REG - Kanabo Group PLC - Final Results
06/06/2022 07:00
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RNS Number : 6867N Kanabo Group PLC 06 June 2022
Kanabo Group Plc
(Formerly: Spinnaker Opportunities Plc)
("Kanabo" or the "Company")
Final Results
Kanabo Group Plc (LON: KNB), a medical cannabis R&D Company that focuses
on the distribution of cannabis-derived products for medical patients, and
non-THC products for CBD consumers, is pleased to announce its Full Year
Audited Results for the year ended 31 December 2021.
Period Highlights
· Successful listing of the Company's shares on 16 February 2021 to
become one of the first medical cannabis companies on the London Stock
Exchange, raising gross proceeds of £6 million
· Production developments:
a. Signed a production and supply agreement with PharmaCann Polska in
March 2021 for the supply of cartridges containing the Company's proprietary
medicinal cannabis formulations for use with the VapePod inhalation device.
b. Secured a further manufacturing agreement on 20 May 2021 with Pure
Origin Limited to supply Kanabo's CBD wellness product line from its facility
in Wales.
c. Completed a certified EU-GMP production line in June 2021 in
partnership with Pure Origin Group.
· Product Developments:
a. Kanabo's medicinal cannabis cartridges became available to UK patients.
b. Applied to undertake a bioavailability and efficacy trial of its
proprietary Cannabis inhalation formulas used in conjunction with its VapePod
delivery device.
· Supply Chain and Distribution Developments:
a. Launched the first medical cannabis product in the UK in July 2021,
demonstrating the Company's fully operational supply, production, and
distribution chain.
b. Delivered the first shipment of the Company's medical cannabis
cartridges for distribution through LYPHE Group clinics and dispensaries.
c. In September 2021, the Company's CBD products became available for sale
via HandpickedCBD.com, a leading UK eCommerce site dedicated to CBD.
· Invested £0.75 million as a Pre-RTO investment in Hellenic Dynamics
S.A.
Post Period Highlights:
· Acquired The GP Service Limited, a UK-based private primary care
telemedicine provider, for a net consideration of £13.5 million on 21
February 2022.
· Signed a Memorandum of Understanding with Forbe Ltd on 9th March 2022
for the sale of the Company's CBD products into Israel.
· Launched the Company's eCommerce platform, 'The Kanabo Store', for
the distribution of CBD products to consumers. The roll-out will have an
initial focus on the UK market before the website launches in Europe.
· Raised £2.25 million through a placing of 28,125,000 new ordinary
shares.
Outlook
Having completed its strategic acquisition of The GP Service, the Company is
now in a position to grow the primary care tele-medicine business and be at
the leading edge of an emerging medical cannabis tele-medicine market. This
market segment is expected to grow strongly in FY22 as legislation evolves and
medicinal cannabis continues to gain acceptance as a treatment for more
indications and becomes more mainstream.
Furthermore, the Company is anticipating CE accreditation for its Vapepod
medical device in 2022 paving the way for accelerated sales in Germany and
other European markets. At the same time, within the next 12 months, the
Company aim to expand product development to include products and delivery
systems beyond vaporization.
Kanabo, CEO, Avihu Tamir, said:
"Since the beginning of 2021, we completed the reverse takeover transaction
and successfully raised £6 million as one of the first cannabis-related
businesses to list on the London Stock Exchange.
I believe 2022 will be another year of transformation growth as we work toward
achieving CE accreditation for our vapePod and develop our vertically
integrated business with investment and complementary acquisitions.
I am therefore confident Kanabo can expect to deliver significant revenue from
the sale of CBD and medicinal cannabis over the next 12 months, well beyond
anything the Company has seen to date and remains well positioned to become
one of Europe's leading compliant providers of both wellness CBD services and
medicinal cannabis products in the UK and EU.
I therefore look forward to executing our business plan and achieving our
future goals as Kanabo continues to work on several initiatives, that are
expected to create significant value for shareholders"
For further information, please visit www.kanabogroup.com
(http://www.kanabogroup.com) or contact the following:
Kanabo Group Plc
Tel: +972 52 3173 633
press@kanabogroup.com
Assaf Vardimon
Peterhouse Capital Limited (Financial Adviser)
Tel: +44 (0) 20 7469 0930
Eran Zucker / Lauren Riley
Kanabo Group Plc
(Formerly: Spinnaker Opportunities Plc)
Annual Report & Financial Statements
for the year ended 31 December 2021
Company Registration No. 10485105 (England and Wales)
Contents
Page
Company Information 3
Chairman's Statement 4
Chief Executive Officer's Review 5
Board of Directors and Senior Management 9
Directors' Report 11
Strategic Report 15
Governance Report 22
Remuneration Committee Report 29
Audit Committee Report 33
Nomination Committee Report 35
Independent Auditors' Report 36
Consolidated Statement of Comprehensive Income 44
Consolidated Statement of Financial Position 45
Parent Company Statement of Financial Position 46
Consolidated Statement of Changes in Equity 47
Parent Company Statement of Changes in Equity 48
Consolidated Statement of Cash Flows 49
Parent Company Statement of Cash Flows 50
Notes to the Financial Statements 51
Company Information
Directors Principal Bankers
Mr. Andrew Morrison PayrNet Limited
Mr. David Tsur 138 Holborn
Mr. Avihu Tamir London
Mr. Daniel Poulter England
Mr. Gil Efron EC1N 2SW
Company Secretary Registrars
Neville Registrars
Mr. Howard Rubenstein
Neville House
Steelpark Road
Registered Office
Halesowen
Churchill House
B62 8HD
137-139 Brent Street
London
NW4 4DJ
Registered Number
10485105
Brokers
Peterhouse Capital Limited
3(rd) Floor
80 Cheapside
London
EC2V 6EE
Independent Auditor
PKF Littlejohn LLP
Statutory Auditor
15 Westferry Circus
Canary Wharf
London
E14 4HD
Solicitors
Asserson
Churchill House
137-139 Brent Street
London
NW4 4DJ
Chairman's Statement
I am pleased to present the audited financial statements to shareholders for
the year ended 31 December 2021, which is our first annual report published as
a publicly listed company since the completion of the acquisition of Kanabo
Research Ltd via a reverse takeover ("RTO").
The period under review covers the reverse takeover of Spinnaker Opportunities
Plc and and re-listing onto the London Stock Exchange, with the Company
successfully raising gross proceeds of £6 million from new and existing
investors. Since the RTO, we made a number of exciting developments and met a
number of key milestones that testifies to the rapid development of the
business, delivering on several strategic milestones stated at the time of
RTO.
As we outlined at the time of re-listing and subsequently in the June 2021
interim consolidated financial statements, the Board remains committed to
executing our stated strategy of leading the global evolution of the cannabis
industry by building a fully vertically integrated platform that will generate
significant value from new product development, innovative production
techniques and enhanced distribution direct to the user of cannabis-based
products.
Since the completion of the RTO, we have witnessed huge developments in the
cannabis industry and markets with a groundswell of growing acceptance of
cannabis products for both overall wellbeing and specific medicinal
applications.
With further investment and patient access to medical cannabis, we can now see
a clear path towards medical cannabis and CBD products becoming mainstream
products in the European market.
The cannabis market is now estimated to increase to a €3.2 billion market by
2025 in Europe with Germany forecasted to remain the dominant territory and
with the UK market accelerating quickly. According to a UK-based cannabis
consultancy, Prohibition Partners, the UK medical cannabis market is now
expected to be worth around £1 billion by 2024, while in 2021, the UK-based
real estate company Savills valued the CBD market alone at around £300
million a year.
The rising interest in the potential of cannabis in the UK, has seen consumer
demand for products outstrip supply by some margin with patient numbers now
growing at an unprecedented level.
We have also seen the level of hesitancy from healthcare professionals
regarding prescribing medicinal cannabis products begin to wane, as the pace
of education catches up to the demand from consumers and patients alike.
Education has been vital at combatting the glacial pace of regulatory clarity,
not only for consumers, but for consultants and policymakers as well as
innovative businesses such as Kanabo.
We have also taken the opportunity during the period to strengthen 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 continues to be invaluable to the Board.
Thanks to the steadfast commitment of our people, Kanabo has delivered
significant progress in the execution of its strategy during the year. I
therefore thank all our employees, advisors and our shareholders for their
dedication and support during the period.
David Tsur
Chairman, Non - Executive Director
1 June 2022
Chief Executive Officer's Review
The period under review was a transformational one for the Company with both
re-admission on the London Stock Exchange and the development of the
vertically integrated supply chain and unique distribution channels.
Given the progress during the year and the post period acquisition (see note
27 for further commentary), the Group continues to work towards its stated
strategy of becoming a leading Group within the CBD consumer and medical
cannabis markets.
Financial Review
On 16 February 2021, the Company successfully completed its acquisition of
Kanabo Research Ltd via a share-for-share swap ("Reverse takeover" or "RTO").
Since this acquisition falls outside the scope of IFRS 3, RTO accounting has
been applied. As a result, the comparatives in the primary statements
represent that of Kanabo Research Ltd. The current year figures within the
primary statement represent the results of both the Company and Kanabo
Research Ltd for the year and the assets and liabilities of both entities as
at the year-end respectively. For further commentary on accounting for the
RTO, see note 8.
In addition to share consideration issued on 16 February 2021 totaling
£15,000K, under the terms of the agreements, an additional 38,461,492 shares
at the fundraising price, 6.5p, were to issued providing a number of agreed
upon milestones had been met in the year. As these milestones were met, as
announced in the RNS released on 30 December 2021, shares for a value of
£2,500k were to be issued as at the year-end. As at the approval date of this
annual report, these shares have yet to be issued however, the Company will
issue the shares in question once it has sufficient authorised share capital.
The Group remained predominantly pre-revenue during the period recording an
operating loss of £3.4m. Included in the £3.4m of operating expenses were
research and development, sales and marketing costs of £0.2m and £0.6m
respectively. As in 2020, no research and development expenses incurred in the
year have been capitalised. See note 4 for our justification.
The operation loss includes a loss in the amount of £0.6m which was recorded
as a net impairment loss over the loans granted to Materia.
The majority of operating expenses were salary related with the exceptional
reverse acquisition costs of £1.2m resulting in a loss for the year of
£4.6m.
Importantly, the balance sheet remained strong with the Group's cash and cash
equivalents totalling £4.5m as at 31 December 2021, following a net cash
outflow of £2.1m from operating activities and approximately £7.2m raised
through share, warrants and options issuance during the period.
During the reporting period, as part of its strategic plan, the Company signed
a head of agreement with 11157353 Canada Corp. a company incorporated in
Canada ("Materia"). As part of this agreement the Group had advanced CAD
1,000K (£582K) to Materia. When assessing whether the loan receivable and
accrued interest is recoverable or not, the Directors identified a number of
impairment indicators. Whilst no repayments of the loan are due, or yet to
have been received and whilst through communications with Materia the
Directors understand Materia is willing to repay the balance, there is not
sufficient evidence to demonstrate that it is probable that Materia has the
ability to make full repayment of the balance. The Directors have therefore
taken a prudent view and decided to fully impair the loan, however, the
Company and Materia will continue to discuss their future collaboration and a
strategic partnership through which the Company hope to recover the loan
balance.
Chief Executive Review (Continued)
Financial Review (continued)
Since the year-end, the Company has received strong investor support from both
existing and new investors. On 21 February 2022, the Company successfully
completed a £2.25 million fundraising ensuring Kanabo remains well funded to
progress its strategic plans during 2022, as disclosed in the strategic report
on page 15.
Operational Review
Kanabo launched its first medical cannabis product in the UK in July 2021,
thereby demonstrating its fully operational supply chain from flower to
production and through our extensive distribution network outlined at the time
of re-listing at the beginning of the period.
This first shipment of medical cannabis cartridges not only marked a key
milestone for Kanabo, but moreover for the medicinal cannabis industry across
the UK.
Production Capability
Our production and supply agreement with PharmaCann Polska established
Kanabo's first medical cannabis production line in the EU, with an initial
production capacity of up to 36,000 cartridges per month. The Company can
further increase this production line when necessary.
In addition, the agreement with Pure Origin to manufacture, package and
deliver our wellness product line has introduced another dedicated production
line with an initial capacity of 44,000 units a month. In this case too,
Kanabo can further increase production capacity when necessary.
These relationships add significant production capacity to Kanabo's CBD
wellness business while we retain full control over product quality and
distribution of our tamper proof cartridges.
Following the period-end, Kanabo signed a Memorandum of Understanding with
Forbe Ltd, thereby taking the Company into the emerging CBD markets in Israel.
We expect this to position the Company as a CBD market leader in this high
growth market where the regulatory landscape for the sale of CBD products is
on an increasingly positive trajectory; Israel's deregulated market is
estimated to be worth up to US$475 million by 2025.
Sales and Distribution Capability
During 2022, Kanabo's launched a UK eCommerce site. This clearly demonstrates
how focused we are to bring our proprietary products to market and accelerate
the path to commercial sales volumes.
Post year-end, we launched the Company's first dedicated eCommerce platform,
'The Kanabo Store', for the distribution of CBD products to consumers. The
planned roll-out will have an initial focus on the UK before the website
launches across Europe.
Product Development
During October 2021, Kanabo submitted a clinical trial protocol for approval
at the Hadassah Medical Centre and review by the Helsinki Committee to test
the impact on healthy volunteers of the inhalation of various medical cannabis
formulas via a proprietary VapePod delivery device, which dispenses
standardized and metered inhalations.
As the first of its kind, this trial is expected to position Kanabo as the new
gold standard for medical cannabis inhalation within the global medicinal
Cannabis community.
Chief Executive Officer's Review (Continued)
Post Period Events
Our long-term mission to enable greater patient access to medicinal cannabis
products in the UK has already been advanced with our post-period acquisition
of The GP Service Limited ("GPS"), a private primary care telemedicine
provider, which uses an online-based consultation platform. The acquisition
was closed for a net share issue consideration of £13.5m, see note 27.
The objective of our acquisition of GPS is to rapidly grow an existing digital
and telemedicine business while establishing a fully compliant channel to
market for our products for medical patients. By improving patient access, the
Company hopes to make a substantial contribution to improving outcomes for
thousands of patients across the UK and Europe and beyond.
Given the current market environment, I believe that Kanabo is well positioned
to deliver attractive growth in revenue and margin as a result of this
acquisition in 2022.
As part of strengthening the Group's financial position, on 21 February 2022,
the Company raised £2.25 million by way of a placing of 28,125,000 new
ordinary shares of 2.5 pence each in the Company ("placing shares") at a
price of 8p per share, see note 27.
Most recently, the Company has announced that is no longer proceeding with the
proposed acquisition of the European businesses of 11157353 Canada Corp.,
which trades under the name of Materia ("Materia"). The Company has now
decided that the benefits of working with Materia, including its GMP facility
in Malta, are now most effectively executed through a non-dilutive Strategic
Partnership between the two independent companies, as opposed to the
previously proposed all-share acquisition.
Kanabo and Materia are currently negotiating a partnership to directly support
the Company's key strategy, which is the commercialisation of its medical
cannabis products in the UK and Germany, with:
· Access to Materia's EU-GMP production facility in Malta via a
contract manufacturing agreement
· Exclusive distribution rights in the UK for Materia's new products.
Arrangements for the servicing and repayment of the CAD$1 million secured loan
facility previously made available by the Company to Materia will be
incorporated into the new strategic partnership.
Outlook
The acquisition of GPS will prove to be transformational for Kanabo in 2022;
reflecting our strategy to use M&A and organic growth to build a leading
pan-European company to offer innovative medical solutions to patients
suffering from conditions including chronic pain, anxiety and central nervous
system diseases.
However, the full impact of our acquisition of GPS will only be realised once
we can use this online channel to prescribe medicinal cannabis within a
compliant digital framework. To that end, we intend to invest in additional
sales capacity at GPS to further develop this recurring revenue stream to
offer advanced telemedicine services to medium to large enterprises.
Cannabis legislation is evolving rapidly, and the Company is making
significant progress along its product development roadmap with the CE Mark
for its proprietary Vapepod expected this year. The CE Mark is a certification
that our products meet all health, safety, and environmental protection
standards and will pave the way for VapePod sales across the UK and EU.
Chief Executive Officer's Review (Continued)
In addition, the Company is aiming to diversify its offering through the
establishment of several new delivery methods for our cannabis products. This
is expected to bring new and significant growth opportunities in this market
as we extend our offering beyond vaporisation.
Furthermore, the Company is pursuing additional supply and production capacity
in order to expand its routes to its key markets.
Therefore, I believe that Kanabo is well positioned to deliver attractive
growth in 2022 for shareholders and, subject to legislation, remains on track
to become one of Europe's first digitally led, legally compliant providers of
both wellness CBD services and medicinal products.
Avihu Tamir
CEO, Executive Director
1 June 2022
Board of Directors and Senior Management
Andrew Morrison - Non-Executive Director
Formerly Chairman of Spinnaker Opportunities Plc, Mr. Morrison is an active
investor and maintains a portfolio of non-executive directorships amongst
junior public companies, in the energy and other sectors. He has in the past
acted as Chief Executive of companies including Xtract Energy Plc, Silvermere
Energy Plc and Zeta Petroleum Plc.
Mr. Morrison began his career at Shell in oil products and in 1999, joined BG
Group Plc as a New Ventures Director. Subsequently he held senior New Business
Development roles for the industrial gases group BOC Group Plc until its
acquisition in 2007. Mr. Morrison has a BSc in Chemical Engineering and Fuel
Technology from the University of Sheffield and a Diploma in Company Direction
from the Institute of Directors.
David Tsur - Chairman, Non-Executive Director
Mr. Tsur is the co-founder of Kamada Ltd, a public company listed on both
NASDAQ and the Tel-Aviv Stock Exchange. He served as its Chief Executive
Officer and on its board of directors from the company's inception in 1990
until July 2015. Mr. Tsur served as a Board member and Chairman of Collplant
listed on the NASDAQ.
Prior to co-founding Kamada, Mr. Tsur was the Chief Executive Officer of Arad
Systems and RAD Chemicals Inc. He has also held various positions in the
Israeli Economic Ministry (formerly named the Ministry of Industry and Trade),
including Chief Economist and Commercial Attaché in Argentina and Iran.
Mr. Tsur holds a BA degree in Economics and International Relations and an MBA
in Business
Management from the Hebrew University of Jerusalem.
Avihu Tamir - Chief Executive Officer, Executive Director
Mr. Tamir is a cannabis entrepreneur with over five years of hands-on
experience in multiple cannabis ventures and vast experience in consulting for
international cannabis projects. Mr. Tamir began his career and built his
reputation as a senior strategy consultant at Accenture. He is also the
founder of Teva Nature, the leading vaporiser company in Israel.
Mr. Tamir founded Kanabo Research in 2017 and since then has served as CEO of
the company. His expertise includes biotechnology, new agriculture and
agro-tech, and other breakthrough technologies in the dynamic field of medical
cannabis.
Mr. Tamir holds a B.A. in Finance and Risk Management (Magna Cum Laude), and a
M.A. in Political Science (Magna Cum Laude) from the IDC Herzliya.
Board of Directors and Senior Management (continued)
Dr. Daniel Poulter - Non-Executive Director
Dr Poulter is a former U.K. health minister with a detailed knowledge of the
medicines and drugs regulatory framework in the UK. and across Europe.
He studied law at Bristol University and has a degree in medicine from Guy's,
King's and St Thomas' School of Medicine. Before retraining as an NHS
psychiatrist, Dr Poulter previously worked as a hospital doctor specialising
primarily in women's health. He continues to practice medicine as an NHS
hospital doctor on a part-time basis.
Dr Poulter's medical experience and extensive knowledge of both healthcare
policy and regulation makes him well placed to support the Company's approach
to establishing medicinal cannabis markets.
Gil Efron - Non-Executive Director
Mr. Efron is serving as President and Chief Financial Officer of NASDAQ and
TASE dual-listed Purple Biotech Ltd, a clinical-stage company since June 2021,
having previously held the position of Deputy Chief Executive Officer and
Chief Financial Officer from October 2018.
Between 2011 and 2017, Gil served as Deputy CEO and CFO of Kamada Ltd, a
NASDAQ and TASE dual-listed plasma-derived protein therapeutics company
between 2011-2017.
Mr. Efron holds a B.A. degree in Economics and Accounting and an M.A. degree
in Business Administration from the Hebrew University of Jerusalem.
Directors' Report
The Directors present their report with the audited financial statements of
the Company for the year ended 31 December 2021. A commentary on the business
for the year is included in the Chairman's Statement on page 4. A review of
the business is also included in the Strategic Report on page 15.
The Company's Ordinary Shares were admitted to listing on the London Stock
Exchange, on the Official List pursuant to Chapters 14 of the Listing Rules,
which sets out the requirements for Standard Listings.
Directors
The Directors of the Company during the year and their beneficial interest in
the Ordinary shares of the Company at 31 December 2021 were as follows:
Director Position Appointed Resigned Ordinary shares Options Warrants Consideration shares (b)
Andrew Morrison (a) Non-Executive Director 17/11/2016 - 4,600,080 900,000 2,300,040 -
David Tsur Chairman, Non-Executive Director 16/02/2021 - 9,061,102 2,700,000 - 1,513,542
Avihu Tamir CEO, Executive Director 16/02/2021 - 97,263,870 - - 16,246,722
Daniel Poulter Non-Executive Director 19/07/2021 - - 1,800,000 - -
Gil Efron Non-Executive Director 21/03/2022 - - - - -
Uziel Danino Non-Executive Director 16/02/2021 21/03/2022 3,683,382 1,800,000 - 615,262
Anthony Harpur (c) Non-Executive Director 21/02/2017 16/02/2021 - - - -
Alan Hume (c) Non-Executive Director 17/09/2018 16/02/2021 1,521,538 - 400,000 -
(a) 2,600,080 Ordinary Shares held by Mr. Andrew Morrison were held by Global
Prime Partners Nominees Limited on behalf of his Self-Invested Personal
Pension (SIPP).
(b) The consideration shares were not issued as of the reporting period; the
amount presented in the schedule above is still subject to Board approval.
(c) Anthony Harpur and Alan Hume resigned during the year upon completion of
the RTO.
Directors' Report (continued)
Qualifying third party indemnity provision
At the date of this report, the Company has a third-party indemnity policy in
place for all five Directors.
Substantial shareholders
As at 31 December 2021, the total number of issued Ordinary Shares with voting
rights in the Company was 369,966,277. Details of the Company's capital
structure and voting rights are set out in note 19 to the financial
statements.
As of the date of the approval of the financial statements, the Company has
been notified of the following interests of 3 per cent or more in its issued
share capital as at the date of approval of this report.
Name of shareholder Number of ordinary shares % of
Share capital
Avihu Tamir 97,263,870 23.00%
David Sack 16,191,080 3.83%
Financial instruments
Details of the use of the Company's financial risk management objectives and
policies as well as exposure to financial risk are contained in the accounting
policies and note 24 of the financial statements.
Greenhouse gas (GHG) emissions
The Group is aware that it needs to measure its operational carbon footprint
in order to limit and control its environmental impact. However, since the
Group, due to its limited activities in the year under review, did not consume
more than 40,000kWh of energy, the Group's emissions are not disclosed for
this reason.
In the future, the Group will only measure the impact of its direct
activities, as the full impact of the entire supply chain of its suppliers
cannot be measured practically.
Dividends
The Directors do not propose a dividend in respect of the year ended 31
December 2021 (2020: nil).
Directors' Report (continued)
Future developments and events subsequent to the year-end
Further details of the Company's future developments and events subsequent to
the year-end are set out in the Strategic Report on page 15 and in note 27 in
the financial statements.
Corporate governance
The Governance report forms part of the Director's Report and is disclosed on
page 22.
Going Concern
As at 31 December 2021, the Group's cash position totaling £4,477k and it was
in a strong net current asset position. Based on the Group's current cash
reserves and detailed cash forecasts produced, the Directors are confident
that the Group will be able to meet its obligations as they fall due over the
course of the next 12 months. Whilst the Group may seek to raise further funds
in the next 12 months, the Directors are confident that the Group would be
able to meet its obligations as they fall due in the event that no further
funding is obtained because of low level committed expenditure relative to the
forecasted discretionary expenditure, which could be reduced or deferred.
The Directors also acknowledge that the COVID-19 pandemic has had, and will
likely continue to have, adverse impacts on the global economy and capital
markets. However, the Directors are confident that the Group will continue to
remain a going concern as they do not believe the Group is dependent on
raising further funds to remain a going concern.
Auditors
The Board appointed PKF Littlejohn LLP as auditors of the Company on 12
December 2018.
As a result of the ethical breach detailed within the Auditors' Report, they
will not be able to continue in office and thus the Board will be appointing
new auditors in the foreseeable future.
Statement of directors' responsibilities
The Directors are responsible for preparing the annual report alongside the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. The Directors have prepared the financial statements in
accordance with UK-adopted international accounting standards and in
conformity with the requirements of the Companies Act 2006.
Under Company law, the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and the Company and of the profit or loss of the Group
and Company for that year. The Directors are also required to prepare
financial statements in accordance with the rules of the London Stock Exchange
for companies with a standard listing.
Directors' Report (continued)
Statement of directors' responsibilities (continued)
In preparing these financial statements, the Directors are required to:
· Select suitable accounting policies and then apply them
consistently;
· Make judgments and accounting estimates that are reasonable and
prudent;
· State whether they comply with UK-adopted international
accounting standards, subject to any material departures disclosed and
explained in the financial statements; and
· Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Company will continue
in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's transactions and disclose with
reasonable accuracy at any time the financial position of the Group and enable
them to ensure that the financial statements and the Remuneration Committee
Report comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities. They are also
responsible to make a statement that they consider that the annual report and
accounts, taken as a whole, is fair, balanced, and understandable and provides
the information necessary for the shareholders to assess the Group's position
and performance, business model and strategy.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of the financial statements may differ from legislation in other
jurisdictions.
Statement of directors' responsibilities pursuant to disclosure and
transparency rule
Each of the Directors, whose names and functions are listed on page 9 confirm
that, to the best of their knowledge and belief:
· the financial statements prepared in accordance with UK-adopted
international accounting standards and, give a true and fair view of the
assets, liabilities, financial position, and loss of the Group; and
· the Annual Report and financial statements include a fair review of
the development and performance of the business and the position of the Group,
together with a description of the principal risks and uncertainties that they
face.
Disclosure of information to auditors
So far as the Directors are aware, there is no relevant audit information of
which the Company's auditors are unaware, and each director has taken all the
steps that he ought to have taken as a director in order to make himself aware
of any relevant audit information and to establish that the Company's auditors
are aware of that information.
This directors' report was approved by the Board of Directors on 1 June 2022
and is signed on its behalf by:
David Tsur
Chairman, Non - Executive Director
Strategic Report
The Directors present the Strategic Report of the Company for the year ended
31 December 2021.
Section 172(1) Statement - Promotion of the Company for the benefit of the
members as a whole
The Directors believe they have acted in the way most likely to promote the
success of the Company for the benefit of its members, as required by section
172 of the Companies Act 2006.
The requirements of section 172 are for the Directors to:
· Consider the likely consequences of any decision in the long term;
· Act fairly between the members of the Group;
· Maintain a reputation for high standards of business conduct;
· Consider the interests of the Group's employees;
· Foster the Group's relationships with suppliers, customers and
others; and
· Consider the impact of the Group's operations on the community and
the environment.
The Board recognise that their primary role is the representation and
promotion of shareholders' interests. The Board makes every effort to
understand the interests and expectations of the Group's shareholders and
other stakeholders, and to reflect these in the choices it makes in its effort
to create long-term sustainable value. Governed by the Companies Act 2006, the
Company has adopted the Quoted Companies Alliance Corporate Governance Code
2018 (the "QCA Code"). The Board recognises the importance of maintaining a
good level of corporate governance which, together with the requirements of a
main market listing, ensures that the interests of the Company's stakeholders
are safeguarded.
As a Company, the Board seriously considers its ethical responsibilities to
the communities and environment.
The application of the section 172 requirements can be demonstrated in
relation to some of the key decisions made during the year:
· The acquisition of Kanabo Research ltd via an RTO and the re-listing
of the Company onto the London Stock Exchange was successfully executed in
February 2021 alongside a significant fundraise
· Management entered into negotiations with GPs and Materia and made a
significant investment in Hellenic, entities in the CBD and Medicinal Cannabis
sector thus taking further steps towards its goal to become on of Europe's
leading compliant providers of CBD and Medicinal Cannabis
· The Board recognises that its is key to its long-term success thus
the Group invest in research activities within the subsidiary.
The Board considers that they have acted in a way they consider, in good
faith, would be most likely to promote the success of the Company for the
benefit of its members as a whole in decisions taken during the year ended 31
December 2021.
Strategic Report (continued)
Review of Business in the Period
Operational Review
The Group's principal activity is set out in the Directors' Report on page 11.
On 29 January 2021 the Company published the prospectus in relation to the
acquisition of Kanabo and called for a General Meeting of shareholders on the
15 February 2021. The completion of the Kanabo transaction took place on 15
February 2021 with re-admission to trading on the London Stock Exchange the
following day.
Following the RTO, the following actions were taken to help enhance the
Group's product offering, production processes and supply chain:
· Production developments:
a. Signed a production and supply agreement with PharmaCann Polska in
March 2021 for the supply of cartridges containing the Company's proprietary
medicinal cannabis formulations for use with the VapePod inhalation device.
b. Secured a further manufacturing agreement on 20 May 2021 with Pure
Origin Limited to supply Kanabo's CBD wellness product line from its facility
in Wales.
c. Completed a certified EU-GMP production line in June 2021 in
partnership with Pure Origin Group.
· Product Developments:
a. Kanabo's medicinal cannabis cartridges became available to UK patients.
b. Applied to undertake a bioavailability and efficacy trial of its
proprietary Cannabis inhalation formulas used in conjunction with its VapePod
delivery device.
· Supply Chain and Distribution Developments:
a. Launched the first medical cannabis product in the UK in July 2021,
demonstrating the Company's fully operational supply, production, and
distribution chain.
b. Delivered the first shipment of the Company's medical cannabis
cartridges for distribution through LYPHE Group clinics and dispensaries.
c. In September 2021, the Company's CBD products became available for sale
via a leading UK eCommerce site dedicated to CBD, HandpickedCBD.com.
Business strategy
After the reporting period the Group completed a strategic acquisition of
GP Service (UK) Limited ("GPS"). As a result, through investment made by the
Company, GPS will now be able to grow its primary care tele-medicine business
and be at the leading edge of an emerging medicinal cannabis tele-medicine
market. This market segment is expected to grow strongly during 2022 as
legislation evolves and medicinal cannabis continues to gain acceptance as a
treatment for more indications and become more mainstream.
The Company is committed to the development and acquisition of cannabis
related businesses and production assets in UK and abroad (subject to
compliance with applicable law), intellectual properties, technologies or
other assets that are synergistic to the Company's UK and international
strategies.
Strategic Report (continued)
Subsequent events
On 21 February 2022, the Company acquired GP Service (UK) Limited ("GPS"),
a UK-based private primary care telemedicine provider, for a net
consideration of £13,498,634 ("net consideration"). The net consideration
was satisfied by the allotment of 94,133,645 B ordinary shares of 0.00001p
each in the capital of Kanabo GP Limited, a subsidiary of Kanabo Group Plc,
at a price of 12.65p per share ("Consideration Shares"). It has been agreed as
part of the acquisition that the principal and interest owed at completion by
GPS to MEIF WM Debt LP (£1,590,729) will be repayable by the Company by
the allotment of 12,574,931 ordinary shares within 18 months based on the same
price of 12.65p per share, see note 27.a in the financial statements.
The acquisition of GPS is part of the Company's strategy to establish a new
and fully compliant channel to market for the Company's products for medical
patients. Through improved access to these patients, the Company hopes to make
a substantial contribution to improving outcomes for thousands of patients in
the UK and Europe.
On 21 February 2022, the Company successfully raised £2.25 million by way of
a placing of 28,125,000 new ordinary shares of 2.5 pence each in the
Company ("placing shares") at a price of 8p per share. The placing shares
issued represented approximately 7% of the Company's enlarged ordinary share
capital following the placing.
COVID-19
The impact of the Covid-19 pandemic had little effect on the business of the
Group during 2021 as the work continued using phone communications and video
conference facilities to minimise risk to participants. Due to the continued
success of global vaccination programmes and the widespread existence of
online purchasing, the Directors do not believe that COVID-19 will have a
significantly adverse impact on the Group in the foreseeable future.
Strategic Report (continued)
Environment and Social
The Group is committed to creating long-term value and sharing the benefits of
its operations with all its stakeholders, including employees, and
shareholders. The Group operations have the potential to provide a significant
positive impact on the socio-economic development of its local communities,
while minimising their impact on the environment. Environment, social and
governance ("ESG") policies, systems and practices are embedded throughout the
business.
The Group is aware that it needs to measure its operational carbon footprint
in order to limit and control its environmental impact. However, since the
Group, due to its limited activities in the year under review, did not consume
more than 40,000kWh of energy, the Group's emissions are not disclosed for
this reason.
In the future, the Group will only measure the impact of its direct
activities, as the full impact of the entire supply chain of its suppliers
cannot be measured practically.
Financial review
Results for the year
The Group incurred a loss for the year to 31 December 2021 of £4,633K (2020 -
loss of £580K).
The Group recorded an operating loss of £3,402K which included research and
development, sales and marketing and general and administration costs of
£242K, £569K and £2,000K respectively. The operating loss include also an
impairment recorded over the loans granted to Materia in the total amount of
£598K
The Company recorded a share-based payment expense of £1,172K resulting from
the accounting treatment for the RTO.
Cash flow
The net cash increase for 2021 was £4,150K (2020: £29K inflow).
Closing cash
As at 31 December 2021, the Group held £4,477K of cash (2020: £380K).
Key performance indicators
After the reporting period, the Company adopted a KPI plan to its employees
which is determined by company and personal performance.
The Company has not yet agreed upon KPIs upon at board level yet but that
generally the performance of the Group is reviewed by considering factors such
as the level of sales, completion of M&A deals, fundraising, clinical
trials, and receiving CE mark.
During the year the sole KPI of the Company was to execute a successful RTO of
a target company in the CBD/medicinal cannabis sector therefore this KPI was
fully achieved.
Strategic Report (continued)
Position of Group's business
At the year end the Group's Statement of Financial Position shows net assets
totaling £5,184K (2020: £39K, deficit). As at the year end the Group were in
a current net asset position of £4,392K (31 December 2020 - net current
liability position of £66K) which is principally due to the Group's strong
cash reserves.
Environmental matters
The Board contains personnel with a good history of running businesses that
have been compliant with all relevant laws and regulations and there have been
no instances of non-compliance in respect of environmental matters.
Employee information
At present, there are no female Directors in the Company. The Company has an
executive director and four Non-Executive Directors. The Group are committed
to gender equality and, if future roles are identified, a wide-ranging search
would be completed with the most appropriate individual being appointed
irrespective of gender.
Social/Community/Human rights matters
The Group ensures that employment practices take into account the necessary
diversity requirements and compliance with all employment laws. The Board has
experience in dealing with such issues and have sufficient training and
qualifications to ensure they meet all requirements.
Anti-corruption and anti-bribery policy
The government of the United Kingdom has issued guidelines setting out
appropriate procedures for companies to follow to ensure that they are
compliant with the UK Bribery Act 2010. The Company has conducted a review
into its operational procedures to consider the impact of the Bribery Act 2010
and the Board has adopted an anti-corruption and anti-bribery policy.
Strategic Report (continued)
Principal risks and uncertainties
The Group operates in an uncertain environment and its business is subject to
a number of risk factors. The Directors consider the following risk factors
are of particular relevance to the Group's
activities although it should be noted that this list is not exhaustive and
that other risk factors not presently known or currently deemed immaterial may
apply.
Risks/uncertainties to the Group
Issue Risk/uncertainty Mitigation
The Group may face significant competition in its chosen industry There may be significant competition faced by the Group. The Group is The growth prospects in the cannabis industry are widely regarded as very
currently focussed on the cannabis processing industry which received strong, which may help to reduce the effect of competition. By consulting with
considerable publicity in recent years. There is a risk that by the time the knowledgeable experts in the industry, carrying out thorough due diligence on
product is brought to market, there will be a large number of competitors. A potential targets and extensive market research, the Group may reduce this
number of these competitors may possess greater technical, financial and other risk.
resources than the Group.
The Group relies on the experience and talent of its management and advisors The successful management and operations of the Group are reliant upon the The Group offers incentives to Directors through participation in share
contributions of directors and advisors. In addition, the Group's future offerings, which makes them linked to the long-term success of the business.
success depends in part on its ability to continue to recruit, motivate and
retain highly experienced and qualified directors and consultants.
The Group may be subject to changes in regulation affecting its target The cannabis processing industry in which the Group is focussed is The Group monitors legislative and regulatory changes and alters its business
industry controversial and is highly regulated. Against a backdrop of overall practices where appropriate. In the event that the Group becomes subject to
liberalisation, the industry will likely continue to be the subject of specific regulation regarding its activities the Group will put in place such
regulatory oversight. Compliance with various laws and regulations may impose procedures as are necessary to ensure it complies with such regulation.
compliance costs and restrictions on the Group, with fines and/or sanctions
for non-compliance.
The Group may not be able to raise future funds to support its activities There is no guarantee that the Group will obtain adequate finance in the The directors have a reasonable expectation that they will secure additional
before it becomes self-funding market in the future. funding when required to continue as took place after the reporting period.
The Covid-19 pandemic The uncertainty and any future restrictions resulting from the Covid-19 With the core of the Group's operations based in Europe and Israel, the Group
pandemic may disrupt the Group's operations. is vigilantly monitoring the situation and the health of our staff. The Group
have implemented appropriate policies to protect and best manage the health of
our staff. The Group has experienced minor disruptions to parts of its raw
materials supply chain, which is being managed on a daily basis to mitigate
any disruption to manufacturing operations.
Strategic Report (continued)
Composition of the board
A full analysis of the Board, its function, composition, and policies, is
included in the Governance Report.
Capital structure
The Company's capital consists of ordinary shares which rank pari passu in all
respects and which are traded on the Standard segment of the Main Market of
the London Stock Exchange. There are no restrictions on the transfer of
securities in the Company or restrictions on voting rights and none of the
Company's shares are owned or controlled by employee share schemes. There are
no arrangements in place between shareholders that are known to the Company
that may restrict voting rights, restrict the transfer of securities, result
in the appointment or replacement of Directors, amend the Company's Articles
of Association or restrict the powers of the Company's Directors, including in
relation to the issuing or buying back by the Company of its shares or any
significant agreements to which the Company is a party that take effect after
or terminate upon, a change of control of the Company following a takeover bid
or arrangements between the Company and its Directors or employees providing
for compensation for loss of office or employment (whether through
resignation, purported redundancy or otherwise) that may occur because of a
takeover bid.
Approved by the Board on 1 June 2022, and signed on its behalf by:
David Tsur
Chairman, Non - Executive Director
Governance Report
Introduction
The Company recognises the importance of, and is committed to, high standards
of Corporate Governance. The Company is not formally required to comply with a
corporate governance code; however, the Company has voluntarily applied the
QCA Corporate Governance Code published in April 2018 (the QCA Code). As
meeting the QCA code is not required, the Company did not fully comply with
the any corporate governance code during the year, however, post year-end it
has adopted the QCA code and will seek to meet its 10 principles.
Compliance with the QCA Code
The QCA Code, as published by the Quoted Companies Alliance, is tailored for
small and mid-size quoted companies in the UK. The QCA Code (through its ten
principles) is designed to be the means through which companies can earn and
maintain the confidence of shareholders and other stakeholders as they develop
and mature. We note the following important principles included in the QCA
Code:
The 10 principles of the QCA Code:
1 Establish a strategy and business model which promotes long-term value for
shareholders
2 Seek to understand and meet shareholder needs and expectations
3 Take into account wider stakeholder and social responsibilities and their
implications for long-term success
4 Embed effective risk management, considering both opportunities and threats,
throughout the organisation
5 Maintain the board as a well-functioning, balanced team led by the chair
6 Ensure that between them the directors have the necessary up-to-date
experience, skills and capabilities
7 Evaluate board performance based on clear and relevant objectives, seeking
continuous improvement
8 Promote a corporate culture that is based on ethical values and behaviours
9 Maintain governance structures and processes that are fit for purpose and
support good decision-making by the board
10 Communicate how the company is governed and is performing by maintaining a
dialogue with shareholders and other relevant stakeholders
Set out below are the Company's corporate governance practices for the year
ended 31 December 2021.
Governance Report (continued)
Leadership
The Company is headed by an effective board of directors (the Board) which is
collectively responsible for the long-term success of the Group.
The role of the Board - The Board sets the Group's strategy; ensuring that the
necessary resources are in place to achieve the agreed strategic priorities,
and reviews management and financial performance. It is accountable to
shareholders for the creation and delivery of strong, sustainable financial
performance and long-term shareholder value. To achieve this, the Board
directs and monitors the Group's affairs within a framework of controls which
enable risk to be assessed and managed effectively. The Board also has
responsibility for setting the Group's core values and standards of business
conduct and for ensuring that these, together with the Group's obligations to
its stakeholders, are widely understood throughout the Group. The Board has a
formal schedule of matters reserved which is provided later in this report.
Board Meetings - The core activities of the Board are carried out in scheduled
meetings of the Board. These meetings are timed to link to key events in the
Company's corporate calendar and regular reviews of the business are
conducted. Additional meetings and conference calls are arranged to consider
matters which require decisions outside the scheduled meetings. During the
year, the Board met on 13 occasions. Outside the scheduled meetings of the
Board, the Directors maintain frequent contact with each other to discuss any
issues of concern they may have relating to the Company or their areas of
responsibility, and to keep them fully briefed on the Company's operations.
Where Directors have concerns which cannot be resolved about the running of
the company, or a proposed action, they will ensure that their concerns are
recorded in the Board minutes.
Matters reserved specifically for Board - The Board has a formal schedule of
matters reserved that can only be decided by the Board. The key matters
reserved are the consideration and approval of:
· Strategy and management including potential investment opportunities.
· Financial reporting and controls (to include oversight of the
appointment of and communications with the Auditors and the overall audit
process).
· Board membership and other appointments.
· Internal financial and operating controls.
· Ensuring compliance with the Listing Rules.
· Communication.
· Remuneration policy.
· Delegation and overall supervision of all delegated authorities.
· Corporate governance matters.
· Appointment of third-party advisers/service providers.
Certain other matters are delegated to the Board Committees, namely the Audit,
Nomination and Remuneration Committees.
Governance Report (continued)
Leadership (continued)
Summary of the Board's work in the year - During the year, the Board
considered all relevant matters within its remit, but focused in particular on
the establishment of the Company and the identification of suitable investment
opportunities for the Company to pursue, the associated due diligence work as
required and the decisions thereon.
Attendance at meetings:
Member Position Meetings attended
David Tsur Chairman, Non-Executive Director 13 out of 13
Avihu Tamir CEO, Executive Director 13 out of 13
Andrew Morrison Non-Executive Director 13 out of 13 (*)
Uziel Danino Non-Executive Director 10 out of 13
Daniel Poulter Non-Executive Director 7 out of 7
Howard Rubenstein Company Secretary 12 out of 13
(*) In addition to the Company's 13 board meetings that were held during 2021,
Andrew Morrison attended 3 board meetings of Spinnaker Opportunities Plc prior
to the Company's admission on 16 February 2021.
The Board is pleased with the high level of attendance and participation of
Directors at Board and Committee meetings. Attendance at Committee meetings is
detailed in the respective Committee reports.
Directors appointed by the Board are subject to election by shareholders at
the Annual General Meeting of the Company following their appointment and
thereafter are subject to re-election in accordance with the Company's
articles of association.
The terms and conditions of appointment of Non-Executive Directors will be
made available upon written request.
Remuneration Committee
The Company has established a Remuneration Committee to assist the Board in
determining its responsibilities in relation to remuneration, including making
recommendations to the Board on the policy on remuneration.
The report of the Remuneration Committee is included in this Annual Report.
Formal terms of reference for the Remuneration Committee have been documented
and are made available for review at the AGM.
The members of the Remuneration Committee in the reporting year were Mr. Uziel
Danino and Mr. Andrew Morrison. After the reporting period Mr. Uziel Danino
resigned from his position and was replaced by Mr. Gil Efron.
Governance Report (continued)
Audit Committee
The Audit Committee meets with the auditors at least twice a year and more
frequently if required.
Terms of reference of the Audit Committee will be made available upon written
request.
The Audit Committee report is included on page 33.
The members of the Audit Committee in the reporting year were Mr. Uziel Danino
and Mr. Andrew Morrison. After the reporting period Mr. Uziel Danino resigned
from his position and was replaced by Mr. Gil Efron.
Nominations Committee
The Nomination Committee meets as required to fulfil its duties of reviewing
the Board structure and composition and identifying and nominating candidates
to fill Board vacancies as they arise.
Terms of reference of the Nominations Committee will be made available upon
written request.
The Nominations Committee report is included on page 35.
The members of the Nominations Committee in the reporting period were David
Tsur, Avihu Tamir and Andrew Morrison.
Other governance matters - All of the Directors are aware that independent
professional advice is available to each Director in order to properly
discharge their duties as a Director. In addition, each Director and Board
committee has access to the advice of the Company Secretary.
The Company Secretary - The Company Secretary is Howard Rubenstein who is
responsible for the Board complying with UK procedures.
Effectiveness
For the period under review the Board comprised of a chairman, one Director
and four Non-Executive Directors. Biographical details of the Board members
are set out on page 9 of this report.
The Directors are of the view that the Board and its committees consist of
Directors with an appropriate balance of skills, experience, independence and
diverse backgrounds to enable them to discharge their duties and
responsibilities effectively.
Independence - The non-executive Directors bring a broad range of business and
commercial experience to the Company. The Board considers all the
non-executive Directors to be independent in character and judgement. Despite
the shares, options and warrants held by these Directors, they are not
involved in the day-to-day operations of the Group and the executive directors
deem them to be independent.
Commitments - All Directors have disclosed any significant other commitments
to the Board and confirmed that they have sufficient time to discharge their
duties.
Governance Report (continued)
Effectiveness (continued)
Induction - All new Directors received an informal induction as soon as
practical on joining the Board. No formal induction process exists for new
Directors, given the size of the Company, but the Chairman ensures that each
individual is given a tailored introduction to the Company and fully
understands the requirements of the role.
Conflict of interest - A Director has a duty to avoid a situation in which he
or she has, or can have, a direct or indirect interest that conflicts, or
possibly may conflict with the interests of the Company. The Board had
satisfied itself that there is no compromise to the independence of those
Directors who have appointments on the Boards of, or relationships with,
companies outside the Company. The Board requires Directors to declare all
appointments and other situations which could result in a possible conflict of
interest.
Board performance and evaluation - The Chairman will carry out periodic formal
appraisals of the performance of the other Directors which takes into account
the objectives set in the previous year and the individual's performance in
the fulfilment of these objectives.
Although the Board consisted of five male Directors, the Board supports
diversity in the Boardroom and the Financial Reporting Council's aims to
encourage such diversity. Aside from the Directors, there are no employees in
the Company. The following table sets out a breakdown by gender at 31 December
2021:
Male Female
Directors 5 -
The Board will pursue an equal opportunity policy and seek to employ those
persons most suitable to delivering value for the Company.
Codes and Terms of Reference
The Company has adopted the following documents:
· Audit Committee Terms of Reference
· Remuneration Committee Terms of Reference;
· Nomination Committee Terms of Reference;
· Share Dealing Code; and
· Code of Ethics.
Governance Report (continued)
Accountability-
The Board is committed to providing shareholders with a clear assessment of
the Group's position and prospects. This is achieved through this report and
as required other periodic financial and trading statements. The Board has
made appropriate arrangements for the application of risk management and
internal control principles. The Board has delegated to the Audit Committee
oversight of the relationship with the Group 's auditors as outlined in the
Audit Committee report on page 33.
Going concern - The preparation of the financial statements requires an
assessment of the validity of the going concern assumption.
In making their assessment of going concern, the Directors have reviewed
forecasts for the group, for a period of at least 12 months from the date of
approval of these financial statements. The Directors recognise the modest
committed cost base of the group relative to its current working capital. As a
result the Directors consider that the Group has sufficient funds for the
required timeframe and as such they consider it appropriate to adopt the going
concern basis in the preparation of the financial statements.
Internal controls - The Board of Directors reviews the effectiveness of the
Group's system of internal controls. The internal control system is designed
to manage the risk of failure to achieve its business objectives. This covers
internal financial and operational controls, compliance and risk management.
The Group had necessary procedures in place for the year under review and up
to the date of approval of the Annual Report and financial statements. The
Directors acknowledge their responsibility for the Group's system of internal
controls and for reviewing its effectiveness. The Board confirms the need for
an ongoing process for identification, evaluation and management of
significant risks faced by the Group. The Directors carried out a risk
assessment before signing up to any material commitments.
The Directors are responsible for taking such steps as are reasonably
available to them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.
At the present, due to the size of the Group, there is no internal audit
function. The requirement for internal audit will be considered as the Group
grows.
Shareholder relations
Communication and dialogue - Open and transparent communication with
shareholders is given high priority and there is regular dialogue with
institutional investors, as well as general presentations made at the time of
the release of the annual and interim results. All Directors are kept aware of
changes in major shareholders in the Company and are available to meet with
shareholders who have specific interests or concerns. The Company issues its
results promptly to individual shareholders and also publishes them on the
Company's website. Regular updates to record news in relation to the Company
and the status of its exploration and development programs is included on the
Company's website. Shareholders and other interested parties can subscribe to
receive these news updates by email by registering online on the website free
of charge.
Governance Report (continued)
Shareholder relations (continued)
The Directors are available to meet with institutional shareholders who wish
to discuss any issues and gain an understanding of the Company's business, its
strategies and governance.
Annual General Meeting - At every AGM, individual shareholders are given the
opportunity to put questions to the Chairman and to other members of the Board
that may be present. Notice of the AGM is sent to shareholders at least 21
working days before the meeting. Details of proxy votes for and against each
resolution, together with the votes withheld are announced to the London Stock
Exchange and are published on the Company's website as soon as practical after
the meeting.
Approved by the Board on 1 June 2022, and signed on its behalf by:
David Tsur
Chairman, Non - Executive Director
Remuneration Committee Report
The Remuneration Committee presents its report for the year ended 31 December
2021.
Membership of the remuneration committee
During the reporting period the Remuneration Committee is comprised of two
Non-Executive Directors Mr. Andrew Morrison (Chair) and Mr. Uziel Danino.
After the reporting period Mr. Uziel Danino resigned from his position and was
replaced by Mr. Gil Efron.
During 2021 the Remuneration Committee met on 1 occasion.
Subject to what appears below, no other third parties have provided advice
that materially assisted the Remuneration Committee during the year.
The items included in this report are unaudited unless otherwise stated.
Remuneration committee's main responsibilities
· The Remuneration Committee considers the remuneration policy,
employment terms and remuneration of the Board and advisors;
· The Remuneration Committee's role is advisory in nature and it
makes recommendations to the Board on the overall remuneration packages;
· The Remuneration Committee, when considering the remuneration
packages of the Company's Board, will review the policies of comparable
companies in the industry.
Report approval
A resolution to approve this report will be proposed at the AGM of the
Company. The vote will have advisory status, will be in respect of the
remuneration policy and overall remuneration packages and will not be specific
to individual levels of remuneration.
Remuneration policy
During the year ended 31 December 2021, the Company adopted a compensation
policy as regards executive directors which included variable and non-variable
elements together with long term incentives.
On 16 February 2021, the Company entered a service contract with its Chief
Executive, Avihu Tamir on terms as set out in the prospectus published on 29
January 2021.
There was no vote taken during the last general meeting with regard to the
Directors' remuneration policy.
Remuneration Committee Report (continued)
Non-executive directors
The Company policy is that the Non-Executive Directors are expected to attend
scheduled board meetings and attend committee meetings as required. The
Company issued fresh letters of appointment to its Non-Executive Directors,
effective 16 February 2021 on terms as set out in the prospectus published on
29 January 2021.
Other employees
During the year ended 31 December 2021, there were no employees in the Company
other than the Directors, so this policy only applies to the Board.
Terms of appointment
The services of the Directors during the year ended 31 December 2021 were
provided in accordance with their appointment letters. Directors were expected
to devote such time as was necessary for the proper performance of their
duties, but as a minimum they were expected to commit at least one day per
month, which should include attendance at all meetings of the Board and any
sub-committees of the Board.
Director Year of appointment Number of years completed
Andrew Morrison 2016 6
David Tsur 2021 1
Avihu Tamir 2021 1
Daniel Poulter 2021 1
Gil Efron(a) 2022 -
Uziel Danino (b) 2021 1
Anthony Harpur (c) 2017 2
Alan Hume (c) 2018 3
(a) Appointed after the reporting period.
(b) Resigned after the reporting period.
(c) Resigned during the reporting period.
Directors' emoluments and compensation (audited)
Details of the directors' remuneration during the year ended 31 December 2021
are as follows:
Name of Director Salary and fees Taxable benefits Annual bonus and long-term benefits Pension related benefits Other Total
£ £ £ £ £ £
Andrew Morrison (a), (e) 20,831 - 62,500 - - 83,331
David Tsur 17,293 - - - - 17,293
Avihu Tamir 93,698 - 40,000 15,847 - 149,545
Daniel Poulter 10,923 - - - - 10,923
Gil Efron (c) - - - - - -
Uziel Danino (d) 17,293 - - - - 17,293
Anthony Harpur (b), (e) - - - - - -
Alan Hume (e) - - 50,000 - - 50,000
Remuneration Committee Report (continued)
Directors' emoluments and compensation (audited) (continued)
(a) An additional amount of £37,500 was paid to Spinnaker Management
Resources Ltd, which is a company owned and controlled by Mr. Andrew Morrison.
(b) An amount of £30,000 which was granted as a bonus for completion of the
RTO, was paid to Peacock DDC Trading Ltd, which is a company owned and
controlled by Mr. Anthony Harpur.
(c) Appointed on 21 March 2022.
(d) Resigned from his position on 21 March 2022.
(e) The bonuses granted were for completion of the RTO.
Details of the directors' remuneration during the year ended 31 December 2020
are as follows:
Name of Director Salary and fees Taxable benefits Annual bonus and long-term benefits Other Total
Pension related benefits
£ £ £ £ £ £
Andrew Morrison - - - - - -
Anthony Harpur - - - - - -
Alan Hume - - - - - -
Pension contributions (audited)
The Company does not currently have any pension plans for its non-executive
Directors and does not pay pension amounts in relation to their remuneration.
The Company has not paid out any excess retirement benefits to non-executive
Directors or past non-executive Directors.
Payments to past directors (audited)
As part of the RTO the Company paid an aggregate £80,000 in success bonuses
to its directors prior to RTO (out of the total bonus pool of £200,000).
Payments for loss of office (audited)
No payments were made for loss of office during the year.
UK Remuneration percentage changes
As the remuneration for the preceding financial year is nil for all Directors,
no percentage changes for remuneration have been set out in this report.
Remuneration Committee Report (continued)
UK 10-year performance graph
The Directors have considered the requirement for a UK 10-year performance
graph comparing the Company's Total Shareholder Return with that of a
comparable indicator. The Directors do not currently consider that including
the graph will be meaningful because the Company has only been listed since
2017, is not paying dividends, is currently incurring losses as it gains scale
and its focus during the year ended 31 December 2021 was to seek an
acquisition. In addition, and as mentioned above, the remuneration of
Directors was not linked to performance, and we therefore do not consider the
inclusion of this graph to be useful to shareholders at the current time. The
Directors will review the inclusion of this table for future reports.
UK 10-year CEO table and UK percentage change table
The Directors have considered the requirement for a UK 10-year CEO table. The
Directors do not currently consider that including these tables would be
meaningful given that the Directors were remunerated for their services
however it is not material to be presented under the table. The Directors will
review the inclusion of this table for future reports.
Relative importance of spend on pay
The Directors have considered the requirement to present information on the
relative importance of spend on pay compared to shareholder dividends paid.
Given that the Company does not currently pay dividends we have not considered
it necessary to include such information.
UK Directors' shares (audited)
The interests of the Directors who served during the year in the share capital
of the Company at 31 December 2021 and at the date of this report has been set
out in the Directors' Report on page 11.
Approved by the Board on 1 June 2022, and signed on its behalf by:
Andrew Morrison
Chairman of the Remuneration Committee
Audit Committee Report
After the completion of the reverse takeover, the company appointed Mr. Uziel
Danino (Chair) and Andrew Morrison as members of the Audit Committee.
After the reporting period Mr. Danino resigned from his position as a director
in the Company and was replaced by Mr. Gil Efron. Mr. Efron was appointed as a
member of the Audit Committee (Chair).
Main responsibilities
The Audit Committee acts as a preparatory body for discharging the Board's
responsibilities in a wide range of financial matters by:
· monitoring the integrity of the financial statements and formal
announcements relating to the Company's financial performance;
· reviewing significant financial reporting issues, accounting
policies and disclosures in financial reports, which are considered to be in
accordance with the key audit matters identified by the external auditors;
· overseeing that an effective system of internal control and
risk management systems are maintained;
· ensuring that an effective whistleblowing, anti-fraud and
bribery procedures are in place;
· overseeing the Board's relationship with the external auditor
and, where appropriate, the selection of new external auditors;
· monitoring the statutory audit of the annual financial
statements, in particular, its performance, taking into account any findings
and conclusions by the competent authority;
· approving non-audit services provided by the external auditor,
or any other accounting firm, ensuring the independence and objectivity of the
external auditors is safeguarded when appointing them to conduct non-audit
services; and
· ensuring compliance with legal requirements, accounting
standards and the Listing Rules and the Disclosure and Transparency Rules.
Governance
The Code requires that at least one member of the Audit Committee has recent
and relevant financial experience. The audit members have vast experience
working with a wide variety of companies. As a result, the Board is satisfied
that the Audit Committee has recent and relevant financial experience.
Members of the Audit Committee are appointed by the Board and whilst
shareholders, the Company believes they are independent in both character and
judgement.
Due to an ethical breach, PKF Littlejohn LLP, the Company's external auditor,
will be required to resign as auditors following the approval of this annual
report. Once new external auditors have been appointed, the Audit Committee
will monitor the level of audit and non-audit services they provide to the
Company.
Audit Committee Report (continued)
Meetings
In the year to 31 December 2021 the Audit Committee has met with the auditors
on 3 occasions.
The key work undertaken by the Audit Committee is as follows:
· interview of external auditors and recommendation to the Board
· review of audit planning and update on relevant accounting
developments;
· consideration and approval of the risk management framework,
appropriateness of key performance indicators;
· consideration and review of full-year results;
· review of the effectiveness of the Audit Committee;
· review of internal controls; and
· consider whether an internal audit function is required and
confirmed not considered necessary given the present size of the Company.
The Code states that the Audit Committee should have primary responsibility
for making a recommendation on the appointment, reappointment or removal of
the external auditor.
External auditor
The Group's external auditor is PKF Littlejohn LLP. The external auditor has
unrestricted access to the Audit Committee Chairman. Despite the ethical
breach as described in the Auditors' Report, the Committee is satisfied that
auditor objectivity and independence is maintained. The external auditors
report to the Audit Committee annually on their independence from the Group.
Due to the aforementioned ethical breach, the external auditor will be
required to resign and thus the Audit Committee shall seek to appoint a new
external auditor in the foreseeable future
Approved by the Board on 1 June 2022, and signed on its behalf by:
Gil Efron
Chairman of the Audit Committee
Nomination Committee Report
The Nomination committee is comprised of Andrew Morrison (Chair), David Tsur
and Avihu Tamir.
The committee considers potential candidates for appointment to the Company's
Board who maintain the highest standards of corporate governance and have
sufficient time to commit to the role.
Nomination committee evaluation
The nomination committee evaluates the composition, skills, and diversity of
the Board and its committees and identifies a requirement for a Board
appointment.
Identify suitable candidates
The nomination committee undertakes a review of each candidate and their
experience in accordance with the Company's 'director's profile' and suitable
candidates are identified.
For the appointment of a Chairman, the Nomination Committee will prepare a job
specification, including an assessment of the time commitment expected,
recognising the need for availability in the event of crises.
Nomination committee recommendation
Following interviews with a candidate conducted by the Chairman, and other
members of the Board, the nomination committee makes a recommendation on a
preferred candidate to the Board.
Due diligence
After a candidate has been recommended to the Board by the nomination
committee, the company secretary undertakes appropriate background checks on a
candidate. The Board of directors meets any candidate recommended by the
nomination committee and the candidate is given an opportunity to make a
presentation to the Board prior to deciding on their appointment.
Board appointment
The Board formally approves a candidate's appointment to the Board.
Approach to diversity
The nomination committee believes in the benefits of diversity, including the
need for diversity in order to effectively represent shareholders' interests.
This diversity is not restricted to gender but also includes geographic
location, nationality, skills, age, educational and professional background.
The Board's policy remains that selection should be based on the best person
for the role.
Approved by the Board on 1 June 2022, and signed on its behalf by:
Andrew Morrison
Chairman of the Nomination Committee
Independent Auditors' Report to the Members of Kanabo Group Plc
Opinion
We have audited the financial statements of Kanabo Group Plc (the 'parent
company') and its subsidiaries (the 'group') for the year ended 31 December
2021 which comprise the Consolidated Statement of Comprehensive Income, the
Consolidated and Parent Company Statements of Financial Position, the
Consolidated and Parent Company Statements of Changes in Equity, the
Consolidated and Parent Company Statements of Cash Flows and notes to the
financial statements, including significant accounting policies. The financial
reporting framework that has been applied in their preparation is applicable
law and UK-adopted international accounting standards and as regards the
parent company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
In our opinion:
· the financial statements give a true and fair view of the state of
the group's and of the parent company's affairs as at 31 December 2021 and of
the group's loss for the year then ended;
· the group financial statements have been properly prepared in
accordance with UK-adopted international accounting standards;
· the parent company financial statements have been properly prepared
in accordance with UK-adopted international accounting standards and as
applied in accordance with the provisions of the Companies Act 2006; and
· the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We are independent of
the group and parent company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the
FRC's Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors'
assessment of the group's and parent company's ability to continue to adopt
the going concern basis of accounting included reviewing cashflow forecasts
covering the next 12 months, considering the levels of discretionary and
non-discretionary expenditure forecasted, challenging and conducting
sensitivity analysis using the key inputs and assumptions underpinning said
forecasts, ascertaining the group's current cash position and reviewing the
group's performance since the year end. Whilst the Group made a significant
loss in the year and has forecasted significant growth in revenues over the
going concern period, the Group has significant cash reserves and a
significant proportion of the costs forecasted are discretionary therefore if
forecasted growth targets are not met, discretionary costs could be reduced
accordingly.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group's or parent company's
ability to continue as a going concern for a period of at least twelve months
from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Our application of materiality
For the purposes of determining whether the financial statements are free from
material misstatement, we define materiality as the magnitude of misstatement
that makes it probable that the economic decisions of a reasonably
knowledgeable person, relying on the financial statements, would be changed,
or influenced. We also determine a level of performance materiality which we
use to assess the extent of testing needed to reduce to an appropriately low
level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality for the financial statements as a whole.
Materiality for the group financial statements as a whole was set as £175,000
. This was calculated based upon 5% of loss before tax due to the group having
incurred significant expenditure in the year and this expenditure, being an
indicator as to how much revenue may have to increase in order for the group
to reach profitability. Performance materiality and the triviality threshold
for the consolidated financial statements was set at £122,500 and £8,750
respectively due to the assessed risk and our accumulated knowledge of the
Company.
Materiality for the parent company financial statements as a whole was set as
£170,000 (2020: £33,000). This was calculated based upon 5% of net assets
(2020: 5% of net asset) but capped so as not to exceed group materiality, as
required by ISA (UK) 600. Net assets was considered to be an appropriate basis
due to the fact that the parent company is a holding company that holds a
significant value of assets and the carrying value of these assets, and any
impairment or fair value decreases recognised in respect of these assets in
the year, provides an indicator of the value to be generated by the parent
company from said assets. Since 5% of the Company's net assets far exceeds
group materiality, it was deemed appropriate to set materiality for the parent
company at £5,000 less than group materiality. Performance materiality and
the triviality threshold for the parent company was set at £119,000 (2020:
£19,600) and £8,500 (2020: £1,400) respectively due to the assessed risk
and our accumulated knowledge of the Company.
We also agreed to report to those charged with governance any other audit
misstatements below the triviality thresholds established above which we
believe warranted reporting on qualitative grounds.
Our approach to the audit
The scope of our audit was influenced by our application of materiality. The
quantitative and qualitative thresholds for materiality determine the scope of
our audit and the nature, timing, and extent of our audit procedures.
In designing our audit, we considered areas involving significant accounting
estimates and judgements by the directors as well as future events that are
inherently uncertain. These included the recoverable value of the parent
company's investment in its subsidiary and the amounts due to the parent
company by its subsidiary, the financial asset held at fair value through
other comprehensive income and the recoverable value of the loans advanced to
the acquisition target. We also addressed the risk of management override of
internal controls, including among other matters consideration of whether
there was evidence of bias that represented a risk of material misstatement
due to fraud.
We performed an audit of the financial information of the group's two
components in order to obtain the assurance required for the group audit
opinion. Both of the components were assessed as being significant due to
their results for the year, the value of their assets, liabilities and capital
and reserves as at 31 December 2021 and the assessed risks in respect of their
results for the year and their assets, liabilities and capital and reserves.
Of the two reporting components of the group, one is located in both of the
United Kingdom and Israel. PKF Littlejohn LLP audited the ultimate parent
company, situated in the United Kingdom, and its subsidiary, situated in
Israel. The Engagement Partner conducted audit work in the United Kingdom but
interacted regularly with the Management team in Israel during all stages of
the audit and was responsible for the scope and direction of the audit
process. This, in conjunction with additional procedures performed, gave us
appropriate evidence for our opinion on the group financial statements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key Audit Matter How our scope addressed this matter
Carrying value of the investment in subsidiary and intercompany receivables
Following the reverse takeover acquisition in February 2021 (see the second We performed the following procedures to address this identified risk:
Key Audit Matter below for further details), the carrying value of the parent
company's investment in subsidiary as at 31 December 2021 was £17,951k (see
note 12) and the balance due from the subsidiary (intercompany receivable) was
£834k (see note 18). § Obtained management's recoverable value assessment in respect of both the
investment in the subsidiary and the balances due from the subsidiary
including all the supporting workings.
As the subsidiary has historically been loss making and also made a loss for § Reviewed the assessment, ascertained and challenged the method, data and
the year ended 31 December 2021 of £4,035k, there is a risk that the key assumptions applied by management
investment and the intragroup receivable may not be fully recoverable and are
thus materially overstated. § Reviewed the post year-end performance, financial position, projected
cashflows and other sources of data to assess whether there were any
indicators that the recoverable values were less than their carrying value;
and
Refer to Note 2f of the financial statements for the disclosure of significant
accounting judgements, estimates assumptions in respect of the recoverability § Agreed the intercompany balance due from the subsidiary to the
of the investment in the subsidiary and the amounts due from the loan to the corresponding creditor balance in the subsidiary's trial balance.
subsidiary.
Through the performance of the aforementioned procedures, it was ascertained
that Management believe the investment in the subsidiary and the balance due
from the subsidiary as at the year-end are fully recoverable due to the
positive developments made and milestones met during the year and post
year-end and the forecasts prepared. From our review and challenge of this
assessment and supporting information, this assessment was found to be
appropriate and thus assurance has been gained that the investment in
subsidiary and balances due from the subsidiary are not materially misstated.
Reverse takeover treatment and disclosure
We performed the following procedures to address this identified risk:
On 16 February 2021, the parent company acquired the entire share capital of
Kanabo Research Ltd via a share for share exchange.
§ Obtained the agreements in respect of the transaction to ascertain the key
Due to the complexity of the accounting for reverse takeovers , and the terms of the transaction;
material value of that acquisition, there was a significant risk that the
acquisition may not have been accounted for correctly or disclosed § Reviewed the accounting treatment and accounting entries of the reverse
appropriately within the financial statements. transaction in the group financial statements against the requirements of the
financial reporting framework;
Refer to Note 2f and 8 of the financial statements for details on the
acquisition, including key terms, and the accounting treatment applied. § Reviewed and challenged the key assumptions, data and method applied in
management's fair value assessment;
§ Ensured disclosures in the financial statements were in accordance with the
financial reporting framework; and
§ Confirmed that any consideration in respect of milestones had been
accounted for appropriately.
Through the performance of the aforementioned procedures, we found that that
the RTO was correctly assessed as falling outside of the scope of IFRS 3. It
was also found that the acquisition was accounted for in accordance with IFRS
2 with a share based payment charge being recognised equal to the difference
between the deemed cost of the investment and the net assets of Kanabo Group
Plc at the time of acquisition and a reverse acquisition merger being
recognised.
Other information
The other information comprises the information included in the annual report,
other than the financial statements and our auditor's report thereon. The
directors are responsible for the other information contained within the
annual report. Our opinion on the group and parent company financial
statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon. Our responsibility is to read the other
information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors' remuneration report to be audited
has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the strategic report and the directors'
report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
· the strategic report and the directors' report have been prepared in
accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent
company and their environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors'
report.
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the parent company,
or returns adequate for our audit have not been received from branches not
visited by us; or
· the parent company financial statements and the part of the
directors' remuneration report to be audited are not in agreement with the
accounting records and returns; or
· certain disclosures of directors' remuneration specified by law are
not made; or
· we have not received all the information and explanations we require
for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the
directors are responsible for the preparation of the group and parent company
financial statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine is necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the group and parent company financial statements, the directors
are responsible for assessing the group's and the parent company's ability to
continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
· We obtained an understanding of the group and parent company and the
sector in which they operate to identify laws and regulations that could
reasonably be expected to have a direct effect on the financial statements. We
obtained our understanding in this regard through discussions with management,
industry research and our cumulative audit knowledge and experience of the
sector.
· We determined the principal laws and regulations currently relevant to
the group and parent company in this regard to be those arising from UK
Company Law, rules applicable to issuers on the LSE Standard List Main Market,
including the FCA Listing Rules and the Disclosure Guidance and Transparency
Rules.
· We designed our audit procedures to ensure the audit team considered
whether there were any indications of non-compliance by the group with those
laws and regulations. These procedures included, but were not limited to:
o Discussions with management regarding compliance with laws and regulations
by the parent company and the component;
o Review of board minutes; and
o Review of regulatory news announcements made throughout and post year-end.
· We addressed the risk of fraud arising from management override of
controls by performing audit procedures which included, but were not limited
to: the testing of journals; reviewing accounting estimates for evidence of
bias; and evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
Because of the inherent limitations of an audit, there is a risk that we will
not detect all irregularities, including those leading to a material
misstatement in the financial statements or non-compliance with regulation.
This risk increases the more that compliance with a law or regulation is
removed from the events and transactions reflected in the financial
statements, as we will be less likely to become aware of instances of
non-compliance. The risk is also greater regarding irregularities occurring
due to fraud rather than error, as fraud involves intentional concealment,
forgery, collusion, omission, or misrepresentation.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities)
(http://www.frc.org.uk/auditorsresponsibilities)
(http://www.frc.org.uk/auditors/audit-assurance/auditor-s-responsibilities-for-the-audit-of-the-fi/description-of-the-auditor%E2%80%99s-responsibilities-for)
(https://www.frc.org.uk/auditors/audit-assurance/standards-and-guidance/2010-ethical-standards-for-auditors-(1))
. This description forms part of our auditor's report.
Other matters which we are required to address
We were appointed by the audit committee on 26 June 2019 to audit the
financial statements for the period ending 31 December 2018 and subsequent
financial periods. Our total uninterrupted period of engagement is 4 years,
covering the periods ending 31 December 2018 to 31 December 2021.
During the period subject to audit, a non-audit service prohibited by the
FRC's Ethical Standard was inadvertently provided by the Firm to the parent
company. This involved the provision of due diligence services in respect of a
transaction that did not require a reporting accountant report under the
Prospectus Rules by the Firm's transaction services department. This
non-permitted service was provided without the knowledge or approval of the
Firm's central ethics function. As the consultation required by the Firm's
policies and procedures did not take place in respect of this service, this
was assessed as an inadvertent breach. In reviewing the nature of this
inadvertent breach, specifically that it involved amounts that would not be
subject to review or consideration in the current year's audit of these
financial statements, no judgements were made in providing the service and
that it was provided by a team separate from the audit engagement team, we
concluded that this did not affect our professional judgement or our audit
report. We obtained confirmation from those charged with governance that they
agreed with our assessment and were in agreement that we could continue to act
as auditor. In reporting the inadvertent provision of this prohibited
non-audit service to those charged with governance, we determined that our
independence had not been compromised and that we could continue to carry out
the audit of the group and parent company for the year ended 31 December 2021.
Our audit opinion is consistent with the additional report to the audit
committee.
Use of our report
This report is made solely to the company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company's members those matters we
are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone, other than the company and the company's members as
a body, for our audit work, for this report, or for the opinions we have
formed.
Joseph Archer (Senior Statutory Auditor)
15 Westferry Circus
For and on behalf of PKF Littlejohn
LLP
Canary Wharf
Statutory
Auditor
London E14 4HD
Consolidated Statement of Comprehensive Income
Year ended Year ended
31 December 2021 31 December 2020
Note £'000 £'000
Continuing operations
Revenue from sales of goods 3 73 60
Cost of sales 66 26
Gross profit 7 34
Research and development 4 242 149
Sales and marketing 5 569 59
General and administration 6 2,000 389
Net impairment losses on financial assets 16 598 -
Operating loss (3,402) (563)
Reverse acquisition expenses 8 1,172 -
Finance (income)/expense (23) 28
Loss before taxation (4,551) (591)
Taxation 9 - -
Loss for the year (4,551) (591)
Other comprehensive income for the year
Foreign exchange translation (loss)/gains (82) 11
Total items that may be reclassified to profit or loss (82) 11
Total comprehensive loss for the year attributable to the equity owners
(4,633) (580)
Earnings (basic and diluted) per share from continuing operations attributable
to the equity owners
Basic and diluted loss per share (pence per share) 10 (1.40) (0.26)
The notes to the financial statements form an integral part of these financial
statements.
Consolidated Statement of Financial Position
Note As at As at
31 December 2021 31 December 2020
£'000 £'000
Assets
Non-current assets
Property, plant, and equipment 11 42 13
Long term deposit - 14
Financial asset held at fair value through other comprehensive income 13 750 -
792 27
Current assets
Cash and cash equivalents 14 4,477 380
Short-term deposit 20 5
Inventories 15 63 27
Short term loan 16 - -
Trade and other receivables 17 247 33
4,807 445
Total assets 5,599 472
Equity and Liabilities
Equity attributable to shareholders
Share capital 19 9,249 -
Share premium 20 14,400 2,098
Share based payments reserve 21 758 805
Share to be issued reserve 8 2,500 -
Reverse acquisition reserve 8 (14,968) -
Foreign currency reserve (7) 75
Retained deficit (6,748) (3,017)
Total equity 5,184 (39)
Liabilities
Current liabilities
Trade and other payables 22 228 53
Employee and related payables 23 187 34
Borrowings - 424
415 511
Total equity and liabilities 5,599 472
The notes to the financial statements form an integral part of these financial
statements.
This report was approved by the board and authorised for issue on 1 June 2022
and signed on its behalf by:
………………………
David Tsur
Chairman of board of directors
Parent Company Statement of Financial Position
Note As at As at
31 December 2021 31 December 2020
£'000 £'000
Assets
Non-current assets
Property, plant, and equipment 11 21 -
Investments in subsidiary 12 17,951 -
Financial asset held at fair value through other comprehensive income 13 750 -
18,722 -
Current assets
Cash and cash equivalents 14 4,148 359
Intercompany receivables 18 834 -
Inventories 15 63 -
Short term loan 16 - -
Trade and other receivables 17 220 433
5,265 792
Total assets 23,987 792
Equity and liabilities
Equity attributable to shareholders
Share capital 19 9,249 735
Share premium 20 14,400 592
Shares to be issued reserve 8 2,500 -
Share based payments reserve 21 750 33
Convertible loan notes - 162
Retained deficit (3,085) (784)
Total equity 23,814 738
Liabilities
Current liabilities
Trade and other payables 22 173 54
173 54
Total equity and liabilities 23,987 792
The Company has elected to take the exemption under Section 408 of the
Companies Act 2006 from presenting the Parent Company statement of
comprehensive income. The Parent Company loss for the period was £2,309K
(2020: loss of £131K)
The financial statements of Kanabo Group Plc, company number 10485105, were
approved by the Board of Directors and authorised for issue on 1 June 2022.
They were signed on its behalf by:
………………………
David Tsur
Chairman of board of directors
The notes to the financial statements form an integral part of these financial
statements.
Consolidated Statement of Changes in Equity
Share capital(a) Share premium(b) Share based payments reserve(c) Share to be issued reserve (d) Reverse acquisition reserve (e) Foreign exchange reserve Retained deficit (f) Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance as at 1 January 2020 - 1,831 800 - - 64 (2,506) 189
Total comprehensive loss for the year - - - - - 11 (591) (580)
Exercise of options - - (80) - - - 80 -
Exercise of warrants - 267 - - - - - 267
Share base payment - - 85 - - - - 85
Total transactions with owners, recognised in equity - 267 5 - - 11 (511) (228)
Balance as at 31 December 2020 - 2,098 805 - - 75 (3,017) (39)
Total comprehensive loss for the year - - - - - (82) 4,551)) (4,633)
Transfer to reverse acquisition reserve - (2,098) - 2,098 - - -
Exercise of options 4 - (820) - - - 820 4
Recognition of plc equity at acquisition date 735 592 - - 434 - - 1,761
Issue of shares for acquisition of subsidiary 5,769 9,231 - - (15,000) - - -
Shares issued 2,600 4,775 - - - - - 7,375
Shares to be issued - - - 2,500 (2,500) - - -
Exercise of warrants 126 411 - - - - - 537
Issue of shares in settlement of fees 15 25 - - - - - 40
Cost of share issue - (634) - - - - (634)
Issue of warrants - - 113 - - - 113
Share based payment - - 660 - - - 660
Total transactions with owners, recognised in equity 9,249 12,302 (47) 2,500 (14,968) (82) 3,731 5,223
Balance as of 31 December 2021 9,249 14,400 758 2,500 (14,968) (7) (6,748) 5,184
(a) Share capital - the ordinary issued share capital of the Company.
(b) Share premium - consideration less nominal value of issued shares
and costs directly attributable to the issue of new shares.
(c) Share based payments - the value of equity settled share-based
payments provided to employees, including key management personnel, and third
parties for services provided.
(d) Shares to be issued - shares to be issued comprises of obligations
at the year-end which are to be settled by a fixed number of shares for a
fixed consideration.
(e) Reverse acquisition reserve - see note 8.
(f) Retained deficit - Cumulative net gains and losses recognised in
the Consolidated Statement of Comprehensive Income
The notes to the financial statements form an integral part of these financial
statements.
Parent Company Statement of Changes in Equity
Share capital(a) Share premium(b) Share based payments reserve(c) Convertible loan notes reserve(d) Shares to be issued reserve (e) Retained deficit (f) Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance as of 1 January 2020 735 592 59 - - (712) 674
Total comprehensive loss for the year - - - - - (131) (131)
Shares options issued - - 33 - - - 33
Lapsed share options - - (59) - - 59 -
Loan notes issued - - - 165 - - 165
Loan note issue costs - - - (3) - - (3)
Total transactions with owners, recognised in equity - - (26) 162 - (72) 64
Balance as at 31 December 2020 735 592 33 162 - (784) 738
Total comprehensive loss for the year - - - - - (2,309) (2,309)
Issue of share for convertible loan 83 79 - (162) - - -
Issue of shares for acquisition of subsidiary 5,769 9,231 - - - - 15,000
Issue of shares for cash 2,455 4,634 - - - - 7,089
Shares options issued 53 49 (8) - - 8 102
Consideration shares to be issued - - - - 2,500 - 2,500
Exercise of warrants 139 424 (33) - - - 530
Cost of share issue - (634) - - - - (634)
Issue of shares in settlement of fees 15 25 - - - - 40
Issue of warrants - - 113 - - - 113
Share based payment - - 645 - - - 645
Total transactions with owners, recognised in equity 8,514 13,808 717 (162) 2,500 (2,301) 23,076
Balance as at 31 December 2021 9,249 14,400 750 - 2,500 (3,085) 23,814
(a) Share capital - the ordinary issued share capital of the
Company.
(b) Share premium - consideration less nominal value of issued
shares and costs directly attributable to the issue of new shares.
(c) Share based payments - the value of equity settled share-based
payments provided to employees, including key management personnel, and third
parties for services provide. Retained deficit represents the cumulative
retained losses of the Company at the reporting date.
(d) The convertible loan note reserve - consists of the fair value
of convertible loan notes issued and outstanding which meet the definition of
equity as per IAS 32.
(e) Shares to be issued - shares to be issued comprises of
obligations at the year-end which are to be settled by a fixed number of
shares for a fixed consideration.
(f) Retained deficit - Cumulative net gains and losses
recognised in the Statement of Comprehensive Income.
The notes to the financial statements form an integral part of these financial
statements.
Consolidated Statement of Cash Flows
Year ended Year ended 31 December 2020
31 December 2021
Note £'000 £'000
Cash flow from operating activities
Loss before taxation (4,551) (591)
Adjustments for:
Reverse acquisition share-based payment expense 8 1,172 -
Net impairment losses on financial assets 16 598 -
Share-based payment expense 658 85
Depreciation 21 7 5
Finance income, net 15 18
Loss from sale of property, plant, and equipment 11 - 1
Net cash used in operating activities (2,101) (482)
Working capital changes:
Change in trade receivable and other accounts receivable (204) (16)
Change in inventories (35) 9
Change in trade payable and other accounts payable 119 (17)
Change in employee and related payables 143 (28)
Net cash used in operating activities (2,078) (534)
Cash flows from investing activities
Purchase of property, plant, and equipment 11 (35) -
Investment in financial asset held at fair value through other comprehensive 13 (750) -
income
Cash acquired on acquisition 8 358 -
Investment in short term deposits (2) (5)
Short term loan 16 (582) -
Net cash used in investing activities (1,011) (5)
Cash flows from financing activities
Receipts on short term loan - 300
Share Issue net of issuing cost 19 6,606 -
Exercise of warrants 21 529 268
Exercise of options 21 102 -
Net cash generated from financing activities 7,239 568
Net increase in cash and cash equivalents 4,150 29
Cash and cash equivalents at 1 January 380 333
Net foreign exchange difference (53) 18
Cash and cash equivalents at 31 December 14 4,477 380
Major non-cash transactions:
On 16 February 2021 the Company issued of 230,769,210 shares of £0.025 each
at a price of £0.065 per share to the shareholders of Kanabo Research Ltd as
part of the RTO acquisition for the total value of £15,000K.
The Company also issued 615,384 shares of £0.025 each at a price of £0.065
for the total value of £40K for the settlement of services rendered to the
Company.
On 30 December 2021 the Company agreed to issue up to 38,461,492 shares of
£0.025 each at a price of £0.065 per share to the shareholders of Kanabo
Research Ltd for the achievement of the Company milestones according to the
RTO agreement for the total value of £2,500K. As of 31 December 2021, these
contingent consideration shares had not been issued.
The notes to the financial statements form an integral part of these financial
statements.
Parent Company Statement of Cash Flows
Year ended Year ended 31 December 2020
31 December 2021
Note £'000 £'000
Cash flow from operating activities
Loss before taxation (2,309) (131)
Adjustments for:
Net impairment losses on financial assets 16 598 -
Share-based payment expense 193 33
Depreciation 21 2 -
Finance income, net (57) -
Net cash used in operating activities (1,573) (98)
Working capital changes:
Change in trade receivable and other accounts receivable (210) (20)
Change in inventories (63) -
Change in Intercompany receivable (368) -
Change in trade payable and other accounts payable 119 18
Net cash used in operating activities (2,095) (100)
Cash flows from investing activities
Purchase of property, plant, and equipment 11 (23) -
Investment in financial asset held at fair value through other comprehensive 13 (750) -
income
Short term loan 16 (582) (300)
Net cash used in investing activities (1,355) (300)
Cash flows from financing activities
Proceeds from issue of convertible loan notes - 162
Share Issue net of issuing cost 8 6,608 -
Exercise of warrants 21 529 -
Exercise of options 21 102 -
Net cash generated from financing activities 7,239 162
Net increase/(decrease) in cash and cash equivalents 3,789 (238)
Cash and cash equivalents at 1 January 359 597
Cash and cash equivalents at 31 December 14 4,148 359
Major non-cash transactions
On 16 February 2021 the Company issued of 230,769,210 shares of £0.025 each
at a price of £0.065 per share to the shareholders of Kanabo Research Ltd as
part of the RTO acquisition for the total value if £15,000K.
The Company also issued 615,384 shares of £0.025 each at a price of £0.065
for the total value of £40K for the settlement of services rendered to the
Company.
On 30 December 2021 the Company agreed to issue up to 38,461,492 shares of
£0.025 each at a price of £0.065 per share to the shareholders of Kanabo
Research Ltd for the achievement of the Company milestones according to the
RTO agreement for the total value of £2,500K. As of 31 December 2021, these
contingent consideration shares had not been issued.
The notes to the financial statements form an integral part of these financial
statements.
Notes to the Financial Statements
1. General Information
Kanabo Group Plc's (the "Company") and its subsidiaries' (together, "the
Group") principal activities are the distribution and development of medical
cannabis products and non-THC CBD products.
The Group has its research centre in Israel.
The Company is incorporated and domiciled in England and Wales as a public
limited company and operates from its registered office at Churchill House
137-139 Brent Street London NW4 4DJ and is listed on the London Stock Exchange
in the standard segment.
2. Summary of Significant Accounting Policies
The principal accounting policies applied in the preparation of these
financial statements are set out below. These policies have been consistently
applied to all the periods presented, unless otherwise stated.
a) Basis of Preparation
The financial statements of Kanabo Group Plc have been prepared in accordance
with UK-adopted international accounting standards.
The financial statements have been prepared under the historical cost
convention, unless stated otherwise.
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts in the financial statements. The
areas involving a higher degree of judgment or complexity, or areas where
assumptions or estimates are significant to the financial statements.
b) Consolidation and Acquisitions
The financial statements consolidate the financial information of the Group
and companies controlled by the Group (its subsidiaries) at each reporting
date. Control is achieved where the Company has the power to govern the
financial and operating policies of an investee entity, has the rights to
variable returns from its involvement with the investee and has the ability to
use its power to affect its returns. The results of subsidiaries acquired or
sold are included in the financial information from the effective date of
acquisition or up to the effective date of disposal, as appropriate. Where
necessary, adjustments are made to the results of acquired subsidiaries to
bring their accounting policies into line with those used by the Group. All
intra-Group transactions, balances, income and expenses are eliminated on
consolidation. The financial statements of all Group companies are adjusted,
where necessary, to ensure the use of consistent accounting policies.
2. Summary of Significant Accounting Policies (continued)
b) Consolidation and Acquisitions (continued)
Subsidiaries are all entities (including structured entities) over which the
Group has control. The Group controls an entity when the Group is exposed to,
or has rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control
ceases. Please refer to note 8 for information on the consolidation of Kanabo
Group Plc and the application of the reverse acquisition accounting
principles.
The Group applies the acquisition method to account for business combinations
that fall within the scope of IFRS 3. For commentary on how the acquisition of
Kanabo Research Ltd, which falls outside the scope of IFRS 3, was accounted
for, see below note 8.
The consideration transferred for the acquisition of a subsidiary is the fair
values of the assets transferred, the liabilities incurred to the former
owners of the acquiree and the equity interests issued by the group. The
consideration transferred includes the fair value of any asset or liability
resulting from a contingent consideration arrangement. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition
date. The group recognises any non-controlling interest in the acquire on an
acquisition-by-acquisition basis, either at fair value or at the
non-controlling interest's proportionate share of the recognised amounts of
acquiree's identifiable net assets.
Acquisition-related costs are expensed as incurred.
Any contingent consideration to be transferred by the Group is recognised at
fair value at the acquisition date. Subsequent changes to the fair value of
the contingent consideration that is deemed to be an asset or liability is
recognised either in profit or loss or as a change to other comprehensive
income. Contingent consideration that is classified as equity is not
re-measured, and its subsequent settlement is accounted for within equity.
On 16 February 2021, the Company acquired Kanabo Research Ltd via a reverse
takeover which resulted in the Company becoming the ultimate holding company
of the Group. The transaction was accounted for as a reverse acquisition since
it did not meet the definition of a business combination under IFRS 3. In
accordance with IFRS 2, a share-based payment expense equal to the deemed cost
of the acquisition less the fair value of the net assets of the Company at
acquisition was recognised. The comparatives within the consolidated statement
of financial position, the consolidated statement of comprehensive income,
consolidated statement of changes in equity and the consolidated cashflow
statement represent that of the legal subsidiary and accounting acquirer,
Kanabo Research Ltd. In the consolidated statement of financial position, the
share capital and premium as at 31 December 2021 is that of Kanabo Group Plc
with the reverse acquisition reserve representing the difference between the
deemed cost of the acquisition and the net assets of Kanabo Group Plc as at 31
December 2020. The consolidated statement of comprehensive income for 2021
represents the results of both Kanabo Group Plc and Kanabo Research Ltd. For
more details on the key terms of the reverse takeover and a breakdown of what
the reverse acquisition reserve as at 31 December 2021 comprises of, see note
8.
2. Summary of Significant Accounting Policies (continued)
c) New Standards and Interpretations
i) New and amended standards adopted by
the Group and Company
No new standards, amendments or interpretations, effective for the first time
for the financial year beginning on or after 1 January 2021 have had a
material impact on the Group and Company.
ii) New standards, amendments and
Interpretations in issue but not yet effective or not yet endorsed and not
early adopted
The standards and interpretations that are issued, but not yet effective as at
the date of issuance of the financial statements are listed below.
Standard Impact on initial application Effective date
IAS 1 Amendments - Presentation and Classification of Liabilities as Current or TBC
Non-current
IAS 16 Amendments - Property, Plant and Equipment 1 January 2022
IAS 37 Provisions, Contingent Liabilities and Contingent Assets 1 January 2022
IAS 8 Amendments - Definition of Accounting Estimates 1 January 2023
IAS 1 Amendments - Disclosure of Accounting Policies 1 January 2023
IFRS 3 Amendments - Business Combinations - Conceptual Framework 1 January 2022
The Group and Company intends to adopt these standards, if applicable, when
they become effective. The Directors are evaluating the impact of the new and
amended standards above. The Directors believe that these new and amended
standards are not expected to have a material impact on the financial
statements of the Group and Company.
d) Going Concern
The preparation of the financial statements requires an assessment on the
validity of the going concern assumption.
As at 31 December 2021, the Group's cash position was £4,477K and it was in a
strong net current asset position. Based on the above, the Group's current
cash reserves and detailed cash forecasts produced, the Directors are
confident that the Group will be able to meet its obligations as they fall due
over the course of the next 12 months. Whilst the Group may seek to raise
further funds in the next 12 months, the Directors are confident that the
Group would be able to meet their obligations as they fall due in the event of
no further funding being obtained due to the low level of committed
expenditure relative to the forecasted discretionary expenditure, which could
be reduced or deferred.
2. Summary of Significant Accounting Policies (continued)
d) Going Concern (continued)
The Directors also acknowledge that the COVID-19 pandemic has had, and will
likely continue to have, adverse impacts on the global economy and capital
markets. However, the Directors are confident that the Group will continue to
remain a going concern and they do not believe the Group is dependent on
raising further funds to remain a going concern.
e) Foreign Currency Translation
i) Functional and Presentation Currency
The consolidated financial statements are presented in Pounds Sterling
(£000), which is also the Company's functional and presentation currency.
ii) Transactions and Balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions or
valuation where items are re-measured. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the income statement.
(iii) Foreign operations
The assets and liabilities of foreign operations, including goodwill and the
fair value adjustments arising on acquisition, are translated to GBP at
exchange rates at the reporting date. The income and expenses of foreign
operations are translated to GBP at exchange rates at the dates of the
transactions.
Foreign currency differences are recognised in other comprehensive income and
accumulated in the translation reserve except to the extent that the
translation difference is allocated to non-controlling interests. When a
foreign operation is disposed of in its entirety or partially such that
control, significant influence or joint control is lost, the cumulative amount
in the translation reserve related to that foreign operation is reclassified
to profit or loss as part of the gain or loss on disposal. If the Group
disposes of part of its interest in a subsidiary but retains control, then the
relevant proportion of the cumulative amount is reattributed to
non-controlling interests. When the Group disposes of only part of an
associate or joint venture while retaining significant influence or joint
control, the relevant proportion of the cumulative amount is reclassified to
profit or loss.
2. Summary of Significant Accounting Policies (continued)
f) Significant Accounting Judgements, Estimates and Assumptions
The preparation of the financial statements in conformity with International
Financial Reporting Standards requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the
process of applying the Company's accounting policies.
Estimates and judgements are continually evaluated, and are based on
historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. The Group
consider the significant accounting judgements, estimates and assumptions used
within the financial statements to be:
Recoverability of the investment in subsidiary (note 12)
At at 31 December 2021 the carrying value of the Company's investment in
Kanabo Research Ltd was £17,951K. The recoverable value of this investment is
not considered to be less than it is carrying value as at 31 December 2021 and
therefore no impairment has been have recognised. The Directors have made this
assessment through reviewing forecasts, other available financial information
available and developments during the year and since the year-end. The key
inputs within the forecast include revenue growth, gross profit margins and
overheads.
Recoverability of amounts due from the subsidiary (note 18)
By 31 December 2021 the parent Company had advanced £400K as a loan to Kanabo
Research Ltd and £368K as an ongoing operational balance. The Directors
expect this balance to be fully recoverable and have thus not recognised any
IFRS 9 expected credit loss charges. They made this assessment through
reviewing forecasts, other financial information available and developments
during the year and since the year-end.
Recoverability of amounts due from Materia (note 16)
By 31 December 2021 the Group had advanced CAD 1,000K (£582K) to Materia
Ventures ("Materia), a company incorporated in Canada.
When assessing whether the loan receivable and accrued interest is recoverable
or not, the Directors identified a number of impairment indicators. Whilst, no
repayments of the loan are due, or yet to have been received and whilst
through communications with Materia the Directors understand Materia is
willing to repay the balance, there is not sufficient evidence to demonstrate
that it is probable that Materia has the ability to make full repayment of the
balance. The Directors have therefore taken a prudent view and decided to
fully impair the loan, however, the Company and Materia will continue to
discuss their future collaboration and a strategic partnership through which
the Company hope to recover the loan balance.
2. Summary of Significant Accounting Policies (continued)
f) Significant Accounting Judgements, Estimates and Assumptions
(continued)
Share Based Payments (note 21)
During 2021, 16,408,102 share options, and 19,051,774 warrants were granted by
the Company. When accounting for the share-based payment expense in respect of
those share options granted, Management must calculate the fair value of the
share options issued. Management have done so using the Black-Scholes model.
However, several of the inputs into this model, including the risk-free rate,
the dividend yield, the expected life of the instrument where it is not a
defined period and the volatility, are subjective and thus management has made
estimates in respect of these inputs.
Financial assets at fair value through other comprehensive income (note 13)
During 2021 shares were purchased from a private company incorporated in the
UK called Kanabi Ltd. The shares purchased did not give the Company a
controlling stake nor did it allow the Company to have a significant influence
on the operating activities of the company. Additionally, an agreement was
entered into with Kanabi Ltd that ensured that in the event of the successful
completion of a reverse takeover of a listed company by Hellenic Dynamics S.A,
a subsidiary of Kanabi Ltd, the Company would receive shares in the listed
company. The number of shares to be received by the Company would be £750K
divided by the IPO share price less a 30% discount.
Under IFRS 9 this asset has been classified as a financial asset at fair value
with any gains or losses going through other comprehensive income. As a
result, the Directors are required to assess the fair value of the asset on
acquisition and at the year-end.
Through discussions with management of the investee and the Company's
corporate advisors, who are assisting with the proposed transaction, they are
confident that the proposed transaction will take place. To take a prudent
view and account for the fact that whilst probable, the transaction has not
yet taken place, the Directors have not recognised a gain equal to the
discounted price they will receive and therefore the fair value of the
financial asset as at 31 December 2021 remained at £750K.
Reverse takeover accounting (note 8)
When considering how the acquisition of Kanabo Research Ltd via a reverse
takeover should be accounted for, the Directors have been required to make a
judgment on whether the acquisition falls within the scope of IFRS 3 or not.
The directors assessed the accounting acquiree, Kanabo Group Plc, at the time
of acquisition to not be a business as defined by IFRS 3. As a result, the
acquisition was assessed as falling outside the scope of IFRS 3. See note 2b
for commentary on how the reverse takeover was accounted for.
2. Summary of Significant Accounting Policies (continued)
g) Financial Assets
Classification
The Group classifies its financial assets in the following categories: at
amortised cost (including trade receivables and other financial assets at
amortised cost) fair value through other comprehensive income or fair value
through profit or loss. The classification depends on the financial asset's
contractual cash flow characteristics and the business model for managing
them. Management determines the classification of its financial assets at
initial recognition.
Financial assets at amortised cost
(i) Classification of financial assets at amortised cost
The Company classifies its financial assets as at amortised cost only if both
of the following criteria are met:
· the asset is held within a business model whose objective is to collect the
contractual cash flows; and
· the contractual terms give rise to cash flows that are solely payments of
principal and interest
Financial assets at amortised cost are initially measured at fair value and
subsequently measured using the effective interest rate method less
impairment.
(ii) Impairment and risk exposure
All of the financial assets at amortised cost are denominated in Pounds
Sterling. As a result, there is no exposure to foreign currency risk. There is
also no exposure to price risk.
For the Directors' justification for there being no expected credit loss
charge required in respect of the loan due from Materia and the amounts due
from the subsidiary, see note 16.
There is no definition of default at present. This will be reassessed as and
when repayments are due in respect of financial assets at amortised cost held.
2. Summary of Significant Accounting Policies (continued)
h) Financial Liabilities
Trade and other Payables
Trade and other payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from suppliers. Accounts
payable are classified as current liabilities if payment is due within one
year or less (or in the normal operating cycle of the business if longer). If
not, they are presented as non-current liabilities.
Trade and other payables are recognised initially at fair value, and
subsequently measured at amortised cost using the effective interest method.
i) Convertible Loan Notes
Convertible loan notes are classified as either equity, financial liabilities
or a mixture of both in accordance with the contractual agreement.
Where a convertible loan note is deemed to meet the definition of equity as
per IAS 32, the proceeds receive less any associated issue costs are
recognised directly within equity and is not subsequently remeasured.
j) Taxation
Current Tax
Current tax assets and liabilities for the current and prior periods are
measured at the amount expected to be recovered from or paid to the tax
authorities. The tax rates and the tax laws used to compute the amount are
those that are enacted or substantively enacted by the statement of financial
position date.
2. Summary of Significant Accounting Policies (continued)
j) Taxation (continued)
Deferred Tax
Deferred income tax is recognised on all temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the
financial statements, with the following exceptions:
· where the temporary difference arises from the initial recognition of
goodwill or of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither accounting
nor taxable profit or loss;
· in respect of taxable temporary differences associated with
investment in subsidiaries, associates and joint ventures, where the timing of
the reversal of the temporary differences can be controlled, and it is
probable that the temporary differences will not reverse in the foreseeable
future; and
· deferred income tax assets are recognised only to the extent that it
is probable that taxable profit will be available against which the deductible
temporary differences, carried forward tax credits or tax losses can be
utilised.
Deferred income tax assets and liabilities are measured on an undiscounted
basis at the tax rates that are expected to apply when the related asset is
realised or liability is settled, based on tax rates and laws enacted or
substantively enacted at the statement of financial position date.
Income tax is charged or credited directly to equity if it relates to items
that are credited or charged to equity. Otherwise income tax is recognised in
the statement of comprehensive income.
k) Segmental Reporting
Although the Group comprises of two entities in two different jurisdictions,
the directors and senior management appraise the performance of the Group as a
whole rather than on a company level. They view the group's activities as that
of a Cannabinoid research and sales Group and this is the only
operating/reportable segment.
As such, the financial information of the single segment is the same as that
set out in the consolidated statement of comprehensive income and the
consolidated statement of financial position.
2. Summary of Significant Accounting Policies (continued)
l) Share-Based Payments
The Company has applied the requirements of IFRS 2 Share-based payments.
The Company issues equity settled share-based payments to the directors and to
third parties for the provision of services. Equity settled share-based
payments are measured at fair value at the date of grant, or the date of the
service provided. The fair value determined at the grant date or service date
of the equity settled share-based payment is recognised as an expense or
recognised against share premium where the service received relates to
assistance in raising equity, with a corresponding credit to the share base
payment reserve. The fair value determined at the grant date of equity is
expensed on a straight-line basis over the life of the vesting period, based
on the company's estimate of shares that will eventually vest. Once an option
vests, no further adjustment is made to the aggregate expensed.
The fair value is measured by use of the Black-Scholes model as the Directors
view this as providing the most reliable measure of valuation. The expected
life used in the model has been adjusted, based on management's best
estimates, for the effects of non-transferability, exercise restrictions and
behavioural considerations. The market
price used in the model is the issue price of Company shares at the last
placement of shares immediately preceding the calculation date. The fair value
calculated is inherently subjective and uncertain due to the assumptions made
and the limitations of the calculation used.
m) Financial Risk Management Objectives and Policies
The Company does not enter into any forward exchange rate contracts.
The main financial risks arising from the Company's activities are market
risk, interest rate risk, foreign exchange risk, credit risk, liquidity risk
and capital risk management. Further details on the risk disclosures can be
found in note 24.
n) Equity
Equity instruments issued by the Company are recorded at the value of net
proceeds after direct issue costs.
o) Shares to be issued
Obligations which are to be settled via the issue of the Company's shares at
the year-end which meet the definition of equity per IAS 32 are classified as
shares to be issue within equity and are held at fair value.
2. Summary of Significant Accounting Policies (continued)
p) Cash and Cash Equivalents
Cash and cash equivalents comprise cash held in bank. This definition is
also used for the Statement of Cash Flows.
The Company considers the credit ratings of banks in which it holds funds in
order to reduce exposure to credit risk. The Company only keeps its holdings
of cash and cash equivalents with institutions which have a minimum credit
rating of 'A-'.
The Company considers that it is not exposed to major concentrations of credit
risk.
q) Investments in Subsidiaries
Investments in Group undertakings are stated at cost, which is the fair value
of the consideration paid, less any impairment provision.
r) Property, Plant, and Equipment
Property, plant, and equipment are measured at cost, including directly
attributable costs, less accumulated depreciation, accumulated impairment
losses and any related investment grants and excluding day-to-day servicing
expenses. Cost includes spare parts and auxiliary equipment that are used in
connection with plant and equipment.
A part of an item of property, plant and equipment with a cost that is
significant in relation to the total cost of the item is depreciated
separately using the component method.
The cost of an item of property, plant and equipment comprises the initial
estimate of the costs of dismantling and removing the item and restoring the
site on which the item is located.
Depreciation is calculated on a straight-line basis over the useful life of
the assets at annual rates as follows:
%
Leasehold improvements 15%
Equipment and furnishing 15%
Computers and electronic equipment 15%-33%
2. Summary of Significant Accounting Policies (continued)
s) Inventory
Inventories are measured at the lower of cost and net realisable value. The
cost of inventories comprises costs of purchase and costs incurred in bringing
the inventories to their present location and condition. Net realisable value
is the estimated selling price in the ordinary course of business less
estimated costs of completion and estimated costs necessary to make the sale.
The Company periodically evaluates the condition and age of inventories and
makes provisions for slow moving inventories accordingly.
Cost of inventories is determined as follows:
· Raw materials - at cost of purchase using the "first-in, first-out"
method.
· Finished goods - on the basis of average costs including materials,
labour and other direct and indirect manufacturing costs based on normal
capacity.
· Purchased merchandise and products - using the weighted average cost
method or using the "first-in, first-out" method.
Net realisable value is the estimated selling price in the ordinary course of
business, less estimated costs of completion and the estimated costs necessary
to make the sale.
t) Revenue Recognition
Revenue from contracts with customers is recognised when the control over the
goods is transferred to the customer. The transaction price is the amount of
the consideration that is expected to be received based on the contract terms,
excluding amounts collected on behalf of third parties (such as taxes).
In determining the amount of revenue from contracts with customers, the
Company evaluates whether it is a principal or an agent in the arrangement.
The Company is a principal when the Company controls the promised goods or
services before transferring them to the customer. In these circumstances, the
Company recognises revenue for the gross amount of the consideration. When the
Company is an agent, it recognises revenue for the net amount of the
consideration, after deducting the amount due to the principal.
Revenue from the sale of goods:
Revenue from the sale of goods is recognised when significant risks and
rewards of ownership of the goods have transferred to the buyer, the amount of
revenue can be measured reliably, it is probable that the economic benefits
associated with the transaction will flow to the Company and the costs
incurred or to be incurred in respect of the transaction can be measured
reliably. Revenue is measured at the fair value of the consideration received
or receivable, net of returns, trade discounts and volume rebates. Revenue
from selling agreements is recognised when the revenue recognition criteria
have been met and only to the extent the consideration is not contingent upon
other deliverables in the agreements
2. Summary of Significant Accounting Policies (continued)
u) Research and Development Expenses
Research expenses are recognised as an expense. The costs incurred during the
development projects are recognised as intangible assets if the following
occurs:
- The product or process is technically and commercially feasible
- The company intends to and has sufficient resources to complete
development and to use or sell the asset.
- The product or process is ready for use or sale.
- Future economic benefits are likely.
- Development costs can be measured reliably.
- The expenditure capitalised includes the cost of materials, direct
labour and overhead costs that are directly attributable to preparing the
asset for its intended use, as well as capitalised borrowing costs.
- Capitalised development expenditure can be measured fairly.
v) Fair Value Measurement
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
Fair value measurement is based on the assumption that the transaction will
take place in the asset's or the liability's principal market, or in the
absence of a principal market, in the most advantageous market.
The fair value of an asset or a liability is measured using the assumptions
that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest.
Fair value measurement of a non-financial asset takes into account a market
participant's ability to generate economic benefits by using the asset in its
highest and best use or by selling it to another market participant that would
use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to measure fair
value, maximizing the use of relevant observable inputs and minimizing the use
of unobservable inputs.
2. Summary of Significant Accounting Policies (continued)
v) Fair Value Measurement (continued)
All assets and liabilities measured at fair value or for which fair value is
disclosed are categorized into levels within the fair value hierarchy based on
the lowest level input that is significant to the entire fair value
measurement:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2 - inputs other than quoted prices included within Level 1 that are observable
directly or indirectly.
Level 3 - inputs that are not based on observable market data (valuation techniques
which use inputs that are not based on observable market data).
w) Provisions
A provision in accordance with IAS 37 is recognised when the Company has a
present obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources embodying economic benefits will be
required to settle the obligation and a reliable estimate can be made of the
amount of the obligation. When the Company expects part or all of the expense
to be reimbursed, for example under an insurance contract, the reimbursement
is recognised as a separate asset but only when the reimbursement is virtually
certain. The expense is recognised in the statement of profit or loss net of
any reimbursement.
3. Revenues
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Revenue from sales of products 73 60
73 60
During 2021 and 2020 the revenues were generated only from the sale of
products and were made to customers in the United Kingdom. All revenues were
recognised at a point in time.
4. Research and Development Expenses
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
S Salaries and related expenses 163 73
A Share-based payment expense 6 21
Lab expenses 45 44
Professional services 26 6
Other 2 5
242 149
The Group did not capitalise any research and development expenses incurred
during 2021 and 2020 as Management have taken the prudent view that it is not
yet probable that the technology and products upon which the research and
development expenditure related to will bring in future economic benefits to
the Group.
5. Sales and Marketing Expenses
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
S Salaries and related expenses 151 19
A Share-based payment expense 211 (8)
Subcontractors 14 4
Marketing expenses 141 44
Professional services 31 -
Business development 16 -
Other 5 -
569 59
6. General and Administration Expenses
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
S Salaries and related expenses 676 139
A Share-based payment expense 436 72
Insurance 100 8
Professional services 599 71
Rent and related expenses 52 33
Depreciation 5 5
Licenses 12 2
Travel and accommodation 54 11
Business development - 25
Patent 13 16
Other 53 7
2,000 389
7. Auditors' Remuneration
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Fees payable to the Company's auditor for: 43 27
- The audit of parent company and consolidated financial statements
- Due diligence services in respect of acquisition targets 15 -
- Interim review of the Group for the six-month period ended 30 June 15 -
2021 in accordance with ISRE 2410
8. Reverse Acquisition
On 16 February 2021, Kanabo Group Plc ("Company") formerly known as Spinnaker
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 with the result that 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 consolidated 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 (the price at which those shares issued as part of the placing that
day were issued at), the Company's investment in Kanabo Research Ltd is valued
at £15,000K prior to the consideration of contingent consideration and share
based payments charges for the year recognised in the subsidiary - see note 12
for further commentary regarding this component of the carrying value of the
investment in the subsidiary as at 31 December 2021.
On 16 November 2021, the Company achieved two of its deferred consideration
share milestones under the terms of the share purchase agreement. The
achievement entitles the sellers to 38,461,492 deferred consideration shares
with a total value of £2,500K which increases the total investment to
£17,500K. The Company had not issued the shares as at 31 December 2021 and as
this obligation met the 'fixed for fixed' rule under IAS 32, the contingent
consideration has been included in the "shares to issued" reserve within
equity.
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
£1,911K based on an assessment of the purchase consideration for a 100%
holding of Kanabo Group Plc.
8. Reverse Acquisition (continued)
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 date. During the period between 1 January 2021 to 16
February 2021 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, it
was decided that it would be more appropriate to use the Company's value of
the net assets as of 1 January 2021.
£
Deemed cost 1,911,007
Trade and other receivables 433,781
Cash and cash equivalents 358,726
Trade and other payables (53,631)
738,876
RTO expenses 1,172,131
The difference between the deemed cost (£1,911K) and the fair value of the
net assets assumed per above of £738,876 resulted in £1,172,131 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:
£
Pre-acquisition equity (a) (738,876)
Kanabo Research Ltd share capital at acquisition (b) 2,098,889
Investment in Kanabo Research Ltd (c) (17,500,000)
Reverse acquisition expense (d) 1,172,131
(14,967,856)
(a) Recognition of pre-acquisition equity of Kanabo Group Plc as at 1
January 2021.
(b) 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.
(c) 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.
(d) The shares to be issued to the vendors upon the meeting of two of the
agreed milestones had not been issued as at 31 December 2021. Since the
obligation in question is to be settled by the Company through an issue of a
fixed number of shares for a fixed consideration, this obligation has been
treated as an equity instrument and has been included within equity under the
"shares to be issued reserve".
9. Income Tax
Analysis of charge in the year
Year ended Year ended
31 December 31 December
2021 2020
£'000 £'000
Current tax - -
Deferred tax - -
Total tax - -
Accounting profit before tax from continuing operations (4,551) (591)
Analysis of charge in the year:
Tax using the company's domestic tax rate 19% (2020: 19%) (865) (112)
Non-deductible expenses 331 47
Current year losses for which no deferred tax asset is recognised 534 64
Total tax - -
The Group has accumulated tax losses of approximately £6,472K (2020:
£3,691K) that are available, under current legislation, to be carried forward
indefinitely against future profits.
A deferred tax asset has not been recognised in respect of these losses due to
the uncertainty of future profits. The amount of the deferred tax asset not
recognised is approximately £1,377K (2020: £849K).
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.
2021 2020
£'000 £'000
Loss for the year from continuing operations (4,551) (591)
Weighted average number of shares in issue 324,287,000 230,984,943
Basic and diluted earnings per share (pence per share) (1.40) (0.26)
There is no difference between the basic and diluted earnings per share as a
loss has been made in the year.
11. Property, Plant, and Equipment
Group:
Computers and Equipment and
Electronic equipment Furnishing Leasehold improvement
Total
£'000 £'000 £'000 £'000
Cost
At 1 January 2020 13 16 - 29
Additions - - - -
Disposals (1) - - (1)
Exchange differences - 1 - 1
At 31 December 2020 12 17 - 29
Additions 13 21 1 35
Exchange differences 1 1 - 2
At 31 December 2021 26 39 1 66
Accumulated depreciation
At 1 January 2020 7 4 - 11
Additions 2 3 - 5
Disposals (1) - - (1)
Exchange differences 1 - - 1
At 31 December 2020 9 7 - 16
Additions 3 4 - 7
Exchange differences 1 - - 1
At 31 December 2021 13 11 - 24
Net book value
At 31 December 2020 3 10 - 13
At 31 December 2021 13 28 1 42
11. Property, Plant, and Equipment (continued)
Company:
Computers and
Electronic equipment
Total
£'000 £'000
Cost
At 1 January 2020 - -
Additions - -
Disposals - -
At 31 December 2020 - -
Additions 23 23
At 31 December 2021 23 23
Accumulated depreciation
At 1 January 2020 - -
Additions - -
At 31 December 2020 - -
Additions 2 2
At 31 December 2021 2 2
Net book value
At 31 December 2020 - -
At 31 December 2021 21 21
12. Investment in subsidiary
£'000
Cost
At 1 January 2020 -
Additions -
Disposals -
At 31 December 2020 -
Additions 17,951
At 31 December 2021 17,951
On 16 February 2021, the Company acquired Kanabo Research Ltd, an
Israeli-based private company operating the CBD industry, via a
share-for-share exchange. The carrying value of investment comprises of
£17,500k in respect of share consideration, of which £2,500k remains
unissued as at 31 December 2021, at £451k in respect of share based payment
charges recognised in the subsidiary during the year. As there is no agreement
in place for Kanabo Research Ltd to reimburse the Company for share options
issued to and exercised by employees of Kanabo Research Ltd, the share-based
payment charged recognised in the subsidiary in the year is recognised as a
capital contribution in the subsidiary and thus an investment in the Company.
No impairments have been recognised in the year as the Directors do not
believe the recoverable value of the investment to be below it is carrying
value. See note 2.f for further commentary on how the Directors made this
estimate.
The Company owns 100% of the share capital of Kanabo Research Ltd and the
subsidiary's registered address is Habarzel 21 st, Tel-Aviv, Israel.
13. Financial Asset Held at Fair Value through other Comprehensive Income -
non-current assets (Group and Company)
On 24 May 2021, the Company entered into an agreement to receive shares in
Hellenic Dynamics S.A ("HD") following a reverse takeover by HD of a listed
company. HD is a company incorporated in Greece and is a medical cannabis
cultivator which is in the process of securing admission to the London Stock
Exchange through a Reverse Take Over ("RTO").
As part of the agreement, for consideration of £750K the Company has acquired
5,000 shares in HD's parent company, Samos Investments Ltd, and will be
entitled to receive shares in HD as part of HD's proposed listing on the
London Stock Exchange. The number of HD shares that will be issued to the
Company shall be calculated as £750K divided by the RTO valuation share price
less a 30% discount.
As of the date of approving the financial statements, the RTO has not yet been
completed. See note 2.f. for commentary on the Directors' assessment of the
fair value of this financial asset as at the year-end.
14. Cash and Cash Equivalents
Group Company
As at As at As at As at
31 December 31 December 31 December 31 December
2021
2020
2021
2020
£'000 £'000 £'000 £'000
Cash at bank 4,477 380 4,148 359
4,477 380 4,148 359
The Directors consider the carrying amount of cash and cash equivalents
approximates to their fair value.
15. Inventory
Group Company
As at As at As at As at
31 December 31 December 31 December 31 December
2021
2020
2021
2020
£'000 £'000 £'000 £'000
Raw materials 17 5 17 -
Finished goods 49 22 49 -
66 27 66 -
Provision for slow moving and obsolete inventory (3) - (3) -
63 27 63 -
During 2021, £3K was recognised as an expense for provision of slow moving
and obsolete inventory.
16. Short Term Loan
Group Company
As at As at As at As at
31 December 31 December 31 December 31 December
2021
2020
2021
2020
£'000 £'000 £'000 £'000
Loan 583 - 583 -
Accumulated interest 15 - 15 -
598 - 598 -
Provision for impairment loss on financial asset (598) - (598)
- - - -
16. Short Term Loan (continued)
On 25 July 2021 the Company signed a head of agreement with 11157353 Canada
Corp. a company incorporated in Canada ("Materia").
As part of the agreement the Company agreed to extend Materia a £1.7 million
(CAD 3 million) credit facility which was to be drawn down in tranches based
upon agreed uses.
Under the agreement, amounts loaned are due for repayment twelve months after
the drawdown date. No repayments were received in the year, and none have been
received post year-end.
According to the loan agreement, Materia is obliged to receive the Company's
approval for any additional investment from a 3rd party (excluding current
investors). The loan is secured by a General Security Agreement under which
all the Materia's assets from time to time constitute a floating collateral
for the Loan. The collateral is shared equally with another lender to Materia
(unconnected to the Group) and the relationship between the two lenders is
regulated by an inter-creditor agreement.
Additionally, the agreement states that should the proposed transaction not
complete within six months of the signing of the heads of terms, interest of
10% per annum would be charged on amounts drawn down from the date of
drawdown. As at the year-end the Directors believed the transaction would not
complete by 25 January 2022, and therefore, interest income at 10% per annum
has been recognised for the period from drawdown to the year-end.
As of 31 December 2021, the Company transferred Materia CAD 1,000K (£582K) in
three tranches. As of the reporting period the Company recorded interest
income in the total amount of £15K.
The loan receivable has been impaired in full. See note 2.f for commentary
regarding the assessment made by the Directors.
17. Trade and Other Receivables
Group Company
As at As at As at As at
31 December 31 December 31 December 31 December
2021
2020
2021
2020
£'000 £'000 £'000 £'000
Trade receivables 10 - 10 -
Prepaid 172 15 165 4
Other 65 18 45 5
Loan - - - (*) 424
247 33 220 433
(*) After the completion of the RTO the company reclassified the loan to
intragroup receivables.
18. Intercompany receivables
Amounts due to the Company from its subsidiary as at 31 December 2021 totalled
£834K. When conducting their IFRS 9 expected credit loss assessment, the
Directors have assessed there are no indications that an impairment is
required to be recognised and thus the intercompany receivables remain at
carrying value. See note 2.f for further commentary on how the Directors have
made this assessment.
The amounts due to the Company from its subsidiary are repayable on demand and
are denominated in GBP.
19. Called up Share Capital
As at 31 December 2021 the Company had 369,966,277 allotted and fully paid
ordinary shares.
The ordinary shares have attached to them full voting, dividend, and capital
distribution rights (including on a winding up). The ordinary shares do not
confer any rights of redemption.
Number of
Ordinary Shares of £0.025 each
As at 1 January 2021 29,400,120
Shares issued in the year for RTO (a) 230,769,210
Shares issued in placing and subscriptions 16 February 2021 (c) 92,307,693
Shares issued to settled debt 615,384
Share issued in placing and subscriptions 24 May 2021(d) 4,545,454
Shares issued due to option and warrant exercises 9,028,416
Shares issue to settle convertible loans 3,300,000
As at 31 December 2021 369,966,277
(a) On 16 February 2021, the company completed its reverse takeover ("RTO")
process with Spinnaker Opportunities Plc ("SOP"). The RTO was completed in the
form of a share for share exchange and the ratio was approximately 1:972.64.
(b) As of 31 December 2021, 38,461,492 consideration shares still need to be
issued.
(c) On 16 February 2021, the Company issued 92,307,693 shares raising
£6,000K before costs.
(d) On 24 May 2021, the Company issued 4,545,454 shares raising £1,000K
before costs.
20. Share premium
£000
As at 1 January 2021 592
Shares issued in the year for RTO 9,231
Shares issued in placing and subscriptions 4,634
Shares issued to settled debt 21
Shares issued to settle convertible loan notes 83
Share issue costs (634)
Shares issued due to option and warrant exercises 473
As at 31 December 2021 14,400
21. Share Based Payments
a. Warrants
Number of awards Weighted average exercise price
As at 1 January 2021 - -
Granted 19,051,774 0.09
Exercised (5,545,843) 0.10
Exercisable at 31 December 2021 13,505,931 0.09
On 17 February 2021 ("date of admission") the Group granted a warrant over one
new Ordinary Share for every two Ordinary Shares registered in the name of an
existing Shareholder of the Company as at the date of the RTO. The warrants
granted under the terms of the RTO Warrant Instrument shall be exercisable in
the period commencing on the date of Admission until the date 12 months after
the date of Admission. The warrants are exercisable at 10 pence per Ordinary
Share. Total warrants issued sum to 14,700,055. The warrants were not issued
for goods or services provided and therefore fall outside the scope of IFRS 2
and do not require fair valuing.
On 27 January 2021, the Company entered into a financial adviser warrant deed
entitling Peterhouse Capital Limited to warrants over a number of ordinary
shares, representing approximately 0.75 per cent. of the enlarged Issued Share
Capital (the share capital on the date of the RTO) in accordance with their
engagement letter. The warrants are exercisable at the fundraising price,
exercisable for a period of 7 years from the date of admission. Total warrants
issued sum to 2,701,719. As the warrants were issued to the brokers assisting
with the raise upon re-listing, the fair value of these warrants, £113K, was
treated as a share issue cost and debited against share premium
On 17 February 2021 ("date of admission") the Group granted a warrant to the
noteholders to subscribe for one Ordinary Shares for every two Conversion
Shares issued to the noteholder. The warrants are exercisable at the
Conversion Price (5 pence) and will be valid for a period of three years.
Total warrants issued sum to 1,650,000. The warrants were not issued for goods
or services provided and therefore fall outside the scope of IFRS 2 and do not
require fair valuing.
21. Share Based Payments (continued)
a. Warrants (continued)
The fair value of the warrants was determined using the Black-Scholes
calculation model. The parameters used are detailed below:
Grant Date 27 January 2021
Life (years) 7
Exercise price (pence per share) 6.5
Risk free rate 0.32
Expected volatility 70%
Expected dividend yield -
Total fair value (£'000) 113
b. Stock option
1. During the period ended 31 December 2018, the Company had a share-based
payment plan. The plan was approved in February 2018 and has a 10-year
duration. The terms of vesting vary according to the grant agreement subject
to approval by the Board of Directors. Some grants mature immediately, and
others vest over up to 4 years.
2. On 28 March 2021, the Group approved an Israeli appendix to the
share-based payment plan ("The Israeli new plan"). The plan will include a
replacing of existing options granted by Kanabo Research Ltd to three of its
employees and consultants and for future grants for Kanabo Research Ltd
employees. The plan is for 10 years forming the date of approval.
Further details regarding the Company's share option plans
For the year ended 31 December 2021
Weighted average of the exercise price in £
Number of options
Are in circulation at the beginning of the year 20,612 0.62
Granted during the year -
Forfeited during the year -
Exercised during the year )18,407( 0.62
Expired during the year 2,205 0.62
At the end of the year - -
21. Share Based Payments (continued)
b. Stock option (continued)
Further details regarding the Group's share option plans
For the year ended 31 December 2021
Weighted average of the exercise price in £
Number of options
Are in circulation at the beginning of the year 1,960,000 0.05
Granted during the year 16,408,102 0.15
Forfeited during the year (273,555) -
Exercised during the year (2,105,652) -
Expired during the year - -
Are in circulation at the end of the period 15,988,895 0.16
The fair value of the share options was determined using the Black-Scholes
calculation model. The parameters used are detailed below:
Grant Date 27 January 2021 27 January 2021 28 April 2021 19 July 2021 24 October 2021
Life (years) 3 3 10 10 10
Exercise price (pence per share) 6.5 10 27.21 19.7 16.5
Risk free rate 0.18 0.18 1.63 1.19 1.66
Expected volatility 70% 70% 70% 70% 70%
Expected dividend yield - - - - -
Total fair value (£'000) 40 91 703 198 378
The risk-free rate of return is based on zero yield government bonds for a
term consistent with the option life.
During the period the Group recognised total amount of £653K (2020: £33K)
for share-based payment expenses.
The amount was recorded in the profit and loss under research and development
expenses (£6K), sales and marketing expenses (£211K) and the general and
administration expenses (£436K).
22. Trade and Other Payables
Group Company
As at As at As at As at
31 December 31 December 31 December 31 December
2021
2020
2021
2020
£'000 £'000 £'000 £'000
Trade payables 36 19 24 15
Credit card 6 1 - -
Accrued expenses 186 33 149 39
228 53 173 54
23. Employees and Related Payables
Group Company
As at As at As at As at
31 December 31 December 31 December 31 December
2021
2020
2021
2020
£'000 £'000 £'000 £'000
Employees 110 14 - -
Provision for accrued vacation and convalescence 48 15 - -
Employee's related tax 29 5 - -
187 34 - -
Average number of people employed, including Directors:
Group Company
2021 2020 2021 2020
Number Number Number Number
Office and management 10 3 5 3
24. Financial Instruments
The following table sets out the categories of financial instruments held by
the Group as at 31 December 2021 and 31 December 2020:
Group Company
As at As at As at As at
31 December 31 December 31 December 31 December
2021
2020
2021
2020
£'000 £'000 £'000 £'000
Financial assets held at amortised cost
Other loans - - 834 -
Cash and cash equivalents 4,477 380 4,148 359
Financial assets held at fair value
Financial assets held at fair value 750 - 750 -
Financial liabilities held at amortised cost
Trade and other payables 228 53 173 54
Employee and related payables 139 19 - -
Borrowings - 424 - -
Group Company
As at As at As at As at
31 December 31 December 31 December 31 December
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Financial assets held at amortised cost
GBP 4,350 165 4,982 359
ILS 105 51 - -
Other currencies 22 164 - -
Total 4,477 380 4,982 359
Financial assets held at fair value
GBP 750 - 750 -
Total 750 - 750 -
Financial liabilities held at amortised cost
GBP 174 53 173 54
ILS 193 443 - -
Total 367 493 173 54
24. Financial Instruments (continued)
a) Market risk
The Group is not materially exposed to market risk as it has
yet to commence trading. Market risk is the risk that changes in market
prices, such as foreign exchange rates and interest rates will affect the
Company's income or value of its holdings of financial instruments. The
objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimising the return on risk.
b) Interest rate risk
The Group is not materially exposed to interest rate risk because it does not
have any funds at either fixed or floating interest rates.
The Group does not have any borrowings at either fixed or floating interest
rates and whilst it does have loan receivables at a fixed rate, interest
generated from this loan is immaterial.
c) Foreign currency risk
The Directors do not believe that the Group have a material exposure to
foreign currency risk. The only notable foreign currency risk is that of the
loan receivable due from Materia. The loan receivable due from Materia does
represent a foreign currency risk as the balance is denominated in Canadian
Dollars. See note 16 for further commentary on the terms of this loan.
24. Financial Instruments (continued)
d) Credit risk
The Group's maximum exposure to credit risk in relation to
each class of recognised asset is the carrying amount of those assets as
indicated in the balance sheet. At the reporting date, there was no
significant concentration of credit risk. Receivables at the year-end were not
past due, and the Directors consider there to be no significant credit risk
arising from these receivables.
e) Liquidity risk
Cash flow working capital forecasting is performed for regular reporting to
the directors. The directors monitor these reports and forecasts to ensure the
Group has sufficient cash to meet its operational needs.
f) Capital risk management
The Company defines capital based on the total equity of the Company. The
Company manages its capital to ensure that the Company will be able to
continue as a going concern while maximising the return to stakeholders
through the optimisation of the debt and equity balance.
In order to maintain or adjust the capital structure, the Company may adjust
the number of dividends paid to shareholders, return capital to shareholders,
issue new shares or sell assets to reduce debt, in the future.
25. Ultimate Controlling Party
The Directors have determined that there is no controlling party as no
individual shareholder holds a controlling interest in the Company.
Controlling party is defined as a shareholder which holds more than 25%
ownership of shares in the Company.
26. Related Party Transactions
During 2021, as a result of the RTO completion, the Company paid bonuses to
the Directors Alan Hume, Andy Morrison and Anthony Harpur totaling £180K. The
bonuses were paid directly to the directors and to entities which are wholly
owned by them.
During 2020, 165 convertible loan notes issued to Mr. Anthony Harpur, a
director of the Company contributed 50 loan notes for consideration totaling
£50K. During 2021 all the 165 convertible loan notes were converted into
shares.
For the details of the Directors' remuneration in 2021 and 2020, please see
the Remuneration Committee Report on page 29.
27. Post Balance Sheet Events
a. On 21 February 2022, the Company acquired GP Service (UK) Limited
("GPS"), a UK-based private primary care telemedicine provider, for a net
consideration of £13,498K ("Net Consideration"). The Net Consideration was
satisfied by the allotment of 94,133,645 B ordinary shares of 0.00001p each in
the capital of Kanabo GP Limited, a subsidiary of Kanabo Group Plc, at a
price of 12.65p per share ("Consideration Shares"). It has been agreed as part
of the acquisition that the principal and interest owed as at completion by
GPS to MEIF WM Debt LP (£1,591K) will be repayable by the Company by the
allotment of 12,574,931 ordinary shares within 18 months based on the same
price of 12.65p per share.
The provisional fair values of the identifiable assets and liabilities of GPS
as at the date of acquisition were:
Fair value
on acquisition date
£'000
Cash and cash equivalents 234
Trade and other receivables 20
Property and equipment 54
Total assets 308
( )
Trade payables (85)
Employees and related payables (19)
Accrued expenses and other accounts payables (98)
Long term loan (3,428)
Total liabilities (3,630)
Total identifiable net liabilities at fair value (3,322)
Goodwill arising on acquisition 16,820
Purchase consideration transferred 13,498
The goodwill of £16,820K comprises the value of expected synergies arising
from the acquisition. None of the goodwill recognised is expected to be
deductible for income tax purposes.
A Purchase Price Allocation exercise has not yet been conducted and thus the
fair values of the assets and liabilities disclosed are subject to change.
b. On 21 February 2022, the Company raised £2.25 million by way of a
placing of 28,125,000 new ordinary shares of 2.5 pence each in the Company
("placing shares") at a price of 8p per share. The placing shares issued
represent approximately 7% of the Company's enlarged Ordinary Share capital
following the placing.
28. Copies of the Annual Report
Copies of the annual report are available on the Company's website at
www.kanabogroup.com (http://www.kanabogroup.com) and from the Company's
registered office Churchill House, 137-139 Brent Street, London, NW4 4DJ.
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