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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF TILRAY
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On December 15, 2020, Tilray, Inc. ( Tilray ) and Aphria Inc. ( Aphria ), entered into an Arrangement Agreement,
under which the businesses of the two companies will be combined pursuant to a Plan of Arrangement (the merger transaction ).
The following unaudited pro forma condensed combined financial statements (the pro forma financial statements ) are based on the
historical consolidated financial statements of Tilray and Aphria, as adjusted to give effect to the merger transaction. The unaudited pro forma condensed combined balance sheet as at December 31, 2020 (the pro forma balance sheet )
gives effect to the merger transaction as if it had occurred on December 31, 2020. The unaudited pro forma condensed combined statement of net loss for the year ended December 31, 2020 (the pro forma statement of net loss )
gives effect to the merger transaction as if it had occurred on January 1, 2020.
The transaction accounting adjustments consist of
those necessary to account for the merger transaction as a reverse acquisition in accordance with generally accepted accounting principles in the United States of America ( US GAAP ).
The pro forma financial statements do not necessarily reflect what the combined company s financial condition or results of operations
would have been had the merger transaction occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial condition and results of
operations of the combined company may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
Unaudited Pro Forma Condensed Combined Balance Sheet
(in 000 of United States dollars)
| Aphria adjusted historical November 30, 2020 (note 6) | Tilray historical December 31, 2020 | Transaction accounting adjustments | Notes (note 4) | Pro forma combined December 31, 2020 | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 144,713 | $ | 189,702 | $ | 37,426 | H | $ | 371,841 | |||||||||||
| Accounts receivable, net | 74,034 | 29,033 | 103,067 | |||||||||||||||||
| Inventory | 174,817 | 93,645 | 27,355 | C | 295,817 | |||||||||||||||
| Prepayments and other current assets | 56,375 | 34,640 | 91,015 | |||||||||||||||||
| Total current assets | 449,939 | 347,020 | 64,781 | 861,740 | ||||||||||||||||
| Property and equipment, net | 499,164 | 199,559 | 1,490 | D,E | 700,213 | |||||||||||||||
| Operating lease, right-of-use assets | 5,393 | 17,985 | 274 | E | 23,652 | |||||||||||||||
| Intangible assets, net | 528,397 | 186,445 | 876,555 | F | 1,591,397 | |||||||||||||||
| Goodwill | 578,161 | 166,915 | 2,422,696 | G | 3,167,772 | |||||||||||||||
| Equity method investments | 9,300 | 9,300 | ||||||||||||||||||
| Other investments | 16,792 | 14,369 | 31,161 | |||||||||||||||||
| Other assets | 2,309 | 4,356 | 6,665 | |||||||||||||||||
| Total assets | $ | 2,080,155 | $ | 945,949 | $ | 3,365,796 | $ | 6,391,900 | ||||||||||||
| Liabilities | ||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||
| Bank indebtedness | 3,934 | 3,934 | ||||||||||||||||||
| Accounts payable | 62,667 | 17,776 | 80,443 | |||||||||||||||||
| Accrued expenses and other | 117,501 | 39,946 | 33,841 | K | 198,111 | |||||||||||||||
| current liabilities | 6,823 | L | ||||||||||||||||||
| Income taxes payable | 12,760 | 12,760 | ||||||||||||||||||
| Accrued lease obligations | 1,360 | 2,913 | 4,273 | |||||||||||||||||
| Warrant liability | 120,647 | 175,385 | H | 296,032 | ||||||||||||||||
| Current portion of long-term debt | 11,708 | 11,708 | ||||||||||||||||||
| Total current liabilities | 209,930 | 181,282 | 216,049 | 607,261 | ||||||||||||||||
| Accrued lease obligations | 34,560 | 30,623 | 65,183 | |||||||||||||||||
| Deferred tax liability | 23,347 | 49,274 | 202,603 | M | 287,071 | |||||||||||||||
| 11,847 | M | |||||||||||||||||||
| Convertible notes, net of issuance costs | 275,581 | 257,789 | (23,000 | ) | I | 510,370 | ||||||||||||||
| Long-term debt | 94,321 | 48,470 | 2,028 | J | 144,819 | |||||||||||||||
| Other liabilities | 4,612 | 4,612 | ||||||||||||||||||
| Total liabilities | $ | 637,739 | $ | 572,050 | $ | 409,527 | $ | 1,619,316 | ||||||||||||
| Stockholders equity | ||||||||||||||||||||
| Common stock (1) | 1,601,853 | 16 | 26 | B | 42 | |||||||||||||||
| (1,601,853 | ) | B | ||||||||||||||||||
| Additional paid-in capital | 34,181 | 1,095,781 | 3,381,263 | A, B | 5,018,671 | |||||||||||||||
| (1,095,781 | ) | B | ||||||||||||||||||
| 1,390 | I | |||||||||||||||||||
| 1,601,837 | B | |||||||||||||||||||
| Warrants | 277 | 277 | ||||||||||||||||||
| Accumulated other comprehensive income | (309 | ) | 8,205 | (8,205 | ) | B | (309 | ) | ||||||||||||
| Accumulated deficit | (243,969 | ) | (730,103 | ) | 730,103 | B | (296,480 | ) | ||||||||||||
| (33,841 | ) | K | ||||||||||||||||||
| (6,823 | ) | L | ||||||||||||||||||
| (11,847 | ) | M | ||||||||||||||||||
| Total stockholders equity | 1,392,033 | 373,899 | 2,956,269 | 4,722,201 | ||||||||||||||||
| Non-controlling interests | 50,383 | 50,383 | ||||||||||||||||||
| Total liabilities and stockholders equity | $ | 2,080,155 | $ | 945,949 | $ | 3,365,796 | $ | 6,391,900 |
Unaudited Pro Forma Condensed Combined Statement of Net Loss
For the Year Ended December 31, 2020
(in 000 of United States dollars, except per share and share amounts)
| Aphria constructed 12 month period ending November 30, 2020 (note 6) | Tilray 12 month period ending December 31, 2020 | Transaction accounting adjustments | Notes (note 4) | Pro forma combined | ||||||||||||||||
| Revenue | $ | 471,963 | $ | 210,482 | $ | $ | 682,445 | |||||||||||||
| Cost of sales | 351,229 | 185,827 | 27,355 | C | 565,841 | |||||||||||||||
| (56 | ) | D | ||||||||||||||||||
| 1,486 | L | |||||||||||||||||||
| Gross profit | 120,734 | 24,655 | (28,785 | ) | 116,604 | |||||||||||||||
| General and administrative expenses | 112,069 | 85,883 | 33,841 | K | 231,117 | |||||||||||||||
| 6,823 | L | |||||||||||||||||||
| (7,499 | ) | L | ||||||||||||||||||
| Sales and marketing expenses | 45,719 | 54,666 | (6,729 | ) | L | 93,656 | ||||||||||||||
| Research and development expenses | 1,275 | 4,411 | 207 | L | 5,893 | |||||||||||||||
| Depreciation and amortization expenses | 15,123 | 13,722 | (798 | ) | D | 55,945 | ||||||||||||||
| 27,898 | F | |||||||||||||||||||
| Impairment of assets | 47,643 | 61,114 | 108,757 | |||||||||||||||||
| Loss from equity method investments | 5,983 | 5,983 | ||||||||||||||||||
| Operating loss | (101,095 | ) | (201,124 | ) | (82,528 | ) | (384,747 | ) | ||||||||||||
| Foreign exchange loss (gain), net | 5,800 | (13,169 | ) | (7,369 | ) | |||||||||||||||
| Change in fair value of warrant liability | 100,286 | 100,286 | ||||||||||||||||||
| Gain on debt conversion | (61,118 | ) | (61,118 | ) | ||||||||||||||||
| Interest expenses, net | 21,550 | 39,219 | (5,258 | ) | I | 55,185 | ||||||||||||||
| (327 | ) | J | ||||||||||||||||||
| Other expense (income), net | 83,044 | 10,333 | 93,377 | |||||||||||||||||
| Loss before income taxes | (211,489 | ) | (276,675 | ) | (76,943 | ) | (565,107 | ) | ||||||||||||
| Deferred income tax recoveries | (40,544 | ) | (5,376 | ) | (16,211 | ) | M | (58,889 | ) | |||||||||||
| 3,242 | M | |||||||||||||||||||
| Current income tax (recoveries) expenses | 18,592 | (226 | ) | 18,366 | ||||||||||||||||
| Net loss | $ | (189,537 | ) | $ | (271,073 | ) | $ | (63,974 | ) | $ | (524,584 | ) | ||||||||
| Net loss per share - basic and diluted | $ | (2.05 | ) | $ | (1.32 | ) | ||||||||||||||
| Weighted average shares used in computation of net loss per share - basic and diluted | 126,041,710 | 271,794,347 | note 5 | 397,836,057 |
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(in 000 of United States dollars, except for shares, warrants, per share amounts and per warrant amounts, unless otherwise noted)
The pro forma financial statements are based on the historical consolidated financial statements of Tilray and Aphria, adjusted to give effect
to the merger transaction, and should be read in conjunction with the historical financial statements from which they are derived. Pro forma adjustments are limited to the transaction accounting adjustments that reflect the accounting for the merger
transaction in accordance with US GAAP.
The pro forma financial statements were prepared using the purchase method of accounting.
The merger transaction is accounted for as a reverse acquisition in which Tilray is the legal acquirer and Aphria is the acquirer for accounting purposes. Accordingly, the pro forma financial statements represent a continuation of the financial
statements of Aphria; the assets and liabilities of Aphria are presented at their historical carrying values and the assets and liabilities of Tilray are recognized on the effective date of the merger transaction and measured at fair value.
The pro forma financial statements are presented in United States dollars ( USD ) and prepared in accordance with US GAAP.
Since Aphria s historical consolidated financial statements are presented in Canadian dollars ( CAD or C$ ) and prepared in accordance with International Financial Reporting Standards ( IFRS ), the historical
financial information of Aphria used in the pro forma financial statements has been reconciled to US GAAP and translated into USD (note 6).
The pro forma balance sheet gives effect to the merger transaction as if it had occurred on December 31, 2020. The pro forma statement of
net loss gives effect to the merger transaction as if it had occurred on January 1, 2020.
The pro forma balance sheet combines the
audited consolidated balance sheet of Tilray as at December 31, 2020 with the unaudited condensed consolidated statement of financial position (balance sheet) of Aphria as at November 30, 2020. As the ending date of the fiscal period for
Aphria differs from that of Tilray by more than 93 days, the unaudited pro forma statement of operations (statement of net loss) for the year ended December 31, 2020 was derived by combining financial information from the audited consolidated
statement of net loss and comprehensive loss of Tilray for the year ended December 31, 2020 with financial information of Aphria for the twelve months ended November 30, 2020, which was constructed by subtracting: (i) the financial
information from the unaudited consolidated statement of operations for the six months ended November 30, 2019; from (ii) the financial information from the audited consolidated statement of operations for the year ended May 31, 2020;
and adding (iii) the financial information from the unaudited consolidated statement of operations for the six months ended November 30, 2020 (note 6). The financial statements of Aphria used to prepare the pro forma balance sheet and the
pro forma statements of operations (statement of net loss) were prepared for the purpose of such pro forma financial statements and do not conform with the financial statements for Aphria included, or incorporated by reference, elsewhere in the
Circular. Tilray s audited consolidated balance sheet as of December 31, 2020 and audited consolidated statement of net loss and comprehensive loss for the year ended December 31, 2020 are included Part II, Item 8 - Financial
Statements and Supplementary Data, of Tilray s Consolidated Financial Statements filed on Form 10-K with the SEC on February 19, 2021.
The assumptions and estimates underlying the adjustments to the pro forma financial statements are described in the accompanying notes.
The pro forma adjustments are preliminary, subject to further revision as additional information becomes available and additional analyses are
performed. The pro forma adjustments have been made solely for the purpose of providing unaudited pro forma combined financial information and actual adjustment, when recorded, may differ materially.
The pro forma financial statements have been prepared for illustrative purposes only and may not be indicative of the operating results or
financial condition that would have been achieved if the merger transaction had been completed on the dates or for the periods presented, nor do they purport to project the results of operations or financial position for any future period or as of
any future date. In addition to the pro forma adjustments, various other factors will have an effect on the financial condition and results of operations after the completion of the merger transaction. The actual financial position and results of
operations may differ materially from the pro forma amounts reflected herein due to a variety of factors.
The unaudited pro forma
financial statements do not reflect operational and administrative cost savings that may be achieved as a result of the merger transaction.
Tilray is the legal acquirer and, pursuant to the Plan of Arrangement, will (i) exchange each outstanding Aphria common share for 0.8381
of a Tilray Class 2 common share (the Exchange Ratio ), and (ii) exchange outstanding equity instruments exercisable into Aphria common shares for instruments with similar terms that are exercisable into Tilray Class 2
common shares, adjusted to reflect the Exchange Ratio.
However, since the merger transaction is being accounted for as a reverse
acquisition (note 1), the purchase price is calculated as the fair value of the hypothetical consideration Aphria would have to issue to acquire Tilray s outstanding equity instruments and obtain the same percentage of ownership interest in the
combined entity that will result from the merger transaction.
The estimated purchase price of $3,381,289 is based on the number of equity
instruments of Tilray outstanding at December 31, 2020, adjusted for the exercise of 6,290,000 warrants (note 3, 4H), and Aphria s closing share price of $16.60 on February 3, 2021 (the Measurement Date ). The purchase
price will change based on fluctuations in Aphria s share price and the number of equity instruments of Tilray outstanding on the effective date of the merger transaction. A 10% increase or decrease in Aphria s share price would increase
or decrease both the purchase price and goodwill by approximately $338,924, respectively, and a 25% increase or decrease in Aphria s share price would increase or decrease both the purchase price and goodwill by approximately $847,299,
The following table summarizes the calculation of the purchase price hypothetically paid by Aphria (in thousands, except
warrants, share and per share data):
| Tilray Class 2 common stock outstanding at December 31, 2020 adjusted for warrants exercised (1) | 164,746,087 | |||
| Aphria common stock hypothetically issued based on Exchange Ratio | 196,570,919 | |||
| Price per common stock of Aphria on Measurement Date | $ | 16.60 | ||
| Total estimated fair value of acquired Tilray Class 2 common stock | $ | 3,263,077 | ||
| Estimated fair value of Tilray stock-based compensation related to the precombination service period | $ | 118,212 | ||
| Total estimated purchase price | $ | 3,381,289 |
The estimated fair value of the
Tilray stock-based compensation related to the precombinaion service period consisted of $91,089 related to Tilray stock options and $27,123 related to restricted share units ( RSUs ). The fair values of the RSUs included in the purchase
price are estimated using the market share price of Aphria on the purchase price Measurement Date. The fair values of the options included in the purchase price are calculated using the Black Scholes model, using the following assumptions:
| Volatility | 100% | |||
| Dividend yield | 0% | |||
| Risk-free interest rate | 0.03% to 0.96% | |||
| Expected term | 0.06 to 8.13 years |
A preliminary valuation analysis of the fair value of Tilray s assets and liabilities has been performed at December 31, 2020, with
the following exception:
The purchase price has been allocated to such assets and liabilities, with the excess
allocated to goodwill. The following table summarizes the preliminary purchase price allocation:
| Cash and cash equivalents | $ | 227,128 | ||
| Accounts receivable | 29,033 | |||
| Inventory | 121,000 | |||
| Prepayments and other current assets | 34,640 | |||
| Property and equipment | 201,049 | |||
| Operating right-of-use assets | 18,259 | |||
| Intangible assets | 1,063,000 | |||
| Equity method investments | 9,300 | |||
| Other investments | 14,369 | |||
| Other assets | 4,356 | |||
| Accounts payable | (17,776 | ) | ||
| Accrued expenses and other current liabilities | (39,946 | ) | ||
| Accrued lease obligations | (33,536 | ) | ||
| Warrant liability | (296,032 | ) | ||
| Deferred tax liability | (251,877 | ) | ||
| Convertible notes | (236,179 | ) | ||
| Long-term debt | (50,498 | ) | ||
| Other liabilities | (4,612 | ) | ||
| Goodwill | 2,589,611 |
The preliminary purchase price allocation has been used to prepare the pro forma adjustments (note 4). The
purchase price allocation will be finalized following the effective date of the merger transaction when the valuation analysis is complete. The final allocation could differ materially from the preliminary allocation used in the pro forma
Adjustments to the pro forma financial statements are limited to those that reflect the accounting for the merger transaction in accordance
with US GAAP. The pro forma financial statements give effect to the merger transaction as if it had occurred on December 31, 2020 for purposes of the pro forma balance sheet and January 1, 2020 for purposes of the pro forma statement
The pro forma adjustments are as follows:
purchase price consideration, which is the fair value of the equity interests hypothetically issued by Aphria to acquire Tilray (note 2).
Eliminates Tilray s historical equity balances and reallocates Aprhia s equity balances so the equity structure appearing in the pro
forma balance sheet reflects the legal equity structure of Tilray, including the equity interests issued by Tilray to effect the merger transaction.
The following table summarizes how the equity balances in the pro forma balance sheet were determined:
| Common stock | Additional paid-in capital | Warrants | Accumulated other comprehensive income | Accumulated deficit | Total | |||||||||||||||||||
| Aphria as at November 30, 2020 | $ | 1,601,853 | $ | 34,181 | $ | 277 | $ | (309 | ) | $ | (243,969 | ) | $ | 1,392,033 | ||||||||||
| Total estimated purchase price (note 2, 4A) | 26 | 3,381,263 | 3,381,289 | |||||||||||||||||||||
| Tilray as at December 31, 2020 | 16 | 1,095,781 | 8,205 | (730,103 | ) | 373,899 | ||||||||||||||||||
| Eliminate Tilray as at December 31, 2020 | (1,095,781 | ) | (8,205 | ) | 730,103 | (373,883 | ) | |||||||||||||||||
| Reallocate balance to reflect Tilray structure | (1,601,853 | ) | 1,601,837 | (16 | ) | |||||||||||||||||||
| Equity component of Tilray convertible notes (note 4I) | 1,390 | 1,390 | ||||||||||||||||||||||
| Accumulated deficit impact of pro forma adjustments (note 4K, 4L, 4M) | (52,511 | ) | (52,511 | ) | ||||||||||||||||||||
| Pro forma - December 31, 2020 | $ | 42 | $ | 5,018,671 | $ | 277 | $ | (309 | ) | $ | (296,480 | ) | $ | 4,722,201 |
The $26 pro forma balance as part of the total estimated purchase price represents the $0.0001 par value of
the estimated 265,504,347 of Tilray Class 2 common stock issued on the merger transaction.
Increases Tilray s inventory to a fair value of approximately $121,000, an increase of $27,355 from the carrying value. The fair value was
determined based on the estimated selling price of the inventory, less the remaining manufacturing and selling costs and a normal profit margin on those manufacturing and selling efforts. After the merger transaction, the $27,355 step-up in inventory value will increase cost of sales over the following twelve months as the inventory is sold, which is reflected in the pro forma statement of net loss and represents a nonrecurring
charge. The fair value calculation is preliminary and subject to change.
D Property and equipment
Increases Tilray s property and equipment to an estimated fair value of approximately $201,049, an overall increase of $1,490 from the
carrying value. The overall increase represents an estimated increase of $2,110 relating to finance lease right-of-use assets (note 4E) offset by an estimated decrease
of $620 to property and equipment. The estimated useful lives, excluding land, range from 4 to 27 years. The estimated fair value of property and equipment, excluding finance lease
right-of-use assets is determined primarily using an income approach, which requires a forecast of expected future cash flows. After the merger transaction, the
estimated impact of the combined change in the value and useful lives of property and equipment will be an estimated decrease in depreciation expense in the pro forma statement of net loss recognized through a $56 decrease in cost of sales and $798
decrease in depreciation and amortization expense. The estimated fair value and estimated useful life calculations are preliminary and subject to change.
The following table summarizes the changes in the estimated depreciation expense for
property and equipment including finance lease right-of-use assets in the pro forma statement of net loss based on a straight-line method of depreciation:
| Estimated annual depreciation expense: | ||||
| Included in cost of sales | $ | 4,876 | ||
| Included in depreciation and amortization expenses | 1,922 | |||
| Historical depreciation expense: | ||||
| Included in cost of sales | 4,932 | |||
| Included in depreciation and amortization expenses | 2,720 | |||
| Pro forma decrease to depreciation expense: | ||||
| Decrease included in cost of sales | (56 | ) | ||
| Decrease included in depreciation and amortization expenses | (798 | ) |
The preliminary estimates of fair value and estimated useful lives will likely differ from the final amounts
after completing a detailed valuation analysis, and the difference could have a material effect on the accompanying pro forma financial statements. A 10% change in the estimated fair value of property and equipment, excluding finance lease right-of-use assets, would cause a corresponding increase or decrease in the balance of goodwill. A 10% change would also cause the annual depreciation expense in the pro