ABN: 89 609 406 911
ASX Announcement
28 February 2020
ANNUAL REPORT AND APPENDIX 4E
RESULTS FOR ANNOUNCEMENT TO THE MARKET
FOR THE YEAR ENDED 31 DECEMBER 2019
Creso Pharma Limited (ASX:CPH) (“Creso” or the “Company”) is pleased to present its
audited Appendix 4E Preliminary Final Report and Annual Report for the year ended 31
December 2019.
Authority and Contact Details
This announcement has been authorised for release by the Board of Creso Pharma
Limited.
Investor Enquiries
EverBlu Capital
E: info@everblucapital.com
P: +61 2 8249 0000
About Creso Pharma
Creso Pharma brings the best of cannabis to better the lives of people and animals. It
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 lifestyle products with wide patient and consumer reach
for human and animal health. Creso Pharma uses GMP (Good Manufacturing Practice)
development and manufacturing standards for its products as a reference of quality
excellence with initial product registrations in Switzerland. It has worldwide rights for a
number of unique and proprietary innovative delivery technologies which enhance the
bioavailability and absorption of cannabinoids. To learn more please visit:
www.cresopharma.com
ABN: 89 609 406 911
APPENDIX 4E PRELIMINARY FINAL REPORT
CRESO PHARMA LIMITED
ABN: 89 609 406 911
RESULTS FOR ANNOUNCEMENT TO THE MARKET
FOR THE YEAR ENDED 31 DECEMBER 2019
(Previous corresponding period is the year ended 31 December 2018)
KEY INFORMATION
Revenue from sales of products
Royalty income
Total Revenue
Other income
Loss from ordinary activities after tax attributable to
members
Net loss attributable to members
31-Dec-19
31-Dec-18
$
$
% Change
3,626,427
33,265
3,659,692
558,382
19,840
578,222
549%
68%
533%
82,561
153,358
(46%)
(15,339,772)
(16,845,686)
(15,054,381)
(16,756,036)
9%
10%
DIVIDEND INFORMATION
No dividend has been proposed or declared.
NET TANGIBLE ASSETS PER SECURITY
Net tangible assets per security
31-Dec-19
31-Dec-18
$0.08
$0.13
EARNINGS PER SHARE
Basic earnings per share (cents)
Diluted earnings per share (cents)
FINANCIAL RESULTS
Cash and cash equivalents
Net Assets
Total Revenue
Other income
Net loss after tax
31-Dec-19
31-Dec-18
Cents
(10.47)
(10.47)
Cents
(14.89)
(14.89)
31-Dec-19
31-Dec-18
$
$
2,800,318
6,390,538
16,795,982
16,504,392
3,659,692
578,222
82,561
(15,339,772)
153,358
(16,845,686)
Level 24, 300 Barangaroo Avenue | Barangaroo, NSW, 2000 | Australia
Alte Steinhauserstrasse 10 | 6330 Cham | Schweiz
CresoPharma.com
(ASX: CPH)
ABN: 89 609 406 911
RESULTS OF BUSINESS SEGMENTS
Year ended 31 Dec 2019
Asia Pacific
$
Europe &
Middle East
$
North
America
$
South
America
$
Revenue from products
Royalty income
Total segment revenue
-
2,765,824
860,603
33,265
33,265
-
-
2,765,824
860,603
Other income
16,660
14,465
51,436
-
-
-
-
Total
$
3,626,427
33,265
3,659,692
82,561
Loss before income tax expense
(12,834,680)
(1,576,413)
(392,030)
(536,649)
(15,339,772)
Total Segment Assets
Total Segment Liabilities
850,081
3,952,384
17,855,830
5,314
22,663,609
4,936,937
214,609
224,446
13,657
5,389,649
DETAILS OF ENTITIES OVER WHICH CONTROL HAS BEEN GAINED DURING THE YEAR
Date of
Country of
Ownership interest
Company Name
Acquisition
Incorporation
Creso Canada Corporate Limited
Creso Canada Limited
Mernova Medicinal Inc.
Creso Grow Limited
3321739 Nova Scotia Limited
Kunna Canada Limited
Kunna S.A.S
31 January 2018
31 January 2018
15 February 2018
9 July 2018
1 November 2018
20 December 2018
20 December 2018
Canada
Canada
Canada
Israel
Canada
Canada
Colombia
Control was not lost over any entity during the period
2019
%
100
100
100
74
100
100
100
2018
%
100
100
100
74
100
100
100
ADDITIONAL INFORMATION
Additional information supporting the Appendix 4E disclosure requirements can be found in the Annual
Report which contains the Directors’ Report and the 31 December 2019 Financial Statements and
accompanying notes.
This report is based on the consolidated financial statements for year ended 31 December 2019 which
have been audited by BDO.
Level 24, 300 Barangaroo Avenue | Barangaroo, NSW, 2000 | Australia
Alte Steinhauserstrasse 10 | 6330 Cham | Schweiz
CresoPharma.com
(ASX: CPH)
CRESO PHARMA LIMITED
ACN 609 406 911
Annual Report for the
Year Ended 31 December 2019
Annual Report
For the year ended 31 December 2019
Creso Pharma Limited – Annual Report 2019
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
7
14
27
38
39
41
42
43
44
81
82
87
94
2 | P a g e
Creso Pharma Limited – Annual Report 2019
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 lifestyle 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 four key areas:
Creso has operations in Switzerland, Canada, Colombia, Israel and Australia.
www.CresoPharma.com
3 | P a g e
Creso Pharma Limited – Annual Report 2019
Corporate Directory
Board of Directors
Mr Boaz Wachtel
Dr Miri 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 8 9389 3100
Website: www.cresopharma.com
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
BDO East Coast Partnership
Level 11, 1 Margaret St
Sydney NSW 2000
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) or +61 2 9698 5414 (from outside Australia)
4 | P a g e
Chairman’s Letter
Dear Shareholder,
Creso Pharma Limited – Annual Report 2019
It is my pleasure to present Creso Pharma’s 2019 annual report. It was a turbulent year for the global cannabis industry,
but we remain positive on the outlook for our company and this fast-growing sector.
Following legalisation in late 2018, Canada became the largest country with a legal national marijuana marketplace. Off
the back of this regulatory change, valuations of Canada’s listed cannabis companies surged early in 2019. However, by
mid-year, many of Canada’s main players in the industry began to see their share prices fall. A primary reason for this
was the application of the regulations, which slowed the opening of cannabis retail outlets, resulting in missed sales
targets and higher costs. This and other problems in Canada had a ripple effect across the whole industry, with cannabis
stocks worldwide feeling the pressure.
However, despite the recent dip in investor confidence, the fundamentals that underpin the continued growth of the
cannabis industry remain strong.
A recent report by cannabis research firm Prohibition Partners estimates that the global legal cannabis market will be
worth up to $103.9bn by the year 2024, driven mostly by the burgeoning international medicinal cannabis market1.
Although the US and Canada are now home to nine of the 10 largest cannabis firms by market capitalisation, Prohibition
Partners predicts that the European market will grow faster over the next five years – and Creso Pharma is already well
established in Europe.
Latin America and Africa have also been identified as regions ripe with opportunity, given that they offer reduced
production costs and sizable markets of their own. Creso Pharma is well-placed to capitalise on this trend as we already
have operations in these regions.
Finally, in Asia-Pacific, we are seeing a “domino effect”, whereby countries influence the regulatory decisions of their
neighbours. For example, since Thailand approved medical cannabis use in December 2018, similar reform efforts have
spread to the Philippines, South Korea, Japan, Guam and Malaysia, as well as in select provinces in India, and even China.
Closer to home, effective 31 January 2020, the Australian Capital Territory has become the first Australian jurisdiction
to legalise the possession, use and cultivation of small amounts of cannabis. Meanwhile, across the Tasman, the New
Zealand government has announced that it will hold a referendum in 2020 on the legalisation of recreational cannabis.
Creso Pharma is excellently placed to thrive in an industry that is becoming increasingly globalised and a climate in which
the health benefits of cannabis compounds are becoming more accepted.
We have an expanding portfolio of innovative products, which include patented delivery systems, and a leadership team
with vast experience in the pharmaceutical industry. In addition, we continue to leverage our partnerships with leading
global companies in product development, manufacturing and distribution, enabling the distribution of our innovative
products in our existing markets and other target regions.
Creso Pharma’s products are now sold across Europe, Latin America and Oceania and will soon be available in South
Africa and other African nations.
Our remarkable progress since listing has not gone unnoticed by major players in the global cannabis industry. As you
will probably be aware, during 2019 Creso Pharma was targeted as a prospective acquisition by Toronto-listed
Colombian company PharmaCielo Limited (TSX-V: PCLO).
Although the takeover by PharmaCielo did not eventuate - as it was ultimately not in the best interests of Creso Pharma
shareholders - it was further validation of the inherent strength of our business and operations. We remain open to
M&A opportunities, which we assess on a case-by-case basis to ensure that we deliver maximum value to our
shareholders.
Following the mutual termination of that proposed acquisition, we continued to pursue commercialisation of our
innovative product portfolio, securing key certification, expanding partnerships and driving increases in revenue.
We remain confident in our compelling investment proposition and the ability of our experienced team to lead the
company into its next phase of growth.
1 Key Insights from the Global Cannabis Report. Prohibition Partners. 7 November 2019
5 | P a g e
Creso Pharma Limited – Annual Report 2019 Chairman’s Letter 6 | Page We believe the value of our company is continuing to increase, supported by our leading products, global operations, as well as the potential ongoing M&A opportunities. Our Board has demonstrated remarkable resilience in the face of recent headwinds and has the pharmaceutical and business credentials to keep steering Creso Pharma into 2020 and beyond. We are confident that we will follow-through on our ambitious plans. We are extremely excited about 2020 and optimistic that it will be a year of stabilisation in the sector and significant growth for our company. I would like to take this opportunity to thank you all for your continued support of Creso Pharma and wish you all the best for the year ahead. Boaz Wachtel Executive Chairman CEO’s Report
Creso Pharma Limited – Annual Report 2019
I am very pleased to report on Creso Pharma’s progress for the 2019 fiscal year and its prospects for 2020. Although 2019
was a challenging year for our industry, I believe we have emerged stronger and more focused than ever before.
While many cannabis companies around the world have struggled, we have been able to achieve our strategic objectives,
which include continuing our global expansion, increasing revenue and further adding to our innovative product portfolio.
However, despite the recent dip in investor confidence, the fundamentals that underpin continuing growth of the cannabis
industry remain strong.
We expect the cannabis industry to grow considerably in 2020 and beyond. Worldwide acceptance of cannabis use – both
medicinally and recreationally – is on the rise, and we are seeing regulatory changes catching up with public sentiment.
At the same time, companies such as Creso Pharma are developing increasingly effective and scientifically-backed
products which are helping to improve the industry’s reputation and legitimise it in the eyes of governments globally.
At Creso Pharma, we aim to develop and commercialise cannabis products to improve the lives of people and animals
worldwide. We bring pharmaceutical expertise and methodological rigour to the cannabis world and strive to create the
highest quality products.
With operations in Europe, North America, Latin America and Australia, we are a truly global company, and as evidenced
by our progress in 2019, our global footprint is continuing to grow.
Strong revenue growth
Following a strong Q4, in which consolidated group revenues reached almost AUD 2 million, we were pleased to achieve
full-year revenues of AUD 3.626 million in 2019.
The strong growth in Creso Pharma revenues was largely attributable to animal health nutraceutical product sales, which
comprised approximately AUD 1.6 million of total group revenues.
Total nutraceutical revenues for the full year 2019 were approximately AUD 2.7 million, an increase of 400% on the AUD
0.558 million for the full year 2018.
Human Health
Animal Health
Mernova
Total
Revenues
2019
Revenues
2018
AUD 1,154,175
AUD 366,475
% Growth
AUD 1,611,649
AUD 191,907
AUD 860,603
-
AUD 3,626,427
AUD 558,382
215%
740%
-
549%
With regards to other key metrics, in January 2020 we were pleased to announce that our flagship human and animal
health products achieved major milestones.
Our human health product line cannaQIX® surpassed the significant milestone of 2.5 million lozenges sold globally
which represents over 100,000 packs sold since its launch in April 2018. Meanwhile, in animal health, we exceeded the
milestone of 3 million of our hemp oil complementary feed anibidiol® doses sold in Europe estimating to have
benefitted over 100,000 dogs. The latter is produced and marketed in collaboration with Virbac S.A., which is the
world’s seventh-largest animal health company. This is a good example of the depth and breadth of Creso Pharma’s
global partnerships.
New product pipeline
One of Creso Pharma’s key strengths is our team of world-class biomedical scientists, clinical researchers, and medical
professionals, who are passionate about using the cannabis plant to deliver maximum health benefits to humans and
animals.
Our strategy is underpinned by our strong R&D capabilities which in 2019 saw us further develop our product
portfolio.
7 | P a g e
CEO’s Report
Creso Pharma Limited – Annual Report 2019
At present, our portfolio of cannabis and hemp-derived products focuses on four key areas: therapeutics,
nutraceuticals, animal health, and cosmetics.
We currently have a portfolio of 13 products – four of which have been commercialised and are generating sales and
nine which are pending commercialisation, as shown below:
Creso Pharma’s commercialised products
Nutraceuticals: cannaQIX®10 – Food
Supplement
•
•
cannaQIX®10 is a sugar free Food
Supplement in an innovative proprietary
buccal formulation containing CBD from
full spectrum hemp oil extract, vitamins,
and minerals. The product contains no
THC.
cannaQIX®10 is commercialised in
Switzerland, Liechtenstein, UK,
Germany, and the Netherlands
Therapeutics: cannaQIX®50
•
cannaQIX® 50
is a CBD based full
spectrum hemp extract Medicinal
Cannabis product in innovative non-oil
based
lozenge
formulation with vitamins and minerals
aiming to manage chronic pain
proprietary
buccal
•
Launched in New Zealand, Australia and
Brazil in 2019
Therapeutics: Medicinal CBD Oil
• Medicinal CBD Oil is a high-grade
therapeutic CBD oil. Contains no THC
•
Launched in New Zealand in Q4 2019
8 | P a g e
CEO’s Report
Creso Pharma Limited – Annual Report 2019
Creso Pharma’s products pending commercialisation
Animal Health: anibidiol® range of products
•
•
•
The anibidiol® range of products are
Complementary Feed for companion
animals with CBD from full spectrum
hemp oil extract in an innovative granular
proprietary buccal formulation for pets.
The products contain no THC
Launched in Switzerland & Liechtenstein
in November 2017 with Virbac, leader in
global animal health
Commercialisation
to
additional 13 countries in Europe starting
Q2 2019
expanded
Nutraceuticals: cannaQIX® NITE- Food
Supplement
•
•
cannaQIX® NITE is a sugar free Food
Supplement in an innovative proprietary
buccal formulation containing CBD from
full spectrum hemp oil extract, vitamins,
minerals, and lemon balm. The product
contains no THC
Targets sleep improvement, stress
reduction and support of cognitive and
psychological functions
Nutraceuticals: cannaQIX®25
•
cannaQIX® 25 is a sugar free Food
Supplment in an innovative buccal
formulation containing CBD from broad
spectrum hemp oil extract, vitamins and
minerals. The product contains no THC.
Nutraceuticals: cannAPEAL® - Food Supplement
•
is a
sugar
cannAPEAL®
free Food
Supplement in an innovative proprietary
buccal formulation containing hemp seed
oil and vitamins. The product contains no
THC
•
Targets healthy aging and supports stress
reduction in humans
9 | P a g e
CEO’s Report
Creso Pharma Limited – Annual Report 2019
Nutraceuticals: cannAPEAL® NITE - Food
Supplement
•
cannAPEAL® NITE is a sugar free Food
Supplement in an innovative proprietary
buccal formulation containing hemp seed
oil, lemon balm and vitamins. The product
contains no THC
Cosmetics: cannaDOL® Revitalize
•
has
partnered with
Frike
Creso
Technologies (largest independent Swiss
manufacturing group) to develop the
cannaDOL®range of organic CBD-based
functional topicals. The products contain
no THC
The cannaDOL®product range will be launched
in Q1 2020
Cosmetics: cannaQIX® Oral Care
•
cannaQIX® Oral Care is a sugar free Oral
Cosmetic in an innovative proprietary
buccal formulation containing CBD, mint,
and sage. The product contains no THC.
• Helps restore oral health - reducing
inflammation and supporting the
cultivation of healthy oral bacteria
Animal Health: anibidiol® 80
•
anibidiol® 80 is a CBD hemp oil-based
Complementary Feed for large animals in
granular form. The product contains no
THC.
Animal Health: anibidiol® Oil 500
•
is a CBD-based
anibidiol® Oil 500
Complementary Feed
for companion
animals with beef aroma. The product
contains no THC.
Animal Health: anibidiol® EQUI
•
anibidiol® EQUI is a hemp grinded plant
material for large animals with CBD and
apple flavor. The product contains no THC.
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CEO’s Report
Creso Pharma Limited – Annual Report 2019
All our products are made with standardised dosing and formulations through the application of pharmaceutical
rigour, GMP standards and our proprietary delivery technologies. In addition, they carry the well-known “Swiss Made“
label that is synonymous with premium quality products.
Global expansion
Creso Pharma’s strategy is to build a global business which sells products in various markets around the world. In
2019, we further accelerated our global expansion, delivering our products into new markets worldwide.
In April 2019, we announced that we had received approval to import our first medicinal cannabis product into Brazil.
Sales and marketing efforts in Brazil are being supported by our established partnership with SIN Solution, which is
also engaging in the support of patients’ access to regulatory authorities and insurers.
In October, we delivered our first orders of our medicinal CBD oil to New Zealand, our second product introduction
there that year. We also pressed forward in Australia, with sales of cannaQIX® 50 commencing in partnership with
Burleigh Heads Cannabis, a subsidiary of CDA Health.
Through our partnership with leading South African pharmaceutical company Pharma Dynamics, we are pursuing
commercialisation of our products in South Africa and other African countries. We granted Pharma Dynamics sole
distribution rights for our cannaQIX® range across the entire African continent. At the end of 2019, this agreement
began to take shape, with Pharma Dynamics placing two initial orders for cannaQIX® Regular totalling approximately
AUD 0.300 million.
We also continue to have a presence in Colombia and Israel via our wholly-owned Kunna S.A.S in Colombia, and our
joint venture with Cohen Propagation Nurseries in Israel.
Intellectual Property
Creso’s Intellectual Property comprises trademarks, brands, and patents, under registration proceedings, as well as
trade secrets and exclusive licence rights, all owned by Creso Pharma Switzerland GmbH. These give access to dedicated
technical know-how and manufacturing technologies which are key to Creso’s unique products.
Creso Pharma Switzerland GmbH owns 16 Trademarks registered in 2 to 15 countries and in the European Union.
Further Creso owns 2 Patent families submitted for registration in 3 to 7 countries and in the European Union.
Progress at Mernova facility
During 2019, we were pleased to begin the operation of our Mernova cannabis facility in Canada. Mernova has been
producing high-quality dry cannabis flowers since mid-year and is in the process of building to full capacity.
In September, Mernova was granted a licence to process cannabis by Health Canada. The processing licence expands
Creso Pharma’s offerings beyond the cultivation and sale of dried flower and enables it to produce and distribute
cannabis oils, concentrates and other derived products in Canada and abroad.
Mernova is now in the advanced stages of securing EU GMP certification, which will allow it to export GMP medicinal
cannabis products to Europe. Upon receiving this certification, it will be one of few Canadian companies with a licence
to export to the EU.
For the full year 2019, Mernova’s revenues were AUD 0.860 million. The facility is ramping up to full production capacity,
which it expects to achieve in 2020.
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CEO’s Report
Creso Pharma Limited – Annual Report 2019
12 | P a g e
Creso Pharma Limited – Annual Report 2019 CEO’s Report 13 | Page Looking ahead At the end of 2019, we bolstered our balance sheet with debt and equity funding so that we can continue to successfully execute our business strategy. In 2020, we will focus on the following three key areas of our business: • Bringing our Mernova facility up to full growing capacity and securing its GMP certification • Launching of additional new pharmaceutical-grade Swiss-Made GMP products • Signing distribution agreements in new markets to expand our global presence and international product penetration We have worldwide rights to a number of innovative, proprietary and unique delivery technologies which enhance the bioavailability and absorption of cannabinoids. Securing key certifications within strategically attractive regions will enable us to expand our portfolio and enter new and potentially lucrative markets. On behalf of the Board and leadership team, I would like to thank all shareholders for their continued belief in and support of Creso Pharma. We look forward to our continued growth and wish you all a successful 2020. Dr. Miri Halperin Wernli Group CEO and Co‐Founder Directors’ Report
Creso Pharma Limited – Annual Report 2019
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 2019.
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 Miri Halperin Wernli
Mr Adam Blumenthal
Dr James Ellingford
Executive Chairman
Managing Director and Chief Executive Officer
Non-Executive Director
Non-Executive Director
Boaz Wachtel MA.
Executive Chairman
Member of the Audit and Risk Committee
(Appointed 20 November 2015)
Mr Wachtel was 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. Mr
Wachtel is a certified clinical research manager and holds an MA in Management and Marketing from the University of
Maryland.
During the past three years Mr Wachtel held directorships in the following other ASX listed entity:
Company
Roots Sustainable Agricultural Technologies Limited (ASX:ROO)
Appointed
December 2017
Resigned
Current
Dr. Miri 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 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.
14 | P a g e
Directors’ Report
Creso Pharma Limited – Annual Report 2019
Adam Blumenthal BCom. MIR. MBA.
Non-Executive Director
Member of the Remuneration and Nomination Committee
(Appointed 20 November 2015)
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, and a major indirect shareholder and controller, 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 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) (subsequently renamed
Mandrake Resources Limited (ASX: MAN))
Appointed
November 2017
January 2016
Resigned
Current
May 2018
June 2017
April 2018
Dr James Ellingford MBA. PG (Corp Mgmt). D.Mgt.
Non-Executive Director
Chairman of the Remuneration and Nomination Committee
Chairman 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 held directorships in the following ASX listed entities:
Company
Esense-Lab Limited (ASX:ESE)
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))
Appointed
January 2020
April 2018
September 2017
January 2016
May 2016
Resigned
Current
Current
January 2019
January 2019
August 2017
15 | P a g e
Directors’ Report
Creso Pharma Limited – Annual Report 2019
Elysium Resources Limited (ASX:EYM)
(now Hardey Resources Limited (ASX:HDY))
Zyber Holdings Limited (ASX:ZYB)
March 2016
March 2017
January 2014
February 2016
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.
Director
Mr Boaz Wachtel
Dr Miri Halperin Wernli
Mr Adam Blumenthal
Dr James Ellingford
Total
Ordinary
Shares
8,300,000
12,800,000(i)
8,208,388
1,450,000
30,758,388
Listed Share
Options
Unlisted Options
Performance
Rights
3,000,000
4,147,950(i)
2,750,000
550,000
12,576,337
-
-
2,128,387
-
2,128,387
1,600,000
-
-
-
1,600,000
(i)
Includes 300,000 shares and 75,000 Options ($0.80, 21/08/20) are held by Jorge Wernli, a related party of Miri
Halperin Wernli and a consultant to Creso.
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
(Resigned 30 November 2019)
COMPANY SECRETARIES
Winton Willesee BBus. DipEd. PGDipBus. MCom. FFin. CPA. GAICD. FGIA/FCIS.
Joint 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.
Joint 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.
16 | P a g e
Directors’ Report
DIRECTORS’ MEETINGS
Creso Pharma Limited – Annual Report 2019
The number of Director’s meetings held during the financial year and the number of meetings attended by each Director
during the time the Director held office are:
Director
Board Meetings
Audit and Risk
Committee Meetings
Remuneration and
Nomination Committee
Meetings
Mr Boaz Wachtel
Dr Miri Halperin Wernli
Mr Adam Blumenthal
Dr James Ellingford
Number
Eligible to
Attend
16
16
16
16
Number
Attended
16
16
16
14
Number
Eligible to
Attend
2
-
-
2
Number
Attended
2
-
-
2
Number
Eligible to
Attend
-
-
-
-
Number
Attended
-
-
-
-
During 2019, the duties of the Remuneration and Nomination Committee and 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 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 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’s innovative CBD fully plant-based nutraceutical products are non-psychoactive, as they contain only trace
amounts of THC. Creso’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.
In addition, Creso, through its wholly-owned subsidiary Mernova Medicinal Inc (Mernova), cultivates and harvests
cannabis plants and supplies dried cannabis plant products to Licenced Producers in Canada.
Throughout 2019, Creso actively implemented its strategy to develop and commercialize cannabis products worldwide.
With operations in Europe, North America, Latin America and Oceania, Creso is a truly global company whose global
footprint continues to grow.
Operations highlights for 2019, as announced by Creso during the year, include:
Business development
• 21 January 2019: signed a three-year supply agreement with TerrAscend Canada, a wholly-owned subsidiary of
TerrAscend Corp., (CSE: TER; OTCQX: TRSSF) (“TerrAscend”) to supply cannabis products from the date that Creso
is licensed to sell cannabis under Canadian laws. That licence was granted on 15 February 2019 – see below.
• 1 February 2019: created a partnership with National University of Colombia in Bogota and appointed Dr Ricardo
Salazar Lopez as Primary Medical Advisor in Colombia.
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Directors’ Report
Creso Pharma Limited – Annual Report 2019
• 13 February 2019: signed a strategic collaboration agreement with Hempmate AG Switzerland for the co-
development and commercialisation of Creso’s products in Europe.
• 15 February 2019: received a licence to cultivate cannabis at Mernova. Creso became 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 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.
• 15 April 2019: commenced cultivation of premium cannabis clones at Mernova.
• 18 April 2019: obtained, together with marketing partner SIN Solution, a licence enabling Creso’s partner
MedDepot Brazil to import and distribute cannaQIX50® in Brazil.
• 30 April 2019: signed a distribution agreement with Burleigh Heads Cannabis in Australia to import and distribute
cannaQIX50® in Australia.
• 23 May 2019: harvested its first cannabis crop at Mernova.
• 2 July 2019: commenced sales of dried cannabis flower by Mernova.
• 6 August 2019: signed a distribution agreement to further build business in New Zealand in partnership with JC
Logistics Limited, trading as MedLeaf Therapeutics. MedLeaf placed second orders for cannaQIX50.
• 20 August 2019: took delivery in Switzerland of PharmaCielo’s first ever commercial export of CBD from Colombia
to Europe, comprising high quality CBD isolate.
• 22 August 2019: entered an agreement with leading South African pharmaceutical company, Pharma Dynamics, a
subsidiary of Lupin Limited, allowing Pharma Dynamics to distribute the CannaQIX® range of products in South
Africa.
• 16 September 2019: received a processing licence for Mernova allowing the production and wholesale distribution
of cannabis oils, concentrates and other derived products in Canada and abroad.
• 17 October 2019: delivered the first shipment of 10% CBD Oil to MedLeaf Therapeutics in New Zealand.
• 5 December 2019: delivered the first shipment of cannaQIX50 Burleigh Heads Cannabis, leading to the
commencement of sales in Australia.
• 9 December 2019: announced that preparations to launch the cannaQIX® range in partnership with leading South
African pharmaceutical company, Pharma Dynamics, a subsidiary of Lupin Limited (NSE:LUPIN) in the first quarter
2020 are on schedule. Pharma Dynamics has the sole distribution rights for the cannaQIX® product range across
South Africa, Namibia, Botswana, Zimbabwe, Swaziland, Lesotho, Angola, Mozambique and Uganda.
Capital management and Funding
• 30 January 2019: raised $2,725,000 million in a placement to institutional and sophisticated investors, in which the
Company issued 6,055,556 Shares at $0.45 per share, together with 2,018,516 options ($0.80, 21 August 2020). No
shareholder approval was required. The placement was managed by EverBlu Capital Pty Ltd2 (“EverBlu”), who
received a fee of 6% of the funds raised. No related parties, employees or associates of EverBlu participated in the
Placement.
• 30 January 2019: issued 195,556 shares in lieu of payments for digital marketing services.
• 1 February 2019: raised a further $250,000 as part of the 30 January placement through the issuing of 555,555
Shares, together with 185,185 options ($0.80, 21 August 2020)
• 11 April 2019: secured firm commitments from institutional and sophisticated investors to raise $5.35 million in a
series of secured loans. The funds were raised to support the sales and marketing of Creso’s products and to
accelerate its global cannabis cultivation and production operations.
• On 7 June 2019: as a condition of the scheme of arrangement – see Mergers, acquisitions and divestments below -
PharmaCielo agreed to provide a secured bridge loan of up to C$3.5 million (approximately A$3.85 million). The
loan was repayable either on 31 December 2019 or, if the scheme is not approved by Creso shareholders, on the
date which is four months after the date of the shareholders meeting to approve the scheme.
• 3 July 2019: reduced secured loans by $5,150,000 through the issue of 103 convertible notes, which were
immediately converted to 10,300,000 Shares and 15,450,000 Listed Options. Repayment of secured debt was a key
condition precedent to the proposed acquisition by PharmaCielo.
• 31 July 2019: issued 250,000 shares at $0.30 per share upon the exercise of 250,000 CPHOPT11 Options ($0.30, 27
July 2019).
• 28 November 2019: lodged a prospectus to enter into convertible securities agreements with professional and
sophisticated investors to raise up to $8,200,000, comprising an initial convertible security facility Convertible
Securities (Notes) (“Tranche 1 Convertible Note Facility”) to raise up to $5,500,000 through the issue of up to
2 EverBlu Capital Pty Ltd (EverBlu) is the Lead Manager to the Creso’s capital raisings. Adam Blumenthal, a director of
Creso, is Chairman, controller and a major indirect shareholder of EverBlu.
18 | P a g e
Directors’ Report
Creso Pharma Limited – Annual Report 2019
6,111,111 debt securities, and an additional convertible security facility to raise up to a further $2,700,000
(“Tranche 2 Convertible Note Facility”).
• 29 November 2019: subsequent to the prospectus lodged on 28 November 2019, raised $1.585 million in a
placement to professional and sophisticated investors (“Placement”). Under the terms of the Placement, the
Company issued 8,299,271 fully paid ordinary shares at $0.191 per share. No shareholder approval was required.
The Placement was managed by EverBlu Capital Pty Ltd, who received a fee of 6% of the total funds raised and,
following shareholder approval on 28 January 202, also the issue of an aggregate of 528,387 Shares and 528,387
Options on the basis of one Share for every $3 raised under the Placement, together with one Option for every
Share issued. No related parties, employees or associates of EverBlu participated in the Placement.
• 29 November 2020: issued 7,500,000 shares in settlement to the investors in the raising on 11 April 2019.
• 29 November 2019: issued 1,000,000 shares in lieu of payments for digital marketing services.
• 29 November 2019: repaid the loans advanced by PharmaCielo and accrued interest totalling A$4,362,463
(C$3,907,459).
• 31 December 2019: drew down a further $517,500 under the Tranche 2 Convertible Note Facility and issued Debt
Notes with a face value of $575,000 to L1 Capital Global Opportunities Master Fund.
Mergers, acquisitions and divestments
• 12 March 2019: decided, in conjunction with the other partners and the Board of the joint venture, CLV Frontier
Brands Pty Limited, to cease funding the operations of the joint venture, due to the significant additional funding
required to maintain a sustainable business. CLV ceased operating and is winding down its operations.
• 7 June 2019: entered into a Scheme Implementation Agreement (SIA) with PharmaCielo Limited (TSXV:PCLO)
(PharmaCielo), a Canadian company, for Creso to be acquired by PharmaCielo.
• 4 October 2019: Creso registered the Scheme Booklet with the ASIC in relation to the proposed acquisition of
Creso by PharmaCielo Limited.
• 11 November 2019: Creso’s Board decided that the proposed acquisition by PharmaCielo would not proceed as it
was determined that the proposal was ultimately not in the best interests of Creso shareholders. Accordingly,
Creso and PharmaCielo executed an agreement of mutual release and settlement in relation to the SIA, in terms of
which Creso would repay the loans advanced by PharmaCielo (approximately C$3.9million) on or before 30
November 2019.
Performance payments
• 31 January 2019: issued 2,000,000 ordinary shares from conversion of Performance Rights held by a Contractor to
the company upon the achievement of a milestone.
• 14 March 2019: Milestone 1, in accordance with the agreement for the acquisition of Mernova, was confirmed to
be achieved subsequent to Mernova being granted a cultivation license from Health Canada under the ACMPR.
Accordingly, the Company paid C$800,000 to the vendors of Mernova and issued to them C$4,150,000 of
Exchangeable Shares able to be exchanged for 6,587,302 shares in the Company.
• 25 July 2019: issued 2,000,000 ordinary shares on vesting of Performance Rights (issued 27 July 2017) held by a
Contractor to the company upon the achievement of a milestone.
Further information on the operations of the Group and its business strategies and prospects is included in the CEO’s
Report.
Financial Performance
The financial results of the Group for the year ended 31 December 2019 are:
31-Dec-18
$
6,390,538
16,504,392
31-Dec-19
$
2,800,318
17,273,960
Cash and cash equivalents
Net assets
Revenue from products
Royalty income
Total revenue
Other income
Net loss after tax
3,626,427
33,265
3,659,692
82,561
(15,339,772)
558,382
19,840
578,222
153,358
(16,845, 686)
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Directors’ Report
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Creso Pharma Limited – Annual Report 2019
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 which developed terpene-infused beers and adult
soft-drinks in Estonia. 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’s assets and liabilities were fully impaired at 31 December 2018 and the company’s operations ceased at
12 March 2019.
Hemp-Industries sro (HI)
HI was a wholly-owned subsidiary of the Company 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
its sale occurred on 29 March 2019 for consideration totalling A$1,571.
Changes in number of Shares, options, performance rights and performance shares
Quoted
Shares
Listed
Options
Unlisted
Options
Performance
Rights
Performance
Shares
Convertible
Notes
No.
124,187,665
No.
55,142,710
No.
No.
8,176,250
14,896,000
No.
2,212,120
No.
As at 31-Dec-18
Exercised – conversion of
performance rights
Issued - new performance rights
Lapsed performance rights
Cancelled performance shares
Issued – conversion of
performance rights
Issued – services (i)
Issued – capital raising (ii)
Issued – Placement (iii)
Issued – conversion of convertible
notes (iv)
Lapsed options
Expired options
Issued – exercise of options
Exercised options
Issued - collateral shares (v)
Issued - Tranche 1 fee shares (vi)
Issued - initial settlement shares
(vii)
As at 31-Dec-19
Issued - settlement shares (ix)
Issued – collateral shares (viii)
Issued – settlement shares (x)
Issued - collateral shares (xi)
Issued - Tranche 1 fee shares (xii)
Issued - capital raising (viii)
Issued - Tranche 2 fee shares (xiii)
Issued - new unlisted options (xiv)
Issued - Tranche 1 & Tranche 2 (xv)
Issued - Tranche 1 Convertible
Notes (xvi)
-
-
-
10,850,000
1,195,556
6,611,111
8,299,271
-
-
-
-
-
2,203,701
10,300,000
15,450,000
-
-
-
-
-
-
-
-
-
500,000
-
4,333,333
340,314
7,500,000
-
-
-
-
-
-
-
(340,000)
(2,500,000)
-
-500,000
-
-
-
(10,850,000)
500,000
(1,050,000)
-
-
-
(1,000,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
174,117,250
72,796,411
4,836,250
3,496,000
1,212,120
1,000,000
9,000,000
8,125,000
3,333,334
261,780
2,128,387
139,394
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,128,387
6,847,725
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,611,112
20 | P a g e
Directors’ Report
Issued - Tranche 2 Convertible
Notes (xvii)
Issued - corporate services (xviii)
Exercised - conversion of
performance rights
Issued - conversion of performance
rights
Exercised - conversion of
convertible notes
Issued - conversion of convertible
notes (xix)
As at 20-February-20
Creso Pharma Limited – Annual Report 2019
-
2,183,334
-
1,132,000
-
6,388,889
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,132,000)
-
-
-
-
-
-
-
-
-
575,000
-
-
-
(575,000)
-
207,809,368
72,796,411
13,812,362
2,364,000
1,212,120
3,611,112
(i)
Issued 195,556 Shares in January 2019 and 1,000,000 Shares in November 2019 in lieu of payments for
digital marketing services.
Issued 6,611,111 ordinary shares at $0.45 per share under the 31 January 2019 Placement.
(ii)
(iii) Under the terms of the Placement, the Company issued 8,299,271 fully paid ordinary shares at $0.191 per
share.
Issued 103 convertible notes to PharmaCielo, which were immediately converted in 10,300,000 Shares.
4,333,333 shares issued as collateral shares under Trance 1 and Tranche 2 Convertible Note Facilities.
(iv)
(v)
(vi) 340,314 shares issued as Tranche 1 Fee Shares with nil cash consideration.
(vii) 7,500,000 shares issued to former secured lenders for nil cash consideration (Initial Settlement Shares).
(viii) 9,000,000 Shares issued as Collateral Shares under the New Convertible Securities Agreement between the
Company and L1 Capital Global Opportunities Fund
(ix) 1,000,000 Shares issued as Shares under the Deed of Settlement between the Company and Mozaik Asset
Management Pty Ltd.
(x)
8,125,000 Shares issued to former secured lenders for nil cash consideration as part of a settlement
(xi) 3,333,334 Shares issue as Collateral Shares and 261, 780 Shares issued as Tranche 1 Fee Shares for nil cash
consideration to Suburban Holdings Pty Ltd, a related Tranche 1 investor
(xii) 2,128,387 Shares to EverBlu Capital (or its nominee) in part consideration for its services in respect of the
Capital Raising
(xiii) 139,394 Shares issued as Tranche 2 Fee Shares for nil cash consideration to an unrelated Tranche 2 Investor
(xiv) Issued to EverBlu Capital (or its nominee) in part consideration for services in relation to Tranche 1 &
(xv)
Tranche 2 Convertible Note Facilities and the Placement
Issued to Tranche 1 & Tranche 2 Investors for nil cash consideration, in part consideration for their
subscription to the debt notes.
(xvi) 3,611,112 Tranche 1 Convertible Notes issued for nil cash consideration in replacement of 3,611,112 Debt
Notes
(xvii) 575,000 Tranche 2 Convertible Notes issued for nil cash consideration in replacement of 575,000 Debt
Notes
(xviii) 2,183,334 Shares issued to consultants and advisers of the Company, in lieu of cash for corporate services.
(xix) Issue of 6,388,889 Shares to the Tranche 2 Convertible Notes holder upon conversion of 575,000 Tranche 2
Convertible Notes. Conversion price of $0.09 per share, based on the variable conversion price of the
Tranche 2 Convertible Notes.
DIVIDENDS
No dividends have been paid or declared by the Group since the end of the previous financial year (2018: nil).
No dividend is recommended in respect of the current financial year (2018: nil).
FRANKING CREDITS
The Company has no franking credits.
21 | P a g e
Directors’ Report
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
Creso Pharma Limited – Annual Report 2019
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 21 January 2020, Creso announced it had exceeded the milestone of 3 million anibidiol doses sold in Europe
since the product was launched in late 2017.
• On 21 January 2020, the company announced it had entered replacement Corporate Advisory and
Transactional Mandates with EverBlu Capital Pty Ltd.
• On 28 January 2020, Creso announced it had exceeded the milestone of 2.5 million cannaQIX lozenges sold
globally since the product was launched in April 2018.
• On 5 February 2020, the company confirmed that it entered into a new convertible securities agreement with
L1 Capital Global Opportunities Master Fund to access up to $17,482,500. Under the new Convertible Securities
Agreement, the company requested an initial advance of $1,750,000, which was advanced in two equal
tranches. Prior to receiving the first tranche, the company issued L1 Capital 9,000,000 fully paid ordinary shares
as collateral shares and paid L1 Capital a fee of 4% of the advance. The Company also agreed, that in certain
situations, the Company may be required to issue to L1 Capital up to a further 11,000,000 additional collateral
shares, without requiring shareholder approval. The issue of the 9,000,000 shares and the agreement to
potentially issue of a further 11,000,000 shares falls within the Company’s placement capacity under ASX
Listing Rule 7.1. EverBlu Capital Pty Ltd (“EverBlu”) acted as lead manager to this debt raising. EverBlu will be
paid a cash fee of $200,000 and will also be issued, subject to the receipt of shareholder approval, 4,000,000
shares and 4,000,000 options.
5 February 2020: The Company has also agreed to issue 1,000,000 Shares to Mozaik Asset Management Pty
Ltd, a Tranche 1 Investor, in consideration for the termination and settlement of the Original Convertible
Securities Agreement (and the associated Debt Notes) between the Company and Mozaik. As a result of this
termination, 222,222 Tranche 1 Convertible Notes were not issued to Mozaik.
•
• On 6 February 2020, Creso announced the achievement of a key technological breakthrough that will be used
to extend the cannaQIX human health product line.
• On 11 February 2020, Creso announced plans to launch a new hemp plant product targeted at equines and
large animals in the second half of 2020.
• On 14 February 2020, Creso confirmed the achievement of the second milestone in respect of the company’s
acquisition of Mernova Medicinal Inc.
• On February 18 2020, L1 Capital Global Opportunities Master Fund converted 575,000 Tranche 2 Convertible
Notes into 6,388,889 shares.
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 27 to 37.
22 | P a g e
Directors’ Report
SHARES, OPTIONS, PERFORMANCE RIGHTS AND PERFORMANCE SHARES
Creso Pharma Limited – Annual Report 2019
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
23-01-2017
27-07-2017
18-05-2018
27-07-2018
27-07-2018
21-08-2018
31-08-2018
Expiry date
27-06-2020
13-10-2020
23-01-2021
27-07-2020
13-07-2021
27-07-2021
27-07-2022
21-08-2021
15-09-2022
Balance as at 31 December 2019
12-02-2020
12-02-2023
12-02-2023
12-02-2020
Balance as at 28 February 2020
Exercise
Price
$0.40
$0.20
$0.50
$0.60
$0.80
$0.535
$0.80
$0.55
$0.80
$0.35
$0.40
Number
under option
400,000
2,886,250
300,000
100,000
150,000
200,000
200,000
200,000
400,000
4,836,250
2,128,387
6,847,725
13,812,362
Unissued ordinary shares of Creso Pharma Limited under listed options at the date of this report are as follows:
Listed Options
Expiry date
21-08-2020
21-08-2020
21-08-2020
21-08-2020
21-08-2020
21-08-2020
21-08-2020
Grant Date
21-08-2018
11-09-2018
17-12-2018
17-12-2018
30-01-2019
01-02-2019
02-07-2019
Balance as at 31 December 2019
Balance as at 28 February 2020
Purchase
Price
$0.05
$0.05
-
-
-
-
-
Exercise
Price
$0.80
$0.80
$0.80
$0.80
$0.80
$0.80
$0.50
Number
Under option
24,377,710
26,865,000
2,295,062
1,604,938
2,018,516
185,185
15,450,000
72,796,411
72,796,411
No person entitled to exercise the options had or has any right by virtue of the option to participate in any other 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 2019 and up
to the date of this report on the exercise of unlisted options granted:
Date Options
Granted
13-10-2016
27-07-2017
Date Options
Exercised
10-07-2019
31-07-2019
Balance as at 31 December 2019
Balance as at 28 February 2020
Exercise
Price
$0.20
$0.30
Number of Shares
Issued
250,000
250,000
500,000
500,000
23 | P a g e
Directors’ Report
Creso Pharma Limited – Annual Report 2019
Shares under Performance Rights
Unissued ordinary shares of Creso Pharma Limited under performance rights at the date of this report are:
Code
Issue Date
Expiry
Date
Exercise
Price
Balance at 31
December
2018
Granted
Vested
Cancelled
Balance at 31
December
2019
CPHPERR4
20/10/2016
18/10/2021
CPHPERR4
20/10/2016
18/10/2021
CPHPERR4
20/10/2016
18/10/2021
CPHPERR4
20/10/2016
18/10/2021
CPHPERR4
20/10/2016
18/10/2021
CPHPERR6
CPHPERR7
27/7/2017
27/7/2022
27/7/2017
27/7/2022
CPHPERR8
27/7/2017
27/7/2022
CPHPERR9
27/7/2017
27/7/2022
CPHPERR13
27/7/2017
27/7/2022
CPHPERR14
27/7/2017
27/7/2022
CPHPERR15
27/7/2017
27/7/2022
CPHPERR16
27/7/2017
27/7/2020
CPHPERR19
27/7/2017
27/1/2021
CPHPERR21
16/7/2018
16/7/2023
CPHPERR22
16/7/2018
16/7/2023
CPHPERR22
16/7/2018
16/7/2023
CPHPERR22
16/7/2018
16/7/2023
CPHPERR22
16/7/2018
16/7/2023
CPHPERR23
16/7/2018
16/7/2023
CPHPERR23
16/7/2018
16/7/2023
CPHPERR23
16/7/2018
16/7/2023
CPHPERR23
16/7/2018
16/7/2023
CPHPERR24
16/7/2018
16/7/2023
CPHPERR24
16/7/2018
16/7/2023
CPHPERR24
16/7/2018
16/7/2023
CPHPERR24
16/7/2018
16/7/2023
CPHPERR27
16/7/2018
16/7/2023
CPHPERR28
16/7/2018
16/7/2023
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
CPHPERR38
2/7/2019
2/7/2024
CPHPERR39
2/7/2019
2/7/2024
CPHPERR40
2/7/2019
2/7/2024
CPHPERR41
2/7/2019
2/7/2024
CPHPERR42
Balance as at 31 December 2019
2/7/2019
2/7/2024
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
250,000
1,750,000
1,500,000
750,000
800,000
800,000
1,250,000
1,250,000
100,000
150,000
100,000
100,000
2,000,000
50,000
50,000
33,000
33,000
16,000
50,000
33,000
33,000
16,000
33,000
33,000
16,000
50,000
200,000
100,000
300,000
300,000
300,000
100,000
150,000
150,000
500,000
400,000
400,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100,000
100,000
100,000
100,000
100,000
(750,000)
(250,000)
(1,750,000)
(1,500,000)
(750,000)
-
-
(1,250,000)
(1,250,000)
(100,000)
(150,000)
-
-
(2,000,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(500,000)
(400,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(50,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(150,000)
(150,000)
-
-
-
-
(400,000)
(100,000)
(100,000)
(100,000)
-
-
-
-
(100,000)
(100,000)
-
-
-
-
-
800,000
800,000
-
-
-
-
100,000
100,000
-
-
50,000
33,000
33,000
16,000
50,000
33,000
33,000
16,000
33,000
33,000
16,000
50,000
200,000
100,000
300,000
300,000
300,000
100,000
-
-
-
-
-
-
-
-
-
-
14,896,000
500,000
(10,850,000)
(1,050,000)
3,496,000
Code
Issue Date
Expiry Date
Exercise
Price
Balance at 31
December
2019
Granted
Vested
Cancelled
Balance at 28
February 2020
CPHPERR6
27/7/2017
27/7/2022
CPHPERR7
27/7/2017
27/7/2022
CPHPERR15
27/7/2017
27/7/2022
Nil
Nil
Nil
800,000
800,000
100,000
-
-
-
-
-
(100,000)
-
-
-
800,000
800,000
-
24 | P a g e
Directors’ Report
CPHPERR16
27/7/2017
27/7/2020
CPHPERR22
16/7/2018
16/7/2023
CPHPERR22
16/7/2018
16/7/2023
CPHPERR22
16/7/2018
16/7/2023
CPHPERR22
16/7/2018
16/7/2023
CPHPERR23
16/7/2018
16/7/2023
CPHPERR23
16/7/2018
16/7/2023
CPHPERR23
16/7/2018
16/7/2023
CPHPERR23
16/7/2018
16/7/2023
CPHPERR24
16/7/2018
16/7/2023
CPHPERR24
16/7/2018
16/7/2023
CPHPERR24
16/7/2018
16/7/2023
CPHPERR24
16/7/2018
16/7/2023
CPHPERR27
16/7/2018
16/7/2023
CPHPERR28
16/7/2018
16/7/2023
CPHPERR29
11/10/2018
11/10/2023
CPHPERR30
11/10/2018
11/10/2023
CPHPERR31
11/10/2018
11/10/2023
CPHPERR32
Balance as at 28 February 2020
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
100,000
50,000
33,000
33,000
16,000
50,000
33,000
33,000
16,000
33,000
33,000
16,000
50,000
200,000
100,000
300,000
300,000
300,000
100,000
3,496,000
Creso Pharma Limited – Annual Report 2019
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(50,000)
-
-
(16,000)
(50,000)
-
-
(16,000)
-
-
-
-
(200,000)
(100,000)
-
(300,000)
(300,000)
-
(1,132,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100,000
-
33,000
33,000
-
33,000
33,000
33,000
33,000
16,000
50,000
-
-
300,000
-
-
100,000
2,364,000
No person entitled to exercise the performance rights had or has any right by virtue of the performance rights to
participate in any other share issue of the Company or of any other body corporate.
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
CPHPERSA
13-10-2016
13-10-2019
CPHPERSB
20-12-2018
20-06-2020
CPHPERSC
20-12-2018
20-06-2020
CPHPERSD
20-12-2018
20-06-2020
CPHPERSE
20-12-2018
20-06-2020
Nil
Nil
Nil
Nil
Nil
Balance as at 31 December 2019
Balance as at 28 February 2020
Balance at
the start of
the year
1,000,000
303,027
303,027
303,027
303,039
2,212,120
1,212,120
Granted
Vested
Cancelled
Balance at
the end of
the year
-
303,027
303,027
303,027
303,039
(1,000,000)
-
-
-
-
(1,000,000)
1,212,120
-
1,212,120
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Shares under Convertible Notes
Unissued ordinary shares of Creso Pharma Limited under Convertible Notes at the date of this report are:
Code
Issue Date
Expiry Date
Exercise
Price
Balance at
the start of
the year
Granted
Exercised
Cancelled
Balance as at 31 December 2019
CPHCON1
12-02-2020
CPHCON2
12-02-2020
Balance as at 28 February 2020
Nil
Nil
-
-
-
-
-
3,611,112
-
-
575,000
(575,000)
4,186,112
(575,000)
Balance at
the end of
the year
-
3,611,112
-
3,611,112
-
-
-
-
INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITORS
During the year ended 31 December 2019, 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
25 | P a g e
Creso Pharma Limited – Annual Report 2019 Directors’ Report 26 | Page 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 resigned as auditor on 14 May 2019. BDO East Coast Partnership was appointed auditor on 31 May 2019 and continues in office in accordance with section 327 of the Corporations Act 2001. OFFICERS OF THE COMPANY WHO ARE FORMER PARTNERS OF THE AUDITOR There are no officers of the Company who are former partners of RSM Australia Partners or of BDO East Coast Partnership. AUDITOR’S INDEPENDENCE DECLARATION The lead auditor’s independence declaration for the year ended 31 December 2019 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 27 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 28 February 2020 Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2019
This remuneration report for the year ended 31 December 2019 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 Miri Halperin Wernli
Mr Adam Blumenthal
Dr James Ellingford
Executive Chairman
Managing Director and Chief Executive Officer
Non-Executive Director
Non-Executive Director
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 (resigned 26 November 2019)
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.
27 | P a g e
Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2019
❖ 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.
28 | P a g e
Remuneration Report (Audited)
C
Remuneration and Performance
Creso Pharma Limited – Annual Report 2019
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 2019 and 31 December 2018.
Revenue from products
Royalty income
Total revenue ($)
Net loss after tax
EPS ($)
Share price
31-Dec-19
3,626, 427
33,265
3,659,692
(15,339,772)
(0.10)
0.125
31-Dec-18
558,382
19,840
578,222
(16,845,686)
(0.14)
0.49
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 2018. 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.
Options issued will not be quoted on ASX.
29 | P a g e
Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2019
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.
D Details of Remuneration
Details of the nature and amount of each major element of the remuneration of each KMP of the Group during the
financial year are:
Table 1 – Remuneration of KMP of the Group for the year ended 31 December 2019 is set out below:
Short-term Employee Benefits
Post-
Employment
31 December 2019
Salary &
fees
Non-monetary
benefits
Other/
bonus
Superannuation
& Insurance
$
$
$
$
Directors
Boaz Wachtel
Miri Halperin Wernli
Adam Blumenthal
James Ellingford
Senior Executives
Christopher Grundy
John Griese (iii)
Total
105,000 (i)
641,473
200,000
134,000
240,000
327,155
1,647,628
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,000
12,730
20,767
4,217
56,714
Share Based
Payments
Performance
Rights / Options
(ii)
$
135,282
157,829
67,641
39,172
Total
$
240,282
799,302
286,641
185,902
442,773
603,342
1,446,039
703,540
934,714
3,150, 381
(i)
(ii)
(iii)
An amount of $105,000 has been paid/is payable to International Water and Energy Savers Ltd relating to
Boaz Wachtel’s Director’s Fees.
Share-based payments are the options and performance rights expensed over the vesting period (refer to
Note 24 for further details).
John Griese resigned on 30 November 2019
30 | P a g e
Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2019
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
Miri 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 Miri Halperin
Wernli’s remuneration.
During the year, one-off bonus payment of $203,648 was made to Miri Halperin Wernli.
Share-based payments are the options and performance rights expensed over the vesting period (refer to
Note 24 for further details).
John Griese was appointed on 14 June 2018.
One-off sign on Bonus was paid to John Griese.
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
Miri Halperin Wernli
Adam Blumenthal
James Ellingford
Senior Executives
Christopher Grundy
John Griese
Fixed Remuneration
2018
2019
At Risk – STI (%)
At Risk – LTI (%)
2019
2018
2019
2018
44%
80%
76%
79%
37%
35%
17%
22%
15%
63%
89%
75%
-
-
-
-
-
-
-
10%
-
-
-
9%
56%
20%
24%
21%
63%
65%
83%
68%
85%
37%
11%
16%
Table 3 – Shareholdings of KMP (direct and indirect holdings)
31 December 2019
Balance at
01/01/2019
Granted as
Remuneration
On Exercise of
Options
Net Change –
Other
Balance at
31/12/2019
Directors
Boaz Wachtel
Miri Halperin Wernli
Adam Blumenthal
James Ellingford
Senior Executives
Christopher Grundy
John Griese
Total
6,800,000
8,400,000
5,500,001
1,100,000
14,000
-
21,814,001
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,500,000 (i)
4,400,000 (i)
750,000 (i)
350,000 (i)
26,000 (ii)
900,000 (i)
7,926,000
8,300,000
12,800,000
6,250,001
1,450,000
40,000
900,000
29,740,001
(i)
(ii)
Shares issued to Directors on vesting of Performance Rights.
Shares purchased on-market.
31 | P a g e
Remuneration Report (Audited)
Table 4 – Listed Option holdings of KMP (direct and indirect holdings)
Creso Pharma Limited – Annual Report 2019
31 December 2019
Balance at
01/01/2019
Granted as
Remuneration
Net Change –
Other
Balance at
31/12/2019
Vested & Exercisable
Directors
Boaz Wachtel
Miri Halperin Wernli
Adam Blumenthal
James Ellingford
Senior Executives
Christopher Grundy
John Griese
Total
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
3,000,000
4,147,950
2,750,000
550,000
72,000
-
10,519,950
Table 5 – Performance rights holdings of KMP (direct and indirect holdings)
31 December 2019
Balance at
01/01/2019
Granted as
Remuneration
Vested and
Exercised
Others
Balance not
Vested at
31/12/2019
Balance
Vested not
Exercised at
31/12/2019
Directors
Boaz Wachtel
Miri Halperin Wernli
Adam Blumenthal
James Ellingford
Senior Executives
Christopher Grundy
John Griese
Total
3,100,000
4,400,000
750,000
350,000
1,000,000
1,600,000
11,200,000
-
-
-
-
-
-
-
(1,500,000)
(4,250,000)
(750,000)
(350,000)
-
(150,000)(i)
-
-
-
(900,000)
(7,750,00)
-
(700,000)(ii)
(850,000)
1,600,000
-
-
-
400,000
-
2,000,000
-
-
-
-
600,000
-
600,000
(i) 150,000 performance rights issued to Jorge Wernli, a related party of Miri Halperin Wernli and a consultant of
Creso. Performance rights CPHPERR14 were converted into shares on 2 July 2019.
(ii) 700,000 performance rights lapsed upon the resignation of John Griese on 30 November 2019.
32 | P a g e
Remuneration Report (Audited)
E
Service Agreements
❖ Mr Boaz Wachtel – Executive Chairman
Creso Pharma Limited – Annual Report 2019
Contract: Commenced on 18 October 2016.
-
- Director’s Fee: $10,000 per month from January 2019 to October 2019.
- Director’s Fee: $2,500 per month from November 2019 onwards.
- Director’s Fees are 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 discretionary bonus equal to 50% of the Fee on an
annual basis, subject to meeting performance criteria agreed by the Board each year.
❖ Dr Miri 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, increased to USD$8,000 per month from
April 2018.
Kunna Canada Limited and Kunna 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 discretionary 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.- Director’s fee of $2,000 per month, increased to $5,000 per month from April 2018.
-
-
-
Kunna Canada Limited and Kunna S.A.S – Director’s fee of $6,000 per month from December 2018.
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 2018.
-
-
-
Audit and Risk Committee Fee: $6,000 per annum.
Remuneration Committee Fee: $20,000 per annum.
Term: No fixed term.
❖ Mr Christopher Grundy – Chief Financial Officer
-
-
Contract: Commenced on 21 November 2017.
From 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.
-
Bonus: Mr Grundy is entitled to a discretionary bonus on an annual basis as determined by the Company.
-
-
❖ Mr John Griese – Chief Operating Officer – Americas
Contract: Commenced on 14 June 2018.
From 25 June 2018 to 25 September 2018 Full-time Base Salary: CAD$300,000 per annum (plus pension and
social insurance entitlements
From 26 September 2018 Full-time Base Salary: CAD$325,000 per annum (plus pension and social insurance
entitlements)
Sign-on Bonus: CAD$20,000
Resigned 30 November 2019
-
-
-
33 | P a g e
Remuneration Report (Audited)
F
Share-based Compensation
Creso Pharma Limited – Annual Report 2019
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 issued shares to KMP only upon vesting of their performance rights.
There are no shares issued to KMP as part of their 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.
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
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
-
-
-
-
-
-
-
-
Code
Grant Date
Vesting date
Performance period
Expiry date
CPHPERR29
CPHPERR30
CPHPERR31
CPHPERR32
CPHPERR33
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
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
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
Vested
-
-
-
-
-
34 | P a g e
Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2019
CPHPERR34
CPHPERR35
CPHPERR36
CPHPERR37
28 September 2018
28 September 2018
28 September 2018
28 September 2018
25 June 2021
28 September 2023
28 September 2023
28 September 2023
25 June 2018 - 25 June 2021
28 September 2018 – 28 September 2023
28 September 2018 – 28 September 2023
28 September 2018 – 28 September 2023
11 October 2023
11 October 2023
11 October 2023
11 October 2023
$0.555
$0.555
$0.555
$0.555
-
-
-
-
2019 Financial Year:
During the current financial year, the Company did not issue Performance Rights to KMP.
Rights granted under the Performance Rights Plan carry no dividend or voting rights.
Details of Performance Rights provided as part of remuneration to key management personnel are shown below.
Further information on the performance rights is set out in Note 20 to the financial statements.
Name
Grant Date
Expiry Date
Number of
Performance
Rights Granted
Value of the
Performance
Rights at Grant
Date
Number of
Performance
Rights vested
Lapsed
Vested
Boaz Wachtel
CPHPERR1
CPHPERR2
CPHPERR3
CPHPERR4
CPHPERR6
CPHPERR7
Miri Halperin Wernli
CPHPERR1
CPHPERR2
CPHPERR3
CPHPERR4
CPHPERR8
CPHPERR9
Adam Blumenthal
CPHPERR1
CPHPERR2
CPHPERR3
CPHPERR4
James Ellingford
CPHPERR1
CPHPERR2
CPHPERR3
CPHPERR4
CPHPERR13
Chris Grundy
CPHPERR29
CPHPERR30
CPHPERR31
CPHPERR32
John Griese
CPHPERR33
CPHPERR34
CPHPERR35
CPHPERR36
CPHPERR37
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
20 October 2016
20 October 2016
20 October 2016
20 October 2016
27 July 2017
18 October 2021
18 October 2021
18 October 2021
18 October 2021
27 July 2022
27 July 2022
18 October 2021
18 October 2021
18 October 2021
18 October 2021
27 July 2022
27 July 2022
18 October 2021
18 October 2021
18 October 2021
18 October 2021
18 October 2021
18 October 2021
18 October 2021
18 October 2021
18 October 2021
28 September 2018
28 September 2018
28 September 2018
28 September 2018
11 October 2023
11 October 2023
11 October 2023
11 October 2023
28 September 2018
28 September 2018
28 September 2018
28 September 2018
28 September 2018
11 October 2023
11 October 2023
11 October 2023
11 October 2023
11 October 2023
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
250,000
250,000
250,000
250,000
100,000
300,000
300,000
300,000
100,000
150,000
150,000
500,000
400,000
400,000
$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
$40,745
$41,093
$50,000
$50,000
$57,000
$166,500
$166,500
$166,500
$55,500
$83,250
$83,250
$277,500
$222,000
$222,000
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
$350,000
1,250,000
1,250,000
750,000
750,000
750,000
750,000
250,000
250,000
250,000
250,000
100,000
-
300,000 (i)
300,000 (i)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
500,000 (ii)
400,000
-
150,000
150,000
-
-
400,000
100%
100%
100%
100%
-
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
-
-
-
100%
100%
-
(i)
(ii)
The board used its discretion to approve the vesting of these securities.
Whilst the vesting condition was not satisfied, the Board used its discretion to accelerate the vesting of
the Performance Rights as a condition of the John Griese’s Termination and Release Deed.
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 by KMP during the financial year.
35 | P a g e
Remuneration Report (Audited)
H Loans with KMP
Creso Pharma Limited – Annual Report 2019
During the year, the Group:
• Received $31,000 on 20 December 2019 as a short term, unsecured and interest free loan from Anglo Menda Pty
Ltd, a company indirectly owned by and controlled by Adam Blumenthal. Repayment is to be in cash upon
receipt of the first tranche of new funding in 2020. The amount payable was settled in February 2020.
• Was owed $50,000 by EverBlu Capital Pty Ltd, a company of which Adam Blumenthal is the Chairman. Interest
was not charged. The amount receivable from EverBlu Capital Pty Ltd was settled in February 2020 by offset
against amounts payable to EverBlu Capital Pty Ltd.
Issued 1,666,667 convertible notes to Suburban Holdings Pty Ltd, a related party of the Group.
•
I Other Transactions with KMP
During the year, the Group:
• Made payments to International Water and Energy Savers Ltd relating to Boaz Wachtel’s Director’s Fees. Total paid
•
•
was $110,000. The outstanding balance at 31 December 2019 is $5,000.
Incurred fees payable to EverBlu Capital Pty Ltd. Total paid was $1,131,383. The outstanding balance at 31
December 2019 was $336,323. Issued shares totalling 2,128,387 and options totalling 2,128,387.
Incurred fees payable to Suburban Holdings Pty Ltd. Total paid during the year was $0. The outstanding balance at
31 Dec 2019 was $60,000. Issued shares totalling 3,595,114 and options totalling 2,727,272.
Further details of these transactions with KMP are provided below:
Cash Transactions with KMP Related Parties
Paid in 2019
Outstanding as at
31 Dec 2019
Total in 2019
Total in 2018
International Water and Energy Savers Ltd
Director Fees for Boaz Wachtel
EverBlu Capital Pty Ltd
Capital Raising Fees
Legal Fees
Monthly Retainer
IRESS charges recouped
Out of Scope Fees
Subtotal
Suburban Holdings Pty Ltd
Debt Draw Down Fee
100,000
5,000
105,000
120,000
958,038
40,000
100,000
3,345
30,000
1,131,383
-
1,231,383
30,654
45,000
20,000
669
240,000
336,323
60,000
401,323
988,692
85,000
120,000
4,014
270,000
1,467,706
60,000
1,632,706
145,200
-
120,000
4,707
-
269,907
-
389,907
Received by
Creso in 2019
Owing as at 31
Dec 2019
Total in 2019
Total in 2018
Total
Tranche 1 Convertible Notes
Suburban Holdings Pty Ltd
Amount drawn down by Creso
Face value of amount owing to Suburban Holdings
Total
1,500,000
-
1,500,000
-
1,666,667
1,666,667
1,500,000
1,666,667
3,166,667
Other Share and Option Transactions with KMP Related Parties
2019
2018
Shares
Options
Shares
Options
EverBlu Capital Pty Ltd
Debt Note Offer (ii)
Share Placement (ii)
Tranche 2 (ii)
Subtotal
Suburban Holdings Pty Ltd
Tranche 1 Fee (iii)
Collateral Shares (iii)
Subtotal
1,150,000 (i)
528,387 (i)
450,000 (i)
2,128,387
261,780 (i)
3,333,334 (i)
3,595,114
1,150,000 (i)
528,387 (i)
450,000 (i)
2,128,387
2,727,272 (i)
-
2,727,272
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
36 | P a g e
Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2019
(i)
(ii)
(iii)
Entitlements were not granted at 31 December 2019 but have subsequently been approved at the EGM
on 28th Jan 2020 and will be issued in 2020.
2,128,387 Shares to EverBlu Capital (or its nominee) in part consideration for its services in respect of the
Capital Raising
3,333,334 Shares issue as Collateral Shares and 261,780 Shares issued as Tranche 1 Fee Shares for nil
cash consideration to Suburban Holdings Pty Ltd, a related Tranche 1 investor. 2,727,272 unlisted options
issued to Suburban Holdings Pty Ltd as a Tranche 1 & Tranche 2 Investor for nil cash consideration, in
part consideration for their subscription to the debt notes.
Other than the above, there were no other transactions with KMP during the year ended 31 December 2019.
J Additional Information
The earnings of the consolidated entity for the five years to 31 December 2019 are summarised below:
Revenue from products
Revenue from services
Royalty income
Total Revenue
EBITDA
Loss after income tax
Share Price
Basic EPS ($)
Diluted EPS ($)
2019
$
3,626,427
-
33,265
3,659,692
(10,991,546)
(15,339,772)
0.125
(0.10)
(0.10)
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)
End of Audited Remuneration Report
37 | P a g e
Tel: +61 2 9251 4100
Fax: +61 2 9240 9821
www.bdo.com.au
Level 11, 1 Margaret St
Sydney NSW 2000
Australia
DECLARATION OF INDEPENDENCE BY GILLIAN SHEA TO THE DIRECTORS OF CRESO PHARMA LIMITED
As lead auditor of Creso Pharma Limited for the year ended 31 December 2019, I declare that, to the
best of my knowledge and belief, there have been:
1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
2. No contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Creso Pharma Limited and the entities it controlled during the period.
Gillian Shea
Partner
BDO East Coast Partnership
Sydney, 28 February 2020
BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of BDO Australia Ltd
ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd are members of BDO International Ltd,
a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved
under Professional Standards Legislation, other than for the acts or omissions of financial services licensees.
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the Financial Year Ended 31 December 2019
Creso Pharma Limited – Annual Report 2019
Revenue from continuing operations
Revenue
Production costs
Cost of sales
Gross profit before fair value adjustments
Fair value adjustment on sale of inventory
Fair value adjustment on growth of biological assets
Gross profit
Other income
Interest income
Royalty income
Other income
Expenses
Administrative expenses
Compliance and regulatory expenses
Consultancy and legal expenses
Depreciation and amortisation expense
Employee benefit expenses
Exclusivity and Facilitation fees
Finance costs
Impairment of receivables
Impairment of other assets
Impairment of intangibles
Marketing and investor relations expenses
Occupancy expenses
Share-based payment expenses
Research and development expenses
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
Note
4
12
4
5(a)
5(b)
5(c)
5(d)
5(e)
5(f)
10
15
14
24
6
2019
$
2018
$
3,626,427
558,382
(271,508)
(1,733,109)
1,621,810
(298,827)
802,907
2,125,890
57,093
33,265
25,468
(1,505,407)
(222,605)
(3,769,054)
(401,667)
(2,692,551)
-
(2,090,013)
-
-
(3,040,934)
(698,001)
(122,373)
(2,356,008)
(286,026)
(247,106)
(149,743)
-
(353,566)
204,816
-
-
204,816
144,037
19,840
9,321
(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
(15,339,772)
-
(15,339,772)
(16,845,686)
-
(16,845,686)
1,306,551
1,306,551
(206,421)
(206,421)
Total comprehensive (loss) for the year
(14,033,221)
(17,052,107)
(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
32
(285,391)
(15,054,381)
(15,339,772)
(89,650)
(16,756,036)
(16,845,686)
(285,391)
(13,747,830)
(14,033,221)
(89,650)
(16,962,457)
(17,052,107)
39 | P a g e
Consolidated Statement of Profit or Loss and Other Comprehensive Income
(Loss) per share for the year attributable to the members of
Creso Pharma Limited:
Basic loss per share (cents)
Diluted loss per share (cents)
7
7
(10.47)
(10.47)
(14.89)
(14.89)
Creso Pharma Limited – Annual Report 2019
The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be
read in conjunction with the notes to the financial statements.
40 | P a g e
Consolidated Statement of Financial Position
As at 31 December 2019
Creso Pharma Limited – Annual Report 2019
Note
2019
$
2018
$
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Biological assets
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
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
12
15
13
14
16
17
18
19
20
2,800,318
1,698,499
1,992,931
423,627
-
6,915,375
6,390,538
951,132
443,535
-
495,489
8,280,694
11,270,479
4,477,755
15,748,234
9,900,422
4,101,178
14,001,600
22,663,609
22,282,294
2,111,075
51,255
3,227,318
5,389,649
2,970,505
30,947
2,776,450
5,777,902
5,389,649
5,777,902
17,273,960
16,504,392
46,528,519
22,602,786
(51,857,345)
38,222,883
14,799,082
(36,427,923)
17,649,001
(375,041)
16,594,042
(89,650)
17,273,960
16,504,392
The Consolidated Statement of Financial Position should be
read in conjunction with the notes to the financial statements.
41 | P a g e
Consolidated Statement of Changes in Equity
For the Financial Year ended 31 December 2019
Creso Pharma Limited – Annual Report 2019
Issued
Capital
$
38,222,883
-
-
Share-
based
Payment
Reserve
$
14,547,170
-
-
Foreign
Currency
Translation
Reserve
$
251,912
-
1,306,551
Accumulated
Losses
$
(36,427,923)
(15,054,381)
-
Non-
Controlling
Interest
$
(89,650)
(285,391)
-
Total
$
16,504,392
(15,339,772)
1,306,551
-
8,664,938
-
-
-
-
(359,302)
378,741
3,878,730
-
1,306,551
(15,054,381)
(285,391)
(14,033,221)
-
-
-
-
-
-
-
-
-
-
-
-
8,664,938
378,741
3,878,730
(359,302)
-
46,528,519
2,239,682
21,044,323
-
1,558,463
-
(51,482,304)
-
(375,041)
2,239,682
17,273,960
Group
At 1 January 2019
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
Embedded derivative –
convertible notes options
Share-based payments
Share issuance costs
Exchangeable shares issued for
the acquisition of the
cultivation licence
At 31 December 2019
At 1 January 2018
Loss for the year
Other comprehensive income
35,138,519
-
-
5,516,511
-
-
45,491
-
206,421
(19,671,887)
(16,756,036)
-
-
(89,650)
-
21,028,634
(16,845,686)
206,421
Total comprehensive
income/(loss) for the year
after tax
Transactions with owners in
their capacity as owners:
Issue of share capital, net of
share issue costs
Issue of options
Share-based payments
At 31 December 2018
-
3,084,364
-
-
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)
2,952,136
6,078,523
16,504,392
The Consolidated Statement of Changes in Equity should be read
in conjunction with the notes to the financial statements.
42 | P a g e
Consolidated Statement of Cash Flows
For the Financial Year ended 31 December 2019
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 subsidiary - 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 borrowings
Repayment of borrowings
Borrowing costs
Payment of share issue costs
Net cash from financing activities
Creso Pharma Limited – Annual Report 2019
Note
2019
$
2018
$
8(a)
2,706,242
(12,054,538)
(316,275)
57,093
(559,478)
(10,166,956)
(1,922,600)
(1,419,631)
-
-
-
-
-
(3,342,231)
9,710,160
125,000
13,323,500
(12,025,000)
(798,768)
(291,255)
10,043,637
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
Net increase in cash and cash equivalents
(3,465,550)
(6,080,838)
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
6,390,538
(124,670)
2,800,318
12,424,913
46,463
6,390,538
8
The Consolidated Statement of Cash Flows should read in conjunction with the notes to the financial statements.
43 | 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 2019
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
2019 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 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 28 February 2020.
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 27.
New, revised or amended standards and interpretations adopted by the Group
The consolidated entity has adopted all 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 16 Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of
lease payments to be made over the lease term. The lease payments include fixed payments (including in-
substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index
or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include
the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of
penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The
variable lease payments that do not depend on an index or a rate are recognised as expense in the period on
which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease
Commencement date if the interest rate implicit in the lease is not readily determinable. After the
44 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2019
commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced
for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the
assessment to purchase the underlying asset.
There was no impact of the adoption of AASB 16 Leases as the practical expedient was applied whereby leases
expiring in the first year after transition was excluded from application of the standard..
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 2019. The consolidated entity's assessment of the impact of these new or amended Accounting
Standards and Interpretations is that they are not applicable.
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 $14,033,221 (2018:
$17,052,107) and had net cash outflows from operating of $10,166,956 (2018: $8,173,313) for the year ended
31 December 2019.
As a result of these matters, there is a material uncertainty related to events or conditions that may cast
significant doubt on whether the company will continue as a going concern and, therefore, whether it will
realise its assets and settle its liabilities and commitments in the normal course of the business and at the
amounts stated in the financial report.
The ability of the Group to continue as a going concern is dependent on obtaining additional funding facilities
scaling back corporate overheads and thereafter revenue growth in the operations in Canada and Switzerland
and positive cash flows from operations during the financial year. At 31 December, the Group has access to
additional tranches from existing convertible notes already on issue resulting in $4,232,500X further available but
not yet drawn down. Subsequent to year end, the Group has also negotiated a new funding package with L1
Capital which gives the Group access to a further $17,482,500 in funding. Each draw down under the package is
subject to the Company obtaining the agreement of L1 Capital and shareholder approval for the issue of
securities to L1 Capital. The Group has drawn down $1,750,000 m in funding between year end and the date of this
report.
Management has prepared a cash flow projection for the period to 28 February 2021 that supports the ability of
the consolidated entity to continue as a going concern subject to the events described above. However, forecast
events frequently do not occur as expected as many external and internal factors impact on future events. This
includes the uncertainty relating to the conversion or repayment of convertible notes issued.
The Directors are confident that sufficient funding will be raised in order to support the operations of the Group
until such time that the Group incurs positive cash flows from operations.
45 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2019
In the event that the Group is unable to achieve the matters detailed above, it may not be able to continue as a
going concern and therefore the Group may not be able to realise its assets and extinguish its liabilities in the
ordinary course of operations and at the amounts stated in the financial statements.
No adjustments have been made to the recoverability and classification of recorded asset values and the amount
and classification of liabilities that might be necessary should the consolidated entity and the Company not
continue as going concerns.
(c)
Principles of Consolidation
Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Creso as at 31
December 2019 and the results of all subsidiaries for the year then ended. Creso and its subsidiaries together are
referred to in this financial report as the consolidated entity.
Subsidiaries are all entities (including special purpose entities) over which the consolidated entity has the power
to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of
the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible
are considered when assessing whether the consolidated entity controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They
are de-consolidated from the date that control ceases.
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’s functional and
presentation currency.
46 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2019
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in profit or loss.
Consolidated entity companies
The results and financial position of foreign operations (none of which has the currency of a hyperinflationary
economy) that have a functional currency different from the presentation currency are translated into the
presentation currency as follows:
• Assets and liabilities for each statement of financial position account presented are translated at the closing
•
rate at the date of that statement of financial position;
Income and expenses for each statement of profit or loss and other comprehensive income account are
translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect
of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates
of the transactions); and
• All resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and
of borrowings and other financial instruments designated as hedges of such investments, are recognised in other
comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment
are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale.
(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.
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.
47 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g)
Income Tax
Creso Pharma Limited – Annual Report 2019
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income
based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and
liabilities attributable to temporary differences and to unused tax losses.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,
deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income
tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than
a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by
the end of the reporting period and are expected to apply when the related deferred income tax asset is realised
or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount
and tax bases of investments in foreign operations where the Company is able to control the timing of the
reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable
future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and
tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a
net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
(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.
48 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2019
The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-
controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any
pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-
existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to
the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-
date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-
controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity
interest in the acquirer.
Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the
provisional amounts recognised and also recognises additional assets or liabilities during the measurement
period, based on new information obtained about the facts and circumstances that existed at the acquisition-
date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii)
when the acquirer receives all the information possible to determine fair value.
(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:
Buildings and Improvements
Plant and Equipment
Machinery Equipment
Irrigation and Lighting
Security Systems
30 years
3 – 10 years
5 – 10 years
5 – 10 years
5 – 10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included
in profit or loss. When revalued assets are sold, it is consolidated entity policy to transfer any amounts included
in other reserves in respect of those assets to retained earnings.
The Mernova Facility located in Halifax was completed in February 2019 but was not available for use until May
2019.
49 | 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 2019
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.
Intellectual Property
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 30 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.
Finite-lived intangible assets are recorded at cost less accumulated amortisation and accumulated impairment
losses. Amortisation is provided on a straight-line basis over the following terms:
Licences (Canadian)
Licences (Colombian)
Intellectual Property
Software
Useful life of facility
3 – 10 years
5 – 10 years
5 years
The estimated useful life and amortisation method are reviewed at the end of each reporting year, with the
effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite
useful lives are comprised of certain acquired brand name, product rights, and licences to grow which are carried
at cost less accumulated impairment losses. Indefinite life intangible assets are not amortised but are tested for
impairment annually and when there is an indication of impairment.
50 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m)
Impairment of non-financial assets
Creso Pharma Limited – Annual Report 2019
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.
(o)
Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption
amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees
paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is
probable that some or all of the facility will be drawn down. In this case, the fees are 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 fees are capitalised as a prepayment for liquidity services and amortised over the period of the facility
to which it relates.
Convertible Notes
When a conversion feature of a debt instrument results in the conversion of a fixed amount of stated principal
into a fixed number of shares, it satisfies the ‘fixed for fixed’ criterion and, therefore, is classified as an equity
instrument.
The value of the liability component and the equity conversion component were determined at the date the
instrument was issued.
The fair value of the liability component at inception is calculated using a market interest rate for an equivalent
instrument without a conversion option.
(p)
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.
(q)
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.
51 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2019
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.
(r)
Share-based Payments
Equity-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 is 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 is 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.
Market conditions are taken into consideration in determining fair value. Therefore, any awards subject to
market conditions are considered to vest irrespective of whether or not that market condition has been met,
provided all other conditions are satisfied.
If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been
made. An additional expense is recognised, over the remaining vesting period, for any modification that increases
the total fair value of the share-based compensation benefit as at the date of modification.
If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the
condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or
employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over
the remaining vesting period, unless the award is forfeited.
If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any
remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award,
the cancelled and new award is treated as if they were a modification.
(s)
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
52 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2019
loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is
recognised directly in equity.
(t)
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.
(u)
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.
(v)
Current and Non-Current classification
Assets and liabilities are presented in the statement of financial position based on current and non-current
classification.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in
the consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected to
be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted
from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other
assets are classified as non-current.
A liability is classified as current when: it is either expected to be settled in the consolidated entity's normal
operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the
reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months
after the reporting period. All other liabilities are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
(w) Dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
53 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(x)
Investments in Associates
Creso Pharma Limited – Annual Report 2019
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.
(y)
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.
Inventories of harvested cannabis and finished goods are valued at the lower of cost and net realisable value.
Inventories of harvested cannabis are transferred from biological assets at their fair value less cost to sell up to
the point of harvest, which becomes the initial deemed cost. All subsequent direct and indirect post-harvest costs
are capitalised to inventory as incurred, including labour related costs, consumables, materials, packaging
supplies, utilities, facilities costs, quality and testing costs, and production related depreciation. Net realisable
value is determined as 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. Inventories for resale and supplies and
consumables are valued at the lower of costs and net realisable value, with cost determined using the weighted
average cost basis. The cost of goods sold is comprised of the cost of inventories expensed in the period and the
direct and indirect costs of shipping and fulfillment including labour related costs, materials, shipping costs,
customs and duties, royalties, utilities, facilities costs, and shipping and fulfillment related depreciation.
AASB 141 Agriculture (Biological assets)
The Company’s biological assets consist of cannabis plants. The Company capitalises all the direct and indirect
costs as incurred related to the biological transformation of the biological assets between the point of initial
recognition and the point of harvest including labour related costs, grow consumables, materials, utilities,
facilities costs, quality and testing costs, and production related depreciation. The Company measures biological
assets at fair value less cost to sell up to the point of harvest, which becomes the basis for the cost inventories
after harvest. Costs to sell includes post-harvest production, shipping and fulfillment costs. The net unrealised
gains or losses arising from changes in fair value less cost to sell during biological transformation are included in
profit or loss of the related period. Seeds are measured at fair value. The Company recognises the mother plants
used for cloning the cannabis plants through the statement of profit or loss as they have a useful life less than
one year.
54 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(z)
Investments and other financial assets
Creso Pharma Limited – Annual Report 2019
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, its 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.
(aa)
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.
(bb) Fair value measurement
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
55 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2019
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.
(cc)
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss are carried in the statement of financial position at fair
value with net changes in fair value recognised in the statement of profit or loss.
The category includes derivative instruments, including imbedded derivatives, with financial liability or non-
financial host, is separated from the host and accounted for as a separate derivative if: the economic
characteristics and risks are not closely related to the host; a separate instrument with the same terms as the
embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair
value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value
recognised in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract
that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial
liability out of fair value through profit or loss category.
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. The valuation model inputs are disclosed in note 24 and include forward-looking
assumptions.
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.
56 | P a g e
Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2019
NOTE 2
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS AND ASSUMPTIONS (continued)
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.
Fair value measurement
A number of assets and liabilities included in the Group’s financial statements require measurement at, and/or
disclosure of, fair value.
The fair value measurement of the Group’s financial and non-financial assets and liabilities utilises market observable
inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different
levels based on how observable the inputs used in the valuation technique utilised are (the ‘fair value hierarchy’):
-
-
-
Level 1: Quoted prices in active markets for identical items (unadjusted)
Level 2: Observable direct or indirect inputs other than Level 1 inputs
Level 3: Unobservable inputs (i.e. not derived from market data)
The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant
effect on the fair value measurements of the item. Transfers between items between levels are recognised in the
period they occur. The Group measures a number of items at fair value, including the following which are considered
level 3 in the fair value hierarchy:
-
-
Biological assets (note 12)
Embedded derivative portion of the convertible notes (note 18)
For more detailed information in relation to the fair value measurement of the items above, please refer to the
applicable notes.
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.
Biological assets and inventory
Management is required to make a number of estimates in calculating the fair value of biological assets and harvested
cannabis inventory. These estimates include a number of assumptions, such as estimating the stage of growth of the
cannabis, harvesting costs, sales price and expected yields. These are detailed at Note 12.
NOTE 3
SEGMENT INFORMATION
The Group require operating segments to be identified on the basis of internal reports about components of the
Group that are regularly reviewed by the chief operating decision maker (“CODM”) in order to allocate resources to
the segments and to assess their performance. On this basis, the Group’s reportable segments under AASB 8 are as
follows:
•
Europe & Middle East includes 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. Hemp-Industries s.r.o. (“Hemp-Industries”) (Sold on 29 March 2019) which included hemp
growing operations, outsourced CBD extraction and CBD product sales activities – located in Slovakia.
• North America includes the operating company Mernova Medicinal Inc (“Mernova”), together with corporate
holding companies Creso Canada Corporate Limited, Creso Canada Limited, 3321739 Nova Scotia Limited and
Kunna Canada Limited, all located in Canada.
South America includes Kunna S.A.S. located in Colombia.
•
• Asia Pacific includes the parent company Creso Pharma Limited (“Creso”) which provides the Group’s corporate
administration – located in Australia.
57 | P a g e
Notes to the Consolidated Financial Statements
NOTE 3
SEGMENT INFORMATION (continued)
Creso Pharma Limited – Annual Report 2019
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 2019
Asia Pacific
$
Revenue from products
Royalty income
Total segment revenue
Europe &
Middle East
$
2,765,824
-
South
America
$
North
America
$
860,603
-
2,765,824
860,603
-
33,265
33,265
Other income
16,660
14,465
51,436
Total
$
3,626,427
33,265
3,659,692
82,561
-
-
-
-
Loss before income tax expense
(12,834,680)
(1,576,413)
(392,030)
(536,649)
(15,339,772)
Total Segment Assets
Total Segment Liabilities
850,081
4,936,937
3,952,384
214,609
17,855,830
224,446
5,314
13,657
22,663,609
5,389,649
Year ended 31 December 2018
Revenue from products
Royalty income
Total segment revenue
Asia Pacific
$
2,290
19,840
22,130
Europe &
Middle East
$
556,092
-
556,092
North
America
$
-
-
-
South
America
$
Total
$
-
-
-
558,382
19,840
578,222
Other income
127,172
17,523
8,663
-
153,358
Loss before income tax expense
(10,353,533)
(2,557,918)
(3,934,235)
-
(16,845,686)
Total Segment Assets
Total Segment Liabilities
2,622,208
1,962,913
14,700,354
2,996,819
3,457,840
362,151
1,951,095
6,816
22,282,294
5,777,902
NOTE 4
REVENUE AND OTHER INCOME
Revenue from continuing operations
Revenue from sale of products
Royalty income
Other income
Interest received
Lease income
Other Income
Disaggregation of revenue
The disaggregation of revenue from contracts with customers is as follows:
2019
$
2018
$
3,626,427
33,265
3,659,692
57,093
9,432
16,036
82,561
558,382
19,840
578,222
144,037
8,663
658
153,358
2019
2018
58 | P a g e
Notes to the Consolidated Financial Statements
NOTE 4
REVENUE AND OTHER INCOME (continued)
Consolidated
Major product lines
Medicinal cannabis packaged products
Dried cannabis plant products
Royalty Income
Total
Geographical regions
Europe & Middle East
North America
Asia Pacific
Total
Timing of revenue recognition
Goods transferred at a point in time
Royalty income
Total
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) Depreciation and amortisation expense
Total depreciation per note (13)
Less: capitalised to inventory
Amortisation expense
(d) Employee benefit expenses
Director fees
Director bonuses
Wages and salaries
Recruitment fees
Superannuation
Other employee expenses
(e) Exclusivity and facilitation fees
Exclusivity fees (i)
Facilitation fees (ii)
Creso Pharma Limited – Annual Report 2019
$
$
2,765,824
860,603
33,265
558,382
-
19,840
3,659,692
578,222
2,765,824
860,603
33,265
558,382
-
19,840
3,659,692
578,222
3,626,427
33,265
558,382
19,840
3,659,692
578,222
629,072
406,369
469,966
1,505,407
589,475
716,687
241,308
1,547,470
1,348,126
783,136
1,637,792
3,769,054
417,423
(279,188)
263,432
401,667
1,221,812
-
1,246,574
22,523
89,964
111,678
2,692,551
-
-
-
599,815
715,980
662,862
1,978,657
17,293
-
21,428
38,721
1,029,884
203,648
1,424,583
-
81,717
301,439
3,041,271
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.
59 | P a g e
Notes to the Consolidated Financial Statements
NOTE 5 EXPENSES (continued)
Creso Pharma Limited – Annual Report 2019
(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.
(f)
Finance Costs
Loan servicing fees
Loan drawdown fees
Loan raising fees settled in options issued
Bank charges
Capital raising fees (i)
Interest expense
NOTE 6 INCOME TAX EXPENSES
The components of tax expense comprise:
Current tax
Deferred tax
(a)
Income tax expense reported in the of profit or loss and other comprehensive
income
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 30% (2018: 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
Tax losses not recognised
Total
(c) Deferred tax assets not brought to account are:
Carried forward losses
The benefit for tax losses will only be obtained if:
440,833
270,000
17,840
390,000
17,156
368,268
855,916
2,090,013
2019
$
--
- -
85,766
-
-
-
76,450
432,216
2018
$
-
-
(15,339,772)
(16,845,686)
(4,601,932)
(4,632,564)
387,846
706,802
3,556
491,260
1,252,070
1,760,398
-
966,062
1,844,901
24,776
143,770
426,510
1,226,544
-
5,840,258
2,773,811
▪ 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.
60 | P a g e
Notes to the Consolidated Financial Statements
NOTE 7
LOSS PER SHARE
Creso Pharma Limited – Annual Report 2019
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
2019
$
2018
$
(15,339,772)
(16,845,686)
285,391
89,650
Net loss for the year attributable to the owners of Creso Pharma Limited
(15,054,381)
(16,756,036)
Weighted average number of ordinary shares for basic and diluted loss per
share.
143,784,112
112,552,436
Options on issue are not considered dilutive to the earnings per share as the Company is in a loss-making position.
Continuing operations
• Basic and diluted loss per share (cents)
NOTE 8
CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Funds held in trust
(10.47)
(14.89)
2019
$
2018
$
2,800,318
-
2,800,318
3,067,761
3,322,777
6,390,538
Cash at bank earns interest at floating rates based on daily deposit rates. Short-term deposits are made in varying periods
between one day and three months, depending on the immediate cash requirements of the Group and earn interest at
the respective short-term deposit rates. Funds held in trust earn interest at 1.4% per annum.
(a) Reconciliation of net loss after tax to net cash flows from operations
Loss for the financial year
(15,339,772)
(16,845,686)
Adjustments for:
Depreciation and amortisation
Gain on foreign exchange
Share based payments
Impairment of receivables and other assets
Impairment of Colombian licences
Facilitation fees
Capitalised costs
Absorption of cost on depreciation
Other non-cash items
Changes in assets and liabilities
Receivables
Inventories
Trade and other payables
Provisions
Net cash used in operating activities
401,667
149,743
2,356,008
-
3,040,934
-
495,489
279,188
76,161
38,721
49,701
6,078,523
527,977
-
1,020,000
-
-
-
(356,877)
(1,549,395)
259,589
20,309
(10,166,956)
(9,795)
(442,625)
1,382,448
27,423
(8,173,313)
61 | P a g e
Notes to the Consolidated Financial Statements
NOTE 8
CASH AND CASH EQUIVALENTS (continued)
(b) Non-cash investing and financing activities
Share issue on acquisition of subsidiary
Shares issued on acquisition of cultivation licence
Impairment on Colombian licence (note 14)
(c) Changes in liabilities arising from financing activities
Creso Pharma Limited – Annual Report 2019
-
2,239,682
(3,040,934)
2,956,363
-
-
Proceeds from borrowings
Payment of interest on borrowings
31 December 2018
$
2,700,000
76,450
Cash Flows
$
1,298,500
(76,450)
Non-cash Flows
$
(820,340)
49,158
31 December 2019
$
3,178,160
49,158
2,776,450
1,222,050
(771,182)
3,227,318
Proceeds from borrowings
Payment of interest on borrowings
31 December 2017
$
-
-
-
Cash Flows
$
2,430,000
-
2,430,000
Non-cash Flows
$
270,000
76,450
346,450
31 December 2018
$
2,700,000
76,450
2,776,450
NOTE 9 INVESTMENT ACCOUNTED FOR USING EQUITY METHOD
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
2019
%
2018
%
Ownership interest
CLV Frontier Brands Pty Ltd
Developing terpene beers and
non-alcoholic beverages
Estonia/
Australia
33⅓%
33⅓%
Reconciliation of the group's carrying amount
Opening carrying amount
Share of (loss) after income tax
Closing carrying amount
-
-
-
100
(100)
-
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’s assets
and liabilities were fully impaired at 31 December 2018 and the company’s operations ceased as at 12 March 2019.
NOTE 10 TRADE AND OTHER RECEIVABLES
Trade debtors
Goods and Services Tax ('GST') receivable
Canadian HST Receivable
Other deposits and receivables
CLV JV -Joint Venture
Less: Allowance for expected credit losses
2019
$
1,017,229
172,763
77,014
431,493
-
-
1,698,499
2018
$
-
591,942
231,583
127,607
102,147
(102,147)
951,132
Allowance for expected credit losses
There are no expected credit losses and no loss recognised in the income statement for the year ended 31 December
2019.
62 | P a g e
Notes to the Consolidated Financial Statements
NOTE 11
INVENTORIES
Finished goods – Medicinal cannabis packaged products
Finished goods – Harvested cannabis plant products
Finished goods – Consumables inventory
Creso Pharma Limited – Annual Report 2019
2019
$
312,863
1,661,020
19,048
1,992,931
2018
$
443,535
-
-
443,535
During the year ended 31 December 2019, the Group recorded $271,508 (2018 - $nil) of productions costs. During the
year ended 31 December 2019, the Group expensed $298,827 (2018 - $nil) of fair value adjustments on the growth of
its biological assets included in inventory sold. As at 31 December 2019, the Group holds 684,184 kilograms of
harvested cannabis (31 December 2018 – nil).
NOTE 12
BIOLOGICAL ASSETS
The Company’s biological assets consist of 4,793 cannabis plants as at 31 December 2019. There were no biological
assets as at 31 December 2018 as cultivation had not commenced. The continuity of biological assets is as follows:
Carrying amount at 31 December 2018
Production costs capitalised
Increase in FVLCS due to biological transformation
Less: Transfer to inventory upon harvest
Carrying amount at 31 December 2019
2019
$
2018
$
-
1,852,120
802,907
(2,231,355)
423,672
-
-
-
-
-
The fair value was determined using an expected cash flow model which assumes the biological assets as at 31
December 2019 will grow to maturity, be harvested and converted into finished goods inventory and sold to Canadian
licensed producers. The Company’s method of accounting for biological assets attributes value accretion on a straight-
line basis throughout the life of the biological asset from initial cloning to the point of harvest. The Company’s
estimates, by their nature, are subject to changes that could result from volatility of market prices, unanticipated
regulatory changes, harvest yields, loss of crops, changes in estimates and other uncontrollable factors that could
significantly affect the future fair value of biological assets.
The fair value of biological assets is determined using a valuation model to estimate expected harvest yield per plant
applied to the estimated price per gram less processing and selling costs. Only when there is a material change from
expected fair value used for cannabis does the Group make any adjustments to the fair value used. During the year,
there was no material change to these inputs and therefore there has been no change in the determined fair value per
plant.
Dried Flower
The dried flower model utilises the following significant assumptions:
Weighted average of expected loss of plants until harvest
Expected yields for cannabis plants (average grams per plant)
Expected number of growing weeks
Weighted average number of growing weeks completed as a percentage of total
growing weeks at period-end
Estimated selling price per gram
After harvest costs to complete and sell per gram
Reasonable margin on after harvest costs to complete and sell per gram
Weighted Average
31 December 2019
15%
42
12
51%
C$3.50
C$0.30
C$2.60
63 | P a g e
Notes to the Consolidated Financial Statements
Shake
The shake model utilises the following significant assumptions:
Weighted average of expected loss of plants until harvest
Expected yields for cannabis plants (average grams per plant)
Expected number of growing weeks
Weighted average number for growing weeks completed as a percentage of
total growing weeks at period-end
Estimated selling price per gram
After harvest costs to complete and sell per gram
Reasonable margin on after harvest costs to complete and sell per gram
Creso Pharma Limited – Annual Report 2019
Weighted Average
31 December 2019
15%
33
12
51%
C$1.50
C$0.30
C$1.00
The sales price used in the valuation of biological assets is based on the average expected selling price of cannabis
products and can vary based on different strains being grown. Selling costs vary depending on methods of selling ad
are considered based on the expected method of selling and the determined additional costs which would be
incurred. Expected yields for the cannabis plant is also subject to a variety of factors, such as strains being grown,
length of growing cycle, and space allocated for growing. Management reviews all significant inputs based on
historical information obtained as well as based on planned production schedules.
Sensitivity analysis
Assuming all other unobservable inputs are held constant, the following table presents the effect of a -10% change on
the fair valuation of biological assets as at 31 December 2019.
Management has quantified the sensitivity of the inputs and determined the following:
•
Selling price per gram – a decrease in the average selling price per gram by 10% would result in the biological
asset value decreasing by $56,414 and inventory decreasing by $187,054.
• Harvest yield per plant – a decrease in the harvest yield per plant of 10% would result in the biological asset
value decreasing by $42,362.
These inputs are level 3 on the fair value hierarchy and are subject to volatility in market prices and several uncontrollable
factors, which could significantly affect the fair value of biological assets in future periods.
Other disclosures
All cannabis, as finished good and biological assets, was not pledged as security for the Group’s loans or borrowings in
2019 (2018: none).
At 31 December 2019, the Group had no commitments in relation to growing its cannabis (2018: nil).
$178,000 worth of government grants were received in relation to the Group’s agricultural activities in 2019 (2018: nil)
NOTE 13 PROPERTY, PLANT AND EQUIPMENT
Opening net book amount
Additions (Capital Expenditure and Acquired assets)
Disposals
Depreciation charge
Foreign exchange translation
Closing net book amount
Cost
Accumulated depreciation
Net book amount
2019
$
2018
$
9,900,422
50,996
1,922,600
9,845,785
(26,819)
(417,423)
(108,301)
(15,038)
(17,293)
35,972
11,270,479
9,900,422
11,712,561
9,925,081
(442,082)
(24,659)
11,270,479
9,900,422
64 | P a g e
Notes to the Consolidated Financial Statements
NOTE 13 PROPERTY, PLANT AND EQUIPMENT (continued)
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous
financial year are set out below:
Creso Pharma Limited – Annual Report 2019
Balance at
1 Jan 2019
Additions
Construction work in progress
Land
Buildings & Improvement
Plant and equipment
Machine & Equipment
Irrigation & Lighting
Security System
Total
7,648,398
366,859
-
1,885,165
-
-
-
9,900,422
2,614
-
22,432
7,704
217,943
1,516,566
411,554
2,178,813
Transfers
from Capital
Works
(7,648,398)
-
9,096,222
(1,704,037)
-
-
-
(256,213)
Disposals
-
-
-
(26,819)
-
-
-
(26,819)
Foreign
Currency
fluctuation
-
20,151
(128,452)
-
-
-
-
(108,301)
Depreciation
expense
Balance at
31 Dec 2019
-
-
(202,279)
(17,729)
(26,026)
(134,806)
(36,583)
(417,423)
2,614
387,010
8,787,923
144,284
191,917
1,381,760
374,971
11,270,479
Construction work in progress
Land
Buildings & Improvement
Plant and equipment
Machine & Equipment
Irrigation & Lighting
Security System
Total
Balance at
1 Jan 2018
-
-
-
50,996
-
-
-
50,996
Additions
Capital Works Disposals
-
-
-
39,656
-
-
-
39,656
7,648,398
356,105
-
1,801,626
-
-
-
9,806,129
-
-
-
(15,038)
-
-
-
(15,038)
Foreign
Currency
fluctuation
-
10,754
-
25,218
-
-
-
35,972
Depreciation
expense
Balance at
31 Dec 2018
-
-
-
(17,293)
-
-
-
(17,293)
7,648,398
366,859
-
1,885,165
-
-
-
9,900,422
NOTE 14
INTANGIBLE ASSETS
Current
Licences (Canadian)
Licences (Colombian)
Intellectual property
Computer software
2019
$
2018
$
3,540,692
-
927,287
9,776
4,477,755
507,282
2,985,565
608,331
-
4,101,178
Reconciliations
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 2019
Additions
Impairment(i)
Foreign exchange translation
Amortisation expense
Balance at 31 December 2019
Licences
(Canadian)
(a)
$
507,282
3,144,544
-
(3,827)
(107,307)
3,540,693
Licences
(Colombian)
(b)
$
2,985,565
55,369
(3,040,934)
-
-
-
Intellectual
Property
(c)
$
608,331
456,225
-
15,147
(152,416)
927,287
Computer
Software
(d)
$
-
13,485
-
-
(3,709)
9,776
Total
$
4,101,178
3,669,623
(3,040,934)
11,320
(263,432)
4,477,755
Remaining amortisation period (years)
29
-
6
3
65 | P a g e
Notes to the Consolidated Financial Statements
NOTE 14 INTANGIBLE ASSETS (continued)
Creso Pharma Limited – Annual Report 2019
Consolidated
Balance at 1 January 2018
Additions
Amortisation expense
Balance at 31 December 2018
(a) Licences Canadian
Licences
(Canadian)
(a)
$
-
507,282
-
507,282
Licences
(Colombian)
(b)
$
-
2,985,565
-
2,985,565
Intellectual
Property
(c)
$
-
629,759
(21,428)
608,331
Total
Computer
Software
(d)
$
$
-
-
- 4,122,606
-
(21,428)
- 4,101,178
Comprise the cannabis cultivation licence granted by Health Canada to Mernova Medicinal Inc in March 2019.
The directors have considered the recoverability of the Canadian licence, particularly in light of the current share
price. The Mernova facility commenced cultivation six months ago, and directors are confident in the growth
prospects of the business.
(b) Licences Colombia
(c)
Comprise licences to conduct R&D, cultivate, extract and export cannabis products, granted in Colombia to
Kunna S.A.S., prior to that company’s acquisition by Creso.
Intellectual Property
Intellectual Property comprises trademarks, brands, and patents, under registration proceedings, as well as trade
secrets and exclusive licence rights, all owned by Creso Pharma Switzerland GmbH.
(d) Computer software
Comprises bespoke software owned by Mernova Medicinal Inc for the management and valuation of biological
assets.
(i) The Kunna Licences were acquired in December 2018, as part of the acquisition of Kunna Canada Limited and its
wholly-owned subsidiary, Kunna S.A.S., and were carried at cost of acquisition. The Company has deferred its
plans to develop cannabis cultivation, extraction and export operations in Colombia. The licences remain current
and able to be utilised but, as a prudent measure pending the Group’s future investment and activities in
Columbia and given no future forecasted cash flows and indicators of impairment, the carrying value of the
licences has been reduced to $nil. The resulting impairment cost of $3,040,934 is included in the Statement of
Profit and Loss.
NOTE 15 OTHER ASSETS
Current
Shares issued pending cash received
Capitalised borrowing costs
Non-Current
Loan to CLV Frontier Brands Pty Ltd
Less: Impairment of loan – CLV Frontier Brands Pty Ltd(i)
Movements in the provision for impairment of other receivables are as follows:
Opening balance
Write-off of Hemp M&S OG provision
Write-off of CLV Frontier Brands provision
Additional provision recognised
Closing balance
2019
$
-
-
-
-
-
-
425,830
-
(425,830)
-
-
2018
$
-
495,489
495,489
425,830
(425,830)
-
578,726
(578,726)
-
425,830
425,830
66 | P a g e
Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2019
NOTE 16
TRADE AND OTHER PAYABLES
Trade payables
Payables to related parties (note 23)
Accrued expenses
Accrued expenses for related parties (note 23)
Income in Advance
Other payables
NOTE 17
PROVISIONS
1,030,843
93,736
650,063
250,587
34,405
51,441
2,111,075
455,875
11,368
2,062,394
-
209,540
231,328
2,970,505
Employee provisions
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.
51,256
30,974
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 18
Borrowings
Convertible notes
Loan from related party
Interest payable
3,147,160
31,000
49,158
3,227,318
2,700,000
-
76,450
2,776,450
Convertible notes
Convertible notes on issue at 31 December 2018 were repaid during the year.
At 31 December 2019, the convertible notes comprise convertible note facilities issued in two tranches. Tranche 1 was
3,833,334 notes issued on 28 November 2019 at an issue price of $0.90 per note. Tranche 2 was 575,000 notes issued
on 31 December 2019 at an issue price of $0.90 per note. On issue, the notes are convertible at a fixed conversion
price of $0.35 subject to certain conditions being met. The conversion price represents a premium of 71% to the share
price of the ordinary shares at the date the convertible notes were issued.
The Company must redeem the convertible notes by cash payments to the noteholders on dates which are 180 days
and 270 days after the date the notes were issued, with a final payment 12 months after the date the notes were
issued, at calculated amounts subject to certain terms and conditions. The noteholder can convert the notes at any
time prior to the redemption dates, and the Company can redeem early at any time with penalties attached. Interest
accrues daily on the notes at 4% per annum and is paid on fixed dates. The Company expects that the notes will be
converted prior to maturity and will have a dilutive effect. The notes are secured by agreement over the Company’s
assets.
As part of the convertible note facilities, 6,272,725 of free options were issued at an exercise price of $0.40 with an
expiration date of 36 months after issue and exercisable at any time.
Also as part of the convertible note facilities, 7,666,667 collateral shares have been available for issue to noteholders
at any time. The collateral shares can be purchased at a price of $0.35 and the purchase consideration can be used to
reduce the amount of the convertible note outstanding subject to various conditions. As at 31 December 2019,
4,333,333 collateral shares have been issued.
The net proceeds received from the issue of the convertible notes was $3,967,500 (being $3,450,000 for Tranche 1
and $517,500 for Tranche 2). These proceeds have been split between a financial liability element and an equity
component. The financial liability component comprises the fair value of the convertible note together with the
67 | P a g e
Notes to the Consolidated Financial Statements
NOTE 18
Borrowings (continued)
Creso Pharma Limited – Annual Report 2019
embedded derivative financial liability relating to the collateral shares. The equity component represents the
embedded derivative relating to the free options and has been credited to the options reserve.
The net proceeds on issue have been classified as follows:
Equity component – free options
Liability component – convertible notes
Liability component – embedded derivative – collateral shares
Net proceeds on inception
Liability component – convertible notes
Transaction costs capitalised
Net borrowings recorded on inception
378,741
2,681,331
907,428
3,967,500
2,681,331
(481,744)
2,199,587
At 31 December 2019, the fair value of the liability components recorded was $3,147,160.
The convertible notes have been valued using the net present value discounted at an effective interest rate of 22%
(inclusive of risk-free rate, market risk rate and operational risk rate and credit risk).
NOTE 19
ISSUED CAPITAL
(a) Issued and fully paid
2019
2018
No.
$
No.
$
Ordinary shares
174,117,250
46,528,519
124,187,665
38,222,883
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.
(b) Movement in issued shares – 2019
At 1 January 2019
Issuance of shares
Exercise of options
Conversion of convertible notes
Less: Equity raising costs
Less: Listed options
At 31 December 2019
Movement in issued shares - 2018
At 1 January 2018
Vesting of performance rights
Exercise of options
Issue of consideration shares- Kunna acquisition
At 31 December 2018
Number
124,187,665
39,129,585
500,000
10,300,000
-
-
174,117,250
Number
109,505,544
6,150,000
320,000
8,212,121
124,187,665
$
38,222,883
4,912,660
125,000
5,150,000
(359,302)
(1,522,722)
46,528,519
$
35,138,519
-
128,000
2,956,364
38,222,883
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.
68 | P a g e
Notes to the Consolidated Financial Statements
NOTE 20
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 24)
Embedded derivative – convertible notes options
Listed options issued
Exchangeable shares issued for acquisition of the cultivation licence (i)
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 2019
2019
$
2018
$
21,044,323
1,558,463
22,602,786
14,547,170
251,912
14,799,082
14,547,170
2,356,008
378,741
1,522,722
2,239,682
21,044,323
251,912
1,306,551
1,558,463
5,516,511
6,078,523
-
2,952,136
-
14,547,170
45,491
206,421
251,912
Share-based payment reserve
(i) 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. The issue of the exchangeable
shares are considered a share-based payment and are valued using the Black-Scholes model. The $2,239,682
exchangeable shares issued for the acquisition of the cultivation licence were capitalised against the Mernova
cultivation licence intangible. These shares were exercisable at 14 March 2019 and remained exercisable at 31
December 2019.
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 21
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.
69 | P a g e
Notes to the Consolidated Financial Statements
NOTE 21
Market risk (continued)
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2019
The carrying amount of the consolidated entity's foreign currency denominated financial assets and financial liabilities
at the reporting date were as follows:
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
€
-
-
-
EUR
€
214
777
84,917
2019
CHF
Fr.
1,398,589
432,299
144,080
2018
CHF
Fr.
572,925
28,981
6,286
CAD
$
201,520
571,632
190,416
CAD
$
3,489,702
573,767
1,756,901
USD
$
1,430
461
9,567
USD
$
7,633
311
7,132
The consolidated entity had net assets denominated in foreign currencies of $2,645,969 as at 31 December 2019
(2018: $3,118,755). Based on this exposure, had the Australian dollar weakened by 5%/strengthened by 5% (2018:
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 $132,000 lower/$132,000 higher (2018:
$156,000 lower/$156,000 higher) and equity would have been $132,000 lower/$132,000 higher (2018: $156,000
lower/$156,000 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 gain for the
year ended 31 December 2019 was $1,311,734 (2018: loss of $206,421).
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 $3,227,318 (2018: $2,776,450), are principal and interest
payment loans. Monthly cash outlays of approximately $15,000 (2018: $26,000) per month are required to service the
interest payments. Convertible notes on issue at year end with a face value of $4,408,333 Interest accrue interest
daily at 4% per annum and is paid on fixed dates. An official increase/decrease in interest rates of 100 (2018: 100)
basis points will have an adverse/ favourable effect on profit before tax of $31,000 per annum. All principal and
interest payments are due during the year ending 31 December 2020.
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.
70 | P a g e
Notes to the Consolidated Financial Statements
NOTE 21
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Credit risk (continued)
Creso Pharma Limited – Annual Report 2019
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
Liquidity risk arises from the possibility that Creso might encounter difficulty in settling its debts or otherwise meeting
its obligations related to financial liabilities.
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 seeks to manage its liquidity risk through the following mechanisms:
• Maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and
forecast cash flows
Comparing the maturity profile of financial liabilities with the realisation profile of financial assets
•
• Matching the maturity profiles of financial assets and liabilities
• Maintaining the support of lenders
• Negotiating with stakeholders to defer payments and/or settle payments in equity
• Maintaining a reputable credit profile
• Managing credit risk related to financial assets
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 - 2019
Non-derivatives
Non-interest bearing
Trade and other payables
Interest-bearing - fixed
rate
Convertible notes
Short-term loan
Interest expense
Total interest bearing
Maturity Analysis
1 – 3 months
4 – 6 months
7 – 9 months
10 – 12 months
Total non-derivatives
-
2,111,075
4%
4,408,333
31,000
49,158
6,599,566
2,181,233
2,085,000
1,500,000
833,333
6,599,566
-
-
-
-
-
-
-
-
-
-
-
2,111,075
-
-
-
-
-
-
-
-
-
4,408,333
31,000
49,158
6,599,566
2,181,233
2,085,000
1,500,000
833,333
6,599,566
71 | P a g e
Notes to the Consolidated Financial Statements
NOTE 21
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2019
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
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed
above.
In the event that convertible notes (refer Note 18) are not converted to issued shares, the amount repayable is the
face value of the note in each case.
November 2019 Tranche 1 Convertible Note Facility
November 2019 Tranche 2 Convertible Note Facility
Borrowings - Amounts Repayable under Convertible
Securities as at 31 December 2019
Amounts drawn down at
subscription price
$
3,450,000
517,500
Amounts repayable at
face value
$
3,833,333
575,000
3,967,500
4,408,333
As at 31 December 2019 the facilities available under the November Convertible Securities are:
Tranche 1 Convertible Note Facility
Tranche 2 Convertible Note Facility
Initial Facility at
subscription price
Amounts drawn down
at subscription price
Facility available as at
31 December 2019
$
5,500,000
2,700,000
$
3,450,000
517,500
$
2,050,000
2,182,500
Total
8,200,000
3,967,500
4,232,500
Fair value of financial instruments
Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value.
NOTE 22
CAPITAL RISK MANAGEMENT
For the purpose of the Company’s capital includes issued capital and all other equity reserves attributable to the equity
holders of the parent. The primary objective of the Company’s capital management is to maximise the shareholder
value. The Company’s objective when managing capital is to safeguard the ability to continue as a going concern so that
it can provide returns to shareholders and benefits to other stakeholders and to maintain an optimal capital structure.
Management effectively manages the company’s capital by regularly assessing the company’s financial risks and its
capital structure in response to changes in these risks and the market.
In order to maintain or adjust the capital structure, the company may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
There were no externally imposed capital requirements during the year.
72 | P a g e
Notes to the Consolidated Financial Statements
NOTE 23
RELATED PARTY DISCLOSURE
(a)
Key Management Personnel Compensation
Details relating to key management personnel, including remuneration paid, are below.
Creso Pharma Limited – Annual Report 2019
Short-term benefits
Post-employment benefits
Share-based payments
2019
$
2018
$
1,647,628
56,714
1,446,039
3,150,381
1,445,758
43,897
2,881,290
4,370,945
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 had transactions with related parties as follows:
Everblu Capital Pty Ltd - a company of which Adam Blumenthal is the Chairman
Capital raising fees payable in cash (i)
Legal fees
Monthly retainer
IRESS service fees
Out of scope fees
Amount payable to Creso (ii)
Balance owing to EverBlu Capital Pty Ltd at 31 December
Balance owing to Creso at 31 December
Suburban Holdings Pty Ltd – related party
Draw down fees
Balance owing at 31 December
Tranche 1 Convertible Notes
Amount drawn down by Creso
Face value of amount owing to Suburban Holdings
Anglo Menda Pty Ltd – related party
Short term loan to Creso
Balance owing at 31 December
2019
$
2018
$
988,692
85,000
120,000
4,014
270,000
(50,000)
1,417,706
336,323
50,000
60,000
60,000
(1,500,000)
1,666,667
31,000
31,000
145,200
-
120,000
4,707
-
-
269,907
10,335
-
-
-
-
-
-
-
International Water and Energy Savers Ltd - a company controlled by Boaz
Wachtel
Director’s Fees for Boaz Wachtel
Balance owing to International Water and Energy Savers Ltd at 31 December
105,000
5,000
120,000
10,000
(i) Capital Raising Fees payable in cash comprise 6% of funding amounts raised. Additional fees may be payable
in certain instances in Creso securities as agreed with Creso and announced to the ASX at the time.
(ii) Cash receivable by Creso of $50,000 was owed by EverBlu Capital Pty Ltd. Interest has not been charged. The
amount receivable was settled in February 2020 by offset against existing EverBlu invoices payable by Creso.
73 | P a g e
Notes to the Consolidated Financial Statements
NOTE 23
RELATED PARTY DISCLOSURE (continued)
Creso Pharma Limited – Annual Report 2019
Other Share and Option Transactions with KMP Related Parties
2019
2018
Shares
Options
Shares
Options
EverBlu Capital Pty Ltd
Debt Note Offer (ii)
Placement (ii)
Tranche 2 (ii)
Subtotal
Suburban Holdings Pty Ltd
Tranche 1 Fee (iii)
Collateral Shares (iii)
Subtotal
1,150,000 (i)
528,387 (i)
450,000 (i)
2,128,387
261,780 (i)
3,333,334 (i)
3,595,114
1,150,000 (i)
528,387 (i)
450,000 (i)
2,128,387
2,727,272 (i)
-
2,727,272
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(i)
(ii)
(iii)
Entitlements were not granted at 31 December 2019 but have subsequently been approved at the EGM
on 28 January 2020 and were issued in 2020.
2,128,387 Shares to EverBlu Capital (or its nominee) in part consideration for its services in respect of the
Capital Raising.
3,333,334 Shares issue as Collateral Shares and 261, 780 Shares issued as Tranche 1 Fee Shares for nil
cash consideration to Suburban Holdings Pty Ltd, a related Tranche 1 investor. 2,727,272 unlisted options
issued to Suburban Holdings Pty Ltd as a Tranche 1 & Tranche 2 Investor for nil cash consideration, in
part consideration for their subscription to the debt notes.
Terms and conditions
All transactions with related parties were reviewed by the Board and were made on normal commercial terms and
conditions and at market rates.
NOTE 24
SHARE-BASED PAYMENTS
(a)
Recognised share-based payment transactions
Unlisted options issued
Listed options issued
Adviser options issued
Performance rights issued
Shares issued for acquisition of subsidiary
Reconciliation:
Recognised as share-based payment expenses in statement of profit
and loss and other comprehensive income
Borrowings costs recognised as prepayment
Conversion of options
Payment for intangible acquired (refer Note 14)
2019
$
2018
$
226,070
1,522,722
132,275
4,237,345
-
6,118,412
390,000
-
-
6,078,523
2,956,364
9,424,887
2,356,008
6,078,523
-
1,522,722
2,239,682
6,118,412
390,000
-
2,956,364
9,424,887
Share based payments are valued on the bases set out in Note 1 (r) of Significant Accounting Policies (page 52)
74 | P a g e
Notes to the Consolidated Financial Statements
NOTE 24
SHARE-BASED PAYMENTS (CONTINUED)
Creso Pharma Limited – Annual Report 2019
For share-based payments issued during a financial year the parameters used in the valuations are set out in the
share-based payments note to the financial statements in that year.
(b)
Movements in unlisted options during the year
Grant Date
Issue Date
Date of
Expiry
Exercise
Price
Balance at the
start of the
year
Issued
during
the year
Exercised
during the
year
13-10-2016
06-12-2016
25-01-2017
01-02-2017
10-10-2017
13-10-2016
06-12-2016
25-01-2017
01-02-2017
10-10-2017
13-10-2019
27-06-2020
27-07-2019
27-07-2021
13-04-2019
$0.20
$0.40
$0.30
$0.40
$0.80
Weighted average exercise price
8,176,250
-
-
-
-
-
8,176,250
$0.36
-
-
-
-
-
-
-
(250,000)
-
-
-
(250,000)
(500,000)
$0.20
Expired/
Cancelled
during the
year
(2,250,000)
(200,000)
(250,000)
(140,000)
(250,000)
(2,840,000)
$0.27
Balance at the
end of the
year
-
-
-
-
-
4,836,250
$0.36
(c)
Summary of listed options issued during the year
Options
Issue Date
Date of
Expiry
Issue
Price
Exercise
Price
Shareholders (i)
30-01-2019
21-08-2020
Shareholders (i)
01-02-2019
21-08-2020
-
-
Lender (ii)
02-07-2019
21-08-2020
$0.50
$0.80
$0.80
$0.80
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
55,142,710
-
-
-
2,018,516
185,185
15,450,000
55,142,710
17,653,701
-
-
-
-
-
-
-
-
2,018,516
185,185
15,450,000
72,796,411
(i)
(ii)
These options were issued to the shareholders as part of the Placement of Shares on 30 January 2019 and 1 February 2019
respectively.
These options were issued to the lenders as part of the conversion of Convertible Notes on 2 July 2019.
(d)
Summary of performance rights granted and vested during the year
Balance at the start of the
year
Granted during the year
Vested during the year
Cancelled during the year
Balance at the end of the
year
14,986,000
500,000
(10,850,000)
(1,050,000)
3,496,000
Performance rights issued in the prior year are straight-forward, non-market-based performance rights, with no
consideration upon achievement
31 December 2019 – 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
02-07-2019
$0.51
N/A
N/A
02-07-2019
02-07-2019
02-07-2024
N/A
500,000
$0.51
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.
75 | P a g e
Notes to the Consolidated Financial Statements
NOTE 24
SHARE-BASED PAYMENTS (CONTINUED)
(e)
Summary of performance shares granted during the year
Creso Pharma Limited – Annual Report 2019
Balance at the start of the
year
Granted during the year
Vested during the year
2,212,120
-
Cancelled during the
year
Balance at the end of
the year
-
(1,000,000)
1,212,120*
* Each Performance Share will be exchanged for one ordinary share in Creso Pharma Limited in the event Kunna S.A.S.
successfully cultivates and sells 10kg of cannabis extract (with a minimum of 6% CBD or 6% THC in flower), which must
occur on commercial arm’s length terms, from its operations within 18 months of Settlement.
In relation to the performance shares issued, these shares are straight-forward, non-market-based performance
shares, with no consideration upon achievement. No value has been recorded in relation to the performance shares as
the probability attributed to the performance measure being achieved is nil and therefore the fair value is considered
to be nil.
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
Face value of Rights
Probability at acquisition and reporting date
CPHPERSB
CPHPERSC
CPHPERSD
CPHPERSE
$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%
$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
303,039
$0.36
$109,094
0%
NOTE 25
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
Milestone 2 Commitments
Cash payable in equal monthly instalments over 9 months commencing
February 2020.
2019
$
2018
$
-
-
1,221,338
1,221,338
29,240
-
-
29,240
877,097
877,097
69,840
2,441
-
72,281
-
-
NOTE 26
CONTINGENCIES
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 becomes exchangeable, at the election of the Mernova vendors, for fully paid ordinary shares in the Company
(Shares). In accordance with the terms of the shareholder approval and ASX Listing Rule 7.1 waiver, obtained in December
2017, the Mernova vendors can elect to exchange the Exchangeable Shares for a maximum of 13,174,604 Shares at any
time until 11 December 2022. There were two milestones attached to the acquisition. Milestone 1 was achieved during
the year.
76 | P a g e
Notes to the Consolidated Financial Statements
NOTE 26
CONTINGENCIES (continued)
Creso Pharma Limited – Annual Report 2019
As at 31 December 2019, Milestone 2 had not been achieved. As such, Milestone 2 Exchangeable Shares had not vested
and the Milestone 2 cash payment of C$800,00 was not payable. Subsequent to the year end, upon Creso Pharma
Limited’s announcement in February 2020, Milestone 2 was achieved and 4,150,000 Milestone 2 Exchangeable Shares
became exchangeable into Shares and C$800,000 became payable to the Mernova vendors and The Company and the
Mernova vendors have reached an agreement to settle this payment in equal monthly instalments over 9 months
commencing February 2020.
Other than the above, there have been no material changes to contingent liabilities since 31 December 2019.
NOTE 27
AUDITOR’S REMUNERATION
During the financial year the following fees were paid or payable for services provided by BDO East Coast Partnership,
the auditor of the company, its network firms and unrelated firms:
Audit Services- BDO East Coast Partnership (RSM Australia Partners for 2018)
Audit and review of annual and half-year
Other services – BDO
– Independent limited assurance report
– Independent Expert Report
Other services – RSM Australia Partners 8
– Income tax return
Component Auditor Fees
Audit and reviews of the financial statements
2019
$
2018
$
$
290,000
142,500 -
61,000
50,000
-
-
15,807
9,075
97,726
514,533
49,758
201,333 -
NOTE 28
INVESTMENT IN CONTROLLED ENTITIES
Company Name
Principal Activities
Country of
Incorporation
Ownership interest
2019
2018
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 Entity sold on 29 March 2019
Corporate entity
Corporate entity
Cultivation of cannabis plants and sale of
cannabis products
Corporate Entity
Corporate entity
Construction of medicinal cannabis growing
facility
Construction of medicinal cannabis growing
facility
Slovakia
Canada
Canada
Canada
Canada
Canada
Colombia
Israel
%
100
-
100
100
100
100
100
100
74
%
100
100
100
100
100
100
100
100
74
* Summarised financial information is not disclosed for the subsidiary with non-controlling interests as it is not
material to the consolidated entity.
77 | P a g e
Notes to the Consolidated Financial Statements
NOTE 29 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
Creso Pharma Limited – Annual Report 2019
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
2019
$
2018
$
950,816
2,622,209
29,469,593
(8,209,512)
27,719,890
(10,379,856)
21,260,081
22,210,897
17,340,034
19,962,243
4,936,937
4,936,937
3,457,851
3,457,851
46,528,519
21,044,323
(50,298,882)
17,273,960
38,222,882
14,547,169
(36,265,659)
16,504,392
Total comprehensive loss
(14,033,222)
(20,648,726)
Contingent liabilities
The parent entity had no contingent liabilities as at 31 December 2019 and 31 December 2018.
Capital commitments – Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 31 December 2019 and 31
December 2018.
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.
78 | P a g e
Notes to the Consolidated Financial Statements
NOTE 30
INTEREST IN ASSOCIATE
Creso Pharma Limited – Annual Report 2019
Interests in associates are accounted for using the equity method of accounting. Information relating to associates is
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
2019
%
2018
%
33⅓%
33⅓%
CLV Frontier Brands Pty Ltd
2018
2019
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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)
NOTE 31
EQUITY- NON-CONTROLLING INTEREST
Accumulated losses
2019
$
2018
$
375,041
375,041
89,650
89,650
The non-controlling interest comprises a 26% (2018: 26%) equity holding in Creso Grow Limited.
79 | P a g e
Creso Pharma Limited – Annual Report 2019
Notes to the Consolidated Financial Statements
NOTE 32
EVENTS AFTER THE REPORTING DATE
Capital management and Funding
•
•
•
•
•
•
21 January 2020: Creso signed replacement Corporate Advisory and Transactional Mandates with EverBlu
Capital Pty Ltd.
5 February 2020: Creso entered into a new Convertible Securities Agreement with L1 Capital Global
Opportunities Master Fund (L1 Capital) to access up to $17,482,500. Under the agreement, the Company may
request an initial advance of $1,750,000, to be advanced in two equal tranches. Prior to receiving the first
tranche, the company must issue L1 Capital 9,000,000 fully paid ordinary shares as collateral shares and pay
L1 Capital a fee of 4% of the advance. The Company also agreed, that in certain situations, the Company may
be required to issue to L1 Capital up to a further 11,000,000 additional collateral shares, without requiring
shareholder approval. The issue of the 9,000,000 shares and the agreement to potentially issue a further
11,000,000 shares falls within the Company’s placement capacity under ASX Listing Rule 7.1. EverBlu Capital
Pty Ltd acted as lead manager to this debt raising. EverBlu was paid a cash fee of $200,000 and was also
issued, with shareholder approval granted on 28 January 2020, 4,000,000 shares and 4,000,000 options.
5 February 2020: The Company has also agreed to issue 1,000,000 Shares to Mozaik Asset Management Pty
Ltd, a Tranche 1 Investor, in consideration for the termination and settlement of the Original Convertible
Securities Agreement (and the associated Debt Notes) between the Company and Mozaik. As a result of this
termination, 222,222 Tranche 1 Convertible Notes will no longer be issued to Mozaik.
6 February 2020: Drew down $840,000 net of 4% fees as the first part of the initial advance explained above
– new Convertible Securities Agreement 5 February 2020.
11 February 2020: Drew down $840,000 net of 4% fees as the second and final part of the initial advance
explained above – new Convertible Securities Agreement 5 February 2020.
11 February 2020: Issued 15,909,449 shares, comprising:
-
-
-
-
-
8,125,000 shares to former secured lenders for nil cash consideration as part of a settlement.
3,333,334 shares as Collateral Shares and 261,780 Shares issued as Tranche 1 Fee Shares for nil cash
consideration to Suburban Holdings Pty Ltd, a related Tranche 1 Investor.
2,128,387 shares to EverBlu Capital (or its nominees) in part consideration for its services in respect of
the Capital Raising.
139,394 shares as Tranche 2 Fee Shares for nil cash consideration to an unrelated Tranche 2 Investor
(or its nominee).
2,183,334 shares to consultants and advisers of the Company, in lieu of cash payments for corporate
services.
•
18 February 2020: L1 Capital converted 575,000 Tranche 2 Convertible Notes into 6,388,889 Creso shares.
Performance payments
•
•
11 February 2020: issued 1,132,000 shares following the exercising of 1,132,000 vested performance rights.
14 February 2020, Creso confirmed the achievement of Milestone 2 in respect of the Company’s acquisition
of Mernova Medicinal Inc., as a result of which:
a) 4,150,000 Milestone 2 Exchangeable Shares vested and became exchangeable for Creso shares. The
Mernova vendors can elect to exchange the Milestone 2 Exchangeable Shares into a maximum of
6,587,302 Creso shares at any time until 11 December 2022; and
b) a Milestone 2 cash payment of C$800,000 became payable to the Mernova vendors. In terms of an
agreement between the Company and the Mernova vendors this payment will be settled in equal
monthly instalments over 9 months commencing February 2020.
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.
The changes in number of Shares, Options, Performance Rights, Performance Shares and Convertible notes, as
disclosed above, are also included in the table on page 20-21.
80 | P a g e
Creso Pharma Limited – Annual Report 2019 Directors’ Declaration 81 | Page In the directors' opinion: ● the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; ● the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; ● the attached financial statements and notes give a true and fair view of the consolidated entity's financial position as at 31 December 2019 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 28 February 2020 Tel: +61 2 9251 4100
Fax: +61 2 9240 9821
www.bdo.com.au
Level 11, 1 Margaret St
Sydney NSW 2000
Australia
INDEPENDENT AUDITOR'S REPORT
To the members of Creso Pharma Limited
Report on the Audit of the Financial Report
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 2019, 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 report, 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 2019 and of its
financial performance for the year ended on that date; 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 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.
BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of BDO Australia Ltd
ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd are members of BDO International Ltd,
a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved
under Professional Standards Legislation.
Material uncertainty related to going concern
We draw attention to Note 1(b) in the financial report which describes the events and/or conditions
which give rise to the existence of a material uncertainty that may cast significant doubt about the
group’s ability to continue as a going concern and therefore the group may be unable to realise its
assets and discharge its liabilities in the normal course of business. 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.
Related party transactions
Key audit matter
How the matter was addressed in our audit
The Group has disclosed related party
Our audit procedures included, amongst others:
transactions as required by AASB 124 Related
Party Transactions in note 23 of the financial
report.
The Group has undertaken numerous related
party transactions during the year.
Reviewing documentation for a sample of related
party transactions, including all individually material
transactions, to understand the underlying
transactions and assessed whether they had been
recorded correctly;
Related party disclosures are significant to our
Obtaining confirmations from all key management
audit as they are material, and of interest to
shareholders due to their nature and value.
personnel and related parties and comparing to
disclosures;
Considering whether transactions with related parties
were at arm’s length. There was a particular focus on
capital raising fees, which were assessed through
comparisons to fees charged for similar transactions
with arm’s length parties by similar entities raising
capital in order to benchmark the transactions; and
Considering the appropriateness of disclosures in the
financial statements and ensuring the disclosures are
in accordance with AASB 124 Related Party
Disclosures.
Convertible notes
Key audit matter
How the matter was addressed in our audit
As disclosed in note 18 of the financial report,
Our audit procedures included, amongst others:
the Group has issued convertible notes during the
year.
The accounting for convertible notes was
considered a key audit matter due to the
complexity involved in assessing whether to
account for the notes as equity, a liability or a
combination of both, as well as the subsequent
measurement of the individual components,
based on the terms and conditions of the
agreement.
The assessment includes significant judgement
and there is a high degree of estimation in
determining the fair value of the separate
components of the liability.
Obtaining an understanding of and assessed the terms
and conditions of the convertible note agreement to
determine if the convertible notes were to be
accounted for as equity, a liability or a combination
of both;
Assessing the classification of each component as debt
or equity under AASB 132 Financial Instruments:
Presentation;
Considering the appropriateness of the valuation
methodology against the requirements of the relevant
Australian Accounting Standards;
Assessing the reasonableness of the inputs to the
valuation;
Assessing the measurement and accounting for
convertible notes subsequent to initial recognition;
and
Reviewing the disclosures made within the financial
report to ensure there were in line with the
requirements of AASB 7 Financial Instruments –
Disclosures.
Valuation of biological assets and inventory
Key audit matter
How the matter was addressed in our audit
The Group held biological assets of $390,979
Our audit procedures included, amongst others:
(note 12) and inventory of $2,020,119 (note 11)
at 31 December 2019.
AASB 141 Agriculture require biological assets to
be measured at fair value less costs to sell or, in
the absence of a fair value, at cost less
impairment. Inventories of harvested cannabis
are transferred from biological assets at their fair
value less cost to sell up to the point of harvest,
which becomes the initial deemed cost.
Reviewing AASB 141 and other applicable
pronouncements to ensure the Group’s accounting
policy is in accordance with Australian Accounting
Standards;
Obtaining management’s valuation model and
considering whether the inputs are reasonable and
the model is mechanically accurate. This included
obtaining an understanding of the inputs and outputs
of the software used to track cannabis growth, and
benchmarking these inputs and outputs against
We considered the valuation of biological assets
to be a key audit matter due to the complexity of
the valuation model and the significant estimates
required as inputs to the valuation model.
available industry information and information
obtained during the site visit;
Testing the underlying expenses which form the cost
base of the valuation model, and reviewing the
classification between different cost categories;
Assessing the stage of the lifecycle of the assets on
hand at year end and whether they have been
correctly reflected in the valuation model. This was
done by conducting test counts and observation
during a site visit at the cannabis cultivation facility;
Considering the classification of biological assets
versus inventory; and
Considering the appropriateness of disclosures in the
financial report.
Other information
The directors are responsible for the other information. The other information comprises the
information in the Group’s annual report for the year ended 31 December 2019, 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 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 has 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 in pages 27 to 37 of the directors’ report for the
year ended 31 December 2019.
In our opinion, the Remuneration Report of Creso Pharma Limited, for the year ended 31 December
2019, 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.
BDO East Coast Partnership
Gillian Shea
Partner
Sydney, 28 February 2020
Shareholder Information
The shareholder information set out below was applicable as at 12 February 2020.
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, Performance Rights or Convertible Notes 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 the cash and assets for the year
ended 31 December 2019 in a way that is consistent with its business objectives and strategy.
5. RESTRICTED SECURITIES
There are no restricted securities listed on the Company’s register as at 12 February 2020.
6. DISTRIBUTION OF SECURITY HOLDERS
6.1 Fully Paid Ordinary Shares
Shares Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and above
Total
Holders
2,167
4,185
1,393
1,639
155
9,539
Units
1,519,665
11,039,055
10,979,958
47,915,712
129,966,089
201,420,479
%
0.75
5.48
5.45
23.79
64.52
100.00%
On 12 February 2020, there were 5,372 holders of unmarketable parcels of less than 8,116,762 ordinary shares (based
on the closing share price of $0.135).
87 | P a g e
Shareholder Information
6.2 Listed CPHO Options exercisable at $0.80 on or before 21 August 2020
Creso Pharma Limited – Annual Report 2019
Shares Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and above
Total
6.3 Unlisted Options
Class
CPHOPT2 Options
($0.40, 27/06/2020)
CPHOPT3 Options
($0.20, 13/10/2020)
CPHOPT5 Options
($0.50, 23/01/2021)
CPHOPT12 Options
($0.60, 27/07/2020)
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)
CPHOPT20 Options
($0.35, 12/02/2023)
Holders
959
897
182
168
25
2,331
Units
544,551
2,355,646
1,372,140
4,130,846
64,393,228
72,796,411
%
0.75
3.24
1.88
5.67
88.46
100.00%
Quantity on
Issue
400,000
Distribution of Holders
There are 2 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:
- Mr Isaac Kobrin holds 200,000 securities (50%)
- Prof Felix Gutzwiller holds 200,000 securities (50%)
2,886,250
All the securities in this class are held by:
- Biolingus IP GmbH
300,000
100,000
150,000
200,000
200,000
200,000
400,000
All the securities in this class are held by:
- GBTPharma Ltd
All the securities in this class are held by:
- A & J Tannous 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
2,128,387
All the securities in this class are held by:
- Atlantic Capital Holdings Pty Ltd
88 | P a g e
Shareholder Information
CPHOPT21 Options
($0.40, 12/02/2023)
6,847,725
6.4 Performance Rights
Class
CPHPERR6
Performance Rights
CPHPERR7
Performance Rights
CPHPERR16
Performance Rights
CPHPERR22
Performance Rights
Quantity on
Issue
800,000
800,000
100,000
66,000
CPHPERR23
Performance Rights
66,000
CPHPERR24
Performance Rights
132,000
Creso Pharma Limited – Annual Report 2019
There are 4 security holders, each holding more than
100,001 of securities in this class.
The following holders hold more than 20% of securities
in this class:
- CS Third Nominees Pty Limited holds 3,302,272 securities (48.22%)
- Suburban Holdings Pty Ltd holds 2,727,272 securities (39.83%)
Distribution of Holders
Stephane Redey
International Water Energy Savers Ltd
International Water Energy Savers Ltd
Sean MacDougall holds 33,000 securities (50%)
Ian Kaye holds 33,000 securities (50%)
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 2 holders, all holding between 10,001 and
100,000 of securities in this class.
The following holders hold more than 20% of the
securities in this class:
-
-
There are 2 holders, all holding between 10,001 and
100,000 of 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 of 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%)
Sean MacDougall holds 33,000 securities (50%)
Ian Kaye holds 33,000 securities (50%)
CPHPERR29
Performance Rights
CPHPERR32
Performance Rights
300,000
100,000
All the securities in this class are held by:
- Mr Christopher Grundy
All the securities in this class are held by:
- Mr Christopher Grundy
89 | P a g e
Creso Pharma Limited – Annual Report 2019
Shareholder Information
6.5 Performance Shares
Class
CPHPERSB
Performance Shares
Quantity on
Issue
303,027
CPHPERSC
Performance Shares
303,027
CPHPERSD
Performance Shares
303,027
CPHPERSE
Performance Shares
303,039
6.6 Convertible Notes
Class
CPHCON1
Convertible Notes
Quantity on
Issue
3,611,112
Distribution of Holders
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.
Distribution of Holders
There are 3 security holders, each holding more than
100,001 of securities in this class.
The following holders hold more than 20% of the
securities in this class:
- CS Third Nominees Pty Limited holds 1,666,667 securities
(46.15%)
Suburban Holdings Pty Ltd holds 1,666,667 securities (46.15%)
-
CPHCON2
Convertible Notes
575,000
All the securities in this class are held by:
- CS Third Nominees Pty Limited
90 | P a g e
Shareholder Information
7. SUBSTANTIAL SHAREHOLDERS
Creso Pharma Limited – Annual Report 2019
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 as at 12 February 2020, are as follows:
Name: 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
Name: 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
Name: International Water Energy Savers Ltd
Holder of: 8,300,000 fully paid ordinary shares, representing 5.50% as at 2 July 2019
Notice Received: 2 July 2019
Name: Miriam Halperin Wernli
Holder of: 12,800,000 fully paid ordinary shares, representing 8.48% as at 2 July 2019
Notice Received: 15 July 2019
Name: Jamber Investments Pty Ltd
Holder of: 15,825,250 fully paid ordinary shares, representing 9.09% as at 23 January 2020
Notice Received: 23 January 2020
91 | P a g e
Shareholder Information
8. TWENTY LARGEST SHAREHOLDERS AS AT 12 FEBRUARY 2020
Creso Pharma Limited – Annual Report 2019
1
5
6
7
8
2
3
4
Name
JAMBER INVESTMENTS PTY LTD
MIRIAM HALPERIN WERNLI
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CS THIRD NOMINEES PTY LIMITED
INTERNATIONAL WATER ENERGY SAVERS LTD
ANGLO AUSTRALASIA HOLDINGS PTY LTD
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
SUBURBAN HOLDINGS PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
10
ATLANTIC CAPITAL HOLDINGS PTY
11
PHEAKES PTY LTD
12
13
DORSON COMMERCIAL CORP
14 MR JAMES ANTHONY ELLINGFORD
15
16 MR PEPPI SCHIANO DICOLA
17
BLUEKNIGHT CORPORATION PTY LTD
9
EIGHTEEN SPEED OVERDRIVE PTY LTD
BB ENTERPRISES BVI
S3 CONSORTIUM PTY LTD
PEDRO TOSIN
Total
18
19
20
Shares Held
22,140,303
%
10.99%
12,500,000
9,146,887
8,847,971
8,300,000
6,250,000
4,275,787
3,786,095
3,450,914
2,941,119
1,958,387
1,577,875
1,549,618
1,450,000
1,333,334
1,300,000
1,157,501
1,056,752
1,000,000
925,063
94,947,606
6.21%
4.54%
4.39%
4.12%
3.10%
2.12%
1.88%
1.71%
1.46%
0.97%
0.78%
0.77%
0.72%
0.66%
0.65%
0.57%
0.52%
0.50%
0.46%
47.14%
92 | P a g e
Shareholder Information
Creso Pharma Limited – Annual Report 2019
9. TWENTY LARGEST LISTED CPHO OPTION HOLDERS AS AT 12 FEBRUARY 2020
Name
CITICORP NOMINEES PTY LIMITED
1
2 MIRIAM HALPERIN WERNLI
3
4
5
PHEAKES PTY LTD
INTERNATIONAL WATER ENERGY SAVERS LTD
ANGLO AUSTRALASIA HOLDINGS PTY LTD
JAMBER INVESTMENTS PTY LTD
6
7 MR GEORGE CHIEN HSUN LU & MRS JENNY CHIN PAO LU
8 MR NAYAN DARJI
9
SUBURBAN HOLDINGS PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
10 MR JAMES ANTHONY ELLINGFORD
11
12 MR POH SENG TAN
13 BNP PARIBAS NOMINEES PTY LTD
14 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
15 MR ROGER WILLIAMS PATEK & MRS MAREE HELEN PATEK
16 LYNWAR PTY LTD
16 MR BEN CHEE SIAH
16 WALROO PTY LTD
17 MR DARRYL THOMAS AYRIS
18 MR DARRYL AYRIS & MRS AMANDA JANE AYRIS
Shares Held
42,236,869
4,072,950
3,250,000
3,000,000
2,750,000
2,617,407
1,308,850
705,000
592,442
550,000
492,898
350,000
348,846
276,231
250,000
200,000
200,000
200,000
157,500
152,500
19 MR JUERG THEODOR WEHRLI & MRS CLAUDIA WEHRLI
150,000
19 HESSION GROUP PTY LTD
19 BLUE FEATHER (QLD) INVESTMENTS PTY LTD
20 MRS NICOLETTE VICTORIA NEWELL & MR ANDREW
150,000
150,000
125,000
%
58.02%
5.60%
4.46%
4.12%
3.78%
3.60%
1.80%
0.97%
0.81%
0.76%
0.68%
0.48%
0.48%
0.38%
0.34%
0.27%
0.27%
0.27%
0.22%
0.21%
0.21%
0.21%
0.21%
0.17%
MICHAEL NEWELL
Total
64,286,493
88.31%
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Glossary of Terms and Abbreviations
Creso Pharma Limited – Annual Report 2019
AASB
ACMPR
anibidiol ®
ASIC
ASX
cannaDOL ®
cannAPEAL ®
cannaQIX ® 10
cannaQIX ® 50
cannaQIX® NITE
CBD
CEO
CFO
Company
Corporations Act
2001
EBITDA
EGM
EPS
FVLCS
GMP
Group
GST
HST
IFRS
Australian Accounting Standards Board. The AASB is responsible for developing, issuing and
maintaining Australian accounting standards.
Access to Cannabis for Medical Purposes Regulations (Canada)
Creso’s complementary feed for companion animals with CBD from full spectrum hemp oil
extract.
Australian Securities and Investments Commission. ASIC is an independent Australian
government body that acts as Australia's corporate regulator.
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 standardised
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
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.
Earnings before interest, taxes, depreciation, and amortisation
Extraordinary General Meeting
Earnings per share
Fair value less costs to sell. The amount obtainable from the sale of the asset in an arm’s
length transaction, less the costs of disposal.
Good manufacturing practices are the practices required to conform to the guidelines
recommended by agencies that control the authorisation and licensing of the manufacture and
sale of food and beverages, cosmetics, pharmaceutical products, dietary supplements, and
medical devices.
Creso or Creso Pharma Limited ACN 609 406 911
Goods and Services Tax (Australia)
Harmonized Sales Tax (Canada)
International Financial Reporting Standards
94 | P a g e
Glossary of Terms and Abbreviations
Creso Pharma Limited – Annual Report 2019
JV
KMP
KPI
LTI
M&A
R&D
RNC
Shake
STI
Terpene
THC
TSX-V
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 Frontier 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.
Long Term Incentive
Mergers and Acquisitions
Research and Development (of products and processes).
Creso’s Remuneration and Nominations Committee – a sub-committee of the Board
Shake consists of small pieces of cannabis flower that break off of larger buds, generally as the
result of regular handling.
Short Term Incentive
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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