UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
¨
Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934
or
x
Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended
May 31, 2019
Commission File
Number
001-38708
Aphria
Inc.
(Exact name of Registrant as specified in
its charter)
Canada
(Province or other jurisdiction of incorporation or organization)
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2833
(Primary Standard Industrial Classification Code Number)
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N/A
(I.R.S. Employer
Identification Number)
|
265 Talbot St. W.
Leamington, Ontario, Canada N8H 4H3
(844) 427-4742
(Address and telephone number of Registrant’s principal executive offices)
CT Corporation System
15
th
Street N.W., Suite 1000, Washington, DC 20005
(202) 572-3100
(Name, address (including zip code) and
telephone number (including area code) of agent for service in the United States)
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Securities registered or to be registered
pursuant to Section 12(b) of the Act:
Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Shares
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APHA
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New York Stock Exchange
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Securities registered pursuant to Section
12(g) of the Act: Common Shares, no par value
Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act: None
For annual reports, indicate by check mark
the information filed with this Form:
x
Annual
information form
x
Audited
annual financial statements
Indicate the number of
outstanding shares of each of the registrant’s classes of capital or common stock as of the close of the period covered by
the annual report: 250,989,120
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has
been subject to such filing requirements for the past 90 days.
x
Yes
¨
No
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
Registrant was required to submit such files).
¨
Yes
¨
No
Indicate by check mark whether the registrant
is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.
Emerging
growth company
x
If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards†
provided pursuant to Section 13(a) of the Exchange Act.
¨
† The term “new or revised
financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting
Standards Codification after April 5, 2012.
EXPLANATORY NOTE
Aphria Inc. (the “Company”,
“Aphria” or the “Registrant”) is a Canadian issuer that is permitted, under the multijurisdictional disclosure
system adopted in the United States, to prepare this annual report on Form 40-F (this “Annual Report”) pursuant to
Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in accordance with Canadian disclosure
requirements, which are different from those of the United States. The Company is a “foreign private issuer” as defined
in Rule 3b-4 under the Exchange Act and Rule 405 under the Securities Act of 1933, as amended. Equity securities of the Company
are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3 thereunder.
FORWARD LOOKING STATEMENTS
The Exhibits incorporated by reference
into this Annual Report contain “forward-looking information” and “forward-looking statements” within the
meaning of United States securities laws. All information, other than statements of historical facts, included in this Annual Report
that addresses activities, events or developments that the Company expects or anticipates will or may occur in the future is forward-looking
information. Forward-looking information includes, among other things, information regarding:
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·
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the competitive and business strategies of the Company;
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·
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the intention to grow the business, operations and potential activities of the Company;
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·
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the ongoing expansion of the Company’s facilities, including the Extraction Centre of Excellence
(as defined on page 11 of the Company’s Annual Information Form (“AIF”) filed as Exhibit 99.1 to this Annual
Report), its costs and receipt of approval from Health Canada to complete such expansion and increase production and sale capacity;
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·
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the expected production capacity of the Company;
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·
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the success of the entities the Company acquires and the Company’s collaborations;
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·
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the market for the Company’s current and proposed market offerings, as well as the Company’s
ability to capture market share;
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·
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the benefits and applications of the Company’s product offering and expected sales mix thereof;
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·
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the development of affiliated brands, product diversification and future corporate development;
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·
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the competitive conditions of the industry and the Company’s market expertise;
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·
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whether the Company will have sufficient working capital and its ability to obtain financing required
in order to develop its business and continue operations;
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·
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the applicable laws, regulations, licensing and any amendments thereof related to the cultivation,
production and sale of cannabis products;
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·
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the potential time frame for the implementation of regulations with respect to the regulatory framework
for edible cannabis, cannabis extracts and cannabis topical products;
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·
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the applicable laws and regulations, and the potential time frame for the implementation of such
laws and regulations, to legalize and regulate medical or recreational cannabis (and the consumer products derived therefrom) internationally;
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·
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the grant, renewal and impact of any licence or supplemental licence to conduct activities with
cannabis or any amendments thereof;
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·
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the anticipated future gross sales and margins of the Company’s operations and the potential
for significant losses;
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·
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the performance of the Company’s business and operations; and
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·
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the ability of the Company to continue to attract, develop, motivate and retain highly qualified
and skilled employees, including a permanent Chief Executive Officer and other members of the executive team, including a Chief
Commercial Officer and a Chief Medical Officer.
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Certain forward-looking statements contain
the cannabis industry and the general expectations of the Company’s business and operations are based on estimates prepared
by Aphria using data from publicly available governmental sources as well as from market research and industry analysis and on
assumptions based on data and knowledge of this industry which Aphria believes to be reasonable. However, although generally indicative
of relative market positions, market shares and performance characteristics, such data are inherently imprecise. While Aphria is
not aware of any misstatement regarding any industry or government data presented herein, the cannabis industry involves risks
and uncertainties that are subject to change based on various factors.
Readers are cautioned that the above list
of cautionary statements is not exhaustive. A number of factors could cause actual events, performance or results to differ materially
from what is projected in the forward-looking statements. The purpose of forward-looking statements is to provide the reader with
a description of management’s expectations, and such forward-looking statements may not be appropriate for any other purpose.
Readers should not place undue reliance on forward-looking statements. Although the Company believes that the expectations reflected
in the forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.
The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by applicable law. The Company’s forward-looking statements are expressly
qualified in their entirety by this cautionary statement.
The above statements
are not exhaustive of the factors that may affect our forward-looking statements. Some of the important risks and uncertainties
that could affect forward-looking statements are described further in the exhibits attached to this Annual Report, including those
described in the AIF and the MD&A and incorporated by reference herein. Should one or more of these risks and uncertainties
materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking
statements.
NOTE TO UNITED STATES
READERS - DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES
The Registrant is permitted,
under a multijurisdictional disclosure system adopted by the United States Securities and Exchange Commission (the “SEC”),
to prepare this Annual Report in accordance with Canadian disclosure requirements, which are different from those of the United
States. The Registrant prepares its financial statements, which are filed with this Annual Report in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, and which are not
comparable to financial statements of United States companies.
CURRENCY
Unless otherwise indicated, all dollar
amounts in this Annual Report on Form 40-F are in Canadian dollars. The exchange rate of Canadian dollars into United States dollars,
on May 31, 2019, based upon the daily exchange rate as quoted by the Bank of Canada was U.S.$1.00 = Cdn.$1.3527.
ANNUAL INFORMATION FORM
The AIF for the fiscal year ended May 31,
2019 is filed as
Exhibit 99.1
to this Annual Report and is incorporated by reference herein.
AUDITED ANNUAL FINANCIAL STATEMENTS
The audited consolidated financial statements
of the Company for the years ended May 31, 2019 and 2018, including the report of the independent registered public accounting
firm thereon, are filed as
Exhibit 99.2
to this Annual Report, and are incorporated by reference herein.
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Company’s MD&A for the year
ended May 31, 2019 is filed as
Exhibit 99.3
to this Annual Report, and is incorporated by reference herein.
TAX MATTERS
Purchasing, holding, or disposing of the
Company’s securities may have tax consequences under the laws of the United States and Canada that are not described in this
Annual Report.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by
this Annual Report, the Company carried out an evaluation, under the supervision of the Company’s Chief Executive Officer
(“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation, the Company’s
CEO and CFO have concluded that, as of the end of the period covered by this Annual Report, the Company’s disclosure controls
and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in U.S. Securities
and Exchange Commission (the “SEC”) rules and forms, and (ii) accumulated and communicated to the Company’s management,
including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
While the Company’s principal executive
officer and principal financial officer believe that the Company’s disclosure controls and procedures provide a reasonable
level of assurance that they are effective, they do not expect that the Company’s disclosure controls and procedures or internal
control over financial reporting will prevent all errors or fraud. A control system, no matter how well conceived or operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Management’s Annual Report on Internal Control over
Financial Reporting
This Annual Report does not include a report of management’s
assessment regarding internal control over financial reporting due to a transition period established by rules of the SEC for newly
public companies.
Attestation Report of the Registered Public Accounting Firm
This
Annual Report does not include an attestation report of the Company’s registered public accounting firm due to a transition
period established by rules of the SEC for newly public companies.
Changes in Internal Control over Financial Reporting
During the period covered by this Annual
Report, no change occurred in the Company’s internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.
CORPORATE GOVERNANCE
The Company’s Board of Directors
(the “Board of Directors”) is responsible for the Company’s corporate governance and has separately designated
a standing Corporate Governance and Nominating Committee, established in accordance with Section 303A.04 of the New York Stock
Exchange (the “NYSE”) Listed Company Manual, and a Compensation Committee, established in accordance with Section 303A.05
of the NYSE Listed Company Manual. The Board of Directors has determined that all the members of the Compensation Committee and
the Corporate Governance and Nominating Committee are independent, based on the criteria for independence prescribed by Section
303A.02 of the NYSE Listed Company Manual.
Compensation Committee
Compensation of the Company’s CEO
and all other senior management is recommended to the Board of Directors for determination by the Compensation Committee. The Company’s
Compensation Committee is comprised of Michael Serruya (Chair), Shlomo Bibas and Tom Looney. The Compensation Committee is responsible
for: assisting the Board of Directors in discharging its responsibilities regarding executive compensation; setting objectives
for the CEO and evaluating the CEO’s performance; monitoring management’s succession plan for the CEO and other senior
management; and monitoring compliance with the Company’s “Minimum Share Ownership Policy.” The Compensation Committee
conducts a review of all new employment, consulting, retirement and severance agreements and arrangements proposed for the Company’s
senior management and makes recommendations to the board therewith. The Compensation Committee will also periodically evaluate
existing agreements with the Company’s senior management for continuing appropriateness. The Compensation Committee also
reviews and evaluates the performance of the CEO for the prior year.
The full text of the Compensation Committee
Charter is posted on the Company’s website, www.aphria.com.
Nominating and Corporate Governance Committee
Nominees for the election to the Board
of Directors are recommended by the Nominating and Governance Committee. The Nominating and Corporate Governance Committee is comprised
of Renah Persofsky (Chair), Shawn Dym and Michael Serruya. The Nominating and Corporate Governance Committee’s responsibilities
include: identifying potential nominees to the Board of Directors; assessing the effectiveness of the directors and the various
committees of the Board of Directors and the composition of same; discharging responsibilities regarding the compensation of non-executive
members of the Board of Directors; developing and recommending governance principles and policies related to overall corporate
governance of the organization; and evaluating the Board of Directors’ independence, expertise, experience, personal qualities
and ability to make the necessary time commitments in light of the opportunities and risks facing the Company.
The full text of the Nominating and Governance
Committee Charter is posted on the Company’s website, www.aphria.com.
AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors has determined that
John M. Herhalt qualifies as a financial expert (as defined in Item 407 (d)(5)(ii) of Regulation S-K under the Exchange Act), has
financial management expertise (pursuant to section 303A.07 of the NYSE Listed Company Manual) and is independent (as determined
under Exchange Act Rule 10A-3).
AUDIT COMMITTEE
The Board of Directors has a separately
designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act and Section 303A.06
of the NYSE Listed Company Manual. The Company’s Audit Committee is comprised of John M. Herhalt, Tom Looney and
Shlomo Bibas, all of whom, in the opinion of the Board of Directors, are independent (as determined under Rule 10A-3 of the
Exchange Act and Section 303A.02 of the NYSE Listed Company Manual). All three members of the Audit Committee are
financially literate, meaning they are able to read and understand the Company’s financial statements and to understand the
breadth and level of complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements. The
Audit Committee meets the composition requirements set forth by Section 303A.07 of the NYSE Listed Company Manual.
The members of the Audit Committee are
appointed by the Board of Directors annually. Each member of the Audit Committee will remain on the committee until
the next annual meeting of shareholders after his or her appointment, unless otherwise removed or replaced by the Board of Directors
at any time.
The full text of the Audit Committee Mandate
is available on the Company’s website at
www.aphria.com
and is attached as Schedule “A”
to the Annual Information Form, which is filed as
Exhibit 99.1
to this Annual Report.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
PROVIDED BY
INDEPENDENT AUDITOR
The Audit Committee Charter sets out responsibilities
regarding the provision of non-audit services provided to the Company by the Company’s external auditors or to any subsidiary
entities by the external auditors of such subsidiary entities. The Audit Committee may delegate to one or more of its members the
authority to pre-approve non-audit services but preapproval by such member or members so delegated shall be presented to the full
Audit Committee at its first scheduled meeting following such pre-approval.
Of the fees reported in this Annual Report
on Form 40-F under the heading “Principal Accountant Fees and Services – Independent Auditor”, none of the fees
billed PricewaterhouseCoopers LLP were approved by the Company’s audit committee pursuant to the
de minimus
exception
provided by Section (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
– INDEPENDENT AUDITOR
The following table shows the aggregate
fees billed to the Company by PricewaterhouseCoopers LLP and its affiliates, Chartered Professional Accountants, the Company’s
independent auditor, in each of the last two years.
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2018
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2019
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Audit Fees
(1)
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$
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285,000.00
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$
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780,000.00
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Audit-Related Fees
(2)
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179,872.00
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90,000.00
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Tax Fees
(3)
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Nil
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Nil
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All Other Fees
(4)
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464,872.00
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226,000.00
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Total
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$
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929,744.00
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$
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1,096,000.00
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(1)
Includes fees necessary to perform the annual audit and quarterly reviews of the Company’s financial statements. Audit Fees include fees for review of tax provisions and for accounting consultations on matters reflected in the financial statements. Audit Fees also include audit or other attest services required by legislation or regulation, such as comfort letters, consents, reviews of securities filings and statutory audits.
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(2)
Includes services that are traditionally performed by the auditor. These audit-related services include employee benefit audits, due diligence assistance, accounting consultations on proposed transactions, internal control reviews and audit or attest services not required by legislation or regulation.
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(3)
Includes fees for all tax
services other than those included in “Audit Fees” and “Audit-Related Fees”. This category includes fees
for tax compliance, tax planning and tax advice. Tax planning and tax advice includes assistance with tax audits and appeals, tax
advice related to mergers and acquisitions, and requests for rulings or technical advice from tax authorities.
(4)
Prospectus fees.
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OFF-BALANCE SHEET ARRANGEMENTS
Please
see the sections entitled “Contractual obligations and off-balance sheet financing” at page 28 of the Company’s
May 31, 2019 MD&A contained in
Exhibit 99.3
(which sections are incorporated by reference in this annual report on Form 40-F)
for a discussion of certain off-balance sheet arrangements.
CODE OF ETHICS
The Company adopted a Code of Business
Conduct and Ethics (the “Code”) on July 11, 2017, which applies to its directors, principal executive and financial
officers, and accounting officers. The full text of the Code is posted on the Company’s website, www.aphria.com.
All amendments to the Code, and all waivers
of the Code with respect to any director, principal executive or financial officers and accounting officers will be posted on the
Company’s web site, and any amendment will be provided in print to any shareholder upon request.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table lists, as of May 31,
2019, information with respect to the Company’s known contractual obligations (in thousands):
Payments due by period
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Contractual Obligations
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Total
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Less than 1 year
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1-3 years
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3-5 years
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More than 5 years
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Outstanding capital related commitments
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$
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49,878
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$
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49,878
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$
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--
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$
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--
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$
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--
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Operating leases
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5,596
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811
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1,694
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1,378
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1,713
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Long-term debt
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67,343
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6,332
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12,538
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|
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12,378
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|
|
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36,095
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Total
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$
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122,817
|
|
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$
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57,021
|
|
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$
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14,232
|
|
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$
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13,756
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|
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$
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37,808
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NOTICES PURSUANT TO
REGULATION BTR
There were no notices
required by Rule 104 of Regulation BTR that the Company sent during the year ended May 31, 2019 concerning any equity security
subject to a blackout period under Rule 101 of Regulation BTR.
NYSE CORPORATE GOVERNANCE
The Company’s common shares are listed
on the NYSE. Section 303A.11 of the NYSE Listed Company Manual permits foreign private issuers to follow home country practices
in lieu of certain provisions of the NYSE Listed Company Manual. A foreign private issuer that follows home country practices in
lieu of certain provisions of the NYSE Listed Company Manual must disclose any significant ways in which its corporate governance
practices differ from those followed by domestic companies either on its website or in the annual report that it distributes to
shareholders in the United States.
The Company has reviewed the NYSE corporate
governance requirements and confirms that except as described below, the Company is in compliance with the NYSE corporate governance
standards in all significant respects:
Shareholder Meeting Quorum Requirement
The NYSE is of the opinion that the quorum
required for any meeting of shareholders should be sufficiently high to insure a representative vote. The Company’s quorum
requirement is set forth in its bylaws. A quorum of the Company’s shareholders is present at a meeting of shareholders if
the holders of not less than 10% of the shares entitled to vote at the meeting are present in person or represented by proxy, and
at least two persons entitled to vote at the meeting are actually present at the meeting.
Proxy Delivery Requirement
The NYSE requires the solicitation of proxies
and delivery of proxy statements for all shareholder meetings, and requires that these proxies shall be solicited pursuant to a
proxy statement that conforms to SEC proxy rules. The Company is a “foreign private issuer” as defined in Rule 3b-4
under the Exchange Act, and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections
14(a), 14(b), 14(c) and 14(f) of the Exchange Act. The Company solicits proxies in accordance with applicable rules and regulations
in Canada.
MINE SAFETY DISCLOSURE
Not applicable.
UNDERTAKING
The Company undertakes
to make available, in person or by telephone, representatives to respond to inquiries made by the SEC staff, and to furnish promptly,
when requested to do so by the SEC staff, information relating to: the securities registered pursuant to Form 40-F; the securities
in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.
CONSENT TO SERVICE
OF PROCESS
The Company has previously
filed with the SEC a written consent to service of process on Form F-X. Any change to the name or address of the Company’s
agent for service shall be communicated promptly to the SEC by amendment to the Form F-X referencing the file number of the Company.
SIGNATURES
Pursuant to the requirements
of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused
this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
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APHRIA INC.
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By:
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/s/ Irwin Simon
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Name: Irwin Simon
Title: Chief Executive Officer
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Date:
August 1
, 2019
EXHIBIT INDEX
The following documents
are being filed with the Commission as Exhibits to this Annual Report:
XBRL
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101.INS*
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XBRL Instance
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101.SCH*
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XBRL Taxonomy Extension Schema
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101.CAL*
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF*
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB*
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XBRL Taxonomy Extension Label Linkbase
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101.PRE*
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XBRL Taxonomy Extension Presentation Linkbase
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* To be filed by amendment.
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