NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED 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.
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 three months ended March 31, 2019. The Company had working capital deficit
of $3,470,378 and an accumulated deficit of $10,234,712 as of March 31, 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 condensed
consolidated unaudited 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 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 financial
statements of the Company and the notes thereto as of and for the year ended December 31, 2018.
The condensed consolidated 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 March 31, 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 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.
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 condensed consolidation 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 consolidated 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 consolidated 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 consolidated 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 FINANCIAL STATEMENTS
|
3.
|
Related Party Transactions
and Balances
|
During the three months ended March 31,
2019, $59,821 (March 31, 2018: $75,000) was recorded as management services fee payable to Rubin Schindermann and Alexander Starr,
who are shareholders and officers in the Company. The amount is included in the related party balance as at March 31, 2019.
They were issued nil shares (December 31, 2018: 5,529,412 shares) for these services performed as of and for the period ended March
31, 2019. These were recorded at fair value. 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.
Amounts payable to Rubin Schindermann and
Alexander Starr as at March 31, 2019 were $237,500 and $162,019, respectively (December 31, 2018: $200,00 and $139,697, respectively).
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 period ended March 31, 2019, $113,750 (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.
As at March 31, 2019, the outstanding balance of multiple loans provided by the shareholders in the Company's subsidiary,
CannaKorp, is $753,685 which is included in the payable to related party balance.
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 March 31, 2019 and December 31, 2018 was $138,588 and $209,046, respectively. The amounts repaid during the three
months ended March 31, 2019 and 2018 were $75,623 and $32,614, respectively.
|
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 March 31, 2019, the Company has capitalized
$4,631,006 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.
At March 31, 2019, the Company had $550,339
(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 of $62,828, (December 31, 2018: $75,902) stemming from the potential uncollectible balances within
the outstanding sales tax recoverable amount.
|
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 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
|
|
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 March 31, 2019, there were 7,211,213
warrants outstanding, fully vested and with a remaining contractual life term of 1.92 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 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 March 31, 2019, there were 25,000,000
warrants outstanding, fully vested and with a remaining contractual life term of 1.34 years.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED 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 three months ended
March 31, 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.
|
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.
|
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.
|
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 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 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 period 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 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 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 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 $16,444 was accrued
for the period ended March 31, 2019 (2018: $13,318).
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 FINANCIAL STATEMENTS
Derivative liability
During the three months ended March 31,
2019, holders of convertible promissory notes converted principal amounting to $30,000 (2018: $21,518). The Company recorded and
fair valued the derivative liability as follows:
|
|
Derivative
liability as at
December 31,
2018
|
|
|
Conversions
during the
period
|
|
|
Change due to
Issuances
|
|
|
Fair value
adjustment
|
|
|
Derivative
liability as at
March 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note B and C
|
|
|
374,911
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68,599
|
|
|
|
443,510
|
|
Note D
|
|
|
4,030
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,084
|
|
|
|
7,114
|
|
Note F
|
|
|
10,948
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,131
|
)
|
|
|
9,817
|
|
Note G
|
|
|
3,976
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(411
|
)
|
|
|
3,565
|
|
Note I
|
|
|
30,144
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,866
|
|
|
|
33,010
|
|
Note K
|
|
|
15,679
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,625
|
)
|
|
|
8,054
|
|
Note M
|
|
|
105,181
|
|
|
|
(95,113
|
)
|
|
|
—
|
|
|
|
(10,068
|
)
|
|
|
—
|
|
Note N
|
|
|
97,936
|
|
|
|
(86,363
|
)
|
|
|
—
|
|
|
|
(11,573
|
)
|
|
|
—
|
|
Note O
|
|
|
122,090
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,580
|
)
|
|
|
113,510
|
|
Note P
|
|
|
97,588
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,989
|
)
|
|
|
93,599
|
|
Note Q
|
|
|
—
|
|
|
|
—
|
|
|
|
121,362
|
|
|
|
(1,930
|
)
|
|
|
119,432
|
|
|
|
|
862,483
|
|
|
|
(181,476
|
)
|
|
|
121,362
|
|
|
|
29,242
|
|
|
|
831,611
|
|
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 March 31,
2019:
|
·
|
Projected annual volatility
of a range from 201.7% to 479.7%;
|
|
·
|
Risk free interest rate of 2.37%;
|
|
·
|
Stock price of $0.0869;
|
|
·
|
Liquidity term of 0.44 to 1.38 years;
|
|
·
|
Dividend yield of 0%; and
|
|
·
|
Exercise price of $0.0151 to $0.0451.
|
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 153,694,313 shares are outstanding as at March 31, 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 March 31, 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 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.
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.
During the quarter, the Company
issued 29,074,074 shares for past and current private placements. Refer below for additional details regarding the warrant
issued under the subheading “Warrants”. Additionally, proceeds of $681,187 were received as consideration
for private placements, however signed agreements were not executed as at March 31, 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 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.
237,704,828 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.
250,000 shares of common stock to be issued
as consideration of the intellectual property rights granted by Smit to the Company’s subsidiary. These were recorded at
fair value of $27,000, based on the market price of the Company’s stock on the date of issue.
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 March 31, 2019
|
|
|
During year ended December 31, 2018
|
|
Forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Stock price
|
|
|
$
0.080 to $0.120 per share
|
|
|
|
$
0.060 to $0.210 per share
|
|
Exercise price
|
|
|
$
0.050 per share
|
|
|
|
$
0.050 to $0.150 per share
|
|
Volatility
|
|
|
690%
|
|
|
|
646
|
%
|
Risk free interest rate
|
|
|
2.26% to 2.60%
|
|
|
|
2.52% to 2.96%
|
|
Expected life
|
|
|
3 years
|
|
|
|
2 and 3 years
|
|
Expected dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Fair value of warrants
|
|
|
$23,305,826
|
|
|
|
$6,417,010
|
|
As at March 31, 2019, related to private
placements, there were 289,648,763 warrants were outstanding, fully vested and with a remaining contractual life term of a range
between 1.24 and 2.95 years.
As at March 31, 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 1.34 and 1.92 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 March 31, 2019, holders of convertible
promissory notes may be issued 13,602,928 shares assuming a conversion prices ranging from $0.0352 to $0.0616 per share.
TARGET GROUP INC. (formerly known as Chess Supersite Corporation)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company 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 $1,871
(CAD $2,500) plus applicable taxes per month. Effective January 1, 2019, the rent was increased to $18,708 (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 March 31, 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 $27,403 (CAD $36,423) over the remaining term ending
on June 30, 2024 as a reduction in rent expense.
Future minimum rent payments for the above
leases are as follows:
|
|
$
|
|
2019
|
|
|
175,931
|
|
2020
|
|
|
234,792
|
|
2021
|
|
|
235,044
|
|
2022
|
|
|
235,296
|
|
2023 and onwards
|
|
|
344,056
|
|
|
|
|
1,225,119
|
|
The Company’s management has evaluated
subsequent events up to May 20, 2019, the date the financial statements were issued, pursuant to the requirements of ASC 855 and
has determined the following material subsequent events:
During April and May 2019, the Company
issued 10,562,252 shares of common stock pursuant to conversion notices received from multiple the holders of the convertible promissory
notes.
During April and May 2019, the Company
issued 11,834,850 shares of common stock to Rubin Schindermann and Alexander Starr as consideration to settle outstanding management
fee.
As disclosed in Note 9, during April and
May 2019, the Company issued 244,177,723 shares pursuant to private placement funds received during the year ended December 31,
2018 and quarter ended March 31, 2019. Additionally, as disclosed in Note 9, the Company issued 250,000 shares as consideration
for the use of the intellectual property.
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.