CANNGROUPLIMITEDanditscontrolledentities
ABN25603949739
ANNUALFINANCIALSTATEMENTSFORTHEYEARENDED
30JUNE2016
CANNGROUPLIMITEDABN25603949739
CorporateInformation
ThesearethefirstfullfinancialstatementsofCannGroupLtd(thecompany)andits100%ownedsubsidiaries,including Cannproducts Pty Ltd (incorporated and domiciled in Victoria, Australia), Cannoperations Pty Ltd(incorporated and domiciled in Victoria, Australia), Anslinger Holdings Pty Ltd (incorporated and domiciled inVictoria,Australia),CannInvestmentsPtyLtd(incorporatedanddomiciledinVictoria,Australia),CannproductsNZLimited(domiciledinNewZealand)andCannGlobalInc(incorporatedanddomiciledinNevada,USA)(together,theGroup).Thesefinancialstatementsarefortheyearended30June2016.Unlessotherwisestated,allamountsarepresentedin$AUD.
Adescriptionofthegroup’soperationsandofitsprincipalactivitiesisincludedinthereviewofoperationsandactivitiesintheattachingdirectors’report.
Directors
MrAllanMcCallum(Chairman)
MrPhilipJacobsen(DeputyChairman)
MrDouglasRathbone
MrAlbertoMariani(resigned11April2016)
MrMichaelMurchison(appointed3December2015)
MrGeoffreyPearce(appointed11April2016)
RegisteredandPrincipalOffice
52DuerdinStreet
ClaytonVIC3168
Contents
Directors’report 1
Auditor’sIndependenceDeclaration 6
Annualfinancialstatements
Consolidatedstatementofcomprehensiveincome 7
Consolidatedstatementoffinancialposition 8
Consolidatedstatementofchangesinequity 9
Consolidatedstatementofcashflows 10
Notestothefinancialstatements 11
Directors’declaration 28
IndependentAuditor’sreport 29
CANNGROUPLIMITEDABN25603949739
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DIRECTORS’REPORT
Yourdirectorspresenttheirreportonthegroupfortheyearended30June2016.
INFORMATIONONDIRECTORS
Thenamesanddetailsofthedirectorsinofficeduringtheperiodanduntilthedateofthisreportareasfollows.Directorshavebeeninofficeforthisentireperiodunlessotherwisestated.
Thenamesofthedirectorsinofficeatanytimeduringorsincetheendoftheyearandtheirqualificationsareasfollows:
AllanMcCallum,Dip.AgScience,FAICD(ExecutiveChairman)
An experienced public company director who has strong ethics, proven leadership capabilities and extensiveexperienceinstrategydevelopmentandimplementationandmergersandacquisitions.AllanisaformerDirectorofIncitecPivotLtd(ASXIPL),thecurrentChairofTassalGroupLtd(ASXTGR)Australia’slargestproducerofAtlanticsalmon and a Director of Medical Developments International Ltd (ASX MVP), a pharmaceutical and devicemanufacturer,marketingnationallyandinternationally.
SpecialResponsibilities-Member–AuditandRiskCommittee
InterestinSharesandPerformanceRights3,840,000OrdinaryShares640,000Options2,000,000PerformanceRightsClassA1,000,000PerformanceRightsClassB
PhilipRobertNicholasJacobsen,CPA(DeputyChairman)
Anexperiencedpubliccompanydirector,heco-foundedPremierArtistsin1975andTheFrontierTouringCompanyin1979.HeservesasadirectorofLiberationMusic,PremierArtists,TheHarbourAgencyandJacobsenBloodstock.FormerChairofMCMEntertainmentGroup,PhilipbringstotheBoarda45plusyearhistoryofapplyingsolidfiscalaccountingperspectivestoanemergingbusinessmodelinaconstantlychanging,highdemandmarketplace.
SpecialResponsibilities-Chairman–AuditandRiskCommittee
InterestinSharesandPerformanceRights2,300,000OrdinaryShares800,000Options1,000,000PerformanceRightsClassA500,000PerformanceRightsClassB
DouglasJohnRathbone,AM,FATSE,FIChemE,ARMITBComm,TTC
Anexperiencedpubliccompanydirector,heistheformerManagingDirectorandCEOofNufarmLimited–anASX200listedcompanyandisaformerBoardmemberoftheFERNZCorporationandtheCSIRO.HeisamemberoftheRABOBankAdvisoryBoard,anHonoraryLifeGovernoroftheRoyalChildren’sHospitalandaformerDirectoroftheBurnettCentreforMedicalResearch.DougbringstotheBoardexperiencedmanagementandcorporategovernanceskillstogetherwithapassiontogrowthebusinesshavingsuccessfullytransformedNufarmtobecomeoneoftheworld’sleadingcropprotectionandseedcompanieswithanextensiveglobalfootprint.
SpecialResponsibilities-Member–AuditandRiskCommittee
InterestinSharesandPerformanceRights1,120,000OrdinaryShares320,000Options80,000PerformanceRightsClassA80,000PerformanceRightsClassB
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MichaelKennethMurchison,MAICD(appointed3December2015)
Michael is anexperiencedprojectmanager,withdirectexperienceandbusiness interests in theUS regulatedcannabisindustry.HeholdscertificationsunderCalifornianmedicinalcannabislawsandisalongtermadvocateforthedevelopmentofaregulatedmedicinalcannabisindustryinAustralia.MichaelfoundedthefirstCannGroupcompanyinearly2014afterasuccessfulcareerinthemusicandentertainmentpromotionsindustry.Apartfromhisextensiveknowledgeoftheinternationalmedicinalcannabisindustry,Michaelbringsexperienceinlogistics,internationalbusinessandtechnologylicensing.
SpecialResponsibilities-Member–AuditandRiskCommittee
InterestinSharesandPerformanceRights13,600,000OrdinaryShares6,480,000PerformanceRightsClassA4,260,000PerformanceRightsClassB
GeoffreyRonaldPearce(appointed11April2016)
Geoff isasuccessfulentrepreneurandbusinessmanwithmorethan40years’experience in thepersonalcareindustry.HeestablishedandownedScentalPacificPtyLtdandgrewthebusiness tobecomeVictoria’s largestmanufacturer of personal care products before selling it to the Smorgon Family. He later built a contractmanufacturingbusiness,BeautiworxAustraliaPtyLtd,whichwasalsosold.GeoffcurrentlyownsTheContinentalGroup,whichsuppliespharmaceuticalpackagingandrawmaterialsandhasdevelopedallianceswithsomeoftheworld’s leading herbal extract manufacturers. He has extensive experience in areas includingmanufacturing,procurement,distributionandregulatoryaffairs.
SpecialResponsibilities-Member–AuditandRiskCommittee
InterestinSharesandPerformanceRights520,000OrdinaryShares320,000Options
Directorshavebeeninofficesincethestartoftheperiodtothedateofthisreportunlessotherwisestated.CHIEFEXECUTIVEOFFICERPeterCrock–CEO,B.Ag.Sci(Hon);MBA(appointed23May2016)Peterisanexperiencedpubliccompanyseniormanagerwithstrongskillsinmarketingandtechnologydevelopment.Ina28-yearcareeratNufarmLimited,Peterheldseniormanagementrolesinmarketing,businessdevelopment,andinformationtechnology,mostrecentlyheadingupthegroup’snewtechnologiesdivisionwhichinvolvedthelicensingandcommercialdevelopmentofseveralnewagribusinesstechnologies.HehasprojectmanagedthesuccessfulintegrationofnewlyacquiredbusinessesandhasextensiveexperienceworkingwithregulatorsinAustraliaandoverseas.
COMPANYSECRETARYRichardBaker,M.CommrclLaw,B.Ec.,CPAAseniorexperiencedFinancialControllerandCompanySecretary,withextensiveASXexperience,intermsofgovernance,capitalraisingsandreportingincludingimplementinginternalcontrols,accountingandERPsystemsinestablishedandstart-upenterprises.Hehashadpublicpracticeexperienceinbusinessservices,taxationandaudittoadiverserangeofclients involved inFMCG,manufacturing,professionalservicesandtransportandgainedavarietyofexperienceasFinancialControllerwithpreviousemployers includingmineralexploration,importanddistribution,FMCGandprofessionalconsulting.
DIVIDENDS Nodividendshavebeenpaidorhavebeenrecommendedduringtheperiod.
PRINCIPALACTIVITIESTheprincipalactivitiesofthegroupduringtheyearconsistedofdevelopingamanufacturingandatechnologystructuretoconductscientificresearchwithaviewtocommercialisetheoutputsofthatresearchformedicinaluses.
Nosignificantchangeinthenatureoftheseactivitiesoccurredduringtheperiod.
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OPERATINGRESULTSFORTHEPERIODThegroupmadeanoperatinglossof$1,462,011fortheperiodended30June2016.SIGNIFICANTCHANGESINTHESTATEOFAFFAIRSCapitalraisingDuringtheperiodtheCompanyissuedanInformationMemorandumforaprivatecapitalraising(“theOffer”)upto$648,000atanofferpriceof$0.60pernewsharetogetherwitha1:1option(fornoadditionalconsiderationandexercisableat$0.60,or$0.15posttheshare-splitof30June2016)foreachnewshare,withcapacitytoacceptoversubscriptions of $648,000, from sophisticated and professional investors under section 708 of theCorporationsAct.TheOfferclosedon12May2016andraised$1,927,000(beforecosts).DeregistrationofCannlabsAustraliaPtyLtdOn11May2016theDirectorsofCannlabsAustraliaPtyLtd(ACN603792794)(“Cannlabs”)appliedforvoluntaryderegistrationoftheCompany. Cannlabs isawholly-ownedsubsidiaryofCannGroupLimited. TheAustralianSecurities and Investments Commission is processing the application as at the date of this report. It wasdeterminedby theBoardofCannGroup Limited thatCannlabswas superfluous to theGroup structure goingforwardandcostsavingscouldbemadebyderegisteringtheCompany.Therewerenoothersignificantchangesinthestateofaffairsofthegroupduringtheyear.LIKELYDEVELOPMENTSANDEXPECTEDRESULTSOtherthanmattersreferredtoelsewhereinthisreportandabove,furtherinformationastolikelydevelopmentsintheoperationsoftheentityandtheexpectedresultsofoperationshavenotbeenincludedinthisreportbecausethedirectorsbelieveitwouldbelikelytoresultinunreasonableprejudicetotheentity.ENVIRONMENTALREGULATIONANDPERFORMANCEThegroup’soperationsarenotsubjecttoanyparticularenvironmentalregulations.DIRECTORS’MEETINGS
ThenumberofmeetingsoftheCompany’sBoardofDirectorsandAuditandRiskCommitteemembersheldduringtheyearended30June2016andthenumberofmeetingsattendedbyeachDirector/memberwere: BoardMeetings AuditandRiskCommitteeMeetings
Name Numbereligibletoattend
Numberattended Numbereligibletoattend
Numberattended
AllanMcCallum 9 9 2 2
PhilipJacobsen 9 9 2 2
DouglasRathbone 9 9 2 2
AlbertoMariani(resigned11April2016)
8 8 2 2
MichaelMurchison(appointed3December2015)
5 5 1 1
GeoffPearce(appointed11April2016)
1 1 - -
OPTIONS
The group has on issue 12,846,667 options to purchase ordinary fully paid shares. The optionswere issuedpursuant to the InformationMemorandumdated 11April 2016 entitling each subscriber to oneoption at noadditionalcostforeachnewsharesubscribedforunderthatInformationMemorandum.
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Theoptionsareexercisableat$0.60preshare-splitand$0.15postshare-split(whichoccurredon30June2016)at any time during the period commencing from the date of its issue and expiring on the earlier of 4:00pm(Melbourne,Victoriatime)on31March2017orthedateofallotmentofnewsharesunderaprospectusissuedbytheCompanyinrelationtoitsadmissiontotheOfficialListoftheASX.PERFORMANCERIGHTSThe Company has issued 18,000,000 Performance Rights at $0.0001 per Right comprising 11,000,000 Class APerformanceRightsand7,000,000ClassBPerformanceRightsofwhich:
• 9,560,000ClassAPerformanceRightsand5,840,000ClassBPerformanceRights(postshare-split)havebeenissuedtoDirectorsandKeyManagementPersonneloftheCompany;and
• 1,440,000ClassAPerformanceRightsand1,160,000ClassBPerformanceRights(postshare-split)havebeen issued toa formerDirectorandnon-relatedpartyconsultantsandadvisors inconsideration forvariousadvisoryservices.
ThePerformanceRightshavethefollowingmilestonesattachedtothem:
(i)ClassAPerformanceRights: iftheCompanyissuesfurtherSharesinadditiontotheNewSharesat$1.50perShare($0.375postshare-split)orhigher(subjecttoanyadjustmentsassetoutbelowin(iii));and
(ii)ClassBPerformanceRights:iftheCompanyappliestobeadmittedtotheOfficialListoftheASXoratradesaleoftheunderlyingbusinessoftheCompanyortheCompanyoccurs.
(iii)If,atanytime,theissuedcapitaloftheCompanyisreorganised(includingconsolidation,subdivision,reductionorreturn),allrightsofaholderofaPerformanceRight(includingtheVestingConditions)aretobechangedinamannerconsistentwiththeCorporationsActandtheASXListingRulesatthetimeofthereorganisation.
ThePerformanceRightswereissuedfor$0.0001eachandnoconsiderationwillbepayableuponthevestingofthePerformanceRights. UponsatisfactionoftherelevantPerformanceRightsvesting,eachPerformanceRightwill,attheelectionoftheholder,vestandconvertasfollows:
(i)eachClassAPerformanceRightconvertsintooneShare;and(ii)eachClassBPerformanceRightconvertsintooneShare.
IftheMilestoneattachingtoaPerformanceRighthasnotbeensatisfiedinthetimeperiodssetoutbelow,itwillautomaticallylapse:
(i) ClassAPerformanceRights:3yearsfrom22May2015;(ii) ClassBPerformanceRights:4yearsfrom22May2015;
otherwise,anyPerformanceRightthathasnotbeenconvertedintoaShareonorbeforethedateofadmissionoftheCompanytotheOfficialListoftheASXwillautomaticallylapse.INDEMNIFYINGOFFICERSORAUDITOR
Noindemnitieshavebeengivenorinsurancepremiumspaid,duringorsincetheendoftheperiod,foranypersonwhoisorhasbeenanofficerorauditorofthegroup.PROCEEDINGSONBEHALFOFTHEGROUP
No person has applied for leave of court to bring proceedings on behalf of the group or intervene in anyproceedingstowhichthegroupisapartyforthepurposeoftakingresponsibilityonbehalfofthegroupforalloranypartofthoseproceedings.Therewerenoproceedingsduringtheperiod.
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EVENTSAFTERTHEENDOFTHEREPORTINGPERIOD
On3August2016theDirectorswrotetotheCompanyadvisingoftheirnoticeofintentiontoprovidefinancialsupporttoCannGroupLimitedbynotcallinguponDirectorFeesowingoraccruedbythatDirector,sothattheCompanyhassufficientworkingcapitalinordertopayitsdebtsasandwhentheyfalldueandpayable,foraperiodofatleast13monthsfromthedateofsigningoftheletter,ortosuchapointintimethattheCompanyisabletosatisfyitscommitmentsandobligationstoitssuppliersandemployeeswithoutsuchhelpandwithoutjeopardisingitsavailableworkingcapitalposition.IntheirletterstheDirectorsalsonotedthattheyhavetheoption,butnottheobligation,toprovideadditionalworkingcapitaltotheCompanybytheexercisetheiroption-holdings inaseedcapitalraisingpriortotheexpirydateofthoseoptions,being31March2017.Detailsoftheir interests inshareoptions,exercisableatastrikepriceof15centsaredisclosedinNote5.Therewerenoothermattersorcircumstanceshavearisensincetheendoftheyearwhichsignificantlyaffectedormaysignificantlyaffecttheoperationofthegroup,theresultsofthoseoperations,orthestateofaffairsofthegroupinfuturefinancialyears.SignedinaccordancewitharesolutionoftheBoardofDirectors:
____________________ AllanMcCallum CHAIRMAN Date:3August2016
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CANN GROUP LIMITED AND CONTROLLED
ENTITIES (CONT) Auditor’s Opinion
In our opinion:
c) the accompanying financial report of Cann Group Limited is in accordance with the Corporations Act 2001,
including:
iii. giving a true and fair view of the Company and consolidated entity’s financial position as at 30 June 2016 and
of its performance for the year ended on that date; and
iv. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001; and
d) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2.
William Buck Audit (VIC) Pty Ltd
ABN: 59 116 151 136
N. S. Benbow
Director Dated this 3rd day of August, 2016
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ConsolidatedStatementofProfitorLossandotherComprehensiveIncome
FORTHEPERIODENDED30JUNE2016
Note 2016
Fortheperiod30January2015to30June2015
$ $ Revenue 3 6,662 5,726 Administrationandcorporatecosts (589,200) (380,958)Depreciation (28,917) -Employeeremuneration (216,778) -Financecosts (15,533) (5,231)Occupancyexpenses (79,754) (15,303)Operationalpreparationcosts (178,140) (45,693)Professionalfees (95,682) (13,025)Performancerightsexpense (83,904) (381,163)Sharebasedpayments - (519,634)Researchanddevelopment (64,404) (182,247)Travelexpenses (93,287) (173,299)Otherexpenses (23,074) (29,359) Lossbeforeincometax (1,462,011) (1,740,186)Incometaxexpense 4 - -Lossattributabletomembersofthecompany (1,462,011) (1,740,186)Othercomprehensiveincome - -Totalcomprehensivelossattributabletomembersofthecompany (1,462,011) (1,740,186)
Theaccompanyingnotesformpartofthesestatements.
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ConsolidatedStatementofFinancialPosition
ASAT30JUNE2016
Theaccompanyingnotesformpartofthesestatements
Note 2016 2015 $ $
ASSETS CURRENTASSETS Cashandcashequivalents 1,344,055 450,824
Tradereceivablesandotherassets 7 5,519 103,961TOTALCURRENTASSETS 1,349,574 554,785 NON-CURRENTASSETS Plantandequipment 8 486,758 171,369
Rentalbond 35,000 -TOTALNON-CURRENTASSETS 521,758 171,369TOTALASSETS 1,871,332 726,154 LIABILITIES CURRENTLIABILITIES Unsecuredtradeandotherpayables 9 181,849 77,829TOTALCURRENTLIABILITIES 181,849 77,829TOTALLIABILITIES 181,849 77,829NETASSETS 1,689,483 648,325 EQUITY Ordinarysharecapital 11 4,376,271 1,957,006
Performancerightsreserve 13 515,409 431,505
Accumulatedlosses (3,202,197) (1,740,186)
TOTALEQUITY 1,689,483 648,325
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ConsolidatedStatementofChangesinEquity
FORTHEPERIODENDED30JUNE2016
Ordinary
Performance
Rights Accumulated Total shares reserve losses equity
$ $ $ $Balanceat1July2015 1,957,006 431,505 (1,740,186) 648,325
Issueofshares 2,527,000 - - 2,527,000Costsofissuingshares (107,735) - - (107,735)VestingofClassBperformancerights - 83,904 - 83,904Comprehensivelossfortheperiodended30June2016 - - (1,462,011) (1,462,011)
Balanceat30June2016 4,376,271 515,409 (3,202,197) 1,689,483
Ordinary
Performance
Rights Accumulated Total shares reserve losses equity
$ $ $ $Balanceat30January2015 - - - -Issueofshares 1,992,006 - - 1,992,006Costsofissuingshares (35,000) (35,000)Issueorperformancerights(netofcosts) - 431,505 - 431,505Comprehensivelossfortheperiodended30June2015 - - (1,740,186) (1,740,186)
Balanceat30June2015 1,957,006 431,505 (1,740,186) 648,325 Theaccompanyingnotesformpartofthesestatements
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ConsolidatedStatementofCashFlows
FORTHEPERIODENDED30JUNE2016
Note 2016 2015 $ $ CASHFLOWSFROMOPERATINGACTIVITIES Receiptsfromcustomers 420 3,357Paymentstosuppliersandemployees (1,253,428) (272,231)Interestreceipted 6,280 1,067Netcashflowsprovidedusedinoperatingactivities 17 (1,246,728) (267,807) CASHFLOWSFROMINVESTINGACTIVITIES Acquisitionofproperty,plantandequipment (344,305) (171,369)Acquisitionofotherassets (35,000) Netcashflowsusedininvestingactivities (379,305) (171,369) CASHFLOWSFROMFINANCINGACTIVITIES Proceedsfromissuesofshares 2,627,000 925,000Costsofissuingshares (107,736) (35,000)Netcashflowsprovidedbyfinancingactivities 2,519,264 890,000
Netincrease/(decrease)incashheld 893,231 450,824Cashandcashequivalentsatthebeginningoftheperiod 450,824 -CASHANDCASHEQUIVALENTSATTHEENDOFTHEPERIOD 1,344,055 450,824
Theaccompanyingnotesformpartofthesestatements
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1. CORPORATEINFORMATION
ThesearethefirstfullfinancialstatementsofCannGroupLimited(thecompany)andits100%ownedsubsidiaries,including Cannproducts Pty Ltd (incorporated and domiciled in Victoria, Australia), Cannoperations Pty Ltd(incorporated and domiciled in Victoria, Australia), Anslinger Holdings Pty Ltd (incorporated and domiciled inVictoria,Australia),CannInvestmentsPtyLtd(incorporatedanddomiciledinVictoria,Australia),CannproductsNZLimited(domiciledinNewZealand)andCannGlobalInc(incorporatedanddomiciledinNevada,USA)(together,theGroup).CannGroupLimitedisanunlistedpubliccompanyincorporatedanddomiciledinVictoria,Australia.These financial statements are for the year ended 30 June 2016. Unless otherwise stated, all amounts arepresentedin$AUD,whichisthefunctionalandpresentationcurrencyofallentitiesintheGroup.ThefinancialstatementswereauthorisedforissuebytheDirectorsonthedateofsigningtheattachedDirectors’Declaration.
2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(a) Basisofaccounting
ThefinancialstatementsaregeneralpurposefinancialstatementsthathavebeenpreparedinaccordancewithAustralian Accounting Standards, including Australian Accounting Interpretations, other authoritativeannouncements of the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001 asappropriateforfor-profitorientedentities.
AustralianAccountingStandardssetoutaccountingpoliciesthattheAASBhasconcludedwouldresultinfinancialstatementscontainingrelevantandreliableinformationabouttransactions,eventsandconditions.Compliancewith Australian Accounting Standards ensures that the financial statements and notes also comply withInternational FinancialReportingStandards. Material accountingpolicies adopted in thepreparationof thesefinancialstatementsarepresentedbelow.Theyhavebeenconsistentlyappliedunlessotherwisestated.
The financial statementshavebeenpreparedonanaccrualsbasisandarebasedonhistorical costsmodified,whereapplicable,bythemeasurementoffairvalueofselectednon-currentassets,financialassetsandfinancialliabilities.
Theamountspresentedinthefinancialstatementshavebeenroundedtothenearestdollar.AccountingStandardsandInterpretations
(i) ChangesinaccountingpolicyanddisclosuresTheGrouphas adoptedall of thenew, revisedor amendingAccounting Standards and InterpretationsissuedbytheAustralianAccountingStandardsBoard('AASB')thataremandatoryforthecurrentreportingperiod.
(ii) AccountingstandardsandinterpretationsissuedbutnotyeteffectiveAustralianAccountingStandardsandInterpretationsthathaverecentlybeenissuedoramendedbutarenotyeteffectiveandhavenotbeenadoptedbytheGroupfortheannualreportingperiodending30June2016areoutlinedinthetablebelow.
Standard Mandatorydateforannual
reportingperiodsbeginningonorafter)
Reportingperiodstandardadoptedbythecompany
AASB9FinancialInstrumentsandrelatedstandards 1January2018 1July2018AASB2014-4ClarificationofAcceptableMethodsofDepreciationandAmortisation
1January2016 1July2016
AASB15RevenuefromContractswithCustomersandAASB2014-5AmendmentstoAustralianAccountingStandardsfromAASB15
1January2018 1July2018
AASB2014-9Equitymethodinseparatefinancialstatements 1January2016 1July2016AASB2015-1Annualimprovements2012-2014cycle 1January2016 1July2016AASB2015-2AmendmentstoAustralianAccountingStandards–DisclosureInitiative:AmendmentstoAASB101
1January2016 1July2016
AASB2015-9AmendmentstoAustralianAccountingStandards 1January2016 1July2016AASB16Leases 1January2019 1July2018
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2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued)Basisofaccounting(continued)Managementhaveassessedthatthesenewstandardswillnotmateriallyimpactthesefinancialstatements.(b) PrinciplesofConsolidationThese consolidated financial statements comprise the financial statements of the company and its controlledentitiesthroughoutreportingperiod.Controlledentitiesreferstoentitiesoverwhichthegrouphasthepowertogovernthefinancialandoperatingpolicies,generallyaccompanyingashareholdingofmorethanone-halfofthevotingrights.Theexistenceandeffectofthepotentialvotingrightsthatarecurrentlyexercisableorconvertibleareconsideredwhenassessingwhetherthegroupcontrolsanotherentity.Thefinancialstatementsofthecontrolledentitiesusedinthepreparationoftheconsolidatedfinancialstatementsare prepared for the same reporting date as the company. Consistent accounting policies are applied to liketransactionsandeventsinsimilarcircumstances.All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-grouptransactionsanddividendsareeliminatedinfull.(c) IncomeTaxTheincometaxexpense(income)fortheperiodcomprisescurrentincometaxexpense(income)anddeferredtaxexpense(income).
Currentincometaxexpensechargedtoprofitorlossisthetaxpayableontaxableincome.Currenttaxliabilities(assets)arethereforemeasuredattheamountsexpectedtobepaidto(recoveredfrom)therelevanttaxationauthority.Deferredincometaxexpensereflectsmovementsindeferredtaxassetanddeferredtaxliabilitybalancesduringtheyearaswellasunusedtaxlosses.Deferredtaxassetsandliabilitiesarecalculatedatthetaxratesthatareexpectedtoapplytotheperiodwhentheassetisrealisedortheliabilityissettledandtheirmeasurementalsoreflectsthemannerinwhichmanagementexpectstorecoverorsettlethecarryingamountoftherelatedassetorliability.Deferredtaxassetsrelatingtotemporarydifferencesandunusedtaxlossesarerecognisedonlytotheextentthatitisprobablethatfuturetaxableprofitwillbeavailableagainstwhichthebenefitsofthedeferredtaxassetcanbeutilised.(d) RevenuerecognitionRevenueismeasuredatthefairvalueoftheconsiderationreceivedorreceivableaftertakingintoaccountanytradediscountsandvolumerebatesallowedandisstatednetofgoodsandservicestaxorvalue-addedtaxcharges.RevenuefromcreditsreceivedfromtheATOforresearchanddevelopmentactivitiesisrecognisedwhenitcanbereliablymeasuredandtheprobabilityofmeetingthecriteriaforreceiptofthesecreditsisprobable.Revenuefromtherenderingofservicesisrecognisedatthepointofdeliveryofthoseservicesastheyareearnedundercontractualagreement.
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2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued)(e) CashandcashequivalentsCashintheStatementofFinancialPositioncomprisecashatbankandinhand.ForthepurposesoftheStatementofCashFlows,cashandcashequivalentsconsistofcashandcashequivalentsasdefinedabove,netofoutstandingbankoverdrafts.(f) GoodsandServicesTax(GST)Revenues,expensesandassetsarerecognisednetoftheamountofGST,exceptwheretheamountofGSTincurredisnotrecoverablefromtheAustralianTaxationOffice(ATO).ReceivablesandpayablesarestatedinclusiveoftheamountofGSTreceivableorpayable.ThenetamountofGSTrecoverable from, or payable to, the ATO is includedwith other receivables or payables in the statement offinancialposition.Cashflowsarepresentedonagrossbasis.TheGSTcomponentsofcashflowsarisingfrominvestingorfinancingactivitieswhicharerecoverablefrom,orpayableto,theATOarepresentedasoperatingcashflowsincludedinreceiptsfromcustomersorpaymentstosuppliers.(g) TradeandotherpayablesTradepayablesandotherpayablesarecarriedatamortisedcostandrepresentliabilitiesforgoodsandservicesprovidedtothegrouppriortotheendofthefinancialyearthatareunpaidandarisewhenthegroupbecomesobligedtomakefuturepaymentsinrespectofthepurchaseofthesegoodsandservices.(h) TradeandotherreceivablesTradeandotherreceivablesincludeamountsduefromcustomersforgoodssoldandservicesperformedintheordinarycourseofbusiness.Receivablesexpectedtobecollectedwithin12monthsoftheendofthereportingperiodareclassifiedascurrentassets.Allotherreceivablesareclassifiedasnon-currentassets.Tradeandotherreceivablesare initiallyrecognisedatfairvalueandsubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod,lessanyprovisionforimpairment.(i) FinancialInstrumentsFinancial assets and financial liabilities are recognised when the entity becomes a party to the contractualprovisionsoftheinstrument.Forfinancialassets,thisisequivalenttothedatethatthegroupcommitsitselftoeitherpurchaseorselltheasset(i.e.tradedateaccountingisadopted).ClassificationandsubsequentmeasurementFinancialinstrumentsaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod,orcost.ImpairmentAt each reporting date, the group’s directors assess whether there is objective evidence that the financialinstrumenthasbeenimpaired.Impairmentlossesarerecognisedintheprofitorloss.
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2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued)(j) PlantandEquipmentEachclassofplantandequipmentiscarriedatcostlessanyaccumulateddepreciationandimpairmentlosses.
Thecarryingamountofplantandequipmentisreviewedannuallybydirectorstoensureitisnotinexcessoftherecoverableamountfromtheseassets.Therecoverableamountisassessedonthebasisoftheexpectednetcashflowsthatwillbereceivedfromtheasset’semploymentandsubsequentdisposal.Theexpectednetcashflowshavebeendiscountedtotheirpresentvaluesindeterminingrecoverableamounts.The cost of plant and equipment constructedwithin the Group includes the cost ofmaterials, direct labour,borrowingcostsandanappropriateproportionoffixedandvariableoverheads.Depreciation
Thedepreciableamountofallplantandequipmentisdepreciatedonadiminishingvaluebasisovertheasset’susefullifetothegroupcommencingfromthetimetheassetisheldreadyforuse.Asat30June2016,theGroup’sassetclasseshadeffectiveusefullivesasfollows:
AssetClass
UsefulLife
(years)
GrowRoomfacilitiesandinfrastructure 7
Computer,networkandsecurityequipment 1to3
Toolsandworkshopequipment 1to2
Leaseholdimprovements 2
Officefurnitureandequipment 1to3
Theassets’residualvaluesandusefullivesarereviewed,andadjustedifappropriate,attheendofeachreportingperiod.Gainsandlossesondisposalsaredeterminedbycomparingproceedswiththecarryingamount.Thesegainsandlossesareincludedinthestatementofcomprehensiveincome.(k) ImpairmentofAssetsAteachreportingdate,thegroup’sdirectorsreviewthecarryingvaluesofthegroup’stangibleandintangibleassetstodeterminewhetherthereisanyindicationthatthoseassetshavebeenimpaired.Ifsuchanindicationexists,therecoverableamountoftheasset,beingthehigheroftheasset’sfairvaluelesscosttosellandvalueinuse,iscomparedtotheassetscarryingvalue.Anyexcessoftheassetscarryingvalueoveritsrecoverableamountisexpensedtotheincomestatement.
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2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued)(l) ShareBasedPaymentsTheCompanyreflectsinitscomprehensiveincome(orloss)anditsfinancialpositiontheeffectsofshare-basedpayment transactions, including expenses associatedwith transactions inwhich sharesare granted to relatedparties,keymanagementpersonnelandemployees.For share-based payments received by employees and keymanagement personnel of the group, fair value ismeasuredbyreferencetothefairvalueoftheequityinstrumentsgrantedattheirgrantdate,beingthedatethatboththerecipientandtheCompanyhaveasharedunderstandingofthetermsandconditionsconnectedtotheshare-basedpayment.Anymarket-basedvestingconditionsareincorporatedintothevaluationoftheshare-basedpaymentarrangementasatthegrantdateoftheshare-basedpayment.Share-basedpaymentswithnon-marketbased performance conditions vest according to the pro-rata achievement of those conditions. Share-basedpaymentswithmarket-basedperformanceconditionsarevaluedusingabinomialmodelwhichincorporatesfromboththeperformancerightsarrangementandmarketdatathatexistedatgrantdate.(m) ResearchandDevelopmentTaxIncentiveTheGroupdoesnotrecognisebenefitsfromtheresearchanddevelopmenttaxincentiveasanassetasreceiptofincentivepaymentsisnotregardedasprobable.TheDirectorsbelievetheprobableiswhenthetaxincentiveisreceiptedincashandalsothatitisreflectedasincomeintheConsolidatedStatementofProfitandLossandOtherComprehensiveIncome.(n) CriticalAccountingEstimatesandJudgementsTheDirectorsevaluateestimatesandjudgementsincorporatedintothefinancialstatementsbasedonhistoricalknowledgeandbestavailablecurrentinformation.Estimatesassumereasonableexpectationoffutureeventsandarebasedoncurrenttrendsandeconomicdata,obtainedbothexternallyandwithintheentity.KeyJudgement–determinationofprobabilityofachievingmilestonesforvestingofPerformanceRights
In determining the probability of the Group achieving each of the respective milestones for the Class BPerformanceRights,whichwouldpermitvestingofthePerformanceRights,theDirectorstookintoaccountalldevelopmentsoftheGroupsincethegrantingofthePerformanceRightsincludingoperational,businessandlegalprogressto30June2016andprogresstowardsanInitialPublicOfferingscheduledforthefirsthalfofthe2017FinancialYear.Itwasdeterminedasat30June2016thattheGrouphadaseventy-fivepercent(75%)likelihoodofachievingthemilestonethatwouldresultinthevestingoftheClassBPerformanceRights.ThispercentagewasappliedtothefairvalueofeachclassoftheClassBPerformanceRightsatgrantdatetherebyresultinginthevaluationofeachclassofPerformanceRightsasat30June2016.ThemilestonesforvestingofthePerformanceRightsarecontainedinNote13–PerformanceRights.
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2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued)(n) CriticalAccountingEstimatesandJudgments(continued)KeyJudgement–non-recognitionofcarry-forwardtaxlosses
Thebalanceoffutureincometaxbenefitarisingfromcurrentyeartaxlossesandtimingdifferenceshasnotbeenrecognisedasanassetbecauserecoveryisnotregardedasprobable.Thefutureincometaxbenefit,whichhasnotbeenrecognisedasanasset,willonlybeobtainedif:
(i) theCompanyderivesfutureassessableincomeofanatureandanamountsufficienttoenablethebenefittoberealised;
(ii) theCompanycontinuestocomplywiththeconditionsfordeductibilityimposedbylaw;and(iii) nochangesintaxlegislationadverselyaffectingtheCompanyrealisingthebenefit.
ReferNote4:IncomeTaxExpense.KeyJudgement–non-recognitionofresearchanddevelopmenttaxincentivebenefits
Thebalanceof researchanddevelopment tax incentivearising fromoperationsof theCompanyhasnotbeenrecognised as an asset because receipt as at this stage as it cannot be reliably calculated. The research anddevelopmenttaxincentive,whichhasnotbeenrecognisedasanasset,willonlybeobtainedif:
(i) theCompany’sactivitiesfulfiltheeligibilitycriteriaoftheresearchanddevelopmenttaxinitiativeanditissuccessfulinregisteringfortheresearchanddevelopmenttaxinitiative;
(ii) theCompanycontinuestocomplywiththeconditionsforregistrationoftheresearchanddevelopmenttaxinitiativeimposedbylaw;and
(iii) nochangesintaxlegislationadverselyaffectingtheCompanyrealisingthetaxincentivefromresearchanddevelopment.
ReferNote2:SummaryofSignificantAccountingPolicies.
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3. REVENUE
2016
Fortheperiod30January2015to30
June2015 $ $
Licencingfees - 4,659 Otherincome Interestreceived 6,280 1,067Otherincome 382 - 6,662 5,726
4. INCOMETAXEXPENSE
Theprima-facietaxonprofitfromordinaryactivitiesbeforeincometaxisreconciledtoincometaxasfollows:
Profit/(loss)beforeincometax (1,462,011) (1,740,186)Prima-facietaxpayableonprofit/(loss)fromordinaryactivitiesbeforeincometaxat30% (438,603) (522,056)Add: Taxeffectof:
- Non-deductibleexpenses 272 155,890 438,331 (366,166) TheDirectorsestimatethatthepotentialdeferredincometaxassetsnotbroughttoaccountis (804,497) (366,166)Taxbenefitsnotrecognisedduringtheperiod 804,497 366,166IncomeTaxExpensefortheperiod - -
Attheendofthereportingperiod,thegrouphastaxlossesof$804,497thatareavailableforoffsetagainstfuturetaxableprofitsofthecompaniesinwhichthelossesarose,forwhichnodeferredtaxassetisrecognisedduetouncertaintyofitsrecoverability.Theuseofthesetaxlossesissubjecttotheagreementofthetaxauthoritiesandcompliancewithcertainprovisionofthetaxlegislationofrespectivecountriesinwhichthecompaniesoperate.5. KEYMANAGEMENTPERSONNEL(a) Namesandpositionsheldofkeymanagementpersonnelinofficeatanytimeduringtheyearare:
KeyManagementPerson PositionMrAllanMcCallum ChairmanMrPhilipJacobsen DeputyChairmanMrDouglasRathbone DirectorMrAlbertoMariani(resigned11April2016) DirectorMrGeoffPearce(appointed11April2016) DirectorMrMichaelMurchison DirectorMrPeterCrock(appointed23May2016) ChiefExecutiveOfficer
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5. KEYMANAGEMENTPERSONNEL(continued)
(b) NumberofSharesheldbyKeyManagementPersonnel
Name Balance1July2015
IssuedonexerciseofPerformance
Rights
NetChangeOther*
NetChangeShareSplit**
Balance30June2016
MrAllanMcCallum 800,000 - 160,000 2,880,000 3,840,000MrPhilipJacobsen 375,000 - 200,000 1,725,000 2,300,000MrDouglasRathbone 50,000 - 230,000 890,000 1,120,000MrGeoffPearce 50,000 - 80,000 390,000 520,000MrMichaelMurchison 3,400,000 - - 10,200,000 13,600,000Total 4,675,000 - 670,000 16,085,000 21,380,000
Name Balance30January2015
Receivedasequity-
settledsharebased
payment
IssuedonexerciseofPerformance
Rights
NetChangeOther*
Balance30June2015
MrAllanMcCallum - 750,000 - 50,000 800,000MrPhilipJacobsen - 375,000 - - 375,000MrDouglasRathbone - - - 50,000 50,000MrAlbertoMariani - - - 250,000 250,000MrMichaelMurchison - 3,875,000 - (475,000) 3,400,000Total - 5,000,000 - (125,000) 4,875,000*NetChangeOtherreferstosharespurchasedorsoldorotherwisetransferredduringtheperiod.**NetChangeShare-splitreferstotheshare-splitonthebasisthateverysharebedividedintofourfullypaidordinaryshareswitheffectfrom5:00pm(Melbournetime)on30June2016approvedattheAnnualGeneralMeetingheldthatday.
(c) NumberofOptionsheldbyKeyManagementPersonnel
Name Balance1
July2015NetChangeOther*
NetChangeShareSplit**
Balance30June2016
MrAllanMcCallum - 160,000 480,000 640,000MrPhilipJacobsen - 200,000 600,000 800,000MrDouglasRathbone - 80,000 240,000 320,000MrGeoffPearce - 80,000 240,000 320,000Total - 520,000 1,560,000 2,080,000*NetChangeOtherreferstoOptionspurchasedorsoldorotherwisetransferredduringtheperiod.**NetChangeShare-splitreferstotheshare-splitonthebasisthateverysharebedividedintofourfullypaidordinaryshareswitheffectfrom5:00pm(Melbournetime)on30June2016approvedattheAnnualGeneralMeetingheldthatday,appliedinthesamebasistoallsecuritiesonissueincludingoptionsandperformancerights.
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5. KEYMANAGEMENTPERSONNEL(continued)(d) NumberofPerformanceRightsClassAheldbyKeyManagementPersonnel
Name Balance1
July2015NetChangeOther*
NetChangeShareSplit**
Balance30June2016
MrAllanMcCallum 500,000 - 1,500,000 2,000,000MrPhilipJacobsen 250,000 - 750,000 1,000,000MrDouglasRathbone 20,000 - 60,000 80,000MrMichaelMurchison 1,487,000 133,000 4,860,000 6,480,000Total 2,257,000 133,000 7,170,000 9,560,000
Name Balance30
January2015Receivedas
compensationNetChangeOther*
Balance30June2015
MrAllanMcCallum - 500,000 - 500,000MrPhilipJacobsen - 250,000 - 250,000MrDouglasRathbone - 20,000 - 20,000MrAlbertoMariani - 160,000 - 160,000MrMichaelMurchison - 1,487,500 - 1,487,500Total - 2,417,500 - 2,417,500*NetChangeOther refers toPerformanceRightsClassApurchasedorsoldorotherwise transferredduringtheperiod.**NetChangeShare-splitreferstotheshare-splitonthebasisthateverysharebedividedintofourfullypaidordinaryshareswitheffectfrom5:00pm(Melbournetime)on30June2016approvedattheAnnualGeneralMeetingheldthatday,appliedinthesamebasistoallsecuritiesonissueincludingoptionsandperformancerights.
(e) NumberofPerformanceRightsClassBheldbyKeyManagementPersonnel
Name Balance1
July2015NetChangeOther*
NetChangeShareSplit**
Balance30June2016
MrAllanMcCallum 250,000 - 750,000 1,000,000MrPhilipJacobsen 125,000 - 375,000 500,000MrDouglasRathbone 20,000 - 60,000 80,000MrMichaelMurchison 932,500 132,500 3,195,000 4,260,000Total 1,327,500 132,500 4,380,000 5,840,000
Name Balance30January2015
Receivedascompensation
NetChangeOther*
Balance30June2015
MrAllanMcCallum - 250,000 - 250,000MrPhilipJacobsen - 125,000 - 125,000MrDouglasRathbone - 20,000 - 20,000MrAlbertoMariani - 90,000 - 90,000MrMichaelMurchison - 932,500 - 932,500Total - 1,417,500 - 1,417,500*NetChangeOther refers toPerformanceRightsClassBpurchasedor soldorotherwise transferredduringtheperiod.**NetChangeShare-splitreferstotheshare-splitonthebasisthateverysharebedividedintofourfullypaidordinaryshareswitheffectfrom5:00pm(Melbournetime)on30June2016approvedattheAnnualGeneralMeetingheldthatday,appliedinthesamebasistoallsecuritiesonissueincludingoptionsandperformancerights.
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5. KEYMANAGEMENTPERSONNEL(continued)
(f) RemunerationpaidtoKeyManagementPersonnel
2016
Fortheperiod30January2015to30June2015
$ $DirectorsFees 35,000 -Salaryandwages 17,876 -Superannuation 27,825 -Allowances 34,124 -Sharebasedpayments - 519,634Consultingfees 39,069 140,000VestingchargeforPerformanceRights 69,976 393,149 223,870 1,052,783
2016
NameDirectorsFees
Superan-uation
SalaryandAllowances
ConsultingFees
Vestingchargefor
PerformanceRights Total
MrAllanMcCallum 8,000 760 - - 11,982 20,742MrPhilipJacobsen 8,000 760 - - 5,991 14,751
MrDouglasRathbone 8,000 760 - - 959 9,719MrAlbertoMariani(resigned11April2016)
8,000 760 - - - 8,760
MrMichaelMurchison 3,000 24,785 52,000 - 51,044 130,829MrGeoffPearce(appointed11April2016)
- - - - - -
MrPeterCrock - - - 39,069 - 39,069Total 35,000 27,825 52,000 39,069 69,976 223,870
2015
NameDirectorsFees
Superan-uation
Share-basedPayments
ConsultingFees
Vestingchargefor
PerformanceRights Total
MrAllanMcCallum - - - - 71,917 71,917MrPhilipJacobsen - - - - 35,959 35,959
MrDouglasRathbone - - - - 3,836 3,836MrAlbertoMariani - - - - 23,972 23,972MrMichaelMurchison - - 519,634 140,000 257,465 917,099Total - - 519,634 140,000 393,149 1,052,783
6. AUDITOR’SREMUNERATION
2016 2015 $ $Remunerationoftheauditorsofthegroupfor: Auditingthefinancialstatements–WilliamBuck 11,000 10,000 11,000 10,000
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7. TRADERECEIVABLESANDOTHERASSETS
2016$
2015$
Current Tradereceivables - 1,300ShareSubscriptionreceivables - 100,000 101,300 Reimbursementsduefromrelatedparties - 2,661Prepaidexpensesduefromrelatedparties 5,519 - 5,519 103,961
8. PLANTANDEQUIPMENT
2016 2015 Growth
FacilitiesOtherAssets
Total GrowthFacilities
Total
$ $ $ $OpeningBalance 171,369 - 171,369 - -Additions 298,120 46,186 344,306 171,369 171,369Depreciation (17,117) (11,800) (28,917) - -ClosingBalance 452,372 34,386 486,758 171,369 171,369DuringtheyeartheModularPlantGrowthResearchFacilitywascompletedtooperationallevelsandwasavailableforuseasat1April2016.Growingoperationscommencedatthattimeanddepreciationcommencedfrom1April2016.InadditiontothisausedLaboratoryFacilitywaspurchasedanddepreciationcommencedfromthedateofbeingavailableforuse.TheremainingfourModularPlantGrowthFacilitieswereinvariousstagesofconstructionasat30June2016.Asat30June2016theDirectorsreviewedtheoverallprogressoftheModularPlantGrowthFacilitiesand theDirectors conductedan impairment testwhichwasappliedasat30 June2016whereby theDirectors compared the carrying values of the four Modular Plant Growth Facilities to the selling values ofcomparableassetsandconcludedthatnoimpairmentexistedrelatingtotheseassets.9. UNSECUREDTRADEANDOTHERPAYABLES
2016 2015
$ $Current Unsecuredtradeandotherpayables 181,849 26,729Unsecuredpayables-relatedparties - 51,100 181,849 77,829
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10. CONTROLLEDENTITIES
CannGroupLimitedhassixwholly-ownedsubsidiariesasat30June2016asfollows:
SubsidiaryNameDateAcquired Numberof
SharesheldPercentageShareholding
CannproductsPtyLtd(ACN600887189) 27February2015 100 100%
CannoperationsPtyLtd(ACN603323226) 27February2015 100 100%
AnslingerHoldingsPtyLtd(ACN169764407) 27February2015 100 100%
CannInvestmentsPtyLtd(ACN604834488) 18March2015 100 100%
CannGlobalInc 20August2014 100 100%
CannproductsNZLimited 8April2016 100 100%
11. ORDINARYSHARES
Thegrouphasonissue39,346,668ordinaryfullypaidshares.Ordinarysharesparticipate individendsandtheproceedsonwindingupof thecompany inproportionto thenumberofsharesheld.Atshareholders’meetingseachordinaryshareisentitledtoonevotewhenapolliscalled,otherwiseeachshareholderhasonevoteonashowofhands.OrdinaryShares
2016
IssueDateIssuePrice
$
NumberofShares$
Balance1July2015 6,025,000 1,957,00613August2015-placement 1.00 150,000 150,00030October2015-placement 1.00 450,000 450,00012May2016–issuedpursuanttoInformationMemorandum
0.60 3,211,667 1,927,000
30June2016* - 29,510,001 -30June2016**Costsofissuingshares - - (107,735)Balance30June2016 39,346,668 4,376,271
2015
IssueDateIssuePrice
$
NumberofShares$
30January2015 - 10,030 -31January2015 0.192 4,989,970 967,00622May2015(netofcosts) 1.00 1,025,000 990,000Balance30June2015 6,025,000 1,957,006
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11. ORDINARYSHARES(continued)*On30June2016,attheAnnualGeneralMeetingheldonthatday,shareholderspassedtheresolutionthatinaccordancewithsection254HoftheCorporationsAct2001(Cth),thefullypaidordinarysharesintheissuedcapitaloftheCompanybesplitonthebasisthateverysharebedividedintofourfullypaidordinaryshareswitheffectfrom5.00pm(Melbournetime)on30June2016.Optionsandperformancerightsonissueattheeffectivedateofthesharesplitwerealsoadjustedwhichinvolvedanincreaseinthenumberofthesesecuritiesinthesameratioasthesharesplit,andadecreaseintheexercisepriceintheinverseratio.**DuringtheyeartheCompanyincurredcostsof$46,467fromissuingshareson12May2016andon30June2016theCompanyrecognisedcostsof$61,268incurredpursuanttotheproposedInitialPublicOffering.12. OPTIONSThe group has on issue 12,846,667 options to purchase ordinary fully paid shares. TheOptionswere issuedpursuanttotheInformationMemorandumdated12April2016whichissuedoneOptionatnoadditionalcostforeachnewsharesubscribedforunderthatInformationMemorandum.The options are exercisable at $0.60 ($0.15 post share-split on 30 June 2016) at any time during the periodcommencingonthedateofitsissueandexpiringontheearlierof4:00pm(Melbourne,Victoriatime)on31March2017and4:00pm(Melbourne,Victoriatime)onthedateofallotmentofthenewsharesunderaprospectusissuedbytheCompanyinrelationtoitsadmissiontotheOfficialListoftheASX.
2016
IssueDateIssuePrice
$
NumberofOptions$
Balance1July2015 - -12May2016* - 3,211,667 -30June2016** - 9,635,001 -Balance30June2016 12,846,668 -
*On12May2016theCompanyissued3,211,667OrdinarySharesatonedollar($1.00)perSharepursuanttotheInformationMemorandumdated11April2016andissuedoneattachingOptionatnoadditionalcostforeachnewsharesubscribedforunderthatInformationMemorandum.**On30June2016,attheAnnualGeneralMeetingheldonthatday,shareholderspassedtheresolutionthatinaccordancewithsection254HoftheCorporationsAct2001(Cth),thefullypaidordinarysharesintheissuedcapitaloftheCompanybesplitonthebasisthateverysharebedividedintofourfullypaidordinaryshareswitheffectfrom5.00pm(Melbournetime)on30June2016.Optionsandperformancerightsonissueattheeffectivedateofthesharesplitwerealsoadjustedwhichinvolvedanincreaseinthenumberofthesesecuritiesinthesameratioasthesharesplit,andadecreaseintheexercisepriceintheinverseratio.
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13. PERFORMANCERIGHTSThe Company has issued 18,000,000 Performance Rights at $0.0001 per Right comprising 11,000,000 Class APerformanceRightsand7,000,000ClassBPerformanceRightsofwhich:
• 9,560,000ClassAPerformanceRightsand5,840,000ClassBPerformanceRightshavebeen issuedtoDirectorsandKeyManagementPersonneloftheCompany;and
• 1,440,000ClassAPerformanceRightsand1,160,000ClassBPerformanceRightshavebeenissuedtoaformerDirector andnon-relatedparty consultants and advisors in consideration for various advisoryservices.
ThePerformanceRightshavethefollowingmilestonesattachedtothem,whicharetheirvestingconditions:
(i)ClassAPerformanceRights:iftheCompanyissuesfurtherSharesinadditiontotheNewSharesat$0.375perShareorhighersubjectto,if,atanytime,theissuedcapitaloftheCompanyisreorganised(includingconsolidation,subdivision,reductionorreturn),allrightsofaholderofaPerformanceRight(includingtheVestingConditions)aretobechangedinamannerconsistentwiththeCorporationsActandtheASXListingRulesatthetimeofthereorganisation;and
(ii)ClassBPerformanceRights:iftheCompanyappliestobeadmittedtotheOfficialListoftheASXoratradesaleoftheunderlyingbusinessoftheCompanyortheCompanyoccurs.
ThePerformanceRightswereissuedfor$0.0001eachandnoconsiderationwillbepayableuponthevestingofthePerformanceRights. UponsatisfactionoftherelevantPerformanceRightsvesting,eachPerformanceRightwill,attheelectionoftheholder,vestandconvertasfollows:
(i)eachClassAPerformanceRightconvertsintooneShare;and(ii)eachClassBPerformanceRightconvertsintooneShare.
Basedontheabove,theperformancerightsreservehasbeencalculatedasat30June2016asfollows:
Class Numberofrights(postshare-split)
GrantDate Fairvalue(postshare-split)
(cents)
Vested Totalinreserve
$A 11,000,000 31January2015 2.40 100% 263,698B 7,000,000 31January2015 4.80 75% 251,711
18,000,000 515,409IftheMilestoneattachingtoaPerformanceRighthasnotbeensatisfiedinthetimeperiodssetoutbelow,itwillautomaticallylapse:
(i) ClassAPerformanceRights:3yearsfrom22May2015;(ii) ClassBPerformanceRights:4yearsfrom22May2015;
otherwise,anyPerformanceRightthathasnotbeenconvertedintoaShareonorbeforethedateofadmissionoftheCompanytotheOfficialListoftheASXwillautomaticallylapse
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14. RELATEDPARTYINFORMATION
2016
Fortheperiod30January
2015to30June2015
$ $Transactions between the Consolidated Group and related parties are onnormal commercial terms and conditions no more favourable than thoseavailabletootherpartiesunlessotherwisestated.Relatedpartytransactionsnototherwisedisclosedinthesefinancialstatementsincludethefollowing:
Fees for United States representative services were paid to BPI Inc., acompanyofwhichMrMichaelMurchisonisaDirectorandshareholder. 41,100 -
Fees for hire of office equipment and furniturewere paid to Odd CoupleProductionsPtyLtd,acompanyofwhichMrMichaelMurchisonisaDirectorandshareholder. 35,500 15,000
PurchaseofofficeequipmentandfurniturefromOddCoupleProductionsPtyLtd,acompanyofwhichMrMichaelMurchisonisaDirectorandshareholder. 24,495 -
PrepaymentoffundstoenablepurchaseofmaterialsprovidedtoMrMichaelMurchisonnotusednorrepaidasatbalancedate. 5,519 -
106,614 15,00015. CONTINGENTLIABILITIESANDCOMMITMENTSTheCompanyhasabankguaranteeof$35,000fortheoperatingpremisesleaseofthecompany'spremises.Withtheexceptionofthisbankguarantee,theCompanycurrentlyhasnocontingentliabilitiesorcommitmentsatthedateofsigningthisreport.16. EVENTSAFTERTHEENDOFTHEREPORTINGPERIODOn3August2016theDirectorswrotetotheCompanyadvisingoftheirnoticeofintentiontoprovidefinancialsupporttoCannGroupLimitedbynotcallinguponDirectorFeesowingoraccruedbythatDirector,sothattheCompanyhassufficientworkingcapitalinordertopayitsdebtsasandwhentheyfalldueandpayable,foraperiodofatleast13monthsfromthedateofsigningoftheletter,ortosuchapointintimethattheCompanyisabletosatisfyitscommitmentsandobligationstoitssuppliersandemployeeswithoutsuchhelpandwithoutjeopardisingitsavailableworkingcapitalposition.IntheirletterstheDirectorsalsonotedthattheyhavetheoption,butnottheobligation,toprovideadditionalworkingcapitaltotheCompanybytheexercisetheiroption-holdings inaseedcapitalraisingpriortotheexpirydateofthoseoptions,being31March2017.Detailsoftheir interests inshareoptions,exercisableatastrikepriceof15centsaredisclosedinNote5.Therewerenoothermattersorcircumstanceshavearisensincetheendoftheyearwhichsignificantlyaffectedormaysignificantlyaffecttheoperationofthegroup,theresultsofthoseoperations,orthestateofaffairsofthegroupinfuturefinancialyears.
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17. CASHFLOWINFORMATION
Reconciliation of net loss after tax to net cash flows fromoperations-
2016$
Fortheperiod30
January2015to30June
2015$
Profit/(loss)fortheperiod (1,462,011) (1,740,186)Non-cashflowsinprofit Issueofsharestofounders - 967,006Vestingofperformancerights 83,904 431,505Depreciation 28,917 - Movementsinworkingcapital (Increase)/decreaseintradereceivablesandotherassets (1,558) (3,961)(Decrease)/increaseintradeandotherpayables 104,021 77,829 Netcashoutflowsfromoperatingactivities (1,246,728) (267,807)
18. LEASEOn4September2015theGroupenteredintoaleaseforpremisesat52DuerdinStreet,Clayton,Victoria,3168.Thetermoftheleaseisthreeyearsandsixmonths.TheLeaseallowsfortwofurthertermsofthreeyearseach.Leasecommitmentsare:Period $Lessthan12months 110,000Fromonetofiveyears 183,333 293,333
19. FINANCIALRISKMANAGEMENTThe consolidated group’s financial instruments consist of deposits with banks and its accounts payable andreceivable.TheBoardisresponsibleformanagingtheGroup’sonlysignificantfinancialrisk,whichisitsliquidityrisk,which itdoes through regularly reviewing rolling cash flow forecastsandexamining its levelsofavailableworkingcapitalagainstsuchforecasts.Forfurtherdetailsconcerningthis,refertoNote2(a).LiquidityriskarisesfromthepossibilitythattheGroupmayencounterdifficultyinmeetingitsobligationsforitsfinancialliabilities,whichat30June2016wereaccountspayablewithduetermsfrom0–45days.FordetailsoftheserefertoNote9.TheDirectorshaveassessedthatthefairvaluesoftheGroup’sfinancialassetsandliabilitiesreasonablyapproximatetheircarryingvalues,asrepresentedinthesefinancialstatements.
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20. CAPITALMANAGEMENTTheBoardofDirectorsarechargedwithdeterminingtheoptimalmixofdebtandequitywhichissuitablefortheneedsof theGroup. For the year ended30 June2016 theGroupheldnomaterial commercial borrowingsorfacilitiesforcreditastheboardconsideredthat,atthispointoftime,thatfundssourcedthroughequitywouldbemostappropriate.TheCompanydoeshaveacorporatecreditcardfacilityhoweveranyaccumulateddebtisfullyrepaidonamonthlybasis.TheGroup’streasuryfunctionreportstotheboardperiodicallywithforecastcashflowinformationthatenablestheBoardtoconductitscapitalraisingactivitiesinanorderlyfashionatadilutivecosttoexistingshareholdersthatisappropriateandreasonable.
21. PARENTENTITYDISCLOSURES
FinancialPosition 2016 2015 $ $Assets
Currentassets 1,378,747 131,508
Non-currentassets 1,693,207 1,231,270
Totalassets 3,071,954 1,362,778 Liabilities Currentliabilities 157,662 21,181
Non-currentliabilities - -
Totalliabilities 157,662 21,181 Equity Issuedcapital 4,376,270 1,957,006
Reserves 515,409 431,505
Accumulatedlosses (1,977,417) (1,046,914
Totalequity 2,914,262 1,341,5987
FinancialPerformance 2016
Fortheperiod30January
2015to30June2015
$ $
Lossfortheyear/period (930,503) (1,046,914)
Othercomprehensiveincome - -
Totalcomprehensiveloss (930,503) (1,046,914)
The subsidiary companies have expenditure commitments under the premises lease. The parent entity hascommittedtoprovidingfundstoensurethesubsidiarycompaniescanfulfil thesecommitmentsaswellasanyotheroperatingcommitments.
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Directors’Declaration
1. TheDirectorsdeclarethatthefinancialstatementsandnotessetoutonpages7to27areinaccordancewiththeCorporationsAct2001and:
a. complywithInternationalFinancialReportingStandards,asstatedinNote2tothefinancialstatements;
b. complywithAccountingStandards,theCorporationsRegulations2001;and
c. giveatrueandfairviewofthefinancialpositionasat30June2016andoftheperformancefortheperiod
ended30June2016oftheCompanyandtheconsolidatedgroup.
2. TheChiefExecutiveOfficerandCompanySecretaryhaveeachdeclaredthat:a. thefinancialrecordsoftheCompanyfortheperiodended30June2016havebeenproperlymaintainedin
accordancewithsection286oftheCorporationsAct2001;
b. thefinancialstatementsandnotesfortheperiodcomplywiththeAccountingStandards;and
c. thefinancialstatementsandnotesfortheperiodgiveatrueandfairview.
3. IntheDirectors’opiniontherearereasonablegroundstobelievethattheCompanywillbeabletopayitsdebtsasandwhentheybecomedueandpayable.
ThisdeclarationismadeinaccordancewitharesolutionoftheDirectors.
AllanMcCallumChairmanDate:3August2016
CANNGROUPLIMITEDABN25603949739
29
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CANN GROUP LIMITED AND
CONTROLLED ENTITIES Report on the Financial Report
We have audited the accompanying financial report of Cann Group Limited (the Company), which
comprises the consolidated statement of financial position as at 30 June 2016, the consolidated
statement of profit or loss and other comprehensive income, the consolidated statement of changes
in equity and the consolidated statement of cash flows for the year then ended, notes comprising a
summary of significant accounting policies and other explanatory information, and the directors’
declaration of the company and the consolidated entity comprising the company and the entities it
controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act
2001 and for such internal control as the directors determine is necessary to enable the preparation
of the financial report that gives a true and fair view and is free from material misstatement, whether
due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard
AASB 101 Presentation of Financial Statements, that the financial statements comply with
International Financial Reporting Standards. Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance about whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the
entity’s preparation of the financial report that gives a true and fair view in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made
by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001.
CANNGROUPLIMITEDABN25603949739
30
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CANN GROUP LIMITED AND CONTROLLED
ENTITIES (CONT) Auditor’s Opinion
In our opinion:
a) the accompanying financial report of Cann Group Limited is in accordance with the Corporations Act 2001,
including:
i. giving a true and fair view of the Company and consolidated entity’s financial position as at 30 June 2016 and
of its performance for the year ended on that date; and
ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001; and
b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2.
William Buck Audit (VIC) Pty Ltd
ABN: 59 116 151 136
N. S. Benbow
Director Dated this 3rd day of August, 2016