CRESO PHARMA LIMITED
ACN 609 406 911
Annual Report for the
Year Ended 31 December 2020
Annual Report
For the year ended 31 December 2020
Creso Pharma Limited – Annual Report 2020
Contents
About Creso
Corporate Directory
Chairman’s Address
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
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Creso Pharma Limited – Annual Report 2020
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 and Australia.
www.CresoPharma.com
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Corporate Directory
Board of Directors
Creso Pharma Limited – Annual Report 2020
Mr Adam Blumenthal
Dr Miri Halperin Wernli
Dr James Ellingford
Mr Boaz Wachtel
(Non-Executive Chairman)
(Executive Director and Head of Technology, Innovation and Distribution)
(Executive Director)
(Non-Executive Director)
Secretaries
Ms Erlyn Dale and Mr Winton Willesee, jointly
Registered Office
Suite 5 CPC, 145 Stirling Highway
Nedlands, WA 6009
Australia
Telephone: +61 8 9389 3100
Website: www.cresopharma.com
European Office
Allmendstrasse 11,
6312 Steinhausen
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 Audit Pty Ltd
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)
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Chairman’s Address
Dear fellow shareholders,
Chairman’s Address
Creso Pharma Limited – Annual Report 2020
It is my pleasure to present Creso Pharma’s 2020 Annual Report and financial statements for the year ended 31
December 2020 (CY2020). Notwithstanding the unique challenges imposed on the business by the global pandemic,
CY2020 was a seminal period for the company, as well as the global cannabis industry as a whole, which saw
considerable progress in a number of key markets. Throughout the year, Creso sought to capitalise on these
developments and build a strong foundation for future growth.
The company’s Board and management have worked diligently to progress a number of opportunities, including new
market entries, scale up of existing operations and product development initiatives to ensure that Creso Pharma
remains well-placed to create value for our shareholders.
Pleasingly, the global cannabis sector continued to perform strongly towards the later half of CY2020, largely driven by
global regulatory reform in several key jurisdictions and a general progressive shift in sentiment, opening up a number
of key opportunities for the company.
This positive shift in sentiment was most evident in the United States of America, after the passing of the Marijuana
Opportunity and Expungement (“MORE”) Act in the US House of Representatives. The MORE Act aims to remove
cannabis from the US Controlled Substances Act, erase certain federal convictions and essentially decriminalise cannabis
on a national level. It is also expected to drive private investment and encourage larger corporate entities to become
more active in the sector.
Globally, the United Nations Commissions on Narcotic Drugs voted to remove cannabis from Schedule IV of the 1961
drug convention treaty. Under the UN’s system, Schedule IV substances are considered the most dangerous and
addictive drugs. Following the successful vote, cannabis will be moved to a Schedule I classification, which is the least
restrictive.
Creso’s co-founder and director Mr Boaz Wachtel was part of the European Coalition for Just and Effective Drug Policies,
which was directly involved in the reclassification. Mr Wachtel attended a number of UN Drug Convention meetings in
Vienna and assisted in writing and coordinating research papers that were submitted ahead of the vote. He also liaised
with over 250 non-government organisations that signed a petition to move cannabis to Schedule I. The Board and
management of Creso Pharma would like to take this opportunity to congratulate and acknowledge his hard work in
assisting with a major regulatory outcome.
In Europe, the Court of Justice for the European Union ruled that member states must not prohibit the marketing of
lawfully produced cannabidiol (CBD), that CBD is not a narcotic, and that it can be sold in the European Union. This
provides a number of exciting near-term opportunities for Creso.
In Australia, the Therapeutic Goods Administration made a ruling to down-schedule low-dose CBD products from
Schedule 4 (Prescription Medicine) to Schedule 3 (Pharmacist Only Medicine). The decision will allow low-dose CBD
products to be sold over-the-counter, without the need for a prescription.
This regulatory shift has provided Creso with another avenue to drive growth, and management is expediting existing
agreements, as well as other potential opportunities, in order to increase its footprint in the Australian market.
While all these regulatory changes have made the operating landscape more favourable for Creso, there has been a
considerable amount of hard work and strategy that has led to the company’s growth and material value accretion.
This hard work and implementation of strategy has been instrumental in the development of the company’s wholly-
owned Canadian subsidiary, Mernova Medicinal Inc. Mernova has grown considerably during the period and delivered
a number of milestones that have created a strong and sustainable recurring revenue model for Creso Pharma. We are
very confident that this growth will continue well into the future and provide the Company with an established footprint
in North America.
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Creso Pharma Limited – Annual Report 2020 Chairman’s Address 6 | Page I would also like to take this opportunity to welcome Mr Bruce Linton to the company. Bruce has extensive sector experience as a founder, CEO, Board member and adviser to a number of global cannabis companies. His experience is best exemplified by his role as founder, Chairman and ex-CEO of Canopy Growth Corporation, which he grew to the world’s largest listed cannabis company, and a peak valuation of US$15 billion. Bruce was attracted to the company because of its unique IP, established footprint and outcome-focused approach. His appointment as a strategic advisor is a major coup for Creso Pharma and we look forward to his guidance as our growth trajectory continues. A number of corporate developments were also achieved during the year. The company completed heavily supported capital raisings and extinguished all of its convertible notes, both of which have improved the strength of the Company’s balance sheet, and provided a strong foundation for the Company to grow its revenues in CY2021, as well as explore opportunities for complementary acquisitions to bolster the company’s current portfolio. The Board and management team continue to work diligently to challenge strategies, identify new markets and value enhancing opportunities, and recruit talent that will build on the strong foundation forged in CY2020. I would like to take this opportunity to thank Creso Pharma’s Board of Directors and employees for their hard work and contributions. The Board and management team have a number of exciting growth opportunities pending, which we expect to materialise in the coming months, and we look forward to these delivering further value for shareholders. Adam Blumenthal Non-Executive Chairman Directors’ Report
Creso Pharma Limited – Annual Report 2020
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 2020.
DIRECTORS
The names and particulars of the Company’s directors in office at any time during or since the end of the reporting
period are:
Mr Adam Blumenthal
Dr Miri Halperin Wernli
Dr James Ellingford
Mr Boaz Wachtel
Non-Executive Chairman
Executive Director and Head of Technology, Innovation and Distribution
Executive Director
Non-Executive Director
Prior to 15 August 2020 the Directors’ responsibilities were as follows:
Mr Adam Blumenthal
Dr Miri Halperin Wernli
Dr James Ellingford
Mr Boaz Wachtel
Non-Executive Director
Managing Director and Chief Executive Officer
Non-Executive Director
Executive Chairman
The Directors held office during the entire reporting period unless otherwise stated.
Adam Blumenthal BCom. MIR. MBA.
Non-Executive Chairman
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 a director of EverBlu Capital Pty Ltd, the Company’s appointed corporate advisor and lead manager to the
various capital raisings undertaken by the Company in CY2020.
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
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Directors’ Report
Dr. Miri Halperin Wernli BA. MA. MBA. PhD.
Executive Director, Head of Technology, Innovation and Distribution and Co-Founder
(Appointed 20 November 2015)
Creso Pharma Limited – Annual Report 2020
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. She has a depth of experience in Pharma drug development, particularly in complex highly regulated health
environments in Europe and the USA.
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 was appointed as Executive President of Mind Medicine (MindMed) Inc. (NEO: MMED OTCQB: MMEDF) on 13
August 2020. MindMed is a psychedelic medicine biotech company that discovers, develops and deploys psychedelic
inspired medicines and therapies to address addiction and mental illness.
Dr Halperin Wernli does not hold, and has not held over the last 3 years, a directorship in any other ASX listed entity.
Dr James Ellingford MBA. PG (Corp Mgmt). D.Mgt.
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))
Elysium Resources Limited (ASX:EYM)
(now Hardey Resources Limited (ASX:HDY))
Appointed
January 2020
April 2018
September 2017
January 2016
May 2016
Resigned
Current
Current
January 2019
January 2019
August 2017
March 2016
March 2017
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Directors’ Report
Boaz Wachtel MA.
Non-Executive Director
Member of the Audit and Risk Committee
(Appointed 20 November 2015)
Creso Pharma Limited – Annual Report 2020
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
DIRECTORS INTERESTS IN EQUITY SECURITIES 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 Adam Blumenthal
Dr James Ellingford
Dr Miri Halperin Wernli
Mr Boaz Wachtel
Total
Ordinary
Shares
146,498,766(i)
1,450,000
13,633,333(iii)
8,300,000
169,882,099
Listed Share
Options
Unlisted Options
Performance
Rights
-
-
-
-
-
14,128,387(ii)
-
-
-
14,128,387
-
-
-
1,600,000
1,600,000
(i)
Includes 7,083,333 shares held by Anglo Australia Pty Ltd and 139,415,432 shares held by Atlantic Capital
Holdings Pty Ltd, both are related parties of Adam Blumenthal.
(ii) All the options are held by Atlantic Capital Holdings Pty Ltd, a related party of Adam Blumenthal.
(iii) Includes 300,000 shares held by Jorge Wernli, a related party of Miri Halperin Wernli and a consultant to Creso.
DIRECTORS’ MEETINGS
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 Adam Blumenthal
Dr James Ellingford
Dr Miri Halperin Wernli
Mr Boaz Wachtel
Number
Eligible to
Attend
10
10
10
10
Number
Attended
9
9
10
10
Number
Eligible to
Attend
-
2
-
2
Number
Attended
-
2
-
2
Number
Eligible to
Attend
-
-
-
-
Number
Attended
-
-
-
-
During 2020, the duties of the Remuneration and Nomination 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.
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Directors’ Report
EXECUTIVES
Chris Grundy B.Com. FCA. FGIA/FCIS. GAICD.
Chief Financial Officer
(Appointed 21 November 2017)
Creso Pharma Limited – Annual Report 2020
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.
COMPANY SECRETARIES
Winton Willesee BBus. DipEd. PGDipBus. MCom. FFin. CPA. GAICD. FGIS/FCIS.
Joint Company Secretary
(Appointed 19 October 2018)
Mr Willesee is an experienced company director and secretary with over 20 years experience in various roles within the
Australian capital markets. Mr Willesee 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. He has a core expertise in strategy, company development, corporate governance, company
public listings, merger and acquisition transactions and corporate finance. Mr Willesee holds formal qualifications in
Commerce, Economics and Finance, Accounting, Applied Finance and Investment, Applied Corporate Governance and
Education. He is a Fellow of the Financial Services Institute of Australasia, the Governance Institute of Australia and the
Institute of Chartered Secretaries and Administrators, Graduate of the Australian Institute of Company Directors and a
Member of CPA Australia.
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.
PRINCIPAL ACTIVITIES
The principal activities of the Group during the year were:
a)
b)
to develop, register and commercialise pharmaceutical-grade cannabis and hemp-based nutraceutical
products and treatments; and
to cultivate, process and sell cannabis products.
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Creso Pharma Limited – Annual Report 2020
Directors’ Report
OPERATING AND FINANCIAL REVIEW
Operating Results
The operating results of the Group for the year ended 31 December 2020 were as follows:
Cash and cash equivalents
Net assets
Revenue from products
Royalty income
Total revenue
Other income
Net loss after tax
Dividends
31-Dec-2020
$
6,047,091
13,652,171
31-Dec-2019
$
2,800,318
17,273,960
2,447,761
17,216
2,464,977
177,829
(30,799,581)
3,626,427
33,265
3,659,692
82,561
(15,339,772)
No dividends have been paid or declared by the Group since the end of the previous financial year (2019: Nil).
No dividend is recommended in respect of the current financial year (2019: Nil).
REVIEW OF OPERATIONS
Overview and Financial Results
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 full plant-based nutraceutical products are non-psychoactive, as they only contain trace amounts
of THC. The Company’s defined strategy is to develop, register, and globally commercialise pharmaceutical-grade
cannabis and hemp-derived products, according to the highest GMP quality standards.
In addition, through its wholly owned subsidiary Mernova Medicinal Inc. (“Mernova”), the Company cultivates and
harvests cannabis plants and supplies dried cannabis plant retail products throughout Canada, as well as exporting to
overseas wholesalers and distributors.
Throughout 2020, Creso laid a strong foundation for growth and actively implemented its strategy to develop and
commercialise cannabis and hemp products worldwide. The Company’s product distribution in Europe, North America,
South America, South Africa and the Asia Pacific continued to grow, allowing Creso to further build its position as an
international cannabis company with a burgeoning global footprint.
Notwithstanding the above, the Group’s results for 2020 were inevitably affected by Covid-19. Total revenues for the Group
declined by 33% or $1,178,666 compared to 2019. Whilst the Company was able to maintain its operations in Switzerland
during the year, revenues from nutraceutical products fell by $1,532,906 due to the deferral of re-orders, albeit conditions
appeared to improve in the later part of 2020, with some significant orders being received for delivery and recognition in
2021. However, Mernova, in its first full year of production, increased its revenues by $354,240 as it established itself as
an emerging producer of superior artisanal cannabis products, with the outlook for revenues in Mernova in 2021 expected
to grow further.
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Directors’ Report
Overview and Financial Results (continued)
Creso Pharma Limited – Annual Report 2020
Q1 2021 commenced with record sales and Purchase Orders and the Group is set to have a record year in revenue. Total
expenses increased substantially over the previous year, with the main reasons being the non-cash expenses attributable
to the settlement in full of all convertible notes, the loss on disposal of the Company’s 74% share in the Israeli joint venture,
the impairment of its operations in Canada and Switzerland and the issue of equity instruments in lieu of cash in the
settlement of operating expenses. These were one-off costs associated with extinguishing debt facilities Creso used over
the past 24 Months.
Having now tidied its balance sheet with the repayment of all convertible notes and reduction of some debt, Creso is now
well positioned to capitalise on strong revenue growth through the Group. The strong share price performance in the
second half of the year has allowed Creso to raise funds via “in the money” options and has helped with cash flow
requirements substantially. This is a result of:
-
-
-
Favourable global regulatory policy
Appointment of world renounced Cannabis expert Bruce Linton as senior advisor
Improved revenues across the Group
The Company ended the year in a stronger financial position, having more than doubled its cash reserves compared to
2019. The board is pleased with the achievements over the last 12 months, notwithstanding the challenges of Covid-
19, and it’s encouraged by the positive signs of recovery it has experienced in the last 6 months, and looks forward to
continuing to update shareholders in due course.
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Directors’ Report
Human Health CBD Division:
Creso Pharma Limited – Annual Report 2020
Creso Pharma advanced both its cannaDOL® 0.5% and 1% CBD topical gels, as well as cannaQIX® products. The
cannaQIX® hemp oil-derived food supplement is currently available in Switzerland, the UK, Germany, Australia, Brazil,
New Zealand, Portugal, Spain, and South Africa (under the Cannamics brand).
Subject to further regulatory approvals, the Company is exploring opportunities to enter a number of additional markets
including Pakistan, Afghanistan, Azerbaijan, Bangladesh, Cambodia, Georgia, the Maldives, Myanmar, the Philippines,
Tajikistan, Turkmenistan, Uzbekistan and Vietnam as well as Namibia, Botswana, Zimbabwe, Swaziland, Lesotho, Angola,
Mozambique and Uganda in Southern Africa. These potential new market entries are expected to provide revenue
generating opportunities, with sales to add to the Company’s growing revenues streams.
During the calendar year, Creso Pharma successfully developed and tested several new products. In February, the
Company finalised its first oil free hemp plant-based gum arabicum lozenges. These were developed over a nine-month
period, with the new technology allowing for hemp oil free production, bringing the full benefit of the natural hemp
plant to the consumers. The product also offers significant regulatory advantages in several countries.
The product formulation contains various compounds, which are already approved for use in consumer products,
providing the company with a clear path to market as a food supplement product within the corresponding regulatory
framework.
During Q1 of CY2020 Creso announced the launch of its first cannaQIX® CBD instant hemp tea products, which were
developed based on anibidol® granules technology. The Company offers two versions of the product.
The first is cannaQIX® CBD instant hemp tea formulated with CBD hemp, zinc, selene, elderberry and vitamins to support
the immune system and manage stress, and the second is cannaQIX® NITE CBD instant hemp tea formulated with CBD
hemp, zinc, selene, elderberry, lemon balm and vitamins to strengthen the immune system and support better sleep.
In April, Creso secured a binding letter of intent with Highnoon Laboratories Limited (PSX: HINOON) (“Highnoon”) and
Route2 Health Limited (“Route2”) to enter into a strategic collaboration to expand distribution of its innovative hemp
derived therapeutic products into Pakistan. Subject to regulatory approvals, both parties also agreed to consider
leveraging their extensive experience and international reach to broaden the collaboration to a number of other key
markets including Afghanistan, Azerbaijan, Bangladesh, Cambodia, Georgia, the Maldives, Myanmar, the Philippines,
Tajikistan, Turkmenistan, Uzbekistan and Vietnam.
During the second half of the period, Creso Pharma signed a commercial agreement with DHS Business International
(“DHS”) for the distribution of the Company’s CBD products into the Brazilian retail market. Brazil represents a large
opportunity for the Company and the development followed a change in policy from the Brazilian National Health
Regulatory Authority (“ANVISA”), which enables the sale of CBD products without THC to be sold through retail channels
in the country.
Furthering Creso’s international expansion initiatives, the Company secured a commercial agreement in August with
DHS Business Portugal to introduce our products into the Iberic markets, with focus on Portugal and Spain. Both parties
are aiming to sell products through sport focused retail outlets and pharmacies, which offer a large number of points of
sale throughout the two countries.
In Australia, the Company entered into a Heads of Agreement (“HOA”) with Martin & Pleasance Pty Ltd (“M&P”), a
leading natural, sustainable health and lifestyle brand supplier, to capitalise on opportunities in the Australian and New
Zealand markets. The agreement was secured in December and allows Creso to leverage M&P’s extensive field force
and relationships with over 4,000 pharmacies across Australia and NZ, as well as online channels, grocery and
practitioner suppliers.
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Directors’ Report
Mernova Medicinal Inc. operations:
Creso Pharma Limited – Annual Report 2020
During the year, the Company’s wholly-owned subsidiary Mernova Medicinal Inc. (“Mernova”) delivered several
important milestones and underpinned the Company’s North American expansion initiatives.
In a major development, Mernova received its sales licence from Health Canada, effective from 8 May 2020. The licence
provides for the sale of dried and fresh cannabis products to provincially and territorially authorised retailers, and for
direct retail sales to patients for medicinal purposes, under the Cannabis Act. The licence facilitates the sale of
Mernova’s products into the high margin and emerging Canadian cannabis retail market. Throughout CY2020, Mernova
continued to scale up production towards nameplate capacity. Scale up initiatives included the implementation of
several proprietary processes to enhance product quality, allowing it to meet a growing demand for small batch,
artisanal cannabis products in Canada. Post-harvest process improvements were also made, which has had positive
effects on the aroma, appearance, feel, and overall quality of the cannabis.
Subsequent to receiving its sales license from Health Canada, Mernova has achieved another major milestone and
launched its retail recreational cannabis products under the Ritual Green brand. Mernova secured a number of purchase
orders for Ritual Green products during the period, allowing it to broaden its footprint into key growth provinces.
Mernova secured purchase orders from the Nova Scotia Liquor Corporation (“NSLC”), the Yukon Liquor Corporation,
and Cannabis NB, which has allowed for the retail sale of Mernova’s products in Nova Scotia, the Yukon, and New
Brunswick. Mernova also secured a PO from the Truro Cannabis Company, a licenced producer in Canada.
Mernova made significant progress with the Ontario Cannabis Store. The Company secured a Notice to Purchase from
the Province of Ontario, which marked its imminent entry into Canada’s largest recreational market.
During the period, Mernova advised that it planned to expand into the emerging Canadian Hash market. The decision
followed a comprehensive review of the significant market opportunities available across Canada, and positive customer
feedback regarding Mernova’s current product range.
Mernova management are currently working on a number of product development initiatives to diversify its product
lines, in order to take advantage of opportunities to capitalise on the growing demand for Cannabis 2.0 products, such
as hash and pre-roll joints. It is expected that the launch of these new products will underpin additional revenues from
Mernova.
During the period, Mernova contributed A$1,383,441 in revenue to the Company. Revenue was generated through a
number of purchase orders for Mernova’s Ritual Green suite of cannabis strains to the Nova Scotia Liquor Corporation
(“NSLC”), the Truro Cannabis Company, the Yukon Liquor Corporation, and Cannabis NB. Additional purchase orders
from Israeli-based company Univo Pharmaceuticals Ltd also added to revenue.
The Company expects ongoing growth to materialise from Mernova’s operations through new purchase orders,
province entries, new product roll out, and as regulatory reform continues across North America.
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Directors’ Report
Animal Health
Creso Pharma Limited – Annual Report 2020
Creso secured three purchase orders totalling A$414,000 for its anibidiol® products, which were shipped to commercial
partners in Europe during the second half of CY2020. These orders were a significant achievement for the Company and
highlighted its ability to navigate stringent regulatory requirements for marketing hemp products across Europe, as well
as management’s ability to progress growth initiatives in difficult marketing conditions.
The purchase orders secured with European commercial partners took the total order value generated through the
animal health business segment to ~A$975,000 during CY2020. This outlines the strong demand the Company is
witnessing for its industry-leading products, with additional growth expected to occur during the current period and
beyond.
Creso secured regulatory approval from the Ministry of Agriculture and Animal feed in Uruguay (Ministerio de Ganadaria
Agricultura y Pesca) through its commercial partner, Adler Laboratories, Uruguay for anibidiol® making it the first CBD
hemp-based complementary feed approved for pets in Latin America, which represented a ground-breaking milestone
from a regulatory and business standpoint.
The development broadens the Company’s international footprint and also unlocks a major market opportunity. Creso
expects to deliver its first purchase order during the current period and enter into additional South American markets
during CY2021.
Notable regulatory shifts:
During the period, a number of international regulatory shifts and legislative changes occurred, which provided Creso
with very favourable operating conditions and high growth opportunities.
In the United States of America, the US House of Representatives passed the Marijuana Opportunity and Expungement
(“MORE”) Act, which aims to remove cannabis from the US Controlled Substances Act, erase certain federal convictions
and essentially decriminalise cannabis on a national level. The MORE Act is also expected to encourage private
investment and involve larger corporate entities to become more active in the US cannabis sector.
The United Nations Commissions on Narcotic Drugs voted to remove cannabis from Schedule IV of the 1961 drug
convention treaty. Under the United Nation’s system, Schedule IV substances are considered the most dangerous and
addictive drugs and following the successful vote, cannabis will be moved to a Schedule I classification which is the least
restrictive.
Creso’s co-founder and director Mr Boaz Wachtel was part of the European Coalition for Just and Effective Drug Policies,
which was directly involved in the reclassification. Mr Wachtel attended a number of UN Drug Convention meetings in
Vienna and assisted in writing and coordinating research papers that were submitted ahead of the vote. He also liaised
with over 250 non-government organisations that signed a petition to move cannabis to Schedule I.
In Europe, the Court of Justice of the European Union (“CJEU”) ruled that member states must not prohibit the
marketing of lawfully produced CBD. Further, the CJEU ruled that CBD is not considered a narcotic, and as a result, CBD
can be freely sold in the European Union (“EU”). This landmark ruling is a major development and provides considerable
opportunities for Creso Pharma.
In Australia, the Therapeutic Goods Administration made a ruling to down-schedule low-dose cannabidiol (CBD)
products from Schedule 4 (Prescription Medicine) to Schedule 3 (Pharmacist Only Medicine). The decision will allow
low-dose CBD products to be sold over-the-counter, without the need for a prescription.
The Company expects global regulatory shifts to continue and a number of value accretive opportunities to materialise.
During the period, Creso explored a number of ways to capitalise on the opportunities that legislative changes will
unlock, which it intends to implement as soon as possible.
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Directors’ Report
KEY APPOINTMENT:
Creso Pharma Limited – Annual Report 2020
During the year, Creso appointed Canopy Growth Corporation (TSX: WEED, NYSE: CGC) (“Canopy Growth”) founder and
ex-CEO Mr Bruce Linton as a strategic advisor. Mr Linton is one of the world’s leading cannabis executives and has
extensive experience as a founder, CEO, board member and advisor to a number of leading global cannabis companies.
Mr Linton’s major achievements include his role as founder, Chairman and ex-CEO of Canopy Growth which reached a
market capitalisation of US$15Bn during his tenure. He was also responsible for securing support for 16 financing rounds
raising over US$5Bn and over 30 M&A activities. He led Canopy Growth from a start-up through to its listing as the first
cannabis producing company to list on the New York Stock Exchange.
Mr Linton was attracted to Creso Pharma for its unique IP, established global distribution footprint and robust product
pipeline targeting distinct categories. He believes this puts Creso Pharma in the optimal position to excel internationally
and continue to develop innovative products to complement its existing portfolio.
As strategic advisor over a 24-month term, Mr Linton will leverage his connections, expertise and influence in the
industry to consult and work closely with Creso Pharma’s Board to shape its long-term strategy and various near term
corporate and operational initiatives. In consideration for Mr Linton’s services and to align his interests with those of
shareholders, the Company has issued 30,000,000 Options to Mr Linton, each with an exercise price of $0.039 and an
expiry date of 23 December 2025.
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Directors’ Report
CORPORATE
Equity Transactions
Creso Pharma Limited – Annual Report 2020
On 21 January 2020, the company announced it had entered replacement Corporate Advisory and Transactional
Mandates with EverBlu Capital Pty Ltd.
On 5 February 2020, the company confirmed that it 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 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 (“Shares”) as collateral
shares and paid L1 Capital a fee of 4% of the advance. On 20 April 2020, the Company also received a further drawdown
from L1 Capital of $500,000. 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 Shares as additional collateral shares. 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.
EverBlu Capital Pty Ltd (“EverBlu”) acted as lead manager to the debt raising under the New Convertible Securities
Agreement. The Company agreed to pay EverBlu an upfront cash fee of $200,000, a 6% cash fee on the face value of
the funds actually drawn down and subject to shareholder approval, up to 5,277,778 Shares and 4,000,000 Options
($0.25, 3 years from issue). The requisite shareholder approval was obtained on 28 May 2020 and the following
securities were issued to EverBlu:
-
-
4,500,000 Shares were issued on 28 May 2020; and
4,000,000 Options ($0.35, 2 Jun 2023) were issued on 2 June 2020.
On 5 February 2020, the Company also agreed to issue 1,000,000 Shares to Mozaik Asset Management Pty Ltd
(“Mozaik”), 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 11 February 2020, the Company issued 16,171,229 Shares; 8,125,000 Shares were issued to former lenders,
3,333,334 Shares were issued as collateral shares and 4,712,895 Shares were issued as payments for services rendered.
On 11 February 2020, 1,132,000 Performance Rights were also converted into shares.
On 18 February 2020, L1 Capital converted 575,000 Tranche 2 Convertible Notes into 6,388,889 shares.
On 7 April 2020, the Company issued an aggregate of 2,700,000 options to certain employees under the Company’s
incentive option plan.
On 20 April 2020, the Company issued 16,812,526 Shares; 10,812,526 Shares were issued to L1 Capital as additional
collateral shares and 6,000,000 Shares were issued to Lind Global Macro Fund (“Lind”) (“Initial Collateral Shares”).
Subject to shareholder approval, it was agreed to issue a further 15,000,000 Collateral Shares (“Subsequent Collateral
Shares”) and 10,752,688 Options exercisable at $0.1386 each on or before 25 June 2023 to Lind. The Lind Collateral
Shares related to a convertible securities agreement to raise $1 million. On 20 April 2020, the Company also agreed,
subject to obtaining shareholder approval to issue an aggregate of 32,000,000 additional collateral shares at a nil issue
price to the Tranche 1 Investors under the Original Convertible Note Agreements. The requisite shareholder approvals
were obtained on 16 June 2020 and the 47,000,000 additional collateral shares were issued on 23 June 2020.
On 28 May 2020, the Company issued 6,500,000 Shares to EverBlu; 4,500,000 Share in part consideration for services
in relation convertible securities agreement with L1 Capital and 2,000,000 Shares in part consideration for corporate
advisory services to the Company.
On 28 May 2020, 66,000 Performance Rights were also converted into shares.
On 1 June 2020, Creso received firm commitments to raise $2.137 million through the issue of 35,619,008 Shares (the
“1st Placement”). At this date 20,780,936 Shares were issued for $1.25 million. EverBlu Capital acted as lead manager
and corporate advisor for the 1st Placement and received a fee of 6% of the total funds raised and, subject to shareholder
approval and the consent of the Company’s existing secured investors, be issued 3 Shares for every $4 raised under the
1st Placement.
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Directors’ Report
CORPORATE (continued)
Equity Transactions (continued)
Creso Pharma Limited – Annual Report 2020
On 2 June 2020, the Company issued 9,838,071 Shares for $0.59 million in relation to the 1st Placement announced on
1 June 2020. The Company also issued:
-
-
-
2,500,000 CPHCON4 Convertible Notes and 36,764,706 CPHOPT28 Options to L1 Capital in relation to the
New Convertible Securities Agreement between the Company and L1 Capital;
4,000,000 CPHOPT29 Options to EverBlu in relation to the New Convertible Securities Agreement; and
8,000,000 CPHOPT31 Options to EverBlu in relation to the Corporate Advisory Mandate with the Company.
On 3 June 2020, the Company issued 3,333,334 Shares for $0.20 million in relation to the 1st Placement announced on
1 June 2020.
On 4 June 2020, Creso advised that it issued 14,000,000 Fully Paid Ordinary Shares upon the conversion of 700,000
CPHCON4 Convertible Notes.
On 23 June 2020, Creso issued 15,000,000 Additional Collateral Shares to L1 Capital, 2,000,000 Additional Collateral
Shares to Chifley Portfolios Pty Ltd (“Chifley”), 15,000,000 Additional Collateral Shares to Suburban Holdings Pty Ltd
(“Suburban”), 500,000 shares in lieu of cash fees for digital marketing services and 15,420,000 shares in lieu of cash
payments for outstanding creditor invoices.
On 24 June 2020, Creso issued 15,000,000 Subsequent Collateral Shares to Lind.
On 25 June 2020, the Company issued 5,310,954 Shares to Cohen Propagation Nurseries Ltd and other parties under a
Settlement Agreement. The Company also issued 10,752,688 CPHOPT26 Options and 1 CPHCON3 Convertible Notes to
Lind.
On 26 June 2020, Creso issued 15,010,185 shares to the Mernova vendors as per an agreement to settle part of the debt
in respect to the Milestone 2 payment. Milestone 2 was achieved on 14 February 2020.
On 3 July 2020, Creso redeemed 1,212,120 Performance Shares as Kunna Canada Ltd did not achieve the required
milestone.
On 3 August 2020, the Company issued 4,000,000 Fully Paid Ordinary Shares upon the conversion of 80,000 CPHCON4
Convertible Notes.
On 1 September 2020, the Company issued 12,962,963 Fully Paid Ordinary Shares upon the conversion of $350,000 of
the face value of CPHCON3 Convertible Note.
On 30 September 2020, the Company issued 20,250,000 Fully Paid Ordinary Shares upon the conversion of 405,000
CPHCON4 Convertible Notes.
On 5 October 2020, the Company issued 12,500,000 Fully Paid Ordinary Shares upon the conversion of 250,000
CPHCON4 Convertible Notes.
On 7 October 2020, Creso received firm commitments to raise $8.992 million through the issue of approximately
309,021,675 fully paid ordinary shares at an issue price of $0.0291 per Share and subject to shareholder approval, the
issue of one option for every four shares issued (the “2nd Placement”). EverBlu Capital acted as lead manager and
corporate advisor for the 2nd Placement and received a fee of 6% of the total funds raised and, subject to shareholder
approval and the consent of the Company’s existing secured investors, be issued 3 Shares for every $4 raised under the
2nd Placement.
On 12 October 2020, the Company issued 274,657,414 Shares for $7.992 million in relation to the 2nd Placement and
1,666,666 Shares for $0.1 million in relation to the 1st Placement.
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Directors’ Report
CORPORATE (continued)
Equity Transactions (continued)
Creso Pharma Limited – Annual Report 2020
On 17 December 2020, the Company issued 16,600,000 Shares on the conversion of Exchangeable Preferred Shares.
On 23 December 2020, Creso issued 197,277,517 Shares; 34,364,261 Shares for $1.0 million in relation to the 2nd
Placement, 8,992,530 Shares to EverBlu as part consideration for acting as lead manager in the 2nd Placement, 833,333
Shares to EverBlu as consideration for acting as lead manager in the Lind convertible security agreement, 1,602,855
Shares to EverBlu as part consideration for acting as lead manager in the 1st Placement, 2,000,000 Shares to EverBlu in
part consideration for corporate advisory services to the Company, 103,092,784 Shares in relation to the repayment of
a $3.0 Million loan advanced by Director, Adam Blumenthal, 42,955,327 Shares for early settlement and cancellation of
the Suburban convertible notes and 3,436,427 Shares to Azalea Consulting Pty Ltd in consideration for company
secretarial and corporate advisory services.
Mergers, acquisitions and divestments
On 20 April 2020, Creso entered into a settlement agreement with Cohen Propagation Nurseries to agree a final
settlement of the Israeli joint venture, Creso Grow Limited, in which the Group had a non-controlling interest. A loss of
$1,443,662 was recorded in the respect of the disposal of the interest in Creso Grow Limited.
COVID-19
To date, as previously reported, the actual effects of the COVID-19 pandemic upon the Group’s operations have been
manageable, but the timing and amounts of sales were negatively impacted. Revenues for the full year 2020 from
the Swiss segment of the Company’s business were only CHF798,024 in 2020 due to restriction on production and
ability to work, which represents a decrease of 55% on 2019 revenue. The Board remains confident that the
Company’s strategies to develop its businesses in Canada and Switzerland will continue to adapt where necessary and
progress toward their objectives. However, whilst ever the pandemic continues as at present, the Board is keenly
aware of the potentially disruptive effects of it upon the Group’s operations, as potential future effects upon
customer demand for the Company’s products and upon supply chains remain uncertain.
IMPAIRMENT TESTING
The Board recognises that these are times to be prudent and cautious and, therefore, the Company implemented
impairment assessments of its operating assets according to its accounting policies, which are detailed in the notes to
the financial statements.
Specifically, the Company determined that the Mernova Facility and the R&D business in Switzerland were each
separable Cash Generating Units (“CGU”) which were subject to impairment assessment. Management’s 5-year
cashflow forecasts for each CGU have been carefully reviewed for known and anticipated risks and opportunities.
Similarly, the discount rates applied to the forecasts, which were based upon operational and market risk assessments
and assumptions, were determined to be realistic, prudent and cautious.
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Directors’ Report
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Creso Pharma Limited – Annual Report 2020
The significant changes in state of affairs during and subsequent to the end of the financial year include:
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
The Chairman’s Address, 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.
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 Chairman’s Address 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 23 to 35.
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Directors’ Report
INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITORS
Creso Pharma Limited – Annual Report 2020
During the year ended 31 December 2020, the Company paid premiums in respect of a contract insuring the directors
and officers of the Company against liabilities incurred as directors or officers to the extent permitted by the
Corporations Act 2001.
The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought
against the officers in their capacity as officers of entities in the consolidated entity, and any other payments arising
from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that
arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position
or of information to gain advantage for them or someone else or to cause detriment to the Company. It is not possible
to apportion the premium between amounts relating to the insurance against legal costs and those relating to other
liabilities.
OFFICERS OF THE COMPANY WHO ARE FORMER PARTNERS OF THE AUDITOR
There are no officers of the Company who are former partners of BDO Audit Pty Ltd.
AUDITOR’S INDEPENDENCE DECLARATION
The lead auditor’s independence declaration for the year ended 31 December 2020 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.
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has applied for leave to the Court to bring proceedings on behalf of the Company or intervene in any
proceedings to which the Company is a part for the purpose of taking responsibility on behalf of the Company for all or
any part of those proceedings.
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Creso Pharma Limited – Annual Report 2020 Directors’ Report 22 | Page 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 Adam Blumenthal NON-EXECUTIVE CHAIRMAN 9 March 2021 Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2020
This remuneration report for the year ended 31 December 2020 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 Adam Blumenthal
Dr James Ellingford
Dr Miri Halperin Wernli
Mr Boaz Wachtel
(Non-Executive Chairman)
(Executive Director)
(Executive Director and Head of Technology, Innovation and Distribution)
(Non-Executive Director)
Senior Executives of the Group during or since the end of the financial year were:
Mr Christopher Grundy
Chief Financial Officer
There have been no other changes after reporting date and up to the date that the financial report was authorised for
issue.
The Remuneration Report is set out under the following main headings:
A
B
C
D
E
F
G
H
I
Remuneration Governance, Structure and Approvals
Remuneration Philosophy
Remuneration and Performance
Details of Remuneration
Service Agreements
Share-based Compensation
Equity Instruments Issued on Exercise of Remuneration Options
Loans with KMP
Other Transactions with KMP
A
Remuneration Governance, Structure and Approvals
The Remuneration and Nomination Committee (“RNC”) is a sub-committee of the Board. It is primarily responsible for
making recommendations to the Board on:
the over-arching executive remuneration framework;
operation of the incentive plans which apply to executive directors and senior executives, including key
performance indicators and performance hurdles;
remuneration levels of executives; and
Non-Executive Director fees.
The Committee reviews and determines the Group’s remuneration policy and structure annually to ensure it remains
aligned to business needs, meets the Group’s remuneration principles and is reflective of generally acceptable market
practices.
In particular, the RNC and Board aim to ensure that remuneration practices are:
competitive and reasonable, enabling the Company to attract and retain key talent;
aligned to the Company’s strategic and business objectives and the creation of shareholder value;
transparent and easily understood; and
acceptable to shareholders.
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Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2020
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$500,000 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 in “Section D – Details of Remuneration” 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 in “Section D – Details of Remuneration” 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 and Nomination 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.
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Remuneration Report (Audited)
C
Remuneration and Performance
Creso Pharma Limited – Annual Report 2020
The following table shows the gross revenue, losses, earnings per share (“EPS”) and share price of the Group for the
years ended 31 December 2020 and 31 December 2019.
Revenue from products
Royalty income
Total revenue ($)
Net loss after tax
EPS ($)
Share price
31-Dec-2020
2,447,761
17,216
2,464,977
(30,779,581)
(0.08)
0.180
31-Dec-2019
3,626, 427
33,265
3,659,692
(15,339,772)
(0.10)
0.125
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.
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Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2020
Performance Rights Plan
The Creso Pharma Limited Performance Rights Plan (“Plan”) was originally adopted by the Company during the
year ended 31 December 2016, and re-adopted by the Company during the year ended 31 December 2019.
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 2020 is set out below:
31 December 2020
Directors
Adam Blumenthal
James Ellingford
Miri Halperin Wernli
Boaz Wachtel
Senior Executives
Christopher Grundy
Total
Short-term Employee Benefits
Salary &
fees
$
Non-monetary
benefits
$
Other/
bonus
$
Post-
Employment
Superannuation
& Insurance
$
Share Based
Payments
Performance
Rights/Options(ii)
$
200,000
141,000
549,526
47,500(i)
240,000
1,178,026
-
-
-
-
-
-
50,000
30,000
176,597
30,000
80,000
366,597
19,000
13,395
35,582
-
21,348
89,325
Total
$
269,000
184,395
761,705
77,500
-
-
-
-
86,364
86,364
427,712
1,720,312
(i)
(ii)
An amount of $47,500 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).
26 | P a g e
Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2020
Remuneration of KMP of the Group for the year ended 31 December 2019 is set out below:
31 December 2019
Directors
Adam Blumenthal
James Ellingford
Miri Halperin Wernli
Boaz Wachtel
Senior Executives
Christopher Grundy
John Griese(iii)
Total
Short-term Employee Benefits
Salary &
fees
$
Non-monetary
benefits
$
Other/
bonus
$
Post-
Employment
Superannuation
& Insurance
$
Share Based
Payments
Performance
Rights/Options(ii)
$
200,000
134,000
641,473
105,000(i)
240,000
327,155
1,647,628
-
-
-
-
-
-
-
-
-
-
-
-
19,000
12,730
-
-
20,767
4,217
56,714
Total
$
286,641
185,902
799,302
240,282
67,641
39,172
157,829
135,282
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.
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
Adam Blumenthal
James Ellingford
Miri Halperin Wernli
Boaz Wachtel
Senior Executives
Christopher Grundy
John Griese
Fixed Remuneration
2019
2020
At Risk – STI (%)
At Risk – LTI (%)
2020
2019
2020
2019
81%
84%
77%
61%
61%
N/A
76%
79%
80%
44%
37%
35%
19%
16%
23%
39%
19%
N/A
-
-
-
-
-
-
-
-
-
-
20%
N/A
24%
21%
20%
56%
63%
65%
Table 3 – Shareholdings of KMP (direct and indirect holdings)
31 December 2020
Balance at
01/01/2020
Granted as
Remuneration
On Exercise of
Performance Rights
Net Change –
Other
Balance at
31/12/2020
Directors
Adam Blumenthal
James Ellingford
Miri Halperin Wernli
Boaz Wachtel
Senior Executives
Christopher Grundy
Total
6,250,001
1,450,000
12,800,000
8,300,000
40,000
28,840,001
-
-
-
-
-
-
-
-
-
-
140,248,765(i)
-
833,333(ii)
-
146,498,766
1,450,000
13,633,333
8,300,000
600,000
600,000
-
141,082,098
640,000
170,522,099
(i)
(ii)
137,457,045 shares issued to Atlantic Capital Holdings Pty Ltd from share placements, 833,333 shares
issued to Anglo Australasia Holdings Pty Ltd from share placements and 1,958,387 shares issued to Atlantic
Capital Holdings Pty Ltd for services by EverBlu.
Shares issued from share placement.
27 | P a g e
Remuneration Report (Audited)
Table 4 – Unlisted Option holdings of KMP (direct and indirect holdings)
Creso Pharma Limited – Annual Report 2020
31 December 2020
Directors
Adam Blumenthal
James Ellingford
Miri Halperin Wernli
Boaz Wachtel
Senior Executives
Christopher Grundy
Total
Balance at
01/01/2020
Granted as
Remuneration
Net Change –
Other
Balance at
31/12/2020
Vested & Exercisable
-
-
-
-
-
-
-
-
-
-
-
-
14,128,387(i)
-
-
-
-
14,128,387
14,128,387
-
-
-
-
14,128,387
14,128,387
-
-
-
-
14,128,387
(i)
Unlisted options issued to Atlantic Capital Holdings Pty Ltd for services by EverBlu.
Table 5 – Listed Option holdings of KMP (direct and indirect holdings)
31 December 2020
Directors
Adam Blumenthal
James Ellingford
Miri Halperin Wernli
Boaz Wachtel
Senior Executives
Christopher Grundy
Total
Balance at
01/01/2020
Granted as
Remuneration
Net Change –
Other(i)
Balance at
31/12/2020
Vested & Exercisable
2,750,000
550,000
4,147,950
3,000,000
72,000
10,519,950
-
-
-
-
-
-
(2,750,000)
(550,000)
(4,147,950)
(3,000,000)
(72,000)
(10,519,950)
-
-
-
-
-
-
-
-
-
-
-
-
(i)
Listed options have now expired.
Table 6 – Performance rights holdings of KMP (direct and indirect holdings)
31 December 2020
Balance at
01/01/2020
Granted as
Remuneration
Vested and
Exercised
Others
Directors
Adam Blumenthal
James Ellingford
Miri Halperin Wernli
Boaz Wachtel
Senior Executives
Christopher Grundy
Total
-
-
-
1,600,000
1,000,000
2,600,000
-
-
-
-
-
-
-
-
-
-
(600,000)
(600,000)
Balance not
Vested at
31/12/2020
Balance
Vested not
Exercised at
31/12/2020
-
-
-
-
-
-
-
-
-
1,600,000
100,000
1,700,000
-
-
-
-
300,000
300,000
28 | P a g e
Remuneration Report (Audited)
E
Service Agreements
Creso Pharma Limited – Annual Report 2020
Mr Adam Blumenthal – Non-Executive Chairman
Contract: Commenced on 20 November 2015.
-
- Director’s Fee: $48,000 per annum (plus statutory superannuation entitlements).
- Mernova Medicinal Inc.- Director’s fee of $5,000 per month.
-
-
-
Kunna Canada Limited and Kunna S.A.S – Director’s fee of $6,000 per month.
Remuneration Committee Fee: $20,000 per annum.
Term: No fixed term.
Dr James Ellingford – Executive Director
Contract: Commenced on 20 November 2015.
-
- Director’s Fee: $48,000 per annum (plus statutory superannuation entitlements) to 31 May 2020.
- Director’s Fee: $60,000 per annum (plus statutory superannuation entitlements) from 1 June 2020.
- Mernova Medicinal Inc.- Consultancy fee of $5,000 per month.
-
-
-
Audit and Risk Committee Fee: $6,000 per annum.
Remuneration Committee Fee: $20,000 per annum.
Term: No fixed term.
Dr Miri Halperin Wernli – Non-Executive Director and Head of Technology, Innovation and Distribution
Contract: Commenced on 18 October 2016.
Base salary: USD$250,000 per annum to 14 August 2020.
Base salary reduced to $120,000 from 15 August 2020.
-
-
-
- Mernova Medicinal Inc.- Consultancy fee of USD$8,000 per month.
-
- Monthly motor vehicle allowance of USD$2,500.
-
- Notice Period: 12 months.
-
Term: 3 years or as extended per the Consultant Agreement.
Kunna Canada Limited and Kunna S.A.S - Director fee of $6,000 per month.
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 Boaz Wachtel – Non-Executive Director
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 to May 2020.
- Director’s Fee: $5,000 per month from June 2020 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.
Mr Christopher Grundy – Chief Financial Officer
-
Contract: Commenced on 21 November 2017.
-
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.
29 | P a g e
Remuneration Report (Audited)
F
Share-based Compensation
Creso Pharma Limited – Annual Report 2020
The Company rewards Directors for their performance and aligns their remuneration with the creation of shareholder
wealth by issuing shares, 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 as part of their remuneration.
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:
2017 Financial Year:
Code
Grant Date
Vesting date
Performance period
Expiry date
Value per
Performance Right
at Grant Date
Vested
CPHPERR6
CPHPERR7
27 July 2017
27 July 2017
27 July 2022
27 July 2022
27 July 2017 – 27 July 2018
27 July 2017 – 27 July 2018
27 July 2022
27 July 2022
$0.570
$0.570
-
-
30 | P a g e
Remuneration Report (Audited)
2018 Financial Year:
Creso Pharma Limited – Annual Report 2020
Code
Grant Date
Vesting date
Performance period
Expiry date
Value per
Performance Right
at Grant Date
Vested
CPHPERR29
28 September 2018
21 November 2020
CPHPERR30
28 September 2018
28 September 2023
CPHPERR32
28 September 2018
24 March 2021
CPHPERR35
28 September 2018
28 September 2023
CPHPERR36
28 September 2018
28 September 2023
21 November 2017 – 21
November 2020
28 September 2018 – 28
September 2023
28 September 2018 – 24 March
2021
28 September 2018 – 28
September 2023
28 September 2018 – 28
September 2023
11 October 2023
$0.555
100%
11 October 2023
$0.555
100%
11 October 2023
$0.555
-
11 October 2023
$0.555
100%
11 October 2023
$0.555
100%
2019 Financial Year:
During the 2019 financial year, the Company did not issue Performance Rights to KMP as part of their remuneration.
2020 Financial Year:
During the 2020 financial year, the Company did not issue Performance Rights to KMP as part of their remuneration.
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 24 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
CPHPERR6
CPHPERR7
Chris Grundy
CPHPERR29
CPHPERR32
27 July 2017
27 July 2017
27 July 2022
27 July 2022
28 September 2018
28 September 2018
11 October 2023
11 October 2023
800,000
800,000
300,000
100,000
$456,000
$456,000
$166,500
$55,500
800,000
800,000
-
-
-
-
-
-
-
-
100%
-
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
600,000 Performance Rights were exercised by KMP during the financial year (2019: Nil).
31 | P a g e
Remuneration Report (Audited)
H Transactions with KMP
(a)
Key Management Personnel Compensation
Details relating to key management personnel, including remuneration paid, are below.
Creso Pharma Limited – Annual Report 2020
Short-term benefits
Post-employment benefits
Share-based payments
(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
Cash component of share issues
Amount payable to Creso(ii)
Balance owing to EverBlu Capital Pty Ltd at 31 December
Balance owing to Creso at 31 December
Everblu Capital Corporate Pty Ltd
Capital raising fees
Reimbursement of invoices paid on Creso’s behalf
Out of scope fees
Balance owing to EverBlu Capital Corporate Pty Ltd at 31 December
Balance owing to Creso at 31 December
2020
$
2019
$
1,544,623
89,325
86,364
1,720,312
1,647,628
56,714
1,446,039
3,150,381
2020
$
2019
$
828,475
103,350
300,000
4,683
851,818
1,949,831
-
4,038,157
-
-
1,292,136
76,230
256,230
1,624,596
-
-
988,692
85,000
120,000
4,014
270,000
-
(50,000)
1,417,706
336,323
50,000
-
-
-
-
-
-
32 | P a g e
Remuneration Report (Audited)
H Transactions with KMP (continued)
Suburban Holdings Pty Ltd – related party
Draw down fees
Balance owing at 31 December
Tranche 1 Convertible Notes
Amount drawn down by Creso
Amount repaid
Balance owing at 31 December
Anglo Menda Pty Ltd – related party
Short term loan to Creso
Share placement
Balance owing at 31 December
Atlantic Capital Pty Ltd – related party
Share placement
Adam Blumenthal
Balance owing at 31 December
James Ellingford
Balance owing at 31 December
Miri Halperin Wernli
Balance owing at 31 December
Creso Pharma Limited – Annual Report 2020
2020
$
2019
$
-
-
60,000
60,000
-
1,250,000
250,000
(1,500,000)
-
1,666,667
61,000
1,000,000
-
3,000,000
50,000
48,144
125,000
31,000
-
31,000
-
-
-
-
International Water and Energy Savers Ltd - a company controlled by Boaz
Wachtel
Director’s Fees for Boaz Wachtel
Balance owing at 31 December
Jorge Wernli – related party to Miriam Halperin Wernli
Salary and bonus
Balance owing at 31 December
82,500
30,000
105,000
5,000
391,175
124,265
-
-
(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.
33 | P a g e
Remuneration Report (Audited)
H Transactions with KMP (continued)
Other Share and Option Transactions with KMP Related Parties
Creso Pharma Limited – Annual Report 2020
EverBlu Capital Pty Ltd
Debt note offer
Placement
Tranche 2
Issue of Shares - New L1 Con Note Facility
Issue of Shares - Corporate Advisory Mandate
Issue of CPHOPT29 Options - New L1 Con Note Facility
Issue of CPHOPT30 Options - Corporate Advisory Mandate
Issue of options for capital raising from Lind
Services for October placement
Issue of shares – Lind convertible notes
Services for June placement
Issue of Shares - Corporate Advisory Mandate
Issue of options for October placement
Subtotal
Adam Blumenthal
Issue of options – October placement
Issue of options – Additional placement
Subtotal
Suburban Holdings Pty Ltd
Tranche 1 fee
Issue of collateral shares
Issue of shares and options – Tranche fee
Issue of additional collateral shares
Issue of shares – settle convertible note
Issue of options – settle convertible note
Subtotal
Atlantic Capital Holdings Pty Ltd
Issue of shares – October placement
Issue of shares – Additional placement
Subtotal
Anglo Menda Pty Ltd
Issue of shares
Subtotal
2020
2019
Shares
Options
Shares
Options
-
-
-
4,500,000
2,000,000
-
-
-
8,992,530
833,333
1,602,855
2,000,000
-
20,098,718
-
-
-
-
-
4,000,000
8,000,000
833,333
-
-
-
-
53,447,775(i)
66,281,108
1,150,000
528,387
450,000
-
-
-
-
-
-
-
-
-
1,150,000
528,387
450,000
-
-
-
-
-
-
-
-
-
2,128,387
2,128,387
-
-
-
8,591,066(i)
25,773,196(i)
34,364,262
-
-
-
-
-
-
-
-
261,780
15,000,000
42,955,327
-
58,217,107
34,364,261
103,092,784
139,415,432
833,333
833,333
-
-
-
-
-
10,738,832(i)
10,738,832
261,780
3,333,334
-
-
-
-
3,595,114
2,727,272
-
-
-
-
-
2,727,272
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
Other than the above, there were no other transactions with KMP during the year ended 31 December 2020.
34 | P a g e
Remuneration Report (Audited)
I Additional Information
Creso Pharma Limited – Annual Report 2020
The earnings of the consolidated entity for the five years to 31 December 2020 are summarised below:
Revenue from products
Revenue from services
Royalty income
Total Revenue
EBITDA
Loss after income tax
Share Price
Basic EPS ($)
Diluted EPS ($)
2020
$
2,447,761
-
17,216
2,464,977
(25,486,532)
(30,779,581)
0.180
(0.08)
(0.08)
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)
Voting and comments made at the Company’s 2020 Annual General Meeting (“AGM”):
At the 2020 AGM, 92.43% of the votes received supported the adoption of the remuneration report for the year
ended 31 December 2019. The Company did not receive any specific feedback at the AGM regarding its remuneration
practices.
End of Audited Remuneration Report
35 | 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 2020, 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
Director
BDO Audit Pty Ltd
Sydney
9 March 2021
BDO Audit Pty Ltd ABN 33 134 022 870 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 Audit Pty Ltd 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.
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the Financial Year Ended 31 December 2020
Creso Pharma Limited – Annual Report 2020
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/(loss)
Other income
Interest income
Royalty income
Other income
Expenses
Administrative expenses
Compliance and regulatory expenses
Consultancy and legal expenses
Depreciation and amortisation expenses
Employee benefit expenses
Finance costs
Impairment of intangibles
Marketing and investor relations expenses
Occupancy expenses
Share-based payment expenses
Research and development expenses
Other expenses
Gain on settlement of convertible notes
Loss on extinguishment of liabilities
Loss on embedded derivative
Loss on disposal of investment in Creso Grow Ltd
Foreign exchange gain/(loss)
(Loss) from continuing operations before income tax
Income tax expense
(Loss) from continuing operations after income tax
Other comprehensive income
Exchange differences on translation of foreign operations
Other comprehensive income for the year, net of tax
Total comprehensive (loss) for the year
(Loss) for the year attributable to:
Non-controlling interest
Owners of Creso Pharma Australia Limited
Total comprehensive (loss) for the year attributable to:
Non-controlling interest
Owners of Creso Pharma Australia Limited
(Loss) per share for the year attributable to the members of
Creso Pharma Limited:
Basic and Diluted loss per share (cents)
Note
4
12
4
4
5(a)
5(b)
5(c)
5(d)
5(e)
14
24
28
2020
$
2019
$
2,447,761
3,626,427
-
(2,303,180)
144,581
(937,109)
(3,089,887)
(3,882,415)
317
17,216
177,512
(642,904)
(307,644)
(5,152,713)
(352,429)
(2,367,632)
(9,268,880)
(4,671,418)
(986,179)
(74,681)
(179,216)
(344,989)
(77,529)
899,628
(210,350)
(1,961,750)
(1,443,662)
50,137
(30,779,581)
-
(30,779,581)
(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)
(15,339,772)
-
(15,339,772)
(1,257,285)
(1,257,285)
1,306,551
1,306,551
(32,036,866)
(14,033,221)
-
(30,779,581)
(30,779,581)
-
(32,036,866)
(32,036,866)
(285,391)
(15,054,381)
(15,339,772)
(285,391)
(13,747,830)
(14,033,221)
(8.30)
(10.47)
The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with
the notes to the financial statements.
37 | P a g e
Consolidated Statement of Financial Position
As at 31 December 2020
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Biological 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
Creso Pharma Limited – Annual Report 2020
Note
2020
$
2019
$
8
10
11
12
13
14
16
17
18
19
20
31
6,047,091
636,720
1,108,963
143,192
7,935,966
2,800,318
1,698,499
1,992,931
423,627
6,915,375
9,907,853
1,276,789
11,184,642
11,270,479
4,477,755
15,748,234
19,120,608
22,663,609
2,162,911
49,772
3,255,754
5,468,437
2,111,075
51,255
3,227,318
5,389,649
5,468,437
5,389,649
13,652,171
17,273,960
71,794,123
23,858,528
(82,000,480)
46,528,519
22,602,786
(51,857,345)
13,652,171
-
17,649,001
(375,041)
13,652,171
17,273,960
The Consolidated Statement of Financial Position should be read in conjunction with the notes to the financial
statements.
38 | P a g e
Consolidated Statement of Changes in Equity
For the Financial Year ended 31 December 2020
Creso Pharma Limited – Annual Report 2020
Group
At 1 January 2020
Loss for the year
Other comprehensive income
Total comprehensive income/(loss)
for the year after tax
Transactions with owners in their
capacity as owners:
Issue of share capital
Issue of shares for the acquisition of
the sales licence
Conversion of convertible notes
Issue of equity for services
Issue of equity to settle convertible
notes
Issue of equity to extinguish liability
Elimination of interests in Creso
Grow Limited at disposal
Issue of unlisted options
Share-based payments
Exchangeable shares issued for the
acquisition of the cultivation licence
Share issuance costs
Issue of share capital for
exchangeable shares
At 31 December 2020
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
Issued
Capital
$
46,528,519
-
-
Share-based
Payment
Reserve
$
21,044,323
-
-
Foreign
Currency
Translation
Reserve
$
1,558,463
-
(1,257,285)
Accumulated
Losses
$
(51,482,304)
(30,779,581)
-
Non-
Controlling
Interest
$
(375,041)
-
-
Total
$
17,273,960
(30,779,581)
(1,257,285)
-
-
(1,257,285)
(30,779,581)
-
(32,036,866)
12,474,140
-
750,509
6,900,169
6,472,589
1,417,526
89,347
-
-
-
-
(6,074,358)
-
1,468,909
1,715,616
232,522
221,003
-
935,443
179,216
996,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
261,405
-
-
375,041
-
-
12,474,140
750,509
8,369,078
8,188,205
1,650,048
310,350
636,446
935,443
179,216
-
-
-
-
-
-
996,000
(6,074,358)
-
13,652,171
3,235,682
71,794,123
(3,235,682)
23,557,350
-
301,178
-
(82,000,480)
38,222,883
-
-
14,547,170
-
-
251,912
-
1,306,551
(36,427,923)
(15,054,381)
-
(89,650)
(285,391)
-
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
The Consolidated Statement of Changes in Equity should be read in conjunction with the notes to the financial
statements.
39 | P a g e
Consolidated Statement of Cash Flows
For the Financial Year ended 31 December 2020
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Net cash used in operating activities
Cash flows from investing activities
Payments for plant and equipment
Payments for intangibles
Payment on disposal of investment in Creso Grow
Limited
Net cash used in 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 2020
Note
2020
$
2019
$
3,609,478
(13,121,485)
317
(109,890)
(9,621,580)
2,706,242
(12,370,813)
57,093
(559,478)
(10,166,956)
8(a)
(44,362)
(384,788)
(402,539)
(1,922,600)
(1,419,631)
-
(831,689)
(3,342,231)
12,474,140
-
7,095,741
(2,005,747)
(2,192,030)
(1,722,201)
13,649,903
9,710,160
125,000
13,323,500
(12,025,000)
(798,768)
(291,255)
10,043,637
Net increase/(decrease) in cash and cash equivalents
3,196,634
(3,465,550)
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
2,800,318
50,139
6,047,091
6,390,538
(124,670)
2,800,318
8
The Consolidated Statement of Cash Flows should read in conjunction with the notes to the financial statements.
40 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Corporate Information
Creso Pharma Limited – Annual Report 2020
Creso Pharma Limited (referred to as “Creso” or the “Company”) is a company domiciled in Australia whose shares are
publicly traded on the Australian Securities Exchange.
The consolidated financial statements of the Company as at and for the year ended 31 December 2020 comprise the
Company and its subsidiaries (together referred to as the “consolidated entity” or the “Group”).
The principal activities of the Group during the year were:
a)
b)
to develop, register and commercialise pharmaceutical-grade cannabis and hemp-based nutraceutical
products and treatments; and
to cultivate, process and sell cannabis products.
The Registered Office is disclosed in the Corporate Directory of the Annual Report.
(b) Basis of Preparation
Statement of compliance
The consolidated financial statements 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 08 March 2021.
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 29.
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. The new and
revised Standards and Interpretations did not have any significant impact.
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
2020. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and
Interpretations is that they are not applicable.
41 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2020
Conceptual Framework for Financial Reporting (Conceptual Framework)
The revised Conceptual Framework is applicable to annual reporting periods beginning on or after 1 January 2020 and
early adoption is permitted. The Conceptual Framework contains new definition and recognition criteria as well as
new guidance on measurement that affects several Accounting Standards. Where the consolidated entity has relied
on the existing framework in determining its accounting policies for transactions, events or conditions that are not
otherwise dealt with under the Australian Accounting Standards, the consolidated entity may need to review such
policies under the revised framework. At this time, the application of the Conceptual Framework is not expected to
have a material impact on the consolidated entity's financial statements.
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 $32,036,866 (2019: $14,033,221)
and had net cash outflows from operating activities of $9,621,580 (2019: $10,166,956) for the year ended 31
December 2020.
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 business and at the amounts stated in the financial
report.
The continuing viability of the Group and its ability to continue as a going concern and meet its debts and
commitments as they fall due are dependent upon the Group being successful with the following factors:
-
-
-
-
The ability of the Group to raise additional funds from shareholders, new investors and debt markets. The
Group has successfully conducted a number of capital raises in recent years and there is a reasonable
expectation that alternative sources of funding can be sourced;
Receipt of cash from the exercise of options which are in the money;
Increased revenue from opportunities with existing and new customers and sales arrangements as they are
realised into sales revenue in the Group’s Canadian and Switzerland operations; and
Effective monitoring and reduction of the Group’s overhead expenditures, including the continued realisation
of head office cost reductions.
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.
42 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) Principles of Consolidation
Creso Pharma Limited – Annual Report 2020
Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Creso as at 31 December
2020 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 entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over
the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date
on which control commences until the date on which control ceases.
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.
Loss of control
When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any
related NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest
retained in the former subsidiary is measured at fair value when control is lost.
(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.
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.
43 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Foreign Currency Translation (continued)
Creso Pharma Limited – Annual Report 2020
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.
Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as
discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events.
Such estimates are determined using either the ‘expected value’ or ‘most likely mount’ method. The measurement of
variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that
it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The
measurement constraint continues until the uncertainty associated with the variable consideration is subsequently
resolved.
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.
Interest revenue
Interest revenue is recognised as it accrues, using the effective interest method.
44 | 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 2020
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.
45 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) Cash and Cash Equivalents
Creso Pharma Limited – Annual Report 2020
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.
(i) 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.
(j) 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.
46 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Intangible Assets
Creso Pharma Limited – Annual Report 2020
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.
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.
47 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l)
Impairment of non-financial assets
Creso Pharma Limited – Annual Report 2020
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.
(m) 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.
(n) 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.
(o) 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.
48 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(p) Employee Benefits
Creso Pharma Limited – Annual Report 2020
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be
settled within 12 months of the reporting date are recognised in current liabilities in respect of employees' services up
to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.
Other long-term employee benefits
The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date
are recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The
liability is measured as the present value of expected future payments to be made in respect of services provided by
employees up to the reporting date using the projected unit credit method. Consideration is given to the expected
future wage and salary levels, experience of employee departures and periods of service. Expected future payments are
discounted using market yields at the reporting date on national government bonds with terms to maturity and currency
that match, as closely as possible, the estimated future cash outflows.
(q) 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.
49 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2020
(r) Contributed Equity
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of
tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition
of a business are not included in the cost of the acquisition as part of the purchase consideration.
If the entity reacquires its own equity instruments, for example as a result of a share buy-back, those instruments are
deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or
loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised
directly in equity.
(s) 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.
(t) 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.
50 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(u) Current and Non-Current classification
Creso Pharma Limited – Annual Report 2020
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.
(v) Dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
(w) Investments in Associates
Associates are entities over which the consolidated entity has significant influence but not control or joint control.
Investments in associates are accounted for using the equity method. Under the equity method, the share of the profits
or losses of the associate is recognised in profit or loss and the share of the movements in equity is recognised in other
comprehensive income. Investments in associates are carried in the statement of financial position at cost plus post-
acquisition changes in the consolidated entity's share of net assets of the associate. Goodwill relating to the associate
is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.
Dividends received or receivable from associates reduce the carrying amount of the investment.
When the consolidated entity's share of losses in an associate equals or exceeds its interest in the associate, including
any unsecured long-term receivables, the consolidated entity does not recognise further losses, unless it has incurred
obligations or made payments on behalf of the associate.
The consolidated entity discontinues the use of the equity method upon the loss of significant influence over the
associate and recognises any retained investment at its fair value. Any difference between the associate's carrying
amount, fair value of the retained investment and proceeds from disposal is recognised in profit or loss.
51 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(x) Inventories
Creso Pharma Limited – Annual Report 2020
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 fulfilment including labour related
costs, materials, shipping costs, customs and duties, royalties, utilities, facilities costs, and shipping and fulfilment
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 fulfilment 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.
52 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(y) Investments and other financial assets
Creso Pharma Limited – Annual Report 2020
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.
(z) 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.
53 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(aa) Fair value measurement
Creso Pharma Limited – Annual Report 2020
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the
fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date; and assumes that the transaction will take place
either: in the principal market; or in the absence of a principal market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its
highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of
unobservable inputs.
Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and
transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the
fair value measurement.
For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either
not available or when the valuation is deemed to be significant. External valuers are selected based on market
knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to
another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and
a comparison, where applicable, with external sources of data.
(bb) 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.
54 | P a g e
Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2020
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.
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
Embedded derivative portion of the convertible notes
-
-
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.
55 | P a g e
Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2020
NOTE 2
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS AND ASSUMPTIONS (continued)
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.
Coronavirus (“COVID-19”) pandemic
Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may
have, on the consolidated entity based on known information. This consideration extends to the nature of the
products and services offered, customers, supply chain, staffing and geographic regions in which the consolidated
entity operates. Other than as addressed in specific notes, there does not currently appear to be either any significant
impact upon the financial statements or any significant uncertainties with respect to events or conditions which may
impact the consolidated entity unfavourably as at the reporting date or subsequently as a result of the Coronavirus
(COVID-19) pandemic.
Allowance for expected credit losses
The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the
lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected
credit loss rate for each group. These assumptions include recent sales experience, historical collection rates, the
impact of the Coronavirus (COVID-19) pandemic and forward-looking information that is available. The allowance for
expected credit losses, as disclosed in note 10, is calculated based on the information available at the time of
preparation. The actual credit losses in future years may be higher or lower.
Estimation of useful lives of assets
The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for
its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result
of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful
lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been
abandoned or sold will be written off or written down.
56 | P a g e
Notes to the Consolidated Financial Statements
NOTE 3
SEGMENT INFORMATION
Creso Pharma Limited – Annual Report 2020
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.
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 2020
Revenue from products
Royalty income
Total segment revenue
Asia Pacific
$
-
17,216
17,216
Europe &
Middle East
$
1,232,918
-
North
America
$
1,214,843
-
1,232,918
1,214,843
Other income
144,769
6,372
26,688
South
America
$
-
-
-
-
Total
$
2,447,761
17,216
2,464,977
177,829
Loss before income tax expense
(15,281,067)
(4,735,111)
(10,399,926)
(363,477)
(30,779,581)
Total Segment Assets
Total Segment Liabilities
Year ended 31 December 2019
Revenue from products
Royalty income
Total segment revenue
4,362,698
4,462,877
Asia Pacific
$
-
33,265
33,265
2,050,328
399,752
Europe &
Middle East
$
2,765,824
-
2,765,824
12,707,582
605,808
North America
$
860,603
-
860,603
Other income
16,660
14,465
51,436
-
-
19,120,608
5,468,437
South
America
$
-
-
-
-
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
57 | P a g e
Notes to the Consolidated Financial Statements
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:
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
Creso Pharma Limited – Annual Report 2020
2020
$
2019
$
2,447,761
17,216
2,464,977
317
26,380
151,132
177,829
1,232,918
1,214,843
17,216
2,464,977
1,232,918
1,214,843
17,216
2,464,977
3,626,427
33,265
3,659,692
57,093
9,432
16,036
82,561
2,765,824
860,603
33,265
3,659,692
2,765,824
860,603
33,265
3,659,692
2,447,761
17,216
2,464,977
3,626,427
33,265
3,659,692
58 | P a g e
Notes to the Consolidated Financial Statements
NOTE 5
EXPENSES
(a) Administrative expenses
Accounting and company secretarial fees
Travel costs
General and administration expenses
(b) Consultancy and legal expenses
Consulting fees
Corporate advisory and business development
Legal fees
(c) Depreciation and amortisation expense
Total depreciation per note (13)
Less: capitalised to inventory
Amortisation expense
(d) Employee benefit expenses
Director fees
Wages and salaries
Recruitment fees
Superannuation
Other employee expenses
(e) Finance Costs
Loan drawdown fees
Loan raising fees settled in options issued
Capital Raising Fees settled in cash
Capital raising fees settled in shares (Related Party - EverBlu)
Loan settlement fees settled in cash
Loan settlement fee settled in shares
Interest expense
Transaction costs recognised on convertible notes
Bank charges
Creso Pharma Limited – Annual Report 2020
2020
$
2019
$
407,957
62,157
172,790
642,904
3,511,590
644,171
996,952
5,152,173
623,948
(617,074)
345,555
352,429
1,224,623
711,612
5,472
81,120
344,805
2,367,632
167,777
44,225
930,453
742,500
1,300,000
2,605,000
3,204,926
272,042
27,000
9,268,880
629,072
406,369
469,966
1,505,407
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
17,840
390,000
-
-
-
-
1,296,749
368,268
17,156
2,090,013
59 | P a g e
Notes to the Consolidated Financial Statements
NOTE 6
INCOME TAX EXPENSE
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
Creso Pharma Limited – Annual Report 2020
2020
$
2019
$
-
-
-
-
The prima facie tax on loss from ordinary activities before income tax is
reconciled to the income tax as follows:
Loss before income tax expense
Prima facie tax benefit on loss before income tax at 27.5% (2019: 30%)
(30,779,581)
(8,464,385)
(15,339,772)
(4,601,932)
(b) Tax effect of:
Tax effect on different tax rate of overseas subsidiaries
Share-based payments
Travel expenses
Legal expenses
Others non-deductible expenses
Temporary differences
Tax losses not recognised
Total
(c) Deferred tax assets not brought to account are:
Carried forward losses
Total
The benefit for tax losses will only be obtained if:
1,876,284
49,284
5,104
274,162
1,840,391
(27,702)
4,446,862
-
387,846
706,802
3,556
491,260
1,252,070
-
1,760,398
-
10,155,957
10,155,957
5,840,258
5,840,258
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 2020
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
Net loss for the year attributable to the owners of Creso Pharma Limited
2020
$
2019
$
(30,779,581)
-
(30,779,581)
(15,339,772)
285,391
(15,054,381)
Weighted average number of ordinary shares for basic and diluted loss per
share.
370,624,639
143,784,112
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
(8.30)
(10.47)
6,047,091
6,047,091
2,800,318
2,800,318
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 rate, currently 0.20% (2019: 0.95%)s.
(a) Reconciliation of net loss after tax to net cash flows from operations
Loss for the financial year
(30,779,581)
(15,339,772)
Adjustments for:
Depreciation and amortisation
(Gain)/loss on foreign exchange
Share based payments
Fair value adjustments to inventory and biological assets
Impairment of intangible assets
Disposal of investment in Creso Grow Limited
Issue of equity for services
Issue of equity to extinguish liability
Capitalised borrowing costs
Absorption of depreciation costs in biological assets and inventory
Other non-cash items
Changes in assets and liabilities
Receivables
Inventories
Trade and other payables
Provisions
Net cash used in operating activities
352,429
(50,137)
179,216
3,882,416
4,671,418
1,041,123
8,188,205
310,350
-
617,074
4,682
401,667
149,743
2,356,008
-
3,040,934
-
-
-
495,489
279,188
76,161
1,061,778
883,969
16,962
(1,484)
(9,621,580)
(356,877)
(1,549,395)
259,589
20,309
(10,166,956)
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
Options issued on acquisition of cultivation licence
Shares issued for the acquisition of a sales licence
Equity issued for the conversion of convertible notes
Equity issued for the settlement of convertible notes
Equity issued as share issue costs
Impairment of intangible assets
Impairment on Colombian licence
(c) Changes in liabilities arising from financing activities
Creso Pharma Limited – Annual Report 2020
2020
$
996,000
750,509
8,369,078
1,650,048
(4,352,158)
(4,671,418)
-
2019
$
2,239,682
-
-
-
-
(3,040,934)
Proceeds from convertible notes
Coupon
notes
interest on convertible
Proceeds from convertible notes
Payment of interest on convertible
notes
31 December 2019
$
3,178,160
Cash Flows
$
5,089,994
Non-cash Flows
$
(5,118,154)
31 December 2020
$
3,150,000
49,158
3,227,318
(109,890)
4,980,104
166,486
(4,951,668)
105,754
3,255,754
31 December 2018
$
2,700,000
Cash Flows
$
1,298,500
Non-cash Flows
$
(820,340)
31 December 2019
$
3,178,160
76,450
2,776,450
(76,450)
1,222,050
49,158
(771,182)
49,158
3,227,318
NOTE 9
INVESTMENT 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
Activity
Principal place of business/
Country of incorporation
CLV Frontier Brands Pty Ltd
Developing terpene beers and
non-alcoholic beverages
Estonia/
Australia
Reconciliation of the group's carrying amount
Opening carrying amount
Share of (loss) after income tax
Closing carrying amount
Ownership interest
2019
2020
%
%
33⅓%
33⅓%
-
-
-
-
-
-
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.
62 | P a g e
Notes to the Consolidated Financial Statements
NOTE 10 TRADE AND OTHER RECEIVABLES
Trade debtors
Goods and Services Tax ('GST') receivable
Canadian HST Receivable
Other deposits and receivables
Creso Pharma Limited – Annual Report 2020
2020
$
27,055
371,199
42,866
195,600
636,720
2019
$
1,017,229
172,763
77,014
431,493
1,698,499
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 2020 (2019: Nil).
NOTE 11
INVENTORIES
Finished goods – Medicinal cannabis packaged products
Finished goods – Harvested cannabis plant products
Finished goods – Consumables inventory
2020
$
-
1,073,836
35,127
1,108,963
2019
$
312,863
1,661,020
19,048
1,992,931
During the year ended 31 December 2020, the Group recorded $Nil (2019: $271,508) of productions costs. During the
year ended 31 December 2020, the Group expensed $3,089,887 (2019: $298,827) of fair value adjustments on the
growth of its biological assets included in inventory sold. As at 31 December 2020, the Group holds 1,100 kilograms of
harvested cannabis (2019: 684 kilograms).
NOTE 12
BIOLOGICAL ASSETS
The Company’s biological assets consist of 9,480 cannabis plants as at 31 December 2020 (2019: 4,793 cannabis
plants). The continuity of biological assets is as follows:
Carrying amount at 1 January
Production costs capitalised
Increase/(decrease) in FVLCS due to biological transformation
Foreign exchange translation
Less: Transfer to inventory upon harvest
Carrying amount at 31 December
2020
$
423,672
3,257,731
(834,933)
(14,708)
(2,688,570)
143,192
2019
$
-
1,852,120
802,907
-
(2,231,355)
423,672
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. The expected cash flow model assumes the
biological assets as at 31 December 2020 will grow to maturity, be harvested and converted into finished goods
inventory and sold to Canadian and overseas customers.
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 and
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.
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.
Management reviews all significant inputs based on historical information obtained as well as based on planned
production schedules. 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.
63 | P a g e
Notes to the Consolidated Financial Statements
NOTE 12
BIOLOGICAL ASSETS (CONTINUED)
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
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 2020
Weighted Average
31 December 2020
10%
30
12
57%
C$2.25
C$0.50
C$1.75
Weighted Average
31 December 2020
10%
24
12
57%
C$0.20
C$0.20
C$0.00
Weighted Average
31 December 2019
15%
42
12
51%
C$3.50
C$0.30
C$2.60
Weighted Average
31 December 2019
15%
33
12
51%
C$1.50
C$0.30
C$1.00
Sensitivity analysis
Assuming all other unobservable inputs are held constant, 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 $11,842 and inventory decreasing by $121,529.
Harvest yield per plant – a decrease in the harvest yield per plant of 10% would result in the biological asset
value decreasing by $14,059.
These inputs are level 3 on the fair value hierarchy and are subject to volatility in market prices, unanticipated regulatory
changes, harvest yields, loss of crops, 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
2020 (2019: none).
At 31 December 2020, the Group had no commitments in relation to growing its cannabis (2019: nil).
64 | P a g e
Notes to the Consolidated Financial Statements
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
Creso Pharma Limited – Annual Report 2020
2020
$
11,270,479
44,361
(2,320)
(623,948)
(780,719)
9,907,853
2019
$
9,900,422
1,922,600
(26,819)
(417,423)
(108,301)
11,270,479
10,973,883
(1,066,030)
9,907,853
11,712,561
(442,082)
11,270,479
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set
out below:
Construction work in progress
Land
Buildings & Improvement
Plant and equipment
Machine & Equipment
Irrigation & Lighting
Security System
Total
Balance at
1 Jan 2020
2,614
387,010
8,787,923
144,284
191,917
1,381,760
374,971
11,270,479
Additions
Transfers
from Capital
Works
Disposals
-
-
-
6,750
30,469
7,142
-
44,361
-
-
-
-
-
-
-
-
(2,320)
-
-
-
-
-
-
(2,320)
Balance at
1 Jan 2019
Additions
Capital
Works
Disposals
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
(7,648,398)
-
9,096,222
(1,704,037)
-
-
-
(256,213)
-
-
-
(26,819)
-
-
-
(26,819)
Foreign
Currency
fluctuation
(294)
(27,474)
(606,739)
(22,277)
(13,621)
(86,832)
(23,482)
(780,719)
Foreign
Currency
fluctuation
-
20,151
(128,452)
-
-
-
-
(108,301)
Depreciation
expense
Balance at
31 Dec 2020
-
-
(295,448)
(28,538)
(45,979)
(199,865)
(54,118)
(623,948)
-
359,536
7,885,736
100,219
162,786
1,102,205
297,371
9,907,853
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
65 | P a g e
Notes to the Consolidated Financial Statements
NOTE 14
INTANGIBLE ASSETS
Current
Licences (Canadian) (a)
Licences (Colombian) (b)
Intellectual property (c)
Computer software (d)
(a) Licences Canadian
Creso Pharma Limited – Annual Report 2020
2020
$
1,274,599
-
2
2,188
1,276,789
2019
$
3,540,692
-
927,287
9,776
4,477,755
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
Comprise licences to conduct R&D, cultivate, extract and export cannabis products, granted in Colombia to Kunna
S.A.S., prior to the company’s acquisition by Creso. The licences remain current and able to be utilised but, as a
prudent measure pending the Group’s future investment and activities in Colombia and given no future forecasted
cash flows and indicators of impairment, the carrying value of the licences was reduced to nil.
(c) 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.
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 2020
Additions
Impairment
Foreign exchange translation
Amortisation expense
Balance at 31 December 2020
Licences
(Canadian)
$
3,540,692
2,131,298
(3,935,119)
(266,683)
(195,589)
1,274,599
Licences
(Colombian)
$
-
-
-
-
-
-
Intellectual
Property
$
927,287
-
(736,299)
(48,339)
(142,647)
2
Computer
Software
$
9,776
-
-
(270)
(7,318)
2,188
Total
$
4,477,755
2,131,298
(4,671,418)
(315,292)
(345,554)
1,276,789
Remaining amortisation period (years)
28
-
5
2
Consolidated
Balance at 1 January 2019
Additions
Impairment
Foreign exchange translation
Amortisation expense
Balance at 31 December 2019
Licences
(Canadian)
$
507,282
3,144,544
-
(3,827)
(107,307)
3,540,692
Licences
(Colombian)
$
2,985,565
55,369
(3,040,934)
-
-
-
Intellectual
Property
$
608,331
456,225
-
15,147
(152,416)
927,287
Computer
Software
$
-
13,485
-
-
(3,709)
9,776
Total
$
4,101,178
3,669,623
(3,040,934)
11,320
(263,432)
4,477,755
During the year ended 31 December 2020, the Group recorded an impairment charge to Intangible Assets of
$4,671,418 (2019: $Nil). Refer to Note 2 for details.
66 | P a g e
Notes to the Consolidated Financial Statements
NOTE 14 INTANGIBLE ASSETS (CONTINUED)
Creso Pharma Limited – Annual Report 2020
Impairment indicators
As noted in Note 1(b), at the end of each reporting period, the Group assesses whether there were events or changes
in circumstances that would indicate that a Cash Generating Unit (“CGU”) was impaired. The following factors were
identified as impairment indicators:
The Swiss segment of the Company’s business has been affected by changes in the regulations of its products
in its principal markets in Europe, leading to the need to re-formulate the products and rediscuss them with its
distribution partners for those markets. The market uptake of those re-formulated products remains uncertain
and revenues in 2021 are expected to be adversely affected.
The Mernova segment of the Company’s business is in its initial phase and therefore currently derives its
revenues from a limited number of customers and distributors.
Impairment Testing – Value-in-use
Mernova Cannabis Operations CGU
The Group’s Mernova Cannabis operations CGU represents its operations dedicated to the cultivation, processing and
sale of cannabis to both wholesale and retail customers. This CGU is attributed to the Group’s North America operating
segment.
As a cross-check, management obtained and reviewed comparable market data for comparison with the CGU’s fair
value and against the net book value of the assets less fixed costs to dispose.
The impairment testing performed at 31 December 2020 supported the recoverable amount of the CGU and did not
result in any further impairment loss.
Switzerland Research & Development CGU
The Group’s Switzerland Research & Development CGU represents its operations dedicated to the research and
development of hemp and cannabis biotechnology, including the development of novel formulations and delivery
forms, and the sale and distribution of hemp derived products. This CGU is attributed to the Company’s European
operating segment. Impairment losses were recognized due to a change in overall industry/market conditions, changes
in EU regulations resulting in a change in management’s forecast sales and profitability and a realignment and refocus
of strategic plans to meet expected market demand.
As a result of the impairment test, management concluded that the carrying value was higher than the recoverable
amount and recorded impairment losses of $736,299 for the half-year ended 30 June 2020. Management allocated the
impairment loss specifically to the assets it identified as impaired, with no individual assets being reduced below its
recoverable amount. Management allocated $703,590 of impairment losses to the CGU’s intangible assets (Note 14),
$12,791 of impairment losses to property, plant and equipment (Note 13), $27,171 to the Group’s investment in the
CGU and $7,253 to net current assets.
The impairment testing performed at 31 December 2020 supported the recoverable amount of the CGU and did not
result in any further impairment loss.
67 | P a g e
Notes to the Consolidated Financial Statements
NOTE 14 INTANGIBLE ASSETS (CONTINUED)
Significant Judgements and Estimates
Creso Pharma Limited – Annual Report 2020
The following key assumptions were used in the discounted cash flow model for each of the CGU’s:
CGU
Forecast period (a)
Terminal / Long-Term Revenue Growth Rate (b)
Discount Rate (c)
Mernova
5 years
3% terminal rate
26%
Switzerland
5 years
3% terminal rate
50%
Assumption
(a)
Forecast period
Approach used to determine values
Budget period + growth estimates for periods beyond the budget period. Specific factors
considered in the forecasts used in the impairment model:
Due to the impact of COVID-19, management have assumed moderate delays
in the timing of expected growth.
The Mernova segment of the Company’s business is in its initial phase and
therefore currently derives its revenues from a limited number of customers
and distributors. The loss of or significant decrease in business from any of
those customers could affect Mernova’s revenues and the Company’s business
until additional or alternative distribution/supply agreements are negotiated.
Revenues for the full year 2020 from the Swiss segment of the Company’s
business are lower than for 2019, due to reduced orders in the second half.
This is the weighted average growth rate used to extrapolate cash flows beyond the
budget period. The outbreak of COVID-19 has resulted in the implementation and
modification of significant governmental measures, including lockdowns, closures,
quarantines, and travel bans, intended to control the spread of the virus. As a result,
the long-term growth rate has been set at zero to reflect the uncertainty in the forecast
future cash flows beyond the budget period in each CGU.
The discount rate used in each CGU reflects management’s estimate of the time value
of money and the risks specific to the asset or CGU.
(b) Terminal / Long-Term
Growth Rate
(c) Discount Rate
The directors and management have considered and assessed reasonably possible changes for other key assumptions
and have not identified any instances that could cause a significant impact to the impairment model.
68 | P a g e
Notes to the Consolidated Financial Statements
NOTE 15 OTHER ASSETS
Movements in the provision for impairment of other receivables are as follows:
Opening balance
Write-off of CLV Frontier Brands provision
Closing balance
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
Employee provisions
Creso Pharma Limited – Annual Report 2020
-
-
-
425,830
(425,830)
-
2020
$
633,923
250,000
757,885
377,409
57,160
86,534
2,162,911
2019
$
1,030,843
93,736
650,063
250,587
34,405
51,441
2,111,075
2020
$
49,772
2019
$
51,256
Amounts not expected to be settled within the next 12 months
The current provision for employee benefits includes all unconditional entitlements where employees have completed
the required period of service and also those where employees are entitled to pro-rata payments in certain
circumstances. The entire amount is presented as current, since the consolidated entity does not have an unconditional
right to defer settlement. However, based on past experience, the consolidated entity does not expect all employees to
take the full amount of accrued leave or require payment within the next 12 months.
The following amounts reflect leave that is not expected to be taken within the next 12 months:
Employee benefits obligation expected to be settled after 12 months
-
-
69 | P a g e
Notes to the Consolidated Financial Statements
NOTE 18
BORROWINGS
Convertible notes
Short-term loans
Loan from related party
Interest payable
Creso Pharma Limited – Annual Report 2020
2020
$
-
3,255,754
-
-
3,255,754
2019
$
3,147,160
-
31,000
49,158
3,227,318
Convertible notes
Convertible notes on issue at 31 December 2019 were repaid during the year, no convertible notes were outstanding
at the year end.
All convertible notes issued contained the following components:
Equity component – free options
Liability component – convertible notes (recorded net of transaction costs)
Liability component – embedded derivative – collateral shares (recorded net of transaction costs)
The individual components of the convertible notes have been valued using accepted market valuation techniques. The
valuation of the embedded derivative liability relating to collateral shares was performed using a Monte Carlo
simulation. Inputs include simulated stock prices in the range of $0.030 – $0.172 and simulated exercise prices in the
range of $0.0223 - $0.1256. The equity component value was confirmed using a Black-Scholes option valuation model,
with assumptions including volatility of 67.58% – 100.39%, a 3-year term, and grant date and exercise prices as
determined by underlying agreements. The increase in the implicit effective interest rate on the financial liability
recorded in relation to the convertible notes is due to the change in economic circumstances over the past six months
reflecting an increase in Creso’s market, operational and credit risks. Convertible notes which are converted to shares
rather than being redeemed by the Company have a dilutive effect upon shareholders at the time of conversion.
The terms of the various convertible notes are as follows:
Tranche 1 Convertible Notes
The convertible 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 27 July 2020 and
the date which is 270 days after the date of the first purchase, with a final payment 12 months after the date
of the first purchase, 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.
The collateral shares can be purchased at the lesser of $0.35 and 90% of the lowest daily VWAP during the 40
actual trading days immediately prior to the date of the collateral purchase notice, rounded down to the
nearest A$0.01 and the purchase consideration can be used to reduce the amount of the convertible note
outstanding subject to various conditions.
Suburban Holdings Pty Ltd (“Suburban”)
As at 1 January 2020, the total amount advanced by Suburban for the issue of 1,666,667 debt notes was
$1,500,000 which was converted into 1,666,667 convertible notes on 29 November 2019, each with a face
value of $1.00. In conjunction with the advance of funds and issue of the convertible notes, Suburban were
also issued:
261,780 Shares as part of the draw down fee on 11 February 2020;
3,333,334 Shares as collateral on 11 February 2020; and
2,727,272 Options on 12 February 2020 which are exercisable at $0.40 each on or before 12
February 2023.
70 | P a g e
Notes to the Consolidated Financial Statements
NOTE 18
BORROWINGS
Creso Pharma Limited – Annual Report 2020
The Company subsequently issued Suburban an additional 15,000,000 Shares on 23 June 2020 as collateral.
Creso entered into an early termination and settlement agreement on 12 October 2020 and the convertible
notes were cancelled on 23 December 2020. Under the terms of the early termination and settlement
agreement, Suburban:
received a cash payment of $250,000 on 20 January 2021;
its collateral shares were collateralized (releasing them of all restrictions); and
Suburban was issued the following securities in the issued capital of Creso Pharma Limited:
42,955,327 Shares on 23 December 2020 and
10,738,832 Options (exercisable at $0.05 each on before 22 January 2023) on 22 January
2021.
Chifley Portfolios Pty Ltd (“Chifley”)
As at 1 January 2020, the total amount advanced by Chifley for the issue of 277,778 debt notes was $250,000
which was converted into 277,778 convertible notes on 12 February 2020, each with a face value of $1.00. In
conjunction with the advance of funds and issue of the convertible notes, Chifley were also issued:
43,630 Shares as part of the draw down fee on 27 November 2019;
555,555 Shares as collateral on 27 November 2019; and
454,545 Options on 12 February 2020 which are exercisable at $0.40 each on or before 12 February
2023.
The Company subsequently issued Chifley an additional 2,000,000 Shares as collateral.
Creso entered into an early termination and settlement agreement on 8 October 2020, whereby Chifley
agreed to receive a cash payment of $350,000 and the collateral shares were collateralized (and released of
all restrictions) in consideration for the termination of the convertible notes.
Mozaik Asset Management Pty Ltd (“Mozaik”)
As at 1 January 2020, the total amount advanced by Mozaik for the issue of 222,222 debt notes was
$250,000, each with a face value of $1.00. In conjunction with the advance of funds and issue of the debt
notes, Mozaik were also issued:
34,904 shares as part of the drawdown fee on 27 November 2019;
444,444 shares as collateral on 27 November 2019; and
363,636 Options on 12 February 2020 which are exercisable at $0.40 each on or before 12 February
2023.
Creso entered into an early termination and settlement agreement on 5 February 2020, whereby Mozaik
agreed to receive a cash payment of $8,000, an issue of 1,000,000 shares and the collateral shares were
collateralized (and released of all restrictions) in consideration for the termination of the convertible notes.
71 | P a g e
Notes to the Consolidated Financial Statements
Notes to the Consolidated Financial Statements
NOTE 18
BORROWINGS (CONTINUED)
Creso Pharma Limited – Annual Report 2020
L1 Convertible Notes (“L1”)
These convertible notes are convertible at the lesser of $0.35 and 90% of the lowest daily VWAP during the 40
actual trading days immediately prior to the date of the conversion notice, rounded down to the nearest
A$0.01; subject to certain conditions being met.
The Company must redeem the convertible notes by a cash payment on the date that is 12 months after the
purchase date of the relevant convertible notes, at calculated amounts subject to certain terms and conditions.
The noteholder can convert the notes at any time prior to the redemption dates. 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.
The collateral shares can be purchased at the lesser of $0.35 and 90% of the lowest daily VWAP during the 40
actual trading days immediately prior to the date of the collateral purchase notice, rounded down to the
nearest A$0.01 and the purchase consideration can be used to reduce the amount of the convertible note
outstanding subject to various conditions.
Tranche 1
As at 1 January 2020, the total amount advanced by L1 for the issue of 1,666,667 debt notes was $1,500,000
which was converted into 1,666,667 convertible notes on 12 February 2020, each with a face value of $1.00.
In conjunction with the advance of funds and issue of the convertible notes, L1 were also issued:
261,780 Shares as part of the draw down fee on 27 November 2019;
3,333,334 Shares as collateral on 27 November 2019; and
2,727,272 Options on 12 February 2020 which are exercisable at $0.40 each on or before 12 February
2023.
Tranche 2
As at 1 January 2020, the total amount advanced by L1 for the issue of 575,000 debt notes was $517,500 which
was converted into 575,000 convertible notes on 12 February 2020, each with a face value of $1.00. In
conjunction with the advance of funds and issue of the convertible notes, L1 were also issued:
9,000,000 Shares as collateral on 5 February 2020; and
575,000 Options on 12 February 2020 which are exercisable at $0.40 each on or before 12 February
2023.
Tranche 3
During the year, the total amount advanced by L1 for the issue of 2,500,000 convertible notes was $2,250,000
each with a face value of $1.00. In conjunction with the advance of funds and issue of the convertible notes,
L1 were also issued:
36,764,706 Options on 2 June 2020, exercisable at $0.17 each on or before 2 June 2023.
During the year there were the following advancements by L1:
the first advance of $875,000 (less fees) on 6 February 2020;
the second advance of $875,000 (less fees) on 11 February 2020; and
the third advance of $500,000 (less fees) on or around 20 April 2020.
72 | P a g e
Notes to the Consolidated Financial Statements
NOTE 18
BORROWINGS (CONTINUED)
Creso Pharma Limited – Annual Report 2020
The Company issued L1 additional collateral shares as follows:
10,812,526 additional collateral shares on 23 June 2020, pursuant to a top up notice dated 4 April
2020; and
15,000,000 additional collateral shares on 23 June 2020.
The convertible notes set out above were converted as follows:
575,000 tranche 2 Convertible Notes were converted into 6,388,889 Shares on 18 February 2020;
700,000 tranche 3 Convertible Notes were converted into 14,000,000 Shares on 4 June 2020;
80,000 Tranche 3 Convertible Notes were converted into 4,000,000 Shares on 3 August 2020;
405,000 Tranche 3 Convertible Notes were converted into 20,250,000 Shares on 30 September 2020;
and
250,000 Tranche 3 Convertible Notes were converted into 12,500,000 Shares on 5 October 2020.
Creso entered into an early termination and settlement agreement on 6 October 2020, whereby L1 agreed to
receive a cash payment of $1,802,653 and the collateral shares were collateralized (and released of all
restrictions) in consideration for the termination of the convertible notes.
Lind Convertible Notes (“Lind”)
The convertible note is convertible at the lesser of $0.35 and 90% of the average of the 5 lowest daily VWAPs
from the daily VWAPs for the 20 trading days immediately prior to the date of the conversion notice (provided
that if the resultant number contains four or more decimal places, that number will be rounded down to the
next lowest number containing three decimal places) subject to certain conditions being met.
The Company must redeem the convertible notes by cash payments to the Lind on the dates which are 180
days and 270 days after the closing date, 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.
The collateral shares can be purchased at the lesser of $0.35 and 90% of the average of the 5 lowest daily
VWAPs from the daily VWAPs for the 20 trading days immediately prior to the date of the collateral purchase
notice (provided that if the resultant number contains four or more decimal places, that number will be
rounded down to the next lowest number containing three decimal places) and the purchase consideration
can be used to reduce the amount of the convertible note outstanding subject to various conditions.
On 23 April 2020, Lind advanced a total of $1,000,000 for the issue of debt security with a face value of
$1,111,111. This was converted into a convertible equity security following shareholder approval on 16 June
2020. In conjunction with the advance of funds and issue of the convertible note, Lind were also issued:
21,000,000 Shares for nil cash consideration as collateral (of which 6,000,000 Shares were issued on
20 April 2020 and 15,000,000 Shares were issued following shareholder approval which was obtained
on 16 June 2020); and
10,752,6688 Options exercisable at $0.1386 each on or before 25 June 2023.
On 1 September 2020, Lind were issued 12,962,963 Shares upon the partial conversion of $350,000 of the face
value of the convertible note.
Creso entered into an early termination and settlement agreement on 6 October 2020, whereby Lind agreed
to receive a cash payment of $222,926.50 and the collateral shares were collateralized (and released of all
restrictions) in consideration for the termination of the convertible security.
73 | P a g e
Notes to the Consolidated Financial Statements
NOTE 18
BORROWINGS (CONTINUED)
Short-term loans
Creso Pharma Limited – Annual Report 2020
On 31 December 2020, the Company drew down total loan facilities which had a face value of $3,150,000 which
comprised of the following:
$500,000 loan from Chifley Portfolios Pty Ltd
$2,000,000 loan from Jamber Investments Pty Ltd
$500,000 loan from L1 Capital Opportunities Master Fund
The above three loans all have the following terms:
interest on each loan is a fixed amount equal to an effective interest rate of 35.01%
interest is payable in cash on the date the loan was advanced or upon demand by the lender. No interest has
been paid to date and interest is included in the loan amounts stated above.
unless otherwise agreed, the Company must repay the loans on or before 1 July 2021.
the loans are unsecured.
the Company can elect to repay a loan amounts at any time before that date.
The remaining $150,000 loan was from Rimoyne Pty Ltd, entered into on 25 September 2020, with the following
terms:
interest on the loan of a fixed amount of $100,000 which equates to an effective interest rate of 194.67%
no interest has been paid to date and interest is included in the loan amount stated above.
unless otherwise agreed, the Company must repay the loan on or before 31 January 2021.
the Company can elect to repay the loan amount at any time before that date.
the loan is unsecured.
the loan was repaid in full on 28 January 2021.
74 | P a g e
Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2020
NOTE 19
ISSUED CAPITAL
(a) Issued and fully paid
2020
2019
No.
$
No.
$
Ordinary shares
902,295,934
71,794,123
174,117,250
46,528,519
(b) Movement in issued shares – 2020
At 1 January 2020
Issuance of shares
Issue of shares in lieu of cash payment of the Mernova Milestone 2 Cash
Consideration
Exercise of options
Conversion of convertible notes
Issue of shares for services
Issue of shares to settle convertible note
Issue of share capital for extinguish of liability
Exchange of Exchangeable Preferred Shares
Less: Equity raising costs
At 31 December 2020
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
Number
174,117,250
391,368,148
15,010,185
17,798,000
146,415,522
98,031,502
39,518,900
3,436,427
16,600,000
-
902,295,934
Number
124,187,665
39,129,585
500,000
10,300,000
-
-
174,117,250
$
46,528,519
12,474,140
750,509
-
6,900,169
6,472,589
1,417,526
89,347
3,235,682
(6,074,358)
71,794,123
$
38,222,883
4,912,660
125,000
5,150,000
(359,302)
(1,522,722)
46,528,519
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.
75 | P a g e
Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2020
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)
Conversion of convertible notes
Issue of equity to settle convertible notes
Issue of options for services
Issue of options to extinguish liability
Listed options issued
Unlisted options issued
Issue of exchangeable shares for the Mernova Milestone 2 Consideration
Exchange of Exchangeable Preferred Shares (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
2020
$
23,557,350
301,178
23,858,528
21,044,323
179,216
1,468,909
232,522
1,715,616
221,003
-
935,443
996,000
(3,235,682)
23,557,350
1,558,463
(1,257,285)
301,178
2019
$
21,044,323
1,558,463
22,602,786
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
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.
As part of the acquisition of Mernova Medicinal Inc. in 2017, the Company issued Exchangeable Preferred Shares
(Exchangeable Shares) in a Canadian subsidiary of the Group (Creso Canada Limited). Each Exchangeable Share
was to be exchanged for up to 16,600,000 ordinary shares in Creso Pharma Limited when the Milestones noted
below were met:
- Milestone 1: Cash payment of CAD$800,000 (“Mernova Milestone 1 Cash Consideration”) and
CAD$4,150,000 of Exchangeable Shares (“Mernova Milestone 1 Equity Consideration”) exchangeable at the
election of the Mernova vendors on or after Creso’s announcement to the market of Mernova Medicinal Inc.
securing a cultivation license from Health Canada under the ACMPR in relation to the cultivation facility
(“Mernova Milestone 1”). Mernova Milestone 1 was achieved on 14 March 2019.
- Milestone 2: Cash payment of CAD$800,000 (“Mernova Milestone 2 Cash Consideration”) and
CAD$4,150,000 of Exchangeable Shares (“Mernova Milestone 2 Equity Consideration”) exchangeable at the
election of the Mernova vendors on or after Creso’s announcement to the market of the grant of a sales
license to Mernova Medicinal Inc (“Mernova Milestone 2”). Milestone 2 was achieved on 14 February 2020.
On 26 June 2020, the Company issued 15,010,185 Shares as part settlement for the CAD$800,000 cash payment
to be made upon the achievement of Milestone 2. On 18 December 2020, the Exchangeable Preferred Shares in
the capital of Creso Canada Limited were exchanged for 16,600,000 shares in Creso Pharma Limited, at the
election of the Mernova vendors.
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.
76 | P a g e
Notes to the Consolidated Financial Statements
NOTE 21
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Creso Pharma Limited – Annual Report 2020
Financial risk management objectives
The consolidated entity's activities expose it to a variety of financial risks: market risk (including foreign currency risk,
price risk and interest rate risk), credit risk and liquidity risk. The consolidated entity's overall risk management
program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the
financial performance of the consolidated entity. The consolidated entity uses different methods to measure different
types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign
exchange and other price risks, ageing analysis for credit risk and beta analysis in respect of investment portfolios to
determine market risk.
Risk management is carried out by senior finance executives ('Finance') under policies approved by the Board of
Directors ('the Board'). These policies include identification and analysis of the risk exposure of the consolidated entity
and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the
consolidated entity's operating units. Finance reports to the Board on a monthly basis.
Market risk
Foreign currency risk
The consolidated entity undertakes certain transactions denominated in foreign currency and is exposed to foreign
currency risk through foreign exchange rate fluctuations.
Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial
liabilities denominated in a currency that is not the entity's functional currency. The risk is measured using sensitivity
analysis and cash flow forecasting.
The carrying amount of the consolidated entity's foreign currency denominated financial assets and financial liabilities
at the reporting date were as follows:
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Trade and other receivables
Trade and other payables
2020
CHF
Fr.
1,344,819
132,857
393,417
CAD
$
149,296
148,918
558,018
2019
CHF
Fr.
1,398,589
432,299
144,080
CAD
$
201,520
571,632
190,416
USD
$
1,374
208
9,807
USD
$
1,430
461
9,567
The consolidated entity had net assets denominated in foreign currencies of $13,756,350 as at 31 December 2020
(2019: $21,360,816). Based on this exposure, had the Australian dollar weakened by 5%/strengthened by 5% (2019:
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 $687,818 lower/$687,818 higher (2019:
$1,068,041 lower/$1,068,041 higher) and equity would have been $687,818 lower/$687,818 higher (2019: $1,068,041
lower/$1,068,041 higher). The percentage change is the expected overall volatility of the significant currencies, which
is based on management’s assessment of reasonable possible fluctuations taking into consideration movements over
the last 6 months each year and the spot rate at each reporting date. The actual foreign exchange loss for the year
ended 31 December 2020 was $1,257,285 (2019: gain of $1,306,551).
Price risk
The consolidated entity is not exposed to any significant price risk.
77 | P a g e
Notes to the Consolidated Financial Statements
NOTE 21
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2020
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 loans outstanding, totalling $3,255,754 (2019: $3,227,318), are principal and interest
payment loans, with interest capitalised on inception. Monthly cash outlays of approximately Nil (2019: $15,000) per
month are required to service the interest payments. No convertible notes were on issue at year end (2019:
$4,408,333). All principal and interest payments are due during the year ending 31 December 2021.
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.
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
78 | P a g e
Notes to the Consolidated Financial Statements
NOTE 21
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2020
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 - 2020
Non-derivatives
Non-interest bearing
Trade and other payables
Interest-bearing - fixed
rate
Short-term loan
Maturity Analysis
1 – 3 months
4 – 6 months
Total non-derivatives
-
2,162,911
43%
3,255,754
2,162,911
3,255,754
5,418,665
-
-
-
-
-
-
2,162,911
-
3,255,754
-
-
-
2,162,911
3,255,754
5,418,665
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
19%
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
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed
above.
Fair value of financial instruments
Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value.
79 | P a g e
Notes to the Consolidated Financial Statements
NOTE 22
CAPITAL RISK MANAGEMENT
Creso Pharma Limited – Annual Report 2020
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.
NOTE 23
RELATED PARTY DISCLOSURE
(a) Key Management Personnel Compensation
Details relating to key management personnel, including remuneration paid, are below.
Short-term benefits
Post-employment benefits
Share-based payments
(b)
Transactions with related parties - cash
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
Cash component of share issues
Amount payable to Creso (ii)
Balance owing to EverBlu Capital Pty Ltd at 31 December
Balance owing to Creso at 31 December
Everblu Capital Corporate Pty Ltd
Capital raising fees
Reimbursement of invoices paid on Creso’s behalf
Out of scope fees
Balance owing to EverBlu Capital Corporate Pty Ltd at 31 December
Balance owing to Creso at 31 December
2020
$
2019
$
1,544,623
89,325
86,364
1,720,312
1,647,628
56,714
1,446,039
3,150,381
2020
$
2019
$
828,475
103,350
300,000
4,683
851,818
1,949,831
-
4,038,157
-
-
1,292,136
76,230
256,230
1,624,596
-
-
988,692
85,000
120,000
4,014
270,000
-
(50,000)
1,417,706
336,323
50,000
-
-
-
-
-
-
80 | P a g e
Notes to the Consolidated Financial Statements
NOTE 23
RELATED PARTY DISCLOSURE (CONTINUED)
Suburban Holdings Pty Ltd – related party
Draw down fees
Balance owing at 31 December
Tranche 1 Convertible Notes
Amount drawn down by Creso
Amount repaid
Balance owing at 31 December
Anglo Menda Pty Ltd – related party
Short term loan to Creso(iii)
Share placement
Balance owing at 31 December
Atlantic Capital Pty Ltd – related party
Share placement
Adam Blumenthal
Balance owing at 31 December
James Ellingford
Balance owing at 31 December
Miri Halperin Wernli
Balance owing at 31 December
Creso Pharma Limited – Annual Report 2020
-
-
60,000
60,000
-
1,250,000
250,000
(1,500,000)
-
1,666,667
61,000
1,000,000
-
3,000,000
50,000
48,144
125,000
31,000
-
31,000
-
-
-
-
International Water and Energy Savers Ltd - a company controlled by Boaz
Wachtel
Director’s Fees for Boaz Wachtel
Balance owing at 31 December
Jorge Wernli – related party to Miriam Halperin Wernli
Salary and bonus
Balance owing at 31 December
82,500
30,000
105,000
5,000
391,175
124,265
-
-
(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.
(iii) During the half-year period ended 30 June 2020, Creso received short term, interest free and unsecured loans
totalling $61,000 from Anglo Menda Pty Limited, a company indirectly owned by and controlled by Adam
Blumenthal.
81 | P a g e
Notes to the Consolidated Financial Statements
NOTE 23
RELATED PARTY DISCLOSURE (CONTINUED)
(c)
Transactions with related parties – non-cash
Creso Pharma Limited – Annual Report 2020
Other Share and Option Transactions with KMP Related Parties
Shares
$
Options
$
Shares
$
Options
$
2020
2019
EverBlu Capital Pty Ltd
Capital Raising and corporate advisory fees payable in connection with:
Debt note offer – Tranche 1 (November 2019)
November 2019 Placement
L1 Convertible Note Facility - Tranche 2 (December 2019)
L1 Convertible Note Facility (June 2020)
EverBlu Corporate Advisory sign on bonus
Lind Convertible Note Facility (June 2020)
June 2020 Placement
October 2020 Placement
Everblu Corporate Advisory Mandate Fees for June 2020 to December
2020
Subtotal
Adam Blumenthal
Participation in October 2020 Placement ($1M)
Participation in October 2020 Placement ($3M)
Subtotal
Suburban Holdings Pty Ltd
Fees under Tranche 1 Convertible Note Facility
Collateral shares under Tranche 1 Convertible Note Facility
Additional collateral shares
Settlement of Suburban Convertible Notes
Subtotal
Atlantic Capital Holdings Pty Ltd
Participation in October 2020 Placement ($1M)
Participation in October 2020 Placement ($3M)
Subtotal
Anglo Menda Pty Ltd
Participation in June 2020 Placement
Subtotal
Miriam Halperin Wernli
Participation in June 2020 Placement
Subtotal
-
-
-
4,500,000
2,000,000
833,333
1,602,855
8,992,530
-
-
-
723,025
136,000
65,833
108,994
305,746
-
-
-
4,000,000
8,000,000
833,333
-
53,447,775(i)
2,000,000
19,928,718
370,000
1,709,598
-
66,281,108
-
-
-
-
-
-
8,591,066(i)
25,773,196(i)
34,364,262
-
-
-
96,000
216,000
33,425
-
1,414,416
-
1,759,841
-
-
-
1,150,000(ii)
528,387(ii)
450,000(ii)
-
-
-
-
-
190,109
54,758
74,391
-
-
-
-
-
1,150,000(ii)
528,387(ii)
450,000(ii)
-
-
-
-
-
71,470
32,838
27,967
-
-
-
-
-
-
2,128,387
-
319,258
-
2,128,387
-
132,275
-
-
-
261,780
-
15,000,000
42,955,327
58,217,107
34,364,261
103,092,784
137,457,045
833,333
833,333
833,333
833,333
50,000
-
1,184,705
1,417,526
2,652,231
1,000,000
3,000,000
4,000,000
50,000
50,000
50,000
50,000
-
-
-
10,738,832(i)
10,738,832
-
-
-
232,522
232,522
-
3,333,334(ii)
-
-
3,333,334
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,727,272(ii)
-
-
-
2,727,272
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
82 | P a g e
(i) Options were valued in the year per AASB 2 but were not issued until after the year end, see note 32 for details.
(ii) 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.
Notes to the Consolidated Financial Statements
NOTE 23
RELATED PARTY DISCLOSURE (CONTINUED)
Creso Pharma Limited – Annual Report 2020
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. Where required, shareholder approval was also obtained prior to the issue of any
equity securities to related parties
NOTE 24
SHARE BASED PAYMENTS
Recognised share-based payment transactions
(a)
Unlisted options issued to employees and consultants
Performance rights issued to employees and consultants
Performance rights issued to key management personnel
Other share-based payments
2020
$
2019
$
18,216
74,636
86,364
-
179,216
226,070
531,624
1,466,039
132,275
2,356,008
Share based payments are valued on the bases set out in Note 1 (r) of Significant Accounting Policies.
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
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
12-02-2020
12-02-2020
07-04-2020
07-04-2020
07-04-2020
07-04-2020
25-06-2020
02-06-2020
02-06-2020
02-06-2020
23-12-2020
23-12-2020
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
12-02-2020
12-02-2020
07-04-2020
07-04-2020
07-04-2020
07-04-2020
25-06-2020
02-06-2020
02-06-2020
02-06-2020
23-12-2020
23-12-2020
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
12-02-2023
12-02-2023
01-03-2024
10-03-2024
10-03-2024
10-03-2024
25-06-2023
02-06-2023
02-06-2023
02-06-2023
23-12-2023
23-12-2025
Weighted average exercise price
$0.40
$0.20
$0.50
$0.60
$0.80
$0.535
$0.80
$0.55
$0.80
$0.35
$0.40
$0.25
$0.08
$0.16
$0.20
$0.1389
$0.17
$0.25
$0.20
$0.20
$0.039
400,000
2,886,250
300,000
100,000
150,000
200,000
200,000
200,000
400,000
-
-
-
-
-
-
-
-
-
-
-
-
4,836,250
$0.36
-
-
-
-
-
-
-
-
-
2,128,387
6,847,725
250,000
1,000,000
1,000,000
500,000
10,752,688
36,764,706
4,000,000
8,000,000
833,333
30,000,000
102,076,839
$0.15
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Expired/
Cancelled
during the
year
(400,000)
(2,886,250)
-
(100,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(3,386,250)
$0.24
Balance at the
end of the
year
-
-
300,000
-
150,000
200,000
200,000
200,000
400,000
2,128,387
6,847,725
250,000
1,000,000
1,000,000
500,000
10,752,688
36,764,706
4,000,000
8,000,000
833,333
30,000,000
103,526,839
$0.16
83 | P a g e
Notes to the Consolidated Financial Statements
NOTE 24
SHARE-BASED PAYMENTS (CONTINUED)
(c) Movements of listed options during the year
Creso Pharma Limited – Annual Report 2020
Options
Issue Date
Date of
Expiry
Issue
Price
Exercise
Price
Shareholders
21-08-2018
21-08-2020
Shareholders
11-09-2018
21-08-2020
$0.05
$0.05
Lender
Lender
17-12-2018
21-08-2020
17-12-2018
21-08-2020
Shareholders
30-01-2019
21-08-2020
Shareholders
01-02-2019
21-08-2020
-
-
-
-
Lender
02-07-2019
21-08-2020
$0.50
$0.80
$0.80
$0.80
$0.80
$0.80
$0.80
$0.80
Balance at
start of the
year
24,377,710
26,865,000
2,295,062
1,604,938
2,018,516
185,185
15,450,000
72,796,411
Issued
during
the year
-
Exercised
during the
year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Expired/
Cancelled during
the year
(24,377,710)
(26,865,000)
(2,295,062)
(1,604,938)
(2,018,516)
(185,185)
(15,450,000)
(72,796,411)
Balance at
end of the
year
-
-
-
-
-
-
-
-
(d)
Summary of performance rights granted and vested during the year
Balance at the start of the
year
3,496,000
Granted during the year
Vested during the year
Cancelled during the year
Balance at the end of the
year
-
(1,198,000)
-
2,298,000
(e)
Summary of performance shares granted 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
1,212,120
-
-
(1,212,120)
NOTE 25
COMMITMENTS
Capital Commitments
There were no capital commitments at either year end
Operating Lease Commitments
Within one year
One to five years
More than five years
2020
$
-
-
38,577
-
-
38,577
-
2019
$
-
-
29,240
-
-
29,240
Milestone 2 Commitments
Cash payable in equal monthly instalments over 9 months commencing
February 2020.
-
-
877,097
877,097
84 | P a g e
Notes to the Consolidated Financial Statements
NOTE 26
COMMITMENTS AND CONTINGENCIES
Creso Pharma Limited – Annual Report 2020
There are no contractual commitments or contingent liabilities at 31 December 2020 (2019: Nil).
NOTE 27
AUDITOR’S REMUNERATION
During the financial year the following fees were paid or payable for services provided by BDO Audit Pty Ltd, the auditor
of the company, its network firms and unrelated firms:
Audit Services- BDO Audit Pty Ltd
Audit and review of annual and half-year
Other services – BDO
– Independent limited assurance report
– Independent Expert Report
– Income tax return and GST audit
Component Auditor Fees
Audit and reviews of the financial statements
2020
$
2019
$
277,609
290,000
-
33,291
41,482
61,000
50,000
-
68,847
421,229
97,726
498,726
NOTE 28
INVESTMENT IN CONTROLLED ENTITIES
Company Name
Principal Activities
Country of
Incorporation
Ownership interest
2020
2019
Creso Pharma Switzerland
GmbH
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
Corporate entity
Corporate entity
Cultivation of cannabis plants and sale of
cannabis products
Corporate Entity
Corporate entity
Holder of cannabis licenses in Colombia
Early-stage cannabis cultivation project (now
divested)
Canada
Canada
Canada
Canada
Canada
Colombia
Israel
%
100
100
100
100
100
100
100
-
%
100
100
100
100
100
100
100
74
The Group incurred a loss of $1,443,662 on the disposal of its interest in the Creso Grow Limited Joint Venture which
has been included in the Statement of Profit or Loss and Other Comprehensive Income.
85 | 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 2020
Total current assets
4,882,117
950,816
Loans receivable and investments in controlled entities
13,755,088
21,260,081
2020
$
2019
$
Total assets
Total current liabilities
Total liabilities
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
18,637,205
22,210,897
4,985,034
4,985,034
4,936,937
4,936,937
72,149,116
23,103,825
(81,600,770)
13,652,171
46,528,519
21,044,323
(50,298,882)
17,273,960
Total comprehensive loss
(31,301,888)
(14,033,222)
Contingent liabilities
The parent entity had no contingent liabilities as at 31 December 2020 and 31 December 2019.
Capital commitments – Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 31 December 2020 and 31
December 2019.
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.
86 | P a g e
Notes to the Consolidated Financial Statements
NOTE 30
INTEREST IN ASSOCIATE
Creso Pharma Limited – Annual Report 2020
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
2020
%
2019
%
33⅓%
33⅓%
CLV Frontier Brands Pty Ltd
2019
2020
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
NOTE 31
EQUITY- NON-CONTROLLING INTEREST
Accumulated losses
2020
$
2019
$
-
-
375,041
375,041
The non-controlling interest comprises a Nil (2019: 26%) equity holding in Creso Grow Limited.
87 | P a g e
Creso Pharma Limited – Annual Report 2020
Notes to the Consolidated Financial Statements
NOTE 32
EVENTS AFTER THE REPORTING DATE
Capital management and Funding
On 11 January 2021, the Company announced that 10,000,000 options had been converted to shares for a
consideration of $1,668,600.
On 11 January 2021, the Company announced the issue of 24,000,000 Options to an independent consultant
in lieu of cash fees for business development, promotion and marketing services and 2,800,000 options
issued to service providers in lieu of cash fees for investor relation and marketing services.
On 15 January 2021, the Company announced that 4,000,000 options had been converted to shares for a
consideration of $554,400.
On 22 January 2021, the Company issued 190,460,834 CPHOA listed options, exercisable at $0.05 each. The
options issued comprised the following:
o 68,664,317 options issued for nil consideration to investors who participated in the October 2020
placement.
o 8,591,066 options issued for nil consideration to Adam Blumenthal in respect to a $1,000,000 share
placement.
o 62,947,715 options issued for nil consideration to EverBlu Capital in consideration for services
provided in connection with the October 2020 placement.
o 25,773,196 options issued for nil consideration to Adam Blumenthal in respect to a $3,000,000 share
placement.
o 10,738,832 options issued for nil consideration to Suburban Holdings as part of the repayment of a
convertible note.
o 13,745,708 options issued for nil consideration to Azalea Consulting in consideration for company
secretarial and corporate advisory services.
Also on 22 January 2021, the Company announced 300,000 performance rights had been converted to shares
for nil cash consideration upon achievement of certain vesting conditions by an employee.
On 5 February 2021, the Company announced that 16,376,638 options had been converted to shares for a
consideration of $818,832 and 1,304,348 shares were issued for nil consideration for investor relations and
marketing services.
On 12 February 2021, the Company announced that 12,042,806 options had been converted to shares for a
consideration of $602,140.
On 19 February 2021, the Company announced that 3,070,979 options had been converted to shares for a
consideration of $153,549.
On 26 February 2021, the Company announced that 4,134,290 options had been converted to shares for a
consideration of $206,714.
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.
88 | P a g e
Creso Pharma Limited – Annual Report 2020 Directors’ Declaration 89 | 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 2020 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 ADAM BLUMENTHAL Non-Executive Chairman 9 March 2021 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 2020, 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 2020 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 (including Independence Standards) (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 Audit Pty Ltd ABN 33 134 022 870 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 Audit Pty Ltd 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 transactions as
Our audit procedures included, amongst others:
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 which this year included
issues of shares and options to related parties.
•
Reviewing documentation for a sample of
related party transactions, including all
individually material transactions, to
understand the underlying transactions and
assess whether they had been recorded
correctly;
Related party disclosures are significant to our audit as
•
Obtaining confirmations from all key
they are material, and of interest to users of the
financial report due to their nature and value.
management personnel 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
fees; and
•
Considering the completeness 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, the
Our audit procedures included, amongst others:
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, included the embedded derivatives,
•
Obtaining an understanding of and assessing
the terms and conditions of the convertible
note agreements to determine if
management’s accounting treatment is
appropriate;
•
Evaluating whether management’s expert
had the necessary competence, capabilities
based on the terms and conditions of the agreement.
and objectivity. We obtained an
During the year, there were multiple convertible notes
issued which were subsequently redeemed or repaid by
year end.
Management engaged an expert to determine the fair
value of the liability components which required
judgement and estimation. The derivative liability is
measured at fair value through profit or loss.
Management performed the valuation of the embedded
derivative equity component (options) which also
required judgement and estimation.
The audit of these financial instruments is a key audit
matter due to the significant judgement and
understanding of the work of management’s
expert including an understanding of the
relevant field of expertise;
•
Assessing the reasonableness of the inputs to
the valuations;
•
Assessing the measurement and accounting
for convertible notes on and subsequent to
initial recognition, including determining
whether fair value movements and finance
costs have been correctly recorded through
the profit and loss; and
•
Reviewing the disclosures made within the
financial report to ensure there are in
accordance with Australian Accounting
complexity involved in assessing the determination of
Standards.
the fair value of the identified derivative liabilities and
resulting the accounting treatment.
Valuation of biological assets and inventory
Key audit matter
How the matter was addressed in our audit
The Group held biological assets of $143,192 (Note 12)
Our audit procedures, included, amongst others:
and inventory of $1,108,963 (Note 11) at 31 December
2020.
AASB 141 Agriculture requires 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 costs to sell up
to the point of harvest, which becomes the initial
deemed cost.
We considered the valuation of biological assets to be a
key audit matter due to the changing market
conditions and the complexity of the valuation model
and the significant estimates required as inputs to the
valuation model.
•
•
•
•
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 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.
Impairment of intangible assets
Key audit matter
How the matter was addressed in our audit
At 31 December 2020, the carrying value of intangible
assets was $1,276,789 as disclosed in Note 14. The
Group has recognised an impairment of $4,671,418
relating to licences held in Canada and Switzerland
during the year.
An annual impairment test for Intangible Assets is
required for indefinite life assets or where there are
indicators of impairment under Australian Accounting
Standard (AASB) 136 Impairment of Assets.
Impairment testing requires management to make
significant judgements and estimates in producing the
discounted cash flow models to determine whether the
carrying value of assets are recoverable.
Detailed disclosures are contained in Note 14 to the
financial report, which include the related accounting
policies and the critical accounting judgements and
estimates.
This was considered to be a key audit matter due to
the significance of the intangible assets, the material
amount of the impairment charge recorded and the
judgements and estimates exercised in the impairment
testing.
Our audit procedures included, amongst others:
•
•
•
•
•
•
•
Obtaining management’s assessment of
impairment indicators under AASB 136 for
each non-current asset and considering the
conclusions;
Assessing whether the cash generating units
were appropriate and consistent with our
knowledge of the Group’s operations and
internal reporting;
Assessing whether the impairment testing
methodology used by the Group met the
requirements of Australian Accounting
Standards;
Analysing management’s key assumptions
used in the discounted cash flow models to
determine their reasonableness;
Challenging the appropriateness of
management’s discount rates used in the
discounted cash flow models;
Checking the mathematical accuracy of the
discounted cash flow model; and
Evaluating the adequacy of the impairment
disclosures in the financial report,
particularly those relating to intangible
assets and to judgements and estimates.
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 2020, 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 (http://www.auasb.gov.au/Home.aspx) at:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.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 23 to 35 of the directors’ report for the
year ended 31 December 2020.
In our opinion, the Remuneration Report of Creso Pharma Limited, for the year ended 31 December
2020, 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 Audit Pty Ltd
Gillian Shea
Director
Sydney, 9 March 2021
Shareholder Information
Creso Pharma Limited – Annual Report 2020
The shareholder information set out below was applicable as at 28 February 2021.
1. QUOTATION
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 2020 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 28 February 2021.
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
1,927
8,875
3,802
7,202
1,092
22,898
Units
1,284,687
26,628,873
31,033,557
243,235,254
651,342,624
953,524,995
%
0.13%
2.79%
3.25%
25.51%
68.31%
100.00%
On 28 February 2021, there were 5,310 holders of unmarketable parcels of less than 7,426,636 ordinary shares (based
on the closing share price of $0.21).
97 | P a g e
Shareholder Information
6.2 Listed CPHOA Options exercisable at $0.05 on or before 21 January 2023
Creso Pharma Limited – Annual Report 2020
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
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)
CPHOPT21 Options
($0.40, 12/02/2023)
CPHOPT22 Options
($0.25, 01/03/2023)
CPHOPT23 Options
($0.08, 10/03/2024)
CPHOPT24 Options
($0.16, 10/03/2024)
CPHOPT25 Options
($0.20, 10/03/2024)
Holders
-
9
9
33
48
99
Quantity on
Issue
150,000
200,000
200,000
200,000
400,000
2,128,387
6,847,725
250,000
1,000,000
1,000,000
500,000
Units
-
33,548
66,962
1,727,265
153,008,346
154,836,121
%
-
0.02%
0.04%
1.12%
98.82%
100.00%
Distribution of Holders
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
All the securities in this class are held by:
-
Atlantic Capital Holdings Pty Ltd
CS Third Nominees Pty Limited holds 3,302,272 securities (48.22%)
-
A/C> holds 2,727,272 securities (39.83%)
These securities were issued under an Employee Share
Scheme, therefore disclosure of holders with more than 20%
of securities is not required under ASX Listing Rules 4.10.16.
Suburban Holdings Pty Ltd
Atlantic Capital Holdings Pty Ltd
Lind Global Macro Fund LP
CST Capital Pty Ltd
All the securities in this class are held by:
-
All the securities in this class are held by:
-
All the securities in this class are held by:
-
All the securities in this class are held by:
-
All the securities in this class are held by:
-
A/C>
All the securities in this class are held by:
- Bruce Linton
All the securities in this class are held by:
- Mr David Deslauriers
All the securities in this class are held by:
- Mr David Deslauriers
All the securities in this class are held by:
- Mr David Deslauriers
There are 2 security holders, each holding more than
100,001 of securities in this class.
The following holder holds more than 20% of securities in
this class:
-
(89.29%)
Zero Nominees Pty Ltd holds 2,500,000 securities
Distribution of Holders
All the securities in this class are held by:
-
International Water Energy Savers Ltd
All the securities in this class are held by:
-
International Water Energy Savers Ltd
All the securities in this class are held by:
-
Stephane Redey
These securities were issued under an Employee Share
Scheme, therefore disclosure of holders with more than 20%
of securities is not required under ASX Listing Rules 4.10.16.
These securities were issued under an Employee Share
Scheme, therefore disclosure of holders with more than 20%
of securities is not required under ASX Listing Rules 4.10.16.
These securities were issued under an Employee Share
Scheme, therefore disclosure of holders with more than 20%
of securities is not required under ASX Listing Rules 4.10.16.
These securities were issued under an Employee Share
Scheme, therefore disclosure of holders with more than 20%
of securities is not required under ASX Listing Rules 4.10.16.
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Shareholder Information
7. SUBSTANTIAL SHAREHOLDERS
Creso Pharma Limited – Annual Report 2020
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 31 January 2021, 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: Adam Blumenthal
Holder of: 146,498,766 fully paid ordinary shares, representing 16.24% as at 23 December 2020
Notice Received: 11 January 2021
8. TWENTY LARGEST SHAREHOLDERS AS AT 28 FEBRUARY 2021
1
2
3
4
5
6
7
8
9
10
11
Name
ATLANTIC CAPITAL HOLDINGS PTY
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
SUBURBAN HOLDINGS PTY LTD
JAMBER INVESTMENTS PTY LTD
CITICORP NOMINEES PTY LIMITED
MR WILLIAM JAMES FLEMING
MIRIAM HALPERIN WERNLI
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
INTERNATIONAL WATER & ENERGY SAVERS LTD
RS FAMILY HOLDINGS PTY LTD
ANGLO AUSTRALASIA HOLDINGS PTY LTD
12 MR LISHENG WANG
13 MR KENNETH JOSEPH HALL
14
15
16
17
CHINCHERINCHEE NOMINEES PTY LTD
S3 CONSORTIUM HOLDINGS PTY LTD
BNP PARIBAS NOMINEES PTY LTD
TENORIO PTY LIMITED
18 MR MATTHEW CLARKE MALLET
UBS NOMINEES PTY LTD
19
COMSEC NOMINEES PTY LIMITED
20
Total
Shares Held
139,415,432
%
14.62%
33,358,651
27,507,750
20,200,000
19,026,497
16,600,000
13,333,333
8,764,097
8,300,000
8,158,803
7,083,333
5,050,000
5,000,000
4,436,427
4,300,000
4,205,098
3,581,427
3,400,000
3,192,251
3,176,508
338,089,607
3.50%
2.88%
2.12%
2.00%
1.74%
1.40%
0.92%
0.87%
0.86%
0.74%
0.53%
0.52%
0.47%
0.45%
0.44%
0.38%
0.36%
0.33%
0.33%
35.46%
100 | P a g e
Shareholder Information
Creso Pharma Limited – Annual Report 2020
9. TWENTY LARGEST LISTED CPHOA OPTION HOLDERS AS AT 28 FEBRUARY 2021
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Name
ATLANTIC CAPITAL HOLDINGS PTY
CHINCHERINCHEE NOMINEES PTY LTD
SUBURBAN HOLDINGS PTY LTD
JAMBER INVESTMENTS PTY LTD
NANDIL PTY LTD
HORATIO STREET PTY LIMITED
MRS CHUNYAN NIU
S3 CONSORTIUM PTY LTD
KAVYA GLOBAL NETWORK AUSTRALIA PTY LTD
ISIDORE 14 PTY LTD
RIMOYNE PTY LTD
SIZZ PTY LTD
SOLEVU PTY LTD