NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1.            NATURE AND CONTINUANCE OF OPERATIONS

Love Hemp Group PLC (formerly World High Life plc) was incorporated by in England and Wales on 30 January 2019 with registration number 11797850 under the Companies Act 2006. The limited company reregistered as a public company on 6 August 2019, and thus became World High Life PLC (the "Company") on the same date.  The Company changed its name to Love Hemp Group PLC on 27 February 2021. The Company's head office and registered and records office address is 7-9 Swallow Street, 2^nd Floor, London, United Kingdom, W1B 4DE.

The Company is an investment issuer with a focus on developing business opportunities in the CBD Health and Wellness market, as well as the Regulated Medicinal Cannabis in the UK and Europe. The Company's focus is on building and facilitating the growth of a diversified portfolio of companies, assets and opportunities within its focus mandate.

2.            BASIS OF PRESENTATION

The condensed consolidated interim financial statements for the six-month period ended 31 December 2020 have been prepared in accordance with the requirements of the relevant AQSE regulations. As permitted, the Group has chosen not to adopt IAS 34 "Interim Financial Statements" in preparing this interim financial information. The condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial statements for the year ended 30 June 2020, which were been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The condensed annual consolidated financial statements have been prepared under the historical cost convention.

The condensed consolidated interim financial statements of Love Hemp Group PLC are unaudited, condensed consolidated financial statements for the six months to 31 December 2020. These include unaudited comparatives for the six-month period to 31 December 2019 together with audited comparatives for the year to 30 June 2020. The condensed consolidated financial statements do not constitute statutory accounts.

The condensed consolidated interim financial statements for the six-month period ended 31 December 2020 were approved by the Board of Directors on 31 March 2021.

3.            SIGNIFICANT ACCOUNTING POLICIES

The accounting policies applied in preparing these financial statements are in terms of IFRS and are consistent with those applied in the previous annual consolidated financial statements for the year ended 30 June 2020.

It has been prepared assuming that the Group will continue as a going concern in accordance with the recognition and measurement criteria of IFRS as adopted by the European Union.

Under this assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor necessity of liquidation, ceasing trading or seeking protection from creditors for at least 12 months from the date of the signing of the financial statements.

An assessment of going concern is made by the Directors at the date the Directors approve the interim financial statements, taking into account the relevant facts and circumstances at that date including:

• Review of profit and cash flow forecasts;

• Review of actual results against forecast;

• Timing of cash flows;

• Financial or operational risks; and

• The impact of COVID-19

The Directors have a reasonable expectation that the Group has or will have adequate resources to continue in operational existence for the foreseeable future, and have therefore adopted the going concern basis of preparation in the interim financial statements.

The statutory consolidated financial statements for the period to 30 June 2020, approved by the Board of Directors on 7 December 2020, have been reported on by the Group's auditors and delivered to Companies House. The report of the auditors on those financial statements was unqualified. The auditors made reference to the existence of a material uncertainty in relation to going concern within that audit report, to which we draw your attention.

4.            ADOPTION OF RECENT ACCOUNTING PRONOUCEMENTS

(a) New and amended standards mandatory for the first time for the financial periods beginning on or after 1 January 2020

As of 1 January 2020, the Company adopted IAS 1 (amendments) definition of material, IAS 8 (amendments) definition of material, IFRS 3 (amendments) definition of material and Amendments to References to the Conceptual Framework in IFRS Standards.

Of the other IFRSs and IFRICs, none are expected to have a material effect on future Company Financial Information. 

b) New standards, amendments and interpretations in issue but not yet effective or not yet endorsed and not early adopted 

Standards, amendments and interpretations that are not yet effective and have not been early adopted are as follows: 

 * Subject to EU endorsement 

The Group is evaluating the impact of the new and amended standards above which are not expected to have a material impact on future Group financial statements.

5.            TRADE RECEIVABLES AND OTHER CURRENT ASSETS

6.            ACQUISITION OF LOVE HEMP LIMITED

On 18 October 2019 the Company acquired 100% of Love Hemp Ltd. ("Love Hemp") for consideration of between £9 million and £10 million as follows:

·           £3 million of the consideration paid in cash on completion

·           £3 million satisfied by the issue of 30,000,000 Ordinary Shares on completion

A further earn out of up to a maximum of £4 million to be paid.

·          £1,500,000 in cash on the date falling six months and one day from the date of completion, provided that at the Company's election it can alternatively pay to the sellers an amount of £2,000,000 to be satisfied by the issue of Ordinary Shares calculated on a 10% discount to the 10 day VWAP preceding the date of the issue of those shares.

·          £1,500,000 in cash on the date falling twelve months and one day from the date of completion provided that at the Company's election it can alternatively pay to the sellers an amount of £2,000,000 to be satisfied by the issue of Ordinary Shares calculated on a 10% discount to the 10 day VWAP preceding the date of the issue of those shares.

Subsequent to 30 June 2020 the Company entered a Deed of Variation with the Sellers of Love Hemp Ltd. whereby the purchase consideration was amended as follows:

·          On 25 September 2020 the Company issued 22,222,222 Ordinary shares at a deemed price of £0.09 per share as settlement of the first earn out payment which was due under the original agreement.

·          £1,500,000 in cash on 15 January 2021 provided that at the sellers election the Company can alternatively pay to the sellers an amount of £2,000,000 to be satisfied by the issue of Ordinary Shares calculated on a 10% discount to the 10 day VWAP preceding the date of the issue of those shares.

The continuity of goodwill arising on acquisition is as follows:

The valuation of goodwill is reviewed by the Directors once a year with the last review taking place upon preparation of the 30 June 2020 consolidated financial statements. Nothing has come to the Company's attention since the last review and the date of issue of these accounts, to indicate that the assets are potentially impaired since the last review.

7.            ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

8.            LOANS PAYABLE

A continuity of the loan balance is as follows:

a)     During April 2019, Love Hemp entered a loan agreement for a principal amount of up to £360,343 bearing interest at 9.90%. The loan matures in sixty months and requires monthly repayments of £7,638. Upon maturity, Love Hemp is required to pay a completion fee of £10,495. The loan is secured by the assets of Love Hemp.

b)    Love Hemp issued a 12% promissory note of £250,000 which was repaid following the close of the acquisition.

c)     During the period, the Company entered into loans totalling £178,573 which are interest free and repayable on demand.

9.            LEASES

The follow lease liabilities arose in respect of the recognition of right of use assets with a net book value of £1,246,419.

No property and equipment was held by the Company at the period end.

10.          CONVERTIBLE DEBENTURES

In October and November of 2019, the Company issued 2,355,782 £0.10 convertible debenture units raising gross proceeds of £2,355,782. The convertible debentures units each consist of one debenture convertible into £0.01 nominal value Ordinary Shares at a price of £0.10 and one share purchase warrant exercisable at a price of £0.15 for a period of two years from closing, subject to the Company's right to accelerate the maturity date upon 30 days' notice in the event that the Ordinary Shares trade at £0.25 or higher for a 10 day period.

The debentures accrue interest of 10% annually and are subject to the Company's right to force conversion upon 30 days' notice in the event that the Ordinary Shares trade at £0.30 or higher for a 10-day period. Interest may be paid in cash or in Ordinary Shares, or a combination thereof at the discretion of the Company. The Debentures will mature in two years plus one day from the closing dates.

In connection with the above the Company paid cash transaction costs of £45,883 and issued a total of 54,970 share purchase warrants exercisable at a price of 0.15 per ordinary share for a period of two years from issue. As stated in the convertible debenture agreements the conversion price will be adjusted if the Company completes a rights offering for less than 90% of the quoted price. The variability of the conversion price creates a derivative which has been recognized as a financial liability.

A continuity of the derivative liability related to the debenture conversion feature is as follows

The conversion feature was valued at 31 December, 2019 using the Black-Scholes valuation model with the following assumptions: Expected life 1.8 years, volatility 75%, discount rate 2.25%, dividend yield 0%.

11.          SHARE CAPITAL AND RESERVES

Authorised 

Unlimited ordinary shares with £0.10 par value. As of 31 December 2020, there were 230,119,819 ordinary shares in issue.

Share Option Reserve

As at 30 June 2020 there were existing share options in issue of 66,914,285.  The subscription price for these options were 12.8p and they expired on 27 February 2025. During the period, 6,352,381 options were granted with a subscription price of 1p and an expiry date of 3 November 2022. The options were valued using the Black Scholes method at a price of 0.7p per option. The total share option expense for the period was £887,248.

12.          SUBSEQUENT EVENTS

Subsequent to 31 December 2020, the Company completed the following transactions:

a)     On 27 January 2021 the Company issued 56,620,600 Ordinary shares of £0.01 each for £0.01 per share for a total consideration of £566,206.  Each share was issued with 1 Share Purchase Warrant exercisable at 1p per share, vesting on 27 January 2021 and expiring on 27 January 2023.

b)    On 3 February 2021 the Company issued 68,000,000 Ordinary shares of £0.01 each for £0.015 per share for a total consideration of £1,020,000 in order to settle a portion of the deferred consideration outstanding at the year end.  

c)     On 3 February 2021 the Company issued 46,700,000 Ordinary shares of £0.01 each for £0.01 per share for a total consideration of £467,000.  Each share was issued with 1 Share Purchase Warrant exercisable at 1p per share, vesting on 3 February 2021 and expiring on 3 February 2023.

d)    On 11 March 2021, a deed of variation was entered into to convert the outstanding convertible loan notes into a total of 77,220,315 Ordinary Shares at a price of 2.5p per share. Each Convertible Debenture Share was issued with 1 Share Purchase Warrant exercisable at 5p per share, vesting on 15 March 2021 and expiring on 14 March 2023.

e)    On 11 March 2021, the Company also agreed to issue 8,876,040 Ordinary Shares at a price of 2.5p per share in exchange for debt with an aggregate amount of £221,901.

f)     On 11 March 2021 the Company issued 229,415 Ordinary Shares at a price of 2.5p per share for settlement of fees in lieu of cash.