Mr. W. Scott Boyes reports

MPX INTERNATIONAL ANNOUNCES SECOND QUARTER 2020 FINANCIAL RESULTS

MPX International Corp. has released financial results for its second quarter, the three- and six-month period ended March 31, 2020.

The corporation is focused on developing and operating assets across the global cannabis industry with an emphasis on cultivating, manufacturing and marketing products, which include cannabinoids as their primary active ingredient.

Recent highlights:

• On July 2, 2020, the corporation announced that it had closed the first tranche of its previously announced non-brokered private placement offering of units of the corporation. The closing of the first tranche of the offering resulted in the issuance of 3,348 units at a price of $1,000 (U.S.) ($1,360 (Canadian)) for aggregate gross proceeds of $3,348,000 (U.S.) ($4,553,280 (Canadian)). Each unit consists of one 12 per cent secured convertible debenture of the corporation in the principal amount of $1,000 (U.S.) ($1,360 (Canadian)) and 7,000 common share purchase warrants. The corporation intends to use the proceeds from the offering to finance product and facility development in Switzerland and retail expansion in Canada, as well as for working capital and other general corporate purposes.
• On July 6, 2020, the corporation announced that its wholly owned subsidiary, Spartan Wellness Corp., has entered into a service agreement dated July 1, 2020, with Medical Cannabis by Shoppers Drug Mart Inc., a subsidiary of Shoppers Drug Mart. The service agreement calls for Spartan to utilize its network of volunteers and professionals to perform clinical services for Shoppers Drug Mart patients, which will include prescribing cannabinoid combination and strength, delivery methods, and general education about cannabis use, as well as conducting follow-up medical appointments to monitor efficacy and patient well-being.

In Canada, the corporation is transitioning its principal business model away from cultivation to one of intermediation between buyers and sellers, accessing or facilitating the sale of cannabis products from third party licence holders, and arranging or facilitating sales to medical cannabis consumers domestically or, increasingly, to international buyers. This strategy reduces or eliminates the need for large capital investment, while generating fees and margins with equivalent net returns to those generally available from seed-to-sale operations. The corporation is currently involved in late-stage negotiations to facilitate several export opportunities to Europe and Australia, through its fully licenced and wholly owned subsidiary, MPX Australia Pty. Ltd.

Domestically, Spartan and the Medical Cannabis Learning Network (the MCLN) are currently working with a combined 13 licence holders to educate and market cannabinoid-based medicines to Canadian patients. As well, MPX is anticipating the addition of several additional LHs to the platform over the next several weeks. The corporation generates transactional and/or hourly based consulting fees from LHs for sales generated over the network on behalf of the LHs. The Spartan/MCLN platform acts as both a telemedicine medium, providing patient access to medical practitioners for advice and cannabis prescriptions and as a sales platform for licence holders. The MCLN operates in much the same manner as Amazon or Shopify by providing on-line sales facilitation between consumers and suppliers.

While Canveda Inc., a wholly owned subsidiary of the corporation and licence holder, will continue to operate its 12,000-square-foot cultivation facility in Peterborough, Ont., MPX has shelved plans for any acquisition or expansion of additional cultivation in Canada and will market its estimated 1,200 kilograms of annual production through its Spartan and MCLN channels, as well as to various provincial cannabis distribution agencies.

The MCLN and its integration with the Spartan platform will play a significant role in the company's growth in Canada this coming year. Spartan is a leading medical cannabis clinic dedicated to assisting veterans of the Canadian Armed Forces, RCMP and other first responders since 2017. Spartan has also expanded its services to helping Canadians seek medical cannabis education, prescriptions and advice on a wide selection of reputable Health Canada-approved product offerings at its premier virtual clinic. Spartan prides itself on its three key measures for aligning clients with reputable suppliers: customer services, product availability and product quality. Spartan attributes its continued growth to its four pillars of success: (1) honesty; (2) integrity; (3) respect; and (4) giving back to the community.

Over 40 countries, including 24 in Europe, have legalized cannabis in some form, and medicinal use is by far the primary focus of legalization. Success in the medical cannabis marketplace is largely determined by the number of patients being served, and the MCLN is a leading-edge patient acquisition technology, which can be adapted for use in many countries.

MPX continues to explore opportunities to enter the retail (dispensary) arena in Canada and expand in Switzerland and the United Kingdom. It opened the first beleaf branded outlet in central London in December, 2019, and the first HolyWeed branded locations in Geneva in January, 2020. The corporation intends to continue the creation and expansion of a retail footprint for its products in Canada, Europe and elsewhere.

In Switzerland, a harvest of approximately 90,000 kilograms of high-cannabidiol, organic, cannabis-light biomass offers the corporation the ability to process substantial amounts of CBD distillate, isolate and smokable product for sale into the global market throughout the coming months. MPX has entered into a lease for a facility in the Geneva area, and while delayed by the advent of the COVID-19 pandemic, it is currently being converted into a mid-scale extraction and processing facility, which is expected to commence operations later in 2020.

With the ultimate goal of creating a global supply chain of low-cost biomass, efficiently scaled production of GMP (good manufacturing practice)-quality cannabinoid products for sale into high-value markets, the corporation will also continue to develop its projects in Malta, Australia and South Africa. While again plagued with COVID-19-induced delays, the corporation continues to expect each of these projects to commence operations during the early part of the 2021 calendar year.

The business interruption created by the global shutdowns and travel restrictions has had a negative impact on the progress of the multiple domestic and international projects initiated by the corporation in late 2019 and early 2020. Unlike most other cannabis ventures, virtually all of MPX's operations were still in the prerevenue stage when the virus emerged. As a result, the corporation embarked on a plan of cost containment, including wage reductions, the cancellation of several consulting arrangements, the delay of construction of facilities in Switzerland and South Africa, and the abandonment of selected infrastructure projects in Canada and Australia. MPX will extend many of these cost-saving initiatives in the post-COVID period, and, combined with concentrating on the development of revenues in Canada, Switzerland and elsewhere, the corporation continues its drive toward becoming EBITDA (earnings before interest, taxes, depreciation and amortization) positive.

Finally, the corporation continues to investigate other international expansion opportunities that can provide lower-cost cultivation, new genetics, innovative production technologies and, most importantly, new markets for its products.

Financial overview

The key financial measures indicated herein were used by management in evaluating and assessing the performance of MPX's business for the fiscal second quarter of 2020. A more detailed discussion of these and other metrics, as well as operational events, can be found in the corporation's financial statements and management's discussion and analysis filed on SEDAR.

Net revenue

For the three months ended March 31, 2020, MPX reported net revenue of $798,516, up 29.5 per cent from $616,309 for the three months ended Dec. 31, 2019, and up 276 per cent from $212,201 for the three months ended March 31, 2019. Revenue was mainly driven by sales in Spartan, Canveda and HolyWorld SA.

For the six months ended March 31, 2020, MPX reported net revenue of $1,414,825, up 202 per cent from $468,773 for the six months ended March 31, 2019. Revenue was mainly driven by sales in Spartan, Canveda and HolyWeed.

Gross profit

Gross profit for the three months ended March 31, 2020, before adjustment for the unrealized gain in the fair value of biological assets, was $613,103, which represents a gross margin of 77.3 per cent. Gross profit after adjustment for the unrealized gain in the fair value of biological assets was $993,296 calculated at 125.2 per cent of sales. The unrealized gain in fair value of biological assets relates to cannabis plants at the Canveda facility and in Switzerland.

Gross profit for the three months ended Dec. 31, 2019, before adjustment for the unrealized gain in the fair value of biological assets, was $551,605, which represents a gross margin of 88.2 per cent. Gross profit after adjustment for the unrealized gain in the fair value of biological assets was $1,416,848 calculated at 226.5 per cent of sales. The unrealized gain in fair value of biological assets relates to cannabis plants at the Canveda facility.

Gross profit for the three months ended March 31, 2019, before adjustment for the unrealized gain in the fair value of biological assets, was $203,832, which represents a gross margin of 96.1 per cent. Gross profit after adjustment for the unrealized gain in the fair value of biological assets was $267,992 calculated at 126.3 per cent of sales. The unrealized gain in fair value of biological assets relates to cannabis plants at the Canveda facility.

Gross profit for the six months ended March 31, 2020, before adjustment for the unrealized gain in the fair value of biological assets, was $1,164,708, which represents a gross margin of 82.1 per cent. Gross profit after adjustment for the unrealized gain in the fair value of biological assets was $2,410,144 calculated at 169.9 per cent of sales. The unrealized gain in fair value of biological assets relates to cannabis plants at the Canveda facility and in Switzerland.

Gross profit for the six months ended March 31, 2019, before adjustment for the unrealized gain in the fair value of biological assets, was $443,153, which represents a gross margin of 94.5 per cent. Gross profit after adjustment for the unrealized gain in the fair value of biological assets was $793,057 calculated at 169.2 per cent of sales. The unrealized gain in fair value of biological assets relates to cannabis plants at the Canveda facility.

Operating expenses

General and administrative expenses decreased to $3,372,799 for the three months ended March 31, 2020, a reduction of 12.6 per cent or $490,582 as compared with $3,863,381 for the three months ended Dec. 31, 2019. The decrease in general and administrative expenses was primarily due to cost-saving measures introduced by the corporation in salaries, consulting fees, and office and general expenses during the three months ended March 31, 2020.

General and administrative expenses were $3,372,799 for the three months ended March 31, 2020, as compared with $1,916,284 for the three months ended March 31, 2019.

General and administrative expenses were $7,236,180 for the six months ended March 31, 2020, as compared with $2,731,358 for the six months ended March 31, 2019.

Over all, the increase in general and administrative for the six months ended March 31, 2020, as compared with the six months ended March 31, 2019, was primarily due to increases in salaries and benefits, consulting fees, and office and general expenses relating to acquisitions during the period and the corporation's continued growth.

Professional fees decreased to $444,216 for the three months ended March 31, 2020, a reduction of 47.4 per cent or $400,835 as compared with $845,051 for the three months ended Dec. 31, 2019, as a result of cost-saving measures introduced by the corporation during the three months ended March 31, 2020.

Professional fees increased to $444,216 for the three months ended March 31, 2020, as compared with $435,292 for the three months ended March 31, 2019.

Professional fees increased to $1,289,267 for the six months ended March 31, 2020, as compared with $752,822 for the six months ended March 31, 2019.

This increase in professional fees for the six months ended March 31, 2020, as compared with the six months ended March 31, 2019, is mainly due to the change in volume and complexity of accounting and legal services required by the corporation driven by acquisitions and growth. These fees include expenses related to audit, advisory, legal work, government and investor relations, consulting, and costs associated with the board of directors.

As part of the corporation's incentive stock option plan, the corporation recognized $30,130 of share-based compensation for the three months ended March 31, 2020, as compared with $40,712 for the three months ended Dec. 31, 2019, and $1,034,694 for the three months ended March 31, 2019.

As part of the corporation's incentive stock option plan, the corporation recognized $70,302 of share-based compensation for the six months ended March 31, 2020, as compared with $1,230,376 for the six months ended March 31, 2019.

The corporation granted stock options to employees, consultants, directors and officers of the corporation under the corporation's stock option plan on Feb. 26, 2019, May 29, 2019, Sept. 19, 2019, and Feb. 11, 2020.

Amortization and depreciation expenses increased to $2,398,799 for the six months ended March 31, 2020, as compared with $368,657 for the six months ended March 31, 2019. The increase in amortization and depreciation relates primarily to the amortization of the MCLN licence commencing in December, 2019, and the additional amortization from the adoption of international financial reporting standard 16 during the six months ended March 31, 2020.

Other income and expenses

Other income was $1,146,898 for the three months ended March 31, 2020, as compared with other income of $85,707 for the three months ended Dec. 31, 2019, and other expenses of $194,451 for the three months ended March 31, 2019.

Other income was $1,232,605 for the six months ended March 31, 2020, as compared with other expenses of $778,334 for the six months ended March 31, 2019.

Net loss after tax

Net loss after tax was $2,528,169 for the three months ended March 31, 2020, as compared with a loss of $4,456,065 for the three months ended Dec. 31, 2019, and a loss of $3,600,923 for the three months ended March 31, 2019.

Net loss after tax was $6,984,234 for the six months ended March 31, 2020, as compared with a loss of $5,079,768 for the three months ended March 31, 2019.

Adjusted EBITDA

Adjusted EBITDA was a loss of $3,503,492 for the three months ended March 31, 2020, a 22-per-cent or $1,010,444 improvement as compared with a loss of $4,513,936 for the three months ended Dec. 31, 2019. Prior year was a loss of $2,012,973 for the three months ended March 31, 2019.

Adjusted EBITDA was a loss of $8,017,428 for the six months ended March 31, 2020, as compared with a loss of $2,962,767 for the six months ended March 31, 2019.

About MPX International Corp.

MPX International is a multinational diversified cannabis company focused on developing and operating assets across the global cannabis industry with an emphasis on cultivating, manufacturing and marketing products, which include cannabinoids as their primary active ingredient.

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