Kanabo Group PLC

Half Yearly Report (Unaudited)

For the Period Ended 30 June 2021

Kanabo Group plc ("Kanabo" or the "Company") announces today its Interim results for the period ended 30 June 2021.

Period Highlights

·      The company completed the Reverse Take-Over of Kanabo Research Ltd on 16 February 2021 and raised £6.0 million gross through a placing and subscription. For additional information regarding the Reverse Take-Over transaction refer to note 7.

·      On 24 May 2021, the company raised an additional £1.0 million and used £750,000 of the funds to make a Pre-IPO acquisition investment in Hellenic Dynamics S.A.

·      A further £374,000 was raised during the period from the exercise of warrants.

·      The Company's cash balance at the end of the period was £5.9 million.

Post-Period Highlights

·      In July 2021, Kanabo signed a non-binding term sheet with Materia, to acquire Materia's European businesses. The proposed acquisition is to be fully satisfied through the issue of Kanabo shares.

·    The first shipment of medical cannabis cartridges for distribution through LYPHE Group clinics and dispensaries was delivered.

About Kanabo Group Plc

Kanabo Group Plc is an R&D company currently selling a range of THC-Free Retail CBD Products in the Primary Markets and is in the process of developing further Medical Cannabis Products. The company's core strategy is to increase revenues from the sale of its Retail CBD Products in the wellness sector and to grow the Kanabo brand through its marketing initiatives. Learn more here; https://www.voxmarkets.co.uk/listings/LON/KNB/

Chairman's Review

This has been an exciting half year for Kanabo. Our reverse takeover of Kanabo Research Limited was successfully completed on 16 February 2021 and the Company raised gross proceeds of £6M. Additionally, on 24 May 2021 the company raised £1M to fund a Pre-IPO acquisition investment in Hellenic Dynamics S.A.

The Board remains committed to executing our strategy of leading the global evolution of the cannabis industry by building an integrated platform that will generate value from new product development through to production and distribution.  Thanks to the steadfast commitment and dedication of our people, we are making significant progress in the execution of this strategy. 

We have also strengthened our board with the appointment of Dr Daniel Poulter MP as a Non-Executive Director.   Daniel's knowledge and insight into, both, UK health service provision, and cannabis regulation has been (and will continue to be) invaluable to the Board.

The Company's pre-revenue status is reflected in the operating loss of £1.2m for the six-month period under review as it continued to lay the foundations for a successful full year and beyond. The total loss for this period was £2.4m, largely due to the one-off costs associated with the reverse acquisition.

Our balance sheet is strong and the Company finished the period with cash reserves of £5.9m as of 30 June 2021.

Strategy Summary

Highlights

Looking ahead

On 26 July 2021, Kanabo announced the proposed acquisition of Materia to be satisfied wholly through the issue of Kanabo shares. This will be a transformational acquisition for Kanabo, bringing senior level management expertise in the cannabis agri-chem industry and an EU GMP licensed production facility in Malta from which the Company intends to supply its key markets including Germany and the UK.

The facility in Malta has the ability to process around 6,000kg of cannabis flowers from dozens of cultivators which, at capacity and based on current market rates, could deliver revenues of around £30M per annum.

The growing relationship between Kanabo and Materia has already borne fruit with the launch of Kanabo's products on one of the leading online marketplaces for CBD, HandpickedcCBD.com, which is wholly owned by Materia.

Whilst the nature and structure of this acquisition makes it particularly complex, I am pleased to report that good progress is being made.

In addition to the acquisition of Materia, the Company is also pursuing other opportunities with the potential to add supply and production capacity or to expand Kanabo's routes to markets.

Thank you for your support of our company.  I look forward to updating you again in the near future. 

Non-Executive Chairman

David Tsur

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting' as adopted by the United Kingdom and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

 • an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

• material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The accompanying notes are an integral part of the interim consolidated financial statements.

- represent amount less than one GBP

The accompanying notes are an integral part of the interim consolidated financial statements.

The accompanying notes are an integral part of the interim consolidated financial statements

The accompanying notes are an integral part of the interim consolidated financial statements.

The accompanying notes are an integral part of the interim consolidated financial statements.

The accompanying notes are an integral part of the interim consolidated financial statements.

1.     Information on the Company 

 Kanabo Group plc's (the "Company") and its subsidiaries (together, "the Group") principal activities are the distribution and developing of medical cannabis products.

The Group has its research center in Israel.

The Company is incorporated and domiciled in England and Wales as a public limited company and listed on the London Stock Exchange (standard segment)

2.     Basis of preparation and principal accounting policies

These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020 were approved by the Board of Directors on 1 June 2021 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

These condensed consolidated interim financial statements have been reviewed, not audited.

These condensed consolidated interim financial statements for the six months ended 30 June 2021 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting' as adopted by the United Kingdom. The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2020, which have been prepared in accordance with IFRSs as adopted by the European Union.

Segment reporting

The company considers it has one operating segment and therefore the results are as presented in the primary statements.

Forward-looking statements

Certain statements in this condensed set of consolidated interim financial statements are forward looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to be correct. As these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

3.     Going concern 

The Directors have assessed the current financial position of the Company, along with future cash flow requirements, to determine if the Company has the financial resources to continue as a going concern for the foreseeable future.

The conclusion of this assessment is that it is appropriate that the Company be considered a going concern. For this reason, the Directors continue to adopt the going concern basis in preparing the unaudited interim financial statements

4.     Seasonality

The Group is not subject to seasonal variations in trading. 

5.     Estimates and Judgements

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income, and expense.

Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements for the year ended 31 December 2020 and, in the prospectus, issued in February 2021.

6.     Financial risk management 

The Group's activities expose it to a variety of financial risks, including - market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The condensed consolidated interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 December 2020. There have been no changes in any risk management policies since the year end or as disclosed in the prospectus.

7.     Reverse Acquisition

On 16 February 2021, Kanabo Group PLC ("Company") formerly known as Spinaker Opportunities PLC, acquired through a share for share exchange the entire share capital of Kanabo Research ltd., whose principal activity is the provision of THC-Free retail CBD products and Vaporization devices.

Although the transaction resulted in Kanabo Research Ltd becoming a wholly owned subsidiary of the Company, the transaction constituted a reverse acquisition, as the previous shareholders of Kanabo Research Ltd own a substantial majority of the Ordinary Shares of the Company and the executive management of Kanabo Research Ltd became the executive management of Kanabo Group plc.

In substance, the shareholders of Kanabo Research Ltd acquired a controlling interest in the Company and the transaction has therefore been accounted for as a reverse acquisition. As the Company's activities prior to the acquisition were purely the maintenance of the LSE Listing, acquiring Kanabo Research Ltd and raising equity finance to provide the required funding for the operation of the acquisition, it did not meet the definition of a business in accordance with IFRS 3.

Accordingly, this reverse acquisition does not constitute a business combination and was accounted for in accordance with IFRS 2 "Share-based Payments" and associated IFRIC guidance. Although, the reverse acquisition is not a business combination, the Company has become a legal parent and is required to apply IFRS 10 and prepare consolidated financial statements. The Directors have prepared these financial statements using the reverse acquisition methodology, but rather than recognising goodwill, the difference between the equity value given up by Kanabo Research Ltd's shareholders and the share of the fair value of net assets gained by these shareholders, is charged to the statement of comprehensive income as a share-based payment on reverse acquisition, and represents in substance the cost of acquiring an LSE listing.

On 16 February 2021, the Company issued 230,769,231 ordinary shares to acquire the 237,261 ordinary shares of Kanabo Research Ltd. Based on a share price of £0.065 (which was used for the fund-raising on the same date), the Company's investment in Kanabo Research Ltd is valued at £15,000,000.

Because the legal subsidiary, Kanabo Research Ltd, was treated on consolidation as the accounting acquirer and the legal Parent Company, Kanabo Group plc, was treated as the accounting subsidiary, the fair value of the shares deemed to have been issued by Kanabo Research Ltd was calculated at £1,911,000 based on an assessment of the purchase consideration for a 100% holding of Kanabo Group plc.

According to the IFRS 2 the value of the share-based payment is calculated as the difference between the deemed cost and the fair value of the net assets as at the acquisition day. During the period between 1 January 2021 to 16 February several shareholders exercised their warrants. The exercised warrants indicated that in the event the RTO acquisition would not be completed the funds would be returned to the shareholders. For that reason, we decided that it would be more appropriate to use the value of the net assets as of 1 January 2021.

The difference between the deemed cost (£1,911,000) and the fair value of the net assets assumed per above of £739,396 resulted in £11,172,131 being expensed within "reverse acquisition expenses" in accordance with IFRS 2, Share Based Payments, reflecting the economic cost to Kanabo Research Ltd's shareholders of acquiring a quoted entity.

                 The reverse acquisition reserve which arose from the reverse takeover is made up as follows:

1.   Recognition of pre-acquisition equity of Kanabo Group plc as at 1 January 2021.

2.   Kanabo Research Ltd had issued share capital of 2,098,889. As these financial statements present the capital structure of the legal parent entity, the equity of Kanabo Research Ltd is eliminated.

3.   The value of the shares issued by the Company in exchange for the entire share capital of Kanabo Research Ltd. The above entry is required to eliminate the balance sheet impact of this transaction.

4.   The reverse acquisition expense represents the difference between the value of the equity issued by the Company, and the deemed consideration given by Kanabo research ltd to acquire the Company.

8.     Investments

On 24 May 2021 the Company invested £750,000 into Hellenic Dynamics ("HD") and the company will receive equity as part of the proposed listing of Hellenic Dynamics.  HD is in the process of securing admission to the London Stock Exchange through a Reverse Take Over (" RTO").  The number of HD shares that will be issued to the Company shall be calculated based upon a discount of 30% to the RTO Valuation.

9.     Accrued expenses and other accounts payables

10.   Earnings per share

The basic earnings per share is calculated by dividing the (loss)/profit attributable to the ordinary shareholders of the Company by the weighted average number of Ordinary shares in issue during the period, excluding Ordinary shares purchased by the Company and held as treasury shares.

Due to the loss incurred in the period under review, the dilutive securities have no effect at 30 June 2021.

11.   Share Capital

1.     On February 16, 2021, the company completed its reverse takeover (" RTO") process with Spinnaker Opportunities Plc ("SOP"). The RTO was done in the form of a share for shares exchange and the ratio was approximately 1:972.64.

2.     On February 16, 2021 the company issued 92,307,693 shares raising £ 6,000,000 before costs

3.     On 24 May the company issued 4,545,454 shares raising £ 1,000,000 before costs

12.   Share based payment

a.     Warrants

b.     Stock Option

a.     On February, 2018 Kanabo Research Limited approved an employee share option plan ("The Original Plan"). The vesting period attaching to grants made under this plan ranged from immediately to after four years.  All grants were approved by the Board of Directors.  On February 16, 2021 and following the transaction, this plan was cancelled and superseded by the Replacement Plan (see below).

b.     On March 28, 2021, the Group approved a share-based payment plan for its Israeli employees ("The Replacement Plan").  Options will be granted under the Replacement Plan to replace cancelled options granted under the Original Plan.  The recipients of replacement options will include employees and directors.

c.     No changes were made in Kanabo Group Plc. option scheme.

Further details regarding the Company's share option plans

                    Further details regarding the Group's share option plans

13.   Events after the reporting period

The company doesn't have any post reporting period events to report.