2019
ANNUAL REPORT
MGC Pharmaceuticals Limited
ABN 30 116 800 269
CannEpil® is an Investigational Medicinal Product.
CORPORATE DIRECTORY
DIRECTORS
Brett Mitchell
Executive Chairman
Nativ Segev
Non-Executive Director and Head of Business Strategy
Stephen Parker
Non-Executive Director
COMPANY SECRETARY
Rachel Kerr
Roby Zomer
Managing Director and CEO
Ross Walker
Non-Executive Director and
Head of Medical Advisory Board
REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS
1202 Hay Street
West Perth WA 6005
Tel: +61 8 6382 3390
SOLICITORS
Steinepreis Paganin
Level 4, The Read Buildings
16 Milligan Street
Perth WA 6000
AUDITORS
PKF Perth
Level 4, 35 Havelock Street
West Perth WA 6005
SECURITIES EXCHANGE LISTING
MGC Pharmaceuticals Ltd securities are listed on the Australian Securities Exchange (ASX) and the OTCQB® Venture
market in the United States
ASX Code MXC, OTCQB® code MGCLF
SHARE REGISTRY
Computershare Investor Services Pty Limited
Level 11
172 St Georges Terrace
Perth WA 6000
WEBSITE
www.mgcpharma.com.au
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CONTENTS
CORPORATE DIRECTORY
EXECUTIVE CHAIRMAN’S LETTER TO SHAREHOLDERS
REVIEW OF OPERATIONS
DIRECTORS’ REPORT
AUDITOR’S INDEPENDENCE DECLARATION
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT TO MEMBERS
ASX ADDITIONAL INFORMATION
2
4
6
14
27
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29
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31
32
64
65
70
A N N U A L R E P O R T 2 0 19 | 3
EXECUTIVE
CHAIRMAN’S
LETTER TO
SHAREHOLDERS
Dear Shareholders,
The 2019 financial year delivered real operational progress
for the Company and achievement of key milestones on
our ‘Seed to Pharmacy’ strategy of building an international
bio-pharma company dealing with production and
development of phytocannabinoid derived medicines.
As such, the Board is delighted to report our results for
the year including an operational review detailing the key
operational successes for the period.
The Company is now solely focussed on growing its
proprietary bio-pharma business and supplying MGC
Pharma phytocannabinoid derived medicines to patients
globally. Notable achievements during the year have
included the advancing of our Research and Development
through strategic collaborative partners, receiving a GMP
Certification and a Manufacturing Licence, and entering
into key global distribution agreements. Together with our
corporate and industry experienced Board of Directors, we
have a clear focus on the execution of the Board’s strategy.
It was a significant endorsement for Dr Stephen Parker to
join the Board this year, with his pharmaceutical industry
knowledge and expertise a valuable asset in helping guide
the Company’s future strategy.
Receipt of a full Good Manufacturing Practice (GMP)
Certification and a Manufacturing Licence at our European
medical cannabis compounding and manufacturing facility
in Slovenia was a major achievement. Our GMP facility is the
only one of its class in Europe with this level of certification
the manufacture of phytocannabinoid derived
for
medicines and was integral to the first commercialisation of
MGC’s pharmaceutical products during the year. Our core
product portfolio targets the symptoms of widespread and
debilitating conditions including Epilepsy, Dementia and
Alzheimer’s. In the period we increased our international
reach considerably through the signing of new strategic
agreements with distribution partners in the UK, MENA
region, Germany, Austria, Switzerland, Brazil and Australia.
The 2019 financial year delivered
real operational progress for the
Company and achievement of
key milestones on our ‘Seed to
Pharmacy’ strategy of building an
international bio-pharma company
dealing with production and
development of phytocannabinoid
derived medicines.
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EXECUTIVE CHAIRMAN’S LETTER TO SHAREHOLDERS EXECUTIVE
CHAIRMAN’S
LETTER TO
SHAREHOLDERS
EXECUTIVE CHAIRMAN’S LETTER TO SHAREHOLDERS
This year we had the first MGC Pharma product purchase
orders received from the UK, following the grant of a UK
Controlled Drug Import Licence, and in Australia under
the Authorised Prescriber Scheme. It has been highly
encouraging that, post period end, these initial purchase
orders have been followed up with material new orders
and repeat prescriptions, which have recently exceeded
600 prescriptions within a matter of months. As detailed
in recent releases, we are reaching significant patient
milestones in Australia and the UK which is a testament to
the quality of MGC Pharma’s products, the dedicated work
of the MGC Pharma team and the strategic value of our
established agreements.
Our Research and Development program continues to
be a core pillar of the business as we seek to create new
targeted phytocannabinoid based formulations to be
commercialised and position MGC Pharma at the forefront
of innovation in the industry. To achieve this, we have
established key relationships with leading international
institutions globally including Royal Melbourne Institute
of Technology, the Hebrew University in Jerusalem, the
National Institute of Biology & University Medical Centre
and the Notre Dame University in Perth, that enable us to
access state of the art research facilities and a depth of
specialism and expertise. The value of these relationships
cannot be understated. A clear example of this, is the
recent announcement of the ground-breaking results of
the research into the efficacy of phytocannabinoid based
formulations in the treatment of brain cancers.
Excitingly, we achieved a major milestone post period
end, with the signing of a long-term agreement for the
construction of our state of the art GMP production and
manufacturing facility in Malta which, upon issue of GMP
certification, will be one of the first GMP grade production
and research facilities in the EU within the medical
cannabis sector. The facility will enable us to materially
upscale our existing production capacity and increase
future revenue generation as a facility with pharmaceutical
industry production capacity.
On behalf of the MGC Pharmaceuticals’ Board, I would like
to take this opportunity to thank all of our loyal shareholders
for their continued support throughout the year and I look
forward to sharing the future success of the Company
with all shareholders, based on the strong operational and
research foundations that we have established in 2019, as
we advance our ‘Seed to Pharmacy’ strategy of becoming
a leading international producer of phytocannabinoid
derived medicines, and updating you on our progress.
Yours sincerely,
Brett Mitchell
Executive Chairman
A N N U A L R E P O R T 2 0 19 | 5
REVIEW OF OPERATIONS
REVIEW OF
OPERATIONS
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HIGHLIGHTS
RESEARCH & DEVELOPMENT AND
CLINICAL TRIALS
• Strategic collaborative partnership agreements
signed with leading European, Australian and Israeli
research institutions that facilitate industry leading
research on the impact of cannabinoids on diseases
such as epilepsy, cancer, dementia and Alzheimer’s,
in conjunction with:
º
º
Epilepsy Action Australia, Royal Melbourne
Institute of Technology (RMIT), The Hebrew
University of Jerusalem (HUJ), University of
Notre Dame (UNDA) in Western Australia and the
National Institute of Biology & University Medical
Centre, Ljubljana Slovenia
Initial publication of research results on the
effectiveness of cannabinoids on glioblastoma,
highlighting, amongst other conclusions,
that cannabinoids, especially at increasing
THC concentrations, reduce the viability of
glioblastoma cells
• Cannabis Breeding and Cultivation Research with:
º The Biotechnical faculty Ljubljana, Slovenia
developing new heights of THC and CBD strains
º RMIT a leading Australian University, licence
granted to MGC Pharma by the Office of Drug
Control (ODC), part of the Australian Department
of Health
GMP CERTIFICATION AND
PHARMACEUTICAL MANUFACTURING
• MGC Pharma’s European medicinal cannabis
compounding and manufacturing facility in Ljubljana,
Slovenia received both Good Manufacturing Practice
(GMP) Certification and a Manufacturing Licence:
º Demonstrating compliance with strict European
production quality standards for the production of
pharmaceutical grade phytocannabinoid derived
medicines
º GMP approval allowed the Company to
commence production and distribution of MGC
Pharma’s initial pharmaceutical grade medicines
to Australia and the United Kingdom
IMPORT APPROVALS AND
DISTRIBUTION AGREEMENTS
•
Import approval received for CannEpil® making it
available for supply in Australia under the Special
Access Scheme, with first purchase orders later
received and our first Australian patient receiving
CannEpil®
• UK Controlled Drug Import Licence received for the
importation of CannEpil® into the United Kingdom,
with first purchase orders received and our first UK
patient receiving CannEpil®
REVIEW OF OPERATIONS
MGC Pharma IMP Production Technologists,
Nastja Smolnikar and Klavdija Mirtič
• Distribution agreements signed covering key
international markets including the UK, Germany,
Australia, Brazil, Austria, Switzerland and MENA
region, adding to the Company’s existing distribution
agreements and giving MGC Pharma global coverage
and worldwide reach
CORPORATE
• Successful sale of MGC Pharma’s Derma division to
strategic partner, CannaGlobal Canada enabling
MGC Pharma to become exclusively focused on
developing its GMP-grade pharmaceutical product
pipeline as it enacts its strategy of becoming a
leading international phytocannabinoid focused
pharmaceutical business
• Post period end, the Company signed a long-term
lease with Malta Industrial Parks for the construction
of a large scale state-of-the-art GMP production and
research facility, one of the first commercial EU-
GMP grade production and research facilities in the
country within the cannabis sector for medicinal use.
This will enable MGC Pharma to materially scale up
its existing production capacity and future revenue
generation potential
• The Company has secured Canaccord Genuity in
Australia to act as the Company’s equity capital
markets advisor, and in the UK to lead the Company’s
planned dual-listing on the London Stock Exchange
(LSE). During 2019 MGC Pharma has materially
advanced its dual-listing strategy with Canaccord
and is actively progressing towards a listing on the
LSE in 2HCY2019.
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Research Publication on the Effectiveness of
Cannabinoids on Glioblastoma
The Company announced a research publication on
the effectiveness of Cannabinoids on Glioblastoma in
May 2019, conducted by the National Institute of
Biology (NIB) and University Medical Centre Ljubljana,
with MGC Pharma’s R&D Division. The general aim of
the research was to develop formulations to define
the protocols for the treatment of high-grade brain
tumours, i.e. glioblastoma with cannabinoids. The
publication highlighted amongst other conclusions,
that cannabinoids, (especially at increasing THC
concentrations), reduce the viability of glioblastoma cells.
Subsequent to the year end, the Company announced
further significant results on the pre-clinical research;
these results, amongst other conclusions, confirmed
that cannabinoid preparations can successfully inhibit
tumour viability and also cause a significant fraction
of glioblastoma cells to die i.e. apoptosis, after a short
time following their application. Following this study,
pre-clinical studies will continue in-vitro to find the
most efficient cannabinoid preparation by using a four-
dimensional matrix that will be constructed to correlate
these parameters.
This will define the selected cannabinoids’ preparations/
combinations as the most efficient to inhibit viability of
patients-derived glioblastoma cell and/or their stem cell,
and will allow the Company to create a cannabinoids
compounded formula.
Independent Validation of MGC Pharma High-Grade
Cannabis Genetics
It was announced on 26 February 2019 that the University
of Ljubljana Biotechnical Faculty and PharmaHemp Lab in
Slovenia, independently confirmed the recent test results
of the Company’s new cannabis genetics strains. The
independent report verified that all compliant procedures
and protocols were followed during MGC Pharma’s
cannabinoids extraction process from its 2018 Slovenian
breeding program during the vegetative growth and
flowering stages.
The flowers were harvested, dried and the cannabinoids
have been extracted at The University of Ljubljana
Biotechnical Faculty, with results being independently
verified by Prof Dr Borut Bohanec, Head of the Chair of
Genetics, Biotechnology, Statistics and Plant Breeding
at the University. High percentages of THC and CBD
have been extracted and verified from MXC’s proprietary
strains: genotypes MXC-THC-10/3 (high THC), MXC-
THC-81/5 (high CBD), MXC-THC-40/3 (high THC) and
MXCTHC-40/2 (equal THC CBD).
REVIEW OF OPERATIONS
OVERVIEW
RESEARCH & DEVELOPMENT AND
CLINICAL TRIALS
MGC Pharma has maintained its strategy of collaborating
and partnering with leading research and academic
institutions globally to ensure it remains at the forefront of
developments within the industry. Partnerships, and work
undertaken during the period, include:
Ethics Approval received for Australian Phase IIb
Clinical Trial into Dementia and Alzheimer’s disease
The Company announced it was granted full Ethics
Committee approval to conduct a Phase IIb clinical
trial into the effects of CogniCann®, a GMP certified,
phytocannabinoids based Investigational Medicinal
Product (IMP) compounded formulation, on patients with
mild Dementia and Alzheimer’s disease.
Approval follows the successful completion of a full
ethical review undertaken by the Human Research Ethics
Committee (HREC) at the University of Notre Dame (UNDA)
in Western Australia, in accordance with the National
Statement on Ethical Conduct in Human Research.
GMP certified phytocannabinoid derived medicine,
CogniCann® scientifically formulated by MGC Pharma, will
be tested on a total of 50 participants aged 65 years and
older. This will be performed alongside a series of pre and
post treatment surveys and focus groups that will be used
to assess residential staff and family member’s knowledge
and perceptions towards the use of the treatment.
Agreement signed with renowned research universities
RMIT and HUJ to build CannaHub
During the financial year, MGC Pharma received a Cannabis
Cultivation Research Licence granted by the ODC, part
of the Australian Department of Health, authorising the
cultivation of cannabis for research purposes at RMIT’s
state-of-the-art facility in Melbourne, Australia.
Furthermore, the Company announced it had signed a
binding partnership agreement with the Royal Melbourne
Institute of Technology (RMIT) and The Hebrew University
of Jerusalem (HUJ) to form a joint international medical
research hub for medicinal cannabis innovation
and technologies.
As an extension to MGC Pharma’s existing collaboration
with RMIT, the new research hub, to be known as
‘CannaHub’, is a collaborative centre between MGC
Pharma, RMIT and HUJ and will be an international
shared library of research, data and analytics on cannabis
for medicinal uses including future medical applications
and treatments.
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GMP CERTIFICATION AND
PHARMACEUTICAL MANUFACTURING
MGC Pharma was granted Good Manufacturing
Practice (GMP) Certification and a Manufacturing
Licence for its European compounding and
manufacturing facility in Ljubljana, Slovenia. This
represented a major operational milestone for the
Company as it enabled the immediate production of
Phytocannabinoid based IMP’s. Award of the certification
and licence demonstrated that MGC Pharma’s facility
fully complied with strict European production standards
and can now be considered one of the most advanced
in Europe for the compounding of pharmaceutical grade
phytocannabinoid derived medicines.
The GMP approval allowed the Company to immediately
commence full scale manufacturing of CannEpil®, the
Company’s proprietary cannabinoid based medicinal
formulation targeting the treatment of symptoms of
epilepsy. CannEpil® became available for prescription
in Australia under the Authorised Prescriber Scheme
following authorisation from the Therapeutic Goods
Administration (TGA). The Company also received a UK
Controlled Drug Import Licence enabling the importation
of CannEpil® into the UK. Following these approvals initial
purchase agreements were received and the product
has been prescribed to patients in both countries,
representing key milestones in the commercialisation of
MGC Pharma’s products.
REVIEW OF OPERATIONS
IMPORT APPROVALS AND
DISTRIBUTION AGREEMENTS
CannEpil® available for Australian supply under
Authorised Prescriber Scheme – Initial Purchase
Orders received
The Company confirmed receipt of formal authorisation
for the availability of its product CannEpil® for supply
in Australia through specialist prescribers under the
Authorised Prescriber Scheme.
This was a major milestone which represents the
Company’s progress towards becoming a world-leading
biopharma company, with more than 10 years’ clinical
experience and a leading Scientific Advisory Board in
place. It also signalled the immediate commencement
of commercial-scale production of CannEpil® at MGC
Pharma’s EU GMP certified facility in Slovenia. Initial
purchase orders and revenues followed soon after with
signed distribution agreements.
Import Permit received for CannEpil® for United
Kingdom - Initial Purchase Orders received
MGC Pharma advised it had received a United Kingdom
Controlled Drug Import Licence permit (Permit) for
the importation of CannEpil® into the United Kingdom.
In addition, the Company also received its first formal
purchase orders for CannEpil® through licensed
distribution partners in the United Kingdom with first
patients receiving the product.
MGC Pharma Biochemist, Karmen Smajila
A N N U A L R E P O R T 2 0 19 | 9
REVIEW OF OPERATIONS
MGC Pharma IMP Production Technologists,
Klavdija Mirtič and Tjaša Pavlin
Receipt of the Permit provided the opportunity to
immediately expand the Company’s distribution of
CannEpil® into the United Kingdom medicinal cannabis
products market, which will be managed in the region by
MGC Pharma’s distribution partners.
DISTRIBUTION
MGC Pharma’s international distribution network
increased significantly over the period increasing the
Company’s exposure to emerging markets with its
products now readily available to a greater number of
patients internationally. This was achieved through the
signing of several key distribution agreements, including:
• A.M. Mangion – a Maltese based distributor of
pharmaceutical products to the European, Middle
Eastern and North African markets
• Grow Biotech PLC and IPS Specials – providing direct
access into the UK market with a combined network
of 5,500 pharmacies across the UK
• Health House International and Cannvalate – leading
Australian medicinal cannabis distribution and
logistics specialists focused on the Australasian
market; significant increases in orders of MGC
Pharma Products already being witnessed
• ONIX Empreendimentos e Participações – providing
access to the Brazilian market utilising an innovative
digital platform CANTERA that enables MGC Pharma
to ship products direct to patients
• Mexacare GmbH – distribution of pharmaceutical
products in Germany, Austria and Switzerland via
Mexacare’s established distribution network
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CORPORATE
During the financial year the Company completed the
successful sale of 100% of the MGC Pharma Derma
division to CannaGlobal Canada for a consideration of
a 10% shareholding in CannaGlobal and a five-year
CBD and cosmetic material supply agreement with
CannaGlobal. Crucially, the MGC Derma transaction
enabled the Company to focus exclusively on divisions
– Research & Development, and Manufacturing and
Distribution – in order to advance its strategy of
becoming a leading international phytocannabinoid
focused pharmaceutical business.
In the June quarter, MGC Pharma saw the benefit of this
transaction through the receipt of $469k revenues from
its bulk cosmetics supply agreement with CannaGlobal.
Additionally in the June quarter, through the MGC
Pharma’s supply agreement with Mabsut, the Company
received revenues of $182k which resulted in increased
sales for its CBD based vaporizer PhenoPen.
On 17 April 2019, a Marketing and Distribution agreement
was signed with Chinese e-commerce import platform
YuShop Global (YuShop), to sell the Company’s CBD
and hemp-enhanced Nutraceuticals product range
in China. Targeting Chinese consumers via YuShop’s
online platform and network of 1,500 retail channel
partners, including a luxury spa chain, YuShop are
providing a complete “turn-key” solution to MGC Pharma,
being responsible for all sales, marketing, logistics and
customer service within China.
POST FINANCIAL YEAR END
On 8 August 2019, the Company signed a long-term lease
agreement on the 6,000m2 site for the construction of its
Maltese state-of-the-art GMP production and research
facility. This was a major event for the Maltese cannabis
industry as this will be one of the first commercial
EU-GMP grade production and research facilities in the
country. The facility will enable development of expertise
for phytocannabinoid derived medicines and research in
Malta with subsequent products to be delivered into the
European Union and global markets.
The large scale, eco-friendly commercial facility is
proposed to be a 15,720m2 multi-story building for the
operation of the Company’s fully GMP compliant bio-
pharma business, with a production capacity of over
8,000 units per hour of each product, which is a material
production volume for the pharmaceutical industry.
Construction and planning approvals have already been
received, with preliminary site works now started and
construction commencing. The Malta facility will enable
MGC Pharma to materially scale up its existing production
capacity and future revenue generation potential, which
is currently centred on its research and manufacturing
facility in Ljubljana, Slovenia.
REVIEW OF OPERATIONS
During August 2019, MGC Pharma completed a raising of
$4.75 million by way of a share placement to sophisticated
and professional investors at an issue price of $0.04 per
share. The Company also completed an offer of shares
to eligible existing shareholders under a Priority Offer and
raised an additional $1.0 million at $0.04 per share.
The Company has engaged the services of Canaccord
Genuity in Australia to act as the Company’s equity capital
markets advisor, and in the UK to lead the Company’s
planned dual-listing on the London Stock Exchange
(LSE). During 2019 MGC Pharma has materially advanced
its dual-listing strategy with Canaccord, and is actively
progressing towards a listing on the LSE in 2HCY2019.
Following the introduction of medicinal cannabis
legislation in November 2018 in the UK, MGC Pharma
is positioned to be one of the first medicinal cannabis
companies to be listing on the LSE or any major exchange
in the United Kingdom.
MGC Pharma product MXP100 – an Investigational Medicinal Product
A N N U A L R E P O R T 2 0 19 | 11
MILESTONES
COMPANY
MILESTONES
Q1
2017
Collection of clinical
data and initial design
of protocols with the
aim of bringing the first
product to market.
Granted LOI with Malta Government
for the construction and
establishment of EU-GMP grade
production and research facility in
Malta that will allow the cultivation,
production and commercialisation
of medicinal cannabis and
pharmaceutical grade
medicines in Malta.
Q2
2018
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Good Manufacturing Practice
(GMP) and manufacturing licence
approval received for the Slovenian
facilities which is one of the first
such EU facilities to be authorised
for the development and production
of phytocannabinoid derived
Investigational Medicinal
Products (IMP’s).
Q3
2018
Q4
2018
Authorised Prescribers
initiated in Australia
allowing approved
medical practitioners to
be able to prescribe
MGC Pharma’s products.
MILESTONES
Q1 2019
Granted SME qualification by the
European Medicines Agency (EMA)
for all of its phytomedicines. The
EMA is the equivalent to the TGA in
Australia and the FDA in the USA.
Receipt of this status provides MGC
Pharma with access to EMA’s user
guide, designed to help companies
navigate regulatory requirements to
successfully obtain marketing and
registration authorisation.
Q2
2019
Import permit received for
the UK along with key pharma
distribution agreements
signed with five new partners
providing access to major
new patient markets globally:
United Kingdom, Germany,
Austria, Switzerland, Brazil
and Australia.
Q3
2019
Following the LOI granted
Q2 2018, the Company signed
a long-term lease agreement
on the site of 6,000m2 of land
in Malta, with formal approval
from Malta Enterprise. This
allows the Company to develop
a fully integrated, Good
Manufacturing Practice (GMP)
compliant ‘Seed to Pharmacy’
medical cannabis production
facility in Malta.
Q3 2019
Pursuit of a dual listing on
the London Stock Exchange
(LSE) in the United Kingdom
to become one of the
first medicinal cannabis
companies to list on the LSE.
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DIRECTORS’ REPORT
DIRECTORS’ REPORT
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DIRECTORS’ REPORT
The Directors present their report on MGC Pharmaceuticals Limited (“the Company”) and its controlled entities
(“the Group”) for the financial year ended 30 June 2019.
DIRECTORS
The names of Directors in office at any time during or since the end of the year are:
DIRECTOR
TITLE
APPOINTMENT
DATE
RESIGNATION
DATE
Brett Mitchell
Roby Zomer
Nativ Segev
Ross Walker
Stephen Parker
Executive Chairman
Managing Director & CEO
Non-Executive Director & Head of Business Strategy
Non-Executive Director & Head of Medical Advisory Board
Non-Executive Director
4 April 2013
15 February 2016
15 February 2016
15 February 2016
13 March 2019
-
-
-
-
-
Directors have been in office since the start of the financial year to the date of this report.
COMPANY SECRETARY
Rachel Kerr held the position of Company Secretary for the full financial year. Kate Sainty was appointed Joint Company
Secretary on 1 January 2018 and subsequently resigned on 28 February 2019.
PRINCIPAL ACTIVITIES
The Company is an EU-based biopharma company with many years of technical clinical and commercial experience in the
medicinal cannabis industry. The Company’s founders were key figures in the global medical cannabis industry and the
core business strategy is to develop and supply high quality phytocannabinoid derived medicines for the growing demand
in the medical markets in Europe, North America and Australasia.
OPERATING RESULTS
The consolidated loss of the Group from continued operations amounted to $1,903,672 (2018: $8,990,470).
DIVIDENDS PAID OR RECOMMENDED
No dividends have been paid or declared for payment during, or since, the end of the financial year.
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
In the opinion of the directors, there have been no significant changes to the state of affairs of the Group during the year
other than those disclosed elsewhere in the financial report or the notes thereto.
A N N U A L R E P O R T 2 0 19 | 15
DIRECTORS’ REPORT
AFTER REPORTING DATE EVENTS
27 AUGUST 2019
Approval Granted for Large-Scale Research Project with IHPS
The Company announced that it had partnered with the Slovenian Institute of Hop Research
and Brewing (‘IHPS’), a government organisation in Slovenia, to undertake a first of its kind
large-scale research project on cannabis for medical purposes. The project is to be divided
into two focal points; cultivation optimisation and standardising the production process of
active pharmaceutical ingredients (API) derived from phytocannabinoids.
23 AUGUST 2019
Trial on the Effect of CannEpil® on Driver Competency
HREC approval received to conduct a controlled trial on the effect of CannEpil®, MGC
Pharma’s proprietary pharmaceutical product targeting the treatment of refractory epilepsy,
on driving performance.
21 AUGUST 2019
Canaccord to Lead LSE Listing and $4.75m Placement Closed
The Company received commitments to raise $4.75 million (before costs), via a placement
of shares at an issue price of $0.04 per share and also plans to undertake a Priority Offer to
Shareholders on the same terms. Canaccord Genuity Limited and other key advisers in the
UK are working with the Company to actively progress a dual listing on the LSE, targeted for
2HCY2019.
13 AUGUST 2019
MXC 100 Patient Milestone in Aus, Onboards Tetra Health
The Company announced 100 patients in Australia already prescribed or being processed
ahead of receiving a prescription for MGC Pharma’s pharmaceutical products, CannEpil®
or MXP100 (100mg/mL cannabidiol) as a material achievement.
8 AUGUST 2019
MGC Signs Agreement for Construction of GMP Pharma Facility
The Company signed a long-term lease agreement on the 6,000m2 site in Malta, which
was previously identified and designated to MGC Pharma by Malta Industrial Parks,
following formal approval from Malta Enterprise. Construction and planning approvals
already received.
7 AUGUST 2019
YuShop Completes Chinese Market Test, Sales to Commence
The Company confirmed that YuShop completed its Beta test phase for the distribution
of MGC Pharma’s nutraceutical products across China, with positive results received.
Full marketing and sales campaign will commence immediately through YuShop.
29 JULY 2019
Additional Information on Ground-breaking Research
The Company provided additional information on the announcement dated 24 July 2019.
The pre-clinical research was using a glioblastoma subgroup - classified stem cells model
and advanced organoid model. This model would address the effect of cannabinoids on
microenvironment, which is a new type of research in this field.
24 JULY 2019
Ground-breaking MGC Pharma Research Highlights Effectiveness of Cannabinoids on
Brain Cancers
The Company announced new facts on the pre-clinical research which highlighted the
positive impact of using specific cannabinoid formulations in the treatment of glioblastoma,
the most aggressive and so far therapeutically resistant primary brain tumour. This report
confirms that cannabinoid preparations can successfully inhibit tumour viability and also
cause the significant fraction of glioblastoma cells to die i.e. apoptosis after a short time
after their application.
5 JULY 2019
Exercise of 6.5c Listed Options Tranche 2 - Appendix 3B
Conversion of 87,426 Listed Options into Ordinary Shares, the remainder 90,645,397 Listed
Options expired on 3 June 2019 as per the terms and conditions
No other matters or circumstances have arisen since the end of the financial year which significantly affected or may
significantly affect the operations of the Group or the results of those operations of the Group in future financial years.
16 | A N N U A L R E P O R T 2 0 19
DIRECTORS’ REPORT
ENVIRONMENTAL ISSUES
The Group’s operations are subject to various environmental laws and regulations under the relevant Governments’
legislation. Full compliance with these laws and regulations is regarded as a minimum standard for all operations to
achieve. There have been no significant known breaches by the Group during the financial year.
Future Developments, Prospects and Business Strategies
The Company will continue to pursue its policy of enhancing the prospect of greater returns to its investors through
further strategic investments during the next financial year. Further information about likely developments in the
operations of the Group and the expected results of those operations in future financial years has not been included in this
report, because disclosure of the information would be likely to result in unreasonable prejudice to the Group.
Information on Directors and Secretary
Names, special responsibilities, qualifications and experience of current directors and company secretaries:
Brett Mitchell, B.Ec - Executive Chairman
Mr Mitchell is a corporate finance executive with over 25 years of experience in the venture capital, capital markets, tech
and resources industries. He has been involved in the founding, financing and management of both private and publicly-
listed companies, including the second listed medical cannabis company on the ASX – MGC Pharmaceuticals Ltd (MXC).
Mr Mitchell is a founder and director of Chieftain Securities Pty Ltd, a Perth based Corporate Advisory and Venture Capital
firm and founder and shareholder of Graft Polymer (UK) Ltd. Mr Mitchell is also currently Executive Chairman of ASX
Listed company TNT Mines Ltd (TIN).
Interest in shares and options held as at date of this report
Mr Brett Mitchell and Mrs Michelle Mitchell
20,458,889 Ordinary Shares
Mr Brett and Michelle Mitchell
6,335,005 Ordinary Shares
Chieftain Securities Pty Ltd (Mr Mitchell is a Director and holds a 33% shareholding)
5,000,000 unlisted options exercisable at $0.15 each expiring 30 June 2021
Directorships held in other ASX listed entities in the past three years
TNT Mines Limited (27 June 2017 – current)
Sky and Space Global Ltd (12 May 2016 – 31 October 2018)
Roby Zomer – Managing Director and CEO
Pioneering for 10 years in the BioTech and AgroTech sectors, Mr. Zomer was head hunted to join Mr Segev as co-founder
of MGC Pharma. Using his skills in running large scale projects, Mr. Zomer was then promoted to Executive Director and
naturally encompassed CTO position simultaneously.
Using his extensive list of business contacts, and scientific and engineering expertise to ensure MXC is positioned as
a leader in research and development, in addition to guaranteeing high level performance from global operations. Mr
Zomer’s appointment to Managing Director & CEO follows successful implementation of MXC’s pipelines to fully Integrate
MXC as a biopharma company in Europe and Australia, and indicates exemplary scientific standards and leadership.
Interest in shares and options held as at date of this report
Chitta Lu Limited
500,001 Ordinary Shares
HSBC Custody Nominees (Australia) Limited
30,000,000 Ordinary Shares
Directorships held in other ASX listed entities in the past three years
Nil.
Nativ Segev – Non-Executive Director and Head of Business Strategy
Mr Segev founded MGC Pharma in 2014 with a goal to expand into international markets and raise the quality of medicinal
Phytocannabinoid products, in addition to making them accessible to patients all over the world. Prior to establishing MGC
Pharma, Mr. Segev was a leader in the Medical Cannabis industry with a sizeable patient-base.
He has over 10 years of experience in implementation, legislation and lobbying in the global medical cannabis industry,
combined with over 15 years of experience in diverse executive roles.
A N N U A L R E P O R T 2 0 19 | 17
DIRECTORS’ REPORT
Interest in shares and options held as at date of this report
Nativ Segev
1 Ordinary Share
Brighght Global Limited
500,000 Ordinary Shares
HSBC Custody Nominees (Australia) Limited
52,500,000 Ordinary Shares
Directorships held in other ASX listed entities in the past three years
Nil.
Dr Ross Walker, MBBS (Hons), FRACP, FCSANZ - Non-Executive Director and Chairman of Strategic Advisory Board
Dr Ross Walker is an eminent practicing cardiologist with over 35 years’ experience as a clinician. For the past 20 years, he
has been focusing on preventative cardiology and is one of Australia’s leading preventative health experts.
Dr Walker is considered one of the world’s best keynote speakers and life coaches, he is the author of seven best-selling
books and a health presenter in the Australian Media
Interest in shares and options held as at date of this report
Ross GT Walker Pty Ltd, Walker Family Super Fund A/C>
4,000,000 Ordinary Shares
Directorships held in other ASX listed entities in the past three years
Nil.
Dr Stephen Parker, D.Phil, MBA – Non-Executive Director
Dr Stephen Parker is a seasoned executive with over thirty years’ experience in the pharmaceuticals and biotechnology
sectors, as a senior executive in the sector, a strategic consultant, a venture capitalist and a senior corporate financier with
Baring’s, Warburg’s and Apax Partners. Dr Parker is currently Chairman of Sareum Holdings plc and a non-Executive Director
of Eternans Limited. Stephen has a D.Phil. from Oxford University and an MBA from City University Business School.
Interest in shares and options held as at date of this report
Nil.
Directorships held in other ASX listed entities in the past three years
Nil.
Rachel Kerr – Company Secretary
Mrs Kerr has 10 years’ experience as a Company Secretary on both private and public companies, working on
acquisitions, capital raisings, IPO’s on ASX, due diligence reviews and compliance of public companies. Mrs Kerr is also
Company Secretary of Sky and Space Global Ltd.
18 | A N N U A L R E P O R T 2 0 19
REMUNERATION REPORT (AUDITED)
REMUNERATION REPORT
(AUDITED)
This report details the nature and amount of remuneration for each key management person of MGC Pharmaceuticals
Ltd, and for the executives receiving the highest remuneration.
REMUNERATION POLICY
The remuneration policy of MGC Pharmaceuticals Ltd has been designed to align key management personnel objectives
with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term
incentives based on key performance areas affecting the consolidated group’s financial results. The Board of MGC
Pharmaceuticals Ltd believes the remuneration policy to be appropriate and effective in its ability to attract and retain
the best key management personnel to run and manage the Group, as well as create goal congruence between directors,
executives and shareholders.
The Board’s policy for determining the nature and amount of remuneration for key management personnel of the Group is
as follows:
• The remuneration policy, setting the terms and conditions for the key management personnel, was developed and
approved by the Board.
• All key management personnel receive a base salary (which is based on factors such as length of service and
experience), superannuation, fringe benefits, options and performance incentives.
• The Board reviews key management personnel packages annually by reference to the consolidated group’s
performance, executive performance and comparable information from industry sectors.
The performance of key management personnel is measured against criteria agreed annually with each executive and is
based predominantly on the forecast growth of the Group’s profits and shareholders’ value. All bonuses and incentives
must be linked to predetermined performance criteria. The Board may, however, exercise its discretion in relation to
approving incentives, bonuses and options. Any changes must be justified by reference to measurable performance
criteria. The policy is designed to attract the highest calibre of executives and reward them for performance that results in
long-term growth in shareholder wealth.
Key management personnel are also entitled to participate in the employee share and option arrangements.
All remuneration paid to key management personnel is valued at the cost to the Company and expensed. Shares given to
key management personnel are valued as the difference between the market price of those shares and the amount paid
by key management personnel. Options are valued using the Black-Scholes methodology.
The Board policy is to remunerate Non-Executive Directors at market rates for time, commitment and responsibilities. The
Board determines payments to the Non-Executive Directors and reviews their remuneration annually, based on market
practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate
amount of fees that can be paid to Non-Executive Directors is subject to approval by shareholders at the Annual General
Meeting. Fees for Non-Executive Directors are not linked to the performance of the consolidated group. However, to align
directors’ interests with shareholder interests, the Directors are encouraged to hold shares in the Company and are able to
participate in the employee option plan.
PERFORMANCE-BASED REMUNERATION
As part of each member of the key management personnel’s remuneration package there is a performance-based
component, consisting of key performance indicators (KPIs). The intention of this program is to facilitate goal congruence
between key management personnel with that of the business and shareholders. The KPIs are set annually, with a certain
level of consultation with key management personnel to ensure buy-in. The measures are specifically tailored to the areas
each key management personnel are involved in and have a level of control over. The KPIs target areas the Board believes
hold greater potential for Group expansion and profit, covering financial and non-financial as well as short- and long-term
goals. The level set for each KPI is based on budgeted figures for the Group and respective industry standards.
Performance in relation to the KPIs is assessed annually, with bonuses being awarded depending on the number and
deemed difficulty of the KPIs achieved. Following the assessment, the KPIs are reviewed by the Board in light of the
desired and actual outcomes, and their efficiency is assessed in relation to the Group’s goals and shareholder wealth,
before the KPIs are set for the following year.
A N N U A L R E P O R T 2 0 19 | 19
REMUNERATION REPORT (AUDITED)
COMPANY PERFORMANCE, SHAREHOLDER WEALTH AND DIRECTOR AND
EXECUTIVE REMUNERATION
Key Management Personnel Remuneration Policy
The Board’s policy for determining the nature and amount of remuneration for key management for the Group is as follows:
The remuneration structure for key management personnel is based on a number of factors, including length of service,
particular experience of the individual concerned, and overall performance of the Company. The contracts for service
between the Company and key management personnel are on a continuing basis, the terms of which are not expected
to change in the immediate future. Upon retirement key management personnel are paid employee benefit entitlements
accrued to date of retirement.
All Directors had contracts in place with the Company during the financial year as detailed below:
Mr Brett Mitchell, Executive Chairman
Current Director Agreements
• Director Letter of Appointment dated 20 February 2016, no termination date or payment on termination;
• MGC Pharma (UK) Ltd Non-Executive Director agreement commenced 30 June 2016; no termination date or payment
on termination;
º
Fees of £910 per month
Addendum to Services Agreement valid from 1 January 2019 to current
• MGC Pharmaceuticals Ltd executive services agreement continues for 3 years unless terminated prior and will
thereafter automatically renew every 12 months;
º
Fees reduced to A$20,000 per month;
An additional benefit of A$60,000 in cash plus A$100,000 in Ordinary Shares (valued at the closing price of the
milestone achievement date) per achievement, based on share performance and operational milestones are
as follows:
- GMP approval for Malta facility
- Holding a Director position on the Board of MGC Pharmaceuticals Ltd by 31 December 2019
- Holding a Director position on the Board of MGC Pharmaceuticals Ltd by 31 December 2020 and achieving
share value of minimum of 8c for a minimum of 10 consecutive trading days
- Holding a Director position on the Board of MGC Pharmaceuticals Ltd by 31 December 2021 and achieving
share value of minimum of 10c for a minimum of 10 consecutive trading days
º A termination fee is payable and is dependent upon the Company terminating the services contract at its election,
unless terminated by a just cause, and the payment would be €800,000
Mr Roby Zomer, Managing Director
Current Director Agreement
• MGC Pharma (UK) Ltd Non-Executive Director agreement commenced 30 June 2016; no termination date or payment
on termination;
º
Fees of £910 per month
Addendum to Services Agreement valid from 1 January 2019 to current
• MGC Pharmaceuticals Ltd executive services agreement continues for 3 years unless terminated prior and will
thereafter automatically renew every 12 months;
º
Fees of A$25,000 per month;
An additional benefit of A$60,000 in cash plus A$100,000 in Ordinary Shares (valued at the closing price of the
milestone achievement date) per achievement, based on share performance and operational milestones are as
follows:
- GMP approval for Malta facility
- Holding a Director position on the Board of MGC Pharmaceuticals Ltd by 31 December 2019
- Holding a Director position on the Board of MGC Pharmaceuticals Ltd by 31 December 2020 and achieving
share value of minimum of 8c for a minimum of 10 consecutive trading days
- Holding a Director position on the Board of MGC Pharmaceuticals Ltd by 31 December 2021 and achieving
share value of minimum of 10c for a minimum of 10 consecutive trading days
º A termination fee is payable and is dependent upon the Company terminating the services contract at its election,
unless terminated by a just cause, and the payment would be €800,000
2 0 | A N N U A L R E P O R T 2 0 19
REMUNERATION REPORT (AUDITED)
Mr Nativ Segev, Non-Executive Director and Head of Business Strategy
Current Director Agreement
• MGC Pharma (UK) Ltd Non-Executive Director agreement commenced 30 June 2016; no termination date or payment
on termination;
º
Fees of £910 per month
Addendum to Services Agreement valid from 1 January 2019 to current
• MGC Pharmaceuticals Ltd executive services agreement continues for 3 years unless terminated prior and will
thereafter automatically renew every 12 months;
Fees reduced to A$20,000 per month;
º
º An additional benefit of A$60,000 in cash plus A$100,000 in Ordinary Shares (valued at the closing price of the
milestone achievement date) per achievement, based on share performance and operational milestones are as follows:
- GMP approval for Malta facility
- Holding a Director position on the Board of MGC Pharmaceuticals Ltd by 31 December 2019
- Construction of Malta facility Completed
- Holding a Director position on the Board of MGC Pharmaceuticals Ltd by 31 December 2020 and achieving
share value of minimum of 8c for a minimum of 10 consecutive trading days
- Holding a Director position on the Board of MGC Pharmaceuticals Ltd by 31 December 2021 and achieving
share value of minimum of 10c for a minimum of 10 consecutive trading days
º A termination fee is payable and is dependent upon the Company terminating the services contract at its election,
unless terminated by a just cause, and the payment would be €800,000
Dr Ross Walker, Non-Executive Director and Chairman of Strategic Advisory Board
Current Director Agreement
• MGC Pharmaceuticals Ltd Director Letter of Appointment was implemented on 20 October 2015, no termination date
and no payment upon termination;
º Non-Executive Director fees of A$3,000 per month and fees for Chairman of Strategic Advisory Board of A$2,000
per month
Dr Stephen Parker, Non-Executive Director
Current Director Agreement
• MGC Pharmaceuticals Ltd Director Letter of Appointment was implemented on 13 March 2019, no termination date
and no payment upon termination;
º Non-Executive Director fees of A$5,000 per month
Previous Director Agreements in place at the beginning of the period:
Mr Brett Mitchell, Executive Chairman
Services Agreement valid from 20 February 2016 to 1 January 2019
• MGC Pharmaceuticals Ltd executive services agreement
Fees of A$15,000 per month; as of 1 April 2017 the Board resolved to increase this to A$25,000 per month
º
º A termination fee is payable and is dependent upon the Company terminating the services contract at its election,
unless terminated by a just cause, and the payment would range between €192,000-€576,000 subject to the
length of service provided to the Company
Mr Roby Zomer, Managing Director
Services Agreement valid from 20 February 2016 to 1 January 2019
• MGC Pharmaceuticals Ltd executive services agreement
º
Fees of €10,000 per month plus benefits; as of 1 April 2017 the Board resolved to increase this to £15,000 per
month plus benefits
º A termination fee is payable and is dependent upon the Company terminating the services contract at its election,
unless terminated by a just cause, and the payment would range between €192,000-€576,000 subject to the
length of service provided to the Company
Mr Nativ Segev, Non-Executive Director & Head of Business Strategy
Services Agreement valid from 20 February 2016 to 1 January 2019
• MGC Pharmaceuticals Ltd executive services agreement
º
Fees of €12,500 per month plus benefits; as of 1 April 2017 the Board resolved to increase this to £17,000 per
month plus benefits
º A termination fee is payable and is dependent upon the Company terminating the services contract at its election,
unless terminated by a just cause, with a termination fee of up to €800,000 payable.
A N N U A L R E P O R T 2 0 19 | 2 1
REMUNERATION REPORT (AUDITED)
DETAILS OF REMUNERATION
COMPENSATION OF KEY MANAGEMENT PERSONNEL REMUNERATION
Cash
Short-term Benefits
Non-Cash
Post-employment benefits
Cash and
salary
Perfor-
mance
Bonus
Other
Super-
annuation
Termination
benefits
Equity
Share
based
Payments
Directors
2019
Brett Mitchell
Roby Zomer
Nativ Segev
Ross Walker
Stephen Parker
289,765
329,838
321,181
60,000
18,213
Total
1,018,997
2018
Brett Mitchell
Roby Zomer
Nativ Segev
Ross Walker
Total
320,549
333,805
375,297
60,000
1,089,651
-
-
-
-
-
-
-
-
-
-
-
-
76,571
72,360
-
1,845
150,776
25,000
84,023
77,483
5,000
191,506
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Perform-
ance
related
%
Total
289,765
406,409
393,541
60,000
20,058
1,169,773
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
80,291
80,291
425,840
498,119
100,364
553,144
32,360
97,360
293,306
1,574,463
All Directors have contracts with the Company.
OPTION HOLDINGS OF KEY MANAGEMENT PERSONNEL
Directors
Opening Balance
Granted as
Compensation
Options Exercised
Net Other
Changes
Closing Balance
2019
Brett Mitchell
Roby Zomer
Nativ Segev
Ross Walker
Stephen Parker
Total
2018
Brett Mitchell
Roby Zomer
Nativ Segev
Ross Walker
Total
5,000,0001
-
-
-
-
5,000,000
-
-
-
-
-
-
-
-
-
-
-
5,000,0001
-
-
-
5,000,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,000,000
-
-
-
-
5,000,000
5,000,000
-
-
-
5,000,000
1 Chieftain Securities Pty Ltd holds these options of which Mr Mitchell is a director and 33.33% shareholder
2 2 | A N N U A L R E P O R T 2 0 19
PERFORMANCE SHARES HELD BY KEY MANAGEMENT PERSONNEL
Details of performance shareholdings held directly, indirectly or beneficially by KMP and their related parties are as follows:
Directors
Opening Balance
Granted as
Compensation
Performance
Shares Exercised
Net Other
Changes
Closing Balance
REMUNERATION REPORT (AUDITED)
2019
Brett Mitchell
Roby Zomer
Nativ Segev
Ross Walker
Stephen Parker
Total
2018
Brett Mitchell
Roby Zomer
Nativ Segev
Ross Walker
Total
-
10,000,000
20,000,000
-
-
30,000,000
-
10,000,000
20,000,000
-
30,000,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,000,000
20,000,000
-
-
30,000,0001
-
-
-
-
-
-
-
-
-
-
-
-
10,000,000
20,000,000
-
30,000,000
1 Performance Shares expired due to not meeting the performance milestone
PERFORMANCE RIGHTS HELD BY KEY MANAGEMENT PERSONNEL
Details of performance rights held directly, indirectly or beneficially by KMP and their related parties are as follows:
Directors
Opening Balance
Granted as
Compensation
Performance
Rights Exercised
Net Other
Changes
Closing Balance
2019
Brett Mitchell
Roby Zomer
Nativ Segev
Ross Walker
Stephen Parker
Total
2018
Brett Mitchell
Roby Zomer
Nativ Segev
Ross Walker
Total
10,000,000
-
-
-
-
10,000,000
10,000,000
10,000,000
12,500,000
4,000,000
36,500,000
-
-
-
-
-
-
-
-
-
-
-
10,000,000
-
-
-
-
10,000,000
-
10,000,000
12,500,000
4,000,000
26,500,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,000,000
-
-
-
10,000,000
A N N U A L R E P O R T 2 0 19 | 2 3
REMUNERATION REPORT (AUDITED)
SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL
Details of equity instruments (other than options and rights) held directly, indirectly or beneficially by KMP and their parties
are as follows:
Shareholdings
Directors
Opening Balance
Granted as
Compensation
Performance
Rights Exercised
Net Other
Changes1
Closing Balance
2019
Brett Mitchell
Roby Zomer
Nativ Segev
Ross Walker
Stephen Parker
Total
2018
Brett Mitchell
Roby Zomer
Nativ Segev
Ross Walker
Total
16,193,894
30,000,000
52,500,000
4,000,000
-
102,693,894
16,193,894
20,000,000
40,000,000
-
76,193,894
-
-
-
-
-
-
-
-
-
-
-
10,000,000
-
-
-
-
600,000
500,001
500,001
-
-
26,793,894
30,500,001
53,000,001
4,000,000
-
10,000,000
1,600,002
114,293,896
-
10,000,000
12,500,000
4,000,000
26,500,000
-
-
-
-
-
16,193,894
30,000,000
52,500,000
4,000,000
102,693,894
1 Net other changes are as a result of rights allotted on rights issues and other movement due to changes in directors and
directors’ related entities.
Share-based Compensation
There were no options over ordinary shares granted to and vested by directors and other key management personnel as
part of compensation during the year ended 30 June 2018 or 30 June 2019.
End of Remuneration Report
2 4 | A N N U A L R E P O R T 2 0 19
DIRECTORS’ REPORT
MEETINGS OF DIRECTORS
The Directors attendances at Board meetings held during the year were:
Brett Mitchell
Nativ Segev
Roby Zomer
Ross Walker
Stephen Parker
Board Meetings
Number eligible to attend
5
Number attended
5
5
5
5
2
5
5
5
2
The Company does not have any remuneration, nomination or audit committees, these functions are performed by the
Board as a whole.
CORPORATE GOVERNANCE
In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of MGC
Pharmaceuticals Ltd support and have adhered to the principles of sound corporate governance. The Board recognises
the recommendations of the Australian Securities Exchange Corporate Governance Council, and considers that the
Company is in compliance with many of those guidelines which are of importance to the commercial operation of the
Company. During the financial year, shareholders continued to receive the benefit of an efficient and cost-effective
corporate governance policy for the Company. The Company’s Corporate Governance Policy is available for review on the
Company’s website www.mgcpharma.com.au
OPTIONS
At the date of signing this report the unissued ordinary shares of MGC Pharmaceuticals Ltd under option are as follows:
Issue Date
2 March 2018, 23 March 2018
17 April 2018
12 April 2019
Total
Date of Expiry
Exercise Price
Number under Option
31 March 2021
30 June 2021
31 March 2021
$0.125
$0.15
$0.065
19,900,000
10,000,000
16,000,000
45,900,000
INDEMNIFYING OFFICERS OR AUDITOR
The Company has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance
premiums as follows:
The Company has paid premiums to insure all of the Directors of the Company (as named above), the company secretary
and all executive officers of the Company against any liability incurred as such by a director, secretary or executive officer
to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the notice of the
liability and the amount of the premium.
The Company has not indemnified the auditor or paid any insurance premium on behalf of the auditor.
PROCEEDINGS ON BEHALF OF COMPANY
No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings
to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of
those proceedings. The Company was not a party to any such proceedings during the year.
NON-AUDIT SERVICES
The Board of Directors is satisfied that the provision of non-audit services during the year is compatible with the general
standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the services
disclosed below did not compromise the external auditor’s independence for the following reasons:
• All non-audit services are reviewed and approved by the Board of Directors prior to commencement to ensure they do
not adversely affect the integrity and objectivity of the auditor; and
• The nature of the service provided do not compromise the general principles relating to auditor independence in
accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and
Ethical Standards Board.
A N N U A L R E P O R T 2 0 19 | 2 5
DIRECTORS’ REPORT
During the year, there were no fees paid or payable for non-audit services by PKF Perth and its related practices.
Auditor’s Independence Declaration
The lead auditor’s independence declaration for the year ended 30 June 2019 has been received and can be found on
page 27 of the annual report.
This report is made in accordance with a resolution of Directors. These financial statements were authorised for issue in
accordance with a resolution by the Directors of the Company on 28 August 2019.
Roby Zomer
Managing Director
Dated 28 August 2019
2 6 | A N N U A L R E P O R T 2 0 19
AUDITOR’S INDEPENDENCE
DECLARATION
AUDITOR’S INDEPENDENCE DECLARATION
A N N U A L R E P O R T 2 0 19 | 2 7
Level 4, 35 Havelock Street, West Perth, WA 6005 PO Box 609, West Perth, WA 6872 T: +61 8 9426 8999 F: +61 8 9426 8900 www.pkfperth.com.au PKF Perth is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. Liability limited by a scheme approved under Professional Standards Legislation.PKF PerthAUDITOR’S INDEPENDENCE DECLARATIONTO THE DIRECTORS OF MGC PHARMACEUTICALS LTD In relation to our audit of the financial report of MGC Pharmaceuticals Ltd for the year ended 30 June 2019, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. PKFPERTHSHANE CROSSPARTNER28THAUGUST 2019WEST PERTHWESTERN AUSTRALIA CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF
PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2019
Revenue from continuing operations
Sales revenue
Cost of goods sold
Gross profit
Other income
Research and development rebate
Expenses
Operational expenditure
Corporate costs
Professional and consultancy fees
Research expense
Directors’ fees
Employee benefit expenses
Employee share based payment expense
Travel expenses
Marketing expenses
Depreciation
Office and administrative expenses
Finance costs
Impairment provision expense
Gain on deconsolidation
Gain on disposal of subsidiary
Gain / (Loss) on disposal of property, plant and equipment
Revaluation of investment held
Gain / (Loss) on re-measurement of performance shares
Other expenses
Loss before income tax
Income tax expense
Loss after income tax from continuing operations
Loss from discontinued operations
Total loss after income tax
Loss after income tax benefit for the year attributable to:
Members of the parent entity
Non-controlling interest
Other comprehensive income for the year
Items that may be reclassified subsequently to profit or loss
Exchange differences on the translation of foreign operations
Derecognition of foreign currency reserve
Other comprehensive income (net of tax) for the year
Total comprehensive loss for the year
Total comprehensive loss attributable to:
Members of the parent entity
Non-controlling interest
Earnings per share for loss attributable to the ordinary equity holders of
the parent:
From continuing and discontinued operations
Basic loss per share (cents)
Diluted loss per share (cents)
The accompanying notes form part of these financial statements
2 8 | A N N U A L R E P O R T 2 0 19
Note
4a)
5
4b)
4c)
6
6
12, 21bi)
21bi)
24a)
7
21bi)
30-Jun-19
$
656,237
(356,642)
299,595
201,850
327,565
(456,852)
(235,527)
(1,405,943)
(2,866,119)
(1,194,852)
(537,906)
(537,004)
(511,689)
(574,983)
(259,744)
(342,351)
(8,000)
(2,493,140)
2,880,242
-
3,711
(19,429)
6,270,000
(415,781)
(1,876,357)
(27,315)
(1,903,672)
(450,185)
(2,353,857)
(2,309,332)
(44,525)
(2,353,857)
(127,067)
24,295
(102,772)
30-Jun-18
$
296,811
(119,340)
177,471
191,593
-
-
(239,437)
(851,245)
(951,323)
(1,258,802)
(812,701)
(1,072,681)
(291,646)
(612,760)
(328,112)
(216,390)
(99,369)
(207,976)
-
86,352
(27,758)
19,672
(1,900,000)
(595,358)
(8,990,470)
-
(8,990,470)
1,038
(8,989,432)
(8,246,340)
(743,092)
(8,989,432)
118,485
-
118,485
(2,456,629)
(8,870,947)
(2,412,104)
(44,525)
(2,456,629)
(8,073,791)
(797,156)
(8,870,947)
17
17
(0.19)
(0.19)
(0.73)
(0.73)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
AS AT 30 JUNE 2019
CURRENT ASSETS
Cash and cash equivalents
Inventory
Trade and other receivables
Total Current Assets
NON-CURRENT ASSETS
Plant and equipment
Intangible assets
Financial assets
Total Non-Current Assets
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Deferred revenue
Contingent consideration
Total Current Liabilities
NON-CURRENT LIABILITIES
Loans to third parties
Deferred revenue
Provisions
Total Non-Current Liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Share based payment reserve
Foreign currency translation reserve
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interest
TOTAL EQUITY
The accompanying notes form part of these financial statements
Note
8
9
10
11
12
21bii)
13a)
13b)
24a)
14
13b)
15a)
15bi)
15bii)
22
30-Jun-19
$
2,354,086
138,800
1,227,285
3,720,171
1,470,479
5,034,309
2,771,804
9,276,592
12,996,763
1,593,707
587,688
-
2,181,395
-
-
17,195
17,195
2,198,590
10,798,173
49,133,819
3,256,418
33,928
(41,464,829)
10,959,336
(161,163)
10,798,173
30-Jun-18
$
9,858,977
712,315
932,319
11,503,611
1,334,492
7,082,904
72,857
8,490,253
19,993,864
960,575
-
6,270,000
7,230,575
21,556
47,280
3,669
72,505
7,303,080
12,690,784
48,440,990
3,385,229
136,700
(38,030,342)
13,932,577
(1,241,793)
12,690,784
A N N U A L R E P O R T 2 0 19 | 2 9
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2019
Share Based
Payment
Reserve
$
Foreign
Currency
Translation
Reserve
$
Retained
Earnings
$
Non-
Controlling
Interest
$
Total
$
3,495,614
-
-
(35,849)
172,549
-
(29,784,002)
-
(8,246,340)
(444,637)
(54,064)
(743,092)
15,788,530
118,485
(8,989,432)
Contributed
Equity
$
42,557,404
-
-
-
-
172,549
(8,246,340)
(797,156)
(8,870,947)
4,310,520
-
1,573,066
-
-
1,462,681
(1,573,066)
-
-
-
-
-
-
-
-
-
-
-
-
-
4,310,520
1,462,681
-
-
BALANCE AT 1 JULY 2017
Other comprehensive income
Loss after income tax expense
Total comprehensive loss for
the year
Shares issued during the year (net of
share issue costs)
Share based payment
Transfer to issued capital
Recognition of non-controlling interest
Balance at 30 June 2018
48,440,990
3,385,229
136,700
(38,030,342)
(1,241,793)
12,690,784
BALANCE AT 1 JULY 2018
Other comprehensive income
Loss after income tax expense
Total comprehensive loss for the
year
Shares issued during the year (net of
share issue costs)
Share based payment
Disposal of subsidiary
48,440,990
-
-
3,385,229
-
-
136,700
(102,772)
-
(38,030,342)
-
(2,309,332)
(1,241,793)
-
(44,525)
12,690,784
(102,772)
(2,353,857)
-
-
(102,772)
(2,309,332)
(44,525)
(2,456,629)
692,829
-
-
(128,811)
-
-
-
-
(1,125,155)
-
-
1,125,155
692,829
(128,811)
-
Balance at 30 June 2019
49,133,819
3,256,418
33,928
(41,464,829)
(161,163)
10,798,173
The accompanying notes form part of these financial statements
3 0 | A N N U A L R E P O R T 2 0 19
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF
CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2019
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Payments for research expenses
Research and development rebate
Interest received
Interest paid
Income tax paid
Net cash used in operating activities
Cash flows from investing activities
Subsidiary held for sale, net of cash disposed of
Proceeds from disposal of plant and equipment
Purchase of plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Repayment of borrowings
Proceeds from issue of shares and options
Capital raising costs
Net cash provided by financing activities
Net (decrease) in cash and cash equivalents held
Cash and cash equivalents at beginning of year
Foreign exchange movement in cash
Note
4c
26
21bi)
30-Jun-19
$
30-Jun-18
$
985,195
(4,905,359)
(2,892,045)
327,565
158,193
(444)
(27,315)
299,514
(5,354,718)
(951,323)
-
167,977
(48,240)
-
(6,354,210)
(5,886,790)
(569,992)
(14,893)
(362,150)
(947,035)
-
35,962
(8,948)
27,014
(7,274,231)
9,858,977
(230,660)
-
118,864
(459,443)
(340,579)
-
5,017,365
(316,844)
4,700,521
(1,526,848)
11,363,902
21,923
Cash and cash equivalents at end of year
8
2,354,086
9,858,977
The accompanying notes form part of these financial statements
A N N U A L R E P O R T 2 0 19 | 3 1
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL
STATEMENTS
CONTENTS OF THE NOTES TO THE FINANCIAL STATEMENTS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
CORPORATE INFORMATION
SIGNIFICANT ACCOUNTING POLICIES
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
REVENUE AND OTHER INCOME
COST OF GOODS SOLD
EMPLOYEE EXPENSES
INCOME TAX BENEFIT
CASH AND CASH EQUIVALENTS
INVENTORY
TRADE AND OTHER RECEIVABLES
PLANT AND EQUIPMENT
INTANGIBLE ASSETS
PAYABLES
BORROWINGS
CONTRIBUTED EQUITY AND RESERVES
DIVIDENDS
EARNINGS PER SHARE
FINANCIAL RISK MANAGEMENT
FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS
CONTROLLED ENTITIES
BUSINESS COMBINATIONS
22 NON-CONTROLLING INTEREST
23
24
25
26
SEGMENT REPORTING
CONTINGENCIES AND COMMITMENTS
EVENTS AFTER THE REPORTING DATE
CASH FLOW INFORMATION
27 AUDITOR’S REMUNERATION
28
29
30
31
PARENT COMPANY DISCLOSURES
RELATED PARTY TRANSACTIONS
SHARE BASED PAYMENTS
APPLICATION OF NEW AND REVISED ACCOUNTING STANDARDS
33
33
37
37
38
38
38
39
40
40
40
41
42
42
42
45
45
45
47
49
49
53
53
54
55
56
56
56
57
58
62
3 2 | A N N U A L R E P O R T 2 0 19
NOTES TO THE FINANCIAL STATEMENTS
1. CORPORATE INFORMATION
The financial statements of MGC Pharmaceuticals Limited for the year ended 30 June 2019 were authorised for issue in
accordance with a resolution of Directors on 28 August 2019. These consolidated financial statements and notes represent
those of MGC Pharmaceuticals Limited (the “Company”) and Controlled Entities (the “consolidated group” or “Group”).
2. SIGNIFICANT ACCOUNTING POLICIES
a) Statement of Compliance
The financial statements are general purpose financial statements that have been prepared in accordance with Australian
Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian
Accounting Standards Board (“AASB”) and the Corporations Act 2001 as appropriate for ‘for-profit’ orientated entities.
Australian Accounting Standards set out accounting policies that the AASB has concluded would result in financial
statements containing relevant and reliable information about transactions, events and conditions. Compliance with
Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standard Board (“IASB”). Material accounting
policies adopted in the preparation of these financial statements are presented below and they have been consistently
applied unless otherwise stated.
b) Basis of Preparation
The financial statements have been prepared on an accruals basis and are based on historical costs, modified, where
applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities.
The preparation of the 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 group’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 3.
Financial report prepared on a going concern basis
The financial statements have been prepared on the going concern basis of accounting, which assumes the continuity of
normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.
During the year ended 30 June 2019 the consolidated group incurred a loss from continuing operations of $1,903,672
(2018: $8,990,470), net operating cash outflows of $6,354,210 (2018: $5,886,790) and year-end cash and cash
equivalents balance of $2,354,086 (2018: $9,858,977). Net losses include one-off non-cash adjustments for, an
impairment provision of $2,493,140 (2018: $207,976), netted off against a gain on deconsolidation of a subsidiary of
$2,880,242 (2018: nil) and a gain on the re-measurement of performance shares of $6,270,000 (2018: loss of $1,900,000)
(refer notes 21b and 24a respectively).
Based on the consolidated group cashflow forecasts for the 12 months ending 31 August 2020, the Directors are satisfied
that the going concern basis of preparation is appropriate based upon the future planned capital raisings, including the
recent announcement on the firm commitments received to raise funds of $4.75m (before costs) via a placement of
shares as detailed at note 25, Events After the Reporting Date. As at the date of this report the funds are being held in trust.
In the Directors’ opinion there are therefore reasonable grounds to believe that the consolidated group will be able to pay
its debts as and when they become due and payable.
If the consolidated group are unable to continue as a going concern, then assets and liabilities will not be discharged in the
normal course of business and at values specified in the financial report.
c) Principles of Consolidation
The consolidated financial statements comprise the financial statements of MGC Pharmaceuticals Ltd and its
subsidiaries as at 30 June 2019 (“the Group”).
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee
if and only if the Group has:
• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
• Exposure, or rights, to variable returns from its involvement with the investee; and
• The ability to use its power over the investee to affect its returns.
A N N U A L R E P O R T 2 0 19 | 3 3
NOTES TO THE FINANCIAL STATEMENTS
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant
facts and circumstances in assessing whether it has power over an investee, including:
• The contractual arrangement with the other vote holders of the investee;
• Rights arising from other contractual arrangements; and
• The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes
to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over
the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date
the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (“OCI”) are attributed to the equity holders of the
parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit
balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting
policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and
cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If
the Group loses control over a subsidiary it, de-recognises the assets (including goodwill) and liabilities of the subsidiary;
de-recognises the carrying amount of any non-controlling interests; de-recognises the cumulative translation differences
recorded in equity; recognises the fair value of the consideration received; recognises the fair value of any investment
retained; recognises any surplus or deficit in profit or loss; and reclassifies the parent’s share of components previously
recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly
disposed of the related assets or liabilities.
d)
Investments in Associates and Joint Ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in
the financial and operating policy decisions of the investee but does not have control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to
the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which
exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
The considerations made in determining significant influence, or joint control, are similar to those necessary to determine
control over subsidiaries.
The Group’s investments in joint ventures are accounted for using the equity method. Under the equity method, the
investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is
adjusted to recognise changes in the Group’s share of net assets of the associate or joint venture since the acquisition
date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is neither
amortised nor individually tested for impairment.
The statement of profit or loss reflects the Group’s share of the results of operations of the associate or joint venture.
Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change
recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when
applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the
Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture.
The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on the face of the
statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in
the subsidiaries of the associate or joint venture.
The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When
necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of
the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in
its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the
investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of
impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, then
recognises the loss as ‘Share of profit of an associate and a joint venture’ in the statement of profit or loss.
3 4 | A N N U A L R E P O R T 2 0 19
NOTES TO THE FINANCIAL STATEMENTS
Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and
recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint
venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from
disposal is recognised in profit or loss.
e)
Investments and Other Financial Assets
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. They 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 had transferred substantially all the risks and rewards of ownership. When there is no reasonable
expectation of recovering part, or all, of a financial asset, it’s carrying value is written off.
Financial assets at fair value through profit or loss
Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as
financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where
they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or (ii)
designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss.
Financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income include equity instruments 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 Group recognises a loss allowance for expected credit losses on financial asset which are either measured at
amortised costs or fair value through other comprehensive income. The measurement of the loss allowance depends
on the Group’s assessment at the end of the reporting period as to whether the financial instrument’s risk has increased
significantly since the 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 the 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.
f)
Impairment of Non-Financial Assets
At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether
there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the
asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying
value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of profit or loss.
Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs.
When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a
reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible
assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the
asset may be impaired.
A N N U A L R E P O R T 2 0 19 | 3 5
NOTES TO THE FINANCIAL STATEMENTS
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset for which the estimates of future
cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be
less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable
amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued
amount, in which case the impairment loss is treated as a revaluation decrease (refer 2e)). When an impairment loss
subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal
of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount,
in which case the reversal of the impairment loss is treated as a revaluation increase (refer 2e).
g) Current and Non-Current Classification
The Group presents assets and liabilities in the statement of financial position based on current/non-current
classification. An asset is current when it is:
• Expected to be realised or intended to be sold or consumed in the normal operating cycle;
• Held primarily for the purpose of trading;
• Expected to be realised within twelve months after the reporting period; or
• A Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve
months after the reporting period.
All other assets are classified as non-current. A liability is current when it is:
• Expected to be settled in normal operating cycle;
• Held primarily for the purpose of trading;
•
It is due to be settled within twelve months after the reporting period; or
• There is no unconditional right to defer the settlement of the liability for at least twelve months after the
reporting period.
The Group classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
h) Government Grants
Government grants are recognised when there is a reasonable assurance that the grant will be received and all attached
conditions will be compiled with. When the grant relates to an expense item, it is recognised as income on a systematic
basis over the periods that the costs, which it is intended to compensate, are expensed. When the grant relates to an
asset, it is recognised as income in equal amounts over the expected useful life of the related asset.
i) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred
is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of
acquisition of the asset, or as part of an item of the expense. Receivables and payables in the statement of financial
position are shown inclusive of GST.
Cash flows are presented in the consolidated statement of cash flows on a gross basis, except for the GST component of
investing and financing activities, which are disclosed as operating cash flows.
j)
Rounding of Amounts
The Company is a kind referred to in Legislative Instrument 2016/191 issued by the Australian Securities and Investment
Commission, relating to the “rounding off” of amounts in the financial statements. Amounts in the financial statements
have been rounded off in accordance with that class order to the nearest dollar.
3 6 | A N N U A L R E P O R T 2 0 19
NOTES TO THE FINANCIAL STATEMENTS
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and
best available current information. Estimates assume a reasonable expectation of future events and are based on current
trends and economic data, obtained both externally and within the Group. Judgements and estimates which are material
to the financial report are found at the following notes:
a)
Income Taxes (refer note 7).
b) Share Based Payments (refer note 30).
c) Contingent Liabilities (refer note 24).
d) Estimations and judgements on Intangible Assets (refer note 12).
4. REVENUE AND OTHER INCOME
Revenue from contracts with customers
Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be
entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated
entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the
transaction price which takes into account estimates of variable consideration and the time value of money; allocates the
transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each
distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a
manner that depicts the transfer to the customer of the goods or services promised.
Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as
discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events.
Such estimates are determined using either the ‘expected value’ or ‘most likely amount’ method. The measurement
of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent
that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The
measurement constraint continues until the uncertainty associated with the variable consideration is subsequently
resolved. Amounts received that are subject to the constraining principle are initially recognised as deferred revenue in the
form of a separate refund liability.
Revenue from sale of pharma products
Revenue from the sale of cannabinoids is recognised when the goods have been delivered, at which point the customer
obtains control of the goods.
Revenue from sale of non-pharma products
Revenue from the sales of cosmetics is recorded when the products have been delivered to the consumer, signifying
transfer of ownership.
Interest revenue
Interest revenue is recognized on a proportional basis taking into account interest rates applicable to the financial assets.
a) Sales revenue
Pharma sales
Non-pharma sales
b) Other income
Interest income
c) Research and development rebate
Refund on research and development claim
30-Jun-19
$
30-Jun-18
$
36,273
619,964
656,237
201,850
201,850
327,565
327,565
217,281
79,530
296,811
191,593
191,593
-
-
During the year the Group received a research and development rebate following lodgement of a claim for its financial year
ended 30 June 2018.
A N N U A L R E P O R T 2 0 19 | 3 7
NOTES TO THE FINANCIAL STATEMENTS
5. COST OF GOODS SOLD
Cost of goods sold – Pharma
Cost of goods sold – Non-pharma
30-Jun-19
$
65,034
291,608
356,642
30-Jun-18
$
79,103
40,237
119,340
6. EMPLOYEE EXPENSES
Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected
to be settled within 12 months after the period end in which the employees render the related service are recognised in
respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be
paid when the liabilities are settled. The liability for annual leave and accumulating sick leave is recognised in the provision
for employee benefits. All other short-term employee benefit obligations are presented as payables.
Wages and salaries
Employee share option expense (note 30c)
Other employee costs
30-Jun-19
$
537,906
537,004
-
30-Jun-18
$
804,900
1,072,681
7,801
1,074,910
1,885,382
INCOME TAX BENEFIT
7.
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 the deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the
reporting period in the countries where the company’s subsidiaries and associates operate and generate taxable income.
Deferred income tax is provided on all temporary differences at the statement of financial position date, arising between
the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements, and are
recognised for all taxable temporary differences,
• Except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss; and
•
In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests
in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets
and unused tax losses can be utilised:
• Except where the deferred income tax asset relating to the deductible temporary difference arises from the
initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor the taxable profit or loss; and
•
In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests and
joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences
will reverse in the foreseeable future extent that it is probable that the temporary differences can be utilised.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when
the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively
enacted at the statement of financial position date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in the statement of profit or
loss and other comprehensive income.
3 8 | A N N U A L R E P O R T 2 0 19
NOTES TO THE FINANCIAL STATEMENTS
Tax Consolidation
The Company and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax
consolidated legislation. Each entity in the Group recognises its own current and deferred tax assets and liabilities. Such
taxes are measured using the ‘stand-alone taxpayer’ approach to allocation. The Group notified the Australian Taxation
Office that it had formed an income tax consolidated group to apply from 21 October 2005. The tax consolidated group
has entered a tax funding agreement whereby each company in the Group contributes to the income tax payable by the
Group in proportion to their contributions to the Group’s taxable income.
The Group expects to have carried forward tax losses which have not been recognised as deferred tax assets as it
is not considered sufficiently probable that these losses will be recouped by means of future profits taxable in the
relevant jurisdictions.
a) The components of income tax expense comprise:
current tax
deferred tax
DTA not recognised (losses)
DTA not recognised (temporary)
Under/over provision of prior year
b)
The prima facie tax on (loss) from continuing operations and discontinued
operations before income tax is reconciled to the income tax as follows:
Prima facie tax payable on (loss) from continuing operations and discontinued
operations before income tax at 27.5% (2018: 27.5%)
Add: Tax effect of:
Other non-allowable items
Other assessable items
Less: Tax effect of:
Non-assessable items
DTA not recognised (losses)
DTA not recognised (temporary)
Under/over provision of prior year
Income tax expense/(benefit)
Deferred Tax Assets Not Brought to Account, the benefits of which will only be
realised if the conditions for deductibility set out in note above
Tax Losses
Temporary Differences
Total
30-Jun-19
$
30-Jun-18
$
-
(1,929,112)
2,031,647
(102,535)
27,315
27,315
-
(1,901,865)
1,529,144
372,721
-
-
30-Jun-19
$
30-Jun-18
$
(515,998)
(2,472,094)
(1,771,964)
358,850
318,551
251,678
2,031,647
(102,535)
27,315
27,315
4,747,381
312,579
5,059,960
1,529,144
372,721
-
3,651,169
876,588
4,527,758
8. CASH AND CASH EQUIVALENTS
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand,
deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three
months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of
changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement
of financial position.
Cash at bank
30-Jun-19
$
2,354,086
2,354,086
30-Jun-18
$
9,858,977
9,858,977
A N N U A L R E P O R T 2 0 19 | 3 9
NOTES TO THE FINANCIAL STATEMENTS
9. INVENTORY
Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-in-first-
out basis. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion
and costs necessary to make the sale.
At Cost
Inventories
Raw materials – work in progress
Foreign currency translation reserve
30-Jun-19
$
30-Jun-18
$
20,932
107,271
10,597
138,800
8,853
671,450
32,012
712,315
10. TRADE AND OTHER RECEIVABLES
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost, using the
effective interest rate method, less a provision for impairment. Trade receivables are generally due for settlement between
thirty (30) and ninety (90) days from the date of recognition. They are presented as current assets unless collection is not
expected for more than 12 months after reporting date.
Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation,
and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable
is impaired.
The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of
estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables
are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in the profit
or loss within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes
uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts
previously written off are credited against other expenses in the profit or loss.
Current
Trade receivables
Other receivables
GST receivable
Prepayments
Short term loan to third party
30-Jun-19
$
30-Jun-18
$
271,022
710,298
158,632
87,333
-
1,227,285
70,466
322,966
68,120
463,352
7,415
932,319
Other receivables are non-interest bearing and are generally on terms of 30 days.
11. PLANT AND EQUIPMENT
Plant and equipment are stated at historical cost less accumulated depreciation and impairment. Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
Depreciation is calculated on a straight-line basis to write off the net cost of each item of plant and equipment over their
expected useful lives as follows:
Plant and equipment
3-5 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit
to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Any
revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits.
4 0 | A N N U A L R E P O R T 2 0 19
Plant and equipment
•
•
•
at cost
accumulated depreciation
foreign currency translation reserve
Construction in progress
•
•
•
at cost
accumulated depreciation
foreign currency translation reserve
NOTES TO THE FINANCIAL STATEMENTS
30-Jun-19
$
30-Jun-18
$
1,790,821
(572,013)
18,911
1,621,236
(354,950)
68,206
1,237,719
1,334,492
232,984
-
(224)
232,760
-
-
-
-
Total Plant and equipment
1,470,479
1,334,492
Plant and equipment movement
Opening balance at 1 July
Additions
Disposal
Disposal on derecognition of subsidiary (refer note 21b)
Depreciation
Foreign currency translation reserve
1,334,492
343,566
(21,365)
(44,219)
(259,744)
117,749
1,258,478
459,022
(196,293)
-
(328,112)
141,397
1,470,479
1,334,492
12. INTANGIBLE ASSETS
Intangible assets acquired as part of a business combination or asset acquisition, other than goodwill, are initially
measured at their fair value at the date of 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. The gains
and 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.
Licenses/permit costs
Costs associated with the acquisition of a license or permit to cultivate hemp are considered to be indefinite life
identifiable intangible assets and are subject to regular impairment testing.
The intangible asset of the Group relates to a license to grow industrial cannabis in Slovenia. The Group tests the
intangible asset for indications of impairment at each reporting period, in line with accounting policies. The intangible
asset is a key asset and is recognized as an intangible asset with an indefinite useful life as only a simple renewal process
is required annually.
The intangible asset is an integral part of the Slovenian operations becoming the Group’s main cash generating unit (CGU),
being established as its first fully operational, producing and manufacturing unit, with GMP certification issued to produce
API grade products. Accordingly, for impairment testing purposes the Slovenian Operation is considered to be the CGU.
The intangible asset was tested for impairment at reporting date using a value in use model. The assessment takes
into consideration a number of significant assumptions, estimates and judgements in relation to the growth of the
revenue streams, being pharma and botanic, pertaining to the CGU over a 5-year forecast period. The Directors believe
the forecast net cashflows are achievable from current, contracted distribution agreements in place and the expected
market share of medicinal products, in line with available market data, and considered a prudent approach by applying a
probability factor to future revenues in later years relating to its current developed products, CannEpil® and CogniCann®,
having a significant growth in revenue upon the completion of the Phase III trials. A conservative discount rate of 20% was
applied to net cashflows and a probability of 22.5% to estimated profitability in the latter years of the forecast model. A
resulting provision for impairment of $2,011,542 was recognized during the year and taken to the statement of profit and
loss and other comprehensive income.
Should the above estimates and judgments not occur, the resulting provision for impairment may increase and the
intangible asset carrying amount further decrease. The sensitivities are as follows:
A N N U A L R E P O R T 2 0 19 | 41
NOTES TO THE FINANCIAL STATEMENTS
•
•
If the probability applied was reduced to 20%, the resulting additional impairment would be $1,319,680 with all other
assumptions remaining constant
If the discount rate was to increase by 1%, the additional impairment would be $445,596, with all other variables held
constant.
Intangible assets – Licence in Slovenia
provision for impairment
Opening balance at 1 July
•
•
•
foreign currency translation reserve
derecognition of initial interest in subsidiary
30-Jun-19
$
30-Jun-18
$
7,082,904
(2,011,542)
(38,942)
1,889
7,076,166
-
-
6,738
5,034,309
7,082,904
13. PAYABLES
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year,
which remain unpaid at year end. The amounts are unsecured and are usually paid within 60 days of recognition. They are
recognised at fairvalue on initial recognition and subsequently at amortised cost, using the effective interest rate method.
a) Current trade and other payables
Trade payables
Accruals
Other payables
b) Deferred revenue
Deferred revenues - current
Deferred revenues – non-current
30-Jun-19
$
30-Jun-18
$
1,164,819
333,036
95,852
1,593,707
587,688
-
587,688
808,530
145,400
6,645
960,575
-
47,280
47,280
Deferred revenues represent revenues collected but not yet earned as at the year ended 30 June 2019.
Refer to note 18 for details on management of financial risk.
14. BORROWINGS
All loans and 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 loans and borrowings using the effective
interest method.
All borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
liability for at least 12 months after the end of the reporting period.
Non-current liabilities
Loan payable to third party
30-Jun-19
$
30-Jun-18
$
-
-
21,556
21,556
15. CONTRIBUTED EQUITY AND RESERVES
a) Contributed equity
Issued and paid up capital is recognised at the fair value of the consideration received by the Group. Any transaction costs
arising on the issue of ordinary shares are recognised directly in equity as a reduction of the proceeds received.
4 2 | A N N U A L R E P O R T 2 0 19
NOTES TO THE FINANCIAL STATEMENTS
30-Jun-19
NUMBER
30-Jun-18
NUMBER
30-Jun-19
$
30-Jun-18
$
Ordinary shares on issue, fully paid
1,203,048,174
1,189,830,412
49,133,819
48,440,990
VHL shares (note 30c)
10,335,511
13,000,000
-
-
1,213,383,685
1,202,830,412
49,133,819
48,440,990
Reconciliation of movement in share capital
30 JUNE 2019
Opening balance of 1 July 2018
Conversion of Milestone 1 Performance Rights – 18 Jul 2018
Conversion of Milestone 2 Performance Rights – 18 Jul 2018
Release of VHL shares – 18 Jul 2018
Release of VHL shares – 5 Dec 2018
Conversion of Performance Shares – 19 Feb 2019
Exercise of listed options – 21 June 2019
Less: costs of issue
Closing balance at 30 June 2019
30 JUNE 2018
Opening balance of 1 July 2017
No. Of Shares
Issue Price
Amount
1,202,830,412
48,440,990
6,000,000
4,000,000
-
-
7
553,266
1,213,383,685
0.048
0.048
0.069
0.069
0.040
0.065
288,000
192,000
24,237
161,578
-
35,962
(8,948)
49,133,819
No. Of Shares
Issue Price
Amount
1,096,608,703
42,557,404
Exercise of listed options – 15 December 2017
Conversion of Milestone 1 Performance Rights to Directors – 30
Jan 2018
Conversion of Milestone 2 Performance Rights to Directors – 30
Jan 2018
Conversion of Milestone 1 Performance Rights to KMP &
employees – 30 Jan 2018
Conversion of Milestone 2 Performance Rights to KMP &
employees – 30 Jan 2018
Exercise of listed options – 16 Feb 2018
Exercise of listed options – 23 March 2018
Capital raising placement – 17 April 2018
Exercise of listed options – 18 May 2018
Less: costs of issue
Closing balance at 30 June 2018
113,637
13,500,000
9,000,000
2,400,000
9,626,000
18,940
37,879
71,428,572
96,681
1,202,830,412
0.065
0.048
0.048
0.041
0.041
0.065
0.065
0.070
0.065
7,386
648,000
432,000
98,400
394,666
1,231
2,462
5,000,000
6,284
(706,844)
48,440,990
Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number
of shares held.
At the shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder
has one vote on a show of hands. Ordinary shares have no par value.
Capital risk management
The Group’s objective when managing capital is to safeguard their ability to continue as a going concern, so that they can
continue to provide returns to shareholders and benefits to other stakeholders and to maintain an optimal capital structure
to reduce the cost of capital.
In order to maintain or adjust the capital structure the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt.
A N N U A L R E P O R T 2 0 19 | 4 3
NOTES TO THE FINANCIAL STATEMENTS
Consistent with others in the industry, the Group manages its capital by assessing the Group’s financial risk and adjusts
its capital structure in response to changes in these risks and in the market. These responses include the management of
debt levels, distributions to shareholders and share issues.
There have been no changes in the strategy adopted by management to control the capital of the Group since the prior
year. The Group is not subject to any externally imposed capital requirements.
b) Reserves
i) Share based payment reserve
Opening balance at 1 July
Conversion of performance rights (note 30c)
Release of VHL shares (note 30c)
Share based payment vesting expense (note 30c)
30-Jun-19
$
3,385,229
(480,000)
(185,815)
537,004
30-Jun-18
$
3,495,614
(1,573,066)
-
1,462,681
3,256,418
3,385,229
This comprises the amortised position of the share-based payment expense (refer note 30c).
ii) Foreign currency translation
Functional and Presentation Currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are
presented in Australian dollars, which is the Company’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 period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the statement of profit and loss and other comprehensive income, except when they are deferred in equity
as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a
foreign operation.
Foreign exchange gains and losses that relate to borrowings are presented in the statement of comprehensive income,
within finance costs. All other foreign exchange gains and losses are presented in the statement of profit or loss on a net
basis within other income or other expenses.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the
date when the fair value was determined. Transaction differences on assets and liabilities carried at fair value are reported
as part of the fair value gain or loss.
Group companies
On consolidation, the assets and liabilities of foreign operations are translated into Australian dollars at the rate of
exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange rates prevailing
at the dates of the transactions. The exchange differences arising on translation for consolidation purposes are
recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive
income relating to that particular foreign operation is recognised in profit or loss.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of
assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated
at the spot rate of exchange at the reporting date.
Opening balance at 1 July
Currency translation differences arising during the year
Derecognition upon disposal of subsidiary
4 4 | A N N U A L R E P O R T 2 0 19
30-Jun-19
$
136,700
(127,067)
24,295
33,928
30-Jun-18
$
(35,849)
172,549
-
136,700
Exchange differences arising on translation of the foreign controlled entities are taken to the foreign currency translation
reserve as described above. The reserve is recognised in profit and loss when the net investment is disposed of.
NOTES TO THE FINANCIAL STATEMENTS
16. DIVIDENDS
No dividends have been paid or provided during the year.
17. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share is calculated by dividing the net profit or loss after income tax attributable to equity holders 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.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account
the post income tax effect of interest and other financing costs associated with dilutive potential ordinary share and the
weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential
ordinary shares.
Basic loss per share (cents)
Diluted loss per share (cents)
Reconciliation of earnings to profit or loss
(Loss) used in calculating basic and diluted EPS
30-Jun-19
(0.19)
(0.19)
30-Jun-18
(0.73)
(0.73)
$
$
(2,309,332)
(8,246,340)
Number
Number
Weighted average number of ordinary shares and potential ordinary shares
Weighted average number of ordinary shares used in calculating basic and diluted EPS
1,209,142,408
1,125,542,692
18. FINANCIAL RISK MANAGEMENT
The Group’s financial instruments consist mainly of cash at bank, payables and receivables.
The Group has not formulated any specific management objectives and policies in respect to debt financing, derivatives
or hedging activity. As a result, the Group has not formulated any specific management objectives and policies in respect
to these types of financial instruments. Should the Group change its position in the future, a considered summary of these
policies will be disclosed at that time.
The Group’s current exposure to the risk of changes in the market is managed by the Board of Directors.
Market risks
The Group is exposed to a variety of financial risks through its financial instruments for example, interest rate risk, liquidity
risk and credit risk, as well as foreign currency risk.
Interest rate risk
At reporting date, the Group does not have long term borrowings and its exposure to interest rate risk is assessed as low.
The risk monitors its interest rate risk through sensitivity analysis, as outlined below.
The consolidated group’s exposure to interest rate risk which is the risk that a financial instrument’s value will fluctuate as
a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets
of the Group are summarised in the following tables:
A N N U A L R E P O R T 2 0 19 | 4 5
NOTES TO THE FINANCIAL STATEMENTS
Floating
interest rate
$
1 Year or
less
$
Over 1 to 5
years
$
Non-interest
bearing
$
Remaining
contractual
maturities
$
Weighted
average
interest rate
%
30 JUNE 2019
Financial assets
Cash and cash equivalents
Financial assets at fair value through
profit and loss
Trade and other receivables
Financial liabilities
Other payables and sundry accruals
Deferred revenue
30 JUNE 2018
Financial assets
Cash and cash equivalents
Financial assets at fair value through
profit or loss
Trade and other receivables
Financial liabilities
Other payables and sundry accruals
Loans payable and deferred revenue
2,354,086
2,354,086
-
-
-
-
2,354,086
2,354,086
-
-
-
-
-
-
9,857,489
9,857,489
-
-
-
-
9,857,489
9,857,489
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,354,086
5.83%
2,771,804
1,139,952
2,771,804
1,139,952
3,911,756
6,265,842
1,593,707
587,688
1,593,707
587,688
2,181,395
2,181,395
1,488
9,858,977
1.94%
-
7,415
-
7,415
8,903
9,866,392
960,575
68,836
960,575
68,836
1,029,411
1,029,411
At 30 June 2019, if interest rates had changed by -/+100 basis points from the year-end rates with all other variables held
constant, post-tax profit for the year would have been $23,540 lower/higher (2018: $98,575).
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient cash to meet its liabilities
when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the
Group’s reputation. The Group monitors forecast cash flows on regular basis to manage its liquidity risk.
Credit risk
Management has assessed the credit risk exposure as minimal at reporting date. Credit risk arises from exposure
to customers and deposits with banks. Management monitors its exposure to ensure recovery and repayment of
outstanding amounts. Cash deposits are only made with reputable banking institutions.
Foreign currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to the GBP (£), Euro (€) and CZK (Kč).
Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a
currency that is not the entity’s functional currency. The risk is measured using cash flow forecasting.
The consolidated entity has not entered into any derivative financial instruments to hedge such transactions and
anticipated future receipts or payments that are denominated in a foreign currency. The board manages the purchase of
foreign currency to meet operational requirements.
4 6 | A N N U A L R E P O R T 2 0 19
The consolidate entity’s exposure to foreign currency risk at the reporting date was as follows:
NOTES TO THE FINANCIAL STATEMENTS
Trade payables in denomination currency
Trade payables – EUR (€)
Trade payables – GBP (£)
Trade payables – CZK (Kč)
Cash and cash equivalents held in denomination currency
Cash and cash equivalents – EUR (€)
Cash and cash equivalents – GBP (£)
Cash and cash equivalents – CZK (Kč)
Consolidated entity sensitivity
Exchange rates per AUD as at 30 June
EUR (€)
GBP (£)
CZK (Kč)
30-Jun-19
$
30-Jun-18
$
526,948
-
8,871
392,203
102,478
17,431
0.6176
0.5530
15.7048
161,827
1,077
14,041
429,540
40,666
104,237
0.6336
0.5603
16.4663
A 10% increase or decrease in value of Australia dollar against the above currencies at 30 June would have an
immaterial effect.
19. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS
The Group measures financial instruments and non-financial assets at fair value at each reporting date.
Fair value is 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. The fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place either:
•
•
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a
non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its
highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available
to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement
as a whole:
•
•
•
Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is
directly or indirectly observable
Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines
whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest
level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the
fair value hierarchy.
A N N U A L R E P O R T 2 0 19 | 4 7
NOTES TO THE FINANCIAL STATEMENTS
The following table presents the Group’s financial assets and liabilities measured and recognised at fair value.
30 JUNE 2019
Financial assets
Financial assets at fair value through profit or loss
Fair value movement in the period
Closing balance at 30 June 2019
Financial liabilities
Financial liabilities designated at fair value through profit or loss:
Contingent consideration
Opening balance at 1 July
Fair value movement in the period
Closing balance at 30 June 2019
30 JUNE 2018
Financial assets
Financial assets at fair value through profit or loss
Fair value movement in the period
Closing balance at 30 June 2018
Financial liabilities
Financial liabilities designated at fair value through profit or loss:
Contingent consideration
Opening balance at 1 July
Fair value movement in the period
Closing balance at 30 June 2018
a) Valuation techniques used to derive Level 1 fair values
Level 1
$
Level 2
$
Level 3
$
Total
$
72,858
(19,429)
3,199,973
(481,598)
53,429
2,718,375
-
-
-
3,272,831
(501,027)
2,771,804
-
-
-
-
-
-
6,270,000
(6,270,000)
6,270,000
(6,270,000)
-
-
Level 1
$
Level 2
$
Level 3
$
Total
$
53,185
19,672
72,857
-
-
-
-
-
-
-
-
-
-
-
-
53,185
19,672
72,857
4,370,000
1,900,000
4,370,000
1,900,000
6,270,000
6,270,000
The fair value of financial instruments recognised under Level 1 are measured based on the active market value,
determined in this case by the value a third party is willing to pay for the assets (refer note 21bii).
b) Valuation techniques used to derive Level 2 fair values
The fair value of financial instruments recognised under Level 2 are measured based on observable, underlying data
obtained on the fair value of shares issued (refer note 21bii).
c) Valuation techniques used to derive Level 3 fair values
The fair value of financial instruments that are not traded in an active market are determined using valuation techniques.
These valuation techniques maximise the use of observable market data where it is available and rely as little as possible
on entity specific estimates.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
The contingent consideration was valued by applying the probability weighted payout approach as described in note 24a
and is reviewed on a six-monthly basis.
A 5% increase or decrease in the probability applied, or MGC’s share price, would result in the following movements:
30-Jun-19
$’000
30-Jun-18
$’000
Profit/(loss) Profit/(loss) Profit/(loss) Profit/(loss)
5% decrease
5% decrease
5% increase
5% increase
Probability
Share price
-
-
-
-
(330)
(314)
330
314
4 8 | A N N U A L R E P O R T 2 0 19
NOTES TO THE FINANCIAL STATEMENTS
d) Fair value of other financial instruments
The Group also has a number of financial instruments that are not measured at fair value in the balance sheet. The
carrying value of cash, trade receivables and payables is a reasonable approximation of their fair values due to their
short-term nature.
20. CONTROLLED ENTITIES
The consolidated financial statements of the Group include:
Parent Entity:
MGC Pharmaceuticals Limited
Subsidiaries of MGC Pharmaceuticals Limited:
MGC Pharma (UK) Limited
MGC Research (Aus) Pty Ltd
Subsidiaries of MGC Pharma (UK) Limited:
MGC Pharmaceuticals d.o.o
MGC Derma d.o.o2
Panax Pharma s.r.o
MGC Nutraceuticals d.o.o1
MGC Pharma (Malta) Holdings Limited
Subsidiaries of MGC Pharma (Malta) Holdings Limited
MGC Pharma (Malta) Property Limited1
MGC Pharma (Malta) Operations Limited1
* Percentage of voting power in proportion to ownership
1 Refer note 21a for further details
2 Refer note 21b for further details
Country of
incorporation
Percentage Owned (%)*
30-Jun-18
30-Jun-19
Australia
UK
Australia
Slovenia
Slovenia
Czech Republic
Slovenia
Malta
Malta
Malta
100
100
100
-
80
100
100
100
100
100
100
100
51
80
-
-
-
-
21. BUSINESS COMBINATIONS
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the
aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling
interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling
interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-
related costs are expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification
and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the
acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date
fair value and any resulting gain or loss is recognised in profit or loss. It is then considered in the determination
of goodwill.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date.
Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of AASB 139
Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised
either in profit or loss or as a change to OCI. If the contingent consideration is not within the scope of AASB 139, it is
measured in accordance with the appropriate AASB. Contingent consideration that is classified as equity is not re-
measured and subsequent settlement is accounted for within equity. Refer to note 24 for further details on contingent
consideration recognised on acquisition.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount
recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and
liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred,
the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and
reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the re-assessment still
results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is
recognised in profit or loss.
A N N U A L R E P O R T 2 0 19 | 4 9
NOTES TO THE FINANCIAL STATEMENTS
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of
impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the
Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets
or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit
and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included
in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these
circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating
unit retained.
a)
Incorporation of new subsidiaries
30 June 2019
During the year the Group, through its subsidiary MGC Pharma (UK) Limited, incorporated three new entities in Malta,
primarily setup for the activities of its Maltese operations, and one new entity in Slovenia for its Nutraceuticals operations.
These newly incorporated entities are: MGC Pharma (Malta) Holdings Limited, MGC Pharma (Malta) Property Limited,
MGC Pharma (Malta) Operations Limited and MGC Nutraceuticals d.o.o.
As at the date of this report the transactions in relation to these entities have been consolidated.
30 June 2018
There were no subsidiaries acquired in the year ended 30 June 2018.
b) Disposal of Subsidiary
i) Discontinued operations
A discontinued operation is a component of the Group that has been disposed of or is classified as held for sale and that
represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan
to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale.
The results of discontinued operations are presented separately on the face of the statement of profit or loss and other
comprehensive income.
30 June 2019
During the financial year the Group entered into a binding sale agreement, and subsequently a share purchase agreement
on 7 November 2018, for the sale of its cosmetics subsidiary, MGC Derma d.o.o (“MGC Derma”) with CannaGlobal Canada
Co Inc (“CannaGlobal”), in exchange for consideration of shares in the private Canadian cannabis investment company.
On execution and completion, the following is effective:
• Purchase of remaining non-controlling interest of MGC Derma by the Company
• Transfer of CAD$0.5 million to MGC Derma for the first order of CBD materials as per the 5-year exclusivity supply
agreement executed between the two parties
•
•
100% ownership of MGC Derma transferred to CannaGlobal
10% equity holding by the Group in CannaGlobal
In September 2018 the remaining 49% of MGC Derma was acquired by the Company and thereafter the agreed CAD$0.5m
transfer was completed in November 2018.
On 29 January 2019 all conditions precedent for completion of the acquisition by CannaGlobal were executed and 2.5m
shares in CannaGlobal were issued to the Group as consideration. A deemed disposal date of 31 January 2019 has been
used for accounting purposes. The initial value of these shares received were $3,199,973.
It was determined that the 10% equity holding, based on underlying information provided by CannaGlobal, that the fair
value of the 2.5m shares held as at 30 June 2019 was $2,718,375. The company has recognised an impairment expense
of $481,598 in the statement of profit or loss.
A gain on deconsolidation as at date of disposal of $2,880,242 was recognised and taken to the statement of profit and loss.
5 0 | A N N U A L R E P O R T 2 0 19
Gain on deconsolidation of MGC Derma d.o.o
Consideration received
2,500,000 Cannaglobal shares
Carrying amount of net assets sold
Reclassification of foreign currency translation reserve
Gain on deconsolidation
Financial Performance for MGC Derma d.o.o
Revenues
Cost of goods sold
Gross (loss)/profit
Other income
Operational expenditure
Corporate costs
Professional and consultancy fees
Travel and marketing expenses
Depreciation
Office and administrative expenses
Finance costs
Impairment provision expense
Other expenses
Loss before income tax
Income tax benefit
Loss after income tax expense from discontinued operations
Cash flow information for MGC Derma d.o.o
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Net cash used in operating activities
Cash flows from investing activities
Purchase of plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds of borrowing from parent entity
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Foreign exchange movement in cash
Cash and cash equivalents
NOTES TO THE FINANCIAL STATEMENTS
31-Jan-19
$
3,199,975
(295,438)
2,904,537
(24,295)
2,880,242
31-Jan-19
$
106,229
(150,665)
(44,436)
18,790
(237,218)
(480)
(54,216)
-
(25,167)
-
(88,466)
(16,132)
(2,860)
(450,185)
-
(450,185)
30-Jun-18
$
79,530
(40,237)
39,293
6,238
(39,253)
-
(83,473)
(179,492)
(25,001)
(25,681)
-
(207,976)
(121,055)
(636,401)
-
(636,401)
$
$
621,278
(284,582)
18,790
355,486
(2,733)
(2,733)
-
-
352,753
289,142
(71,903)
569,992
81,180
(634,282)
6,238
(546,864)
(12,015)
(12,015)
982,324
982,324
423,445
54,311
(188,614)
289,142
A N N U A L R E P O R T 2 0 19 | 5 1
NOTES TO THE FINANCIAL STATEMENTS
Assets and liabilities of MGC Derma d.o.o at disposal date
Assets
Cash and cash equivalents
Trade and other debtors
Inventory
Property, plant and equipment
Liabilities
Trade and other payables
Deferred revenue
Net assets held for sale at disposal date
ii) Financial assets through profit or loss
Investment in CannaGlobal
Investment in Chesser
30 June 2018
30-Jun-19
$
30-Jun-18
$
569,992
79,176
232,173
44,219
925,560
53,777
576,345
630,122
295,438
2,718,375
53,429
2,771,804
289,144
112,119
351,458
68,098
820,817
50,544
47,280
97,824
722,993
-
72,857
72,857
On 12 July 2017 (“completion date”) the Group completed the disposal of its Erin Mineral Resources Pty Limited (“EMRPL”)
subsidiary, and the entities EMRPL controls which hold the remaining Senegal gold assets, to Chesser Resources Ltd
(“CHZ”).
On completion CHZ issued the following as Consideration:
•
•
•
•
•
1,214,286 fully paid ordinary shares
95,000 unlisted options, exercisable at $0.06 per share with an expiry date of 31 December 2019
95,000 unlisted options exercisable at $0.06 per share with an expiry date of 31 December 2020
5,714,286 Class A Performance Shares to convert into fully paid ordinary shares upon certification by an independent
Competent Person of a JORC Mineral Resource of 0.5Moz Au with an average grade of at least 2.0g/t gold in relation
to the Projects
5,714,286 Class B Performance Shares to convert into fully paid ordinary shares upon certification by an independent
Competent Person of a JORC Mineral Resource of 1.5Moz Au with an average grade of at least 2.0g/t gold in relation
to the Projects
In line with relevant standards, the consideration is fair valued as at the date of disposal at which point the effective share
price of the CHZ shares was $0.042 per share.
Consideration
Fully paid ordinary shares in CHZ
1,214,286 shares at $0.042
Unlisted options in CHZ
95,000 unlisted options at $0.013
95,000 unlisted options at $0.010
Total Consideration
Sale consideration
$
51,000
1,235
950
53,185
The Performance Shares are contingent on the completion of certain milestones and are therefore not required to be
recognised until it is virtually certain that economic benefits will flow.
Assets, liabilities, financial performance and cash flow information for the EMRPL Group were considered immaterial. The
gain on disposal of subsidiary includes a deconsolidation adjustment totalling $33,167.
5 2 | A N N U A L R E P O R T 2 0 19
22. NON-CONTROLLING INTEREST
Opening balance at 1 July
De-recognition of non-controlling interest during the year
Share of total comprehensive income for the year
Foreign currency translation reserve
NOTES TO THE FINANCIAL STATEMENTS
30-Jun-19
30-Jun-18
$
(1,241,793)
1,125,155
(44,525)
-
(161,163)
$
(444,637)
-
(743,092)
(54,064)
(1,241,793)
23. SEGMENT REPORTING
An operating segment is a component of the consolidated group that engages in business activities from which it
may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the
consolidated group’s other components.
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 of Directors.
Specifically, the Group’s reportable segments under AASB 8 are currently based on its geographic location, being the
Australian and Slovenian operations.
For management purposes, the Group is organised into business units based on its geographical locations and it was
determined that there are two reportable segments:
• Australia – corporate and administrative function
• Slovenia – production and supply of medicinal cannabis products
The Slovenia operations relate to MGC Slovenia and MGC Derma (up to disposal date, refer note 21b) which, based on
their level of activities for the year ended 30 June 2019, have been aggregated as one reportable operating segment as
each company exhibit similar economic characteristics in respect of their inputs, processes, outputs and their regulatory
environments, being that of the production and sale of medicinal cannabis for pharma and non-pharma purposes.
30 JUNE 2019
Total assets
Total liabilities
Sales revenues
Loss for the year:
Members of the parent entity
Non-controlling interest
Total comprehensive loss for the year
30 JUNE 2018
Total assets
Total liabilities
Sales revenues
Loss for the year:
Members of the parent entity
Non-controlling interest
Total comprehensive loss for the year
Europe
$
Australia
$
Elimination
$
Consolidated
Group
$
6,013,547
13,744,172
9,489,878
(2,506,662)
12,996,763
881,802
(12,427,384)
2,198,590
652,595
3,642
-
656,237
(1,877,272)
(44,525)
(4,024,118)
-
(1,921,797)
(4,024,118)
3,489,286
-
3,489,286
(2,412,104)
(44,525)
(2,456,629)
3,107,824
19,024,765
8,832,835
6,956,588
(2,138,725)
(8,486,343)
19,993,864
7,303,080
296,811
-
-
296,811
(2,045,280)
(797,156)
(13,504,433)
-
(2,842,436)
(13,504,433)
7,475,922
-
7,475,922
(8,073,791)
(797,156)
(8,870,947)
A N N U A L R E P O R T 2 0 19 | 5 3
NOTES TO THE FINANCIAL STATEMENTS
24. CONTINGENCIES AND COMMITMENTS
a) Contingencies
A contingent consideration liability arose from the acquisition of MGC Pharma (UK) Limited during the financial year
ended 30 June 2016, where Performance Shares can be converted into fully paid ordinary shares at a rate of one ordinary
share for every Performance Share that converts.
The determination of the fair value is based on a probability weighted payout approach, where key assumptions take
into consideration the probability of meeting each milestone and any future development may require further revisions
to the estimate.
Opening balance at 1 July
Unrealised fair value movement recognised in profit or loss
30-Jun-19
$
6,270,000
(6,270,000)
30-Jun-18
$
4,370,000
1,900,000
-
6,270,000
The performance shares meet the definition of a financial liability where a variable amount of performance shares,
contingent upon meeting the milestone, convert into fully paid ordinary shares at a rate of one ordinary share for every
performance share that converts or consolidates into one performance share and converts to one ordinary share if no
conversion occurs on or before the expiry date (3 years from completion of acquisition).
The key assumptions in determining the fair value take into consideration the probability of meeting the performance
targets. As part of accounting for the acquisition of MGC UK, the contingent consideration was initially measured at
acquisition with a probability of 50%, at which date the share price was $0.026.
30 June 2019
On 21 February 2019 the performance shares expired as it was determined that the milestone for conversion had not
been achieved. In accordance with the terms and conditions pertaining to the performance shares, each share held
consolidated into one performance share and automatically converted into one ordinary share in the Company, resulting
in 7 ordinary shares being issued at a market value of $0.04.
b) Commitments
No later than one year
Later than one year and not later than five years
Total commitments
30-Jun-19
30-Jun-18
$
1,143,460
202,214
1,345,674
$
683,889
847,627
1,531,516
Commitments mainly relate to Research and Development Agreements held with Royal Melbourne Institute
of Technology, for both the Breeding and Pre-Clinical Research and the Library of Cannabinoids Project, in addition to the
Biotechnical Faculty of the University of Ljubljana.
During the financial year to 30 June 2018 a Letter of Intent was entered into with the Malta Enterprise for the allocation
of industrial space to setup a business in Malta for the growing and production of medical cannabis. Contingent on the
allocation of a site, the Group are to invest circa €4,300,000 in improvements to site, plant, machinery and equipment, to
be implemented within three years from the date of allocation of the site.
There were no further commitments nor contingent liabilities other than those disclosed as at 30 June 2019.
5 4 | A N N U A L R E P O R T 2 0 19
NOTES TO THE FINANCIAL STATEMENTS
25. EVENTS AFTER THE REPORTING DATE
27 AUGUST 2019
Approval Granted for Large-Scale Research Project with IHPS
The Company announced that it had partnered with the Slovenian Institute of Hop Research
and Brewing (‘IHPS’), a government organisation in Slovenia, to undertake a first of its kind
large-scale research project on cannabis for medical purposes. The project is to be divided
into two focal points; cultivation optimisation and standardising the production process of
active pharmaceutical ingredients (API) derived from phytocannabinoids.
23 AUGUST 2019
Trial on the Effect of CannEpil® on Driver Competency
HREC approval received to conduct a controlled trial on the effect of CannEpil®, MGC
Pharma’s proprietary pharmaceutical product targeting the treatment of refractory epilepsy.
21 AUGUST 2019
Canaccord to Lead LSE Listing and $4.75m Placement Closed
The Company received commitments to raise $4.75 million (before costs), via a placement
of shares at an issue price of $0.04 per share and also plans to undertake a Priority Offer to
Shareholders on the same terms. Canaccord Genuity Limited and other key advisers in the
UK are working with the Company to actively progress a dual listing on the LSE, targeted for
2HCY2019.
13 AUGUST 2019
MXC 100 Patient Milestone in Aus, Onboards Tetra Health
The Company announced 100 patients in Australia already prescribed or being processed
ahead of receiving a prescription for MGC Pharma’s pharmaceutical products, CannEpil® or
MXP100 (100mg/mL cannabidiol) as a material achievement.
8 AUGUST 2019
MGC Signs Agreement for Construction of GMP Pharma Facility
The Company signed a long-term lease agreement on the 6,000m2 site in Malta, which
was previously identified and designated to MGC Pharma by Malta Industrial Parks,
following formal approval from Malta Enterprise. Construction and planning approvals
already received.
7 AUGUST 2019
YuShop Completes Chinese Market Test, Sales to Commence
The Company confirmed that YuShop completed its Beta test phase for the distribution of
MGC Pharma’s nutraceutical products across China, with positive results received.
Full marketing and sales campaign will commence immediately through YuShop.
29 JULY 2019
Additional Information on Ground-breaking Research
The Company provided additional information on the announcement dated 24 July 2019.
The pre-clinical research was using a glioblastoma subgroup - classified stem cells model
and advanced organoid model. This model would address the effect of cannabinoids on
microenvironment, which is a new type of research in this field.
24 JULY 2019
Ground-breaking MGC Pharma Research Highlights Effectiveness of Cannabinoids on
Brain Cancers
The Company announced new facts on the pre-clinical research which highlighted
the positive impact of using specific cannabinoid formulations in the treatment of
glioblastoma, the most aggressive and so far therapeutically resistant primary brain
tumour. This report confirms that cannabinoid preparations can successfully inhibit
tumour viability and also cause the significant fraction of glioblastoma cells to die i.e.
apoptosis after a short time after their application.
5 JULY 2019
Exercise of 6.5c Listed Options Tranche 2 - Appendix 3B
Conversion of 87,426 Listed Options into Ordinary Shares, the remainder 90,645,397 Listed
Options expired on 3 June 2019 as per the terms and conditions
A N N U A L R E P O R T 2 0 19 | 5 5
NOTES TO THE FINANCIAL STATEMENTS
26. CASH FLOW INFORMATION
Reconciliation of Cash Flow from Operations with Loss after Income Tax
(Loss) after income tax
Cash flows excluded from loss attributable to operating activities
Non-cash flows in loss
Depreciation and amortisation
Impairment expense
Share based payment expense
(Loss)/Gain on re-measurement of financial liability
Gain on disposal of subsidiary
Gain on deconsolidation
Loss/(Gain) revaluation of investment held
Discontinued operations
Exchange differences
Changes in assets and liabilities, net of the effects of purchase of subsidiaries
Decrease / (Increase) in inventory
(Increase) in trade and other receivables
Increase in trade payables and accruals
30-Jun-19
$
30-Jun-18
$
(2,353,857)
(8,989,432)
259,744
2,493,140
537,004
(6,270,000)
-
(2,880,242)
19,429
450,185
478,706
573,515
(294,966)
633,132
328,112
207,976
1,072,681
1,900,000
(86,352)
-
(19,672)
-
(140,888)
(204,442)
(319,073)
364,300
Cash flow from operations
(6,354,210)
(5,886,790)
27. AUDITOR’S REMUNERATION
Remuneration of the auditors of the Group:
Audit fees and review of financial reports - PKF Perth
Audit fees and review of financial reports – subsidiaries’ auditor
30-Jun-19
$
30-Jun-18
$
51,150
66,055
39,760
69,699
28. PARENT COMPANY DISCLOSURES
The financial information for the parent entity, MGC Pharmaceuticals Limited, disclosed in note 28 has been prepared on
the same basis as the consolidated financial statements, except as set out below:
Investments in subsidiaries, associates and joint venture entities
Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of
MGC Pharmaceuticals Limited. Dividends received from associates are recognised in the parent entity’s statement of
profit or loss when its right to receive the dividend is established.
i) Summary of financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Current assets
Non-current assets
Total Assets
Current liabilities
Total Liabilities
Contributed equity
Share based payment reserve
Accumulated losses
Total Equity
Loss for the year
Total comprehensive loss for the year
5 6 | A N N U A L R E P O R T 2 0 19
30-Jun-19
$
1,947,520
9,335,256
30-Jun-18
$
9,413,667
9,694,618
11,282,776
19,108,285
484,603
484,603
49,133,820
3,256,419
(41,592,066)
6,417,501
6,417,501
48,440,991
3,385,230
(39,135,437)
10,798,173
12,690,784
(2,456,629)
(12,970,891)
(2,456,629)
(12,970,891)
ii) Commitments and contingent liabilities of the parent
The parent entity did not have any contingent liabilities or commitments, as at 30 June 2019 (30 June 2018: nil) other than
as disclosed at note 24.
NOTES TO THE FINANCIAL STATEMENTS
iii) Guarantees entered into the parent entity
There were no guarantees entered into by the parent entity.
29. RELATED PARTY TRANSACTIONS
a) Key Management Personnel Remuneration
Compensation
The aggregate compensation made to directors and other members of key management personnel of the consolidated
entity is set out below:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
30-Jun-19
$
1,169,773
-
-
-
1,169,773
30-Jun-18
$
1,281,157
-
-
293,306
1,574,463
b) Transactions with Director related entities
Directors and officers, or their personally-related entities, hold positions in other entities that result in them having controls
or significant influence over the financial or operating policies of those entities.
Details of the transactions including amounts accrued but unpaid at the end of the year are as follows:
RELATIONSHIP NATURE OF TRANSACTIONS
Transactions
Balances
Full Year
30-Jun-19
$
Full Year
30-Jun-18
$
Full Year
30-Jun-19
$
Full Year
30-Jun-18
$
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(Re-charges to)/reimbursement from
Brighght for corporate administration costs
(Re-charges to) / reimbursement from
Chieftain for corporate administration costs
(Re-charges to) / reimbursement from
Chitta Lu for corporate administration costs
(Re-charges to) / reimbursement from ACV
for corporate administration costs
(Re-charges to)/reimbursement from Sibella
for corporate administration costs
(Re-charges to)/reimbursement from SAS
for corporate administration costs
(Re-charges to)/reimbursement from
Sputnik for corporate administration costs
(Re-charges to)/reimbursement from GP UK
for corporate administration costs
(Re-charges to)/reimbursement from GP
Slovenia for corporate administration costs
(Re-charges to)/reimbursement from TNT
for corporate administration costs
(Re-charges to)/reimbursement from
Derma for corporate administration costs
5,702
7,760
61,748
111,823
1,010
4,393
(5,912)
(2,930)
14
(7,402)
(2,569)
(15,301)
-
-
(611)
(611)
-
-
-
-
-
-
-
-
(27,114)
-
33,079
(5,320)
(5,070)
-
(64,559)
-
9,340
-
-
-
-
8,105
2,044
611
-
-
116
-
ENTITY
Brighght HK Ltd
(Brighght)
Chieftain Securities
Pty Ltd (Chieftain)
Chitta Lu Ltd
(Chitta Lu)
Australian Cannabis
Ventures Pty Ltd
(ACV)
Sibella Capital Pty
Ltd (Sibella)
Sky and Space
Global Ltd (SAS)
Sputnik Enterprises
Ltd (Sputnik)
Graft Polymer (UK)
Ltd (GP UK)
Graft Polymer d.o.o
(GP Slovenia)
TNT Mines Ltd (TNT)
MGC Derma d.o.o
(Derma)
(i) Brighght HK Ltd is a company associated with Mr Nativ Segev.
(ii) Chieftain Securities Pty Ltd is a company associated with Mr Brett Mitchell.
(iii) Chitta Lu Ltd is a company associated with Mr Roby Zomer.
(iv) Australian Cannabis Ventures Pty Ltd (formerly known as Regeneration Pharma Ltd) is a company associated with
Mr Brett Mitchell.
(v) Sibella Capital Pty Ltd is a company associated with Mr Brett Mitchell.
(vi) Sky and Space Global Ltd is a company associated with Mr Brett Mitchell who was a Director up until 31 October
A N N U A L R E P O R T 2 0 19 | 5 7
NOTES TO THE FINANCIAL STATEMENTS
2018.
(vii) Sputnik Enterprises Ltd is a company associated with Mr Brett Mitchell and Mr Roby Zomer, both of whom are
Directors.
(viii) Graft Polymer Ltd is a company associated with Mr Roby Zomer who is a Director and Mr Brett Mitchell who is a
founder and shareholder.
(ix) Graft Polymer d.o.o is company associated with Mr Roby Zomer.
(x) TNT Mines Limited is a company associated with Mr Brett Mitchell.
(xi) MGC Derma d.o.o, following disposal from the Group on 31 January 2019, is a company associated with Nativ Segev
who became a Director of Derma.
c) Transactions with related subsidiaries
At the end of the period the following loans were owed by wholly owned subsidiaries of the Company:
Entity
Relationship
Amount owed
30-Jun-19
$
Amount owed
30-Jun-18
$
Subsidiaries of MGC Pharmaceuticals Limited:
MGC Research (Aus) Pty Ltd
MGC Pharma (UK) Ltd
A wholly owned subsidiary
A wholly owned subsidiary
1,835,230
12,471,348
531,560
8,614,124
Details of interests in wholly owned controlled entities are set out in note 20.
Loans between entities in the wholly owned group are denominated in AUD ($) and Euro (€), they are non-interest bearing,
unsecured and are repayable upon reasonable notice having regard to the financial stability of the Company. The interest-
bearing loan with MGC Derma d.o.o was extinguished as part of the share purchase agreement with CannaGlobal Canada
Co Inc (refer note 21bi).
d) Other related party transactions
There were no other related party transactions.
30. SHARE BASED PAYMENTS
Share based compensation relating to share options are recognised at fair value.
The fair value of the options is recognised as an employee benefit expense in the statement of profit or loss and other
comprehensive income, with a corresponding increase in equity. The total amount to be expensed is determined by
reference to the fair value of the options granted, which includes any market performance conditions and the impact of
any non-vesting conditions but excludes the impact of any service and non-market performance vesting conditions.
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting
conditions are to be satisfied.
Upon exercise of share options, the proceeds received net of any directly attributable transaction costs are allocated to
share capital.
The fair value for all share options, as detailed below, are determined using a binomial option pricing method that takes into
account the exercise price, the term of the option, the probability of exercise, the share price at grant date and expected
volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.
The inputs used for the valuations are tabled below for each class of option issued.
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may
occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may
also not necessarily be the actual outcome. The probability of the performance conditions occurring, where applicable are
included in determining the fair value of the options.
The assessed fair value at grant date of share based payments granted during the period was determined using a
binomial option pricing model that takes into account the exercise price, the price of the underlying share at grant date, the
life of the option, the volatility of the underlying share, the risk-free rate and expected dividend payout and any applicable
vesting conditions.
Management was required to make assumptions and estimates in order to determine the inputs into the binomial option
pricing model.
5 8 | A N N U A L R E P O R T 2 0 19
NOTES TO THE FINANCIAL STATEMENTS
a) Valuation of the Voluntary Holding Lock Shares
As part of the acquisition consideration of Erin Mineral Resources Limited (EMRL), Voluntary Holding Lock shares were
issued to the EMRL shareholders as performance-based consideration relating to the EMRL assets.
The Voluntary Holding Lock shares (VHL Shares) may only be released from their holding lock upon the earlier of the
following being satisfied:
•
•
a change in control of the Company; or
the Company achieving an enterprise value of at least $25 million for ten consecutive trading days.
The VHL Shares will be fully paid ordinary shares that will rank equally with all existing shares on issue.
If, within 5 years from the date of issue of the VHL shares, the milestone is not reached by the EMRL assets and there is no
change of control event, in relation to MGC, the VHL Shares will be cancelled by way of selective capital reduction or share
buyback at a price of $0.000001 per share.
b) Valuation of options issued
Unlisted options
i) 20.5 million unlisted options
Following shareholder approval on 22 November 2017, 20.5m unlisted options were issued to employees, subject to the
following terms and conditions:
Number of options
Fair value per option
Total value of the issue
Tranche 1
8,250,000
0.058
$478,500
Tranche 2
8,250,000
0.058
$478,500
Tranche 3*
4,000,000
0.058
$232,000
Total
20,500,000
-
$1,189,000
The following milestones are also applied to tranches 1 and 2 above:
Milestone
Probability
Weighting
Milestone date
1.
50% of the unlisted options issues will vest after twelve (12) months of
continuous service to 31 January 2019
2. 50% of the unlisted options issued will vest upon the MGC
Pharmaceutical Ltd consolidated group achieving sales over
AUD$1,000,000
100%
100%
50%
70%
31 Jan 2019
31 Mar 2021
*Tranche 3 are not subject to any vesting conditions and vest immediately on issue.
The following table lists the inputs to the model used for valuation of options:
Valuation date
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of option (years)
Option exercise price ($)
Share price at grant date ($)
Expiry date
Performance conditions
Tranche 1
22 Nov 2017
Tranche 2
22 Nov 2017
Tranche 3
22 N ov 2017
Nil
103%
1.91%
3.5
$0.125
$0.094
Nil
103%
1.91%
3.5
$0.125
$0.094
Nil
103%
1.91%
3.5
$0.125
$0.094
31 Mar 2021
As above
31 Mar 2021
As above
31 Mar 2021
As above
A N N U A L R E P O R T 2 0 19 | 5 9
NOTES TO THE FINANCIAL STATEMENTS
ii) 10m unlisted options
10m unlisted options were issued for lead advisory services following the $5m placement completed on 17 April 2018.
The options are exercisable at $0.15 on or before 30 June 2021.
The following table lists the inputs to the model used for valuation of options:
Valuation date
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of option (years)
Option exercise price ($)
Share price at grant date ($)
Expiry date
Valuation of option
Total value of option
22 Nov 2017
Nil
101%
2.14%
3.5
$0.15
$0.075
30 Jun 2021
$0.039
$390,000
These costs are included in costs of capital for the year ended 30 June 2018.
iii) 16m unlisted options
On 12 April 2019 the company issued 16m unlisted options as approved by shareholders at the AGM held on 22 November
2017, exercisable at $0.065 each with an expiry date of 31 March 2021.
The following table lists the inputs to the model used for valuation of options:
Valuation date
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of option (years)
Option exercise price ($)
Share price at grant date ($)
Expiry date
Valuation of option
Total value of option
Listed options
i. 35 million listed options
12 April 2019
Nil
87%
1.50%
2
$0.065
$0.035
31 Mar 2021
$0.0106
$169,600
On 10 November 2016, 35 million listed options were issued to consultants and advisors of the Company as detailed in
the Notice of General Meeting issued on 26 August 2016, and as approved by shareholders on 27 September 2016. The
options are exercisable at $0.065 each expiring on or before 30 June 2019.
The following table lists the inputs to the model used for valuation of options:
27 Sept 2016
Nil
85%
1.62%
2.76
$0.065
$0.040
30 June 2019
$0.0165
$577,500
Valuation date
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of option (years)
Option exercise price ($)
Share price at grant date ($)
Expiry date
Valuation of option
Total value of option
6 0 | A N N U A L R E P O R T 2 0 19
NOTES TO THE FINANCIAL STATEMENTS
Performance Rights
i. 22.2 million Performance Rights
Following shareholder approval at the General Meeting held on 27 September 2016, 22.2 million unlisted Performance
Rights were issued to relevant employees of the Company on 23 December 2016.
The principal terms and conditions of the Performance Rights include, continuous service to the Company in their
capacity as a full-time employee and permanent part-time employee, within set milestones as detailed below.
Number of Performance
Rights issued
Milestone
Probability Weighting Milestone date
12,200,000
1. From the date of issue to 31 December 2016
2. From the date of issue to 31 December 2017
100%
3. From the date of issue to 31 December 2018
1. From the date of issue to 24 February 2017
2. From the date of issue to 31 December 2017
100%
10,000,000
33%
33%
34%
60%
40%
24 Feb 2017
31 Dec 2017
31 Dec 2018
24 Feb 2017
31 Dec 2017
c) Reconciliation of share-based payment expense
AS AT 30 JUNE 2019
Opening balance – VHL shares
VHL shares issued
Movement during the year:
Release of VHL shares - 18 July 2018
Release of VHL shares - 5 December 2018
Total VHL share
Opening balance – Unlisted options
Unlisted options issued
Movement during the year:
Unlisted options issued to KMP (milestone 1)
Unlisted options issued to KMP (milestone 2)
Unlisted options issued (milestone 1)
Unlisted options issued (milestone 2)
Unlisted options issued to KMP cancelled (milestone 1)
Unlisted options issued to KMP cancelled (milestone 2)
Unlisted options issued to KMP
Total unlisted options
Opening balance – Listed options
Listed options issued
Movement during the year:
Listed options exercised - 21 June 2019
Listed options expired - 30 June 2019
Total listed options
Opening balance - Performance Rights
Performance Rights issued
Movement during the year:
Conversion of Performance Rights (milestone 1)
Conversion of Performance Rights (milestone 2)
Performance Rights issued (milestone 3)
Total Performance rights
Total share-based payment reserve
Number of VHL
shares/ unlisted
options
Vesting
date
Value
$
Share based
payment at 30 June
$
13,000,000
0.069
906,588
(347,542)
(2,316,947)
10,335,511
30,500,000
-
-
-
-
(300,000)
(300,000)
16,000,000
45,900,000
91,286,089
(553,266)
(90,645,397)
87,426
13,638,000
(6,000,000)
(4,000,000)
-
3,638,000
-
-
31/01/19
31/03/21
31/01/19
31/03/21
01/11/18
01/11/18
12/04/19
0.058
0.058
0.058
0.058
-
-
0.0106
-
-
18/07/18
18/07/18
31/12/18
0.048
0.048
0.041
(24,237)
(161,578)
720,773
1,294,692
225,653
94,371
7,167
3,024
-
-
169,600
1,794,507
577,500
-
-
577,500
606,449
(288,000)
(192,000)
37,189
163,638
3,256,418
A N N U A L R E P O R T 2 0 19 | 61
NOTES TO THE FINANCIAL STATEMENTS
AS AT 30 JUNE 2018
Opening balance – VHL shares
VHL shares issued
Movement during the year:
Amortisation expense
Total VHL share
Opening balance – Unlisted options
Unlisted options issued
Movement during the year:
Unlisted options expired
Unlisted options issued to KMP (milestone 1)
Unlisted options issued to KMP (milestone 2)
Unlisted options issued
Unlisted options issued
Unlisted options issued
Unlisted options issues to consultant
Total unlisted options
Opening balance – Listed options
Listed options issued
Movement during the year:
Listed options exercised
Total listed options
Opening balance - Performance Rights
Performance Rights issued
Movement during the year:
Number of
VHL shares/
unlisted options
Vesting
date
Value
$
Share based
payment at 30 June
$
13,000,000
0.069
906,588
-
13,000,000
2,000,000
(2,000,000)
8,000,000
31/01/19
8,000,000
31/03/21
4,000,000
02/03/18
250,000
31/01/19
250,000
31/03/21
10,000,000
15/05/18
30,500,000
0.058
0.058
0.058
0.058
0.058
0.039
91,553,226
(267,137)
91,286,090
-
906,588
370,538
-
234,667
58,331
232,000
7,333
1,823
390,000
1,294,692
577,500
-
577,500
48,674,000
1,640,988
Conversion of Performance Rights issued (milestone 1)
(13,500,000)
30/01/18
Conversion of Performance Rights issued (milestone 2)
Conversion of Performance Rights issued (milestone 1)
Conversion of Performance Rights issued (milestone 2)
Conversion of Performance Rights issued (milestone 2)
Performance Rights issued (milestone 2)
Performance Rights issued (milestone 2)
Performance Rights issued (milestone 3)
Performance Rights issued (milestone 2
Performance Rights cancelled (milestone 3)
Total Performance Rights
Total share-based payment reserve
(9,000,000)
30/01/18
(2,400,000)
30/01/18
(1,600,000)
30/01/18
(8,026,000)
30/01/18
-
-
-
-
31/12/17
31/12/17
31/12/18
31/12/17
(510,000)
18/05/18
13,638,000
0.048
0.048
0.041
0.041
0.041
0.048
0.041
0.041
0.041
-
(648,000)
(432,000)
(98,400)
(65,600)
(329,066)
260,945
82,894
162,327
32,361
-
606,449
3,385,229
31. APPLICATION OF NEW AND REVISED ACCOUNTING STANDARDS
a) New or revised standards and interpretations that are first effective in the current reporting period
The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board (“AASB”) that are mandatory for the current reporting period. The adoption of
these Accounting Standards and Interpretations did not have any significant impact on the financial performance or
position of the Group during the financial year.
Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been
early adopted.
6 2 | A N N U A L R E P O R T 2 0 19
NOTES TO THE FINANCIAL STATEMENTS
TITLE OF
STANDARD AASB 9 FINANCIAL INSTRUMENTS
Nature of
changew
The standard introduced new classification and measurement models for financial assets. A financial asset shall be
measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect
contractual cash flows which arise on specified dates and that are solely principal and interest. A debt investment shall
be measured at fair value through other comprehensive income if is held within a business model whose objective is to
both hold assets in order to collect contractual cash flows which arise on specified dates that are solely principal and
interest as well as selling the asset on the basis of its fair value, All other financial assets are classified and measured
at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains
and losses on equity instruments(that are not held for trading or contingent consideration recognised in a business
combination) in other comprehensive income (‘OCI’). Despite these requirements a financial asset may be irrevocably
designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, and accounting
mismatch. For financial liabilities designated at fair value through profit or loss, the standard required the portion
of change in fair value that relates to the entities own credit risk to be presented in OCI (unless it would create an
accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting
treatment with the risk management activities of the entity. New impairment requirements use an ‘Expected credit
loss’ (‘ECL’) to recognise an allowance. Impairment is measured using a 12-month ECL method unless the credit risk
on a financial instrument has increased significantly since initial recognition in which case the life time ECL method
is adopted. For receivables a simple approach to measuring expected credit losses using a lifetime expected loss
allowance is available.
Impact
The Group has reviewed its financial assets and liabilities which consist of:
•
•
Financial liabilities currently measured at fair value through profit or loss (FVPL) which will continue to be
measured on the same basis under AASB 9;
The Group does not hold any complex financial assets and does not expect the new changes to have any impact
on its recognition of financial assets.
The new hedge accounting rules also have no impact on the Group .
The new standard also introduces expanded disclosure requirements and changes in presentation. These are
expected to change the nature and extent of the Group’s disclosures about its financial instruments particularly in the
year of the adoption of the new standard.
Date of
adoption by
the Group
Must be applied for financial years commencing on or after 1 January 2018. The Group have applied the new rules
from 1 July 2018, with the practical expedients permitted under the standard. There will be no requirement on
restatement of comparatives.
TITLE OF
STANDARD
Nature of
change
AASB 15 REVENUE FROM CONTRACTS WITH CUSTOMERS
The standard provides a single comprehensive model for revenue recognition. The core principal of the standard is
that an entity shall recognise revenue to depict the transfer of promised goods or services to customers at an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The
standard introduced a new contract-based revenue recognition model with a measurement approach that is based
on an allocation of the transaction price. This is described further in the accounting policies above. Credit risk is
presented separately as an expense rather than adjusted against revenue. Contracts with customers are presented in
an entities statement of the financial position as a contract liability, a contract asset, or a receivable depending on the
relationship between the entity’s performance and the customers payment. Customer acquisition cost and costs to
fulfil a contract can, subject to certain criteria, be capitalised as an asset and amortised over the contact period. The
impact on the financial performance and position of the Group from the adoption of these accounting standards were
considered immaterial for the financial year ended 30 June 2019.
Impact
Management has assessed the effects of applying the new standard on the Group’s financial statements and has
identified that revenue is recognised on satisfying performance obligations inhibited in the distribution agreements
- being when goods/services are transferred to the customer. This has been applied to all current contracts and
agreements in place and revenue recognised on this basis.
Date of
adoption by the
Group
Mandatory for financial years commencing on or after 1 January 2018. The Group has adopted the standard using
the modified retrospective approach which means that the cumulative impact of the adoption will be recognised
in retained earnings as of 1 January 2018 and that comparatives will not be restated. There were no material
adjustments required.
b) Accounting standards issued but not yet effective
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective
and have not been adopted by the Group for the annual reporting period ending 30 June 2019, are set out below.
TITLE OF
STANDARD AASB 16 LEASES
Nature of
change
AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet,
as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right
to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term
and low-value leases. The accounting for lessors will not significantly change.
Impact
Considered to be minimal impact as current leases are in relation to immaterial office rental held by the Group.
Date of
adoption by
the Group
The Group will adopt this standard from 1 July 2019 and its impact on adoption is considered to be immaterial
at this stage.
A N N U A L R E P O R T 2 0 19 | 6 3
DIRECTORS’ DECLARATION
DIRECTORS’ DECLARATION
The Directors’ of the Company declare that in their opinion:
1.
The financial statements and notes, as set out in pages 28 to 63, are in accordance with the Corporations Act 2001 and:
a)
b)
c)
comply with Accounting Standards and the Corporations Regulations 2001;
are in accordance with International Financial Reporting Standards, as stated in note 2a to the financial
statements; and
give a true and fair view of the Company’s and consolidated group’s financial position as at 30 June 2019 and
their performance for the year ended on that date.
2.
The Directors have been given the declaration required by section 295A of the Corporations Act 2001.
3.
The remuneration disclosures contained in the Remuneration Report comply with s300A of the Corporations Act 2001.
4.
In the Directors opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and
when they become due and payable.
This declaration is made in accordance with a resolution of the Board of Directors.
Roby Zomer
Managing Director
28 August 2019
6 4 | A N N U A L R E P O R T 2 0 19
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
A N N U A L R E P O R T 2 0 19 | 6 5
Level 4, 35 Havelock Street, West Perth, WA 6005 PO Box 609, West Perth, WA 6872 T: +61 8 9426 8999 F: +61 8 9426 8900 www.pkfperth.com.au PKF Perth is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member or correspondent firm or firms. Liability limited by a scheme approved under Professional Standards Legislation.PKF PerthINDEPENDENT AUDITOR’S REPORTTO THE MEMBERS OF MGC PHARMACEUTICALS LIMITED Report on the Financial Report Opinion We have audited the accompanying financial report of MGC Pharmaceuticals Limited(the company), which comprises theconsolidated statement of financial position as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the company and the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. In our opinion the financial report of MGC Pharmaceuticals Limited is in accordance with the Corporations Act 2001, including: i) Giving a true and fair view of the consolidated entity’s financial position as at 30 June 2019, and of its 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. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. Our responsibilities under those standards are further described in the Auditor’s Responsibility section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of MatterWithout modifying our opinion, we draw attention to Note 2(b) in the financial report, which indicates that the consolidated entity incurred a loss of $1,903,672 (2018: loss $8,990,470) during the year ended 30 June 2019.This condition, along with other matters as set out in note 2(b), indicate the existence of a material uncertainty that may cast significant doubt about the company and consolidated entity’s ability to continue as a going concern and therefore, the company and consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial report of the consolidated entity and the company does not include any adjustments in relation to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the company and/or the consolidated entity not continue as going concerns. INDEPENDENT AUDITOR’S REPORT
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PKF PerthIndependence We are independent of the consolidated entity 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 forProfessional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters Key audit matters are matters that, in our professional judgement, were of most significance in our audit of the financial report of the current year. 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. Our description of how our audit addressed the matters is provided in that context. Carrying value and impairment of intangible asset Why significantHow our audit addressed the key audit matterAt reporting date, the consolidated entity has acapitalised intangible asset totalling $5,034,309as disclosed in Note 12.The intangible asset is a significant component of the Statement of Financial Position as at 30 June 2019at 39% of total assets. The intangible asset relates to a licence to grow industrial cannabis and is determined to have anindefinite useful life. Under Australian Accounting Standards, an entity shall assessan intangible asset with an indefinite useful life for impairment on an annual basis. The intangible asset forms an integral part of the Slovenian operation.Therefore, for the purposes of impairment testing, theSlovenian operation is designated to be the cash generating unit(CGU). Management have assessed the recoverable amount of theCGUby applying a value-in-use approach to model the discounted value of future cash flows.This model incorporates management judgements about key assumptions, such as future growth of revenue streams and the discount ratethat may be impacted by future economic conditions.As a result of the impairment testing, an impairment of $2,011,542was recognised during the periodon the capitalised intangible asset.The consolidated entity’s accounting policy in relation to impairment of intangible assets, including key assumptions, judgements and estimates used in the consolidated entity’sassessment of impairment of intangible assets,are set out in the financial report in Note 2(f).Our work has included, but not been limited to, the following procedures:-Assessingmanagement’s CGUdesignation andconsideredthe reasonablenessof the judgments and estimates used in management’s value-in-use modelprepared to test for impairment at reporting date.Gaining an understanding of activities and progress to date including reviewingcontractualarrangements entered into. Consideredmanagement’s future plansand intentions in the context of the value-in-use model.Consideredthe adequacy of the financial report disclosures concerning the judgemental nature of the consolidated entity’s assessment of impairment of this intangible asset. These key assumptions, judgements and estimates are set out in the financial report in Note12. INDEPENDENT AUDITOR’S REPORT
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PKF PerthDisposal and deconsolidation of subsidiary Why significantHow our audit addressed the key audit matterOn 7 November 2018, the consolidated entity entered into a binding sale agreement with CannaGlobal Canada Co Inc.,(Cannaglobal)for thesale of its cosmetics subsidiary, MGC Derma d.o.o.(Derma), in exchange for consideration of shares in the private Canadian cannabis investment company.After completion of all conditions precedent, the deemed date of disposal was 31 January 2019.This included the consolidated entity acquiring the remaining non-controlling interest in Derma. The consideration for this sale only comprised of shares in Cannaglobal.This transaction was considered material to the financial statements with a gain on sale of$2,880,242being reported.Additionally, under AASB 5 Held for Sale Assets and Discontinued Operations, the disposal of the above business constitutes a discontinued operation, which must be disclosed separately in the Statement of Profit or Loss and OtherComprehensive Income in the current and prior year. Refer to Note 21(b)for disclosure on the discontinued operations.Based on the sale of the business being a significant transaction to the consolidated entitywe have consideredthis to be a key audit matter.Our work has included, but not been limited to, the following procedures:Obtaining and reviewing key documentation surrounding the sale of business to Cannaglobal, including, the share purchase agreement;Analysing and re-performing management’scalculation attributing to the gain on sale, to ensure this was correctly stated. Agreeing the fair value attributed to the Cannaglobal shares to recent underlying transactions.Reviewing the calculations regarding the financial effect of the discontinued operations on the face of the Statement of Profit or Loss and Other Comprehensive Income and Note 21(b);Ensuring that the disclosures in the financial statements complied with AASB 5 Held for Sale Assets and Discontinued Operations;Other Information Other information is financial and non-financial information in the annual report of the consolidated entity which is provided in addition to the Financial Report and the Auditor’s Report. The directors are responsible for Other Information in the annual report. The Other Information we obtained prior to the date of this Auditor’s Report was the Director’s report. The remaining Other Information is expected to be made available to us after the date of the Auditor’s Report.Our opinion on the Financial Report does not cover the Other Information and, accordingly, the auditor does not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we 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. We are required to report if we conclude that there is a material misstatement of this Other Information in the Financial Report and based on the work we have performed on the Other Information that we obtained prior the date of this Auditor’s Report we have nothing to report. INDEPENDENT AUDITOR’S REPORT
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PKF PerthDirectors’ Responsibilities 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 Note 2 (a), the Directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial report complies with International Financial Reporting Standards. In preparing the financial report, the Directors are responsible for assessing the consolidated entity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using a going concern basis of accounting unless the Directors either intend to liquidate the consolidated entity or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our responsibility is to express an opinion on the financial report based on our audit. 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 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 aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report. We conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the consolidated entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the consolidated entity to cease to continue as a going concern. We evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. INDEPENDENT AUDITOR’S REPORT
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PKF PerthWe obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the consolidated entity to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion. We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. The Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits ofsuch communication. Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2019.Opinion In our opinion, the Remuneration Report of MGC Pharmaceuticals Limited for the year ended 30 June 2019 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. PKFPERTHSHANE CROSSPARTNER 28THAUGUST 2019WEST PERTH WESTERN AUSTRALIA ASX ADDITONAL INFORMATION
ASX ADDITIONAL INFORMATION
EXCHANGE LISTING
MGC Pharmaceuticals Ltd shares are listed on the Australian Securities Exchange. The Company’s ASX code is MXC for
ordinary shares.
SUBSTANTIAL SHAREHOLDERS (HOLDING NOT LESS THAN 5%)
As at 30 September 2019 the Company did not have any substantial shareholders.
CLASS OF SHARES AND VOTING RIGHTS
At 30 September 2019 there were 13,786 holders of 1,366,710,986 ordinary fully paid shares of the Company. The voting
rights attaching to the ordinary shares are in accordance with the Company’s Constitution being that:
a. each Shareholder entitled to vote may vote in person or by proxy, attorney or Representative;
b.
c.
on a show of hands, every person present who is a Shareholder or a proxy, attorney or Representative of a
shareholder has one vote; and
on a poll, every person present who is a shareholder or a proxy, attorney or Representative of a shareholder shall, in
respect of each fully paid Share held by him, or in respect of which he is appointed a proxy, attorney or Representative,
have one vote for the Share, but in respect of partly paid Shares, shall, have such number of votes as bears the
proportion which the paid amount (not credited) is of the total amounts paid and payable (excluding amounts credited).
At 30 September 2019, the number of shareholders holding less than a marketable parcel is 4,972.
UNLISTED SECURITIES AS AT 30 SEPTEMBER 2019
Securities
Options exercisable at $0.125 on
or before 31 March 2021
Options exercisable at $0.065
on or before 31 March 2021
Options exercisable at $0.150 on
or before 30 June 2021
Options exercisable at $0.05 on
or before 31 August 2023
Options exercisable at $0.06 on
or before 31 August 2023
Number of
Securities on issue
Number of
Holders
Name of Holders holding more than
20%
Number
Held
19,900,000
16,000,000
10,000,000
14,500,000
14,500,000
18
18
3
1
1
-
-
Merchant Funds Management Pty Ltd
Chieftain Securities Pty Ltd
Bell Potter Nominees Ltd
-
-
2,000,000
5,000,000
3,000,000
CG Nominees (Australia) Pty Ltd
14,500,000
CG Nominees (Australia) Pty Ltd
14,500,000
ESCROWED SECURITIES
The Company currently has 10,335,511 VHL Ordinary Shares subject to voluntary imposed escrow.
CASH USAGE
Since the time of listing on ASX, the entity has used its cash and assets in a form readily converted to cash that it had at
the time of admission to the official list of ASX in a manner which is consistent with its business objectives.
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TOP 20 SHAREHOLDERS AS AT 30 SEPTEMBER 2019
Rank
Name
Shares
% Shares
ASX ADDITONAL INFORMATION
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
MR GEORGE BISHAY
CITICORP NOMINEES PTY LIMITED
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
MR BRETT MITCHELL + MRS MICHELLE MITCHELL
MR DAVID CLEMENT HOBBY
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
FADCO INVESTMENTS LIMITED
MR BRETT MITCHELL + MRS MICHELLE MITCHELL
BNP PARIBAS NOMS PTY LTD
MR GRAEME O'SULLIVAN
MR TOMAS KUBALEK
ALBA CAPITAL PTY LTD
EL'RAGHY KRIEWALDT PTY LTD
CARDAZE PTY LIMITED
RCKC NOMINEES PTY LTD
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
MR RON CHAI LIPSKY
ROSS G T WALKER PTY LTD
MS AUTUMN BLOOM
Total
125,111,893
36,822,890
36,525,249
28,399,202
20,458,889
8,000,000
6,974,889
6,772,613
6,335,005
6,049,780
5,970,130
5,850,875
5,000,000
5,000,000
4,964,059
4,500,000
4,136,202
4,000,000
4,000,000
3,500,000
9.15
2.69
2.67
2.08
1.50
0.59
0.51
0.50
0.46
0.44
0.44
0.43
0.37
0.37
0.36
0.33
0.30
0.29
0.29
0.26
328,371,676
24.03
RANGE OF ORDINARY SHARES AS AT 30 SEPTEMBER 2019
Range
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 Over
Total
Total holders
539
803
2,727
7,629
2,088
13,746
Shares
163,422
3,472,967
22,513,505
286,536,903
1,054,024,189
1,332,221,111
% Shares
0.01
0.25
1.65
20.97
77.12
100.00
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MGC Pharmaceuticals Limited
1202 Hay Street
West Perth WA 6005
Tel: +61 8 6382 3390
Email: info@mgcpharma.com.au
mgcpharma.com.au
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