CRESO PHARMA LIMITED
ACN 609 406 911
Appendix 4E for the
Year Ended 31 December 2021
2 Final Report For the year ended 31 December 2021, previous corresponding period is 31 December 2020. Results for announcement to the market 2021 2020 Up/(down) $ $ Revenue from ordinary activities 154.0% 6,218,337 2,447,761 Loss from ordinary activities after tax attributable to members (6.3)% (30,030,967) (32,036,866) Loss from ordinary activities attributable to members (6.3)% (30,030,967) (32,036,866) Refer to the Operating and Financial Review in the Annual Report for further information on the results. Dividends No dividends have been paid or declared by the Group since the end of the previous financial year (2020: Nil). No dividend is recommended in respect of the current financial year (2020: Nil). Net Tangible Assets Per Security 2021 2020 Net Tangible Assets Per Security (cents) 1.51 1.37 Audit Report This report is based on the consolidated financial statements for the year ended 31 December 2021 which have been audited by BDO Audit Pty Ltd. The audit report in the consolidated financial statements contains an emphasis of matter with respect to material uncertainty over going concern. Additional Appendix 4E disclosure requirements are included in the following pages. Signed on behalf of the directors James Ellingford EXECUTIVE CHAIRMAN 28 February 2022 CRESO PHARMA LIMITED
ACN 609 406 911
Annual Report for the
Year Ended 31 December 2021
Annual Report
For the year ended 31 December 2021
Creso Pharma Limited – Annual Report 2021
Contents
About Creso
Corporate Directory
Chairman’s Address
CEO’s Report
Directors’ Report
Remuneration Report
Auditor’s Independence Declaration
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
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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 and Australia.
www.CresoPharma.com
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Creso Pharma Limited – Annual Report 2020
Corporate Directory
Board of Directors
Dr James Ellingford
Mr William Lay
Mrs Micheline MacKay
Mr Adam Blumenthal
Mr Boaz Wachtel
Mr Bruce Linton
Executive Chairman
CEO and Managing Director
Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Secretaries
Ms Erlyn Dawson and Mr Winton Willesee, jointly
Registered Office
Suite 5 CPC, 145 Stirling Highway
Nedlands, WA 6009
Australia
Telephone: +61 8 9389 3180
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 Australian Securities Exchange (ASX Code: CPHOA)
Listed on the Australian Securities Exchange (ASX Code: CPHO)
Listed on the U.S. OTCQB Market (OTC Code: COPHF)
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 5, 191 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 2021
I am delighted to present you Creso Pharma’s 2021 Annual Report and financial statements, which encapsulate a year
of transformational progress.
The Company continued its momentum, capitalising on the strong foundation laid in CY2020 to further its growth and
transition plans to become a globally recognised company in the cannabis industry, as well as a world leading developer
of evolutionary psychedelic medicines. Our vision of delivering emerging treatments for previously untreatable mental
illnesses has been justified by ongoing regulatory reform that has transformed the global landscape.
The acquisition of Canadian psychedelics company Halucenex Life Sciences highlights the Board’s vision and
incorporates a complementary business to existing operations while providing access to a lucrative and high growth
sector. It unlocks several near and long-term opportunities to enter new markets and positions Creso Pharma as the
first ASX-listed company with an 100% owned psychedelic medicines subsidiary.
Initiatives undertaken during the year culminated with Halucenex submitting its Clinical Trial Authorisation filing with
Health Canada in January 2022. This is the final step before commencing the planned Phase II clinical trial. The trial is
designed to test the efficacy of psilocybin when used to treat treatment resistant Post Traumatic Stress Disorder (PTSD).
Extraordinary growth across the group’s nutraceutical, cannabis cultivation and sales divisions was pleasing to see.
Product development initiatives and launches, recurring business from new and existing partners and M&A activity all
combined to generate record growth for the Company. More importantly, the Company’s individual divisions continued
Creso Pharma’s global expansion and agreements are now in place in several key international markets.
During the period we welcomed Mr William Lay and former Director and founder, Dr Miri Halperin Wernli to contribute
to Creso. In the short amount of time, we have benefited significantly from their extensive expertise across the
psychedelic, recreational cannabis and CBD industries and have leveraged their established networks across
international markets, with North America being a particular region of focus. I would like to again welcome Mr Lay and
Dr. Halperin Wernli to the Company and I look forward to continuing our work together.
In February 2022, the group took a further major step to significantly increase its product range and access new markets
with the agreement to acquire US-based Sierra Sage Herbs LLC (“SSH”). The acquisition will provide Creso Pharma with
established, revenue generating operations in the USA. SSH is a female-founded and established leading consumer
packaged goods company focused on plant-based and CBD products.
Once completed, the acquisition will represent the group’s maiden entry into the US, creating opportunities in the US
CBD market, which is expected to grow in value to US$12Bn by 20261. Creso Pharma will leverage its own in-house IP
and also SSH’s supply chain, distribution, marketing and branding expertise to drive CBD product revenue in the US.
The all-scrip transaction will be materially accretive on a revenue per share basis. Creso expects to hold a shareholders’
meeting to approve the transaction in or around late March 2022, with closing to occur soon thereafter. SSH co-founder
and CEO, Ms Jodi Scott will join the Creso Pharma Board as Executive Director and President of US Operations – with
her appointment strengthening the group’s North American management and further sharpening our focus.
In order to grow our presence in North America we have commenced steps and preparation towards a dual listing on
the NASDAQ. The decision follows a successful listing on the OTCQB market in the USA and will provide Creso with a
greater level of access to the North American market. Integrating Creso Pharma’s operations with the US market is a
crucial step in increasing footprint to drive sales growth. Ongoing changes in the regulatory framework are expected to
provide Creso Pharma with market opportunities in the coming years.
With several business and product development initiatives commenced across all operating divisions and the pending
launch of Halucenex’s phase II clinical trial, Creso Pharma is in an excellent position to continue delivering value for
shareholders. The Board and management team will continue to work diligently to capitalise on further international
regulatory changes and look to increase sales channels and drive growth across new international markets.
1 https://content.brightfieldgroup.com/2021-us-cbd-market-report
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Creso Pharma Limited – Annual Report 2021 Chairman’s Address 6 | Page I would like to take this opportunity to thank all our dedicated employees for their commitment throughout the year. Likewise, to my fellow directors, I wish to express my appreciation and gratitude for your ongoing support. Lastly, to the Company’s shareholders I would like to thank you for the continued loyalty. I look forward to providing updates on operations throughout the new year as we look to build upon a successful CY2021 and unlock further value for shareholders. Yours faithfully, Dr James Ellingford Executive Chairman CEO’s REPORT
CEO’s Report:
I would like to thank all shareholders for their ongoing support of the company, and invite you to read the full Annual
Report.
I am very pleased to report on Creso’s progress for the 2021 fiscal year, which was a transformative year for the
company.
Due to the hard work of our talented global teams, Creso was able to report a record year for revenue of $6,213,358,
an increase of 134% on prior revenue from the 2020 fiscal year.
During the year, the company also introduced several new products, significantly improved the quality of existing
products, expanded its sales channels to new markets, completed substantial strategic M&A activity and added
additional strength to its senior management team.
With a strong start to fiscal 2022, Creso continued to add strength to its management team and board of directors,
achieved significant milestones in the business units, and announced the acquisition of Sierra Sage Herbs (“SSH”), a US
based, plant based (CBD and non-CBD) beauty and personal care company with significant historical revenues.
I firmly believe that Creso has the foundation to accelerate its growth through 2022 and the coming years.
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Directors’ Report
Creso Pharma Limited – Annual Report 2021
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 2021.
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:
Dr James Ellingford
Mr William Lay
Mrs Micheline MacKay
Mr Adam Blumenthal
Mr Boaz Wachtel
Mr Bruce Linton
Dr Miri Halperin Wernli Director and Head of Technology, Innovation and Distribution (resigned 17 March 2021)
Executive Chairman (change on 25 November 2021, formerly Executive Director)
CEO and Managing Director (appointed 17 January 2022)
Executive Director (appointed 17 January 2022)
Non-Executive Director (change on 25 November 2021, formerly Non-Executive Chairman)
Non-Executive Director
Non-Executive Director (appointed 17 January 2022)
The Directors held office during the entire reporting period unless otherwise stated.
Dr James Ellingford, MBA. PG (Corp Mgmt). D.Mgt.
Executive Chairman
Chairman of the Remuneration and Nomination Committee
Chairman of the Audit and Risk Committee
(Originally appointed as Director on 20 November 2015, appointed as Executive Chairman on 25 November 2021)
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)
William Lay, B.Com (Hons.)
Managing Director and Chief Executive Officer
(Appointed 17 January 2022)
Appointed
January 2020
April 2018
Resigned
January 2021
June 2020
Mr William Lay is an experienced cannabis executive and previously served as Executive Vice President – Strategy,
Origination & Operations at Creso. Mr Lay began his career with leading Canadian full service financial investment bank,
BMO Capital Markets through roles across Canada and London. During his time with BMO Capital Markets, Mr Lay
participated in M&A, equity financing and debt financing transactions totaling >C$3 bn in cumulative value.
Shortly after his time with BMO Capital Markets, Mr Lay joined Canopy Growth Corporation (TSE: WEED, NASDAQ: CGC)
as an M&A Associate, before being promoted to Associate Director, M&A, in 2019. In this role, he assessed and effected
multiple transactions locally and internationally, while concurrently progressing corporate strategy initiatives across the
group. During his time at Canopy Growth, Mr Lay built a strong working relationship with Mr Linton, working on many
high-profile initiatives together. Over the last four years, Mr Lay has managed and supported over C$5 billion in
cannabis M&A transactions, including leading the largest acquisition in the history of the cannabis sector.
Mr Lay has not been a director of any other ASX listed Company within the last three years.
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Directors’ Report
Micheline MacKay, M.Sc., B.Sc. (Hons.), PMP
Executive Director
(Appointed 17 January 2022)
Creso Pharma Limited – Annual Report 2021
Mrs MacKay has 22 years of experience in regulatory environments, including pharmaceuticals, medical devices, and
government regulated industries. She has held leadership positions for many years in different areas with a strong focus
on business improvements and product development from laboratory scale to commercial operations.
Mrs MacKay is currently the Corporate Manager of Creso’s wholly owned Canadian subsidiary, Mernova Medicinal Inc.
(“Mernova”). She has been in the position for nearly three years and is responsible for multiple functions including HR,
quality assurance, and regulatory affairs. Mrs MacKay is also the Health Canada designated Responsible Person in
Charge at Mernova. Leveraging past experience, she has played a significant role in successfully growing Mernova and
has implemented best industry standards. She has practical experience in managing a business through specified key
performance indicators, managing budgets, conducting regular audits and performance management.
Mrs MacKay has not been a director of any other ASX listed Company within the last three years.
Adam Blumenthal BCom. MIR. MBA.
Non-Executive Director
Member of the Remuneration and Nomination Committee
(Appointed 20 November 2015)
Adam Blumenthal has over 11 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 CY2021.
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)
Appointed
November 2017
Resigned
Current
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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 2021
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
Bruce Linton, BPA
Non-Executive Director
(Appointed 17 January 2022)
Mr Linton has a passion for entrepreneurship and making a positive difference in the world. He brings a wealth of
experience in building strong technology-driven companies, developing world-class teams, and positioning his
companies in sectors driven by waves of public policy change. Mr Linton is Founder and served as the Chairman and
Chief Executive Officer of Canopy Growth Corporation (Nasdaq: CGC/TMX: WEED). As Chairman and Chief Executive
Officer of Canopy Growth Corporation, Mr Linton led the Company through 31 acquisitions, and over 16 rounds of
financing for a total of more than $6 billion of capital raises, including a $5 billion investment by Constellation Brands,
the largest beer import company in the United States.
Mr Linton serves as the founding Executive Chairman of Gage Growth Corp. (CSE: GAGE); which recently announced its
acquisition by leading North American MSO TerrAscend Corp (CSE: TER),(OTCQX: TRSSF) pending customary closing
conditions. Mr Linton is the Chairman of the Advisory Board for Red Light Holland Corp., (CSE: TRIP), the psychedelics
company whose focus is on premium brand ‘magic’ truffles and Advisor with Creso (ASX: CPH), and Above Foods. Co-
Founder and Non-Executive Chairman of Óskare Capital, and an active investor with Slang Worldwide Inc. (CSE: SLNG)
and with OG DNA Genetics Inc. Mr Linton is a Co-Chairman and former Chief Executive Officer of Martello Technologies
Group Inc. (TSXV: MTLO). Mr Linton also sits on the Board of Directors of the Canadian Olympic Foundation and is an
active member of The Ottawa Hospital Foundation, Campaign Executive Committee. In Sept 2021, Mr Linton stepped
down from the board of Mind Medicine Inc. (NEO: MMED), where he was a founding Board of Director member and
Chairman of the Governance and Compensation Committee. Mr Linton was also Chairman and Chief Executive Officer
of Collective Growth Corporation; a special purpose acquisition company (SPAC) that went public on NASDAQ in May
2020 and completed its business combination transaction with Innoviz Technologies Ltd. (NASDAQ: INVZ) in March
2021.
During the past three years, Mr Linton held a directorship in the following other ASX listed entity:
Company
AusCann Group Holdings Ltd (ASX:AC8)
Appointed
January 2017
Resigned
September 2019
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Directors’ Report
Creso Pharma Limited – Annual Report 2021
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 year end.
Director
Dr James Ellingford
Mr William Lay(iv)
Mrs Micheline MacKay(iv)
Mr Adam Blumenthal
Mr Boaz Wachtel(v)
Mr Bruce Linton(iv)
Dr Miri Halperin Wernli(vi)
Total
Ordinary
Shares
1,152,500
-
-
113,665,433(i)
8,800,000
-
-
123,617,933
Listed Options
Unlisted Options
Performance
Rights
384,167
-
-
37,888,479(ii)
2,933,334
-
-
41,205,980
-
-
-
26,128,387(iii)
-
-
-
26,128,387
-
-
-
-
1,600,000
-
-
1,600,000
(i)
Includes 113,665,432 shares held by Atlantic Capital Holdings Pty Ltd, a related party of Adam Blumenthal.
(ii) Includes 37,888,478 listed options held by Atlantic Capital Holdings Pty Ltd, a related party of Adam Blumenthal.
(iii) All the unlisted options are held by Atlantic Capital Holdings Pty Ltd, a related party of Adam Blumenthal.
(iv) All became directors after the year end therefore none held as directors at the reporting date.
(v) All holdings are held by International Water and Energy Savers Ltd, a related party of Boaz Wachtel.
(vi) Resigned 17 March 2021 therefore none held as a director at the reporting date.
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
9
9
1
9
Number
Attended
9
9
1
9
Number
Eligible to
Attend
-
2
-
2
Number
Attended
-
2
-
2
Number
Eligible to
Attend
4
4
-
-
Number
Attended
4
4
-
-
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 2021
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 Dawson BCom. GradDipAppCorpGov. ACIS/AGIA.
Joint Company Secretary
(Appointed 19 October 2018)
Erlyn Dawson 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. Dawson 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)
to develop, register and commercialise pharmaceutical-grade cannabis and hemp-based nutraceutical
products and treatments;
to cultivate, process and sell cannabis products; and
b)
c) clinical trial and development of synthetic psilocybin micro and macro dose formulations to treat treatment-
resistant depression and anxiety.
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Creso Pharma Limited – Annual Report 2021
Directors’ Report
OPERATING AND FINANCIAL REVIEW
Operating Results
The operating results of the Group for the year ended 31 December 2021 were as follows:
Cash and cash equivalents
Net assets
Revenue from products
Royalty income
Total revenue
Other income
Net loss after tax from continuing operations
Dividends
31-Dec-2021
$
7,184,746
27,758,953
31-Dec-2020
$
6,047,091
13,652,171
6,218,337
221
6,218,558
34,812
(30,030,967)
2,447,761
17,216
2,464,977
177,829
(30,799,581)
No dividends have been paid or declared by the Group since the end of the previous financial year (2020: Nil).
No dividend is recommended in respect of the current financial year (2020: Nil).
Overview and Financial Results:
Creso is a leader in cannabidiol (“CBD”) innovation, developing cannabis and hemp-derived nutraceuticals and medicinal
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 and globally commercialise pharmaceutical-grade cannabis and
hemp-derived products, according to the highest GMP quality standards.
In addition, the Company cultivates and harvests cannabis plants through its wholly owned subsidiary Mernova
Medicinal Inc. (“Mernova”) and supplies cannabis retail products throughout Canada.
Through its wholly owned, Canadian based psychedelics subsidiary, Halucenex Life Sciences Inc. (“Halucenex”), the
Company is also focused on the development of synthetic and botanical psilocybin treatments for Treatment Resistant
Post Traumatic Stress Disorder, and other mental health conditions.
Throughout 2021, Creso made rapid progress and continued its evolution in becoming a broader based consumer
products company. The Company made important advancements, which were underpinned by several distribution
agreements, product launches, acquisitions and new market entries which solidified its intent to become a global leader
in the psychedelic, CBD and recreation and cannabis space.
Mernova Medicinal Inc.:
The Company’s wholly owned subsidiary Mernova Medicinal Inc. posted a record year in terms of revenue, generating
A$3,634,530, a 199% increase on the previous corresponding period (FY20: A$1,214,843) The increase was underpinned
by continuously increasing cannabis quality and new product uptake, evidenced by a consistent stream of purchase
orders over the course of the year. During FY21 the company implemented new advanced growing techniques, which
resulted in testing of its Black Mamba strain reaching as high as 32.6% THC content, and testing of its Lemon Haze strain
reaching as high as 29.4% THC content. These figures firmly position Mernova’s products among the highest THC content
products in Canada. According to a report from Deloitte in 2021, THC content is the number one attribute that existing
cannabis consumers use to evaluate quality of product2.
2 https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/consumer-
business/ca_cannabis_consumer_survey_en_aoda.pdf
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Directors’ Report
Creso Pharma Limited – Annual Report 2021
Recurring purchase orders were received from Creso’s partners the Ontario Cannabis Retail Corporation (“OCRC”),
which operates as the Ontario Cannabis Store (“OCS”), Cannabis New Brunswick (“Cannabis NB”), the Nova Scotia Liquor
Corporation (“NSLC”) and Yukon Liquor Corporation (“Yukon”). This strong network of partners across Canada highlights
the level of product satisfaction Creso’s products have achieved. Notably, during FY21, the company reached 4.5% retail
market share in its home province of Nova Scotia. During the first 6 weeks of FY22, the company also received its maiden
purchase order from a buying group in Saskatchewan, further expanding its sales channels. The company is in active
discussions with two further provinces to continue this expansion.
To support increasing consumer demand for Mernova’s cannabis products, the Company acquired 14 new cannabis
strains that qualify according to Mernova’s strict quality standards to be sold under the Ritual Green, Ritual Sticks and
future Ritual brands. The introduction of the 14 strains followed extensive due diligence and market research, with each
strain chosen for its quality and high THC content. Preliminary THC testing on pilot batches of a selection of these new
strains demonstrated positive initial results (Mac 1 – 30.1% THC, Grape Cream Cakes – 25.9% THC, Monkey Berries –
23.6% THC, Vineyard Select – 19.6% THC), with quality expected to increase as growing procedures continue to be
optimized for these strains prior to commercial production.
During FY21, the company began the installation of new lights in each of its grow rooms, which is expected to be
completed for all grow rooms in the first half of FY22. Additionally, the company invested in higher quality nutrition
products for the plants and irrigation system upgrades. Preliminary results show increased yields, which will provide
additional supply of products for sale in FY22, as well as increased quality.
In the first two months of FY22, the company also signed an agreement with a manufacturer to extract THC from
Mernova’s biomass to create a line of vape products for Mernova. Additionally, Mernova expects to launch a blunt
product imminently.
By continuing to produce products with industry leading quality, releasing new strains to the market, introducing new
product delivery formats, and continuing to grow its number of provincial relationships, Mernova is well positioned to
continue to grow revenue during FY22.
Human Health CBD division (Creso Pharma Switzerland):
The Human Health CBD division achieved revenues of A$756,635 in FY21, growing by 86.5% on FY20 (FY20: A$405,721).
The growing interest and demand for Creso’s Human Health CBD products throughout 2021 can be attributed to a
growing product range and expansion across key markets. In particular, new purchase orders from partners in Europe
and South Africa allowed the Company to continue growing its global footprint. Creso now boasts over 3,500
international points of sale, for its innovative CBD products.
Creso’s Human and Animal Health CBD Divisions are expected to significantly benefit from the pending acquisition of
SSH, which currently has 90,000 points of distribution in the United States, including with retailers such as AAFES (Army
& Air Force Exchange Service), CVS, Walgreens, Rite Aid, Alberstons Companies, The Kroger Family of Companies, Whole
Foods, Walmart, AmazonUS and Target.com. The pending acquisition will mark Creso’s maiden entry into the US market;
the US CBD market is expected to grow to US$12Bn in value by 20263. Creso and SSH are actively progressing multiple
initiatives to accelerate entry of each company’s products into new markets.
Products developed and launched during the year included three new CBD teas, which were formulated on a second-
generation innovative technology that optimises the Hemp CBD content.
•
•
•
cannaQIX® tea: designed to help the management of stress supporting a better quality of life.
cannaQIX® NITE tea: to be consumed at nighttime to support a better sleep.
cannaQIX® Immunity tea: which provides the supplements and taste to optimise well-being.
Creso also took its first steps entering the Swiss sport, health and wellness markets launching newly developed
cannaDOL® products through established commercial channels and the recently developed e-commerce website.
•
•
•
cannaDOL® booster: for use before sport and recreational activity
cannaDOL® revitalize gel: which provides an immediate cooling effect, a long-lasting soothing and relaxing heat on
skin and can be used before and after physical activity
cannaDOL® recovery: to aid in recovery from sport and other physical activities
3 https://content.brightfieldgroup.com/2021-us-cbd-market-report
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Directors’ Report
Creso Pharma Limited – Annual Report 2021
In January 2021, Creso completed all the required importing and exporting procedures and successfully delivered a
second shipment of cannaQIX® products to the subsidiary of Lupin International (NYSE: LUPIN), Pharma Dynamics South
Africa (“Pharma Dynamics”). Pharma Dynamics distributes the Company’s hemp-based products across South Africa,
with plans to extend the distribution to Namibia, Botswana, Zimbabwe, Swaziland, Lesotho, Angola, Mozambique and
Uganda.
Cementing its position in Africa, Creso entered into a bilateral agreement with Cannabis Queen, South Africa (“Cannabis
Queen”). The agreement expanded the Company’s distribution network across the country and provides Creso with an
additional partner to sell and distribute its Hemp CBD based product range. As part of the agreement, Creso began
taking steps to market and distribute Cannabis Queen’s Anti-Aging Serum 30ml and Argan & Cannabis Hair Treatment
50ml products in Switzerland and Europe.
A comprehensive distribution agreement was entered into with leading nutritional supplements company Route 2
Pharm Pvt Ltd (“Route2”) to import, market, distribute and sell the Company’s innovative hemp derived therapeutic
products exclusively into Pakistan and Philippines. The agreement incorporated non-exclusivity into additional markets
including Cambodia, Afghanistan, Azerbaijan, Bangladesh, Georgia, the Maldives, Myanmar, Tajikistan, Turkmenistan,
Uzbekistan, and Vietnam. In June 2021 this agreement was extended to allow for distribution into Ecuador, providing a
large market opportunity for Creso in the Latin American market.
Further extending the Company’s European market presence, purchase orders were received from Swiss based health
products distributor MHG GmbH Switzerland (“MHG”) for Creso’s cannaQIX® hemp seed oil lozenges and cannaQIX® 50
lozenges. The products are now sold through MHG’s sales channels into a range of countries including Macedonia,
Albania, Serbia, and Croatia amongst others.
In November, Creso executed a non-binding Letter of Intent (“LOI”) with licenced cannabis grower Innuana AG,
Switzerland (“Innuana”) to grow and market medicinal cannabis for the burgeoning market in Switzerland. Innuana will
grow medicinal cannabis based on Creso’s specifications while Creso will bring its medical and pharmaceutical expertise,
marketing and product knowledge. Creso will also leverage its established relationships with prescribers and clinics in
Switzerland to drive prescription sales growth.
A new e-commerce site was also launched focussing on the Swiss consumer sport market under the ‘Born to move’
subcategory brand. The website unlocks potential new revenue channels and followed considerable due diligence and
consultation with potential customers, suppliers and consumers. Further distribution into the sports market in Poland
and Portugal are earmarked as potential expansion locations.
Animal Health division (Creso Switzerland):
The Animal Health CBD division achieved revenues of A$1,034,527 in FY21, growing 74.3% on FY20 (FY20: A$593,457).
The Animal Health division saw growth and expansion with several agreements signed for distribution into new markets.
These new markets include Poland and Uruguay and represent a significant opportunity for Creso to further advance in
this sector. Ongoing product development initiatives continued with a new innovative stress reduction and wellbeing
product for pigs finalised during the year.
anibidiol® swine is a new hemp flour and oat bran based complementary feed product to support stress reduction and
wellbeing in pigs. After discussions with farmers and breeders, the product was developed to address tail biting in pig
herds. It is being marketed to farmers and breeders through established partners and distributors in the animal health
space.
Creso entered into an LOI with Polvet Healthcare Teodorowski Spółka Jawna (“Polvet”) to market and distribute the
Company’s animal health products for companion animals and livestock in Poland. Poland represented the Company’s
first entry into Eastern Europe and is one of the regions strongest domestic pet markets with 38m customers4. Two
purchase orders were received during the year for Creso’s hemp flour based, anibidiol® granule product for pets, large
companion animals and livestock.
Following last year’s regulatory approval from the Ministry of Agriculture and Animal feed in Uruguay, through Latin
American commercial partner Adler Laboratories and Medara S.A. for the Company’s anibidiol® products, Creso
completed all required import procedures. The Company intends to use this as a catalyst to capitalise on the growing
Latin American pet food market.
4 https://globalpetindustry.com/article/polish-pet-market-2020
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Directors’ Report
Halucenex Life Sciences Inc. (“Halucenex”):
Creso Pharma Limited – Annual Report 2021
In July 2021, the Company announced the completion of the Halucenex acquisition, making Creso the first ASX-listed
company with a 100% owned psychedelics subsidiary. The completion provides Creso with access to the emerging global
market for psychedelic medicines. During the year extensive work was undertaken to accelerate the planned Phase II
clinical trial to study the efficacy of psilocybin when used to treat treatment resistant PTSD.
One of the first major steps to de-risking the clinical trial timeline was securing a supply of synthetic psilocybin. Creso
secured this from one of Canada’s pharmaceutical grade synthetic psychedelics manufacturers, Psygen Industries Inc
(“Psygen”). At the time, Halucenex was only one of eleven companies with a supply contract from Psygen. With growing
demand and limited legal, GMP supply of synthetic psilocybin, the Psygen supply contract represents significant value
to Halucenex ahead of its clinical trial.
Following the initial contract in May 2021, Halucenex more than doubled its supply of synthetic psilocybin by adding an
additional 10g. This took the total inventory to 22.3g and provided Halucenex with a runway to expedite clinical trials,
R&D initiatives, and provide a significant barrier to entry for competitors.
In August 2021, Halucenex secured its Controlled Drugs and Substances Dealer’s Licence allowing the Company to
possess, sell, transport and conduct R&D on a broad range of psychedelic substances including psilocybin, ketamine,
LSD and MDMA amongst others. The licence considerably expanded the scope of work towards psychedelics.
Halucenex was subsequently awarded a Controlled Drugs and Substances Dealer’s Licence Amendment from Health
Canada. The amendment allows the Company to now produce, package and assemble psychedelic substances including
psilocybin, ketamine, LSD, salvia divinorum, harmaline, salvinorin A, and MDMA amongst others. This marks the most
extensive licence in regard to Controlled Drugs and Substances that can be awarded by Health Canada and is a significant
competitive advantage.
In another major milestone, Halucenex completed all USP 61 and USP 62 testing requirements and achieved positive
lab test results for its psilocybin active pharmaceutical ingredient (“API”), with the Company’s API being deemed safe
for human consumption ahead of the Phase II clinical trial. The favourable test results highlighted superior concentration
of between 98.6% and 99.8% in GMP grade psilocybin with minor impurity levels. The positive tests allowed Halucenex
to progress Clinical Trial Authorisation (“CTA”) filing with Health Canada, the final step before commencing the phase II
clinical trial.
Numerous agreements were entered into during the year, all with the intent of accelerating the planned phase II clinical
trial. These agreements included:
•
•
•
The appointment of True North Clinical Research (“True North”) as the principal investigator for the planned
phase II trials. True North is a leader in R&D and is comprised of a team of 30 highly qualified research staff
clinicians. True North will provide clinical oversight, assist with facilitation of compliancy with the Nova Scotia
Ethics Committee, undertake patient recruitment, conduct the trial, monitoring and compilation of data and
results. The group will also ensure follow up measures are taken to ensure participant safety.
The agreement secured with medical and recreational extraction experts Advanced Extraction Solutions Inc.
(“AESI”) to purchase a CO2 Supercritical Extraction System. The system has expedited certain product
development and trial initiatives including breaking down psychedelic compounds of botanical psilocybin for
future product development and exploring the efficacy of extracted distillates in various delivery mechanisms
to determine faster compound onset and more effective dosing.
The advisory agreement executed with Growing Together Research Inc. (“GTR”), a US-based biotechnology
company focused on applying cutting-edge computational genomics and bioengineering to plant medicine. The
agreement with GTR will assist Halucenex in creating an intellectual property portfolio to assist in maximising
the active ingredients in various strains of magic mushrooms and explore which elements have the best efficacy
when being used to treat specific conditions.
• A Letter of Intent signed with Sixth Wave Innovations Inc. (“Sixth Wave”), a world-class nanotechnology
company focused on Molecularly Imprinted Polymers (MIPs) for imprinting, capturing and releases substances.
Both parties worked to develop beads and columns to assist in producing psilocybin isolate from distillation of
the product, allowing Halucenex to produce a natural pure psilocybin product for R&D, and for accurately
dosing psilocybin for the treatment of mental disorders.
16 | P a g e
Directors’ Report
Creso Pharma Limited – Annual Report 2021
• An agreement signed with Nucro-Technics, a Canadian company that partners with pharmaceutical, biologic
and medical device companies globally to assist with R&D initiatives. Halucenex works with Nucro-Technics to
test the stability and shelf life of psilocybin liquid formulations. Halucenex will have access to a GMP certified
lab to formulate and test the bioavailability of its synthetic psilocybin compound, the ability to handle control
substances for formulations of current delivery solutions and potential future methods that may have a faster
onset.
• A Consultancy agreement secured with HeteroGeneity, LLC, a leading consultancy assisting companies achieve
regulatory approval for new drug developments in the USA. The agreement will assist with potential future US
expansion for Halucenex’s botanical psilocybin products. Both parties will conduct a technology assessment to
progress a development plan for a new botanical drug under pharmaceutical development for the US market.
• A MOU signed with Landing Strong a Nova Scotia-based mental health organisation that provides structured
support for military members, first responders and veterans. The MOU provides an option for post clinical trial
support and workplace integration programs for phase II clinical trial participants.
• A Research Collaboration Agreement secured with Acadia University to develop soft gel capsule drug delivery
format containing CBD and psilocybin respectively. Located outside of Halifax, Nova Scotia the University’s
state of the art research centres are located near Halucenex’s existing operations allowing both groups to
expedite a number of value accretive activities. Product development initiatives are expected to strengthen
Creso’s IP and provide another strategic advantage in rapidly growing markets.
During the first two months of FY22, Halucenex achieved two significant milestones. In January 2022, Halucenex lodged
its Clinical Trial Authorisation with Health Canada ahead of the proposed Phase II study. The Clinical Trial Authorisation
is subject to 30-day review by Health Canada and approval from Health Canada, which, if obtained, will allow Halucenex
to commence its clinical trial during Q2 CY2022. Separately, Halucenex was included on a list of approved suppliers
under Health Canada’s Special Access Program (“SAP”). The SAP is a federal program that allows healthcare
professionals to apply for access to non-marketed medications that have not yet been approved for sale when such
medications show clinical evidence of safety and efficacy and are intended to treat patients with severe or life-
threatening illness. Halucenex will now be included on a list of several suppliers that will be provided to doctors
requesting access to psilocybin for their patients, under certain circumstances.
Corporate Developments:
During the year, Creso undertook several initiatives to further its growth strategy into North American markets. With
the appointment of several key executives, the Company embarked on multiple business development initiatives to
increase partnerships, market penetration and M&A activity. Preparation for a proposed NASDAQ dual listing are
underway which is expected to increase the Company’s US market presence. The acquisition of Halucenex also provides
Creso with access to the emerging global market for psychedelic medicines.
To further broaden US awareness, Creso completed a dual listing on the OTCQB (“OTC”) market in the USA and
commenced trading on Friday, 11 June 2021 (USA OTC market time) under the code COPHF. The dual listing may provide
access to deeper capital markets and North American investors with accessibility to invest in established cannabis and
psychedelics medicines businesses.
Upon the successful OTC listing, Creso shifted its efforts to a proposed NASDAQ dual listing in order to unlock additional
growth opportunities. A dual listing will provide even greater access to capital and North American investors to invest
in an established cannabis and psychedelics business. The secondary listing is also expected to allow for more efficient
M&A activity, as well as expedited potential partnerships with North American groups allowing Creso to act quickly on
potential legislative changes which may have a positive effect on the recreational cannabis industry and the use of
psychedelic compounds.
Leading NY-based corporate advisory firm, EAS Advisors LLC (“EAS”) is mandated to assist and expedite the proposed
NASDAQ listing. The group has established American networks and a strong understanding of capital markets, allowing
Creso to advance its dual listing. EAS will provide access to equity research providers to secure North American research
coverage, generate global investor awareness with potential strategic investors in the USA, Europe, Asia and Australia
and assist in financial modelling, presentation preparation, external dataroom maintenance and advise on additional
M&A opportunities.
17 | P a g e
Creso Pharma Limited – Annual Report 2021 Directors’ Report 18 | Page In October 2021, Creso completed the acquisition of the assets of ImpACTIVE Holdings Ltd (“ImpACTIVE”). Founded in 2019, ImpACTIVE is a Canadian life sciences company established by current and former high-profile athletes seeking to provide alternative treatment routes to the athletic community. The group has developed a range of CBD based products, designed to reduce muscle and joint inflammation without the use of heavy narcotics or prescription pharmaceuticals. The acquisition provides another mechanism to increase North American exposure and broaden the Company’s range of CBD products. In February 2022, Creso announced the acquisition of SSH. SSH is a leading consumer products company based in Colorado, which generated US$5.7 million of unaudited gross revenue in CY2021. SSH is focused on plant-based solutions for consumers in the beauty and personal care segment, leveraging a proprietary lipid infusion process. SSH has a network of over 90,000 points of distribution in the United States, including with many significant big box retailers. The acquisition of SSH is a significant milestone for the company, as the Company expects that it will allow for the introduction of Creso Switzerland’s human and animal health products into the lucrative US market. Additionally, the proposed transaction will accelerate the introduction of impACTIVE’s products to these markets. The combined company will also progress the sale of SSH’s existing product portfolio through Creso’s existing global commercial partners. Ahead of the proposed NASDAQ dual listing, Creso made the key appointment of Mr William Lay as Executive Vice President – Strategy, Origination & Operations in September 2021, who is now CEO and Managing Director of the Group. In addition, the Company also made the appointment of founder and former director Dr Miri Halperin Wernli as strategic advisor. The two executives considerably strengthen the management team with both boasting extensive expertise in the psychedelic, recreational cannabis and CBD industries, as well as offering established networks across North America and other international markets. In January 2022, Mr Lay was appointed Chief Executive Officer and Managing Director of Creso. Alongside Mr Lay’s addition to the Creso board, the company also welcomed leading cannabis and psychedelics entrepreneur Bruce Linton, and Mernova Corporate Manager Micheline MacKay to its board. Mr Lay and Mr Linton have extensive experience progressing M&A transactions from their time together at Canopy Growth. They will leverage their networks and expertise to further identify and execute additional strategic M&A transactions. In conclusion, I am very excited to continue providing updates to investors over the course of FY22. Creso has all the pre-requisites in place to continue its strong growth from 2021 and I am confident that the contribution of our existing business, as well as the uplift from recent M&A transactions will significantly benefit the company over the course of the year. Mr William Lay Managing Director and Group CEO Directors’ Report
CORPORATE
Equity Transactions
Creso Pharma Limited – Annual Report 2021
On 11 January 2021, the Company announced that 10,000,000 options had been exercised into shares for a
consideration of $1,668,600, the issue of 24,000,000 Options (with various exercise prices ranging from $0.235 to $0.30,
on or before 11 January 2023) to an independent consultant in lieu of cash fees for business development, promotion
and marketing services and 2,800,000 options ($0.40, 11 Jan 2023) issued to a service provider 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 exercised into 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 on or before 22
January 2023.
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 CPHOA listed options had been exercised into 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 CPHOA listed options had been exercised into shares
for a consideration of $602,140.
On 19 February 2021, the Company announced that 3,070,979 CPHOA listed options had been exercised into shares for
a consideration of $153,549.
On 26 February 2021, the Company announced that 4,134,290 CPHOA listed options had been exercised into shares for
a consideration of $206,714.
On 19 March 2021, the Company announced that 24,692,921 CPHOA listed options had been exercised into shares for
a consideration of $1,234,646.
On 26 March 2021, the Company announced that 5,368,091 CPHOA listed options had been exercised into shares for a
consideration of $268,405 and an issue of 17,263,158 shares for the repayment of debt totalling $3,280,000.
On 1 April 2021, the Company announced that 4,429,832 CPHOA listed options had been exercised into shares for a
consideration of $221,492, 2,000,000 shares were issued at a deemed value of $400,000 for investor relations and
marketing services and 94,736,843 shares were issued for a consideration of $18,000,000 under a placement.
On 5 May 2021, the Company announced that 100,000 CPHOA listed options had been exercised into shares for a
consideration of $5,000.
On 11 June 2021, the Company announced that it had completed the US OTC dual listing and trading had commenced
under the code COPHF.
On 9 July 2021, the Company announced the issue of 2,450,000 shares upon the exercise of 2,450,000 CPHOA Listed
options at $0.05, raising $122,500.
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Directors’ Report
CORPORATE (continued)
Equity Transactions (continued)
Creso Pharma Limited – Annual Report 2021
On 14 July 2021, the Company issued 43,851,795 ordinary shares as detailed below:
•
•
•
•
•
500,000 shares issued for nil consideration to Director, Boaz Wachtel as a bonus payment for out-of-scope
services over the past two years.
500,000 shares issued for nil consideration to Director, James Ellingford as a bonus payment for out-of-scope
services over the past two years.
10,000,000 shares issued for nil consideration to the Head of Swiss International Operations, Jorge Wernli.
3,600,000 shares issued to EverBlu as part consideration for fees relating to the $18 million placement
announced on 1 April 2021.
29,251,795 shares issued (which were under voluntary escrow until 14 January 2022) to the vendors of
Halucenex as part consideration for the acquisition, further details can be found above.
On 14 July 2021, the Company also announced the issue of 12,000,000 options ($0.38, 14 July 2024) to EverBlu for
out-of-scope corporate advisory services and the issue of 17,551,077 performance shares ($Nil, 14 July 2022) to the
vendors of Halucenex as part consideration for the acquisition, further details can be found above.
On 30 July 2021, the Company announced the issue of 48,146,347 shares upon the exercise of 48,146,347 CPHOA
options at $0.05, raising $2,407,317.
On 31 August 2021, the Company announced the issue of 12,000,000 options ($0.15, 1 August 2024) and 12,000,000
options ($0.18, 1 August 2024) to the nominees of Odeon Capital Group LLC as consideration for advisory services in
relation to the proposed NASDAQ Listing.
On 6 September 2021, the Company announced the issue of the following securities to William Lay’s nominee for nil
cash consideration as part of William Lay’s remuneration package:
•
•
•
•
5,000,000 Shares;
10,000,000 CPHOPT41 options, exercisable at $0.18 subject to vesting conditions, on or before 6 September
2024;
10,000,000 CPHOPT42 options, exercisable at $0.25 subject to vesting conditions, on or before 6 September
2024; and
15,000,000 performance rights, subject to vesting conditions.
On 25 October 2021, the Company announced the issues of 1,000,000 options ($0.1375, 25 October 2024) to employees
of the Company and 1,965,455 shares to the vendors of the assets of ImpActive Holdings Ltd at a deemed price of $0.11.
On 27 October 2021, the Company announced that 3,000,000 CPHOA listed options had been exercised into shares for
a consideration of $150,000.
On 2 November 2021, the Company announced the issues of 400,942,239 CPHO listed options ($0.25, 2 November
2024) for nil consideration as a bonus issue to shareholders of the Company
On 4 November 2021, the Company announced the issue of 200,000 options ($0.20, 3 November 2024) to an advisor as
part of their remuneration.
On 17 November 2021, the Company announced that 1,582,283 CPHOA listed options had been exercised into shares
for a consideration of $79,114.
On 8 December 2021, the Company announced that 697,500 CPHOA listed options had been exercised into shares for
a consideration of $34,875.
On 9 December 2021, the Company announced that 17,551,077 performance shares had been converted into shares
for nil consideration on the satisfaction of a performance milestone regarding the Halucenex acquisition. The shares
remained under voluntary escrow restrictions until 14 January 2022.
On 21 December 2021, the Company announced that 10,150 CPHOA listed options had been exercised into shares for
a consideration of $507.
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Directors’ Report
CORPORATE (continued)
Mergers, acquisitions and divestments
Creso Pharma Limited – Annual Report 2021
On 15 March 2021, the Company announced that it had signed an agreement to acquire Canadian psychedelics company
Halucenex Life Sciences Inc. (“Halucenex”) The acquisition was subject to conditions precedent which were met after
the half-year ended, further details can be found in Matters Subsequent to The Reporting Period on page 7.
On 17 June 2021, the Company announced that it had entered into a definitive agreement with Red Light Holland (“Red
Light”) to merge with the Company and create The HighBrid Lab.
On 15 July 2021, the Company announced that it had completed the acquisition of Halucenex Life Sciences Inc.
The consideration for the acquisition was as follows:
• A$538,155 in cash, paid on 14 July 2021
•
•
29,251,795 shares (voluntarily escrowed to 14 January 2022), issued on 14 July 2021
17,551,077 performance shares (voluntarily escrowed to 14 January 2022), issued on 14 July 2021. The
conversion of the performance shares into fully paid ordinary shares was subject to certain conditions being
met within 12 months of the settlement of the acquisition. As noted above, upon satisfaction of the vesting
conditions, 17,551,077 performance shares were converted into 17,551,077 shares on 9 December 2021.
The acquisition has been determined to be an asset acquisition with a date of 14 July 2021, an estimate of the
acquisition’s financial effect on the Company is noted below:
Consideration in cash
Consideration in performance shares
Total consideration
Net liabilities acquired
Intellectual Property acquired
A$
538,155
6,084,373
6,622,528
(246,211)
6,868,739
On 31 August 2021, the Company announced that the proposed merger with Red Light Holland Corp. (“Red Light”)
had been terminated. As part of the termination, it was agreed that the Company receive orders over the next two
years totalling C$170k from Red Light. The Company was also required to pay a C$400k settlement to Red Light.
On 25 October 2021, the Company announced it had entered into an asset purchase agreement with ImpACTIVE
Holdings Ltd (“Impactive”) and completed the acquisition of the assets of Impactive on the same day.
The consideration for the acquisition was as follows:
•
•
1,965,455 Creso shares, issued on 25 October 2021
Subject to shareholder approval at the Company’s next General Meeting, the issue of 6,000,000 Creso
performance shares, that will convert into fully paid ordinary shares if certain conditions are met within 5
years of the acquisition.
The acquisition has been determined to be an asset acquisition with a date of 25 October 2021, an estimate of the
acquisition’s financial effect on the Company is noted below:
Consideration in shares
Consideration in performance shares
Total consideration
Intellectual Property acquired
Media and Products acquired
A$
216,200
-
216,200
108,100
108,100
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Directors’ Report
COVID-19
Creso Pharma Limited – Annual Report 2021
During FY2021 the effects of the COVID-19 pandemic upon the Group’s operations have been minimal, whilst there has
been some disruption with staff and distribution it has not had any material effect on the Group. The Board remains
confident that the Company’s strategies to develop its businesses in North America and Europe 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 reasonable and appropriate 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, the R&D business in Switzerland and the Halucenex IP
were each separable Cash Generating Units (“CGU”) which were subject to impairment assessment. Management
concluded that there were indicators of impairment for both Mernova and the R&D business in Switzerland but not for
the Halucenex IP. Management’s 5-year cashflow forecasts for Mernova and Switzerland 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 reasonable and
appropriate.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There have been no significant changes in state of affairs during and subsequent to the end of the financial year other
than disclosed in the Directors’ Report.
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
• On 17 January 2022, the Company announced the appointment of three new directors, being Mr William Lay
as Group CEO and Managing Director, Mr Bruce Linton as a Non-Executive Director and Mrs Micheline
MacKay as Executive Director and is the Health Canada designated Responsible Person in Charge at Mernova.
• On 28 January 2022, the Company announced that 400,000 options had been exercised into shares for a
consideration of $20,000 and 1,470,588 shares were issued for a deemed issue price of 8.5c for investor
relations and marketing services.
• On 3 February 2022, the Company announced it was to enter the US CBD market through the strategic
acquisition of established US-based business, Sierra Sage Herbs LLC and leading Green Goo brand (“SSH”).
The material terms within the agreement are as follows; Creso, via its wholly owned subsidiary, Creso Pharma
US, Inc, will purchase a 100% interest in SSH for a total upfront consideration of US$21m, payable by the
issue of fully paid ordinary shares in Creso. In addition to the upfront consideration, SSH vendors may also be
entitled to certain milestone payments that can be paid either in shares or cash, the milestone payments
could range between zero and US$38.5m. Creso have also agreed to provide up to US1.7m of growth capital
in the form of a loan, at the year end, $0.4m had been drawn.
• On 25 February 2022, the Company announced it had raised $5m via the placement of approximately 72.4m
shares at an issue price of $0.069.
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.
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Directors’ Report
ENVIRONMENTAL REGULATION
Creso Pharma Limited – Annual Report 2021
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 25 to 37.
INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITORS
During the year ended 31 December 2021, 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 2021 has been received and included
within the financial statements section of this report.
NON-AUDIT SERVICES
The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the
auditor’s expertise and experience with the Company and/or the Group are important.
Details of the amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are
outlined in Note 26 to the financial statements.
The Board of Directors has considered the position and is satisfied that the provision of the non-audit services is
compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The
Directors are satisfied that the provision of non-audit services by the auditors, as set out below, did not compromise
the auditor independent requirements of the Corporations Act 2001 for the following reasons:
• all non-audit services have been reviewed by the Board of Directors to ensure they do not impact the impartiality
and objectivity of the auditor; and
• None of the services undermine the general principles relating to the auditor independence as set out in APES 110
Code of Ethics for Professional Accountants.
23 | P a g e
Creso Pharma Limited – Annual Report 2021 Directors’ Report 24 | Page 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. 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 James Ellingford EXECUTIVE CHAIRMAN 28 February 2022 Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2021
This remuneration report for the year ended 31 December 2021 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:
Dr James Ellingford
Mr William Lay
Mrs Micheline MacKay
Mr Adam Blumenthal
Mr Boaz Wachtel
Mr Bruce Linton
Dr Miri Halperin Wernli
(Executive Chairman)
(Managing Director and CEO) – Appointed on 17 January 2022
(Executive Director) – Appointed on 17 January 2022
(Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director) – Appointed on 17 January 2022
(Director and Head of Technology, Innovation and Distribution) – Resigned 17
March 2021
Senior Executives of the Group during or since the end of the financial year were:
Mr Chris 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 2021
❖ 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 $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 2021
The following table shows the gross revenue, losses, earnings per share (“EPS”) and share price of the Group for the
years ended 31 December 2021 and 31 December 2020.
Revenue from products
Royalty income
Total revenue ($)
Net loss after tax
EPS ($)
Share price
31-Dec-2021
6,218,337
221
6,218,558
(30,030,967)
(0.03)
0.082
31-Dec-2020
2,447,761
17,216
2,464,977
(30,779,581)
(0.08)
0.180
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.
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Remuneration Report (Audited)
c)
Variable Remuneration – Long Term Incentives (LTI)
Creso Pharma Limited – Annual Report 2021
Employee Incentive Plan
The Creso Pharma Limited Employee Incentive Plan (“Plan”) was adopted by the Company during the year ended
31 December 2021.
The current Plan provides the Board with the discretion to grant Plan Securities to eligible participants which will
vest subject to the achievement of performance hurdles as determined by the Board at the time the Plan
Securities 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.
Any grants under the Plan will be subject to the achievement of vesting conditions. Appropriate vesting
conditions 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. Refer to Schedule 6 of the Notice of Annual
General Meeting dated 19 May 2021 for further information on the Plan.
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 2021 is set out below:
31 December 2021
Directors
Adam Blumenthal
James Ellingford
Miri Halperin Wernli(iii)
Boaz Wachtel(i)
Senior Executives
Chris 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
146,000
82,802
72,143
278,322
779,267
-
-
23,370
-
-
23,370
95,000
350,004
264,792
25,000
200,698
935,494
19,500
14,235
-
-
22,631
56,366
Total
$
314,500
580,239
370,964
167,143
-
70,000
-
70,000
-
140,000
501,651
1,934,497
(i)
(ii)
(iii)
Boaz Wachtel’s Director’s Fees are paid to International Water and Energy Savers Ltd.
500,000 shares were issued to each party, granted on 14 July 2021 as a bonus payment for out-of-scope
services over the past two years.
Resigned 17 March 2021.
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Remuneration Report (Audited)
Creso Pharma Limited – Annual Report 2021
Table 2 – 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
Chris 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 23 for further details).
The following table shows the relative proportions of remuneration that are linked to performance and those that are
fixed, based on the amounts disclosed as statutory remuneration expense in the tables above:
Table 3 – Relative proportion of fixed vs variable remuneration expense
Name
Directors
Adam Blumenthal
James Ellingford
Miri Halperin Wernli
Boaz Wachtel
Senior Executives
Chris Grundy
Fixed Remuneration
2020
2021
At Risk – STI (%)
At Risk – LTI (%)
2021
2020
2021
2020
70%
28%
22%
43%
64%
81%
84%
77%
61%
61%
30%
60%
78%
15%
36%
19%
16%
23%
39%
19%
-
12%
-
42%
-
-
-
-
-
20%
Table 4 – Shareholdings of KMP (direct and indirect holdings)
31 December 2021
Directors
Adam Blumenthal
James Ellingford
Miri Halperin Wernli
Boaz Wachtel
Senior Executives
Chris Grundy
Total
Balance at
01/01/2021
Granted as
Remuneration
Exercised
Net Change –
Other
Sold
Balance at
31/12/2021
146,498,766
1,450,000
13,633,333
8,300,000
-
500,000
-
500,000
-
-
-
-
-
-
(13,633,333)(i)
-
(32,833,333)
(797,500)
640,000
170,522,099
-
1,000,000
300,000
300,000
-
(47,264,166)
113,665,433
1,152,500
-
8,800,000
940,000
124,557,933
(i)
Resigned during the year.
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Remuneration Report (Audited)
Table 5 – Unlisted Option holdings of KMP (direct and indirect holdings)
Creso Pharma Limited – Annual Report 2021
31 December 2021
Directors
Adam Blumenthal
James Ellingford
Miri Halperin Wernli
Boaz Wachtel
Senior Executives
Chris Grundy
Total
Balance at
01/01/2021
Granted as
Remuneration
Exercised
Net Change –
Other
Sold
Balance at
31/12/2021
Vested &
Exercisable
14,128,387
-
-
-
-
14,128,387
-
-
-
-
-
-
-
-
-
-
-
-
12,000,000(i)
-
-
-
-
12,000,000
-
-
-
-
-
-
26,128,387
-
-
-
-
26,128,387
26,128,387
-
-
-
-
26,128,387
(i)
Unlisted options issued to Atlantic Capital Holdings Pty Ltd for services by EverBlu.
Table 6 – Listed Option holdings of KMP (direct and indirect holdings)
31 December 2021
Balance at
01/01/2021
Granted as
Remuneration
Exercised Net Change
Sold(i)
– Other(i)
Balance at
31/12/2021
Vested &
Exercisable
Directors
Adam Blumenthal
James Ellingford
Miri Halperin Wernli
Boaz Wachtel
Senior Executives
Chris Grundy
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
125,700,456
384,167
-
2,933,334
(87,811,977)
-
-
-
37,888,479
384,167
-
2,933,334
37,888,479
384,167
-
2,933,334
313,334
129,331,291
-
(87,811,977)
313,334
41,519,314
313,334
41,519,314
(i)
A total of 41,519,314 CPHO options were granted in a bonus issue and 87,811,977 CPHOA options were
issued to Atlantic Capital Holdings Pty Ltd, a related party of Adam Blumenthal, for services relating to the
October 2020 placement, these options were subsequently sold.
Table 7 – Performance rights holdings of KMP (direct and indirect holdings)
31 December 2021
Balance at
01/01/2021
Granted as
Remuneration
Vested and
Exercised
Others
Balance not
Vested at
31/12/2021
Balance
Vested not
Exercised at
31/12/2021
Directors
Adam Blumenthal
James Ellingford
Miri Halperin Wernli
Boaz Wachtel
Senior Executives
Chris Grundy
Total
-
-
-
1,600,000
400,000
2,000,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,600,000
(300,000)
(300,000)
(100,000)
(100,000)
-
1,600,000
-
-
-
-
-
-
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Remuneration Report (Audited)
E
Service Agreements
❖ Dr James Ellingford – Executive Chairman
Creso Pharma Limited – Annual Report 2021
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.
❖ Mr Adam Blumenthal – Non-Executive Director
Contract: Commenced on 20 November 2015.
-
- Director’s Fee: $48,000 per annum (plus statutory superannuation entitlements).
- Mernova Medicinal Inc.- Consultancy fee of $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.
❖ Mr Boaz Wachtel – Non-Executive Director
Contract: Commenced on 18 October 2016.
-
- Director’s Fee: $2,500 per month from November 2019 to May 2020.
- Director’s Fee: $5,000 per month from June 2020 to 21 May 2021.
- Director’s Fee: $6,667 per month from 22 May 2021 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 Chris Grundy – Chief Financial Officer
-
Contract: Commenced on 21 November 2017.
-
Base Salary: $240,000 per annum (plus statutory superannuation entitlements) to 25 March 2021.
-
Base Salary: $290,000 per annum (plus statutory superannuation entitlements) from 26 March 2021.
-
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.
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Remuneration Report (Audited)
F
Share-based Compensation
Creso Pharma Limited – Annual Report 2021
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 300,000 shares to KMP only upon vesting of their performance
rights, refer to Table 4.
During the current financial year, the Company issued 1,000,000 shares to KMP as part of their remuneration, refer to
Table 4.
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
-
-
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2018 Financial Year:
Creso Pharma Limited – Annual Report 2021
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.
2021 Financial Year:
During the 2021 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 23 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%
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
No remuneration options were exercised by KMP during the financial year (2020: 600,000).
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H Transactions with KMP and Related Parties
(a)
Key Management Personnel Compensation
Details relating to key management personnel, including remuneration paid, are below.
Creso Pharma Limited – Annual Report 2021
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
Capital raising fees payable in shares(i)
Legal fees
Monthly retainer
IRESS service fees
Out of scope fees
Cash component of share issues
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
Debt restructuring fees
Business development and investor relations
Facilitation fees
Out of scope fees, including restructuring and corporate advice
Balance owing to EverBlu Capital Corporate Pty Ltd at 31 December
Balance owing to Creso at 31 December
The above fees are inclusive of GST.
2021
$
2020
$
1,738,131
79,736
140,000
1,934,497
1,544,623
89,325
86,364
1,720,312
2021
$
2020
$
-
756,000
36,364
330,000
4,415
417,381
-
1,544,160
-
-
1,573,406
-
605,000
440,000
275,000
968,000
3,861,406
197,322
-
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
-
-
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H Transactions with KMP and Related Parties (continued)
Suburban Holdings Pty Ltd – related party
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 from Creso at 31 December
Balance owing to Creso at 31 December(ii)
James Ellingford
Balance owing from Creso at 31 December
Miri Halperin Wernli
Balance owing from Creso at 31 December
International Water and Energy Savers Ltd - a company controlled by Boaz
Wachtel
Director’s Fees for Boaz Wachtel
Balance owing from Creso at 31 December
Jorge Wernli – related party to Miri Halperin Wernli
Salary and bonus
Balance owing from Creso at 31 December
Creso Pharma Limited – Annual Report 2021
2021
$
2020
$
-
250,000
-
-
-
-
-
-
85,000
-
-
127,143
-
174,512
-
-
1,250,000
250,000
61,000
1,000,000
-
3,000,000
50,000
-
48,144
125,000
82,500
30,000
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 of $85,000 was owed by Adam Blumenthal due to an administration error. Interest has not
been charged. The amount receivable was settled in February 2022.
35 | P a g e
Remuneration Report (Audited)
H Transactions with KMP and Related Parties (continued)
Creso Pharma Limited – Annual Report 2021
Other Share and Option Transactions with Related Parties
2021
2020
Shares
Options
Shares
Options
EverBlu Capital Pty Ltd
Broker fees
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
Suburban Holdings Pty Ltd
Issue of bonus listed options
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 and listed options – October placement
Issue of shares – Additional placement
Issue of bonus listed options
Issue of unlisted options for EverBlu out of scope fees
Subtotal
Anglo Menda Pty Ltd
Issue of shares
Subtotal
3,600,000
-
-
-
-
-
-
-
-
-
-
3,600,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,914,411
-
-
-
-
6,914,411
87,811,977
-
37,888,478
12,000,000
137,700,455
-
-
-
4,500,000
2,000,000
-
-
-
8,992,530
833,333
1,602,855
2,000,000
-
19,098,718
-
261,780
15,000,000
42,955,327
-
58,217,107
34,364,261
103,092,784
-
-
137,457,045
833,333
833,333
-
-
-
4,000,000
8,000,000
833,333
-
-
-
-
53,447,775
66,281,108
-
-
-
-
10,738,832
10,738,832
-
-
-
-
-
-
-
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 or related parties during the year ended 31 December
2021.
36 | P a g e
Remuneration Report (Audited)
I Additional Information
Creso Pharma Limited – Annual Report 2021
The earnings of the consolidated entity for the five years to 31 December 2021 are summarised below:
Revenue from products
Revenue from services
Royalty income
Total Revenue
EBITDA
Loss after income tax
Share Price
Basic EPS ($)
Diluted EPS ($)
2021
$
6,218,337
-
221
6,218,558
(29,241,149)
(30,030,967)
0.082
(0.03)
(0.03)
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)
Voting and comments made at the Company’s 2021 Annual General Meeting (“AGM”):
At the 2021 AGM, 94.5% of the votes received supported the adoption of the remuneration report for the year ended
31 December 2020. The Company did not receive any specific feedback at the AGM regarding its remuneration
practices.
End of Audited Remuneration Report
37 | P a g e
Tel: +61 2 9251 4100
Fax: +61 2 9240 9821
www.bdo.com.au
Level 11, 1 Margaret St
Sydney NSW 2000
Australia
DECLARATION OF INDEPENDENCE BY STEPHEN MAY TO THE DIRECTORS OF CRESO PHARMA LIMITED
As lead auditor of Creso Pharma Limited for the year ended 31 December 2021, 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.
Stephen May
Director
BDO Audit Pty Ltd
Sydney
28 February 2022
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 2021
Creso Pharma Limited – Annual Report 20201
Revenue from continuing operations
Revenue
Cost of sales
Gross profit
Other income
Expenses
Loss on fair value adjustments
Administrative expenses
Depreciation and amortisation expenses
Employee benefit expenses
Impairment of intangibles
Share-based payment expenses
Other expenses
Gain on settlement of convertible notes
Loss on disposal of investment in Creso Grow Ltd
Foreign exchange gain/(loss)
Finance costs
(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
4
12
5(a)
5(b)
5(c)
14
23
27
5(d)
2021
$
2020
$
6,218,558
(4,999,775)
1,218,783
2,464,977
(5,393,067)
(2,928,090)
34,812
177,829
(1,619,173)
(23,172,861)
(266,150)
(3,687,121)
-
(122,679)
(703,661)
-
-
(6,585)
(1,706,332)
(30,030,967)
-
(30,030,967)
(937,109)
(7,089,440)
(352,429)
(2,367,632)
(4,671,418)
(179,216)
(497,199)
899,628
(1,443,662)
50,137
(11,440,980)
(30,779,581)
-
(30,779,581)
1,081,662
1,081,662
(1,257,285)
(1,257,285)
(28,949,305)
(32,036,866)
-
(30,030,967)
(30,030,967)
-
(28,949,305)
(28,949,305)
-
(30,779,581)
(30,779,581)
-
(32,036,866)
(32,036,866)
(2.71)
(8.30)
The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with
the notes to the financial statements.
39 | P a g e
Consolidated Statement of Financial Position
As at 31 December 2021
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
Other 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
Total equity
Creso Pharma Limited – Annual Report 2021
Note
2021
$
2020
$
8
10
11
12
13
14
15
16
17
18
19
7,184,405
1,101,790
1,398,064
457,027
10,141,286
6,047,091
636,720
1,108,963
143,192
7,935,966
10,435,308
8,314,320
423,192
19,172,820
9,907,853
1,276,789
-
11,184,642
29,314,106
19,120,608
1,471,148
84,346
-
1,555,494
2,162,911
49,772
3,255,754
5,468,437
1,555,494
5,468,437
27,758,612
13,652,171
109,950,694
12,631,327
(94,823,409)
71,794,123
23,858,528
(82,000,480)
27,758,612
13,652,171
The Consolidated Statement of Financial Position should be read in conjunction with the notes to the financial
statements.
40 | P a g e
Consolidated Statement of Changes in Equity
For the Financial Year ended 31 December 2021
Creso Pharma Limited – Annual Report 2021
Group
At 1 January 2021
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
Halucenex and Impactive
Issue of equity for services
Issue of equity to settle loan
Issue of equity to extinguish liability
Share-based payments
Shares issued to Directors
Exercise of options
Share issuance costs
Expired options
At 31 December 2021
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
Issued
Capital
$
71,794,123
-
-
Share-based
Payment
Reserve
$
23,557,350
-
-
-
18,000,000
6,300,573
3,481,000
3,280,000
863,158
-
140,000
8,528,092
(2,436,252)
-
109,950,694
-
-
-
4,616,775
-
159,721
122,679
-
-
-
(17,208,038)
11,248,487
Foreign
Currency
Translation
Reserve
$
301,178
-
1,081,662
Accumulated
Losses
$
(82,000,480)
(30,030,967)
-
1,081,662
(30,030,967)
-
-
-
-
-
-
-
-
-
-
-
1,382,840
-
-
-
-
-
-
-
-
17,208,038
(94,823,409)
Non-
Controlling
Interest
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$
13,652,171
(30,030,967)
1,081,662
(28,949,305)
18,000,000
6,300,573
8,097,775
3,280,000
1,022,879
122,679
140,000
8,528,092
(2,436,252)
-
27,758,612
46,528,519
-
-
21,044,323
-
-
1,558,463
-
(1,257,285)
(51,482,304)
(30,779,581)
-
(375,041)
-
-
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)
The Consolidated Statement of Changes in Equity should be read in conjunction with the notes to the financial
statements.
41 | P a g e
Consolidated Statement of Cash Flows
For the Financial Year ended 31 December 2021
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 for Halucenex acquisition
Loan to Sierra Sage Herbs LLC
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 exercise 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 2021
Note
2021
$
2020
$
5,910,220
(27,938,714)
1
(349,423)
(22,377,916)
3,609,478
(13,121,485)
317
(109,890)
(9,621,580)
8(a)
(450,921)
(3,393)
(493,955)
(423,191)
-
(44,362)
(384,788)
-
-
(402,539)
(1,371,460)
(831,689)
18,000,000
8,528,092
-
(200,625)
-
(1,434,191)
24,893,276
12,474,140
-
7,095,741
(2,005,747)
(2,192,030)
(1,722,201)
13,649,903
Net increase/(decrease) in cash and cash equivalents
1,143,900
3,196,634
Cash and cash equivalents at the beginning of the year
Effect on exchange rate fluctuations on cash held
Cash and cash equivalents at the end of the year
6,047,091
(6,586)
7,184,405
2,800,318
50,139
6,047,091
8
The Consolidated Statement of Cash Flows should read in conjunction with the notes to the financial statements.
42 | 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 2021
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 2021 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 28 February 2022.
Basis of measurement
The consolidated financial statements have been prepared on a going concern basis in accordance with the historical
cost convention, unless otherwise stated.
Historical cost convention
The financial statements have been prepared under the historical cost convention, except for, where applicable, the
revaluation of financial assets and liabilities at fair value through profit or loss, financial assets at fair value through
other comprehensive income, investment properties, certain classes of property, plant and equipment and derivative
financial instruments.
Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity
only. Supplementary information about the parent entity is disclosed in note 28.
New, revised or amended standards and interpretations adopted by the Group
The consolidated entity has adopted all 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
2021. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and
Interpretations is that they are not applicable.
43 | P a g e
Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2021
Conceptual Framework for Financial Reporting (Conceptual Framework)
The revised Conceptual Framework is applicable to annual reporting periods beginning on or after 1 January 2021 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 Group incurred a loss of $28,949,305 (2020: $32,036,866) and had net
cash outflows from operating activities of $22,277,916 (2020: $9,621,580) for the year ended 31 December 2021.
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 both the current and recent years and on 25
February 2022, the Company announced to have received firm commitments for a capital raising of $5m via
the placement of approximately 72.4m shares at an issue price of $0.069. When taking these into account,
there is a reasonable expectation that alternative sources of funding can be sourced, as and when required.
Further, the Company understands it will require further funding to continue to execute on its growth
strategy as planned and is in negotiations with various parties to secure these funds and it is the Directors
view that one or more of these funding arrangements will be successful;
• 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 North American and European 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.
44 | 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 2021
Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Creso as at 31 December
2021 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.
45 | 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 2021
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 amount’ method. The measurement of
variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that
it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The
measurement constraint continues until the uncertainty associated with the variable consideration is subsequently
resolved.
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.
46 | 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 2021
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.
47 | 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 2021
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.
48 | 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 2021
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 – 30 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.
49 | 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 2021
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.
50 | 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 2021
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, employees and outside
parties for services provided.
Equity-settled transactions are awards of shares, or options over shares, that are provided to employees and outside
parties 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.
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Notes to the Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2021
(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.
52 | 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 2021
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 does 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.
53 | 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 2021
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.
54 | 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 2021
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.
55 | 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 2021
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.
56 | P a g e
Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2021
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.
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Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2021
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.
58 | P a g e
Notes to the Consolidated Financial Statements
NOTE 3
SEGMENT INFORMATION
Creso Pharma Limited – Annual Report 2021
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.
• North America includes the operating companies; Mernova Medicinal Inc (“Mernova”), Halucenex Life Sciences
Inc. (“Halucenex”) and Creso Impactive Ltd (“Impactive”), 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 2021
Revenue from products
Royalty income
Total segment revenue
Asia Pacific
$
-
221
221
Europe &
Middle East
$
2,580,102
-
North
America
$
3,638,235
-
2,580,102
3,638,235
Other income
10,240
-
24,571
South
America
$
-
-
-
-
Total
$
6,218,337
221
6,218,558
34,811
Loss before income tax expense
(16,742,721)
(3,516,308)
(9,653,462)
(118,475)
(30,030,967)
Total Segment Assets
Total Segment Liabilities
Year ended 31 December 2020
Revenue from products
Royalty income
Total segment revenue
4,676,061
850,061
Asia Pacific
$
-
17,216
17,216
3,153,930
148,281
Europe &
Middle East
$
1,232,918
-
1,232,918
21,484,115
557,152
North America
$
1,214,843
-
1,214,843
Other income
144,769
6,372
26,688
-
-
29,314,106
1,555,494
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
4,362,698
4,462,877
2,050,328
399,752
12,707,582
605,808
-
-
19,120,608
5,468,437
59 | 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 2021
2021
$
2020
$
6,218,337
221
6,218,558
1
24,571
10,240
34,812
2,580,102
3,638,235
221
6,218,558
2,580,102
3,638,235
221
6,218,558
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
6,218,337
221
6,218,558
2,447,761
17,216
2,464,977
60 | P a g e
Notes to the Consolidated Financial Statements
NOTE 5
EXPENSES
(a) Administrative expenses
Accounting and company secretarial fees
Travel costs
Consulting fees
Corporate advisory and business development
Legal fees
Compliance and regulatory expenses
Investor and media relations
Marketing
US based marketing and media relations
General and administration expenses
(b) Depreciation and amortisation expense
Total depreciation per note (13)
Less: capitalised to inventory
Amortisation expense per note (14)
(c) Employee benefit expenses
Director fees
Wages and salaries
Recruitment fees
Superannuation
Other employee expenses
(d) 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
Loss on extinguishment of liabilities
Loss on embedded derivative
Interest expense
Transaction costs recognised on convertible notes
Bank charges
Creso Pharma Limited – Annual Report 2021
2021
$
2020
$
722,766
79,957
8,308,025
4,037,735
1,612,269
646,676
1,386,479
3,079,524
2,759,314
540,116
23,172,861
633,126
(581,770)
214,794
266,150
1,375,741
1,642,800
38,412
88,798
541,370
3,687,121
-
-
153,750
(6,000)
-
-
1,022,879
-
523,669
-
12,034
1,706,332
407,957
62,157
3,511,590
644,171
996,952
307,644
516,772
469,407
-
172,790
7,089,440
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
210,350
1,961,750
3,179,883
272,042
27,000
11,440,980
61 | 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 2021
2021
$
2020
$
-
-
-
-
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% (2020: 27.5%)
(30,030,967)
(8,258,516)
(30,779,581)
(8,464,385)
(b) Tax effect of:
Tax effect on different tax rate of overseas subsidiaries
Share-based payments
Travel expenses
Legal expenses
Capital raising costs
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:
1,772,056
33,737
5,288
441,485
(227,841)
53,963
-
5,862,604
-
1,876,284
49,284
5,104
274,162
(150,294)
1,990,685
(27,702)
4,446,862
-
16,018,561
16,018,561
10,155,957
10,155,957
• 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.
62 | P a g e
Notes to the Consolidated Financial Statements
NOTE 7
LOSS PER SHARE
Creso Pharma Limited – Annual Report 2021
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
2021
$
2020
$
(30,030,967)
-
(30,030,967)
(30,779,581)
-
(30,779,581)
Weighted average number of ordinary shares for basic and diluted loss per
share.
1,107,288,813
370,624,639
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
(2.71)
(8.30)
7,184,405
7,184,405
6,047,091
6,047,091
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 0.01% (2020: 0.20%).
(a) Reconciliation of net loss after tax to net cash flows from operations
Loss for the financial year
(30,030,967)
(30,779,581)
Adjustments for:
Depreciation and amortisation
(Gain)/loss on foreign exchange
Share based payments
NRV adjustments to inventory and fair value adjustments to biological assets
Impairment of intangible assets
Disposal of investment in Creso Grow Limited
Interest settled by issue of equity
Issue of equity for services
Issue of equity to extinguish liability
Absorption of depreciation costs in biological assets and inventory
Other non-cash items
Changes in assets and liabilities
Receivables
Inventories
Biological assets
Trade and other payables
Provisions
Net cash used in operating activities
847,919
6,585
122,679
(2,525,913)
-
-
280,000
8,257,494
863,158
(581,769)
72,081
352,429
(50,137)
179,216
3,882,416
4,671,418
1,041,123
-
8,188,205
310,350
617,074
4,682
465,070
289,101
313,834
(691,762)
34,574
(22,277,916)
1,061,778
883,969
-
16,962
(1,484)
(9,621,580)
63 | 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
Issue of shares for the acquisitions of Halucenex and Impactive
Issue of share to settle the loan
(c) Changes in liabilities arising from financing activities
Creso Pharma Limited – Annual Report 2021
2021
$
-
-
-
-
(1,002,061)
-
6,300,573
3,000,000
2020
$
996,000
750,509
8,369,078
1,650,048
(4,352,158)
(4,671,418)
-
-
Non-cash Flows
$
31 December 2021
$
(3,000,000)
-
-
-
Movement in convertible notes
Coupon
notes
interest on convertible
31 December 2020
$
3,150,000
Cash Flows
$
(150,000)
105,754
3,255,754
(105,754)
(255,754)
-
(3,000,000)
Movement in 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
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
2020
2021
%
%
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.
64 | 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
Receivable from related party(i)
Other deposits and receivables
Creso Pharma Limited – Annual Report 2021
2021
$
408,270
319,660
59,388
85,000
229,472
1,101,790
2020
$
27,055
371,199
42,866
-
195,600
636,720
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 2021 (2020: Nil).
(i) $85,000 was due from Adam Blumenthal at the year end, this was caused by an administration error and was
rectified in February 2022 with the amount being repaid.
NOTE 11
INVENTORIES
Finished goods – Medicinal cannabis packaged products
Finished goods – Harvested cannabis plant products
Finished goods – Consumables inventory
2021
$
158,948
1,152,675
86,441
1,398,064
2020
$
-
1,073,836
35,127
1,108,963
During the year ended 31 December 2021, the Group gained $770,894 (2020: expensed $3,089,887) of fair value
adjustments on the growth of its biological assets included in inventory sold. As at 31 December 2021, the Group
holds 1,277 kilograms of harvested cannabis (2020: 1,100 kilograms).
NOTE 12
BIOLOGICAL ASSETS
The Company’s biological assets consist of 8,559 cannabis plants as at 31 December 2021 (2020: 9,480 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
2021
$
143,192
4,402,561
(1,619,173)
14,474
(2,484,027)
457,027
2020
$
423,672
3,359,907
(937,109)
(14,708)
(2,688,570)
143,192
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 2021 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.
65 | P a g e
Notes to the Consolidated Financial Statements
NOTE 12
BIOLOGICAL ASSETS (CONTINUED)
Creso Pharma Limited – Annual Report 2021
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.
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
Weighted Average
31 December 2021
9%
28
12
51%
C$4.00
C$0.85
C$3.15
Weighted Average
31 December 2021
9%
13
12
51%
C$0.50
C$0.50
C$0.00
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
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 $53,653 and inventory decreasing by $97,095.
• Harvest yield per plant – a decrease in the harvest yield per plant of 10% would result in the biological asset
value decreasing by $42,252.
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
2021 (2020: none).
At 31 December 2021, the Group had no commitments in relation to growing its cannabis (2020: nil).
66 | 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 2021
2021
$
9,907,853
544,452
-
(633,126)
616,129
10,435,308
2020
$
11,270,479
44,361
(2,320)
(623,948)
(780,719)
9,907,853
12,134,464
(1,699,156)
10,435,308
10,973,883
(1,066,030)
9,907,853
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set
out below:
Balance at
1 Jan 2021
Additions
Acquired on
acquisition
Disposals
Land
Buildings & Improvement
Plant and equipment
Machine & Equipment
Irrigation & Lighting
Security System
Total
359,536
7,885,736
100,219
162,786
1,102,205
297,371
9,907,853
-
47,013
114,825
52,528
229,232
7,323
450,921
-
85,476
8,055
-
-
-
93,531
-
-
-
-
-
-
-
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)
Foreign
currency
fluctuation
22,283
484,941
12,188
10,320
68,832
17,565
616,129
Foreign
currency
fluctuation
(294)
(27,474)
(606,739)
(22,277)
(13,621)
(86,832)
(23,482)
(780,719)
Depreciation
expense
Balance at
31 Dec 2021
-
(293,401)
(44,371)
(40,170)
(201,548)
(53,636)
(633,126)
381,819
8,209,765
190,916
185,464
1,198,721
268,623
10,435,308
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
67 | 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)
Intellectual property acquired on acquisition (e)
Intellectual property purchased (f)
Creso Pharma Limited – Annual Report 2021
2021
$
1,156,443
-
-
-
7,154,484
3,393
8,314,320
2020
$
1,274,599
-
2
2,188
-
-
1,276,789
(a) Licences Canadian
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. The Mernova facility commenced cultivation
in 2019, its operations have grown continuously since then and the directors are confident of 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.
(e) Intellectual Property
Comprises the results of clinical trials for the formulation of a synthetic psilocybin that were acquired from
Halucenex.
Intellectual Property
Comprises patents pending and trademarks acquired from Impactive.
(f)
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 2021
Additions
Acquired on acquisition
Impairment
Foreign exchange translation
Amortisation expense
Balance at 31 December 2021
Licences
(Canadian)
$
1,274,599
-
-
-
94,357
(212,513)
1,156,443
Licences
(Colombian)
$
-
-
-
-
-
-
-
Intellectual
Property
$
2
3,393
7,084,939
-
69,543
-
7,157,877
Computer
Software
$
2,188
-
-
-
93
(2,281)
-
Total
$
1,276,789
3,393
7,084,939
-
163,993
(214,794)
8,314,320
Remaining amortisation period (years)
26
-
29
-
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
During the year ended 31 December 2021, the Group recorded an impairment charge to Intangible Assets of $Nil
(2020: $4,671,418). Refer to Note 2 for details.
68 | P a g e
Notes to the Consolidated Financial Statements
NOTE 14 INTANGIBLE ASSETS (CONTINUED)
Impairment indicators
Creso Pharma Limited – Annual Report 2021
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 in the consideration of impairment indicators:
•
•
•
The Swiss CGU 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 Mernova CGU of the Company’s business is in its early phase and needs to continue its development to
grow its revenues and become cash flow positive.
The Halucenex CGU of the Company’s business was acquired in July 2021 in an arm’s length transaction through
an asset acquisition. Since the acquisition, Halucenex has made strong progress ahead of its planned clinical
trial and receiving a Dealer’s Licence amendment that now includes production and packaging, opening new
revenue lines in the future. For these reasons and other general progress, there are no indicators of impairment
in the carrying value.
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.
The impairment testing performed at 31 December 2021 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 in prior periods 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.
The impairment testing performed at 31 December 2021 supported the recoverable amount of the CGU and did not
result in any further impairment loss.
69 | P a g e
Notes to the Consolidated Financial Statements
NOTE 14 INTANGIBLE ASSETS (CONTINUED)
Significant Judgements and Estimates
Creso Pharma Limited – Annual Report 2021
The following key assumptions were used in the discounted cash flow model for each of the CGU’s:
Forecast period and short-term revenue growth rate
(a)
Terminal / long term revenue growth rate (b)
Post tax discount rate (c)
Mernova
5 years
Switzerland
5 years
3% terminal rate
22%
3% terminal rate
50%
Assumption
(a)
Forecast period and
short-term revenue
growth rate
Approach used to determine values
The forecast is based on a Board approved budget for FY22 and growth estimates for
periods beyond the budget period. Specific factors considered in the forecasts used in
the impairment model:
•
•
•
The impact of COVID-19 has been comparatively minor in effect on operations
and management have assumed moderate delays in the timing of expected
growth.
The Mernova CGU is becoming established, with revenues continuously
increasing as a result of production efficiencies, improvements in quality and
yields, an expanded product range including premium products, penetration
of new provinces and increased market share through a growing customer
base. The CGU has an average forecast growth of 42% across the forecast
period and the revenue growth in both % and dollar terms is expected to
increase more significantly in earlier years due to the lower revenue base, as
the business is moving from start up to growth phase. This growth trend is
also supported by revenues increasing by 199% in FY2021, highlighting the
growth phase that the Company is experiencing.
The Swiss CGU has an average forecast growth of 8% across the forecast
period.
This is the weighted average growth rate used to extrapolate cash flows beyond the
forecast period. Management have considered the impact of Covid-19 and determined
that it is not expected to have a significant impact on the timing of expected growth.
The long-term growth rate has been set at 3% to reflect the uncertainty in the forecast
future cash flows beyond the budget period in each CGU.
The post-tax 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. The post-tax discount
rate for Mernova has reduced from 26% to 22% when compared to 31 December 2020
based on the progress and de-risking of the business that has occurred in FY2021. As
noted above, this is supported by the significant increase in FY2021 revenue and the
plans in place to deliver continued growth. The directors and management note that
the discount rate as at 31 December 2021 still includes a company specific risk premium
based on an assessment of risks specific to the CGU, the early-stage business and
execution risk of the forecasts.
(b) Terminal / long term
growth rate
(c)
Post tax discount rate
For the Swiss CGU, 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.
For the Mernova CGU, if any one of the following changes were made to the above key assumptions, the carrying
amount and recoverable amount would be equal:
Post tax discount rate
FY22 Revenue
Long term growth rate
Mernova CGU
Increase by approximately 1.5%
Decrease by approximately 30%
Decrease by approximately 3%
This sensitivity assumes the specific assumption moves in isolation, whilst all other assumptions are held constant. In
reality, a change in this assumption may accompany a change in another assumption.
70 | P a g e
Notes to the Consolidated Financial Statements
NOTE 15
TRADE AND OTHER PAYABLES
Trade payables
Payables to related parties (note 22)
Accrued expenses
Accrued expenses for related parties (note 22)
Income in Advance
Other payables
NOTE 16
PROVISIONS
Employee provisions
Creso Pharma Limited – Annual Report 2021
2021
$
281,587
-
874,977
197,322
39,807
77,455
1,471,148
2020
$
633,923
250,000
757,885
377,409
57,160
86,534
2,162,911
2021
$
84,346
2020
$
49,772
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
-
-
71 | P a g e
Notes to the Consolidated Financial Statements
NOTE 17
BORROWINGS
Short-term loans
Short-term loans
Creso Pharma Limited – Annual Report 2021
2021
$
2020
$
3,255,754
3,255,754
-
-
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 loans were repaid in full during the first half of FY2021 via cash, shares and options.
The remaining $150,000 loan was from Rimoyne Pty Ltd, entered into on 25 September 2020, the loan was repaid in
full in January 2021.
2021
2020
No.
1,226,370,447
$
109,950,694
No.
$
902,295,934
71,794,123
NOTE 18
ISSUED CAPITAL
(a) Issued and fully paid
Ordinary shares
(b) Movement in issued shares – 2021
At 1 January 2021
Issuance of shares pursuant to a Placement
Issue of Shares as part consideration for acquisitions
Issue of shares to Employees & Consultants
Exercise of options
Conversion of Employee Performance Rights
Issue of shares to settle loan
Issue of shares for services
Shares issued to Directors
Issue of share capital for extinguish of liability
Less: Equity raising costs
At 31 December 2021
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
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.
72 | P a g e
Number
902,295,934
94,736,843
48,768,327
15,000,000
140,101,837
300,000
13,666,666
6,904,348
1,000,000
3,596,492
-
1,226,370,447
$
71,794,123
18,000,000
6,300,573
2,025,000
8,528,092
-
3,280,000
1,456,000
140,000
863,158
(2,436,252)
109,950,694
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
$
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
Notes to the Consolidated Financial Statements
Creso Pharma Limited – Annual Report 2021
NOTE 19
RESERVES
Share-based payments
Foreign currency translation reserve
Movement reconciliation
Share-based payments reserve
Balance at the beginning of the year
Equity settled share-based payment transactions (Note 23)
Conversion of convertible notes
Issue of equity to settle convertible notes
Issue of options for services
Issue of options to extinguish liability
Unlisted options issued
Issue of exchangeable shares for the Mernova Milestone 2 Consideration
Expired options
Exchange of Exchangeable Preferred Shares
Balance at the end of the year
2021
$
11,248,487
1,382,840
12,631,327
23,557,350
122,679
-
-
4,616,775
159,721
-
-
(17,208,038)
-
11,248,487
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
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
301,178
1,081,662
1,382,840
1,558,463
(1,257,285)
301,178
Share-based payment reserve
The share-based payment reserve is used to record the value of share-based payments provided to outside parties,
and share-based remuneration provided to employees and directors. The issue of the exchangeable shares are
considered a share-based payment and are valued using the Black-Scholes model.
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.
73 | P a g e
Notes to the Consolidated Financial Statements
NOTE 20
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Creso Pharma Limited – Annual Report 2021
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
2021
CHF
Fr.
1,892,393
88,390
98,340
CAD
$
477,142
509,879
510,483
2020
CHF
Fr.
1,344,819
132,857
393,417
CAD
$
149,296
148,918
558,018
USD
$
1,374
208
9,807
USD
$
1,374
208
9,807
The consolidated entity had net assets denominated in foreign currencies of $23,932,612 as at 31 December 2021
(2020: $13,756,350). Based on this exposure, had the Australian dollar weakened by 5%/strengthened by 5% (2020:
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 $1,196,631 lower/$1,196,631 higher (2020:
$687,818 lower/$687,818 higher) and equity would have been $1,196,631 lower/$1,196,631 higher (2020: $687,818
lower/$687,818 higher). The percentage change is the expected overall volatility of the significant currencies, which is
based on management’s assessment of reasonable possible fluctuations taking into consideration movements over
the last 6 months each year and the spot rate at each reporting date. The actual foreign exchange gain for the year
ended 31 December 2021 was $1,081,662 (2020: loss of $1,257,285).
Price risk
The consolidated entity is not exposed to any significant price risk.
74 | P a g e
Notes to the Consolidated Financial Statements
NOTE 20
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2021
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 $Nil (2020: $3,255,754), are principal and interest payment
loans, with interest capitalised on inception.
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
75 | P a g e
Notes to the Consolidated Financial Statements
NOTE 20
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Creso Pharma Limited – Annual Report 2021
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 - 2021
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
-
1,471,148
-
-
1,471,148
-
1,471,148
-
-
-
-
-
-
1,471,148
-
-
-
-
-
1,471,148
-
1,471,148
Remaining
contractual
maturities
$
Weighted
average
interest rate
%
1 year or less
$
Between 1 and
2 years
$
Between 2 and
5 years
$
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
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.
76 | P a g e
Notes to the Consolidated Financial Statements
NOTE 21
CAPITAL RISK MANAGEMENT
Creso Pharma Limited – Annual Report 2021
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 22
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
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
Capital raising fees payable in shares(i)
Legal fees
Monthly retainer
IRESS service fees
Out of scope fees
Cash component of share issues
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
Debt restructuring fees
Business development and investor relations
Facilitation fees
Out of scope fees, including restructuring and corporate advice
Balance owing to EverBlu Capital Corporate Pty Ltd at 31 December
Balance owing to Creso at 31 December
The above fees are inclusive of GST.
2021
$
2020
$
1,738,131
79,736
140,000
1,934,497
1,544,623
89,325
86,364
1,720,312
2021
$
2020
$
-
756,000
36,364
330,000
4,415
417,381
-
1,544,160
-
-
1,573,406
-
605,000
440,000
275,000
968,000
3,861,406
197,322
-
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
-
-
77 | P a g e
Notes to the Consolidated Financial Statements
NOTE 22
RELATED PARTY DISCLOSURE (CONTINUED)
Suburban Holdings Pty Ltd – related party
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 from Creso at 31 December
Balance owing to Creso at 31 December(ii)
James Ellingford
Balance owing from Creso at 31 December
Miri Halperin Wernli
Balance owing from Creso at 31 December
International Water and Energy Savers Ltd - a company controlled by Boaz
Wachtel
Director’s Fees for Boaz Wachtel
Balance owing from Creso at 31 December
Jorge Wernli – related party to Miri Halperin Wernli
Salary and bonus
Balance owing from Creso at 31 December
Creso Pharma Limited – Annual Report 2021
2021
$
2020
$
-
250,000
-
-
-
-
-
-
85,000
-
-
127,143
-
174,512
-
-
1,250,000
250,000
61,000
1,000,000
-
3,000,000
50,000
-
48,144
125,000
82,500
30,000
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 of $85,000 was owed by Adam Blumenthal due to an administration error. Interest has not
been charged. The amount receivable was settled in February 2022.
78 | P a g e
Notes to the Consolidated Financial Statements
NOTE 22
RELATED PARTY DISCLOSURE (CONTINUED)
(c)
Transactions with related parties – non-cash
Creso Pharma Limited – Annual Report 2021
Other Share and Option Transactions with Related Parties
2021
2020
Shares
Options
Shares
Options
EverBlu Capital Pty Ltd
Broker fees
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
Suburban Holdings Pty Ltd – Related Party
Issue of bonus listed options
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 and listed options – October placement
Issue of shares – Additional placement
Issue of bonus listed options
Issue of unlisted options for EverBlu out of scope fees
Subtotal
Anglo Menda Pty Ltd
Issue of shares
Subtotal
3,600,000
-
-
-
-
-
-
-
-
-
-
3,600,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,914,411
-
-
-
-
6,914,411
-
4,500,000
2,000,000
-
-
-
8,992,530
833,333
1,602,855
2,000,000
-
19,928,718
-
261,780
15,000,000
42,955,327
-
58,217,107
-
-
-
4,000,000
8,000,000
833,333
-
-
-
-
53,447,775(i)
66,281,108
-
-
-
-
10,738,832(i)
10,738,832
87,811,977
-
37,888,478
12,000,000
137,700,455
34,364,261
103,092,784
-
-
137,457,045
-
-
833,333
833,333
-
-
-
-
-
-
-
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 2021.
79 | P a g e
Notes to the Consolidated Financial Statements
NOTE 23
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
Creso Pharma Limited – Annual Report 2021
2021
$
2020
$
32,057
90,622
-
122,679
18,216
74,636
86,364
179,216
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
23-01-2017
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
11-01-2021
11-01-2021
11-01-2021
11-01-2021
11-01-2021
14-07-2021
31-08-2021
31-08-2021
06-09-2021
06-09-2021
25-10-2021
23-01-2017
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
11-01-2021
11-01-2021
11-01-2021
11-01-2021
11-01-2021
14-07-2021
31-08-2021
31-08-2021
06-09-2021
06-09-2021
25-10-2021
23-01-2021
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
11-01-2023
11-01-2023
11-01-2023
11-01-2023
11-01-2023
14-07-2024
01-08-2024
01-08-2024
06-09-2024
06-09-2024
25-10-2024
$0.50
$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
$0.24
$0.27
$0.30
$0.40
$0.40
$0.38
$0.15
$0.18
$0.18
$0.25
$0.1375
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,000,000
8,000,000
8,000,000
2,500,000
300,000
12,000,000
12,000,000
12,000,000
10,000,000
10,000,000
1,000,000
-
-
-
-
-
-
-
-
-
-
-
-
(5,000,000)
(9,000,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Expired/
Cancelled
during the
year
(300,000)
(150,000)
(200,000)
-
(200,000)
(100,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
103,526,839
83,800,000
(14,000,000,)
(950,000)
Weighted average exercise price
$0.15
$0.25
$0.16
$0.60
Balance at the
end of the
year
-
-
-
200,000
-
300,000
2,128,387
6,847,725
250,000
1,000,000
1,000,000
500,000
5,752,688
27,764,706
4,000,000
8,000,000
833,333
30,000,000
8,000,000
8,000,000
8,000,000
2,500,000
300,000
12,000,000
12,000,000
12,000,000
10,000,000
10,000,000
1,000,000
172,376,389,7
35,836
$0.20
80 | P a g e
Notes to the Consolidated Financial Statements
NOTE 23
SHARE-BASED PAYMENTS (CONTINUED)
(c) Movements of listed options during the year
Creso Pharma Limited – Annual Report 2021
Options
Issue Date
Date of
Expiry
Issue
Price
Exercise
Price
CPHOA Options
22-01-2021
22-01-2023
CPHO Options
02-11-2021
02-11-2024
Nil
Nil
$0.05
$0.25
Balance at
start of the
year
-
-
-
Issued during
the year
190,460,834
400,942,239
591,403,073
Exercised
during the
year
(126,101,837)
Expired/
Cancelled
during the year
-
-
-
-
-
Balance at
end of the
year
64,358,997
400,942,239
465,301,236
(d)
Summary of performance rights granted and vested during the year
Balance at the start of the
year
Granted during the year
Vested during the year
Cancelled during the year
Balance at the end of the
year
2,298,000
15,000,000
(300,000)
(200,000)
16,798,000
NOTE 24
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
2021
$
-
-
34,958
-
-
34,958
2020
$
-
-
38,577
-
-
38,577
The Group does not have any arrangements for the 31 December 2021 (2020: nil) that meet the requirements of
recognising a Right of Use asset/liability in accordance with AASB 16.
81 | P a g e
Notes to the Consolidated Financial Statements
NOTE 25
COMMITMENTS AND CONTINGENCIES
Creso Pharma Limited – Annual Report 2021
There are no contractual commitments or contingent liabilities at 31 December 2021 (2020: Nil).
NOTE 26
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 Expert Report
– Income tax return and GST audit
Other services – RSM
– Income tax return and GST audit
– Independent Expert Report
Component Auditor Fees
Audit and reviews of the financial statements – BDO
Audit and reviews of the financial statements – MNP
Audit and reviews of the financial statements – PwC
2021
$
2020
$
$
264,500
277,609 -
29,538
39,600
15,000
17,600
50,966
33,000
80,060
33,291
41,482
-
-
19,828
-
49,019
530,264
421,229 -
NOTE 27
INVESTMENT IN CONTROLLED ENTITIES
Company Name
Principal Activities
Country of
Incorporation
Ownership interest
2021
2020
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
Halucenex
Creso Impactive
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
Clinical stage psychedelic drug development
company
CBD based life sciences company
Canada
Canada
Canada
Canada
Canada
Colombia
Canada
Canada
%
100
100
100
100
100
100
100
100
100
%
100
100
100
100
100
100
100
-
-
82 | P a g e
Notes to the Consolidated Financial Statements
NOTE 28 PARENT ENTITY INFORMATION
Set out below is the supplementary information about the parent entity.
Statement of Financial Position and Statement of Profit or Loss and Other Comprehensive Income
Creso Pharma Limited – Annual Report 2021
Total current assets
4,231,012
4,882,117
Loans receivable and investments in controlled entities
24,377,661
13,755,088
2021
$
2020
$
Total assets
Total current liabilities
Total liabilities
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
28,608,673
18,637,205
850,061
850,061
4,985,034
4,985,034
109,950,694
11,248,486
(93,440,568)
27,758,612
72,149,116
23,103,825
(81,600,770)
13,652,171
Total comprehensive profit/(loss)
(29,047,835)
(31,301,888)
Contingent liabilities
The parent entity had no contingent liabilities as at 31 December 2021 and 31 December 2020.
Capital commitments – Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment as at 31 December 2021 and 31
December 2020.
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.
83 | P a g e
Notes to the Consolidated Financial Statements
NOTE 29
INTEREST IN ASSOCIATE
Creso Pharma Limited – Annual Report 2021
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
2021
%
2020
%
33⅓%
33⅓%
CLV Frontier Brands Pty Ltd
2020
2021
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
84 | P a g e
Notes to the Consolidated Financial Statements
NOTE 30
EVENTS AFTER THE REPORTING DATE
Creso Pharma Limited – Annual Report 2021
• On 17 January 2022, the Company announced the appointment of three new directors, being Mr William Lay
as Group CEO and Managing Director, Mr Bruce Linton as a Non-Executive Director and Mrs Micheline
MacKay as Executive Director and is the Health Canada designated Responsible Person in Charge at Mernova.
• On 28 January 2022, the Company announced that 400,000 options had been exercised into shares for a
consideration of $20,000 and 1,470,588 shares were issued for a deemed issue price of 8.5c for investor
relations and marketing services.
• On 3 February 2022, the Company announced it was to enter the US CBD market through the strategic
acquisition of established US-based business, Sierra Sage Herbs LLC and leading Green Goo brand (“SSH”).
The material terms within the agreement are as follows; Creso, via its wholly owned subsidiary, Creso Pharma
US, Inc, will purchase a 100% interest in SSH for a total upfront consideration of US$21m, payable by the
issue of fully paid ordinary shares in Creso. In addition to the upfront consideration, SSH vendors may also be
entitled to certain milestone payments that can be paid either in shares or cash, the milestone payments
could range between zero and US$38.5m. Creso have also agreed to provide up to US1.7m of growth capital
in the form of a loan, at the year end, $0.4m had been drawn.
• On 25 February 2022, the Company announced it had firm commitments for a capital raising of $5m via the
placement of approximately 72.4m shares at an issue price of $0.069.
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.
85 | P a g e
Creso Pharma Limited – Annual Report 2021 Directors’ Declaration 86 | 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 2021 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 JAMES ELLINGFORD EXECUTIVE CHAIRMAN 28 February 2022 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 2021, 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 2021 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 22 of the financial report.
The Group has undertaken numerous related party
transactions during the year which this year included
•
Reviewing documentation for related party
transactions, to understand the underlying
transactions and assess whether they had
been recorded correctly;
issues of shares and options to related parties.
•
Obtaining confirmations of related party
Related party disclosures are significant to our audit as
they are material, and of interest to users of the
financial report due to their nature and value.
transactions from all key management
personnel and comparing to disclosures;
•
For transactions with related parties, we
assessed management’s and those charged
with governance’s evaluation that
transactions were at arm’s length, and,
where possible, compared to equivalent
transactions with third parties; and
•
Considering the completeness of disclosures
in the financial statements and ensuring the
disclosures are in accordance with AASB 124
Related Party Disclosures.
Valuation of biological assets and inventory
Key audit matter
How the matter was addressed in our audit
The Group held biological assets of $457,027 (Note 12)
Our audit procedures, included, amongst others:
and inventory of $1,398,064 (Note 11) at 31 December
2021.
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 assets
Key audit matter
How the matter was addressed in our audit
At 31 December 2021, the carrying value of intangible
assets was $8,314,320 as disclosed in Note 14.
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 2021, but does not include the financial report
and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial report or our
knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true and
fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such
internal control as the directors determine is necessary to enable the preparation of the financial report that
gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations,
or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with the Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of this
financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and
Assurance Standards Board website at:
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 25 to 37 of the directors’ report for the year
ended 31 December 2021.
In our opinion, the Remuneration Report of Creso Pharma Limited, for the year ended 31 December 2021,
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
Stephen May
Director
Sydney, 28 February 2022
Shareholder Information
Creso Pharma Limited – Annual Report 2021
The shareholder information set out below was applicable as at 1 February 2022.
1. QUOTATION
Listed securities in Creso Pharma Limited are quoted on the Australian Securities Exchange under ASX codes CPH (Fully
Paid Ordinary Shares), CPHOA (Listed Options) 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 or Performance Rights on issue.
3. ON MARKET BUY-BACK
There is no on-market buy back in place.
4. RESTRICTED SECURITIES
There are no restricted securities listed on the Company’s register as at 1 February 2022.
5. DISTRIBUTION OF SECURITY HOLDERS
5.1 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
1,820
9,169
4,994
9,631
1,490
Units
1,171,041
29,053,979
40,243,576
330,766,888
827,005,551
%
0.10%
2.37%
3.28%
26.93%
67.33%
27,104
1,228,241,035
100.00%
On 1 February 2022, there were 11,679 holders of unmarketable parcels of less than 5,953 ordinary shares (based on
the closing share price of $0.084).
92 | P a g e
Shareholder Information
5.2 Listed CPHOA Options exercisable at $0.05 on or before 22 January 2023
Creso Pharma Limited – Annual Report 2021
Shares Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and above
Holders
2
12
17
63
28
Units
7
48,922
143,788
2,694,851
%
-
0.08%
0.22%
4.21%
61,071,429
95.49%
Total
122
63,958,997
100.00%
5.3 Listed CPHO Options exercisable at $0.25 on or before 2 November 2024
Shares Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and above
Holders
6,814
10,753
3,438
4,435
412
Units
4,032,563
26,439,047
25,373,753
126,212,822
218,884,054
%
1.01%
6.59%
6.33%
31.48%
54.59%
Total
25,852
400,942,239
100.00%
5.4 Unlisted Options
Class
CPHOPT17 Options
($0.80, 27/07/2022)
CPHOPT19 Options
($0.80, 15/09/2022)
CPHOPT20 Options
($0.35, 12/02/2023)
CPHOPT21 Options
($0.40, 12/02/2023)
Quantity on
Issue
200,000
300,000
2,128,387
6,847,725
Distribution of Holders
All the securities in this class are held by:
- Mr Walter Von Wartberg
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
There are 4 security holders, each holding more than 100,001
of securities in this class.
The following holders hold more than 20% of securities in this
class:
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Creso Pharma Limited – Annual Report 2021
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)
CPHOPT26 Options
($0.1386, 23/06/2023)
CPHOPT28 Options
($0.17, 02/06/2023)
CPHOPT29 Options
($0.25, 02/06/2023)
CPHOPT31 Options
($0.20, 02/06/2023)
CPHOPT32 Options
($0.20, 23/12/2023)
CPHOPT33 Options
($0.039, 23/12/2025)
CPHOPT34 Options
($0.235, 11/01/2023)
CPHOPT35 Options
($0.27, 11/01/2023)
CPHOPT36 Options
($0.30, 11/01/2023)
CPHOPT37 Options
($0.40, 11/01/2023)
250,000
1,000,000
1,000,000
500,000
5,752,688
27,764,706
4,000,000
8,000,000
833,333
30,000,000
8,000,000
8,000,000
8,000,000
2,800,000
CPHOPT38 Options
($0.38, 14/07/2024)
CPHOPT39 Options
($0.15, 1/08/2024)
12,000,000
12,000,000
CPHOPT40 Options
($0.18, 1/08/2024)
12,000,000
Lind Global Macro Fund LP
CST Capital Pty Ltd
Suburban Holdings Pty Ltd
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.
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.
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:
-
All the securities in this class are held by:
-
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%)
All the securities in this class are held by:
-
Atlantic Capital Holdings Pty Ltd
There are 3 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:
- Mr Edward Sugar holds 9,000,000 securities (75%)
There are 3 security holders, each holding more than 100,001
of securities in this class.
Zero Nominees Pty Ltd holds 2,500,000 securities
Bruce Linton
Rimoyne Pty Ltd
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Shareholder Information
Creso Pharma Limited – Annual Report 2021
The following holder holds more than 20% of securities in this
class:
- Mr Edward Sugar holds 9,000,000 securities (75%)
All the securities in this class are held by:
- Noble House Consulting Ltd
All the securities in this class are held by:
- Noble House Consulting Ltd
There are 2 security holders, each holding more than 100,001
of securities in this class.
The following holders hold more than 20% of securities in this
class:
- Mr Kevin Tansey holds 500,000 securities (50%)
- Mr Brett Ayers holds 500,000 securities (50%)
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
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.
CPHOPT41 Options
($0.18, 6/09/2024)
CPHOPT42 Options
($0.25, 6/09/2024)
CPHOPT43 Options
($0.1375, 25/10/2024)
10,000,000
10,000,000
1,000,000
5.5 Performance Rights
Class
CPHPERR6 Performance
Rights
CPHPERR7 Performance
Rights
CPHPERR22
Performance Rights
CPHPERR23
Performance Rights
CPHPERR24
Performance Rights
CPHPERR43
Performance Rights
Quantity on
Issue
800,000
800,000
33,000
33,000
132,000
15,000,000
6. SUBSTANTIAL SHAREHOLDERS
The names of the substantial shareholders in the Company and the number of equity securities to which each
substantial holder and the substantial holder’s associates have a relevant interest, as disclosed in substantial holding
notices given to the Company as at 1 February 2022, 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: 113,665,433 fully paid ordinary shares, representing 10.31% as at 7 July 2021
Notice Received: 7 July 2021
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Creso Pharma Limited – Annual Report 2021
7. TWENTY LARGEST SHAREHOLDERS AS AT 1 FEBRUARY 2022
1
2
3
4
5
6
7
8
9
10
11
12
Name
ATLANTIC CAPITAL HOLDINGS PTY
JAMBER INVESTMENTS PTY LTD
MR TYSON SCHOLZ
MR BILL FLEMING
BNP PARIBAS NOMINEES PTY LTD SIX SIS LTD
SUBURBAN HOLDINGS PTY LTD
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
ATLANTIC CAPITAL HOLDINGS PTY LTD
BRISPOT NOMINEES PTY LTD
INTERNATIONAL WATER & ENERGY SAVERS LTD
BNP PARIBAS NOMINEES PTY LTD
NOBLE HOUSE CONSULTING LTD
13 MR JOHN LANGLEY HANCOCK
14
SUPERHERO NOMINEES PTY LTD
15 MR KENNETH JOSEPH HALL
15
16 MR NIALL BUCKLEY
17 MR TYSON SCHOLZ
18 MR MITCHEL FLEMING
19 MR MATTHEW CLARKE MALLET
20
BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM
Total
Shares Held
100,415,432
50,392,066
35,524,240
30,568,312
29,201,889
28,279,263
19,440,848
15,551,767
13,250,000
8,873,683
8,800,000
6,972,451
6,440,068
5,660,132
5,000,000
5,000,000
4,680,256
4,500,000
4,399,440
3,400,000
3,031,955
389,381,802
8. TWENTY LARGEST LISTED CPHOA OPTION HOLDERS AS AT 1 FEBRUARY 2022
Name
JAMBER INVESTMENTS PTY LTD
S3 CONSORTIUM PTY LTD
ARCO INVESTMENT GROUP P/L
NANDIL PTY LTD
SOLEVU PTY LTD