NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM
FINANCIAL STATEMENTS
|
1.
|
Organization,
Nature of Business, Going Concern and Management Plans
|
Organization and Nature of Business
Target Group Inc. (formerly known as Chess
Supersite Corporation) (“Target Group” or “the Company”) was incorporated on July 2, 2013 under the laws
of the state of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions.
Target Group Inc. is a diversified and
vertically integrated, progressive company with focus on both national and international presence. The Company owns and operates
Canary Rx Inc, a final-stage, Canadian licensed producer, regulated under The Cannabis Act. Canary Rx Inc, operates a 44,000 square
foot facility located in Norfolk County, Ontario, and has partnered with Dutch breeder, Serious Seeds, to cultivate exclusive
& world class proprietary genetics. The Company has begun structuring multiple international production and distribution platforms
and intends to continue rapidly expanding its global footprint as it focuses on building an iconic brand portfolio whose focus
aims at developing cutting edge Intellectual Property among the medical and recreational cannabis markets. Target Group is committed
to building industry-leading companies that transform the perception of cannabis and responsibly elevate the overall consumer
experience.
The Company’s current business is
to produce, manufacture, distribute, and conduct sales of cannabis products. As of the current year end, the company has not produced,
manufactured, distributed or sold any cannabis products.
In May, 2014, the Company effected a change
in control by the redemption of the stock held by its original shareholders, the issuance of shares of its common stock to new
shareholders, the resignation of its original officers and directors and the appointment of new officers and directors.
On July 6, 2015, the Company filed its
form S-1/A, to amend its form S-1 previously filed on January 26, 2015 and December 11, 2014. The prospectus relates to the offer
and sale of 1,500,000 shares of common stock (the “Shares”) of the Company, $0.0001 par value per share, offered by
the holders thereof (the “Selling Shareholder Shares”), who are deemed to be statutory underwriters. The selling shareholders
will offer their shares at a price of $0.50 per share, until the Company’s common stock is listed on a national securities
exchange or is quoted on the OTC Bulletin Board (or a successor); after which, the selling shareholders may sell their shares
at prevailing market or privately negotiated prices, including (without limitation) in one or more transactions that may take
place by ordinary broker’s transactions, privately-negotiated transactions or through sales to one or more dealers for resale.
On July 13, 2015, the Company received
a notice of effectiveness from the SEC for the registration of its shares.
On July 3, 2018, the Company filed an
amendment in its Articles of association to change its name to Target Group Inc. The Company was able to secure an OTC Bulletin
Board symbol CBDY from Financial Industry Regulatory Authority (FINRA).
On June 27, 2018, the Company entered
into an Agreement and Plan of Share Exchange (“Exchange Agreement”) with Visava Inc., a private Ontario, Canada corporation
(“Visava”). Visava owns 100% of Canary Rx Inc., a Canadian corporation that holds a leasehold interest in a parcel
of property located in Ontario’s Garden Norfolk County for the production of cannabis.
The Exchange Agreement provides that,
subject to its terms and conditions, the Company issued to the Visava shareholders an aggregate of 25,500,000 shares of the Company’s
Common Stock in exchange for all of the issued and outstanding common stock held by the Visava shareholders. In addition of its
Common Stock, the Company issued to the Visava shareholders, prorata Common Stock Purchase Warrants purchasing an aggregate of
25,000,000 shares of the Company’s Common Stock at a price per share of $0.10 for a period of two years following the issuance
date of the Warrants. Upon the closing of the Exchange Agreement, the Visava shareholders held approximately 46.27% of the issued
and outstanding Common Stock of the Company and Visava will continue its business operations as a wholly-owned subsidiary of the
Company. The transaction was closed effective August 2, 2018.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Effective January 25, 2019, the Company
entered into an Agreement and Plan of Share Exchange (“Exchange Agreement”) with CannaKorp Inc., a Delaware corporation
(“CannaKorp”). Company had previously entered into a Letter of Intent with CannaKorp dated November 30, 2018 which
was disclosed in the Company’s report on Form 8-K filed December 4, 2018.
The Exchange Agreement provides that,
subject to its terms and conditions, the Company issued to the CannaKorp shareholders an aggregate of 30,407,412 shares of the
Company’s common stock, based on a price per share of $0.10, in exchange for 100% of the issued and outstanding common stock
of CannaKorp held by the CannaKorp shareholders. In addition, the Company will issue Common Stock Purchase Warrants (“Warrants”)
in exchange for all outstanding and promised CannaKorp stock options. The Warrants will grant the holders thereof the right to
purchase up to approximately 7,211,213 shares of the Company’s common stock. The Company will also assume all outstanding
liabilities of CannaKorp. Upon the closing of the Exchange Agreement, CannaKorp will continue its business operations as a subsidiary
of the Company. The transaction was closed effective March 1, 2019.
Going Concern and Management Plans
The Company has minimal revenue since
inception to date and has sustained operating losses during the six months ended June 30, 2019. The Company had working capital
deficit of $2,482,007 and an accumulated deficit of $12,415,830 as of June 30, 2019. The Company's continuation as a going concern
is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtaining additional
financing from its members or other sources, as may be required.
The unaudited condensed consolidated
interim financial statements have been prepared assuming that the Company will continue as a going concern up-to at least 12
months from the balance sheet date; however, the above condition raises substantial doubt about the Company’s ability
to do so. The unaudited condensed consolidated interim financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets or the amounts and classifications of
liabilities that may result should the Company be unable to continue as a going concern.
In order to maintain its current level
of operations, the Company will require additional working capital from either cash flow from operations or from the sale of its
equity. However, the Company currently has no commitments from any third parties for the purchase of its equity. If the Company
is unable to acquire additional working capital, it will be required to significantly reduce its current level of operations.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
|
2.
|
Summary
of Significant Accounting Policies
|
Basis of Presentation and Consolidation
The unaudited condensed consolidated
interim financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“US GAAP”) for interim financial information and the rules and regulations of the SEC and are
expressed in US dollars. Accordingly, the unaudited condensed consolidated interim financial statements do not include all
information and footnotes required by US GAAP for complete annual financial statements. The unaudited condensed consolidated
interim financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary
for a fair presentation. Interim operating results are not necessarily indicative of results that may be expected for the
year ending December 31, 2019 or for any other interim period. The unaudited condensed consolidated interim financial
statements should be read in conjunction with the audited consolidated financial statements of the Company and the notes
thereto as of and for the year ended December 31, 2018.
The unaudited condensed consolidated interim financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Visava Inc. and CannaKorp, Inc. Significant intercompany accounts and transactions have been
eliminated.
Accounts receivable
Accounts receivable consists of amounts
due to the Company from customers as a result of the Company’s normal business activities. Accounts receivable is reported
on the balance sheets net of an estimated allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts
for estimated uncollectible receivables based on historical experience, assessment of specific risk, review of outstanding invoices,
and various assumptions and estimates that are believed to be reasonable under the circumstances, and recognizes the provision
as a component of selling, general and administrative expenses. Uncollectible accounts are written off against the allowance after
appropriate collection efforts have been exhausted and when it is deemed that a balance is uncollectible. As of June 30, 2019,
the Company expects to collect these balances completely and therefore has not created any allowance for it.
Inventory
Inventory is stated at the lower of cost
or net realizable value, cost being determined on a weighted average cost basis, and market being determined as the lower of cost
or net realizable value. The Company records write-downs of inventory that is obsolete or in excess of anticipated demand or market
value based on consideration of product lifecycle stage, technology trends, product development plans and assumptions about future
demand and market conditions. Actual demand may differ from forecasted demand, and such differences may have a material effect
on recorded inventory values. Inventory write-downs are charged to cost of revenue and establish a new cost basis for the inventory.
Inventories consists of raw materials
and finished goods. The cost is determined on the basis of the average cost or first-in, first-out methods.
Use of Estimates
The preparation of the unaudited
condensed consolidated interim financial statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the unaudited condensed consolidated interim financial statements and the reported amounts of revenues and
expenses during the reporting periods. Estimates may include those pertaining to accruals. Actual results could materially
differ from those estimates.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
Revenue recognition
The Company adopted ASC 606 effective January
1, 2019, using the modified retrospective method after electing to delay the adoption of the accounting standard as the Company
qualified as an “emerging growth company”. Since the Company did not have any contracts as of the effective day, therefore,
there was no material impact on the unaudited condensed consolidation interim financial statements upon adoption of the new standard.
Revenue is recognized when performance obligations under the terms of the contracts with our customers are satisfied. Our performance
obligation generally consists of the promise to sell our finished products to our customers, wholesalers, distributors or retailers.
Control of the finished products is transferred upon shipment to, or receipt at, our customers' locations, as determined by the
specific terms of the contract. Once control is transferred to the customer, we have completed our performance obligation, and
revenue is recognized.
Deferred revenue is due to a shipment
sent to one of the Company’s distributors. However, since control has not been transferred and the performance obligation
has not been completed, revenue has not been recognized and proceeds received are classified as deferred revenue.
Recently Issued Accounting Standards
The Company evaluated all recent accounting
pronouncements issued and determined that the adoption of these pronouncements would not have a material effect on the financial
position, results of operations or cash flows of the Company.
In August 2018, the FASB issued ASU 2018-13,
“Changes to Disclosure Requirements for Fair Value Measurements”, which will improve the effectiveness of disclosure
requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure
requirements, and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
The Company will be evaluating the impact this standard will have on the Company’s unaudited condensed consolidated interim
financial statements.
In June 2018, the FASB issued an accounting
pronouncement (FASB ASU 2018-07) to expand the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based
payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years, and for
interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently
in the process of evaluating the effects of this pronouncement on the unaudited condensed consolidated interim financial statements.
In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842). This guidance revises the accounting related to leases by requiring lessees to recognize a lease liability
and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions.
This ASU is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company
is currently in the process of evaluating the effects of this pronouncement on the unaudited condensed consolidated interim financial
statements.
The Company qualifies as an “emerging
growth company” under the 2012 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage
of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting
standards. As an emerging growth company, management can delay the adoption of certain accounting standards until those standards
would otherwise apply to private companies. The management has elected to take advantage of the benefits of this extended transition
period.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
|
3.
|
Related
Party Transactions and Balances
|
During the six months ended June 30, 2019,
$97,321 (June 30, 2018: $150,000) was recorded as management services fee payable to Rubin Schindermann ($75,000) and Alexander
Starr ($22,321), who are shareholders and officers in the Company. The amount is included in the related party balance as
at June 30, 2019.
They were issued 14,834,850 shares (December
31, 2018: 5,529,412 shares) for these services performed and to settle the shareholder advance as of and for the six months ended
June 30, 2019. These were recorded at fair value in the amount of $1,665,329.
On February 22, 2019, Alexander Starr
terminated his employment agreement but remained as the President of the Company and the Company has guaranteed to pay $180,000
within the next twelve months starting from March 1, 2019 with payments being made twice a month. During the three months ended
June 30, 2019, out of the above mentioned 14,834,850 share issuance, 8,234,850 shares, fair valued at $885,329 were issued to
Alexander Star to settle the outstanding management service fee payable of $162,019 and shareholder advances in amount of $14,032.
The company recorded a loss on settlement in the amount of $709,278.
Amounts payable to Rubin Schindermann
and Alexander Starr as at June 30, 2019 were $nil and $nil, respectively (December 31, 2018: $200,00 and $139,697, respectively).
During the three months ended, June 30,
2019, Saul Niddam, Chief Operating Officer of the subsidiary, CannaKorp, purchased 1,666,667 shares (December 31, 2018: nil shares)
as consideration for private placement. These were recorded at fair value in the amount of $37,385 based on the cash proceeds received
by the Company.
During the year ended December 31, 2017,
Eric Schindermann, who is the son of Rubin Schindermann, became a lender to the Company by way of assignment of an existing promissory
note liability of the Company amounting to $18,000. 1,591,556 shares of the Company’s common stock were issued to Eric Schindermann
during the year end December 31, 2018, on full conversion of the debt.
During the six months ended June 30, 2019,
$101,936 (December 31, 2018: $60,000) was paid as remuneration for management services as salaries to Randal MacLeod, who is shareholder
in the Company and President of the subsidiary, Visava. In addition, 3,000,000 shares were issued as a bonus for completing the
facility’s construction, fair valued in the amount of $294,000.
As at June 30, 2019, the outstanding balance
of multiple loans provided by the shareholders in the Company's subsidiary, CannaKorp, is $387,000 which is included in the payable
to related party balance.
As at June 30, 2019, the remaining balance
of $46,313 in payable to related parties are management fee accruals for services performed by key management personals (December
31, 2018: $62,500).
Shareholder advances represent
expenses paid by the owners from personal funds. The amount is non-interest bearing, unsecured and due on demand. The amount of
advance as at June 30, 2019 and December 31, 2018 was $nil and $209,046, respectively. The amounts repaid during the six months
ended June 30, 2019 and 2018 were $75,623 and $49,157, respectively, and the remaining portion in the amount of $133,423 was settled through issuance of shares of common
stock. Refer to Note 3 for details.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
|
5.
|
Capital
work in progress
|
The Company initiated construction
on its 44,000 square foot cannabis cultivation facility in September of 2017. Since then, extensive demolition and structural
upgrades have been carried out at the site. As at June 30, 2019, the Company has capitalized $8,820,385 in payments to multiple
vendors for the construction of the facility.
Construction in progress will be considered
leasehold improvements, and is expected to be in service when the facility is open and licensed.
On May 1, 2019, the Company completed
the construction of its 44,000 square foot cannabis cultivation facility and on May 14, 2019, the Company submitted a Site Evidence
Package to Health Canada as part of the steps to obtain the license to cultivate cannabis at the Company’s facility
At June 30, 2019, the Company had $76,713
(December 31, 2018: $294,033) of gross sales tax recoverable. This is due to sales tax paid by the subsidiary on expenses incurred
during the year which are recoverable from the government.
The Company has recorded an allowance
of 25% of the sales tax recoverable stemming from the potential uncollectible balances within the outstanding sales tax recoverable
amount. As of June 30, 2019, the balance of the allowance is $19,178, (December 31, 2018: $75,902).
|
7.
|
Goodwill
and Intangible Assets
|
Business Acquisition
ASC Topic 805, “Business
Combinations” requires that all business combinations be accounted for using the acquisition method and that certain identifiable
intangible assets acquired in a business combination be recognized as assets apart from goodwill. ASC Topic 350, “Intangibles-Goodwill
and Other” (“ASC 350”) requires goodwill and other identifiable intangible assets with indefinite useful lives
not be amortized, such as trade names, but instead tested at least annually for impairment (which the Company tests each year
end, absent any impairment indicators) and be written down if impaired. ASC 350 requires that goodwill be allocated to its respective
reporting unit and that identifiable intangible assets with finite lives be amortized over their useful lives.
CannaKorp Inc.
Effective January 25, 2019, the Company
entered into an Agreement and Plan of Share Exchange (“Exchange Agreement”) with CannaKorp Inc., a Delaware corporation
(“CannaKorp”). Company had previously entered into a Letter of Intent with CannaKorp dated November 30, 2018 which
was disclosed in the Company’s report on Form 8-K filed December 4, 2018.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
The Exchange Agreement provides that,
subject to its terms and conditions, the Company issued to the CannaKorp shareholders an aggregate of 30,407,412 shares of the
Company’s common stock, based on a price per share of $0.10, in exchange for 100% of the issued and outstanding common stock
of CannaKorp held by the CannaKorp shareholders. In addition, the Company will issue Common Stock Purchase Warrants (“Warrants”)
in exchange for all outstanding and promised CannaKorp stock options. The Warrants will grant the holders thereof the right to
purchase up to approximately 7,211,213 shares of the Company’s common stock. The Company will also assume all outstanding
liabilities of CannaKorp. Upon the closing of the Exchange Agreement, CannaKorp will continue its business operations as a subsidiary
of the Company. The transaction was closed effective March 1, 2019.
Due to the publicly traded nature of the
Company’s shares of the common stock, the equity issuance of the shares was considered to be a more reliable measurement
of fair market value of the transaction compared to having a separate valuation of the net assets.
This acquisition was accounted for using
the acquisition method of accounting. The fair value of assets, liabilities and intangible assets and the purchase price allocation
as of March 1, 2019 was as follows:
|
|
Allocation
of
Purchase
Price
|
|
|
|
$
|
|
Cash
|
|
|
5,658
|
|
Accounts Receivable
|
|
|
2,068
|
|
Inventory
|
|
|
1,052,555
|
|
Prepaid and other receivables
|
|
|
98,277
|
|
Property and equipment, net
|
|
|
384,177
|
|
Total assets
|
|
|
1,542,735
|
|
|
|
|
|
|
Accounts payable
|
|
|
(1,448,421
|
)
|
Accrued expenses and other current liabilities
|
|
|
(851,886
|
)
|
Deferred revenue
|
|
|
(128,158
|
)
|
Payable to related parties
|
|
|
(753,738
|
)
|
Total liabilities
|
|
|
(3,182,203
|
)
|
Net liabilities
|
|
|
(1,639,468
|
)
|
Goodwill
|
|
|
5,702,312
|
|
Total net assets acquired
|
|
|
4,062,844
|
|
The purchase consideration of 30,407,412 shares and 7,211,213
warrants of the Company’s common stock valued as detailed below:
|
|
$
|
|
Number of Common Stock
|
|
|
30,407,712
|
|
Market price on the date of issuance
|
|
|
0.108
|
|
Fair value of Common Stock
|
|
|
3,284,033
|
|
|
|
$
|
|
Number of warrants
|
|
|
7,211,213
|
|
Fair value price per warrant
|
|
|
0.108
|
|
Fair value of warrant
|
|
|
778,811
|
|
|
|
|
|
|
Fair value of Common Stock
|
|
|
3,284,033
|
|
Fair value of warrant
|
|
|
778,811
|
|
Purchase consideration
|
|
|
4,062,844
|
|
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
The fair value of these warrants was measured
at the date of acquisition using the Black-Scholes option pricing model using the following assumptions:
|
·
|
Forfeiture rate of 0%;
|
|
·
|
Stock price of $0.108 per share;
|
|
·
|
Exercise price between the range of $0.13 to $0.15 per share
|
|
·
|
Volatility at 635.49%
|
|
·
|
Risk free interest rate of 2.55%;
|
|
·
|
Expected life of 2 years; and
|
|
·
|
Expected dividend rate of 0%
|
As at June 30, 2019, there were 7,211,213
warrants outstanding, fully vested and with a remaining contractual life term of 1.67 years.
Visava Inc./Canary Rx Inc.
On June 27, 2018, the Company entered
into an Agreement and Plan of Share Exchange (“Exchange Agreement”) with Visava Inc., a private Ontario, Canada corporation
(“Visava”). Visava owns 100% of Canary Rx Inc., a Canadian corporation that holds a leasehold interest in a parcel
of property located in Ontario’s Garden Norfolk County for the production of cannabis.
Pursuant to the Agreement, the Company
acquired 100% of the issued and outstanding shares of Visava Inc. in exchange for the issuance of 25,500,000 shares of the Company’s
Common Stock and will issue to the Visava shareholders, prorata Common Stock Purchase Warrants purchasing an aggregate of 25,000,000
shares of the Company’s Common Stock at a price per share of $0.10 for a period of two years following the issuance date
of the Warrants. As a result of this transaction, Visava Inc. became a wholly owned subsidiary of the Company and the former shareholders
of Visava Inc. owned approximately 46.27% of the Company’s shares of Common Stock. The transaction was closed effective
August 2, 2018.
This acquisition was accounted for using
the acquisition method of accounting. The fair value of assets, liabilities and intangible assets and the purchase price allocation
as of August 2, 2018 was as follows:
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
|
|
Allocation
of
Purchase
Price
|
|
|
|
$
|
|
Prepaid and other receivables
|
|
|
15,368
|
|
Sales tax recoverable
|
|
|
133,614
|
|
Furniture and equipment
|
|
|
897
|
|
Capital work in progress
|
|
|
898,422
|
|
Total assets
|
|
|
1,048,301
|
|
|
|
|
|
|
Bank overdraft
|
|
|
(63,693
|
)
|
Accounts payable
|
|
|
(1,158,164
|
)
|
Payable to related parties
|
|
|
(101,797
|
)
|
Total liabilities
|
|
|
(1,323,654
|
)
|
Net liabilities
|
|
|
(275,353
|
)
|
Goodwill
|
|
|
3,594,195
|
|
Total net assets acquired
|
|
|
3,318,842
|
|
The purchase consideration of
25,500,000 shares and 25,000,000 warrants of the Company’s common stock valued as detailed below:
|
|
$
|
|
Number of Common Stock
|
|
|
25,500,000
|
|
Market price on the date of issuance
|
|
|
0.0665
|
|
Fair value of Common Stock
|
|
|
1,695,750
|
|
|
|
$
|
|
Number of warrants
|
|
|
25,000,000
|
|
Fair value price per warrant
|
|
|
0.0649
|
|
Fair value of warrant
|
|
|
1,623,092
|
|
|
|
|
|
|
Fair value of Common Stock
|
|
|
1,695,750
|
|
Fair value of warrant
|
|
|
1,623,092
|
|
Purchase consideration
|
|
|
3,318,842
|
|
The fair value of these warrants was measured
at the date of acquisition using the Black-Scholes option pricing model using the following assumptions:
|
·
|
Forfeiture rate of 0%;
|
|
·
|
Stock price of $0.067 per share;
|
|
·
|
Exercise price of $0.10 per share
|
|
·
|
Volatility at 329%
|
|
·
|
Risk free interest rate of 2.66%;
|
|
·
|
Expected life of 2 years; and
|
|
·
|
Expected dividend rate of 0%
|
As at June 30, 2019, there were 25,000,000
warrants outstanding, fully vested and with a remaining contractual life term of 1.09 years.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
Goodwill
The Company tests for impairment of goodwill
at the reporting unit level. In assessing whether goodwill is impaired, the Company utilize the two-step process as prescribed
by ASC 350. The first step of this test compares the fair value of the reporting unit, determined based upon discounted estimated
future cash flows, to the carrying amount, including goodwill. If the fair value exceeds the carrying amount, no further work
is required and no impairment loss is recognized. If the carrying amount of the reporting unit exceeds the fair value, the goodwill
of the reporting unit is potentially impaired and step two of the goodwill impairment test would need to be performed to measure
the amount of an impairment loss, if any. In the second step, the impairment is computed by comparing the implied fair value of
the reporting unit’s goodwill with the carrying amount of the goodwill. If the carrying amount of the reporting unit’s
goodwill is greater than the implied fair value of its goodwill, an impairment loss in the amount of the excess is recognized
and charged to statement of operations.
|
8.
|
Convertible
Promissory Notes
|
During the six months ended
June 30, 2019, the Company issued convertible promissory notes, details of which are as follows:
Convertible promissory note issued on
February 16, 2019, amounting to $103,000 (Note Q).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the Note is August 16, 2020.
|
|
2.
|
Interest on the unpaid principal balance of this Note accrues
at the rate of 12% per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion,
the conversion price will be equal to 61% of the lowest closing bid price of the Company’s common stock for the fifteen
(15) trading days prior to the date of conversion.
|
|
4.
|
The Company shall not be obligated to accept any conversion
request before six months from the date of the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not
more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
During the quarter ended June 30, 2019,
the Company settled the outstanding balance in full with a cash payment and recorded a loss of $35,173 as settlement of debt in
the condensed consolidated statement of operations. The loss is due to the prepayment penalty as per the note agreement.
Convertible promissory note issued on
December 24, 2018, amounting to $83,000 (Note P).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the Note is June 24, 2020.
|
|
2.
|
Interest on the unpaid principal balance of this Note accrues
at the rate of 12 % per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion,
the conversion price will be equal to 61% of the average of the three (3) lowest trading price of the Company’s common
stock for the fifteen (15) trading days prior to the date of conversion.
|
|
4.
|
The Company shall not be obligated to accept any conversion
request before six months from the date of the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not
more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
During the quarter ended June 30, 2019,
the Company settled the outstanding balance in full with a cash payment and recorded a loss of $36,085 as settlement of debt in
the condensed consolidated statement of operations. The loss is due to the prepayment penalty as per the note agreement.
Convertible promissory note issued on
November 28, 2018, amounting to $75,000 (Note O).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the Note is November 28, 2019.
|
|
2.
|
Interest on the unpaid principal balance of this Note accrues
at the rate of 10 % per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion,
the conversion price will be equal to 52% of the lowest trading price of the Company’s common stock for the twenty (20)
trading days prior to the date of conversion.
|
|
4.
|
Conversion is limited to the holder beneficially holding not
more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
During the quarter ended June 30, 2019,
the Company settled the outstanding balance in full with a cash payment and recorded a loss of $27,526 as settlement of debt in
the condensed consolidated statement of operations. The loss is due to the prepayment penalty as per the note agreement.
Convertible promissory note
issued on September 5, 2018, amounting to $103,000 (Note N).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the Note is December 5, 2019.
|
|
2.
|
Interest on the unpaid principal balance of this Note accrued
at the rate of 12% per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion,
the conversion price will be equal to 61% of the average of the three (3) lowest trading price of the Company’s common
stock for the fifteen (15) trading days prior to the date of conversion.
|
|
4.
|
The Company shall not be obligated to accept any conversion
request before six months from the date of the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not
more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
During the quarter ended March 31, 2019,
the Company settled the outstanding balance in full with a cash payment and recorded a loss of $27,368 as settlement of debt in
the condensed consolidated statement of operations. The loss is due to the prepayment penalty as per the note agreement.
Convertible promissory note issued on
August 9, 2018, amounting to $65,000 (Note M).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the Note is September 9, 2019.
|
|
2.
|
Interest on the unpaid principal balance of this Note accrued
at the rate of 10% per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion,
the conversion price will be equal to 52% of the lowest closing bid price of the Company’s common stock for the twenty
(20) trading days prior to the date of conversion.
|
|
4.
|
Conversion is limited to the holder beneficially holding not
more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
During the quarter ended March 31, 2019,
the Company settled the outstanding balance in full with a cash payment and recorded a loss of $23,342 as settlement of debt in
the condensed consolidated statement of operations. The loss is due to the prepayment penalty as per the note agreement.
Convertible promissory note issued on
January 16, 2018, amounting to $28,000 (Note L).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the Note was October 30, 2018.
|
|
2.
|
Interest on the unpaid principal balance of this Note accrues
at the rate of 12 % per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion,
the conversion price will be equal to 58% of the lowest closing bid price of the Company’s common stock for the fifteen
(15) trading days prior to the date of conversion.
|
|
4.
|
As maturity date has passed, the Company is now obligated to
accept all conversion requests on the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not
more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
During the year ended December
31, 2017, the Company issued convertible promissory notes, details of which are as follows:
Convertible promissory note issued on
November 28, 2017, amounting to $33,000 (Note K).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the Note was March 10, 2019.
|
|
2.
|
Interest on the unpaid principal balance of this Note accrues
at the rate of 12 % per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion,
the conversion price will be equal to 58% of the lowest closing bid price of the Company’s common stock for the twenty
(15) trading days prior to the date of conversion.
|
|
4.
|
As maturity date has passed, the Company is now obligated to
accept all conversion requests on the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not
more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
Convertible promissory note
issued on May 5, 2017 amounting to $23,000 (Note J).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the note was February 20, 2018
|
|
2.
|
Interest on the unpaid principal balance of this note accrues
at the rate of 12% per annum.
|
|
3.
|
In the event the Note holder exercised the right of conversion,
the conversion price was equal to 58% of the average of the three (3) lowest closing bid price of the Company’s common
stock for the fifteen (15) trading days prior to the date of conversion.
|
|
4.
|
As maturity date has passed, the Company is now obligated to
accept all conversion requests on the note.
|
|
5.
|
Conversion was limited to the holder beneficially holding not
more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
Convertible promissory note
issued on January 31, 2017 amounting to $33,000 (Note I).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the note was November 5, 2018.
|
|
2.
|
Interest on the unpaid principal balance of this note shall
accrue at the rate of 12% per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion,
the conversion price will be equal to 58% of the average of the three (3) lowest closing bid price of the Company’s
common stock for the fifteen (15) trading days prior to the date of conversion.
|
|
4.
|
As maturity date has passed, the Company is now obligated to
accept all conversion requests on the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not
more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
During the year ended December 31, 2016,
the Company issued convertible promissory notes, details of which are as follows:
Convertible Redeemable note
issued on October 18, 2016, amounting to $140,000 (Note H), representing commitment fee owed by the Company pursuant to Securities
Purchase Agreement entered into by the Company dated October 18, 2016. The commitment fee was considered a prepaid asset. During
the year ended December 31, 2017, the pending S1 registration statement was withdrawn, removing the benefit associated with the
prepaid asset. The amount was therefore written off as commitment fee in the statement of operations.
During the quarter ended March
31, 2018, the Company obtained forgiveness of the liability and the interest associated with the note payable and recorded $153,471
as forgiveness of debt in the condensed consolidated statement of operations.
The key terms/features of the
convertible note are as follows:
|
1.
|
The maturity date of the Note was July 18, 2017.
|
|
2.
|
Interest on the unpaid principal balance of this Note accrued
at the rate of 7 % per annum.
|
|
3.
|
In the event the Note holder exercised the right of conversion,
the conversion price would be equal to 80% of the lowest trading price of the Company’s common stock for the twenty
(20) trading days prior to the date of conversion.
|
|
4.
|
As maturity dates have passed, the Company is now obligated
to accept all conversion requests on the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not
more than 9.99% of the Company’s then issued and outstanding common stock after the conversion.
|
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
Convertible Redeemable notes issued on
October 18, 2016, amounting to $100,000 and $25,000 (Notes F and G).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the Note was July 18, 2017.
|
|
2.
|
Interest on the unpaid principal balance of this Note accrued
at the rate of 7 % per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion,
the conversion price will be equal to 57.5% of the lowest trading price of the Company’s common stock for the twenty
(20) trading days prior to the date of conversion.
|
|
4.
|
As maturity dates have passed, the Company is now obligated
to accept all conversion requests on the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not
more than 9.99% of the Company’s then issued and outstanding common stock after the conversion.
|
During the six months ended
June 30, 2018, the Company entered into a Debt Exchange Agreement with the holder of the convertible note F and G. The outstanding
principal amounts of the notes were extinguished and settled by issuance of 2,500,000 common shares of the Company. The Company
recorded a loss of $267,522 as a result of this settlement.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
Convertible promissory note issued on
May 13, 2016, amounting to $75,000 (Note D).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the note was January 13, 2019.
|
|
2.
|
Interest on the unpaid principal balance of this note accrues
at the rate of 8 % per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion,
the conversion price will be equal to 52% of the lowest closing bid price of the Company’s common stock for the twenty
(20) trading days prior to the date of conversion.
|
|
4.
|
As maturity dates have passed, the Company is now obligated
to accept all conversion requests on the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not
more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
Convertible promissory notes issued on
March 1, 2016 amounting to $150,000 each to two investors (Notes B and C).
The key terms/features of the convertible
notes are as follows:
|
1.
|
The Holders have the right from six months after the date of
issuance, and until any time until the Notes are fully paid, to convert any outstanding and unpaid principal portion of the
Notes, into fully paid and non–assessable shares of Common Stock (par value $.0001).
|
|
2.
|
The Notes are convertible at a fixed conversion price of 45%
of the lowest trading price of the Common Stock as reported on the OTC Pink maintained by the OTC Markets Group, Inc. upon
which the Company’s shares are currently quoted, for the four (4) prior trading days including the day upon which a
Notice of Conversion is received by the Company.
|
|
3.
|
Interest on the unpaid principal balance of this Note shall
accrue at the rate of twenty-four (24 %) per annum.
|
|
4.
|
Beneficial ownership is limited to 4.99%.
|
|
5.
|
The Notes may be prepaid in whole or in part, at any time during
the period beginning on the issue date and ending on the maturity date September 1, 2018, beginning at 100% of the outstanding
principal, accrued interest and certain other amounts that may be due and owing under the Notes.
|
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
Convertible Redeemable note issued on
May 19, 2016, amounting to $75,000 (Note A).
The key terms/features of the convertible
note are as follows:
|
1.
|
The maturity date of the Note was November 18, 2018.
|
|
2.
|
Interest on the unpaid principal balance of this Note shall
accrue at the rate of 8 % per annum.
|
|
3.
|
In the event the Note holder exercises the right of conversion,
the conversion price will be equal to 52% of the lowest closing bid price of the Company’s common stock for the twenty
(20) trading days prior to the date of conversion.
|
|
4.
|
As maturity dates have passed, the Company is now obligated
to accept all conversion requests on the note.
|
|
5.
|
Conversion is limited to the holder beneficially holding not
more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
|
Interest amounting to $8,038 was accrued
for the period ended June 30, 2019 (June 30, 2018: $28,002).
Principal amount outstanding as at June
30, 2019 was $44,863 (December 31, 2018: $476,846).
All notes maturing prior to the date of
this report are outstanding.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Derivative liability
During the six months ended June 30, 2019,
holders of convertible promissory notes converted principal amounting to $108,233 (June 30, 2018: $61,928). The Company recorded
and fair valued the derivative liability as follows:
|
|
Derivative
liability as at
December 31,
2018
|
|
|
Conversions
/ Redemption
during the
period
|
|
|
Change
due to
Issuances
|
|
|
Fair
value
adjustment
|
|
|
Derivative
liability as at
March 31,
2019
|
|
Note B and
C
|
|
|
374,911
|
|
|
|
(32,758
|
)
|
|
|
—
|
|
|
|
(309,065
|
)
|
|
|
33,088
|
|
Note D
|
|
|
4,030
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,418
|
|
|
|
6,448
|
|
Note F
|
|
|
10,948
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,063
|
)
|
|
|
9,885
|
|
Note G
|
|
|
3,976
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(386
|
)
|
|
|
3,590
|
|
Note I
|
|
|
30,144
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,698
|
|
|
|
33,842
|
|
Note K
|
|
|
15,679
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,644
|
)
|
|
|
11,035
|
|
Note M
|
|
|
105,181
|
|
|
|
(95,113
|
)
|
|
|
—
|
|
|
|
(10,068
|
)
|
|
|
—
|
|
Note N
|
|
|
97,936
|
|
|
|
(86,363
|
)
|
|
|
—
|
|
|
|
(11,573
|
)
|
|
|
—
|
|
Note O
|
|
|
122,090
|
|
|
|
(109,782
|
)
|
|
|
—
|
|
|
|
(12,308
|
)
|
|
|
—
|
|
Note P
|
|
|
97,588
|
|
|
|
(81,918
|
)
|
|
|
—
|
|
|
|
(15,670
|
)
|
|
|
—
|
|
Note
Q
|
|
|
—
|
|
|
|
(104,111
|
)
|
|
|
121,362
|
|
|
|
(17,251
|
)
|
|
|
—
|
|
|
|
|
862,483
|
|
|
|
(510,045
|
)
|
|
|
121,362
|
|
|
|
(375,912
|
)
|
|
|
97,888
|
|
During the quarter ended December 31,
2018, the Company changed its valuation method from Black-Scholes Model to Multinomial Lattice Model. This is considered a change
in the Company’s estimate and therefore, it has been accounted prospectively.
Key assumptions used for the valuation
of convertible notes
Derivative element of the convertible
notes was fair valued using multinomial lattice model. Following assumptions were used to fair value these notes as at June
30, 2019:
|
·
|
Projected annual volatility of a range from 147.3% to 223.1%;
|
|
·
|
Risk free interest rate of 1.90%;
|
|
·
|
Stock price of $0.0100;
|
|
·
|
Liquidity term of 0.19 to 1.13 years;
|
|
·
|
Dividend yield of 0%; and
|
|
·
|
Exercise price of $0.0151 to $0.0515.
|
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
On July 3, 2017, the Company filed an
amended Certificate of Incorporation in Delaware to increase its authorized common stock to 20,000,000,000 shares. The Company’s
authorized preferred stock remained at 20,000,000 shares. 1,000,000 shares of Preferred Stock having a par value of $0.0001 per
share shall be designated as Series A Preferred Stock (“Series A Stock”). Dividends shall be declared and set
aside for any shares of Series A Stock in the same manner and amount as for the Common Stock. Series A Stock, as a class, shall
have voting rights equal to a multiple of 2X the number of shares of Common Stock issued and outstanding that are entitled to
vote on any matter requiring shareholder approval.
The Company, as authorized by its Board
of Directors and stockholders, has approved a Reverse Split whereby record owners of the Company’s Common Stock as of the
Effective Date, shall, after the Effective Date, own one share of Common Stock for every one thousand (1,000) held as of the Effective
Date. As a result, an aggregate of $387,978 was reclassified from common stock to additional paid in capital. The Effective Date
of this amendment was November 1, 2017.
Effective September 25, 2018, the Company
filed an amended Certificate of Incorporation in Delaware to decrease its authorized common stock to 850,000,000 shares. The Company’s
authorized preferred stock remained at 20,000,000 shares.
Capitalization
The Company is authorized to issue 850,000,000
shares of common stock, par value $0.0001, of which 541,362,258 shares are outstanding as at June 30, 2019 (at December 31, 2018:
93,624,289 shares of common stock issued and outstanding). The Company is also authorized to issue 20,000,000 shares of preferred
stock, par value $0.0001, of which 1,000,000 shares were outstanding as at June 30, 2019.
Common Stock
Holders of shares of common stock are
entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative
voting rights.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Subject to preferences that may be applicable
to any outstanding shares of preferred stock, the holders of common stock are entitled to share ratably in dividends, if any,
as may be declared from time to time by the board of directors in its discretion from funds legally available therefor.
Holders of common stock have no pre-emptive
rights to purchase the Company’s common stock. There are no conversion or redemption rights or sinking fund provisions with
respect to the common stock. The Company may issue additional shares of common stock which could dilute its current shareholder’s
share value.
During the quarter ended March 31, 2018,
the Company issued 5,529,412 shares of common stock each to Rubin Schindermann and Alexander Starr as consideration to settle
outstanding management fee recorded at fair value of $84,000, of which $9,000 had previously been recorded in Accounts Payable.
During the quarter ended March 31, 2018,
the Company issued 5,156,932 shares of common stock to individuals on conversion of convertible promissory notes amounting to
$21,518 and 300,000 shares were issued as consideration for consulting services amounting to $3,600.
During the quarter ended June 30, 2018,
the Company issued 3,140,506 shares of common stock to individuals on conversion of convertible promissory notes amounting to
$47,826 and 500,000 shares were issued as consideration for consulting services amounting to $22,500.
During the quarter ended June 30, 2018,
the Company issued 2,500,000 shares of common stock to the note holder for settlement of debt. See Note 8 for details.
During the quarter ended September 30,
2018, the Company issued 5,301,990 shares of common stock to individuals on conversion of convertible promissory notes amounting
to $87,942.
During the quarter ended September 30,
2018, the Company issued 24,648,683 shares of common stock to shareholders of Visava Inc. as per the Exchange Agreement mentioned
in Note 7. The remaining shares of 851,317 are included in shares to be issued.
During the quarter ended December 31,
2018, the Company issued 7,964,528 shares of common stock to individuals on conversion of convertible promissory notes amounting
to $126,384.
During the year ended December 31, 2018,
63,094,634 shares of common stock to be issued as consideration for private placements. These were recorded at fair value of $2,735,545,
based on the cash proceeds received by the Company. As part of consideration for the private placement, the Company also agreed
to issue warrants to purchase 63,094,634 shares of common stock. Out of the total amount of shares to be issued, the Company issued
22,757,102 shares during quarter ended December 31, 2018. Refer below for additional details regarding the warrant issued under
the subheading “Warrants”.
Additionally, $215,680 were received as
partial consideration for private placements and since signed agreements were executed during December 2018, the remaining balance
of $220,319 has been classified as a Stock subscription receivable under equity. During the quarter ended March 31, 2019, the
remaining balance was collected.
During the quarter ended March 31, 2019,
the Company issued 588,237 shares of common stock to individuals on conversion of convertible promissory notes amounting to $30,000.
Additionally, the Company issued 30,407,412 shares of common stock to shareholders of CannaKorp Inc. as per the Exchange Agreement
mentioned in Note 7.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
During the quarter ended March 31, 2019,
the Company sold 226,441,371 shares of common stock as consideration for private placements. These were recorded at fair value
of $4,558,282, based on the cash proceeds received by the Company. As part of consideration for the private placement, the Company
also agreed to issue warrants to purchase 226,554,129 shares of common stock.
Effective April 1, 2019, the Company changed
its functional currency from United States Dollar to Canadian Dollar thereby having an impact on additional paid in capital and
accumulated comprehensive income (loss). The presentation currency of the Company has remained unchanged at United States Dollar.
During the quarter ended June 30, 2019,
the Company issued 10,562,252 shares of common stock to individuals on conversion of convertible promissory notes amounting to
$159,490.
250,000 shares of common stock to be issued
as consideration of the intellectual property rights granted by Smit to the Company’s subsidiary, Canary. These were recorded
at fair value of $27,000, based on the market price of the Company’s stock on the date of agreement. These were initially
recorded under shares to be issued and allocated between common stock and additional paid in capital during the quarter ended
June 30, 2019 when the shares were issued.
During the quarter ended June
30, 2019, the Company issued 6,600,000 and 8,234,850 shares of common stock to Rubin Schindermann and Alexander Starr,
respectively, as consideration to settle outstanding management fee and shareholder advances recorded at fair value of
$1,665,329. Plus, 3,000,000 shares of common stock were issued as a bonus for completing the facility’s construction,
fair valued in the amount of $294,000. Refer to Note 3 for additional details. In addition, 500,000 shares were issued as consideration for consulting services
amounting to $48,000.
During the three months ended, June 30,
2019, Saul Niddam, Chief Operating Officer of the subsidiary, CannaKorp purchased 1,666,667 shares (December 31, 2018: nil shares)
as consideration for private placement. These were recorded at fair value in the amount of $37,385 based on the cash proceeds received
by the Company.
During the quarter ended June 30, 2019,
the Company sold 126,109,709 shares of common stock as consideration for private placements. These were recorded at fair value
of $4,194,665, based on the cash proceeds received by the Company. As part of consideration for the private placement, the Company
also agreed to issue warrants to purchase 81,139,987 shares of common stock.
During the quarter, the Company
issued 358,520,843 shares for past and current private placements. Refer below for additional details regarding the warrant
issued under the subheading “Warrants”. Additionally, proceeds of $358,074 were received as consideration
for private placements, however signed agreements were not executed as at June 30, 2019 and these have therefore been
classified as a liability.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
Shares to be issued include the following:
80,000 shares of common stock to be issued
as compensation to advisers and consultants. These were recorded at fair value of $52,000, based on the market price of the Company’s
stock on the date of issue.
35,000 shares to be issued as settlement
of amount due for website development services amounting to $247,306. The fair value of the shares on the date of settlement was
$21,000, resulting in gain on settlement amounting to $226,306 recorded as net gain on settlement of liability in the statement
of operations for the year ended December 31, 2017.
15,106,972 shares of common stock to be
issued as consideration for private placements. Proper allocation between common stock and additional paid in capital of the amount
received will be completed in the period when the shares are issued.
Warrants
The fair value of the warrants issued
to private placement purchasers was measured at the date of acquisition using the Black-Scholes option pricing model using the
following assumptions:
|
|
During quarter ended June
30, 2019
|
|
|
During
quarter
ended March 31, 2019
|
|
|
During
year ended
December 31, 2018
|
|
Forfeiture rate
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
Stock price
|
|
|
$0.080
to $0.149 per share
|
|
|
|
$0.080
to $0.120 per share
|
|
|
|
$0.060
to $0.210 per share
|
|
Exercise price
|
|
|
$0.023
to $0.200 per share
|
|
|
|
$0.050
per share
|
|
|
|
$0.050
to $0.150 per share
|
|
Volatility
|
|
|
605%
to 679%
|
|
|
|
690%
|
|
|
|
646%
|
|
Risk free interest rate
|
|
|
1.69%
to 2.54%
|
|
|
|
2.26%
to 2.60%
|
|
|
|
2.52%
to 2.96%
|
|
Expected life
|
|
|
2
and 3 years
|
|
|
|
3
years
|
|
|
|
2
and 3 years
|
|
Expected dividend rate
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
Fair value of warrants
|
|
|
$8,873,292
|
|
|
|
$23,305,826
|
|
|
|
$6,417,010
|
|
As at June 30, 2019, related to private
placements, there were 370,778,750 warrants were outstanding, fully vested and with a remaining contractual life term of a range
between 0.99 and 2.70 years.
As at June 30, 2019, related to the acquisition
of the Company’s subsidiaries, Visava Inc. and CannaKorp Inc, there were 25,000,000 and 7,211,213 warrants outstanding,
fully vested and with a remaining contractual life term of 1.09 and 1.67 years, respectively.
Preferred Stock
Shares of preferred stock may be issued
from time to time in one or more series as may be determined by the board of directors. The board of directors may fix the designation,
powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof without
any further vote or action by the stockholders of the Company, except that no holder of preferred stock shall have pre-emptive
rights. Any shares of preferred stock so issued would typically have priority over the common stock with respect to dividend or
liquidation rights. The board of directors does not at present intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or otherwise.
|
10.
|
Earnings
(loss) Per Share
|
FASB ASC 260, Earnings Per Share provides
for calculations of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution
and is computed by dividing net income (loss) available to common stockholders by the weighted average common shares outstanding
for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an
entity similar to fully diluted earnings per share. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
As at June 30, 2019, holders of convertible
promissory notes may be issued 6,207,126 shares assuming a conversion prices ranging from $0.0151 to $0.0464 per share.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
The Company is a party to a 5-year lease
agreement (initiated on September 2018) with respect to its office premises. Total rent for the premises is $848 (CAD $1,100)
plus applicable taxes per month. On the first anniversary date, the rent per month will increase to $869 (CAD $1,138) plus applicable
taxes, on the second anniversary date, the rent per month will increase to $891 (CAD $1,166) plus applicable taxes, on the third
anniversary date, the rent per month will increase to $912 (CAD $1,193) plus applicable taxes, on the fourth anniversary date,
the rent per month will increase to $933 (CAD $1,221) plus applicable taxes.
The Company’s subsidiary, Canary,
is a party to a 10-year lease agreement (initiated on July 2014) with respect to its facility to produce Medical Marijuana. Total
rent for the building is $1,910 (CAD $2,500) plus applicable taxes per month. Effective January 1, 2019, the rent was increased
to $19,103 (CAD $25,000) plus applicable taxes per month. The lease agreement has three 10-year renewal options and on each anniversary
date, commencing from January 1, 2020, the rent will increase by the cumulative annual percentage increase in the Canadian Consumer
Price Index.
Deferred rent is due to the amortization
of the operating lease expense resulting from the use of straight-line method versus the non-level lease payments and tenant improvements
being made in the Company’s production facility paid by the Company’s landlord in amount of $1,716,694 (CAD $2,331,063).
As at June 30, 2019, The Company has recorded tenant improvement allowance incentive amount in work in progress. The Company will
be amortizing these deferred rent charges on a monthly basis in the amount of $27,831 (CAD $36,423) over the remaining term ending
on June 30, 2024 as a reduction in rent expense.
The Company’s subsidiary, CannaKorp,
is a party to a monthly lease agreement (initiated on December 01, 2014) with respect to its facility, approximately 1,000 square
feet of space located in a multi-tenant building. Total rent for the premises is $1,200 plus applicable taxes per month, tenancy
may be terminated by a sixty (60) days written notice by the Company or the landlord.
Future minimum rent payments for the above
leases are as follows:
|
|
$
|
|
2019
|
|
|
179,643
|
|
2020
|
|
|
239,752
|
|
2021
|
|
|
240,012
|
|
2022
|
|
|
240,264
|
|
2023 and onwards
|
|
|
351,318
|
|
|
|
|
1,250,989
|
|
The Company’s management has
evaluated subsequent events up to August 19, 2019, the date the unaudited condensed consolidated interim financial statements
were issued, pursuant to the requirements of ASC 855 and has determined the following material subsequent events:
During July 2019, the Company issued 1,324,503
shares of common stock pursuant to conversion notices received from one holder of the convertible promissory notes.
As disclosed in Note 9, during July and
August 2019, the Company issued 8,020,383 shares of common stock as consideration to private placement funds received during prior
periods.
Effective August 8, 2019, the Company entered
into an Exclusive License Agreement (“License Agreement”) with cGreen, Inc., a Delaware corporation (“cGreen”).
The License Agreement grants to the Company an exclusive license to manufacture, and distribute the patent-pending THC antidote
True Focus™ in the United States, Europe and the Caribbean. The term of the license is ten (10) years and four (4) months
from the effective date of August 8, 2019. In consideration of the license, the Company will issue 10,000,000 shares of its common
stock as follows: (i) 3.500,000 within ten (10) days of the effective date; (ii) 3,500,000 shares on January 10, 2020; and (iii)
3,000,000 shares not later than June 10, 2020. In addition, the Company will pay cGreen royalties of 7% of the net sales of the
licensed products and 7% of all sublicensing revenues collected by the Company. The Company will pay cGreen an advance royalty
of $300,000.00 within ten (10) days of the effective date; $300,000.00 on January 10, 2020; and $400,000.00 on or before June 10,
2020 and $500,000.00 on or before November 10, 2020. All advance royalty payments will be credited against the royalties owed by
the Company through December 31, 2020.