Joint arrangements are classified as either joint operations or joint ventures, depending on the contractual rights and obligations of each investor. Joint arrangements that are classified as joint operations are accounted for using the proportionate consolidation method whereby the Company recognizes its share of the assets, liabilities, revenues and expenses of the joint operations. Joint arrangements classified as joint ventures are accounted for using the equity method.

 

8



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

NOTES TO THE FINANCIAL STATEMENTS

 

j)                Income taxes

 

Income tax expense comprises current and deferred tax. Income tax expense is recognized in the Statement of Comprehensive Income except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

 

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

 

Deferred tax is recognized using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

 

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

 

k)             Financial instruments

 

All financial instruments must be recognized, initially, at fair value on the statement of financial position. The Company has classified each financial instrument into the following categories: “held-for-trading,” “loans and receivables,” “other financial liabilities”, and “fair value through profit and loss”. Subsequent measurement of the financial instruments is based on their respective classification. Unrealized gains and losses on held-for-trading instruments are recognized in earnings. The other categories of financial instruments are recognized at amortized cost using the effective interest method. The Company had made the following classifications:

 

Financial Assets or Liabilities

 

Category

Cash

 

Loans and receivables

Accounts receivable

 

Loans and receivables

Bank loans payable

 

Other financial liabilities

Note payable

 

Other financial liabilities

Accounts payable and accrued liabilities

 

Other financial liabilities

 

9



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

NOTES TO THE FINANCIAL STATEMENTS

 

l)                Financial liabilities and equity

 

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

 

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

 

Other financial liabilities are initially measured at fair value, net of transaction costs, and are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis.

 

The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expenses over the corresponding period. The effective interest rate is the rate that exactly discounts estimated future cash payments over the expected life of the financial liability, or, where appropriate, a shorter period.

 

The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire.

 

4)             Critical accounting judgements and key sources of estimation uncertainty

 

In the application of the Company’s accounting policies, which are described in Note 3, management is required to make judgments, estimates and assumptions about the carrying amount and classification of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revisions affect only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.

 

The following are the critical judgments and areas involving estimates, that management have made in the process of applying the Company’s accounting policies and that have the most significant effect on the amount recognized in the financial statements.

 

a)             Key sources of estimation uncertainty

 

Useful life of property, plant and equipment

 

The Company reviews the estimated lives of its property, plant and equipment at the end of each reporting period. There were no material changes in the lives of plant and equipment for the years ended 31 December 2017 or 2016.

 

10



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

NOTES TO THE FINANCIAL STATEMENTS

 

Biological assets and inventory

 

In calculating the value of the biological assets and inventory, management is required to make a number of estimates, including estimating the stage of growth of the cannabis up to the point of harvest, harvesting costs, selling costs, sales price, wastage and expected yields for the cannabis plant. In calculating final inventory values, management is required to determine an estimate for spoiled or expired inventory and compares the inventory cost verses net realizable value.

 

5)             Accounting standards issued but not yet effective

 

The following accounting standards have been issued by the International Accounting Standards Board but are not yet effective for the Company; both the effective date and the expected impact are noted, based on the information currently available.

 

a)             IFRS 9, Financial Instruments

 

IFRS 9 was initially issued by the IASB on 12 November 2009 and issued in its completed version in July 2014, and will replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 replaces the multiple rules in IAS 39 with a measurement model for debt instruments having three categories: amortized cost, fair value through OCI and fair value through profit and loss. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Financial assets that are equity instruments are measured at fair value through profit and loss unless irrevocably designated as fair value through OCI. The new standard also requires a single impairment method to be used, based on expected credit losses, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for financial years beginning on or after 1 January 2018.

 

b)             IFRS 15, Revenue from Contract with Customers

 

IFRS 15 is 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 is currently assessing the effects of these new standards and intends to adopt them on their effective dates.

 

6)             Financial instrument classification and measurement

 

Financial instruments of the Company carried on the statement of financial position are carried at amortized cost. There are no significant differences between the carrying value of financial instruments and their estimated fair values as at 31 December 2017.

 

The Company classifies the fair value of these transactions according to the following hierarchy.

 

·                  Level 1 — quoted prices in active markets for identical financial instruments.

 

·                  Level 2 — quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

 

11



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

NOTES TO THE FINANCIAL STATEMENTS

 

·                  Level 3 — valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

a)             Fair values of financial assets and liabilities

 

The Company’s financial instruments include cash, restricted cash, accounts receivable, accounts payable and accrued liabilities, bank loans payable, and notes payable. As at 31 December 2017 and 2016, the carrying value of cash is fair value. Amounts receivable, accounts payable and accrued liabilities, bank loans payable, and note payable approximate their fair value due to their short-term nature.

 

b)             Market risk

 

Market risk is the risk that changes in market prices will affect the Company’s earnings or the value of its financial instruments. Market risk is comprised of commodity price risk and interest rate risk. The objective of market risk management is to manage and control exposures within acceptable limits, while maximizing returns. The Company is not exposed to significant market risk.

 

c)              Credit risk

 

Credit risk arises from the potential that a counter party will fail to perform its obligations. The Company is exposed to credit risk from customers. The Company has a significant number of customers which minimizes the concentration of credit risk. Further mitigation of credit risk is achieved as the Company’s retail customers pay for their purchases before goods are shipped. The Company’s retail sales comprise 90% (2016 - 99%) of gross sales; accordingly, the Company is not exposed to significant credit risk.

 

d)             Interest rate risk

 

Interest rate risk is the risk of losses that arise as a result of changes in contracted interest rates. The Company is exposed to interest rate risk on variable rate term loan with Vancity. A 1% shift in the Company’s variable rate term loan would result in an impact of approximately $30,000.

 

e)              Currency risk

 

Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s operations are limited to Canada which significantly reduces exposure to currency risk. As at 31 December 2017 and 2016, the Company holds no cash denominated in foreign currency and therefore is not exposed to significant foreign currency risk.

 

f)               Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company controls liquidity risk by ensuring that it has sufficient cash resources to pay for its financial obligations. As at 31 December 2017, the Company had a cash balance of $2,112,182 to settle current monetary liabilities of $8,614,587 which are due within one year. Subsequent to year-end, the Company was acquired by Aphria Inc. and the bank loans payable have been repaid in full. Accordingly, the Company is not significantly exposed to liquidity risk. The Company is obligated to the following contractual maturities of cash flows:

 

12



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

NOTES TO THE FINANCIAL STATEMENTS

 

 

 

Carrying

 

Contractual

 

 

 

 

 

 

 

amount

 

Cash flows

 

Year 1

 

Years 2-5

 

Accounts payable and accrued liabilities

 

$

1,756,612

 

$

1,756,612

 

$

1,756,612

 

$

 

Goods and services tax payable

 

40,839

 

40,839

 

40,839

 

 

Corporate taxes payable

 

817,382

 

817,382

 

817,382

 

 

 

Note payable

 

250,000

 

250,000

 

250,000

 

 

Bank loans payable

 

5,749,754

 

5,749,754

 

5,749,754

 

 

 

Total

 

$

8,614,587

 

$

8,614,587

 

$

8,614,587

 

$

 

 

7)             Accounts receivable

 

 

 

31 December

 

31 December

 

 

 

2017

 

2016

 

Trade accounts receivables

 

$

382,449

 

$

192,086

 

Impairment of trade accounts receivable

 

(40,000

)

(3,947

)

 

 

$

342,449

 

$

188,139

 

 

During the year ended December 31, 2017, the Company impaired accounts receivable in the amount of $43,245 (2016 - $3,947) relating to uncollectable accounts and reported total bad debt expense of $43,245 (2016 – $3,947).

 

8)             Biological assets and inventory

 

The Company’s biological assets consist of medicinal cannabis plants. As at 31 December 2017 and 2016 the Company’s biological assets are comprised of:

 

 

 

31 December

 

31 December

 

 

 

2017

 

2016

 

Opening balance

 

$

536,514

 

$

263,633

 

Changes in fair value due to biological transformation

 

7,477,300

 

4,422,779

 

Transfer to inventory upon harvest

 

(7,469,808

)

(4,149,898

)

Closing Balance

 

$

544,006

 

$

536,514

 

 

All of the plants are to be harvested as agricultural produce. The significant assumptions used in determining the fair value of biological assets are as follows:

 

i)                 Expected yields by plant;

ii)              stage of growth;

iii)           selling prices;

iv)          wastage; and

v)             harvesting and selling costs.

 

The Company estimates the harvest yields for the plants at various stages of growth. The Company’s 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 growing.

 

13



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

NOTES TO THE FINANCIAL STATEMENTS

 

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.

 

Inventory is comprised of the following items:

 

 

 

31 December

 

31 December

 

 

 

2017

 

2016

 

Finished goods — dry cannabis

 

$

242,013

 

$

835,453

 

Finished goods — cannabis oils

 

139,795

 

38,038

 

Harvested produce

 

1,999,217

 

463,072

 

Materials, supplies, and products for resale

 

61,342

 

58,093

 

 

 

$

2,442,367

 

$

1,394,656

 

 

The Company estimates the harvest yields for the plants at various stages of growth. As of 31 December 2017, it is expected that the Company’s biological assets will yield approximately 468kg (2016 – 71kg). The Company’s estimates are, by their nature, subject to change. Changes in the anticipated yield will be reflected in future changes in the gain or loss on biological assets. As at 31 December 2017, the Company held 546kg of dry cannabis (2016 – 81kg) and 125kg of cannabis oil (2016 – 15kg).

 

9)             Property, plant and equipment

 

Details are as follows:

 

 

 

 

 

 

 

 

 

Computer

 

 

 

 

 

 

 

Construction

 

 

 

 

 

and security

 

 

 

 

 

 

 

in progress

 

Land

 

Buildings

 

equipment

 

Equipment

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COST OR DEEMED COST

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2015

 

$

 

$

 

$

622,655

 

$

94,850

 

$

136,431

 

$

853,936

 

Additions

 

2,632,813

 

 

 

221,615

 

341,653

 

3,196,081

 

At 31 December 2016

 

2,632,813

 

 

622,655

 

316,465

 

478,084

 

4,050,017

 

Additions

 

5,055,696

 

736,100

 

3,618,005

 

73,334

 

221,383

 

9,704,518

 

Transfers

 

(2,632,813

)

 

2,632,813

 

 

 

 

At 31 December 2017

 

5,055,696

 

736,100

 

6,873,473

 

389,799

 

699,467

 

13,754,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMORTIZATION

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2015

 

$

 

$

 

$

76,596

 

$

36,929

 

$

26,414

 

$

139,939

 

Additions

 

 

 

62,266

 

68,545

 

56,169

 

186,980

 

At 31 December 2016

 

 

 

138,862

 

105,474

 

82,583

 

326,919

 

Additions

 

 

 

548,211

 

31,005

 

91,090

 

670,306

 

At 31 December 2017

 

 

 

687,073

 

136,479

 

173,673

 

997,225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CARRYING AMOUNTS

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2016

 

$

2,632,813

 

$

 

$

483,793

 

210,991

 

395,501

 

3,723,098

 

At 31 December 2017

 

$

5,055,696

 

$

736,100

 

$

6,186,400

 

253,320

 

525,794

 

12,757,310

 

 

Property, plant and equipment are stated, in the statement of financial position, at cost less accumulated amortization and accumulated impairment losses. Assets in the course of construction are carried at cost, less any recognized impairment loss. Amortization of these assets commences when the assets are ready for their intended

 

14



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

NOTES TO THE FINANCIAL STATEMENTS

 

use. The cost of property, plant and equipment includes directly attributed incremental costs incurred in their acquisition and installation.

 

Assets held under capital lease are depreciated over their expected useful lives on the same basis as owned assets, or where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an item of equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognized in the Statement of Comprehensive Income. Amortization is charged so as to write off the cost of the asset over the estimated useful lives.

 

10)      Intangible assets

 

Details are as follows:

 

 

 

Website

 

Total

 

 

 

 

 

 

 

COST OR DEEMED COST

 

 

 

 

 

Balance at 31 December 2015

 

$

67,099

 

$

67,099

 

Additions

 

1,151

 

1,151

 

Balance at 31 December 2016

 

68,250

 

68,250

 

Additions

 

10,268

 

10,268

 

Balance at 31 December 2017

 

$

78,518

 

$

78,518

 

 

 

 

 

 

 

AMORTIZATION

 

 

 

 

 

Balance at 31 December 2015

 

$

10,087

 

$

10,087

 

Additions

 

11,517

 

11,517

 

Balance at 31 December 2016

 

21,604

 

21,604

 

Additions

 

16,356

 

16,356

 

Balance at 31 December 2017

 

$

37,960

 

$

37,960

 

 

 

 

 

 

 

CARRYING AMOUNTS

 

 

 

 

 

At 31 December 2016

 

$

46,646

 

$

46,646

 

At 31 December 2017

 

$

40,558

 

$

40,558

 

 

11)      Bank loans payable

 

On 16 June 2016, the Company entered into a variable short-term business loan with Vancity Credit Union (the “Bank”). During the year ended 31 December 2017, the Company renegotiated the variable short-term business loan with the Bank and entered into a fixed rate term loan bearing interest at a fixed rate of 3.28% per annum, calculated semi-annually not in advance. As at 31 December 2017, the current balance of the fixed rate term loan is $1,215,870 (2016 - $1,329,524)

 

On 26 April 2017, the Company entered into a fixed rate mortgage agreement with the Bank. The mortgage was used to secure the purchase of land and building in which the Company operates (Note 9). The mortgage was obtained for $1,760,000 bearing interest at a fixed rate of 3.27% per annum, calculated semi-annually not in advance. As at 31 December 2017, the current balance of the mortgage payable was $1,717,976 (2016 - $nil).

 

On 20 October 2017, the Company entered into a variable rate term loan with the Bank. The term loan was obtained for $3,000,000 bearing interest at a rate of prime plus 2%, calculated semi-annually not in advance. As at 31 December 2017, the current balance of the variable rate term loan payable was $2,815,908 (2016 - $nil).

 

15



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

NOTES TO THE FINANCIAL STATEMENTS

 

The loans are all due payable on demand, and are secured by corporate and personal guarantors, as well as a general security interest in all present and after acquired property registered (1st position) at the Personal Property Registry against the Company.

 

Pursuant to the loan agreements, the Company must maintain a Debt Service Coverage Ratio of a minimum of 1.35 and a Debt to Equity Ratio not exceeding 2:1 to be in effect at all times. Default occurs if breach of the above covenants are not corrected within 15 days of notice having been provided to the Company. As at 31 December 2017, the Company was not in breach of the financial reporting covenants.

 

In addition to the above covenants, the Company shall not, without prior written consent of the Bank, alter the ownership of any capital stock of the Company. During the year ended 31 December 2017, the Company issued shares from treasury; accordingly, the Company is in breach of this covenant and the bank loans have been classified as a current liability.

 

12)      Note payable

 

On 4 March 2015 the Company entered into a Binding Heads of Agreement (the “Agreement’) with Capital Mining Limited (“CMY”) whereby CMY agrees to acquire certain shares in the Company. Upon execution of the Agreement, CMY agrees to make a loan available to the Company in the amount of $500,000. The loan is unsecured, and bears no interest. On 4 March 2016, at the election of the Company, $250,000 of the loan shall be forgiven and the remaining $250,000 of the principal amount shall be repaid to CMY in cash; or, the principal amount will be converted into common shares of the Company at an issue price based on a valuation of all issued and allotted shares of the Company. During the year ended 31 December 2015, the Company elected to accept forgiveness of the $250,000 and repay the remaining $250,000. However, the Company did not repay the $250,000 on 4 March 2016 as required by the Agreement. Accordingly, CMY commenced legal proceedings against the Company to recover the full $500,000 note payable. In an effort to resolve the claim, the Company and CMY agreed to participate in mediation in the Court of Western Australia. On 24 March 2017, the Company and CMY entered into a deed of settlement and agreed to settle the note payable for $250,000.

 

During the year ended 31 December 2017, the Company entered into an agreement (the “Grass Roots Agreement”) with Grass Roots Pharmaceutical Inc. (“Grass Roots”) to define their respective rights and responsibilities with respect to developing and producing active ingredients for the development, production, and sale of cannabis softgels. Pursuant to the Grass Roots Agreement, Grass Roots shall invest not less than $1,500,000 in developing a production facility on land owned by the Company. The company shall supply bulk cannabis and other ingredients required for the production of cannabis softgels, to be produced by Grass Roots. The Company will also market, sell and deliver cannabis softgels to registered medicinal clients.

 

Grass Roots funded $250,000 during the year as the initial working capital. As per the Grass Roots Agreement, the Company is required to maintain a minimum cash balance of $250,000 for the life of the arrangement. As such, the cash advanced from Grass Roots is not available for general working capital purposes and is presented as restricted on the statements of financial position.

 

 

 

31 December

 

31 December

 

 

 

2017

 

2016

 

Opening balance

 

$

250,000

 

$

242,808

 

Accretion of interest expense

 

 

7,192

 

Repayment of note payable to Capital Mining Limited

 

(250,000

)

 

Advances of note payable from Grass Roots Pharmaceuticals Inc.

 

250,000

 

 

Closing Balance

 

$

250,000

 

$

250,000

 

 

16



 

BROKEN COAST CANNABIS LTD.

Canadian Dollars

 

NOTES TO THE FINANCIAL STATEMENTS

 

13)      Related party transactions

 

Transactions and balances with related parties not disclosed elsewhere in the financial statements are as follows for the years ended 31 December 2017 and 31 December 2016.

 

 

 

Year ended

 

Year ended

 

 

 

31 December

 

31 December

 

 

 

2017

 

2016

 

Production costs

 

80,062

 

71,543

 

Salaries and wages of key management

 

257,490

 

230,281

 

Rental

 

50,778

 

152,519

 

Sub-contracts and consulting

 

51,051

 

33,518

 

Professional fees

 

38,471

 

27,780

 

 

These transactions were in the normal course of operations and are measured at their exchange amount, which is the amount of consideration established and agreed to by the related parties.

 

Included in accounts payable and accrued liabilities as at 31 December 2017, is $3,420 (2016 - $7,480) owing to related parties. Also included in accounts payable and accrued liabilities are amounts owing to directors of the Company and a company controlled by the Director of the Company of $nil (2016 - $111,943).

 

Pursuant to a promissory note dated 13 May 2016, the Company was advanced $350,000 from a company controlled by a director of the Company. The promissory note is unsecured and bears interest at a rate of 15% per annum, calculated and compounded monthly. On 16 November 2016, the Company entered into an as