ASX APPENDIX 4E
CRESO PHARMA LIMITED
ABN: 89 609 406 911
RESULTS FOR ANNOUNCEMENT TO THE MARKET
FOR THE YEAR ENDED 31 DECEMBER 2017
(Previous corresponding period is the year ended 31 December 2016)
KEY INFORMATION
Revenue from ordinary activities
Loss from ordinary activities after tax attributable to
members
Net loss attributable to members
31-Dec-17
31-Dec-16
$
$
% Change
243,798
8,022
2939%
(15,076,076)
(4,584,239)
(15,076,076)
(4,584,239)
(229%)
(229%)
DIVIDEND INFORMATION
No dividend has been proposed or declared.
NET TANGIBLE ASSETS PER SECURITY
31-Dec-17
31-Dec-16
Net tangible assets per security
0.19
0.07
EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
31-Dec-17
31-Dec-16
Cents
Cents
(18.13)
(18.13)
(0.14)
(0.14)
CONTROL GAINED OR LOST OVER ENTITIES IN THE PERIOD
There have been no gains or losses of control over entities in the year ended 31 December 2017.
CRESO PHARMA LIMITED
ACN 609 406 911
Annual Report for the
Year Ended 31 December 2017
Annual Report
For the year ended 31 December 2017
Creso Pharma Limited – Annual Report 2017
Contents
Contents
Corporate Directory
Chairman’s Report
CEO’s Report
Directors’ Report
Auditor’s Independence Declaration
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Corporate Governance Statement
ASX Additional Information
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Creso Pharma Limited – Annual Report 2017
Corporate Directory
Corporate Directory
Board of Directors
Mr Boaz Wachtel
Dr Miriam Halperin Wernli
Mr Adam Blumenthal
Mr James Ellingford
Mr Simon Buckingham
(Non-Executive Chairman)
(Chief Executive Officer & Managing Director)
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director) (resigned 5 May 2017)
Secretary
Ms Sarah Smith
Registered Office
C/- Mirador Corporate Pty Ltd
Suite 2, Level 1
1 Altona Street
West Perth WA 6005
Telephone: 08 6559 1792
Website: www.cresopharma.com
Stock Exchange Listing
Listed on the Australian Securities Exchange (ASX Code: CPH)
Auditors
RSM Australia Partners
Level 32, Exchange Tower
2 The Esplanade
Perth WA 6000
Solicitors
Steinepreis Paganin
Level 4, Next Building
16 Milligan Street
Perth WA 6000
Bankers
Westpac Banking Corporation
Level 4, Brookfield Place, Tower Two
123 St Georges Tce
Perth WA 6000
Share Registry
Automic Share Registry
Level 2, 267 St Georges Terrace
Perth WA 6000
Telephone: 1300 288 664
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Chairman’s Report
Dear Shareholder,
Creso Pharma Limited – Annual Report 2017
Chairman’s Report
Thank you for your continued support and trust in Creso Pharma.
Creso is spearheading the introduction of pharma expertise to the medical cannabis industry.
The Group's Co-Founder and Chief Executive Officer, Dr. Miri Halperin Wernli, brings a wealth of knowledge and
experience from her previous career in Swiss big pharma to our Company. Her former company, Actelion
Pharmaceuticals Ltd. - where she managed the clinical research division - was sold in 2017 to global pharmaceutical and
consumer goods giant, Johnson & Johnson for $US30 billion (A$38.2 million).
Under the leadership of Dr. Halperin Wernli, with the support of employees, professional consultants and an
experienced Board with significant experience in financing and developing medical cannabis (MC), Creso is poised for
considerable growth and rapid global expansion.
The global MC industry is growing extremely strongly. Sales and market cap valuations of the leading global listed MC
companies are in double digits. The medicinal herb's perception among patients, doctors and governments is changing
rapidly due to data from multiple countries supporting the medical, social and economic benefits. While more and more
countries are establishing national MC agencies to manage all aspects in the value chain, many governments still prefer
to import MC rather than grow it locally.
The global medical marijuana market is projected to grow at a CAGR of 17.1% to US$55.8 billion (A$70.9 billion) by 2025
from 2015’s level of US$11.4 billion (A$14.5 billion) 1.
Meanwhile, the international cannabis market is projected to hit $US31.4 billion (A$39.9 billion) by 2021, according to
cannabis market research firm, the Brightfield Group. Currently, the global market is estimated to be worth $US7.7
billion (A$9.8 billion) and will see a compound annual growth rate of 60 percent as other countries liberalise their
marijuana laws2.
Creso has a four-pronged strategy to gain greater global presence and market share:
1. Develop, register (initially in Switzerland) and bring in early revenues with cannabinoid (CBD)-based
nutraceuticals developed to pharma grade standards for animal and human health. Our significant expertise
was required to overcome regulatory barriers and to secure first-rate commercial partners to provide market
access in multiple countries. During Q12018, Creso's nutraceutical products will start generating initial
revenues.
2. Secure a position/ownership in MC growing and processing assets, such as Mernova Medicinal Inc. in Canada,
which we recently acquired, and our proposed acquisition of Kunna S.A.S in Colombia (currently under due
diligence). Our goal here is to secure MC production to GMP standards in countries under the legal MC
framework as part of our vision to vertically integrate production and supply. The upside of this strategy lies in
our opportunity not only to obtain a market share in the growing MC segment in Canada, but to be able to
serve the recreational market, which is many times larger than the MC market, once recreational cannabis is
legalised in that country in mid 2018.
3.
In line with the above strategy, Creso is aiming to build low-cost MC production capacity to GMP standards in
Colombia to export to Mernova in Canada. This is designed to assist the Group in meeting the projected unmet
demand by local Canadian MC producers anticipated post the legalisation of recreational cannabis in mid 2018
and build a competitive export capacity to countries that prefer to import MC. There are many advantages to
growing cannabis in Colombia. In addition to its equatorial location and ideal microclimates, it is one of the
most economically advantageous countries in the world to produce large volumes of high-quality, low-cost
cannabis. The proposed Kunna acquisition will not only give Creso a foothold in the strategically important
Latin American market but also means Creso is the only Australian-listed medicinal cannabis company with
direct exposure to the Colombian market.
1 https://www.grandviewresearch.com/press-release/global-medical-marijuana-market; https://www.grandviewresearch.com/industry-
analysis/medical-marijuana-market
2 https://www.forbes.com/sites/monazhang/2017/11/07/global-marijuana-market-31-billion-investors-cautious/
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4.
Creso Pharma Limited – Annual Report 2017
Chairman’s Report
In parallel, Creso is moving rapidly to develop cannabis-derived edible and drink products with CBD, terpenes
and eventually, tetrahydrocannabinol (once regulated) with key, high-quality global marketing partners. This
strategy augments the Group’s ability to remain ahead of the competition and secure an early market position
with multiple products in major markets.
Creso is unlocking the broad potential of cannabis in a number of areas:
•
•
•
•
•
Therapeutic: The MC industry is still in its infancy and is dominated by small players with a minimal
understanding of compliance requirements, emerging regulations and the complexities of bringing a
therapeutic product to market.
Animal Health: CBD from the hemp plant is just as effective in animals as in humans as they have the same
endocannabinoid system regulating key body physiological functions. There exists a significant need for
support to help manage animal stress, anxiety and chronic pain. Creso’s anibidiol® range of animal health
products are specifically designed to address these needs.
Nutraceuticals: The global nutraceuticals industry now exceeds US$200 billion (A$254.27 billion) in sales and
continues to grow at a significant pace. Products such as cannaQIX® demonstrate that, with the right
knowledge, cannabis can be used to great consumer benefit in this sector.
Skin Care: Creso is developing topically applied products with cannabinoids to leverage the endocannabinoid
system to improve skin health and appearance without the use of harsh chemicals.
Lifestyle: From the nutritional benefits of hemp seeds to a world of new and unique flavouring systems possible
due to the use of cannabis terpenes, a whole world of enhanced food and beverage products from beer to
chocolates is possible.
This strong and comprehensive commercial strategy means that Creso is in a very strong position to achieve further
worldwide growth and commericalisation success with its unique products in 2018.
I would like to thank our Chief Executive Officer and fellow Co-Founder, Dr. Miri Halperin Wernli, my fellow Board
members and the executive management team for their hard work and dedication over the financial year. Creso has a
highly-experienced Board and management team with the right expertise and skill set to take the Company forward as
we continue to progress our vision and commercial strategy.
Finally, on behalf of the Board, we would like to thank our shareholders for their ongoing support and backing of Creso.
I look forward to updating you on our progress and achievements in the months ahead.
Yours sincerely,
Boaz Wachtel
Chairman
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Creso Pharma Limited – Annual Report 2017
CEO’s Report
CEO’s Report
I am very pleased to report on Creso’s progress for the 2017 financial year, a period in which the Company achieved a
number of significant milestones, both in terms of the development and commercialisation of our human and animal
health CBD nutraceutical products and our medicinal cannabis expansion worldwide.
Over the past twelve months, we have made significant progress in terms of our go-to-market strategy. Not only have
we launched our first animal health product in market – anibidiol® – but have set the stage for the commercial launch
of our innovative cannaQIX®10 and 50 human health products, with a number of key agreements secured for product
launches in 2018.
This progress has been achieved at a time when Creso has expanded its global presence.
We have entered Canada – the world’s largest medicinal cannabis market – through the acquisition of Mernova
Medicinal Inc., and the Latin American market through the planned acquisition of Kunna.
The Mernova acquisition delivers on Creso’s strategy of establishing a Canadian presence and the pursuit of
opportunities in the medicinal cannabis space, with added exposure to the huge recreational cannabis market once this
is legalised, with legalisation expected in July 2018. The acquisition means that Creso is the only Australian cannabis
company with direct exposure to the world’s largest legal medical cannabis market in Canada.
The Kunna acquisition gives our Company a foothold in the strategically important Latin American market, which now
includes Argentina, Colombia, Chile, Mexico and Uruguay. Creso is the only Australian-listed medicinal cannabis
company with direct exposure to the Colombian market, which is expected to be exporting more than 40.5 tonnes of
medicinal cannabis oil by 20193.
At the same time, the Company has also successfully diversified its product base into new lifestyle cannabis- derived
products with plans and agreements to develop a portfolio range of unique cannabis and hemp- derived alcoholic and
non-alcoholic beverages as well as the creation of an exciting range of unique, terpene-infused premium Swiss
chocolates.
Animal health products
In November, Creso and Virbac (Switzerland) Limited launched Creso’s animal health product,
anibidiol®, in Switzerland.
anibidiol® is Creso’s natural complementary feed product for companion animals containing a standardised amount of
hemp extract with cannabidiol (CBD), the non-psychoactive substance of the hemp plant. It promotes the wellbeing of
the animal by supporting its immunity and natural defence system and also supports the balanced behaviour of the pet.
The CBD contained in anibidiol® does not cause GI and dependency side effects and has a very good safety and
tolerability profile.
The product launch followed Creso registering hemp extract on the European Feeds Material Register in early 2017.
The product is the first Swiss Agroscope-conformed complementary feed for companion animals that contains natural
hemp extract with CBD and is THC-free. Agroscope is a sub-department in the Swiss Federal Department of Economic
Affairs, Education and Research (RAER) responsible for safe feed in Switzerland and trade from Switzerland.
Human health products
Commercialisation agreement for launch of cannaQIX®10 in Switzerland
In December, Creso secured an exclusive commercialisation agreement with Swiss pharma company, Doetsch Grether,
for the marketing and distribution of cannaQIX®10 in Switzerland and Liechtenstein, setting the cornerstone for Creso’s
global commercialisation of the product.
3 Source: El Tiempo newspaper, Bogota, November 2017
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Creso Pharma Limited – Annual Report 2017
CEO’s Report
cannaQIX® is the first standardised nutraceutical containing organic hemp extract with CBD, vitamins and zinc, aiming
to reduce stress and to support mental and nervous functions in humans.
The agreement covers the exclusive marketing and distribution of cannaQIX®10 in Switzerland for 10 years, targeting
the biggest pharmacy and drug store chains in Switzerland and Lichtenstein, giving Creso access to more than 2,300
outlets.
Doetsch Grether is one of the Top 15 Pharma/OTC & Consumer Care companies in Switzerland. It is a medium-sized,
family-owned company with traditional values specialised in the marketing and distribution of products in the pharma,
OTC and consumer care market in Switzerland and has been operating since 1899.
cannaQIX® is compliant with the Swiss Federal Food Law 2017 and produced in Switzerland in a GMP facility by Creso’s
partner, Swiss-based food and pharma development company, Domaco, Dr. med Aufdermaur AG (Domaco) to the
highest Swiss quality and with a “Swiss Made” label.
The introduction of cannaQIX® into the Swiss market is the gateway for further global launches. Creso Pharma is
currently in the process of finalising access and distribution agreements in a number of key countries in Europe, as well
as Latin America. Switzerland will be used as an international regulatory, quality and market reference country.
Agreement for import and distribution of cannaQIX®50 in Australia.
In November, Creso cemented its position in the Australian market, securing a deal with its Australian distribution
partner, Health House International (Health House), for the import of cannaQIX®50, in CY 2018.
cannaQIX®50 is Creso’s proprietary buccally formulated cannabidiol (CBD) lozenge product which is designed to support
the management of chronic pain in humans.
Under the move, Health House will import the product under local medicinal cannabis regulations.
Once the product is imported, Health House International will distribute the product to pharmacies in all Australian
states and territories. The lozenges will be available through the Therapeutic Goods Administration’s (TGA) Special
Access Scheme (SAS).
Other products
LOI with LGC Capital Ltd and Baltic Beer Company to create a JV company to develop a range of cannabis-derived
beverages
In November 2017, Creso signed a binding Letter of Intent with Canadian diversified business group, LGC Capital Ltd and
UK brewing company, Baltic Beer Company Ltd, to form a joint venture (JV) company to develop and market a portfolio
of cannabis and hemp-derived alcoholic and non-alcoholic beverages.
It is expected that the first test batches of the cannabis terpene beers will reach selected markets in May 2018, with
commercial sales expected to be ready for shipments from Q3 2018.
The JV companies have already identified potential distribution partners in Europe, far East Asia, Central and Latin
America, Canada and Africa. Partners have also been identified in Australia and New Zealand following the recent
legalisation of hemp seed-based food and drink products in those countries.
Further research and development will identify other opportunities within the legal framework of the target markets.
The JV partners plan to expand their portfolio into other alcoholic and non-alcoholic beverages with further
announcements being made in due course.
Successful import of first medicinal cannabis products into Australia
In May 2017, Creso’s Australian partner, Health House successfully imported its first medicinal cannabis products into
Australia.
The import was of a range of three cannabis oils for human health from Canadian medical cannabis group, CanniMed.
The oils will be used for a variety of conditions as approved by prescribing physicians under Australian Federal and State
laws and regulations.
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Health House is distributing the CanniMed® products across Australia in authorised pharmacies in compliance with
Federal and State legislation.
The successful import followed Health House International being granted a Federal import licence in February 2017 as
part of the Australian Federal Government’s move to authorise the importation of medicinal cannabis from international
sources to boost domestic supply until there is sufficient local production available for Australian patients.
Creso Pharma Limited – Annual Report 2017
CEO’s Report
Global expansion initiatives
Acquisition of Mernova Medicinal Inc.
In July 2017, Creso Pharma successfully delivered on its strategy of establishing a Canadian presence and pursuing
opportunities in the medicinal and soon-to-be legalised recreational cannabis space with the acquisition of emerging
Nova Scotia-based medicinal cannabis producer, Mernova Medicinal Inc. (Mernova).
As a result of the deal, Creso gains direct exposure to the world’s largest legal medical and recreational cannabis market
and is able to vertically integrate its supply and production.
Mernova has applied for a medical cannabis cultivation licence under Health Canada’s Access to Cannabis for Medical
Purposes Regulation (ACMPR) program and has finalised the land acquisition and deed transfer for the 9.75 acre
strategic parcel of land that is highly suited for development of a medical cannabis growing facility.
In late September 2017, Creso Pharma completed due diligence on Mernova. Construction of a 20,000 square foot
production facility on the Mernova site also commenced in Q3 as planned. Creso Pharma also intends to build a state-
of-the-art extraction facility that is fully GMP compliant at the Mernova site, which is an important strategical step for
Mernova to ensure that it is fully able to capitalise on the Canadian market opportunity.
Construction of the production facility is progressing well, with site works such as the formation of roads and driveways
and land excavation now complete. Site services have also been installed including water, sewer, drainage and power.
Completion of the facility is targeted to coincide closely with the July 2018 legalisation of recreational cannabis in
Canada post granting of the appropriate licenses.
Entry into Latin American market with Kunna acquisition
Also, during the year Creso became the only Australian-listed medicinal cannabis company with direct exposure to the
Colombian market through the proposed acquisition of Kunna Canada Ltd., and its wholly-owned Colombian subsidiary,
medicinal cannabis group, Kunna S.A.S.
The move gives Creso a foothold in the strategically important Latin American market.
Kunna has a licence to produce, manufacture, market and export cannabis derivatives and products using extracts in
Colombia and is in the process of applying for a licence to cultivate medicinal cannabis. It expects this licence to be
granted in the second quarter of 2018.
The granting of the cultivation licence to Kunna will give Creso a significant competitive advantage as it will be one of
the few companies globally, and the only medicinal cannabis company listed on the ASX, with the capacity to
commercially cultivate medicinal-grade cannabis in Colombia.
It will also enable Creso to produce a full range of cannabis products and to develop a complete vertical offering of
standardised, medicinal-grade therapeutic products for the Colombian and broader Latin American market.
Entry into the Chinese market
In November 2017, Creso gained a strategic foothold in China with a Strategic Partnership agreement with Zhejiang
Kingdom Creative Co., Ltd (Kingdom Creative).
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Creso Pharma Limited – Annual Report 2017
CEO’s Report
The Chinese health food market – which includes vitamins, dietary supplements and minerals, animal and herbal
extracts and traditional Chinese medicine – is currently valued at RMB200 billion (US$31 billion; A$39 billion) and is
projected to grow by 10 per cent every year between now and 20254.
The two companies will collaborate on research and development as well as the distribution of hemp and CBD products.
Creso is also in advanced discussions with other Asian pharmaceutical, nutraceutical, and cosmetic groups.
This will open up the path to bring Creso’s products and IP to Asia in a fast, effective and efficient manner so the
Company can reach a massive population of consumers and patients.
Financial results
The financial result for the year ended 31 December 2017 is a net loss after tax of $15,076,076 (2016: $4,584,239). The
net loss after tax figure includes a non-cash cost of $8.598 million for the share-based payment expenses associated
with options, performance rights and shares issued during the year (refer to Note 19). As at 31 December 2017, the
Group had a net cash balance of $12,424,913 (2016: $3,046,054) and net assets of $21,028,634 (2016: $3,239,851).
Outlook
Thanks to the achievements over the financial year, Creso is in a strong position in terms of its development and
commercialisation efforts and expects to achieve further key milestones in FY2018.
The success achieved during the year in terms of the commercialisation preparations for both human and animal CBD
nutraceutical products makes us very confident of further success in the 2018 financial year. We expect to achieve
further significant progress over the months ahead, in terms of new product developments, product launches and
further commercialisation agreements, and I look forward to updating you on our efforts.
I would like to thank my fellow Board members and management team for their exceptional work and dedication to the
important and innovative products that we are developing.
Creso is uniquely positioned in the world of medicinal cannabis and our efforts to produce safe and standardised,
cannabis- and hemp-derived nutraceutical, therapeutic and lifestyle products for humans and pets promise to create
better overall health worldwide.
It is with the hard work and tremendous efforts of our team and the support of our shareholders that is helping us make
this aim a reality.
I thank our shareholders for their continued support and invite you to read the full Annual Report.
Dr. Miriam Halperin Wernli Group CEO and Co-Founder
4The Boston Consulting Group, From Insight to Action: Capturing a Share of China’s Consumer Health Market, February 2014, accessed
7 February 2017.
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Creso Pharma Limited – Annual Report 2017
Director’s Report
Directors’ Report
The Directors of Creso Pharma Limited (“Creso” or “the Company”) present their report, together with the financial
statements of the consolidated entity consisting of Creso Pharma Limited and its controlled entities (the “Group”) for
the financial year ended 31 December 2017.
DIRECTORS
The names and particulars of the Company’s directors in office during the financial year and at the date of this report
are as follows. Directors held office for this entire period unless otherwise stated.
Boaz Wachtel | Non-Executive Chairman (member of the Audit Committee)
(Appointed 20 November 2015)
Mr Wachtel is a certified clinical research manager and holds an MA in Management and Marketing from the University
of Maryland. He was Co-Founder and former Managing Director of MMJ Phytotech Ltd., Australia's first publicly traded
medical cannabis company and also Co-Founder of the International Medical Cannabis Patient Coalition (IMCPC). He is
an Israeli medical cannabis pioneer/activist, who formulated and assisted the Israeli Ministry of Health with the
implementation of the National Medical Cannabis Program – one of only four national programs in the world. He is a
frequent lecturer and adviser to governments, national committees, business and NGOs on medical cannabis program
formulation, growing operations, international laws and UN drug convention compliance. Mr Wachtel is also the
founder and former Chairman of the Green Leaf Party, an Israeli political party for cannabis legalisation/medicalisation,
human rights and ecology.
During the past three (3) years Mr Wachtel has held directorships in the following other publicly listed entities:
Company
Roots Sustainable Agricultural Technologies Limited
MMJ Phytotech Limited
Appointed
December 2017
November 2014
Resigned
Current
August 2015
Dr. Miriam Halperin Wernli | Executive Director & Co-Founder, MBA, PhD
(Appointed 20 November 2015)
Dr. Halperin Wernli is a senior pharmaceutical and biomedical executive with more than 25 years strategic and
operational leadership in the biopharmaceutical industry and a deep understanding of drug and product development.
She is an experienced pharmaceutical leader with skills and broad expertise in drug development, regulatory affairs,
project and portfolio management, development finance and control, and corporate strategy and governance. Dr.
Halperin Wernli has held worldwide senior leadership positions in product development, R&D and strategic marketing
in Switzerland and the US (Merck, Sharp & Dohme, Roche and Actelion). Her extensive pharmaceutical industry and
biomed research and development experience covers the full spectrum of activities from preclinical, clinical
development and strategy to drug registration and launch across several therapeutic areas. Her depth of experience in
pharma drug development as well as her leadership roles in complex, highly regulated health environments in Europe
and the US make her ideally qualified to lead Creso Pharma through this critical initial period of multiple product
developments and rapid growth.
Dr Halperin Wernli does not hold, and has not held over the last 3 years, a directorship in any other publicly listed
company.
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Directors’ Report
Creso Pharma Limited – Annual Report 2017
Director’s Report
Adam Blumenthal | Non-Executive Director (member of the Remuneration and Nomination Committee)
(Appointed 20 November 2015)
Adam Blumenthal has 10 years’ experience in investment banking and corporate finance. He has deep exposure to
Australian and international markets, having provided capital raising and financing solutions to an extensive number of
unlisted and listed companies. He has played a lead role in advising and supporting multiple organisations across a broad
spectrum of industries, using his experience and extensive network of international contacts to provide corporate
advisory and capital markets input. Mr Blumenthal has successfully brought to market several medical cannabis
companies spanning Israel, Canada, Switzerland and Australia. He has also been actively involved in the mining, cyber
security, health care and IT sectors. Outside of his formal business activities, Mr Blumenthal has lectured at a leading
Sydney University covering corporate governance, corporate social responsibility and ASX listings - both at an
undergraduate and postgraduate level. He holds a Bachelor of Commerce, Master of International Relations and Master
of Business Administration degrees. He is a strong supporter of Israeli innovation, has previously lived in Israel and is a
member of the Israel Business Club Sydney (IBCS). Mr Blumenthal is also Chairman of EverBlu Capital Pty Ltd, the Lead
Manager to the Company’s capital raisings during the year.
During the past three (3) years Mr Blumenthal has held directorships in the following other publicly listed entities:
Company
Burrabulla Corporation Limited
Roots Sustainable Agricultural Technologies Limited
MOV Corporation Limited
Appointed
January 2016
December 2017
February 2012
Resigned
Current
Current
December 2014
James Ellingford | Non-Executive Director (member of the Remuneration and Nomination Committee and a member of
the Audit Committee)
(Appointed 20 November 2015)
Dr Ellingford’s professional life culminated in being President of an international publicly listed billion-dollar business
with headquarters in Geneva, Switzerland and New York, US. He has vast experience in the international arena and has
successfully developed close ties with both financial institutions as well as governments throughout the world. Dr
Ellingford holds a postgraduate degree in Corporate Management, a Masters’ degree in Business Administration and a
Doctorate in Management. Dr Ellingford also lecturers MBA students in corporate governance at a leading Sydney
University and has a keen interest in ethics and governance.
During the past three (3) years Mr Ellingford has held directorships in the following other publicly listed entities:
Company
Appointed
January 2016
Victory Mines Limited
Hardey Resources Limited (formerly Elysium Resources Limited) March 2017
Manalto Limited
Burrabulla Corporation Limited
Zyber Holdings Limited
Capital Mining Limited
September 2017
May 2016
January 2014
January 2013
Resigned
Current
Current
Current
August 2017
February 2016
August 2015
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Directors’ Report
Simon Buckingham | Non-Executive Director
(Resigned 5 May 2017)
Creso Pharma Limited – Annual Report 2017
Director’s Report
Dr Buckingham has more than 25 years’ experience in the global pharmaceutical industry across a range of functions
and a variety of therapeutic areas. Now based in Sydney, he is currently a Senior Global Advisor/Consultant to Actelion,
one of the world’s leading biopharmaceutical companies, and is a Director of Actelion Australia. Dr Buckingham was
President, Global Corporate and Business Development at Actelion from 2005-2011, a position which spanned licensing,
M&A, alliance management and corporate strategic planning. He served as President, North America and Asia-Pacific
at Actelion from 2000-2005, with responsibility for all commercial operations in the region. He was the founding
President of Actelion Pharmaceuticals US. From 1998-2000, he worked in sales and marketing for Parke-Davis (now part
of Pfizer) in the US and prior to that served in roles in sales, marketing and development at Roche, both in Switzerland
and Australia, for nine-years. Dr Buckingham is a Non-Executive Director of Pharmaxis, an ASX-listed pharmaceutical
R&D company focused on inflammation and fibrosis; Vaxxilon, a European based start-up dedicated to the discovery,
development and commercialisation of innovative synthetic carbohydrate vaccines; and Can Too Foundation, a non-
profit organisation raising funds for cancer research and promoting fitness, health and well-being. He holds a Bachelor
of Veterinary Science degree from the University of Sydney, a PhD from the University of Melbourne, a Graduate
Management Qualification from the AGSM, University of NSW (1990) and is a Graduate of the Australian Institute of
Company Directors.
During the past three (3) years Mr Buckingham has held directorships in the following other listed entities:
Company
Pharmaxis Ltd
Appointed
July 2012
Resigned
Current
COMPANY SECRETARY
Sarah Smith
(Appointed 20 November 2015)
Ms Smith specialises in corporate advisory, company secretarial and financial management services. Ms Smith’s
experience includes company secretarial and financial management services for ASX listed companies, capital raisings
and IPOs, due diligence reviews and ASX and ASIC compliance. Ms Smith is a Chartered Accountant and has acted as the
Company Secretary for a number of ASX listed companies.
INTERESTS IN SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATE
The following table sets out each current Director’s relevant interest in shares, options and performance rights of the
Company or a related body corporate as at the date of this report.
Director
Mr Boaz Wachtel
Dr Miriam Halperin Wernli
Mr Adam Blumenthal
Mr James Ellingford
Mr Simon Buckingham
Total
Ordinary
Shares
Unlisted Share
Options
Performance
Rights
6,800,000
8,250,000
4,000,001
1,000,000
-
20,050,001
-
-
-
-
250,000
250,000
3,100,000
4,250,000
2,250,000
450,000
-
10,050,000
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Directors’ Report
DIRECTORS’ MEETINGS
Creso Pharma Limited – Annual Report 2017
Director’s Report
The number of Directors’ meetings held during the financial year and the number of meetings attended by each Director
during the time the Direct held office are:
Director
Board Meetings
Audit Committee
Meetings
Remuneration and
Nomination Committee
Meetings
Mr Boaz Wachtel
Dr Miriam Halperin Wernli
Mr Adam Blumenthal
Mr James Ellingford
Mr Simon Buckingham
Number
Eligible to
Attend
6
6
6
6
1
Number
Attended
6
6
6
6
1
Number
Eligible to
Attend
2
-
-
2
-
Number
Attended
2
-
-
2
-
Number
Eligible to
Attend
-
-
2
2
-
Number
Attended
-
-
2
2
-
In addition to the scheduled Board meetings, Directors regularly communicate by telephone, email or other electronic
means, and where necessary, circular resolutions are executed to effect decisions.
PRINCIPAL ACTIVITIES
The principal activity of the Group during the year was to develop, register and commercialise pharmaceutical-grade
cannabis and hemp-based nutraceutical products and treatments for human and animal health.
REVIEW AND RESULTS OF OPERATIONS
Overview
Creso Pharma is a leader in cannabidiol (CBD) innovation, developing cannabis- and hemp-derived therapeutic-grade
nutraceuticals and medical cannabis products with a broad range of applications in both human and animal health.
Creso Pharma’s innovative CBD fully plant-based nutraceutical products are non-psychoactive, as they contain only
trace amounts of THC.
Creso Pharma’s strategy is to develop, register, and globally commercialise pharmaceutical-grade cannabis- and
hemp-derived products and treatments, according to the highest GMP quality standards.
The highlights for the current financial year include:
• On 7 March 2017, Creso signed a binding Letter of Intent (LOI) with high-tech Swiss food and pharma
development company, Domaco, Dr. med Aufdermaur AG for the development of new human and animal
health cannabinoid-rich nutraceutical products.
• On 22 March 2017, Creso signed a binding LOI with Brazil-based market-access and distribution service
company, Sin Solution, for the distribution, marketing and sale of Creso products in Brazil.
• On 2 May 2017, Creso’s Australian distribution partner, Health House International imported its first medicinal
cannabis products into Australia.
• On 11 May, Creso signed a binding LOI with medicinal cannabis producer, LeafCann Group Pty Ltd to accelerate
the development and commercialisation of locally manufactured medicinal cannabis products in Australia.
• On 1 June 2017, Creso signed a binding LOI with Cannapharm AG to provide patients in the Asia Pacific and
Latin America regions with access to top-quality medicinal cannabis products from Switzerland.
• On 9 November 2017, Creso and LGC Capital Ltd announced the formation of a strategic alliance intended to
create a vertically integrated cannabis operation with a global footprint.
• On 14 November 2017, Creso and Virbac (Switzerland) Limited launched Creso’s animal health product,
anibidiol®, in Switzerland.
• On 20 November 2017, Creso entered the Chinese market with a strategic partnership agreement with Zhejiang
Kingdom Creative Co., Ltd.
13 | P a g e
Creso Pharma Limited – Annual Report 2017
Director’s Report
Directors’ Report
• On 22 November 2017, Creso secured a deal with its Australian distribution partner, Health House International
for the import of its cannaQIX®50 human health product, in CY 2018.
• On 28 November 2017, Creso Pharma partnered with Swiss chocolate company, Aeschbach Chocolatier, to
develop premium chocolates infused with a variety of terpenes and exotic spices for global distribution.
• On 29 November 2017, Creso signed a binding LOI with Canadian diversified business group, LGC Capital Ltd
(TSXC: LG) and UK brewing company, Baltic Beer Company Ltd, to form a joint venture company to develop
and market a portfolio of cannabis and hemp-derived alcoholic and non-alcoholic beverages.
• On 4 December 2017, the Company secured an exclusive commercialisation agreement with Swiss pharma
company, Doetsch Grether, for the marketing and distribution of Creso’s cannaQIX®10 in Switzerland and
Liechtenstein.
Director and Senior Management Changes
On 5 May 2017, Mr Simon Buckingham resigned as Non-Executive Director.
Mr David Russell, who is a pharmaceutical and biotech industry professional, acted as a Contractor Operating Officer
for 8 months till 6 December 2017.
Financial Performance
The financial results of the Group for the year ended 31 December 2017 are:
Cash and cash equivalents
Net assets
Revenue
Net loss after tax
31-Dec-17
$
12,424,913
21,028,634
243,798
(15,076,076)
31-Dec-16
$
3,046,054
3,239,851
8,022
(4,584,239)
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
The significant changes in state of affairs during and subsequent to the end of the financial year include:
Placements and Share Purchase Plans
During the financial year, Creso undertook two Placements and Share Purchase Plans (SPPs) which raised a total of
A$25.6 million in new share capital.
On 31 March 2017, the Company successfully completed a Placement for institutional and professional investors raising
A$8.8 million. The Company issued 12,727,188 shares at an issue price of A$0.69 per share.
On 10 April 2017, the Company completed an SPP issuing 1,449,160 shares at an issue price of A$0.69. The SPP raised
A$1 million for the Company.
In November 2017, the Company completed a heavily oversubscribed Placement that was expanded from A$10 million
to A$15.5 million (an additional A$5.5 million) in order to accommodate high demand from institutional, sophisticated
and professional investors, both domestically and internationally.
On 21 December 2017, the Company closed its Share Purchase Plan offer and issued 326,358 fully paid ordinary shares
at $1.10 per share to raise $358,994. The SPP was underwritten to $2 million by Energy Capital Partners Pty Ltd who are
acting as Underwriter to the offer.
14 | P a g e
Directors’ Report
Acquisition of Mernova Medicinal Inc.
Creso Pharma Limited – Annual Report 2017
Director’s Report
In July 2017, the Company successfully expanded into the Canadian market with the proposed acquisition of emerging
Nova Scotia-based medicinal cannabis producer, Mernova Medicinal Inc. (Mernova) for a total of C$10.1 million (A$10.2
million) in cash and equity.
Subsequent to year-end, on 19 February 2018, Creso completed the acquisition of Mernova. On completion, the
shareholders of Mernova receive a cash payment of C$200,000 and issued a total of 8,300,000 exchangeable shares in
Creso Canada Limited, with such shares being exchangeable for fully paid ordinary shares in Creso on the satisfaction of
milestones.
Proposed Kunna acquisition
During the year, Creso became the only Australian-listed medicinal cannabis company with direct exposure to the
Colombian market through the proposed acquisition of Kunna Canada Ltd., and its wholly-owned Colombian subsidiary,
medicinal cannabis group, Kunna S.A.S. The move gives Creso a foothold in the strategically important Latin American
market.
The acquisition followed Creso securing a binding Letter of Intent (LOI) with Brazil-based Sin Solution for the marketing,
sale and distribution of Creso products in Brazil in March 2017.
Entry into the lucrative Chinese market
In November 2017, Creso entered the Chinese market with a Strategic Partnership agreement with Zhejiang Kingdom
Creative Co., Ltd (Kingdom Creative).
The agreement provides Creso with a strategic foothold in China. The two companies will collaborate on research and
development as well as the distribution of hemp and CBD products.
There were no other significant changes in the state of affairs of the consolidated entity during the financial year.
DIVIDENDS
No dividends have been paid or declared by the Group since the end of the previous financial year.
No dividend is recommended in respect of the current financial year.
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
On 11 January 2018, the Company formally launched its new joint venture company with LGC Capital Ltd (TSXC: LG) and
Baltic Beer Company Ltd to capitalise on the fast-growing cannabis and hemp-derived beverage markets. The joint
venture company, CLV Frontier Brands Pty Ltd (CLV), intends to develop and globally commercialise a bespoke portfolio
of cannabis and hemp-derived alcoholic and non-alcoholic beverages.
On 17 January 2018, the Company secured a commercialisation agreement with UK-based Precision Healthcare Ltd to
market and distribute Creso Pharma’s cannaQIX®10 and 50 hemp-based human health nutraceutical products in the
UK.
On 12 February 2018, the Company appointed Mr Amit Edri to the new role of International Business Development
Executive. Mr Edri brings extensive medicinal cannabis industry expertise to the role and was most recently COO at
Israel’s largest medicinal cannabis company, The Bazelet Group.
On 19 February 2018, the acquisition of Mernova Medicinal Inc. (“Mernova”) was completed. The Company has
undertaken completion of the acquisition through two newly incorporated Canadian subsidiaries, Creso Canada Limited
and Creso Canada Corporate Limited. On completion, the shareholders of Mernova were paid a cash payment of
C$200,000 (A$201, 740) and issued a total of 8,300,000 exchangeable shares in Creso Canada Limited, with such shares
being exchangeable for fully paid ordinary shares in Creso on the satisfaction of milestones.
15 | P a g e
Directors’ Report
Creso Pharma Limited – Annual Report 2017
Director’s Report
Other than the above, there has been no other matter or circumstance that has arisen since the end of the financial
year that has significantly affected, or may significantly affect, the operations of the Group, the results of those
operations, or the state of affairs of the Group.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
The achievements made during FY2017 put Creso in a strong position in terms of the commercialisation of its human
and animal CBD nutraceutical products as well as its global expansion efforts and the Company expects to achieve
further key milestones in FY2018.
The Company expects further market launches of its anibidiol® animal health product, following the initial Swiss launch
in FY2017, as well as the commercial launch of its cannaQIX®10 and 50 human health products.
Creso also expects to achieve further significant progress in terms of new product developments and launches and
further commercialisation agreements.
ENVIRONMENTAL REGULATION
The operations of the Group are not subject to any particular and significant environmental regulations under a law of
the Commonwealth or state. There have been no known significant breaches of any other environmental requirement.
The National Greenhouse and Energy Reporting Act (NGER) legislation was considered and not determined to be
applicable to the entity at the current stage.
16 | P a g e
Directors’ Report
REMUNERATION REPORT (AUDITED)
Creso Pharma Limited – Annual Report 2017
Director’s Report
This remuneration report for the year ended 31 December 2017 outlines the remuneration arrangements of the Group
in accordance with the requirements of the Corporations Act 2001 (“the Act”) and its regulations. This information has
been audited as required by section 308(3C) of the Act.
The Remuneration Report details the remuneration arrangements for Key Management Personnel (“KMP”) who are
defined as those persons having authority and responsibility for planning, directing and controlling the major activities
of the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Parent company.
a) Key Management Personnel Disclosed in this Report
The Directors of the Group during or since the end of the financial year were:
Mr Boaz Wachtel
Dr Miriam Halperin Wernli Managing Director and Chief Executive Officer
Mr Adam Blumenthal
Mr James Ellingford
Mr Simon Buckingham
Non-Executive Director
Non-Executive Director
Non-Executive Director (resigned 5 May 2017)
Non-Executive Chairman
Senior Executives of the Group during or since the end of the financial year were:
Mr Christopher Grundy
Mr David Russell
Head of Finance (appointed 21 November 2017)
Contractor Chief Operating Officer (resigned 6 December 2017)
There have been no other changes after reporting date and up to the date that the financial report was authorised for
issue.
The Remuneration Report is set out under the following main headings:
A
B
C
D
E
F
G
H
I
Remuneration Governance, Structure and Approvals
Remuneration Philosophy
Remuneration and Performance
Details of Remuneration
Service Agreements
Share-based Compensation
Equity Instruments Issued on Exercise of Remuneration Options
Loans with KMP
Other Transactions with KMP
A
Remuneration Governance, Structure and Approvals
The Remuneration and Nomination Committee (“RNC”) is a sub-committee of the Board. It is primarily responsible for
making recommendations to the Board on:
•
•
the over-arching executive remuneration framework;
operation of the incentive plans which apply to executive directors and senior executives, including key
performance indicators and performance hurdles;
remuneration levels of executives; and
•
• Non-Executive Director fees.
The Committee reviews and determines the Group’s remuneration policy and structure annually to ensure it remains
aligned to business needs, meets the Group’s remuneration principles and is reflective of generally acceptable market
practices.
In particular, the RNC and Board aim to ensure that remuneration practices are:
•
•
•
•
competitive and reasonable, enabling the Company to attract and retain key talent;
aligned to the Company’s strategic and business objectives and the creation of shareholder value;
transparent and easily understood; and
acceptable to shareholders.
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Directors’ Report
Creso Pharma Limited – Annual Report 2017
Director’s Report
Non-Executive Remuneration Structure
The remuneration of Non-Executive Directors consists of Directors’ fees, payable in arrears. The total aggregate fixed
sum per annum to be paid to Non-Executive Directors in accordance with the Company’s Constitution shall initially be
no more than A$300,000 and may be varied by ordinary resolution of the Shareholders in a General Meeting.
Remuneration of Non-Executive Directors is based on fees approved by the Board of Directors and is set at levels to
reflect market conditions and encourage the continued services of the Directors. In accordance with the Company’s
Constitution, the Directors may at any time, subject to the Listing Rules, adopt any scheme or plan which they consider
to be in the interests of the Company and which is designed to provide superannuation benefits for both present and
future Non-Executive Directors, and they may from time to time vary this scheme or plan.
The remuneration of Non-Executive is detailed in Table 1 and their contractual arrangements are disclosed in “Section
E – Service Agreements”.
Remuneration may also include an invitation to participate in share-based incentive programmes in accordance with
Company policy.
The nature and amount of remuneration is collectively considered by the Board of Directors with reference to relevant
employment conditions and fees commensurate to a company of similar size and level of activity, with the overall
objective of ensuring maximum stakeholder benefit from the retention of high performing Directors.
Executive Remuneration Structure
The nature and amount of remuneration of executives are assessed on a periodic basis with the overall objective of
ensuring maximum stakeholder benefit from the retention of high performance executives.
The main objectives sought when reviewing executive remuneration is that the Company has:
Coherent remuneration policies and practices to attract and retain Executives;
Executives who will create value for shareholders;
Competitive remuneration offered benchmarked against the external market; and
Fair and responsible rewards to Executives having regard to the performance of the Group, the performance
of the Executives and the general pay environment.
•
•
•
•
The remuneration of Executives is detailed in Table 1 and their contractual arrangements are disclosed in “Section E –
Service Agreements”.
Executive Remuneration Approvals
The Company aims to reward Executives with a level and mix of remuneration commensurate with their position and
responsibilities within the Company and aligned with market practice. Executive contracts are reviewed annually by the
Remuneration Committee, for its approval. The process consists of a review of company, business unit and individual
performance, relevant comparative remuneration internally and externally and where appropriate, external advice
independent of management.
Executive remuneration and incentive policies and practices must be aligned with the Company’s vision, values and
overall business objectives. Executive remuneration and incentive policies and practices must be designed to motivate
management to pursue the Company’s long-term growth and success and demonstrate a clear relationship between
the Company’s overall performance and performance of the executives.
B
Remuneration Philosophy
KMP have authority and responsibility for planning, directing and controlling the activities of the Group. KMP of the
Group comprise of the Directors and other senior executives.
The Group’s broad remuneration policy is to ensure the remuneration package properly reflects the person’s duties and
responsibilities and that remuneration is competitive in attracting, retaining and motivating people of the highest
quality.
No remuneration consultants were employed during the financial year.
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Directors’ Report
C
Remuneration and Performance
Creso Pharma Limited – Annual Report 2017
Director’s Report
The following table shows the gross revenue, losses, earnings per share (“EPS”) and share price of the Group as at 31
December 2017 and 31 December 2016.
Revenue ($)
Net loss after tax ($)
EPS ($)
Share price
31-Dec-17
243,798
(15,076,076)
(0.18)
0.92
31-Dec-16
8,022
(4,584,239)
(0.14)
0.24
Relationship between Remuneration and Company Performance
Given the current phase of the Company’s development, the Remuneration Committee does not consider earnings
during the current and previous financial years when determining the nature and amount of remuneration of KMP.
The pay and reward framework for key management personnel may consist of the following areas:
a) Fixed Remuneration – base salary
b) Variable Short-Term Incentives
c) Variable Long-Term Incentives
The combination of these would comprise the key management personnel’s total remuneration.
a)
Fixed Remuneration – Base Salary
The fixed remuneration for each senior executive is influenced by the nature and responsibilities of each role
and knowledge, skills and experience required for each position. Fixed remuneration provides a base level of
remuneration which is market competitive and comprises a base salary inclusive of statutory superannuation. It
is structured as a total employment cost package.
Key management personnel are offered a competitive base salary that comprises the fixed component of pay
and rewards. External remuneration consultants may provide analysis and advice to ensure base pay is set to
reflect the market for a comparable role. No external advice was taken this year. Base salary for key management
personnel is reviewed annually to ensure the executives’ pay is competitive with the market. The pay of key
management personnel is also reviewed on promotion. There is no guaranteed pay increase included in any key
management personnel’s contract.
b)
Variable Remuneration – Short Term Incentives (STI)
Discretionary cash bonuses may be paid to senior executives annually, subject to the requisite Board and
shareholder approvals where applicable.
c)
Variable Remuneration – Long Term Incentives (LTI)
Incentive Option Scheme
The Company adopted an Incentive Option Scheme during the year ended 31 December 2016. The Scheme allows
eligible participants to be granted Options to acquire Shares in the Company. The Board may grant Options to
any Director, full or part time employee, or casual employee or contractor who falls within the definition of an
Eligible Participant as defined in ASIC Class Order 14/1000. Each Option granted under the Scheme will be granted
for nil or nominal consideration. Each Option is exercisable into one Share in the Company and the exercise price
and expiry date for Options granted under the Scheme will be determined by the Board prior to the grant of the
Options.
The Options granted may be subject to conditions on exercise as may be fixed by the Directors prior to grant of
the Options. The Options will not be quoted on ASX.
Performance Rights Plan
The Creso Pharma Limited Performance Rights Plan (“Plan”) was adopted by the Company during the year ended
31 December 2016.
The current Plan provides the Board with the discretion to grant Performance Rights to eligible participants which
will vest subject to the achievement of performance hurdles as determined by the Board from time to time.
19 | P a g e
Directors’ Report
Creso Pharma Limited – Annual Report 2017
Director’s Report
The objective of the Plan is to attract, motivate and retain KMPs and it is considered by the Group that the Plan
and the future issue of Performance Rights under the Plan will provide selected participants with the opportunity
to participate in the future growth of the Group. The Plan will enable the Group to make grants to Eligible
Participants so that long-term incentives form a key component of their total annual remuneration.
The Board believes that grants under the Plan will serve a number of purposes including:
•
•
to act as a key retention tool; and
to focus attention on future shareholder value generation.
Under the Plan, eligible Participants will be granted Performance Rights. Vesting of any of these Performance
Rights will be subject to the achievement of various KPIs which can be varied each year and aligned to the
individual’s performance.
Each Performance Right represents a right to be issued one share at a future point in time, subject to the
satisfaction of any vesting conditions. No exercise price is payable. The quantum of the Performance Rights to
be granted will be determined with reference to market practice and will be subject to approval by the Board.
Performance will be assessed at the end of the performance period.
Any grants under the Plan will be subject to the achievement of KPIs. Appropriate KPIs may be formulated for
each Eligible Participant to participate in the Plan based on their role and responsibilities in the Group.
Performance Rights will lapse if the participant leaves the Group prior to all the vesting conditions being fulfilled
although the Board has the ability, at its sole discretion, to vest some or all the Rights if “good leaver” exemptions
apply to the ceasing of employment. Persons who are terminated for “bad leaver” reasons automatically lose
their entitlement.
D
Details of Remuneration
Details of the nature and amount of each major element of the remuneration of each KMP of the Group during the
financial year are:
Table 1 – Remuneration of KMP of the Group for the year ended 31 December 2017 is set out below:
Short-term Employee Benefits
Salary &
fees
Non-monetary
benefits
Other (iii)
Post-
Employment
Superannuation
$
$
$
$
Share Based
Payments
Performance
Rights / Options
(iv)
$
Total
$
120,000 (i)
331,227 (ii)
60,333
58,833
16,667
21,563
122,225
730,848
-
-
-
-
-
-
-
-
28,000
169,918
24,000
10,000
-
-
-
231,918
-
-
8,138
6,666
1,710
2,048
-
18,563
735,376
533,356
332,063
94,855
-
883,376
1,034,501
424,534
170,354
18,377
-
-
1,695,650
23,611
122,225
2,676,978
31 December 2017
Directors
Boaz Wachtel
Miriam Halperin Wernli
Adam Blumenthal
James Ellingford
Simon Buckingham (v)
Senior Executives
Christopher Grundy (vi)
David Russell (vii)
Total
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
An amount of $120,000 has been paid/is payable to International Water and Energy Savers Ltd relating to
Boaz Wachtel’s Directors Fees.
An amount of $331,227 has been paid/is payable to WHP Management Consulting GmbH relating to
Miriam Halperin Wernli Directors Fees.
During the year, one-off bonus payments were paid to Directors for the work completed around the
Mernova acquisition.
Share-based payments are the options and performance rights expensed over the vesting period (refer to
Note 19 for further details).
Simon Buckingham resigned as Director on 5 May 2017.
Christopher Grundy was appointed as Head of Finance on 21 November 2017.
David Russell resigned as Chief Operating Officer on 6 December 2017.
20 | P a g e
Directors’ Report
31 December 2016
Directors
Boaz Wachtel
Miriam Halperin Wernli
Adam Blumenthal
James Ellingford
Simon Buckingham
Total
Short-term Employee Benefits
Salary &
fees
Non-monetary
benefits
Other
Post-
Employment
Superannuation
$
$
$
$
Creso Pharma Limited – Annual Report 2017
Director’s Report
Share Based
Payments
Performance
Rights / Options
(iv)
$
Total
$
43,003(i)
86,244(ii)
28,800
28,800
19,134
205,981
-
-
-
-
-
-
20,000 (iii)
20,000 (iii)
20,000 (iii)
-
-
60,000
-
-
2,736
2,736
1,818
7,290
525,366
612,928
262,684
87,562
22,714
1,511,254
588,369
719,172
314,220
119,098
43,666
1,784,525
(i)
(ii)
(iii)
(iv)
An amount of $43,003 has been paid/is payable to International Water and Energy Savers Ltd relating to
Boaz Wachtel’s Directors Fees.
An amount of $86,244 has been paid/is payable to WHP Management Consulting GmbH relating to Miriam
Halperin Wernli Directors Fees.
During the year, additional fees of $20,000 were paid to Boaz Wachtel, Miriam Halperin Wernli and Adam
Blumenthal as consideration for the significant amount of work completed during the Company’s pre-IPO
period from 20 November 2015 to 20 October 2016.
Share-based payments are the options and performance rights expensed over the vesting period (refer
to Note 19 for further details).
The following table shows the relative proportions of remuneration that are linked to performance and those that are
fixed, based on the amounts disclosed as statutory remuneration expense in the tables above:
Table 2 – Relative proportion of fixed vs variable remuneration expense
Name
Directors
Boaz Wachtel
Miriam Halperin Wernli
Adam Blumenthal
James Ellingford
Simon Buckingham
Senior Executives
Christopher Grundy
David Russell
Fixed Remuneration
2016
2017
At Risk – STI (%)
At Risk – LTI (%)
2017
2016
2017
2016
14%
32%
16%
38%
100%
100%
100%
8%
12%
10%
26%
48%
-
-
3%
16%
6%
6%
-
-
-
3%
3%
6%
-
-
-
-
83%
52%
78%
56%
-
-
89%
85%
78%
74%
52%
-
-
Table 3 – Shareholdings of KMP (direct and indirect holdings)
Granted as
Remuneration
Balance at
01/01/2017
On Exercise of
Options
Net Change –
Other
Balance at
31/12/2017
31 December 2017
Directors
Boaz Wachtel
Miriam Halperin Wernli
Adam Blumenthal
James Ellingford
Simon Buckingham
Senior Executives
Christopher Grundy
David Russell
Total
2,300,000
3,000,000
1,750,001
250,000
-
-
-
7,300,001
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,500,000 (i)
5,250,000 (i)
2,250,000 (i)
750,000 (i)
- (ii)
9,090 (iii)
-
12,759,090
6,800,000
8,250,000
4,000,001
1,000,000
-
9,090
-
20,059,091
(i)
(ii)
(iii)
Shares issued to Directors on vesting of Performance Rights. The shares are subject to escrow until 20
October 2018.
200,000 shares issued to Simon Buckingham on vesting of Performance Rights. Mr Buckingham resigned
as Director on 5 May 2017.
Shares purchased under the Share Purchase Plan.
21 | P a g e
Creso Pharma Limited – Annual Report 2017
Director’s Report
Directors’ Report
Table 4 – Option holdings of KMP (direct and indirect holdings)
31 December 2017
Directors
Boaz Wachtel
Miriam Halperin Wernli
Adam Blumenthal
James Ellingford
Simon Buckingham
Senior Executives
Christopher Grundy
David Russell
Total
Balance at
01/01/2017
Granted as
Remuneration
Net Change -
Other
Balance at
31/12/2017
Vested &
Exercisable
-
-
-
-
250,000
-
-
250,000
-
-
-
-
-
-
550,000
550,000
-
-
-
-
(250,000) (i)
-
(550,000) (ii)
(800,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(i)
(ii)
Mr Buckingham resigned as Director on 5 May 2017.
Mr Russell resigned on 6 December 2017.
Table 5 – Performance rights holdings of KMP (direct and indirect holdings)
Balance at
01/01/2017
Granted as
Remuneration
Vested (i)
31 December 2017
Directors
Boaz Wachtel
Miriam Halperin Wernli
Adam Blumenthal
James Ellingford
Simon Buckingham
Senior Executives
Christopher Grundy
David Russell
Total
6,000,000
7,000,000
3,000,000
1,000,000
400,000
-
-
17,400,000
1,600,000
2,500,000
1,500,000
200,000
-
-
-
5,800,000
(4,500,000)
(5,250,000)
(2,250,000)
(750,000)
(200,000)
-
-
(12,950,000)
Lapsed
Balance at
31/12/2017
-
-
-
-
(200,000)
-
-
(200,000)
3,100,000
4,250,000
2,250,000
450,000
-
-
-
10,050,000
(i)
Shares issued to Directors on vesting of Performance Rights. The shares are subject to escrow until 20
October 2018.
E
Service Agreements
Mr Boaz Wachtel – Non-Executive Chairman
Contract: Commenced on 18 October 2016.
-
- Director’s Fee: $10,000 per month.
-
- Notice Period: 12 months.
-
Term: 3 years or as extended per the Consultant Agreement.
Performance Based Bonus: Mr Wachtel is entitled to a bonus equal to 50% of the Fee on an annual basis,
subject to meeting performance criteria agreed by the Board each year.
Miriam Halperin Wernli – Managing Director
Contract: Commenced on 18 October 2016.
-
- Director’s Fee: US$20,833 per month. From 1 November 2017, the Managing Director’s base salary increased
to US$22,833 per month.
Term: 3 years or as extended per the Consultant Agreement.
-
- Notice Period: 12 months.
-
Performance Based Bonus: Dr Halperin Wernli is entitled to a bonus equal to 50% of the Fee on an annual
basis, subject to meeting performance criteria agreed by the Board each year.
Adam Blumenthal – Non-Executive Director
Contract: Commenced on 20 November 2015.
-
- Director’s Fee: $4,000 per month (plus superannuation entitlements). From 1 November 2017, Mr
Blumenthal’s base salary increased to $6,000 per month.
Remuneration Committee Fee: $20,000 per annum.
Term: No fixed term.
-
-
22 | P a g e
Directors’ Report
Creso Pharma Limited – Annual Report 2017
Director’s Report
Contract: Commenced on 20 November 2015.
James Ellingford – Non-Executive Director
-
- Director’s Fee: $4,000 per month (plus superannuation entitlements).
-
-
-
Audit Committee Fee: $6,000 per annum.
Remuneration Committee Fee: $20,000 per annum.
Term: No fixed term.
Christopher Grundy – Head of Finance
-
-
-
- Notice Period: a period of 4 weeks during the first 6 months of the Term and 12 weeks after completion of
Contract: Commenced on 21 November 2017.
Part-time Base Salary: $180,000 per annum (plus superannuation entitlements).
Term: No fixed term.
the first 6 months of the Term.
Simon Buckingham – Non-Executive Director (resigned 5 May 2017)
-
- Director’s Fee: $4,000 per month (plus superannuation entitlements).
Contract: Commenced on 24 May 2016.
David Russell – Chief Operating Officer (resigned 6 December 2017)
-
-
Contract: Commenced on 1 April 2017.
Salary: $165,000 per annum ($13,750 per month).
F
Share-based Compensation
The Company rewards Directors for their performance and aligns their remuneration with the creation of shareholder
wealth by issuing share options and/or performance rights. Share-based compensation is at the discretion of the Board
and no individual has a contractual right to receive any guaranteed benefits.
Options
During the current financial year, the Company issued 550,000 options to David Russell. The terms and conditions of
each option are as follows:
Class
Class 6A
Class 6B
Class 7
Class 8
Class 9
Number of Options
Granted
125,000
125,000
100,000
100,000
100,000
Issue Date
Expiry Date
Exercise Price
Value per Option
1 April 2017
1 April 2017
1 April 2017
1 April 2017
1 April 2017
27 July 2021
27 July 2021
27 July 2019
27 July 2020
27 July 2020
$0.30
$0.30
$1.20
$1.60
$2.00
$0.63
$0.63
$0.32
$0.37
$0.40
Mr Russell resigned during the year and as a result, all options noted above have lapsed.
Performance Rights
The performance rights are expensed over the performance period to which is consistent with the period over which
the services have been performed.
The terms and conditions of each grant of performance rights affecting remuneration in the current or future reporting
period are as follows:
Tranche
Grant Date
Vesting date
Performance period
Tranche 1
Tranche 2
Tranche 3
Tranche 4
20 October 2016
20 October 2016
20 October 2016
20 October 2016
20 October 2017
20 October 2018
20 October 2019
20 October 2020
20 October 2016 – 20 October 2017
20 October 2016 – 20 October 2018
20 October 2016 – 20 October 2019
20 October 2016 – 20 October 2020
Value per
Performance Right
at Grant Date
Vested
$0.163
$0.164
$0.20
$0.20
100%
100%
100%
-
The Performance Rights were issued for $0.0001 each and no consideration will be payable upon the vesting of the
Performance Rights.
23 | P a g e
Directors’ Report
Tranche
Grant Date
Vesting date
Performance period
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
Tranche 7
Tranche 8
27 July 2017
27 July 2017
27 July 2017
27 July 2017
27 July 2017
27 July 2017
27 July 2017
27 July 2017
27 July 2018
27 July 2018
27 July 2022
27 July 2022
27 July 2022
27 July 2019
27 July 2018
27 July 2019
27 July 2017 – 27 July 2018
27 July 2017 – 27 July 2018
27 July 2017 – 27 July 2022
27 July 2017 – 27 July 2022
27 July 2017 – 27 July 2022
27 July 2017 – 27 July 2019
27 July 2017 – 27 July 2018
27 July 2017 – 27 July 2019
Creso Pharma Limited – Annual Report 2017
Director’s Report
Value per
Performance Right
at Grant Date
Vested
$0.570
$0.570
$0.570
$0.570
$0.570
$0.570
$0.570
$0.570
-
-
-
-
-
-
-
-
Rights granted under the Performance Rights Plan carry no dividend or voting rights.
Details of Performance Rights provided as part of remuneration to key management personnel are shown below.
Further information on the performance rights is set out in Note 19 to the financial statements.
Name
Grant Date
Vesting Date
Number of
Performance
Rights Granted
Value of the
Performance Rights
at Grant Date
Number of
Performance
Rights vested
Vested
Boaz Wachtel
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 1
Tranche 2
Miriam Halperin Werni
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 3
Tranche 4
Adam Blumenthal
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
James Ellingford
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 7
Tranche 8
Simon Buckingham
Tranche 3
Tranche 4 (i)
20 October 2016
20 October 2016
20 October 2016
20 October 2016
27 July 2017
27 July 2017
20 October 2016
20 October 2016
20 October 2016
20 October 2016
27 July 2017
27 July 2017
20 October 2016
20 October 2016
20 October 2016
20 October 2016
27 July 2017
27 July 2017
20 October 2016
20 October 2016
20 October 2016
20 October 2016
27 July 2017
27 July 2017
20 October 2017
20 October 2018
20 October 2019
20 October 2020
27 July 2018
27 July 2018
20 October 2017
20 October 2018
20 October 2019
20 October 2020
27 July 2022
27 July 2022
20 October 2017
20 October 2018
20 October 2019
20 October 2020
27 July 2022
27 July 2019
20 October 2017
20 October 2018
20 October 2019
20 October 2020
27 July 2018
27 July 2019
20 October 2016
20 October 2016
20 October 2019
20 October 2020
1,500,000
1,500,000
1,500,000
1,500,000
800,000
800,000
1,750,000
1,750,000
1,750,000
1,750,000
1,250,000
1,250,000
750,000
750,000
750,000
750,000
750,000
750,000
250,000
250,000
250,000
250,000
100,000
100,000
200,000
200,000
$244,470
$246,555
$300,000
$300,000
$456,000
$456,000
$285,215
$287,648
$350,000
$350,000
$712,500
$712,500
$122,235
$123,278
$150,000
$150,000
$427,500
$427,500
$40,745
$41,093
$50,000
$50,000
$57,000
$57,000
$40,000
$40,000
1,500,000
1,500,000
1,500,000
-
-
-
1,750,000
1,750,000
1,750,000
-
-
-
750,000
750,000
750,000
-
-
-
250,000
250,000
250,000
-
-
-
200,000
-
100%
100%
100%
-
-
-
100%
100%
100%
-
-
-
100%
100%
100%
-
-
-
100%
100%
100%
-
-
-
100%
-
(i)
Mr Buckingham resigned during the year and as a result, his Tranche 4 performance rights lapsed.
The assessed fair value at grant date of Performance Rights granted to the individuals is allocated equally over the period
from grant date to vesting date, and the amount is included in the remuneration tables above.
G
Equity Instruments Issued on Exercise of Remuneration Options
No remuneration options were exercised during the financial year.
H
Loans with KMP
There were no loans made to any KMP during the year ended 31 December 2017.
There were no loans from any KMP during the year ended 31 December 2017.
24 | P a g e
Directors’ Report
I
Other Transactions with KMP
Creso Pharma Limited – Annual Report 2017
Directors’ Report
During the year, the Group incurred corporate advisory fees, capital raising fees and rent expenses, payable to Everblu
Capital Pty Ltd ("Everblu") (a company of which Adam Blumenthal is the Chairman). The total paid to Everblu during the
year was $1,613,071. There was no outstanding balance at reporting date. All transactions were made on normal
commercial terms and conditions and at market rates.
Other than the above, there were no other transactions with KMP during the year ended 31 December 2017.
J
Additional Information
The earnings of the consolidated entity for the five years to 31 December 2017 are summarised below:
Sales Revenue
EBITDA
Loss after income tax
Share Price
Basic EPS ($)
Diluted EPS ($)
2017
$
243,798
(15,069,438)
(15,076,076)
0.92
(0.18)
(0.18)
2016
$
8,022
(4,207,963)
(4,584,239)
0.24
(0.14)
(0.14)
2015
$
-
(11,572)
(11,572)
-
(0.0128)
(0.0128)
No further historical information is shown above as the company was only incorporated in November 2015 and listed
in October 2016.
End of Audited Remuneration Report.
25 | P a g e
Directors’ Report
Shares under option
Unissued ordinary shares of Creso Pharma Limited under option at the date of this report are as follows:
Creso Pharma Limited – Annual Report 2017
Directors’ Report
Grant date
27-06-2016
13-10-2016
13-10-2016
14-10-2016
06-12-2016
23-01-2017
25-01-2017
01-02-2017
27-07-2017
10-10-2017
Expiry date
27-06-2020
13-10-2019
13-10-2020
14-10-2018
27-06-2020
23-01-2021
27-07-2019
27-07-2021
27-07-2020
13-04-2019
Exercise
price
$0.40
$0.20
$0.20
$0.40
$0.40
$0.50
$0.30
$0.40
$0.60
$0.80
Number
under option
400,000
2,500,000
2,886,250
250,000
200,000
300,000
250,000
210,000
100,000
250,000
7,346,250
No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue
of the company or of any other body corporate.
Shares issued on the exercise of options
The following ordinary shares of Creso Pharma Limited were issued during the year ended 31 December 2017 and up
to the date of this report on the exercise of options granted:
Date Options Granted
10-10-2017
Exercise
price
Number of
shares issued
$0.80
250,000
Shares under Performance rights
Unissued ordinary shares of Creso Pharma Limited under performance rights at the date of this report are as follows:
Grant date
20-10-2016
27-07-2017
27-07-2017
27-07-2017
27-07-2017
27-07-2017
27-07-2017
27-07-2017
27-07-2017
27-07-2017
27-07-2017
Expiry date
20-10-2020
27-07-2022
27-01-2019
27-07-2018
27-07-2019
27-07-2022
27-07-2018
27-07-2018
27-01-2019
27-01-2019
27-07-2020
Exercise price
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Number under
performance right
5,000,000
750,000
750,000
100,000
100,000
2,500,000
1,600,000
350,000
6,000,000
100,000
100,000
17,350,000
No person entitled to exercise the performance rights had or has any right by virtue of the performance rights to
participate in any share issue of the company or of any other body corporate.
INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITORS
During the year ended 31 December 2017, the Company paid premiums in respect of a contract insuring the directors
and officers of the Company against liabilities incurred as directors or officers to the extent permitted by the
Corporations Act 2001.
26 | P a g e
Directors’ Report
Creso Pharma Limited – Annual Report 2017
Directors’ Report
The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought
against the officers in their capacity as officers of entities in the consolidated entity, and any other payments arising
from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that
arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position
or of information to gain advantage for them or someone else or to cause detriment to the Company. It is not possible
to apportion the premium between amounts relating to the insurance against legal costs and those relating to other
liabilities.
AUDITOR
RSM Australia Partners continues in office in accordance with section 327 of the Corporations Act 2001.
OFFICERS OF THE COMPANY WHO ARE FORMER PARTNERS OF RSM AUSTRALIA PARTNERS
There are no officers of the company who are former partners of RSM Australia Partners.
AUDITOR’S INDEPENDENCE DECLARATION
The lead auditor’s independence declaration for the year ended 31 December 2017 has been received and included
within these financial statements.
NON-AUDIT SERVICES
The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the
auditor’s expertise and experience with the Company and/or the Group are important.
Details of the amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are
outline in Note 22 to the financial statements.
The Board of Directors has considered the position and is satisfied that the provision of the non-audit services is
compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The
Directors are satisfied that the provision of non-audit services by the auditors, as set out below, did not compromise
the auditor independent requirements of the Corporations Act 2001 for the following reasons:
•
•
all non-audit services have been reviewed by the Board of Directors to ensure they do not impact the
impartiality and objectivity of the auditor; and
None of the services undermine the general principles relating to the auditor independence as set out in APES
110 Code of Ethics for Professional Accountants.
This report is signed in accordance with a resolution of Board of Directors.
Boaz Wachtel
NON-EXECUTIVE CHAIRMAN
27 February 2018
27 | P a g e
AUDITOR’S INDEPENDENCE DECLARATION
As lead auditor for the audit of the financial report of Creso Pharma Limited for the year ended 31 December
2017, I declare that, to the best of my knowledge and belief, there have been no contraventions of:
(i)
the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii)
any applicable code of professional conduct in relation to the audit.
RSM AUSTRALIA PARTNERS
Perth, WA
Dated: 27 February 2018
TUTU PHONG
Partner
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the Financial Year Ended 31 December 2017
Creso Pharma Limited – Annual Report 2017
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Note
2017
$
2016
$
Revenue from continuing operations
Revenue from sale of products
Cost of sales
Gross loss
Other income
Interest income
Expenses
Administrative expenses
Compliance and regulatory expenses
Consultancy and legal expenses
Depreciation and amortisation expense
Employee benefit expenses
Finance costs
Impairment of intangible assets
Impairment of receivables
Marketing and investor relations
Occupancy expenses
Share-based payment expense
Research and development expense
Other expenses
Foreign exchange losses
Loss from continuing operations before income tax
Income tax expense
Loss from continuing operations after income tax
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Other comprehensive income for the year, net of tax
Total comprehensive loss attributable to the members of Creso
Pharma Limited
Loss per share for the year attributable to the members of Creso
Pharma Limited:
Basic loss per share (cents)
Diluted loss per share (cents)
4
4
5(a)
5(b)
5(c)
9, 12
19
6
7
7
243,798
(437,697)
(193,900)
8,022
(32,828)
(24,806)
98,453
6,498
(1,224,943)
(277,517)
(5,120,654)
(6,638)
(1,174,438)
-
-
(1,074,105)
(1,826,482)
(109,216)
(3,221,355)
(788,623)
(100,633)
(56,025)
(15,076,076)
-
(15,076,076)
(463,727)
(114,925)
(724,207)
(1,318)
(294,457)
(36,751)
(344,705)
-
(238,225)
(8,944)
(1,783,447)
(488,978)
(39,539)
(26,708)
(4,584,239)
-
(4,584,239)
(15,403)
(15,403)
60,894
60,894
(15,091,480)
(4,523,345)
(18.13)
(18.13)
(14.42)
(14.42)
The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be
read in conjunction with the notes to the financial statements.
29 | P a g e
Consolidated Statement of Financial Position
As at 31 December 2017
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Total current assets
Non-current assets
Plant and equipment
Other assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Provisions
Total current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Accumulated losses
Total equity
Creso Pharma Limited – Annual Report 2017
Consolidated Statement of Financial Position
Note
2017
$
2016
$
8
9
10
12
11
12
13
14
15
16
12,424,913
941,337
912
1,228,351
14,595,513
3,046,054
701,826
2,519
-
3,750,399
50,996
6,949,395
7,000,391
17,474
-
17,474
21,595,904
3,767,873
563,748
3,522
567,270
525,828
2,194
528,022
567,270
528,022
21,028,634
3,239,851
35,138,519
5,562,002
(19,671,887)
21,028,634
5,479,612
2,356,050
(4,595,811)
3,239,851
The Consolidated Statement of Financial Position should be
read in conjunction with the notes to the financial statements.
30 | P a g e
Creso Pharma Limited – Annual Report 2017
Consolidated Statement of Changes in Equity
Consolidated Statement of Changes in Equity
For the Financial Year Ended 31 December 2017
Group
Issued
Capital
$
Share-based
Payment
Reserve
$
Foreign
Currency
Translation
Reserve
$
Accumulated
Losses
$
Total
$
At 1 January 2017
5,479,612
2,295,156
60,894
(4,595,811)
3,239,851
Loss for the year
Other comprehensive income
Total comprehensive loss for the
year after tax
Transactions with owners in their
capacity as owners:
Issue of share capital
Share issue costs
Share-based payments
-
-
-
-
-
-
-
(15,403)
(15,076,076)
-
(15,076,076)
(15,403)
(15,403)
(15,076,076)
(15,091,479)
32,237,924
(2,579,017)
-
-
-
3,221,355
-
-
-
-
-
-
32,237,924
(2,579,017)
3,221,355
At 31 December 2017
35,138,519
5,516,511
45,491
(19,671,887)
21,028,634
At 1 January 2016
Loss for the year
Other comprehensive income
Total comprehensive income/(loss)
for the year after tax
Transactions with owners in their
capacity as owners:
Issue of share capital
Share issue costs
Share-based payments
801
-
-
-
-
-
-
-
-
(11,572)
(10,771)
-
60,894
(4,584,239)
-
(4,584,239)
60,894
60,894
(4,584,239)
(4,523,345)
6,205,500
(726,689)
-
-
-
2,295,156
-
-
-
-
-
-
6,205,500
(726,689)
2,295,156
At 31 December 2016
5,479,612
2,295,156
60,894
(4,595,811)
3,239,851
The Consolidated Statement of Changes in Equity should be read
in conjunction with the notes to the financial statements.
31 | P a g e
Consolidated Statement of Cash Flows
For the Financial Year ended 31 December 2017
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Payments for research expense
Interest received
Interest paid and other finance costs
Net cash used in operating activities
Cash flows from investing activities
Payments for plant and equipment
Cash acquired from business acquisition
Loans to other entities
Net cash from investing activities
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from exercise of options
Payment of share issue costs
Net cash from financing activities
Creso Pharma Limited – Annual Report 2017
Consolidated Statement of Cash Flows
Note
2017
$
2016
$
8(a)
92,721
(6,545,345)
(1,183,076)
98,466
(899)
(7,538,133)
8,022
(2,325,346)
(216,384)
5,333
(36,751)
(2,565,126)
(40,888)
-
(6,006,676)
(6,047,564)
(5,496)
26,155
-
20,659
24,412,412
200,000
(1,647,856)
22,964,556
6,005,500
-
(414,980)
5,590,520
Net increase in cash and cash equivalents
9,378,859
3,046,053
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
8
3,046,054
12,424,913
1
3,046,054
The Consolidated Statement of Cash Flows should be
read in conjunction with the notes to the financial statements.
32 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Reporting Entity
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Creso Pharma Limited (referred to as “Creso” or the “Company”) is a company domiciled in Australia. The address
of the Company’s registered office and principal place of business is disclosed in the Corporate Directory of the
Annual Report. The consolidated financial statements of the Company as at and for the year ended 31 December
2017 comprise the Company and its subsidiaries (together referred to as the “consolidated entity” or the
“Group”). The Group is primarily involved in developing pharmaceutical-grade cannabis and hemp-based
nutraceutical products and treatments.
(b)
Basis of Preparation
Statement of compliance
The consolidated financial statements are general purpose financial statements which have been prepared in
accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting
Standards Board (“AASB”) and the Corporations Act 2001. The consolidated financial statements comply with
International Financial Reporting Standards (“IFRS”) adopted by the International Accounting Standards Board
(“IASB”). Creso Pharma Limited is a for-profit entity for the purpose of preparing the financial statements.
The annual report was authorised for issue by the Board of Directors on 27 February 2018.
Basis of measurement
The consolidated financial statements have been prepared on a going concern basis in accordance with the
historical cost convention, unless otherwise stated.
Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated
entity only. Supplementary information about the parent entity is disclosed in Note 24.
New, revised or amended standards and interpretations adopted by the Group
The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by
the Australian Accounting Standards Board (“AASB”) that are mandatory for the current reporting period.
None of the new standards and amendments to standards that are mandatory for the first time for the financial
year beginning 1 January 2017 affected any of the amounts recognised in the current period or any prior period
and are not likely to affect future periods.
New standards and interpretations not yet mandatory or early adopted
The Australian Accounting Standards and Interpretations that have recently been issued or amended but are not
yet mandatory, have not been early adopted by the Group for the annual reporting period ended 31 December
2017. The Group intends to adopt these standards and interpretations, if applicable, when they become
effective.
33 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
(b)
Basis of Preparation (cont.)
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Reference
and Title
AASB 9 –
Financial
Instruments
Summary
AASB 9 (December 2014) is a new Principal standard which
replaces AASB 139. This new Principal version supersedes AASB
9 issued in December 2009 (as amended) and AASB 9 (issued in
December 2010) and includes a model for classification and
measurement, a simple, forward-looking
loss’
impairment model and a substantially-reformed approach to
hedge accounting.
‘expected
AASB 9 is effect for annual periods beginning on or after 1
January 2018.
Application Date
of Standard
Annual reporting
periods
commencing on or
January
after 1
2018.
AASB 15 –
Revenue from
Contracts
with
Customers
An entity will recognise revenue to depict the transfer of
promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be
entitled in exchanged for those goods or services. This means
that revenue will be recognised when control of foods or
services is transferred, rather than on transfer of risks and
rewards as is current the case under IAS 18 Revenue.
Annual reporting
periods
commencing on or
after 1
January
2018.
AASB 16
(issued
February
2016) Leases
finance
AASB 16 eliminates the operating and
lease
classifications for lessees current accounted for under AASB
117 Leases. It instead requires an entity to bring most leases
onto its balance sheet in a similar way to how existing finance
leases are treated under AASB 117. An entity will be required
to recognise a lease liability and a right of use asset in its
balance sheet for most leases.
Annual reporting
periods
commencing on or
after 1
January
2019.
There are some optional exemptions for leases with a period of
12 months or less and for low value leases.
Lessor accounting remains largely unchanged from AASB 117.
does
Impact on Creso Pharma
Limited Financial
Statements
The Group does not hold
financial
complex
instruments.
The
classification of its financial
instruments will not change
under the new accounting
Therefore,
standard.
management
not
expect the adoption of this
accounting
standard will
have a material impact on the
Group’s
financial
performance.
The consolidated entity will
adopt this standard from 1
January 2018. The impact of
this adoption is currently in
the process of being assessed
by the Group, however the
impact has
to be
quantified.
When this standard is first
adopted
January
from 1
2019, there will be minimal
impact on transactions and
balances recognised in the
financial statements.
yet
Significant Judgements and Estimates
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the consolidated entity’s accounting policies.
The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are
significant to the financial statements are disclosed in Note 2.
(c)
Principles of Consolidation
Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Creso Pharma
Limited (‘Company’ or ‘parent entity’) as at 31 December 2017 and the results of all subsidiaries for the year then
ended. Creso Pharma Limited and its subsidiaries together are referred to in this financial report as the
consolidated entity.
Subsidiaries are all entities (including special purpose entities) over which the consolidated entity 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 potential voting rights that are currently exercisable or convertible
are considered when assessing whether the consolidated entity controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They
are de-consolidated from the date that control ceases.
34 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
(d)
Principles of Consolidation (cont.)
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Intercompany transactions, balances and unrealised gains on transactions between consolidated entity
companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the
impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to
ensure consistency with the policies adopted by the consolidated entity.
The acquisition method of accounting is used to account for business combinations by the consolidated entity.
A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the
difference between the consideration transferred and the book value of the share of the non-controlling interest
acquired is recognised directly in equity attributable to the parent.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated
statement of profit or loss and other comprehensive income, statement of changes in equity and statement of
financial position respectively.
(e)
Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision maker. The chief operating decision maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the Board. Management has
determined that based on the report reviewed by the Board and used to make strategic decisions, that the
consolidated entity has three reportable segments.
(f)
Foreign Currency Translation
Functional and presentation currency
Items included in the financial statements of each of the consolidated entity’s entities are measured using the
currency of the primary economic environment in which the entity operates (“functional currency”). The
consolidated financial statements are presented in Australian dollars, which is Creso Pharma Limited’s functional
and presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in profit or loss.
Consolidated entity companies
The results and financial position of foreign operations (none of which has the currency of a hyperinflationary
economy) that have a functional currency different from the presentation currency are translated into the
presentation currency as follows:
• Assets and liabilities for each statement of financial position account presented are translated at the closing
•
rate at the date of that statement of financial position;
Income and expenses for each statement of profit or loss and other comprehensive income account are
translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect
of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates
of the transactions); and
• All resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and
of borrowings and other financial instruments designated as hedges of such investments, are recognised in other
comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment
are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale.
35 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
(g)
Revenue Recognition
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Revenue is measured at the fair value of the consideration received or receivable to the extent that it is probably
that economic benefits will flow to the consolidated entity and the revenue can be reliably measured.
Sale of goods
Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of
significant risks and rewards of ownership of the goods and the cessation of all involvement in those goods.
Interest revenue
Interest revenue is recognised as it accrues, using the effective interest method.
(h)
Income Tax
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income
based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and
liabilities attributable to temporary differences and to unused tax losses.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,
deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income
tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than
a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by
the end of the reporting period and are expected to apply when the related deferred income tax asset is realised
or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount
and tax bases of investments in foreign operations where the Company is able to control the timing of the
reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable
future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and
tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a
net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
(i)
Business Combination
The acquisition method of accounting is used to account for business combinations regardless of whether equity
instruments or other assets are acquired.
The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity
instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any
non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the
acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets.
All acquisition costs are expensed as incurred to profit or loss.
36 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
(i)
Business Combination (cont.)
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities
assumed for appropriate classification and designation in accordance with the contractual terms, economic
conditions, the consolidated entity's operating or accounting policies and other pertinent conditions in existence
at the acquisition-date.
Where the business combination is achieved in stages, the consolidated entity remeasures its previously held
equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and
the previous carrying amount is recognised in profit or loss.
Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value.
Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised
in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is
accounted for within equity.
The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-
controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any
pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-
existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to
the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-
date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-
controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity
interest in the acquirer.
Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the
provisional amounts recognised and also recognises additional assets or liabilities during the measurement
period, based on new information obtained about the facts and circumstances that existed at the acquisition-
date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii)
when the acquirer receives all the information possible to determine fair value.
(j)
Cash and Cash Equivalents
Cash on hand and in bank and short-term deposits are stated at nominal value. For the purpose of the statement
of cash flows, cash includes cash on hand and in bank, and bank securities readily convertible to cash, net of
outstanding bank overdrafts.
(k)
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.
(l)
Inventories
Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value on a
weighted average basis. Cost comprises direct materials and delivery costs, direct labour and import duties and
other taxes. Costs of purchased inventory are determined after deducting rebates and discounts received or
receivable.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale.
37 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
(m)
Plant and Equipment
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
Depreciation is calculated using the straight-line method to allocate their cost over their estimated useful lives
to estimate residual value. The following estimated useful lives are used in the calculation of depreciation:
Plant and equipment
Furniture and equipment
5 years
3 - 10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount
is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included
in profit or loss. When revalued assets are sold, it is consolidated entity policy to transfer any amounts included
in other reserves in respect of those assets to retained earnings.
(n)
Intangible Assets Other than Goodwill
Other intangible assets that are acquired by the Group and have finite useful lives are measured at costs less
accumulated amortisation and accumulated impairment losses.
(o)
Impairment of Assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment.
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for
the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is
the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment,
assets are grouped at the lowest levels for which there are separately identifiable cash flows. Where an
impairment loss subsequently reverses, the carrying amount of the asset, other than goodwill, is increased to
the revised estimate of its recoverable amount, but only to the extent the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment loss been recognised in prior
years. A reversal of an impairment loss is recognised immediately in profit or loss.
(p)
Trade and Other Payables
Liabilities are recognised for amounts to be paid in the future for goods and services received whether or not
billed to the Group. Trade payables are usually settled within 30 days of recognition.
(q)
Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption
amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees
paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is
probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down
occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down,
the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which
it relates.
38 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
(r)
Provisions
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Provisions are recognised when the consolidated entity has a present legal or constructive obligation as a result
of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount
has been reliably estimated.
Provisions are measured at the present value of management’s best estimate of the expenditure required to
settle the present obligation at the end of the reporting period. The discount rate used to determine the present
value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific
to the liability.
(s)
Employee Benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected
to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees'
services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are
settled.
Other long-term employee benefits
The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting
date are recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the
liability. The liability is measured as the present value of expected future payments to be made in respect of
services provided by employees up to the reporting date using the projected unit credit method. Consideration
is given to the expected future wage and salary levels, experience of employee departures and periods of service.
Expected future payments are discounted using market yields at the reporting date on national government
bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.
(t)
Research and Development Expenditure
Research costs are expensed in the period in which they are incurred. Development costs are capitalised when it
probable that the project will be a success considering its commercial and technical feasibility, the Group is able
to use or sell the asset, the Group has sufficient resources, and intent to complete the development and its costs
can be measured reliably. Capitalised development costs are amortised on a straight-line basis over the period
of their expected benefit.
Patents and trademarks
Significant costs associated with patents and trademarks are deferred and amortised on a straight-line basis over
the period of their expected benefit.
(u)
Share-based Payments
Equity-settled and cash-settled share-based compensation benefits are provided to Key Management Personnel
and employees.
Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in
exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services,
where the amount of cash is determined by reference to the share price.
The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently
determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise
price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of
the underlying share, the expected dividend yield and the risk free interest rate for the term of the option,
together with non-vesting conditions that do not determine whether the consolidated entity receives the
services that entitle the employees to receive payment. No account is taken of any other vesting conditions.
39 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
(u)
Share-based Payments (cont.)
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over
the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the
award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting
period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each
reporting date less amounts already recognised in previous periods.
The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying
either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on
which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated
as follows:
• During the vesting period, the liability at each reporting date is the fair value of the award at that date
•
multiplied by the expired portion of the vesting period.
From the end of the vesting period until settlement of the award, the liability is the full fair value of the
liability at the reporting date.
All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the
cash paid to settle the liability.
Market conditions are taken into consideration in determining fair value. Therefore, any awards subject to
market conditions are considered to vest irrespective of whether or not that market condition has been met,
provided all other conditions are satisfied.
If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been
made. An additional expense is recognised, over the remaining vesting period, for any modification that increases
the total fair value of the share-based compensation benefit as at the date of modification.
If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the
condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or
employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over
the remaining vesting period, unless the award is forfeited.
If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any
remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award,
the cancelled and new award is treated as if they were a modification.
(v)
Contributed equity
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction,
net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for
the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration.
If the entity reacquires its own equity instruments, for example as a result of a share buy-back, those instruments
are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or
loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is
recognised directly in equity.
40 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
(w)
Earnings Per Share
Basic earnings per share
Basic earnings per share are calculated by dividing:
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
•
The profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary
shares
• By the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus
elements in ordinary shares issued during the year and excluding treasury shares.
Diluted earnings per share
Diluted earnings per share adjust the figures used in the determination of basic earnings per share to take into
account:
•
•
The after-income tax effect of interest and other financing costs associated with dilutive potential ordinary
shares, and
The weighted average number of additional ordinary shares that would have been outstanding assuming
the conversion of all dilutive potential ordinary shares.
(x)
Goods and Services Tax (“GST”)
Revenue, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is
not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the
asset or as part of the expense.
Receivables and payables area stated inclusive of the amount of GST receivable or payable. The net amount of
GST recoverable from, or payable to, the taxation authority is included as a current asset or liability in the
statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing and financing
activities which are recoverable from, or payable to, the taxation authority, are presented as operating cash
flows.
(y)
Current and Non-Current classification
Assets and liabilities are presented in the statement of financial position based on current and non-current
classification.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in
the consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected to
be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted
from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other
assets are classified as non-current.
A liability is classified as current when: it is either expected to be settled in the consolidated entity's normal
operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the
reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months
after the reporting period. All other liabilities are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
(z)
Dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
41 | P a g e
Notes to the Consolidated Financial Statements
NOTE 2
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS AND ASSUMPTIONS
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
The preparation of the financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts in the financial statements. Management continually evaluates its judgements and
estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its
judgements, estimates and assumptions on historical experience and on other various factors, including expectations
of future events management believes to be reasonable under the circumstances. The resulting accounting judgements
and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year are discussed below.
Share based payments
The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value
of the equity instruments at the date at which they are granted. The fair value is determined by using either a hybrid
Monte Carlo or the Black-Scholes model taking into account the terms and conditions upon which the instruments were
granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no
impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit
or loss and equity.
Income taxes
The consolidated entity is subject to income taxes in Australia and jurisdictions where it has foreign operations.
Significant judgement is required in determining the worldwide provision for income taxes. There are certain
transactions and calculations undertaken during the ordinary course of business for which the ultimate tax
determination is uncertain. The consolidated entity estimates its tax liabilities based on the consolidated entity’s
understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were
initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in
which such determination is made.
Provision for impairment of amounts owing from Hemp M&S OG
The provision for impairment of these amounts requires a significant degree of estimation and judgement. The level of
provision is assessed by taking into account the ageing of amounts owed, historical collection rates and specific
knowledge of the entity's financial position.
NOTE 3
SEGMENT INFORMATION
The Group require operating segments to be identified on the basis of internal reports about components of the Group
that are regularly reviewed by the chief operating decision maker (“CODM”) in order to allocate resources to the
segments and to assess their performance. On this basis, the Group’s reportable segments under AASB 8 are as follows:
• Hemp-Industries s.r.o. (“Hemp-Industries”) which includes hemp growing operations, outsourced CBD extraction
and CBD product sales activities – located in Slovakia.
• Creso Pharma Switzerland GmbH (“Switzerland”) which includes the development and commercialisation of its
therapeutic products – located in Switzerland.
• Creso Pharma Limited (“Creso”) which includes the Group’s corporate administration – located in Australia.
42 | P a g e
Notes to the Consolidated Financial Statements
NOTE 3
SEGMENT INFORMATION (CONT.)
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Such structural organisation is determined by the nature of risks and returns associated with each business segment and
define the management structure as well as the internal reporting system. It represents the basis on which the group
reports its primary segment information to the Board.
The operating segment analysis presented in these financial statements reflects operations analysis by business. It best
describes the way the group is managed and provides a meaningful insight into the business activities of the group.
The following table presents details of revenue and operating profit by business segment as well as reconciliation between
the information disclosed for reportable segments and the aggregated information in the financial statements. The
information disclosed in the table below is derived directly from the internal financial reporting system used by the Board
of Directors to monitor and evaluate the performance of our operating segments separately.
Australia
$
Slovakia
$
Switzerland
$
Total
$
Year ended 31 December 2017
Revenue from operations
Other revenue
Total segment revenue
-
80,651
80,651
Loss before income tax expense
Total Segment assets
Total Segment liabilities
(13,166,717)
20,273,865
428,649
152,301
17,802
170,103
(150,627)
49,924
114,972
91,497
-
91,497
243,798
98,453
342,251
(1,758,732)
1,272,114
23,649
(15,076,076)
21,595,903
567,270
Year ended 31 December 2016
Revenue from operations
Other revenue
Total segment revenue
Loss before income tax expense
Total Segment assets
Total Segment liabilities
Australia
$
Slovakia
$
Switzerland
$
Total
$
-
4,269
4,269
(3,857,456)
2,128,189
107,735
8,022
2,229
10,251
(102,540)
743,396
123,580
-
-
-
8,022
6,498
14,520
(624,243)
896,288
296,707
(4,584,239)
3,767,873
528,022
NOTE 4
REVENUE AND OTHER INCOME
Revenue from continuing operations
Revenue from services
Revenue from sale of products
Other income
Interest received
2017
$
2016
$
152,189
91,609
243,798
538
7,484
8,022
98,453
6,498
43 | P a g e
Notes to the Consolidated Financial Statements
NOTE 5 EXPENSES
(a) Administrative expenses
Accounting and company secretarial fees
Travel costs
General and administration expenses
(b) Consultancy and legal expenses
Consulting fees
Corporate advisory and business development
Legal fees
(c)
Employee benefit expenses
Director fees
Director bonuses
Wages and salaries
Superannuation
Other employee expenses
NOTE 6
INCOME TAX
(a)
The components of tax expense comprise:
Current tax
Deferred tax
Income tax expense reported in the of profit or loss and other
comprehensive income
(b)
The prima facie tax on loss from ordinary activities before income tax is
reconciled to the income tax as follows:
Loss before income tax expense
Prima facie tax benefit on loss before income tax at 27.5% (2016:
28.5%)
Tax effect of:
Tax effect on different tax rate of overseas subsidiaries
Share-based payments
Travel expenses
Legal expenses
Others
Temporary differences
Tax losses not recognised
Total
(c)
Deferred tax assets not brought to account are:
Carried forward losses
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
2017
$
2016
$
302,324
740,290
182,329
1,224,943
151,600
210,642
101,485
463,727
785,323
4,000,947
334,384
5,120,654
269,814
-
454,393
724,207
587,060
231,918
235,262
27,278
92,920
1,174,438
264,341
-
22,738
7,378
-
294,457
-
-
-
-
-
-
(15,076,076)
(4,584,239)
(4,145,921)
(1,306,508)
413,852
1,750,347
138,107
11,265
433,968
(154,349)
1,552,731
-
200,455
508,282
49,774
122,739
52,871
-
372,387
-
1,691,228
303,642
The benefit for tax losses will only be obtained if:
The Group derives future assessable income of a nature and of an amount sufficient to enable the benefit
from the deductions for the losses to be realised; and
The losses are transferred to an eligible entity in the Group; and
The Group continues to comply with the conditions for deductibility imposed by tax legislation; and
No changes in tax legislation adversely affect the consolidated in realising the benefit from the deduction
for the losses.
44 | P a g e
Notes to the Consolidated Financial Statements
NOTE 7
LOSS PER SHARE
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Basic loss per share amounts are calculated by dividing net loss for the year attributable to ordinary equity holders of
the Company by the weighted average number of ordinary shares outstanding during the year.
Diluted loss per share amounts are calculated by dividing the net loss attributable to ordinary equity holders of the
Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average
number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into
ordinary shares.
2017
$
2016
$
Net loss for the year
(15,076,076)
(4,584,239)
Weighted average number of ordinary shares for basic and diluted loss per share.
83,143,209
31,790,206
Options on issue are not considered dilutive to the earnings per share as the Company is in a loss-making position.
Continuing operations
- Basic and diluted loss per share (cents)
NOTE 8
CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Short-term deposits
(18.13)
(14.42)
10,424,913
2,000,000
12,424,913
1,046,054
2,000,000
3,046,054
Cash at bank earns interest at floating rates based on daily deposit rates. Short-term deposits are made in varying periods
between one day and three months, depending on the immediate cash requirements of the Group and earn interest at
the respective short-term deposit rates.
The Group’s exposure to interest rate and credit risks is disclosed in Note 17.
(a) Reconciliation of net loss after tax to net cash flows from operations
Loss for the financial year
Adjustments for:
Depreciation and amortisation
Impairment of asset
(Loss)/Gain on foreign exchange
Share based payments
Impairment of receivables
Fees settled in shares
Employee benefits expense
Other expense
Changes in assets and liabilities
Receivables
Inventories
Trade and other payables
Provisions
Net cash used in operating activities
2017
$
2016
$
(15,076,076)
(4,584,239)
6,638
(22,882)
3,221,355
1,074,105
5,387,598
69,332
78,249
1,318
344,705
60,894
1,783,447
-
-
-
-
(2,487,862)
1,608
207,608
2,194
(7,538,133)
(293,165)
(2,519)
136,531
(12,098)
(2,565,126)
45 | P a g e
Notes to the Consolidated Financial Statements
NOTE 8
CASH AND CASH EQUIVALENTS (CONT’D)
Non-cash investing and financing activities
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
2017
$
2016
$
Issue of shares for acquisition of subsidiary
-
200,000
NOTE 9
TRADE AND OTHER RECEIVABLES
Trade debtors – Hemp M&S OG
Less: Provision for doubtful debts (i)
GST receivable
Other deposits, prepayments and receivables
495,379
(495,379)
186,579
754,758
941,337
326,652
-
104,169
271,005
701,826
(i) The Group recognises an allowance for doubtful debts based on estimated irrecoverable amounts based upon
the financial situation of each debtor. The Group provide full provision of impairment of all trade receivables in
relation to Hemp M&S OG.
Movements in the provision for impairment of receivables are as follows:
Opening balance
Additional provision recognised
Closing balance
-
495,379
495,379
-
-
-
NOTE 10
INVENTORIES
Inventory – Finished goods
NOTE 11 PLANT AND EQUIPMENT
Year ended 31 December
Opening net book amount
Additions
Depreciation charge
Foreign exchange translation
Closing net book amount
At 31 December
Cost
Accumulated depreciation
Net book amount
912
912
2,519
2,519
17,474
40,888
-
18,792
(6,638)
(1,318)
(728)
50,996
-
17,474
59,680
18,792
(8,684)
(1,318)
50,996
17,474
46 | P a g e
Notes to the Consolidated Financial Statements
NOTE 12 OTHER ASSETS
Current
Shares issued pending cash received
Non-Current
Loan to Viru JV (i)
Loan to Mernova Medicinal Inc. (ii)
Prepayment - Facilitation Fee (iii)
Loan to Hemp M&S OG
Less: Impairment of loan - Hemp M&S OG (iv)
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
2017
$
2016
$
1,228,351
1,228,351
30,850
5,898,545
1,020,000
578,726
(578,726)
6,949,395
-
-
-
-
-
-
-
-
i. In November 2017, Creso, LGC Capital Ltd (Canada), and Baltic Beer Company Ltd (UK), signed a Binding Letter of
Intent to form a joint venture to develop and market a bespoke portfolio of cannabis and hemp-derived alcoholic
and non-alcoholic beverages. In December 2017, Creso provided a loan of €20,000 to the joint venture for the
establishment of operations. In January 2018, the joint venture was incorporated in Australia as CLV Frontier
Brands Pty Limited.
ii. During the year, Creso loaned CAD$5,779,395 to Mernova Medicinal Inc for the construction of Creso’s Canadian
medicinal cannabis production facility in Nova Scotia.
iii. A facilitation fee was paid to a consultant as part of the Mernova Acquisition (“Acquisition”). The fee is equal to
10% of the total deal value in relation to the Acquisition. The fee comprised of the issue of 2,094,154 fully paid
ordinary shares at $0.487 per share with a total value of $1,020,000.
iv. The Group has raised a provision to fully impair all loans to and amounts on trading account with Hemp M&S OG
based upon the financial situation of that company as at 31 December 2017.
Movements in the provision for impairment of other receivables are as follows:
Opening balance
Additional provision recognised
Closing balance
-
578,726
578,726
-
-
-
NOTE 13
TRADE AND OTHER PAYABLES
Trade payables (i)
Accrued expenses
Other payables
(i) Trade payables are non-interest bearing and are normally settled on 60-day terms.
282,271
104,975
176,502
563,748
61,900
46,938
416,990
525,828
3,522
2,194
3,522 2,194
NOTE 14
PROVISIONS
Employee provisions
NOTE 15
CONTRIBUTED EQUITY
(a) Issued and fully paid
2017
2016
No.
$
No.
$
Ordinary shares
109,505,544
35,138,519
57,725,001
5,479,612
47 | P a g e
Notes to the Consolidated Financial Statements
NOTE 15 CONTRIBUTED EQUITY (CONT.)
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Ordinary shares entitle the holder to participate in dividends and the proposed winding up of the company in
proportion to the number and amount paid on the shares held. On a show of hands, every holder of ordinary shares
present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.
The ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
(b) Movement reconciliation
At 1 January 2017
Placement - first tranche (i)
Vesting of performance rights (ii)
Placement - second tranche (i)
Shares issued in lieu of cash fees for Placement
Share Purchase Plan (iii)
Issue of Facilitation Fee shares – Mernova (iv)
Issued to consultants in lieu of cash fees for services
Issued to consultants in lieu of cash fees for services
Exercise of options
Placement (v)
Issued to consultants in lieu of cash fees for services
Consultant shares
Share purchase plan (vi)
Less: Equity raising costs
At 31 December 2017
At 1 January 2016
Seed capital escrowed to 19/01/17
Seed capital escrowed to 22/02/17
Seed capital escrowed to 13/04/17
Seed capital escrowed to 21/06/17
Seed capital escrowed to 14/07/17
Seed capital escrowed to 18/07/17
Issued as consideration for acquisition
Shares issued - capital raising
Less: Equity raising costs
At 31 December 2016
Number
57,725,001
8,158,750
15,200,000
4,568,438
1,250,000
1,449,160
2,094,154
1,000,000
250,000
250,000
14,090,909
2,110,000
1,032,774
326,358
-
109,505,544
8,000,001
6,750,000
6,000,000
7,237,500
2,325,000
1,187,500
225,000
1,000,000
25,000,000
-
57,725,001
Issue
Price
-
$0.69
-
$0.69
$0.75
$0.69
$0.49
$0.60
$0.60
$0.80
$1.10
$1.10
$1.33
$1.10
-
$0.0001
$0.010
$0.010
$0.080
$0.080
$0.080
$0.080
$0.200
$0.200
-
$
5,479,612
5,629,538
-
3,152,222
931,250
999,920
1,020,000
600,000
150,000
200,000
15,500,000
2,321,000
1,375,000
358,994
(2,579,017)
35,138,519
801
67,500
60,000
579,000
186,000
95,000
18,000
200,000
5,000,000
(726,689)
5,479,612
(i) On 31 March 2017, the Company successfully completed a Placement to professional and sophisticated investors
and issued a total of 8,158,750 fully paid ordinary shares (Tranche 1) at $0.69 per share to raise $5,629,538. On 12
April 2017, the Company issued 4,568,438 fully paid ordinary shares (Tranche 2) issued at $0.69 per share to raise
$3,152,222.
(ii) On 31 March 2017, the Company issued 15,200,000 fully paid ordinary shares to Directors and consultants on
vesting of Performance Rights issued under the Company’s Performance Rights Plan (as per the Prospectus). The
shares are subject to escrow to 20 October 2018.
(iii) On 10 April 2017, the Company closed its Share Purchase Plan offer and on 18 April 2017 issued 1,449,160 fully
paid ordinary shares at $0.69 per share.
(iv) On 1 December 2017, a facilitation fee was paid to a consultant as part of the Mernova Acquisition (“Acquisition”).
The fee is equal to 10% of the total deal value in relation to the Acquisition. The fee comprised of the issue of
2,094,154 fully paid ordinary shares at $0.487 per share with a total value of $1,020,000.
(v) On 1 December 2017, the Company successfully completed a Placement and issued a total of 16,200,909 fully
paid ordinary shares at an issue price of $1.10 per share to raise $17,821,000.
(vi) On 21 December 2017, the Company closed its Share Purchase Plan offer and issued 326,358 fully paid ordinary
shares at $1.10 per share to raise $358,994.
48 | P a g e
Notes to the Consolidated Financial Statements
NOTE 16
RESERVES
Share-based payments
Foreign currency translation reserve
Movement reconciliation
Share-based payments reserve
Balance at the beginning of the year
Equity settled share-based payment transactions (Note 19)
Balance at the end of the year
Foreign currency translation reserve
Balance at the beginning of the year
Effect of translation of foreign currency operations to group presentation
Balance at the end of the year
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
2017
$
2016
$
5,516,511
45,491
5,562,002
2,295,156
60,894
2,356,050
2,295,156
3,221,355
5,516,511
-
2,295,156
2,295,156
60,894
(15,403)
45,491
-
60,894
60,894
Share-based payment reserve
The share-based payment reserve is used to record the value of share-based payments provided to outside parties, and
share-based remuneration provided to employees and directors.
Foreign currency translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial
statements of foreign operations where their functional currency is different to the presentation currency of the
reporting entity.
NOTE 17
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest
rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability
of the financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The
Group uses different methods to measure and manage different types of risks to which it is exposed. These include
monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest
rate and foreign exchange prices. Ageing analysis and monitoring of specific credit allowances are undertaken to manage
credit risk. Liquidity risk is monitored through the development of future cash flow forecasts.
Risk management is carried out by Management and overseen by the Board of Directors with assistance from suitably
qualified external advisors.
The main risks arising for the Group are foreign exchange risk, interest rate risk, credit risk and liquidity risk. The Board
reviews and agrees policies for managing each of these risks and they are summarised below.
The carrying values of the Group’s financial instruments are as follows:
Financial Assets
Cash and cash equivalents
Trade and other receivables
Financial Liabilities
Trade and other payables
2017
$
2016
$
12,424,913
941,337
13,366,250
563,748
563,748
3,046,054
701,826
3,747,880
525,828
525,828
49 | P a g e
Notes to the Consolidated Financial Statements
NOTE 17
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Foreign exchange risk
(a) Market risk
(i)
The Group operates internationally and is exposed to foreign currency risk arising from various currency exposures,
primarily with respect to the Euro and Swiss Franc.
Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a
currency that is not the Group’s functional currency. The risk is measured using sensitivity analysis and cash flow
forecasting.
The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian dollars was as
follows:
Cash and cash equivalents
Trade and other receivables
Trade and other payables
2017
2016
EUR
€
11,472
2,908
111,450
CHF
Fr.
1,174,936
81,726
23,649
EUR
€
154,843
326,652
121,386
CHF
Fr.
868,316
-
296,707
Interest rate risk
(ii)
The Group is exposed to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result
of changes in the market interest rates on interest bearing financial instruments. The Group’s exposure to this risk
relates primarily to the Group’s cash and any cash on deposit. The Group does not use derivatives to mitigate these
exposures. The Group manages its exposure to interest rate risk by holding certain amounts of cash in fixed and floating
interest rate facilities. At the reporting date, the interest rate profile of the Group’s interest-bearing financial
instruments was:
Cash and cash equivalents
2017
2016
Weighted
average
interest rate (i)
1.07%
Balance
$
12,424,913
Weighted
average interest
rate
0.61%
Balance
$
3,046,054
(i) This interest rate represents the average interest rate for the period.
Sensitivity
Within the analysis, consideration is given to potential renewals of existing positions and the mix of fixed and variable
interest rates. The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting
date. The 1% increase and 1% decrease in rates is based on reasonably expected possible changes over a financial year,
using the observed range of historical rates for the preceding five-year period.
At 31 December 2017, if interest rates had moved, as illustrated in the table below, with all other variables held
constant, post-tax losses and equity would have been affected as follows:
Judgements of reasonably possible
movements:
+ 1.0% (100 basis points)
- 1.0% (100 basis points)
Post-tax profit higher/(lower)
2017
$
86,974
(86,974)
2016
$
21,322
(21,322)
Other comprehensive
higher/(lower)
2017
$
2016
$
-
-
-
-
Credit risk
(b)
Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, trade and other
receivables and other financial assets. The Group’s exposure to credit risk arises from potential default of the
counterparty, with maximum exposure equal to the carrying amount of the financial assets.
50 | P a g e
Notes to the Consolidated Financial Statements
NOTE 17
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
The Group’s policy is to trade only with recognised, creditworthy third parties. It is the Group’s policy that all customers
who wish to trade on credit terms will be subject to credit verification procedures.
In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad
debts is not significant. There are no significant concentrations of credit risk within the Group except for cash and cash
equivalents and other financial assets held in reputable major banks in Switzerland and Slovakia.
Liquidity risk
(c)
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to its reputation.
The Group manages liquidity risk by maintaining adequate cash reserves from funds raised in the market and by
continuously monitoring forecast and actual cash flows. The Group does not have any external borrowings.
The following are the contractual maturities of financial liabilities:
2017
Trade and other payables
2016
Trade and other payables
(d)
Capital risk management
6 months
$
563,748
525,828
6-12 months
$
1-5 years
$
> 5 years
$
-
-
-
-
Total
$
563,748
525,828
-
-
The Group’s objectives when managing capital are to:
• Safeguard their ability to continue as a going concern, so that it can continue to provide returns for shareholders
and benefits for other stakeholders; and
• Maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the number of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt.
Given the stage of the Company’s development there are no formal targets set for return on capital. There were no
changes to the Company’s approach to capital management during the year. The Company is not subject to externally
imposed capital requirements. The net equity of the Company is equivalent to capital. Net capital is obtained through
capital raisings on the Australian Securities Exchange (“ASX”).
(e)
Fair values
The management assessed that the carrying amount of financial assets and financial liabilities recorded in the financial
statements represents their respective fair values largely due to the short-term maturities of these instruments. The
carrying amounts are determined in accordance with accounting policies disclosed in Note 1.
AASB 13 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
(i) Level 1 – the instrument has quoted prices (unadjusted) in active markets for identical assets and liabilities;
(ii) Level 2 – a valuation technique using inputs other than quoted prices within Level 1 that are observable for the
financial instrument, either directly (i.e. prices), or indirectly (i.e. derived from prices); or
(iii) Level 3 – a valuation technique using inputs that are not based on observable market data (unobservable
inputs).
As at 31 December 2017 and 31 December 2016, the Group did not have financial liabilities measured and recognised
at fair value. Due to their short-term nature, the carrying amount of the current receivables and payables is assumed to
approximate their fair value.
The Group does not have any level 2 or 3 assets or liabilities.
51 | P a g e
Notes to the Consolidated Financial Statements
NOTE 18
RELATED PARTY DISCLOSURE
(a)
Key Management Personnel Compensation
Details relating to key management personnel, including remuneration paid, are below.
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Short-term benefits
Post-employment benefits
Share-based payments
2017
$
2016
$
962,766
18,562
1,695,650
2,676,978
265,981
7,290
1,511,254
1,784,525
Information regarding individual Directors and Key Management Personnel compensation and some equity instruments
disclosures as required by Corporations Regulation 2M.3.03 is provided in the Remuneration Report section of the
Directors’ Report.
(b)
Transactions with related parties
During the year, the Group incurred corporate advisory, capital raising fees and rent expenses, payable to Everblu Capital
Pty Ltd ("Everblu") (a company of which Adam Blumenthal is the Chairman).
Everblu Capital Pty Ltd
1,613,071
1,613,071
-
-
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
NOTE 19
SHARE-BASED PAYMENTS
(a)
Recognised share-based payment transactions
Options issued to a Director
Options issued for consideration of services
Options issued to consultants
Performance rights issued
Shares issued for consideration of services
Facilitation Fee Shares – Mernova (i)
Performance shares issued as consideration for acquisition (Note 20)
Reconciliation:
Recognised as share-based payment expenses in statement of profit
and loss and other comprehensive income
Recognised as a prepayment
Recognised as shares issue cost in equity
Recognised as investment of subsidiary
2017
$
2016
$
-
139,509
117,290
2,964,556
5,377,250
1,020,000
-
9,618,605
8,598,605
1,020,000
-
-
9,618,605
18,135
321,220
-
1,755,801
-
-
200,000
2,295,156
1,783,447
-
311,709
200,000
2,295,156
(i) A facilitation fee was paid to a consultant as part of the Mernova Acquisition (“Acquisition”). The fee is equal to
10% of the total deal value in relation to the Acquisition. The fee comprised of the issue of 2,094,154 fully paid
ordinary shares at $0.487 per share with a total value of $1,020,000. The share-based payment expense of
$1,020,000 has been recognised as a prepayment in the statement of financial position.
52 | P a g e
Notes to the Consolidated Financial Statements
NOTE 19
SHARE-BASED PAYMENTS (CONT.)
(c)
Summary of options granted during the year
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Options
Issue Date
Date of
Expiry
Exercise
Price
Balance at
the start of
the year
Granted
during the
year
Exercised
during the
year
Consultant
Broker
Consultant
Director
Consultant
Consultant
Consultant
Consultant
Consultant: Class 6A
Consultant: Class 6B
Consultant: Class 7
Consultant: Class 8
Consultant: Class 9
Consultants
Consultant
27-06-2016
13-10-2016
13-10-2016
14-10-2016
06-12-2016
23-01-2017
25-01-2017
01-02-2017
01-04-2017
01-04-2017
01-04-2017
01-04-2017
01-04-2017
27-07-2017
10-10-2017
27-06-2020
13-10-2019
13-10-2020
14-10-2018
27-06-2020
23-01-2021
27-07-2019
27-07-2021
27-07-2021
27-07-2021
27-07-2019
27-07-2020
27-07-2020
27-07-2021
13-04-2019
Weighted average exercise price
$0.40
$0.20
$0.20
$0.40
$0.40
$0.50
$0.30
$0.40
$0.40
$0.30
$0.30
$1.20
$1.60
$0.40
$0.80
$0.29
400,000
2,500,000
2,886,250
250,000
200,000
-
-
-
-
-
-
-
-
-
-
6,236,250
300,000
250,000
210,000
125,000
125,000
100,000
100,000
100,000
100,000
500,000
1,910,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(250,000)
(250,000)
Expired/
Cancelled
during the
year
Balance at
the end of
the year
-
-
-
-
-
-
-
-
(125,000)
(125,000)
(100,000)
(100,000)
(100,000)
-
-
(550,000)
400,000
2,500,000
2,886,250
250,000
200,000
300,000
250,000
210,000
-
-
-
-
-
100,000
250,000
7,346,250
The options issued to consultants have been valued using the Black-Scholes model. The model and assumptions are
shown in the table below:
31 December 2016
Black-Scholes Option Pricing Model
Grant Date
Vesting Date
Strike (Exercise) Price
Underlying Share Price (at date of
issue)
Risk-free Rate (at date of issue)
Volatility
Number of Options Issued
Dividend Yield
Probability
Black-Scholes Valuation
Total Fair Value of Options
Consultant
Broker
Consultant
27-06-16
27-06-19
$0.40
$0.20
1.61%
100%
400,000
0%
100%
$0.115
$46,144
13-10-16
Immediately
$0.20
$0.20
1.72%
100%
2,500,000
0%
100%
$0.125
$311,709
13-10-16
13-10-20
$0.20
$0.20
1.78%
100%
2,886,250
0%
0%
$0.139
-
Director
14-10-16
Immediately
$0.40
$0.20
1.73%
100%
250,000
0%
100%
$0.073
$18,135
Consultant
06-12-16
27-06-19
$0.40
$0.20
2.09%
100%
200,000
0%
100%
$0.138
$27,644
53 | P a g e
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
NOTE 19
SHARE-BASED PAYMENTS (CONT.)
31 December 2017
Black-Scholes Option Pricing Model
Grant Date
Vesting Date
Strike (Exercise) Price
Underlying Share Price (at date of
issue)
Risk-free Rate (at date of issue)
Volatility
Number of Options Issued
Dividend Yield
Probability
Black-Scholes Valuation
Total Fair Value of Options
31 December 2017
Black-Scholes Option Pricing Model
Grant Date
Vesting Date
Strike (Exercise) Price
Underlying Share Price (at date of
issue)
Risk-free Rate (at date of issue)
Volatility
Number of Options Issued
Dividend Yield
Probability
Black-Scholes Valuation
Total Fair Value of Options
Consultant
Consultant
Consultant
23-01-2017
31-12-2019
$0.50
$0.22
25-01-2017
Immediately
$0.30
$0.23
01-02-2017
30-06-20
$0.40
$0.23
Consultant –
Class 6A (i)
01-04-2017
30-12-2017
$0.30
$0.77
Consultant –
Class 6B (i)
01-04-2017
01-04-2019
$0.30
$0.77
2.12%
100%
300,000
0%
100%
$0.123
$36,807
1.81%
100%
250,000
0%
100%
$0.103
$25,865
2.03%
100%
210,000
0%
100%
$0.139
$29,185
2.06%
100%
125,000
0%
0%
$0.629
-
2.06%
100%
125,000
0%
0%
$0.629
-
Consultant –
Class 7 (i)
Consultant –
Class 8 (i)
Consultant –
Class 9 (i)
Consultants
Consultant
1-04-2017
27-Jul-2019
$1.20
$0.77
1-04-2017
27-Jul-2020
$1.60
$0.77
1-04-2017
27-07-2021
$2.00
$0.77
27-07-2017
Immediately
$0.40
$0.57
10-10-2017
Immediately
$0.80
$0.56
2.06%
100%
100,000
0%
0%
$0.323
-
2.06%
100%
100,000
0%
0%
$0.365
-
2.06%
100%
100,000
0%
0%
$0.407
-
1.93%
100%
100,000
0%
100%
$0.351
$35,055
1.93%
100%
500,000
0%
100%
$0.209
$104,454
(i)
Issued and cancelled during the year due to resignation.
54 | P a g e
Notes to the Consolidated Financial Statements
NOTE 19
SHARE-BASED PAYMENTS (CONT.)
(d) Summary of performance rights granted during the year
Tranche
Issue Date
Date of
Expiry
Exercise
Price
Balance at
the start of
the year
1
2
3
4
5
6
3
4
1
2
3
4
5
6
1
2
3
4
3
4
1
2
3
4
1
2
1
2
3
4
9
13
10
11
12
14
15
20-10-2016
20-10-2016
20-10-2016
20-10-2016
27-07-2017
27-07-2017
20-10-2016
20-10-2016
20-10-2016
20-10-2016
20-10-2016
20-10-2016
27-07-2017
27-07-2017
20-10-2016
20-10-2016
20-10-2016
20-10-2016
27-07-2017
27-07-2017
20-10-2016
20-10-2016
20-10-2016
20-10-2016
27-07-2017
27-07-2017
20-10-2016
20-10-2016
20-10-2016
20-10-2016
27-07-2017
27-07-2017
27-7-2017
27-7-2017
27-7-2017
27-7-2017
27-7-2017
20-10-2017
20-10-2018
20-10-2019
20-10-2020
27-07-2022
27-01-2019
20-10-2019
20-10-2020
20-10-2017
20-10-2018
20-10-2019
20-10-2020
27-07-2018
27-07-2019
20-10-2017
20-10-2018
20-10-2019
20-10-2020
27-07-2022
27-07-2022
20-10-2017
20-10-2018
20-10-2019
20-10-2020
27-7-2018
27-7-2018
20-10-2017
20-10-2018
20-10-2019
20-10-2020
27-07-2018
27-07-2018
27-1-2019
27-1-2019
27-1-2019
27-7-2019
27-7-2020
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
750,000
750,000
750,000
750,000
-
-
200,000
200,000
250,000
250,000
250,000
250,000
-
-
1,750,000
1,750,000
1,750,000
1,750,000
-
-
1,500,000
1,500,000
1,500,000
1,500,000
-
-
750,000
750,000
750,000
750,000
-
-
-
-
-
-
-
20,400,000
Granted
during the
year
-
-
-
-
750,000
750,000
-
-
-
-
-
-
100,000
100,000
-
-
-
-
1,250,000
1,250,000
-
-
-
-
800,000
800,000
-
-
-
-
300,000
50,000
2,000,000
2,000,000
2,000,000
100,000
100,000
12,350,000
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Vested during
the year
Cancelled
during the
year
Balance at
the end of
the year
(750,000)
(750,000)
(750,000)
-
-
-
(200,000)
-
(250,000)
(250,000)
(250,000)
-
-
-
(1,750,000)
(1,750,000)
(1,750,000)
-
-
-
(1,500,000)
(1,500,000)
(1,500,000)
-
-
-
(750,000)
(750,000)
(750,000)
-
-
-
-
-
-
-
-
(15,200,000)
-
-
-
-
-
-
-
(200,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(200,000)
-
-
-
750,000
750,000
750,000
-
-
-
-
-
250,000
100,000
100,000
-
-
-
1,750,000
1,250,000
1,250,000
-
-
-
1,500,000
800,000
800,000
-
-
-
750,000
300,000
50,000
2,000,000
2,000,000
2,000,000
100,000
100,000
17,350,000
55 | P a g e
Notes to the Consolidated Financial Statements
NOTE 19
SHARE-BASED PAYMENTS (CONT.)
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
In the prior year, the Company issued performance rights to various nominees. These performance rights will convert
upon satisfaction of the vesting conditions for each tranche.
In relation to the performance rights in Tranche 1 and Tranche 2, the fair value at grant date is determined using a
Monte Carlo model with the following factors relevant:
31 December 2016
Share Price at Grant Date
Exercise Price
Volatility (up to date of issue)
Grant Date
Vesting Date
Risk-free Rate
Number of Rights Granted
Value per Right
Total Fair Value of Rights
Tranche 1
Tranche 2
$0.20
N/A
100%
20-10-16
Immediately
1.50%
5,000,000
$0.163
$814,900
$0.20
N/A
100%
20-10-16
Immediately
1.50%
5,000,000
$0.164
$821,850
In relation to the Tranche 3 and Tranche 4 performance rights, these rights are straight-forward, non-market-based
performance rights, with no consideration upon achievement. Accordingly, the fair value of the performance rights
is by director reference to the share price on grant date ($0.20).
31 December 2016
Share Price at Grant Date
Exercise Price
Volatility (up to date of issue)
Grant Date
Vesting Date
Risk-free Rate
Number of Rights Granted
Value per Right
Total Fair Value of Rights
Tranche 3
Tranche 4
$0.20
N/A
N/A
20-10-16
20-10-19
N/A
5,200,000
$0.20
$1,040,000
$0.20
N/A
N/A
20-10-16
20-10-20
N/A
5,200,000
$0.20
$1,040,000
The Company issued performance rights to Directors and consultants to the Company in the current financial year.
In relation to Tranche 1 to Tranche 15 performance rights issued in the current year, these rights are straight-forward,
non-market-based performance rights, with no consideration upon achievement. Accordingly, the fair value of the
performance rights is by direct reference to the share price on grant date ($0.57).
31 December 2017
Share Price at Grant Date
Exercise Price
Volatility (up to date of issue)
Grant Date
Vesting Date
Risk-free Rate
Number of Rights Granted
Value per Right
Total Fair Value of Rights
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
$0.57
N/A
N/A
27-07-2017
27-07-2018
N/A
800,000
$0.57
$456,000
$0.57
N/A
N/A
27-07-2017
27-07-2018
N/A
800,000
$0.57
$456,000
$0.57
N/A
N/A
27-07-2017
27-07-2033
N/A
1,250,000
$0.57
$712,500
$0.57
N/A
N/A
27-07-2017
27-07-2022
N/A
1,250,000
$0.57
$712,500
$0.57
N/A
N/A
27-07-2017
27-07-2022
N/A
750,000
$0.57
$427,500
56 | P a g e
Notes to the Consolidated Financial Statements
NOTE 19
SHARE-BASED PAYMENTS (CONT.)
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
31 December 2017
Share Price at Grant Date
Exercise Price
Volatility (up to date of issue)
Grant Date
Vesting Date
Risk-free Rate
Number of Rights Granted
Value per Right
Total Fair Value of Rights
31 December 2017
Share Price at Grant Date
Exercise Price
Volatility (up to date of issue)
Grant Date
Vesting Date
Risk-free Rate
Number of Rights Granted
Value per Right
Total Fair Value of Rights
Tranche 6
Tranche 7
Tranche 8
Tranche 9
Tranche 10
$0.57
N/A
N/A
27-07-2017
27-01-2019
N/A
750,000
$0.57
$427,500
$0.57
N/A
N/A
27-07-2017
27-07-2018
N/A
100,000
$0.57
$57,000
$0.57
N/A
N/A
27-07-2017
27-07-2019
N/A
100,000
$0.57
$57,000
$0.57
N/A
N/A
27-07-2017
27-07-2018
N/A
300,000
$0.57
$171,000
$0.57
N/A
N/A
27-07-2017
27-01-2019
N/A
2,000,000
$0.57
$1,140,000
Tranche 11
Tranche 12
Tranche 13
Tranche 14
Tranche 15
$0.57
N/A
N/A
27-07-2017
27-07-2019
N/A
2,000,000
$0.57
$1,140,000
$0.57
N/A
N/A
27-07-2017
27-07-2019
N/A
2,000,000
$0.57
$1,140,000
$0.57
N/A
N/A
27-07-2017
27-07-2018
N/A
50,000
$0.57
$28,500
$0.57
N/A
N/A
27-07-2017
27-07-2019
N/A
100,000
$0.57
$57,000
$0.57
N/A
N/A
27-07-2017
27-07-2020
N/A
100,000
$0.57
$57,000
NOTE 20
BUSINESS COMBINATIONS
(a)
Summary of acquisition
In the prior year, the Company acquired 100% of the share capital of Hemp-Industries s.r.o. (“Hemp-Industries” or
“HI”), a company based in Slovakia.
Hemp-Industries owns an existing hemp growing operation and has been operating for three years in Slovakia. HI
has also outsourced CBD extraction and CBD product sales activities. They also currently sell its CBDium products to
the European market and seek to expand into other markets where CBD products have been legalised.
(b)
Purchase consideration and net assets acquired
Details of the purchase consideration and the net assets acquired are as follows:
Cash paid (i)
Shares issued (ii)
Contingent consideration – Performance Shares (iii)
(i) Cash payment of EUR30,000 converted to AUD47,066 on date of payment.
(ii) 1,000,000 shares issued at $0.20 per share.
2016
$
47,066
200,000
200,000
447,066
57 | P a g e
Notes to the Consolidated Financial Statements
NOTE 20
BUSINESS COMBINATIONS (CONT’D)
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
(iii) 1,000,000 performance shares issued at $0.20 per share. The performance shares issued to the shareholders
of Hemp-Industries will convert upon satisfaction of Hemp Industries generating gross revenue in excess of
$1,000,000 in aggregate over any rolling 12-month period within three years from Settlement (20 October
2016). The performance shares issued are straight forward non-market performance shares, with no
consideration upon achievement. Accordingly, the fair value of the performance shares is by direct reference
to the share price on grant date (listing price $0.20).
The total fair value of the share-based payment is $200,000.
Details of the acquisition are as follows:
Cash
Trade and other receivables
Other receivables
Intangible assets
Property, plant and equipment
Total assets
Trade and other payables
Provisions
Other current liabilities
Tax liabilities
Borrowings
Total liabilities
Net identifiable assets of Hemp-Industries acquired
(c)
Purchase consideration - cash inflow/(outflow)
Cash acquired
Less: Cash consideration
Inflow of cash – investing activities
Fair Value
$
73,221
321,561
88,445
344,705
13,296
841,228
(13,161)
(14,291)
(154,757)
(293)
(211,660)
(394,162)
447,066
$
73,221
(47,066)
26,155
The acquired business contributed revenues of $8,022 and loss after tax of $102,540 to the consolidated entity for the
period from 21 October 2016 to 31 December 2016. If the acquisition occurred on 1 January 2016, the full year
contributions would have been revenues of $308,880 and loss after tax of $29,253. The values identified in relation to
the acquisition of HI are final as at 31 December 2016.
NOTE 21
COMMITMENTS
Operating Lease Commitments
Within one year
One to five years
More than five years
2017
$
2016
$
54,625
-
-
54,625
-
-
-
-
58 | P a g e
Notes to the Consolidated Financial Statements
NOTE 21
CONTINGENCIES
There are no contingent assets or contingent liabilities as at 31 December 2017 (2016: Nil).
NOTE 22
AUDITOR’S REMUNERATION
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
Amounts received or due and receivable by RSM Australia Partners for:
Audit and review of the annual and half-year financial report
Other services - RSM Australia Pty Ltd for:
– Independent Accountant’s Report
– Income tax return
– Other
NOTE 23
INVESTMENT IN CONTROLLED ENTITIES
2017
$
2016
$
48,000
30,000
-
6,500
1,500
56,000
15,950
-
-
45,950
Principal Activities
Country of
Incorporation
Ownership interest
Hemp-Industries s.r.o.
Creso Pharma Switzerland GmbH
Hemp growing
operations
Development of
therapeutic products
2017
%
100
Slovakia
Switzerland
100
2016
%
100
100
59 | P a g e
Notes to the Consolidated Financial Statements
NOTE 24
PARENT ENTITY
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Total liabilities
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
Loss for the year
Other comprehensive income
Total comprehensive loss
Creso Pharma Limited – Annual Report 2017
Notes to the Consolidated Financial Statements
2017
$
2016
$
13,323,559
8,133,724
21,457,282
2,230,550
1,117,036
3,347,586
428,649
107,735
428,649 107,735
35,138,519
5,516,511
5,479,612
2,295,156
(19,626,397)
(4,534,917)
21,028,634
3,239,851
(15,655,009) (4,523,345)
-
-
(15,091,479) (4,523,345)
Comparative Figures
When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation
for the current financial year.
Other Commitments and Contingencies
The Parent has no commitments to acquire property, plant and equipment, and has no contingent liabilities.
NOTE 25
EVENTS AFTER THE REPORTING DATE
On 11 January 2018, the Company formally launched its new joint venture company with LGC Capital Ltd (TSXC: LG) and
Baltic Beer Company Ltd to capitalise on the fast-growing cannabis and hemp-derived beverage markets. The joint venture
company, CLV Frontier Brands Pty Ltd (“CLV”), intends to develop and globally commercialise a bespoke portfolio of
cannabis and hemp-derived alcoholic and non-alcoholic beverages.
On 17 January 2018, the Company secured a commercialisation agreement with UK-based Precision Healthcare Ltd to
market and distribute Creso Pharma’s cannaQIX®10 and 50 hemp-based human health nutraceutical products in the UK.
On 12 February 2018, the Company appointed Mr Amit Edri to the new role of International Business Development
Executive.
On 19 February 2018, the acquisition of Mernova Medicinal Inc (“Mernova”) was completed. The Company has
undertaken completion of the acquisition through two newly incorporated Canadian subsidiaries, Creso Canada Limited
and Creso Canada Corporate Limited. On completion, the shareholders of Mernova were paid a cash payment of
C$200,000 and issued a total of 8,300,000 exchangeable shares in Creso Canada Limited, with such shares being
exchangeable for fully paid ordinary shares in Creso on the satisfaction of milestones.
Other than the above, there has been no other matter or circumstance that has arisen since the end of the financial year
that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or
the state of affairs of the Group.
60 | P a g e
Creso Pharma Limited – Annual Report 2017
Directors’ Declaration
Directors’ Declaration
In the directors' opinion:
●
●
●
●
the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards,
the Corporations Regulations 2001 and other mandatory professional reporting requirements;
the attached financial statements and notes comply with International Financial Reporting Standards as issued
by the International Accounting Standards Board as described in Note 1 to the financial statements;
the attached financial statements and notes give a true and fair view of the consolidated entity's financial
position as at 31 December 2017 and of its performance for the financial year ended on that date;
there are reasonable grounds to believe that the company will be able to pay its debts as and when they
become due and payable; and
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the directors
BOAZ WACHTEL
Non-Executive Chairman
27 February 2018
61 | P a g e
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF
CRESO PHARMA LIMITED
Opinion
We have audited the financial report of Creso Pharma Limited (the Company) and its subsidiaries (the Group),
which comprises the consolidated statement of financial position as at 31 December 2017, the consolidated
statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and
the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including
a summary of significant accounting policies, and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:
(i)
Giving a true and fair view of the Group's financial position as at 31 December 2017 and of its financial
performance for the year then ended; and
(ii)
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of
our report. We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's
APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial
report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given to
the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's
report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the financial report of the current period. These matters were addressed in the context of our audit of the financial
report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter
How our audit addressed this matter
Recoverability of Receivables
Refer to Note 9 and 12 in the financial statements
from an entity amounting
At the reporting date, the Group had a material
receivable due
to
$1,074,105. The Group’s accounting policy is to
recognise a provision for impairment when there is
objective evidence that the Group will not be able to
collect all amounts due.
Our audit procedures in relation to the recoverability of
this amount included:
• Discussed and reviewed the audit workpapers of
their
the component auditor
assessment of the recoverability of this amount;
respect of
in
We determined this area to be a key audit matter due
to the significant judgement required to determine the
amount of provision that is required to be recognised.
• Challenged
assumptions
management’s
regarding the level of provisioning against this
amount;
• Assessed the appropriateness of the Group’s
disclosures in respect of the recoverability of this
amount in the financial report.
Other Information
The directors are responsible for the other information. The other information comprises the information included
in the Group's annual report for the year ended 31 December 2017, but does not include the financial report and
the auditor's report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial report or our knowledge
obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal
control as the directors determine is necessary to enable the preparation of the financial report that gives a true
and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and
Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This
description forms part of our auditor's report.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included within the directors' report for the year ended 31 December
2017.
In our opinion, the Remuneration Report of Creso Pharma Limited, for the year ended 31 December 2017,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration Report
in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.
RSM AUSTRALIA PARTNERS
Perth, WA
Dated: 27 February 2018
TUTU PHONG
Partner
Creso Pharma Limited – Annual Report 2017
Corporate Governance
Corporate Governance
The Company and the Board of Directors are committed to achieving the highest standards of corporate governance.
The Board continues to review the framework and practices to ensure they meet the interests of shareholders.
A description of the Group’s main corporate governance practices is set out on the Company’s website at:
http://www.cresopharma.com/profile/corporate-governance/
65 | P a g e
ASX Additional Information
Additional information required by the Australian Securities Exchange and not shown elsewhere in this Annual Report
is as follows. The information is current as of 19 February 2018.
TWENTY LARGEST SHAREHOLDERS
Creso Pharma Limited – Annual Report 2017
ASX Additional Information
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
WHP MANAGEMENT CONSULTING GMBH
INTERNATIONAL WATER ENERGY SAVERS LTD
ANGLO AUSTRALASIA HOLDINGS PTY LTD
SUBURBAN HOLDINGS PTY LIMITED
ROSS SMITH
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
MR TEIK TATT OH
MR VOLODYMYR YATSYNA
JAMES ANTHONY ELLINGFORD
BNP PARIBAS NOMINEES PTY LTD
LANDPATH PTY LTD
ROMAN STRECHAJ
153 FISH CAPITAL PTE LTD
MICHAL MASEK
MR ROGER WILLIAMS PATEK & MRS MAREE HELEN PATEK
STOCK ASSIST GROUP PTY LTD
BLUE FEATHER (QLD) INVESTMENTS PTY LTD
TAC PROFESSIONAL SERVICES PTY LTD
Total: Top 20 holders of ORDINARY FULLY PAID SHARES
18
19
20
LARGEST LISTED OPTIONHOLDERS
1
2
3
4
5
6
7
8
9
10
11
12
13
BIOLINGUS IP GMBH
AUSTRALIAN SHARE NOMINEES PTY LTD
DAVID RUSSELL
GBTPHARMA LTD
MR SIMON BUCKINGHAM
MAURIZIO RAINISO
JP SECURITY HOLDING PTY LTD
UBS NOMINEES PTY LTD
NORMAN NASHED
SARA RAQUEL PEYRAUBE BARQUI
MR ISAAC KOBRIN
PROF FELIX GUTZWILLER
A & J TANNOUS NOMINEES PTY LTD
Total: Top holders of UNLISTED OPTIONS
Number
Held
8,898,142
8,250,000
6,800,000
4,000,000
2,755,184
2,750,000
2,446,161
1,459,651
1,321,662
1,264,480
1,000,000
963,489
528,589
500,000
500,000
500,000
500,000
339,500
300,000
289,364
45,366,222
Number
Held
2,886,250
2,250,000
550,000
300,000
250,000
250,000
250,000
250,000
210,000
200,000
200,000
200,000
100,000
7,896,250
Percentage
8.13%
7.53%
6.21%
3.65%
2.52%
2.51%
2.23%
1.33%
1.21%
1.15%
0.91%
0.88%
0.48%
0.46%
0.46%
0.46%
0.46%
0.31%
0.27%
0.26%
41.43%
Percentage
36.55%
28.49%
6.97%
3.80%
3.17%
3.17%
3.17%
3.17%
2.66%
2.53%
2.53%
2.53%
1.27%
100.00%
66 | P a g e
Creso Pharma Limited – Annual Report 2017
ASX Additional Information
ASX Additional Information
DISTRIBUTION OF EQUITY SECURITIES
(i) Ordinary share capital
(a) 109,505,544 fully paid shares held by 9,488 individual shareholders. All issued ordinary shares carry one vote
per share and carry the rights to dividends.
(b) Distribution of fully paid ordinary shareholders:
Range
Total holders
Units
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - 9,999,999,999
Total
2,499
4,281
1,377
1,266
60
9,483
1,773,267
11,632,990
10,981,053
33,503,570
51,614,664
109,505,544
% of Issued
Capital
1.62%
10.62%
10.03%
30.60%
47.13%
100.00%
(c) The number of fully paid ordinary shareholdings held in less than marketable parcels is 863 (based on a share
price of $0.86).
UNQUOTED OPTIONS
As at 19 February 2018, there are a total of 7,896,250 unquoted options on issue.
250,000 unquoted options with an exercise price of $0.40 and an expiry date of 20 October 2018.
210,000 unquoted options with an exercise price of $0.40 and an expiry date of 27 July 2017.
250,000 unquoted options with an exercise price of $0.30 and an expiry date of 27 July 2019.
100,000 unquoted options with an exercise price of $0.60 and an expiry date of 27 July 2020.
250,000 unquoted options with an exercise price of $0.80 and an expiry date of 13 April 2020.
600,000 unquoted options with an exercise price of $0.40 and an expiry of 27 June 2020.
2,886,250 unquoted options with an exercise price of $0.20 and an expiry of 13 October 2020.
2,500,000 unquoted options with an exercise price of $0.20 and an expiry of 13 October 2019.
300,000 unquoted options with an exercise price of $0.50 and an expiry of 23 January 2021.
250,000 unquoted options with an exercise price of $0.30 and an expiry of 27 July 2021.
100,000 unquoted options with an exercise price of $1.20 and an expiry of 27 July 2019.
100,000 unquoted options with an exercise price of $1.60 and an expiry of 27 July 2020.
100,000 unquoted options with an exercise price of $2.00 and an expiry of 27 July 2021.
SUBSTANTIAL SHAREHOLDERS
The names of substantial shareholders who have notified the Company in accordance with section 671B of the
Corporations Act 2001 are:
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
WHP MANAGEMENT CONSULTING GMBH
INTERNATIONAL WATER ENERGY SAVERS LTD
Holding
Balance
% of Issued
Capital
8,898,142
8,250,000
6,800,000
8.13%
7.53%
6.21%
67 | P a g e
Creso Pharma Limited – Annual Report 2017
ASX Additional Information
ASX Additional Information
ON-MARKET BUY-BACK
There is no current on-market buy-back.
ACQUISITION OF VOTING SHARES
No issues of securities have been approved for the purposes of Item 7 of Section 611 of the Corporations Act 2001.
TAX STATUS
The Company is treated as a public company for taxation purposes.
FRANKING CREDITS
The Company has no franking credits.
GROUP CASH AND ASSETS
In accordance with Listing Rule 4.10.19, the Company confirms that it has been using the cash and assets for the year
ended 31 December 2017 in a way that is consistent with its business objectives and strategy.
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