Kiaro Holdings Corp. (TSXV: KO) ("Kiaro" or the "Company") is pleased to announce its second-quarter financial results for the three and six months ended July 31, 2021 and 2020. With the closing of the acquisition of Sculthorp SEO Inc. on July 12, 2021, Kiaro created a new segment in reporting this quarter, and now reports on Retail, Wholesale, and eCommerce operations, all of which were profitable during the quarter. All amounts, unless specified otherwise, are expressed in Canadian dollars.

"Our team continues to deliver fantastic financial results as proven by our record second quarter. Now that we have closed on the Acquisition of Hemisphere Cannabis and have 16 stores in operation we look forward to achieving our ~$43 million annual revenue target" stated Daniel Petrov, Chief Executive Officer of Kiaro.

Summary of the Second Quarter Financial Results

For the three months ended July 31, 2021, Kiaro recorded revenues of $6.19 million, comprised of $3.72 million from the retail segment, $2.32 million from the wholesale segment, and $0.14 million from the new eCommercesegment, which was reported from only 2 weeks of operations during the quarter. Comparatively, in the three months ended July 31, 2020, the Company recorded total revenues of $4.0 million, comprising $2.79 million from the retail segment and $1.21 million from the wholesale segment. The 55% increase in revenue in comparison to the prior year is primarily due to retail same-store sales increases of 21%, and a 92% sales increase at Kiaro's wholesale subsidiary, National Cannabis Distribution Inc.

For the three months ended July 31, 2021, Kiaro recorded gross profit of $1.68 million, representing a 35% year-over-year increase when compared to the three months ended July 31, 2020, where gross profit was $1.24 million. The consolidated gross margin decreased due to the higher contribution of revenues from the wholesale segment.  As retail and eCommerce segment contributions increase from the newly acquired assets, the blended gross margin is expected to increase as well.

Total operating expenses for the three months ended July 31, 2021, were $2.46 million compared to $2.09 million in the three months ended July 31, 2020. Although the dollar amount increased, the impact to operating expenses not including depreciation and amortization and share-based compensation decreased from 34% to 29% as a percentage of revenue. Salaries and employee benefits remained between 19% and 20% as a percentage of revenue in the three months ended July 31, 2021. 

Kiaro improved its adjusted EBITDA from negative $0.14 million in the three months ended July 31, 2020, to negative $0.10 million in the three months ended July 31, 2021. Revenue increases continue to play a contributing factor on EBITDA until the Company reaches break even scale. This combined with fundamental management of operating expenses relative to revenue growth resulted in improvements towards profitability. Adjusted EBITDA is a non-GAAP financial measure and is not a recognized, defined, or standardized measure under IFRS. Refer to "Cautionary Note Regarding Non-GAAP Measures" below.

As at July 31, 2021, the Company had positive working capital of $2,286,928, an improvement since the last fiscal year end of January 31, 2021, of $1,611,405. $35,000 in principal debt was repaid during the quarter. 

Second Quarter Highlights and Recent Developments:

On July 12, 2021, Kiaro announced the completion of the acquisition of Sculthorp SEO Inc, which included one licensed and operational brick and mortar location in Toronto, Ontario, and three eCommerce business platforms in Canada, the US, and Australia. The two week inclusion of the eCommerce assets contributed $141,011 in revenue and 16.2% net profit. The full quarter revenues will be reflected in the Company's third quarter results.
 

On September 9, 2021, the Company held its Annual General and Special Meeting of Shareholders and the Company's shareholders approved Aegis Brands Inc. ("Aegis") as a new Control Person of the Company in connection with the Hemisphere retail location transaction.
 

On September 24, 2021, the Company completed its acquisition of Hemisphere from Aegis in an all stock transaction, which creates a control person of approximately 25% of the combined entity.

The total purchase price of $6.13 million was settled by the issuance of 61,300,000 in common shares of the Company at the market close price of $0.10 per share, issuance of 6,700,000 common share purchase warrants exercisable at $0.16 with an expiry date of 36 months from the closing date, and an additional issuance of 6,700,000 shares upon the achievement of certain commercial milestones during the first year following closing. No revenues and expenses from operations are reflected on the current quarterly financial results, and the 5 weeks' and full 3 months' impacts will be reported on Q3 and Q4 respectively.