PAGE
27
• • • • • • • • • • • • • • • • • • • • • •
Independent
Auditors’ Report
PAGE
29
• • • • • • • • • • • • • • • • • • • • • •
Consolidated Statements
of Financial Position
PAGE
30
• • • • • • • • • • • • • • • • • • • • • •
Consolidated
Statements of Loss and
Comprehensive Loss
PAGE
31
• • • • • • • • • • • • • • • • • • • • • •
Consolidated Statements of
Changes in Equity (Deficiency)
PAGE
32
• • • • • • • • • • • • • • • • • • • • • •
Consolidated Statements
of Cash Flows
PAGE
33
• • • • • • • • • • • • • • • • • • • • • •
Notes to the Consolidated
Financial Statements
25
CO N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
FOR THE T WELVE MO NTHS ENDED MAY 31 , 20 15
AND THI R T EEN MONTHS ENDE D MAY 31 , 20 14
(Expressed in Canadian Dollars, unless otherwise noted)
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Aphria Inc.
We have audited the accompanying consolidated financial statements of Aphria Inc., which comprise the consolidated
statements of financial position as at May 31, 2015 and 2014, and the consolidated statements of loss and comprehensive
loss, changes in equity (deficiency), and cash flows for the year mended May 31, 2015 and the thirteen month period
ended May 31, 2014, and a summary of significant maccounting 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 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.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audits 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 auditors’ 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.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Aphria
Inc. as at May 31, 2015 and 2014, and its financial performance and its cash flows for the year ended May 31, 2015 and the
thirteen month period ended May 31, 2014 in accordance with International Financial Reporting Standards.
Toronto, Ontario
September 8, 2015
“MNP LLP”
Chartered Professional Accountants
Licensed Public Accountants
701 Evans Avenue, 8th floor,
Toronto On, M9c 1A3
P: 416.626.6000 F: 416.626.8650
27
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at May 31,
Note
May 31,
2015
May 31,
2014
Assets
Current assets:
Cash and cash equivalents
$
7,051,909
$
170,455
Other receivables
Inventory
Biological assets
Prepaid expenses
Current portion of promissory notes receivable
Property and equipment
Intangible assets
Promissory notes receivable
11
5
6
8
7
7
8
759,528
1,724,247
288,858
167,270
346,255
10,338,067
3,626,161
74,598
253,745
-
-
-
-
-
170,455
1,568,796
-
-
$
14,292,571
$
1,739,251
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities
$
947,223
$
9
10
10
10
-
947,223
20,246,095
556,589
1,261,589
(8,718,925)
13,345,348
1,000,172
2,912,060
3,912,232
2,500
-
-
(2,175,481)
(2,172,981)
$
14,292,571
$
1,739,251
Due to related parties
Shareholders' equity (deficit):
Share capital
Warrants
Share-based payment reserve
Deficit
Nature of operations (Note 1)
Commitments (Note 12)
Subsequent events (Note 15)
Approved on behalf of the Board
“John Cervini”
Signed: Director
“Cole Cacciavillani”
Signed: Director
29
The accompanying notes are an integral part of these financial statements
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIENCY)
Note
Year ended
May 31,
2015
13 months
ended May 31,
2014
Number of
common
shares
Note
Share capital
Warrants
Share-based
payment
reserve
Deficit
Total
Balance at April 30,
2013
106,667
$
10
$
-
$
-
$
(608,844)
$
(608,834)
Shares issued
26,560,000
2,490
-
-
-
-
-
-
-
2,490
(1,566,637)
(1,566,637)
Revenue
Cost of sales:
Cost of goods sold
Pre-distribution growing costs
Change in biological assets
Gross profit
Expenses:
General and administrative
Share-based compensation
Selling, marketing and promotion
Amortization and depreciation
Research and development
Loss from operations
Listing costs
Finance income
5
6
13
10
7
4
$
551,430
$
433,262
321,028
(997,711)
794,851
2,082,417
1,261,589
720,217
56,707
69,528
(3,395,607)
(3,278,068)
130,231
-
-
463,343
-
(463,343)
985,985
-
105,000
12,309
-
(1,566,637)
-
-
Net loss and comprehensive loss
$
(6,543,444)
$
(1,566,637)
Weighted average number of common shares
45,386,330
21,328,485
Loss per share - basic and diluted
$
(0.14)
$
(0.07)
Net loss for the
period
Balance at May 31,
2014
Shares issued, net
of issuance costs
Conversion of due
to related parties
Subscription receipt
shares, net of
issuance costs
Shares retained
by Black Sparrow
shareholders
Share-based
payments
Net loss for the year
Balance at May 31,
2015
26,666,667
$2,500
$
-
$
-
$ (2,175,481)
$ (2,172,981)
10
10,346,253
5,535,748
216,261
10
1,666,667
1,000,000
-
10
11,500,000
11,177,847
340,328
4
2,300,000
2,530,000
-
-
-
-
-
-
-
-
-
-
-
1,261,589
-
-
5,752,009
1,000,000
-
11,518,175
-
-
2,530,000
1,261,589
-
(6,543,444)
(6,543,444)
52,479,587
$ 20,246,095
$
556,589
$ 1,261,589 $ (8,718,925)
$ 13,345,348
2015 A P H R I A I N C . A N N UA L R E P O R T
31
The accompanying notes are an integral part of these financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MAY 31, 2015 AND THIRTEEN MONTHS ENDED MAY 31, 2014
Cash flows from operating activities:
Net loss for the period
Adjustments for
Amortization and depreciation
Share-based compensation
Change in biological assets
Non-cash listing costs
Change in non-cash operating working capital
Other receivables
Inventory
Biological assets
Prepaid expenses
Accounts payable and accrued liabilities
Cash flows from financing activities:
Share capital issued, net of cash issuance costs
Increase in due to related parties
Repayment of due to related parties
Cash flows from investing activities:
Investment in property and equipment
Investment in intangible assets
Investment in promissory notes receivable
Net cash acquired in reverse takeover
Note
Year ended
May 31, 2015
13 months
ended May 31, 2014
$
(6,543,444)
$
(1,566,637)
7
10
6
4
10
9
9
7
7
8
4
380,878
1,261,589
(997,711)
2,468,020
(743,170)
(726,536)
(288,858)
(167,270)
(86,515)
(5,443,017)
17,270,184
574,951
(2,487,011)
15,358,124
(2,404,846)
(107,995)
(600,000)
79,188
(3,033,653)
12,309
-
-
-
-
-
-
-
1,000,172
(554,156)
2,490
2,920,120
(631,864)
2,290,746
(1,566,145)
-
-
-
(1,566,145)
Increase in cash and cash equivalents
during the period
6,881,454
170,445
Cash and cash equivalents, beginning of period
170,455
10
Cash and cash equivalents, end of period
$
7,051,909
$
170,455
1. NATURE OF OPERATIONS
Aphria Inc. (the “Company” or “Aphria”) was incorporated under the Business Corporations Act (Alberta) on June 22,
2011 as Black Sparrow Capital Corp. (“Black Sparrow”) and was continued in Ontario on December 1, 2014. Pure
Natures Wellness Inc. doing business as Aphria (“PNW”), a wholly-owned subsidiary of the Company, is licensed to
produce and sell medical marijuana under the provisions of the Marihuana for Medical Purposes Regulations (“MMPR”).
The registered office is located at 5300 Commerce Court West, 199 Bay Street, Toronto, Ontario.
The Company’s common shares are listed under the symbol “APH” on the TSX Venture Exchange (“TSX-V”).
On December 2, 2014, the Company closed its qualifying transaction with PNW. The Company was a capital pool
company prior to the transaction. The transaction was accounted for as a reverse acquisition (refer to note 4).
These financial statements were approved by the Company’s board of directors on September 8, 2015.
2. BASIS OF PREPARATION
(a) Statement of compliance
The Company’s financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the IFRS
Interpretations Committee (“IFRIC”).
(b) Basis of measurement
These financial statements have been prepared on the historical cost basis except for certain items that are
measured at fair value, as detailed in the Company’s accounting policies.
(c) Functional currency
The Company and its subsidiary’s functional currency, as determined by management is Canadian dollars. These
financial statements are presented in Canadian dollars.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used by the Company are as follows:
(a) Revenue
Revenue is recognized at the fair value of consideration received or receivable. Revenue from the sale of goods is
recognized when all the following conditions have been satisfied, which are generally met once the products are
shipped to customers.
•
•
•
•
•
The Company has transferred the significant risks and rewards of ownership of the goods to the purchaser;
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 measured reliably;
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 measured reliably.
2015 A P H R I A I N C . A N N UA L R E P O R T
33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MAY 31, 2015 AND THIRTEEN MONTHS ENDED MAY 31, 2014
(b) Cash and cash equivalents
Cash and cash equivalents are comprised of cash and highly liquid investments that are readily convertible into
known amounts of cash with original maturities of three months or less.
(c) Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is determined using the weighted average
method. Inventories of harvested cannabis are transferred from biological assets into inventory at their fair value
at harvest less costs to complete and sell, which is deemed to be their 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 estimated costs to sell. Packaging and supplies
are initially valued at cost.
(d) Biological assets
The Company’s biological assets consist of medical cannabis plants. These biological assets are measured at
fair value less costs to sell and costs to complete. At the point of harvest, the biological assets are transferred to
inventory at fair value less costs to sell and costs to complete.
Gains or losses arising from changes in fair value less cost to sell are included in the results of operations of the
related period.
(e) Property and equipment
of recoverable amount and the carrying amount that would have been recorded had no impairment loss been
previously recognized.
(h) Income taxes
Income tax expense consisting of current and deferred tax expense is recognized in the statement of loss. Current
tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively
enacted at period end, adjusted for amendments to tax payable with regards to previous years.
Deferred tax assets and liabilities and the related deferred income tax expense or recovery are recognized for
deferred tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
substantive enactment occurs.
A deferred tax asset is recognized to the extent that it is probable that future taxable income will be available
against which the asset can be utilized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the
Company intends to settle its current tax assets and liabilities on a net basis.
Property and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any.
(i) Earnings per share
Depreciation is calculated using the following terms and methods:
Production equipment
Office equipment
Leasehold improvements
Straight-line
Straight-line
Straight-line
5-10 years
3-5 years
over lease term
An item of equipment is derecognized upon disposal or when no future economic benefits are expected from its
use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying value of the asset) is included in the statement of loss and comprehensive loss in the
period the asset is derecognized.
The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end, and
adjusted prospectively if appropriate.
(f )
Intangible assets
Intangible assets are comprised of an e-commerce platform and are recorded at cost less accumulated
amortization. Amortization is recorded on a straight-line basis over the estimated useful life of 2 years.
(g) Impairment of non-financial assets
Long-term non-financial assets are tested for impairment when events or changes in circumstances indicate
that the carrying amount may exceed its recoverable amount. For the purpose of testing impairment, assets
are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating unit, or
“CGU”). An impairment loss is recognized for the amount, if any, by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of the asset’s fair value less cost to sell and the
value in use (being the present value of expected future cash flows of the asset or CGU). Where an impairment
loss subsequently reverses, the carrying amount of the asset is increased to the lesser of the revised estimate
Basic earnings (loss) per share is calculated using the weighted average number of common shares outstanding
during the period. The dilutive effect on earnings per share is calculated presuming the exercise of outstanding
options, warrants and similar instruments. It assumes that the proceeds of such exercise would be used to
repurchase common shares at the average market price during the period. However, the calculation of diluted
loss per share excludes the effects of various conversions and exercise of options and warrants that would
be anti-dilutive.
The stock split in 2014 has been applied retrospectively as if it had occurred at the beginning of the
periods presented.
(j) Share-based compensation
The Company has a stock option plan in place. The Company measures equity settled share-based payments based
on their fair value at the grant date and recognizes compensation expense over the vesting period based on the
Company’s estimate of equity instruments that will eventually vest. Fair value is measured using the Black-Scholes
option pricing model. Expected forfeitures are estimated at the date of grant and subsequently adjusted if further
information indicates actual forfeitures may vary from the original estimate. Any revisions are recognized in profit or
loss such that the cumulative expense reflects the revised estimate.
(k) 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 and loss as incurred.
2015 A P H R I A I N C . A N N UA L R E P O R T
35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MAY 31, 2015 AND THIRTEEN MONTHS ENDED MAY 31, 2014
(l) Financial instruments
Financial assets are classified into one of four categories:
•
•
•
•
fair value through profit or loss (“FVTPL”);
held-to-maturity (“HTM”);
available for sale (“AFS”); and
loans and receivables.
(vii) Classification of financial instruments
Cash and cash equivalents – FVTPL
Other receivables – loans and receivables
Promissory notes receivable – loans and receivables
Accounts payable and accrued liabilities – other financial liabilities
Due to related parties – other financial liabilities
(i) FVTPL financial assets
(m) Critical accounting estimates and judgments
Financial assets are classified as FVTPL when the financial asset is held for trading or it is designated as FVTPL.
Financial assets classified as FVTPL are stated at fair value with any resulting gain or loss recognized in profit or loss.
Transaction costs are expensed as incurred.
(ii) HTM investments
HTM investments are recognized on a trade-date basis and are initially measured at fair value, including transaction
costs and subsequently at amortized cost.
(iii) AFS financial assets
AFS financial assets are those non-derivative financial assets that are designated as available for sale or are not
classified in any of the other categories. Gains and losses arising from changes in fair value are recognized in other
comprehensive income.
(iv) Loans and receivables
Loans and receivables are financial assets having fixed or determinable payments that are not quoted in an active
market. They are initially recognized at the transaction value and subsequently carried at amortized cost less, when
material, a discount to reduce the loans and receivables to fair value.
(v) Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting
period. Financial assets are impaired when there is objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have
been impacted.
The carrying amount of all financial assets, excluding trade receivables, is directly reduced by the impairment
loss. The carrying amount of trade receivables is reduced through the use of an allowance account. When a trade
receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of
amounts previously written off are credited against the allowance account. Changes in the carrying amount of the
allowance account are recognized in profit or loss. With the exception of AFS equity instruments, if, in a subsequent
period, the amount of the impairment loss decreases and the decrease relates to an event occurring after the
impairment was recognized; the previously recognized impairment loss is reversed through profit or loss. On
the date of impairment reversal, the carrying amount of the financial asset cannot exceed its amortized cost had
impairment not been recognized.
(vi) Financial liabilities and other financial liabilities
Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities. Financial liabilities
at FVTPL are stated at fair value, with changes being recognized through profit or loss. 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 preparation of financial statements requires management to make judgments, estimates and assumptions that
affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. Actual
results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision
affects only that period or in the period of the revision and future periods if the review affects both current and
future periods.
Biological assets and inventory
Management is required to make a number of estimates in calculating the fair value of biological assets and
harvested cannabis inventory. These estimates include a number of assumptions such as estimating the stage of
growth of the cannabis, harvesting costs, sales price, and expected yields.
Share-based compensation
The fair value of share-based compensation expenses are estimated using the Black-Scholes option pricing model
and rely on a number of estimates, such as the expected life of the option, the volatility of the underlying share
price, the risk free rate of return, and the estimated rate of forfeiture of options granted.
Estimated useful lives and amortization of property and equipment and intangible assets
Amortization of property and equipment and intangible assets is dependent upon estimates of useful lives based
on management judgment.
(n) Adoption of new and revised accounting policies
The Company assessed the effects of amendments to IAS 32 - Offsetting Financial Assets and Liabilities and IAS 36
- Impairment of Assets, which are effective retrospectively for annual periods beginning on or after January 1, 2014.
The Company determined there was no significant impact from these adoptions.
(o) New standards and interpretations issued but not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended
May 31, 2015, and have not been applied in preparing these financial statements.
Amendments to IAS 16 - Property Plant and Equipment and IAS 41 - Agriculture - The amendments bring bearer
plants, which are used solely to grow produce, into the scope of IAS 16 so that they are accounted for in the same
way as property, plant and equipment. The amendments are effective for annual periods beginning on or after
January 1, 2016, with earlier application being permitted.
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 and
measurement of financial instruments.
2015 A P H R I A I N C . A N N UA L R E P O R T
37
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 is assessing the impact of these new and revised standards.
5.
INVENTORY
Harvested cannabis
Packaging and supplies
$
$
2015
1,655,259
68,988
1,724,247
$
$
2014
-
-
-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MAY 31, 2015 AND THIRTEEN MONTHS ENDED MAY 31, 2014
The cost of inventories recognized as an expense in cost of sales was $405,466 during the year ended May 31, 2015
(2014 - $nil), with the remainder related to the sale of biological assets.
6. BIOLOGICAL ASSETS
Balance at April 30, 2013 and May 31, 2014
Increase in fair value less costs to sell due to
biological transformation
Transferred to inventory upon harvest
Sale of biological assets
Balance at May 31, 2015
Amount
-
2,350,558
(2,033,904)
(27,796)
288,858
$
$
The increase in fair value less costs to sell over and above historical cost was $997,711 during the year (2014 - $nil).
In determining the fair value of biological assets, management is required to make a number of 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. These estimates are subject to volatility in market prices and a number of
uncontrollable factors, which could significantly affect the fair value of biological assets in future periods.
4. REVERSE ACQUISITION
In December 2014, the Company completed its proposed transaction between Black Sparrow and PNW as previously
disclosed in July 2014. PNW amalgamated with a new and direct wholly-owned subsidiary of Black Sparrow to become
a direct, wholly-owned subsidiary of Black Sparrow. Black Sparrow changed its name to Aphria Inc. and remains as the
resulting issuer. The transaction constituted the qualifying transaction of Black Sparrow under the policies of the TSX-V.
Immediately prior to the completion of the transaction, Black Sparrow consolidated its issued and outstanding
common shares on the basis of one post-consolidation common share for each ten pre-consolidation common shares
held. By way of a three-cornered amalgamation, Black Sparrow acquired all of the issued and outstanding shares
of PNW by issuing one post-consolidation share for each PNW common share held. Each of the stock options and
warrants to purchase common shares of PNW thereafter is exercisable for one post-consolidation common share of
Aphria Inc.
This transaction has been accounted for as a reverse acquisition that does not constitute a business combination. For
accounting purposes, the legal subsidiary, PNW, has been treated as the acquirer and Black Sparrow, the legal parent,
has been treated as the acquiree.
Consideration transferred (2,300,000 shares at a price of $1.10 per share)
Net assets acquired:
Cash and cash equivalents
Other receivables
Accounts payable and accrued liabilities
Excess attributed to cost of listing
Listing cost:
Excess attributed to cost of listing
Legal
Professional, consulting and other fees
$
$
$
$
$
2,530,000
79,188
16,358
(33,566)
61,980
2,468,020
2,530,000
2,468,020
570,034
240,014
3,278,068
For accounting purposes, these consolidated financial statements reflect a continuation of the financial position,
operating results and cash flows of the Company’s legal subsidiary, PNW.
2015 A P H R I A I N C . A N N UA L R E P O R T
39
7. PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Production
equipment
Office
equipment
Leasehold
improvements
Construction
in process
Total
Property and
equipment
Intangible
assets
Cost
At April 30, 2013
$
15,333
$
-
$
-
$
-
$
15,333
$
Additions
At May 31, 2014
Additions
671,216
686,549
539,818
32,002
32,002
862,927
862,927
-
-
1,566,145
1,581,478
191,642
1,368,685
304,701
2,404,846
107,995
At May 31, 2015
$ 1,226,367
$
223,644
$
2,231,612
$
304,701
$ 3,986,324
$
107,995
Accumulated depreciation
At April 30, 2013
$
373
$
-
$
-
$
Expense for the period
At May 31, 2014
8,352
8,725
Expense for the period
139,584
1,241
1,241
23,310
2,716
2,716
184,587
-
-
-
-
$373
$
12,309
12,682
-
-
-
347,481
33,397
At May 31, 2015
$
148,309
$
24,551
$
187,303
$
-
$
360,163
$
33,397
-
-
-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MAY 31, 2015 AND THIRTEEN MONTHS ENDED MAY 31, 2014
During the year ended May 31, 2015, the Company repaid $2,487,011 due to related parties, and converted another
$1,000,000 that was due to related parties into share capital (2014 - received $800,000 of cash from related parties and
repaid $631,864 due to related parties). The Company transacts with related parties in the normal course of business.
These transactions are measured at their exchange amounts.
Key management compensation:
Short-term
Share-based compensation
Total
Year ended May 31,
13 months ended May 31,
2015
679,692
908,142
1,587,834
$
$
2014
673,750
-
673,750
$
$
During the year ended May 31, 2015, related party corporations charged or incurred expenditures on behalf of the
Company (including rent) totalling $574,951 (2014 - $2,120,120, inclusive of a management and administrative fee of
approximately 15%) which were reimbursed.
The Company leased greenhouse and office space from a corporation over which an officer and director of the
Company has control. Total rent of $105,935 was charged during the year ended May 31, 2015 (2014 - $102,500).
Net book value
At April 30, 2013
At May 31, 2014
At May 31, 2015
$
$
14,960
677,824
$
$
-
30,761
$
$
-
860,211
$ 1,078,058
$ 199,093
$ 2,044,309
$
$
$
-
-
$
14,960
$ 1,568,796
304,701
$ 3,626,161
$
$
$
-
-
74,598
10. SHARE CAPITAL
The Company is authorized to issue an unlimited number of common shares.
Amortization and depreciation is recorded within cost of sales and amortization and depreciation on the statement of loss
and comprehensive loss.
8. PROMISSORY NOTES RECEIVABLE
The Company advanced a total of $600,000 to two organizations affiliated with the medical marijuana industry. One
promissory note of $500,000 bears interest at 3% per annum, repayable in blended monthly instalments until May
2017. Another promissory note of $100,000 is non-interest bearing and is repayable in March 2016.
9. DUE TO/FROM RELATED PARTIES AND 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 growing related
expenditures. The Company owed $nil to related parties as at May 31, 2015 (2014 - $2,912,060). These amounts were
due upon demand and are non-interest bearing. These parties are related as they are corporations that are controlled
by certain officers and directors of the Company.
Common shares
Balance at April 30, 2013
Shares issued
Balance at May 31, 2014
Private placement, net of issuance costs
Conversion of due to related parties
Private placement, net of issuance costs
Shares retained by Black Sparrow shareholders
Balance at May 31, 2015
Number of shares
106,667
$
(a)
(b)
(c)
(d)
(e)
26,560,000
26,666,667
10,346,253
1,666,667
11,500,000
2,300,000
Amount
10
2,490
2,500
5,535,748
1,000,000
11,177,847
2,530,000
52,479,587
$
20,246,095
During the 13 month period ended May 31, 2014, the Company ratified a share split of 106.666668 post-split shares for
each pre-split share, bringing the total outstanding shares to 26,666,667.
(a) In July 2013, the Company issued 26,560,000 shares for gross proceeds of $2,490.
(b) In June 2014, the Company completed a private placement for 10,346,253 units for gross proceeds of $6,207,752.
Each unit consists of a common share and one half of one common share purchase warrant. Each whole common
share purchase warrant is exercisable for one common share at $1.20 per share for a period of 24 months expiring
in June 2016. The full proceeds were allocated to share capital.
2015 A P H R I A I N C . A N N UA L R E P O R T
41
Cash share issuance costs of $455,743 were paid and 618,333 compensation warrants were issued. Each
compensation warrant is exercisable for one common share at an exercise price of $0.60 per share for a period of
5 years expiring in June 2019. The compensation warrants were valued at $216,261 and have been recorded in
equity under Warrants.
(c) An additional $1,000,000 of amounts due to related parties was settled with shares of the Company, at a price of
$0.60 per share, for a total of 1,666,667 shares issued.
(d) The Company completed a private placement raising aggregate gross proceeds of $12,650,000 through the sale
of 11,500,000 subscription receipts (“Subscription Receipts”) at $1.10 per Subscription Receipt. Each Subscription
Receipt was converted into one common share and one warrant of the Company. Each warrant is exercisable for
one common share at a price of $1.50 for a period of 5 years expiring in December 2019.
The Agents were paid, along with the reasonable expenses, a cash commission equal to seven percent (7%) of
the gross proceeds raised in the private placement, excluding the proceeds raised in connection with the sale of
Subscription Receipts to certain purchasers introduced to the Agents by Aphria for a total of $964,001. In addition,
the Agents received 802,268 compensation options (“Compensation Options”) entitling them to subscribe for
Subscription Shares and Subscription Warrants. Each Compensation Option shall be exercisable at a price of $1.10
for a period of 24 months expiring in December 2016. The Compensation Options were valued at $340,328 and
have been recorded in equity under Warrants. Additional costs of $167,824 were incurred for legal and other share
issuance costs.
(e) As part of the reverse acquisition, 2,300,000 common shares were retained by Black Sparrow shareholders. These
shares were valued at $1.10 for a total of $2,530,000.
STOCK OPTIONS
The Company adopted a stock option plan under which it is authorized to grant options to officers, directors, employees,
and consultants enabling them to acquire common shares of the Company. The maximum number of common shares
reserved for issuance of stock options that may be granted under the plan is 10% of the issued and outstanding common
shares of the Company. The options granted can be exercised for a maximum of 10 years and vest as determined by the
Board of Directors. The exercise price of each option may not be less than the market price of the common shares on the
date of grant.
The option details of the Company are as follows:
Balance at May 31, 2014
Granted - June 2, 2014
Granted - August 18, 2014
Granted - November 2014
Expiry date
June 2, 2019
August 18, 2019
November 2017
Granted - December 2, 2014
December 2, 2017
Granted - March 17, 2015
Granted - April 7, 2015
Balance at May 31, 2015
March 17, 2018
April 7, 2018
Weighted
Average
Exercise Price
N/A
$0.60
$1.10
$1.10
$1.10
$0.90
$1.18
Number of
Options
Vested and
exercisable
-
-
2,600,000
2,600,000
50,000
480,000
1,020,000
205,000
165,000
50,000
170,000
112,640
25,000
5,000
$0.81
4,520,000
2,962,640
The Company recognized a share-based compensation expense of $1,261,589 during the year ended May 31, 2015
(2014 - $nil). The total fair value of options granted during the year was $1,877,736 (2014 - $nil).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MAY 31, 2015 AND THIRTEEN MONTHS ENDED MAY 31, 2014
In June 2014, the Company issued 2,600,000 stock options at an exercise price of $0.60 per share, exercisable for 5
years expiring in June 2019. The options vested upon the Company listing on a public stock exchange.
In August 2014, the Company issued 50,000 stock options at an exercise price of $1.10 per share, exercisable for 5 years
expiring in August 2014. The options vested upon the Company listing on a public stock exchange.
In November 2014, the Company issued 480,000 stock options at an exercise price of $1.10 per share, exercisable
for 3 years expiring in November 2017. 465,000 of the options vest 1/3 upon the Company listing on a public stock
exchange, 1/3 on the first anniversary of listing, and 1/3 on the second anniversary of listing. The remaining 15,000 of
the options granted vested upon the Company listing on a public stock exchange.
In December 2014, the Company issued 1,020,000 stock options at an exercise price of $1.10 per share, exercisable
for 3 years expiring in December 2017. 100,000 of the options vested immediately. 320,000 of the options vest based
on certain performance conditions after 15 months. 600,000 options vest based on certain performance conditions
assessed every quarter over the life of the options.
In March 2015, the Company issued 205,000 stock options at an exercise price of $0.90 per share, exercisable for 3
years expiring in March 2018. 15,000 of the options vested immediately. 30,000 options vest 1/3 immediately, 1/3
on the first anniversary of grant, and 1/3 on the second anniversary. The remaining options vest based on certain
performance conditions.
In April 2015, the Company issued 165,000 stock options at an exercise price of $1.18 per share, exercisable for 3
years expiring in April 2018. 15,000 options vest 1/3 immediately, 1/3 on the first anniversary of grant, and 1/3 on the
second anniversary. The remaining options vest based on certain performance conditions.
The Company uses the Black Scholes option pricing model to determine the fair value of options granted using the
following assumptions:
Volatility - estimate based on comparable companies
Risk-free interest rate
Expected life (years)
Dividend yield
Forfeiture rate
Exercise price
Share price
WARRANTS
2015
70%
0.48% to 1.56%
3 to 5 years
Nil
0%-50%
$0.60 to $1.18
$0.60 to $1.18
2014
N/A
N/A
N/A
N/A
N/A
N/A
N/A
In June 2014, as part of the private placement for 10,346,253 units, the Company issued 5,173,127 common share
purchase warrants. Each whole common share purchase warrant is exercisable for one common share at $1.20 per
share for a period of 24 months expiring in June 2016. The full proceeds were allocated to the common share and $nil
to the warrant.
618,333 compensation warrants were also issued at a value of $216,261. Each compensation warrant is exercisable for
one common share at an exercise price of $0.60 per share for a period of 5 years expiring in June 2019. The Company
used the Black-Scholes option pricing model to determine the fair value of compensation warrants granted using the
following assumptions: volatility of 70%, risk-free rate of 1.56%, expected life of 5 years, dividend yield of nil, and share
price of $0.60.
2015 A P H R I A I N C . A N N UA L R E P O R T
43
In December 2014, as part of the subscription receipt private placement for 11,500,000 units, the Company issued
11,500,000 common share purchase warrants. Each whole common share purchase warrant is exercisable for one
common share at $1.50 per share for a period of 5 years expiring in December 2019. The full proceeds were allocated
to the common share and $nil to the warrant.
As part of this placement, 802,268 compensation options exercisable for one common share and one purchase warrant
were issued to the agents. Each Compensation Option is exercisable at a price of $1.10 for a period of 24 months
expiring in December 2016. Purchase warrants received upon exercise would be exercisable for one common share at
$1.50 per share. The Compensation Options were valued at $340,328 using the Black-Scholes option pricing model.
The fair value was determined using the following assumptions: volatility of 70%, risk-free rate of 1.01%, expected life
of 2 years, dividend yield of nil, and share price of $1.10.
The warrant details of the Company are as follows:
Expiry date
June 3, 2016
December 2, 2019
Balance at May 31, 2015
Number
of warrants
5,173,127
11,500,000
16,673,127
Weighted
average exercise price
$1.20
$1.50
$1.41
The compensation warrant/option details of the Company are as follows:
Expiry date
June 3, 2019
December 2, 2016
Balance at May 31, 2015
Number of
broker options
618,333
802,268
1,420,601
Weighted average
exercise price
$0.60
$1.10
$0.88
11. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS
The Company has classified its cash and cash equivalents as FVTPL, other receivables and promissory notes receivable
as loans and receivables, and accounts payable and accrued liabilities and amounts due to related parties as other
financial liabilities.
The carrying values of other receivables, promissory notes receivable, accounts payable and accrued liabilities, and due
to related parties approximate their fair values due to their short periods to maturity.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MAY 31, 2015 AND THIRTEEN MONTHS ENDED MAY 31, 2014
FAIR VALUE HIERARCHY
Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of
inputs used in making the measurements. Cash and cash equivalents are Level 1. The hierarchy is summarized as
follows:
Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities
Level 2 – inputs that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices)
from observable market data
Level 3 – inputs for assets and liabilities not based upon observable market data
FINANCIAL RISK MANAGEMENT
The Company has exposure to the following risks from its use of financial instruments:
•
•
credit risk; and
liquidity risk.
(a) Credit risk
The maximum credit exposure at May 31, 2015 is the carrying amount of cash and cash equivalents, other
receivables and notes receivable. The Company does not have significant credit risk with respect to customers. All
cash and cash equivalents are placed with major Canadian financial institutions. The majority of other receivables
relate to HST input tax credits.
(b) Liquidity risk
As at May 31, 2015, the Company’s financial liabilities consist of accounts payable and accrued liabilities and
amounts due to related parties, which have contractual maturity dates within one year. The Company manages its
liquidity risk by reviewing its capital requirements on an ongoing basis. Based on the Company’s working capital
position at May 31, 2015, management regards liquidity risk to be low.
(c) Capital management
The Company’s objectives when managing its capital are to safeguard its ability to continue as a going concern,
to meet its capital expenditures for its continued operations, and to maintain a flexible capital structure which
optimizes the cost of capital within a framework of acceptable risk. The Company manages the capital structure
and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the
underlying assets. To maintain or adjust its capital structure, the Company may issue new shares, issue new debt,
or acquire or dispose of assets. As at May 31, 2015, the Company has not entered into any debt financing. The
Company is not subject to externally imposed capital requirements.
Management reviews its capital management approach on an ongoing basis and believes that this approach,
given the relative size of the Company, is reasonable. There have been no changes to the Company’s capital
management approach in the period. The Company considers its cash and cash equivalents as capital.
2015 A P H R I A I N C . A N N UA L R E P O R T
45
12. COMMITMENTS
The Company has a lease commitment until December 31, 2018 for the rental of greenhouse and office space from a
related party. The Company has an option to extend this lease for two additional 5 year periods. Minimum payments
payable over the next five years are as follows:
Fiscal year ending May 31,
2016
2017
2018
2019
Total
$
$
138,647
138,647
138,647
80,877
496,818
The Company has a commitment to fund additional sponsorships of patient studies over the next 2 years of up to
$360,000, based on minimum patient enrollments in the study.
13. GENERAL AND ADMINISTRATIVE EXPENSES
Executive compensation
$
Consulting fees
Office and general
Professional fees
Salaries and wages
Travel and accomodation
Rent
$
Year ended
May 31, 2015
679,692
390,893
380,063
259,488
162,235
147,136
62,910
$
2,082,417
$
13 months ended
May 31, 2014
673,750
145,000
15,130
48,031
-
1,574
102,500
985,985
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MAY 31, 2015 AND THIRTEEN MONTHS ENDED MAY 31, 2014
14. INCOME TAXES AND DEFERRED INCOME TAXES
A reconciliation of income taxes at the statutory rate with the reported taxes is as follows:
Loss before income taxes
Statutory rate
Expected income tax recovery at combined basic federal
and provincial tax rate
Effect on income taxes of:
Non-deductible share based compensation and other
expenses
Non-deductible transaction expense
Non-capital loss carryforwards acquired on reverse takeover
Deductible share issuance costs
Tax assets not recognized
Income tax expense (recovery)
Year ended May 31,
2015
13 months ended May 31,
2014
$
6,543,444
$
1,566,637
26.5%
26.5%
(1,734,013)
(415,159)
345,266
707,691
(39,980)
(420,707)
1,141,743
704
-
-
-
414,455
$
-
$
-
Deferred income tax assets and liabilities have not been recognized in respect of the following deductible
temporary differences:
Non-capital loss carry forward
Undepreciated capital cost in excess of net book value
Cumulative eligible capital
Deductible share issuance costs to be claimed
Biological assets and inventory in excess of tax cost
2015
$4,872,419
393,558
607,536
1,391,794
(784,021)
2014
$2,160,143
12,682
-
-
-
The Company has non-capital losses available for deduction against taxable income that expire as follows:
2031
2032
2033
2034
2035
$(611,288)
(230,653)
(1,384,987)
(1,792,437)
(853,054)
$(4,872,419)
15. SUBSEQUENT EVENTS
Subsequent to the period, the Company granted 30,000 stock options at an exercise price of $0.93 per share for a
period of 3 years. The options vest 1/3 upon grant, 1/3 upon the first anniversary and 1/3 upon the second anniversary.
2015 A P H R I A I N C . A N N UA L R E P O R T
47