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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2022
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                    
to
                    
Commission File Number
000-56075
 
 
4Front Ventures Corp.
(Exact name of registrant as specified in its charter)
 
 
British Columbia 
 
83-4168417
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
5060 N. 40th Street
Suite 120
Phoenix, Arizona 85018
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (602)
633-3067
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Trading
Symbol(s)
 
Name of Each Exchange
on Which Registered
Class A Subordinate Voting Shares, no par value
 
FFNTF
 
OTCQX
   
FFNT
 
CSE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act:
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated filer      Smaller reporting company  
       
         Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  
As of May 20, 2022, the registrant had 636,636,686 Class A subordinate voting shares outstanding.
 
 
 

4Front Ventures Corp.
FORM
10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022
TABLE OF CONTENTS
 
         
Page
 
           
     
   Consolidated Financial Statements (unaudited)         
     Condensed Consolidated Interim Balance Sheets (unaudited)      1  
     Condensed Consolidated Interim Statements of Operations (unaudited)      2  
     Condensed Consolidated Interim Statements of Changes in Stockholders’ Equity (unaudited)      3  
     Condensed Consolidated Interim Statements of Cash Flows (unaudited)      4  
     Notes to Condensed Consolidated Interim Financial Statements (unaudited)      5  
   Management’s Discussion and Analysis of Financial Condition and Results of Operations      29  
   Quantitative and Qualitative Disclosures About Market Risk      37  
   Controls and Procedures      37  
     
           
     
   Legal Proceedings      40  
   Risk Factors      40  
   Unregistered Sales of Equity Securities and Use of Proceeds      40  
   Defaults Upon Senior Securities      41  
   Mine Safety Disclosures      41  
   Other Information      41  
   Exhibits      42  
     
          43  
 
i

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
4FRONT VENTURES CORP.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS (unaudited)
As of March 31, 2022 and December 31, 2021
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
    
March 31,
2022
   
December 31,
2021
 
ASSETS
            
Current assets:
                
Cash
   $ 8,638     $ 22,581  
Accounts receivable, net
     2,742       1,946  
Other receivables
     1,802       289  
Current portion of lease receivables
     2,627       3,630  
Inventory
     25,910       20,087  
Current portion of notes receivable
     11       109  
Prepaid expenses
     2,079       2,232  
    
 
 
   
 
 
 
Total current assets
     43,809       50,874  
    
 
 
   
 
 
 
Property
, plant, and equipment, net
     57,815       42,633  
Lease receivables
     7,543       6,748  
Intangible assets, net
     43,616       26,246  
Goodwill
     33,404       23,155  
Right-of-use
assets
     99,395       100,519  
Deposits
 
 
5,107
 
 
 
5,364
 
TOTAL ASSETS
   $ 290,689     $ 255,539  
    
 
 
   
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
            
LIABILITIES
                
Current liabilities:
                
Accounts payable
   $ 5,110     $ 2,131  
Accrued expenses and other current liabilities
     7,596       9,411  
Taxes payable
     27,619       23,968  
Derivative liability
     2,202       3,502  
Current portion of convertible notes
           2,784  
Current portion of lease liability
     3,700       3,629  
Current portion of notes payable and accrued interest
     5,385       3,413  
    
 
 
   
 
 
 
Total current liabilities
     51,612       48,838  
    
 
 
   
 
 
 
Convertible notes
     14,920       14,641  
Notes payable and accrued interest from related party
     48,651       48,266  
Long term notes payable
     1,709       1,709  
Long term accounts payable
     1,200       1,200  
Contingent consideration payable
     2,393       2,393  
Construction finance liability
     16,000           
Deferred tax liability
     7,162       7,849  
Lease liability
     93,505       93,111  
    
 
 
   
 
 
 
TOTAL LIABILITIES
     237,152       218,007  
    
 
 
   
 
 
 
SHAREHOLDERS’ EQUITY
                
Equity attributable to 4Front Ventures Corp.
     294,981       274,120  
Additional
paid-in
capital
     53,235       52,197  
Deficit
     (294,756 )     (288,857
Non-controlling
interest
     77       72  
    
 
 
   
 
 
 
TOTAL SHAREHOLDERS’ EQUITY
     53,537       37,532  
    
 
 
   
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   $ 290,689     $ 255,539  
    
 
 
   
 
 
 
See accompanying notes to financial statements.
 
1

4FRONT VENTURES CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS (unaudited)
For the Three Months Ended March 31, 2022 and 2021
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
    
Three Months Ended March 31,
 
    
2022
   
2021
 
REVENUE
                
Revenue from sale of goods
   $ 23,083     $ 20,080  
Real estate income
     2,965       2,890  
    
 
 
   
 
 
 
Total revenues
     26,048       22,970  
Cost of goods sold
     (12,594     (9,125
    
 
 
   
 
 
 
Gross profit
     13,454       13,845  
OPERATING EXPENSES
                
Selling and marketing expenses
     5,166       5,157  
General and administrative expenses
     7,644       5,165  
Depreciation and amortization
     847       774  
Equity based compensation
     1,038       2,396  
Total operating expenses
     14,695       13,492  
    
 
 
   
 
 
 
(Loss) Income from operations
     (1,241     353  
    
 
 
   
 
 
 
Other 
income (expense)
                
Interest income
     2       3  
Interest expense
     (2,620     (2,461
Amortization of loan discount upon conversion of debt to equity
           (2,915
Change in fair value of derivative liability
     1,300       (2,532
Loss on lease termination
           (879
Other
     103           
    
 
 
   
 
 
 
Total other
 
expense, net
     (1,215     (8,784
Net loss before income taxes
     (2,456     (8,431
Income tax expense
     (3,438     (2,653
Net loss from continuing operations
     (5,894     (11,084 )
    
 
 
   
 
 
 
Net loss
     (5,894     (11,084
Net income attributable to
non-controlling
interest
     5       5  
    
 
 
   
 
 
 
Net loss attributable to shareholders
   $ (5,899   $ (11,089
    
 
 
   
 
 
 
Basic and diluted loss per share
   $ (0.01   $ (0.02
Weighted average number of shares outstanding, basic and diluted
     619,113,389       558,997,571  
See accompanying notes to condensed financial statements.
 
2

4FRONT VENTURES CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)
For the Three Months Ended March 31, 2022 and 2021
(Amounts expressed in thousands of U.S. dollars except for share and per share data) 
 
 
  
Share Capital
 
  
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
  
Shares
 
  
Amount
 
  
Additional
Paid-In

Capital
 
  
Deficit
 
 
Total 4Front
Ventures
Corp.
Shareholders’
Equity
 
 
Non-Controlling

Interest
 
  
Total
Shareholders’
Equity
 
Balance, December 31, 2021
     594,181,604      $ 274,120      $ 52,197      $ (288,857   $ 37,460     $ 72      $ 37,532  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Shares issued for NECC pursuant to acquisition
     28,571,428        17,689                           17,689                 17,689  
Share-based compensation
     —          —          1,038        —         1,038       —          1,038  
Conversion of notes to equity
     6,235,512        3,122        —          —         3,122       —          3,122  
Shares issued with exercise of warrants
     88,659        50        —          —         50       —          50  
Net loss
     —          —          —          (5,899     (5,899     5        (5,894
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balance, March 31, 2022
     629,077,203      $ 294,981      $ 53,235      $ (294,756   $ 53,460     $ 77      $ 53,537  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
 
 
  
Share Capital
 
  
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
  
Shares
 
 
Amount
 
  
Additional
Paid-In

Capital
 
  
Deficit
 
 
Total 4Front
Ventures
Corp.
Shareholders’
Equity
 
 
Non-Controlling

Interest
 
  
Total
Shareholders’
Equity
 
Balance, December 31, 2020
     538,851,252     $ 250,583      $ 42,116      $ (250,548   $ 42,151     $ 52      $ 42,203  
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Shares issued for Pure Ratios earnout
     473,491       161        —          —         161       —          161  
Share-based compensation
     —         —          2,396        —         2,396       —          2,396  
Conversion of notes to equity
     24,366,003       6,253        —          —         6,253       —          6,253  
Shares issued with exercise of stock options
     1,358,116       871        —          —         871       —          871  
Shares issued with exercise of warrants
     2,422,363       1,563        —          —         1,563       —          1,563  
Return of treasury shares
     (8,320     —          —          —         —         —          —    
Net loss
     —         —          —          (11,089     (11,089     5        (11,084
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balance, March 31, 2021
     567,462,905       259,431      $ 44,512      $ (261,637   $ 42,306     $ 57      $ 42,363  
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
See accompanying notes to condensed interim financial statements.
 
3

4FRONT VENTURES CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (unaudited)
For the Three Months Ended March 31, 2022 and 2021
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
    
Three Months Ended March 31,
 
    
    2022    
   
    2021    
 
CASH FLOWS FROM OPERATING ACTIVITIES
                
Net loss
   $ (5,894   $ (11,084
Adjustments to reconcile net loss to net cash used by operating activities
                
Depreciation and amortization
     1,795       1,046  
Equity based compensation
     1,038       2,396  
Change in fair value of derivative liability
     (1,300     2,532  
Accretion of lease liability
     1,513       612  
Write-off
of deposit
           80  
Write-off
of fixed asset from terminated lease
           799  
Accretion of contingent consideration
           124  
Accretion of convertible debenture and interest
     279       590  
Accrued interest on notes payable
     1,973       1,097  
Interest accrued - lease receivable
     208           
Deferred taxes
     (687     632  
Amortization of loan discount upon conversion of debt to equity
           2,915  
Changes in operating assets and liabilities
     (1,293     1,075  
    
 
 
   
 
 
 
NET CASH
 (USED IN) PROVIDED 
BY OPERATING ACTIVITIES
     (2,368     2,814  
    
 
 
   
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
                
Payment for NECC business combinations, net of cash acquired

     (24,998 )         
Notes receivable repayments
     98       63  
Sale of dispensaries and interests in cannabis licenses
           1,093  
Purchases of property and equipment
    
(1,109

)

    (7,186
    
 
 
   
 
 
 
NET
CASH (USED IN) INVESTING
 ACTIVITIES
    
(26,009

)

    (6,030
    
 
 
   
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
                
Notes payable received, net of costs
           411  
Proceeds from issuance of construction financing liability
     16,000           
Proceeds from the exercise of warrants
     50       1,563  
Proceeds from the exercise of stock options
           871  
Repayment of notes payable
     (1,616     (755
    
 
 
   
 
 
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
     14,434       2,090  
    
 
 
   
 
 
 
NET DECREASE IN CASH
    
(13,943

)

    (1,126
CASH, BEGINNING OF QUARTER
     22,581       18,932  
    
 
 
   
 
 
 
CASH, END OF QUARTER
    
8,638

    $ 17,806  
    
 
 
   
 
 
 
See accompanying notes to condensed interim financial statements.
 
4

4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
Note 1: NATURE OF OPERATIONS
4Front Ventures Corp. (“4Front” or the “Company”) exists pursuant to the provisions of the British Columbia Corporations Act. On July 31, 2019, 4Front Holdings LLC (“Holdings”) completed a Reverse Takeover Transaction (“RTO”) with Cannex Capital Holdings Inc. (“Cannex”) whereby Holdings acquired Cannex and the shareholders of Holdings became the controlling shareholders of the Company. Following the RTO, the Company’s SVS are listed on the Canadian Securities Exchange (“CSE”) under the ticker “FFNT” and are quoted on the OTC (OTCQX: FFNTF).
The Company has two primary operating segments: THC Cannabis and CBD Wellness. With regard to its THC Cannabis segment, as of March 31, 2022, the Company operates six dispensaries in Massachusetts, Illinois, and Michigan, primarily under the “MISSION” brand name. As of March 31, 2022, the Company operates three production facilities in Massachusetts, Illinois and California and produces the majority of products that are sold at its own Massachusetts, Illinois, and California dispensaries. Also, as part of its THC Cannabis segment, the Company leases real estate and sells equipment, supplies and intellectual property to cannabis producers in the state of Washington.
While marijuana is legal under the laws of several U.S. states (with varying restrictions), the United States Federal Controlled Substances Act classifies all “marijuana” as a Schedule I drug, whether for medical or recreational use. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of safety for the use of the drug under medical supervision.
The Company’s CBD Wellness segment is focused upon its ownership and operation of its wholly owned subsidiary, Pure Ratios Holdings, Inc. (“Pure Ratios”), a
CBD-focused
wellness company in California, that sells
non-THC
products throughout the United States.
On January 28, 2022, the Company entered into an agreement and plan of merger (the “NECC Merger Agreement”) with New England Cannabis Corporation, Inc., a Massachusetts Corporation (“NECC”) and a wholly owned subsidiary of the Company entered into a membership interest purchase agreement (the “Everett Purchase Agreement,” and together with the NECC Merger Agreement, the “NECC Merger Agreements”) with Kenneth Stevens to purchase all of the membership interests of 29 Everett, LLC (“29 Everett”), a Massachusetts limited liability company. See Note 7 for further details on the NECC Merger Agreements and corresponding transactions under such agreements.
Management continues to evaluate the impact of the
COVID-19
pandemic on the Company’s industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position and results of its operations the specific impact is not readily determinable as of the date of these consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The corporate office address of the Company is 5060 North 40th Street, Suite 120, Phoenix, Arizona, and the Company’s registered office is 550 Burrard Street, Suite 2900, Vancouver, British Columbia.
Note 2: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) applicable to interim financial information and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to such rules and regulations.
 
5


4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
In the opinion of management, the unaudited interim financial statements include all adjustments necessary for the fair presentation of the results of the interim periods presented. All adjustments are of a normal recurring nature, except as otherwise noted below. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2021, included in the Company’s Annual Report on Form
10-K,
filed April 18, 2022, with the U.S. Securities and Exchange Commission, as well as the Company’s Amendment to the Annual Report on Form
10-K,
filed April 21, 2022, and on the System for Electronic Document Analysis and Retrieval in Canada (or SEDAR). The results of operations for the interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.
There have been no changes to the Company’s significant accounting policies as described in Note 2 of the Company’s 2021 Annual Report on Form
10-K.
Principles of consolidation
The accompanying condensed consolidated interim financial statements include the accounts of the Company and all entities in which the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. All intercompany accounts and transactions have been eliminated on consolidation. The financial results of NECC are included in the condensed consolidated financial statements beginning on January 28, 2022, the merger closing date.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.
Note 3: SIGNIFICANT ACCOUNTING POLICIES
 
(a)
Critical accounting estimates and judgments
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the Company’s condensed consolidated interim financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those described in the latest annual consolidated financial statements.
We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.
 
6

4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
(b)
Recent Accounting Pronouncements
Recently 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 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. ASU
2019-12
was effective for the Company beginning January 1, 2021. Adoption of this standard did not materially impact the Company’s consolidated financial position, results of operations or cash flows.
 
 
ii.
In August 2020, the FASB issued ASU
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)”.
ASU
2020-06
simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU
2020-06
is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Adoption of this standard did not materially impact the Company’s consolidated financial position, results of operations or cash flows.
 
 
iii.
In May 2021, the FASB issued ASU
2021-04,
“Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (Subtopic
815-40)”.
ASU
2021-04
clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. ASU
2021-04
is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Adoption of this standard did not materially impact the Company’s consolidated financial position, results of operations or cash flows.
Accounting Pronouncements Not Yet Adopted
 
 
i.
In October 2021, the FASB issued ASU
2021-08,
“Business Combinations - Accounting for Contract Assets and Contract Liabilities (Topic 805)”. The amendments in this update address diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination by requiring that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. ASU
2021-08
is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company does not expect the adoption of this ASU to have a material impact on the Company’s financial statements.
Note 4: INVENTORY
The Company’s inventories include the following as of March 31,
2022
and December 31, 2021:
 
7

4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
    
March 31,
2022
    
December 31,
2021
 
Raw Materials - unharvested cannabis
   $ 4,409      $ 2,164  
Raw materials CBD and ingredients
     37        36  
Work in process - flower and extract
     11,325        7,780  
Finished goods - cultivation supplies
     2,351        1,734  
Finished goods - packaged products
     7,788        8,373  
    
 
 
    
 
 
 
Total
   $ 25,910      $ 20,087  
    
 
 
    
 
 
 
Note 5: PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment and related depreciation are summarized in the table below:
 
 
  
March 31,
2022
 
  
December 31,
2021
 
Land
  
$
774
 
  
$
  
 
Buildings & improvements
  
 
13,509
 
  
 
1,483
 
Construction in process
  
 
218
 
  
 
63
 
Furniture, equipment & other
  
 
16,841
 
  
 
13,425
 
Leasehold improvements
  
 
35,514
 
  
 
35,538
 
  
 
 
 
  
 
 
 
Total
  
$
66,856
 
  
$
50,509
 
Less: accumulated depreciation
  
 
(9,041
  
 
(7,876
  
 
 
 
  
 
 
 
Total property, plant, and equipment, net
  
$
57,815
 
  
$
42,633
 
 
 
 
 
 
 
 
 
 
On January 28, 2022, in conjunction with a business combination with NECC, the Company acquired property, plant, and equipment totaling $15,238 (Note 7). The Company subsequently sold the property, plant, and equipment to a third-party and leased back the equipment from the third-party. As discussed in Note 9, the Company recognized this fact pattern as a failed sale-leaseback transaction, whereby the Company recognized the fixed assets on the balance sheet of NECC and established a construction finance liability for rental payments made as part of the lease agreement.
Approximately $33,000 of property and equipment is secured by LI Lending as collateral on the LI Lending note (Note 9). There were no significant contractual commitments for future capital expenditures as of March 31, 2022 and December 31, 2021.
Depreciation of property, plant and equipment is computed using the straight-line method over the asset’s estimated useful life. The Company does not depreciate land, which has an indefinite useful life. Depreciation
 expense for the for the three months ended March 31, 2022 and 2021 was $1,165 and $463, respectively, of which $948 and $325, respectively, is included in cost of goods sold.
Note 6: INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
Intangible assets are recorded at cost less accumulated amortization and impairment losses. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Amortization of definite life intangibles is recognized on a straight-line basis over their estimated useful lives. The estimated useful lives, residual values, and amortization methods are reviewed at each year end, and any changes in estimates are accounted for prospectively.
Intangible assets and related amortization are summarized in the table below:
 
    
Licenses
    
Customer
Relationships
   
Non-Competition

Agreements
   
Know-How
   
Total
 
Balance, December 31, 2020
   $ 20,146      $ 1,668     $ 43     $ 6,933     $ 28,790  
Amortization expense
     —          (580     (43     (1,921     (2,544
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance, December 31, 2021
   $ 20,146      $ 1,088     $        $ 5,012     $ 26,246  
NECC
merger and 29 Everett acquisition (Note 7)
     18,000        —         —         —         18,000  
Amortization expense
     —          (145             (485     (630
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance, March 31, 2022
   $ 38,146      $ 943     $        $ 4,527     $ 43,616  
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Goodwill
 
Balance, December 31, 2020
  
$
23,155
 
    
 
 
 
Balance, December 31, 2021
  
$
23,155
 
NECC
merger and 29 Everett acquisition (Note 7)
     10,249  
    
 
 
 
Balance, March 31, 2022
  
$
33,404
 
    
 
 
 
Impairment of Intangible Assets and Goodwill
On an annual basis, the Company assesses the Company’s reporting units (“RUs”) for indicators of impairment or when facts or circumstances suggest that it is more likely than not that the carrying amount may exceed fair value. For the purpose of impairment testing, goodwill is allocated to the Company’s RUs to which it relates.
Goodwill was not tested for impairment during the three months ended March 31, 2022.
 
8

4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
Three Months Ended March 31, 2021
On January 28, 2022, the Company entered into the NECC Merger Agreements with NECC and 29 Everett for total consideration of
$44,689. As part of the purchase price allocation of the acquisition and merger, the Company recognized $18,000 of acquired licenses and $10,249
of goodwill based on the consideration transferred and fair value of assets acquired. For further details on the acquisition and purchase price allocation, see Note 7.
Year Ended December 31, 2021
In 2021, management assessed indicators of impairment and concluded the below for the respective RUs:
Retail, Production and Ancillary Cannabis Reporting Units
Management did not identify any significant negative triggering events that would suggest it is more likely than not that impairment exists. Therefore, further analysis is not required for these RUs.
Pure Ratios RU
As of March 31, 2022 and December 31, 2021, the accumulated impairment is $13,400, which is due to goodwill impairment of the entire outstanding balance of goodwill on the Pure Ratios segment for the year ended December 31, 2020. As a result, the segment does not have a balance of goodwill or intangible assets remaining as of December 31, 2021.
Note 7: ACQUISITIONS AND BUSINESS COMBINATIONS
On January 28, 2022, the Company entered into the merger agreement (the “NECC Merger”) with NECC, Kenneth V. Stevens (“Mr. Stevens”), who is the sole owner of all of the issued and outstanding capital stock of NECC, and 4Front NECC Acquisition Co., a Massachusetts corporation (the “NECC Merger Sub”). At the effective time of the merger, the Company (i) paid Mr. Stevens cash in the amount of
$9,000,000, and (ii) issued Mr. Stevens 28,571,428 Class A Subordinate Voting shares of the Company (the “SVS”).
In connection with the consummation of the NECC Merger on January 28, 2022, Mission Partners RE, LLC, a Delaware limited liability company wholly owned by the Company (“Mission Partners RE”), and Mr. Stevens entered into the first amendment to that certain membership interest purchase agreement (the “Everett Purchase Agreement”). Pursuant to the Everett Purchase Agreement, the Company (through Mission Partners RE) completed its acquisition
of 100% of the issued and outstanding membership interests of 29 Everett Street LLC, a Massachusetts limited liability company (the “Everett LLC”), which was solely held by Mr. Stevens and which owns certain real property that is currently leased to and used by NECC. The Company (i) paid Mr. Stevens cash in the amount of $16,000,000, and (ii) issued Mr. Stevens a promissory note in the initial principal amount of $2,000,000, which will bear interest at an annual rate of ten percent (10%) and will mature on the
six-month
anniversary of January 28, 2022. The Merger and Purchase Agreement were recorded as one transaction (collectively, referred to as the “NECC Acquisitions”), as the entities were commonly owned by the same individual and the purchase of Everett LLC was contingent on the Merger with NECC.
The NECC Merger was accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the NECC Merger. These values are subject to change as the Company completes its determination of the fair value of assets acquired and liabilities assumed. Upon acquisition of NECC and Everett LLC on January 28, 2022, the Company consolidated the operations of Everett LLC into NECC.
The Company entered into the NECC Merger in order to acquire cannabis licenses, as well as property and equipment held by NECC to increase the Company’s presence in Massachusetts and the northeastern United States. As part of the NECC Merger, the Company incurred $596,000 in transaction costs, which were expensed as incurred.
 
9

4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
The following tables presents the preliminary purchase price allocation for the NECC Merger:
 
Cash consideration
   $ 25,000  
Seller note
     2,000  
Equity consideration - common stock
     17,689  
    
 
 
 
Total Purchase Price
   $ 44,689  
    
 
 
 
 
Description
  
Fair value
 
Assets acquired:
        
Cash
   $ 2  
Inventory
 
 
2,000
 
Property
, plant, and equipment
     15,238  
Intangible asset
- licenses
     18,000  
    
 
 
 
Total assets acquired
   $ 35,240  
    
 
 
 
Liabilities assumed:
        
Accounts payable
     800  
    
 
 
 
Total liabilities assumed
   $ 800  
    
 
 
 
Estimated fair value of net assets acquired
   $ 34,440  
    
 
 
 
Estimated Goodwill
   $ 10,249  
    
 
 
 
Goodwill and Intangible Assets
Goodwill is represented by the future potential for the generation of positive cash flows and future relationships associated with the Company’s operations. While NECC had yet to generate revenues as of the date of the Merger, the Company identified that the inputs of the business were in place to begin generating revenue during fiscal year 2022. The Company adjusts provisional goodwill balance when new information is obtained regarding the valuation of acquired assets and liabilities during a one-year measurement period from the date of acquisition in accordance with ASC 805-10. The Company has determined that the goodwill recognized in the above acquisition is not deductible for tax purposes.
The intangible assets acquired by the Company consist of cannabis licenses for operations. Utilizing alike licenses as a benchmark, the Company determined that the licenses acquired are indefinite lived assets.
Unaudited Pro Forma Results
The following unaudited pro forma financial information presents the results of operations of the Company and NECC for the three months ended March 31, 2022 and 2021, as if the acquisition had occurred as of the beginning of the first period presented instead of on January 28, 2022. The pro forma information does not necessarily reflect the results of operations that would have occurred had the entities been a single company during those periods.
The unaudited pro forma financial information for the Company and NECC is as follows:
 
    
For the For the Three Months Ended March 31,
 
    
2022
    
2021
 
    
Reported
    
Proforma
    
Reported
    
Proforma
 
Revenues
   $ 26,048      $ 26,048      $ 22,970      $ 22,970  
(Loss) income from operations
     (1,241      (1,241      353        344  
    
 
 
    
 
 
    
 
 
    
 
 
 
Net loss
   $ (5,894    $ (5,609    $ (11,084    $ (11,093
    
 
 
    
 
 
    
 
 
    
 
 
 
Basic and diluted earning (loss) per share
   $ (0.01    $ (0.02    $ (0.02    $ (0.02
 
10

4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
Note 8: LEASES
The Company has operating leases for its facilities where the Company conducts its operations. These leases have remaining lease terms ranging from 1.25 year
s
to 19.43 years.
All real estate leases are recorded on the balance sheet. Equipment and other
non-real
estate leases with an initial term of twelve months or less are not recorded on the balance sheet. Lease agreements for some locations provide for rent escalations and renewal options. Many leases include one or more options to renew the lease at the end of the initial term. The Company considered renewals in its
right-of-use
assets and operating lease liabilities. Certain real estate leases require payment for taxes, insurance and maintenance which are considered
non-lease
components. The Company accounts for real estate leases and the related fixed
non-lease
components together as a single component.
The Company determines if an arrangement is a lease at inception. The Company must consider whether the contract conveys the right to control the use of an identified asset. Certain arrangements require significant judgment to determine if an asset is specified in the contract and if the Company directs how and for what purpose the asset is used during the term of the contract.
There are no material residual guarantees associated with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease agreements. Certain leases include variable payments related to common area maintenance and property taxes, which are billed by the landlord, as is customary with these types of charges for office space.
The Company’s lease agreements occasionally provide an implicit borrowing rate. When implicit borrowing rates are provided, the Company utilizes these implicit borrowing rates to calculate
right-of-use
assets and liabilities at the end of each reporting period. The Company may enter into leases that do not provide an implicit borrowing rate. When an implicit borrowing rate is not provided, the Company uses a benchmark approach to derive an appropriate imputed discount rate. The Company will benchmark itself against other companies of similar credit ratings and comparable quality and derive an imputed rate, which was used in a portfolio approach to discount its lease liabilities.
For the three months ended March 31, 2022 and 2021 the Company recorded $4,822 and $4,872 in operating lease expense
,
respectively.
 
(a)
The Company as a Lessee
The following table summarizes the Company’s operating leases:
 
    
Classification - Consolidated Balance Sheet
  
March 31,
2022
    
December 31,
2021
 
Assets
                      
Operating lease assets
  
Operating Lease Assets
   $ 99,395      $ 100,519  
Liabilities
                      
Current
                      
Operating
  
Current portion of operating lease liabilities
     3,700        3,629  
Noncurrent
                      
Operating
  
Operating lease liabilities
     93,505        93,111  
         
 
 
    
 
 
 
Total lease liabilities
        $ 97,205      $ 96,740  
         
 
 
    
 
 
 
 
11

4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
The components of lease expense are included in cost of goods sold, general and administrative expenses, and selling and marketing expenses, based on the underlying use of the right-of-use asset.
Maturities of lease liabilities for third-party operating leases as of March 31, 2022 were as follows:
 
Three months ending March 31, 2022
  
Operating
Leases
 
2022
   $ 11,091  
2023
     15,433  
2024
     15,859  
2025
     16,213  
2026
     16,594  
2027
     16,603  
2028 and Thereafter
     227,684  
    
 
 
 
Total undiscounted cash flows
   $ 319,477  
Less discounting
     (222,272
    
 
 
 
Total lease payments
   $ 97,205  
    
 
 
 
The Company has
right-of-use
assets and lease liabilities for leased real estate for dispensaries, cultivation and production facilities and office space. The incremental borrowing rate used for leases for 2022 was 10.25 - 18% and was 10.25 - 18% for 2021.
 
(b)
The Company as a Lessor:
The Company leases a building in Elma, Washington that is subleased by the Company to a third party. This sublease is classified as a finance lease with a long term lease receivable balance of $7,543 and a short term lease receivable balance of $2,627 as of March 31, 2022 compared to a long term lease receivable balance of $6,748 and a short term lease receivable balance of $3,630 as of December 31, 2021. This lease generated $692 of the $2,965 and $791
 
of the $2,890
in real estate income for the three months ended March 31, 2022 and 2021, respectively.
The Company owned buildings in Olympia, Washington that were leased to a third party. This lease was classified as a finance lease. On December 17, 2020, the Company sold the Olympia building and other assets as part of a sale and leaseback transaction and this lease was cancelled. The Company applied ASC 842 to a new sublease to the same third party and classified the new sublease as an operating lease. The lease receivable was sold to the purchaser of the assets as part of the sale and leaseback transaction. This lease generated $2,273 of the $2,965 and $2,099 of the $2,890
 
in real estate income for the three months ended March 31, 2022 and 2021, respectively.
The following table summarizes changes in the Company’s
lease
receivables:
 
12

4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
    
March 31,
2022
    
December 31,
2021
 
Balance, beginning of the year
   $ 10,378      $ 11,045  
Interest
     692        2,783  
Lease payments received
     (900      (3,450
    
 
 
    
 
 
 
Balance, end of the period
   $ 10,170      $ 10,378  
Less current portion
     (2,627      (3,630
    
 
 
    
 
 
 
Long-term lease receivables
   $ 7,543      $ 6,748  
    
 
 
    
 
 
 
Future minimum lease payments receivable (principal and interest) on the leases are as follows:
 
    
Operating
Leases
 
2022
   $ 2,730  
2023
     1,575  
2024
     —    
2025
     —    
Thereafter
     —    
    
 
 
 
Total minimum lease payments
     4,305  
Effect of discounting
     (667 )
Present value of minimum lease payments
     3,638  
Present value of residual value of leased property
     6,532  
    
 
 
 
Total lease receivable
     10,170  
Current portion lease receivable
     (2,627
    
 
 
 
Long-term lease receivable
   $ 7,543  
    
 
 
 
 
13

4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
Note 9: NOTES PAYABLE AND CONVERTIBLE NOTES
The Company’s notes payable and convertible notes are as follows:
 
    
LI Lending,
LLC
   
May 2020
Convertible
Notes
   
May 2020
Convertible
Notes (Swap)
   
October 2021
Convertible
Note
    
Other Loans
   
Total
 
Balance, December 31, 2020
   $ 45,362     $ 2,855     $ 11,867     $ —        $ 6,931     $ 67,015  
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Loans advanced, net
              —                  14,376        930       15,306  
Loan payments
     (4,671              —         —          (1,079     (5,750
Converted to equity
     —         (5,852     (11,867               —         (17,719
Accrued interest
     7,575       2,997                265        1,124       11,961  
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Balance, December 31, 2021
   $ 48,266     $        $        $ 14,641      $ 7,906     $ 70,813  
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Loans advanced, net
     —         —         —         —          2,000       2,000  
Loan payments
     (1,506              —         —          (110     (1,616
Converted to equity
     —         —                            (2,784     (2,784
Accrued interest
     1,891                         279        82       2,252  
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Balance, March 31, 2022
   $ 48,651     $        $ —       $ 14,920      $ 7,094     $ 70,665  
Less current portion
     —         —         —         —          (5,385     (5,385
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Long-term portion
   $ 48,651     $        $        $ 14,920      $ 1,709     $ 65,280  
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Convertible Notes
On May 14, 2020, the Company issued $5,827 in convertible notes to existing investors in the Company. The notes pay interest of 5% per annum and have a maturity date of February 28, 2022.
 
The notes can be converted into SVS of the Company for
$0.25 per share at any time at the option of the holder. The Company can require mandatory conversion at any time that the Company’s stock price remains above $0.50 for 45 consecutive days. In 2021, the Company enacted the mandatory conversion feature and converted the May 2020 Convertible Note balance to subordinate voting shares.
As part of issuing the convertible notes, the investors were given the right to exchange stock in the Company into separate convertible notes (swap notes). In total 29,448,468 shares with a value of $13,661 were exchanged for $13,661 in convertible notes. These notes were effective May 28, 2020, have a maturity date of May 28, 2025, and can be converted into Class A Subordinate Voting Shares of the Company for $0.46 per share at any time at the option of the holder. The notes pay no interest if the Company’s annual revenue is greater than $15,000, and 3% annually otherwise. The Company can require mandatory conversion at any time that the Company’s stock price remains above $0.92 for 45 consecutive days. In 2021, the Company exercised the mandatory conversion feature and converted the May 2020 Convertible Note (Swap) balance to subordinate voting shares.
On October 6, 2021, the Company entered into a convertible promissory note purchase agreement for $15,000, less issuance costs of $624, resulting in net proceeds of $14,376. The notes pay interest of 6% per annum and have a maturity date of October 6, 2024. The
 
notes can be converted into SVS of the Company for
$1.03 per share at any time at the option of the holder. As of March 31, 2022, no payments have been made for this loan.
LI Lending LLC
On May 10, 2019, the Company entered into a loan agreement with LI Lending LLC, a related party, for $50,000. LI Lending LLC is related because an officer of the Company is a part-owner of LI Lending LLC. As of March 31, 2022, the Company had drawn $45,000 on the loan in two amounts, an initial $35,000 and a final $10,000, both bearing a 10.25% and 12.25% interest rate, respectively. The outstanding balance as of March 31, 2022 is $49,027, less debt discount of $376, for a net balance of $48,651. See Note 1
3
 for further discussion of this related party transaction.
In April 2020, the loan was amended. In exchange for consent to allow the sale of the Pennsylvania and Maryland assets and the release of related collateral, the Company agreed to make prepayments of principal to LI Lending LLC in the amount of
$250 per month for an eight-month period beginning on May 1, 2020. The $2,000 prepayment was applied to the initial $35,000 amount
,
decreasing the balance to $33,000. Additionally, the Company agreed to pay an increased interest rate of 12.25% on the final $10,000 of the loan until such time as this amount has been paid down
,
with the initial $33,000 amount continuing to be subject to the original 10.25% interest rate.
 
14

4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
In December 2020, the loan was amended to allow for the release of collateral for the sale and leaseback transactions described in Note 8 above, which was entered into with Innovative Industrial Properties, Inc. (“IIPR”). The amendment increased both interest rates
by 2.5% on the loan amounts but allowed the payments resulting from the incremental interest to be deferred until January 1, 2022. The Company elected to defer payment, and the additional 2.5% interest is accrued each month and added to the balance of the loan. The Company was required to make interest-only payments monthly of 10.25% on the initial $33,000 and 12.25% on the final $10,000 of the loan until January 1, 2022 when the interest rates of 12.75% for the initial $33,000 and 14.75% for the final $10,000 took effect for the remaining term.
The loan matures on May 10, 2024. An exit fee of 20% of the principal balance will be due as principal is repaid. Accrued interest expense of $1,891 includes a loan discount accretion expense of $125
 
for the three months ended March 31, 2022. On January 1, 2022, the Company began making the required principal payments in addition to the interest payments for this loan. As of March 31, 2022, the Company has made $1,506 in payments on this loan.
Other
Outstanding as of March 31,
2022
were other payables totaling $7,094 which include notes issued as part of the acquisitions of
Healthy Pharms, NECC, and Arkansas entities as follows: 
Other
 
Subsidiary
  
Terms
  
March 31,
2022
    
December 31,
2021
 
Healthy Pharms Inc.
   Unsecured convertible note, due November 18, 2021 at 12% per annum    $      $ 2,784  
Healthy Pharms Inc.
   Unsecured promissory note at $0.50 per share due December 18, 2022 at 10% per annum (1)      3,294        3,213  
NECC
   Promissory note due July 28, 2022 at 10% per annum      2,000        —    
Arkansas Entities
   Unsecured Promissory note, monthly interest payments at 14% per annum      1,709        1,709  
Equipment Loans
   Secured by equipment, monthly payments beginning in 2021 at 15% per annum             49  
Other
   Various      91        151  
         
 
 
    
 
 
 
Total Notes Payable and Convertible Notes
        $ 7,094      $ 7,906  
         
 
 
    
 
 
 
1
 
(1)
In November
2021
, the unsecured promissory note was modified to be due and payable in full on or before December 18, 2022. The Company concluded the extension resulted in a debt modification under
ASC 470
.
Future minimum payments on the notes payable and convertible debt are as follows:
 
15

4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
    
March 31,
2022
 
2022
   $ 6,935  
2023
     143  
2024
     65,280  
2025
      
2026
      
Thereafter
      
    
 
 
 
Total minimum payments
     72,358  
Effect of discounting
     (1,693 )
    
 
 
 
Present value of minimum payments
     70,665  
Less current portion
     (5,385
    
 
 
 
Long-term portion
   $ 65,280  
    
 
 
 
Construction Finance Liability
On January 28, 2022, a wholly owned subsidiary of the Company acquired property at 29 Everett in conjunction with the NECC Merger (see Note 7 for further details on the transaction). Concurrently, effective January 28, 2022, the Company sold a portion of the property it had acquired in the acquisition for
$16,000
, less security deposits withheld of $403, which was the cost to the Company. In connection with the sale of the property at 29 Everett, the Company agreed to lease the location back for cultivation, effective on January 28, 2022. The details of the lease included three purchase options that the Company can exercise, in which the Company has the ability to repurchase the property on either the second, fourth, or sixth anniversary of the lease agreement. As the Company plans to exercise one of the three purchase options available, per guidance prescribed in ASC 842, this transaction was determined to be a finance lease. Under this guidance, lease arrangements where assets are sold and leased back, whereby the agreement is classified as a finance lease, does not meet the definition of a sale because control is never transferred to the buyer-lessor. As a result, the transaction was treated as a failed sale-leaseback financing arrangement. On January 28, 2022, the Company recorded a construction finance liability for the proceeds received from the sale to recognize a liability resulting from the failed sale-leaseback transaction.
The initial term of the agreement is 20 years, with two options to extend the term for five years each. The
 initial monthly rent payment is equal to
 $140 for the first year of the agreement, with 3% annual increases over the life of the agreement.
 As of March 31, 2022, the total finance liability associated with this transaction is
$16,000
.
 
16

4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
Note 10: SHARE CAPITAL AND EQUITY
The Company has authorized an unlimited number of Class A Subordinate Voting Shares (“SVS”) and Class C Multiple Voting Shares (“MVS”), all with no par value. In December 2020, the shareholders of the Company passed a resolution to permit the Company to convert all Class B Subordinate Voting Shares (“PVS”) shares into Class A shares and cancel the Class B PVS equity class, which occurred in 2020.
All share classes are included within share capital in the consolidated statements of stockholders’ equity on an as-converted basis. Each share class is entitled to notice of and to attend at any meeting of the shareholders, except a meeting of which only holders of another particular class of shares will have the right to vote. All share classes are entitled to receive dividends, as and when declared by the Company, on an
as-converted
basis, and no dividends will be declared by the Company on any individual class unless the Company simultaneously declares or pays dividends on all share classes. No subdivision or consolidation of any share class shall be made without simultaneously subdividing or consolidating all share classes in the same manner.
Voting shares activity for the periods presented is summarized as follows:
 
    
Class A Subordinate
Voting Shares
    
Class C Multiple
Voting Shares
    
Total
 
Balance, December 31, 2020
     537,575,044        1,276,208        538,851,252  
    
 
 
    
 
 
    
 
 
 
Share capital issuances
     55,330,352                  55,330,352  
    
 
 
    
 
 
    
 
 
 
Balance, December 31, 2021
     592,905,396        1,276,208        594,181,604  
    
 
 
    
 
 
    
 
 
 
Share capital issuances
     34,895,599                  34,895,599  
    
 
 
    
 
 
    
 
 
 
Balance, March 31, 2022
     627,800,995        1,276,208        629,077,203  
    
 
 
    
 
 
    
 
 
 
Class A Subordinate Voting Shares
Holders of Class A Subordinate Voting Shares are entitled to one vote in respect of each SVS.
Class C Multiple Voting Shares
Holders of Class C Multiple Voting Shares are entitled to 800 votes in respect of each MVS. One MVS can convert to one SVS but are not convertible until the later of the date that (i) the aggregate number of PVS and MVS held by the Initial Holders (being the MVS holders on their initial issuance) are reduced to a number which is less than 50% of the aggregate number of PVS and MVS held by the Initial Holders on the date of completion of the Business Combination with Cannex, and (ii) 3 years following the date of the business combination with Cannex.
 
Series
  
Shares outstanding as of
March 31, 2022
    
As converted to SVS
Shares
 
Class A
 – 
Subordinate Voting Shares
     627,800,995        627,800,995  
Class C
 – 
Multiple Voting Shares
     1,276,208        1,276,208  
    
 
 
    
 
 
 
       629,077,203        629,077,203  
    
 
 
    
 
 
 
 
17

4 FRONT VENTURES CORP.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2022 and 2021 (unaudited)
(Amounts expressed in thousands of U.S. dollars except for share and per share data)
 
On November 23, 2020, the Company closed a brokered private placement and issued 24,644,500 Units at a price of C$0.70 per Unit. Each Unit is comprised of one subordinate voting share of the Company and
one-half
of a subordinate voting share purchase warrant. Each whole warrant entitles the holder to purchase one subordinate voting share for a period of two years from the date of issuance at an exercise price of C$0.90 per subordinate voting share. Net proceeds from this transaction were $11,557 net of share issuance costs of $690.
Because of the Canadian dollar denominated exercise price, these warrants do not qualify to be classified within equity and are therefore classified as derivative liabilities at fair value with changes being reported through the statement of operations. On November 23, 2020, the warrants were valued using the Black Scholes option pricing model at $4,229 using the following assumptions: Share Price: C$0.94; Exercise Price: C$0.90; Expected Life: 2 years; Annualized Volatility: 87.73%; Dividend yield: 0.00%; Discount Rate: 0.16%; C$ Exchange Rate:1.31.
On March 31, 2022, the warrants were revalued using the Black Scholes option pricing model, using the following assumptions: Share Price: C$1.00; Expected Life: 0.65 years; Annualized Volatility: 70.96%; Dividend yield: 0%; Discount Rate: 1.06%; C$ Exchange Rate: 1.28. The decrease in the value of the derivative liability of $1,300 is reflected in the statement of operations as a $1,300 gain on the change in fair value of the derivative liability.
Note 11: WARRANTS
As of March 31, 2022, there were share purchase warrants outstanding to purchase up to 26,103,578 SVS shares:
 
Series
  
Number of
warrants
    
Weight-average

exercise price
 
Balance, December 31, 2021
     26,192,237      $ 0.75  
Issued
     —          —    
Exercised
     (88,659      0.56  
    
 
 
    
 
 
 
Balance, March 31, 2022
     26,103,578      $ 0.75  
    
 
 
    
 
 
 
As of March 31, 2022, the Company has the following warrants outstanding and exercisable:
 
                Warrants Outstanding                
 
                    Exercise Price                    
 
                    Expiry Date                    
    10,403,150       C$  0.90         November 23, 2022