Full Press Release Details
UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended March 31, 2018 and March 31, 2017
(in thousands of Canadian dollars)
Unaudited Condensed Interim Consolidated Financial Statements
For the three month periods ended March 31, 2018 and March 31, 2017
| Contents | ||||
| Unaudited Condensed Interim Consolidated Financial Statements: | ||||
| Unaudited Condensed Interim Consolidated Statements of Financial Position | 1 | |||
| Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Loss | 2 | |||
| Unaudited Condensed Interim Consolidated Statements of Changes in Equity | 3 | |||
| Unaudited Condensed Interim Consolidated Statements of Cash Flows | 4 | |||
| Notes to Unaudited Condensed Interim Consolidated Financial Statements | 5-25 |
Unaudited Condensed Interim Consolidated Statements of Financial Position
As at March 31, 2018 and December 31, 2017
(in thousands of CDN $)
| Notes | As at March 31, 2018 | As at December 31, 2017 | ||||||||||
| Assets | ||||||||||||
| Current | ||||||||||||
| Cash | $ | 32,368 | $ | 9,208 | ||||||||
| Accounts receivable | 23(i) | 2,526 | 1,140 | |||||||||
| Sales taxes receivable | 4,266 | 3,114 | ||||||||||
| Prepaids and other receivables | 4,656 | 790 | ||||||||||
| Promissory note receivable | 6 | 926 | ||||||||||
| Biological assets | 7 | 4,490 | 3,722 | |||||||||
| Inventory | 7 | 9,014 | 8,416 | |||||||||
| Loan receivable | 8 | 314 | 314 | |||||||||
| 58,560 | 26,704 | |||||||||||
| Investment in Whistler | 9 | 3,848 | 3,807 | |||||||||
| Other investments | 10 | 987 | 1,347 | |||||||||
| Property, plant and equipment | 11 | 63,862 | 56,172 | |||||||||
| Intangible assets | 12 | 11,190 | 11,207 | |||||||||
| Goodwill | 13 | 1,792 | 1,792 | |||||||||
| $ | 140,239 | $ | 101,029 | |||||||||
| Liabilities | ||||||||||||
| Current | ||||||||||||
| Accounts payable and other liabilities | 23(ii) | $ | 2,800 | $ | 7,878 | |||||||
| Current portion of finance lease obligation | 15 | 39 | ||||||||||
| 2,839 | 7,878 | |||||||||||
| Finance lease obligation | 15 | 150 | ||||||||||
| Construction loan payable | 14 | 5,405 | 5,367 | |||||||||
| Deferred income tax liability | 22 | 555 | 1,416 | |||||||||
| 8,949 | 14,661 | |||||||||||
| Shareholders Equity | ||||||||||||
| Share capital | 16(a) | 128,550 | 83,559 | |||||||||
| Shares to be issued | 16(c) | 961 | ||||||||||
| Warrants | 16(b) | 2,678 | 3,364 | |||||||||
| Share-based reserve | 17 | 3,030 | 2,289 | |||||||||
| Accumulated deficit | (4,774 | ) | (3,724 | ) | ||||||||
| Accumulated other comprehensive income | 845 | 880 | ||||||||||
| 131,290 | 86,368 | |||||||||||
| $ | 140,239 | $ | 101,029 | |||||||||
| Commitments and contingencies | 21 | |||||||||||
| Subsequent events | 26 |
The accompanying notes are an integral part
of these unaudited condensed interim consolidated financial statements
Approved on behalf of the Board of Directors:
| Michael Gorenstein | Jim Rudyk | |||
| Director | Director |
Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Loss
For the three month periods ended March 31, 2018 and March 31, 2017
(in thousands of CDN $, except share
| Three months ended March 31, | ||||||||||||
| Notes | 2018 | 2017 | ||||||||||
| Product sales | 18 | $ | 2,945 | $ | 514 | |||||||
| Cost of sales | ||||||||||||
| Inventory expensed to cost of sales | 11 | 3,761 | 1,056 | |||||||||
| Production costs | 1,714 | 235 | ||||||||||
| Unrealized gain on revaluation of biological assets | 7 | (4,458 | ) | (1,813 | ) | |||||||
| Total cost of sales (recovery) | 1,017 | (522 | ) | |||||||||
| Gross profit | 1,928 | 1,036 | ||||||||||
| Operating expenses | ||||||||||||
| Sales and marketing | 586 | 44 | ||||||||||
| General and administration | 2,461 | 1,336 | ||||||||||
| Stock-based payments | 17,20 | 774 | 192 | |||||||||
| Depreciation and amortization | 11,12 | 285 | 201 | |||||||||
| Total operating expenses | 4,106 | 1,773 | ||||||||||
| Operating loss | (2,178 | ) | (737 | ) | ||||||||
| Other income (expense) | ||||||||||||
| Interest expense | (22 | ) | (150 | ) | ||||||||
| Share of income from Whistler investment | 9 | 41 | 103 | |||||||||
| Gain (loss) on other investments | 10 | 221 | (59 | ) | ||||||||
| Total other income (expense) | 240 | (106 | ) | |||||||||
| Loss before income taxes | (1,938 | ) | (843 | ) | ||||||||
| Income tax expense (recovery) | 22 | (888 | ) | 1 | ||||||||
| Net loss | $ | (1,050 | ) | $ | (844 | ) | ||||||
| Other comprehensive income | ||||||||||||
| Gain (loss) on revaluation of other investments, net of tax | 10,22 | (35 | ) | 683 | ||||||||
| Comprehensive loss | $ | (1,085 | ) | $ | (161 | ) | ||||||
| Net loss per share | ||||||||||||
| Basic and diluted | 19 | $ | (0.01 | ) | $ | (0.01 | ) | |||||
| Weighted average number of outstanding shares | ||||||||||||
| Basic and diluted | 19 | 157,054,891 | 125,256,010 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
Unaudited Condensed Interim Consolidated Statements of Changes in Equity
For the three month periods ended March 31, 2018 and March 31, 2017
(in thousands of CDN $, except share
| Notes | Number of shares | Share capital | Shares to be issued | Warrants | Share-based reserve | Accumulated deficit | Accumulated other comprehensive income | Total | ||||||||||||||||||||||||||||
| Balance at January 1, 2017 | 121,725,748 | $ | 33,590 | $ | $ | 3,983 | $ | 735 | $ | (6,215 | ) | $ | 1,585 | 33,678 | ||||||||||||||||||||||
| Shares issued | 16(a) | 7,705,000 | 17,336 | 17,336 | ||||||||||||||||||||||||||||||||
| Share issuance costs | (1,322 | ) | (1,322 | ) | ||||||||||||||||||||||||||||||||
| Vesting of options | 17 | 192 | 192 | |||||||||||||||||||||||||||||||||
| Options exercised | 17 | 235,704 | 398 | (141 | ) | 257 | ||||||||||||||||||||||||||||||
| Warrants exercised | 16(b) | 1,813,982 | 924 | (280 | ) | 644 | ||||||||||||||||||||||||||||||
| Unrealized gains reclassified to net income | 10 | (16 | ) | (16 | ) | |||||||||||||||||||||||||||||||
| Net loss | (844 | ) | (844 | ) | ||||||||||||||||||||||||||||||||
| Other comprehensive income | 10 | 683 | 683 | |||||||||||||||||||||||||||||||||
| Balance at March 31 2017 | 131,480,434 | $ | 50,926 | $ | $ | 3,703 | $ | 786 | $ | (7,059 | ) | $ | 2,252 | $ | 50,608 | |||||||||||||||||||||
| Balance at January 1, 2018 | 149,360,603 | $ | 83,559 | $ | $ | 3,364 | $ | 2,289 | $ | (3,724 | ) | $ | 880 | $ | 86,368 | |||||||||||||||||||||
| Shares issued | 16(a) | 5,257,143 | 46,000 | 46,000 | ||||||||||||||||||||||||||||||||
| Share issuance costs | (3,081 | ) | (3,081 | ) | ||||||||||||||||||||||||||||||||
| Vesting of options | 17 | 774 | 774 | |||||||||||||||||||||||||||||||||
| Options exercised | 17 | 42,256 | 106 | (33 | ) | 73 | ||||||||||||||||||||||||||||||
| Warrants exercised | 16(b) | 6,972,479 | 1,966 | (686 | ) | 1,280 | ||||||||||||||||||||||||||||||
| Shares to be issued | 16(c) | 961 | 961 | |||||||||||||||||||||||||||||||||
| Net loss | (1,050 | ) | (1,050 | ) | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | 10 | (35 | ) | (35 | ) | |||||||||||||||||||||||||||||||
| Balance at March 31, 2018 | 161,632,481 | $ | 128,550 | $ | 961 | $ | 2,678 | $ | 3,030 | $ | (4,774 | ) | $ | 845 | $ | 131,290 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
Unaudited Condensed Interim Consolidated Statements of Cash Flows
For the three month periods ended March 31, 2018 and March 31, 2017
(in thousands of CDN $)
| Three months ended March 31, | ||||||||||||
| Notes | 2018 | 2017 | ||||||||||
| Operating activities | ||||||||||||
| Net loss | $ | (1,050) | $ | (844) | ||||||||
| Items not affecting cash: | ||||||||||||
| Stock-based payments | 17,20 | 774 | 192 | |||||||||
| Depreciation and amortization | 11,12 | 540 | 201 | |||||||||
| Share of income from investment in Whistler | 9 | (41) | (103) | |||||||||
| Loss (gain) on other investments | 10 | (221) | 59 | |||||||||
| Deferred income tax expense (recovery) | 22 | (888) | 1 | |||||||||
| Foreign exchange gain | (16) | |||||||||||
| (902) | (494) | |||||||||||
| Net changes in non-cash working capital: | ||||||||||||
| Increase in accounts receivable | (1,386) | (136) | ||||||||||
| Increase in sales taxes receivable | (1,152) | |||||||||||
| Increase in prepaids and other receivables | (3,866) | (65) | ||||||||||
| Increase in biological assets | (768) | (947) | ||||||||||
| Increase in inventory | (598) | (351) | ||||||||||
| Increase in accrued interest on loan receivable | (5) | |||||||||||
| Increase (decrease) in accounts payable and other liabilities | (5,078) | 73 | ||||||||||
| Cash flows used in operating activities | (13,750) | (1,925) | ||||||||||
| Investing activities | ||||||||||||
| Repayment of purchase price liability | (1,299) | |||||||||||
| Proceeds from sale of other investments | 10 | 687 | 88 | |||||||||
| Payment to exercise AbCann warrants | 10 | (113) | ||||||||||
| Payment of promissory note receivable | 6 | (926) | ||||||||||
| Purchase of property, plant and equipment | 11 | (7,642) | (2,036) | |||||||||
| Purchase of intangible assets | 12 | (131) | ||||||||||
| Cash flows used in investing activities | (8,125) | (3,247) | ||||||||||
| Financing activities | ||||||||||||
| Proceeds from exercise of warrants | 16(b) | 1,280 | 644 | |||||||||
| Proceeds received for shares to be issued | 16(c) | 961 | ||||||||||
| Proceeds from exercise of options | 17 | 73 | 257 | |||||||||
| Proceeds from share issuance | 16(a) | 46,000 | 17,336 | |||||||||
| Share issuance costs | (3,081) | (1,322) | ||||||||||
| Payment of accrued interest on construction loan | 14 | (185) | ||||||||||
| Repayment of finance lease obligation | 15 | (13) | ||||||||||
| Cash flows provided by financing activities | 45,035 | 16,915 | ||||||||||
| Net change in cash | 23,160 | 11,743 | ||||||||||
| Cash beginning of period | 9,208 | 3,464 | ||||||||||
| Cash end of period | $ | 32,368 | $ | 15,207 | ||||||||
| Supplemental cash flow information | ||||||||||||
| Interest paid | $ | 307 | $ | 120 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
Notes to Unaudited Condensed Interim Consolidated Financial Statements
For the three month periods ended March 31, 2018 and March 31, 2017
(in thousands of CDN $, except gram and
Cronos Group Inc. ( Cronos or the Company ), was
incorporated under the Business Corporations Act (Ontario). Cronos is a publicly traded corporation, with its head office located at 720 King Street West, Suite 320, Toronto, Ontario, M5V 2T3. The Company s common shares are currently
listed on the TSX Venture Exchange ( TSX-V ) and Nasdaq Global Market under the trading symbol CRON .
Hortican Inc. ( Hortican ), is a wholly owned subsidiary of Cronos, incorporated under the Canada Business Corporations Act
Cronos operates two wholly owned licensed producers and sellers ( Licensed Producers ) of medical
cannabis pursuant to the provisions of the Controlled Drugs and Substances Act ( CDSA ) and its relevant regulation, the Access to Cannabis for Medical Purposes Regulations ( ACMPR ), namely Peace
Naturals Project Inc. ( Peace Naturals ), which has production facilities near Stayner, Ontario, and Original BC Ltd. ( OGBC ), which has a production facility in Armstrong, British Columbia. Currently,
Cronos sells dried cannabis flower and cannabis oils under its medical cannabis brand, Peace Naturals.
OGBC was incorporated as In the Zone Produce Ltd.
( In the Zone ) under the Business Corporations Act (British Columbia) and was acquired by Hortican on November 5, 2014. In the Zone changed its name to OGBC on October 16, 2017, and was continued under the
CBCA on the same day. OGBC is a Licensed Producer pursuant to the provisions of the ACMPR and the CDSA. On February 26, 2014, Health Canada issued an initial cultivation license to OGBC under the ACMPR which has since been amended and
supplemented. OGBC s current license has an effective term from February 28, 2017 to February 28, 2020 and grants OGBC the authority to engage in the production and sale of dried cannabis flower. The license was amended to reflect its
name change on October 20, 2017.
Peace Naturals was incorporated under the CBCA, and was acquired by Hortican on September 6, 2016. Peace
Naturals is a Licensed Producer pursuant to the provisions of the ACMPR and the CDSA. On October 31, 2013, Health Canada issued an initial license to Peace Naturals for activities related to the production and sale of dried cannabis flower
under the ACMPR, which has since been amended and supplemented. Peace Naturals current license has an effective term from November 1, 2016 to November 1, 2019 and grants Peace Naturals the authority to engage in, among other things,
the production and sale of dried cannabis flower, cannabis resin, cannabis seeds, cannabis plants, and cannabis oils. On January 22, 2018, the Company announced that Peace Naturals received a dealer s license pursuant to the Narcotic
Control Regulations and CDSA from Health Canada, which allows Peace Naturals to export medical cannabis extracts, including concentrated oil and resin products, internationally.
Cronos Australia PTY Ltd. ( Cronos Australia ) was incorporated under the Corporations Act 2001 (Australia) on December 6,
2016 by Cronos. Cronos holds 50% of the outstanding shares of Cronos Australia.
Indigenous Roots Inc. and Cronos Indigenous Holdings Inc. were
incorporated under the CBCA on December 14, 2016 and March 16, 2017, respectively. Both corporations are wholly owned by Hortican. These two corporations, along with a third party limited partnership, formed Indigenous Roots LP on
Cronos Global Holdings Inc. ( Cronos Global ) was incorporated under the CBCA on April 25, 2017 by
Hortican. Cronos Global will be the holding company for the Company s future global operations.
Notes to Unaudited Condensed Interim Consolidated Financial Statements
For the three month periods ended March 31, 2018 and March 31, 2017
(in thousands of CDN $, except gram and
The unaudited condensed interim consolidated financial statements for the three
month periods ended March 31, 2018 and March 31, 2017, have been prepared in accordance with International Accounting Standard ( IAS ) 34, Interim Financial Reporting. The accounting policies adopted in the preparation of
the unaudited condensed interim consolidated financial statements are consistent with those followed in the preparation of the Company s audited annual consolidated financial statements for the year ended December 31, 2017, except for the
adoption of new standards effective as of January 1, 2018. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. The Company applies, for the first time, International
Financial Reporting Standard ( IFRS ) 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments. As required by IAS 34, the nature and effect of these changes are disclosed in Note 3.
The unaudited condensed interim consolidated financial statements do not conform in all respects to the requirements of IFRS as issued by the International
Accounting Standards Board ( IASB ) for annual financial statements. Accordingly, these unaudited condensed interim consolidated financial statements should be read in conjunction with the December 31, 2017 audited consolidated
financial statements and notes.
These unaudited condensed interim consolidated financial statements were approved by the Board of Directors on
These unaudited condensed interim consolidated financial statements include the
accounts of Cronos Group Inc., and its wholly owned subsidiaries, Hortican Inc., OGBC, Peace Naturals, Indigenous Roots Inc., Cronos Indigenous Holdings Inc., and Cronos Global. All intercompany transactions, balances, revenues and expenses have
been eliminated on consolidation. The Company applies the acquisition method to account for business combinations. Acquisition related costs are expensed as incurred.
Apart from certain assets and liabilities measured at fair value as required under
certain IFRSs, the unaudited condensed interim consolidated financial statements have been presented and prepared on the basis of historical cost.
These unaudited condensed interim consolidated financial statements are
presented in Canadian dollars, which is the functional currency of the Company and all of its subsidiaries.
The preparation of these unaudited condensed interim
consolidated financial statements in conformity with IAS 34 requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are reviewed periodically and adjustments are made as appropriate in the year they become known. Items for which actual results may
differ materially from these estimates are described in the following section.
Warrants and options are initially valued at fair value, based on the
application of the Black-Scholes option pricing model. This pricing model requires management to make various assumptions and estimates which are susceptible to uncertainty, including the volatility of the share price, expected dividend yield,
expected term of the warrant or option and expected risk-free interest rate.
Notes to Unaudited Condensed Interim Consolidated Financial Statements
For the three month periods ended March 31, 2018 and March 31, 2017
(in thousands of CDN $, except gram and
Long-lived assets are defined as property,
plant and equipment and intangible assets with finite lives. Depreciation and amortization are dependent upon estimates of useful lives and impairment is dependent upon estimates of recoverable amounts. These are determined through the exercise of
judgment, and are dependent upon estimates that take into account factors such as economic and market conditions, frequency of use, anticipated changes in laws, and technological improvements.
The impairment test for cash generating units
( CGUs ) to which goodwill is allocated is based on the value in use of the CGU, determined in accordance with the expected cash flow approach. The calculation is based on assumptions used to estimate future cash flows, the
cash flow growth rate and the discount rate.
The Company s management considers specific information about the investee companies, trends in general market conditions, and the share
performance of similar publicly traded companies when valuing the Company s privately held investments.
Management considers the
following factors to indicate a change in the fair value, or impairment of, a privately held investment, and may adjust the value if:
there has been significant subsequent equity financing provided by outside investors at a value which differs from the current recorded value of the investee company, in which case the fair value of the investment is adjusted to equal the value at
which that financing took place;
b. there have been significant corporate, political, legal, or operating events affecting the investee
company such that management believes they will materially impact the investee company s prospects and therefore its fair value. In these circumstances, the adjustment to fair value of the investment will be based on management s judgment;