PEAK PROCESSING LIMITED — Interim / Quarterly Report 2019

Feb 27, 2019

2019

HALF-YEAR FINANCIAL REPORT For the period ended - 31 December 2018

Althea Group Holdings Limited and Controlled Entities

ABN 78 626 966 943 Lodged with the ASX under Listing Rule 4.2A This information should be read in conjunction with the 30 June 2018 Annual Report

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CONTENTS

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DIRECTORS’ REPORT AUDITOR’S INDEPEN CONDENSED CONSO CONDENSED CONSO CONDENSED CONSO CONDENSED CONSO NOTES TO THE COND DIRECTORS’ DECLAR INDEPENDENT AUDI
	DENCE LIDAT LIDAT LIDATE LIDAT ENSED ATION TOR’S	DECLARATION ED STATEMENT ED BALANCE SH D STATEMENT O ED STATEMENT FINANCIAL STA
			OF EET F C OF TE	PROFIT
				HANG CASH F MENTS	E L	S IN OWS	EQUITY
		REVIEW REPORT

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DIRECTORS’ REPORT

Your directors submit the financial report of the consolidated group comprising Althea Group Holdings Limited (“Althea”) and its controlled entities ("Group") for the half-year ended 31 December 2018.

DIRECTORS

The names of directors who held office during or since the end of the half-year:

Andrew Newbold	(Appointed 21/06/2018)
Joshua Fegan	(Appointed 21/06/2018)
Gregg Battersby	(Appointed 21/06/2018)
Alan Boyd	(Appointed 21/06/2018)
Penelope Dobson	(Appointed 30/11/2018)

PRINCIPAL ACTIVITIES

The principal activities of the Group during the period were the sales and distribution of medicinal cannabis products along with the development of a manufacturing and cultivation facility.

REVIEW OF OPERATIONS

GOALS AND STRATEGY

Althea was established to cultivate, produce and supply medicinal cannabis for eligible patients across Australia.

In order to achieve this, we have formed strategic partnerships and devised a three-stage business model built upon early revenue generation, sales-driven growth and scalable domestic production. We have engaged a team of medical science liaisons who are working to assist medical practitioners to become prescribers of Althea products. Similarly, they are working with pharmacists to act as suppliers.

Althea’s focus on patient care underpins our business strategy. To this end, we have developed a complementary education and patient support service through our ‘Althea Concierge’ mobile application and web-based platform. Althea Concierge provides a simple pathway for healthcare professionals and patients to access information and support to navigate the complexities associated with prescribing medicinal cannabis.

SUCCESSFUL LISTING AND IPO CAPITAL RAISING

Althea successfully completed its A$19.65 million Initial Public Offering (“IPO") and was admitted to the official list of the Australian Securities Exchange (“ASX”) in September 2018. The IPO was heavily oversubscribed.

Althea has made significant progress since listing:

I n October, Althea announced that it had reached the 100 patient milestone.

• In October, Althea announced that it had reached the 100 patient milestone.

• In November, Althea announced that, with the granting of both a Manufacturing and Export licence, it now holds the full complement of required licences.

• In January, Althea announced that the 300 patient milestone had been reached.

• In February, Althea announced its expansion into the United Kingdom as one of the first entrants into that market as well the launch of its sponsored online portal providing RACGP and ACRRM accredited educational content on medicinal cannabis for General Practitioners.

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EDUCATION, DISTRIBUTION AND SALES

In October 2018, Althea reached the 100 patient milestone with 42 healthcare professionals prescribing Althea medicinal cannabis products. In November, Althea quickly surpassed 150 patients by the end of December 2018, 75 registered healthcare professionals were prescribing Althea products to 250 patients.

MANUFACTURING AND EXPORT LICENCES

During the half-year, Althea was granted its Manufacturing and Export licences by the Australian Government’s Office of Drug Control (“ODC”). The manufacturing licence provides Althea with the authorisation to manufacture extracts and tinctures of cannabis and cannabis resin in accordance with the relevant permits.

The export licence provides authorisation to export medical cannabis products and/or extracts manufactured in Australia.

Althea has a full complement of ODC cannabis licences necessary to become a fully-fledged “seed to sale” Australian producer of medicinal cannabis.

CULTIVATION AND MANUFACTURING FACILITY

Capital raised in the IPO is being applied to patient acquisition and marketing to build our brand awareness, enhance medical outreach, and fund the design and construction of a fully scalable medicinal cannabis cultivation, extraction and manufacturing facility in Melbourne.

Althea has received ODC approval for the construction of a medical cannabis cultivation, cannabinoid extraction and manufacturing facility. This approval is a key milestone in becoming a ‘seed to sale’ business.

In November 2018, Althea lodged a planning permit with the council for its ODC-approved, fully scalable facility. Progress on the facility is on track, having received great support from the council and the Victorian Government.

LOOKING AHEAD

We are committed to continuing in our efforts to help eligible Australian patients gain access to Althea’s range of medicinal cannabis products in the second half of the 2019 financial year and beyond.

Althea’s expansion into the United Kingdom in February 2019 leverages the unique intellectual property created by the Australian business over the last two years, providing access to potentially millions of patients within a regulatory environment very similar to Australia. Althea believe our unique ability to educate healthcare professionals about Althea medicinal cannabis in highly regulated market places, could potentially extend into a greater number of countries in Asia, Europe and North America.

Looking ahead, Althea is well positioned to progress towards a number of important goals including reaching the 1,000 patient milestone, adding new products to Althea’s portfolio, and completing the construction of the proposed production facility.

ROUNDING OF AMOUNTS

The Group has applied the relief available to it in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and accordingly certain amounts in the financial report and the directors’ report have been rounded off to the nearest $1,000.

AUDITOR’S INDEPENDENCE DECLARATION

The lead auditor’s independence declaration under s 307C of the Corporations Act 2001 is set out on page 7 for the half-year ended 31 December 2018.

This directors’ report is signed in accordance with a resolution of the Board of Directors.

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Andrew Newbold

Director

Dated this 28th day of February 2019

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AUDITOR’S INDEPENDENCE DECLARATION

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CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

CONTINUING OPERATIONS Revenue Interest income Note	Half-year Ended 31 December 2018 $’000 Half-year Ended 31 December 2017 $’000 CONSOLIDATED GROUP
	174 - 8 -
Total revenue	182 -
Cost of goods sold Distribution expense Employee benefts expense Marketing Depreciation and amortisation expense Professional services Occupancy Administration Finance costs Other expenses 3	(71) - (31) (12) (417) (140) (864) (1) (1) - (311) (6) (68) (25) (680) (3) (4) (1) (101) (44)
Loss before income tax Income tax expense	(2,366) (106) - -
Loss after income tax	(2,366) (106)
Other comprehensive income Total other comprehensive income for the period	- - - -
Total comprehensive income for the period	(2,366) (106)
Net proft attributable to members of the parent entity
Total comprehensive income attributable to members of the parent entity	(2,366) (106)
EARNINGS PER SHARE From continuing operations: Basic earnings per share (cents) Diluted earnings per share (cents)	(0.02) (106,008) (0.02) (106,008)

The accompanying notes form part of these financial statements.

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CONDENSED CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2018

Note ASSETS Current assets Cash and cash equivalents Trade and other receivables 4 Prepayments Inventories Financial assets Other current assets	As at 31 December 2018 $’000 As at 30 June 2018 $’000 CONSOLIDATED GROUP
	14,874 2,300 111 66 646 648 125 85 5,200 200 215 -
Total current assets	21,171 3,299
Non-current assets Property, plant and equipment Intangible assets	434 - 157 -
Total non-current assets	591 -
Total assets	21,762 3,299
LIABILITIES Current liabilities Trade and other payables Employee provisions	237 151 31 12
Total current liabilities	268 163
Net assets	21,494 3,136
EQUITY Issued capital 9 Retained earnings	25,732 5,007 (4,238) (1,871)
Total equity	21,494 3,136

The accompanying notes form part of these financial statements.

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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

CONSOLIDATED GROUP *Balance at 1 July 2017	Ordinary Share Capital $’000 Retained Earnings (accumulated losses) $’000 Total $’000
	- - -
Comprehensive income Loss for the period	- (106) (106)
Total comprehensive income for the period	- (106) (106)
Balance at 31 December 2017	- (106) (106)
Balance at 1 July 2018	5,008 (1,872) 3,136
Comprehensive income Loss for the period	- (2,366) (2,366)
Total comprehensive income for the period	- (2,366) (2,366)
Transactions with owners, in their capacity as owners, and other transfers Shares issued during the period, net of capital raising costs 20,724 - 20,724
Total transactions with owners and other transfers 20,724 - 20,724
Balance at 31 December 2018 25,732 (4,328) 21,494

*Due to rounding $1 opening balance share value has been omitted for the purposes of these accounts.

The accompanying notes form part of these financial statements.

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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received	Half-year Ended 31 December 2018 $’000 Half-year Ended 31 December 2017 $’000 CONSOLIDATED GROUP
	129 - (2,482) (59) 8 -
Net cash used in operating activities	(2,345) (59)
CASH FLOWS FROM INVESTING ACTIVITIES Purchase of intangible assets Purchase of non-current assets Transfer for term deposit	(157) (26) (434) - (5,000) -
Net cash used in investing activities	(5,591) (26)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares, net of capital raising costs Proceeds from borrowings Payment of bank guarantees	20,724 - - 99 (215) -
Net cash provided by fnancing activities	20,509 99
Net increase in cash held Cash and cash equivalents at beginning of period	12,573 14 2,300 -
Cash and cash equivalents at end of period	14,873 14

The accompanying notes form part of these financial statements.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. BASIS OF PREPARATION

These general purpose interim financial statements for the half-year reporting period ended 31 December 2018 have been prepared in accordance with requirements of the Corporations Act 2001 and Australian Accounting Standard AASB 134: Interim Financial Reporting. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards.

This interim financial report is intended to provide users with an update on the latest annual financial statements of Althea Group Holdings Limited and its controlled entities. As such, it does not contain information that represents relatively insignificant changes occurring during the half-year within Althea Group Holdings Limited and its controlled entities. It is therefore recommended that this financial report be read in conjunction with the annual financial statements of Althea Group Holdings Limited and Althea Company Pty Ltd for the year ended 30 June 2018 together with any public announcements made during the following half-year.

These interim financial statements were authorised for issue on 28 February 2019.

B. ACCOUNTING POLICIES

The same accounting policies and methods of computation have been followed in this interim financial report as were applied in the most recent annual financial statements except for those as described in note 1(c) below.

C. BUSINESS COMBINATIONS UNDER COMMON CONTROL - POOLING OF INTERESTS

The acquisition of a 100% equity interest in Althea Company Pty Ltd by Althea Group Holdings Ltd does not constitute a business combination as outlined in AASB 3 Business Combinations as the standard does not apply to a business combination of entities under common control. A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory.

Therefore, these Group half-year financial statements combine those of Althea Group Holdings Ltd and the commonly controlled entity, Althea Company Pty Ltd, as at 31 December 2018.

The Pooling of Interests method has been adopted to account for the combination as a business combination carried out under common control. This means the assets and liabilities of the entity coming under common control have been transferred to the financial statements of Althea Group Holdings Ltd at book value without revaluation. There has been no consideration paid by Althea Group Holdings Ltd to acquire the entity therefore the value of the combined assets is represented as an entry directly to equity with no impact on the Statement of Profit or Loss and Other Comprehensive Income, and no goodwill is recognised.

The financial statements are therefore presented as if the combination of the two entities had occurred at the beginning of the comparative period (i.e. as if the two entities had always been combined).

Intercompany transactions, balances and realised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

D. INTANGIBLE ASSETS

During the 1 July 2018 to 31 December 2018 reporting period, the Group capitalised costs associated with the development of software. Software has a finite life and is carried at cost less any accumulated amortisation and any impairment losses. Amortisation will commence once development is completed and ready for use. Software is amortised over its useful life ranging from 2 to 5 years.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

E. NEW AND AMENDED STANDARDS ADOPTED BY THE GROUP

The Group has considered the implications of new or amended Accounting Standards which have become applicable for the current financial reporting period and the Group had to change its accounting policies and make retrospective adjustments as a result of adopting the following standards:

• AASB 9: Financial Instruments, and

• AASB 15: Revenue from Contracts with Customers.

The impact of the adoption of these standards and the respective accounting policies are disclosed in Note 2.

• f. IMPACT OF STANDARDS ISSUED BUT NOT YET APPLIED BY THE GROUP

• AASB 16: Leases

AASB 16: Leases (issued February 2016) will supersede the existing lease accounting requirements in AASB 117: Leases and the related Interpretations. It introduces a single lessee accounting model by eliminating the current requirement to distinguish leases as either operating leases or finance leases depending on the transfer of risks and rewards of ownership. The key requirements of AASB 16 are summarised as follows:

• recognition of a right-of-use asset and liability for all leases (excluding short-term leases with less than 12 months of tenure and leases relating to low-value assets);

• depreciation of right-of-use assets in line with AASB 116: Property Plant and Equipment in profit or loss and unwinding of the liability in principal and interest components;

• inclusion of variable lease payments that depend on an index or a rate in the initial measurement of the lease liability using the index or rate at the commencement date;

• application of a practical expedient to permit a lessee to elect not to separate non-lease components, instead accounting for all components as a lease;

• inclusion of additional disclosure requirements; and

• accounting for lessors will not significantly change.

AASB 16 will affect primarily the accounting for the Group’s operating leases. As at the reporting date, the Group has non-cancellable operating lease commitments of $2,796,000. The Group is currently assessing to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the Group’s profit, financial position and classification of cash flows.

Some of the commitments may be covered by the exception for short-term and low-value leases and some commitments may relate to arrangements that will not qualify as leases under AASB 16.

AASB 16 is mandatory for first interim periods within annual reporting periods beginning on or after 1 January 2019. The Group does not intend to adopt the new standard before its effective date.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

NOTE 2: CHANGES IN ACCOUNTING POLICIES

This note describes the nature and effect of the adoption of AASB 9: Financial Instruments and AASB 15: Revenue from Contracts with Customers on the Group’s financial statements and also discloses the new accounting policies that have been applied from 1 January 2018, where they are different to those applied in prior periods.

AASB 9 Financial Instruments

The Group has adopted AASB 9 from 1 January 2018. The standard introduced new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows which arise on specified dates and that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive income if it is held within a business model whose objective is to both hold assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value. All other financial assets are classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading or contingent consideration recognised in a business combination) in other comprehensive income (‘OCI’). Despite these requirements, a financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, an accounting mismatch. For financial liabilities designated at fair value through profit or loss, the standard requires the portion of the change in fair value that relates to the entity’s own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance. Impairment is measured using a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available.

AASB 15 Revenue from Contracts with Customers

The Group has adopted AASB 15 from 1 January 2018. The standard provides a single comprehensive model for revenue recognition. The core principle of the standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduced a new contract-based revenue recognition model with a measurement approach that is based on an allocation of the transaction price. This is described further in the accounting policies below. Credit risk is presented separately as an expense rather than adjusted against revenue. Contracts with customers are presented in an entity’s statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment. Customer acquisition costs and costs to fulfil a contract can, subject to certain criteria, be capitalised as an asset and amortised over the contract period.

The impact on the financial performance and position of the the Group from the adoption of these Accounting Standards has been assessed and no restatement of comparative disclosure is required.

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

NOTE 3: LOSS FOR THE PERIOD

	CONSOLIDATED GROUP	CONSOLIDATED GROUP
	Half-year Ended	Half-year Ended
	31 December	31 December
The following revenue and expense items are relevant in explaining the fnancial	2018	2017
performance for the interim period:	$’000	$’000
IPO Expenses	93	-

NOTE 4. CURRENT ASSETS - TRADE AND OTHER RECEIVABLES

Trade receivables Less: Allowance for expected credit losses (30 Jun 2018: Provision for impairment of receivables)	As at 31 December 2018 $’000 As at 30 June 2018 $’000 CONSOLIDATED GROUP
	74 9 - -
Total Trade Receivables	74 9
Other receivables	37 57
Total Current Receivables	111 66

The ageing of the receivables and allowance for expected credit losses provided for above are as follows:

Consolidated Not overdue Under 1 month overdue 1 to 3 months overdue Over 3 months overdue	31 Dec 2018 % 30 June 2018 % 31 Dec 2018 $’000 30 June 2018 $’000 31 Dec 2018 $’000 30 June 2018 $’000 Expected credit loss rate Carrying amount Allowance for expected credit losses
	0% 0% 44 9 - - 0% 0% 20 - - - 0% 0% 10 - - - 0% 0% - - - -
	74 9 - -

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

NOTE 5: DIVIDENDS

No dividends have been paid in this period.

NOTE 6: CONTINGENT LIABILITIES

The Group has two Bank Guarantees totalling $215,138 for the operating and commercial leases of the Group's two premises. Except for these, the Group currently has no contingent liabilities at the date of signing this report.

NOTE 7: RELATED PARTY TRANSACTIONS

The transactions were made on normal commercial terms and conditions and at market rates.

i. PURCHASE OF GOODS AND SERVICES Other related parties - Aphria Incorporated (signifcant shareholder) - Wartorn Productions Pty Ltd (director related entity to Joshua Fegan)	31 December 2018 $’000 HALF-YEAR ENDED
	99 16
ii. OTHER CURRENT ASSETS Prepayments - Aphria Incorporated (inventory prepayment)	322
Financial assets - Aphria Incorporated (contractual receivable)	200

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

NOTE 8: EARNINGS PER SHARE

NOTE 8: EARNINGS PER SHARE
EARNINGS PER SHARE FOR LOSS FROM CONTINUING OPERATIONS Loss for the period	As at 31 December 2018 $’000 As at 31 December 2017 $’000 CONSOLIDATED GROUP
	(2,366) (106)
Total comprehensive income for the period	(2,366) (106)
Basic earnings per share Diluted earnings per share Althea issued shares during the period as part of a share consolidation, pre IPO capital raise, and full IPO. (refer Note 9) Therefore, the prior period results are impacted by the limited number of shares on issue at the time.	Cents Cents (0.02) (106,008) (0.02) (106,008)
Weighted average number of ordinary shares Weighted average number of ordinary shares used in calculating basic earnings per share Weighted average number of ordinary shares used in calculating diluted earnings per share	Number Number 114,744,822 1 114,744,822 1

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NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

NOTE 9: EQUITY – ISSUED CAPITAL	31 Dec	30 June	31 Dec	30 June
	2018	2018	2018	2018
	Shares	Shares	$’000	$’000
Ordinary shares - fully paid	203,310,000	12,000	25,732	5,008
Movements in ordinary share capital
Details	Date	Shares	Issue price	$’000
Opening balance	1 July 2018	12,000	-	5,008
Share consolidation	9 August 2018	56,242,500	$0.00	-
Share consolidation	9 August 2018	33,745,500	$0.00	-
Pre IPO	10 August 2018	12,000,000	$0.1667	2,000
IPO	21 September 2018	98,250,000	$0.20	19,650
Pac IPO	21 September 2018	3,060,000	$0.00	-
IPO Expense				(926)
Closing balance	31 December 2018	203,310,000		25,732
NOTE 10: COMMITMENTS			31 Dec 2018	30 June 2018
			$’000	$’000
Capital commitments
Committed at the reporting date but not recognised as liabilities, payable:
Property, plant and equipment*			10,365	-
Lease commitments - operating
Committed at the reporting date but not recognised as liabilities, payable:
Within one year			291	-
One to five years			1,063	-
More than five years			1,442	-
			2,796	-

*The Group has a capital commitment for the design and construction of a production facility.

NOTE 11: EVENTS AFTER THE END OF THE INTERIM PERIOD

On the 7th of February 2019, Althea entered into an agreement to purchase an incorporated United Kingdom shelf entity from its CEO Joshua Fegan to conduct its operations with immediate effect. The entity was purchased for the nominal sum of $181 (being £100) and was at fair value.

There are no other matters or circumstances which have arisen since 31 December 2018 that have significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years.

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DIRECTORS’ DECLARATION

In accordance with a resolution of the directors of Althea Group Holdings Limited, the directors declare that:

1. The financial statements and notes, as set out on pages 8 to 18 are in accordance with the Corporations Act 2001 , including:

2. a. complying with Accounting Standard AASB 134: Interim Financial Reporting; and

3. b. giving a true and fair view of the consolidated entity’s financial position as at 31 December 2018 and of its performance for the half-year ended on that date.

4. I n the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

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Andrew Newbold

Director

Dated this 28th day of February 2019

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INDEPENDENT AUDITOR’S REVIEW REPORT TO THE MEMBERS OF ALTHEA GROUP HOLDINGS LIMITED

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