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Form 8-K/A TerrAscend Corp. For: Mar 08

May 24, 2022 8:56 AM EDT

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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-262566) of TerrAscend Corp. of our auditor’s report dated May 23, 2022 relating to the consolidated financial statements of Gage Growth Corp. as at December 31, 2021 and for the year then ended December 31, 2021, which appears in this Current Report on Form 8-K/A.

 

/s/ MNP LLP

Chartered Professional Accountants

Licensed Public Accountants

May 24, 2022

Waterloo, Canada


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gage Growth Corp.

Consolidated Financial Statements

For the year ended December 31, 2021

(In United States Dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Gage Growth Corp.

Consolidated Balance Sheets

As of December 31, 2021

(Expressed in United States Dollars, unless stated otherwise)

 

 

 

 

December 31, 2021

 

 

 

$

 

Assets

 

 

 

Current

 

 

 

Cash and cash equivalents

 

 

42,901,079

 

Restricted cash

 

 

1,800,284

 

Marketable securities

 

 

565,029

 

Accounts receivable, net

 

 

7,700,430

 

Prepaids and other current assets

 

 

2,133,609

 

Inventory

 

 

17,639,001

 

 

 

 

72,739,432

 

Non-current assets

 

 

 

Property and equipment, net

 

 

68,473,337

 

Operating right of use assets

 

 

2,316,794

 

Deposits

 

 

1,541,007

 

Intangible assets, net

 

 

8,813,810

 

Investments

 

 

2,294,257

 

 

 

 

83,439,205

 

 

 

 

156,178,637

 

Liabilities

 

 

 

Current

 

 

 

Accounts payable and accrued liabilities

 

 

33,621,918

 

Corporate income tax payable

 

 

4,419,139

 

Operating lease liability

 

 

439,784

 

Property purchase payable

 

 

2,665,341

 

Deferred revenue

 

 

582,792

 

Loans payable

 

 

55,649,482

 

Debentures payable

 

 

2,804,030

 

Financing liability

 

 

688,984

 

Other current liabilities

 

 

107,238

 

 

 

 

100,978,708

 

Non-current liabilities

 

 

 

Financing liability

 

 

12,235,097

 

Operating lease liability

 

 

2,037,189

 

Property purchase payable

 

 

3,822,909

 

Loans payable

 

 

5,198,220

 

Warrant liability

 

 

17,230,055

 

Deferred tax liabilities

 

 

 

Other non-current liabilities

 

 

138,379

 

 

 

 

40,661,849

 

 

 

 

141,640,557

 

 

 

 

 

Shareholders' Equity

 

 

 

Subordinate voting shares, without par value, unlimited authorized, 138,528,663 shares issued as of December 31, 2021

 

 

 

Super Voting Shares, without par value, unlimited authorized, 1,500,000 issued as of December 31, 2021

 

 

 

Exchangeable units, without par value, 1,500,000 authorized and issued as of December 31, 2021

 

 

 

Additional paid-in-capital

 

 

171,196,764

 

Accumulated deficit

 

 

(93,684,699

)

Accumulated other comprehensive income

 

 

2,807,090

 

 

 

 

80,319,155

 

Non-controlling interest

 

 

(65,781,075

)

Total shareholders' equity

 

 

14,538,080

 

 

 

 

156,178,637

 

The accompanying notes are an integral part of these consolidated financial statements.

1


Gage Growth Corp.

Consolidated Statements of Operations and Comprehensive Loss

For the year ended December 31, 2021

(Expressed In United States Dollars, unless stated otherwise)

 

 

 

 

 

For year ended Dec 31,

 

 

 

 

2021

 

 

 

 

 

 

Revenue

 

 

 

91,499,767

 

Cost of sales

 

 

 

(62,100,782

)

Gross Profit

 

 

 

29,398,985

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

General administration

 

 

 

49,024,546

 

Sales and marketing

 

 

 

7,089,387

 

Litigation Expense

 

 

 

2,700,000

 

Depreciation and amortization

 

 

 

1,683,059

 

Operating lease expense

 

 

 

508,939

 

Impairment loss

 

 

 

2,635,486

 

Loss on disposal of finance lease

 

 

 

1,043,913

 

 

 

 

 

64,685,330

 

 

 

 

 

 

Loss from operations

 

 

 

(35,286,345

)

Other (income) expenses

 

 

 

 

Finance expense

 

 

 

3,510,414

 

Unrealized and realized foreign exchange loss (gain)

 

 

 

(261,684

)

Change in fair value of marketable securities

 

 

 

466,520

 

Change in fair value of investments

 

 

 

2,720,294

 

Gain on fair value of warrants

 

 

 

(6,231,316

)

Loss before taxes

 

 

 

(35,490,573

)

Income tax expense (recovery)

 

 

 

 

Current

 

 

 

9,955,469

 

Deferred

 

 

 

(1,117,088

)

 

 

 

 

 

Net loss for the period

 

 

 

(44,328,954

)

 

 

 

 

 

Net loss attributable to subordinate shareholders

 

 

 

(18,580,585

)

Net loss attributable to non-controlling interest

 

 

 

(25,748,369

)

 

 

 

 

(44,328,954

)

Other comprehensive (loss) income ("OCI")

 

 

 

 

 

 

 

 

 

Items that will not be reclassified to profit or loss

 

 

 

 

Unrealized foreign currency translation gain

 

 

 

765,020

 

 

 

 

 

 

Comprehensive loss for the period

 

 

 

(43,563,934

)

 

 

 

 

 

Comprehensive loss attributable to subordinate shareholders of the Company

 

 

 

(18,580,585

)

Comprehensive loss attributable to non-controlling interest

 

 

 

(25,748,369

)

 

 

 

 

(44,328,954

)

 

 

 

 

 

Basic and Diluted net loss per share

 

 

 

(0.14

)

Weighted-average number of shares outstanding - basic and diluted

 

 

 

137,474,219

 

The accompanying notes are an integral part of these consolidated financial statements.

2


Gage Growth Corp.

Consolidated Statements of Changes in Shareholders’ Equity

For the year ended December 31, 2021

(Expressed in United States Dollars, unless stated otherwise)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of
Subordinate
Voting
Shares

 

 

 

Number of Super Voting Shares

 

 

 

 

Exchangeable unit shares

 

 

Additional paid in capital

 

 

Accumulated other comprehensive income

 

 

Accumulated deficit

 

Total

 

Non-controlling interest

 

 

Attributable to subordinate shareholders

 

Balance at December 31, 2020

 

 

131,649,944

 

 

 

 

1,500,000

 

 

 

 

 

1,500,000

 

 

 

156,329,152

 

 

 

2,042,070

 

 

 

(75,104,114

)

 

83,267,108

 

 

(40,032,706

)

 

 

43,234,402

 

Share-based payments

 

 

 

1,770,000

 

 

 

 

 

 

 

 

 

 

 

 

2,996,000

 

 

 

 

 

 

 

 

2,996,000

 

 

 

 

 

2,996,000

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,498,788

 

 

 

 

 

 

 

 

3,498,788

 

 

 

 

 

3,498,788

 

Reg. A Financing

 

 

 

4,614,255

 

 

 

 

 

 

 

 

 

 

 

 

8,116,089

 

 

 

 

 

 

 

 

8,116,089

 

 

 

 

 

8,116,089

 

Transaction costs deducted from Reg. A Financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(673,507

)

 

 

 

 

 

 

 

(673,507

)

 

 

 

 

(673,507

)

Exercise of share options

 

 

 

434,164

 

 

 

 

 

 

 

 

 

 

 

 

858,474

 

 

 

 

 

 

 

 

858,474

 

 

 

 

 

858,474

 

Exercise of warrants

 

 

 

60,300

 

 

 

 

 

 

 

 

 

 

 

 

71,768

 

 

 

 

 

 

 

 

71,768

 

 

 

 

 

71,768

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

765,020

 

 

 

 

 

765,020

 

 

 

 

 

765,020

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,580,585

)

 

(18,580,585

)

 

(25,748,369

)

 

 

(44,328,954

)

Balance at December 31, 2021

 

 

138,528,663

 

 

 

 

1,500,000

 

 

 

 

 

1,500,000

 

 

 

171,196,764

 

 

 

2,807,090

 

 

 

(93,684,699

)

 

80,319,155

 

 

(65,781,075

)

 

 

14,538,080

 

The accompanying notes are an integral part of these consolidated financial statements.

3


Gage Growth Corp.

Consolidated Statements of Cash Flows

For the year ended December 31, 2021

(Expressed in United States Dollars, unless stated otherwise)

 

 

 

Year ended December 31,

 

 

 

2021

 

 

 

$

 

Operating activities

 

 

 

Net loss for the period

 

 

(44,328,954

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities

 

 

 

Depreciation and amortization

 

 

2,509,614

 

Depreciation of right of use assets

 

 

790,343

 

Share-based payments

 

 

6,492,965

 

Allowance for doubtful accounts

 

 

692,447

 

Non-cash write downs of inventory

 

 

1,043,133

 

Non-cash litigation expense

 

 

2,700,000

 

Unrealized gain on marketable securities and convertible debenture

 

 

466,520

 

(Gain) loss on foreign exchange

 

 

(261,684

)

Change in fair value of investments

 

 

2,720,294

 

Deferred tax (recovery) expense

 

 

(1,117,087

)

Interest expense

 

 

1,992,933

 

Impairment expense

 

 

2,635,486

 

Loss on disposal of finance leases

 

 

1,043,913

 

Gain on financial instruments

 

 

(6,658,670

)

Changes in operating assets and liabilities

 

 

 

Accounts receivable

 

 

(8,141,034

)

Prepaids and other current assets

 

 

(844,288

)

Inventory

 

 

(11,537,638

)

Accounts payable and accrued liabilities

 

 

11,302,393

 

Operating lease liability

 

 

824,846

 

Current tax payable

 

 

3,095,026

 

Deferred revenue

 

 

186,926

 

Other

 

 

302,952

 

Net cash used in operating activities

 

 

(34,089,565

)

 

 

 

 

Investing activities

 

 

 

Investment in convertible debentures

 

 

(401,966

)

Addition of intangible assets

 

 

(2,501,274

)

Proceeds from sale of investment

 

 

1,779,582

 

Purchase of property, plant, and equipment

 

 

(23,840,192

)

Net cash used in investing activities

 

 

(24,963,850

)

 

 

 

 

Financing activities

 

 

 

Net proceeds from Reg. A financing

 

 

7,442,582

 

Notes payable payments

 

 

(1,062,700

)

Share options exercised

 

 

860,296

 

Warrants exercised

 

 

71,769

 

Repayment of debenture payable

 

 

(289,126

)

Repayments of property purchase payable

 

 

(847,370

)

Lease liability payments

 

 

(2,044,078

)

Proceeds from Credit facility

 

 

53,419,895

 

Net cash provided by financing activities

 

 

57,551,268

 

 

 

 

 

Increase (decrease) in cash, cash equivalents, and restricted cash

 

 

(1,502,147

)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

747,928

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

45,455,583

 

Cash, cash equivalents, and restricted cash at end of period

 

 

44,701,364

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

Income Taxes Paid

 

 

5,041,348

 

Interest Paid

 

 

1,517,481

 

Amount included in restricted cash

 

 

1,800,284

 

 

 

 

 

Non-cash transactions

 

 

 

 

 

 

 

Promissory notes issued as consideration for asset purchase

 

 

4,255,408

 

 

4


Gage Growth Corp.

Property purchase payables assumed in consideration for land and buildings

 

 

6,990,116

 

Warrants for intangibles

 

 

2,018,185

 

Options issued for property

 

 

327,250

 

Accrued capital purchases

 

 

6,379,511

 

Capital purchases through property purchase payable

 

 

6,990,116

 

Marketable securities received in sale of investments

 

 

1,272,553

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

5


Gage Growth Corp.

Notes to the Consolidated Financial Statements

For the year ended December 31, 2021

(Expressed in United States Dollars, unless stated otherwise)

 

1.
INCORPORATION AND NATURE OF BUSINESS

 

Wolverine Partners Corp. (“Wolverine”) was incorporated on November 22, 2017, under the Ontario Business Corporations Act. On March 11, 2019, the Company filed an amendment to the Articles of Incorporation whereby the Company re-designated the existing class of common shares as subordinate voting shares (“Subordinate Voting Shares”) and is authorized to issue an unlimited number of super voting shares (“Super Voting Shares”) and proportionate voting shares (“Proportionate Voting Shares”) (Note 15). On October 9, 2020, Wolverine filed Articles of Amendment changing the name of the Corporation to Gage Growth Corp (“Gage”, the “Corporation”, or the “Company”). The principal activities of the Company are providing branding and crucial support services to affiliated licensed operators that produce, distribute, and sell cannabis and cannabis-related products in the State of Michigan.

 

The Company was listed on the Canadian Securities Exchange effective April 6, 2021, having the ticker symbol GAGE. The registered office of the Company is located at Suite 400, 77 King Street West Toronto –Dominion Centre, Toronto, Ontario M5K 0A1.

 

On March 10, 2022, the Company was purchased by TerrAscend Corp. ("TerrAscend"). As part of the transaction, Gage shareholders received 51,349,978 TerrAscend common shares, 13,504,500 exchangeable units, 5,221,542 replacement stock options, and 282,023 replacement warrants.

2.
BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE

 

Statement of compliance

 

These consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

 

Principles of consolidation

 

These consolidated financial statements include the accounts of the Company and its controlled subsidiaries. For financial reporting purposes, the Company consolidates legal entities in which it holds a controlling financial interest. The Company has a two-tier consolidation model: one focused on voting rights (the voting interest model) and the second focused on a qualitative analysis of power over significant activities and exposure to potentially significant losses or benefits (the variable interest model). All entities are first

6


Gage Growth Corp.

evaluated to determine whether they are variable interest entities (“VIE”). If an entity is determined not to be a VIE, it is assessed on the basis of voting and other decision-making rights under the voting interest model.

 

The accounts of all subsidiaries are prepared for the same reporting period using consistent accounting policies. All intercompany balances and transactions are eliminated on consolidation. The table below lists the Company, its controlled subsidiaries, and the ownership interests in each:

 

Name of Company

 

Place of Incorporation /
Operation

 

Functional
Currency

 

Ownership
%

Gage Growth Corp.

 

Canada

 

CAD

 

100%

Gage Innovations Corp.

 

Canada

 

CAD

 

100%

Cookies Retail Canada Corp.

 

Canada

 

CAD

 

80%

Rivers Innovation, Inc.

 

United States

 

USD

 

100%

Rivers Innovations US South LLC

 

United States

 

USD

 

100%

RI SPE LLC

 

United States

 

USD

 

100%

Spartan Partners Corporation

 

United States

 

USD

 

100%

Spartan Partners Holdings, LLC

 

United States

 

USD

 

51.3%

Spartan Partners Services LLC

 

United States

 

USD

 

51.3%

Spartan Partners, Properties LLC

 

United States

 

USD

 

51.3%

Spartan Partners Licensing LLC

 

United States

 

USD

 

51.3%

Mayde US, LLC

 

United States

 

USD

 

51.3%

AEY Holdings, LLC*

 

United States

 

USD

 

0%

AEY Thrive, LLC*

 

United States

 

USD

 

0%

AEY Capital, LLC*

 

United States

 

USD

 

0%

3 State Park, LLC*

 

United States

 

USD

 

0%

Pure Releaf SP Drive, LLC*

 

United States

 

USD

 

0%

RKD Ventures, LLC*

 

United States

 

USD

 

0%

Stadium Ventures, LLC*

 

United States

 

USD

 

0%

Effective February 11, 2021, Spartan Services terminated its services agreement, its license agreement and its membership interest transfer restriction and succession agreement with Buena Vista Real Estate LLC (“Buena Vista”). At the time of such termination, Buena Vista held a local permit for a non-operational provisioning center in Buena Vista, Michigan.

 

On August 1, 2021, Spartan Services signed a Services Agreement with RKD Ventures, LLC ("RKD"). As part of this agreement, Spartan Services effectively gained control over RKD. Consequently, the Company began to consolidate RKD into its financial statements subsequent to the August 1 agreement. At the end of September, AEY Holdings, LLC, finalized a purchase of 51% of the Membership Interests of RKD for $750,000. As RKD's net assets were already consolidated into the Company's financial statements, the Company recorded a corresponding adjustment to the Accumulated deficit to reflect the impact of the consideration paid.

 

On December 31, 2021, AEY Holdings, LLC (“AEY Holdings”), purchased 100% of the stock in Stadium Ventures, LLC (“Stadium Ventures”). As the Company controls AEY Holdings through previously existing agreements, the Company gained control of Stadium Ventures through this acquisition. The Company assessed this transaction to determine whether this represented a business acquisition in accordance with ASC 805. On assessment, the Company found that Stadium Ventures did not represent a business in accordance with ASC 805 'Business Combinations', as the entity at the time of acquisition did not have a substantive process with the ability to create outputs. Consequently, this acquisition was accounted for as an asset acquisition, with consideration transferred allocated to the assets acquired, which primarily consisted of an adult-use cannabis license and an operating lease asset.

 

*The Company through its subsidiaries, entered into Membership Interest Transfer Restriction and Succession Agreement and Services Agreements with its affiliated licensing companies which prevent the licensing companies from taking certain actions or omitting to take certain actions where to do so would be contrary to the expected economic benefits that the Company expects to derive from the relationship with the licensing companies. The Company includes these entities in its consolidation but has allocated their net loss and comprehensive loss in the Company’s Consolidated Statements of operations and Comprehensive Loss to net loss and comprehensive loss attributable to non-controlling interest.
 

3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

a) Functional and presentation currency


The functional currency of the Company and its Canadian subsidiaries is Canadian dollars (“C$”). The functional currency of the Company’s US subsidiaries is the US dollar (“USD”). The Company’s presentation currency is in USD. All amounts are presented in USD unless otherwise specified. Where the functional currency is different from the presentation currency, assets and liabilities have

7


Gage Growth Corp.

been translated using the exchange rate at the year end, and income, expenses, and cash flow items are translated using the rate that approximates the exchange rates at the dates of the transactions (the average for the period). All resulting exchange rate differences are recorded in accumulated other comprehensive (loss) income. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognized immediately in net loss. Non-monetary assets and liabilities are translated using historical exchange rates. Nonmonetary assets and liabilities measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Transactions entered into in a currency other than the currency of the primary economic environment in which the Company or its subsidiaries operates (their "functional currency") are recorded at the rates prevailing when the transactions occur except depreciation and amortization which are translated at the rates of exchange applicable to the related assets. Foreign currency monetary assets and liabilities are translated at current rates of exchange with the resulting gain or losses recognized in the consolidated statements of operations and comprehensive loss.
 

b) Cash and cash equivalents


Cash and cash equivalents include cash on hand and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and subject to an insignificant risk of change in value.

Restricted cash includes any cash held that are restricted through legal agreements and are not available for general use by the Company.
 

c) Inventory


Inventories of harvested and purchased work-in-process and finished goods are valued at the lower of cost or net realizable value. Net realizable value is determined as the estimated selling price in the ordinary course of business less the reasonably predictable costs of completion, disposal and transportation. The direct and indirect costs of inventory include materials, labor and depreciation expense on equipment involved in packaging, labeling and inspection. Amortization of acquired cannabis production licenses are also considered to be indirect costs of inventory. All direct and indirect costs related to inventory are capitalized as they are incurred and they are subsequently recorded within cost of sales on the consolidated statements of operations at the time cannabis is sold.

The Company reviews inventory for obsolete, redundant, and slow-moving goods, and any such inventories are written down to net realizable value.
 

d) Property and equipment and long-lived assets held for sale
 

Property and equipment is measured at cost, including capitalized borrowing costs, less accumulated depreciation and impairment losses. Ordinary repairs and maintenance are expensed as incurred. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset using the following terms:

 

Asset type

 

Depreciation method

 

Depreciation terms

Land

 

No depreciation

 

No term

Building

 

Straight-line

 

15-39 years

Leasehold improvements

 

Straight-line

 

Over term of lease

Machinery and equipment

 

Straight-line

 

7-10 years

Office furniture and equipment

 

Straight-line

 

5-7 years

Computer and software

 

Straight-line

 

3-5 years

Construction in progress

 

No depreciation

 

No term

Right-of-use-assets

 

Straight-line

 

Over term of lease

Vehicles

 

Straight-line

 

3-5 years

 

Construction in process are transferred to the appropriate asset type when available for use and depreciation of the assets commences at that point.

Long-lived assets held for sale are recorded at their estimated fair value less costs to sell. The Company discontinues depreciation on these assets.

An asset’s residual value, useful life and depreciation method are reviewed annually, or when events or circumstances indicate that the current estimate or depreciation method are no longer applicable. Changes are adjusted prospectively if appropriate. Gains and losses on disposal of an asset are determined by comparing the proceeds from disposal with the carrying amount of the items and are recognized in the consolidated statements of operations. If a loss on disposal is expected, such losses are recognized when the assets are reclassified as assets held for sale or when impaired as part of an asset group’s impairment.

The Company evaluates the recoverability of property and equipment and long-lived assets held for sale, whenever events or changes in circumstances indicate that the carrying value of the asset or asset group may not be recoverable. See – Impairment of long-lived

8


Gage Growth Corp.

assets information within this note for detailed information on the Company’s impairment assessment of its property and equipment.
 

e) Leases
 

The Company’s leases are primarily operating leases for corporate offices and retail dispensaries.

The Company’s leases include fixed payments, as well as in some cases, scheduled base rent increases over the term of the lease. Certain leases require variable payments of common area maintenance, operating expenses, and real estate taxes applicable to the property. Variable payments are excluded from the measurements of lease liabilities and are expensed as incurred.

The Company determines if an arrangement is a lease at the inception of the contract. Lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term for those arrangements where there is an identified asset and the contract conveys the right to control its use. The right-of-use (“ROU”) asset is measured at the initial amount of the lease liability, adjusted for lease payments made at or before the lease commencement date, and initial direct costs. For operating leases, right-of-use assets are reduced over the lease term by the straight-line expense recognized, less the amount of accretion of the lease liability determined using the effective interest rate method. Finance leases are included in property and equipment in the Consolidated Balance Sheets.

The Company assigns a discount rate to leases based on its incremental borrowing rate at the time of lease inception. The majority of the Company’s leases do not provide an implicit rate that can be easily determined, and therefore uses its incremental borrowing rate and the information available at the commencement date.

Certain leases include one or more options to renew or terminate the lease at the Company’s discretion. The Company regularly evaluates lease renewal and termination options and, when they are reasonably certain of exercise, includes the renewal or termination option in the lease term.

The Company evaluates its ROU assets for impairment consistent with its impairment of long-lived assets. See – Impairment of long-lived assets information within this note for detailed information on the Company’s impairment assessment of its right-of-use assets.
 

f) Intangible assets
 

Intangible assets are recorded at cost less accumulated amortization and impairment losses, if any. Amortization is provided on a straight-line basis over the assets’ estimated useful lives, which do not exceed the contractual period, if any. The estimated useful lives, residual values and amortization methods are reviewed annually and any changes in estimates are accounted for prospectively. Licenses relating to cultivation and dispensaries are amortized using a useful life consistent with the property and equipment to which they relate. Brand intangible assets are amortized over 5 years.

The Company does not hold any indefinitely-lived intangible assets or Goodwill.
 

g) Impairment of long-lived assets
 

The Company evaluates the recoverability of long-lived assets, including property and equipment, ROU assets, and definite lived intangible assets, whether events or changes in circumstances indicate that the carrying value of the asset, or asset group, may not be recoverable.

When the Company determines that the carrying value of the long-lived asset may not be recoverable based upon the existence of one or more of the indicators, the assets are assessed for impairment based on the estimate of future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the carrying value of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying value over its fair value.
 

h) Investments
 

All investments are initially recorded at cost. Management assesses investments for impairment on an annual basis or when events or changes in circumstances indicate that the carrying value of the investment may not be recoverable.
 

i) Revenue recognition
 

Revenue is recognized by the Company in accordance with ASU 2014-09 Revenue from Contracts with Customers (Topic 606). The standard requires sales to be recognized in a manner that depicts the transfer of promised goods or services to a customer and at an amount that reflects the consideration expected to be received in exchange for transferring those goods or services. This is achieved by

9


Gage Growth Corp.

applying the following five steps: i) identify the contract with a customer; ii) identify the performance obligations in the contract; iii) determine the transaction price; iv) allocate the transaction price to the performance obligations in the contract; and v) recognize sales when (or as) the entity satisfies a performance obligation.

Revenues consist of wholesale and retail sales, which are recognized when control of the goods has transferred to the purchaser and the collectability is reasonably assured. For wholesale revenue, this is generally when goods have been shipped, which is also when the performance obligations have been fulfilled under the terms of the related sales contract. Revenue from retail sales of cannabis to customers for a fixed price is recognized when the Company transfers control of the goods to the customer at the point of sale and the customer has accepted and paid for the goods. Sales are recorded net of returns and discounts and incentives. Payment is typically due upon transferring the goods to the customer or within a specified time period permitted under the Company’s credit policy. All shipping and handling activities are performed before the customers obtain control of products and are accounted for as cost of sales.

From time to time, the Company partakes in sales agreements with suppliers in which it also purchases inventory. As part of the five-step revenue model, the Company assesses whether instances of bulk sales made to suppliers of goods have commercial substance and should be recognized as revenue, or whether they should be assessed under ASC 845 Nonmonetary Transactions.
 

j) Non-controlling interest
 

Non-controlling interest (“NCI”) represents equity interests in consolidated entities that are owned by parties that are not shareholders of the ultimate parent. Non-controlling interest is to be initially measured either at fair value or at the noncontrolling interest’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets.

k) Income taxes
 

Income tax expense, consisting of current and deferred tax expense, is recognized in the consolidated statements of operations. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted at period-end, adjusted for amendments to tax payable with regard to previous years. Deferred tax assets and liabilities and the related deferred income tax expense or recovery are recognized for deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply when the asset is realized, or the liability settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that enactment occurs. A deferred tax asset is recognized to the extent that it is more-likely-than-not that future taxable profits will be available against which the asset can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, the deferred tax asset is reduced. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
 

l) Share based compensation
 

The Company has a stock option plan in place. The Company measures equity settled share-based payments based on their fair value at the grant date and recognizes compensation expense on a graded basis over the vesting period. Fair value is measured using the Black-Scholes option pricing model. In estimating fair value, management is required to make certain assumptions and estimates such as the expected life of units, volatility of the Company’s future share price, risk free rates, expected forfeiture and future dividend yields at the initial grant date. Changes in assumptions used to estimate fair value could result in materially different results. Expected forfeitures are estimated at the date of grant, based on historical trends of actual option forfeitures, and subsequently adjusted if further information indicates actual forfeitures may vary from the original estimate. Any revisions are recognized in the consolidated statements of operations and comprehensive loss such that the cumulative expense reflects the revised estimate. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If the actual forfeiture rate is materially different from management’s estimates, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period.

Upon exercise of stock options and warrants that are classified as equity, any historical fair value in the warrants and share-based compensation reserve is allocated to additional paid in capital. Amounts recorded for expired unexercised stock options and warrants are transferred to deficit in the year of expiration.

 

m) Share capital

 

Subordinate voting shares

Common shares are classified as equity. The proceeds from the exercise of stock options or warrants together with amounts previously allocated to additional paid-in-capital over the vesting periods are recorded as share capital. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity.

10


Gage Growth Corp.

 

Equity units

Proceeds received on the issuance of equity units comprised of subordinate voting shares and warrants, such as convertible debentures and warrants, are allocated to common shares and warrants based on the relative fair value method.

 

n) Warrant liability
 

The Company may issue common stock warrants with debt, equity or as a standalone financing instrument that is recorded as either liabilities or equity in accordance with the respective accounting guidance. Warrants recorded as equity are recorded at their relative fair value determined at the issuance date and remeasurement is not required. Warrants recorded as liabilities are recorded at their fair value, within warrant liability on the consolidated balance sheets, and remeasured on each reporting date with changes recorded in the Company's consolidated statements of operations and comprehensive loss.
 

o) Convertible instruments

 

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities.

 

Companies are required to bifurcate conversion options from their host instrument and account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under GAAP with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

 

The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

 

p) Earnings (loss) per share
 

The Company presents basic and diluted earnings (loss) per share data for its ordinary shares. Basic earnings (loss) per share is calculated using the treasury stock method, by dividing the income (loss) attributable to common and proportionate shareholders of the Company by the weighted average number of common and proportionate voting shares outstanding during the period. Contingently issuable shares (including shares held in escrow) are not considered outstanding common shares and consequently are not included in the earnings (loss) per share calculations. The Company has the following categories of potentially dilutive common share equivalents: stock options, warrants, and convertible debentures.

In order to determine diluted earnings (loss) per share, it is assumed that any proceeds from the exercise of dilutive instruments would be used to repurchase common shares at the average market price during the period. The Company also considers all outstanding convertible securities, such as the convertible preferred shares, convertible debentures, and outstanding exchangeable shares as if the instruments were converted to the Company’s common stock. During the year ended December 31, 2021, all potentially dilutive shares were excluded from the calculation of diluted earnings per share as their impact would have been anti-dilutive.
 

q) Use of significant estimates and judgements
 

The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Management has applied significant estimates and judgements related to the following:
 

i.
Accounts Receivable

11


Gage Growth Corp.

 

For certain wholesale revenue transactions, sales are made to customers under specified credit terms. At inception and at the end of each period, the Company assesses outstanding accounts receivable to determine the accounts receivable, on a customer-by-customer basis that is expected to be collected. At inception, the amounts not expected to be collected are treated as a deduction to revenue. In subsequent periods, amounts considered to be bad debt expense are included in 'General administrative' expenses on the statements of operations and comprehensive loss.

 

ii.
Inventory
 

The net realizable value of inventory represents the estimated selling price in the ordinary course of business less the costs of completion, disposal and transportation. The Company estimates the net realizable value of inventories, taking into account the most reliable evidence available at each reporting date. The determination of net realizable value requires significant judgment, including consideration of factors such as shrinkage, the aging of and future demand for inventory, expected future selling price the Company expects to realize by selling the inventory, and the contractual arrangements with customers. Reserves for excess and obsolete inventory are based upon quantities on hand, projected volumes from demand forecasts and net realizable value. The future realization of these inventories may be affected by market-driven changes that may reduce future selling prices. A change to these assumptions could impact the Company’s inventory valuation and gross profit.

The impact of inventory reserves is reflected in cost of sales.
 

iii.
Revenue recognition
 

From time to time, the Company partakes in sales agreements with suppliers in which it also purchases inventory. As part of the five-step revenue model, the Company assesses whether instances of bulk sales made to suppliers of goods have commercial substance and should be recognized as revenue, or whether they should be assessed under ASC 845 Nonmonetary Transactions, which requires management judgment to determine if the transaction has commercial substance.
 

iv.
Share-based payments
 

In calculating share-based compensation expense, key estimates are used such as, the rate of forfeiture of options granted, the volatility of the Company’s stock price, and the risk-free interest rate.
 

v.
Warrant liability
 

In calculating the fair value of warrants issued, the Company includes key estimates such as the volatility of the Company's stock price and the risk-free interest rate. The Company uses judgment to select methods used and in performing the fair value calculations at the calculations at the initial measurement on issuance as well as for subsequent measurement on a recurring basis.

 

vi.
Income taxes
 

The extent to which deferred tax assets can be recognized is based on an assessment of the probability of the Company generating future taxable income against which the deferred tax assets can be utilized. In addition, significant judgment is required in classifying transactions and assessing probable outcomes of tax positions taken, and in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions. Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. It is possible, however, that at some future date, an additional liability could result from audits by taxing authorities. If the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.
 

vii.
Impairment of long-lived assets
 

The Company evaluates the recoverability of long-lived assets, including property and equipment, ROU assets, and definite lived intangible assets, whether events or changes in circumstances indicate that the carrying value of the asset, or asset group, may not be

12


Gage Growth Corp.

recoverable.

When the Company determines that the carrying value of the long-lived asset may not be recoverable based upon the existence of one or more of the indicators, the assets are assessed for impairment based on the estimate of future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the carrying value of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying value over its fair value.
 

viii.
Incremental borrowing rates

 

Lease payments are discounted using the rate implicit in the lease if that rate is readily available. If that rate cannot be easily determined, the lessee is required to use its incremental borrowing rate. The incremental borrowing rate is the rate of interest that the Company estimates it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The Company calculates its incremental borrowing rate as the interest rate the Company would pay to borrow funds necessary to obtain an asset of similar value over similar terms taking into consideration the economic factors and the credit risk rating at the commencement date of the lease.
 

ix.
Lease periods

 

The Company's lease terms may include options to extend or terminate the lease and such options are included in the lease term when it is reasonably certain that the Company will exercise these options.

 

x.
Acquisitions

 

The Company evaluates whether any acquisition of an entity represents a business or asset acquisition in accordance with ASC 805. To determine whether the acquired entity meets the definition of a business, the Company first assesses whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, then the acquired entity does not represent a business. If this is not met, then the Company considers whether the acquired entity has an input and substantive process that together significantly contribute to the ability to create outputs. If the acquired entity does not meet this threshold, then the Company will account for the acquisition as an asset acquisition, where the consideration price is applied to the assets acquired. If the acquired entity meets this threshold and is considered a business, in which substantially all identifiable assets, liabilities and contingent liabilities acquired are recorded at the date of acquisition at their respective fair values

 

xi.
Control, joint control, or level of influence
 

When determining the appropriate basis of accounting for the Company’s interests in affiliates, the Company makes judgments about the degree of influence that it exerts directly or through an arrangement over the investees’ relevant activities.
 

r) New standards, amendments and interpretations adopted
 

i.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted this standard effective January 1, 2021 and notes that it did not have a material impact on the Company’s consolidated financial statements.
ii.
In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounting for under Topic 815. The Company adopted this standard January 1, 2021 and notes that it did not have a material impact on the Company’s consolidated financial statements.
iii.
On August 5, 2020, the FASB issued ASU No. 2020-06, Debt- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The amendments in this Update are effective for public

13


Gage Growth Corp.

business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted this standard January 1, 2021 and notes that it does not have a material impact on the Company’s consolidated financial statements.
 

s) New standards, amendments, and interpretations not yet adopted
 

i.
In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is permitted, including adoption in an interim period. The ASU is currently not expected to have a material impact on the Company’s consolidated financial statements.
4.
ACCOUNTS RECEIVABLE, NET

 

 

 

December 31, 2021

 

Trade receivables

$

 

8,392,877

 

Less: provision for sales returns and expected credit losses

 

 

(692,447

)

Trade receivables, net

$

 

7,700,430

 

Of which

 

 

 

Current

$

 

5,504,855

 

31-90 days

 

 

1,627,500

 

Over 90 days

 

 

1,260,522

 

Less: provision for sales returns and expected credit losses

 

 

(692,447

)

Total trade receivables, net

$

 

7,700,430

 

The following is a roll-forward of the provision for allowances related to trade accounts, receivable for the years ended:

 

 

 

December 31, 2021

 

December 31, 2020

$

 

 

Provision for sales returns

 

 

 

Expected credit losses

 

 

692,447

 

Write-offs charged against provision

 

 

 

Total provision for expected credit losses

$

 

692,447

 

 

5.
INVENTORY

Inventory consists of domestically grown and produced medicinal and adult-use cannabis, concentrates, edibles, vaporizers, and merchandise for distribution. The Company's inventory is comprised of the following items:

 

 

December 31, 2021

 

Work in process

$

 

11,413,219

 

Finished goods

 

 

6,225,782

 

 

$

 

17,639,001

 


During the year ended December 31, 2021, the Company recorded impairment of $1,043,133 associated with the costs of excess and obsolete inventory.

 

6.
PROPERTY AND EQUIPMENT, NET

 

Property and equipment, net, consisted of:

 

14


Gage Growth Corp.

 

 

December 31, 2021

 

Land

$

 

3,051,232

 

Building

 

 

23,333,607

 

Leasehold improvements

 

 

8,291,136

 

Machinery and equipment

 

 

5,436,207

 

Office furniture

 

 

1,245,527

 

Computer and software

 

 

1,323,321

 

Construction in progress

 

 

28,538,123

 

Vehicles

 

 

57,727

 

Assets under finance leases

 

 

452,431

 

Total cost

 

 

71,729,311

 

Less: accumulated depreciation

 

 

(3,255,974

)

Property and equipment, net

$

 

68,473,337

 

 

During the year ended December 31, 2021, the Company capitalized $190,700 of borrowing costs.

Construction in process relates to both cultivation and dispensary facilities not yet completed or otherwise not placed into service.

Depreciation expense was $2,411,108 for the year ended December 31, 2021 ($826,555 included in cost of sales).
 

Asset Specific Impairment

The Company reviews the carrying value of its property and equipment at each reporting period for indicators of impairment. During the year ended December 31, 2021, the Company determined that two specific properties needed to be assessed for impairment as the Company’s operations related to both properties was far below initial cash flow estimates. The Company evaluated the recoverability of the asset to determine whether it would be recoverable. Upon analysis, it was determined that the carrying value of the asset exceeded its estimated future undiscounted cash flows and therefore recorded an impairment loss of $2,635,486 million.

 

7. INTANGIBLE ASSETS, NET

 

Intangible assets consisted of the following:

 

 

At December 31, 2021

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

Finite lived intangible assets

 

 

 

 

 

 

 

 

 

Licenses

$

 

6,952,849

 

$

 

(88,736

)

$

 

6,864,113

 

Brand intangibles

 

 

2,018,185

 

 

 

(68,488

)

 

 

1,949,697

 

Intangible assets, net

$

 

8,971,034

 

$

 

(157,224

)

$

 

8,813,810

 

 

The gross carrying amount of intangible assets increased $8,784,287 during the year ended December 31, 2021. The increase was mostly due to the purchase of a Cannabis license for the Company’s Ann Arbor location, which was valued at $6,760,686 and is amortized over 5 years. The consideration for the license included a $2,500,000 cash payment and a $4,260,686 note payable.

 

The remaining difference was due to the acquisition of brand intangibles. On July 1, 2021, Spartan Partners Licensing (“SPL”) signed an agreement with KKE Licensing. The IP agreement allows Spartan Partners Licensing and its affiliates the exclusive right to utilize the license and branding of KKE within the state of Michigan. The initial term of the agreement is 5 years from the commencement date, where the commencement date is the earlier of the first day of the month after the first shipment of products under the deal or November 1st. As part of the agreement, SPL pays a royalty fee of 5% on products sold under the agreement. In addition, the Company granted warrants as part of the agreement. The warrants were issued in order to maintain the Company’s exclusive right to utilize KKE’s name and branding within the State of Michigan. In total, 780,727 warrants were determinable and granted as part of the agreement, with 390,364 vesting on July 2nd, 2021, and 390,363 vesting on July 2nd, 2022. In addition, $500,000 worth of warrants will be granted on July 2, 2023 and $500,000 worth of warrants will be granted on July 2, 2024. The number of warrants to be issued will be determined closer to the date of issuance to determine the appropriate number of warrants to issue based on updated share price and volatility information.

 

The Company determined that the exclusive right to KKE’s name and branding represented a warrant liability, and recorded a warrant liability of $2,018,185 corresponding to the acquisition of the brand. Assumptions used in valuation of the KKE warrant liability are disclosed in footnote 22.

15


Gage Growth Corp.

 

Amortization expense was $98,506 for the year ended December 31, 2021.

 

As it relates to intangible assets in-use, the Company is scheduled to record the following amounts in amortization expense over the next five years.

 

At December 31, 2021

 

Gross Carrying Amount

 

2022

$

 

1,811,929

 

2023

 

 

1,817,604

 

2024

 

 

1,812,557

 

2025

 

 

1,777,931

 

2026

 

 

1,593,789

 

 

8. INVESTMENTS

 

(a)
Mass2Media, LLC

On October 8, 2019, pursuant to the acquisition of Rivers Innovations Inc., the Company acquired a 12.5% ownership (on a fully diluted basis) in a private company Mass2Media, LLC, doing business as PX2 Holdings, LLC. The fair value at the date of acquisition was $11,900,000. The Company determined the fair value of this investment based on a calibration discount to the market-based multiple of enterprise value over trailing twelve-month revenue of selected comparable public companies at year-end. The Company elected to value Mass2Media on a cost basis, less impairment recognized in subsequent periods.

On June 28th, 2021, Mass2Media LLC entered into a Contribution and Exchange Agreement with Cascade Sciences, LLC, to create a new entity “Sinclair Scientific LLC”. The existing shareholders of Mass2Media LLC and Cascade Sciences, LLC became the shareholders in the newly created entity. Consequently, Gage became an 8% holder of Cascade Sciences, LLC.

On September 29th, 2021, Agrify Corporation purchased Cascade Sciences, LLC. As part of the agreement, Gage received $1,881,781 in cash and a total of 61,387 shares, which were valued at $1,272,553. As of December 31, 2021, the shares were classified within the 'Marketable Securities' line of the statement of financial position and had a value of $565,029.

Please see below a summary of the movement in the Mass2Media LLC investment
 

 

 

December 31, 2021

 

Balance, beginning of the period

$

 

5,900,000

 

Impairment of investment

 

 

(2,829,820

)

Disposal of investment

 

 

(3,070,180

)

Balance, end of period

 

 

 

 

(b)
Cookies Creative Consulting & Promotions, LLC

On February 20, 2019, the Company, through one of its Michigan subsidiaries, entered into a convertible promissory note purchase agreement with a California Limited Liability Company (CLLC) - Cookies Creative Consulting & Promotions, LLC. The Company, through a purchase of convertible debt, invested $1 Million in exchange for a convertible promissory note with the principal amount of same bearing interest at 2.55% per annum with a two-year maturity date and the option to extend the maturity date for two years. In February 2021, the Company elected to extend the maturity date for an additional year. In February 2022, the Company elected to take the last available maturity date, moving the maturity date to February 20, 2023. Upon a liquidity event, the Company at its sole discretion, may convert the note, together with all unpaid accrued interest thereon, into Membership Units, on such terms as the Company and the Holder reasonably agree, at a conversion price equal to the Qualified Financing Cap (equal to $100 million dollars) divided by the aggregate number of outstanding shares of Common Stock immediately prior to such Maturity Date, on a Fully Diluted Basis.

This investment was fair valued using discounted cash flows at a discount rate of 10.25%, with gain (loss) in fair value for the year ended December 31, 2021 of $77,451. Below is the movement in this convertible promissory note:

 

 

 

December 31, 2021

 

Balance, beginning of the period

$

 

987,797

 

Changes in fair value

 

 

77,451

 

Balance, end of period

 

 

1,065,248

 

 

16


Gage Growth Corp.

(c)
Mesh Ventures, LLC

On February 20, 2019, the Company, through one of its Michigan subsidiaries entered into a Subscription Agreement to purchase Class A Common Units and /or Class B Common Units of a Delaware limited liability company – Mesh Ventures LLC, by making a capital investment of $1,500,000. The Company has valued our investment by assessing the valuation of specific investments within this fund, using the latest imputed valuation based on capital raises or sales multiples based on comparable companies in the industry. The Company has elected to value this investment using the cost method.

 

 

 

December 31, 2021

 

Balance, beginning of the period

$

 

421,941

 

Changes in fair value

 

 

 

Balance, end of period

 

 

421,941

 

 

(d)
Noya Cannabis Inc.

 

On November 22, 2019, the Company and Radicle Cannabis Holdings Inc. (“Radicle”) entered into a credit facility in the form of a 12% secured convertible debenture agreement in the principal amount of CAD $500,000. The maximum principal allowed under the facility is CAD $1,000,000. On June 9, 2021, the Company invested an additional CAD $500,000 into the facility, reaching the maximum under the existing facility. Subsequent to the transaction, Radicle changed its name to Noya Cannabis Inc. (“Noya”). The debenture bears interest at 12% per annum on outstanding principal and is payable semi-annually in arrears. The debenture matures on November 22, 2022, however, it can be converted into fully paid common shares at a conversion price of CAD $0.60 per common share. The convertible debenture is secured against all of Radicle’s personal property, and all of the proceeds thereof. The Company records the convertible debenture at fair value, utilizing an interest rate of 11%.

Below is the movement in this convertible debenture:

 

 

 

December 31, 2021

 

Opening Balance

$

 

379,145

 

Advances during the period

 

 

413,394

 

Changes in fair market value of convertible debentures

 

 

32,115

 

Foreign exchange gain (loss)

 

 

(17,586

)

Ending Balance

$

 

807,068

 

 

9.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities is comprised of:

 

 

 

December 31, 2021

 

Trade payables

$

 

24,380,360

 

Accrued liabilities

 

 

4,856,564

 

Accrued payroll

 

 

2,851,315

 

Sales tax payable

 

 

1,533,679

 

 

$

 

33,621,918

 

 

10.
LEASES

The majority of the Company’s leases are operating leases used primarily for corporate offices and retail locations. The operating lease periods generally range from 1 to 8 years.

 

Amounts recognized in the consolidated balance sheets were as follows:

 

 

 

December 31, 2021

 

Operating leases:

 

 

 

Operating lease right-of-use assets

$

 

2,316,794

 

 

 

 

 

Operating lease liability classified as current

 

 

439,784

 

Operating lease liability classified as non-current

 

 

2,037,189

 

Total operating lease liabilities

$

 

2,476,973

 

 

The Company recognized operating lease expense of $508,939 for the year ended December 31, 2021.

 

17


Gage Growth Corp.

During fiscal year 2021, the Company exercised its option to purchase its cultivation facility in Warren, Michigan, which was previously considered to be a financing lease. As a result of the repurchase, the Company recognized a $1,043,913 loss on the disposal of the financing lease.

 

Other information related to operating leases as of December 31, 2021 consisted of the following:

 

 

 

December 31, 2021

 

Weighted-average remaining lease term (years)

 

 

 

Operating leases

 

 

2.8

 

Finance leases

 

 

1.7

 

Weighted-average discount rate

 

 

 

Operating leases

 

 

12.6

%

Finance leases

 

 

15.0

%

 

Supplemental cash flow information related to leases were as follows:

 

 

 

December 31, 2021

 

Cash paid for amounts included in measurement of operating lease liabilities

$

 

387,391

 

Cash paid for amounts included in measurement of financing lease liabilities

$

 

235,136

 

 

Undiscounted lease obligations as of December 31, 2021 were as follows:

 

 

 

Operating

 

 

Financing

 

 

Total

 

2022

$

 

750,664

 

$

 

153,760

 

$

 

904,424

 

2023

 

 

798,969

 

 

 

96,460

 

 

 

895,429

 

2024

 

 

695,213

 

 

 

-

 

 

 

695,213

 

2025

 

 

533,664

 

 

 

-

 

 

 

533,664