SMG Hospitality SE

Annual / Quarterly Financial Statement • Sep 2, 2024

SMG HOSPITALITY SE SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Société européenne ANNUAL ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2023 AND REPORT OF THE REVISEUR D’ENTREPRISES AGREE Registered office: 9, rue de Bitbourg L - 1273 Luxembourg R.C.S. Luxembourg: B255839 Table of contents Page(s) Management report 1-4 Corporate governance statement 5 Auditor’s report 6-10 Balance sheet 11-15 Profit and loss account 16-17 Notes to the annual accounts for the year ended 31 December 2023 18-35 SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Management Report for the year ended 31 December 2023 The Board of Directors(the “Board”) of SMG Hospitality SE (hereafter the “Company”) submit its management report with the annual accounts of the Company for the year ended 31 December 2023. 1. Overview The Company is a special purpose acquisition company (otherwise known as a blank cheque company) incorporated in Luxembourg on 11 June 2021 and registered with the Luxembourg Trade and Companies Register on 17 June 2021. The Company’s corporate purpose is the acquisition of one operating business with a principal business operations in a member state of the European Economic Area or the United Kingdom or Switzerland that is based in the real estate-related hospitality sector with a focus on the sub-sector lodging and leisure through a merger, capital stock exchange, share purchase, asset acquisition, reorganization or similar transaction (the “Business Combination”). The Company intends to complete the Business Combination using cash from the proceeds of the private placement of the class A shares and class A warrants (see below). 2. Review and development of the Company’s business and financial position The Company completed its Private Placement (the “Private Placement”) on 30 May 2022 through the issuance of 11.500.000 redeemable class A shares with a par value of EUR 0,0417 (the “Public Shares”) and 5.750.000 class A warrants (the “Public Warrants”). The Public Shares are admitted to trading on the Frankfurt Stock Exchange under the symbol “RCVR” on 1 June 2022. Likewise, the Public Warrants are also admitted to trading on the Frankfurt Stock Exchange under the symbol “RCVRW”. One Public Share and one-half (1/2) of a Public Warrant (each, a “Unit”), were sold at a price of EUR 10 per unit representing a total placement volume of EUR 115 million. The sponsor and the co-sponsor of the Company, as well as certain members of the former supervisory board (the “Supervisory Board Investors”) of the Company have subscribed to 2.875.000 class B shares amounting to EUR 120.000,00. On 25 May 2022, the sponsor, co-sponsors and Supervisory Board Investors also subscribed to an aggregate 6.199.999 class B warrants (the “Sponsor Warrants”) at a total price of EUR 9.300.000,00. The class B shares and Sponsor Warrants are not publicly traded securities. The sponsor, co-sponsors and Supervisory Board Investors have agreed to a lock-up period running at least until the Business Combination, subject to customary exceptions described in the Company’s prospectus (the “Prospectus”). The sponsor subsequently purchased all class B shares and Sponsor Warrants from the co-sponsor and certain members of the former supervisory board. On 24 July 2023, the Company announced in a buyback offer to all holders of Public Shares the possibility to tender their Public Shares for a price of EUR 10.35 per Public Share so redeemed (the “Buyback Offer”). At the closing of the period of the Buyback Offer on 28 July 2023, holders owning a total of 8.498.329 Public Shares had accepted the Buyback Offer. The aggregate purchase price for the tendered Public Shares amounts to EUR 87.957.705,15. Following the settlement, 3.001.671 Public Shares remain outstanding and 8.498.329 Public Shares are held by the Company as own shares. During the year ended 31 December 2023, the Company recorded an impairment on these own shares in the amount of EUR 7.223.579,65. On 15 February 2024, the Company signed a Business Combination Agreement with the Sircle Hospitality Group Ltd (“Sircle”), an expert real estate investment group specialized in hospitality across Europe. - 1 - Financial performance highlights As a blank cheque company, the Company currently does not have an active business. The Company did not generate revenue during the year ended 31 December 2023 and is not expected to generate any operating revenues until after the completion of the Business Combination. The Company’s activities for the year ended 31 December 2023 were those necessary to prepare for the Private Placement and the subsequent listing on the Frankfurt Stock Exchange, and, after the listing, to identify a target company for a Business Combination and the potential acquisition, described below. The Company incurred expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance). The net loss of the Company for the year ended 31 December 2023 was EUR 11.283.561,73 (2022: net loss of EUR 6.617.580,55), and is mainly due to the impairment of the Company’s own shares, external expenses, and finance costs. Financial position highlights The Company’s main asset accounts refer to the investment in shares in affiliated undertakings for its holdings in three German subsidiaries as well as own shares held as a result of the buyback offer announced during the year and described above. The balance sheet also has a significant capital and reserves in relation to the issuance of its redeemable class A shares and class A and B warrants as described above. 3. Principal risk and uncertainties The Company has analysed the risks and uncertainties to which its business is subject, and the Board of Directors of the Company has considered their potential impact, their likelihood, controls that the Company has in place and steps the Company can take to mitigate such risks. The Company’s principal risks and uncertainties can be summarised as follows: Risk Likelihood Mitigating factors Benefits not achieved & the Low On 15 February 2024, the Company liquidation of the Company entered into a Business Combination There is no assurance that the Agreement with the Sircle and expects Company will identify suitable to successfully complete the Business Business Combination opportunities Combination in the beginning of 2024. by the Business Combination The shareholders are expected to Deadline, which would ultimately approve the Business Combination on lead to the liquidation of the the annual/ extraordinary general Company. meeting. Going concern risk until Medium The Company is undertaking completion of the business continuous control and monitoring of combination expenses incurred in view of its The Company has incurred fees and available funding and has engaged expenses associated with preparing reputable service providers to assist and completing the Business with this monitoring. The Board believes Combination. The Company may that the Company has sufficient funds to need to arrange third-party financing meet the fees and expenditures required and there can be no assurance that for operating its business prior to the it will be able to obtain such closing of the Business Combination. financing, which could compel the Company to restructure or abandon the Business Combination. Legal and regulatory Low The Company is undertaking The Company may be adversely continuous control and monitoring affected by changes to the measure of the ongoing legal and regulations, law, account and regulatory landscape. Moreover, the general tax environment in Board of Directors is supported by Luxembourg and Germany as well leading service providers on the - 2 - Risk Likelihood Mitigating factors as the jurisdiction which the target respective legal, accounting and tax business is subject to. domains. Market conditions Low The Company believes that external Adverse events and market market conditions have not negatively conditions, such as the conflict disrupted in a material manner its between Russia and Ukraine and operations and objectives. But it will rising interest rates environment, continue to monitor external market might prevent the completion of the conditions and continue to assess on a Business Combination. timely basis their impact on its operations and objectives. The other risks surrounding the Company are further disclosed in the Prospectus. 4. Risk management, internal control and corporate governance The Company’s approach to risk management, internal control and corporate governance is consistent with that applied to affiliates in the SMG Hospitality SE Group and are detailed in the Group Management Report sections 7 and 8. Non-financial information required by regulation is provided in section 3. 5. Financial risk management objectives and policies As at 31 December 2023, the Company has zero cash at bank and in hand. The Company had a net equity of EUR 105.321.834,96 as at 31 December 2023. The Sponsor commits to secure additional liquidity to the Company to pay costs and expenses prior to the completion of the Business Combination. The Board of Directors is in discussion with various parties and believes there will be funds available to the Company sufficient to pay costs and expenses incurred by the Company prior to the completion of the Business Combination. The Company has conducted no operations and currently generated no revenue. Beside the above, the Company identified the related financial risks and has considered their potential impact, their likelihood, and controls in place to mitigate such risks. The applicable risks to the Company are liquidity risks and credit risks. 6. Annual Accounts of SMG Hospitality SE The Annual Accounts of SMG Hospitality SE are shown on page 11 to page 35. These were prepared in accordance with Luxembourg’s legal and regulatory requirements and using the going concern basis of accounting described above. The net loss of the Company for the year ended 31 December 2023 was EUR 11.283.561,73 (2022: net loss of EUR 6.617.580,55), and is mainly due to the impairment of the Company’s own shares, external expenses, and finance costs. It is proposed that the loss for the year ended 31 December 2023 be allocated to profit and loss brought forward at 1 January 2024. Distributable amounts At 31 December 2023, the Company had no distributable amounts, as defined by Luxembourg law. 7. Related party transactions Please see Notes 4, 8, 11, 13 and 14 to the annual accounts. - 3 - 8. Research and development The Company did not have any activities in the field of research and development during the financial year ended 31 December 2023 and 2022. 9. Transactions in own shares On 31 July 2023, the Company redeemed 8.498.329 of its own class A shares at a redemption price of EUR 10,35 per share and currently holds them as treasury shares. A payment in the amount of EUR 87.957.705,15 was made from the escrow account to redeeming shareholders to redeem these class A shares. As at 31 December 2023, the fair value of the own shares was at price of EUR 9,50 per share, consequently the Company recorded an impairment in the amount of EUR 7.223.579,65. 10. Outlook As at the date of these annual accounts, the Company experienced a liquidity shortage, among others from significant costs already incurred in connection with the Business Combination and its IPO which also caused the delay of the completion of the intended business combination signed on 15 February 2024. However, the Board of Directors is working to achieve a Business Combination in 2024. As of 31 December 2023, the liquidity shortage towards third parties amounted to EUR 2.174.772,77. 11. Events after the reporting period Please refer to Note 16 to the annual accounts. Luxembourg, 30 August 2024 Dr. Stefan Petrikovics Werner Weynand Chief Executive Officer Chief Administration Officer Member of the Board of Directors Member of the Board of Directors - 4 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Corporate Governance Statement by the Board of Directors for the year ended 31 December 2023 The Board of Directors of the Company reaffirm their responsibility to ensure the maintenance of proper accounting records disclosing the financial position of the Company with reasonable accuracy at any time and ensuring that an appropriate system of internal controls is in place to ensure that the Company’s business operations are carried out efficiently and transparently. In accordance with Article 3 of the law of 11 January 2008 on transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, the Company declares that, to the best of our knowledge, the audited annual accounts for the year ended 31 December 2023, prepared in accordance with Luxembourg legal and regulatory requirements, give a true and fair view of the assets, liabilities, financial position as of that date and results for the year then ended. In addition, management’s report includes a fair review of the development and performance of the Company’s operations during the year and of business risks, where appropriate, faced by the Company, as well as other information required by Article 68 of the law of 19 December 2002 on the commercial companies register and on the accounting records and financial statements od undertakings, as amended. Luxembourg, 30 August 2024 Dr. Stefan Petrikovics Werner Weynand Chief Executive Officer Chief Administration Officer Member of the Board of Directors Member of the Board of Directors - 5 - BEULSGP20240416T10030601_002 Page 1/5 RCSL Nr. : B255839 Matricule : 2021 8400 176 Annual Accounts Helpdesk : eCDF entry date : Tel. : (+352) 247 88 494 Email : centralebilans@statec.etat.lu BALANCE SHEET Financial year from to 01/01/2023 31/12/2023 EUR (in ) 03 01 02 SMG Hospitality SE 9, rue de Bitbourg L-1273 Luxembourg ASSETS Reference(s) Current year Previous year A. Subscribed capital unpaid 1101 101 102 I. Subscribed capital not called 1103 103 104 II. Subscribed capital called but unpaid 1105 105 106 B. Formation expenses 1107 107 108 C. Fixed assets 31.503.303,85 119.058.744,05 1109 109 110 I. Intangible assets 1111 111 112 1. Costs of development 1113 113 114 2. Concessions, patents, licences, trade marks and similar rights and assets, if they were 1115 115 116 a) acquired for valuable consideration and need not be shown under C.I.3 1117 117 118 b) created by the undertaking itself 1119 119 120 3. Goodwill, to the extent that it was acquired for valuable consideration 1121 121 122 4. Payments on account and intangible assets under development 1123 123 124 II. Tangible assets 1125 125 126 1. Land and buildings 1127 127 128 2. Plant and machinery 1129 129 130 The notes in the annex form an integral part of the annual accounts BEULSGP20240416T10030601_002 Page 2/5 RCSL Nr. : B255839 Matricule : 2021 8400 176 Reference(s) Current year Previous year 3. Other fixtures and fittings, tools and equipment 1131 131 132 4. Payments on account and tangible assets in the course of construction 1133 133 134 III. Financial assets 3 31.503.303,85 119.058.744,05 1135 135 136 1. Shares in affiliated undertakings 31.503.303,85 119.058.744,05 1137 137 138 2. Loans to affiliated undertakings 1139 139 140 3. Participating interests 1141 141 142 4. Loans to undertakings with which the undertaking is linked by virtue of participating interests 1143 143 144 5. Investments held as fixed assets 1145 145 146 6. Other loans 1147 147 148 D. Current assets 81.311.163,28 435.649,08 1151 151 152 I. Stocks 1153 153 154 1. Raw materials and consumables 1155 155 156 2. Work in progress 1157 157 158 3. Finished goods and goods for resale 1159 159 160 4. Payments on account 1161 161 162 II. Debtors 4 577.037,78 432.834,24 1163 163 164 1. Trade debtors 0,00 64.120,99 1165 165 166 a) becoming due and payable within one year 0,00 64.120,99 1167 167 168 b) becoming due and payable after more than one year 1169 169 170 2. Amounts owed by affiliated undertakings 291.822,41 134.868,89 1171 171 172 a) becoming due and payable within one year 291.822,41 134.868,89 1173 173 174 b) becoming due and payable after more than one year 1175 175 176 3. Amounts owed by undertakings with which the undertaking is linked by virtue of participating interests 1177 177 178 a) becoming due and payable within one year 1179 179 180 b) becoming due and payable after more than one year 1181 181 182 4. Other debtors 285.215,37 233.844,36 1183 183 184 a) becoming due and payable within one year 285.215,37 233.844,36 1185 185 186 b) becoming due and payable after more than one year 1187 187 188 The notes in the annex form an integral part of the annual accounts BEULSGP20240416T10030601_002 Page 3/5 RCSL Nr. : B255839 Matricule : 2021 8400 176 Reference(s) Current year Previous year III. Investments 5 80.734.125,50 1189 189 190 1. Shares in affiliated undertakings 1191 191 192 2. Own shares 80.734.125,50 1209 209 210 3. Other investments 1195 195 196 IV. Cash at bank and in hand 2.814,84 1197 197 198 E. Prepayments 6 112.013,11 111.550,68 1199 199 200 TOTAL (ASSETS) 112.926.480,24 119.605.943,81 201 202 The notes in the annex form an integral part of the annual accounts BEULSGP20240416T10030601_002 Page 4/5 RCSL Nr. : B255839 Matricule : 2021 8400 176 CAPITAL, RESERVES AND LIABILITIES Reference(s) Current year Previous year A. Capital and reserves 7 105.321.834,96 116.605.396,69 1301 301 302 I. Subscribed capital 600.000,00 600.000,00 1303 303 304 II. Share premium account 26.604.794,85 114.562.500,00 1305 305 306 III. Revaluation reserve 1307 307 308 IV. Reserves 97.915.204,65 9.957.499,50 1309 309 310 1. Legal reserve 1311 311 312 2. Reserve for own shares 80.734.125,50 1313 313 314 3. Reserves provided for by the articles of association 600.000,00 600.000,00 1315 315 316 4. Other reserves, including the fair value reserve 16.581.079,15 9.357.499,50 1429 429 430 a) other available reserves 7.223.579,65 1431 431 432 9.357.499,50 9.357.499,50 b) other non available reserves 1433 433 434 V. Profit or loss brought forward -8.514.602,81 -1.897.022,26 1319 319 320 VI. Profit or loss for the financial year -11.283.561,73 -6.617.580,55 1321 321 322 VII. Interim dividends 1323 323 324 VIII. Capital investment subsidies 1325 325 326 B. Provisions 1331 331 332 1. Provisions for pensions and similar obligations 1333 333 334 2. Provisions for taxation 1335 335 336 3. Other provisions 1337 337 338 C. Creditors 8 7.604.645,28 3.000.547,12 1435 435 436 1. Debenture loans 1437 437 438 a) Convertible loans 1439 439 440 i) becoming due and payable within one year 1441 441 442 ii) becoming due and payable after more than one year 1443 443 444 b) Non convertible loans 1445 445 446 i) becoming due and payable within one year 1447 447 448 ii) becoming due and payable after more than one year 1449 449 450 2. Amounts owed to credit institutions 6.893,97 1355 355 356 a) becoming due and payable within one year 6.893,97 1357 357 358 b) becoming due and payable after more than one year 1359 359 360 The notes in the annex form an integral part of the annual accounts BEULSGP20240416T10030601_002 Page 5/5 RCSL Nr. : B255839 Matricule : 2021 8400 176 Reference(s) Current year Previous year 3. Payments received on account of orders in so far as they are not shown separately as deductions from stocks 1361 361 362 a) becoming due and payable within one year 1363 363 364 b) becoming due and payable after more than one year 1365 365 366 4. Trade creditors 1.866.887,03 2.821.239,42 1367 367 368 a) becoming due and payable within one year 1.866.887,03 2.821.239,42 1369 369 370 b) becoming due and payable after more than one year 1371 371 372 5. Bills of exchange payable 1373 373 374 a) becoming due and payable within one year 1375 375 376 b) becoming due and payable after more than one year 1377 377 378 6. Amounts owed to affiliated undertakings 5.429.873,01 34.933,12 1379 379 380 a) becoming due and payable within one year 3.679.873,01 34.933,12 1381 381 382 b) becoming due and payable after more than one year 1.750.000,00 1383 383 384 7. Amounts owed to undertakings with which the undertaking is linked by virtue of participating interests 1385 385 386 a) becoming due and payable within one year 1387 387 388 b) becoming due and payable after more than one year 1389 389 390 8. Other creditors 300.991,27 144.374,58 1451 451 452 a) Tax authorities 156.280,68 44.137,50 1393 393 394 b) Social security authorities 1395 395 396 c) Other creditors 144.710,59 100.237,08 1397 397 398 i) becoming due and payable within one year 144.710,59 100.237,08 1399 399 400 ii) becoming due and payable after more than one year 1401 401 402 D. Deferred income 1403 403 404 TOTAL (CAPITAL, RESERVES AND LIABILITIES) 112.926.480,24 119.605.943,81 405 406 The notes in the annex form an integral part of the annual accounts BEULSGP20240416T10030601_003 Page 1/2 RCSL Nr. : B255839 Matricule : 2021 8400 176 Annual Accounts Helpdesk : eCDF entry date : Tel. : (+352) 247 88 494 Email : centralebilans@statec.etat.lu PROFIT AND LOSS ACCOUNT Financial year from to 01/01/2023 31/12/2023 EUR (in ) 03 01 02 SMG Hospitality SE 9, rue de Bitbourg L-1273 Luxembourg Reference(s) Current year Previous year 1. Net turnover 1701 701 702 2. Variation in stocks of finished goods and in work in progress 1703 703 704 3. Work performed by the undertaking for its own purposes and capitalised 1705 705 706 4. Other operating income 115.160,26 1713 713 714 5. Raw materials and consumables and other external expenses -3.262.229,10 -5.337.615,66 1671 671 672 a) Raw materials and consumables 1601 601 602 b) Other external expenses 9 -3.262.229,10 -5.337.615,66 1603 603 604 6. Staff costs 1605 605 606 a) Wages and salaries 1607 607 608 b) Social security costs 1609 609 610 i) relating to pensions 1653 653 654 ii) other social security costs 1655 655 656 c) Other staff costs 1613 613 614 7. Value adjustments 4 -35.867,31 -64.120,99 1657 657 658 a) in respect of formation expenses and of tangible and intangible fixed assets 1659 659 660 b) in respect of current assets -35.867,31 -64.120,99 1661 661 662 8. Other operating expenses 10 -872.431,37 -774.647,36 1621 621 622 The notes in the annex form an integral part of the annual accounts BEULSGP20240416T10030601_003 Page 2/2 RCSL Nr. : B255839 Matricule : 2021 8400 176 Reference(s) Current year Previous year 9. Income from participating interests 1715 715 716 a) derived from affiliated undertakings 1717 717 718 b) other income from participating interests 1719 719 720 10. Income from other investments and loans forming part of the fixed assets 1721 721 722 a) derived from affiliated undertakings 1723 723 724 b) other income not included under a) 1725 725 726 11. Other interest receivable and similar income 13.198,51 1727 727 728 a) derived from affiliated undertakings 12.033,47 1729 729 730 b) other interest and similar income 1.165,04 1731 731 732 12. Share of profit or loss of undertakings accounted for under the equity method 1663 663 664 13. Value adjustments in respect of financial assets and of investments held as current assets 3,5 -7.228.071,35 6.559,96 1665 665 666 14. Interest payable and similar expenses 11 -122,86 -460.420,01 1627 627 628 a) concerning affiliated undertakings -11.707,09 1629 629 630 b) other interest and similar expenses -122,86 -448.712,92 1631 631 632 15. Tax on profit or loss 1635 635 636 16. Profit or loss after taxation -11.283.561,73 -6.617.045,55 1667 667 668 17. Other taxes not shown under items 1 to 16 -535,00 1637 637 638 18. Profit or loss for the financial year -11.283.561,73 -6.617.580,55 1669 669 670 The notes in the annex form an integral part of the annual accounts SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) 1. GENERAL SMG Hospitality SE (formerly known as SMG European Recovery SPAC SE and hereinafter the “Company”) was incorporated on 11 June 2021 (date of incorporation per the deed of incorporation as agreed between shareholders in front of the notary) in Luxembourg as a European company (Société Européenne or “SE”) based on the laws of the Grand Duchy of Luxembourg (“Luxembourg”) for an unlimited period. The Company is registered with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés, in abbreviated “RCS”) under the number B255839 since 17 June 2021. The Company is a listed entity with its class A shares traded in the regulated market of Frankfurt Stock Exchange under the symbol “RCVR” since 1 June 2022. Likewise, the Company’s class A warrants are also traded on the open market of the Frankfurt Stock Exchange under the symbol “RCVRW”. The Company also has 2.875.000 class B shares and 6.199.999 class B warrants issued and outstanding as at 31 December 2023 that are not listed on a stock exchange. The registered office of the Company is located at 9, rue de Bitbourg, L-1273 Luxembourg. The Company completed its Private Placement (the “Private Placement”) on 30 May 2022 through the issuance of 11.500.000 redeemable class A shares with a par value of EUR 0,0417 (the “Public Shares”) and 5.750.000 class A warrants (the “Public Warrants”). The Public Shares are admitted to trading on the Frankfurt Stock Exchange under the symbol “RCVR” on 1 June 2022. Likewise, the Public Warrants are also admitted to trading on the Frankfurt Stock Exchange under the symbol “RCVRW”. One Public Share and one-half (1/2) of a Public Warrant (each, a “Unit”), were sold at a price of EUR 10 per unit representing a total placement volume of EUR 115 million. The sponsor and the co-sponsor of the Company, as well as certain members of the former supervisory board (the “Supervisory Board Investors”) of the Company have subscribed to 2.875.000 class B shares amounting to EUR 120.000,00. On 25 May 2022, the sponsor, co-sponsors and Supervisory Board Investors also subscribed to an aggregate 6.199.999 class B warrants (the “Sponsor Warrants”) at a total price of EUR 9.300.000,00. The class B shares and Sponsor Warrants are not publicly traded securities. The sponsor, co-sponsors and Supervisory Board Investors have agreed to a lock-up period running at least until the Business Combination, subject to customary exceptions described in the Company’s prospectus (the “Prospectus”). The sponsor subsequently purchased all class B shares and Sponsor Warrants from the co-sponsor and certain members of the former supervisory board. The Company’s governing bodies are the Board of Directors and the shareholders’ meeting. The Company is managed by its Board of Directors which is vested with the broadest powers to act in the name of the Company and to take any action necessary or useful to fulfil the Company’s corporate purpose, with the exception of the powers reserved to the general meeting of shareholders by any laws or regulations or by the Articles of Association. This one-tier governance structure was resolved by an extraordinary shareholders’ meeting of the Company held on 28 June 2024. The Board of Directors is composed of Dr. Stefan Petrikovics, Werner Weynand and George Aase. The Company has been established for the purpose of acquiring one operating business with principal business operations in a member state of the European Economic Area (the “EEA Member States”), the United Kingdom or Switzerland in the form of a merger, capital stock exchange, share purchase, asset acquisition, reorganization or similar transactions (the “Business Combination”). The Company will not conduct operations or generate operating revenue unless and until the Company consummates the Business Combination. - 18 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) The Company intends to seek a suitable target for the Business Combination in the real estate-related hospitality sector with a focus on the sub-sector lodging and leisure. The Company has 15 months from the date of the admission to trading to consummate a Business Combination. This period may be extended up to two times in total (for a maximum of 21 months), provided that (i) the period shall extend automatically by three months if the Company signs a letter of intent with a potential seller of a target within the initial 15 months (the “Automatic Extension”) and (ii) may be extended, in each case by three months, by resolutions of the Company’s general shareholders’ meeting (those initial 15 months plus any Extension thereof is referred to as the “Business Combination Deadline”). If no Business Combination is completed before the Business Combination Deadline, the Public Shares will redeemed to the public shareholders and the Company will be liquidated. On 15 February 2024, the Company signed a Business Combination Agreement (“BCA”) with the Sircle Hospitality Group Ltd (“Sircle”), an expert real estate investment group specialized in hospitality across Europe. Upon closing of the Business Combination, the above Company’s purpose shall cease to apply and the Company's purpose shall as from such time be the creation, holding, development and realisation of a portfolio, consisting of interests and rights of any kind and of any other form of investment in entities in the Grand Duchy of Luxembourg and in foreign entities, whether such entities exist or are to be created, especially by way of subscription, by purchase, sale, or exchange of securities or rights of any kind whatsoever, such as equity instruments, debt instruments as well as the administration and control of such portfolio. The Company may further grant any form of security for the performance of any obligations of the Company or of any entity in which it holds a direct or indirect interest or right of any kind or in which the Company has invested in any other manner or which forms part of the same group of entities as the Company and lend funds or otherwise assist any entity in which it holds a direct or indirect interest or right of any kind or in which the Company has invested in any other manner or which forms part of the same group of companies as the Company. The Company may borrow in any form and may issue any kind of notes, bonds and debentures and generally issue any debt, equity and/or hybrid securities in accordance with Luxembourg law. The Company may carry out any commercial, industrial, financial, real estate or intellectual property activities which it may deem useful in accomplishment of these purposes. Unlike other forms of companies, a Société Européenne only exists from the date of publication of its statutes with the RCS. Any act performed and any transaction carried out by the Company between the date of incorporation and the date of registration is considered to emanate from the Company and is therefore included in the annual accounts. The Company’s financial year runs from 1 January to 31 December. The Company also prepares consolidated financial statements under International Financial Reporting Standards as adopted by the European Union. The consolidated financial statements are published in accordance with the European Single Electronic Format regulation on the Company’s website (http://www.smg-spac.com). - 19 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1. Basis of preparation These annual accounts have been prepared in accordance with the Luxembourg legal and regulatory requirements under the historical cost convention and under the going concern assumption. The accounting and valuation methods are determined and implemented by the Board of Directors, apart from the regulations of the law of 19 December 2002. The preparation of these annual accounts requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise significant judgment in the process of applying the accounting policies. Changes in assumptions may have a significant impact on the annual accounts in the period in which the assumptions changed. The Board of Directors believes that the underlying assumptions are appropriate and that the annual accounts therefore present fairly the financial position and results. The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities in the next financial year. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 2.2. Significant accounting policies The following are the significant accounting policies and valuation rules adopted by the Company in the preparation of these annual accounts. 2.2.1. Foreign currency translation The Company maintains its books and records in Euro (“EUR”). The balance sheet and the profit and loss account are expressed in EUR. Translation of foreign currency transactions Foreign currency transactions are translated into EUR using the exchange rates prevailing at the dates of the transactions. Translation of foreign currency balances as at the balance sheet date • Financial assets denominated in currencies other than EUR are translated at the historical exchange rates; • Other assets denominated in currencies other than EUR are translated at the lower between the exchange rate prevailing at the balance sheet date and historical exchange rate; • Creditors denominated in currencies other than EUR are translated at the higher between the exchange rate prevailing at the balance sheet date and historical exchange rate; and • Cash at bank and in hand denominated in currencies other than EUR are translated at the exchange rates prevailing at the balance sheet date. As a result, realized exchange gains and losses and unrealized exchange losses are recorded in the profit and loss account. Unrealized exchange gains are not recognized unless they arise from cash at bank and in hand. - 20 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) 2.2.2. Formation expenses Formation expenses include costs and expenses incurred in connection with the incorporation of the Company and subsequent capital increases. Formation expenses are charged to the profit and loss account of the year in which they were incurred. 2.2.3. Financial assets Shares in affiliated undertakings are valued at acquisition cost including the expenses incidental thereto. In case of durable decline in value according to the opinion of the Board of Directors, value adjustments are made in respect of financial assets so that these are valued at the lower figure to be attributed at the balance sheet date. These value adjustments are not continued if the reasons for which the value adjustments were made ceased to apply. 2.2.4. Cash at bank and in hand Cash at bank and in hand comprise cash at banks and on hand and short-term highly liquid deposits with a maturity of three months or less, that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value. 2.2.5. Debtors Debtors are recorded at their nominal value. These are subject to value adjustments where their recovery is compromised. These value adjustments are not continued if the reasons for which the value adjustments were made have ceased to apply. 2.2.6. Investments Investments consist of own shares purchased by the Company. Own shares are presented as assets and are initially measured at acquisition cost. Cost is determined using the weighted average method. Own shares are subsequently remeasured at the lower of cost or market value. They are subject to value adjustments where their recovery is compromised. These value adjustments are reversed when the reasons for which the value adjustments were made have ceased to apply. In accordance with Luxembourg law, a non-distributable reserve for own shares is created under capital and reserves section and an amount from the share premium is allocated to the reserve for own shares to equal to the value of the own shares. 2.2.7. Prepayment Prepayments include expenditure items incurred during the financial year but relating to a subsequent financial year. 2.2.8. Provisions Provisions are intended to cover losses or debts which originate in the financial year under review or in the previous financial year, the nature of which is clearly defined and which, at the date of the balance sheet, are either likely to be incurred or certain to be incurred but uncertain as to their amount or the date they will arise. - 21 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) Provisions for taxation Provisions for taxation corresponding to the tax liability estimated by the Company for the financial years for which the tax return has not yet been filed are recorded under the caption “Creditors becoming due and payable within one year”. The advance payments are shown in the assets of the balance sheet under the “Debtors becoming due and payable within one year” item. 2.2.9. Creditors Creditors are recorded at their reimbursement value. Where the amount repayable of a financial liability is higher than the amount of cash received upfront, the related repayment premium is shown in the balance sheet as an asset and is amortized over the period of the related debt on a straight-line method. 2.2.10. Expenses Expenses are accounted for on an accrual basis. 2.2.11. Income tax The Company is subject to income taxes in Luxembourg. 2.2.12. Warrants The Company has issued class A warrants and class B warrants, which under Luxembourg legal and regulatory requirements relating to the preparation and presentation of the financial statements are recorded as equity. When such warrants are expected to be equity settled, the Company does not book any provision to cover any surplus of the fair value of those warrants compared to the amounts booked in Other non-available reserves, as the Company will not suffer any loss in relation to those warrants in the future. 3. FINANCIAL ASSETS Movements in financial assets during the year are as follows: Shares in affiliated Shares in affiliated undertakings undertakings EUR EUR 2023 2022 Gross book value – opening balance 119.059.243,05 30.500,00 Additions for the year - 119.435.500,00 Repayments for the year -87.550.948,50 -406.756,95 Gross book value – closing balance 31.508.294,55 119.059.243,05 Accumulated value adjustment – opening balance -499,00 -7.058,96 Allocation of value adjustments for the year -4.491,70 -499,00 Reversals of value adjustments for the year - 7.058,96 Accumulated value adjustment – closing balance -4.990,70 -499,00 Net book value – opening balance 119.058.744,05 23.441,04 Net book value – closing balance 31.503.303,85 119.058.744,05 - 22 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) On 30 May 2022, the Company contributed proceeds from the class A shares subscription, Additional Sponsor Subscription and Overfunding Sponsor Subscription (Note 7) totaling to EUR 119.435.000,00 into SMG SPAC Advisors GmbH & Co. KG. These funds are held in an escrow account by SMG SPAC Advisors GmbH & Co. KG. During the year 2022, EUR 406.756,95 was repaid to the Company relating to the Additional Sponsor Subscription. The Additional Sponsor Subscription refers to the funds used to cover the negative interest on the escrow account, and any amounts in excess are returned to the Company. On 18 August 2022, the Company incorporated SMG SPAC Issuance GmbH & Co. KG for an amount of EUR 500,00. On 31 July 2023, a return of capital in the amount of EUR 87.957.705,15 was made from SMG SPAC Advisors GmbH & Co. KG’s escrow account to the Company in connection with the Company’s announced buyback offer to the holders of class shares (Note 5). As at 31 December 2023, the Board of Directors recorded an impairment on the Company’s investments in SMG SPAC Advisors Verwaltungs GmbH in the amount of EUR 4.491,70 (2022: nil), and SMG SPAC Issuance GmbH & Co. KG in the amount of EUR 499,00 (2022: EUR 499,00). Shares in affiliated undertakings as at 31 December 2023 consist of the following: Net equity Profit / (Loss) Name of Ownership %/ Cost of Last balance as at as at undertakings Registered office Contribution acquisition sheet date 31/12/2023 31/12/2023 EUR EUR EUR SMG SPAC Advisors Gneisenaustr. 112, Verwaltungs GmbH 10961 Berlin, 100% 28.500,00 31/12/2023 32.974,00 2.224,00 Germany Gneisenaustr. 112, SMG SPAC Advisors 10961 Berlin, 100% 31.479.294,55 31/12/2023 1.965.018,00 1.697.093,00 GmbH & Co. KG Germany Gneisenaustr. 112, SMG SPAC Issuance 10961 Berlin, 100% 500,00 31/12/2023 -15.604,00 -11.956,00 GmbH & Co. KG Germany Unaudited 4. DEBTORS Debtors are composed of the following which are due and payable within one year: 31/12/2023 31/12/2022 EUR EUR Amounts due from affiliated undertakings 507.013,76 134.868,89 Trade and other debtors 170.012,32 362.086,34 Value adjustment – Trade and other debtors -99.988,30 -64.120,99 Total 577.037,78 432.834,24 - 23 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) Amounts due from affiliated undertakings Amounts due from affiliated undertakings as at 31 December 2023 refer to payments of invoices the Company made on their behalf in total amount of EUR 428.682,20 (2022: EUR 56.537,33) and EUR 78.331,56 (2022: EUR 78.331,56) receivable from the sponsor arising from the subscription of class B warrants (Note 7). The Board of Directors has assessed the amounts owed by affiliated undertakings are fully recoverable. Other debtors Other debtors as at 31 December 2023, comprise of receivables for an amount of EUR 105.891,33 (2022: EUR 1.883,02) related to advances made to Directors and EUR 64.120,99 (2022: EUR 64.120,99) overpayment made to supplier. As at 31 December 2023, the Company recorded value adjustment on other debtors of EUR 99.988,30 (2022: EUR 64.120,99), of which EUR 35.867,31 is in relation to advances made to Directors and EUR 64.120,99 in relation to overpayment made to supplier. 5. INVESTMENTS Investments in the amount of EUR 80.734.125,50 pertain entirely to own shares held. On 24 July 2023, the Company announced a buyback offer to all holders of class A shares offering the possibility to tender their Public Shares for a price of EUR 10,35 per share. At the closing of the period of the Buyback Offer on 28 July 2023, shareholders of the Company owning a total of 8.498.329 class A shares had accepted the Buyback Offer. The aggregate purchase price for the tendered Public Shares amounted to EUR 87.957.705,15. As at 31 December 2023, 3.001.671 of class A shares remain outstanding and 8.498.329 public shares are held by the Company as own shares. As at 31 December 2023, the fair value of the own shares was at price of EUR 9,50 per share, consequently the Company recorded an impairment in the amount of EUR 7.223.579,65. 6. PREPAYMENTS Prepayments in the amount of EUR 112.013,11 pertain to prepaid insurance premium (2022: EUR 111.550,68). - 24 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) 7. CAPITAL AND RESERVES Movements during the year are as follows: Reserves Other Other provided for reserves non- Profit or Profit or Subscribed Shares premium by the articles Reserve for available for available loss brought loss for the capital account of association own shares distribution reserves forward year Total EUR EUR EUR EUR EUR EUR EUR EUR EUR Opening balance at 1 January 2023 600.000,00 114.562.500,00 600.000,00 - - 9.357.499,50 -1.897.022,26 -6.617.580,55 116.605.396,69 Redemption of 8,498,329 class A shares - -87.957.705,15 - 87.957.705,15 - - - - - Revaluation of own shares - - - -7.223.579,65 7.223.579,65 - - - - Allocation of prior year’s results to profit or loss brought forward - - - - - - -6.617.580,55 6.617.580,55 - Results for the financial year - - - - - - - -11.283.561,73 -11.283.561,73 Closing balance at 31 December 2023 600.000,00 26.604.794,85 600.000,00 80.734.125,50 7.223.579,65 9.357.499,50 -8.514.602,81 105.321.834,96 -11.283.561,73 - 25 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) Share capital – Class B shares As at 31 December 2021, the subscribed share capital amounts to EUR 120.000 consisting of 12.000.000 class B shares without nominal value. On 23 May 2022, following the extraordinary general meeting of shareholders the Company created two share classes within the class B shares and converted the existing 12.000.000 class B shares into 1.437.500 class B1 shares without nominal value (“Class B1 Shares”) and 1.437.500 class B2 shares without nominal value (“Class B2 Shares”). Pursuant to the BCA and as part of the preparation for the Closing, the Sponsor agrees to proceed with the Class B2 shares redemption for no consideration by redeeming 408.333 Class B2 shares and up to an additional 550.000 Class B2 shares calculated pursuant to section 2.1.1 of the BCA. Upon and following the completion of the Business Combination, the Class B1 shares and remaining Class B2 shares existing at that point in time shall convert into class A shares in accordance with the conversion schedule (the “Promote Schedule” in the “Glossary” of the Prospectus). The class B shares will only have nominal economic rights (i.e., reimbursement of their par value, at best, in case of liquidation). The class B shares were not part of the private placement and are not listed on a stock exchange. Share capital – Class A shares On 30 May 2022, the Company issued 11.500.000 Units (each a “Unit”), each Unit consisting of one redeemable class A shares with a par value of approximately EUR 0,042 and one half of a class A warrant for an aggregate price of EUR 10,00 per Unit, the nominal subscription price per Class A warrant being EUR 0,01. The total proceeds amounted to EUR 114.942.500,00 of which EUR 480.000,00 were allocated to class A shares and EUR 114.462.500,00 to the share premium account. On 24 July 2023, the Company announced a buyback offer to all holders of class A shares offering the possibility to tender their Public Shares for a price of EUR 10,35 per share. At the closing of the period of the Buyback Offer on 28 July 2023, shareholders of the Company owning a total of 8.498.329 class A shares had accepted the Buyback Offer. The aggregate purchase price for the tendered Public Shares amounted to EUR 87.957.705,15. As at 31 December 2023, 3.001.671 of class A shares remain outstanding and 8.498.329 public shares are held by the Company as own shares. As at 31 December 2023, the Company recognized an impairment of its own shares in the amount of EUR 7.223.579,65. Class A Shareholders may request redemption of all or a portion of their Class A shares in connection with the Business Combination, subject to the conditions and procedures set forth in the Articles of Association of the Company. Each Class A share that is redeemed shall be redeemed in cash for a price equal to the aggregate amount on deposit in the escrow account related to the proceeds from the private placement of the Class A shares and class A warrants, divided by the number of the then outstanding Class A Shares, subject to (i) the availability of sufficient amounts on the escrow account and (ii) sufficient distributable profits and reserves of the Company. In the event that no Business Combination would be completed before the Business Combination Deadline, the Class A shares would also be redeemed to the shareholders before the Company went into liquidation. - 26 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) Share premium On 25 May 2022, the sponsor made an additional equity contribution in cash without issuance of new shares in the amount of EUR 700.000,00. On 27 May 2022, the Management resolved to allocate EUR 600.000,00 from the share premium, in accordance with the articles of association, to the warrant reserve. On 30 May 2022, EUR 114.462.500,00 have been allocated to the share premium account as described in “Share capital – Class A shares”. On 1 August 2023, following the redemption of own shares, the Company allocated portion of the share premium in the amount of EUR 87.957.705,15 to the reserve for own shares. As at 31 December 2023, the share premium account amounts to EUR 26.604.794,85 (2022: EUR 114.562.500,00). Authorised capital The authorized capital, excluding the issued share capital, of the Company is set at EUR 6.520.002,24 consisting of 156.208.387 shares without nominal value. Legal reserves In accordance with Luxembourg law, the Company is required to allocate a minimum of 5% of its net profits for each financial year to a legal reserve. This requirement ceases to be necessary once the balance on the legal reserve reaches 10% of the subscribed capital. The legal reserve is not available for distribution to the shareholders. Reserves provided for by the articles of association - Warrant reserve Pursuant to Article 31 of the amended Articles of Association, the Board of Directors shall create a specific reserve in respect of the exercise of any class A warrants or class B warrants issued by the Company (the "Warrant Reserve") and allocate and transfer sums contributed to the share premium and/or any other distributable reserve of the Company to such Warrant Reserve. The Board of Directors may, at any time, fully or partially convert amounts contributed to such Warrant Reserve to pay for the subscription price of any class A Shares to be issued further to an exercise of class A warrants or class B warrants issued by the Company. Only in case of failure by the Company to secure a Business Combination before the expiry of the Business Combination Deadline, the Warrant Reserve may be used for redemption of class A shares, in case where other available reserves are not sufficient. The Warrant Reserve is not distributable or convertible prior to the exercise, redemption or expiration of all outstanding class A warrants and class B warrants and may only be used to pay for the class A shares issued pursuant to the exercise of such class A warrants and class B warrants; thereupon, the Warrant Reserve will become a distributable reserve. As at 31 December 2023, EUR 600.000,00 (2022: EUR 600.000,00) has been allocated to warrant reserve from Share premium. - 27 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) Other non-available reserves Other non-available reserves refer to the class A and B warrants. - Class A warrants: On 30 May 2022, the Company issued 5.750.000 class A warrants (the “Class A warrants”) together with the 11.500.000 Class A shares, the nominal subscription price per Class A warrant being EUR 0,01. Hence, the total proceeds in relation to the issue of the warrants amount to EUR 57.500,00. Class A warrants has International Securities Identification Number (“ISIN”) LU2380751656. Each Class A warrant entitles its holder to subscribe for one Class A share, with a stated exercise price of EUR 11,50, subject to customary anti-dilution adjustments. Holders of Class A warrants can exercise the warrants on a cashless basis unless the Company elects to require exercise against payment in cash of the exercise price. As at 31 December 2023, the carrying value of the other non-available reserves related to class A warrants is EUR 57.500,00 (2022: EUR 57.500,00). The class A warrants are traded on the open market of the Frankfurt Stock Exchange under the symbol “RCVRW”. As at 31 December 2023, the unrecognised fair value of Class A warrants was estimated to be 4.835.175,00 (EUR 0.84 per warrant) (2022: EUR 5.290.000,00 and EUR 0,92 per warrant) using a combination of Monte Carlo and Binomial Tree valuation model. The significant inputs to the valuation model include the contractual terms of the warrants (i.e. exercise price, maturity), risk-free rates of German government bonds, volatility of the Company’s potential target peers and volatility of the warrants by reference to traded warrants issued by similar listed special purpose acquisition companies. Class A warrants may only be exercised for a whole number of class A shares. Class A warrants will become exercisable 30 days after the completion of a Business Combination. Class A warrants will expire five years from the date of the consummation of the Business Combination, or earlier upon redemption or liquidation. The Company may redeem Class A warrants upon at least 30 days’ notice at a redemption price of EUR 0,01 per Class A warrant if (i) the closing price of its Class A shares for any 20 out of the 30 consecutive trading days following the consummation of the Business combination equals or exceeds EUR 18,00 or (ii) the closing price of its Class A shares for any 20 out of the 30 consecutive trading days following the consummation of the Business Combination equals or exceeds EUR 10,00 but is below EUR 18,00, adjusted for adjustments as described in the section of redemption of warrants in the prospectus. Holders of Class A warrants may exercise them after the redemption notice is given. Pursuant to the BCA and as part of the preparation for the Closing, the Company and the sponsor agree to buyback (by way of public tender offer), all or substantially all outstanding class A warrants (except, in the case that the Cornerstone Investor makes the Subsidiary Investment, for 1.500.000 class A warrants held by the Cornerstone Investor) and subsequently cancel such class A warrants. - Class B warrants: On 25 May 2022, the sponsor, co-sponsor and the Company entered into a Sponsor Warrant Purchase Agreement. The sponsor and the co-sponsor agreed, to initially subscribe to class B warrants (the “Class B warrants”) as follows: • 3.243.333 Class B warrants at a price of EUR 1,50 per warrant or EUR 4.865.000,00 in total for the sponsor capital at-risk (the “Sponsor Capital At-Risk”); • 656.666 Class B warrants at a price of EUR 1,50 per warrant or EUR 985.000,00 in total for the additional sponsor subscription (the “Additional Sponsor Subscription”) and; - 28 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) • 2.300.000 Class B warrants at a price of EUR 1,50 per warrant or EUR 3.450.000,00 in total for the overfunding sponsor subscription (the “Overfunding Sponsor Subscription”). On the same date, the sponsor transferred 1.302.000 class B warrants to the Supervisory Board Investors. In 2023, the Sponsor reacquired a total of 1.302.000 class B warrants from the Supervisory Board Investors. The Sponsor Capital At-Risk is used to finance the Company’s working capital requirements (including due diligence costs in connection with the Business Combination) and private placement and listing expenses, except for the deferred listing commission which will be paid from the escrow account. The Additional Sponsor Subscription is used to cover the negative interest on the escrow account. The Overfunding Sponsor Subscription will be used to provide additional funds to cover the liquidation of the Company after the expiry of the Business Combination Deadline or in case of redemptions of Class A shares in the context of a Business Combination, for a redemption per Class A share of up to (i) EUR 10,30 in case no extension has occurred, (ii) EUR 10,40 in case one extension has occurred and (iii) EUR 10,50 in case two extensions have occurred. For any excess portion of the Additional Sponsor Subscription or Overfunding Sponsor Subscription remaining after the consummation of the Business Combination and the redemption of Class A shares, the sponsor may elect to either (i) request repayment of the remaining cash portion of the Additional Sponsor Subscription or the Overfunding Sponsor Subscription by redeeming the corresponding number of Class B warrants subscribed for under the Additional Sponsor Subscription or the Overfunding Sponsor Subscription or (ii) not to request repayment and to keep the Class B warrants subscribed for under the Additional Sponsor Subscription or the Overfunding Sponsor Subscription. Furthermore, with respect to the Additional Sponsor Subscription, if the negative interest payable under the escrow account has been reduced due to a change in the interest rate on deposits set by European Central Bank, the sponsor may request from the escrow agent that a portion of the proceeds from the Additional Sponsor Subscription reflecting the amount by which the negative interest has been overfunded in respect of such period shall either be (i) repaid to the sponsor against redemption of the corresponding number of class B warrants subscribed for under the Additional Sponsor Subscription or (ii) paid to the Company for working capital purposes. Each Class B warrant entitles its holder to subscribe for one Class A share, with a stated exercise price of EUR 11,50. As at 31 December 2023, the carrying value of the other non-available reserves related to Class B warrants is EUR 9.299.999,50 (2022: EUR 9.299.999,50). As at 31 December 2023, the unrecognised fair value of Class B warrants is determined to be EUR 1,14 per warrant using a combination of Monte Carlo and Binomial Tree valuation model (level 3). The breakdown is as follows: • Class B warrants issued as Sponsor Capital At-Risk is valued at EUR 3.693.183,50; • Class B warrants issued as Additional Sponsor Subscription is valued at EUR 747.746,00; and • Class B warrants issued as Overfunding Sponsor Subscription is valued at EUR 2.619.010,00. The significant inputs to the valuation model include the contractual terms of the warrants (i.e. exercise price, maturity), risk-free rates of German government bonds, volatility of the Company’s potential target peers and volatility of the warrants by reference to traded warrants issued by similar listed special purpose acquisition companies. - 29 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) Class B warrants are identical to the Class A warrants underlying the Units sold in the private placement, except that the Class B warrants are not redeemable and may always be exercised on a cashless basis while held by the sponsor or their Permitted Transferees (defined in the prospectus). Class B warrants are not part of the private placement and are not listed on a stock exchange. Pursuant to the BCA and as part of the preparation for the Closing, the sponsor agrees to proceed with the redemption and cancellation of all class B warrants pursuant to the Sponsor Warrant Cancellation Agreement provided in section 2.2 of the BCA. 8. CREDITORS Creditors are composed of the following: Due after Total Total Due within more than 31 December 31 December one year one year 2023 2022 EUR EUR EUR EUR Trade creditors 1.357.667,23 - 1.357.667,23 2.594.577,42 Accrued expenses - 226.662,00 509.219,80 509.219,80 Amounts owed to affiliated undertakings 3.679.873,01 1.750.000,00 5.429.873,01 34.933,12 Other creditors 300.991,27 - 300.991,27 144.374,58 Bank overdraft - - 6.894,47 6.894,47 3.000.547,12 Total 5.854.645,78 1.750.000,00 7.604.645,78 Trade creditors and accruals Trade creditors and accruals are related to outstanding amounts due as at balance sheet date on legal and other professional fees received by the Company. The Company has EUR 1.291.882,14 of unpaid overdue payables as at 31 December 2023, which break down as follows: • Overdue since more than 6 months amounts to EUR 379.871,25; • Overdue since more than 3 months (and less than 6 months) amounts to EUR 685.734,61; • Overdue since more than 1 month (and less than 3 months) amounts to EUR 226.276,28. As of the date of approval of the financial statements these balances remain unpaid. The Company is contemplating a cash injection in the near term, from its shareholder or from external investors, to settle these unpaid overdue payables. Amounts owed to affiliated undertakings As at 31 December 2023, amounts owed to affiliated undertakings due within one year amount to EUR 3.679.873,01 (2022: EUR 34.933,12) pertain to short-term advances and payments made by related entities on behalf of the Company. On 28 May 2024, the Company repaid portion of amounts owed to affiliated undertakings for an amount of EUR 1.034.000,00 (see Note 16). - 30 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) As at 31 December 2023, amounts owed to affiliated undertakings due after more than one year in the amount of EUR 1.750.000,00 (2022: nil) pertain to a long-term interest-free loan from the sponsor. This loan matures in June 2025. On 3 April 2024, the Sponsor waived the loan (see Note 16). Other creditors As at 31 December 2023, other creditors relate to directors’ fees payable for an amount of EUR 129.028,50 (2022: EUR 84.890,08), withholding tax payable for an amount of EUR 152.000,68 (2022: EUR 44.137,50), and other miscellaneous payables for an amount of EUR 19.962,09 (2022: EUR 15.347,50). 9. OTHER EXTERNAL EXPENSES Other external expenses are composed of: 2023 2022 EUR EUR Other professional fees -1.174.195,40 -770.967,23 Legal fees -771.729,36 -1.407.300,42 Audit fees -403.111,80 -155.345,00 Accounting and corporate fees -280.901,88 -235.083,21 Insurance expense -280.337,57 -169.249,32 Consultancy fees -201.898,18 -498.119,00 Travel and entertainment expenses -84.848,17 -99.406,88 Rental expense -32.914,45 -21.067,68 Bank fees -18.428,62 -19.011,73 Other expenses -13.863,67 -9.125,04 Listing fee (Note 15) 0,00 -1.004.050,00 Other capital raising fees 0,00 -937.527,00 Notary fees 0,00 -11.363,15 Total -3.262.229,10 -5.337.615,66 The audit fees break down as follows: 2023 2022 EUR EUR Statutory audit of the annual accounts 128.319,75 173.260,00 Audit-related fees 274.792,05 (17.915,00) Total 403.111,80 155.345,00 *Negative cost of EUR 17,915 is due to the reversal of an over-accrual made in the previous financial period. - 31 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) 10. OTHER OPERATING EXPENSES Other operating expenses are composed of: 2023 2022 EUR EUR Directors fees -839.720,74 -717.672,36 CSSF fees -32.282,63 -56.975,00 Other expenses -428,00 - Total -872.431,37 -774.647,36 11. INTEREST PAYABLE AND SIMILAR EXPENSES Interest payable and similar expenses are composed of: 2023 2022 EUR EUR Interest payable to affiliated undertakings - -11.707,09 Banking interest on current accounts - -11.208,32 Other financial charges -122,86 -437.504,60 Total -122,86 -460.420,01 Other financial charges Other financial charges in 2022 comprise of an arrangement fee of EUR 437.500,00 incurred on the loan facility provided by ELF Fund. The remaining balance pertains to foreign currency exchange losses. 12. STAFF The Company did not employ any staff during the year ended 31 December 2023 (2022: nil). 13. EMOLUMENTS GRANTED TO THE MEMBERS OF THE MANAGEMENT AND COMMITMENTS IN RESPECT OF RETIREMENT PENSIONS FOR FORMER MEMBERS OF THE MANAGEMENT The Company did not grant any emoluments to and has no commitments in respect of retirement pensions towards members of its Board of Directors during the year ended 31 December 2023, except for those disclosed in Note 10. - 32 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) 14. ADVANCES AND LOANS GRANTED TO THE MEMBERS OF THE MANAGEMENT The Company did not grant any advances or loans to members of its Board of Directors during the year ended 31 December 2023, except for those disclosed in Note 4. 15. OFF-BALANCE SHEET COMMITMENTS The following agreements were entered by the Company in the context of the private placement: a. On 24 May 2022, the Company entered into a fee letter with ELF European Lending Fund I SCSp SICAV-RAIF (“ELF Fund”) for facilitating the loan facility. Under this agreement, the Company paid a fee of 1,75% of the amount invested by SMG SPAC Investment S.à r.l.., a class A shareholder, (the “Sponsor Investment”), on the date of the completion of the private placement. This fee was paid from the Sponsor Capital At-Risk. On the date of the consummation of the Business Combination, the Company will pay ELF Fund a fee of 3,5% on the Sponsor Investment. b. On 25 May 2022, the Company entered into an underwriting agreement with Barclays Bank Ireland PLC (“Barclays”) as the Sole Global Coordinator and Joint Bookrunner, and ABN AMRO Bank N.V. (“ABN AMRO”) as Joint Bookrunner. Under this agreement, the Company paid a Listing Fee of 1,75% of the gross proceeds from the Private Placement raised from investors initially contacted by Barclays and ABN AMRO on the date of the completion of the Private Placement and a Deferred Listing Commission of 3,5% on the gross proceeds from the private placement raised from investors initially contacted by Barclays and ABN AMRO on the completion of the Business Combination. c. On 25 May 2022, the Company entered into a fee letter with Alpine Consulting B.V.. Under this agreement, the Company paid a fee of 1,75% of the gross proceeds from the private placement raised from investors initially contacted by Alpine Consulting on the date of the completion of the private placement. This fee was paid from the Sponsor Capital At-Risk. On the date of the consummation of the Business Combination, the Company will pay a fee of 3,5% on the gross proceeds from the private placement raised from investors initially contacted by Alpine Consulting. The Company has no other commitments and contingencies as at 31 December 2023 (2022: nil). 16. SUBSEQUENT EVENTS The following are the significant events after balance sheet date: • On 2 January 2024, the Sponsor acquired 431.250 class B1 shares and 431.250 class B2 shares from the co-sponsor for a total consideration of EUR 246.000. • On 2 January 2024, the Sponsor acquired 1.836.000 class B warrants from the co-sponsor for a total consideration of EUR 1.854.000. • On 15 February 2024, the Company signed a Business Combination Agreement (“BCA”) with the Sircle Hospitality Group Ltd (“Sircle”), an expert real estate investment group specialized in hospitality across Europe. Pursuant to the BCA and as part of the preparation for the Closing, the Sponsor agrees to proceed with: • the Class B2 shares redemption for no consideration by redeeming 408.333 Class B2 shares and up to an additional 550.000 Class B2 shares calculated pursuant to section 2.1.1 of the BCA; • conversion of the remaining class B1 and class B2 shares in the Company into class A shares on a 1 for 1 basis; and - 33 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) • issuance by the Company of an estimated additional 14.454.731 class A shares to the investors of Sircle in exchange of their shares in Sircle. • buyback (by way of public tender offer), all or substantially all outstanding class A warrants (except, in the case that the Cornerstone Investor makes the Subsidiary Investment, for 1,500,000 class A warrants held by the Cornerstone Investor) and subsequently cancel such class A warrants. • On 3 April 2024, the Sponsor waived the EUR 1.750.000 loan granted to the Company. • On 3 April 2024, the Company entered into a cost recharge agreement with the Sponsor detailing that per annum certain costs can be recharged to the Sponsor in an amount of up to €2,000,000. • In April 2024, an additional 2.949.140 class A shares were redeemed for a total consideration of EUR 30.523.599. • On 28 May 2024, the Company received an amount of EUR 1.034.000 from SMG Technology Holding S.à r.l. (the “Loan”) and subsequently used the cash proceeds to settle the amount owed to SMG Technology Acceleration SE. • On 28 June 2024, the general meeting of shareholders resolved to change the governance structure of the Company from a two-tier management structure to a one-tier management structure and to approve the amendment and full restatement of the articles of association of the Company in accordance. As a result of this change to the governance structure, George Aase, Anand Tejani, and Benoît De Belder resigned from the Supervisory Board of the Company, and Stefan Petrikovics, Liam Doyle, René Geppert, and Werner Weynand resigned from the Management Board of the Company. Subsequently, Stefan Petrikovics, Werner Weynand, and George Aase were appointed as members of the Board of Directors of the Company. • On 12 July 2024, SMG Technology Holding S.à r.l. and the Sponsor entered into an agreement pursuant to which the Loan was assigned by SMG Technology Holding S.à r.l. to the Sponsor. As at the date of these annual accounts, the Company experienced a liquidity shortage, among others from significant costs already incurred in connection with the Business Combination and its IPO which also caused the delay of the completion of the intended business combination signed on 15 February 2024. However, the Board of Directors is working to achieve a Business Combination in 2024. No other events occurred after the reporting date which would impact the financial situation of the Company as of 31 December 2023 or its performance for the year then ended, or would require to be disclosed in the financial statements. 17. GOING CONCERN On 15 February 2024, the Company signed a Business Combination Agreement (“BCA”) with the Sircle Hospitality Group Ltd (“Sircle”). Due to a delay in meeting certain closing conditions of the BCA, a consummation of the Business Combination by 31 May 2024, as agreed in the BCA, has not been possible. However, Sircle has so far not expressed or indicated that it wishes to or will exercise its termination right under the BCA. Sircle confirmed in writing on 26 August 2024 that they remained “open to closing the transaction under the Business Combination Agreement (the “BCA”), subject to SMG and the Sponsor fulfilling all their obligations under the BCA, including meeting the Minimum Cash Condition (as defined in the BCA)”. Sircle had previously indicated that it may seek certain modifications of the terms of the Business Combination in order to still complete the transactions. No modifications have yet been communicated and conversations on this are still ongoing. Due to the delay in completion, the Company experienced a liquidity shortage, among others from significant costs already incurred in connection with the Business Combination, and its ongoing payment obligations in order to operate as a publicly listed company until such time that the Company and Sircle become a combined entity via the consummation of the Business Combination. - 34 - SMG Hospitality SE (Formerly SMG European Recovery SPAC SE) Notes to the annual accounts for the year ended 31 December 2023 (Expressed in EUR) Management is of the opinion that the going concern assumption is appropriate due to the signed BCA still being intact and enforceable and both parties still being committed to consummate the Business Combination, albeit under modified conditions than currently agreed. Discussions are ongoing with the shareholder as well to improve the liquidity situation of the Company. The shareholder is exploring different refinancing possibilities to raise cash to bring the necessary funding to the Company. Although the going concern assumption is deemed appropriate, it is clear from the above that material uncertainties exist to date regarding the Company's ability to meet all closing conditions of the BCA and hence secure the completion of the Business Combination, essential to guarantee the continuity of the Company. - 35 -