POWERED BY SUNLIGHT
C O N S O L I D A T E D
F I N A N C I A L
S T A T E M E N T S
F O R T H E Y E A R E N D E D
M A Y 3 1 , 2 0 1 6 A N D M A Y 3 1 , 2 0 1 5
(Expressed in Canadian Dollars, unless otherwise noted)
APHRIA INC.
Management’s Responsibility for the Consolidated Financial Statements
APHRIA INC.
Independent Auditors’ ReporT
The accompanying consolidated financial statements and other financial information in this annual report were
prepared by management of Aphria Inc., reviewed by the Audit Committee and approved by the Board of Directors.
Management is responsible for the consolidated financial statements and believes that they fairly present the
Company’s financial condition and results of operation in conformity with International Financial Reporting
Standards. Management has included in the Company’s consolidated financial statements amounts based on
estimates and judgments that it believes are reasonable, under the circumstances.
To discharge its responsibilities for financial reporting and safeguarding of assets, management believes that
it has established appropriate systems of internal accounting control which provide reasonable assurance that
the financial records are reliable and form a proper basis for the timely and accurate preparation of financial
statements. Consistent with the concept of reasonable assurance,the Company recognizes that the relative cost
of maintaining these controls should not exceed their expected benefits. Management further assures the quality
of the financial records through careful selection and training of personnel and through the adoption
and communication of financial and other relevant policies.
These financial statements have been audited by the shareholders’ auditors, MNP LLP, and their report is
presented herein.
“Vic Neufeld”
Chief Executive Officer
“Carl A. Merton”, CPA, CA, FCBV
Chief Financial Officer
July 7, 2016
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, 2016 and May 31, 2015, and the consolidated
statements of income (loss) and comprehensive income (loss), changes in equity (deficiency) and cash flows
for the years then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements.
We believe that the audit evidence we have obtained in our audits 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, 2016 and May 31, 2015 and its financial performance and its cash flows for the
years then ended in accordance with International Financial Reporting Standards.
Toronto, Ontario
July 7, 2016
Chartered Professional Accountants
Licensed Public Accountants
3 3
APHRIA INC.
Consolidated Statements of Financial Position
APHRIA INC.
Consolidated statements of income (loss) and comprehensive income (loss)
NOTES
MAY 31,
2016
MAY 31,
2015
ASSETS
Current assets
Cash and cash equivalents
$ 16,472,664
$ 7,051,909
Accounts receivable
Other receivables
Inventory
Biological assets
Prepaid assets
8
9
10
Current portion of promissory notes receivable
11
1,778,679
--
126,952
759,528
2,088,850
1,724,247
697,997
160,156
567,588
288,858
167,270
346,255
21,892,886
10,338,067
Capital assets
Intangible assets
Promissory notes receivable
Long-term investments
Goodwill
LIABILITIES
Current liabilities
12
4 ,13
11
14
4
7,309,220
4,317,680
--
1,560,200
1,200,000
3,626 161
74,598
253,745
--
--
$ 36,279,986
$ 14,292,571
Accounts payable and accrued liabilities
$
1,266,492
$ 947,223
Shareholders’ equity
Share capital
Warrants
Share-based payment reserve
Deficit
Commitments (Note 23)
Subsequent events (Note 24)
Approved on behalf of the Board
16
17
18
40,916,880
20,246,095
693,675
556,589
1,723,903
1,261,589
(8,320,964)
(8,718,925)
35,013,494
13,345,348
$ 36,279,986
$ 14,292,571
“John Cervini”
Signed: Director
“Cole Cacciavillani”
Signed: Director
NOTES
MAY 31,
2016
MAY 31,
2015
FOR THE YEAR ENDED
Revenue
$
8,433,929
$
551,430
Cost of sales:
Cost of goods sold, net
Amortization
Pre-distribution growing costs
Net effect of unrealized changes
in fair value of biological assets
Gross profit
Expenses:
General and administrative
Share-based compensation
Selling, marketing and promotion
Amortization
Research and development
12,13
10
20
18
12,13
1,861,440
590,415
--
4,646
2,456,501
5,977,428
2,425,123
462,314
3,598,481
361,763
220,408
7,068,089
(104,599)
324,171
321,028
(784,021)
(243,421)
794,851
2,082,417
1,261,589
720,217
56,707
69,528
4,190,458
Loss from operations
(1,090,661)
(3,395,607)
Listing costs
Finance income
Gain on sale of capital assets
--
281,497
7,125
(3,278,068)
130,231
--
Loss before income taxes
(802,039)
(6,543,444)
Income tax recovery
6
(1,200,000)
--
Net income (loss) and
comprehensive income (loss)
Weighted average number of
common shares – basic & diluted
Earnings (loss) per share –
basic & diluted
$
397,961
$
(6,543,444)
58,442,827
45,386,330
21
$
0.01
$
(0.14)
3 5
The accompanying notes are an integral part of these consolidated financial statementsThe accompanying notes are an integral part of these consolidated financial statements
APHRIA INC.
Consolidated Statements of Changes in Equity (Deficiency)
APHRIA INC.
Consolidated Statements of Cash Flows
NUMBER
OF COMMON
SHARES
SHARE
CAPITAL
(NOTE 16)
WARRANTS
(NOTE 17)
SHARE-BASED
PAYMENT
RESERVE
(NOTE 18)
DEFICIT
TOTAL
26,666,667
$
2,500
$
--
$
--
$ (2,175,481)
$ (2,172,981)
10,346,253
5,535,748
216,261
1,666,667
1,000,000
--
11,500,000
11,177,847
340,328
2,300,000
2,530,000
--
--
--
--
--
--
--
--
--
--
--
1,261,589
--
--
5,752,009
1,000,000
--
11,518,175
--
--
2,530,000
1,261,589
52,479,587
$ 20,246,095 $ 556,589
$ 1,261,589
$ (8,718,925)
$ 13,345,348
NUMBER
OF COMMON
SHARES
SHARE
CAPITAL
(NOTE 16)
WARRANTS
(NOTE 17)
SHARE-BASED
PAYMENT
RESERVE
(NOTE 18)
DEFICIT
TOTAL
52,479,587
$ 20,246,095
$ 556,589
$ 1,261,589
$ (8,718,925) $ 13,345,348
5,127,976
6,191,892
(126,748)
8,846,370
10,136,277
263,834
3,600,000
4,342,616
--
--
--
--
--
--
--
--
--
--
462,314
--
6,065,144
--
--
--
--
397,961
397,961
Balance at
May 31, 2014
Shares
issued, net of
issuance costs
Conversion of
due to related
parties
Subscription
receipts, net
of issuance
costs
Shares
retained by
Black Sparrow
shareholders
Share-based
payments
Net loss for
the year
Balance at
May 31, 2015
Balance at
May 31, 2015
Warrants
exercised
Share issued
on Bought
Deal
Share issued
on Cannway
Purchase
Share-based
payments
Net income
for the year
Cash used in operating activities:
Net income (loss) for the year
Adjustments for:
Income tax recovery
Amortization
Gain on sale of capital assets
Share-based compensation
Change in fair value of biological assets
Non-cash listing costs
Change in non-cash working capital
Cash provided by financing activities:
Share capital issued, net of cash issuance costs
Share capital issued on warrants exercised
Cash used in investing activities:
Investment in capital assets
Investment in intangible assets,
net of share capital issued
Proceeds from disposal of capital assets
Issuance of promissory notes receivable
Repayment of promissory notes receivable
Net cash acquired in reverse takeover
NOTES
MAY 31,
2016
MAY 31,
2015
FOR THE YEAR ENDED
$
397,961
$ (6,543,444)
6
12,13
18
10
22
16
16
15
15
12
13
12
11
11
14
(1,200,000)
952,178
(7,125)
462,314
4,646
--
(1,598,108)
(988,134)
10,314,727
6,065,144
1,139,788
(1,139,788)
16,379,871
(4,426,059)
(53,705)
36,570
(200,000)
232,412
--
(1,560,200)
(5,970,982)
--
380,878
--
1,261,589
(764,021)
2,468,020
(2,246,039)
(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)
10,400,111
Long-term investments
4,342,616
462,314
Increase in cash and cash equivalents
9,420,755
6,881,454
Cash and cash equivalents, beginning of year
7,051,909
170,455
Balance at
May 31, 2016 70,053,933
$ 40,916,880
$ 693,675
$ 1,723,903
$ (8,320,964) $ 35,013,494
Cash and cash equivalents, end of year
$ 16,472,664
$ 7,051,909
3 7
--
(6,543,444)
(6,543,444)
Advances from related parties
Repayment of amounts due to related parties
The accompanying notes are an integral part of these consolidated financial statementsThe accompanying notes are an integral part of these consolidated financial statements
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.
These consolidated financial statements were approved by the Company’s Board of Directors on July 7, 2016.
2. BASIS OF PREPARATION
(a) Statement of compliance
The policies applied in this consolidated financial statements are based on 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 going concern basis, under the historical cost
convention except for certain financial instruments that are measured at fair value and biological assets
that are measured at fair value less costs to sell, as detailed in the Company’s accounting policies.
(c) Functional currency
The Company and its subsidiaries’ functional currency, as determined by management is Canadian dollars.
These consolidated financial statements are presented in Canadian dollars.
(d) Basis of consolidation
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power,
directly or indirectly, to govern the financial and operating policies of an entity and be exposed to
the variable returns from its activities. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases.
Subsidiaries
Jurisdiction of incorporation
Pure Natures Wellness Inc. (d/b/a Aphria)
Ontario
CannWay Pharmaceuticals Ltd.
New Brunswick
Intragroup balances, and any unrealized gains and losses or income and expenses arising from gains
arising from transactions with jointly controlled entities are eliminated to the extent of the Company’s
interest in the entity. Unrealized losses are eliminated to the extent of the gains, but only to the extent
that there is no evidence of impairment.
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.
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 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. Capital assets
Captial assets are stated at cost, net of accumulated amortization and accumulated impairment losses,
if any.
Amortization is calculated using the following terms and methods:
Production equipment
Office equipment
Straight-line
Straight-line
5-10 years
3-5 years
Leasehold improvements
Straight-line
over lease term
Construction in progress
Not amortized no term
3 9
APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015
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 consolidated statements
of income and comprehensive income in the year the asset is derecognized.
The assets’ residual values, useful lives and methods of amortization 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 a purchased private label brand. Both
are recorded at cost less accumulated amortization. Amortization of the e-commerce platform is recorded
on a straight-line basis over the estimated useful life of 2 years. Amortization of the private label brand is
recorded on a straight-line basis over the estimated useful life of 10 years.
g. Goodwill
Goodwill represents the excess of the purchase price paid for the acquisition of subsidiaries over the
fair value of the net tangible and intangible assets acquired. Following initial recognition, goodwill is
measured at cost less any accumulated impairment losses.
h.
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 of recoverable amount and the carrying amount that
would have been recorded had no impairment loss been previously recognized.
i.
Income taxes
Income tax expense consisting of current and deferred tax expense is recognized in the consolidated
statements of income and comprehensive income. Current tax expense is the expected tax payable on
the taxable income for the year, using tax rates enacted or substantively enacted at year 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.
j. Earnings (loss) per share
Basic earnings (loss) per share is calculated using the weighted average number of common shares
outstanding during the year. 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 year. 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.
k. 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 the consolidated statements of income and
comprehensive income such that the cumulative expense reflects the revised estimate.
l. 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 the consolidated
statements of income and comprehensive income as incurred.
m. 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.
(i) FVTPL financial assets
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 the consolidated statements of income and comprehensive income. 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.
4 1
APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015
(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 the consolidated
consolidated statements of income and comprehensive income. 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 the consolidated statements of income and comprehensive
income. 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 the
consolidated statements of income and comprehensive income. 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.
(vii) Classification of financial instruments
Cash and cash equivalents – FVTPL
Accounts receivables – loans and receivables
Other receivables – loans and receivables
Promissory notes receivable – loans and receivables
Long-term investments – FVTPL
Accounts payable and accrued liabilities – other financial liabilities
Due to related parties – other financial liabilities
(viii) Determination on fair value of long-term investments
All long-term investments (other than warrants) are initially recorded at the transaction price, being
the fair value at the time of acquisition. Thereafter, at each reporting period, the fair value of an
investment may (depending upon the circumstances) be adjusted using one or more of the valuation
indicators described below. These are included in Level 3 in Note 5. Warrants of private companies
are carried at their intrinsic value.
The determination of fair value of the Company’s long-term investments at other than initial cost
are subject to certain limitations. Financial information for private companies in which the Company
has investments may not be available and, even if available, that information may be limited
and/or unreliable.
Use of the valuation approach described below may involve uncertainties and determinations based
on the Company’s judgment and any value estimated from these techniques may not be realized
or realizable.
Company-specific information is considered when determining whether the fair value of a long-term
investment should be adjusted upward or downward at the end of each reporting period. In addition
to company-specific information, the Company will take into account trends in general market
conditions and the share performance of comparable publicly-traded companies when valuing
long-term investments.
The fair value of long-term investment may be adjusted if:
• There has been a significant subsequent equity financing provided by outside investors at a
valuation different than the current value of the investee company, in which case the fair value
of the investment is set to the value at which that financing took place;
• There have been significant corporate, political, or operating events affecting the investee
company that, in management’s opinion, have a material impact on the investee company’s
prospects and therefore its fair value. In these circumstances, the adjustment to the fair value
of the investment will be based on management’s judgment and any value estimated may not be
realized or realizable;
• The investee company is placed into receivership or bankruptcy;
• Based on financial information received from the investee company, it is apparent to the
Company that the investee company is unlikely to be able to continue as a going concern;
• Important positive/negative management changes by the investee company that the Company’s
management believes will have a positive/negative impact on the investee company’s ability to
achieve its objectives and build value for shareholders.
Adjustment to the fair value of a long-term investment will be based upon management’s judgment
and any value estimated may not be realized or realizable. The resulting values for non-publicly
traded investments may differ from values that would be realized if a ready market existed.
n. Critical accounting estimates and judgments
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.
4 3
APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015
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 capital and intangible assets
Amortization of capital and intangible assets is dependent upon estimates of useful lives based on
management’s judgment.
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, 2016 and have not been applied in preparing these consolidated 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.
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 revised standards.
The Company has reclassified certain items on the comparative consolidated statements of income and
comprehensive income to improve clarity.
The shares held in escrow are recorded as equity and will be continuously evaluated and adjusted based on
the probability of the operating metrics being achieved. As of May 31, 2016 management expects 100% of
milestones to be achieved by December 31, 2018.
Purchase price allocation was as follows:
Net tangible assets acquired
Intangible asset – Cannway brand
Goodwill
Deferred tax liability
Total purchase price recorded
Net tangible assets acquired included the following:
Cash held in trust to fund liabilities outstanding
at closing
Accounts receivable
Accounts payable
HST payable
Income taxes payable
$
--
4,428,000
1,200,000
(1,200,000)
$
4,428,000
$
269,717
91,872
(219,505)
(58,107)
(83,977)
--
Net tangible assets acquired
$
The Cannway brand will be amortized over 10 years on a straight line basis. Amortization began in January 2016.
Goodwill arose in the acquisition of the Cannway brand because the cost of the acquisition reflected revenue
growth and the future market development of the brand. These benefits were not recognized separately from
goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the
goodwill arising on the acquisition is expected to be deductible for tax purposes.
Acquisition costs of $10,375 have been expensed during the year under General and administrative on
the consolidated statements of income (loss) and comprehensive income (loss). Costs of issuing equity of
$85,384 have been applied against the fair value of the equity issued at the time of the acquisition.
4. DISCLOSURE OF BUSINESS TRANSACTION
5.
FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
Effective January 13, 2016, Aphria acquired 100% of the issued and outstanding shares of Cannway
Pharmaceuticals Inc. (“Cannway”). Cannway provides support services to veteran and first responders in the
form of medical consultations, group therapy, and rehabilitation.
Pursuant to the acquisition, Aphria issued 3,600,000 common shares at $1.23 per share to the former
shareholders of Cannway, of which 1,800,000 shares are being held in escrow and will be either (i) released to
the former shareholders of Cannway, based on the achievement of certain operating metrics or (ii) released to
the Company for cancellation, if the operating metrics are not achieved by December 31, 2018.
Financial instruments
The Company has classified its cash and cash equivalents and long-term investments as fair value through
the consolidated statements of income (loss) and comprehensive income (loss), accounts receivable, other
receivables and promissory notes receivable as loans and receivables, and accounts payable and accrued
liabilities as other financial liabilities.
The carrying values of accounts receivables, other receivables, promissory notes receivable, and accounts
payable and accrued liabilities approximate their fair values due to their short periods to maturity.
4 5
APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015
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, 2016 is the carrying amount of cash and cash equivalents,
accounts receivable and other receivables and promissory 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.
Trade receivables
$ 1,778,679 $ 976,404 $ 494,845
$ 120,195 $ 187,235
TOTAL
0-30 DAYS
31-60 DAYS
60-90 DAYS
90+ DAYS
LEVEL 1
LEVEL 2
LEVEL 3
2016
55%
28%
7%
10%
Financial assets at FVTPL
Cash and cash equivalents
$ 16,472,664
$
Long-term investments
--
$ 16,472,664
$
--
--
--
$
--
$ 16,472,664
1,560,200
1,560,200
$ 1,560,200 $ 18,032,864
(b) Liquidity risk
As at May 31, 2016, the Company’s financial liabilities consist of accounts payable and accrued
liabilities, 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, 2016, management regards liquidity risk to be low.
LEVEL 1
LEVEL 2
LEVEL 3
2016
(c) Capital management
Financial assets at FVTPL
Cash
$
$
7,051,909
7,051,909
$
$
--
--
$
$
--
--
$
$
7,051,909
7,051,909
Fair value versus carrying amounts
The fair value of financial instruments, together with the carrying amounts shown in the statement of financial
position, is as follows:
AS AT MAY 31, 2016
FINANCIAL ASSETS
FVTPL
RECEIVABLES
LOANS AND
CARRYING
AMOUNT
FAIR VALUE
Cash and cash equivalents
$ 16,472,664
$
--
$ 16,472,664
$ 16,472,664
Accounts receivable
Other receivables
--
--
1,778,679
1,778,679
1,778,679
126,652
126,952
126,952
Long-term investments
1,560,200
--
1,560,200
1,560,200
$ 18,032,864
$ 1,905,631
$ 19,938,495
$ 19,938,495
AS AT MAY 31, 2016
FINANCIAL ASSETS
FVTPL
RECEIVABLES
LOANS AND
CARRYING
AMOUNT
FAIR VALUE
Cash and cash equivalents
$ 7,051,909
$
--
$ 7,051,909
$ 7,051,909
Other receivables
--
759,528
759,528
759,528
$ 7,051,909
$
759,528
$ 7,811,437
$ 7,811,437
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, 2016, 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 year ended May 31, 2016. The Company considers its
cash and cash equivalents as capital.
4 7
APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015
6.
INCOME TAXES AND DEFERRED INCOME TAXES
A reconciliation of income taxes at the statutory rate with the reported taxes is as follows:
The following table summarizes the components of deferred tax:
FOR THE TWELVE MONTHS ENDED MAY 31
2016
2015
$
802,039
$ 6,543,444
26.5%
26.5%
Deferred tax assets
Non-capital loss carry forward
Undepreciated capital cost in excess
of net book value
Deferred tax liablities
(212,540)
(1,734,013)
Intangible assets in excess of tax costs
(1,124,528)
MAY 31,
2016
MAY 31,
2015
$ 1,171,189
$ 207,766
159,873
--
--
Loss before income taxes
Statutory rate
Expected income tax recovery at combined
basic federal and provincial tax rate
Effect on income taxes of:
Permanent differences
Business combination
Non-deductible transaction expenses
(101,560)
1,200,000
--
345,266
--
707,691
--
(39,980)
721,036
Utilization of tax attributes not previously recognized
(1,331,062)
Non-capital loss carryforwards acquired
on reverse takeover
Tax assets not recognized
--
(754,838)
$
(1,200,000)
$
--
Deferred income tax assets and liabilities have not been recognized in respect of the following deductible
temporary differences:
FOR THE TWELVE MONTHS ENDED MAY 31
2016
2015
Non-capital loss carry forward
$
785,964
$ 4,088,398
Undepreciated capital cost in excess of net book value
Net book value in excess cumulative eligible capital
183,157
695,356
Deductible share issuance costs to be claimed
1,968,361
393,558
607,536
1,391,794
Biological assets and inventory in excess
of tax costs
(206,534)
(207,766)
Net deferred tax assets and liabilities
$
--
$
--
Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same
taxation authority and the Company has the legal right and intent to offset.
Movement in net deferred tax liabilities during the year:
Balance at beginning of year
Recognized in net income
Recognized in goodwill
Recognized in equity
Other
Balance at May 31, 2016
MAY 31,
2016
$
1,200,000
(1,200,000)
--
--
--
$
The Company has non-capital losses available for deduction against taxable income that expire as follows:
2031
2032
2033
2034
2035
2036
FISCAL YEAR ENDING MAY 31,
$
1,284
74,702
127,944
3,487,455
1,059,408
507,850
$
5,258,643
4 9
APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015
7. 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 remained 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 was 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)
$
2,530,000
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
$ 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 t he Company’s legal subsidiary, PNW.
8. OTHER RECEIVABLES
Other receivables are comprised of:
HST (payable) receivable
Accrued interest receivable
Credit card receivable
Other
9.
INVENTORY
Inventory is comprised of:
Harvested cannabis
Cannabis oil
Packaging and supplies
MAY 31,
2016
MAY 31,
2015
$
(35,909)
$
657,041
98,197
64,621
43
58,965
30,634
12,888
$
126,952
$ 759,528
MAY 31,
2016
MAY 31,
2015
$
1,714,897
$ 1,655,259
165,060
208,893
--
68,988
$
2,088,850
$ 1,724,247
10. BIOLOGICAL ASSETS
Biological assets, comprised entirely of live plants, are as follows:
Balance as at May 31, 2015
Increase in fair value less costs to sell due to biological transformation
Transferred to inventory upon harvest
Sale of biological assets
Balance as at May 31, 2016
AMOUNT
$
288,858
5,255,279
(4,835,204)
(10,936)
697,997
$
The net effect of the fair value less cost to sell over and above historical cost was a decrease in non-cash value
of inventory of $4,646 during the twelve months ended May 31, 2016 (2015 – increase of $784,021).
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,
5 1
APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015
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 years.
12. CAPITAL ASSETS
The significant assumptions used in determining the fair value of medical cannabis plants are as follows:
Cost
PRODUCTION
EQUIPMENT
OFFICE
EQUIPMENT
LEASEHOLD
IMPROVEMENTS
CONSTRUCTION
IN PROCESS
TOTAL
CAPITAL
ASSETS
• yield by plant; and,
• percentage of costs incurred for each stage of plant growth.
11. PROMISSORY NOTES RECEIVABLE
MAY 31, 2015
ADDITIONS
PAYMENTS
MAY 31, 2016
At May 31, 2014
$ 686,549
$
32,002
$ 862,927
$
--
$ 1,581,478
Additions
539,818
191,642
1,368,685
304,701
2,404,846
At May 31, 2015
1,226,367
223,644
2,231,612
304,701
3,986,324
Additions
Transfer
Disposals
690,838
361,142
221,204
3,152,875
4,426,059
1,033,433
(35,896)
--
--
2,359,337
(3,392,770)
--
--
--
(35,896)
At May 31, 2016
$ 2,914,742
$
584,786
$ 4,812,153
$
64,806
$ 8,376,487
Note receivable - $100,000,
bearing interest at prime + 3%, one-
year term, due in March 2017
Note receivable - $500,000,
bearing interest at 3%, repayable in 24
equal blended monthly instalments,
due in May 2017
Note receivable - $100,000,
non-interest bearing, one-year term,
due in July 2016
Note receivable - $100,000,
non-interest, one-year term,
due in September 2016
Presented as:
Current portion
Long-term portion
$ 100,000 $
--
$ 6,961
$ 93,039
Accumulated
amortization
At May 31, 2014
$
8,725
$
1,241
$
2,716
Amortization
139,584
23,310
184,587
At May 31, 2015
148,309
24,551
187,303
Amortization
264,852
123,140
325,563
Disposals
(6,451)
--
--
--
--
--
--
--
$
12,682
347,481
360,163
713,555
(6,451)
At May 31, 2016
$
406,710
$
147,691
$
512,866
$
--
$ 1,067,267
Net book value
At May 31, 2015
$ 1,078,058
$ 199,093
$ 2,044,309
$ 304,701
$ 3,626,161
At May 31, 2016
$ 2,508,032
$
437,095
$ 4,299,287
$
64,806
$ 7,309,220
500,000
--
225,451
274,549
--
--
100,000
100,000
--
--
100,000
100,000
$ 600,000 $ 200,000 $ 232,412
567,588
MAY 31,
2016
MAY 31,
2015
$
567,588
$ 346,255
--
253,745
$
567,588
$ 600,000
5 3
APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015
13. INTANGIBLE ASSETS
14. LONG-TERM INVESTMENTS
Cost
At May 31, 2014
Additions
At May 31, 2015
Additions
At May 31, 2016
Accumulated amortization
At May 31, 2014
Amortization
At May 31, 2015
Amortization
At May 31, 2016
Net book value
At May 31, 2015
At May 31, 2016
OTHER
INTANGIBLES
CANNWAY
BRAND
TOTAL
INTANGIBLE
ASSETS
$
--
$
107,995
107,995
53,705
--
--
--
$
--
107,995
107,995
4,428,000
4,481,705
$
161,700
$ 4,428,000
$
4,589,700
$
--
$
33,397
33,397
54,123
--
--
--
184,500
$
--
33,397
33,397
238,623
$
87,520
$
184,500
$
272,020
$
$
74,598
74,180
$
--
$ 4,243,500
$
$
74,598
4,317,680
Ample Organics Inc.
Cannabis Royalties & Holdings Corp.
MAY 31,
2016
$
50,000
1,510,200
$ 1,560,200
MAY 31,
2015
--
--
--
$
$
In May 2016, the Company signed a subscription agreement for the acquisition of 1,500,000 common
shares and 750,000 common share purchase warrants of Cannabis Royalties & Holdings Corp, collectively
representing 10.51% of the outstanding common shares. The investment is considered a Level 3 financial
instrument because the shares of Cannabis Royalties & Holdings Corp. are not quoted on a public market.
At year-end, the Company has concluded that the fair value and carrying value of the investment are equal
as the most recent financing of Cannabis Royaltiies & Holding Corp. was on May 18, 2016 and as at
May 31, 2016 represents the best proxy for fair value.
In December, 2015, the Company signed an letter of intent to invest $187,500 in exchange for 3,750,000
common shares of Ample Organics Inc. The Company has paid a deposit of $50,000 on the equity investment,
the subscription agreement has not yet been executed, the parties remain in negoiatations. The investment
is considered a Level 3 finanical instrument because the shares of Ample Organics Inc. are not quoted on
a public market.
15. 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 balance owing to related parties as at May 31, 2016 was $nil
(May 31, 2015 - $nil). These parties are related as they are corporations that are controlled by certain
officers and directors of the Company.
Balance as at May 31, 2015
Related party charges in year
Payments to related parties in year
Balance as at May 31, 2016
$
AMOUNT
--
1,139,788
(1,139,788)
$
--
During the twelve months ended May 31, 2016, related party corporations charged or incurred expenditures on
behalf of the Company (including rent) totalling $1,139,788 (2015 - $574,951). Included in this amount was
rent of $193,593 charged during the twelve months ended May 31, 2016 (2015 - $105,935).
5 5
APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015
Key management personnel compensation was comprised of:
Salaries
Short-term employment benefits (included in office
and general)
Share-based compensation
MAY 31,
2016
MAY 31,
2015
$
752,337
$
418,077
31,846
247,574
--
864,270
$
1,031,757
$ 1,282,347
Directors of the Company control 31.0% of the voting shares of the Company.
16. SHARE CAPITAL
The Company is authorized to issue an unlimited number of common shares. As at May 31, 2016, the
Company has issued 70,053,933 shares.
COMMON SHARES
Balance at May 31, 2014
Private placement, net of issuance costs
Conversion of due to related parties
Subscription receipts, net of issuance costs
(a)
(b)
(c)
NUMBER OF SHARES
AMOUNT
26,666,667
$
2,500
10,346,253
5,535,748
1,666,667
1,000,000
11,500,000
11,177,847
Shares retained by Black Sparrow shareholders (d)
2,300,000
2,530,000
Balance at May 31, 2015
Bought deal, net of issuance costs
Cannway Pharmaceuticals Ltd. purchase
Warrants exercised
Balance at May 31, 2016
(e)
(f)
(g)
52,479,587
$ 20,246,095
8,846,370
10,136,277
3,600,000
4,342,616
5,127,976
6,191,892
70,053,933
$ 40,916,880
a)
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.
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.
b)
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.
c)
The Company completed a private placement raising aggregate gross proceeds of $12,650,000 through
the sale of 11,500,000 subscription receipts (“Subscription Receipt”) 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 their 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. In April 2016 all of
the Compensation Options were exercised, resulting in the issuance of 802,268 warrants with an exercise
price of $1.50 expiring in December 2019, these warrants were valued at $213,580 and have been
recorded in equity under Warrants.
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.
In December 2015, the Company closed a bought deal financing in which it issued 8,846,370 units at
$1.30 per unit for a total financing raise of $11,500,282. Each unit contained one common share and
a half warrant at an exercise price of $1.75. The Company incurred cash issuance costs of $1,100,171
and issued 530,782 broker warrants at an exercise price of $1.30 for a period of 24 months expiring in
December 2017. Each broker warrant entitles them to subscribe for one unit, these broker warrants
were valued at $263,834 and have been recorded in equity under Warrants.
In January 2016, Aphria acquired 100% of Cannway Pharmaceuticals Ltd. in exchange for 3,600,000
common shares at $1.23 per share to the former shareholders of Cannway, of which 1,800,000 shares are
being held in escrow and will be either (i) released to the former shareholders of Cannway, based on the
achievement of certain operating metrics or (ii) released to the company for cancellation, if the operating
metrics are not achieved by December 31, 2018. The cost of issuing equity of $85,384 has been applied
against the fair value of the equity issued at the time of the acquisition.
d)
e)
f)
g)
Throughout the year, 4,325,708 warrants with an exercise price of $1.20 were exercised for 4,325,708
common shares.
5 7
APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015
17. WARRANTS
The warrant details of the Company are as follows:
18. SHARE-BASED PAYMENT RESERVE
Share based payment reserve is comprised of:
TYPE OF WARRANT
Warrant
EXPIRY DATE
June 3, 2016
NUMBER OF
WARRANTS
WEIGHTED
AVERAGE
PRICE
847,419
$ 1.20
AMOUNT
$
--
Compensation warrant / option
June 3, 2019
618,333
$ 0.60
216,261
Warrant
Warrant
Warrant
December 2, 2019
11,500,000
$ 1.50
--
December 2, 2019
802,268
$ 1.50
213,580
December 11, 2018
4,423,185
$ 1.75
--
Compensation warrant / option
December 11, 2017
530,782
$ 1.30
263,834
Balance at May 31, 2016
18,721,987
$ 1.51
$693,675
MAY 31, 2016
MAY 31, 2015
NUMBER OF
WARRANTS
WEIGHTED
AVERAGE
EXERCISE
PRICE
NUMBER OF
WARRANTS
WEIGHTED
AVERAGE
EXERCISE
PRICE
Outstanding, beginning of the year
18,093,728
$
1.37
Expired during the year
--
Exercised during the year
(5,127,976)
--
1.18
--
--
--
--
--
--
Issued during the year
5,756,235
1.67
18,093,728
1.37
Outstanding, end of year
18,721,987
$ 1.51
18,093,728
$ 1.37
During the year, 4,325,708 warrants with an exercise price of $1.20 expiring June 3, 2016 were exercised.
During the year, 802,268 compensation warrants with an exercise price of $1.10 expiring December 2, 2016 were
exercised for $882,495. In connection with the transaction, the Company issued 802,268 warrants exercisable
at $1.50 expiring on December 2, 2019.
Balance, beginning of year
$
1,261,589
$
--
Amounts charged to share-based payment reserve in
respect of stock based compensation
462,314
1,261,589
Balance, end of year
$
1,723,903
$ 1,261,589
MAY 31,
2016
MAY 31,
2015
19. 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 up to 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 Company recognized a share-based compensation expense of $462,314 during the year ended
May 31, 2016 (2015 - $1,261,589). The total fair value of options granted during the year was
$320,500 (2015 - $1,877,736).
MAY 31, 2016
MAY 31, 2015
NUMBER
OF OPTIONS
WEIGHTED
AVERAGE
EXERCISE
PRICE
NUMBER
OF OPTIONS
WEIGHTED
AVERAGE
EXERCISE
PRICE
Outstanding, beginning of the year
4,520,000
$ 0.81
Expired during the year
Issued during the year
Cancelled during the year
Outstanding, end of year
Exercisable, end of year
--
565,000
(110,000)
4,975,000
3,906,454
--
1.13
1.08
$ 0.84
$ 0.76
--
--
--
--
4,520,000
$ 0.81
--
--
4,520,000
$ 0.81
2,962,640
$ 0.66
5 9
APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015
The option details of the Company are as follows:
EXPIRY DATE
November 2017
December 2017
March 2018
April 2018
August 2018
October 2018
November 2018
December 2018
April 2019
June 2019
August 2019
September 2020
November 2020
Balance at May 31, 2016
EXERCISE PRICE
NUMBER OF OPTIONS
VESTED AND
EXERCISABLE
$ 1.10
$ 1.10
$ 0.90
$ 1.18
$ 0.93
$ 1.17
$ 1.49
$ 1.30
$ 1.67
$ 0.60
$ 1.10
$ 0.85
$ 1.19
$ 0.84
480,000
940,000
205,000
155,000
10,000
20,000
20,000
195,000
50,000
325,000
213,120
195,000
5,000
10,000
6,667
20,000
195,000
36,667
2,600,000
2,600,000
50,000
200,000
50,000
4,975,000
50,000
200,000
50,000
3,906,454
In August 2015, the Company issued 30,000 stock options at an exercise price of $0.93 per share,
exercisable for 3 years. The options vest 1/3 immediately, 1/3 on the first anniversary of grant, and 1/3
on the second anniversary.
In September 2015, the Company issued 200,000 stock options at an exercise price of $0.85 per share,
exercisable for 5 years. The options vested fully in December 2015.
In October 2015, the Company issued 20,000 stock options at an exercise price of $1.17 per share,
exercisable for 3 years. The options vest 1/3 immediately, 1/3 on the first anniversary of grant, and 1/3 on
the second anniversary.
In November 2015, the Company issued 50,000 stock options at an exercise price of $1.19 per share,
exercisable for 5 years. The options vested immediately upon grant.
In November 2015, the Company issued 20,000 stock options at an exercise price of $1.49 per share,
exercisable for 3 years. The options vested fully in November 2015.
In December 2015, the Company issued 195,000 stock options at an exercise price of $1.30 per share,
exercisable for 3 years. The options vested fully in December 2015.
In April 2016, the Company issued 50,000 stock options at an exercise price of $1.67 per share, exercisable
for 3 years. 20,000 options vest 1/3 immediately, 1/3 on the first anniversary of grant, and 1/3 on the
second anniversary. The remaining 30,000 options vested immediately upon grant.
The Company used the Black Scholes option pricing model to determine the fair value of options granted
using the following assumptions: 0.64% risk-free rate; expected life of 3 & 5 years; volatility of 70% based on
comparable companies; forfeiture rate of nil; dividend yield of nil; and, exercise price of the respective options.
20. GENERAL AND ADMINISTRATIVE EXPENSES
Executive compensation
$
752,337
$
679,692
FOR THE TWELVE MONTHS ENDED MAY 31
2016
2015
Consulting fees
Office and general
Professional fees
Salaries and wages
Travel and accommodation
Rent
39,723
591,555
359,580
394,627
242,237
45,064
390,893
380,063
259,488
162,235
147,136
62,910
$
2,425,123
$ 2,082,417
21. EARNINGS (LOSS) PER SHARE
The calculation of earnings (loss) per share at May 31, 2016 was based on the net income attributable to
common shareholders of $397,961 (2015: $6,543,444) and a weighted average number of common shares
outstanding of 58,442,827 calculated as follows:
Earnings (loss) per share:
Net income (loss)
Average number of common
shares outstanding during the year
Earnings (loss) per share
2016
2015
$
397,961
$ (6,543,444)
58,442,827
45,386,330
$ 0.01
$ (0.14)
The outstanding ‘in-the-money’ options and warrants do not cause any dilution of earnings (loss) per share.
6 1
APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015
22. SUPPLEMENTAL CASH FLOW INFORMATION
Net change in non-cash working is comprised of:
Accounts receivable
Other receivables
Inventory
Biological assets
Prepaids
Accounts payable and other accrued liabilities
2016
$
(1,778,679)
$
632,576
(369,249)
(409,139)
7,114
319,269
2015
--
(743,170)
(960,226)
(288,858)
(167,270)
(86,515)
$
(1,598,108)
$ (2,246,039)
23. 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.
The Company has a lease commitment until March 2019 for the rental of a motor vehicle in the amount of
$20,228 annually. Minimum payments payable over the next five years are as follows:
2017
2018
2019
FISCAL YEAR ENDING MAY 31,
$
253,069
253,069
152,681
$
658,819
24. SUBSEQUENT EVENTS
Subsequent to the year end, the Company’s purchase agreement with Cacciavillani and F.M. Farms Ltd.
(o/a CF Greenhouses) closed on June 30, 2016. As part of the transaction the Company acquired 9 acres of
greenhouses, situated on 36 acres of property, known as 265 Talbot Street West in Leamington, Ontario.
The purchase price for the land and greenhouse was $6.1 million and is considered a non-arm’s length
transaction because the vendor is a director and officer of the Company. $3.25 million of the purchase
price was paid in cash on closing, on June 30, 2016, and the remainder will be paid as a vendor take-back
mortgage, bearing interest at 6.75% per annum, with a 5-year term and amortization. The Company
maintains a right of first refusal to acquire an additional acre of property, known as 243 Talbot Street West,
in Leamington, Ontario. The vendor maintains a put option on the same property valued at $ 1 million,
subject to annual inflationary adjustments equal to the increases in the Consumer Price Index, which put
option can only be exercised on upon certain operating metrics being achieved.
Subsequent to year end, shareholders of the Company exercised 797,414 warrants which were expiring
June 3, 2016, through a number of individual transactions. As part of those transactions, the Company
received $956,897 in cash.
Subsequent to year end, the Company granted 278,000 stock options to director, officers, employees and
consultants of the Company. The stock options were granted for a 5-year term and vest one-third immediately,
one-third on the first anniversary of the grant date and one-third on the second anniversary
of the grant date. The stock options are exercisable at $1.40.
6 3
APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015APHRIA INC. Notes to the Consolidated Financial Statements For the years ended May 31, 2016 and May 31, 2015