Kanabo Grp Plc Regulatory News (KNB)

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 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

Contents

Company Information

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:

(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.

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.

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:

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:

(*) 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:

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.

(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:

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:

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.

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. 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

The notes to the financial statements form an integral part of these financial statements.

Consolidated Statement of Financial Position

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

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

(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

(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