Aphria-Q3 2017 FS · PDF fileCapital assets 10 40,895,668 7,309,220 ... Long-term investments...

AphriaInc.

CONDENSEDINTERIMCONSOLIDATEDFINANCIALSTATEMENTS

FORTHETHREEMONTHSANDNINEMONTHSENDEDFEBRUARY28,2017andFEBRUARY29,

2016

(Unaudited,expressedinCanadianDollars,unlessotherwisenoted)

NoticeofNoAuditorReviewofInterimFinancialStatements

UnderNationalInstrument51-102,Part4,subsection4.3(3)(a),ifanauditorhasnotperformedareviewoftheinterim

financialstatements,theymustbeaccompaniedbyanoticeindicatingthatthefinancialstatementshavenotbeen

reviewedbyanauditor.

Theaccompanyingcondensedinterimconsolidatedfinancialstatementsofthecompanyhavebeenpreparedbyand

aretheresponsibilityofthecompany’smanagement.

Thecompany’sindependentauditorhasnotperformedanauditorreviewofthesecondensedinterimconsolidated

financialstatements inaccordancewithstandardsestablishedbytheCanadian InstituteofCharteredProfessional

Accountants.

AphriaInc.

CondensedInterimConsolidatedStatementsofFinancialPosition

(Unaudited)

Theaccompanyingnotesareanintegralpartofthesefinancialstatements

2

February28, May31,

Note 2017 2016

ASSETS

Currentassets

Cashandcashequivalents $84,351,132 $16,472,664

Marketablesecurities 5 37,678,063 --

Accountsreceivable 2,039,425 1,778,679

Otherreceivables 6 1,494,703 126,952

Inventory 7 2,654,705 2,088,850

Biologicalassets 8 652,047 697,997

Prepaidassets 429,430 160,156

Promissorynotesreceivable 9 64,150 567,588

129,363,655 21,892,886

Capitalassets 10 40,895,668 7,309,220

Intangibleassets 4,11 2,052,189 4,317,680

Long-terminvestments 12 29,385,266 1,560,200

Goodwill 1,200,000 1,200,000

$202,896,778 $36,279,986

LIABILITIES

Currentliabilities

Accountspayableandaccruedliabilities $4,612,462 $1,266,492

Currentportionofpromissorynotepayable 14 852,112 --

Currentportionoflong-termdebt 15 754,098 --

6,218,672 1,266,492

Long-termliabilities

Promissorynotepayable 14 568,075 --

Long-termdebt 15 6,615,588 --

13,402,335 1,266,492

Shareholders’equity

Sharecapital 16 187,657,471 40,916,880

Warrants 17 444,912 693,675

Share-basedpaymentreserve 20 2,921,827 1,723,903

Deficit (1,529,767) (8,320,964)

189,494,443 35,013,494

$202,896,778 $36,279,986

Natureofoperations(Note1)

Commitments(Note28)

Subsequentevents(Note29)

ApprovedonbehalfoftheBoard

“JohnCervini” “ColeCacciavillani”

Signed:Director Signed:Director

AphriaInc.

CondensedInterimConsolidatedStatementsofIncome(Loss)andComprehensiveIncome(Loss)

(Unaudited)

Theaccompanyingnotesareanintegralpartofthesefinancialstatements

3

Forthethreemonthsended Fortheninemonthsended

February February

Note 2017 2016 2017 2016

Revenue $5,118,516 $2,679,898 $14,720,617 $5,657,613

Costofsales:

Costofgoodssold 1,300,029 591,204 3,052,262 1,401,641

Amortization 10,11 236,175 120,646 717,707 342,905

Neteffectofunrealizedchangesinfair

valueofbiologicalassets

8

14,243

84,823

(520,574)

42,033

1,550,447 796,673 3,249,395 1,786,579

Grossprofit 3,568,069 1,883,225 11,471,222 3,871,034

Expenses:

Generalandadministrative 23 1,230,626 711,153 3,414,936 1,641,987

Share-basedcompensation 19 1,255,976 145,748 1,710,565 405,079

Selling,marketingandpromotion 1,854,577 907,287 5,054,417 2,488,537

Amortization 10,11 263,055 123,644 715,295 198,300

Researchanddevelopment 96,134 79,155 434,098 220,406

Impairmentofintangibleasset 11 3,500,000 -- 3,500,000 --

8,200,368 1,966,987 14,829,311 4,954,309

Income(loss)fromoperations (4,632,299) (83,762) (3,358,089) (1,083,275)

Consultingrevenue 216,667 -- 216,667 --

Foreignexchangegain 65,431 -- 65,431 --

Financeincome,net 22 406,213 86,808 698,484 171,947

Gainondisposalofmarketablesecurities 13,930 -- 13,930 --

Gainonlong-terminvestments 25 8,880,308 -- 9,143,407 --

Gainonsaleofcapitalassets 10 -- 674 11,367 7,125

Netincome(loss)andcomprehensive

income(loss)

$4,950,250 $3,720 $6,791,197 $(904,203)

Weightedaveragenumberofcommon

shares–basic

111,976,759 62,174,289 93,655,328 55,699,999

Weightedaveragenumberofcommon

shares–diluted

118,298,038 84,798,131 99,976,607 75,259,294

Earnings(loss)pershare–basic 26 $0.04 $0.00 $0.07 $(0.02)

Earnings(loss)pershare–diluted 26 $0.04 $0.00 $0.07 $(0.01)

AphriaInc.CondensedInterimConsolidatedStatementsofChangesinEquity(Unaudited)

Theaccompanyingnotesareanintegralpartofthesefinancialstatements 4

Numberofcommonshares

Sharecapital(Note16)

Warrants(Note17)

Share-basedpaymentreserve

(Note20)

Deficit Total

BalanceatMay31,2015 52,479,587 $20,246,095 $556,589 $1,261,589 $(8,718,925) $13,345,348Shareissuance–November2015boughtdeal 8,846,370 9,922,696 477,414 -- -- 10,400,110Shareissuance–CannWaypurchase 3,600,000 4,342,616 -- -- -- 4,342,616Shareissuance–warrantexercise 58,333 70,000 -- -- -- 70,000Share-basedpayments -- -- -- 405,079 -- 405,079Netlossfortheperiod -- -- -- -- (904,203) (904,203)BalanceatFebruary29,2016 64,984,290 $34,581,407 $1,034,003 $1,666,668 $(9,623,128) $27,658,950 Numberof

commonshares

Sharecapital(Note16)

Warrants(Note17)

Share-basedpaymentreserve

(Note20)

Deficit Total

BalanceatMay31,2016 70,053,933 $40,916,880 $693,675 $1,723,903 $(8,320,964) $35,013,494Shareissuance–August2016boughtdeal 17,250,000 31,959,093 -- -- -- 31,959,093Shareissuance–November2016boughtdeal 10,062,500 37,263,475 -- -- -- 37,263,475Shareissuance–February2017boughtdeal 11,500,000 53,869,357 53,869,357Shareissuance–intangibleassetacquisition 38,759 100,000 359,480 -- -- 459,480Shareissuance–warrantsexercised 14,558,932 22,600,975 (608,243) -- -- 21,992,732Shareissuance–optionsexercised 572,596 761,665 -- (310,615) -- 451,050Share-basedpayments 37,500 186,026 -- 1,508,539 -- 1,694,565Netincomefortheperiod -- -- -- -- 6,791,197 6,791,197BalanceatFebruary28,2017 124,074,220 $187,657,471 $444,912 $2,921,827 $(1,529,767) $189,494,443

AphriaInc.CondensedInterimConsolidatedStatementsofCashFlows(Unaudited)

Theaccompanyingnotesareanintegralpartofthesefinancialstatements 5

Ninemonths

endedNinemonths

ended February28, February29, Note 2017 2016Cashprovidedby(usedin)operatingactivities: Netincome(loss)fortheperiod $6,791,197 $(904,203)Adjustmentsfor: Amortization 10,11 1,433,002 541,205Amortizationoffinancefeesonlong-termdebtImpairmentofintangibleassets

11

3,3333,500,000

----

Gainonsaleofcapitalassets 10 (11,367) (7,125)Gainondisposalofmarketablesecurities (13,930) --Gainonlong-terminvestments 25 (9,143,407) --Dispositionandusageofbearerplants 10 63,501 --Share-basedcompensation 19 1,710,565 405,079Changeinfairvalueofbiologicalassets 8 (520,574) 42,033Changeinnon-cashworkingcapital 24 1,432,868 (1,412,030) 5,245,188 (1,335,041) Cashprovidedbyfinancingactivities: Sharecapitalissued,netofcashissuancecosts 16 123,091,925 10,314,726Sharecapitalissuedonwarrantsexercised 17 21,992,732 70,000Sharecapitalissuedonstockoptionsexercised 20 451,050 --Proceedsfromlong-termdebt 15 7,825,000 --Repaymentoflong-termdebt 15 (458,647) --Advancesfromrelatedparties 21 350,141 885,269Repaymentofamountsduetorelatedparties 21 (350,141) (885,269) 152,902,060 10,384,726 Cashusedininvestingactivities: Investmentincapitalassets 10 (34,573,316) (3,991,459)Proceedsfromdisposalofcapitalassets 10 32,823 36,570Investmentinintangibleassets,netofsharesissued 11 (1,306,120) (27,156)Investmentinmarketablesecurities 5 (53,366,383) --Proceedsfromdisposalofmarketablesecurities 5 15,702,250 --Investmentinlong-terminvestments 12 (21,401,121) (50,000)Proceedsfromdivestitureoflong-terminvestments 25 4,139,649 --Issuanceofpromissorynotesreceivable 9 -- (200,000)Repaymentofpromissorynotesreceivable 9 503,438 183,998 (90,268,780) (4,048,047) Increaseincashandcashequivalents 67,878,468 5,001,638 Cashandcashequivalents,beginningofperiod 16,472,664 7,051,909 Cashandcashequivalents,endofperiod $84,351,132 $12,053,547

AphriaInc.NotestotheCondensedInterimConsolidatedFinancialStatementsFortheninemonthsendedFebruary28,2017andFebruary29,2016(Unaudited)

6

1. Natureofoperations

AphriaInc.(the"Company"or“Aphria”)isincorporatedinOntario.PureNaturesWellnessInc.doingbusinessasAphria(“PNW”),awholly-ownedsubsidiaryoftheCompany,islicensedtoproduceandsellmedicalmarijuanaunder theprovisionsof theAccess toCannabis forMedicalPurposes Regulations (“ACMPR”). The registeredoffice is located at 5300CommerceCourtWest, 199BayStreet,Toronto,Ontario.TheCompany’scommonsharesarelistedunderthesymbol“APH”ontheTorontoStockExchange(“TSX”)andunderthesymbol“APHQF”ontheUnitedStatesOTCQBVentureMarketexchange.ThesefinancialstatementswereapprovedbytheCompany’sBoardofDirectorsonApril12,2017.

2. Basisofpreparation

(a) Statementofcompliance TheCompany’scondensedinterimconsolidatedfinancialstatementshavebeenpreparedinaccordance

withIAS34,“InterimFinancialReporting”.ThesefinancialstatementsdonotincludeallnotesofthetypenormallyincludedwithintheannualfinancialreportandshouldbereadinconjunctionwiththeauditedfinancialstatementsoftheCompanyfortheyearendedMay31,2016,whichhavebeenpreparedinaccordance with International Financial Reporting Standards (“IFRS”) as issued by the InternationalAccountingStandardsBoardandInterpretationsoftheIFRSInterpretationsCommittee.

(b) Basisofmeasurement

Thesefinancialstatementshavebeenpreparedonthehistoricalcostbasisexceptforcertainfinancialinstrumentsthataremeasuredatfairvalueandbiologicalassetsthataremeasuredatfairvaluelesscoststosell,asdetailedintheCompany’saccountingpolicies.

(c) FunctionalcurrencyThe Company and its subsidiaries’ functional currency, as determined by management is Canadiandollars.ThesefinancialstatementsarepresentedinCanadiandollars.

(d) BasisofconsolidationSubsidiariesareentitiescontrolledbytheCompany.ControlexistswhentheCompanyhasthepower,directlyandindirectly,togovernthefinancialandoperatingpoliciesofanentityandbeexposedtothevariable returns from its activities. The financial statements of subsidiaries are included in theconsolidatedfinancialstatements fromthedatethatcontrolcommencesuntil thedatethatcontrolceases.Whollyownedsubsidiaries JurisdictionofincorporationPureNaturesWellnessInc. OntarioAphria(Arizona)Inc. ArizonaCannWayPharmaceuticalsLtd Ontario


7

Intragroup balances, and any unrealized gains and losses or income and expenses arising from gainsarisingfromtransactionswithjointlycontrolledentitiesareeliminatedtotheextentoftheCompany’sinterestintheentity.Unrealizedlossesareeliminatedtotheextentofthegains,butonlytotheextentthatthereisnoevidenceofimpairment.

3. SignificantaccountingpoliciesThesecondensedinterimconsolidatedfinancialstatementshavebeenpreparedfollowingthesameaccountingpoliciesusedinthepreparationoftheauditedfinancialstatementsoftheCompanyfortheyearendedMay31,2016.ChangesinaccountingpolicyEffectiveJune1,2016,theCompanyadoptedamendmentstoIAS16-PropertyPlantandEquipmentandIAS41-Agriculture-Theamendmentsbringbearerplants,whichareusedsolelytogrowproduce,intothescopeofIAS16sothattheyareaccountedforinthesamewayasproperty,plantandequipment.Theamendmentswere effective for annual periods beginning on or after January 1, 2016, with earlier application beingpermitted.TheseamendmentsdidnotrequireanysignificantchangestotheCompany`saccountingpractices.

NewstandardsandinterpretationsissuedbutnotyetadoptedSeveralnewstandards,amendmentstostandardsandinterpretationsarenotyeteffectiveandhavenotbeenappliedinpreparingthesefinancialstatements.IFRS 2 – Share-based Payment, effective January 1, 2018, with early adoption permitted, introduces newrequirementsfortheclassificationandmeasurementofshare-basedpaymenttransactions.IFRS9-FinancialInstruments,effectiveforannualperiodsbeginningonorafterJanuary1,2018,withearlyadoption permitted, introduces new requirements for the classification and measurement of financialinstruments.IFRS15-RevenuefromContractswithCustomers,effectiveforannualperiodsbeginningonorafterJanuary1,2018,withearlyadoptionpermitted,specifieshowandwhentorecognizerevenueandenhancesrelevantdisclosurestobeappliedtoallcontractswithcustomers.IFRS16–Leases,inJanuary2016,theIASBissuedIFRS16,whichspecifieshowanIFRSreporterwillrecognise,measure, present and disclose leases. The standard provides a single lessee accounting model, requiringlessees to recognise assets and liabilities for all leases unless the lease term is 12months or less or theunderlyingassethasa lowvalue.Lessorscontinuetoclassify leasesasoperatingor finance,with IFRS16’sapproachtolessoraccountingsubstantiallyunchangedfromitspredecessor, IAS17.IFRS16iseffectiveforannualreportingperiodsbeginningonorafterJanuary1,2019,andalesseeshalleitherapplyIFRS16withfullretrospectiveeffectoralternativelynotrestatecomparativeinformationbutrecognisethecumulativeeffectofinitiallyapplyingIFRS16asanadjustmenttoopeningequityatthedateofinitialapplication.EarlyadoptionispermittedifIFRS15hasalsobeenadopted.TheCompanyisassessingthepotentialimpactofIFRS16.IAS7–StatementofCashFlow,effectiveforannualperiodsbeginningonorafterJanuary1,2017,withearlyadoption permitted, amended to improve information provided to users of financial statements about anentity’sfinancialactivitiesbymakingthefollowingchanges:

• The following changes in liabilities arising from financing activities are disclosed (to the extentnecessary):(i)changesfromfinancingcashflows;(ii)changesarisingfromobtainingorlosingcontrol


8

ofsubsidiariesorotherbusinesses;(iii)theeffectofchangesinforeignexchangerates;(iv)changesinfairvalues;and(v)otherchanges;

• The International Accounting Standards Board (“IASB”) defines liabilities arising from financingactivities as liabilities "for which cash flows were, or future cash flows will be, classified in thestatementofcashflowsascashflowsfromfinancingactivities".Italsostressesthatthenewdisclosurerequirementsalsorelatetochangesinfinancialassetsiftheymeetthesamedefinition;and

• Changes in liabilitiesarisingfromfinancingactivitiesmustbedisclosedseparatelyfromchanges inotherassetsandliabilities.

IAS12–IncomeTaxes,effectiveforannualperiodsbeginningonorafterJanuary1,2017,withearlyadoptionpermitted,amendedtoclarifythefollowingaspects:

• Unrealizedlossesondebtinstrumentsmeasuredatfairvalueandmeasuredatcostfortaxpurposesgiverisetoadeductibletemporarydifferenceregardlessofwhetherthedebt instrument'sholderexpectstorecoverthecarryingamountofthedebtinstrumentbysaleorbyuse;

• Thecarryingamountofanassetdoesnotlimittheestimationofprobablefuturetaxableprofits;• Estimatesforfuturetaxableprofitsexcludetaxdeductionsresultingfromthereversalofdeductible

temporarydifferences;and• Anentityassessesadeferredtaxassetincombinationwithotherdeferredtaxassets.Wheretaxlaw

restrictstheutilisationoftaxlosses,anentitywouldassessadeferredtaxassetincombinationwithotherdeferredtaxassetsofthesametype.

TheCompanyisassessingtheimpactofthesenewandrevisedstandards.

4. DisclosureofBusinessTransactionEffective January 13, 2016, Aphria acquired 100% of the issued and outstanding shares of CannWayPharmaceuticalsInc.CannWayPharmaceuticalsInc.providessupportservicestoveteranandfirstrespondersintheformofmedicalconsultations,grouptherapy,andrehabilitation.Pursuant to the acquisition, Aphria issued 3,600,000 common shares at $1.23 per share to the formershareholdersofCannWayPharmaceuticalsInc.,ofwhich1,800,000sharesweresubjecttoescrowandwillbeeither(i)releasedtotheformershareholdersofCannWayPharmaceuticalsInc.,basedontheachievementofcertainoperatingmetricsor (ii) released to theCompany for cancellation, if theoperatingmetrics arenotachievedbyDecember31,2018.Thesharesheldinescrowarerecordedasequityandwillbecontinuouslyevaluatedandadjustedbasedontheprobabilityoftheoperatingmetricsbeingachieved,asofFebruary28,2017managementexpects0%oftheremainingmilestonestobeachievedbyDecember31,2018.Purchasepriceallocationwasasfollows:

Nettangibleassetsacquired $--Intangibleasset–CannWaybrand 4,428,000Goodwill 1,200,000Deferredtaxliability (1,200,000)Totalpurchasepricerecorded $4,428,000


9

Nettangibleassetsacquiredincludedthefollowing:

Cashheldintrusttofundliabilitiesoutstandingatclosing $269,717Accountsreceivable 91,872Accountspayable (219,505)HSTpayable (58,107)Incometaxespayable (83,977)Nettangibleassetsacquired $--

TheCannWaybrandwasoriginallybeingamortizedover10yearsonastraight-linebasis.AmortizationbeganinJanuary2016.Inthecurrentquarter,managementreviseditsestimatefortheremainingusefullifeandisamortizingthebrandover15monthsonastraight-linebasis.GoodwillaroseintheacquisitionoftheCannWaybrandbecausethecostoftheacquisitionreflectedrevenuegrowthandthefuturemarketdevelopmentofthebrand.Thesebenefitswerenotrecognizedseparatelyfromgoodwill because they donotmeet the recognition criteria for identifiable intangible assets. Noneof thegoodwillarisingontheacquisitionisexpectedtobedeductiblefortaxpurposes.Acquisitioncostsof$10,375havebeenexpensedintheprioryearunderGeneralandadministrative.Costsofissuingequityof$85,384wereappliedagainstthefairvalueoftheequityissuedatthetimeoftheacquisition.

5. Marketablesecurities

Marketablesecuritiesareclassifiedasfairvaluethroughprofitorloss,andarecomprisedof: S&P

ratingatpurchase

Effectiveinterestrate

Maturitydate

February28,2017

February29,2016

CanadianWesternBank A- 2.531% 03/22/18 $3,067,615 --EnercareSolutionsInc. BBB 4.300% 11/30/17 1,445,445 --FordMotorCreditCo.LLC BBB 3.320% 12/19/17 2,045,200 --FordMotorCreditCo.LLC BBB 3.700% 08/02/18 1,032,729 HomeTrustCompany BBB 2.350% 05/24/17 5,037,954 --RoyalBankofCanada AA- 2.770% 12/11/18 5,156,657 --SobeysInc. BBB- 3.520% 08/08/18 3,056,402 --MolsonCoorsBrewingCompany BBB- 3.950% 10/06/17 1,134,894 --BankofMontreal(USD) A+ 1.400% 04/10/18 3,945,564 --CitigroupInc.(USD) BBB 2.050% 12/17/18 3,967,917 --RoyalBankofCanada(USD) AA- 1.625% 04/15/19 3,954,392 --WellsFargo&Company(USD) A 2.150% 01/30/17 3,833,294 -- $37,678,063 $--

ThecostofmarketablesecuritiesasatFebruary28,2017was$37,547,076(2016–$nil).Duringthequarter,thecompanydivestedof$15,702,250(2016-$nil)ofmarketablesecuritiesinitsCanadianportfolio,convertedtheproceedstoUnitedStatesdollarsandthenre-investedtheUnitedStatesdollarsinitsU.S.portfolio.


10

6. Otherreceivables

Otherreceivablesarecomprisedof:

February28, May31, 2017 2016HSTreceivable(payable) 1,176,814 (35,909)Accruedinterest 154,877 98,197Creditcardreceivable 113,512 64,621Other 49,500 43 $1,494,703 $126,952

7. Inventory

Inventoryiscomprisedof:

February28, May31, 2017 2016Harvestedcannabis $1,725,707 $1,714,897Cannabisoil 685,935 165,060Packagingandsupplies 243,063 208,893 $2,654,705 $2,088,850

Costofinventoryisrecognizedasexpenseandincludedincostofsales.IncludedincostsofsalesforthethreemonthsendedFebruary28,2017is$50,468ofcannabisoilconversioncostsand$26,778relatedtothecostofaccessories.IncludedincostsofsalesfortheninemonthsendedFebruary28,2017is$88,658ofcannabisoilconversioncostsand$26,778relatedtothecostofaccessories.TheCompanyholds460.2kilogramsofharvestedcannabis(2016–457.3kgs),1,097.5litresofcannabisoilsor182.9kilogramsequivalent(2016–264.1litresor44.1kilogramsequivalent)atFebruary28,2017.

8. BiologicalassetsBiologicalassetsarecomprisedof: AmountBalanceasatMay31,2016 $697,997Costsincurreduntilharvest 248,073Neteffectofunrealizedchangesinfairvalueofbiologicalassets 520,574Transferredtoinventoryuponharvest (720,700)Transferredtocapitalassets (93,897)BalanceasatFebruary28,2017 $652,047

TheCompanyvaluesmedicalcannabisplantsatcostfromthedateofinitialclippingfrommotherplantsuntiltheendofthetwelfthweekofitsgrowingcycle.Measurementofthebiologicalassetatfairvaluelesscoststosellandcoststocompletebeginsatthethirteenthweekuntilharvest.TheCompanyhasdeterminedthefairvaluelesscoststoselltobe$3.75pergram,uponharvest.


11

Theneteffectofthefairvaluelesscosttoselloverandabovehistoricalcostwasa(decrease)increaseinnon-cashvalueofinventoryof$(14,243)and$520,574duringthethreeandninemonthsendedFebruary28,2017(2016 – $(84,823) decrease and $(42,033) decrease). In determining the fair value of biological assets,managementisrequiredtomakeseveralestimates,including:theexpectedcostrequiredtogrowthecannabisuptothepointofharvest;harvestingcosts;sellingcosts;salesprice;and,expectedyields forthecannabisplant.Theseestimatesaresubjecttovolatilityinmarketpricesandseveraluncontrollablefactors,whichcouldsignificantlyaffectthefairvalueofbiologicalassetsinfutureperiods.ThefairvalueofmedicalcannabisplantsisconsideredtobeLevel3inthefairvaluehierarchyandthesignificantassumptionsusedindeterminingthefairvalueofmedicalcannabisplantsareasfollows:

• yieldbyplant;and,• percentageofcostsincurredforeachstageofplantgrowth.• fairvaluelesscoststoselloftheharvestedproduct

9. Promissorynotesreceivable

May31,2016 Additions Payments February28,

2017Notereceivable-$100,000,bearinginterestatprime+3%,one-yearterm,collectedintheperiod

$93,039 $-- $93,039 $--

Notereceivable-$500,000,bearinginterestat3%,repayablein24equalblendedmonthlyinstalments,dueinMay2017

274,549 -- 210,399 64,150

Notereceivable-$100,000,non-interestbearing,one-yearterm,collectedintheperiod

100,000 -- 100,000 --

Notereceivable-$100,000,non-interest,one-yearterm,collectedintheperiod

100,000 -- 100,000 --

$567,588 $-- $503,438 $64,150

10. Capitalassets

Land Greenhouseinfrastructure

Bearerplants

Equipment Leaseholdimprovements

Constructioninprocess

Totalcapitalassets

Cost AtMay31,2015 $-- $-- $-- $1,450,011 $2,231,612 $304,701 $3,986,324Additions -- -- -- 1,051,980 221,204 3,152,875 4,426,059Transfers -- -- -- 1,033,433 2,359,337 (3,392,770) --Disposals -- -- -- (35,896) -- -- (35,896)AtMay31,2016 -- -- -- 3,499,528 4,812,153 64,806 8,376,487Additions 10,712,604 4,018,080 93,897 1,162,246 16,129 18,570,360 34,573,316Transfers -- 4,565,987 -- -- (4,565,987) -- --Disposals -- -- (63,501) (32,823) -- - (96,324)AtFeb28,2017 $10,712,604 $8,584,067 $30,396 $4,628,951 $262,295 $18,635,166 $42,853,479


12

Land Greenhouseinfrastructure

Bearerplants

Equipment Leaseholdimprovements

Constructioninprocess

Totalcapitalassets

Accumulatedamortization

AtMay31,2015 $-- $-- $-- $172,860 $187,303 -- $360,163Amortization -- -- -- 387,992 325,563 -- 713,555Disposals -- -- -- (6,451) -- (6,451)AtMay31,2016 -- -- -- 554,401 512,866 -- 1,067,267Amortization -- 333,423 -- 501,581 66,907 -- 901,911Transfers -- 524,749 -- -- (524,749) -- --Disposals -- -- -- (11,367) -- -- (11,367)AtFeb.28,2017 $-- $858,172 $-- $1,044,615 $55,024 $-- $1,957,811

Netbookvalue AtMay31,2015 -- -- -- $1,277,151 $2,044,309 $304,701 $3,626,161AtMay31,2016 -- -- -- $2,945,127 $4,299,287 $64,806 $7,309,220AtFeb.28,2017 $10,712,604 $7,725,895 $30,396 $3,584,336 $207,271 $18,635,166 $40,895,668

Includedincostofgoodssoldis$63,501ofexpenserelatedtothedispositionandusageofbearerplants.Duringtheperiod,theCompanydisposedofcapitalassetswithanetbookvalueof$21,456forproceedsof$32,823.

11. IntangibleAssets

Corporatewebsite

Licenses&permits

TokyoSmokelicensingagreement

CannWaybrand

Totalintangibleassets

Cost AtMay31,2015 $107,995 $-- $-- $-- $107,995Additions 53,705 -- -- 4,428,000 4,481,705AtMay31,2016 161,700 -- -- 4,428,000 4,589,700Additions 56,120 1,250,000 459,480 -- 1,765,600AtFebruary28,2017 $217,820 $1,250,000 $459,480 $4,428,000 $6,355,300

Accumulatedamortization AtMay31,2015 $33,397 $-- $-- $-- $33,397Additions 54,123 -- -- 184,500 238,623AtMay31,2016 87,520 -- -- 184,500 272,020Additions 54,042 110,984 33,965 332,100 531,091Impairment -- -- -- 3,500,000 3,500,000AtFebruary28,2017 $141,562 $110,984 $33,965 $4,016,600 $4,303,111

Netbookvalue AtMay31,2015 $74,598 $-- $-- $-- $74,598AtMay31,2016 $74,180 $-- $-- $4,243,500 $4,317,680AtFebruary28,2017 $76,258 $1,139,016 $425,515 $411,400 $2,052,189

TheCompanyvaluedthepurchasepricefortheTokyoSmokebasedonthefairvalueofthesecuritiesissuedaspartof thetransaction. TheTokyoSmokebrand isbeingamortizedoverthe60-monthtermofthebrandingagreement.TheCompanyrecordedanimpairmentofitsintangibleassetfortheCannWaybrandfollowingthechangestoreimbursement allowances for veterans, as announced by Veterans Affairs Canada (“VAC”). The changesannouncedbyVACloweredthereimbursementamountto$8.50pergramandeffectiveMay26,2017,limitedindividualpatientsusageto3.0gramsperday.


13

12. Long-termInvestments

Investment May31,2016

Investment Divestiture Cumulativechangeinfairvalue

February28,2017

Level1onfairvaluehierarchy CannaRoyaltyCorp. Shares $1,510,200 $1,625,000 $(1,630,304) $2,287,104 $3,792,000CannaRoyaltyCorp. Debenture -- 1,427,113 -- -- 1,427,113CannaRoyaltyCorp. Conversion -- 173,000 -- 770,000 943,000KalyteraTherapeutics,Inc. Shares -- 3,014,320 -- 627,160 3,641,480MassRoots,Inc. Shares -- 337,500 (337,500) -- --MassRoots,Inc. Warrants -- -- -- 166,000 166,000SecureComMobileInc. Debenture -- 195,327 -- -- 195,327SecureComMobileInc. Conversion -- 5,108 -- 1,399,564 1,404,672SecureComMobileInc. Warrants -- -- -- 59,000 59,000TetraBio-PharmaInc. Shares -- 546,000 -- 3,154,000 3,700,000TetraBio-PharmaInc. Warrants -- 454,000 -- 1,820,000 2,274,000CanaboMedicalInc. Shares -- 8,500,000 -- (3,160,000) 5,340,000 $1,510,200 $16,277,368 $(1,967,804) $7,122,828 $22,942,592Level3onfairvaluehierarchy AmpleOrganicsInc. Shares $50,000 $-- $-- $-- $50,000CopperstateFarms,LLC Units -- 1,755,000 -- (50,775) 1,704,225CopperstateFarmInvestors,LLC Units -- 3,488,940 -- (80,491) 3,408,449ResolveDigitalHealthInc. Shares -- 718,000 -- -- 718,000ResolveDigitalHealthInc. Warrants -- 282,000 -- (20,000) 262,000GreenAcresCapitalFund Units -- 300,000 -- -- 300,000 $50,000 $6,543,940 $-- $(151,266) $6,442,674 $1,560,200 $22,821,308 $(1,967,804) $6,971,562 $29,385,266

Atquarter-end,theCompanyhasconcludedthatthefairvalueandcarryingvalueoftheLevel3investmentsareequal to themost recent financing transactions,which represent thebestproxy for fair value.The fair valueattachedtowarrantsinbothLevel1andLevel3weredeterminedusingtheBlack-Scholesauctionpricingmodel.CannaRoyaltyCorp.

On September 9, 2016, Aphria exercised 750,000warrants, issued by CannaRoyalty Corp. (“CR”), to acquire750,000commonsharesofCRfor$1,125,000andsubsequentlypurchasedanadditional250,000commonsharesofCRfor$500,000onSeptember27,2016.OnOctober19,2016,Aphrialoaned$1,500,000toCRasaconvertibledebenture.Theconvertibledebenturebearsinterestat5%,compoundedannually,maturesinthreeyearsandincludestherighttoconvertthedebentureintocommonsharesofCRat$2.00percommonshareatanytimebeforematurity.CRmaintainstheoptionofforcedconversionoftheconvertibledebentureifthecommonsharesofCRtradeonastockexchangeatavalueof$4.00ormore.Inaddition,CRlicenced,forafive-yearperiod,itsCanadianportfolioofcannabisproducts inexchangefora5%royalty feepaidbyAphria. InDecember2016,Aphriasold1,300,000sharesfortotalproceedsof$3,539,050,throughthreeseparatetransactions,realizingagainof$1,908,746ondisposal.Asaresultofthesetransactions,Aphriaholds1,200,000commonsharesofCRatacostof$1,504,896andhasa$1,500,000convertibledebenture,dueonOctober18,2019. MassRoots,Inc.

OnOctober 18, 2016, Aphria announced it had signed an agreementwithMassRoots, Inc. (‘‘MassRoots’’), atechnologyplatformforcannabisconsumers,businessesandactiviststohelpbuildawarenessoftheAphriabrandamongstMassRoots’Canadianuserbase.Aspartoftheagreement,Aphriapurchased500,000commonsharesofMassRootsforanaggregatepurchasepriceof$250,000USD($337,500)andreceivedwarrantstopurchaseanadditional500,000commonsharesat$0.90USDpercommonshare,expiringOctober17,2019.SubsequenttoOctober 18, 2016 Aphria divested itself of its 500,000 common shares of MassRoots for total proceeds of$600,599,realizingagainof$263,099ondisposal;however,theCompanymaintainsthe500,000warrantstopurchasecommonsharesat$0.90USD.


14

CopperstateFarms

OnOctober27,2016,AphriaenteredintoanintellectualpropertytransferagreementwithCopperstateFarms,LLC(‘‘Copperstate’’),a licensedproducerandsellerofmedicalcannabisundertheArizonaMedicalMarijuanaAct. Copperstate maintains a 40-acre greenhouse facility in Snowflake, Arizona. Under the terms of theagreement, Aphria will license certain of its intellectual property to Copperstate in exchange for a 5.0%membership interest inCopperstate throughaconsultingagreementwhichwillbeused to forgivepaymentsotherwise owing on a $1,300,000 USD ($1,755,000) promissory note in eight equal quarterly installmentsbeginning in February 2017. On the same date, Aphriamade a direct cash contribution of $1,300,000USD($1,733,940) to Copperstate Farms Investors, LLC, the parent company of Copperstate, in return for a 5.0%membership interest in the parent company. OnDecember 20, 2016, Aphriamade a further investment of$1,300,000USD($1,747,188)inCopperstateFarmsInvestors,LLC.Asaresultofthesetransactions,Aphriahasacquired approximately 5% of Copperstate for $1,300,000 USD ($1,755,000) and approximately 10% ofCopperstateFarmsInvestors,LLCfor$2,600,000USD($3,488,940Cdn).KalyteraTherapeutics,Inc.

OnNovember7,2016,AphriaenteredintoasubscriptionagreementwithKalyteraTherapuetics,Inc.(“Kalytera”)TheCompanypurchased2,500,000subscriptionreceiptsatapriceof$0.40perreceiptforatotalof$1,000,000.OnDecember30,2016,theCompany’ssubscriptionreceiptsconvertedintocommonsharesofKalyteraonaone-for-onebasis.OnJanuary31,2017,Aphriasubscribedforanadditional2,222,000commonsharesofKalyteraforapurchasepriceof$999,900pursuanttoaprivateplacementwhichclosedonFebruary7,2017,subjecttofinalapprovaloftheTSX-VentureExchange.OnFebruary22,2017,Aphriapurchasedanadditional1,450,000commonsharesofKalyterainthesecondarymarketatapriceof$0.70pershareforatotalof$1,014,420.Asaresultofthese transactions, Aphria owns 6,172,000 common shares in Kalytera, representing approximately 4.8% ofKalytera’sissuedandoutstandingcommonsharesforaggregatecostsof$3,014,320.SecureComMobileInc.

On November 23, 2016, Aphria invested $200,000 in SecureCom Mobile Inc. via an unsecured convertibledebenture.Thedebenturebearsinterestat12%andisconvertibleintoequityat$0.05pershare,andincludestherighttoawarrantforeachshareofequityonconversion,pricedat$0.08.ThewarrantexpiresonDecember1,2019andtheconversionrightexpiresNovember20,2018.ResolveDigitalHealthInc.

OnDecember1,2016,Aphriapurchased10,526commonsharesofResolveDigitalHealth Inc. (‘‘Resolve’’), acompany in theprocessofdevelopingadeliverysystemformedicalmarijuana,andanequivalentnumberofcommon sharepurchasewarrants for gross proceedsof $1,000,000. Following a stock split in January 2017,Aphria now owns 2,000,024 common shares and 2,000,024 common share purchase warrants of Resolve,exercisableat$0.65perwarrantatany time foraperiodexpiring fiveyears from thedateof issuance. ThewarrantscontainaforcedconversionprovisionifResolvetradesonapublicstockexchangeatapriceofmorethan$1.30foraperiodofatleast30days.TetraBio-PharmaInc.

OnDecember6,2016,Aphriapurchased5,000,000commonsharesofTetraBio-PharmaInc.(“TBP”),acompanyengaged in pain management research, at a price of $0.20 per share for an aggregate purchase price of$1,000,000,pursuanttoaprivateplacement.Aspartofthetransaction,Aphriaalsoreceived5,000,000warrants,eachforconversion intoonecommonshare,atapriceof$0.26perwarrant foraperiodof threeyears.ThewarrantsaresubjecttoanacceleratedexpiryifTBP’ssharestradeabove$0.45for30consecutivetradingdaysatwhichtimethewarrantswillbecomesubjecttoa30-dayexpiryperiodifnotexercised.


15

CanaboMedicalInc.

OnDecember23,2016,Aphriapurchased6,000,000commonsharesofCanaboMedical Inc., theownerandoperatorofCannabinoidMedicalClinics,orCMClinics,Canada’slargestreferral-onlyclinicsformedicalcannabis,atapriceof$1.40percommonshareforanaggregatepriceof$8,400,000pursuanttoaprivateplacement.GreenAcresCapitalFund

OnJanuary23,2017,AphriaagreedtoinvestinGreenAcresCapitalFund,aCanadianinvestmentfundseekinginvestments in the legalmarijuana sector in Canada, theUnited States and internationally. In relation to itsparticipation,Aphriacommitted$2,000,000totheexpected$30,000,000fundandasofthebalancesheetdatehasinvested$300,000.

13. BankIndebtednessTheCompanysecuredanoperating lineofcredit in theamountof$1,000,000whichbears interestat thelender’sprimerateplus75basispoints.AsoftheendoftheperiodtheCompanyhasnotdrawnonthelineofcredit.Theoperatinglineofcreditissecuredbyfirstchargeon265TalbotStWest,Leamington,Ontario,andafirstrankingpositiononageneralsecurityagreement.

14. PromissoryNotePayable

May31,2016

Additions Paymentsforgiven

February28,2017

NotepayabletoCopperstateFarms,LLC-$1,300,000USD,bearingnominalinterest,two-yearterm,forgivableineightquarterlyinstalments

$--

$1,704,225

$284,038

$1,420,187

Deduct–principalportionincludedincurrentliabilities -- -- -- (852,112) $-- $1,704,225 $284,038 $568,075

15. Longtermdebt

February28,2017 May31,2016

Termloan–$1,250,000–3.99%,5-yearterm,witha10-yearamortization,repayableinequalmonthlyinstalmentsof$12,630includinginterest,dueinJuly2021.

$1,190,369

$--

MortgagePayable–$3,750,000–3.95%,5-yearterm,witha20-yearamortization,repayableinequalmonthlyinstalmentsof$22,562includinginterest,dueinJuly2021.

3,677,899

--

Vendortake-backmortgageowedtorelatedparty–$2,850,000–6.75%,5-yearterm,repayableinequalmonthlyinstalmentsof$56,097includinginterest,dueinJune2021

2,523,085

--

7,391,353 --Deduct–unamortizedfinancefees (21,667) --–principalportionincludedincurrentliabilities (754,098) --

$6,615,588 $--


16

Totallong-termdebtrepaymentsareasfollows:

PeriodendingFebruary28,Next12months $754,098

2years 799,6483years 848,0914years 899,6165years 4,089,900

Balanceofobligation $7,391,353Thevendortake-backmortgagepayableof$2,523,085,owedtoadirectoroftheCompany,wasenteredintoonJune30,2016inconjunctionwiththeacquisitionofthepropertyat265TalbotStWest.Themortgageissecuredbyasecondchargeonthepropertyat265TalbotStWest.Themortgagepayableof$3,677,899andtermloanof$1,190,369wereenteredintoonJuly22,2016andaresecuredby a first chargeon theproperty at 265 Talbot StWest and a first positionon a general securityagreement.

16. Sharecapital

TheCompany isauthorizedto issueanunlimitednumberofcommonshares. AsatFebruary28,2017,theCompanyhasissued124,074,220shares.CommonShares NumberofShares AmountBalanceatMay31,2016 70,053,933 $40,916,880Boughtdeals,netofissuance 38,812,500 123,091,925Warrantsexercised 14,558,932 22,600,975Optionsexercised 572,596 761,665Shareissuanceinexchangeforservices 37,500 186,026Shareissuanceinexchangeforintangibleasset 38,759 100,000BalanceatFebruary28,2017 124,074,220 $187,657,471

a) InAugust2016,theCompanyclosedaboughtdealfinancinginwhichitissued17,250,000common

sharesatapurchasepriceof$2.00persharefor$31,959,093,netofcashissuancecosts.

b) In November 2016, the Company closed a bought deal financing in which it issued 10,062,500commonsharesatapurchasepriceof$4.00persharefor$37,263,475,netofcashissuancecosts.

c) InFebruary2017,theCompanyclosedaboughtdealfinancinginwhichitissued11,500,000commonsharesatapurchasepriceof$5.00persharefor$53,869,357,netofcashissuancecosts.

d) Throughoutthenine-monthperiod,14,558,932warrantswithexercisepricesrangingfrom$0.60to$1.75wereexercisedfor$22,600,975.

e) Throughoutthenine-monthperiod,572,596stockoptionswithexercisepricesrangingfrom$0.60to$1.30wereexercisedfor$761,665.

f) InSeptember2016,theCompanyissued38,759commonsharespursuanttoexecutionofanexclusivesupplyandlicensingagreement.


17

g) In January2017, theCompany issued37,500commonsharespursuant toa thirdparty consultingagreementforgreenhouserelatedservices

Thefollowingtablepresentsthemaximumnumberofsharesthatwouldbeoutstandingifallthedilutive“inthemoney”instrumentsoutstandingasatFebruary28,2017wereexercised:CommonsharesoutstandingatFebruary28,2017 124,074,220Warrantsoutstandingand“inthemoney” 3,775,873Optionsoutstandingand“inthemoney” 6,266,500FullydilutedbalanceatFebruary28,2017 134,116,593

17. Warrants

ThewarrantdetailsoftheCompanyareasfollows:

Typeofwarrant Expirydate Numberof

warrantsWeightedaverageprice

Amount

Compensationwarrant/option December10,2018 106,157 $1.75 $85,432Warrant December11,2018 357,923 $1.75 --Warrant December2,2019 3,111,793 $1.50 --Warrant September26,2021 200,000 $3.14 359,480BalanceatFebruary28,2017 3,775,873 $1.62 $444,912

February28,2017 May31,2016

NumberofWarrants

WeightedAverageExercisePrice

NumberofWarrants


Outstanding,beginningoftheperiod 17,919,719 $1.53 18,093,728 1.37Expiredduringtheperiod (50,305) 1.20 -- --Issuedduringtheperiod 465,391 2.48 5,756,235 1.67Exercisedduringtheperiod (14,558,932) 1.55 (5,930,244) 1.18Cancelledduringtheperiod -- -- -- --Outstanding,endofperiod 3,775,873 $1.57 17,919,719 $1.53

TheCompanyusedtheBlackScholesoptionpricingmodeltodeterminethefairvalueofwarrantsgranted

usingthefollowingassumptions:risk-freerateof0.44-1.56%onthedateofgrant;expectedlifeof3and5years;volatilityof70%basedoncomparablecompanies;forfeiturerateofnil;dividendyieldofnil;and,theexercisepriceoftherespectivewarrant.

18. Stockoptions

TheCompanyadoptedastockoptionplanunderwhichitisauthorizedtograntoptionstoofficers,directors,employees,andconsultantsenablingthemtoacquirecommonsharesoftheCompany.Themaximumnumberofcommonsharesreservedforissuanceofstockoptionsthatmaybegrantedundertheplanis10%oftheissuedandoutstandingcommonsharesoftheCompany.Theoptionsgrantedcanbeexercisedforamaximumof10yearsandvestasdeterminedbytheBoardofDirectors.Theexercisepriceofeachoptionmaynotbelessthanthemarketpriceofthecommonsharesonthedateofgrant.


18

TheCompanyrecognizedashare-basedcompensationexpenseof$1,255,976duringthethreemonthsendedFebruary28,2017(2016-$145,748)and$1,710,565duringtheninemonthsendedFebruary28,2017(2016-$405,079).Thetotalfairvalueofoptionsgrantedduringtheperiodwas$2,846,399(2016-$282,040). February28,2017 May31,2016

NumberofOptions


NumberofOptions


Outstanding,beginningoftheperiod 4,975,000 $0.84 4,520,000 0.81Exercisedduringtheperiod (641,500) 1.03 -- --Issuedduringtheperiod 2,113,000 3.73 565,000 $1.13Cancelledduringtheperiod (180,000) 1.11 (110,000) 1.08Outstanding,endofperiod 6,266,500 $1.79 4,975,000 $0.84Exercisable,endofperiod 4,333,287 $1.25 3,906,454 $0.76

InJune2016,theCompanyissued283,000stockoptionsatanexercisepriceof$1.40pershare,exercisablefor5yearstoemployeesandofficers.Oftheoptionsissued,94,329vestimmediatelyand188,671vestover2years.InJune2016,theCompanyissued30,000stockoptionsatanexercisepriceof$1.48pershare,exercisablefor5yearstoaconsultantoftheCompany.Oftheoptionsissued,15,000vestimmediatelyand15,000vestin1year.InJuly2016,theCompanyissued110,000stockoptionsatanexercisepriceof$1.64pershare,exercisablefor5yearstoanemployee.Oftheoptionsissued,50,000vestimmediatelyand60,000vestoverthreeyears.In September 2016, the Company issued 75,000 stock options at an exercise price of $3.00 per share,exercisablefor3yearstoconsultantsandemployeesofthecompany.25,000vest immediatelyand50,000vestbasedoncertainperformancemetricsattainableoverthethree-yearperiod.InOctober2016,theCompanyissued20,000stockoptionsatanexercisepriceof$3.49pershare,exercisablefor3yearstoanemployeeofthecompany.6,666vestimmediatelyand13,334vestovertwoyears.InOctober2016,theCompanyissued50,000stockoptionsatanexercisepriceof$3.70pershare,exercisablefor3yearstoadirectorofthecompany.All50,000vestimmediately.In November 2016, the Company issued 1,000,000 stock options at an exercise price of $3.90 per share,exercisable for 3 years to directors, officers, consultants and employees of the company. 333,333 vestimmediatelyand666,667vestover2years.In December 2016, the Company issued 500,000 stock options at an exercise price of $5.25 per share,exercisablefor3yearstoconsultantsofthecompany.All500,000vestbasedoncertainperformancemetricsattainableoverthethree-yearperiod.InJanuary2017,theCompanyissued45,000stockoptionsatanexercisepriceof$5.72pershare,exercisablefor3yearstoemployeesofthecompany.5,000vestimmediatelyandtheremaindervestover2years.


19

TheoptiondetailsoftheCompanyareasfollows:

Expirydate Exerciseprice Numberofoptions

Vestedandexercisable

November2017 $1.10 305,000 305,000December2017 $1.10 700,000 139,920March2018 $0.90 20,000 20,000April2018 $1.18 100,000 100,000October2018 $1.17 20,000 13,333November2018 $1.49 20,000 20,000December2018 $1.30 170,000 170,000April2019 $1.67 33,500 33,500June2019 $0.60 2,550,000 2,550,000September2019 $3.00 75,000 28,875October2019 $3.49–3.70 70,000 56,666November2019 $3.90 1,000,000 333,333December2019 $5.25 500,000 166,665January2020 $5.72 45,000 1,666September2020 $0.85 185,000 185,000November2020 $1.19 50,000 50,000June2021 $1.40 283,000 94,329June2021 $1.48 30,000 15,000July2021 $1.64 110,000 50,000BalanceatFebruary28,2017 $1.79 6,266,500 4,333,287

TheCompanyusedtheBlackScholesoptionpricingmodeltodeterminethefairvalueofoptionsgrantedusingthefollowingassumptions:risk-freerateof0.44-1.56%onthedateofgrant;expectedlifeof3and5years;volatility of 62-70%based on comparable companies; forfeiture rate of 5%; dividend yield of nil; and, theexercisepriceoftherespectiveoption.

19. Share-basedcompensation

Share-basedcompensationiscomprisedof:

February28, February29, 2017 2016

Amounts charged to share-basedpayment reserve in respectofshare-basedcompensation $1,508,539 $405,079Sharesforservicescompensation 186,026 --Deferredshareunitsexpensedinperiod 16,000 --Totalshare-basedcompensation $1,710,565 $405,079


20

20. Share-basedpaymentreserve

Share-basedpaymentreserveiscomprisedof:


Balance,beginningofyear $1,723,903 $1,261,589Amountsdeductedfromshare-basedpaymentreserveinrespectofstockoptionsexercisedduringtheperiod (310,615) --Amountschargedtoshare-basedpaymentreserveinrespectofshare-basedcompensation 1,508,539

405,079

Balance,endofyear $2,921,827 $1,666,668

21. Relatedpartytransactions

Priortogoingpublic,theCompanyfundedoperationsthroughthesupportofrelatedparties.Sincegoingpublic,theCompanyhascontinuedtoleveragethepurchasingpoweroftheserelatedpartiesforcertainofitsgrowingrelatedexpenditures.ThebalanceowingtorelatedpartiesasatFebruary28,2017was$nil(May31,2016-$nil).ThesepartiesarerelatedastheyarecorporationsthatarecontrolledbycertainofficersanddirectorsoftheCompany.

AmountBalanceasatMay31,2016 $--Relatedpartychargesinperiod 350,141Paymentstorelatedpartiesinperiod (350,141)BalanceasatFebruary28,2017 $--

DuringtheninemonthsendedFebruary28,2017,relatedpartycorporationschargedorincurredexpendituresonbehalfoftheCompanytotalling$350,141(2016-$885,269).Includedinthisamountwasrentof$41,211chargedduringtheninemonthsendedFebruary28,2017(2016-$135,383).Duringtheperiod,theCompanypurchased36acresoffarmland,with9acresofgreenhouseslocatedthereon,fromF.M.andCacciavillaniFarmsLtd.,acompanycontrolledbyadirector,for$6.1million.Thepurchasepricewasallocatedasfollows:(i)$1.3milliontoland;(ii)$3.55milliontogreenhouseinfrastructure;and,(iii)$1.25milliontolicensesandpermits–intangibleassets.

Keymanagementpersonnelcompensationiscomprisedof:


Salaries $619,755 $474,129Short-termemploymentbenefits(includedinofficeandgeneral) 34,673 --Share-basedcompensation 423,255 243,230 $1,077,683 $717,359

DirectorsandofficersoftheCompanycontrol15.2%or18,905,366ofthevotingsharesoftheCompany.


21

22. Financeincome,netFinanceincome,netiscomprisedof:


Interestincome $934,970 $171,947Interestexpense (236,486) -- $698,484 $171,947

23. Generalandadministrativeexpenses

Forthethreemonths

endedFortheninemonthsended

February28(29) February28(29) 2017 2016 2017 2016Executivecompensation $202,831 $201,634 $619,755 $456,129Consultingfees 52,899 7,026 132,311 34,313Officeandgeneral 397,468 202,186 1,105,853 426,243Professionalfees 151,170 128,577 391,034 264,158Salariesandwages 301,100 118,110 788,680 269,579Travelandaccommodation 100,909 43,842 319,954 159,204Rent 24,249 9,778 57,349 32,361 $1,230,626 $711,153 $3,414,936 $1,641,987

24. Changeinnon-cashworkingcapitalChangeinnon-cashworkingcapitaliscomprisedof:


Increaseinaccountsreceivable $(260,746) $(2,297,112)(Increase)decreaseinotherreceivables (1,367,751) 651,940Increaseininventory (123,072) (146,698)Decrease(Increase)inbiologicalassets 123,741 (147,663)Increaseinprepaidassets (269,274) (138,766)Increaseinaccountspayableandaccruedliabilities 3,329,970 666,269 $1,432,868 $(1,412,030)


22

25. Gainonlong-terminvestments

Gainonlong-terminvestmentsforthethreeandninemonthsendedFebruary28,2017iscomprisedof:

Investment Proceeds Cost Realizedgainondisposal

Changeinfairvalue

Total

Level1onfairvaluehierarchy CannaRoyaltyCorp-Shares. $3,539,050 $1,630,304 $1,908,746 $-- $1,908,746MassRootsInc.-Shares 600,599 337,500 263,099 -- 263,099Long-terminvestments(Note12) -- -- -- 6,971,562 6,971,562NineMonthsEndedFebruary28,2017 $4,139,649 $1,967,804 $2,171,845 $6,971,562 $9,143,407Lesstransactionsinpreviousquarters:

MassRootsInc.-Shares 600,599 337,500 263,099 -- 263,099ThreeMonthsEndedFebruary28,2017 $3,539,050 $1,630,304 $1,908,746 $6,971,562 $8,880,308

26. Earnings(loss)pershare

ThecalculationofearningspershareforthethreemonthsendedFebruary28,2017wasbasedonthenetincomeattributabletocommonshareholdersof$4,950,250(2016–$3,720)andaweightedaveragenumberofcommonsharesoutstandingof111,976,759(2016–62,174,289)calculatedasfollows:

2017 2016Basicearningspershare: Netincomeforthethree-monthperiod $4,950,250 $3,720Averagenumberofcommonsharesoutstandingduringtheperiod 111,976,759 62,174,289Earningspershare $0.04 $0.00

2017 2016Dilutedearningspershare: Netincomeforthethree-monthperiod $4,950,250 $3,720 Averagenumberofcommonsharesoutstandingduringtheyear 111,976,759 62,174,289“inthemoney”warrantsoutstandingduringtheperiod 2,445,570 1,142,486“inthemoney”optionsoutstandingduringtheperiod 3,875,709 3,714,206 118,298,038 67,030,981Earningspershare $0.04 $0.00

Thecalculationofearnings(loss)persharefortheninemonthsendedFebruary28,2017wasbasedonthenetincome(loss)attributabletocommonshareholdersof$6,791,197(2016–lossof$904,203)andaweightedaveragenumberofcommonsharesoutstandingof93,655,328(2016–55,699,999)calculatedasfollows:

2017 2016Basicearnings(loss)pershare: Netincome(loss)forthenine-monthperiod $6,791,197 $(904,203)Averagenumberofcommonsharesoutstandingduringtheperiod 93,655,328 55,699,999Earnings(loss)pershare $0.07 $(0.02)


23

2017 2016

Dilutedearnings(loss)pershare: Netincome(loss)forthenine-monthperiod $6,791,197 $(904,203) Averagenumberofcommonsharesoutstandingduringtheperiod 93,655,328 55,699,999“inthemoney”warrantsoutstandingduringtheperiod 2,445,570 1,142,486“inthemoney”optionsoutstandingduringtheperiod 3,875,709 3,714,206 99,976,607 60,556,691Earnings(loss)pershare $0.07 $(0.01)

27. Financialriskmanagementandfinancialinstruments

FinancialinstrumentsTheCompanyhasclassifieditscashandcashequivalents,marketablesecuritiesandlong-terminvestments,withtheexceptionofthedebentureinCannaRoyaltyCorp.andSecureComMobileInc.,asfairvaluethroughprofit or loss, accounts receivable and other receivables and promissory notes receivable as loans andreceivables,andaccountspayableandaccrued liabilities,promissorynotespayable,and long-termdebtasotherfinancialliabilities.ThedebenturesinCannaRoyaltyCorp.andSecureComMobileInc.areaccountedforonanamortizedcostbasis. Thecarryingvaluesofotherreceivables,promissorynotesreceivable,accountspayableandaccruedliabilities,andpromissorynotespayableapproximatetheirfairvaluesduetotheirshortperiodstomaturity.TheCompany’slong-termdebtof$7,391,353issubjecttofixedinterestrates.TheCompany’slong-termdebtisvaluedbasedondiscountingthefuturecashoutflowsassociatedwiththelong-termdebt.Thediscountrateis based on the incremental premium abovemarket rates forGovernment of Canada securities of similarduration. In each period thereafter, the incremental premium is held constantwhile the Government ofCanadasecurityisbasedonthethencurrentmarketvaluetoderivethediscountrate.ThefairvalueoftheCompany’slong-termdebtatFebruary28,2017was$7,312,307.

FairvaluehierarchyFinancial instruments recorded at fair value are classified using a fair value hierarchy that reflects thesignificanceofinputsusedinmakingthemeasurements.CashandcashequivalentsareLevel1.Thehierarchyissummarizedasfollows:

Level1 quotedprices(unadjusted)inactivemarketsforidenticalassetsandliabilitiesLevel2 inputsthatareobservablefortheassetorliability,eitherdirectly(prices)orindirectly(derivedfrom

prices)fromobservablemarketdataLevel3 inputsforassetsandliabilitiesnotbaseduponobservablemarketdata


24

Level1 Level2 Level3 February28,2017

FinancialassetsatFVTPL Cashandcashequivalents $84,351,132 $-- $-- $84,351,132Marketablesecurities 37,678,063 -- -- 37,678,063Accountsreceivable -- 2,039,425 -- 2,039,425Otherreceivables -- 1,494,703 -- 1,494,703Biologicalassets -- -- 652,047 652,047Long-terminvestments 22,942,592 -- 6,442,674 29,385,266 $144,971,787 $3,534,128 $7,094,721 $155,600,636Financial liabilities at amortizedcost Accountspayableandaccruedliabilities $4,612,462 $-- $-- $4,612,462

Currentportionofpromissorynotepayable 852,112 -- -- 852,112

Currentportionoflong-termdebt754,098 -- -- 754,098

Promissorynotepayable 568,075 -- -- 568,075Long-termdebt 6,615,588 -- -- 6,615,588 $13,402,335 $-- $-- $13,402,335

Level1 Level2 Level3 May31,2016

FinancialassetsatFVTPL Cash $16,472,664 $-- $-- $16,472,664Accountsreceivable -- 1,778,679 -- 1,778,679Otherreceivables -- 126,952 -- 126,952Biologicalassets -- -- 697,997 697,997Long-terminvestments 1,510,200 -- 50,000 1,560,200 $17,982,864 $1,905,631 $747,997 $20,636,492 Financialliabilitiesatamortizedcost

Accountspayableandaccruedliabilities $1,226,492 $-- $-- $1,266,492

FinancialriskmanagementTheCompanyhasexposuretothefollowingrisksfromitsuseoffinancialinstruments:creditrisk;liquidity;and,interestratepricerisk.

(a) Creditrisk

ThemaximumcreditexposureatFebruary28,2017isthecarryingamountofcashandcashequivalents,marketablesecurities,accountsreceivableandotherreceivablesandpromissorynotesreceivable.TheCompanydoesnothavesignificantcreditriskwithrespecttocustomers.Allcashandcashequivalentsare placed withmajor Canadian financial institutions. Marketable securities are placed withmajorCanadianinvestmentbanks.TheCompanymitigatesitscreditriskandvolatilityonitsmarketablesecuritiesthroughitsinvestmentpolicy,whichpermitsinvestmentsinFederalorProvincialgovernmentsecurities,ProvincialutilitiesorbankinstitutionsandInvestmentgradecorporatebonds.


25

Total 0-30days 31-60days 60-90days 90+daysTradereceivables $2,039,425 $933,696 $552,209 $176,520 $377,000 45.8% 27.1% 8.7% 18.4%

(b) Liquidityrisk

As at February28, 2017, theCompany’s financial liabilities consist of accountspayable andaccruedliabilities,whichhascontractualmaturitydateswithinoneyear,promissorynotepayable,whichhasacontractualmaturitywithin15monthsandlong-termdebt,whichhascontractualmaturitiesoverthenext five years. The Companymanages its liquidity risk by reviewing its capital requirements on anongoingbasis.Basedon theCompany’sworkingcapitalpositionatFebruary28,2017,managementregardsliquidityrisktobelow.

(c) InterestratepriceriskTheCompanymanagesinterestrateriskbyrestrictingthetypeofinvestmentsandvaryingthetermsofmaturityandissuersofmarketablesecurities.Varyingthetermstomaturityreducesthesensitivityoftheportfoliototheimpactofinterestratefluctuations.

(d) Capitalmanagement

TheCompany’sobjectiveswhenmanagingitscapitalaretosafeguarditsabilitytocontinueasagoingconcern,tomeetitscapitalexpendituresforitscontinuedoperations,andtomaintainaflexiblecapitalstructure which optimizes the cost of capital within a framework of acceptable risk. The Companymanages its capital structure and adjusts it in light of changes in economic conditions and the riskcharacteristicsoftheunderlyingassets.Tomaintainoradjustitscapitalstructure,theCompanymayissue new shares, issue new debt, or acquire or dispose of assets. The Company is not subject toexternallyimposedcapitalrequirements.Management reviews its capital management approach on an ongoing basis and believes that thisapproach,giventherelativesizeof theCompany, is reasonable.TherehavebeennochangestotheCompany’s capital management approach in the period. The Company considers its cash and cashequivalentsandmarketablesecuritiesascapital.

28. Commitments

TheCompanyhasaleasecommitmentuntilDecember31,2018forrentalofofficespacefromarelatedparty.TheCompanyhasanoptiontoextendthisleasefortwoadditional5yearperiods.InJulyof2016,theCompanyterminated its leaseofgreenhouseandwarehouseproperty inconjunctionwith theacquisitionof the265TalbotStreetWestproperty.TheCompanyhasaleasecommitmentsfortheuseoftwomotorvehiclesexpiringSeptember2019andAugust2020intheamountsof$9,313and$19,599,respectively,annuallyandleasedofficespaceinTorontofor$4,500permonthuntilSeptember2017.Minimumpaymentspayableoverthenextfiveyearsareasfollows:


26

PeriodsendingMay31,

2017 $2,028,5872018 11,026,7152019 47,9932020 21,9272021 3,267

$13,128,489The Company has purchase orders outstanding at February 28, 2017 related to capital expansion of$12,946,773,ofwhich$1,999,681areexpectedtobepaidinfiscal2017.

29. Subsequentevents

On March 9, 2016, the Company sold 500,000 shares held in Canabo Medical Inc. for net proceeds ofapproximately$340,000,whichweresubjecttoamandatory4-monthholdingperiod,expiringApril23,2017.TheCompanypurchased500,000sharesonMarch13,2017foranaggregatepurchasepriceof$370,700.OnMarch 18,2016, the Company revised a consulting agreement pursuant towhich the Company issued112,500commonsharesintoanescrowaccountinexchangeforfutureservicestobeprovidedbyagreenhouseconsultant.Thesharesaretobereleasedbytheescrowagentuponsuccessfulcompletionofcertaintime-basedandperformance-basedmilestonesbytheconsultant.IntheeventthatthemilestonesarenotachievedbyApril30,2018,theescrowedshareswillbereturnedtotheCompanytobecancelled.OnMarch20,2017,theCompanyexercisedits5,000,000warrantsheldinTetraBio-PharmaInc.(“TBP”)fortheaggregatepriceof$1,300,000.Theproceeds fromthewarrantexerciseare tobeused toadvance theclinicaltrialsbeingdevelopedinPhytoPainPharmsInc.,asubsidiaryofTBP.OnMarch22,2017,theCompany‘scommonsharesbegantradingontheTSX.TheCommonSharescontinuetotradeunderthesymbol“APH”.InconjunctionwithlistingontheTSX,thecommonshareswerevoluntarilydelistedfromtheTSX-VentureExchange.OnMarch27,2017,theCompanyenteredintoasubscriptionagreementwithCopperstateFarmsInvestors,LLCtopurchase6,000additionalmembershipunitsfor$3,000,000(USD).OnMarch30,2017,theCompanyexercisedits500,000warrantsheldinMassRootsfortheaggregatepriceof$450,000USD.OnApril4,2017,theCompanyannounceditwillinvest$25millionintoDFMMJInvestmentLtd.,anewspecialpurposeprivatecompanywhichwillacquireallorsubstantiallyalloftheassetsofChestnutHillTreeFarmLLCand subsequently amalgamate intoa subsidiaryof SecureComMobile Inc., apublic company listedon theCanadian Securities Exchange, as part of a business combination (the "Business Combination"). The funds,when combinedwith an additional $35million tobe raised in a brokeredprivateplacement ledbyClarusSecuritiesInc.,willbeusedforthelaunchofitsUSexpansionstrategyinanentitytoberenamedLibertyHealthSciences Inc. (“Liberty”) that will operate in the United States under the brand "Aphria USA". Once thetransactioniscompleted,theCompanywillownapproximately37.6%oftheissuedandoutstandingcommonsharesofLiberty.Aspartofthetransaction,Aphriahasagreed,uponcompletionoftheBusinessCombination,to licenceitsmedicalbrandtoLiberty, inexchangeforaperpetual3%royaltyonallsalesofmarijuanaandrelatedproducts. Further,Aphria has agreed, upon completionof theBusinessCombination, to licence itsgreenhouse growing intellectual property system to Liberty in exchange for additional common shares inLiberty.

Aphria-Q3 2017 FS · PDF fileCapital assets 10 40,895,668 7,309,220 ... Long-term investments...

Documents

Transcript of Aphria-Q3 2017 FS · PDF fileCapital assets 10 40,895,668 7,309,220 ... Long-term investments...