UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
 
For the month of May 2024.
 
Commission File Number: 001-40065

IM Cannabis Corp.
(Exact Name of Registrant as Specified in Charter)

Kibbutz Glil Yam, Central District, Israel 4690500
(Address of principal executive offices)
 
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F ☒      Form 40-F ☐
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____
 
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____
 
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
IM CANNABIS CORP.
 
 
(Registrant)
 
 
 
 
Date: May 8, 2024
By:
/s/ Oren Shuster
 
 
Name:
Oren Shuster
 
 
Title:
Chief Executive Officer and Director



EXHIBIT INDEX




Exhibit 99.1
IM Cannabis Reports First Quarter Financial Results
 
IMC prepares for accelerated growth after legalization in Germany and recovers from the impact of the Israel-Hamas war.
 
TORONTO, and GLIL YAM, Israel, May 8, 2024 /PRNewswire/ -- IM Cannabis Corp. (the "Company" or "IMC") (NASDAQ: IMCC) (CSE: IMCC), an international medical cannabis company, announced its financial results today for the first quarter ended March 31, 2024. All amounts are reported in Canadian dollars and compared to the quarter ended March 31, 2023, unless otherwise stated.
 
Q1 2024 Financial Highlights
 

13% Revenue increase vs. Q4 2023 of $12.1M vs. $10.7M and 4% decrease vs. Q1 2023 of $12.5M
 

125% Gross profit increase vs. Q4 2023 of $1.8M vs. $0.8 and 39% Gross profit decrease vs. Q1 2023 of $2.9M
 

29% decrease in operating expenses vs. Q1 2023 excluding the one-time Oranim revoke related losses of $4.6M vs. $6.5M and 14% increase including Oranim
 

12% increase of Non-IFRS Adjusted EBITDA loss to $2.1M
 
Operational Highlights
 
The Company intends to complete a non-brokered private placement (the “Offering”) of secured convertible debentures of the Company (each, a “Debenture”) for aggregate proceeds of up to C$2,500,000. The Debentures will mature on the date that is 12 months from the date of issuance and will not incur interest except in the event of default. The Debentures are being issued to holders of short term loans and obligations owed by the Company or its wholly owned subsidiaries. The principal of the Debenture may be converted into common shares in the Company (each, a “Share”) at a conversion price of $1.08 per Share.
 
Management Commentary
 
“With the April 1st cannabis legalization in Germany, we are augmenting our focus and resources on the German market, where we expect to see the biggest growth potential, and the best return on investment. While it is still too early to make any predictions, our sales in Germany almost doubled during the month of April,” said Oren Shuster, Chief Executive Officer of IMC. “Looking back on the first month post legalization in Germany, I see that we have the infrastructure and the supply agreements in place to continue delivering the accelerated growth we have already seen in April. We will also ensure that we have the necessary resources in place for success.”
 
“In 2023 we completely restructured, becoming a very lean and agile company, leaning into active cost management. This process is reflected in the numbers, our G&A decreased 27% vs Q1 2023” said Uri Birenberg, Chief Financial Officer of IMC. “While our results have recovered from the impact of the Israel-Hamas war, our revenue was still effected by both an unfavorable exchange rate, as well as price reductions to sell off inventory.”
 
Q1 2024 Conference Call 
 
The Company will host a Zoom web conference call today at 9:00 a.m. ET to discuss the results, followed by a question-and-answer session for the investment community. Investors are invited to register by clicking here. All relevant information will be sent upon registration.
 
If you are unable to join us live, a recording of the call will be available on our website at https://investors.imcannabis.com/ within 24 hours after the call.
 

Q1 2024 Financial Results
 

Revenues for the first quarter of 2024 were $12.1 million compared to $12.5 million in the first quarter of 2023, a decrease of 3%. The decrease is mainly due an exchange rate effect of about $0.2 million and decrease in avg. price per sale due to increased competition.
 

Gross profit for the first quarter of 2024 was $1.8 million, compared to $2.9 million in Q1 2024, a decrease of 39%. The downside is attributed mainly to the slow-moving stock that was moved out at a lower price and an exchange rate difference totaling $0.4 million and $0.64 million cost of sales loss due to an inventory erase of the slow-moving stock. Company fair value adjustment was $0 and $0.4 million for the Q1 2024 and Q1 2023 respectively.
 

Total Dried Flower sold in Q1 2024 was approximately 1,873 kg with an average selling price of $5.68 per gram, compared to approximately 1,842kg in Q1 2023, with an average selling price of $6.59 per gram. This difference is mainly due to increased competition within the retail segment, and mid-range stock discounts to move out slow moving stock.
 

Total operating expenses in Q1 2024 were $7.4 million compared to $6.5 million in Q1 2023. The increase is due to the other operating expenses related to Oranim Deal revoke, with an expected losses of $2.8 million. Adjusting for this one-time losses, Q1 2024 operating expenses were $4.6 million compared to $6.5 million in Q1 2023, a decrease of 29%.
 

G&A Expenses in Q1 2024 were $2.3 million, compared to $3.2 million in Q1 2023, a decrease of 28%. The decrease in the G&A expense is attributable mainly to salaries and professional services of $0.64 million.
 

Selling and Marketing Expenses in Q1 2024 were $2.3 million, compared to $2.8 million in Q1 2023, a decrease of 18% mainly due to a decrease in Salaries and professional services of $0.5 million.
 

Net Loss from continuing operations in Q1 2024 was $6.0 million, compared to $0.9 million in Q12023.
 

Basic and diluted Loss per Share in Q1 2024 was $0.42, compared to a loss of $0.05 per Share in Q1 2023.
 

Non-IFRS Adjusted EBITDA loss in Q1 2024 was $2.1 million, compared to an Adjusted EBITDA loss of $1.9 million in Q1 2023 an increase of 10%.
 

Cash and Cash Equivalents as of March 31, 2024, were $1.0 million compared to $1.8 million in December 31, 2023.
 

Total assets as of March 31, 2024, were $41.1 million, compared to $48.8 million in December 31, 2023, a decrease of 16%. The decrease is mainly attributed to the goodwill reduction due to Oranim agreement cancelation of about $2.8M, a reduction in Inventory of $2.1 million, reduction of Cash and cash equivalents of $0.8M and reduction in Trade payables of $1.2 million.


Total Liabilities as of March 31, 2024, were $32.8 million, compared to $35.1 in December 31, 2023, a decrease of about 7%. The decrease was mainly due to the reduction in other accounts payables and accrued expenses of $1.8 million and reduction in the PUT option liability of $0.7 million.
 

The Company's financial statements as of March 31, 2024 includes a note regarding the Company's ability to continue as a going concern. The Company's Q1 2024 financial results do not include any adjustments relating to the recoverability and classification of assets or liabilities that might be necessary should the Company be unable to continue as a going concern. For more information, please refer to the "Liquidity and Capital Resources" and "Risk Factors" sections in the Company's management's discussion and analysis for the quarter ended March 31, 2024.
 
Non-IFRS Measures
 
This press release makes reference to "Gross Margin" and "Adjusted EBITDA", which are financial measures that are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. These measures are provided as complementary information to the Company's IFRS measures by providing further understanding of our results of operations from management's perspective. Accordingly, these measures should neither be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS.
 
For an explanation of how management defines Gross Margin and Adjusted EBITDA, see the Company's management's discussion and analysis for the period ended March 31, 2024, available under the Company's SEDAR+ profile at www.sedarplus.ca on EDGAR at www.sec.gov/edgar.
We reconcile these non-IFRS financial measures to the most comparable IFRS measures as set out below.


INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Canadian Dollars in thousands
 
         
March 31, 2024
   
December 31, 2023
 
   
Note
   
(Unaudited)
       
                   
ASSETS
                 
                   
CURRENT ASSETS:
                 
                   
Cash and cash equivalents
       
$
1,048
   
$
1,813
 
Trade receivables
         
6,506
     
7,651
 
Advances to suppliers
         
780
     
936
 
Other accounts receivable
         
3,732
     
3,889
 
Inventories
 
3
     
7,901
     
9,976
 
                       
           
19,967
     
24,265
 
NON-CURRENT ASSETS:
                     
                       
Property, plant and equipment, net
         
4,939
     
5,058
 
Investments in affiliates
         
2,078
     
2,285
 
Right-of-use assets, net
         
1,243
     
1,307
 
Intangible assets, net
         
5,440
     
5,803
 
Goodwill
         
7,442
     
10,095
 
                       
           
21,142
     
24,548
 
                       
Total assets
       
$
41,109
   
$
48,813
 
 
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Canadian Dollars in thousands
 
         
March 31, 2024
   
December 31, 2023
 
   
Note
   
(Unaudited)
       
                   
LIABILITIES AND EQUITY
                 
                   
CURRENT LIABILITIES:
                 
                   
Trade payables
       
$
9,511
   
$
9,223
 
Bank loans and credit facilities
         
11,941
     
12,119
 
Other accounts payable and accrued expenses
         
4,440
     
6,218
 
Accrued purchase consideration liabilities
         
2,165
     
2,097
 
PUT Option liability
         
1,967
     
2,697
 
Current maturities of operating lease liabilities
         
461
     
454
 
                       
           
30,485
     
32,808
 
                       
NON-CURRENT LIABILITIES:
                     
                       
Warrants measured at fair value
 
4
     
137
     
38
 
Operating lease liabilities
         
744
     
815
 
Long-term loans
         
401
     
394
 
Employee benefit liabilities, net
         
96
     
95
 
Deferred tax liability, net
         
902
     
963
 
                       
           
2,280
     
2,305
 
                       
Total liabilities
         
32,765
     
35,113
 
                       
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY:
 
5
                 
                       
Share capital and premium
         
253,887
     
253,882
 
Translation reserve
         
1,399
     
95
 
Reserve from share-based payment transactions
         
9,664
     
9,637
 
Accumulated deficit
         
(255,431
)
   
(249,145
)
                       
Total equity attributable to equity holders of the Company
         
9,519
     
14,469
 
                       
 Non-controlling interests
         
(1,175
)
   
(769
)
                       
Total equity
         
8,344
     
13,700
 
                       
Total liabilities and equity
       
$
41,109
   
$
48,813
 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.


INTERIM CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME (UNAUDITED)
Canadian Dollars in thousands, except per share data

         
Three months ended
March 31,
 
   
Note
   
2024
     
2023 (*)

                     
Revenues
       
$
12,063
   
$
12,529
 
Cost of revenues
         
10,274
     
9,286
 
Gross profit before fair value adjustments
         
1,789
     
3,243
 
                       
Fair value adjustments:
                     
Realized fair value adjustments on inventory sold in the period
         
(10
)
   
(339
)
Total fair value adjustments
         
(10
)
   
(339
)
                       
Gross profit
         
1,779
     
2,904
 
                       
General and administrative expenses
         
2,332
     
3,175
 
Selling and marketing expenses
         
2,292
     
2,805
 
Restructuring expenses
         
-
     
283
 
Share-based compensation
         
32
     
258
 
Other operating expenses
 
9
     
2,753
     
-
 
Total operating expenses
         
7,409
     
6,521
 
                       
Operating loss
         
5,630
     
3,617
 
                       
Finance income
 
4
     
(14
)
   
3,530
 
Finance expense
         
(487
)
   
(795
)
Finance income, net
         
(501
)
   
2,735
 
                       
Gain (loss) before income taxes
         
(6,131
)
   
(882
)
                       
Income tax benefit
         
(111
)
   
(16
)
                       
Net (loss) gain
         
(6,020
)
   
(866
)
                       
Other comprehensive income that will not be reclassified to profit or loss in subsequent periods:
                     
                       
Total other comprehensive income that will not be reclassified to profit or loss in subsequent periods
         
67
     
36
 
                       
Exchange differences on translation to presentation currency
         
1,330
     
(562
)
                       
Total other comprehensive income (loss) that will not be reclassified to profit or loss in subsequent periods
         
1,397
     
(526
)


INTERIM CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME (UNAUDITED)
Canadian Dollars in thousands, except per share data

         
Three months ended
March 31,
 
   
Note
   
2024
     
2023 (*)

                     
Other comprehensive income that will be reclassified to profit or loss in subsequent periods:
                   
                     
Adjustments arising from translating financial statements of foreign operation
         
(35
)
   
155
 
                       
Total other comprehensive income (loss) that will be reclassified to profit or loss in subsequent periods
         
(35
)
   
155
 
                       
Total other comprehensive income (loss)
         
1,362
     
(371
)
                       
Total comprehensive loss
       
$
(4,658
)
 
$
(1,237
)
                       
Equity holders of the Company
         
(4,252
)
   
(959
)
Non-controlling interests
         
(406
)
   
(278
)
                       
         
$
(4,658
)
 
$
(1,237
)
Net income (loss) per share attributable to equity holders of the Company:
 
7
                 
                       
Basic and diluted (loss) gain per share (in CAD)
       
$
(0.42
)
 
$
(0.05
)
                       
Earnings (loss) per share attributable to equity holders of the Company from continuing operations:
                     
Basic and diluted (loss) gain per share (in CAD)
       
$
(0.42
)
 
$
(0.05
)

(*) See note 1 regarding figures disclosure.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.


INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Canadian Dollars in thousands

   
Three months ended
March 31,
 
   
2024
     
2023 (*)

Cash provided by operating activities:
             
               
Net income (loss) for the period
 
$
(6,020
)
 
$
43
 
Adjustments for non-cash items:
               
Fair value adjustment on sale of inventory
   
10
     
339
 
Fair value adjustment on Warrants, investments and accounts receivable
   
100
     
(3,636
)
Depreciation of property, plant and equipment
   
147
     
174
 
Amortization of intangible assets
   
452
     
456
 
Depreciation of right-of-use assets
   
118
     
179
 
Impairment of goodwill
   
2,753
     
-
 
Finance expenses, net
   
401
     
635
 
Deferred tax liability, net
   
(69
)
   
(150
)
Share-based payment
   
32
     
258
 
Restructuring expense
   
-
     
283
 
     
3,944
     
(1,462
)
                 
Changes in working capital:
               
Decrease (increase) in trade receivables
   
1,332
     
1,937
 
Decrease (increase) in other accounts receivable and advances to suppliers
   
159
     
(940
)
Decrease (increase) in inventories, net of fair value adjustments
   
2,159
     
90
 
Decrease (increase) in trade payables
   
663
     
(6,021
)
Changes in employee benefit liabilities, net
   
-
     
(22
)
Increase in other accounts payable and accrued expenses
   
(2,745
)
   
(14
)
                 
     
1,568
     
(4,970
)
                 
Taxes (paid) received
   
(121
)
   
328
 
                 
Net cash used in operating activities
   
(629
)
   
(6,061
)
                 
Cash flows from investing activities:
               
                 
Purchase of property, plant and equipment
   
(2
)
   
(411
)
Payment of purchase consideration
   
-
     
(56
)
                 
Net cash used in investing activities
 
$
(2
)
 
$
(467
)

The accompanying notes are an integral part of the interim condensed consolidated financial statements.


INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Canadian Dollars in thousands

   
Three months ended
March 31,
 
   
2024
   
2023
 
Cash flow from financing activities:
           
             
   Proceeds from issuance of share capital, net of issuance costs
   
176
     
825
 
   Proceeds from issuance of warrants
   
(176
)
   
7,027
 
   Repayment of lease liability
   
(118
)
   
(175
)
   Interest paid - lease liability
   
(15
)
   
(18
)
   Receipt (repayment) of bank loan and credit facilities
   
(2,856
)
   
(1,046
)
   Cash paid for interest
   
(444
)
   
(56
)
   Proceeds from discounted checks
   
2,581
         
                 
Net cash (used in) provided by financing activities
   
(852
)
   
6,557
 
                 
Effect of foreign exchange on cash and cash equivalents
   
718
     
(1,059
)
                 
Decrease in cash and cash equivalents
   
(765
)
   
(1,030
)
Cash and cash equivalents at beginning of the period
   
1,813
     
2,449
 
                 
Cash and cash equivalents at end of the period
 
$
1,048
   
$
1,419
 
                 
Supplemental disclosure of non-cash activities:
               
                 
Right-of-use asset recognized with corresponding lease liability
 
$
40
   
$
49
 
Issuance of shares in payment of debt settlement to a non-independent director of the company
 
$
-
   
$
222
 

(*) See note 1 regarding Figures disclosure.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.


About IM Cannabis Corp.
 
IMC (Nasdaq: IMCC) (CSE: IMCC) is an international cannabis company that provides premium cannabis products to medical patients in Israel and Germany, two of the largest medical cannabis markets. The Company has exited operations in Canada to pivot its focus and resources to achieve sustainable and profitable growth in its highest value markets, Israel and Germany. The Company leverages a transnational ecosystem powered by a unique data-driven approach and a globally sourced product supply chain. With an unwavering commitment to responsible growth and compliance with the strictest regulatory environments, the Company strives to amplify its commercial and brand power to become a global high-quality cannabis player.
 
The IMC ecosystem operates in Israel through Focus Medical Herbs Ltd., which imports and distributes cannabis to medical patients, leveraging years of proprietary data and patient insights. The Company also operates medical cannabis retail pharmacies, online platforms and logistical hubs in Israel that enable the safe delivery and quality control of IMC products throughout the entire value chain. In Germany, the IMC ecosystem operates through Adjupharm GmbH, where it distributes cannabis to pharmacies for medical cannabis patients. The Company also  operated in Canada through Trichome Financial Corp and its wholly owned subsidiaries. The Company has exited operations in Canada and considers these operations as discontinued.
 
Disclaimer for Forward-Looking Statements
 
This press release contains forward-looking information or forward-looking statements under applicable Canadian and United States securities laws (collectively, "forward-looking statements"). All information that addresses activities or developments that we expect to occur in the future are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "believe", "plan", "estimate", "expect", "likely" and "intend" and statements that an event or result "may", "will", "should", "could" or "might" occur or be achieved and other similar expressions. Forward-looking statements are based on the estimates and opinions of management on the date the statements are made. In the press release, such forward-looking statements include, but are not limited to, statements relating to: the impact of the Israel-Hamas war on the Company, including its operations and the medical cannabis industry in Israel; the timing and impact of the legalization of medicinal cannabis in Germany, including, the Company having it “all in house”; the Company being positioned to take advantage of the legalization; the Company’s growth in 2024; the market growth for medicinal cannabis in Germany;  the stated benefits of the Company’s EU-GMP processing facility and an EU-GDP logistics center; the Company to host a teleconference meeting as stated; and the Company’s stated goals, scope, and nature of operations in Germany, Israel, and other jurisdictions the Company may operate.
 
Forward-looking statements are based on assumptions that may prove to be incorrect, including but not limited to: the Company’s ability to focus and resources to achieve sustainable and profitable growth in its highest value markets; the Company’s ability to mitigate the impact of the Israel-Hamas war on the Company; the Company’s ability to take advantage of the legalization of medicinal cannabis in Germany; the Company’s ability to host a teleconference meeting as stated; and the Company’s ability to carry out its stated goals, scope, and nature of operations in Germany, Israel, and other jurisdictions the Company may operate.
 

The above lists of forward-looking statements and assumptions are not exhaustive. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated or implied by such forward-looking statements due to a number of factors and risks. These include: the failure of the Company to comply with applicable regulatory requirements in a highly regulated industry; unexpected changes in governmental policies and regulations in the jurisdictions in which the Company operates; the Company's ability to continue to meet the listing requirements of the Canadian Securities Exchange and the NASDAQ Capital Market; any unexpected failure to maintain in good standing or renew its licenses; the ability of the Company and its subsidiaries (collectively, the "Group") to deliver on their sales commitments or growth objectives; the reliance of the Group on third-party supply agreements to provide sufficient quantities of medical cannabis to fulfil the Group's obligations; the Group's possible exposure to liability, the perceived level of risk related thereto, and the anticipated results of any litigation or other similar disputes or legal proceedings involving the Group; the impact of increasing competition; any lack of merger and acquisition opportunities; adverse market conditions; the inherent uncertainty of production quantities, qualities and cost estimates and the potential for unexpected costs and expenses; risks of product liability and other safety-related liability from the usage of the Group's cannabis products; supply chain constraints; reliance on key personnel; the risk of defaulting on existing debt; risks surrounding war, conflict and civil unrest in Eastern Europe and the Middle East, including the impact of the Israel-Hamas war on the Company, its operations and the medical cannabis industry in Israel; risks associated with the Company focusing on the Israel and Germany markets; the inability of the Company to achieve sustainable profitability and/or increase shareholder value; the inability of the Company to actively manage costs and/or improve margins; the inability of the company to grow and/or maintain sales; the inability of the Company to meet its goals and/or strategic plans; the inability of the Company to reduce costs and/or maintain revenues; the Company’s inability to take advantage of the legalization of medicinal cannabis in Germany; and the Company’s inability to host a teleconference meeting as stated.
 
Please see the other risks, uncertainties and factors set out under the heading "Risk Factors" in the Company's annual report dated March 28, 2024, which is available on the Company's issuer profile on SEDAR+ at www.sedarplus.ca and Edgar at www.sec.gov/edgar. Any forward-looking statement included in this press release is made as of the date of this press release and is based on the beliefs, estimates, expectations and opinions of management on the date such forward looking information is made. The Company does not undertake any obligation to update forward-looking statements except as required by applicable securities laws. Investors should not place undue reliance on forward-looking statements. Forward-looking statements contained in this press release are expressly qualified by this cautionary statement.
 
Company Contact: 
 
Anna Taranko, Director Investor & Public Relations
IM Cannabis Corp.
+49 157 80554338
a.taranko@imcannabis.de
 
Oren Shuster, CEO
IM Cannabis Corp.
+972-77-3603504



Exhibit 99.2




IM CANNABIS CORP.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2024

Canadian dollars in thousands

(Unaudited)

INDEX

   
Page
     
     
 
2 - 3
     
 
4 - 5
     
 
6
     
 
7 - 8
     
 
9 - 26


IM CANNABIS CORP.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Canadian Dollars in thousands

         
March 31,
2024
   
December 31,
2023
 
   
Note
   
(Unaudited)
       
                   
ASSETS
                 
                   
CURRENT ASSETS:
                 
                   
Cash and cash equivalents
       
$
1,048
   
$
1,813
 
Trade receivables
         
6,506
     
7,651
 
Advances to suppliers
         
780
     
936
 
Other accounts receivable
         
3,732
     
3,889
 
Inventories
 
3
     
7,901
     
9,976
 
                       
           
19,967
     
24,265
 
NON-CURRENT ASSETS:
                     
                       
Property, plant and equipment, net
         
4,939
     
5,058
 
Investments in affiliates
         
2,078
     
2,285
 
Right-of-use assets, net
         
1,243
     
1,307
 
Intangible assets, net
         
5,440
     
5,803
 
Goodwill
         
7,442
     
10,095
 
                       
           
21,142
     
24,548
 
                       
Total assets
       
$
41,109
   
$
48,813
 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

2

IM CANNABIS CORP.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Canadian Dollars in thousands

         
March 31,
2024
   
December 31,
2023
 
   
Note
   
(Unaudited)
       
                   
LIABILITIES AND EQUITY
                 
                   
CURRENT LIABILITIES:
                 
                   
Trade payables
       
$
9,511
   
$
9,223
 
Bank loans and credit facilities
         
11,941
     
12,119
 
Other accounts payable and accrued expenses
         
4,440
     
6,218
 
Accrued purchase consideration liabilities
         
2,165
     
2,097
 
PUT Option liability
         
1,967
     
2,697
 
Current maturities of operating lease liabilities
         
461
     
454
 
                       
           
30,485
     
32,808
 
                       
NON-CURRENT LIABILITIES:
                     
                       
Warrants measured at fair value
 
4
     
137
     
38
 
Operating lease liabilities
         
744
     
815
 
Long-term loans
         
401
     
394
 
Employee benefit liabilities, net
         
96
     
95
 
Deferred tax liability, net
         
902
     
963
 
                       
           
2,280
     
2,305
 
                       
Total liabilities
         
32,765
     
35,113
 
                       
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY:
 
5
                 
                       
Share capital and premium
         
253,887
     
253,882
 
Translation reserve
         
1,399
     
95
 
Reserve from share-based payment transactions
         
9,664
     
9,637
 
Accumulated deficit
         
(255,431
)
   
(249,145
)
                       
Total equity attributable to equity holders of the Company
         
9,519
     
14,469
 
                       
 Non-controlling interests
         
(1,175
)
   
(769
)
                       
Total equity
         
8,344
     
13,700
 
                       
Total liabilities and equity
       
$
41,109
   
$
48,813
 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

3

IM CANNABIS CORP.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME (UNAUDITED)
Canadian Dollars in thousands, except per share data

         
Three months ended
March 31,
 
   
Note
   
2024
     
2023 (*)

                     
Revenues
       
$
12,063
   
$
12,529
 
Cost of revenues
         
10,274
     
9,286
 
Gross profit before fair value adjustments
         
1,789
     
3,243
 
                       
Fair value adjustments:
                     
Realized fair value adjustments on inventory sold in the period
         
(10
)
   
(339
)
Total fair value adjustments
         
(10
)
   
(339
)
                       
Gross profit
         
1,779
     
2,904
 
                       
General and administrative expenses
         
2,332
     
3,175
 
Selling and marketing expenses
         
2,292
     
2,805
 
Restructuring expenses
         
-
     
283
 
Share-based compensation
         
32
     
258
 
Other operating expenses
 
9
     
2,753
     
-
 
Total operating expenses
         
7,409
     
6,521
 
                       
Operating loss
         
5,630
     
3,617
 
                       
Finance income
 
4
     
(14
)
   
3,530
 
Finance expense
         
(487
)
   
(795
)
Finance income, net
         
(501
)
   
2,735
 
                       
Gain (loss) before income taxes
         
(6,131
)
   
(882
)
                       
Income tax benefit
         
(111
)
   
(16
)
                       
Net (loss) gain
         
(6,020
)
   
(866
)
                       
Other comprehensive income that will not be reclassified to profit or loss in subsequent periods:
                     
                       
Total other comprehensive income that will not be reclassified to profit or loss in subsequent periods
         
67
     
36
 
                       
Exchange differences on translation to presentation currency
         
1,330
     
(562
)
                       
Total other comprehensive income (loss) that will not be reclassified to profit or loss in subsequent periods
         
1,397
     
(526
)
                       
Other comprehensive income that will be reclassified to profit or loss in subsequent periods:
                     
                       
Adjustments arising from translating financial statements of foreign operation
         
(35
)
   
155
 
                       
Total other comprehensive income (loss) that will be reclassified to profit or loss in subsequent periods
         
(35
)
   
155
 
                       
Total other comprehensive income (loss)
         
1,362
     
(371
)
                       
Total comprehensive loss
       
$
(4,658
)
 
$
(1,237
)

4

IM CANNABIS CORP.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME (UNAUDITED)
Canadian Dollars in thousands, except per share data

         
Three months ended
March 31,
 
   
Note
   
2024
     
2023 (*)

                     
Net income (loss) attributable to:
                   
Equity holders of the Company
         
(5,623
)
   
(600
)
Non-controlling interests
         
(397
)
   
(266
)
                       
         
$
(6,020
)
 
$
(866
)
Total comprehensive income (loss) attributable to:
                     
Equity holders of the Company
         
(4,252
)
   
(959
)
Non-controlling interests
         
(406
)
   
(278
)
                       
         
$
(4,658
)
 
$
(1,237
)
Net income (loss) per share attributable to equity holders of the Company:
 
7
                 
                       
Basic and diluted (loss) gain per share (in CAD)
       
$
(0.42
)
 
$
(0.05
)
                       
Earnings (loss) per share attributable to equity holders of the Company from continuing operations:
                     
Basic and diluted (loss) gain per share (in CAD)
       
$
(0.42
)
 
$
(0.05
)

(*) See note 1 regarding figures disclosure.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

5

IM CANNABIS CORP.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
Canadian Dollars in thousands

   
Share
Capital and premium
   
Reserve from share-based payment transactions
   
Translation reserve
   
Accumulated deficit
   
Total
   
Non-controlling interests
   
Total
equity
 
                                           
Balance as of January 1, 2024
 
$
253,882
   
$
9,637
   
$
95
   
$
(249,145
)
 
$
14,469
   
$
(769
)
 
$
13,700
 
                                                         
Net loss
   
-
     
-
     
-
     
(5,623
)
   
(5,623
)
   
(397
)
   
(6,020
)
Total other comprehensive loss
   
-
     
-
     
1,304
     
67
     
1,371
     
(9
)
   
1,362
 
                                                         
Total comprehensive loss
   
-
     
-
     
1,304
     
(5,556
)
   
(4,252
)
   
(406
)
   
(4,658
)
                                                         
Other comprehensive income Classification
   
-
     
-
     
-
     
(730
)
   
(730
)
   
-
     
(730
)
Share-based compensation
   
-
     
32
     
-
     
-
     
32
     
-
     
32
 
Forfeited options
   
5
     
(5
)
   
-
     
-
     
-
     
-
     
-
 
                                                         
Balance as of March 31, 2024
 
$
253,887
   
$
9,664
   
$
1,399
   
$
(255,431
)
 
$
9,519
   
$
(1,175
)
 
$
8,344
 

   
Share
Capital and premium
   
Reserve from share-based payment transactions
   
Translation reserve
   
Accumulated deficit
   
Total
   
Non-controlling interests
   
Total
equity
 
                                           
Balance as of January 1, 2023
 
$
245,776
   
$
15,167
   
$
1,283
   
$
(239,574
)
 
$
22,652
   
$
1,145
   
$
23,797
 
                                                         
Net loss
   
-
     
-
     
-
     
(600
)
   
(600
)
   
(266
)
   
(866
)
Total other comprehensive loss
   
-
     
-
     
(395
)
   
36
     
(359
)
   
(12
)
   
(371
)
                                                         
Total comprehensive loss
   
-
     
-
     
(395
)
   
(564
)
   
(959
)
   
(278
)
   
(1,237
)
                                                         
Issuance of common shares
   
1,736
     
-
     
-
     
-
     
1,736
     
-
     
1,736
 
Share-based compensation
   
-
     
258
     
-
     
-
     
258
     
-
     
258
 
Forfeited options
   
266
     
(266
)
   
-
     
-
     
-
     
-
     
-
 
                                                         
Balance as of March 31, 2023
 
$
247,778
   
$
15,159
   
$
888
   
$
(240,138
)
 
$
23,687
   
$
867
   
$
24,554
 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

6

IM CANNABIS CORP.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Canadian Dollars in thousands

   
Three months ended
March 31,
 
   
2024
     
2023(*)

Cash provided by operating activities:
             
               
Net income (loss) for the period
 
$
(6,020
)
 
$
43
 
Adjustments for non-cash items:
               
Fair value adjustment on sale of inventory
   
10
     
339
 
Fair value adjustment on Warrants, investments and accounts receivable
   
100
     
(3,636
)
Depreciation of property, plant and equipment
   
147
     
174
 
Amortization of intangible assets
   
452
     
456
 
Depreciation of right-of-use assets
   
118
     
179
 
Impairment of goodwill
   
2,753
     
-
 
Finance expenses, net
   
401
     
635
 
Deferred tax liability, net
   
(69
)
   
(150
)
Share-based payment
   
32
     
258
 
Restructuring expense
   
-
     
283
 
     
3,944
     
(1,462
)
                 
Changes in working capital:
               
Decrease (increase) in trade receivables
   
1,332
     
1,937
 
Decrease (increase) in other accounts receivable and advances to suppliers
   
159
     
(940
)
Decrease (increase) in inventories, net of fair value adjustments
   
2,159
     
90
 
Decrease (increase) in trade payables
   
663
     
(6,021
)
Changes in employee benefit liabilities, net
   
-
     
(22
)
Increase in other accounts payable and accrued expenses
   
(2,745
)
   
(14
)
                 
     
1,568
     
(4,970
)
                 
Taxes (paid) received
   
(121
)
   
328
 
                 
Net cash used in operating activities
   
(629
)
   
(6,061
)
                 
Cash flows from investing activities:
               
                 
Purchase of property, plant and equipment
   
(2
)
   
(411
)
Payment of purchase consideration
   
-
     
(56
)
                 
Net cash used in investing activities
 
$
(2
)
 
$
(467
)

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

7

IM CANNABIS CORP.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Canadian Dollars in thousands

   
Three months ended
March 31,
 
   
2024
   
2023
 
   Cash flow from financing activities:
           
             
   Proceeds from issuance of share capital, net of issuance costs
   
176
     
825
 
   Proceeds from issuance of warrants
   
(176
)
   
7,027
 
   Repayment of lease liability
   
(118
)
   
(175
)
   Interest paid - lease liability
   
(15
)
   
(18
)
   Receipt (repayment) of bank loan and credit facilities
   
(2,856
)
   
(1,046
)
   Cash paid for interest
   
(444
)
   
(56
)
   Proceeds from discounted checks
   
2,581
      -
 
                 
Net cash (used in) provided by financing activities
   
(852
)
   
6,557
 
                 
Effect of foreign exchange on cash and cash equivalents
   
718
     
(1,059
)
                 
Decrease in cash and cash equivalents
   
(765
)
   
(1,030
)
Cash and cash equivalents at beginning of the period
   
1,813
     
2,449
 
                 
Cash and cash equivalents at end of the period
 
$
1,048
   
$
1,419
 
                 
Supplemental disclosure of non-cash activities:
               
                 
Right-of-use asset recognized with corresponding lease liability
 
$
40
   
$
49
 
Issuance of shares in payment of debt settlement to a non-independent director of the company
 
$
-
   
$
222
 

(*) See note 1 regarding Figures disclosure.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

8

IM CANNABIS CORP.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Canadian Dollars in thousands, except share and per share data

NOTE 1:-
GENERAL


a.
Corporate information:

IM Cannabis Corp. (the "Company" or "IMCC") is listed for trading on the Canadian Securities Exchange (“CSE”) and, commencing from March 1, 2021, on NASDAQ under the ticker symbol “IMCC”. IMCC’s main office is located in Kibbutz Glil-Yam, Israel.

The Company and its subsidiaries (collectively: the "Group"), operate in geographical reporting segments (Note 8). The majority of the Group’s revenues are generated from sales of medical cannabis products to customers in Israel. The remaining revenues are generated from sales of medical cannabis, as well as other products, to customers in Germany.

In Israel, IMCC operates in the field of medical cannabis, through Focus Medical Herbs Ltd. ("Focus"), which held a cultivation license to breed, grow and supply medical cannabis products in Israel under the regulations of medical cannabis by the Israeli Ministry of Health through its Israel Medical Cannabis Agency ("IMCA") until July 2022. In July 2022 Focus closed its cultivation facility and received an IMCA license which allows it to import cannabis products and proceed with its supply activity. All of its operations are performed pursuant to the Israeli Dangerous Drugs Ordinance (New Version), 1973 (the "Dangerous Drugs Ordinance"), and the related regulations issued by IMCA.

During 2021, IMCC also entered into the field of retail medical cannabis and other pharma products in Israel through the acquisition of several pharmacies and trade houses specializes in medical cannabis, including the pharmacies of Revoly Trading and Marketing Ltd. ("Vironna"), R.A. Yarok Pharm Ltd. and Oranim Plus Pharm Ltd. ("Oranim"), and the trade houses of Panaxia and Rosen High Way Ltd.

In Europe, IMCC operates through Adjupharm GmbH ("Adjupharm"), a German-based subsidiary acquired by IMC Holdings Ltd. ("IMC Holdings") on March 15, 2019. Adjupharm is an EU-GMP certified medical cannabis producer and distributor with wholesale, narcotics handling, manufacturing, procurement, storage and distribution licenses granted by German regulatory authorities that allow for import/export capability with requisite permits.

In Canada, IMCC actively operated until recently through Trichome Financial Corp. and its wholly-owned subsidiaries Trichome JWC Acquisition Corp. (“TJAC”) and MYM Nutraceuticals Inc. (“MYM“) (collectively: "Trichome" or the "Canadian entities"). The Canadian entities are federally licensed producers of cannabis products in the adult-use recreational cannabis market in Canada.  IMCC has exited its operations in Canada, and deconsolidated Trichome on November 7, 2022, pursuant to IFRS.

The Company and its subsidiaries do not engage in any U.S. cannabis-related activities as defined in Canadian Securities Administrators Staff Notice 51-352.

9

IM CANNABIS CORP.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Canadian Dollars in thousands, except share and per share data
NOTE 1:-
GENERAL (Cont.)

Panaxia Transaction Update: 

On February 13, 2023, the Company announced that it reached an agreement, together with Panaxia, to terminate the option that the Company had, under the Panaxia Transaction, to acquire a pharmacy licensed to dispense and sell medical cannabis to patients, for no additional consideration. Under the agreement, the Company will not be required to make the fifth installment of approximately $262 of Common Shares owed by the Company to Panaxia under the Panaxia Transaction and will receive an agreed compensation amount of approximately $95 from Panaxia to be paid by Panaxia in services and cannabis inflorescence in accordance with the terms as agreed by the parties.
As of December 31, 2023, the amount was not received and accrued for bad debt.

Liquidity and capital resources - going concern:

As of March 31, 2024, the Group's cash and cash equivalents totaled $1,048, the Group's working capital (current assets less current liabilities) amounted to $(10,518) and the Group’s accumulated loss deficit amounted to $255,431. In the three months ended March 31, 2024, the Group had an operating loss from continuing operation of ($5,630) and negative cash flows from continuing operating activities of ($662).

The Group’s current operating budget includes various assumptions concerning the level and timing of cash receipts from sales and cash outlays for operating expenses and capital expenditures, including cost saving plans. In 2023 The Company’s board of directors approved a cost saving plan, to allow the Company to continue its operations and meet its cash obligations. The cost saving plan consisted cost reduction due to efficiencies and synergies, included mainly the following steps: discontinued operations of loss-making activities, reduction in payroll and headcount, reduction in compensation paid to key management personnel (including layoffs of key executives), operational efficiencies and reduced capital expenditures. Those actions will save costs in 2024 and the company will continue its efforts for efficiency operations.

Despite the cost savings plan and restructuring as described above, the projected cash flows for 2024 indicates that it is uncertain that the Group will generate sufficient funds to continue its operations and meet its obligations as they become due. The Group continues to evaluate additional sources of capital and financing. However, there is no assurance that additional capital and or financing will be available to the Group, and even if available, whether it will be on terms acceptable to the Group or in amounts required.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or liabilities that might be necessary should the Company be unable to continue as a going concern.

10

IM CANNABIS CORP.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Canadian Dollars in thousands, except share and per share data
NOTE 1:-
GENERAL (Cont.)

Financial Statement Condensed format and Figure disclosure

These financial statements have been prepared in a condensed format as of March 31, 2024, and for the three months then ended (the "interim condensed consolidated financial statements"). These financial statements should be read in conjunction with the Company's annual financial statements as of December 31, 2023, and for the year then ended and accompanying notes (the "annual consolidated financial statements").

The figures disclosed here for the three months ended March 31, 2023, encompass updates and adjustments made during Q2 2023 to the Company’s previously filed unaudited interim financial statements. The adjustments and updates were immaterial.

Debt Settlement with L5 Capital

On May 8th, 2023, the Company announced that on May 5th, 2023, it has closed the securities for debt settlement transaction with L5 Capital (the “Debt Settlement”). Pursuant to the Debt Settlement, the Company settled outstanding indebtedness of $838,776 (approximately US$615,615) through issuing 492,492 Units at a price of US$1.25 per Unit. Each Unit consists of one Common Share of the Company and one Common Share purchase Warrant. Each Warrant entitles L5 Capital to purchase one additional Common Share at an exercise price of US$1.50 per Common Share for a period of 36 months from the date of issuance. All securities issued are subject to a statutory hold period of four months and one day from the date of issuance in accordance with applicable Canadian securities legislation.

Discontinue operations and Canadian entities CCAA:

On November 7, 2022, in connection with the Company’s efforts to achieve operational efficiencies, the Company announced that it is pivoting its focus and resources on growth in its highest value markets in Israel and Germany while also commencing its exit from the Canadian cannabis market as part of the Canadian Restructuring.

The Canadian operations are held through the Canadian entities and being orderly wound-down under CCAA pursuant to an initial order of the Court issued on November 7, 2022 (as amended and restated by an order made by the Court on November 17, 2022, the “Initial Order”). The Initial Order includes a broad stay (as extended from time to time, the “Stay”) of all proceedings against the Canadian entities and its assets. Pursuant to the Initial Order, KSV Restructuring Inc. was appointed as monitor (the “Monitor”) in the CCAA Proceedings.

On January 9, 2023, the Court issued an order in the CCAA Proceedings in respect of a motion brought by the Canadian entities to approve, among other things: a sale and investment solicitation process (the “SISP”) in respect of the business and assets of the Canadian entities; and a stalking horse share purchase agreement (the “Stalking Horse Purchase Agreement”) between the Canadian entities and L5 Capital Inc. (“L5”), a company wholly-owned and controlled by the executive chairman and a director of the Company, dated December 12, 2022. The SISP established a process to solicit interest for investments in, or the sale of any or all of the Canadian entities' business and assets.

11

IM CANNABIS CORP.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Canadian Dollars in thousands, except share and per share data
NOTE 1:-
GENERAL (Cont.)

On February 22, 2023, the Monitor issued a report (the “Monitor’s Third Report”) in the CCAA Proceedings advising, among other things, that (i) no qualified bids were received pursuant to the SISP, (ii) L5 informed the Canadian entities that it would not be completing the transaction contemplated by the Stalking Horse Purchase Agreement and, as a result, the Canadian entities terminated the Stalking Horse Purchase Agreement, and (iii) the Monitor continues to market for sale the Canadian entities’ business and assets, including the brands and other intellectual property owned by the Canadian entities.

Pursuant to an order of the Court made on April 6 ,2023 in the CCAA Proceedings (the “Reverse Vesting Order”), the Court approved a share purchase agreement (the “Share Purchase Agreement”) dated March 28, 2023 among Trichome Financial Corp. (“Trichome” or the “Vendor”), 1000370759 Ontario Inc. (the “Purchaser”), Trichome JWC

Acquisition Corp. (“TJAC”), Trichome Retail Corp. (“TRC”), MYM Nutraceuticals Inc. (“MYM”), MYM International Brands Inc. (“MYMB”) and Highland Grow Inc. (“Highland”, and collectively with TJAC, TRC, MYM and MYMB, the “Purchased Entities”). The Purchased Entities and its business and operations were sold to a party that is not related to the Company, for a purchase price of $3,375 along with certain deferred consideration. Thus, the Company has exited operations in Canada. The Company has neither received nor is entitled to any portion of the proceeds from the Share Purchase Agreement.

On September 14, 2023 a CCAA Termination Order was granted by the Honourable Justice Osborne (upon service on the Service List of an executed certificate and the above CCAA Proceedings under the Companies Creditors’ Arrangement Act and the Stay Period were terminated without any further act or formality. On September 29th, 2023, Trichome Financial Corp. filed (or was deemed to have filed) an assignment (or a bankruptcy order was made against Trichome Financial Corp.), and Goldhar & Associates Ltd., was appointed as trustee of the estate of the bankrupt by the official receiver (or the Court). The first meeting of creditors of the bankrupt was held on October 17th, 2023.
 
As a direct or indirect shareholder of the entities that make up the Trichome Group, the Company is subject to the priorities of other stakeholders in the CCAA proceedings and will likely realize no return in the restructure of the Trichome Group business.
 
Telekana Agreement
 
On November 29, 2022, the IMC signed on a convertible loan agreement with Telekana Ltd. (“Telekana”), a Pharmacy for sell of medical Cannabis accordingly IMC will loan a total of $611. The loan will be converted to 1,040 shares representing 51% of the total common share of Telekana , at the earlier of the following events; (i) Telekana will receive the permit for sell of medical Cannabis from the Israeli Ministry of Health, (ii) IMC sole decision to convert. The permit was received on November 13, 2023.

For the years ended December 31, 2023, 2022, IMC recognized a revaluation gain (loss) from remeasurement of the loan.
 
As of March 31, 2024, IMC have started the regulatory process of receiving the Israeli Ministry of Health approval for the conversion.

12

IM CANNABIS CORP.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Canadian Dollars in thousands, except share and per share data
NOTE 1:-
GENERAL (Cont.)

Restructuring:

On April 6, 2022, Focus closed the "Sde Avraham", cultivation facility in Israel, resulting restructuring expenses related to impairment of property, plant and equipment, biological assets and right of use asset and liabilities, in the total amount of $4,383.

On March 8, 2023, the Company announced its strategy plan in Israel in order to strengthen its focus on core activities and drive efficiencies to realize sustainable profitability. The Company reduced its workforce in Israel across all functions (including executives). All actions associated with the workforce reduction were completed by mid-2023, subject to applicable Israeli law. Therefore, the Company recorded restructuring expenses for the twelve months ended December 31, 2023 related mainly to salaries to employees in the amount of $617

On June 30, 2023, the entity responsible for operating the Israeli medical cannabis distribution licensed center that was acquired within the Panaxia Transaction, ceased its operations at the licensed trading house located in Lod, Israel. Consequently, the Company transitioned the operation that was conducted through IMC Pharma to third-party entities and to its own trading house currently being operated by Rosen High Way.

Signed term sheet for Potential Reverse Merger with Kadimastem
 
On February 13, 2024 the Company entered into a non-binding term sheet and a Loan Agreement, with Israel-based Kadimastem Ltd, a clinical cell therapy public company traded on the Tel Aviv Stock Exchange under the symbol (TASE:KDST) (“Kadimastem”), whereby the parties will work to complete a business combination that will constitute a reverse merger into the Company by Kadimastem.
 
The resulting issuer that will exist upon completion of the Proposed Transaction will change its business from medical cannabis to biotechnology and, at the closing of the Proposed Transactions (the "Closing").
 
Kadimastem shareholders will hold 88% of the common shares of the Company (the “Resulting Issuer Shares”) and the shareholders of the Company will hold 12% of the Resulting Issuer Share. Parties may agree, in the Definitive Agreement, on a different structure of equity in lieu of the warrants with a similar result. The Proposed Transaction is an arm’s length transaction Prior to Closing, IMC's existing medical cannabis operation and other current activities in Israel and Germany (the "Legacy Business") will be restructured (the “Spin-Out”) as a contingent value right (the "CVR"). The CVR will entitle the holders thereof to receive net cash, equity, or other net value upon the sale of the Legacy Business.
 
13

IM CANNABIS CORP.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Canadian Dollars in thousands, except share and per share data
NOTE 1:-
GENERAL (Cont.)
 
The Legacy Business will be made available for potential sale to a third party for a period of up to 12 months from Closing (the "Record Date"). After the Record Date, any remaining Legacy Business in the CVR will be offered for sale through a tender process, subject to the terms of the best offer. The proceeds from the sale of the Legacy Business will be utilized to settle debts and distribute the remaining balance, if any, to CVR holders.
 
On February 28, 2024, Pursuant to the terms of the Term Sheet, a loan agreement was signed between IMC, a wholly-owned subsidiary of the Company and Kadimastem. Accordingly, Kadimastem will provide a loan of up to US$650,000 to IMC, funded in two installments: US$300,000 upon signing the Loan Agreement and US$350,000 upon the execution of the definitive agreement regarding the Proposed Transaction (the "Loan").
 
The Loan accrues interest 9.00% interest per annum, for 12 months and is secured by the following collaterals and guarantees: (a) 10% of the proceeds derived from any operation sale under the CVR (“Charged Rights”), limited to the outstanding Loan Amount and expenses according to the Loan Agreement, accordingly IMC may, at its sole discretion, to record a second-ranked fixed charge  over the Charged Rights or, alternatively, in case the existing pledges over the Charged Rights at the date of signing this Loan Agreement are subsequently discharged or removed, then the Borrower shall promptly record a first-ranking fixed charge over the Charged Assets with all applicable public records; provided that IMC shall not impose any new lien, mortgage, charge or pledge over the Charged Rights that did not exist on the date hereof, or any other liens, subject to customary exclusions; (b) IMC shall use its best efforts to record a first-ranking fixed charge over the assets of its subsidiary, R.A Yarok Pharm Ltd, in due course when applicable and as deemed appropriate; and (c) a personal guarantee by Mr. Oren Shuster, IMC’s CEO.
 
Prior to the completion of the Proposed Transaction, IMC will call a meeting of its shareholders for the purpose of approving, among other matters.
As of March 31, 2024 there is no completion of the definitive agreements.

NASDAQ Compliance Notice

On August 1, 2023, the Company received written notification from Nasdaq (the “Notification Letter”) that the closing bid price of the Common Shares had fallen below US$1.00 per share over a period of 30 consecutive business days, with the result that the Company was not in compliance with the Minimum Share Price Listing Requirement. The Notification Letter provided that the Company has until January 16, 2024, being 180 calendar days following receipt of such notice to regain compliance with the Minimum Share Price Listing Requirement for a minimum of 10 consecutive business days.

On January 31, 2024, the Company announced that it has received a 180-calendar day extension, until July 29, 2024, from the Nasdaq Stock Market ("Nasdaq"), to regain compliance with Nasdaq Marketplace Rule 5550(a)(2) (the "Bid Price Rule").
 
14

IM CANNABIS CORP.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Canadian Dollars in thousands, except share and per share data
NOTE 1:-
GENERAL (Cont.)

Tax on Premiums in Respect of Insurance Effected Outside Canada
 
By Notice of Assessment for Excise Tax dated October 23, 2023 and covering the period January 1, 2020 to December 31, 2020, IM Cannabis Corp. was assessed tax on insurance of $198,687.57, arrears interest of $36,248.62 and a failure to file penalty of $7,947.49 (collectively, the “2020 Assessment”).
 
By Notice of Assessment for Excise Tax dated October 23, 2023 and covering the period January 1, 2021 to December 31, 2021, IM Cannabis Corp. was assessed excise tax on insurance of $72,944.92, arrears interest of $1,533.75 and a failure to file penalty of $499.48 (collectively, the “2021 Assessment”).
 
On November 29, 2023, the Company filed Notices of Objection (Excise Tax Act) to the 2020 Assessment and the 2021 Assessment. The Company assess the filed Notices of Objection (Excise Tax Act) to be low to medium complexity.
 
The Company assess that it is reasonably possible the Notices of Objection (Excise Tax Act) filed by it will lead to the 2020 Assessment and 2021 Assessment being vacated.

35 Oak Holdings Ltd – Statement of Complaint
 
On November 27, 2023, the Company announced that a complaint was filed in the Ontario Superior Court of Justice in Canada by Michael Wiener, 35 Oak Holdings Ltd. and MW Investments Ltd. (collectively the “MYM Shareholder Plaintiffs”) against certain current and former Directors and Officers of the Company and its subsidiaries arising out of the Plan of Arrangement that closed in July 2021 through which the Company acquired MYM Nutraceuticals Inc. A copy of this complaint was delivered to the Company on November 17, 2023.
 
The Plaintiffs, who became shareholders in the Company as a result of the Plan of Arrangement, allege that the Defendants made a series of misrepresentations in oral discussions and public disclosure regarding cannabis cultivation capacity, cultivation space, and projected revenues. The Plaintiffs further allege that the misrepresentations were later corrected and that the misrepresentations caused the value of the Company shares to be artificially inflated and induced the Plaintiffs to support the Plan of Arrangement. The Plaintiffs assert common law misrepresentation claims and have also advanced statutory claims under the Ontario Securities Act and seek damages of $15 million. the Company and the other former Director and Officer Defendants dispute the allegations in the Claim and deny any liability. The claim was commenced in July 2023 but not served until November 2023.
 
On February 22, 2024 the Company, together with some of the Defendants brought a preliminary motion to strike out several significant parts of the claim (the "Motion") The Motion has not been scheduled by the court.

15

IM CANNABIS CORP.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Canadian Dollars in thousands, except share and per share data
NOTE 1:-
GENERAL (Cont.)

At this time, the Company's management is of the view that the Motion has merit and is likely to succeed in at least narrowing the scope of the claim against the Company, and that it may also result in certain of the claims against individuals being dismissed altogether, and if not dismissed narrowed in scope and complexity.
 
Given the preliminary stage of the action, and that the Company have not yet conducted a full investigation of the factual defenses, it is too early to opine on the merits of the claim or whether it is more likely than not to result in an outflow of funds to the Company and if so, how much.

Oranim pharmacy
 
On December 1, 2021, IMC Holdings signed a definitive agreement to acquire 51% of the rights in Oranim for an aggregate consideration of approximately NIS 11,900 thousand (approximately $4,900), comprised of NIS 5,200 thousand (approximately $2,100) paid in cash upon signing, NIS 5,200 thousand (approximately $2,100) which agreed to be paid in cash on the first quarter of 2023 and NIS 1,500 thousand (approximately $700) in Common Shares.

As of April 2023, amendment was signed accordingly the remaining amount will be paid in six equal installments until February 2024.
As of December 31, 2023, the agreed amount to be paid was not exercised.

Through a new amendment signed January 10, 2024, all remaining unpaid installments has been postponed to April 15, 2024. All six installments (that remain unpaid) will incur a 15% interest charge. Failure to meet the remaining payments will result in the transfer of IMC Holdings Ltd. shares (51%) back to the seller, along with the revocation of the transaction (see also note 9).

Exercise of Focus Option
 
On November 30, 2023, IMC Holdings acted to exercise its option to purchase the 74% interest in Focus held by Oren Shuster and Rafael Gabay by submitting a request to the IMCA which approved the transaction on February 25, 2024. As of March 31, 2024, IMC Holdings holds 74% of Focus shares.

16

IM CANNABIS CORP.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Canadian Dollars in thousands, except share and per share data
NOTE 1:-
GENERAL (Cont.)

Israel Hamas war
 
On October 7, 2023, a war between the terror organization Hamas and Israel began. This war has an impact on the company's business operations. The company has suffered a negative impact in Q4 2023 and Q1 2024 and there will be a potential positive effect in the medium to long term. The company has experienced damages to its ability to function, affecting various aspects, including employees, supplies, imports, sales, and more.
 

b.
Approval of consolidated financial statements:

These consolidated financial statements of the Company were authorized for issue by the board of directors on May 7, 2024.


c.
Definitions:

In these financial statements:

The Company, or IMCC
-
IM Cannabis Corp.
     
The Group
-
IM Cannabis Corp., its Subsidiaries
     
Subsidiaries
-
Companies that are controlled by the Company (as defined in IFRS 10) and whose accounts are consolidated with those of the Company
     
CAD or $
-
Canadian Dollar
     
NIS
-
New Israeli Shekel

17

IM CANNABIS CORP.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Canadian Dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES


a.
Basis of Presentation and Measurement:

The interim condensed consolidated financial statements of the Company have been prepared in accordance with International Accounting Standards 34, "Interim Financial Reporting" ("IAS 34").

The interim condensed consolidated financial statements are presented in Canadian dollars and are prepared in accordance with the same accounting policies, described in the Company's annual consolidated financial statements.  The following new accounting standards applied or adopted during the three months ended March 31, 2024, and had no impact on the Interim Financial Statements:


1)
Amendments to IAS 1,"Non Current liabilities with Covenants and Classification of Liabilities as current or non-current":

In January 2020 and October 2022, the IASB issued amendments to IAS 1, regarding the criteria for classifying liabilities with covenants as current or non-current. In October 2022 the IASB issued an additional amendment accordingly a Company has to disclose of the book value of the obligation and information on the financial benchmarks as well as facts and circumstances at the end of the reporting period that may lead to the conclusion that the entity will have difficulty meeting the financial covenants.

The Amendment is applicable for annual periods beginning on or after January 1, 2024.


2)
Amendment to IFRS 16, "LEASES":

In September  2022, the IASB issued an amendment to IFRS 16, " Lease Liability in a Sale and Leaseback" ("IFRS 16"), to provide accounting treatment in the financial statements of the seller-lessee in sale and leaseback transactions when the lease payments are variable lease payments that do not depend on the index or the exchange rate. As part of the amendment, the seller-lessee is required to adopt one of two approaches to measuring the liability for the lease at the time of first recognition of such transactions. The chosen approach constitutes an accounting policy that must be applied consistently. The Amendment is applicable for annual periods beginning on or after January 1, 2024.


3)
Amendments to IAS 7 and IFRS 7, "Supplier Finance Arrangements":

In May 2023, the IASB published amendments to International Accounting Standard 7, Statement of Cash Flows, and IFRS 7, Financial Instruments: Disclosures (hereinafter: "the amendments"), to clarify the characteristics of supplier financing arrangements and to require additional disclosure for these arrangements.

The disclosure requirements in the amendments are intended to assist and enable users of the financial statements to assess the effects of supplier financing arrangements on the entity's obligations as well as on the entity's cash flows and exposure to liquidity risk. The Amendment is applicable for annual periods beginning on or after January 1, 2024.

18

IM CANNABIS CORP.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Canadian Dollars in thousands, except share and per share data
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)


b.
Significant Accounting Judgements and Estimates:
 
The preparation of the Company's interim condensed consolidated financial statements under IFRS requires management to make judgements, estimates, and assumptions about the carrying amounts of certain assets and liabilities. Estimates and related assumptions are based on historical experience and other relevant factors. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis for reasonableness and relevancy. Where revisions are required, they are recognized in the period in which the estimate is revised as well as future periods that are affected.

19

IM CANNABIS CORP.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Canadian Dollars in thousands, except share and per share data
NOTE 3:-
INVENTORIES

The following is a breakdown of inventory as of March 31, 2024:

   
March 31, 2024
 
   
Capitalized costs
   
Fair valuation adjustment, net
   
Carrying value
 
Work in progress:
                 
Bulk cannabis
   
3,272
     
-
     
3,272
 
Finished goods
                       
Packaged dried cannabis
   
4,186
     
10
     
4,196
 
Other products
   
433
     
-
     
433
 
                         
Balance as of March 31, 2024
   
7,891
     
10
     
7,901
 

The following is a breakdown of inventory as of December 31, 2023:

   
December 31, 2023
 
   
Capitalized costs
   
Fair valuation adjustment, net
   
Carrying value
 
Work in progress:
                 
Bulk cannabis
 
$
3,735
   
$
-
   
$
3,735
 
Finished goods:
                       
Packaged dried cannabis
   
4,667
     
984
     
5,651
 
Other products
   
590