Elixinol Wellness Annual Report 2021

A reconciliation of Adjusted EBITDA from continuing operations to statutory loss is detailed below: Group 2021 $’000 2020 $’000 Loss for the year ( , ) (¡¢£,£¤¥) Add back/(deduct): Income tax (benefit)/expense ( ) £,§¢¢ Finance costs £¨ Interest revenue ( ) (¡¢¢) Depreciation and amortisation , ©,§¡© EBITDA ( , ) (¨¤,¡¡ª) Add back/(deduct): Impairment of intangibles ©¨,¡¤¥ Impairment of other assets , ©«,¢¢¥ Share-based payments (§¨©) Adjusted EBITDA ( , ) (§©,§§©) The Group’s cash flow used in operations for the year ended 31 December 2021 was $14,071,000 (31 December 2020: $22,621,000 used in operations), which included $1,596,000 non-recurring transaction and severance costs. The Group recognised non-cash impairments of intangibles (including goodwill) of $186,000 (31 December 2020: $39,178,000) for the year ended 31 December 2021. The Group recognised non-cash impairments of other assets of $3,679,000 (31 December 2020: $35,008,000) for the year ended 31 December 2021 relating to inventory and fixed assets. Segment assets Americas The Americas segment comprises the trading results of Elixinol LLC (‘Elixinol Americas’) and its investment in Altmed Pets LLC (trading as Pet Releaf). Americas reported revenue of $4,783,000 for the year ended 31 December 2021 (2020: $8,510,000) and EBITDA loss of $5,492,000 for the year (2020: $14,170,000 EBITDA loss). Throughout 2021, Elixinol Americas implemented an aggressive transformation agenda focused on improving profitability driven by an accelerated move towards an outsourced capital light model, reduction in operating expenditures and further shift towards higher margin consumer channels such as e-commerce. In the US, the regulatory environment remains dynamic and varies from state to state but with a heightened expectation that the Food and Drug Administration (‘FDA’) will progress its rulemaking process regarding marketing of CBD products as dietary supplements. The current CBDmarket continues to be oversupplied, posing a challenging environment for the industry. Additionally, COVID-19 factors continued to negatively impact sales, in particular in traditional retail / bricks and mortar channels. A new leadership team was put in place in May 2021 led by a new Americas President. Throughout the year, the full-time equivalent (‘FTE’) head count was reduced from 39 to 29, thus contributing materially to the Company’s overall reduction in quarterly cash outflows of $0.8 million comparing Q4 FY2021 to Q4 FY2020. As a result of the Group’s strategy to focus on higher margin e-commerce channels and the increased demand for online shopping in the COVID-19 environment, online sales now represent approximately 63% (2020: 50%) of US revenues. In October 2021, Elixinol Americas successfully transitioned to Shopify, a more consumer friendly, lower cost and better performing e-commerce platform. The new e-commerce site showed strong performance improvements, with 72% growth in user sessions and transaction growth of 25% versus the prior quarter. Q4 FY2021 also saw the launch of a subscription model, which accounted for 12% of quarterly revenues and the launch of a loyalty points scheme to strengthen recurring revenues. F INANCI AL REPORT 13 Company Overview Financial Report Shareholder Information Key Achievements and Milestones FY2021 Highlights