CRESO PHARMA LIMITED
ACN 609 406 911
Annual Report for the
Year Ended 31 December 2018
Annual Report
For the year ended 31 December 2018
Creso Pharma Limited – Annual Report 2018
Contents
About Creso
Corporate Directory
Chairman’s Letter
CEO’s Report
Directors’ Report
Remuneration 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
Shareholder Information
Glossary of Terms and Abbreviations
3
4
5
6
10
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Creso Pharma Limited – Annual Report 2018
About Creso Pharma
Creso Pharma brings the best of cannabis to better the lives of people and animals.
Creso brings pharmaceutical expertise and methodological rigor to the cannabis
world and strives for the highest quality in its products. It develops cannabis and
hemp-derived therapeutic, nutraceutical, and life style products with wide patient
and consumer reach for human and animal health.
Creso uses GMP development and manufacturing standards for its products as a
reference of quality excellence with initial product registrations in Switzerland.
Creso has worldwide rights for a number of unique and proprietary innovative
delivery technologies which enhance the bioavailability and absorption of
cannabinoids.
Creso is developing products in five key areas:
Creso has operations in Switzerland, Canada, Colombia, Israel and Australia.
www.CresoPharma.com
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Creso Pharma Limited – Annual Report 2018
Corporate Directory
Board of Directors
Mr Boaz Wachtel
Dr Miriam Halperin Wernli
Mr Adam Blumenthal
Dr James Ellingford
(Executive Chairman)
(Chief Executive Officer and Executive Director)
(Non-Executive Director)
(Non-Executive Director)
Secretaries
Ms Erlyn Dale and Mr Winton Willesee, jointly
Registered Office
L24, 300 Barangaroo Avenue,
Barangaroo
NSW 2000
Australia
Telephone: +61- 2 8067 8606
European Office
Alte Steinhauserstrasse 10,
6330 Cham
Switzerland
Telephone: +41- 41 710 4706
Stock Exchange Listings
Listed on the Australian Securities Exchange (ASX Code: CPH)
Listed on the Frankfurt Stock Exchange (FRA Code: 1X8)
Auditors
RSM Australia Partners
Level 32, Exchange Tower
2 The Esplanade
Perth WA 6000
Australia
Solicitors
Steinepreis Paganin
Level 4, Next Building
16 Milligan Street
Perth WA 6000
Australia
Bankers
Westpac Banking Corporation
Level 4, Brookfield Place, Tower Two
123 St Georges Terrace
Perth WA 6000
Australia
Share Registry
Automic Share Registry
Level 2, 267 St Georges Terrace
Perth WA 6000
Australia
Telephone: 1300 288 664 (from within Australia)
+61 2 9698 5414 (from outside Australia)
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Creso Pharma Limited – Annual Report 2018
Chairman’s Report
Dear Shareholder,
It’s been an exciting year in the global cannabis industry and equally so for Creso Pharma. This year the industry has
seen many milestones. A record number of companies publicly listed on exchanges with a combined capital
accumulation of over US$18billion. Canada became the second and the largest country in the world to regulate cannabis
for adult use. The United States signed the Hemp Farm Act of 2018, effectively de-scheduling hemp and cannabidiol
(CBD) as schedule 1 narcotics and regulating the hemp industry on a federal basis. South Korea became the first
Southeast Asian country to legalize medical cannabis.
Progress toward a globally accepted cannabis marketplace is happening at a very fast pace. As the benefits of cannabis
are better understood, these global developments and others in the pipeline continue to play in Creso’s favour.
As a global company with operations in North and South America, Europe, South East Asia and the Middle East, Creso
is well positioned to sell the highest quality CBD and THC infused products to each of the regulated markets.
Creso’s strategy from the onset has been to develop, register and sell initially in the Swiss market the highest quality,
GMP, standardized CBD Nutraceuticals for humans and animals in partnership with top tier credible commercial
partners. Once registered as a reference country and established in the market place in Switzerland, Creso introduces
its brands with unique delivery technologies in other countries to create awareness and generate revenues. This
strategic pillar has been executed very successfully with Creso’s animal product, anibidiol® which has completed its first
full year in market with increased revenues and broader geographic expansion. Likewise, our human product
CannaQIX®, introduced in Q1 of 2018, was distributed to multiple European countries including the UK.
Parallel to commercializing nutraceuticals, Creso is building a pan-global medicinal cannabis cultivation company. With
CBD’s continued acceptance, Creso is positioned to gain traction in the international marketplace. As medicinal cannabis
is regulated, Creso’s nutraceutical and medicinal cannabis products are well placed to leverage the initial brand
awareness which has already been developed.
Marking a significant milestone, Mernova Medicinal Inc, our Windsor, Nova Scotia, state-of-the-art cultivation facility,
which was completed at the end of 2018 and received its License to Cultivate from Health Canada on 15 February 2019.
This makes Creso the only ASX-listed company that has 100% ownership of a Canadian licensed producer.
Our Colombian acquisition, Kunna SAS, was completed prior to the end of 2018. This operation is set with a full suite of
licenses and will have plants in the ground this year. Kunna SAS will provide low cost medicinal oils for the international
market and raw material for Creso’s nutraceuticals and medicinal products.
The Israeli parliament passed a bill to allow the export of medical cannabis from Israel. This long-awaited step gives the
world access to the most sophisticated cannabis country in the world. Creso’s joint venture with Cohen Propagation
Nurseries (where Creso holds 76%) is in a position to capitalize on this and deliver cannabis strains engineered to provide
specific relief to the medical community as well as feed new genetics to Creso’s cultivation network.
Creso remains committed to building a global enterprise with products being sold in various markets around the world,
all of which deliver health benefits in a format that can be trusted because of the pharmaceutical rigor that goes into
their design, formulation and manufacturing. These products can be sold as a simple food supplement, a nutraceutical
infused with CBD or a medical cannabis product, all of which provide relief and health support for humans and animals.
It is this combination of registered quality brands, global reach and professionalism which differentiates Creso from
other medicinal cannabis companies. The global medicinal cannabis market is projected to reach US$60B in five years
and the global supplement markets for humans and pets will exceed US$250B. These are the arenas and projected
market sizes Creso is already serving.
Creso has an exceptional team of experts, owns all the assets necessary to execute Creso’s strategy and has commercial
products with growing revenues. 2019 will be a watershed year for Creso Pharma.
Thank you for your continued support and trust in Creso Pharma.
Boaz Wachtel
Executive Chairman
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CEO’s Report
Creso Pharma Limited – Annual Report 2018
I thank our shareholders for their continued support and invite you to read the full Annual Report.
I am very pleased to report on Creso’s progress for the 2018 fiscal year, which has proven to be a truly formative year
for the Company.
The cannabis industry is undergoing rapid transformation across the world as more and more countries and citizens
discover the benefits of CBD and THC products. The regulatory environment is also evolving, and in many countries
significant changes to regulation have legitimized the cannabis market. As a result, every day consumers are changing
their perceptions towards cannabis and discovering its benefits.
For a product with a history like cannabis to be accepted globally, the industry will need to be strongly governed by
regulating bodies and the products will need to be rigorously produced with the best ingredients to assure consumers
of their quality and safety.
For the industry to work, emerging, regulated cannabis countries need to be trusted by the world and the products
they produce must be trusted by the consumer.
Creso’s strategy is built on its commitment to providing products that exceed the expectations of the governing bodies
and consumers for quality, efficacy and control. One of Creso’s greatest capabilities is therapeutic science; we are
staffed with world class biomedical scientists, clinical researchers and medical professionals. We know how chemicals
and human chemistry interact, and we are passionate about utilizing hemp and cannabis plant ingredients to deliver
the most benefit to humans and animals.
Customers and consumers are telling us by their actions that Creso is delivering on this commitment.
Existing product expansion
After the first full year of distribution of our companion and large animal product anibidiol®, we have seen sales and
distribution increase. In the 3rd quarter of 2018 our distribution partner Virbac Inc. (NASDAQ: VBAC), signed an
agreement to expand distribution to 15 additional countries throughout Europe and Latin America. Virbac, a global
supplier of products to the veterinary community, is seeing strong growth in vet and consumer demand. Our pet
products are manufactured in the same pharmaceutical grade facility as our human products.
cannaQIX®, Creso’s range of human CBD nutraceutical and medicinal “edibles” was introduced in the first quarter of
2018. cannaQIX® gained momentum in Europe, culminating in a distribution agreement with Pharmacare, a global
pharmacy distribution company, to take the nutraceutical product to the UK.
cannaQIX®, in its nutraceutical and medicinal forms, is now sold in six countries and is growing rapidly.
Medicinal cannaQIX® is currently sold in New Zealand, it is about to be introduced in Brazil and it will be entering
Australia and Sri Lanka in 2019. Moving forward on these plans, Creso has signed a Binding Letter of Intent with
Burleigh Heads Cannabis Pty Ltd, one of Australia’s leading medicinal cannabis distribution companies, to expand the
distribution of its medical cannabis products into Australia, initially focusing on cannaQIX®50.
Total product sales are on the right track, increasing by over 500% from $91,609 in 2017 to $558,382 in 2018.
New product pipeline
To complement and expand our current portfolio, Creso has developed several new products.
Additional nutraceutical products have been developed, including;
“cannaQIX®nite” to aid sleep;
“cannaPEAL®” to introduce certain markets to the benefits of hemp seed oil-based products; and
“cannaDOL®” to provide relief to athletes in the form of a topical application.
The pipeline extends well beyond this, and every product is designed with a specific purpose and efficacy.
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CEO’s Report
Creso Pharma Limited – Annual Report 2018
Figures 1 – 4: Packaging and branding: CannaQIX® and CannaQIX®nite; Packaging: CannaDOL® and CannaPEAL®
Global expansion
The primary focus of Creso’s strategy is to build a global brand. Creso started by introducing its hemp CBD formulas to
markets that readily accepted the commercialisation of CBD products. Many of these markets are still defining their
position on CBD, hemp, medical or recreational cannabis. Creso will also introduce products with hemp seed oil but
without CBD into emerging markets like Indonesia and Thailand.
All Creso products focus on effectiveness and quality, through formulation and understanding how the plant
ingredients are delivered to the body. As cannabis markets evolve, product design can seamlessly introduce THC as an
ingredient, thereby expanding potential patient and consumer base.
In anticipation of this, Creso has invested in cannabis cultivation and the benefits are already being reaped, with a
license to cultivate being granted by Health Canada this month to our “Mernova Medical” state-of-the-art, GMP
ready, indoor facility in Windsor, Nova Scotia. This gives Mernova Medical the ability to immediately plant crops and
importantly, to already sell the first crops planted B2B. With a supply agreement already signed with TerrAscend
Canada, a Licensed Producer (LP), revenue for 2019 is now assured.
In 2019, the Nova Scotia facility will build out its “edible cannabis” processing plant. It is also anticipated that our
Ritual Green Brand of flower will be sold in the Nova Scotia Liquor Corporation’s retail distribution channels.
Figures 5&6: The new Windsor, Nova Scotia facility
Figure 7: The Ritual Green Brand logo
Colombia is keen to distinguish itself, not only as a source of low cost raw material but as a power house of value-
added products known for strong brands and highly effective ingredients. Colombia has established a robust
regulatory framework and also invested in the resources necessary to assure successful rapid growth of the industry.
In 2018, Creso completed its acquisition of Colombian-based Kunna SAS, which holds a full suite of licenses providing
access to all aspects of cultivating, manufacturing, exporting, and research and development. Creso’s team has
established relationships with the medical and academic community, and we recently announced that Dr Ricardo
Salazar and the National University of Colombia would be a primary Creso advisor and research partner. Creso has also
established strong relationships with the Colombian business development department and regulating body.
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CEO’s Report
Creso Pharma Limited – Annual Report 2018
Achieving a foothold at this early stage makes Creso one of few companies capable of capturing this opportunity.
Creso is in the process of registering genetics, applying for quotas and registering branded products for distribution
within Colombia.
Creso will have what very few companies have in Colombia; low cost CBD and THC for export as medicinal oils, on-
shelf human and animal products (the recent agreement with Virbac will see anibidiol® distributed to Colombia), and a
clinical research capability for therapeutic product development.
Potential Patients in Colombia
(6million patients)
Other
13%
PTSD
8%
insomnia
9%
anxiety
10%
Chronic Pain
44%
depression
16%
Chronic Pain
depression
anxiety
insomnia
PTSD
Other
Figure 8: Number of potential patients in Colombia
The European CBD market is one of the world’s largest, with strong forecasted growth rates over the next 10 years,
and Creso is well placed to expand its network across the continent. A strategic collaboration agreement was recently
signed with Hempmate AG Switzerland to strengthen Creso’s presence in European countries, through new
commercialisation opportunities. The first of the new products under the strategic collaboration have already been
developed and will be launched in Q2 2019 in selected key European countries (Germany, UK, France, Italy, Spain).
Another country where Creso has established a strong foothold is Israel, where a bill was recently passed through
parliament approving the export of cannabis. This is a key step in opening the world to the unique and exceptional
supply available within Israel. Creso’s 76% share of the joint venture with Cohen Propagation Nurseries is poised to
capture this opportunity as soon as international export is approved.
Creso’s approach to quality, efficacy and control will continue to deliver as we enter new markets with changing
regulations.
In December 2018 the United States updated their Farm Bill and introduced the new Hemp Farm Act of 2018, which
effectively regulates the Hemp industry on a federal basis, thereby legitimizing hemp derivatives as an industry.
In a sea of “homegrown” CBD products, Creso’s pharmaceutical-grade product portfolio will be clearly differentiated
as we enter the US market.
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CEO’s Report
In conclusion
2018 was pivotal for Creso’s prospects:
Creso Pharma Limited – Annual Report 2018
We established and strengthened our brands globally
We generated growing revenues and created a growing demand for our products through repeat purchase
and geographic expansion
We solidified our cultivation strategy by physically building the infrastructure and we contracted future sales
from this facility.
In short, Creso’s strategy of building a global brand is rapidly materializing. The path forward is clear and executable.
2019 will be a huge year for the cannabis industry, and for Creso.
Our solid business strategy and sound fundamentals, including a very reasonable valuation, will be recognised.
Our team is executing against sales growth of our nutraceuticals and we expect our cultivation operations to generate
meaningful revenues in 2019.
I am excited to see what the next year brings!
Dr. Miriam Halperin Wernli
Group CEO and Co‐Founder
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Director’s Report
Creso Pharma Limited – Annual Report 2018
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 2018.
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.
Mr Boaz Wachtel
Dr Miriam Halperin Wernli Managing Director and Chief Executive Officer
Mr Adam Blumenthal
Dr James Ellingford
Non-Executive Director
Non-Executive Director
Executive Chairman
Boaz Wachtel MA.
Executive Chairman (member of the Audit and Risk 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. Co-Founder and former Managing Director of MMJ-Phytotech Ltd, Australia's first publicly traded Medical
Cannabis Company. Co-founder of IMCPC – International Medical Cannabis Patient Coalition. He is an Israeli medical
cannabis pioneer/activist, who formulated and assisted the Ministry of Health with the implementation of the National
Medical Cannabis Program – one of only few national programs in the world. He is a frequent lecturer and adviser to
governments, national committees, business and NGO's on medical cannabis program formulation, grow operations,
international laws and UN drug convention compliance, as well as the founder (1999) and former Chairman of the Green
Leaf Party, an Israeli political party for cannabis legalisation/medicalisation, human rights and ecology.
During the past three years Mr Wachtel has held directorships in the following other ASX listed entity:
Company
Roots Sustainable Agricultural Technologies Limited (ASX:ROO) December 2017
Appointed
Resigned
Current
Dr. Miriam Halperin Wernli BA. MA. MBA. PhD.
Executive Director, Group CEO and Co-Founder
(Appointed 20 November 2015)
Dr. Halperin Wernli is a senior pharmaceutical and biomedical executive with over 25 years strategic and operational
leadership in the biopharmaceutical industry and a deep understanding of drug and product development.
Dr. Halperin Wernli is an experienced Pharmaceutical leader with skills and broad expertise in Drug Development,
Regulatory Affairs, Project & Portfolio Management, Development Finance & Controlling, 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 in the USA (Merck, Sharp and Dohme, Roche and Actelion pharmaceuticals). Her extensive
pharmaceutical industry and biomed research and development experience covers the full spectrum of activities from
Preclinical to Clinical Development and Strategy, to Drug Registration and Launch, across several Therapeutic Areas.
Miri's depth of experience in Pharma drug development, as well as her leadership roles in complex highly regulated
health environments in Europe and the USA, 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 ASX listed entity.
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Director’s Report
Adam Blumenthal BCom. MIR. MBA.
Non-Executive Director (member of the Remuneration and Nomination Committee)
(Appointed 20 November 2015)
Creso Pharma Limited – Annual Report 2018
Adam Blumenthal has over 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. Adam 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. He has successfully brought to market several Medical Marijuana
companies spanning Israel, Canada, Switzerland and Australia. He has also been actively involved in the Mining, Cyber
Security, Health Care and IT sectors.
Adam is Chairman of EverBlu Capital Pty Ltd, the Lead Manager to the Company’s capital raisings.
Outside of his formal business activities, Adam has lectured at a leading Sydney University covering corporate
governance, corporate social responsibility and ASX listings - both at an undergraduate and postgraduate level.
Adam holds a Bachelor of Commerce, Master of International Relations (MIR) and Master of Business Administration
(MBA) degrees.
Adam is a strong supporter of Israeli innovation and has previously lived in Israel. He is a member of the Israel Business
Club Sydney (IBCS).
During the past three years Mr Blumenthal has held directorships in the following ASX listed entities:
Company
Roots Sustainable Agricultural Technologies Limited (ASX:ROO)
Pursuit Minerals Limited (ASX:PUR)
(formerly Burrabulla Corporation Limited (ASX:BUA))
Bronson Group Limited (ASX:BGR)
Appointed
December 2017
January 2016
Resigned
Current
May 2018
June 2017
April 2018
Dr James Ellingford MBA. PG (Corp Mgmt). D.Mgt.
Non-Executive Director (member of the Remuneration and Nomination Committee and of the Audit and Risk Committee)
(Appointed 20 November 2015)
Dr Ellingford’s professional life culminated in being President of an international publicly listed billion-dollar business
with its headquarters in Geneva, Switzerland and New York, USA. 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 Post Graduate degree in Corporate Management, a Masters degree in Business Administration as
well as a Doctorate in Management. Dr Ellingford used to lecture MBA students in Corporate Governance at a leading
Sydney University and has a keen interest in ethics.
During the past three years Dr Ellingford has held directorships in the following ASX listed entities:
Company
MinRex Resources Limited (ASX:MRR)
Manalto Limited (ASX:MTL)
Victory Mines Limited (ASX:VIC)
Burrabulla Corporation Limited (ASX:BUA)
(now Pursuit Minerals Limited (ASX:PUR))
Elysium Resources Limited (ASX:EYM)
(now Hardey Resources Limited (ASX:HDY))
Zyber Holdings Limited (ASX:ZYB)
Appointed
April 2018
September 2017
January 2016
May 2016
Resigned
Current
January 2019
January 2019
August 2017
March 2017
March 2017
January 2014
February 2016
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Director’s Report
Creso Pharma Limited – Annual Report 2018
DIRECTORS 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.
Ordinary
Shares
Listed Share
Options
Performance
Rights
6,800,000
8,400,000
5,500,001
1,100,000
21,800,001
3,000,000
4,147,950
2,750,000
550,000
10,447,950
3,100,000
4,400,000
750,000
350,000
8,600,000
Director
Mr Boaz Wachtel
Dr Miriam Halperin Wernli
Mr Adam Blumenthal
Dr James Ellingford
Total
EXECUTIVES
Chris Grundy B.Com. FCA. FCIS. GAICD.
Chief Financial Officer
(Appointed 21 November 2017)
Chris Grundy is a career CFO with more than 25 years’ experience in the life sciences sector in Australia, including
listed and large multi-national companies, in addition to early-stage, rapidly-growing businesses. His previous
experience includes roles as CEO and in marketing, including periods in the U.K. and Southern Africa. He qualified as
a Chartered Accountant with Ernst & Young.
John Griese BA (Hons).
Chief Operating Officer, Americas
(Appointed 14 June 2018)
John Griese is an experienced operations executive with 30 years’ experience in sales, manufacturing and supply chain
with some of the world’s most successful food and beverage companies. He has held executive leadership positions
with PepsiCo in Canada and with Nestle in the United States. Mr. Griese has been responsible for commercializing
products and optimizing the end-to-end efficiency of large scale operations.
John has extensive experience in the North American food and cannabis industries. He provides the knowledge and
expertise needed to continue to grow Creso’s presence in the Americas.
COMPANY SECRETARIES
Winton Willesee BBus. DipEd. PGDipBus. MCom. FFin. CPA. GAICD. FGIA/FCIS.
Co-Company Secretary
(Appointed 19 October 2018)
Mr Willesee is an experienced company secretary. He has considerable experience with ASX listed and other companies
over a broad range of industries having been involved with many successful ventures from early stage through to large
capital development projects. Mr. Willesee holds a Master of Commerce, a Post-Graduate Diploma in Business
(Economics and Finance), a Graduate Diploma in Applied Finance and Investment, a Graduate Diploma in Applied
Corporate Governance, a Graduate Diploma in Education and a Bachelor of Business. He is a Fellow of the Financial
Services Institute of Australasia, a Graduate of the Australian Institute of Company Directors, a Member of CPA Australia
and a Fellow of the Governance Institute of Australia and of the Institute of Chartered Secretaries and Administrators.
Erlyn Dale BCom. GradDipAppCorpGov. ACIS/AGIA.
Co-Company Secretary
(Appointed 19 October 2018)
Erlyn Dale is an experienced corporate governance professional, having held office as company secretary for a number
of ASX-listed public companies across a range of industries. Ms. Dale has completed a Bachelor of Commerce
(Accounting and Finance) and a Graduate Diploma of Applied Corporate Governance and is an Associate Member of
both the Institute of Chartered Secretaries and Administrators and the Governance Institute of Australia.
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Director’s Report
Sarah Smith B.Com. ACA.
(Resigned as Company Secretary 19 October 2018)
Creso Pharma Limited – Annual Report 2018
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.
DIRECTORS’ MEETINGS
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 and Risk
Committee Meetings 1
Remuneration and
Nomination Committee
Meetings
Mr Boaz Wachtel
Dr Miriam Halperin Wernli
Mr Adam Blumenthal
Dr James Ellingford
Number
Eligible to
Attend
12
12
12
12
Number
Attended
12
12
12
11
Number
Eligible to
Attend
-
-
-
-
Number
Attended
-
-
-
-
Number
Eligible to
Attend
-
-
2
2
Number
Attended
-
-
2
2
1 During 2018, the duties of the Audit and Risk Committee were carried out during Board meetings.
In addition to the scheduled Board meetings, Directors regularly communicate with each other 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.
The completion of the Mernova Medicinal facility in Halifax, Nova Scotia, Canada enables a second principal activity of
the Group, being the cultivation and extraction of cannabis products for sale.
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.
Operations highlights for 2018 include:
• On 11 January 2018, Creso launched its new joint venture company with LGC Capital Ltd (TSXV: LG) (“LGC”) and
Baltic Beer Company (“Baltic Beer Company”) 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 containing
various ingredients, seeds, extracts and terpenes from hemp and cannabis plants.
• On 17 January 2018, Creso 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
one of Israel’s largest medicinal cannabis companies, The Bazelet Group.
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Director’s Report
REVIEW AND RESULTS OF OPERATIONS (continued)
Creso Pharma Limited – Annual Report 2018
• On 14 May 2018, Creso announced that it is entering the strategic Israeli medical cannabis market through a
binding agreement with Cohen Propagation Nurseries Limited (“Cohen”). Under the agreement, the partners
established and incorporated a joint venture to operate a medical cannabis growing facility in Israel, in which Creso
holds 74% of the JV.
• On 15 March 2018, Creso announced the development and plans to launch the cannaDOL® product range in 2019
with an oral Cannabidiol-(CBD)-based nutraceutical and a first-in-class CBD-based functional topical across Europe
aiming to alleviate joint and muscle pain.
• On 21 May 2018, Creso signed a commercial agreement with Mediphos OTC Consumer Health BV, a Dutch
company, to market and distribute its CBD hemp-based human nutraceutical product cannaQIX® in the Benelux
region starting with the Netherlands.
• On 12 June 2018, the licence to cultivate medicinal cannabis in Colombia has been granted to Kuna S.A.S, the
wholly owned subsidiary of Kunna Canada Ltd. Creso completed due diligence on Kunna Canada Ltd and Kunna
S.A.S in July 2018.
• On 2 July 2018, the Company signed a commercial agreement with CB Distributors Limited, trading as CANNZ
Logistics, for the introduction of its unique CBD medicinal cannabis product cannaQIX®50 to New Zealand.
• On 23 July 2018, Creso successfully completed its legal and technical due diligence to acquire 100% of Kunna
Canada Ltd, and its wholly-owned subsidiary, medicinal cannabis group, Kunna S.A.S.
• On 23 July 2018, the Company announced it was considering a potential divestment of Hemp Industries s.r.o., its
100% owned subsidiary located in Slovakia. A sale agreement is in its final stages of completion.
• On 14 August 2018, the Company signed a commercial agreement with Dr. A. & L. Schmidgall GmbH & Co KG of
the Hedoga Group to commercialise cannaQIX® in Austria and targeted Eastern and Northern European countries.
• On 21 August 2018, Creso signed a commercial agreement with Pharmacare Europe, based in the UK, to market
and distribute its CBD hemp-based human nutraceutical product cannaQIX® and further products in the UK and
potentially in other European countries.
• On 8 October 2018, Creso’s application to become a Licenced Producer was received by Health Canada.
• On 8 October 2018, the Company signed a short-term Construction Finance Loan for A$2.7m to fast-track the
completion of construction of the Mernova Medicinal Inc facility in Canada.
• On 30 October 2018, Creso established its Global Centre of Edible Cannabis Product Development and Research in
Nova Scotia, Canada.
• On 1 November 2018, the Company signed an agreement with MedDepot Brazil for the import and delivery of
Creso medicinal cannabis products in Brazil and also initiated marketing and sales activities with Brazilian partner,
SIN Solutions, with prescribing physicians.
• On 14 November 2018, following successful introduction in the markets in Switzerland and Lichtenstein, Creso and
Virbac Inc signed an exclusive distribution agreement for Creso’s veterinary products sales in 15 further countries,
including Colombia, France and Germany.
• On 3 December 2018, Creso announced its intention to dual-list on the Toronto Venture Exchange (TSX-V) Canada.
Creso will be the only cannabis company publicly listed in both Australia and Canada.
• On 17 December 2018, Virbac placed an order for A$350k of Creso’s animal health products for distribution in
markets in Europe and Latin America to be delivered in April 2019.
• On 20 December 2018, the Company completed the acquisition of 100% of Kunna Canada Ltd and its Colombian
subsidiary Kuna SAS which holds licences to cultivate, produce, manufacture, market and export cannabis
derivatives and products, using extracts in Colombia.
Further information on the operations of the Group and its business strategies and prospects is included in the CEO’s
Report.
14 | P a g e
Director’s Report
Financial Performance
The financial results of the Group for the year ended 31 December 2018 are:
Creso Pharma Limited – Annual Report 2018
Cash and cash equivalents
Net assets
Revenue from products
Revenue from services
Royalty income
Total revenue
Other income
Net loss after tax
31‐Dec‐18
$
6,390,538
16,504,392
558,382
-
19,840
578,222
153,358
(16,845, 686)
31-Dec-17
$
12,424,913
21,028,634
91,609
152,189
1,112
244,910
97,341
(15,076,076)
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:
Subsidiary and Joint Venture Investee
CLV Frontier Brands Pty Limited (CLV)
The Company holds a 33⅓% share in the joint venture CLV, a business developing terpene-infused beers and adult soft-
drinks in Estonia which are distributed in the UK and Swiss Markets. In January 2018, the joint venture was incorporated
in Australia as CLV Frontier Brands Pty Limited. On 12 March 2019, the Company decided, in conjunction with the Board
of CLV, to cease funding the operations of the CLV joint Venture, due to the significant additional funding required to
maintain a sustainable business. CLV is winding down its operations.
Hemp-Industries sro (HI)
HI is a wholly-owned subsidiary of the Company and is located in Slovakia. In 2017, the Company decided that the
operations of HI were no longer a significant part of the Group’s operations and the Company’s investment in shares
and loans to HI were provided for impairment in full. HI was subsequently classified as an asset available for sale and
agreement was reached to sell the Company’s holding in it. The sale is expected to take effect in March 2019.
Changes in number of Shares, options, performance rights and performance shares
As at 31‐Dec‐17
Granted – services
Granted – KPIs
Exercised – conversion of
performance rights
Issued – conversion of performance
rights
Exercised – exercise of options
Issued – exercise of options
Issued – acquisition of Kunna
Issued – capital raising
Issued – cost of loans
Quoted
Shares
No.
109,505,544
Listed
Options
No.
-
-
-
6,150,000
‐
-
-
-
-
Unlisted
Options
No.
7,346,250
Performance
Rights
No.
17,350,000
Performance
Shares
No.
1,000,000
1,150,000
-
-
-
3,696,000
(6,150,000)
-
-
320,000
8,212,121
-
-
-
- 51,242,710
3,900,000
-
(320,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,212,120
-
-
15 | P a g e
Director’s Report
Creso Pharma Limited – Annual Report 2018
Changes in number of Shares, options, performance rights and performance shares continued
As at 31‐Dec‐18
124,187,665 55,142,710
8,176,250
14,896,000
2,212,120
Exercised – conversion of
performance rights
Issued – conversion of performance
rights
Issued – services
Issued – capital raising
-
2,750,000
195,556
6,611,111
-
-
2,203,701
-
-
-
(2,750,000)
-
-
-
-
-
As at 22‐Mar‐19
133,744,332 57,346,411
8,176,250
12,146,000
2,212,120
Senior Management Appointments
On 12 February 2018, Mr Amit Edri was appointed International Business Development Executive, based in Israel.
On 1 March 2018, Mr Boaz Wachtel was appointed as Executive Director of the Company. Mr Wachtel was previously
a non-Executive Director of the Company.
On 14 June 2018, Mr John Griese was appointed Chief Operating Officer for the Americas, based in Canada.
Change in Company Secretary
On 19 October 2018, Mr Winton Willesee and Ms Erlyn Dale were appointed joint Company Secretaries, replacing Ms
Sarah Smith.
DIVIDENDS
No dividends have been paid or declared by the Group since the end of the previous financial year (2017: nil).
No dividend is recommended in respect of the current financial year (2017: nil).
TAX STATUS
The Company is treated as a public company for taxation purposes.
FRANKING CREDITS
The Company has no franking credits.
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
The CEO’s Report, the Review of Results and Operations and the Significant Changes in State of Affairs sections of the
Directors Report contain references to matters subsequent to the end of the financial year.
• On 7 January 2019, Creso announced plans to expand the distribution of its therapeutic medicinal cannabis
products into Sri Lanka.
• On 21 January 2019, Creso announced it has signed a three-year supply agreement with TerrAscend Canada, a
wholly-owned subsidiary of TerrAscend Corp., (CSE: TER; OTCQX: TRSSF) (“TerrAscend”) to provide its premium
cannabis product to help meet the significant consumer demand driven by Canada’s federal legalisation of cannabis
in October 2018. Under the terms of the Supply Agreement, Creso has agreed to sell and TerrAscend has agreed to
purchase a minimum of 100 kgs of cannabis flower per month from Creso from the date that Creso is licensed to sell
cannabis under Canadian laws.
• On 31 January 2019, the company announced that it had raised $3 million in a placement to institutional and
sophisticated investors (“Placement”) on 30 January 2019. Under the terms of the Placement, the Company issued
6,666,667 fully paid ordinary shares in the capital of the Company at $0.45 per share, together with one free
attaching listed (ASX:CPHO) option ($0.80, 21 August 2020) for every 3 shares subscribed for under the Placement.
16 | P a g e
Director’s Report
Creso Pharma Limited – Annual Report 2018
The securities were issued pursuant to the Company’s existing placement capacity under ASX Listing Rule 7.1
accordingly no shareholder approval will be required. The Placement was managed by Everblu Capital Pty Ltd
(“EverBlu”), who receive a fee of 6% of the total funds raised. No related parties, employees or associates of EverBlu
participated in the Placement.
• On 21 January 2019, Creso signed a three-year agreement with TerrAscend Canada for the supply to TerrAscend of
100kg of cannabis flower each month from the date that Creso is licensed to sell cannabis in Canada.
• On 30 January 2019, Einhorn Brau in Switzerland started the production under licence of the beers developed by
Creso’s joint venture partner CLV Frontier Brands.
• On 1 February 2019, Creso created a partnership with National University of Colombia in Bogota and appointed Dr
Ricardo Salazar Lopez as Primary Medical Advisor in Colombia.
• On 13 February 2019, Creso entered a strategic collaboration with Burleigh Heads Cannabis Pty Ltd for the
introduction of its medicinal cannabis products in Australia.
• On 13 February 2019. Creso signed a strategic collaboration agreement with Hempmate AG Switzerland for the co-
development and commercialisation of Creso’s products in Switzerland.
• On 15 February 2019, the Canadian government granted Creso a licence to cultivate cannabis at the facility run by
Creso’s wholly-owned subsidiary, Mernova Medical Inc., in Nova Scotia. Creso is now only the fifth licenced producer
in the region, and the only ASX-listed company with a 100% ownership interest in a licenced Canadian cultivator.
Under the terms of the licence granted by Health Canada, Mernova Medical is permitted to grow, sell and distribute
dried and fresh cannabis, cannabis plants and cannabis plant seeds to pre-determined companies under the
Cannabis Act.
• On 31 January 2019, The board agreed that Dr Miriam Halperin Wernli achieved a performance milestone which
resulted in the vesting of 1,750,000 performance rights.
• On 12 March 2019, the Company decided, in conjunction with the Board of CLV Frontier Brands Pty Limited, to cease
funding the operations of the CLV joint Venture, due to the significant additional funding required to maintain a
sustainable business. CLV is winding down its operations.
• On 14 March 2019, in accordance with Milestone 1, Mernova Medicinal Inc secured a cultivation license from Health
Canada under the ACMPR for its cultivation facility. This was achieved within 18 months of acquisition. The company
paid C$800,000 to Mr William Fleming with C$4,150,000 of Exchangeable Shares to be exchanged at a future date
for ordinary shares in the Company.
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
Comments on the results of operations and future prospects of the Group are included in the CEO’s Report and in
Matters Subsequent to the End of the Financial Year above.
Further information on likely developments in the operations of the Group and the expected results of operations have
not been included in this Annual Report because the Directors believe it would result in unreasonable prejudice to the
Group.
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 environmental requirement.
The National Greenhouse and Energy Reporting Act (NGER) legislation was considered and determined not to be
applicable to the entity.
AUDITED REMUNERATION REPORT
The Audited Remuneration Report comprises a part of this Directors’ Report and is set out in pages 22 to 31.
17 | P a g e
Director’s Report
SHARES, OPTIONS, PERFORMANCE RIGHTS AND PERFORMANCE SHARES
Creso Pharma Limited – Annual Report 2018
Shares under option
Unissued ordinary shares of Creso Pharma Limited under unlisted options at the date of this report are as follows:
Unlisted Options
Grant date
27-06-2016
13-10-2016
13-10-2016
06-12-2016
23-01-2017
25-01-2017
01-02-2017
27-07-2017
10-10-2017
18-05-2018
27-07-2018
27-07-2018
21-08-2018
31-08-2018
Expiry date
27-06-2020
13-10-2019
13-10-2020
27-06-2020
23-01-2021
27-07-2019
27-07-2021
27-07-2020
13-04-2019
13-07-2021
27-07-2021
27-07-2022
21-08-2021
15-09-2022
Exercise
Price
$0.40
$0.20
$0.20
$0.40
$0.50
$0.30
$0.40
$0.60
$0.80
$0.80
$0.535
$0.80
$0.55
$0.80
Number
under option
400,000
2,500,000
2,886,250
200,000
300,000
250,000
140,000
100,000
250,000
150,000
200,000
200,000
200,000
400,000
8,176,250
Unissued ordinary shares of Creso Pharma Limited under listed options at the date of this report are as follows:
Listed Options
Grant Date
21-08-2018
21-08-2018
11-09-2018
17-12-2018
17-12-2018
Expiry date
21-08-2020
21-08-2020
21-08-2020
21-08-2020
21-08-2020
Purchase
Price
$0.05
$0.05
$0.05
-
-
30-01-2019
01-02-2019
21-08-2020
21-08-2020
-
-
Exercise
Price
$0.80
$0.80
$0.80
$0.80
$0.80
$0.80
$0.80
Number
Under option
10,372,960
14,004,750
26,865,000
2,295,062
1,604,938
55,142,710
2,018,516
185,185
57,346,411
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 2018 and up
to the date of this report on the exercise of unlisted options granted:
Date Options Granted
01-02-2017
14-10-2016
Exercise
price
$0.40
$0.40
Number of
shares issued
70,000
250,000
18 | P a g e
Director’s Report
Creso Pharma Limited – Annual Report 2018
Shares under Performance Rights
Unissued ordinary shares of Creso Pharma Limited under performance rights at the date of this report are:
Code
Issue Date
Exercise Price
Expiry
Date
Balance at
the start of
the year
Granted
during the
period
CPHPERR4
CPHPERR10
CPHPERR11
CPHPERR4
CPHPERR12
CPHPERR13
CPHPERR4
CPHPERR8
CPHPERR9
CPHPERR4
CPHPERR6
CPHPERR7
CPHPERR4
CPHPERR14
CPHPERR12
CPHPERR17
CPHPERR18
CPHPERR19
CPHPERR15
CPHPERR16
CPHPERR20
CPHPERR21
CPHPERR22
CPHPERR23
CPHPERR24
CPHPERR22
CPHPERR23
20-10-2016
27-07-2017
27-07-2017
20-10-2016
27-07-2017
27-07-2017
20-10-2016
27-07-2017
27-07-2017
20-10-2016
27-07-2017
27-07-2017
20-10-2016
27-07-2017
27-07-2017
27-07-2017
27-07-2017
27-07-2017
27-07-2017
27-07-2017
16-07-2018
16-07-2018
16-07-2018
16-07-2018
16-07-2018
16-07-2018
16-07-2018
20-10-2020
27-07-2022
27-07-2019
20-10-2020
27-07-2018
27-07-2019
18-10-2020
27-07-2022
27-07-2022
20-10-2020
27-07-2018
27-07-2018
20-10-2020
27-07-2018
27-07-2018
27-01-2019
27-01-2019
27-01-2019
27-07-2019
27-07-2020
16-07-2023
16-07-2023
16-07-2023
16-07-2023
16-07-2023
16-07-2023
16-07-2023
CPHPERR24
16-07-2018
16-07-2023
CPHPERR22
16-07-2018
16-07-2023
CPHPERR23
16-07-2018
16-07-2023
CPHPERR24
16-07-2018
16-07-2023
CPHPERR22
16-07-2018
16-07-2023
CPHPERR23
16-07-2018
16-07-2023
CPHPERR24
16-07-2018
16-07-2023
CPHPERR25
16-07-2018
16-07-2023
CPHPERR26
16-07-2018
16-07-2023
CPHPERR27
16-07-2018
16-07-2023
CPHPERR28
16-07-2018
16-07-2023
CPHPERR29
11-10-2018
11-10-2023
CPHPERR30
11-10-2018
11-10-2023
CPHPERR31
11-10-2018
11-10-2023
CPHPERR32
11-10-2018
11-10-2023
CPHPERR33
11-10-2018
11-10-2023
CPHPERR34
11-10-2018
11-10-2023
CPHPERR35
11-10-2018
11-10-2023
CPHPERR36
11-10-2018
11-10-2023
CPHPERR37
11-10-2018
11-10-2023
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
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Vested
during the
period
(750,000)
(750,000)
(750,000)
-
(100,000)
-
-
-
-
-
-
-
-
(150,000)
(50,000)
(2,000,000)
(2,000,000)
(2,000,000)
-
-
(50,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50,000
50,000
50,000
50,000
50,000
33,000
33,000
33,000
33,000
33,000
33,000
16,000
16,000
16,000
100,000
(100,000)
200,000
(200,000)
200,000
100,000
300,000
300,000
300,000
100,000
150,000
150,000
500,000
400,000
400,000
-
-
-
-
-
-
-
-
-
-
-
Cancelled
during the
period
Balance at the
end of the period
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
‐
-
-
-
250,000
-
100,000
1,750,000
1,250,000
1,250,000
1,500,000
800,000
800,000
750,000
150,000
-
-
-
-
100,000
100,000
-
50,000
50,000
50,000
50,000
33,000
33,000
33,000
33,000
33,000
33,000
16,000
16,000
16,000
-
-
200,000
100,000
300,000
300,000
300,000
100,000
150,000
150,000
500,000
400,000
400,000
12,146,000
17,350,000
3,696,000
(8,900,000)
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.
19 | P a g e
Director’s Report
Creso Pharma Limited – Annual Report 2018
Shares under Performance Shares
Unissued ordinary shares of Creso Pharma Limited under performance shares at the date of this report are:
Code
Issue Date
Expiry Date
Exercise
Price
Balance at
the start of
the year
Granted
during the
period
Vested
during
the
period
Cancelled
during the
period
Balance at
the end of
the period
CPHPERSA
13-10-2016
13-10-2019
CPHPERSB
CPHPERSC
CPHPERSD
CPHPERSE
20-12-2018
20-06-2020
20-12-2018
20-06-2020
20-12-2018
20-06-2020
20-12-2018
20-06-2020
Nil
Nil
Nil
Nil
Nil
1,000,000
-
-
-
-
-
303,027
303,027
303,027
303,039
1,000,000
1,212,120
-
-
-
-
-
-
-
-
-
-
-
-
1,000,000
303,027
303,027
303,027
303,039
2,212,120
No person entitled to exercise the performance shares had or has any right by virtue of the performance shares 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 2018, 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.
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.
20 | P a g e
Director’s Report
AUDITOR’S INDEPENDENCE DECLARATION
Creso Pharma Limited – Annual Report 2018
The lead auditor’s independence declaration for the year ended 31 December 2018 has been received and included
within the financial statements section of this report.
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
outlined in Note 26 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.
CORPORATE GOVERNANCE STATEMENT
The Company’s Corporate Governance Statement and its Key to Disclosures, Corporate Governance Council Principles
and Recommendations (ASX Appendix 4G) are provided separately to the ASX on the date that this Annual Report is
provided to the ASX. The Corporate Governance Statement is available on the Company’s website:
www.cresopharma.com
This report, which includes the Remuneration Report, is made in accordance with a resolution of directors, pursuant to
section 298(2)(a) of the Corporations Act 2001.
On behalf of the directors
Boaz Wachtel
EXECUTIVE CHAIRMAN
22 March 2019
21 | P a g e
Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2018
This remuneration report for the year ended 31 December 2018 comprises a part of the Directors’ Report. It 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.
All monetary amounts stated in this report are in Australian Dollars unless otherwise indicated.
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
Dr James Ellingford
Non-Executive Director
Non-Executive Director
Executive Chairman
Senior Executives of the Group during or since the end of the financial year were:
Mr Christopher Grundy
Mr John Griese
Chief Financial Officer
Chief Operating Officer, Americas (appointed 14 June 2018)
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.
22 | P a g e
Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2018
Non‐Executive Directors’ Remuneration Structure
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. 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.
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.
In accordance with the Company’s Constitution, the Directors may at any time, subject to the Listing Rules, adopt a
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.
Remuneration may also include an invitation to participate in share-based incentive programmes in accordance with
Company policy.
The remuneration of Non-Executive Directors is detailed in Table 1 and their contractual arrangements are disclosed in
“Section E – Service Agreements”.
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- performing 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. 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.
23 | P a g e
Remuneration Report (Audited)
C
Remuneration and Performance
Creso Pharma Limited – Annual Report 2018
The following table shows the gross revenue, losses, earnings per share (“EPS”) and share price of the Group for the
years ended and as at 31 December 2018 and 31 December 2017.
Revenue from products
Revenue from services
Royalty income
Total revenue ($)
Net loss after tax
EPS ($)
Share price
31‐Dec‐18
558,382
-
19,840
578,222
(16,845,686)
(0.14)
0.49
31-Dec-17
91,609
152,189
1,112
244,910
(15,076,076)
(0.18)
0.92
Relationship between Remuneration and Company Performance
Given the current phase of the Company’s development, the Remuneration and Nomination 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
A combination of these comprises 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 the
contract of any KMP.
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 will not be quoted on ASX.
24 | P a g e
Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2018
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 at the time the
Performance Rights are granted.
The objective of the Plan is to attract, motivate and retain KMPs and it is considered that 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 the generation of shareholder value.
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.
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 will be assessed at the end of the performance period.
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 of the Rights if “good leaver”
exemptions apply to the ceasing of employment. Persons who are terminated for “bad leaver” reasons
automatically lose their entitlement.
25 | P a g e
Remuneration Report (Audited)
D Details of Remuneration
Creso Pharma Limited – Annual Report 2018
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 2018 is set out below:
Short‐term Employee Benefits
Post‐
Employment
31 December 2018
Salary &
fees
Non‐monetary
benefits
Other/
bonus
Superannuation
& Insurance
$
$
$
$
Share Based
Payments
Performance
Rights / Options
(iv)
$
Directors
Boaz Wachtel
Miriam Halperin Wernli
Adam Blumenthal
James Ellingford
Senior Executives
Christopher Grundy
John Griese (v)
Total
120,000 (i)
470,677 (ii)
121,000
119,000
221,250
169,530
1,221,457
-
-
-
-
-
‐
-
203,648 (iii)
-
-
-
20,653 (vi)
224,301
-
-
11,495
8,930
19,553
3,919
43,897
607,000
1,393,750
738,125
74,250
30,587
37,578
2,881,290
Total
$
727,000
2,068,075
870,620
202,180
271,390
231,680
4,370,945
(i)
(ii)
(iii)
(iv)
(v)
(vi)
An amount of $120,000 has been paid/is payable to International Water and Energy Savers Ltd relating to
Boaz Wachtel’s Director’s Fees.
Including an amount of $91,228 paid to WHP Management Consulting GmbH relating to Miriam Halperin
Wernli’s remuneration.
During the year, one-off bonus payment of $203,648 was made to Miriam Halperin Wernli.
Share-based payments are the options and performance rights expensed over the vesting period (refer to
Note 22 for further details).
John Griese was appointed on 14 June 2018.
One-off sign on Bonus was paid to John Griese.
Remuneration of KMP of the Group for the year ended 31 December 2017 is set out below:
31 December 2017
Short‐term Employee Benefits
Post‐
Employment
Salary &
fees
Non‐monetary
benefits
Other (ix)
Superannuation
$
$
$
$
Share Based
Payments
Performance
Rights / Options
(x)
$
Directors
Boaz Wachtel
Miriam Halperin Wernli
Adam Blumenthal
James Ellingford
Simon Buckingham (xi)
Senior Executives
Christopher Grundy (xii)
David Russell (xiii)
Total
120,000 (vii)
331,227 (viii)
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
-
18,562
735,376
533,356
332,063
94,855
-
-
-
1,695,650
Total
$
883,376
1,034,501
424,534
170,354
18,377
23,611
122,225
2,676,978
(vii)
(viii)
(ix)
(x)
(xi)
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 was paid to WHP Management Consulting GmbH relating to Miriam Halperin
Wernli’s remuneration.
During the year, one-off bonus payments were paid to Directors for the work on the Mernova acquisition.
Share-based payments are the options and performance rights expensed over the vesting period (refer to
Note 22 for further details).
Simon Buckingham resigned as Director on 5 May 2017.
26 | P a g e
Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2018
(xii)
(xiii)
Christopher Grundy was appointed on 21 November 2017.
David Russell resigned as Chief Operating Officer on 6 December 2017.
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
Senior Executives
Christopher Grundy
David Russell
John Griese
Fixed Remuneration
2017
2018
At Risk – STI (%)
At Risk – LTI (%)
2018
2017
2018
2017
17%
22%
15%
63%
89%
‐
75%
14%
32%
14%
36%
-
100%
-
‐
10%
‐
‐
‐
‐
9%
3%
16%
6%
6%
-
-
-
83%
68%
85%
37%
11%
‐
16%
83%
52%
80%
58%
-
-
-
Table 3 – Shareholdings of KMP (direct and indirect holdings)
31 December 2018
Directors
Boaz Wachtel
Miriam Halperin Wernli
Adam Blumenthal
James Ellingford
Senior Executives
Christopher Grundy
John Griese (iii)
Total
Balance at
01/01/2018
Granted as
Remuneration
On Exercise of
Options
Net Change –
Other
Balance at
31/12/2018
6,800,000
8,250,000
4,000,001
1,000,000
9,090
‐
20,059,091
‐
‐
‐
‐
‐
‐
‐
‐
‐
-
‐
‐
‐
‐
-
150,000 (i)
1,500,000 (i)
100,000 (i)
4,910 (ii)
‐
1,754,910
6,800,000
8,400,000
5,500,001
1,100,000
14,000
‐
21,814,001
(i)
(ii)
(iii)
Shares issued to Directors on vesting of Performance Rights.
Shares purchased on-market.
John Griese was appointed on 14 June 2018.
Table 4 – Listed Option holdings of KMP (direct and indirect holdings)
31 December 2018
Directors
Boaz Wachtel
Miriam Halperin Wernli
Adam Blumenthal
James Ellingford
Senior Executives
Christopher Grundy
John Griese
Total
Balance at
01/01/2018
Granted as
Remuneration
Net Change –
Other
Balance at
31/12/2018
Vested &
Exercisable
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
3,000,000 (i)
4,147,950 (i)
2,750,000 (i)
550,000 (i)
72,000 (i)
-
10,519,950
3,000,000
4,147,950
2,750,000
550,000
72,000
-
10,519,950
3,000,000
4,147,950
2,750,000
550,000
72,000
-
10,519,950
(i)
Listed Options purchased as part of Issue of Options in September 2018.
27 | P a g e
Remuneration Report (Audited)
Table 5 – Performance rights holdings of KMP (direct and indirect holdings)
Creso Pharma Limited – Annual Report 2018
31 December 2018
Directors
Boaz Wachtel
Miriam Halperin Wernli
Adam Blumenthal
James Ellingford
Senior Executives
Christopher Grundy
John Griese
Total
Balance at
01/01/2018
Granted as
Remuneration
Vested (i)
others
Balance at
31/12/2018
3,100,000
4,250,000(ii)
2,250,000
450,000
-
-
-
-
‐
‐
10,050,000
1,000,000
1,600,000
2,600,000
-
(1,500,000)
(100,000)
‐
‐
(1,600,000)
-
150,000(iii)
-
-
3,100,000
4,400,000
750,000
350,000
‐
‐
150,000
1,000,000
1,600,000
11,200,000
(i)
(ii)
(iii)
Performance Rights vested and converted to shares upon achievement of personal KPIs during the year.
The performance milestone attached to 2,500,000 of the total Performance Rights have been satisfied at
31 December 2018.
The units are held by WHP Management Consulting which related party.
E
Service Agreements
Mr Boaz Wachtel – Executive Chairman
Contract: Commenced on 18 October 2016.
-
- Director’s Fee: $10,000 per month, paid to International Water and Energy Savers Limited.
-
- 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.
Dr Miriam Halperin Wernli – Chief Executive Officer and Managing Director
Contract: Commenced on 18 October 2016.
Base salary: USD$250,000 per annum.
-
-
- Mernova Medicinal Inc.-Consultancy fee of USD$2,000 per month and increased to USD$8,000 per month
from April 18.
Kuna Canada Limited and Kuna S.A.S -Director fee of $6,000 per month.
From 01 April 2018 a monthly Motor Vehicle Allowance of USD$2,500.
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.
Mr Adam Blumenthal – Non‐Executive Director
Contract: Commenced on 20 November 2015.
-
- Director’s Fee: $48,000 per annum (plus statutory superannuation entitlements).
- Mernova Medicinal Inc.-Consultancy fee of $2,000 per month and increased to $5,000 per month from April
18.
Kuna Canada Limited and Kuna S.A.S -Director fee of $6,000 per month.
Remuneration Committee Fee: $20,000 per annum.
Term: No fixed term.
-
-
-
Dr James Ellingford – Non‐Executive Director
Contract: Commenced on 20 November 2015.
-
- Director’s Fee: $48,000 per annum (plus statutory superannuation entitlements).
- Mernova Medicinal Inc.-Consultancy fee of $5,000 per month from April 18.
-
-
-
Audit and Risk Committee Fee: $6,000 per annum.
Remuneration Committee Fee: $20,000 per annum.
Term: No fixed term.
28 | P a g e
Creso Pharma Limited – Annual Report 2018
Remuneration Report (Audited)
Mr Christopher Grundy – Chief Financial Officer
-
-
Contract: Commenced on 21 November 2017.
Part-time Base Salary: $180,000 per annum (plus statutory superannuation entitlements). From 01 April 2018
Full-time Base Salary: $225,000 per annum (plus statutory superannuation entitlements). From 01 July 2018
Full-time Base Salary: 240,000 per annum (plus statutory superannuation entitlements).
-
Term: No fixed term.
- Notice Period: 12 weeks.
-
-
Mr John Griese – Chief Operating Officer – Americas
Contract: Commenced on 14 June 2018.
Full-time Base Salary: CAD$300,000 per annum (plus pension and social insurance entitlements) from 25 June
2018 to 25 September 2018. Full-time Base Salary: CAD$325,000 per annum (plus pension and social
insurance entitlements) from 26 September 2018.
-
Sign-on Bonus: CAD$20,000
-
Term: No fixed term.
- Notice Period: 12 weeks.
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.
Issue of shares
During the current financial year, the Company only issued the shares to KMP upon vesting of their performance rights.
There are no shares issued to KMP as part of the remuneration.
Options
During the current financial year, the Company did not issue options to KMP.
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:
2016 Financial Year:
Code
Grant Date
Vesting date
Performance period
Expiry date
CPHPERR1
CPHPERR2
CPHPERR3
CPHPERR4
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
18 October 2021
18 October 2021
18 October 2021
18 October 2021
Value per
Performa
nce Right
at Grant
Date
$0.163
$0.164
$0.20
$0.20
Vested
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.
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Remuneration Report (Audited)
2017 Financial Year:
Code
Grant Date
Vesting date
Performance period
CPHPERR6
CPHPERR7
CPHPERR8
CPHPERR9
CPHPERR10
CPHPERR11
CPHPERR12
CPHPERR13
27 July 2017
27 July 2017
27 July 2017
27 July 2017
27 July 2017
27 July 2017
27 July 2017
27 July 2017
2018 Financial Year:
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
Code
Grant Date
Vesting date
Performance period
CPHPERR29
CPHPERR30
CPHPERR31
CPHPERR32
CPHPERR33
CPHPERR34
CPHPERR35
CPHPERR36
CPHPERR37
28 September 2018
28 September 2018
28 September 2018
28 September 2018
28 September 2018
28 September 2018
28 September 2018
28 September 2018
28 September 2018
21 November 2020
28 September 2023
28 September 2023
24 March 2021
25 June 2020
25 June 2021
28 September 2023
28 September 2023
28 September 2023
21 November 2017 – 21 November 2020
28 September 2018 – 28 September 2023
28 September 2018 – 28 September 2023
28 September 2018 – 24 March 2021
25 June 2018 - 25 June 2020
25 June 2018 - 25 June 2021
28 September 2018 – 28 September 2023
28 September 2018 – 28 September 2023
28 September 2018 – 28 September 2023
Rights granted under the Performance Rights Plan carry no dividend or voting rights.
Creso Pharma Limited – Annual Report 2018
Expiry date
27 July 2022
27 July 2022
27 July 2022
27 July 2022
27 July 2022
27 July 2022
27 July 2022
27 July 2022
Value per
Performance
Right at
Grant Date
Vested
$0.570
$0.570
$0.570
$0.570
$0.570
$0.570
$0.570
$0.570
-
-
-
-
-
-
-
-
Expiry date
11 October 2023
11 October 2023
11 October 2023
11 October 2023
11 October 2023
11 October 2023
11 October 2023
11 October 2023
11 October 2023
Value per
Performance
Right at
Grant Date
$0.555
$0.555
$0.555
$0.555
$0.555
$0.555
$0.555
$0.555
$0.555
Vested
-
-
-
-
-
-
-
-
-
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 22 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
CPHPERR1
CPHPERR2
CPHPERR3
CPHPERR4
CPHPERR6
CPHPERR7
Miriam Halperin Werni
CPHPERR1
CPHPERR2
CPHPERR3
CPHPERR4
CPHPERR8
CPHPERR9
Adam Blumenthal
CPHPERR1
CPHPERR2
CPHPERR3
CPHPERR4
CPHPERR10
CPHPERR11
James Ellingford
CPHPERR1
CPHPERR2
CPHPERR3
CPHPERR4
CPHPERR12
CPHPERR13
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
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
$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
1,500,000
1,500,000
1,500,000
-
-
-
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
250,000
250,000
250,000
-
100,000
-
100%
100%
100%
-
-
-
100%
100%
100%
-
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
-
100%
-
30 | P a g e
Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2018
Name
Grant Date
Vesting Date
Number of
Performance
Rights Granted
Value of the
Performance Rights
at Grant Date
Number of
Performance
Rights vested
Vested
Chris Grundy
CPHPERR29
CPHPERR30
CPHPERR31
CPHPERR32
John Griese
CPHPERR33
CPHPERR34
CPHPERR35
CPHPERR36
CPHPERR37
28 September 2018
28 September 2018
28 September 2018
28 September 2018
21 November 2020
28 September 2023
28 September 2023
23 February 2020
28 September 2018
28 September 2018
28 September 2018
28 September 2018
28 September 2018
18 June 2020
18 June 2021
28 September 2023
28 September 2023
28 September 2023
300,000
300,000
300,000
100,000
150,000
150,000
500,000
400,000
400,000
$166,500
$166,500
$166,500
$55,500
$83,250
$83,250
$277,500
$222,000
$222,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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 or from any KMP during the year ended 31 December 2018.
I Other Transactions with KMP
During the year, the Group:
incurred corporate advisory fees, capital raising fees and IRESS 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
$269,907. The outstanding balance at reporting date was $10,335. All transactions were made on normal
commercial terms and conditions and at market rates.
made payments of Director’s fees to International Water and Energy Savers Limited on behalf of Boaz Wachtel.
The outstanding balance at reporting date was $10,000.
Other than the above, there were no other transactions with KMP during the year ended 31 December 2018.
J Additional Information
The earnings of the consolidated entity for the four years to 31 December 2018 are summarised below:
Revenue from products
Revenue from services
Royalty income
Total Revenue
EBITDA
Loss after income tax
Share Price
Basic EPS ($)
Diluted EPS ($)
2018
$
558,382
-
19,840
578,222
(16,730,515)
(16,845,686)
0.49
(0.14)
(0.14)
2017
$
91,609
152,189
1,112
244,910
(15,069,438)
(15,076,076)
0.92
(0.18)
(0.18)
2016
$
7,484
538
-
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 incorporated in November 2015 and listed on
the ASX in October 2016.
End of Audited Remuneration Report
31 | 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
2018, 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: 22 March 2019
TUTU PHONG
Partner
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the Financial Year Ended 31 December 2018
Note
2018
$
2017
$
Creso Pharma Limited – Annual Report 2018
Revenue from continuing operations
Revenue
Cost of sales
Gross profit/(loss)
Other income
Interest income
Other income
Expenses
Administrative expenses
Compliance and regulatory expenses
Consultancy and legal expenses
Depreciation and amortisation expense
Employee benefit expenses
Exclusivity and Facilitation fee
Finance costs
Impairment of receivables
Impairment of other assets
Marketing and investor relations
Occupancy expenses
Share-based payment expense
Research and development expense
Other expenses
Foreign exchange (gain)/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
4
4
5(a)
5(b)
5(c)
5(d)
5(e)
10
14
22
6
578,222
(353,566)
224,656
244,910*
(437,697)
(192,787)*
144,037
9,321
97,341*
-
(1,547,470)
(450,073)
(1,978,657)
(38,721)
(3,041,271)
(1,449,929)
(432,216)
(102,147)
(425,830)
(1,231,530)
(171,395)
(6,078,523)
(286,539)
(43,035)
53,636
(1,224,943)
(277,517)
(5,120,654)
(6,638)
(1,174,438)
-
-
(495,379)
(578,725)
(1,826,482)
(109,216)
(3,221,355)
(788,623)
(100,635)
(56,025)
(16,845,686)
‐
(16,845,686)
(15,076,076)
-
(15,076,076)
(206,421)
(206,421)
(15,403)
(15,403)
Total comprehensive (loss) for the year
(17,052,107)
(15,091,479)
(Loss) for the year attributable to:
Non-controlling interest
Owners of Creso Pharma Australia Limited
Total comprehensive (loss) for the year attributable to:
Non-controlling interest
Owners of Creso Pharma Australia 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)
*The amount for 2017 has been amended due to reclassifications, refer to Note 1 (dd).
(89,650)
(16,756,036)
(16,845,686)
(89,650)
(16,962,457)
(17,052,107)
-
-
-
-
-
-
7
7
(14.89)
(14.89)
(18.13)
(18.13)
The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be
read in conjunction with the notes to the financial statements.
33 | P a g e
Consolidated Statement of Financial Position
As at 31 December 2018
Creso Pharma Limited – Annual Report 2018
Note
2018
$
2017
$
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Total current assets
Non‐current assets
Property, plant and equipment
Intangible assets
Other assets
Investment accounted for using equity method
Total non‐current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Provisions
Borrowings
Total current liabilities
Total liabilities
Net assets
EQUITY
Issued Capital
Reserves
Accumulated losses
Equity attributable to the owners of Creso
Pharma Limited
Non-controlling interest
Total equity
8
10
11
14
12
13
14
9
15
16
17
18
19
6,390,538
951,132
443,535
495,489
8,280,694
12,424,913
941,337
912
1,228,351
14,595,513
9,900,422
4,101,178
‐
‐
14,001,600
50,996
-
6,949,395
-
7,000,391
22,282,294
21,595,904
2,970,505
30,947
2,776,450
5,777,902
563,748
3,522
-
567,270
5,777,902
567,270
16,504,392
21,028,634
38,222,883
14,799,082
(36,427,923)
35,138,519
5,562,002
(19,671,887)
16,594,042
(89,650)
21,028,634
-
16,504,392
21,028,634
The Consolidated Statement of Financial Position should be
read in conjunction with the notes to the financial statements.
34 | P a g e
Consolidated Statement of Changes in Equity
For the Financial Year ended 31 December 2018
Creso Pharma Limited – Annual Report 2018
Issued Capital
$
35,138,519
‐
‐
Share‐based
Payment
Reserve
$
5,516,511
‐
‐
Foreign
Currency
Translation
Reserve
$
45,491
‐
206,421
Accumulated
Losses
$
(19,671,887)
(16,756,036)
‐
Non‐
Controlling
Interest
$
‐
(89,650)
‐
Total
$
21,028,634
(16,845,686)
206,421
‐
‐
206,421
(16,756,036)
(89,650)
(16,639,265)
3,084,364
‐
‐
38,222,883
‐
2,952,136
6,078,523
14,547,170
‐
‐
‐
251,912
‐
‐
‐
(36,427,923)
‐
‐
‐
(89,650)
3,084,364
2,952,136
6,078,523
16,504,392
5,479,612
-
-
2,295,156
-
-
60,894
-
(15,403)
(4,595,811)
(15,076,076)
-
-
-
-
3,239,851
(15,076,076)
(15,403)
(15,403)
(15,076,076)
-
(15,091,479)
-
-
-
32,237,924
(2,579,017)
-
35,138,519
-
-
-
-
3,221,355
5,516,511
-
45,491
-
-
(19,671,887)
32,237,924
(2,579,017)
3,221,355
21,028,634
-
-
-
-
Group
At 1 January 2018
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
Issue of options
Share-based payments
At 31 December 2018
At 1 January 2017
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
At 31 December 2017
The Consolidated Statement of Changes in Equity should be read
in conjunction with the notes to the financial statements.
35 | P a g e
Consolidated Statement of Cash Flows
For the Financial Year ended 31 December 2018
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Payments for research expense
Interest received
Interest paid
Net cash used in operating activities
Cash flows from investing activities
Payments for plant and equipment
Payments for intangibles
Acquisition of subsidiaries- Kunna acquisition
Acquisition of subsidiary- Mernova Acquisition
Payment for investment in associate
Loans to associate
Loans to other entities
Net cash from investing activities
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from issue of options
Proceeds from external loans
Borrowing costs
Payment of share issue costs
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect on exchange rate fluctuations on cash held
Cash and cash equivalents at the end of the year
8
*The amount for 2017 has been amended due to reclassifications, refer to Note 1 (dd).
Creso Pharma Limited – Annual Report 2018
Note
2018
$
2017
$
8(a)
23
23
570,904
(8,245,348)
(621,675)
122,806
‐
(8,173,313)
(6,729,569)
(629,759)
10,814
(120,759)
(100)
(425,977)
3,756,824
(4,138,526)
1,356,351
2,562,136
2,430,000
(117,486)
‐
6,231,001
244,910*
(6,697,534)*
(1,183,076)
98,466
(899)
(7,538,133)
(40,888)
-
-
-
-
-
(6,006,676)
(6,047,564)
24,412,412
200,000
-
-
(1,647,856)
22,964,556
(6,080,838)
9,378,859
12,424,913
46,463
6,390,538
3,046,054
-
12,424,913
The Consolidated Statement of Cash Flows should read in conjunction with the notes to the financial statements.
36 | 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 2018
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
2018 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 consolidated financial statements are presented in Australian Dollars unless otherwise noted.
The annual report was authorised for issue by the Board of Directors on 22 March 2019.
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.
Historical cost convention
The financial statements have been prepared under the historical cost convention, except for, where applicable,
the revaluation of financial assets and liabilities at fair value through profit or loss, financial assets at fair value
through other comprehensive income, investment properties, certain classes of property, plant and equipment
and derivative financial instruments.
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 28.
New, revised or amended standards and interpretations adopted by the Group
The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued
by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period.
Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early
adopted.
The following Accounting Standards and Interpretations are most relevant to the consolidated entity:
AASB 9 Financial Instruments
The consolidated entity has adopted AASB 9 from 1 January 2018. The standard introduced new classification
and measurement models for financial assets. A financial asset shall be measured at amortised cost if it is held
within a business model whose objective is to hold assets in order to collect contractual cash flows which arise
on specified dates and that are solely principal and interest. A debt investment shall be measured at fair value
through other comprehensive income if it is held within a business model whose objective is to both hold assets
in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as
well as selling the asset on the basis of its fair value. All other financial assets are classified and measured at fair
value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains
and losses on equity instruments (that are not held-for-trading or contingent consideration recognised in a
business combination) in other comprehensive income ('OCI'). Despite these requirements, a financial asset may
be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate,
an accounting mismatch.
37 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b)
Basis of Preparation (continued)
Creso Pharma Limited – Annual Report 2018
For financial liabilities designated at fair value through profit or loss, the standard requires the portion of the
change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an
accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the
accounting treatment with the risk management activities of the entity. New impairment requirements use an
'expected credit loss' ('ECL') model to recognise an allowance. Impairment is measured using a 12-month ECL
method unless the credit risk on a financial instrument has increased significantly since
initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach to
measuring expected credit losses using a lifetime expected loss allowance is available.
AASB 15 Revenue from Contracts with Customers
The consolidated entity has adopted AASB 15 from 1 January 2018. The standard provides a single
comprehensive model for revenue recognition. The core principle of the standard is that an entity shall recognise
revenue to depict the transfer of promised goods or services to customers at an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The standard
introduced a new contract-based revenue recognition model with a measurement approach that is based on an
allocation of the transaction price. This is described further in the accounting policies below. Credit risk is
presented separately as an expense rather than adjusted against revenue. Contracts with customers are
presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable,
depending on the relationship between the entity's performance and the customer's payment. Customer
acquisition costs and costs to fulfil a contract can, subject to certain criteria, be capitalised as an asset and
amortised over the contract period.
Impact of adoption
AASB 9 and AASB 15 were adopted using the modified retrospective approach and as such comparatives have
not been restated. The Group does not hold complex financial instruments. The classification of its financial
instruments will not change under the new accounting standard. Management has assessed the impact of the
new standard and it does not have a material impact on the Group’s financial performance. The consolidated has
adopted this standard from 1 January 2018. There is no impact on the Group’s current and prior periods.
New standards and interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 31
December 2018. The consolidated entity's assessment of the impact of these new or amended Accounting
Standards and Interpretations, most relevant to the consolidated entity, are set out below.
AASB 16 Leases
This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard
replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance leases.
Subject to exceptions, a 'right-of-use' asset will be capitalised in the statement of financial position, measured at
the present value of the unavoidable future lease payments to be made over the lease term. The exceptions
relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and
small office furniture) where an accounting policy choice exists whereby either a 'right-of-use' asset is recognised
or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will
also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an
estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense
recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an
interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease,
the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under
AASB 117. However EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be
improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB
16. For classification within the statement of cash flows, the lease payments will be separated into both a
principal (financing activities) and interest (either operating or financing activities) component. For lessor
accounting, the standard does not substantially change how a lessor accounts for leases. The consolidated entity
will adopt this standard from 1 January 2019 but the impact of its adoption is yet to be assessed by the
consolidated entity.
38 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b)
Basis of Preparation (continued)
Creso Pharma Limited – Annual Report 2018
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.
Going Concern
The financial statements have been prepared on the going concern basis, which contemplates continuity of
normal business activities and the realisation of assets and discharge of liabilities in the normal course of
business.
As disclosed in the financial statements, the consolidated entity incurred a loss of $16,845,686 and had net
cash outflows from operating and investing activities of $8,173,313 and $4,138,526 respectively for the year
ended 31 December 2018.
These factors indicate significant uncertainty as to whether the consolidated entity will continue as a going
concern and therefore whether it will realise its assets and extinguish its liabilities in the normal course of
business and at the amounts stated in the financial report.
The Directors believe that there are reasonable grounds to believe that the consolidated entity will be able to
continue as a going concern, after consideration of the following factors:
• To date, the Company has relied on the issue of shares and other securities to raise funds. With the
completion of the Mernova cultivation facility to produce cannabis products, and with it the imminent
generation of revenues from it, the Company also has the option to borrow against the facility and the
Company is planning to do so;
• The Company plans to issue additional shares in the next 12 months. This has previously proven to be
successful;
• As disclosed in Note 32, subsequent to the reporting date, the Company raised approximately $3 million
(before costs); and;
• The Company plans to re-organise its operations during the next 12 months, including scaling back corporate
overheads and other aspects of its cost base, in order to curtail expenditure, in the event that financial
projections indicate that available cash will be insufficient to meet projected expenditure.
Accordingly, the Directors believe that the consolidated entity will be able to continue as a going concern and
that it is appropriate to adopt the going concern basis in the preparation of the financial report.
The financial report does not include any adjustments relating to the amounts or classification of recorded assets
or liabilities that might be necessary if the consolidated entity does not continue as a going concern.
(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 2018 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.
39 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c)
Principles of Consolidation (continued)
Creso Pharma Limited – Annual Report 2018
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.
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.
(d)
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.
(e)
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.
40 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e)
Foreign Currency Translation (Continued)
Creso Pharma Limited – Annual Report 2018
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.
(f)
Revenue Recognition
The consolidated entity recognises revenue as follows:
Revenue from contract with customers
Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected
to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer,
the consolidated entity: identifies the contract with a customer; identifies the performance obligations in the
contract; determines the transaction price which takes into account estimates of variable consideration and the
time value of money; allocates the transaction price to the separate performance obligations on the basis of the
relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when
or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods
or services promised.
Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as
discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent
events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The
measurement of variable consideration is subject to a constraining principle whereby revenue will only be
recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue
recognised will not occur. The measurement constraint continues until the uncertainty associated with the
variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle
are initially recognised as deferred revenue in the form of a separate refund liability.
Sale of goods
Revenue from the sale of goods is recognised at the point in time when the customer obtains control of the
goods, which is generally at the time of delivery.
Rendering of services
Revenue from a contract to provide services is recognised over time as the services are rendered based on either
a fixed price or an hourly rate.
Interest revenue
Interest revenue is recognised as it accrues, using the effective interest method.
(g)
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.
41 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Income Tax (continued)
Creso Pharma Limited – Annual Report 2018
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.
(h)
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.
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.
42 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h)
Business Combination (continued)
Creso Pharma Limited – Annual Report 2018
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.
(i)
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.
(j)
Trade and Other Receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the
effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for
settlement within 30 days.
The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a
lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped
based on days overdue.
Other receivables are recognised at amortised cost, less any allowance for expected credit losses.
(k)
Property, Plant and Equipment
Property, 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
Buildings
5 years
3 - 10 years
20 – 40 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.
43 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l)
Intangible Assets
Creso Pharma Limited – Annual Report 2018
Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their
fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost.
Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment.
Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains
or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the
difference between net disposal proceeds and the carrying amount of the intangible asset. The method and
useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption
or useful life are accounted for prospectively by changing the amortisation method or period.
Goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually
for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and
is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss
and are not subsequently reversed.
Research and development
Research costs are expensed in the period in which they are incurred. Development costs are capitalised when
it is probable that the project will be a success considering its commercial and technical feasibility; the
consolidated entity is able to use or sell the asset; the consolidated entity 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, being their finite life of 5 to 10 years.
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, being their finite life of 5 to 10 years.
Licences
Significant costs associated with licences are deferred and amortised on a straight-line basis over the period of
their expected benefit, being their finite life of 3 to 10 years.
Software
Significant costs associated with software are deferred and amortised on a straight-line basis over the period of
their expected benefit, being their finite life of 5 years.
(m)
Impairment of non‐financial assets
Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are
tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might
be impaired. Other non-financial assets 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.
Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use
is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific
to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows
are grouped together to form a cash-generating unit.
(n)
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.
44 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o)
Borrowings
Creso Pharma Limited – Annual Report 2018
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.
(p)
Non‐current assets or disposal groups classified as held for sale
Non-current assets and assets of disposal groups are classified as held for sale if their carrying amount will be
recovered principally through a sale transaction rather than through continued use. They are measured at the
lower of their carrying amount and fair value less costs of disposal. For non-current assets or assets of disposal
groups to be classified as held for sale, they must be available for immediate sale in their present condition and
their sale must be highly probable.
An impairment loss is recognised for any initial or subsequent write down of the non-current assets and assets
of disposal groups to fair value less costs of disposal. A gain is recognised for any subsequent increases in fair
value less costs of disposal of a non-current assets and assets of disposal groups, but not in excess of any
cumulative impairment loss previously recognised.
Non-current assets are not depreciated or amortised while they are classified as held for sale. Interest and other
expenses attributable to the liabilities of assets held for sale continue to be recognised.
Non-current assets classified as held for sale and the assets of disposal groups classified as held for sale are
presented separately on the face of the statement of financial position, in current assets. The liabilities of disposal
groups classified as held for sale are presented separately on the face of the statement of financial position, in
current liabilities.
(q)
Provisions
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.
(r)
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.
45 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(r)
Employee Benefits (continued)
Creso Pharma Limited – Annual Report 2018
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.
(s)
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.
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.
46 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s)
Share‐based Payments (continued)
Creso Pharma Limited – Annual Report 2018
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.
(t)
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.
(u)
Earnings Per Share
Basic earnings per share
Basic earnings per share are calculated by dividing:
•
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.
(v)
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.
47 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(w)
Current and Non‐Current classification
Creso Pharma Limited – Annual Report 2018
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.
(x)
Dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
(y)
Investments in Associates
Associates are entities over which the consolidated entity has significant influence but not control or joint
control. Investments in associates are accounted for using the equity method. Under the equity method, the
share of the profits or losses of the associate is recognised in profit or loss and the share of the movements in
equity is recognised in other comprehensive income. Investments in associates are carried in the statement of
financial position at cost plus post-acquisition changes in the consolidated entity's share of net assets of the
associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither
amortised nor individually tested for impairment. Dividends received or receivable from associates reduce the
carrying amount of the investment.
When the consolidated entity's share of losses in an associate equals or exceeds its interest in the associate,
including any unsecured long-term receivables, the consolidated entity does not recognise further losses, unless
it has incurred obligations or made payments on behalf of the associate.
The consolidated entity discontinues the use of the equity method upon the loss of significant influence over the
associate and recognises any retained investment at its fair value. Any difference between the associate's
carrying amount, fair value of the retained investment and proceeds from disposal is recognised in profit or loss.
(z)
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.
48 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(aa)
Investments and other financial assets
Creso Pharma Limited – Annual Report 2018
Investments and other financial assets are initially measured at fair value. Transaction costs are included as part
of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are
subsequently measured at either amortised cost or fair value depending on their classification. Classification is
determined based on both the business model within which such assets are held and the contractual cash flow
characteristics of the financial asset unless, an accounting mismatch is being avoided.
Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred
and the consolidated entity has transferred substantially all the risks and rewards of ownership. When there is
no reasonable expectation of recovering part or all of a financial asset, it's carrying value is written off.
Financial assets at fair value through profit or loss
Financial assets not measured at amortised cost or at fair value through other comprehensive income are
classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i)
held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making
a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements
are recognised in profit or loss.
Financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income include equity investments which the
consolidated entity intends to hold for the foreseeable future and has irrevocably elected to classify them as
such upon initial recognition.
Impairment of financial assets
The consolidated entity recognises a loss allowance for expected credit losses on financial assets which are either
measured at amortised cost or fair value through other comprehensive income. The measurement of the loss
allowance depends upon the consolidated entity's assessment at the end of each reporting period as to whether
the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and
supportable information that is available, without undue cost or effort to obtain.
Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month
expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit
losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset
has become credit impaired or where it is determined that credit risk has increased significantly, the loss
allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised
is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of
the instrument discounted at the original effective interest rate.
For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised
within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss.
(bb)
Finance costs
Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are
expensed in the period in which they are incurred.
49 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(cc)
Fair value measurement
Creso Pharma Limited – Annual Report 2018
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure
purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date; and assumes that the
transaction will take place either: in the principal market; or in the absence of a principal market, in the most
advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or
liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement
is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.
Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects
the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting
date and transfers between levels are determined based on a reassessment of the lowest level of input that is
significant to the fair value measurement.
For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise
is either not available or when the valuation is deemed to be significant. External valuers are selected based on
market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from
one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the
latest valuation and a comparison, where applicable, with external sources of data.
(dd) Amounts mis‐classified in the 2017 Financial Statements
The Company became aware that certain amounts in the Consolidated Statement of Profit or Loss and in the
Comprehensive Statement of Cash Flows as reported in the 2017 Financial Statements were mis-classified. In
these financial statements the amounts have correctly re-classified and amended amounts are shown for the
comparative figures in the 2018 financial statements. Details of the amounts mis-classified in 2017 and their
amendment are disclosed below.
2017
$
As previously
reported
$
Adjustment of
mis‐classification
$
As amended
Consolidated Statement of Profit and Loss and Other Comprehensive Income for 2017
Revenue
Interest income
243,798
98,453
1,112
(1,112)
244,910
97,341
Consolidated Statement of Cash flows for 2017
Receipts from customers
Payments to suppliers and employees
92,721
(6,545,345)
152,189
(152,189)
244,910
(6,697,534)
The amounts for Total Income and for Net Cash Flow from Operating Activities are not affected by the mis-
classifications or by the amendments and remain unchanged.
50 | P a g e
Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2018
NOTE 2
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS AND ASSUMPTIONS
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.
Revenue from contracts with customers involving sale of goods
When recognising revenue in relation to the sale of goods to customers, the key performance obligation of the
consolidated entity is considered to be the point of delivery of the goods to the customer, as this is deemed to be the
time that the customer obtains control of the promised goods and therefore the benefits of unimpeded access.
Goodwill and other indefinite life intangible assets
The consolidated entity tests annually, or more frequently if events or changes in circumstances indicate impairment,
whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the
accounting policy stated in note 1. The recoverable amounts of cash-generating units have been determined based on
value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based
on the current cost of capital and growth rates of the estimated future cash flows.
Impairment of non-financial assets other than goodwill and other indefinite life intangible assets
The consolidated entity assesses impairment of non-financial assets other than goodwill and other indefinite life
intangible assets at each reporting date by evaluating conditions specific to the consolidated entity and to the particular
asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined.
This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates
and assumptions.
51 | P a g e
Notes to the Consolidated Financial Statements
NOTE 3
SEGMENT INFORMATION
Creso Pharma Limited – Annual Report 2018
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:
•
Europe & Middle East includes 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 Grow Limited – Joint venture located in Israel
• North America includes Creso Canada Corporate Limited, Creso Canada Limited, 3321739 Nova Scotia Limited,
Mernova Medicinal Inc (“Mernova”), Kunna Canada Limited located in Canada.
South America includes Kunna S.A.S. located in Colombia.
•
• Asia Pacific includes Creso Pharma Limited (“Creso”) which provides the Group’s corporate administration – located
in Australia.
Such structural organisation is determined by the nature of risks and returns associated with each business segment and
defines 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.
Year ended 31 December 2018
Revenue from products
Royalty income
Total segment revenue
Asia Pacific
$
2,290
19,840
22,130
Europe &
Middle East
$
North
America
$
South
America
$
Total
$
556,092
-
556,092
-
-
-
Other income
127,172
17,523
8,663
Loss before income tax expense
(10,353,533)
(2,557,918)
(3,934,235)
-
(16,845,686)
Total Segment Assets
Total Segment Liabilities
3,457,840
Revenue from services relates to Hemp Industries, a wholly owned subsidiary, which did not provide services in 2018.
1,951,095
362,151
2,622,208
1,962,913
14,700,354
2,996,819
22,282,294
Year ended 31 December 2017
Revenue from products
Revenue from services
Royalty income
Total segment revenue
Asia Pacific
$
Europe &
Middle East
$
-
-
1,112
1,112
91,609
152,189
-
243,798
Total
$
91,609
152,189
1,112
244,910
Other revenue
79,539
17,802
97,341
Loss before income tax expense
Total Segment assets
Total Segment liabilities
(13,166,717)
20,273,865
428,649
(1,909,359)
1,322,038
138,621
(15,076,076)
21,595,903
567,270
-
-
-
-
558,382
19,840
578,222
153,358
6,816
5,777,902
52 | P a g e
Notes to the Consolidated Financial Statements
NOTE 4
REVENUE AND OTHER INCOME
Revenue from continuing operations
Revenue from services **
Revenue from sale of products
Royalty income
Other income
Interest received
Lease income
Other Income
Creso Pharma Limited – Annual Report 2018
2018
$
2017
$
‐
558,382
19,840
578,222
144,037
8,663
658
153,358
152,189
91,609
1,112*
244,910
97,341*
-
-
97,341
*The amount for 2017 has been amended due to reclassifications, refer to Note 1 (dd).
**Revenue from services relates to Hemp Industries, a wholly owned subsidiary, which did not provide services in 2018.
Disaggregation of revenue
The disaggregation of revenue from contracts with customers is as follows:
Consolidated ‐ 2018
Major product lines
Medicinal Cannabis
Royalty Income
Total
Geographical regions
Europe & Middle East
Asia Pacific
Total
Timing of revenue recognition
Goods transferred at a point in time
Services recognised over time
Total
Total
$
558,382
19,840
578,222
558,382
19,840
578,222
558,382
19,840
578,222
AASB 15 was adopted using the modified retrospective approach and as such comparatives have not been provided
for disaggregation of revenue.
53 | 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
Creso Pharma Limited – Annual Report 2018
2018
$
2017
$
589,474
716,687
241,308
1,547,470
302,324
740,290
182,329
1,224,943
599,815
715,980
662,862
1,978,657
1,029,884
203,648
1,428,583
81,717
301,439
3,041,271
785,323
4,000,947
334,384
5,120,654
587,060
231,918
235,262
27,278
92,920
1,174,438
(d) Exclusivity and facilitation fees
Exclusivity fee (i)
Facilitation fee (ii)
429,929
1,020,000
1,449,929
(i) Exclusivity fees of US$335,000 were paid to Kunna Canada in accordance with the acquisition Heads of
Agreement
(ii) 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 was recognised as a
prepayment at 31 December 2017. Once the Acquisition was completed on 15 February 2018, the fee
was expensed to the Statement of Profit or Loss and Other Comprehensive Income.
(e) Finance Costs
Loan servicing fee
Loan drawdown fee
Interest expense
270,000
85,766
76,450
432,216
In October 2018, the Company entered into a syndicated construction loan agreement with a face value of
$2.7m from L1 Capital Global Opportunities Master Fund and the Canadian Special Opportunity Fund. Refer
to Note 17 for details of the loan terms, interest and repayments.
-
-
-
-
-
-
-
54 | P a g e
Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2018
NOTE 6 INCOME TAX EXPENSES
The components of tax expense comprise:
Current tax
Deferred tax
2018
$
‐
(a)
Income tax expense reported in the of profit or loss and other comprehensive
income
‐
2017
$
-
-
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% (2017: 27.5%)
(b)
Tax effect of:
Tax effect on different tax rate of overseas subsidiaries
Share-based payments
Travel expenses
Legal expenses
Others non-deductible expenses
Temporary differences
Tax losses not recognised
Total
(c)
Deferred tax assets not brought to account are:
Carried forward losses
(16,845,686)
(15,076,076)
(4,632,564)
(4,145,921)
966,062
1,844,901
24,776
143,770
426,510
‐
1,226,544
‐
413,852
1,750,347
138,107
11,265
433,968
(154,349)
1,552,731
-
2,773,811
1,691,228
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.
NOTE 7
LOSS PER SHARE
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.
Net loss for the year
Non-controlling interest
2018
$
2017
$
(16,845,686)
(15,076,076)
89,650
-
Net loss for the year attributable to the owners of Creso Pharma Limited
(16,756,036)
(15,076,076)
Weighted average number of ordinary shares for basic and diluted loss per
share.
112,552,436
83,143,209
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)
(14.89)
(18.13)
55 | P a g e
Notes to the Consolidated Financial Statements
NOTE 8
CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Short-term deposits
Funds held in trust on behalf of the Company by a third party
Cash at bank earns interest at floating rates based on daily deposit rates.
The Group’s exposure to interest rate and credit risks is disclosed in Note 20.
(a) Reconciliation of net loss after tax to net cash flows from operations
Loss for the financial year
Adjustments for:
Depreciation and amortisation
(Loss)/Gain on foreign exchange
Share based payments
Impairment of receivables
Facilitation Fee
Employee benefits expense
Supplier Expense
Changes in assets and liabilities
Receivables
Inventories
Trade and other payables
Provisions
Net cash used in operating activities
Creso Pharma Limited – Annual Report 2018
2018
$
2017
$
3,067,761
‐
3,322,777
6,390,538
10,424,913
2,000,000
-
12,424,913
2018
$
2017
$
(16,845,686)
(15,076,076)
38,721
49,701
6,078,523
527,977
1,020,000
‐
‐
6,638
(22,882)
3,221,355
1,074,105
5,387,598
69,332
78,249
(9,795)
(442,625)
1,382,448
27,423
(8,173,313)
(2,487,862)
1,608
207,608
2,194
(7,538,133)
2018
$
2017
$
(b) Non‐cash investing and financing activities
Share issue on acquisition of subsidiary
2,956,363
-
56 | P a g e
Notes to the Consolidated Financial Statements
NOTE 9 INVESTMENT ACCOUNTED FOR USING EQUITY METHOD
Creso Pharma Limited – Annual Report 2018
Interests in associate is accounted for using the equity method of accounting. Information relating to associates is set
out below:
Name
Principal place of business /
Country of incorporation
Ownership interest
2017
%
2018
%
CLV Frontier Brands Pty Ltd
Developing terpene beers and
non-alcoholic beverages
Estonia/
Australia
33⅓%
‐%
Reconciliation of the group's carrying amount
Opening carrying amount
Share of (loss) after income tax
Closing carrying amount
100
(100)
-
-
-
-
The Joint Venture that formed CLV Frontier Brands Pty Ltd was entered into on 9 January 2018.
NOTE 10 TRADE AND OTHER RECEIVABLES
Loan Receivable – CLV Frontier Brands Pty Ltd
Less: Allowance for credit losses (2017: Provision for doubtful debts)(i)
Trade debtors – Hemp M&S OG
Less: Allowance for credit losses (2017: Provision doubtful debts)
Canadian HST Receivable
GST/VAT receivable
Other receivables
2018
$
2017
$
102,147
(102,147)
‐
‐
591,942
231,583
127,607
951,132
-
-
495,379
(495,379)
-
186,579
754,758
941,337
(i) The Group raised a provision to fully impair all investments, loans to and receivables from CLV Frontier Brands Pty Ltd. The
amount of that provision is $102,147 in trade receivables and $425,830 in other assets (Note 14).
Movements in the allowance for expected credit losses (2017: provision for impairment of receivables) are as follows:
Opening balance
Write-off of Hemp M&S OG provision
Additional provision recognised
Closing balance
495,379
(495,379)
102,147
102,147
-
-
495,379
495,379
NOTE 11
INVENTORIES
Inventory – Finished goods
2018
$
443,535
443,535
2017
$
912
912
57 | P a g e
Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2018
NOTE 12 PROPERTY, PLANT AND EQUIPMENT
Year ended 31 December 2018
Opening net book amount
Additions (Capital Expenditure and Acquired assets)
Additions
Disposals
Depreciation charge
Foreign exchange translation
Closing net book amount
At 31 December 2018
Cost
Accumulated depreciation
Net book amount
Reconciliations
50,996
17,474
9,806,129
39,656
(15,038)
(17,293)
35,972
9,900,422
-
40,888
-
(6,638)
(728)
50,996
9,925,081
(24,659)
9,900,422
59,680
(8,684)
50,996
Reconciliations of the written down values at the beginning and end of the current and previous
financial year are set out below:
Consolidated
Balance at 1 January 2017
Additions
Disposals
Foreign Currency fluctuation
Depreciation expense
Balance at 31 December 2017
Additions
Additions through business combinations
(note 23)
Disposals
Depreciation expense
Foreign Currency fluctuation
Construction
work in
progress
$
Land
$
Plant and
equipment
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17,474
40,888
-
(728)
(6,638)
50,996
39,656
Total
$
17,474
40,888
-
(728)
(6,638)
50,996
39,656
7,648,398
356,105
1,801,626
9,806,129
-
-
-
-
-
10,754
(15,038)
(17,293)
25,218
(15,038)
(17,293)
35,972
Balance at 31 December 2018
7,648,398
366,859
1,885,165
9,900,422
58 | P a g e
Notes to the Consolidated Financial Statements
NOTE 13
INTANGIBLE ASSETS
Current
Kunna S.A.S Licence acquired on acquisition (i)
IP owned by Creso Pharma Switzerland GmbH (ii)
Mernova Medicinal Inc. Cultivation Licence (iii)
Creso Pharma Limited – Annual Report 2018
2018
$
2017
$
2,985,565
608,331
507,282
4,101,178
-
-
-
-
(i)
(ii)
(iii)
Includes cultivation and extraction licences held by Kunna S.A.S. upon acquisition.
Includes development costs capitalised in relation to the patents and other IP rights.
Includes cultivation licence created on acquisition of Mernova Medicinal Inc.
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set
out below:
Cultivation
Licence
$
-
507,282
-
-
-
507,282
Development
costs
$
-
-
629,759
-
(21,428)
608,331
Consolidated
Balance at 1 January 2017
Additions through asset acquisitions (note 23)
Additions
Impairment
Amortisation expense
Balance at 31 December 2018
NOTE 14 OTHER ASSETS
Current
Shares issued pending cash received
Capitalised borrowing costs
Non-Current
Loan to Viru JV
Loan to Mernova Medicinal Inc
Prepayment - Facilitation Fee
Loan to Hemp M&S OG
Less: Impairment of loan - Hemp M&S OG
Loan to CLV Frontier Brands Pty Ltd
Less: Impairment of loan – CLV Frontier Brands Pty Ltd(i)
Cultivation
and
extraction
licences
$
‐
2,985,276
289
-
-
2,985,565
2018
$
‐
495,489
495,489
‐
‐
‐
‐
‐
425,830
(425,830)
‐
Total
$
‐
3,492,558
630,048
‐
(21,428)
4,101,178
2017
$
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 for the establishment of operations. In January 2018, the joint venture
was incorporated in Australia as CLV Frontier Brands Pty Limited. The Company holds a 33⅓% share in the joint venture, a
business developing terpene-infused beers and adult soft-drinks in Estonia. The business was founded in January 2018 and
it has developed ranges of both beers and adult soft drinks which are distributed in the UK and Swiss markets. On 12 March
2019, the Company decided, in conjunction with the Board of CLV Frontier Brands Pty Limited, to cease funding the
operations of the CLV joint Venture, due to the significant additional funding required to construct a brewing facility and
maintain a sustainable business. CLV is winding down its operations.
Following this decision the Company has provided in full for its investment in the JV and the amount receivable from it as at
31 December 2018. The amount of that provision is $102,147 in trade receivables and $425,830 in other assets.
59 | P a g e
Notes to the Consolidated Financial Statements
NOTE 14 OTHER ASSETS (CONTINUED)
Movements in the provision for impairment of other receivables are as follows:
Opening balance
Write-off of Hemp M&S OG provision
Additional provision recognised
Closing balance
NOTE 15
TRADE AND OTHER PAYABLES
Trade payables (i)
Accrued expenses
Income in Advance
Other payables
(i)
Trade payables are non-interest bearing and are normally settled on 60-day terms.
NOTE 16
PROVISIONS
Employee provisions
Creso Pharma Limited – Annual Report 2018
2018
$
578,726
(578,726)
425,830
425,830
2017
$
-
‐
578,726
578,726
467,243
2,062,394
209,540
231,328
2,970,505
282,271
104,975
-
176,502
563,748
30,974
30,974
3,522
3,522
Amounts not expected to be settled within the next 12 months
The current provision for employee benefits includes all unconditional entitlements where employees have completed
the required period of service and also those where employees are entitled to pro-rata payments in certain
circumstances. The entire amount is presented as current, since the consolidated entity does not have an unconditional
right to defer settlement. However, based on past experience, the consolidated entity does not expect all employees to
take the full amount of accrued leave or require payment within the next 12 months.
The following amounts reflect leave that is not expected to be taken within the next 12 months:
Employee benefits obligation expected to be settled after 12 months
‐
NOTE 17
Borrowings
Short Term Loans
Accrued Interest
2,700,000
76,450
2,776,450
-
-
-
-
The Company entered into a construction finance loan with a face value of A$2,700,00 from L1 Capital Global
Opportunities Master Fund and The Canadian Special Opportunities Fund on 5 October 2018. The loan had a drawdown
price of 90% of the face value and the Company received A$2.43 million in funding to finalise the construction of
Mernova’s cannabis growing facility. The loan has an interest rate of 10% p.a, a maturity date of 28 June 2019.
The group does not have any unused facilities at the reporting date and the short-term loans are secured against the
consolidated entity assets.
NOTE 18
ISSUED CAPITAL
(a) Issued and fully paid
2018
2017
No.
$
No.
$
Ordinary shares
124,187,665
38,222,883
109,505,544
35,138,519
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.
60 | P a g e
Notes to the Consolidated Financial Statements
NOTE 18
ISSUED CAPITAL (CONTINUED)
(b) Movement reconciliation
At 1 January 2018
Vesting of performance rights
Exercise of options
Vesting of performance rights
Vesting of performance rights
Exercise of options
Issue of consideration shares- Kuna acquisition
At 31 December 2018
At 1 January 2017
Placement - first tranche
Vesting of performance rights
Placement - second tranche
Shares issued in lieu of cash fees for Placement
Share Purchase Plan
Issue of Facilitation Fee shares - Mernova
Issued to consultants in lieu of cash fees for services
Issued to consultants in lieu of cash fees for services
Exercise of options
Placement and consultant shares
Consultant shares
Share purchase plan
Less: Equity raising costs
At 31 December 2017
Creso Pharma Limited – Annual Report 2018
Issue
Price
‐
‐
$0.40
‐
‐
$0.40
$0.36
-
Issue
Price
‐
$0.69
‐
$0.69
$0.75
$0.69
$0.49
$0.60
$0.60
$0.80
$1.10
$1.33
$1.10
-
-
$
35,138,519
‐
28,000
‐
‐
100,000
2,956,364
38,222,883
$
5,479,612
5,629,538
‐
3,152,222
931,250
999,920
1,020,000
600,000
150,000
200,000
17,821,000
1,375,000
358,994
(2,579,017)
35,138,519
Number
109,505,544
3,500,000
70,000
2,000,000
650,000
250,000
8,212,121
124,187,665
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
16,200,909
1,032,774
326,358
‐
109,505,544
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in
proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and
the company does not have a limited amount of authorised capital.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each
share shall have one vote.
61 | P a g e
Notes to the Consolidated Financial Statements
NOTE 19
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 22)
Issued for working capital
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 2018
2018
$
2017
$
14,547,170
251,912
14,799,082
5,516,511
45,491
5,562,002
5,516,511
6,078,523
2,952,136
14,547,170
45,491
206,421
251,912
2,295,156
3,221,355
-
5,516,511
60,894
(15,403)
45,491
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 20
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Financial risk management objectives
The consolidated entity's activities expose it to a variety of financial risks: market risk (including foreign currency risk,
price risk and interest rate risk), credit risk and liquidity risk. The consolidated entity's overall risk management program
focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial
performance of the consolidated entity. The consolidated entity uses different methods to measure different types of
risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and
other price risks, ageing analysis for credit risk and beta analysis in respect of investment portfolios to determine market
risk.
Risk management is carried out by senior finance executives ('Finance') under policies approved by the Board of
Directors ('the Board'). These policies include identification and analysis of the risk exposure of the consolidated entity
and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the
consolidated entity's operating units. Finance reports to the Board on a monthly basis.
Market risk
Foreign currency risk
The consolidated entity undertakes certain transactions denominated in foreign currency and is exposed to foreign
currency risk through foreign exchange rate fluctuations.
Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities
denominated in a currency that is not the entity's functional currency. The risk is measured using sensitivity analysis and
cash flow forecasting.
The carrying amount of the consolidated entity's foreign currency denominated financial assets and financial liabilities
at the reporting date were as follows:
NOTE 20
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
62 | P a g e
Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2018
Market risk (continued)
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Trade and other receivables
Trade and other payables
EUR
€
214
777
84,917
EUR
€
11,472
2,908
111,450
CHF
Fr.
572,925
28,981
6,286
CAD
$
3,489,702
573,767
1,756,901
2017
CHF
Fr.
1,174,936
81,726
23,649
CAD
$
-
-
-
USD
$
7,633
311
7,132
USD
$
-
-
-
The consolidated entity had net assets denominated in foreign currencies of $3,118,755 as at 31 December 2018
(2017: $1,133,547). Based on this exposure, had the Australian dollar weakened by 5%/strengthened by 5% (2017:
weakened by 5%/strengthened by 5%) against these foreign currencies with all other variables held constant, the
consolidated entity's profit before tax for the year would have been $156,000 lower/$156,000 higher (2017: $57,000
lower/$57,000 higher) and equity would have been $156,000 lower/$156,000 higher (2017: $57,000 lower/$57,000
higher). The percentage change is the expected overall volatility of the significant currencies, which is based on
management’s assessment of reasonable possible fluctuations taking into consideration movements over the last 6
months each year and the spot rate at each reporting date. The actual foreign exchange loss for the year ended 31
December 2018 was $206,421 (2017: loss of $15,403).
Price risk
The consolidated entity is not exposed to any significant price risk.
Interest rate risk
The consolidated entity's main interest rate risk arises from Short-term borrowings. Borrowings obtained at fixed rates
expose the consolidated entity to fair value risk (no borrowings with a variable rate).
The consolidated entity's bank loans outstanding, totalling $2,700,000 (2017: $nil), are principal and interest payment
loans. Monthly cash outlays of approximately $26,000 (2017: $nil) per month are required to service the interest
payments. An official increase/decrease in interest rates of 100 (2017: nil) basis points will have an adverse/ favourable
effect on profit before tax of $31,000 per annum. All principal and interest payments (2017: nil) are due during the year
ending 31 December 2019 (2017: nil).
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to
the consolidated entity. The consolidated entity has a strict code of credit, including obtaining agency credit
information, confirming references and setting appropriate credit limits. The consolidated entity obtains guarantees
where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised
financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the
statement of financial position and notes to the financial statements. The consolidated entity does not hold any
collateral.
The consolidated entity has adopted a lifetime expected loss allowance in estimating expected credit losses to trade
and other receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These
provisions are considered representative across all customers of the consolidated entity based on recent sales
experience, historical collection rates and forward-looking information that is available
63 | P a g e
Notes to the Consolidated Financial Statements
NOTE 20
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Credit risk (continued)
Creso Pharma Limited – Annual Report 2018
The consolidated entity has a credit risk exposure with a 33% Joint Venture (CLV), which as at 31 December 2018 owed
the consolidated entity $527,977 (55% of trade receivables and 100% of the amount owing from CLV) (2017: $495,000
(70.1% of trade receivables and 100% of the Hemp Industries receivable)). There are no guarantees against this
receivable but management closely monitors the receivable balance on a monthly basis and is in regular contact with
this customer and partner to mitigate risk.
Generally, trade receivables and other receivables are written off when there is no reasonable expectation of recovery.
Indicators of this include the failure of a debtor or partner to engage in a repayment plan, no active enforcement activity
and a failure to make contractual payments for a period greater than 1 year.
Liquidity Risk
Vigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and
cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable.
The consolidated entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities
by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and
liabilities.
Remaining contractual maturities
The following tables detail the consolidated entity's remaining contractual maturity for its financial instrument liabilities.
The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date
on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows
disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the
statement of financial position.
Weighted
average
interest rate
%
1 year or less
$
Between 1 and
2 years
$
Between 2 and
5 years
$
Remaining
contractual
maturities
$
Consolidated ‐ 2018
Non‐derivatives
Non-interest bearing
Trade and other payables
Interest-bearing - fixed
rate
Short term loans
Total non-derivatives
-
2,970,505
10%
2,776,450
5,746,955
-
-
-
-
2,970,505
-
-
2,776,450
5,746,955
Weighted
average
interest rate
%
1 year or less
$
Between 1 and
2 years
$
Between 2 and
5 years
$
Remaining
contractual
maturities
$
Consolidated ‐ 2017
Non‐derivatives
Non-interest bearing
Trade and other payables
-
563,748
Total non-derivatives
563,748
-
-
-
-
563,748
563,748
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed
above.
Fair value of financial instruments
Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value.
64 | P a g e
Notes to the Consolidated Financial Statements
NOTE 21
RELATED PARTY DISCLOSURE
(a)
Key Management Personnel Compensation
Details relating to key management personnel, including remuneration paid, are below.
Creso Pharma Limited – Annual Report 2018
Short-term benefits
Post-employment benefits
Share-based payments
2018
$
2017
$
1,445,758
43,897
2,881,290
4,370,945
962,766
18,562
1,695,650
2,676,978
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
269,907
269,907
1,613,071
1,613,071
The Group also made payment of Director’s fees to International Water and Energy Savers Limited on behalf of Boaz
Wachtel and WHP Management Consulting GmbH on behalf of Dr Miriam Halperin Wernli. The outstanding balance at
reporting date was $10,000.
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
NOTE 22
SHARE‐BASED PAYMENTS
(a)
Recognised share‐based payment transactions
Options issued for consideration of services
Options issued to consultants
Performance rights issued
Shares issued for consideration of services
Shares issued for acquisition
Facilitation fee shares- Mernova(i)
Reconciliation:
Recognised as share-based payment expenses in statement of profit
and loss and other comprehensive income
Borrowings costs recognised as prepayment
Recognised as intangible asset on consolidation
Recognised as prepayment
2018
$
2017
$
390,000
287,873
5,790,650
‐
2,956,364
‐
9,424,887
6,078,523
390,000
2,956,364
‐
9,424,887
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
(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.
65 | P a g e
Notes to the Consolidated Financial Statements
NOTE 22
SHARE‐BASED PAYMENTS (CONTINUED)
(b)
Summary of unlisted options granted during the year
Creso Pharma Limited – Annual Report 2018
Grant Date
Issue Date
Date of
Expiry
Exercise
Price
Balance at the
start of the
year
Issued
during the
year
Converte
d during
the year
Exercised
during the
year
Expired/
Cancelled
during the
year
Balance at the
end of the
year
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
18-05-2018
27-07-2018
27-07-2018
21-08-2018
31-08-2018
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
16-07-2018
27-07-2018
27-07-2018
21-08-2018
11-09-2018
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
13-04-2019
13-07-2021
27-07-2021
27-07-2022
21-08-2021
15-09-2022
Weighted average exercise price
31 December 2016 – Unlisted Options
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 – Unlisted Options
Black‐Scholes Option Pricing Model
$0.40
$0.20
$0.20
$0.40
$0.40
$0.50
$0.30
$0.40
$0.40
$0.80
$0.80
$0.535
$0.80
$0.55
$0.80
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
$0.32
-
-
-
-
-
-
-
-
-
-
150,000
200,000
200,000
200,000
400,000
1,150,000
$0.73
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(250,000)
-
-
-
(70,000)
-
-
-
-
-
-
-
(320,000)
$0.40
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
400,000
2,500,000
2,886,250
-
200,000
300,000
250,000
140,000
100,000
250,000
150,000
200,000
200,000
200,000
400,000
8,176,250
$0.36
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
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
-
66 | P a g e
Creso Pharma Limited – Annual Report 2018
Notes to the Consolidated Financial Statements
NOTE 22
SHARE‐BASED PAYMENTS (CONTINUED)
31 December 2017 – Unlisted Options
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 –
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.
31 December 2018 – Unlisted Options
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
18-05-18
18-05-19
$0.80
$0.695
2.22%
100%
75,000
0%
100%
$0.416
$31,204
18-05-18
18-05-20
$0.80
$0.695
2.22%
100%
75,000
0%
100%
$0.416
$31,204
27-07-18
Immediately
$0.535
$0.645
2.08%
100%
200,000
0%
100%
$0.401
80,200
Consultant
21-08-18
31-01-19
$0.56
$0.64
Consultant
21-08-18
31-07-19
$0.56
$0.64
2.04%
100%
100,000
0%
100%
$0.413
41,300
2.04%
100%
100,000
0%
100%
$0.413
41,300
31 December 2018 – Unlisted Options
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
31-08-18
Immediately
$0.80
$0.615
2.18%
100%
100,000
0%
100%
$0.402
$40,237
Consultant
Consultant
Consultant
31-08-18
31-08-19
$0.80
$0.615
2.18%
100%
100,000
0%
100%
$0.402
$40,237
31-08-18
31-08-20
$0.80
$0.615
2.18%
100%
100,000
0%
100%
$0.402
$40,237
31-08-18
31-08-21
$0.80
$0.615
2.18%
100%
100,000
0%
100%
$0.402
$40,237
Consultant
27-07-18
27-07-22
$0.80
$0.645
2.18%
100%
200,000
0%
100%
$0.427
$85,400
67 | P a g e
Notes to the Consolidated Financial Statements
NOTE 22
SHARE‐BASED PAYMENTS (CONTINUED)
(c)
Summary of listed options issued during the year
Creso Pharma Limited – Annual Report 2018
Options
Issue Date
Date of
Expiry
Issue
Price
Exerci
se
Price
Balance
at start of
the year
Issued
during the
year
Exercised
during
the year
Expired/
Cancelled
during the
year
Balance at
end of the
year
Shareholders (i)
Shareholders (i)
Lender(ii)
Lender(ii)
21-08-2018
11-09-2018
17-12-2018
18-12-2018
21-08-2020
21-08-2020
21-08-2020
21-08-2020
$0.05
$0.05
-
-
$0.80
$0.80
$0.80
$0.80
-
-
-
-
-
24,377,710
26,865,000
2,295,062
1,604,938
55,142,710
-
-
-
-
-
-
-
-
-
-
24,377,710
26,865,000
2,295,062
1,604,938
55,142,710
(i)
(ii)
These options were issued as per Non-Renounceable Entitlement announced on ASX on 23 July 2018. The Entitlement Issue
offered eligible shareholders registered on the Record Date the ability to subscribe for Options on the basis of one (1)
Option for every two (2) Shares held at an issue price of $0.05 per Option.
These options were issued to the lenders as part of cost of loan provided for construction of Mernova Medicinal growing
facility.
68 | P a g e
Creso Pharma Limited – Annual Report 2018
Notes to the Consolidated Financial Statements
NOTE 22
SHARE‐BASED PAYMENTS (CONTINUED)
(d)
Summary of performance rights granted and vested during the year
Code
Issue Date
Date of
Expiry
Exercise
Price
Balance at the
start of the
year
Granted
during the
year
Vested during
the year
Cancelled
during the
year
CPHPERR4
20-10-2016
20-10-2020
CPHPERR10
CPHPERR11
27-07-2017
27-07-2022
27-07-2017
27-01-2019
CPHPERR4
20-10-2016
20-10-2020
CPHPERR12
27-07-2017
27-07-2018
CPHPERR13
27-07-2017
27-07-2019
CPHPERR4
20-10-2016
20-10-2020
CPHPERR8
27-07-2017
27-07-2022
CPHPERR9
27-07-2017
27-07-2022
CPHPERR4
20-10-2016
20-10-2020
CPHPERR6
27-07-2017
27-07-2018
CPHPERR7
27-07-2017
27-07-2018
CPHPERR14
27-07-2017
27-07-2018
CPHPERR12
27-07-2017
27-07-2018
CPHPERR17
27-07-2017
27-01-2019
CPHPERR18
27-07-2017
27-01-2019
CPHPERR19
27-07-2017
27-01-2019
CPHPERR15
27-07-2017
27-07-2019
CPHPERR16
27-07-2017
27-07-2020
CPHPERR20
16-07-2018
16-07-2023
CPHPERR21
16-07-2018
16-07-2023
CPHPERR22
16-07-2018
16-07-2023
CPHPERR23
16-07-2018
16-07-2023
CPHPERR24
16-07-2018
16-07-2023
CPHPERR22
16-07-2018
16-07-2023
CPHPERR23
16-07-2018
16-07-2023
CPHPERR24
16-07-2018
16-07-2023
CPHPERR22
16-07-2018
16-07-2023
CPHPERR23
16-07-2018
16-07-2023
CPHPERR24
16-07-2018
16-07-2023
CPHPERR22
16-07-2018
16-07-2023
CPHPERR23
16-07-2018
16-07-2023
CPHPERR24
16-07-2018
16-07-2023
CPHPERR25
16-07-2018
16-07-2023
CPHPERR26
16-07-2018
16-07-2023
CPHPERR27
16-07-2018
16-07-2023
CPHPERR28
16-07-2018
16-07-2023
CPHPERR29
11-10-2018
11-10-2023
CPHPERR30
11-10-2018
11-10-2023
CPHPERR31
11-10-2018
11-10-2023
CPHPERR32
11-10-2018
11-10-2023
CPHPERR33
11-10-2018
11-10-2023
CPHPERR34
11-10-2018
11-10-2023
CPHPERR35
11-10-2018
11-10-2023
CPHPERR36
11-10-2018
11-10-2023
CPHPERR37
11-10-2018
11-10-2023
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
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
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
300,000
50,000
2,000,000
2,000,000
2,000,000
100,000
100,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50,000
50,000
50,000
50,000
50,000
33,000
33,000
33,000
33,000
33,000
33,000
16,000
16,000
16,000
100,000
200,000
200,000
100,000
300,000
300,000
300,000
100,000
150,000
150,000
500,000
400,000
400,000
-
(750,000)
(750,000)
-
(100,000)
-
-
-
-
-
-
-
(150,000)
(50,000)
(2,000,000)
(2,000,000)
-
-
-
(50,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
(100,000)
(200,000)
-
-
-
-
-
-
-
-
-
-
-
17,350,000
3,696,000
(6,150,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
‐
Balance at
the end of
the year
750,000
-
-
250,000
-
100,000
1,750,000
1,250,000
1,250,000
1,500,000
800,000
800,000
150,000
-
-
-
2,000,000
100,000
100,000
-
50,000
50,000
50,000
50,000
33,000
33,000
33,000
33,000
33,000
33,000
16,000
16,000
16,000
-
-
200,000
100,000
300,000
300,000
300,000
100,000
150,000
150,000
500,000
400,000
400,000
14,896,000
69 | P a g e
Notes to the Consolidated Financial Statements
NOTE 22
SHARE‐BASED PAYMENTS (CONTINUED)
Creso Pharma Limited – Annual Report 2018
Performance rights issued in the prior year 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 – Performance Rights
Share Price at Grant Date
Exercise Price
Volatility (up to date of issue)
Issue Date
Grant Date
Vesting Date
Risk-free Rate
Number of Rights Granted
Value per Right
Total Fair Value of Rights
27‐07‐2017
27‐07‐2017
27‐07‐2017
27‐07‐2017
27‐07‐2017
$0.57
N/A
N/A
27-07-2017
27-07-2017
27-07-2018
N/A
800,000
$0.57
$456,000
$0.57
N/A
N/A
27-07-2017
27-07-2017
27-07-2018
N/A
800,000
$0.57
$456,000
$0.57
N/A
N/A
27-07-2017
27-07-2017
27-07-2033
N/A
1,250,000
$0.57
$712,500
$0.57
N/A
N/A
27-07-2017
27-07-2017
27-07-2022
N/A
1,250,000
$0.57
$712,500
$0.57
N/A
N/A
27-07-2017
27-07-2017
27-07-2022
N/A
750,000
$0.57
$427,500
31 December 2017 – Performance Rights
Share Price at Grant Date
Exercise Price
Volatility (up to date of issue)
Issue Date
Grant Date
Vesting Date
Risk-free Rate
Number of Rights Granted
Value per Right
Total Fair Value of Rights
27‐07‐2017
27‐07‐2017
27‐07‐2017
27‐07‐2017
27‐07‐2017
$0.57
N/A
N/A
27-07-2017
27-07-2017
27-01-2019
N/A
750,000
$0.57
$427,500
$0.57
N/A
N/A
27-07-2017
27-07-2017
27-07-2018
N/A
100,000
$0.57
$57,000
$0.57
N/A
N/A
27-07-2017
27-07-2017
27-07-2019
N/A
100,000
$0.57
$57,000
$0.57
N/A
N/A
27-07-2017
27-07-2017
27-07-2018
N/A
300,000
$0.57
$171,000
$0.57
N/A
N/A
27-07-2017
27-07-2017
27-01-2019
N/A
2,000,000
$0.57
$1,140,000
31 December 2017 – Performance Rights
Share Price at Grant Date
Exercise Price
Volatility (up to date of issue)
Issue Date
Grant Date
Vesting Date
Risk-free Rate
Number of Rights Granted
Value per Right
Total Fair Value of Rights
27‐07‐2017
27‐07‐2017
27‐07‐2017
27‐07‐2017
27‐07‐2017
$0.57
N/A
N/A
27-07-2017
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
27-07-2017
27-07-2019
N/A
2,000,000
$0.57
$1,140,000
$0.57
N/A
N/A
27-07-2017
27-07-2017
27-07-2018
N/A
50,000
$0.57
$28,500
$0.57
N/A
N/A
27-07-2017
27-07-2017
27-07-2019
N/A
100,000
$0.57
$57,000
$0.57
N/A
N/A
27-07-2017
27-07-2017
27-07-2020
N/A
100,000
$0.57
$57,000
31 December 2018 – Performance Rights
26‐06‐2018
$0.69
N/A
N/A
Share Price at Grant Date
Exercise Price
Volatility (up to date of
issue)
Issue Date
Grant Date
Vesting Date
Risk-free Rate
Number of Rights Granted
Value per Right
Total Fair Value of Rights
16-07-2018
26-06-2018
16-07-2023
N/A
1,096,000
$0.69
$721,740
28‐09‐18
$0.56
N/A
N/A
11-10-2018
28-09-2018
28-09-2023
N/A
1,900,000
$0.56
$1,064,000
28‐09‐18
$0.56
N/A
N/A
11-10-2018
28-09-2018
24-03-2021
N/A
100,000
$0.56
$56,000
28‐09‐18
$0.56
N/A
N/A
11-10-2018
28-09-2018
25-06-2020
N/A
150,000
$0.56
$84,000
28‐09‐18
$0.56
N/A
N/A
11-10-2018
28-09-2018
21-11-2020
N/A
300,000
$0.56
$168,000
28‐09‐18
$0.56
N/A
N/A
11-10-2018
28-09-2018
25-06-2021
N/A
150,000
$0.56
$84,000
In relation to the 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 director reference to the share price on grant date.
70 | P a g e
Creso Pharma Limited – Annual Report 2018
Notes to the Consolidated Financial Statements
NOTE 22
SHARE‐BASED PAYMENTS (CONTINUED)
(e)
Summary of performance shares granted during the year
Code
Issue Date
Date of
Expiry
Exercise
Price
CPHPERSA
13-10-2016
13-10-2019
CPHPERSB
CPHPERSC
CPHPERSD
CPHPERSE
20-12-2018
20-06-2020
20-12-2018
20-12-2018
20-12-2018
20-06-2020
20-06-2020
20-06-2020
Nil
Nil
Nil
Nil
Nil
Balance at the
start of the
year
1,000,000
-
-
-
-
-
303,027
303,027
303,027
303,039
1,000,000
1,212,120*
Granted
during the
year
Vested during
the year
Cancelled
during the
year
Balance at
the end of
the year
1,000,000
303,027
303,027
303,027
303,039
2,212,120
-
-
-
-
-
-
-
-
-
-
-
-
In relation to the performance shares issued in the current year, these shares are straight-forward, non-market-based
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:
CPHPERSB
CPHPERSC
CPHPERSD
CPHPERSE
Share Price at Grant Date
Exercise Price
Volatility (up to date of issue)
Grant Date
Expiry Date
Risk-free Rate
Number of shares Granted
Value per shares
Total Fair Value of Rights
Probability at acquisition and reporting date
$0.36
N/A
N/A
20-12-2018
20-06-2020
N/A
303,027
$0.36
$109,090
0%
* Each Performance Share will be exchanged for one ordinary share in Creso Pharma Limited in the event Kunna S.A.S.
successful cultivates and sells 10kg of cannabis extract (with a minimum of 6% CBD or 6% THC in flower), which must
occur on commercial arms length terms, from its operations within 18 months of Settlement.
$0.36
N/A
N/A
20-12-2018
20-06-2020
N/A
303,039
$0.36
$109,094
0%
$0.36
N/A
N/A
20-12-2018
20-06-2020
N/A
303,027
$0.36
$109,090
0%
$0.36
N/A
N/A
20-12-2018
20-06-2020
N/A
303,027
$0.36
$109,090
0%
NOTE 23
BUSINESS COMBINATIONS
(a)
Purchase consideration and net assets acquired in the current year
Details of the purchase considerations and the net assets acquired in two new subsidiaries are as follows:
ACQUISITION OF SUBSIDIARY‐ MERNOVA MEDICINAL INC.
On 27 July 2017, Creso entered into a head of agreement (“HOA”) to acquire 100% of the shares in Mernova Medicinal
Inc (“Mernova”), a company registered in Canada. The acquisition of Mernova was completed on 15 February 2018. The
acquisition was assessed as an asset acquisition as Mernova has no inputs, processes and outputs as defined in AASB 3
Business Combination. The total consideration for the acquisition is as follows:
Summary of purchase consideration
Cash consideration (CAD$200,000)
Net assets acquired are as follows:
Cash and cash equivalent
Property, plant and equipment
Intangible asset
Total assets
Other current liabilities
Borrowings
Total liabilities
Net assets acquired
$
201,735
15‐Feb‐18
$
80,976
1,801,626
507,282
2,389,884
319,084
1,869,065
2,188,149
201,735
71 | P a g e
Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2018
NOTE 23
BUSINESS COMBINATIONS (CONTINUED)
ACQUISITION OF SUBSIDIARY‐ KUNNA CANADA LIMITED AND ITS CONTROLLED ENTITIES
On 13 December 2017, Creso entered into a heads of agreement (“HOA”) to acquire 100% of the shares in Kunna Canada
Limited, a company registered in Canada, and its wholly owned subsidiary Kunna S.A.S. registered in Colombia. On 15
November 2018 heads of agreement was amended and restated. The acquisition was completed on 20 December
2018.
Kunna Canada Limited operates exclusively via Kunna S.A.S., which has a licence to manufacture and produce cannabis
derivatives purely for scientific and medical use in accordance with the relevant legal requirements in Colombia
(Production Licence) and a licence to cultivate cannabis in Colombia (Cultivation Licence). The acquisition was assessed
as an asset acquisition as Kunna lacks some inputs, and has no processes and outputs as defined in AASB 3 Business
Combination. The total consideration for the acquisition is as follows:
(b)
Summary of purchase consideration
(a) 8,212,121 fully paid Ordinary Shares (Ordinary Shares) in a Canadian subsidiary of the Company (being 3321739
Nova Scotia Limited). The shares were issued at fair value of $0.36 per share, being the price on the day of issue.
(b) 1,212,120 performance shares. Each Performance Share will be exchanged for one ordinary share in Creso
Pharma Limited in the event Kunna S.A.S. successful cultivates and sells 10 kg of cannabis extract (with a
minimum of 6% CBD or 6% THC in flower), which must occur on commercial arms length terms, from its
operations within 18 months of Settlement.
Summary of purchase consideration
Consideration- Ordinary shares
Consideration- Performance shares*
Net assets acquired are as follows:
Cash and cash equivalent
Intangible asset – licence
Intangible asset
Prepayment
Total assets
Other current liabilities
Total liabilities
Net assets acquired
20‐Dec‐18
$
2,956,364
‐
2,956,364
20‐Dec‐18
$
10,814
55,084
2,930,192
381
2,996,471
40,107
40,107
2,956,364
* Management has assessed the probability at acquisition date to be nil and hence no value attribute to the
consideration.
72 | P a g e
Notes to the Consolidated Financial Statements
NOTE 24
COMMITMENTS
Capital Commitments
Capital expenditure budgeted for at the reporting date but not
recognised as liabilities) is as follows:
Construction of the medicinal growing facility in Canada
Operating Lease Commitments
Within one year
One to five years
More than five years
NOTE 25 CONTINGENCIES
Creso Pharma Limited – Annual Report 2018
2018
$
2017
$
1,221,338
1,221,338
69,840
2,441
‐
72,281
-
-
54,625
-
-
54,625
As part of the acquisition of Mernova Medicinal Inc., the Company issued 8,300,000 fully paid Exchangeable Preferred
Shares (Exchangeable Shares) in a Canadian subsidiary of the Group (Creso Canada Corporate Limited). Each Exchangeable
Share will be exchanged for one ordinary share in Creso Pharma Limited when the Milestones noted below are met. As at
31 December 2018, the Exchangeable Shares and contingent cash payment are disclosed below:
Milestone 1: Cash payment of CAD$800,000 and CAD$4,150,000 of Exchangeable Shares will be exchanged on Creso
Pharma Limited’s announcement to the market of Mernova Medicinal Inc. securing a cultivation license from Health
Canada under the ACMPR in relation to the cultivation facility. Milestone 1 must be achieved within 18 months of
settlement.
Milestone 2: Cash payment of CAD$800,000 and CAD$4,150,000 of Exchangeable Shares will be exchanged on Creso
Pharma Limited’s announcement to the market of the grant of a sales license to Mernova Medicinal Inc. under the ACMPR.
Milestone 2 must be achieved within 12 months of Milestone 1 being satisfied.
As part of the acquisition of Kuna Canada Limited, the company issued 1,212,120 performance shares. Each Performance
Share will be exchanged for one ordinary share in Creso Pharma Limited in the event Kunna S.A.S. successful cultivates
and sells 10 kgs of cannabis extract (with a minimum of 6% CBD or 6% THC in flower), which must occur on commercial
arms length terms, from its operations within 18 months of Settlement.
Other than the above, there have been no material changes to contingent liabilities since 31 December 2018.
NOTE 26
AUDITOR’S REMUNERATION
During the financial year the following fees were paid or payable for services provided by RSM Australia Partners, the
auditor of the company, its network firms and unrelated firms:
Audit Services- RSM Australia Partners
Audit and review of annual, half-year and quarterly financial report
Other services – RSM Australia Pty Ltd for:
– Income tax return
– Other
Component Auditor Fees
Audit and review of the financial statements
2018
$
2017
$
142,500
48,000
9,075
-
49,758
201,333
6,500
1,500
11,856
67,856
73 | P a g e
Notes to the Consolidated Financial Statements
NOTE 27
INVESTMENT IN CONTROLLED ENTITIES
Company Name
Principal Activities
Creso Pharma Limited – Annual Report 2018
Country of
Incorporation
Ownership interest
2018
2017
Creso Pharma Switzerland
GmbH
Hemp-Industries s.r.o.
Creso Canada Limited
Creso Canada Corporate
Limited
Mernova Medicinal Inc.
3321739 Nova Scotia
Limited
Kunna Canada Limited
Kunna S.A.S
Creso Grow Limited*
Development of therapeutic products
Switzerland
Hemp cultivation and outsourced CBD
extraction
Corporate entity
Corporate entity
Construction of medicinal cannabis growing
facility
Corporate Entity
Corporate entity
Construction of medicinal cannabis growing
facility
Production of medicinal cannabis
Slovakia
Canada
Canada
Canada
Canada
Canada
Colombia
Israel
%
100
100
100
100
100
100
100
100
74
%
100
100
-
-
-
-
-
-
-
* Summarised financial information is not disclosed for the subsidiary with non-controlling interests as it is not
material to the consolidated entity.
NOTE 28
PARENT ENTITY INFORMATION
Set out below is the supplementary information about the parent entity.
Statement of Financial Position and Statement of profit or loss and other comprehensive income
Total current assets
Loans receivable and investments in controlled entities
Provision against Loans to and investments in controlled entities
Total non-current assets
Total assets
Total current liabilities
Total liabilities
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
2018
$
2017
$
2,622,209
13,323,559
27,719,890
(10,379,856)
17,340,034
19,962,243
-
-
-
21,457,282
3,457,851
3,457,851
428,649
428,649
38,222,882
14,547,169
(36,265,659)
16,504,392
35,138,519
5,516,511
(19,626,397)
21,028,634
Provision expense for loans to and investments in controlled entities
(Loss) for the year
Total comprehensive loss
Contingent liabilities
The parent entity had no contingent liabilities as at 31 December 2018 and 31 December 2017.
(10,379,856)
(10,268,870)
(20,648,726)
-
(15,655,009)
(15,091,479)
74 | P a g e
Notes to the Consolidated Financial Statements
NOTE 28
PARENT ENTITY INFORMATION (CONTINUED)
Creso Pharma Limited – Annual Report 2018
Capital commitments – Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 31 December 2018 and 31
December 2017.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in
note 1, except for the following:
●
●
●
Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.
Investments in associates are accounted for at cost, less any impairment, in the parent entity.
Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may
be an indicator of an impairment of the investment.
NOTE 29
INTEREST IN ASSOCIATE
Interests in associates are accounted for using the equity method of accounting. Information relating to associates are
set out below:
Name
CLV Frontier Brands Pty Ltd
Principal place of business /
Country of incorporation
Estonia/Australia
Summarised financial information
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net Liability
Summarised statement of profit or loss and other comprehensive income
Revenue
Cost of sales
Other income
Impairment of intangible assets
Expenses
(loss) before income tax
Income tax expense
(Loss) after income tax
Other comprehensive income
Total comprehensive (loss)
Ownership interest
2018
%
2017
%
33⅓%
-%
CLV Frontier Brands Pty Ltd
2017
2018
$
$
45,457
11,330
56,787
222,590
-
222,590
(165,803)
10,607
(8,884)
3,517
(986,626)
(451,444)
-
-
-
-
-
-
-
-
-
-
(1,432,830)
-
-
-
(1,432,830)
-
(1,432,830)
-
-
-
75 | P a g e
CLV Frontier Brands was incorporated on 9 January 2018 and therefore there are no comparative figures. No
commitments or contingent liability noted for the investment in associate.
Notes to the Consolidated Financial Statements
NOTE 30
EQUITY‐ NON‐CONTROLLING INTEREST
Accumulated losses
The non-controlling interest has a 26% (2017: -%) equity holding in Creso Grow Limited.
NOTE 31 CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES
Creso Pharma Limited – Annual Report 2018
2018
$
2017
$
89,650
89,650
-
-
Consolidated
Balance at 1 January 2017
Net cash from/(used in) financing activities
Balance at 31 December 2017
Net cash from/(used in) financing activities
Balance at 31 December 2018
NOTE 32
EVENTS AFTER THE REPORTING DATE
Short term
loans
$
-
-
-
2,430,000
2,430,000
On 21 January 2019, Creso announced it has signed a three-year supply agreement with TerrAscend Canada, a
wholly-owned subsidiary of TerrAscend Corp., (CSE: TER; OTCQX: TRSSF) (“TerrAscend”) to provide its premium
cannabis product to help meet the significant consumer demand driven by Canada’s federal legalisation of
cannabis in October 2018. Under the terms of the Supply Agreement, Creso has agreed to sell and TerrAscend
has agreed to purchase a minimum of 100 kgs of cannabis flower per month from Creso from the date that Creso
is licensed to sell cannabis under Canadian laws.
On 24 January 2019, the company announced that it had raised approximately $3 million in a placement to
institutional and sophisticated investors (“Placement”). Under the terms of the Placement, the Company issued
6,806,667 fully paid ordinary shares in the capital of the Company at $0.45 per share, together with one free
attaching listed (ASX:CPHO) option ($0.80, 21 August 2020) for every 3 shares subscribed for under the
Placement. The Placement was managed by Everblu Capital Pty Ltd (“EverBlu”), who receive a fee of 6% of the
total funds raised. No related parties, employees or associates of EverBlu participated in the Placement.
On 15 February 2019, the Canadian government granted Mernova Medicinal Inca licence to cultivate cannabis
at a facility run by Creso’s wholly-owned subsidiary Mernova Medical in Nova Scotia. Creso is now only the fifth
licenced producer in the region, and the only ASX-listed company with a 100% ownership interest in a licenced
Canadian cultivator. Under the terms of the licence granted by Health Canada, Mernova Medical is permitted to
grow, sell and distribute dried and fresh cannabis, cannabis plants and cannabis plant seeds to pre-determined
companies under the Cannabis Act.
On 31 January 2019, The board agreed that Dr Miriam Halperin Wernli achieved a performance milestone which
resulted in the vesting of 1,750,000 performance rights.
On 12 March 2019, the Company decided, in conjunction with the Board of CLV Frontier Brands Pty Limited, to
cease funding the operations of the CLV joint Venture, due to the significant additional funding required to
construct a brewing facility and maintain a sustainable business. CLV is winding down its operations.
76 | P a g e
Notes to the Consolidated Financial Statements
NOTE 32
EVENTS AFTER THE REPORTING DATE (CONTINUED)
Creso Pharma Limited – Annual Report 2018
On 14 March 2019, in accordance with Milestone 1, Mernova Medicinal Inc secured a cultivation license from
Health Canada under the ACMPR for its cultivation facility. This was achieved within 18 months of acquisition.
The company paid C$800,000 to Mr William Fleming with C$4,150,000 of Exchangeable Shares to be exchanged
at a future date for ordinary shares in the Company.
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.
77 | P a g e
Directors’ Declaration
In the directors' opinion:
Creso Pharma Limited – Annual Report 2018
●
●
●
●
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 2018 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
Executive Chairman
22 March 2019
78 | 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 2018, 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 2018 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.
Material Uncertainty Related to Going Concern
We draw attention to the going concern note in the Basis of Preparation section at Note 1(b), which indicates that
the Group incurred a loss of $16,845,686 for the year ended 31 December 2018 and, as of that date, the Group
had net cash outflows from operating and investing activities of $8,173,313 and $4,138,526 respectively. As stated
in the going concern note, these events or conditions, along with other matters as set forth in the going concern
note, indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue
as a going concern. Our opinion is not modified in respect of this matter.
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.
In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have
determined the matters described below to be the key audit matters to be communicated in our report.
Key Audit Matter
How our audit addressed this matter
Acquisition of Subsidiary
Refer to Note 23 in the financial statements
During the year, the Group acquired 100% interest of
Mernova Medicinal Inc. (Mernova) for a purchase
consideration of $201,735.
The accounting for this acquisition is considered to be
a key audit matter because it involved the exercise of
judgment in relation to:
• Determining whether the transaction is a business
combination or an asset acquisition, based on
whether the definition of a business in AASB 3
Business Combinations was met;
• Determining the fair value of the consideration
paid; and
Our audit procedures in relation to the acquisition of
Mernova included:
• Reviewing the binding heads of agreement to
understand key terms and conditions;
• Evaluating the management determination that
the acquisition did not meet the definition of a
business within AASB 3 Business Combinations
and therefore was an asset acquisition as opposed
to a business combination;
• Evaluating the assumptions and methodology in
management’s determination of the fair value
assets and liabilities acquired;
• Assessing management’s determination of the fair
• Determining the acquisition date.
value of consideration paid; and
• Assessing the appropriateness of the disclosures
in the financial report.
Acquisition of Subsidiaries
Refer to Note 23 in the financial statements
During the year, the Group acquired 100% interest of
Kunna Canada Limited and Kunna S.A.S (Kunna) for
a purchase consideration of $2,956,364.
The accounting for this acquisition is considered to be
a key audit matter because it involved the exercise of
judgment in relation to:
• Determining whether the transaction is a business
combination or an asset acquisition, based on
whether the definition of a business in AASB 3
Business Combinations was met;
• Determining the fair value of the consideration
paid; and
Our audit procedures in relation to the acquisition of
Kunna included:
• Reviewing the binding heads of agreement to
understand key terms and conditions;
• Evaluating the management determination that
the acquisition did not meet the definition of a
business within AASB 3 Business Combinations
and therefore was an asset acquisition as opposed
to a business combination;
• Evaluating the assumptions and methodology in
management’s determination of the fair value
assets and liabilities acquired;
• Assessing management’s determination of the fair
• Determining the acquisition date.
value of consideration paid; and
• Assessing the appropriateness of the disclosures
in the financial report.
Impairment of Intangible Assets
Refer to Note 13 in the financial statements
During the year, the Group capitalised intangible
assets upon the acquisition of Mernova Medicinal Inc.,
Kunna Canada Limited and Kunna S.A.S which
amounted to $3,492,847 at the reporting date. These
intangible assets are related to production and
cultivation licences. These intangibles are not yet
available for use and are subject to an annual
impairment review by management to assess whether
the asset’s recoverable amount is greater than its
carrying amount.
Management’s assessment involved:
• Evaluating the current status of the licences and
future development plans to determine whether
the licences are available for use as at 31
December 2018 for the purposes of determining
whether amortisation of the licences should of
commenced; and
Our audit procedures in relation to intangible assets
included:
• Assessing whether the Group’s accounting policy
in relation to intangible assets is in compliance with
Australian Accounting Standards;
• Assessing management’s determination that at 31
December 2018, the licences are not yet available
for use;
• Assessing whether there are any indicators of
impairment of the intangible assets, including
enquiring with management on the current and
planned commercialisation activities;
• Assessing the reasonableness of management’s
assumptions included in the cashflow model;
• Evaluating whether any events have occurred to
indicate that the licences’ recoverable amount
may be materially less than its carrying amount.
• Reviewing the component auditor’s workpapers to
ensure sufficient audit evidence has been obtained
to conclude that impairment is not required in
relation to the development costs capitalised;
• Reviewing component auditor’s workpapers to
ensure development costs have been capitalised
in accordance with Australian Accounting
Standards; and
• Assessing adequacy of the disclosures in the
financial statements.
In addition, management have also capitalised
development costs with a net book value of $608,331
as at the reporting date in relation to the Anibidiol and
CannaQIX patents. Management has capitalised
these development costs on the basis that it has met
both the technical feasibility and economic feasibility
criteria.
We have determined this to be a key audit matter due
to management’s assessment requiring significant
judgement and the risk that the outcome of this
assessment could result in a material misstatement to
the carrying value of the licences and development
costs capitalised if applied incorrectly.
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 2018, 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
2018.
In our opinion, the Remuneration Report of Creso Pharma Limited, for the year ended 31 December 2018,
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: 22 March 2019
TUTU PHONG
Partner
Shareholder Information
The shareholder information set out below was applicable as at 1 March 2019.
1. QUOTATION
Creso Pharma Limited – Annual Report 2018
Listed securities in Creso Pharma Limited are quoted on the Australian Securities Exchange under ASX code CPH (Fully
Paid Ordinary Shares) and CPHO (Listed Options).
2. VOTING RIGHTS
The voting rights attached to the Fully Paid Ordinary shares of the Company are:
(a)
(b)
at a meeting of members or classes of members each member entitled to vote may vote in person or by
proxy or by attorney; and
on a show of hands every person present who is a member has one vote, and on a poll every person
present in person or by proxy or attorney has one vote for each ordinary share held.
There are no voting rights attached to any Options, Performance Shares or Performance Rights on issue.
3. ON MARKET BUY‐BACK
There is no on-market buy back in place.
4. GROUP CASH AND ASSETS
In accordance with Listing Rule 4.10.19, the Company confirms that it has been using its cash and assets for the year
ended 31 December 2018 in a way that is consistent with its business objectives and strategy.
5. RESTRICTED SECURITIES
The following restricted securities are listed on the Company’s register as at 1 March 2019:
-
-
-
-
-
-
-
-
-
-
2,053,025 Fully Paid Ordinary Shares are escrowed to 20/03/2019
2,053,026 Fully Paid Ordinary Shares are escrowed to 20/06/2019
2,053,027 Fully Paid Ordinary Shares are escrowed to 20/09/2019
2,053,043 Fully Paid Ordinary Shares are escrowed to 20/12/2019
8,212,100
303,027 Class B Performance Shares are escrowed to 20/03/2019
303,027 Class C Performance Shares are escrowed to 20/06/2019
303,027 Class D Performance Shares are escrowed to 20/09/2019
303,039 Class E Performance Shares are escrowed to 20/12/2019
1,212,120
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Shareholder Information
6. DISTRIBUTION OF SECURITY HOLDERS
6.1 Fully Paid Ordinary Shares
Creso Pharma Limited – Annual Report 2018
Shares Range
Holders
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and above
Total
2,504
4,491
1,425
1,483
98
10,001
Units
1,787,303
11,954,475
11,409,527
39,767,242
68,825,785
%
1.34
8.94
8.53
29.73
51.46
133,744,332
100.00%
On 1 March 2019, there were 2,968 holders of unmarketable parcels of less than 2,308,784 ordinary shares (based on
the closing share price of $0.4050).
6.2 Listed CPHO Options exercisable at $0.80 on or before 21 August 2020
Shares Range
Holders
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and above
Total
965
917
202
195
27
2,306
Units
548,927
2,417,110
1,520,267
5,005,659
47,854,448
57,346,411
%
0.96
4.21
2.65
8.73
83.45
100.00%
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Shareholder Information
6.3 Unlisted Options
Class
CPHOPT2 Options
($0.40, 27/06/2020)
Quantity on
Issue
600,000
CPHOPT3 Options
($0.20, 13/10/2020)
CPHOPT4 Options
($0.20, 13/10/2019)
2,886,250
2,500,000
CPHOPT5 Options
($0.50, 23/01/2021)
CPHOPT10 Options
($0.40, 27/07/2021)
CPHOPT11 Options
($0.30, 27/07/2019)
CPHOPT12 Options
($0.60, 27/07/2020)
CPHOPT13 Options
($0.80, 13/04/2019)
CPHOPT14 Options
($0.80, 13/07/2021)
CPHOPT16 Options
($0.535, 27/07/2021)
CPHOPT17 Options
($0.80, 27/07/2022)
CPHOPT18 Options
($0.55, 21/08/2021)
CPHOPT19 Options
($0.80, 15/09/2022)
300,000
140,000
250,000
100,000
250,000
150,000
200,000
200,000
200,000
400,000
8,176,250
Creso Pharma Limited – Annual Report 2018
Distribution of Holders
There are 3 holders, all holding more than 100,001 securities in this class.
The following holders hold more than 20% of the securities in this class:
-
Sara Raquel Peyraube Barqui holds 200,000 securities (33.33%)
- Mr Isaac Kobrin holds 200,000 securities (33.33%)
- Prof Felix Gutzwiller holds 200,000 securities (33.33%)
All the securities in this class are held by:
- Biolingus IP GmbH
There are 2 holders, each holding more than 100,001 securities in this class.
The following holder holds more than 20% of the securities in this class:
- Australian Share Nominees Pty Ltd holds
2,250,000 securities (90%).
All the securities in this class are held by:
- GBTPharma Ltd
All the securities in this class are held by:
- Mr Norman Nashed
All the securities in this class are held by:
- Mr Maurizio Rainiso
All the securities in this class are held by:
- A & J Tannous Nominees Pty Ltd
All the securities in this class are held by:
- UBS Nominees Pty Ltd
All the securities in this class are held by:
- Mr Eugen Hans Merz
All the securities in this class are held by:
- Hession Group Pty Ltd
All the securities in this class are held by:
- Mr Walter Von Wartberg
All the securities in this class are held by:
- Hession Group Pty Ltd
All the securities in this class are held by:
- Carole Abel
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Shareholder Information
6.4 Performance Rights
Class
CPHPERR4
Performance Rights
Quantity on
Issue
4,250,000
Creso Pharma Limited – Annual Report 2018
Distribution of Holders
International Water Energy Savers Ltd holds 1,500,000 (35.29%)
There are 4 holders, all holding more than 100,001 of securities in this class.
The following holders hold more than 20% of the securities in this class:
- Miriam Halperin Wernli holds 1,750,000 securities (41.18%);
-
All the securities in this class are held by:
-
All the securities in this class are held by:
-
International Water Energy Savers Ltd
International Water Energy Savers Ltd
800,000
800,000
CPHPERR6
Performance Rights
CPHPERR7
Performance Rights
CPHPERR8
Performance Rights
CPHPERR9
Performance Rights
CPHPERR13
Performance Rights
CPHPERR14
Performance Rights
CPHPERR15
Performance Rights
CPHPERR16
Performance Rights
CPHPERR21
Performance Rights
CPHPERR22
Performance Rights
CPHPERR23
Performance Rights
CPHPERR24
Performance Rights
50,000
100,000
100,000
150,000
100,000
132,000
Stuart Fillman
Stephane Redey
Stephane Redey
Jorge Wernli
1,250,000 All the securities in this class are held by:
- Miriam Halperin Wernli
1,250,000 All the securities in this class are held by:
- Miriam Halperin Wernli
All the securities in this class are held by:
- Dr James Anthony Ellingford
All the securities in this class are held by:
-
All the securities in this class are held by:
-
All the securities in this class are held by:
-
All the securities in this class are held by:
-
There are 4 holders, all holding between 10,001 and 100,000 securities in this
class.
The following holders hold more than 20% of the securities in this class:
-
-
-
There are 4 holders, all holding between 10,001 and 100,000 securities in this
class.
The following holders hold more than 20% of the securities in this class:
-
-
-
There are 4 holders, all holding between 10,001 and 100,000 securities in this
class.
The following holders hold more than 20% of the securities in this class:
-
-
-
Charles Williams holds 50,000 securities (37.88%)
Sean MacDougall holds 33,000 securities (25%)
Ian Kaye holds 33,000 securities (25%)
Charles Williams holds 50,000 securities (37.88%)
Sean MacDougall holds 33,000 securities (25%)
Ian Kaye holds 33,000 securities (25%)
Charles Williams holds 50,000 securities (37.88%)
Sean MacDougall holds 33,000 securities (25%)
Ian Kaye holds 33,000 securities (25%)
132,000
132,000
CPHPERR27
Performance Rights
CPHPERR28
Performance Rights
200,000
100,000
All the securities in this class are held by:
- Hession Group Pty Ltd
All the securities in this class are held by:
- Hession Group Pty Ltd
86 | P a g e
Shareholder Information
6.4 Performance Rights (continued)
Class
CPHPERR29
Performance Rights
CPHPERR30
Performance Rights
CPHPERR31
Performance Rights
CPHPERR32
Performance Rights
CPHPERR33
Performance Rights
CPHPERR34
Performance Rights
CPHPERR35
Performance Rights
CPHPERR36
Performance Rights
CPHPERR37
Performance Rights
Quantity
on Issue
300,000
300,000
300,000
100,000
150,000
150,000
500,000
400,000
400,000
12,146,000
Creso Pharma Limited – Annual Report 2018
Distribution of Holders
All the securities in this class are held by:
- Mr Christopher Grundy
All the securities in this class are held by:
- Mr Christopher Grundy
All the securities in this class are held by:
- Mr Christopher Grundy
All the securities in this class are held by:
- Mr Christopher Grundy
All the securities in this class are held by:
-
All the securities in this class are held by:
-
All the securities in this class are held by:
-
All the securities in this class are held by:
-
All the securities in this class are held by:
-
John Griese
John Griese
John Griese
John Griese
John Griese
87 | P a g e
Shareholder Information
6.5 Performance Shares
Creso Pharma Limited – Annual Report 2018
Class
CPHPERSA
Performance
Shares
CPHPERSB
Performance
Shares (esc to
20/03/2019)
CPHPERSC
Performance
Shares (esc to
20/06/2019)
CPHPERSD
Performance
Shares (esc to
20/09/2019)
CPHPERSE
Performance
Shares (esc to
20/12/2019)
Quantity
on Issue
1,000,000
303,027
303,027
303,027
303,039
Distribution of Holders
Roman Strechaj holds 500,000 securities (50%)
There are 2 holders, each holding more than 100,001 of securities in this class.
The following holders hold more than 20% of the securities:
- Michal Masek holds 500,000 securities (50%)
-
There are 17 holders, distributed as follows:
-
1,001 – 5000 securities: 4 holders;
-
5,001 – 10,000 securities: 6 holders;
-
10,001 – 100,000 securities: 7 holders;
None of the holders hold more than 20% of the securities in this class.
There are 17 holders, distributed as follows:
-
1,001 – 5000 securities: 4 holders;
-
5,001 – 10,000 securities: 6 holders;
-
10,001 – 100,000 securities: 7 holders;
None of the holders hold more than 20% of the securities in this class.
There are 17 holders, distributed as follows:
-
1,001 – 5000 securities: 4 holders;
-
5,001 – 10,000 securities: 6 holders;
-
10,001 – 100,000 securities: 7 holders;
None of the holders hold more than 20% of the securities in this class.
There are 17 holders, distributed as follows:
-
1,001 – 5000 securities: 4 holders;
-
5,001 – 10,000 securities: 6 holders;
-
10,001 – 100,000 securities: 7 holders;
None of the holders hold more than 20% of the securities in this class.
2,212,120
7. SUBSTANTIAL SHAREHOLDERS
The names of the substantial shareholders in the Company and the number of equity securities to which each substantial
holder and the substantial holder’s associates have a relevant interest, as disclosed in substantial holding notices given
to the Company, are as follows:
WHP Management Consulting GmbH
Holder of: 8,250,000 fully paid ordinary shares, representing 10.17% as at 31 March 2017
Notice Received: 3 April 2017
International Water and Energy Savers Ltd
Holder of: 6,800,000 fully paid ordinary shares, representing 8.39% as at 31 March 2017
Notice Received: 3 April 2017
Mohd Razali Abdul Rahman
Holder of: 7,000,000 fully paid ordinary shares, representing 8.06% as at 12 April 2017
Notice Received: 13 April 2017
88 | P a g e
Shareholder Information
8. TWENTY LARGEST SHAREHOLDERS AS AT 1 MARCH 2019
Creso Pharma Limited – Annual Report 2018
Name
Shares Held
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
MIRIAM HALPERIN WERNLI
INTERNATIONAL WATER ENERGY SAVERS LTD
ANGLO AUSTRALASIA HOLDINGS PTY LTD
PHEAKES PTY LTD
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
SUBURBAN HOLDINGS PTY LIMITED
PHEAKES PTY LTD
DORSON COMMERCIAL CORP
PEDRO TOSIN
BNP PARIBAS NOMINEES PTY LTD
FRONTIER HYDROCARBONS LTD
MR JAMES ANTHONY ELLINGFORD
BB ENTERPRISES BVI
MR TEIK TATT OH
1661061 ALBERTA LTD
CHRIS REID
SUBURBAN HOLDINGS PTY LTD
MS ELIZABETH ANN WILLIAMS
MR GUOAN YU
Total
8,426,545
8,250,000
6,800,000
5,500,000
4,000,000
3,282,346
2,175,192
2,000,792
2,000,000
1,549,618
1,461,232
1,121,707
1,117,016
1,100,000
1,056,752
593,506
573,932
568,076
541,591
530,000
530,000
%
6.30%
6.17%
5.08%
4.11%
2.99%
2.45%
1.63%
1.50%
1.50%
1.16%
1.09%
0.84%
0.84%
0.82%
0.79%
0.44%
0.43%
0.42%
0.40%
0.40%
0.40%
53,194,129
39.77%
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Shareholder Information
9. TWENTY LARGEST LISTED CPHO OPTION HOLDERS AS AT 1 MARCH 2019
Creso Pharma Limited – Annual Report 2018
Name
Options Held
%
1
JAMBER INVESTMENTS PTY LTD
25,117,407
43.80%
2 MIRIAM HALPERIN WERNLI
3
4
5
6
7
8
9
INTERNATIONAL WATER ENERGY SAVERS LTD
ANGLO AUSTRALASIA HOLDINGS PTY LTD
CS THIRD NOMINEES PTY LIMITED
PHEAKES PTY LTD
CITICORP NOMINEES PTY LIMITED
SUBURBAN HOLDINGS PTY LIMITED
CLAIRVAUX INVESTMENTS PTY LTD
10 DR JAMES ANTHONY ELLINGFORD
PITTAR NOMINEES PTY LIMITED
11
SOLOMONS FAMILY INVESTMENTS PTY LIMITED
12
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
ROTHERWOOD ENTERPRISES PTY LTD
13 BNP PARIBAS NOMINEES PTY LTD
14
SNOWY PLAINS PTY LTD
15 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
16 MR ROGER WILLIAMS PATEK & MRS MAREE HELEN PATEK
17
LYNWAR PTY LTD
17 WALROO PTY LTD
17 MR DARRYL THOMAS AYRIS
18 MR DARRYL AYRIS & MRS AMANDA JANE AYRIS
4,072,950
3,000,000
2,750,000
2,139,395
2,000,000
1,780,492
1,292,442
645,000
550,000
500,000
500,000
478,143
448,835
348,846
346,980
285,001
250,000
200,000
200,000
157,500
152,500
7.10%
5.23%
4.80%
3.73%
3.49%
3.10%
2.25%
1.12%
0.96%
0.87%
0.87%
0.83%
0.78%
0.61%
0.61%
0.50%
0.44%
0.35%
0.35%
0.27%
0.27%
Total
47,215,491
82.33%
10. 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.
90 | P a g e
Glossary of Terms and Abbreviations
Creso Pharma Limited – Annual Report 2018
ACMPR
anibidiol ®
ASX
cannaDOL ®
cannaPEAL ®
cannaQIX ® 10
cannaQIX ® 50
cannaQIX® NITE
CBD
CEO
CFO
Company
COO
Corporations Act
2001
GMP
JV
KMP
KPI
LP
R&D
RNC
Access to Cannabis for Medical Purposes Regulations (Canada)
Creso’s complementary feed for companion animals with CBD from full spectrum hemp oil
extract.
The Australian Securities Exchange is Australia's primary securities exchange. It is owned by
the Australian Securities Exchange Ltd, or ASX Limited, an Australian public company.
Creso’s range of organic CBD-based functional topicals designed to address the analgesic need
in sports related muscle injuries, arthritis and osteoarthritis.
Creso’s sugar free Food Supplement in innovative buccal formulation containing hemp seed oil
and vitamins used OTC (without prescription) targeting healthy aging and support of stress
reduction in humans. cannAPEAL® is formulated in a proprietary delivery system maximizing
absorption
Creso’s sugar free non-euphoric Food Supplement in innovative buccal formulation containing
CBD from full spectrum hemp oil extract, vitamins, minerals and capsicum used OTC (without
prescription). Targets stress reduction and support of mental and nervous functions in humans
Creso’s proprietary buccally formulated cannabidiol (“CBD”) lozenge which is designed to
support the management of chronic pain. Each lozenge contains 50mg of CBD from full
spectrum hemp plant extracts along with niacin, vitamins B6, B12, C, and zinc in a standardized
pharma-grade formulation produced in Switzerland
Creso’s sugar free non-euphoric Food Supplement in innovative buccal formulation containing
CBD from full spectrum hemp oil extract, vitamins, minerals and capsicum used OTC (without
prescription) targeting sleep improvement and stress reduction and support of mental and
nervous functions in humans.
CBD is one of the two main substances in the cannabis plant, the most well- known
phytocannabinoids – the other is THC.
CBD promotes resilience to the adverse psychological effects of stress and reduces anxiety.
CBD exerts positive pharmacological effects on conditions such as anxiety and psychosis,
epilepsy, inflammation and pain, as well as diabetes, cancer and neurogenerative disorders.
As opposed to THC, CBD does not produce euphoria, intoxication, tolerance, or any alterations
in thinking and perception, nor any other psychoactive effects, neither in animals nor in
humans.
Chief Executive Officer
Chief Financial Officer
Creso or Creso Pharma Limited ACN 609 406 911
Chief Operating Officer
The Corporations Act 2001 (Cth) (the Corporations Act, or CA 2001) is an Act of the
Commonwealth of Australia which sets out the laws dealing with business entities in Australia
at federal and interstate level.
Good manufacturing practices are the practices required to conform to the guidelines
recommended by agencies that control the authorization and licensing of the manufacture and
sale of food and beverages, cosmetics, pharmaceutical products, dietary supplements, and
medical devices.
Joint Venture. Creso has two joint ventures:
74% share of Creso Grow Ltd in Israel. 26% is held by Cohen Propagation Nurseries.
33⅓% share of CLV Fron(cid:415)er Brands Pty Ltd. 33⅓% equal shares are held by each of LGC
Capital Ltd and Baltic Beer Company Ltd.
Key Management Person/Personnel (excludes non-executive directors)
Key Performance Indicator - a measurable value that demonstrates how effectively a business
objective is achieved.
Licenced Producer. An entity that license to grow, harvest, dry, trim, cure, and package
cannabis. The cannabis can then be sold to licensed wholesalers. A licensed producer can also
sell live plants and seeds.
Research and Development (of products and processes).
Creso’s Remuneration and Nominations Committee – a sub-committee of the Board
91 | P a g e
Glossary of Terms and Abbreviations
Creso Pharma Limited – Annual Report 2018
Ritual ®
Terpene
THC
TSX-V
Creso’s brand of dry cannabis leaf.
Terpenes are a large and diverse class of organic compounds, produced by a variety of plants,
particularly conifers, and by some insects. They often have a strong odour and may protect the
plants that produce them by deterring herbivores and by attracting predators and parasites of
herbivores. There are about 30,000 terpenes documented in literature with at least 100 found
in the cannabis plant.
THC is one of the two main substances in the cannabis plant, the most well- known
phytocannabinoids – the other is CBD.
THC is a phytocannabinoid responsible for the psychoactive effect of cannabis. It creates
euphoria by stimulating the release of dopamine in the brain.
The TSX Venture Exchange is a stock exchange in Canada.
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