Circa Group AS

Quarterly Report • Aug 26, 2021

INTRODUCTION

Circa is a biotech company producing unique and highly valuable biochemicals. Using abundant and renewable biowaste such as sawdust, Circa makes Levoglucosenone (LGO) in its scalable and patented Furacell™ production process. LGO is a biomolecule platform used to produce multiple sustainable biochemicals that can replace toxic fossil-based chemicals widely used today in a wide range of applications; pharmaceuticals, agrochemicals, flavors, fragrances, electronics, batteries, paints, graphene, polymers, and many other applications where biobased alternatives to current industrial chemicals represent innovative, cost-effective solutions.

The parent company, Circa Group AS, is s incorporated in Norway and has its head office in Oslo. The company is listed on Euronext Growth Oslo with the ticker code CIRCA.

REPORT OF THE BOARD OF DIRECTORS FOR THE SECOND QUARTER OF 2021

Q2 2021 HIGHLIGHTS

Despite COVID-19 restrictions, the ReSolute™ project continues to progress close to schedule. Negotiations with the site owner continue and initial site work is planned to start end Q3. To minimize impacts of global shipping delays – and provide some pricing flexibility, orders for some large capital equipment will be placed in September / October, 3-4 months earlier than originally planned.

Advanced discussions to convert offtake Letters of Intent into sales agreements for the ReSolute™ production output progressed during the first quarter and into the second quarter. The turmoil in markets related to Covid continues to impact pricing, with large increases seen in many competitors to Cyrene. This has seen offtake discussions slow, as both sides evaluate the commercial implications.

As part of the reorganization of Circa, Circa Sustainable Chemicals UK is sold to Circa Group AS effective 1 June 2021, and a new French Entity, Circa Sustainable Chemicals France SAS (CSC FR), was incorporated in May 2021.

Circa Group AS has appointed Tone Leivestad as CFO. Ms. Leivestad will be based in Oslo and will start on 1 September 2021.

Profit & Loss

Circa Group is consolidated by using the reversed acquisition method where the historical financial statements are a continuance of CGL. As such, the 2020 income statement is consolidated for CGL only and not comparable to the consolidated income statement for 2021.

The main operational activity for the Group in the quarter has been related to the ReSolute™ plant and organization of the group in Europe.

Income

Circa does not expect any significant sales revenue prior to commissioning and start-up of the ReSolute™ plant in the first quarter of 2023. Other revenue in the quarter is related to grant in CSC UK.

Expenses

Expenses in the quarter are mainly related to employee expenses and expenses to build and organize the group in Europe.

Incentive plans

The group cancelled its previousincentive program and replaced it with a short-term and long-term plan effective first quarter 2021. As the long-term plan has the optionality for both cash- and share based settlement, changes in estimate is expensed with EUR 150 thousand in the quarter.

Balance Sheet

As of 30 June 2021, Circa had cash and cash equivalents of EUR 49.7 million, total assets of EUR 50.7 million and equity of EUR 43.9 million. Expenses capitalized per 30 June 2021 is EUR 1,059 thousand.

Investment value

Effective 9 February 2021, Circa reorganized and established a new ultimate holding company, CGAS. As there were no significant changes in the organization nor ownership structure, the group is consolidated by using the reversed acquisition method where the historical financial statements are a continuance of CGL. As such, the balance sheet is consolidated for CGL only and not comparable to the consolidated balance sheet for 2020. CGAS's acquisition of CGL is not reflected in the consolidated balance sheet as this is not treated as a transaction in accordance with IFRS. As a result, the consolidated balance sheet for 2021 are a continuance of previous book values.

Grant

The Group is part of the ReSolute™ consortium, which received the EU Horizon 2020 Flagship grant of EUR 11.6 million. Circa is leading the consortium and will undertake most of the work packages described in the ReSolute™ project, thus the share of the grant allocated towards Circa's work packages is approximately EUR 9.2 million. Prepayment of 45% of the grant was received in 2020 partly to compensate for expenditures capitalized to date for the ReSolute™ project.

Cashflow

From financing

During the quarter the company has received proceeds from issuance of shares related to completion of the stabilization period and exercise of warrants, in total EUR 2.5 million. See note 10.

OUTLOOK

ReSolute™ project

The project in Eastern France continues to move forward and start-up of production remains planned for first quarter of 2023. While initial quotes for equipment have been impacted by raw material and shipping price increases, a range of measures have been implemented to minimize these effects.

Research and development

Circa has completed a study into a range of product development options in the short and medium term. Four opportunities have been agreed to take to the next phase to assess and optimize commercial production pathways.

Sales agreements

Discussions remain positive with all partners – and further interest continues to develop from external parties. Chemical pricing volatility, as mentioned, remains a concern and there is hesitancy to commit to large volume offtakes by suppliers, and purchasers remain concerned about pricing levels. The level of enquiries for Cyrene remains strong.

Circa is also taking a proactive step to engage with a limited number of global brand owners where we see synergies between our product offering and companies ESG targets. For example, the potential opportunity to develop new polymers for coatings, or replace toxic solvents in the manufacture of polymers in clothing and footwear. Initial feedback is positive – and this work is leading to medium term projects which will deliver scale opportunities both for Cyrene and Levoglucosenone derivatives.

Future plants

Discussions continue with three potential partners who have proposed sites in three separate countries. This process will continue over the next 6 months

Oslo, 25 August 2021 The Board of Directors of Circa Group AS

INTERIM FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME

(EUR)	Notes	Q2 2021	Q1 2021	Q2 2020	YTD 2021	YTD 2020
Product sales		11 835	1 334	16 423	13 169	17 461
Other revenue	5	31 049	4 066	78 113	35 115	492 013
Total revenue		42 884	5 400	94 537	48 284	509 474
Cost of sales		75 014	63 355	95 830	138 369	180 063
Employee benefit expenses	4	601 844	1 643 870	172 510	2 245 714	277 769
Other operating expenses		802 622	1 535 643	2 788 910	2 338 266	3 299 285
Total operating expenses		1 479 480	3 242 869	3 057 251	4 722 349	3 757 118
Operating result		-1 436 596	-3 237 469	-2 962 714		-4 674 065 -3 247 644
Net financial income/ expenses		-114 954	-206 817	-1 522	-321 771	-4 706
Net profit/ loss before tax		-1 551 550	-3 444 286	-2 964 237		-4 995 836 -3 252 350
Tax expenses		0	0	0	0	0
Net profit/ loss		-1 551 550	-3 444 286	-2 964 237		-4 995 836 -3 252 350
Other comprehensive income:
Foreign exchange gains/(losses)		22 707	-21 511	0	1 196	0
Total comprehensive profit/ loss for the period		-1 528 843	-3 465 797	-2 964 237		-4 994 640 -3 252 350

CONSOLIDATED BALANCE SHEET

(EUR)	Notes		30.06.2021 31.03.2021		31.12.2020 30.06.2020
ASSETS
Tangible assets	5,6	571 281	264 029	55 219	2 439
Total non-current assets		571 281	264 028	55 219	2 439
Inventory		33 748	24 230	50 217	25 008
Short term receivables		408 500	91 313	1 689 749	146 513
Cash and cash equivalent	5,8		49 717 972 49 265 086	4 779 478	183 161
Total current assets			50 160 220 49 380 628	6 519 444	354 682
Total assets			50 731 501 49 644 656	6 574 664	357 121
EQUITY
Issued and paid in equity			56 808 253 54 247 412		7 142 044 15 126 705
Other equity			-12 882 966 -11 571 836		-7 489 767 -15 581 245
Non-controlling interests		0	0		0 -1 035 603
Total equity	7,8,10		43 925 288 42 675 576		-347 723 -1 490 143
LIABILITIES
Employee benefits	4	550 482	419 044	0	0
Other non-current liabilities		0	0	1 945 224	1 682 917
Total non-current liabilities		550 482	419 044	1 945 224	1 682 917
Employees and related		989 966	1 030 899	32 615	0
Trade and other payables		803 112	652 344	247 891	35 792
Public duties and related		47 754	32 579	-29 670	0
Other current liabilities	5	4 414 900	4 834 214	4 726 326	128 555
Total current liabilities		6 255 732	6 550 036	4 977 162	164 347
Total liabilies		6 806 213	6 969 080	6 922 386	1 847 264
Total equity and liabilies			50 731 501 49 644 656	6 574 664	357 121

Oslo, 25 August 2021

The Board of Directors of Circa Group AS

CONSOLIDATED STATEMENT OF CASH FLOWS

(EUR)	Notes	Q2 2021	Q1 2021	Q2 2020		YTD 2021 YTD 2020
Cash receipts from operating activities		-1 475 138	1 770 533	-2 782 706		295 395 -2 749 253
Cash payments from operating activities		-1 918 212	-3 391 989	-2 874 799		-5 054 562 -3 227 099
Cash flows from operating activities		-1 415 976	-1 621 456	-2 819 320		-3 037 431 -3 138 167
Payment for property, plant and equipment	6	-573 116	-353 941	0	-927 057	-458
Other cash items from investing activities		0	678 027	0	678 027	12 403
Cash flows from investing activities		-573 116	324 086	0	-249 030	11 946
Proceeds from issuance of share capital	8	2 569 023	45 455 282	2 851 046	48 024 305	3 864 597
Net proceeds from borrowings and net interests		-39 756	-12 456	0		-52 212 -1 014 128
Cash flows from financing activities		2 529 267	45 442 826	2 851 046	47 972 093	2 850 469
Net cash increase/decrease for the period		540 175	44 145 456	31 726	44 685 632	-275 753
Cash at beginning of period		49 265 086	5 399 474	164 806	5 399 474	473 826
Net change in cash for period		540 175	44 145 456	31 726	44 685 632	-275 753
Foreign exchange cash		-87 289	-279 845	-13 371	-367 134	-14 912
Cash at end of period		49 717 972	49 265 086	183 161	49 717 972	183 161

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(EUR)

		Share	Share capital			Retained
	Notes	capital	not registred	Premium	OCI	earnings	Total
Balance 1 January 2021		7 382 091	0	0	0	-7 722 462	-340 372
Reverse takeover		1 339 826	0	142 975	0	0	1 482 801
Issuance of share capital		3 065 449	83 295	44 875 561	0		0 48 024 305
Purchase own shares		-32 489	0	-47 532	0	0	-80 021
Result of period, incl. P&L effects reversed takeover		0	0	0	0		-5 184 128 -5 184 128
Other comprehensive income		0	0	0	22 707	0	22 707
Balance 30 June 2021	8,10	11 754 876	83 295	44 971 005	22 707	-12 906 590 43 925 292

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. General information

Effective 9 February 2021, Circa Group reorganized and established a new holding company, Circa Group AS (CGAS). The previous ultimate holding company was Circa Group Ltd. (CGL). The substance of the reorganization being that the ultimate holding company, CGAS, acquired the existing group, CGL. As there were no significant changes in management or ownership this is under IFRS accounted for as a reorganization and not a transaction. As a result, besides the share capital, the historical consolidated financial figures and financial statements are a continuance of CGL.

The fiscal year for CGL is 12 months ending 30 June. The most recent audited financial statement for CGL is per 30 June 2020. The consolidated financial statements have been prepared in accordance with Australian GAAP which are (as disclosed in the consolidated financial statements of CGL per 30 June 2020) in accordance with IFRS, and therefore the transformation to IFRS have no impact.

1.1 Currency

The presentation currency for Circa group is euro (EUR).

The applied average (un-weighted monthly) foreign exchange rates per quarter and the closing exchange rate at month ends for the most important currencies for the group:

	Q2 21	Q1 21	30.06.2021	31.03. 21	31.12.20
AUD	0.63	0.64	0.63	0.65	0.63
GBP	1.16	1.14	1.17	1.17	1.11
NOK	10.18	10.26	10.17	10.00	10.47

2. Accounting policies

The interim financial statements of Circa Group have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim financial statements do not include all information required for full annual financial statements and should be read in conjunction with the CGL consolidated financial statements 30 June 2020. The interim financial statements are unaudited.

The accounting policies applied in the preparation of the interim financial statements are consistent with those applied in the preparation of the CGL annual financial statements for 30 June 2020.

3. Estimates, judgements, and assumptions

Preparation of interim financial statements in accordance with IFRS implies use of estimates, which are based on judgements and assumptions that affect the application of accounting principles and the reported amounts of assets, liabilities, revenues, and expenses. Actual amounts might differ from such estimates.

4. Long term incentive plan

CGL cancelled its previous incentive program and CGAS replaced it with a new plan effective as of 1 March 2021. Key members of the management and selected new hires and other key resources has been granted synthetic options equivalent of 3 400 000 shares with a strike price equal to that of the private placement price, i.e. NOK 16.75 per share. The options vests upon commissioning of the ReSolute™ plant and expires three years after the listing on the Euronext Growth Oslo, i.e., 2 March 2024.

5. Government Grant

Circa Group receives government grants, and the accounting policy adopted varies for the different types of grants. For grants received directly relating to capitalized expenditures, Circa recognizes the grant amount using the capital approach. Grants are recognized on a systematic basis over the periods in which the related expenses are recognized, and the presentation method chosen is to deduct the grant in the carrying amount of the asset. For grants received relating to compensation for expenses incurred during the current period, the grant is recognized through the income statement in the period where the expenses are incurred and presented net to the eligible expenses. For grants received to compensate for expenses in prior periods, the grant is recognized in income statement in the period where it becomes a receivable and presented as other income. Prepaid grants are recognized as liabilities.

Per 30 June 2021, Circa has received grants both relating to capitalized expenses and to compensate for expenses in prior periods. Circa has also received a prepayment for the Horizon 2020 Flagship grant to partly cover capital expenditures of constructing the ReSolute™ plant.

6. Tangible assets

Circa has started to capitalize expenses relating to the Resolute™ plant:

(EUR)

(EUR)	Capaitalized expenses	Grant received*	Total ReSolute	Net other PPE	Total tangible assets
Balance 30 June 2020	0	0	0	2 439	2 439
Transactions during period	119 505	-66 727	52 778
Balance 1 January 2021	119 505	-66 727	52 778	2 441	55 219
Transactions during period	366 574	-157 841	52 778
Balance 31 March 2021	486 079	-224 568	261 511	2 518	264 029
Transactions during period	573 116	-264 780	308 336
Balance 30 June 2021	1 059 195	-489 348	569 847	1 434	571 281

*The Resolute grant funds 46,2% of eligible costs

7. Principal shareholders

	Number of
Shareholder	shares	Ownership %
CIRCA GROUP AS	34 581 380	28,41
NORSKE SKOG ASA	31 654 274	26,01
Saxo Bank A/S	17 748 917	14,58
LAWRENCE	6 156 060	5,06
BNP PARIBAS SECURITIES SERVICES	3 711 238	3,05
J.P. Morgan Bank Luxembourg S.A.	2 199 848	1,81
VERDIPAPIRFONDET DELPHI NORDIC	1 946 866	1,60
J.P. Morgan Bank Luxembourg S.A.	1 751 298	1,44
KLAVENESS MARINE FINANCE AS	1 396 860	1,15
VERDIPAPIRFONDET FIRST GENERATOR	1 357 996	1,12
FJARDE AP-FONDEN	1 349 488	1,11
VERDIPAPIRFONDET DELPHI NORGE	754 942	0,62
J.P. Morgan Bank Luxembourg S.A.	700 000	0,58
PERSHING LLC	651 096	0,53
State Street Bank and Trust Comp	650 641	0,53
NORDNET LIVSFORSIKRING AS	501 803	0,41
Skandinaviska Enskilda Banken AB	500 000	0,41
FORTE TRØNDER	500 000	0,41
ENZIAN AS	488 000	0,40
BNP Paribas Securities Services	441 750	0,36
Other shareholders	12 670 652	10,41
Total	121 713 109	100,00

The data is extracted from VPS 18 August 2021, showing shareholders per 18 August 2021. Whilst every reasonable effort is made to verify all data, VPS cannot guarantee the accuracy of the analysis.

In the Euronext VPS registry, Circa Group AS is registered as the holder of 34 581 380 shares, of which 333 340 shares are owned and held in treasury by Circa Group AS. The remaining 34 248 040 shares are temporarily held by Circa Group AS on behalf of shareholders awaiting settlement to nominee or individual accounts. Please note that the majority of these shares are subject to lock-up arrangements entered into as part of the listing on Euronext Growth Oslo on 2 March 2021

8. Equity

Effective 9 February 2021, Circa Group reorganized and established a new holding company, CGAS. The previous top holding company was CGL. The substance of the reorganization being that the ultimate holding company, CGAS, acquired the existing group, CGL. As there were no significant changes in management or ownership this is under IFRS accounted for as a reorganization and not a transaction. As a result, besides the share capital, the historical consolidated financial figures and financial statements are a continuance of CGL.

The beginning balances of the consolidated Balance Sheet and the consolidated Statement of Changes in Equity reflect the consolidated equity in CGL. At the reorganization date (9 February), the share capital of CGAS was EUR 8 721 916 (NOK 89 562 580).

The functional currency date is the transaction date, however equity issuances are executed and registered in the public company registration at a fixed NOK amount, indicated in italic below.

At 14 April 2021, as a result of the Greenshoe option, the share capital in Circa Group AS was increased by EUR 144 705 (NOK 1 449 369), from EUR 11 642 660 (NOK 119 412 580) to EUR 11 787 365 (NOK 120 861 949) by issuing 1 449 369 new shares, each with nominal value of NOK 1. The subscription price was EUR 1.67 (NOK 16.75) per share and total subscription was EUR 2 423 815 (NOK 24 276 931). The total Greenshoe option was 4 450 000.

Related to the listing process, the stabilization period resulted in a gain booked to equity. The gain was EUR 61 913 (NOK 620 117).

At the Company's extraordinary general meeting on 9 February 2021, it was resolved to issue 2 251 160 warrants. 1 851 160 of the warrants were issued to, and subscribed by, Tony Duncan (CEO). On 25 June 2021 851,160 of the warrants were exercised. The Company's share capital increased by NOK 851 160 by issue of 851 160 new shares, each with a nominal value of NOK 1.

9. Related parties

Norske Skog is one of the world's largest producers of publication papers, with headquarters in Oslo, Norway. Norske Skog is the largest shareholder in Circa Group and holds approximately 26.2% of the share capital in Circa Group AS. Norske Skog is engaged to deliver certain management and administrative services to the Group for the remainder of 2021. The fee for such services is based on arms' length principle.

10. Events after the balance sheet date

The issuance of shares related to exercise of warrants, see note 8 above, was registered in the Norwegian business register on 16 July 2021.