CANN GROUP LIMITED
and its controlled entities
ABN 25 603 949 739
ANNUAL FINANCIAL STATEMENTS
FOR THE PERIOD ENDED
30 JUNE 2015
CANN GROUP LIMITED
ABN 25 603 949 739
Corporate Information
These are the first full financial statements of Cann Group Ltd (the company) and its 100% owned subsidiaries,
including Cannproducts Pty Ltd (incorporated and domiciled in Victoria, Australia), Cannoperations Pty Ltd
(incorporated and domiciled in Victoria, Australia), Anslinger Holdings Pty Ltd (incorporated and domiciled in
Victoria, Australia), Cannlabs Australia Pty Ltd (incorporated and domiciled in Victoria, Australia) and Cann
Investments Pty Ltd (incorporated and domiciled in Victoria, Australia) (together, the Group). These financial
statements are for the period from the date of the company’s incorporation at 30 January 2015 to 30 June 2015.
Unless otherwise stated, all amounts are presented in $AUD.
A description of the group’s operations and of its principal activities is included in the review of operations and
activities in the attaching directors’ report.
Directors
Mr Allan McCallum (Chairman) (appointed 30 January 2015)
Mr Philip Jacobsen (Deputy Chairman) (appointed 30 January 2015)
Mr Douglas Rathbone (appointed 16 March 2015)
Mr Alberto Mariani (appointed 30 January 2015)
Registered and Principal Office
Suite 203
11 Spring Street
Chatswood NSW 2067
Contents
Directors’ report
Annual financial statements
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
Directors’ declaration
Independent Auditor’s report
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6
7
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25
CANN GROUP LIMITED
ABN 25 603 949 739
DIRECTORS’ REPORT
Your directors present their report on the group for the financial period ended 30 June 2015.
INFORMATION ON DIRECTORS
The names and details of the directors in office during the period and until the date of this report are as
follows. Directors have been in office for this entire period unless otherwise stated.
The names of the directors in office at any time during or since the end of the year and their
qualifications are as follows:
Allan McCallum, Dip. Ag Science, FAICD (Chairman) (appointed 30 January 2015)
An experienced public company director who has strong ethics, proven leadership capabilities and extensive
experience in strategy development and implementation and mergers and acquisitions. Allan is a former Director
of Incitec Pivot Ltd (ASX IPL), the current Chair of Tassal Group Ltd (ASX TGR) Australia’s largest producer of
Atlantic salmon and a Director of Medical Developments International Ltd (ASX MVP), a pharmaceutical and
device manufacturer, marketing nationally and internationally.
Special Responsibilities - Member – Audit and Risk Committee
Interest in Shares and Performance Rights
800,000 Ordinary Shares
500,000 Performance Rights Class A
250,000 Performance Rights Class B
Philip Robert Nicholas Jacobsen, CPA (Deputy Chairman) (appointed 30 January 2015)
An experienced public company director, he co-founded Premier Artists in 1975 and The Frontier Touring
Company in 1979. He serves as a director of Liberation Music, Premier Artists, The Harbour Agency, Ivy League
Records and Jacobsen Bloodstock. Former Chair of MCM Entertainment Group, Philip brings to the Board a 50
plus year history of applying solid fiscal accounting perspectives to an emerging business model in a constantly
changing, high demand market place.
Special Responsibilities - Chairman – Audit and Risk Committee
Interest in Shares and Performance Rights
375,000 Ordinary Shares
250,000 Performance Rights Class A
125,000 Performance Rights Class B
Douglas John Rathbone, AM, FATSE, FI ChemE, ARMIT B Comm, TTC (appointed 16 March 2015)
An experienced public company director, he is the former Managing Director and CEO of Nufarm Limited – an
ASX 200 listed company and is a former Board member of the FERNZ Corporation and the CSIRO. He is a member
of the RABO Bank Advisory Board, an Honorary Life Governor of the Royal Children’s Hospital and a former
Director of the Burnett Centre for Medical Research. Doug brings to the Board experienced management and
corporate governance skills together with a passion to grow the business having successfully transformed
Nufarm to become one of the world’s leading crop protection and seed companies with an extensive global
footprint.
Special Responsibilities - Member – Audit and Risk Committee
Interest in Shares and Performance Rights
50,000 Ordinary Shares
20,000 Performance Rights Class A
20,000 Performance Rights Class B
1
CANN GROUP LIMITED
ABN 25 603 949 739
Alberto Mariani, B.Sc., Dip.Ed., B.Ed. (Hons), MAPS, MISH (appointed 30 January 2015)
An experienced Company Director, he is a former professional footballer at the highest level in Australia (NSL)
with subsequent extensive coaching engagements. He is an accredited, registered and practicing psychologist,
combining his diverse professional activities with a private practice in psychology. He currently sits on: the Board
of Club Marconi Ltd, a registered, licensed club in NSW. He also serves on its Audit and Finance Committee; the
FNSW Premier Competitions Standing Committee; the Board of the Australian Society of Hypnosis Inc. (NSW)
(where he has served as the President for the last three years) and, the Federal Council and Board of Education
of the Australian Society of Hypnosis Ltd.
Special Responsibilities - Member – Audit and Risk Committee
Interest in Shares and Performance Rights
250,000 Ordinary Shares
160,000 Performance Rights Class A
90,000 Performance Rights Class B
Directors have been in office since the start of the period to the date of this report unless otherwise stated.
COMPANY SECRETARIES
Richard Baker, M.Commrcl Law, B.Ec., CPA (appointed 27 May 2015)
A senior experienced Financial Controller and Company Secretary, with extensive ASX experience, in terms of
governance, capital raisings and reporting including implementing internal controls, accounting and ERP
systems in established and start-up enterprises. He has had public practice experience in business services,
taxation and audit to a diverse range of clients involved in FMCG, manufacturing, professional services and
transport and gained a variety of experience as Financial Controller with previous employers including mineral
exploration, import and distribution, FMCG and professional consulting.
Alberto Mariani, B.Sc., Dip.Ed., B.Ed. (Hons), MAPS, MISH (appointed 30 January 2015)
An experienced Company Director, he is a former professional footballer at the highest level in Australia (NSL)
with subsequent extensive coaching engagements. He is an accredited, registered and practicing psychologist,
combining his diverse professional activities with a private practice in psychology. He currently sits on: the
Board of Club Marconi Ltd, a registered, licensed club in NSW. He also serves on its Audit and Finance
Committee; the FNSW Premier Competitions Standing Committee; the Board of the Australian Society of
Hypnosis Inc. (NSW) (where he has served as the President for the last three years) and, the Federal Council
and Board of Education of the Australian Society of Hypnosis Ltd.
DIVIDENDS
No dividends have been paid or have been recommended during the period.
PRINCIPAL ACTIVITIES
The principal activities of the group during the period consisted of developing a manufacturing and a technology
structure to import, cultivate and process cannabinoid based products for markets where Cannabis is legalised
for medicinal and/or recreational uses.
No significant change in the nature of these activities occurred during the period.
FINANCIAL REPORTING PERIOD
This Annual Report is the first Annual Report of the consolidated group and covers the period 30 January 2015 to
30 June 2015.
2
CANN GROUP LIMITED
ABN 25 603 949 739
OPERATING RESULTS FOR THE PERIOD
The group made an operating loss of $1,740,186 for the period ended 30 June 2015.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Capital raising
During the period the Company issued an Information Memorandum for a private capital raising (“the Offer”) up
to $1,000,000 at an offer price of $1.00 per share with capacity to accept oversubscriptions of $500,000 from
sophisticated and professional investors under section 708 of the Corporations Act. The Offer closed on 22 May
2015 and raised $1,025,000.
There were no other significant changes in the state of affairs of the group during the year.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
Acquisition of Cann Global Inc
Cann Global Inc (Nevada) is incorporated in the State of Nevada in the United States of America and is in the
process of becoming a wholly-owned subsidiary of Cann Group Limited. The process was not finalised by 30 June
2015 however the process is expected to be completed in the second half of the 2015 calendar year.
Other than matters referred to elsewhere in this report and above, further information as to likely developments
in the operations of the entity and the expected results of operations have not been included in this report
because the directors believe it would be likely to result in unreasonable prejudice to the entity.
ENVIRONMENTAL REGULATION AND PERFORMANCE
The group’s operations are not subject to any particular environmental regulations.
DIRECTORS’ MEETINGS
The number of meetings of the Company’s Board of Directors held during the period ended 30 June 2015 and
the number of meetings attended by each Director were:
Name
Allan McCallum
Philip Jacobsen
Douglas Rathbone
Alberto Mariani
Number eligible to attend
Number attended
2
2
1
2
2
1
1
2
There were no meetings of the Audit and Risk Committee during the period.
OPTIONS
There are presently no share options on issue.
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CANN GROUP LIMITED
ABN 25 603 949 739
PERFORMANCE RIGHTS
The Company has issued 4,500,000 Performance Rights at $0.0001 per Right comprising 2,750,000 Class A
Performance Rights and 1,750,000 Class B Performance Rights of which:
2,417,500 Class A Performance Rights and 1,417,500 Class B Performance Rights have been issued to
Directors and Key Management Personnel of the Company; and
332,500 Class A Performance Rights and 332,500 Class B Performance Rights have been issued to non-
related party consultants and advisors in consideration for various advisory services.
The Performance Rights have the following milestones attached to them:
(i) Class A Performance Rights: if the Company issues further Shares in addition to the New Shares at
$1.50 per Share or higher (subject to any adjustments as set out below in (iii)); and
(ii) Class B Performance Rights: if the Company applies to be admitted to the Official List of the ASX or a
trade sale of the underlying business of the Company or the Company occurs.
(iii) If, at any time, the issued capital of the Company is reorganised (including consolidation,
subdivision, reduction or return), all rights of a holder of a Performance Right (including the Vesting
Conditions) are to be changed in a manner consistent with the Corporations Act and the ASX Listing
Rules at the time of the reorganisation.
The Performance Rights were issued for $0.0001 each and no consideration will be payable upon the vesting of
the Performance Rights.
Upon satisfaction of the relevant Performance Rights vesting, each Performance Right will, at the election of the
holder, vest and convert as follows:
(i) each Class A Performance Right converts into one Share; and
(ii) each Class B Performance Right converts into one Share.
Based on the above, the performance rights reserve has been calculated as at 30 June 2015 as follows:
Class Number of rights
Grant Date
Fair value
Vested
A
B
2,750,000
1,750,000
4,500,000
31 January 2015
31 January 2015
(cents)
19.18
19.18
50%
50%
Total in
reserve
$
263,698
167,807
431,505
Grant date: this was the date that all participants to the Performance Rights had a shared understanding of the
terms and conditions of the arrangement.
Fair value: this was determined with reference to the prevailing seed capital price at that date, being the value
attributed to shares issued in consideration the reimbursement of expenses borne on behalf of the Group by
related parties.
% vested: for both performance milestones described above, the Directors have assessed a 50% probability.
If the Milestone attaching to a Performance Right has not been satisfied in the time periods set out below, it will
automatically lapse:
(i) Class A Performance Rights: 3 years from 22 May 2015;
(ii) Class B Performance Rights: 4 years from 22 May 2015;
otherwise, any Performance Right that has not been converted into a Share on or before the date of admission
of the Company to the Official List of the ASX will automatically lapse.
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CANN GROUP LIMITED
ABN 25 603 949 739
INDEMNIFYING OFFICERS OR AUDITOR
No indemnities have been given or insurance premiums paid, during or since the end of the period, for any
person who is or has been an officer or auditor of the group.
PROCEEDINGS ON BEHALF OF THE GROUP
No person has applied for leave of court to bring proceedings on behalf of the group or intervene in any
proceedings to which the group is a party for the purpose of taking responsibility on behalf of the group for all or
any part of those proceedings.
There were no proceedings during the period.
EVENTS AFTER THE END OF THE REPORTING PERIOD
Issue of Shares
On 14 August 2015 the Company issued 150,000 Shares at a price of $1.00 per share on the same terms and
conditions as those shares issued pursuant to the abovementioned Information Memorandum.
Apart from the above Issue of Shares there were no matters or circumstances have arisen since the end of the
period which significantly affected or may significantly affect the operation of the group, the results of those
operations, or the state of affairs of the group in future financial years.
Entry into Lease of premises
On 4 September 2015 Cannoperations Pty Ltd, a wholly-owned subsidiary of Cann Group Limited, entered into a
lease for premises for a period of 3 years and 6 months with two further options of 3 years each.
Signed in accordance with a resolution of the Board of Directors:
____________________
Allan McCallum
CHAIRMAN
Date: 22 September 2015
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CANN GROUP LIMITED
ABN 25 603 949 739
Statement of Profit or Loss and other
Comprehensive Income
FOR THE PERIOD ENDED 30 JUNE 2015
Note
3
Revenue
Administration and corporate costs
Finance costs
Occupancy expenses
Operational preparation costs
Professional fees
Performance rights expense
Share based payments
Research and development
Travel expenses
Other expenses
Loss before income tax
Income tax expense
Loss attributable to members of the company
Other comprehensive income
Total comprehensive loss attributable to members of the company
4
The accompanying notes form part of these statements.
2015
$
5,726
(380,958)
(5,231)
(15,303)
(45,693)
(13,025)
(381,163)
(519,634)
(182,247)
(173,299)
(29,359)
(1,740,186)
-
(1,740,186)
-
(1,740,186)
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CANN GROUP LIMITED
ABN 25 603 949 739
Statement of Financial Position
AS AT 30 JUNE 2015
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade receivables and other assets
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Plant and equipment
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Unsecured trade and other payables
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Ordinary share capital
Performance rights reserve
Accumulated losses
TOTAL EQUITY
The accompanying notes form part of these statements
Note
2015
$
7
8
9
11
12
450,824
103,961
554,785
171,369
171,369
726,154
77,829
77,829
77,829
648,325
1,957,006
431,505
(1,740,186)
648,325
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CANN GROUP LIMITED
ABN 25 603 949 739
Statement of Changes in Equity
FOR THE PERIOD ENDED 30 JUNE 2015
Ordinary
shares
$
-
1,992,006
(35,000)
-
-
Performance
Rights
reserve
Accumulated
losses
$
$
-
-
431,505
Total
equity
$
-
1,992,006
(35,000)
431,505
-
-
-
-
(1,740,186)
(1,740,186)
Balance at 30 January 2015
Issue of shares
Costs of issuing shares
Issue or performance rights (net
of costs)
Comprehensive loss for the
period ended 30 June 2015
Balance at 30 June 2015
1,957,006
431,505
(1,740,186)
648,325
The accompanying notes form part of these statements
8
CANN GROUP LIMITED
ABN 25 603 949 739
Statement of Cash Flows
FOR THE PERIOD ENDED 30 JUNE 2015
Note
2015
$
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest receipted
Net cash flows provided by/(used in) operating activities
16
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issues of shares
Costs of issuing shares
Net cash flows provided by financing activities
Net increase/ (decrease) in cash held
Cash and cash equivalents at the beginning of the period
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
The accompanying notes form part of these statements
3,357
(272,231)
1,067
(267,807)
(171,369)
(171,369)
925,000
(35,000)
890,000
450,824
-
450,824
9
Notes to the financial statements
CANN GROUP LIMITED
ABN 25 603 949 739
1.
CORPORATE INFORMATION
These are the first full financial statements of Cann Group Ltd (the company) and its 100% owned subsidiaries,
including Cannproducts Pty Ltd (incorporated and domiciled in Victoria, Australia), Cannoperations Pty Ltd
(incorporated and domiciled in Victoria, Australia), Anslinger Holdings Pty Ltd (incorporated and domiciled in
Victoria, Australia), Cannlabs Australia Pty Ltd (incorporated and domiciled in Victoria, Australia) and Cann
Investments Pty Ltd (incorporated and domiciled in Victoria, Australia) (together, the Group). These financial
statements are for the period from the date of the company’s incorporation at 30 January 2015 to 30 June 2015.
Unless otherwise stated, all amounts are presented in $AUD, which is the functional and presentation currency
of all entities in the Group.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of accounting
The financial statements are general purpose financial statements that have been prepared in accordance with
Interpretations, other authoritative
including Australian Accounting
Australian Accounting Standards,
announcements of the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001 as
appropriate for for-profit oriented entities.
Australian Accounting Standards set out accounting policies that the AASB has concluded would result in
financial statements containing relevant and reliable information about transactions, events and conditions.
Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply
with International Financial Reporting Standards. Material accounting policies adopted in the preparation of
these financial statements are presented below. They have been consistently applied unless otherwise stated.
The financial statements have been prepared on an accruals basis and are based on historical costs modified,
where applicable, by the measurement of fair value of selected non-current assets, financial assets and financial
liabilities.
The amounts presented in the financial statements have been rounded to the nearest dollar.
These financial statements have been prepared on a going concern basis, notwithstanding the fact that for the
period ended 30 June 2015, the Group generated a loss after tax of $1,740,186 and incurred net cash outflows
from operations of $267,807. As at 30 June 2015 the Group had available cash reserves of $450,824. Net
investment outflows for the year attributable to the construction of its Modular Plant Growth Research Facility
were $171,369.
For the 12 months from the date of this report, the Directors have determined that the Group is a going concern
based upon a cash flow budget prepared by management, which includes the following assumptions:
revenue derived from sales of consumer products and cannabinoid oil;
future capital raising activities; and
control of costs, as and where appropriate. In considering this, the Directors note that the Group, with
the exception of its lease which was signed on 4 September 2015 and requires annual payments of
$102,300 ($110,000 after 5 March 2016), have no committed costs that cannot be varied according to
levels of working capital available to the Group.
For these reasons, the Directors believe that the assumption of a going concern basis in the preparation of this
financial report is appropriate. The financial report does not include any adjustments in relation to the
recoverability or classification of recorded assets, nor the amounts or classification of liabilities that might be
necessary should the Company not be able to continue as a going concern.
10
Notes to the financial statements
CANN GROUP LIMITED
ABN 25 603 949 739
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(b)
Principles of Consolidation
These consolidated financial statements comprise the financial statements of the company and its controlled
entities throughout reporting period. Controlled entities refers to entities over which the group has the power
to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of
the voting rights. The existence and effect of the potential voting rights that are currently exercisable or
convertible are considered when assessing whether the group controls another entity.
The financial statements of the controlled entities used in the preparation of the consolidated financial
statements are prepared for the same reporting date as the company. Consistent accounting policies are applied
to like transactions and events in similar circumstances.
All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group
transactions and dividends are eliminated in full.
Income Tax
(c)
The income tax expense (income) for the period comprises current income tax expense (income) and deferred
tax expense (income).
Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities
(assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation
authority.
Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during
the year as well as unused tax losses.
Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or
liability where there is no effect on accounting or taxable profit or loss.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when
the asset is realised or the liability is settled and their measurement also reflects the manner in which
management expects to recover or settle the carrying amount of the related asset or liability.
Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent
that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset
can be utilised.
(d)
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable after taking into account any
trade discounts and volume rebates allowed and is stated net of goods and services tax or value-added tax
charges.
Revenue from credits received from the ATO for research and development activities is recognised when it can
be reliably measured and the probability of meeting the criteria for receipt of these credits is probable.
Revenue from the rendering of services is recognised at the point of delivery of those services as they are earned
under contractual agreement.
11
Notes to the financial statements
CANN GROUP LIMITED
ABN 25 603 949 739
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(e)
Cash and cash equivalents
Cash in the Statement of Financial Position comprise cash at bank and in hand.
For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents
as defined above, net of outstanding bank overdrafts.
(f)
Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST
incurred is not recoverable from the Australian Taxation Office (ATO).
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of
GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of
financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to, the ATO are presented as operating cash flows included in
receipts from customers or payments to suppliers.
(h) Trade and other payables
Trade payables and other payables are carried at amortised cost and represent liabilities for goods and services
provided to the group prior to the end of the financial year that are unpaid and arise when the group becomes
obliged to make future payments in respect of the purchase of these goods and services.
(i)
Trade and other receivables
Trade and other receivables include amounts due from customers for goods sold and services performed in the
ordinary course of business. Receivables expected to be collected within 12 months of the end of the reporting
period are classified as current assets. All other receivables are classified as non-current assets.
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost
using the effective interest method, less any provision for impairment.
(j)
Financial Instruments
Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual
provisions of the instrument. For financial assets, this is equivalent to the date that the group commits itself to
either purchase or sell the asset (i.e. trade date accounting is adopted).
Classification and subsequent measurement
Financial instruments are subsequently measured at amortised cost using the effective interest method, or cost.
Amortised cost is calculated as the amount at which the financial asset or financial liability is measured at initial
recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative
amortisation of the difference between that initial amount and the maturity amount calculated using the
effective interest method.
12
Notes to the financial statements
CANN GROUP LIMITED
ABN 25 603 949 739
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(j)
Financial Instruments (continued)
The effective interest method is used to allocate interest income or interest expense over the relevant period and
is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees,
transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably
predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or
financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying
amount with a consequential recognition of an income or expense item in profit or loss.
When a financial liability, including redeemable preference shares, features an equity conversion feature, upon
initial recognition it is measured at cost and accounted for as equity in the statement of financial position.
Subsequent to initial recognition, this instrument is carried at cost. When such a liability is redeemed for cash
consideration, the difference between the cash paid for the redemption of the liability and its historical cost is
adjusted for in the profit and loss. When such a liability is converted into ordinary shares, the difference between
the fair value of the shares granted and issued and its historical cost is also adjusted in the profit and loss.
Impairment
At each reporting date, the group’s directors assess whether there is objective evidence that the financial
instrument has been impaired. Impairment losses are recognised in the profit or loss.
(k)
Plant and Equipment
Each class of plant and equipment is carried at cost less any accumulated depreciation and impairment losses.
The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the
recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net
cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash
flows have been discounted to their present values in determining recoverable amounts.
The cost of plant and equipment constructed within the Group includes the cost of materials, direct labour,
borrowing costs and an appropriate proportion of fixed and variable overheads.
Depreciation
The depreciable amount of all plant and equipment is depreciated on a diminishing value basis over the asset’s
useful life to the group commencing from the time the asset is held ready for use.
As at 30 June 2015, the Group’s sole asset class, its Modular Plant Growth Research Facility had a depreciation
rate of 15%.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and
losses are included in the statement of comprehensive income.
13
Notes to the financial statements
CANN GROUP LIMITED
ABN 25 603 949 739
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(l)
Impairment of Assets
At each reporting date, the group’s directors review the carrying values of the group’s tangible and intangible
assets to determine whether there is any indication that those assets have been impaired. If such an indication
exists, the recoverable amount of the asset, being the higher of the asset’s fair value less cost to sell and value in
use, is compared to the assets carrying value. Any excess of the assets carrying value over its recoverable
amount is expensed to the income statement.
(m)
Share Based Payments
The Company reflects in its comprehensive income (or loss) and its financial position the effects of share-based
payment transactions, including expenses associated with transactions in which shares are granted to related
parties, key management personnel and employees. During the period the Company granted new ordinary
shares pursuant to equity-settled share based payments for services and/or loans provided on an arm’s-length
basis by the founder, related parties and key management personnel, at values determined pursuant to AASB 2
for those services.
Fair value of the goods or services received, unless the fair value cannot be estimated reliably when the
transaction is measured indirectly by reference to the fair value of the equity instruments granted. However,
AASB 2 acknowledges it is typically not possible to estimate reliably the fair value of services received.
Consequently, the entity shall measure the fair value of the services received by reference to the fair value of the
equity instruments granted. The fair value of the equity instruments shall be measured at grant date.
(n)
Research and Development Tax Incentive
The Company does not recognise benefits from the research and development tax incentive as an asset as
receipt of incentive payments is not regarded as probable. The Directors believe the probable is when the tax
incentive is receipted in cash and also that it is reflected as income in the Statement of Profit and Loss and Other
Comprehensive Income.
(o)
Critical Accounting Estimates and Judgements
The Directors evaluate estimates and judgements incorporated into the financial statements based on historical
knowledge and best available current information. Estimates assume reasonable expectation of future events
and are based on current trends and economic data, obtained both externally and within the entity.
Key Judgement – determination of fair value of Share-Based Payments and Performance Rights
In determining the fair value of the Share-Based Payment the Directors measured the fair value of the services
received by reference to the fair value of the equity instruments granted as at grant date of 31 January 2015
(refer Note 11: Ordinary Shares). The Performance Rights were valued using the fair value of the issue of shares
immediately preceding the granting of the Performance Rights, in this instance being the fair value per share of
the Share-Based Payments, applied by a factor expressed as a percentage of the probability of the Group
achieving the required milestones for the Performance Rights to vest.
Key Judgement – determination of probability of achieving milestones for vesting of Performance Rights
In determining the probability of the Group achieving each of the respective milestones for each of Class A and
Class B Performance Rights, which would permit vesting of the Performance Rights, the Directors took into
account all developments of the Group since the granting of the Performance Rights including the raising of the
minimum subscription pursuant to the Information Memorandum dated 14 April 2015 at an issue price of $1.00
per new share and operational, business and legal progress to 30 June 2015. It was determined as at 30 June
2015 that the Group had a fifty percent (50%) likelihood of achieving each of the respective the milestones that
14
Notes to the financial statements
CANN GROUP LIMITED
ABN 25 603 949 739
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(o)
Critical Accounting Estimates and Judgments (continued)
would result in the vesting of each class of the Performance Rights. This percentage was applied to the fair value
of each class of the Performance Rights at grant date thereby resulting in the valuation of each class of
Performance Rights as at 30 June 2015. The milestones for vesting of the Performance Rights are contained in
Note 12 – Performance Rights.
Key Judgement – non-recognition of carry-forward tax losses
The balance of future income tax benefit arising from current year tax losses and timing differences has not been
recognised as an asset because recovery is not regarded as probable. The future income tax benefit, which has
not been recognised as an asset, will only be obtained if:
(i)
the Company derives future assessable income of a nature and an amount sufficient to enable the
benefit to be realised;
(ii) the Company continues to comply with the conditions for deductibility imposed by law; and
(iii) no changes in tax legislation adversely affecting the Company realising the benefit.
Refer Note 4: Income Tax Expense.
Key Judgement – non-recognition of research and development tax incentive benefits
The balance of research and development tax incentive arising from operations of the Company has not been
recognised as an asset because receipt is not regarded as probable. The research and development tax
incentive, which has not been recognised as an asset, will only be obtained if:
(i)
the Company’s activities fulfil the eligibility criteria of the research and development tax initiative and it
is successful in registering for the research and development tax initiative;
(ii) the Company continues to comply with the conditions for registration of the research and development
tax initiative imposed by law; and
(iii) no changes in tax legislation adversely affecting the Company realising the tax incentive from research
and development.
Refer Note 2: Summary of Significant Accounting Policies.
Key Judgement – going concern basis of accounting
Refer Note 2: Summary of Significant Accounting Policies (a) Basis of Accounting.
Key Judgement – acquisition of corporate entities
The consolidated group is comprised of the ultimate company Cann Group Limited and its wholly-owned
subsidiaries, whose assets and liabilities were acquired at historical cost and not fair value (refer Note 10:
Controlled Entities).
15
Notes to the financial statements
CANN GROUP LIMITED
ABN 25 603 949 739
3.
REVENUE
Licencing fees
Other income
Interest Received
4.
INCOME TAX EXPENSE
The prima-facie tax on profit from ordinary activities before income tax is
reconciled to income tax as follows:
Profit / (loss) before income tax
Prima-facie tax payable on profit / (loss) from ordinary activities before income
tax at 30%
Add:
Tax effect of:
-
Non-deductible expenses
The Directors estimate that the potential deferred income tax assets not brought
to account is
Tax benefits not recognised during the period
Income Tax Expense for the period
4,659
1,067
5,726
2015
$
2015
$
(1,740,186)
(522,056)
155,890
(366,166)
(366,166)
366,166
-
At the end of the reporting period, the group has tax losses of $366,166 that are available for offset against
future taxable profits of the companies in which the losses arose, for which no deferred tax asset is recognised
due to uncertainty of its recoverability. The use of these tax losses is subject to the agreement of the tax
authorities and compliance with certain provision of the tax legislation of respective countries in which the
companies operate.
5.
KEY MANAGEMENT PERSONNEL
(a) Names and positions held of economic and parent entity key management in office at any time during
the period are:
Key Management Person
Mr Allan McCallum
Mr Philip Jacobsen
Mr Douglas Rathbone
Mr Alberto Mariani
Mr Michael Murchison
Position
Chairman
Deputy Chairman
Director
Director and Company Secretary
Chief Executive Officer
16
Notes to the financial statements
CANN GROUP LIMITED
ABN 25 603 949 739
5. KEY MANAGEMENT PERSONNEL (continued)
(b) Number of Shares held by Key Management Personnel
Name
Balance 30
January 2015
Received as
equity-
settled share
based
payment
Issued on
exercise of
Performance
Rights
Net Change
Other*
Balance 30
June 2015
Mr Allan McCallum
Mr Philip Jacobsen
Mr Douglas Rathbone
Mr Alberto Mariani
Mr Michael Murchison
Total
750,000
375,000
-
-
3,875,000
5,000,000
* Net Change Other refers to shares purchased or sold or otherwise transferred during the period.
50,000
-
50,000
250,000
(475,000)
(125,000)
800,000
375,000
50,000
250,000
3,400,000
4,875,000
-
-
-
-
-
-
-
-
-
-
-
-
(c) Number of Performance Rights Class A held by Key Management Personnel
Name
Mr Allan McCallum
Mr Philip Jacobsen
Mr Douglas Rathbone
Mr Alberto Mariani
Mr Michael Murchison
Total
Balance 30
January 2015
-
-
-
-
-
-
Received as
compensation
500,000
250,000
20,000
160,000
1,487,500
2,417,500
Net Change
Other*
Balance 30
June 2015
-
-
-
-
-
-
500,000
250,000
20,000
160,000
1,487,500
2,417,500
(d) Number of Performance Rights Class B held by Key Management Personnel
Name
Mr Allan McCallum
Mr Philip Jacobsen
Mr Douglas Rathbone
Mr Alberto Mariani
Mr Michael Murchison
Total
Balance 30
January 2015
-
-
-
-
-
-
Received as
compensation
250,000
125,000
20,000
90,000
932,500
1,417,500
Net Change
Other*
Balance 30
June 2015
-
-
-
-
-
-
250,000
125,000
20,000
90,000
932,500
1,417,500
(e) Remuneration paid to Key Management Personnel
Share based payments
Consulting fees
Vesting charge for Performance Rights
2015
$
519,634
140,000
367,738
1,027,372
17
Notes to the financial statements
CANN GROUP LIMITED
ABN 25 603 949 739
6.
AUDITORS’ REMUNERATION
Remuneration of the auditors of the group for:
Auditing the financial statements – William Buck
7.
TRADE RECEIVABLES AND OTHER ASSETS
Current
Trade receivables
Share Subscription receivables
Reimbursements due from related parties
8.
PLANT AND EQUIPMENT
Opening Balance
Additions
Closing Balance
Written Down Values $
2015
$
10,000
10,000
1,300
100,000
101,300
2,661
103,961
2015
Modular Plant Growth
Research Facility
$
Total
$
-
171,369
171,369
-
171,369
171,369
As at 30 January 2015
As at 30 June 2015
The Modular Plant Growth Research Facility is still in construction phase and is not yet available for use. As at 30
June 2015 the Directors reviewed the overall progress Facility and determined that there were no indications of
impairment relating to this asset.
-
171,369
-
171,369
18
Notes to the financial statements
9.
UNSECURED TRADE AND OTHER PAYABLES
Current
Unsecured trade and other payables
Unsecured payables - related parties
CANN GROUP LIMITED
ABN 25 603 949 739
2015
$
26,729
51,100
77,829
10.
CONTROLLED ENTITIES
Cann Group Limited has five wholly-owned subsidiaries as at 30 June 2015 as follows:
Subsidiary Name
Cannproducts Pty Ltd (ACN 600 887 189)
Date Acquired
27 February 2015
Number of
Shares held
100
Percentage
Shareholding
100%
Cannoperations Pty Ltd (ACN 603 323 226)
27 February 2015
Anslinger Holdings Pty Ltd (ACN 169 764 407)
27 February 2015
Cannlabs Australia Pty Ltd (formerly Grow Room
Investments (Aust) Pty Ltd) (ACN 603 792 794)
27 February 2015
Cann Investments Pty Ltd (ACN 604 834 488)
18 March 2015
100
100
100
100
100%
100%
100%
100%
All of these investments are recorded at cost in the financial records of the ultimate parent company, Cann
Group Limited and form part of the consolidated results of Cann Group Limited. The Directors have examined
the purchase accounting for each of these investees of Cann Group Limited and have determined that each
individual subsidiary on its own does not have the inputs, processes and outputs on its own to meet the
accounting definition of a business which the Directors consider can only be achieved collectively within the
entire consolidated group. Consequently, on acquisition, the assets and liabilities acquired have been recorded
at their historical cost (and not fair) values.
11.
ORDINARY SHARES
The group has on issue 6,175,000 ordinary fully paid shares, including 150,000 shares issued after balance date.
Ordinary shares participate in dividends and the proceeds on winding up of the company in proportion to the
number of shares held. At shareholders’ meetings each ordinary share is entitled to one vote when a poll is
called, otherwise each shareholder has one vote on a show of hands.
19
Notes to the financial statements
CANN GROUP LIMITED
ABN 25 603 949 739
11.
ORDINARY SHARES (continued)
Ordinary Shares
Issue Date
30 January 2015
31 January 2015
22 May 2015 (net of costs)
Balance 30 June 2015
13 August 2015
Balance 22 September 2015
Issue Price
$
-
0.192
1.00
1.00
Number of Shares
10,030
4,989,970
1,025,000
6,025,000
150,000
6,175,000
2015
$
-
967,006
990,000
1,957,006
150,000
2,107,006
The Holding Company was incorporated on 30 January 2015 with initial issued capital of 10,030 Ordinary Shares
issued to related parties
On 31 January 2015 the Company issued 4,989,970 Ordinary Shares issued at $0.192 per share to related parties,
the exact breakdown is as follows:
Equity-settled Share Based Payment as consideration for the reimbursement
of costs borne on behalf of the Group by related parties
Equity-settled Share Based Payment to related parties in respect to their
contribution to the foundation of the Group
Total
Both tranches of payments were charged to the profit or loss.
2015
$
447,372
519,634
967,006
On 22 May 2015 the Company issued 1,025,000 Ordinary Shares at one dollar ($1.00) per Share pursuant to the
Information Memorandum dated 14 April 2015 including 150,000 Ordinary Shares issued to related parties.
On 13 August 2015 the Company issued a further 150,000 Ordinary Shares at one dollar ($1.00) per Share by
placement subject to the same terms and conditions as those Ordinary Shares issued pursuant to the
Information Memorandum.
12.
PERFORMANCE RIGHTS
The Company has issued 4,500,000 Performance Rights at $0.0001 per Right comprising 2,750,000 Class A
Performance Rights and 1,750,000 Class B Performance Rights of which:
2,417,500 Class A Performance Rights and 1,417,500 Class B Performance Rights have been issued to
Directors and Key Management Personnel of the Group; and
332,500 Class A Performance Rights and 332,500 Class B Performance Rights have been issued to non-
related party consultants and advisors in consideration for various advisory services.
20
Notes to the financial statements
CANN GROUP LIMITED
ABN 25 603 949 739
12.
PERFORMANCE RIGHTS (continued)
The Performance Rights have the following milestones attached to them, which are their vesting conditions:
(i) Class A Performance Rights: if the Company issues further Shares in addition to the New Shares at $1.50 per
Share or higher subject to, if, at any time, the issued capital of the Company is reorganised (including
consolidation, subdivision, reduction or return), all rights of a holder of a Performance Right (including the
Vesting Conditions) are to be changed in a manner consistent with the Corporations Act and the ASX Listing Rules
at the time of the reorganisation; and
(ii) Class B Performance Rights: if the Company applies to be admitted to the Official List of the ASX or a trade
sale of the underlying business of the Company or the Company occurs.
The Performance Rights were issued for $0.0001 each and no consideration will be payable upon the vesting of
the Performance Rights.
Upon satisfaction of the relevant Performance Rights vesting, each Performance Right will, at the election of the
holder, vest and convert as follows:
(i) each Class A Performance Right converts into one Share; and
(ii) each Class B Performance Right converts into one Share.
Based on the above, the performance rights reserve has been calculated as at 30 June 2015 as follows:
Class Number of rights
Grant Date
Fair value
Vested
A
B
2,750,000
1,750,000
4,500,000
(cents)
31 January 2015
31 January 2015
19.18
19.18
50%
50%
Total in
reserve
$
263,698
167,807
431,505
Grant date: this was the date that all participants to the Performance Rights had a shared understanding of the
terms and conditions of the arrangement.
Fair value: this was determined with reference to the prevailing seed capital price at that date, being the value
attributed to shares issued in consideration the reimbursement of expenses borne on behalf of the Group by
related parties.
% vested: for both performance milestones described above, the Directors have assessed a 50% probability.
If the Milestone attaching to a Performance Right has not been satisfied in the time periods set out below, it will
automatically lapse:
(iii) Class A Performance Rights: 3 years from 22 May 2015;
(iv) Class B Performance Rights: 4 years from 22 May 2015;
otherwise, any Performance Right that has not been converted into a Share on or before the date of admission
of the Company to the Official List of the ASX will automatically lapse.
21
Notes to the financial statements
13.
RELATED PARTY INFORMATION
Transactions between the Consolidated Group and related parties are on
normal commercial terms and conditions no more favourable than those
available to other parties unless otherwise stated. . Related party transactions
not otherwise disclosed in these financial statements include the following:
Fees for hire of office equipment and furniture were paid to Odd Couple
Productions Pty Ltd, a company of which Mr Michael Murchison is a Director
and shareholder.
CANN GROUP LIMITED
ABN 25 603 949 739
2015
$
15,000
15,000
14.
CONTINGENT LIABILITIES AND COMMITMENTS
The Group believes that no contingent liabilities or commitments exist as at the date of signing this Annual
Report.
15.
EVENTS AFTER THE END OF THE REPORTING PERIOD
Issue of Shares
On 14 August 2015 the Company issued 150,000 Shares at a price of $1.00 per share on the same terms and
conditions as those shares issued pursuant to the abovementioned Information Memorandum.
Apart from the above Issue of Shares there were no matters or circumstances have arisen since the end of the
financial year which significantly affected or may significantly affect the operation of the group, the results of
those operations, or the state of affairs of the group in future financial years.
Entry into Lease of premises
On 4 September 2015 Cannoperations Pty Ltd, a wholly-owned subsidiary of Cann Group Limited, entered into a
lease for premises for a period of 3 years and 6 months with two further options of 3 years each.
16.
CASH FLOW INFORMATION
Reconciliation of net loss after tax to net cash flows from operations-
Profit/(loss) for the period
Non-cash flows in profit
Issue of shares to founders
Issue of performance rights
Movements in working capital
(Increase)/decrease in trade receivables and other assets
(Decrease)/increase in trade and other payables
Net cash outflows from operating activities
2015
$
(1,740,186)
967,006
431,505
(3,961)
77,829
(267,807)
22
Notes to the financial statements
CANN GROUP LIMITED
ABN 25 603 949 739
17.
FINANCIAL RISK MANAGEMENT
The consolidated group’s financial instruments consist of deposits with banks and its accounts payable and
receivable. The Board is responsible for managing the Group’s only significant financial risk, which is its liquidity
risk, which it does through regularly reviewing rolling cash flow forecasts and examining its levels of available
working capital against such forecasts. For further details concerning this, refer to Note 2(a).
Liquidity risk arises from the possibility that the Group may encounter difficulty in meeting its obligations for its
financial liabilities, which at 30 June 2015 were accounts payable with due terms from 0 – 45 days. For details of
these refer to Note 9.
The Directors have assessed that the fair values of the Group’s financial assets and liabilities reasonably
approximate their carrying values, as represented in these financial statements.
23
CANN GROUP LIMITED
ABN 25 603 949 739
1.
a.
b.
c.
2.
a.
b.
c.
3.
The Directors declare that the financial statements and notes set out on pages 6 to 23 are in accordance
with the Corporations Act 2001 and:
comply with International Financial Reporting Standards, as stated in Note 2 to the financial statements;
comply with Accounting Standards, the Corporations Regulations 2001; and
give a true and fair view of the financial position as at 30 June 2015 and of the performance for the period
ended 30 June 2015 of the Company and the consolidated group.
The Chief Executive Officer and Company Secretary have each declared that:
the financial records of the Company for the period ended 30 June 2015 have been properly maintained in
accordance with section 286 of the Corporations Act 2001;
the financial statements and notes for the period comply with the Accounting Standards; and
the financial statements and notes for the period give a true and fair view.
In the Directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its
debts as and when they become due and payable.
This declaration is made in accordance with a resolution of the Directors.
Allan McCallum
Chairman
Date: 22 September 2015
24