VANCOUVER, British Columbia, March 29, 2019
(GLOBE NEWSWIRE) -- Auxly Cannabis Group Inc. (XLY.V) (CBWTF)
("Auxly" or the "Company") today
released its fourth quarter and full year 2018 financial results.
These filings and additional information regarding Auxly are
available for review on SEDAR at www.sedar.com. All amounts
are stated in thousands of Canadian dollars except common shares
(“Sharesâ€) and per Share amounts.
2018 Highlights
| December
31, |
December 31, | Change | Percentage | |||||||||||
| (000's) | 2018 | 2017 | Change | |||||||||||
| Total revenues | $ | 747 | $ | - | $ | 747 | N/A | |||||||
| Net Losses * | (66,988 | ) | (18,177 | ) | (48,811 | ) | 269 | % | ||||||
| Cash and equivalents | 211,707 | 33,454 | 178,253 | 533 | % | |||||||||
| Total Assets | 460,818 | 92,579 | 368,239 | 398 | % | |||||||||
| Debt | $ | 94,151 | $ | 18,650 | $ | 75,501 | 405 | % | ||||||
| Average Shares outstanding | 489,505,013 | 168,556,699 | 320,948,314 | 190 | % | |||||||||
| *attributable to shareholders of the company | ||||||||||||||
Chuck Rifici, CEO and Chairman of Auxly commented: “2018 was an important year for us, as we made substantial progress towards our objective to become a vertically integrated cannabis company. We were successful in building a diverse and robust cultivation pipeline, have made progress on adding value through the research and development of derivative cannabis products through Dosecann, and expanded our distribution channels for bringing cannabis products to market. We added key strategic assets and partnerships to our portfolio, have over $200 million of cash and cash equivalents, and are well positioned to execute on our objectives for this year.â€
Auxly’s Business
Auxly is a vertically integrated cannabis company with diverse operations across Canada and Uruguay and a platform spanning the entire cannabis value chain. The Company relies upon its diversified cannabis cultivation platform, its leading research and development infrastructure, its domestic and international distribution platform and its experienced team of industry leaders and strategic partners in order to serve an evolving global cannabis market.
Vision and Strategy
Since the Company’s inception, it has worked closely with its partners to develop a secure, cost-efficient and diversified source of cannabis. To accelerate market participation in the medical cannabis market, and prior to the legalization and creation of the adult-use cannabis markets in Canada in October 2018, Auxly invested in cultivation opportunities, more commonly referred to as “streaming†transactions, with the goal of supply diversification and efficient use of capital. These cultivation partners remain important to the Company’s predictable supply of diverse, cost efficient raw cannabis.
During 2018, as Canada moved forward with plans to legalize the adult-use cannabis market, and with the Company’s cultivation platform largely in place, Auxly turned its focus to securing the infrastructure and expertise necessary to participate in the derivative products segment of the cannabis market. The Company’s state-of-the-art processing facility at its wholly owned subsidiary Dosecann Inc. (“Dosecannâ€) and its highly-skilled team give the Company the ability to turn raw cannabis into derivative cannabis products. Further, Auxly’s acquisition of KGK Science Inc. (“KGKâ€) provides additional depth to Dosecann’s ability to develop and produce safe, effective and high-quality cannabis products.
The Company continues to develop strategic distribution channels to expand its exposure to new and existing markets, including health care providers, provincial boards and retailers, and its wholly-owned retail outlet with province-wide e-commerce capabilities in Saskatchewan.
Auxly has also invested in hemp cultivation and extraction in Uruguay through its 80% ownership of Inverell S.A. and its 100% ownership of its sister company Zeratol S.A., and is consistently evaluating other international cultivation and distribution opportunities.
Results of Operations
| December
31, |
December 31, | |||||||
| (000's) | 2018 | 2017 | ||||||
| Revenues | ||||||||
| Research contracts and other | $ | 747 | $ | - | ||||
| Total Revenues | 747 | - | ||||||
| Cost of sales | ||||||||
| Research contracts | 1,078 | - | ||||||
| Gross loss excluding fair value items | (331 | ) | - | |||||
| Unrealized fair value gain on biological transformation | 143 | - | ||||||
| Gross loss | (188 | ) | - | |||||
| Other incomes | ||||||||
| Fair value gain for financial instruments accounted under FVTPL | 2,654 | 1,378 | ||||||
| Interest income | 4,000 | 167 | ||||||
| Total other incomes | 6,654 | 1,545 | ||||||
| Selling, general and administrative expenses | ||||||||
| Wages and salaries | 9,059 | 1,672 | ||||||
| Office and administrative | 4,305 | 1,543 | ||||||
| Professional fees | 7,146 | 2,937 | ||||||
| Business development | 7,053 | 8,449 | ||||||
| Selling expenses | 398 | - | ||||||
| Total selling, general, and administrative expenses | 27,961 | 14,601 | ||||||
| Other expenses | ||||||||
| Share-based payments | 20,412 | 3,330 | ||||||
| Depreciation and amortization | 2,063 | 32 | ||||||
| Interest Expense | ||||||||
| Interest expense | 6,831 | 877 | ||||||
| Accretion expense | 4,642 | 1,487 | ||||||
| Share of loss on equity investments | 309 | - | ||||||
| Impairment of intangible assets | 8,800 | - | ||||||
| Loss on settlement of financial liabilities | 5,516 | - | ||||||
| Foreign exchange (gain)/loss | (546 | ) | 67 | |||||
| Total expenses | 75,988 | 20,394 | ||||||
| Net loss before income tax | (69,522 | ) | (18,849 | ) | ||||
| Income tax recovery | 2,313 | 672 | ||||||
| Net loss | $ | (67,209 | ) | $ | (18,177 | ) | ||
| Net loss attributable to shareholders of the Company | (66,988 | ) | (18,177 | ) | ||||
| Net loss attributable to non-controlling interest | (221 | ) | - | |||||
| Net loss per common share (Basic and diluted) | $ | (0.14 | ) | $ | (0.11 | ) | ||
| Weighted average shares outstanding (Basic and diluted) | 489,505,013 | 168,556,699 | ||||||
Revenue
For the year ended December 31, 2018, Auxly recognized $747 of research revenues from the recently completed acquisition of KGK in the third quarter of 2018. KGK revenues are deferred and only recognized as performance criteria are met. KGK is a critical component in Auxly’s overall strategy to develop safe and effective consumer cannabis products while continuing to conduct leading edge research for third party clients.
Gross loss
Auxly realized a gross loss of $188 in 2018 comprised of revenues less KGK expenses of $1,078 in support of third-party research contracts which can fluctuate significantly during the contract and related performance milestones. In addition, a $143 fair value gain on biological transformations was recognized during the period as Kolab Project Inc.’s cultivation progressed towards harvest.
Other incomes
Total other incomes of $6,654 is comprised of a fair value gain of $2,654 from changes in securities held and interest income of $4,000 primarily earned on cash and cash equivalents held during 2018.
Selling, general and administrative expenses
Wages and benefits were $9,059 during the year ended December 31, 2018 an increase of $7,387 over the same period of 2017, primarily due to an increase in Auxly employees to support the scaling of the business of $5,525 and workforce costs associated with the four acquisitions completed in 2018.
Office and administrative expenses were $4,305 in 2018 as compared to $1,543 in 2017. The increase of $2,762 is comprised of $940 in rent expense, $850 in fees associated with financing activities and several other smaller expenditure items.
Professional fees were $7,146 during the year ended December 31, 2018. This compares to $2,937 during the year ended December 31, 2017. The increase in professional fees are attributable to ongoing services related to Auxly’s investment opportunities, due diligence and costs associated with four acquisitions, including legal fees of $2,950, and consulting fees of $2,730.
Business development fees were $7,053 during the year ended December 31, 2018, decreased by $1,396 over the same period in 2017. Expenses in 2018 consist of marketing and stakeholder communications of approximately $4,300 and $2,750 in business development activities. The overall reduction in expenses is also attributable to the expiry of certain contracts in 2018, which were originated in prior periods.
Other Expenses
Auxly recorded share-based expenses of $20,412
during the year ended December 31, 2018, an increase of $17,082,
over 2017. During 2018, 25,390,968 options were issued,
resulting in a current year expense of approximately $12,900, of
which, $7,114 was a result of immediate vesting or grant
modification. In addition, an expense of $6,032 associated
with the issuance of 5,913,334 restricted Shares to non-executives
as compensation for services performed in 2018 was fully
recognized. Options outstanding prior to 2018 had a current year
impact of $1,480.
Depreciation and amortization expenses of $2,063 in 2018 reflect
the impact of approximately $1,446 of intangible amortization
primarily associated with acquisition related non-competition
features and property, plant and equipment depreciation of $680
related to buildings and equipment.
Interest and accretion expenses of $11,473 in 2018 increased by $9,109 primarily due to interest of 6% on the convertible debentures and the non-cash accretion of placement and other related fees being recognized over 24 months.