EX-99.1 2 ex991.htm Q1 2020 FINANCIAL STATEMENTS

Exhibit 99.1

 

 

 

 

 

 

 

 

 

 

Formerly 4Front Holdings, LLC

 

 

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 (unaudited)

(EXPRESSED IN THOUSANDS OF US DOLLARS)

 

 

 

 

 

 

 

 

 
 
 

 

 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

TABLE OF CONTENTS

 

 

 

 

    Page(s)
FINANCIAL STATEMENTS:    
     
Condensed Consolidated Interim Statements of Financial Position   1
     
Condensed Consolidated Interim Statements of Operations and Comprehensive Loss   2
     
Condensed Consolidated Interim Statements of Changes in Equity   3
     
Condensed Consolidated Interim Statements of Cash Flows   4
     
Notes to Condensed Consolidated Interim Financial Statements   5-36
     
     

 

 

 

 
 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Condensed Consolidated Interim Statements of Financial Position

As of March 31, 2020 (unaudited) and December 31, 2019

Amounts expressed in thousands of United States dollars unless otherwise stated

 

   Note  March 31, 2020  December 31, 2019
ASSETS               
Current assets:               
Cash       $9,288   $5,789 
Accounts receivable        786    677 
Other receivables        247    325 
Lease receivables        11.186    9,556 
Inventory   5    12,638    9,138 
Biological assets   6    1,226    2,187 
Notes receivable        1,644    1,871 
Prepaid expenses        1,919    2,198 
Total current assets        38,934    31,741 
                
Restricted cash        —      2,352 
Property and equipment, net   7    45,091    41,822 
Notes receivable        1,135    1,049 
Lease receivables        22,477    23,944 
Intangible assets   8,9    40,665    41,442 
Goodwill   8,9    28,854    33,988 
Right-of-use assets   10    32,696    20,476 
Investments        759    759 
Deposits        4,947    6,346 
TOTAL ASSETS       $215,558   $203,919 
                
LIABILITIES AND EQUITY               
                
LIABILITIES               
Current Liabilities               
Accounts payable and accrued expenses       $9,414   $8,138 
Taxes payable        2,569    1,609 
Lease liability   10    1,230    972 
Convertible notes   11    2,651    —   
Contingent consideration payable   17    750    750 
Notes payable and accrued interest   11    7,115    7,382 
Total current liabilities        23,729    18,851 
                
Convertible notes   11    35,982    35,607 
Notes payable and accrued interest   11    44,326    44,289 
Long term notes payable   11    1,941    1,903 
Long term accounts payable        1,600    1,600 
Contingent consideration payable   9,17    4,714    4,714 
Lease liability   10    33,288    20,976 
TOTAL LIABILITIES        145,580    127,940 
                
EQUITY (DEFICIENCY)               
Equity attributable to 4Front Ventures Corp.        252,656    252,656 
Reserves        27,783    25,618 
Deficit        (210,238)   (202,090)
Non-controlling interest   14    (223)   (205)
TOTAL EQUITY        69,978    75,979 
TOTAL LIABILITIES AND EQUITY (DEFICIENCY)       $215,558   $203,919 
                
Nature of Operations (Note 1)               
Contingencies (Note 17)               
                

 

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

 

 

  1 

 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Condensed Consolidated Interim Statements of Operations and Comprehensive Loss

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

   Note  Three Months Ended
March 31, 2020		  Three Months Ended
March 31, 2019
          
REVENUE       $16,950   $3,466 
                
Cost of goods sold, sale of grown and manufactured products        (2,815)   (1,227)
Cost of goods sold, sale of purchased products        (4,684)   (1,137)
Gross profit before fair value adjustments        9,451    1,102 
                
                
Realized fair value included in inventory sold        (137)   (57)
Unrealized fair value gain on biological assets   6    373    592 
Gross profit        9,687    1,637 
                
                
OPERATING EXPENSES               
                
Selling and marketing expenses        7,633    1,631 
General and administrative expenses        5,223    3,891 
Depreciation and amortization   7,8,10    1,340    652 
Equity based compensation   15    1,227    459 
Total operating expenses        15,423    6,633 
Loss from Operations        (5,736)   (4,996)
                
Other Income (Expense)               
Interest income        56    —   
Interest expense        (3,307)   (355)
Accretion        173    —   
Gain on sale of subsidiary        1,652    —   
Foreign exchange gain        37    —   
Total Other Income (Expense)        (1,389)   (355)
                
Net Loss from Continuing Operations Before Income Taxes     (7,125)   (5,351)
                
Income Tax Expense   22    (862)   (470)
                
Net Loss from Continuing Operations, Net of Taxes        (7,987)   (5,821)
                
Net (Loss) Income from Discontinued Operations, Net of Taxes     (179)   42 
                
Net Loss        (8,166)   (5,779)
                
Net Loss Attributable to Non-Controlling Interest        (18)   (86)
                
Net Loss Attributable to Shareholders       $(8,148)  $(5,693)
                
Basic and Diluted Loss Per Share       $(0.02)  $(0.02)
Weighted Average Number of Shares Outstanding, Basic and Diluted    531,552,819    340,370,271 
                
                

 

 

 

 

 

 

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

 

 

  2 

 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Condensed Consolidated Interim Statements of Equity

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

      Share Capital        Total 4Front      
   Note  Units 



Shares

  Amount  Reserves  Deficit 

Ventures Corp.

Shareholders’

Equity

  Non-Controlling Interest  Total
Equity
Balance, December 31, 2018        803,591    —     $68,960   $2,227   $(21,487)  $49,700   $(1,668)  $48,032 
Class F units of Holdings for acquisition of PHX   9    5,496    —      2,675    —      —      2,675    —      2,675 
Class F units of Holdings for acquisition of non-controlling interests   9    4,772    —      2,323    —      —      2,323    —      2,323 
Purchase of non-controlling interests        —      —      (1,101)   —      —      (1,101)   (1,222)   (2,323)
Share-based compensation   15    1,067    —      —      459    —      459    —      459 
Net loss        —      —      —      —      (5,693)   (5,693)   (86)   (5,779)
Balance, March 31, 2019        814,926    —     $72,857   $2,686   $(27,180)  $48,363   $(2,976)  $45,387 

 

 

      Share Capital        Total 4Front      
   Note  Units 



Shares

  Amount  Reserves  Deficit 

Ventures Corp.

Shareholders’

Equity

  Non-Controlling Interest  Total
Equity
Balance, December 31, 2019        —      531,522,819   $252,656   $25,618   $(202,090)  $76,184   $(205)  $75,979 
GGP warrants issued with convertible debt        —      —      —      562    —      562    —      562 
Conversion option on GGP notes transferred to equity        —      —      —      376    —      376    —      376 
Share-based compensation   15    —      —      —      1,227    —      1,227    —      1,227 
Net loss        —      —      —      —      (8,148)   (8,148)   (18)   (8,166)
Balance, March 31, 2020        —      531,522,819   $252,656   $27,783   $(210,238)  $70,201   $(223)  $69,978 

 

 

 

 

 

 

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

 

 

  3 

 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Condensed Consolidated Interim Statements of Cash Flows

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

   Three Months Ended
   March 31, 2020  March 31, 2019
       
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss attributable to controlling interest  $(8,148)  $(5,693)
Net loss attributable to non-controlling interest   (18)   (86)
Adjustments to reconcile change in net loss to net cash used by operating activities          
Depreciation and amortization   1,896    785 
Equity based compensation   1,227    459 
Accrued interest on notes payable   1,578    203 
Accretion of convertible debenture and interest   173    —   
Interest accrued - lease receivable   (120)   —   
Deferred rent   —      2 
Deferred tax recovery   —      157 
Changes in operating assets and liabilities   (846)   (328)
NET CASH USED IN CONTINUED OPERATING ACTIVITIES   (4,258)   (4,501)
Net cash used in discontinued operation activities (Note 23)   (43)   (60)
NET CASH USED IN OPERATING ACTIVITIES   (4,301)   (4,561)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Long term deposits   1,399    —   
Issuance of notes receivable, net of repayments   141    (791)
Sale of PHX Interactive   6,000    —   
Purchase of PHX Interactive, net cash   —      (3,258)
Purchases of property and equipment   (3,931)   (1,054)
NET CASH PROVIDED BY (USED IN) CONTINUED INVESTING ACTIVITIES   3,609    (5,103)
Net cash used in discontinued investing activities (Note 23)   (32)   —   
NET CASH USED IN INVESTING ACTIVITIES   3,577    (5,103)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from related party loan   —      13,000 
Lease payments (lessee)   (75)   (552)
Notes payable received, net restricted cash and costs   2,025    —   
Issuance of convertible debt   2,810    —   
Repayment of notes payable   (597)   (280)
NET CASH PROVIDED BY CONTINUED FINANCING ACTIVITIES   4,163    12,168 
Net cash used in discontinued financing activities (Note 23)   60    —   
NET CASH PROVIDED BY FINANCING ACTIVITIES   4,223    12,168 
           
NET INCREASE IN CASH   3,499    2,504 
CASH, BEGINNING OF YEAR   5,789    1,435 
           
CASH, END OF YEAR  $9,288   $3,939 

 

 

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

 

 

  4 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

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 (Note 9). Following the RTO, the Company is listed on the Canadian Securities Exchange (“CSE”) under the ticker “FFNT” and are quoted on the OTC (OTCQX: FFNTF).

 

As of March 31, 2020, the Company operates 10 dispensaries in Massachusetts, Illinois, Maryland, Michigan, Pennsylvania, and Arkansas. The Company operates two production facilities in Massachusetts, and one in Illinois.

 

The Company leases real estate and sells equipment, supplies and intellectual property to cannabis producers in the state of Washington. The Company also owns and operates Pure Ratios (which was acquired by Cannex in June 2019), a CBD-focused wellness company in California, that sells non-THC products throughout the United States.

 

While marijuana and CBD-infused products are 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 business could be materially and adversely affected by the outbreak of a widespread epidemic or pandemic or other public health crisis, including arising from the novel strain of the coronavirus known as “COVID-19.” This has resulted in significant economic uncertainty and consequently, it is difficult to reliably measure the potential impact of this uncertainty on our future financial results.

 

The head office address of the Company is 5060 North 40th Street, Suite 120, Phoenix, Arizona, and the registered office is 550 Burrard Street, Suite 2900, Vancouver, British Columbia.

 

2.BASIS OF PRESENTATION

(a)    Statement of Compliance


These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”) and should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2019. They do not include all the information required for a complete set of International Financial Reporting Standards (“IFRS”) financial statements. However, selected explanatory notes are included to explain events and transactions deemed significant to provide an understanding of the changes in the Company’s financial position and performance since its most recent annual financial statements.

 

 

  5 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

These condensed consolidated interim financial statements were approved and authorized by the Board of Directors on July 13, 2020.

 

(b)   Basis of Measurement

 

These condensed consolidated interim financial statements have been prepared on a historical cost basis, except for certain financial instruments, which are measured at fair value. The condensed consolidated interim financial statements are presented in United States dollars (“$”) which is the functional currency of 4Front and its subsidiaries. Financial amounts are expressed in United States dollars unless indicated otherwise.

 

 

3.SUMMARY OF SIGNICANT ACCOUNTING POICIES

 

(a)    Critical accounting estimates and judgements

 

The preparation of the Company’s condensed interim 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 judgements 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 last annual consolidated financial statements.

 

(b)   New or amended standards adopted effective January 1, 2020

 

The Company has not adopted any new or amended IFRS standards during the period ended March 31, 2020.

 

 

4.CAPITAL MANAGEMENT

 

The Company’s primary objectives, when managing its capital, are to maintain adequate levels of funding to ensure the Company’s ability to continue as a going concern, support the operations of the Company and to maintain corporate and administrative functions. The Company defines capital as notes payable, convertible notes and equity, consisting of the issued units of the Company. The capital structure of the Company is managed to provide sufficient funding for planned operating activities of the Company. Funds are primarily secured through a combination of equity capital raised by way of private placements and debt. There can be no assurances that the Company will be able to continue raising equity capital and debt in this manner.

 

Capital is comprised of the Company’s shareholders’ equity. As of March 31, 2020, the Company’s shareholders’ equity was $69,977. There were no changes to the Company’s approach to capital management during the three months ended March 31, 2020. The Company is exposed to certain externally imposed capital requirements, as described in Note 11. Compliance with these covenants was suspended by the lender until July 31, 2020.

 

 

  6 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

5.INVENTORY

 

Raw material is harvested cannabis where the flower has not been removed. Work in process is processed bulk flower and processed cannabis oil. Finished goods are cultivation supplies to be sold to cultivators, purchased and manufactured packaged flower, pre-rolls, vape cartridges, edibles, CBD products, and paraphernalia.

 

   March 31, 2020  December 31, 2019
Raw materials – harvested cannabis  $615   $659 
Raw materials – CBD and ingredients   118    76 
Work in process – flower and extract   7,520    6,098 
Finished goods – cultivation supplies   149    677 
Finished goods – packaged products   4,236    1,628 
Total  $12,638   $9,138 

 

 

6.BIOLOGICAL ASSETS

 

Biological assets consist of live cannabis plants. For the three month period ended March 31, 2020 and the year ended December 31, 2019, the changes in the carrying value of biological assets are shown below.

   March 31, 2020  December 31, 2019
Opening balance  $2,187   $755 
Cost to grow harvested and live plants   3,230    7,246 
Net change in fair value less costs to sell due to biological transformation   373    782 
Transferred to inventory upon harvest   (4,564)   (6,596)
Total  $1,226   $2,187 

 

 

The following significant unobservable inputs, all of which are classified as level 3 on the fair value hierarchy, were used by management as part of this model:

·Selling price - calculated as the annual historical selling price for flower sold by the Company, which is expected to approximate future selling prices.
·Percentage of completion - represents the percentage of total expected costs incurred from growing biological assets as of the measurement date.
·Yield per plant - represents the expected number of grams of finished cannabis inventory which are expected to be obtained from each harvested cannabis plant.
·Wastage - represents the weighted average percentage of biological assets which are expected to fail to mature into cannabis plants that can be harvested.
·Post-harvest costs - calculated as the cost per gram of harvested cannabis to complete the product post-harvest, consisting of the cost of direct and indirect materials and labor related to labeling and packaging.

 

 

  7 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

The following table quantifies each significant unobservable input and also provides the impact of a 5% increase/decrease in each input would have on the fair value of biological assets:

   March 31,
2020		  December 31,
2019		  5% Change as of 3/31/2020  5% Change as of 12/31/2019
Average selling price of flower per gram  $5.67   $6.30   $61   $109 
Post harvesting costs per gram  $.35   $1.75   $12   $21 
Yield per plant in grams   168    142   $109   $109 
Percentage of completion   64%   65%  $95   $108 

 

Biological assets are measured using Level 3 inputs, and therefore are subject to volatility and several uncontrollable factors, which could significantly affect the fair value of biological assets in future periods.

 

Biological assets were on average at a comparable stage of growth in 2020 (64% complete) compared to December 31, 2019 (65% complete). The Company aggregates fair value on a percentage of completion. As a result, a cannabis plant that is 50% through its estimated total grow cycle would be ascribed approximately 50% of its harvest date expected fair value (subject to wastage adjustments).

 

 

  8 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

7.PROPERTY AND EQUIPMENT

Property and equipment and related depreciation are summarized in the table below:

 

Cost  Buildings 

Building

Improvements

 

Furniture,

Equipment,

and Other

 

Leasehold

Improvements

  Total
Balance, December 31, 2018   674    2,586    2,843    14,286    20,389 
  Additions   7,487    1,983    4,273    9,289    23,032 
  Acquisitions   —      —      357    1,137    1,494 
Balance, December 31, 2019  $8,161   $4,569   $7,473   $24,712   $44,915 
  Additions   335    225    2,119    1,568    4,247 
  Disposals   —      —      (55)   (229)   (284)
Balance, March 31, 2020  $8,496   $4,794   $9,537   $26,051   $48,878 
                          
Accumulated Depreciation                   
Balance, December 31, 2018   12    174    174    180    540 
  Depreciation   101    305    763    1,384    2,553 
Balance, December 31, 2019   113    479    937    1,564    3,093 
  Depreciation   109    101    332    152    694 
Balance, March 31, 2020  $222   $580   $1,269   $1,716   $3,787 
                          
Net book value                         
  December 31, 2018  $662   $2,412   $2,669   $14,106   $19,849 
  December 31, 2019  $8,048   $4,090   $6,536   $23,148   $41,822 
  March 31, 2020  $8,274   $4,214   $8,268   $24,335   $45,091 

 

 

Depreciation expense for the three months ended March 31, 2020 and 2019 was $694 and $370 respectively. ROU assets and depreciation are not included in the table above. Depreciation of $492 and $122 was included in cost of goods sold for the three months ended March 31, 2020 and 2019, respectively.

 

 

  9 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

8.INTANGIBLE ASSETS AND GOODWILL

 

The net book value of intangible assets including trademarks acquired through the business combination with Cannex at March 31, 2020 and DecemberMarch 31, 2020 and 2019 are comprised of:

 

(a)    Goodwill

 

A summary of goodwill is as follows:

 

Balance, December 31, 2018  $6,066 
 Cannex acquisition (Note 9)   166,557 
 Om acquisition (Note 9)   1,435 
 PHX/Greens Goddess acquisition (Note 9)   6,225 
 Impairment   (146,295)
Balance, December 31, 2019   33,988 
Disposal of PHX/Greens Goddess (Note 23)   (5,134)
      
Balance, March 31, 2020  $28,854 

 

 

(b)   Intangible Assets

 

  

 

 

Licenses

 

 

Customer Relationships

  Non-Competition Agreements 

 

 

Trademarks

 

 

 

Know-How

  Total
Balance, December 31, 2018  $18,741   $2,827   $237   $88   $—     $21,893 
Cannex acquisition (Note 9)   —      —      —      3,900    9,700    13,600 
Om of Medicine acquisition (Note 9)   7,700    —      —      —      —      7,700 
Accumulated amortization   —      (580)   (100)   (263)   (808)   (1,751)
Balance, December 31, 2019  $26,441   $2,247   $137   $3,725   $8,892   $41,442 
Amortization expense   —      (145)   (26)   (508)   (98)   (777)
Balance, March 31, 2020  $26,441   $2,102   $111   $3,717   $8,794   $40,665 

 

 

(c)   Impairment of Intangible Assets and Goodwill

 

On an annual basis, the Company assesses the Company’s CGUs for indicators of impairment or when facts or circumstances suggest that the carrying amount may exceed the recoverable amount. Goodwill is tested for impairment annually. For the purpose of impairment testing, goodwill is allocated to the Company’s CGUs to which it relates.

 

Goodwill was not tested during the three months ended March 31, 2020 and 2019.-

 

 

  10 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

9.ACQUISITIONS AND BUSINESS COMBINATIONS

Cannex Capital Holdings, Inc.

 

On July 31, 2019, 4Front Holdings LLC (“Holdings”) and Cannex Capital Holdings, Inc. (“Cannex”) completed their business combination and the creation of 4Front Ventures Corp. (“4Front”). The acquisition combines Cannex’s understanding of large-scale cultivation and manufacturing operations with 4Front’s existing asset base and its retail and regulatory capabilities.

 

The business combination was completed by way of a plan of arrangement agreement under the Business Corporations Act (British Columbia) pursuant to the terms of the business combination agreement among Holdings, Cannex, 4Front and 1196260 B.C. Ltd. dated March 1, 2019, as amended (the “Arrangement Agreement”). Pursuant to the terms of the Arrangement Agreement, the former owners of Holdings exchanged, through a series of transactions, their respective interests in Holdings in exchange for a total of 340.4 million shares in 4Front when calculated as if all share classes were converted to Subordinate Voting Shares.

 

Holdings has been identified for accounting purposes as the acquirer, and accordingly 4Front is considered a continuation of Holdings and the net assets of Cannex on July 31, 2019, the date of the business combination, are deemed to have been acquired by Holdings.

 

The Company recorded the acquired balance at fair value as determined by third party valuation firms. The purchase price allocation (PPA) is preliminary and the Company has up to one year to make adjustments to the purchase price allocation. The following table summarizes the preliminary purchase price allocation:

 

Consideration transferred:   
   Equity issued (1)  $181,110 
   Fair value of GGP warrants (2)   5,779 
   Replacement warrants (3)   5,317 
   Replacement stock options  (4)   6,825 
Total  $199,031 
      
Fair value of net assets acquired:     
   Cash  $9,119 
   Accounts receivable   1,869 
   Prepaid expenses   352 
   Inventory   527 
   Property and equipment   1,230 
   Notes receivable   2,233 
   Notes receivable – 4Front (5)   12,497 
   Deposits – equipment   2,182 
   Deposits – real estate   820 
   Right-of-use assets   15,160 
      
   Investments   759 

 

 

 

  11 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

   Lease receivables   33,192 
   Intangible assets   13,600 
   Goodwill   166,557 
   Accounts payable and accrued liabilities   (3,042)
   Notes payable   (201)
   Contingent consideration payable – Pure Ratios   (1,500)
   Convertible notes   (39,881)
   Lease liability   (16,442)
   $199,031 

 

(1)As part of the business combination, 190,482,146 shares were issued to Cannex investors with a value of $0.95 per share ($1.25 CAD).

 

(2)On July 31, 2019, 13,521,328 warrants that were held by Gotham Green Partners (the “GGP Warrants”) were replaced with warrants with the same terms in 4Front Ventures Corp, with a fair value of $5,779.

 

In determining the fair value of the warrants issued to GGP, the Company used the Black-Scholes option pricing model with the following weighted average assumptions:

    
   July 31, 2019
Risk-Free Interest Rate   1.84%
Expected Life of Options (years)   2.31 
Expected Annualized Volatility   89%
Expected Forfeiture Rate   nil 
Expected Dividend Yield   nil 
Black-Scholes Value of Each Option  $0.43 

 

(3)On July 31, 2019, 25,251,757 warrants that were held by third parties, were replaced with warrants with the same terms in 4Front Ventures Corp, which had a total fair value of $5,317 determined using the Black-Scholes valuation model (Note 13). The value of these warrants is recorded as derivative liability, as the exercise price of these warrants are denominated in a foreign currency, Canadian Dollars.

 

(4)On July 31, 2019, 16,346,665 stock options held by Cannex shareholders were replaced with stock options of 4Front. These replacement options had the same terms as the original options. The fair value of the replacement options was $9,098, determined using the Black-Scholes model. The consideration for the business combination includes $6,825 for replacement options, relating to past service with the remaining $2,273 recognized over the vesting period.

 

(5)As at July 31, 2019, Cannex had advanced the Company $12,497. The note is eliminated upon consolidation.

 

 

  12 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

Cannex Capital Holdings, Inc. (Continued)

 

Intangible assets comprise of trademarks with a fair value of $3,900 and know-how with a fair value of $9,700. The goodwill of $166,557 is attributable mainly to the skills and technical expertise of Cannex’s work force and the synergies expected to be achieved from integrating Cannex into 4Front’s existing

Cannabis business. None of the goodwill recognized is expected to be deductible for tax purposes.

During the year ended December 31, 2019, the Company recognized an impairment loss of $131,406 related to the business combination with Cannex.

 

Acquisition costs of $2,324, were excluded from the consideration transferred, and were included in Selling, General and Administrative Expenses in the year ended December 31, 2019.

 

Om of Medicine LLC

 

On April 15, 2019, the Company acquired 100% of Om of Medicine LLC (“OM of Medicine”), a dispensary in Michigan. The purpose of the acquisition was to expand the Company’s presence to Michigan.

 

The acquisition was accounted for in accordance with IFRS 3, and related operating results are included in the accompanying consolidated statements of operations, changes in equity and statement of cash flows for periods subsequent to the date of acquisition.

 

Goodwill arose because the consideration paid for the business acquisition reflected the benefit of expected revenue growth and future market development. During the fourth quarter of 2019, management performed its annual impairment test and concluded that the carrying value was higher than the recoverable amount and recorded impairment losses of goodwill and intangibles assets of $2,651.

 

The transaction was accounted for by the Company as a business combination, with the results included in the Company’s net earnings from the date of acquisition. The assets acquired and the liabilities assumed have been recorded by the Company at fair value as determined by the Company.

 

The following table summarizes the preliminary purchase price allocation:

 

Consideration transferred:   
   Cash  $227 
   Contingent consideration (1)   3,750 
   Payables issued (2)   1,058 
   Equity paid (3)   4,400 
Total  $9,435 

 

 

  13 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

    
Fair value of net assets acquired:   
   Cash  $51 
   Inventory   298 
   Property and equipment   192 
   Right-of-use assets   574 
   Goodwill   1,435 
   Intangible assets   7,700 
   Accounts payable and accrued liabilities   (161)
   Notes payable   (80)
   Lease liability   (574)
   $9,435 

 

(1)Contingent consideration is payable depending on reaching certain future sales targets by Om of Medicine LLC. The Company determined the contingent payments to be $3,750. See Note 17.

 

(2)Consists of $1,058 held back by the Company to pay future taxes, other expenses or payments to the sellers.
(3)As part of the business combination, 9,040 Class F shares were issued which were valued at $4,400.

 

Acquisition costs of $29, were excluded from the consideration transferred, and were included in Selling, General and Administrative Expenses in the period in which they were incurred.

 

PHX Interactive, LLC

 

On February 22, 2019, the Company completed an acquisition of 100% of PHX Interactive, LLC (“PHX”), an entity that operates Greens Goddess Products, Inc., a cannabis license holder and dispensary operator in Phoenix, Arizona. The purpose of the acquisition was to expand the Company’s operations to Arizona.

 

The acquisition was accounted for in accordance with IFRS 3, and related operating results are included in the accompanying consolidated statements of operations and comprehensive loss, changes in equity and statement of cash flows for periods subsequent to the date of acquisition. Due to a management agreement between PHX and Greens Goddess, PHX controls Greens Goddess and the Company consolidates both PHX and Greens Goddess from the date of acquisition.

 

Goodwill arose because the consideration paid for the business acquisition reflected the benefit of expected revenue growth and future market development. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

 

The transaction was accounted for by the Company as a business combination, with the results included in the Company’s net earnings from the date of acquisition. The assets acquired and the liabilities assumed have been recorded by the Company at fair value as determined by the Company.

 

 

  14 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

PHX Interactive, LLC (continued)

 

The following table summarizes the preliminary purchase price allocation:

 

Consideration transferred:   
   Cash  $3,360 
   Payables issued (1)   305 
   Equity paid (2)   2,675 
Total  $6,340 
      
Fair value of net assets acquired:     
   Cash  $102 
   Inventory   91 
   Property and equipment   72 
   Deposits   2 
   Goodwill   6,225 
   Accounts payable and accrued liabilities   (152)
    6,340 

 

(1)Consists of $305 held back by the Company to pay certain vendor payables.
(2)As part of the business combination, 5,496 Class F shares were issued which were valued at $2,675.

 

On March 30, 2020, the Company announced the divesture of PHX and Green Goddess to a third party for cash of $6,000 .

 

Preliminary Fair Value Estimates

 

The purchase price allocations for the acquisitions, as set forth in the tables above, reflect various preliminary fair value estimates and analyses that are subject to change within the measurement period. The primary areas of the preliminary purchase price allocations relate to the valuation of deferred tax liabilities, intangible assets acquired and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the acquisition date during the measurement period. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition in the Company’s consolidated financial statements and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could be affected.

 

 

  15 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

10.LEASES

 

(a)The Company as a Lessee

 

The Company initially adopted IFRS 16 effective January 1, 2019, whereby the amount recognized as a right-of-use asset was equal to the present value of the future lease payments due under outstanding leases at January 1, 2019. The right-of-use assets are being depreciated on a straight-line basis over the remaining term of the underlying lease as there are no options to acquire or otherwise transfer ownership of the underlying asset to the Company at the end of the lease term. Right of use assets consist of the following:

 

   Right of Use
 Balance, January 1, 2019    $—   
 Adoption of IFRS 16    5,580 
 Acquisition    15,734 
 Additions    936 
 Disposals    (933)
 Depreciation    (841)
 Balance, December 31, 2019    $20,476 
 Additions    12,645 
 Depreciation    (425)
 Balance, March 31, 2020   $32,696 

 

 

The lease obligations consist of the following:

    
   March 31, 2020  December 31, 2019
Balance, beginning of the year  $21,948   $87 
Adoption of IFRS 16   —      5,810 
Acquisitions   —      17,016 
Additions   11,966    936 
Disposals   —      (968) 
Interest   860    1,157 
Principal payments   (256)   (2,090)
Balance, end of the year  $34,518   $21,948 
Less current portion   (1,230)   (972)
Long term lease obligations  $33,288    $              20,976 

 

 

  16 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

(a)The Company as a Lessee

Future minimum lease payments (principal and interest) on the leases is as follows:

    
   March 31, 2020
 2020   $4,234 
 2021    5,038 
 2022    5,111 
 2023    5,000 
 2024    4,841 
 Thereafter    34.699 
 Total minimum lease payments   $58,923 
 Effect of discounting    (24,405)
 Present value of minimum lease payments   $34,518 
 Current portion lease obligations    (1,230)
 Long term lease obligations   $33,288 

 

The Company has right-of-use assets and lease liabilities for leased real estate for dispensaries, cultivation facilities and office space. The incremental borrowing rate for the Company at January 1, 2019 and through March 31, 2020 was 10.25%.

 

(b)The Company as a Lessor:

 

The Company is a landlord for one lease and one sublease for cannabis facilities with two licensed cannabis cultivators in the state of Washington. The Company acquired these leases in the Cannex business combination. The Company owns one of the facilities and leases the other from a third party. The following table summarizes changes in the Company’s lease receivables:

 

    
   March 31, 2020  December 31, 2019      
Balance, beginning of the year  $33,500   $—   
Acquisitions   —      33,192 
Interest   2,897    4,528 
Lease payments received   (2,734)   (4,220)
Balance, end of the year  $33,663   $33,500 
Less current portion   (11,186)   (9,556)
Long term lease obligations  $22,477   $23,944 
           

 

 

  17 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

(b)The Company as a Lessor (continued):

 

Future minimum lease payments receivable (principal and interest) on the leases is as follows:

    
   As of March 31, 2020
 2020   $8,232 
 2021    11,846 
 2022    12,725 
 2023    1,575 
 2024    —   
 Thereafter    —   
 Total minimum lease payments   $34,378 
 Effect of discounting    (715)
 Present value of minimum lease payments   $33,663 
 Current portion lease receivable    (11,186)
 Long term lease receivable   $22,477 

 

 

11.NOTES PAYABLE AND CONVERTIBLE NOTES

The Company’s notes payable and convertible notes are as follows:

 

  

Gotham Green

Partners, LLC

 

LI Lending,

LLC

  Other Loans  Total
Balance, December 31, 2018  $—     $—     $9,198   $9,198 
   Acquisitions (Note 9)   39,881    —      —      39,881 
   Equity component   (4,874)   —      —      (4,874)
   Loans advanced, net   —      44,194    4,145    48,339 
   Loan payments   (953)   —      (4,058)   (5,011)
   Accretion income   (337)   —      —      (337)
   Accrued interest   1,890    95    —      1,985 
Balance, December 31, 2019   35,607    44,289    9,285    89,181 
   Loans advanced, net   2,649    —      —      2,649 
   Loan payments   —      —      (516)   (516)
   Accretion income   (173)   —      —      (173)
   Accrued interest   550    37    287    874 
Balance, March 31, 2020  $38,633   $44,326   $9,056   $92,015 

 

 

  18 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

  

Gotham Green

Partners, LLC

 

LI Lending,

LLC

  Other Loans  Total
Balance, December 31, 2019  $35,607   $44,289   $9,285   $89,181 
Less current portion   —      —      (7,382)   (7,382)
Long term portion   35,607    44,289    1,903    81,799 
                     
Balance, March 31, 2020   38,633    44,326    9,056    92,015 
Less current portion   (2,651)   —      (7,115)   (9,766)
Long term portion  $35,982   $44,326   $1,941   $82,249 

 

Gotham Green Partners LLC

 

Through the Cannex business combination (Note 9), the Company assumed senior secured convertible notes issued to Gotham Green Partners LLC (“GGP”). The convertible loan has a fair value on acquisition of $39,881 which was determined as the present value of the loan and the fair value of the conversion feature. The fair value of the conversion feature was determined to be $4,874 based on the acquisition date intrinsic value of the option. Upon acquisition, the Company reclassified the fair value of the conversion feature to equity.

 

The convertible loans have a principal value of $33,502 and a maturity date of November 21, 2021. The notes have a coupon of LIBOR +11% in year 1, LIBOR +10% in year 2 and LIBOR +9.5% in year 3, with agreed voluntary prepayment rights. 50% of the interest accrued monthly is payable in cash and 50% of the interest remains outstanding and accrued.

 

The notes are exchangeable into shares of the Company at $0.83 per common share. The notes include 7,000,000 warrants to purchase shares for $1.00 per share, 4,511,279 warrants to purchase in shares for $1.33 per share, and 2,010,050 to purchase shares for $1.99 per share.

 

The Company used an independent valuation company to value the notes as of July 31, 2019 using 10.25%, discount rate which management determined was the rate for similar notes with no conversion feature or warrants. During the three months ended March 31, 2020, the Company recorded $173 in accretion income in relation to the convertible notes.

 

The Company has financial ratio covenants pertaining to the GGP notes including a fixed charge coverage ratio of above 1:1 and a debt-to-EBITDA ratio below 5:1, with debt calculated as debt less any unrestricted cash. As part of the GGP approval of the business combination with Cannex, the Company’s compliance with the financial ratio covenants was suspended until after July 31, 2020.

 

 

  19 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

LI Lending LLC

 

On May 10, 2019, the Company entered into a loan agreement with LI Lending LLC, a related party, for up to $50,000. LI Lending LLC is related by virtue of an officer of the Company being a part-owner of LI Lending LLC. As at March 31, 2020, the Company had drawn $45,000 on the loan, with transaction cost of $806.

 

The funds advanced under the loan are kept in a bank account that is owned by the Company, however, control can be assumed by the lender in the event of default on the loan. The funds can be used for permitted uses which include the acquisition and development of real estate to be used for cannabis operations.

 

The loan matures on May 10, 2024 and bears interest at 10.25%. Monthly interest-only payments are required, and all accrued interest was paid through March 31, 2020.

 

The Company is subject to certain restrictions under the loan agreement, which include the segregation of the proceeds, the use of the funds for permitted uses, and providing security interest on assets acquired with the proceeds. Subsequent to March 31, 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 has agreed to make prepayments of principal to LI Lending in the amount of $250 per month for an eight-month period beginning on May 1, 2020. Additionally, the Company agreed to pay an increased interest rate of an additional 2% on the final $10,000 of the loan until such time as this amount has been paid down. The remaining loan amount will be subject to the original 10.25% interest rate.

 

Other

 

Outstanding as at March 31, 2020 were short term loans totaling $7,115 which were assumed in acquisitions of Healthy Pharms Inc, Om of Medicine LLC and PHX Interactive LLC and through the acquisition of non-controlling interests in three Arkansas entities as follows:

          
Subsidiary  Terms 

March 31,

2020

 

December 31,

2019

Healthy Pharms Inc.  Secured promissory note originally due November 13, 2019, renegotiated subsequent to March 31, 2020. No interest on the note.  $5,429   $5,429 
Om Medicine, LLC  Unsecured promissory note, principal due upon completion of tax deliverables.   1,058    1,058 
PHX Interactive LLC  Unsecured promissory note, principal due upon completion of tax deliverables.                         427 7    134 
Arkansas Entities  Unsecured promissory note, monthly interest payments at 12% per annum   -1    561 
Other  Various   2010    20 
Total Notes Payable and Convertible Notes  $7,115   $7,382 

 

 

  20 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

At March 31, 2020, the Company had $1,941 (December 31, 2019 - $1,903) in long-term notes payable from the acquisition of non-controlling interest in three Arkansas entities ($1,822), and vehicle and other loans ($119).

 

Future minimum payments on the notes payable and convertible debt is as follows:

    
   March 31, 2020
 2020   $14,974 
 2021    45,785 
 2022    7,200 
 2023    4,568 
 2024    48,853 
 Thereafter    —   
 Total minimum payments    121,380 
 Effect of discounting    (32,016)
 Present value of minimum payments    89,364 
 Current portion     (7,115)
 Long term portion   $82,249 

 

 

12.SHARE CAPITAL AND EQUITY

 

The Company has authorized an unlimited number of Class A Subordinate Voting Shares (“SVS”), Class B Subordinate Proportionate Voting Shares (“PVS”), and Class C Multiple Voting Shares (“MVS”), all with no par value. All share classes are included within share capital in the consolidated statements of shareholder’s 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.

 

Class A Subordinate Voting Shares

 

Holders of Class A Subordinate Voting Shares are entitled to one vote in respect of each SVS.

 

Class B Subordinate Proportionate Voting Shares

 

Holders of Class B Subordinate Proportionate Voting Shares are entitled to one vote in respect of each SVS. Each PVS is convertible into 80 SVS at the holders option.

 

 

  21 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

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) on 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, 2020  As converted to SVS Shares
Class A – Subordinate Voting Shares   223,190,932    223,190,932 
Class B – Proportionate Subordinate Voting Shares   3,838,181    307,054,480 
Class C – Multiple Voting Shares   1,276,208    1,276,208 
        531,521,620 

 

 

13.WARRANTS

 

As of March 31, 2020, there were share purchase warrants outstanding to purchase up to 19,164,826 SVS shares:

    
Series  Number of warrants 

Weighted average

exercise price

Balance, December 31, 2019   42,186,503   $1.14 
Issued   2,230,080    0.67 
Expired   (25,251,757)   —   
Balance, March 31, 2020   19,164,826   $1.06 

 

As of March 31, 2020, the Company has the following warrants outstanding and exercisable.

       
Warrants Outstanding  Exercise Price  Expiry Date
 7,000,000   $1.00   November 21, 2021
 4,511,278   $1.33   November 21, 2021
 2,010,050   $1.99   November 21, 2021
 3,413,418   $0.53   October 3, 2020
 2,230,080   $0.67   January 29, 2023
 19,164,826         

 

 

  22 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

14.NON-CONTROLLING INTEREST

 

The non-controlling interest of the Company for each affiliate are summarized in the following:

 

   Premium
Medicine
 of Maryland		  Silver
Spring
Consulting
Group		  Mission
MA		  Illinois
Grown
Medicine		  Chesapeake
Integrated
Health
Institute		  Harborside
Illinois
Grown
Medicine		  Adroit
Consulting
Group		  Mission
Maryland		  Other  Total
Balance at December 31, 2018  $(444)  $(37)  $(663)  $(600)  $(267)  $(212)  $12   $60   $483   $(1,668)
Purchase of non-controlling interest   —      —      663    600    267    308    (12)   (53)   (7)   1,766 
Net income attributable to non-controlling interest   94    182    —      —      —      (96)   —      (7)   (476)   (303)
Balance at December 31, 2019  $(350)  $145   $—     $—     $—     $—     $—     $—     $—     $(205)
Net income attributable to non-controlling interest   (8)   (10)   —      —      —      —      —      —      —      (18)
Balance at March 31, 2020  $(358)  $135   $—     $—     $—     $—     $—     $—     $—     $(223)

 

 

15.SHARE-BASED COMPENSATION

 

The Company adopted two equity incentive plans where the Company may grant both Class A and Class B stock options. Under the terms of the plans, the maximum number of stock options which may be granted are a total of ten percent of the number of shares outstanding assuming conversion of all shares to SVS. The exercise price for stock options issued under the plans will be set by the compensation committee of the board of directors but will not be less than 100% of the fair market value of the Company’s shares on the grant date. Stock options have a maximum term of 10 years from the date of grant. Stock options vest at the discretion of the Board.

 

As of March 31, 2020, the Company had the following options outstanding and exercisable on an as-converted basis:

             
Grant Date  Strike Price in CAD$  Options Outstanding  Exercisable Options  Life Remaining (years)
July 31, 2019   1.00    10,450,000    10,450,000    2.70 
July 31, 2019   1.00    1,975,000    908,332    3.52 
July 31, 2019   1.50    3,121,666    1,110,000    4.20 
July 31, 2019   1.50    800,000    166,667    4.21 
July 31, 2019   0.10    6,791,760    6,791,760    4.47 
August 22, 2019   0.80    7,491,640    1,108,080    4.40 
August 22, 2019   1.00    5,650,000    —      4.40 
November 1, 2019   0.80    1,200,000    —      4.59 
November 6, 2019   0.80    15,040    —      4.61 
February 3, 2020   0.80    425,000    25,000    4.85 
         37,920,106    20,559,839    3.89 

 

Through March 31, 2020, 2,038,360 stock options were cancelled or forfeited.

 

 

During the three months ended March 31, 2020, the Company recognized share-based compensation of $1,227 (2019 - $459)

 

 

  23 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

16.RELATED PARTIES

 

Key management personnel compensation

 

Key management personnel are those persons having the authority and responsibility for planning, directing and controlling activities of the entity, directly or indirectly. The key management personnel of the Company are the members of the Company’s executive management team and board of directors. Compensation provided to key management for the three-month period ended March 31, 2020 and 2019 is as follows:

 

       
   March 31, 2020  March 31, 2019
Salaries and benefits  $457   $345 
Share-based compensation   421    72 
   $878   $417 

 

 

Related party transactions

 

Certain subsidiaries which were acquired in the business combination with Cannex have contractual relationships with two licensed Washington cannabis producer/processors: Superior Gardens LLC (d/b/a Northwest Cannabis Solutions) (“NWCS”) and 7Point Holdings LLC

 

(“7Point”). The sole owner of NWCS holds a minority interest in the Company and is an executive in the Company. The sole owner of 7Point, holds a minority interest in the Company, and is an executive of the Company.

 

NWCS and the Company are parties to a commercial gross lease expiring December 31, 2022 with two five-year renewal options. For the three months ended March 31, 2020 the Company recognized $2,142 from interest revenue on lease receivable for this lease from the date of the Cannex acquisition.

 

7Point and the Company are parties to a commercial sublease expiring November 30, 2023 with one five-year renewal option. For the three months ended March 31, 2020 the Company recognized $755 from interest revenue on lease receivable for this lease from the date of the Cannex acquisition.

 

The Company has entered into a service agreement with NWCS to provide consulting and personnel services for growing and processing for $30 per month and to act as exclusive purchasing agent for equipment, machinery, and other supplies for $20 per month for a three-year term expiring January 1, 2021 with automatic renewal for additional three-year terms. The Company recognized a total of $150 for the three months ended March 31, 2020.

 

NWCS and the Company have entered into a packaging supply agreement under commercially reasonable pricing terms by which NWCS submits packaging orders for Company-designed packaging sold by NWCS under an exclusive license to use Company brands and recipes in the state of Washington. The packaging supply agreement has an initial term of three years expiring January 1, 2021 with automatic renewal for additional three-year periods. The Company recognized total of $323 in revenue for the three months ended March 31, 2020 under the packaging supply agreement.

 

 

  24 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

At March 31, 2020, the Company held two notes receivable from these related parties with a balance of $529 (2019 -$nil).

 

As at March 31, 2020, $529 (2019 - $nil) of the Company’s trade receivables were due from NWCS and 7Point (collected subsequent to year end).

 

An officer of the Company is a part-owner of a LI Lending LLC which extended the Company a real estate improvement/development loan of up to $50,000 of which $45,000 was drawn upon as of March 31, 2020.

 

An officer of the Company holds an interest in an online marketing company serving the online CBD market which provides online marketing services for Pure Ratios. Pure Ratios paid $1,237 (2019 - $nil) for the three months ended March 31, 2020 to this vendor for marketing services.

 

The Company has issued notes receivable to related parties that hold or have applied for cannabis licenses or that have secured real estate that can be used for a cannabis facility. The Company had $606 and $696 in such notes at March 31, 2020 and 2019, respectively.

 

17.CONTINGENCIES
(a)Cannabis Industry

 

Cannabis is still considered a Schedule 1 substance under the Controlled Substance Act. As such, there is an inherent risk related to the federal government’s position on cannabis; additionally, the risk exists, due to the Company’s business in cannabis, that third party service providers could suspend or withdraw services and as well as the risk that regulatory bodies could impose certain restrictions on the issuer’s ability to operate in the U.S.; however, the Company has deemed it not reasonable to estimate a potential liability related to the possible enforcement of laws against the medical cannabis industry.

 

 

  25 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

(b)Contingent consideration payable

 

As part of the acquisition of Om of Medicine, LLC and Cannex’s prior acquisition of Pure Ratios, the Company is subject to contingent consideration payable to the original vendors. The fair value of the contingent consideration, which is based on specific revenue levels achieved over a 2-3-year period, is as follows:

          
   Om of Medicine  Pure Ratios 

 

Total

 Balance, December 31, 2019   $3,964   $1,500   $5,464 
 Additions    —      —      —   
 Accretion     —      —      —   
 Balance, March 31, 2020   $3,964   $1,500   $5,464 

 

The contingent consideration payable is measured at fair value based on unobservable inputs and is considered a Level 3 financial instrument. The determination of the fair value of these liabilities is primarily driven by the Company’s expectations of the respective subsidiaries achieving certain milestones. The expected milestones were assigned probabilities and the expected related cash flows were discounted to derive the fair value of the contingent consideration.

 

i)OM of Medicine: The contingent consideration payable is determined as the amount in excess of gross sales of $3,400 (for fiscal 2020 and 2021) and $3,500 (2022) to a maximum payable of $6,000. At March 31, 2020, the probability of achieving all milestones to Om of Medicine’s contingent consideration payable was estimated to be 57%. If the probabilities of achieving the milestones decreased by 5%, the estimated fair value of the contingent consideration would decrease by approximately $700.

 

ii)Pure Ratios: The contingent consideration payable of $750 in SVS of the Company is due upon gross sales exceeding $600 for three consecutive months during the year ended December 31, 2020. At March 31, 2020, the probability of achieving all milestones pertaining to Pure Ratios’ contingent consideration payable was estimated to be 100%. If the probability of achieving the milestones decreased by 5%, the estimated fair value of the contingent consideration would decrease by approximately $75.

 

(c)Legal Matters

 

From time to time, the Company may be involved in certain disputes arising in the ordinary course of business. Such disputes, taken in the aggregate, are not expected to have a material adverse effect on the Company. As of March 31, 2020, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations. There are also no proceedings in which any of the Company’s directors, officers, or affiliates is an adverse party or has a material interest adverse to the Company’s interest.

 

 

  26 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

18.FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

 

The Company’s financial instruments consist of cash, accounts receivable, other receivables, notes receivable, restricted cash, investments, accounts payable and accrued expenses, contingent consideration payable, notes payable, and derivative liabilities. The carrying values of these financial instruments approximate their fair values as of March 31, 2020 and December 31, 2019.

 

Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of the inputs to fair value measurements. The three levels of hierarchy are:

 

Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3 inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

 

The fair value of the Company’s cash, accounts receivable, other receivables, accounts payable and accrued expenses approximates carrying value due to their short-term nature. The Company’s restricted cash, and investments approximate fair value due to the nature of the instruments. The Company’s notes receivable, convertible notes payable, and notes payable approximate fair value due to the instruments bearing market rate of interest.

 

There were no transfers between fair value levels during the three months ended March 31, 2020 and the year ending December 31, 2019.

 

(a)Financial Risk Management


The Company is exposed in varying degrees to a variety of financial instruments related risks. The Board mitigates these risks by assessing, monitoring and approving the Company’s risk management processes.

 

(b)Credit Risk

 

Credit risk is the risk of loss associated with counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash, lease receivables, other receivables, and notes receivable. The Company’s maximum credit risk exposure is equivalent to the carrying value of these instruments.

 

The risk exposure is limited to the carrying amounts at the statement of financial position date. The risk to cash deposits is mitigated by holding these instruments with regulated financial institutions. Lease receivables, notes receivables and other receivables credit risk arises from the possibility that principal and interest due may become uncollectible. The Company mitigates this risk by managing and monitoring the underlying business relationships.

 

As of March 31, 2020, the maximum credit exposure related to the carrying amounts of accounts receivable, notes receivable and lease receivable was $37,475.

 

 

  27 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

  

(c)Liquidity Risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations associated with financial liabilities. The Company manages liquidity risk through the management of its capital structure. The Company’s approach to managing liquidity is to raise sufficient capital to settle obligations and liabilities when due.

 

(d)Interest Rate Risk

 

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s secured convertible notes with GGP (Note 11) bear interest at variable rates and is exposed to interest rate risk. If the LIBOR had increased by 1% during the three months ended March 31, 2020, the Company’s net loss would have increased by $95.

 

(e)Foreign Exchange Risk

 

The Company is exposed to exchange rate fluctuations between United States and Canadian dollars. The Company’s share price is denominated in Canadian dollars. If the Canadian dollar declines against the United States dollar, the United States dollar amounts available to fund the Company through the exercise of stock options or warrants will be less. The Company also has bank accounts with balances in Canadian dollars. The value of these bank balances if converted to U.S. dollars will fluctuate. While the Company maintains a head office in Canada where it incurs expenses primarily denominated in Canadian dollars, such expenses are a small portion of overall expenses incurred by the Company. The Company does not have a practice of trading derivatives and does not engage in “natural hedging” for funds held in Canada.

 

The Company has determined that as at March 31, 2020, the effect of a 10% increase or decrease in the Canadian dollar against the U.S. dollar on financial assets and liabilities would result in an increase or decrease of approximately $98 to comprehensive loss for the three months ended March 31, 2020.

 

(f)Other Price Risk

 

Price risk is the risk of variability in fair value due to movements in equity or market prices. The Company is subject to risk of prices to its products due to competitive or regulatory pressures.

 

 

  28 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

19.SEGMENT INFORMATION

 

Operating segments are components of the Company that combine similar business activities, with activities grouped to facilitate the evaluation of business units and allocation of resources by the Company’s board and management. As at March 31, 2020, the Company had five reportable segments:

 

·Retail - all Company controlled cannabis dispensaries, and consulting fees for assisting third party dispensaries.
·Production - production of cannabis products, and the importing of equipment and supplies for resale.
·Pure Ratios – production and sale of CBD products.
·Real Estate - leasing of cannabis production facilities in the state of Washington.
·Corporate

 

All of the Company’s revenues were earned in the United States and all of the Company’s non-financial long-lived assets are located in the United States.

 

March 31, 2020  Retail  Production  Real Estate  Pure Ratios  Corporate  Total
Revenues  $11,866   $397   $2,897   $1,790   $—     $16,950 
Depreciation and amortization  $1,317   $—     $—     $21   $2   $1,340 
Interest income  $—     $—     $—     $—     $56   $56 
Interest expense  $—     $—     $—     $—     $3,307   $3,307 
Other income  $—     $—     $—     $—     $1,652   $1,652 
Share based compensation  $—     $—     $—     $—     $1,227   $1,227 
Income (loss) before income taxes  $(1,627)  $93   $2,862   $(614)  $(7,839)  $(7,125)
Income taxes  $862   $—     $—     $—     $—     $862 
Total assets  $119,776   $53,939   $37,097   $1,851   $2,895   $215,558 

 

 

March 31, 2019  Retail  Production  Real Estate  Pure Ratios  Corporate  Total
Revenues  $3,466   $—     $—     $—     $—     $3,466 
Depreciation and amortization  $554   $98   $—     $—     $5   $652 
Interest income  $—     $—     $—     $—     $—     $—   
Interest expense  $—     $—     $—     $—     $355   $355 
Other income  $—     $—     $—     $—     $—     $—   
Share based compensation  $—     $—     $—     $—     $459   $459 
Income (loss) before income taxes  $204   $(103)  $—     $—     $(5,617)  $(5,516)
Income taxes  $470   $—     $—     $—     $—     $470 
Total assets  $36,138   $5,284   $—     $—     $20   $41,442 

 

 

  29 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

20.RESTATEMENT OF 2019 FINANCIAL STATEMENTS

 

The Company originally concluded that the Company did not control certain entities that own cannabis licenses. The Company held management agreements where it performed management services in exchange for management fees. In preparation of the 2019 year-end financial statements, the Company concluded that by applying IFRS 10, it did have control of these entities upon the execution of the management agreements in 2015 for Mission MA Inc. (“MMA”) and in 2017 for Chesapeake Integrated Health Institute, LLC (“CIHI”) and for Premium Medicine of Maryland (“Premium”).

 

The correction is being applied to the three months ended March 31, 2019 Consolidated Statements of Operations and Comprehensive Loss and the Consolidated Statements of Cash Flows in the accompanying financial statements.

 

This correction is prior to additional reclasses on the Consolidated Statements of Operations and Comprehensive Loss and the Consolidated Statements of Cash Flows as a result of reporting discontinued operations as a single line item. See Note 23.

 

 

 

 

  30 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

The effect of this restatement on the 2019 financial statements are as follows:

          
Impact on the consolidated statements of operations  As Previously  Effect of   
for the three months ended March 31, 2019  Reported  Correction  As Restated
          
REVENUE  $3,557   $232   $3,789 
                
Cost of goods sold, sale of grown and manufactured products   (1,227)        (1,227)
Cost of goods gold, sale of purchased products   (1,145)   (194)   (1,339)
Gross profit before fair value adjustments   1,185    38    1,223 
                
Realized fair value included in inventory sold   (57)   —      (57)
Unrealized fair value gain on biological assets   592    —      592 
Gross profit   1,720    38    1,758 
                
OPERATING EXPENSES               
                
Selling and marketing expenses   1,123    391    1,514 
General and administrative expenses   4,056    —      4,056 
Depreciation and amortization   588    64    652 
Equity based compensation   459    —      459 
Total operating expenses   6,226    455    6,681 
Loss from Operations   (4,506)   (417)   (4,923)
                
Other Income (Expense)               
Interest income   398    (398)   —   
Interest expense   (323)   (32)   (355)
Total Other Income (Expense)   75    (430)   (355)
                
Net Loss Before Income Taxes   (4,431)   (847)   (5,278)
                
Income Tax Expense   (501)   —      (501)
                
                
Net Loss   (4,932)   (847)   (5,779)
                
Net Loss Attributable To Non-Controlling Interest   (86)   —      (86)
                
Net Loss Attributable to Shareholders  $(4,846)  $(847)  $(5,693)

 

 

 

 

  31 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

Impact on the statement of cash flows  As Previously  Effect of   
for the three months ended March 31, 2019  Reported  Correction  As Restated
          
CASH FLOWS FROM OPERATING ACTIVITIES               
Net loss attributable to controlling interest  $(4,846)  $(847)  $(5,693)
Net loss attributable to non-controlling interest   (86)   —      (86)
Adjustments to reconcile change in net loss to net cash used by operating activities               
Depreciation and amortization   741    44    785 
Accrued interest on notes receivable   (451)   451    —   
Equity based compensation   459    —      459 
Accrued interest on notes payable to related parties   203    —      203 
Deferred rent   2    —      2 
Deferred tax liability   157    —      157 
Other receivables   93    —      93 
Discontinued ops   —      (60)   (60)
Changes in operating assets and liabilities   (249)   (79)   (328)
NET CASH USED IN OPERATING ACTIVITIES   (4,069)   (492)   (4,561)
                
CASH FLOWS FROM INVESTING ACTIVITIES               
Issuance of notes receivable, net of repayments   (1,857)   1,066    (791)
Purchase of PHX, net of cash acquired   (3,258)   —      (3,258)
Purchases of property and equipment   (862)   (192)   (1,054)
NET CASH USED IN INVESTING ACTIVITIES   (5,977)   874    (5,103)
                
CASH FLOWS FROM FINANCING ACTIVITIES               
Lease payments (lessee)   (104)   (448)   (552)
Notes payable received, net restricted cash and costs               
Proceeds from related party loan   13,000    —      13,000 
Repayment of Notes Payable   (280)   —      (280)
                
NET CASH PROVIDED BY FINANCING ACTIVITIES   12,616    (448)   12,168 
                
NET INCREASE IN CASH   2,570    (66)   2,504 
CASH, BEGINNING OF PERIOD   1,263    172    1,435 
CASH, END OF PERIOD  $3,833   $106   $3,939 

 

 

  32 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

21. SUPPLEMENTARY CASH FLOW INFORMATION

 

Changes in non-cash working capital:

 

Changes in operating assets and liabilities  March 31, 2020  March 31, 2019
Accounts receivable  $(31)  $—   
Other receivables   —      93 
Deposits   —      52 
Inventory and biological assets   (2,303)   (963)
Change in fair value of biological assets   (236)     
Prepaid expenses   279    62 
Accounts payable   485    (116)
Accrued expenses and other liabilities   —      200 
Taxes payable   960    344 
           
   $(846)  $(328)
           

 

Non-cash activities during the three months ended March 31, 2020 and 2019 were as follows:

 

   March 31, 2020  March 31, 2019
Biological assets transferred to Inventory   4,560    1,189 
         

 

·Cash paid for interest in for three months ended March 31, 2020 and 2019 was $1,813 and $190 respectively.
·Cash paid for income taxes for the three months ended March 31, 2020 and 2010 was $Nil for both years.

 

 

  33 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

22.INCOME TAXES

 

On July 31, 2019, the Company converted to a C corporation in the province of British Columbia for US tax purposes due to the reverse takeover of Cannex. Prior to July 31, 2019, the Company was classified as a Limited Liability Corporation (“LLC”) for US tax purposes. As such, prior to July 31, 2019, losses generated from operations were passes through to individual members.

 

The Company’s statutory U.S federal income tax rate is 27.7%. The Company’s provision for income taxes differs from applying the U.S. federal income tax rate to income before taxes primarily due to state income taxes, certain share-based compensation, warrants accretion, tax credits and miscellaneous permanent differences.

 

Internal Revenue Code (“IRC”) Section 280E denies, at the US federal level, deductions and credits attributable to a trade or business trafficking in controlled substances. Because the Company is subject to IRC Section 280E, the Company has computed its US tax based on gross receipts less cost of goods sold. The tax provision for the year ended December 31, 2019, has been prepared based on the assumption that cost of goods sold is a valid expense for income tax purposes.

 

 

23.DISPOSALS AND DISCONTINUED OPERATIONS

 

On January 21, 2020, the Company sold two management companies that controlled two Arkansas cannabis licenses to a third party for $2 million. A gain of $2 million is included in gain on sale of subsidiaries in the Consolidated Statements of Operations and Comprehensive Loss. The entities sold had no operation through the sale date.

 

On February 22, 2019, the Company acquired PHX Interactive LLC and control of Greens Goddess Inc., an Arizona cannabis dispensary. On March 20, 2020, the Company completed the divestiture of these entities through a sale to a third party for $6 million in cash. On December 31, 2019 the Company tested the Greens Goddess goodwill for impairment and based on the sale price, recorded $1,092 in goodwill impairment. The Company paid a $348 fee to a lender in exchange for allowing the Company to sell the dispensary. This fee is recorded as a disposal cost and is netted with gains as part of gain on sale of subsidiaries in the Consolidated Statements of Operations and Comprehensive Loss.

 

The entities that were sold during the period ended March 31, 2020 were part of the Retail segment (Note 19).

 

The Company has classified Greens Goddess as a discontinued operation for the three months ended March 31, 2020 and 2019. The net operating loss for Greens Goddess for the three months ended March 31, 2020 and 2019 are reported as a single line item in the Statements of Operations and Comprehensive Loss and are summarized as follows:

 

 

  34 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

   2020  2019
       
REVENUE  $700   $323 
Cost of goods gold, sale of purchased products   (466)   (202)
Gross profit before fair value adjustments   234    121 
           
OPERATING EXPENSES          
Selling and marketing expenses   288    43 
Depreciation and amortization   64    5 
Total operating expenses   352    48 
Loss from Operations   (118)   73 
           
Income Tax Expense   (61)   (31)
           
Net Income (Loss) After Income Tax Expense  $(179)  $42 

 

 

Cash flows generated by Greens Goddess are reported as single line items in each section of the Condensed Consolidated Interim Statements of Cash Flows and are summarized as follows:

 

   2020  2019
       
Net Cash Used in Operating Activities  $(43)  $(60)
Net Cash Used in Investing Activities   (32)   —   
Net Cash Provided by Financing Activities   60    —   
Cash Flows From Discontinued Operations  $(15)  $(60)

 

 

  35 

4FRONT VENTURES CORP.

Formerly 4Front Holdings, LLC

Notes to Consolidated Interim Financial Statements

For the Three Months Ended March 31, 2020 and 2019 (unaudited)

Amounts expressed in thousands of United States dollars unless otherwise stated

 

24.SUBSEQUENT EVENTS

 

(a)Selling of Non-Core Assets

On May 1, 2020, the Company announced that it had entered into a definitive agreement to sell its stake in retail cannabis licenses in Pennsylvania and Maryland, netting in excess of $18,000 of cash. On May 8, 2020, the Company completed the sale of its non-core retail licenses in Pennsylvania for a total cash consideration of $10,600.

(b)Private Placement Debt

 

The Company announced on May 15, 2020, that it had closed on raising approximately $5,800 in private placement of convertible debt. The convertible debt has an annual coupon of 5%, paid-in-kind, and will mature on February 28, 2022. The Notes are exchangeable into subordinate voting shares (“common equivalent”) at a conversion price of $0.25. 

 

 

  36