Company Announcements

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF REGULATION 11 OF THE MARKET ABUSE (AMENDMENT) (EU EXIT) REGULATIONS 2019/310. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

Chill Brands Group plc

("Chill Brands" or the "Company" or the "Group")

Interim Results for the Six Months Ended 30 September 2022

Employment Dispute

28 December 2022

Chill Brands Group, the international consumer packaged goods company, announces its interim results for the six months ending 30 September 2022 (the "Period"), which can be viewed below and also on the Company's website at www.chillbrandsgroup.com.

Callum Sommerton, Chief Executive Officer of Chill Brands, commented:

"Much has changed at Chill Brands during the six months ending 30 September 2022. During this transitionary period, we have taken steps to stabilise and improve the Company's business model while reducing costs. We have also acted to correct past arrangements that have complicated the Company's path to revenue.

In the months since we have relaunched the Chill brand and commenced negotiations with external partners as we seek to build a wider product marketplace on the Chill.com domain. We are now preparing for the launch of our new nicotine-free vapour products and expect them to make a significant contribution to Chill Brands' revenue generation prospects during 2023."

Employment Dispute

The Company has recently commenced proceedings in relation to a dispute with a former employee. Chill Brands is committed to taking decisive action to safeguard its intellectual property and will not tolerate the disruption of its existing business development efforts.  

The dispute has no impact on the Company's ongoing operations. Further information will be provided in due course and as the formal legal process allows.   

-ENDS-

About Chill Brands Group

Chill Brands Group plc (LSE: CHLL, OTCQB: CHBRF) is an international company concerned with the development, production, and distribution of best-in-class hemp-derived CBD products, tobacco alternatives and other consumer packaged goods (CPG) products. The Company operates primarily in the US, where its products are distributed online and via some of the nation's most recognisable convenience retail outlets. The Group's strategy is anchored around lifestyle marketing that is designed to enhance the popularity of its products, channelling visitors to its landmark chill.com website.

Publication on website

A copy of this announcement is also available on the Group's website at http://www.chillbrandsgroup.com

Media enquiries:

Unaudited Interim Results for the Six Month Period Ending 30 September 2022

Summary

The Period has seen a restructuring of the Company's operations. Following the appointment of Callum Sommerton as Chief Executive Officer on 19 April 2022, the Company completed a subscription round and subsequent Open Offer to its existing shareholders, raising a combined total of £3,712,201.40 before expenses. These fundraising efforts have provided working capital to the business while facilitating the settlement of legacy liabilities.

Since April the Company has taken steps to substantially reduce costs, with particular attention paid to marketing activities and professional advisory fees. To date targeted cost-cutting measures have led to an annual saving of at least $1,000,000 from the discontinuation of certain prior activities and the cancellation of numerous consultancy agreements, the benefit of which will largely occur during the second half of the year. The Company continues to take steps to reduce spending and is replacing and renegotiating a number of vendor contracts ahead of their scheduled 2023 renewal dates.  

Limited revenues were recorded during the Period as a result of circumstances relating to the ownership of the Company's products. The Company sold a large portion of its CBD product inventory to a connected party, Ox Distributing LLC ("Ox"), during a previous reporting period. Extended payment terms agreed in relation to that sale provided the Company with cashflow during the Period in review as products sold through, however additional revenues could not be recognised for sales of products that had already been recorded as sold to Ox during the Financial Year ending 31 March 2022. Since the end of the Period, the Company has taken delivery of new inventory which has started to generate recordable revenues upon sale. This Period also saw the discontinuation of the Company's synthetic nicotine product range.

Going forward, Chill Brands' Board of Directors (the "Board") is confident that the Company will be able to improve revenues through the application of its updated brand, the diversification of its product range, a targeted expansion of its physical retail footprint, and the further commercialisation of the Chill.com domain asset through the sale of third-party products on the site.

Financial Overview

During the Period the Company recorded revenues of £19,610. Actual sales of Chill branded products to retailers and consumers significantly exceeded this level, however the Company's entire inventory of CBD chew pouches and combustible smokes had already been sold to Ox, its former Master Distributor. This meant that sales of CBD pouches and combustible smoke products made during the Period could not be recognised as additional revenue for the Company, having previously been recorded during the financial year ending 31 March 2022.

During the Period, Ox paid US $254,622.90 to the Company towards the promissory note that provides extended payment terms for products purchased by Ox between 1 April to 30 September 2021. To date, Ox has made payments totalling $395,889.34 during this and previous periods. In 2023, Chill Brands expects to receive a final balancing payment for the value of the note, net of credit for funds received directly by the Company on the sale of products, promotional discounts and write-downs. A more detailed explanation of the promissory note is provided in Note 7 to these interim financial statements.

Chill Brands received new CBD pouch products in October 2022, sales of which are now generating recordable revenues. All future deliveries of new inventory will be owned by Chill Brands and will therefore provide a clearer path to recordable revenues. Ox no longer acts as the Company's Master Distributor.

The Company recorded an operating loss of £2,196,195 for the period. While this loss is reflective of cash costs including those attributable to substantial legacy legal fees and maintaining the Company's listing, it also reflects large non-cash costs that relate to warrants issued to Viridian Capital and other advisors. The reported value of these warrants reflects their value calculated based on the Company's share price at the date of their issue.

The Company is seeking to recover slotting fees for stores that were not effectively activated during previous reporting periods. Updates regarding these efforts will be provided in due course. 

Product Focus

During the Period, the Company continued to focus on the development and sale of its novel CBD wellness and tobacco alternative products. Its primary product range consists of oral CBD pouches, combustible herbal smokes, and CBD isolate gummies. Under the Zoetic brand, the Group continues to sell a range of CBD-infused topical cosmetic products and CBD tinctures.

In late 2021 the Company launched a new range of 'Tobacco Free Nicotine' ("TFN") pouches containing synthetic nicotine. In March 2022, a federal funding bill that amended the statutory definition of "tobacco product" was passed by the US Congress, giving the US Food and Drug Administration ("FDA") authority over synthetic nicotine products. The FDA ruled that companies selling synthetic nicotine products should submit Premarket Tobacco Applications ("PMTA") in order to remain on sale. While the Company filed the necessary application, the ongoing costs of completing a PMTA were considered prohibitive to the continuation of the Chill TFN product range. As announced on 3 August 2022, the Company has discontinued the development of synthetic nicotine products and steps are being taken to conclude a final sale of the Company's remaining inventory of TFN products.

On 7 December 2022 the Company announced that it was developing a range of vapour products, including vapes that contain CBD and others that are designed to provide a nicotine-free vaping experience without the inclusion of a cannabinoid active ingredient. The Company plans to commence sales of these vapour products during Q1 2023, after which they are expected to become a significant contributor to its sales and revenue.

Ownership of the Chill.com Domain

In June 2022, the Group received a letter from the Corporate Reporting Review Team of the Financial Reporting Council ("FRC") as part of its regular review and assessment of the quality of corporate reporting in the UK. The FRC requested further information in relation to the Company's 2021 Interim Financial Report for the period ending 30 September 2021 as published on 28 January 2022 (the "Interim Report"). The letter concerned the financial treatment of the Group's purchase of the 'Chill.com' domain name (the "Domain Purchase"). Specifically, the FRC focused on the treatment of the Domain Purchase within the condensed consolidated statement of cash flows in the 2021 Interim Report which provided for a cash outflow of £1,195,898. This figure was reflective of the full purchase price of the domain, however only £601,986 had been paid during the 2021 Interim Report period with a further £593,912 still outstanding and only settled in June 2022, after the financial period ending 31 March 2022.

Following the review, the Group has undertaken to:

(a) correct the comparative information for the six months ended 30 September 2021 in the unaudited cash flow statement to show the actual amount paid in respect of the Domain Purchase in 2021 (£601,986) and 2022 (£593,912).

(b) disclose the nature and amount of the change made to the cash flow statement that was included in the 2021 Interim Report. That disclosure can be found in Note 3 of this interim report.

The Group recognises that the FRC's review of this matter is inherently limited and does not benefit from a detailed knowledge of the Group's business or the underlying transactions considered. The FRC's role is not to verify the information provided but to consider compliance with reporting requirements as it has done in this instance.

Further to the aforementioned correspondence and corrections, the FRC has closed its enquiries into the Group's 2021 interim report. The Group continues to work with its auditors and advisors to ensure that it complies with all statutory reporting obligations and publishes financial information in an accurate and timely manner. 

Outlook and Future Prospects

This has been a transitionary phase for Chill Brands. The Company has taken steps to redress issues with its operating model following a change to its management structure and fundraising activity during April and May 2022. The Board continues to act to reduce the ongoing costs of the Company's operations to ensure that it is lean and above all well- prepared to navigate the current period of global economic instability.

During the same period it has become increasingly important for companies like Chill Brands to adopt an exceptionally targeted strategy in relation to retail sales of CBD products. In addition to international regulatory uncertainty, CBD brands must now also compete with psychoactive Delta 8, 9, and 10 hemp derivative products that have commenced sales in certain convenience outlets across the United States. Chill Brands is currently unable to participate in the psychoactive cannabinoid product market due to the nature of its London listing and the application of UK law. The Company has therefore adjusted its rollout strategy to primarily target liquor stores, smoke shops, dispensaries, and other specialist retail venues where CBD products continue to show encouraging signs of growth both in terms of revenue and popularity.

It is against this challenging retail environment that the Company has equipped itself with a number of tools that are expected to improve its revenue generation prospects. Chill Brands has now established a US national sales team of brokers and agents whose remuneration comprises performance-based commissions. This approach has enabled the Company to reduce retained costs while improving its access to an expansive array of retail distribution opportunities.

The Company has also secured full ownership of the Chill.com domain and has plans to further exploit that asset. Following a relaunch of the Chill brand and website in October 2022, the Company has recorded improved traffic and return customer rates alongside numerous other key metrics. While continuing to improve its online conversion funnel, Chill Brands intends to establish a marketplace of complementary brands and products that will generate both additional traffic and revenue with the Company taking a percentage of sales made by third-party brands through the site. As stated elsewhere in this report, the Company is negotiating with a number of other brands and intends to sell a wide range of products via its website with several set to launch during Q1 2023.

In addition to commencing sales of products from other brands, the Company has engaged in research and development initiatives with a view to improving the diversity of its own product range. As previously announced, 2023 will see the launch of Chill Brands' new line of nicotine-free vapour products. These products are in high demand and are quickly expected to become a reliable source of revenue for the Company.

Having built the foundations of a strong and appealing brand, the Board believes that the Company is well positioned to achieve sustainable growth by innovating while paying close attention to sales and marketing fundamentals. It is through this brand that Chill Brands will engage consumers with novel products and active ingredients, both as part of its own proprietary range and through sales of third-party products via the Chill.com e-commerce platform.

During 2023 Chill Brands will continue to focus on cash management and the reduction of operating expenses. Through the launch of vapour products, expansion of its retail distribution network, and establishment of a scalable product marketplace on Chill.com, the Board is confident that the Company will also significantly improve its revenue generation prospects.

This interim financial report was approved by the board of Directors on 27 December 2022 and signed on its behalf by:

Callum Sommerton

Chief Executive Officer, Chill Brands Group plc