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. (“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, 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 produced and sold cannabis
products in the amount of $197,607 (Year ended December 31, 2020: $108,930) through its investment in a joint venture.
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. During the quarter ended, September 30, 2020, all of the warrants expired, none were exercised.
TARGET GROUP INC.
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. During the quarter ended, March 31, 2021, all of the warrants expired, none were exercised.
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 was ten (10) years and four (4) months from the effective
date of August 8, 2019. In consideration of the license, the Company would 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 would 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 would pay cGreen an advance royalty of $300,000 within ten (10) days
of the effective date; $300,000 on January 10, 2020; and $400,000 on or before June 10, 2020 and $500,000 on or before November 10,
2020. All advance royalty payments would be credited against the royalties owed by the Company through December 31, 2020. During
the quarter ended December 31, 2019, the intangible asset was written off based on management’s review and evaluation of its
recoverability. During the quarter ended June 30, 2020, the Company was in arbitration with cGreen for the breaches of the terms
of the License Agreement, however, through an early mediation, both companies reached to a settlement agreement to settle the breaches
of the contract on July 27, 2020 (“Effective Date”). As per the settlement agreement, the License Agreement has been
terminated and the Company does not have to issue the 10 million shares nor pay the outstanding royalty payable in the amount of $1,191,860.
As consideration, the Company paid $130,000 within 30 days of the Effective Date and will pay $100,000 in monthly installments of $10,000
commencing in April 2021 to cGreen resulting in a gain on settlement in the amount of $1,704,860. During quarter ended March 31,
2021, the Company has paid its first installment. As at March 31, 2021, the outstanding balance is $90,000 of which $90,000 (December 31,
2020: $90,000) is current and $nil (December 31, 2020: $10,000) is non-current.
Effective September 17, 2019, CannaKorp entered
into a Purchase, Licensing and Distribution Agreement (“Agreement”) with Nabis Arizona Property LLC of Scottsdale,
Arizona (“Nabis”) concerning the distribution of CannaKorp’s Wisp™ Vaporizer and Wisp™
Pods in Arizona. The term of the Agreement is three (3) years with automatic renewals for additional one-year periods unless
the Agreement is terminated pursuant to its terms. Nabis is required to pay CannaKorp $45,000 for the equipment needed to manufacture
the WISP™ Pods, of which $4,500 will be paid within three (3) calendar days of Nabis obtaining regulatory approval of
its vertically integrated license and the balance of $40,500 within 180 days of the effective date of the Agreement.
Under the Agreement, Nabis is licensed to manufacture
the WISP™ Pods and to sell the WISP™ Pods in conjunction with the sale of the WISP™ Vaporizer.
Nabis is required to meet minimum quarterly orders of two hundred (200) WISP™ Vaporizers and five thousand (5,000) WISP™
Pods cartridges. Nabis is licensed to sell the WISP™ Vaporizer and the WISP™ Pods to end users in
Arizona, excluding Amazon, eBay, Walmart or other multistate/national brick and mortar or online sales. CannaKorp has granted Nabis a
right of first refusal to obtain an exclusive license in Michigan and in Washington for the same rights granted to Nabis in Arizona.
During the year ended December 31, 2020,
the equipment to Nabis has been shipped and the Company has provided Nabis an additional 360 days before invoicing Nabis for the equipment.
Once when the additional period has passed, the Company will invoice Nabis. Additionally, the first quarter of the Nabis agreement minimums
were shipped and invoiced (200 Wisp Units and 5000 Pod Assemblies to enable Nabis to manufacture 5000 complete Wisp Pods) for online and
retail distribution in the Arizona Market.
During the year ended, December 31, 2020, due
to financial strain and difficulties during the pandemic Nabis was forced to restructure their company in its entirety. This has caused
strain on the financial position of Nabis and has affected their ability to fulfill their commitments in the agreement signed with CannaKorp.
The partnership has since been terminated and all of CannaKorp’s CannaMatic machinery has now been sent back to CannaKorp. The Company
does not have any operations, employees or corporate offices based in United States.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Effective May 14, 2020, Canary entered into
a Joint Venture Agreement (“Joint Venture”) with 9258159 Canada Inc., a corporation organized under the laws of the Province
of Ontario, Canada (referred to as “Thrive”) and 2755757 Ontario Inc., a corporation organized under the laws of the Province
of Ontario, Canada (referred to as “JVCo”). Canary and Thrive each hold 50% of the voting equity interest in JVCo. The term
of the Joint Venture is five (5) years from its effective date of May 14, 2020.
On June 15, 2020, the Company, its first–tier
subsidiaries Visava Inc. (“Visava”) CannaKorp Inc. (“CannaKorp”), and the Company’s second-tier subsidiary,
Canary Rx Inc. (“Canary”), entered into a Debt Purchase and Assignment Agreement (“Agreement”) with CL Investors
Inc. (“CLI”), a corporation organized under the laws of the Province of Ontario, Canada. June 15th was preliminary date
of the agreement and the agreement was not finalized until the later date as indicated below. The CEO of the Company, is the Secretary
of CLI, a director of the Company, is a shareholder of CLI and the brother of CEO, is the President and sole director of CLI therefore
the below loan from CLI is classified under related party transactions.
Pursuant to the Agreement, CLI purchased from
the Company for the sum of $2,306,080, (CAD $2,900,000) a debt obligation owing from Canary to the Company in the principal balance of
$8,429,120 (CAD $10,600,000 (“Canary Debt”)). Upon receipt of the consideration, the Company loaned the full sum to Canary
under terms of an unsecured, non-interest-bearing promissory note, subject to a covenant by the Company not to take any collection action
so long as the Canary Debt remains unpaid to CLI. As at March 31, 2021, $3,976 (CAD $5,000) is still outstanding from CLI which is
presented as other receivable on the unaudited condensed consolidated interim balance sheet.
As a condition of the closing of the Agreement,
the terms of the Canary Debt were amended to provide for interest at 5% per annum with a maturity date of 60 months from the date of the
Agreement (“Term”). The Canary Debt will be repaid according to the following schedule:
|
a)
|
In the first year of the Term, Canary will pay CLI the greater of $898,576 (CAD $1,130,000) and fifty percent (50%) of the Net Revenue (hereinafter defined), provided that where the latter amount exceeds the former amount, Canary will, by the end of such first year, pay CLI no less than the former amount and Canary will, within thirty (30) days following the end of such first year, pay CLI the balance of such amount owing for such first year;
|
|
b)
|
In the second year of the Term, Canary will pay CLI the greater of $1,669,920 (CAD $2,100,000) and fifty percent (50%) of the Net Revenue, by way of twelve (12) consecutive monthly installments payable on the 14th day of each month commencing on August 14, 2021, provided that where the latter amount exceeds the former amount, Canary will, within thirty (30) days following the end of such second year, pay CLI the balance of such amount owing for such second year;
|
|
c)
|
In the third year of the Term, Canary will pay CLI the greater of $2,560,544 (CAD $3,220,000) and fifty percent (50%) of the Net Revenue, by way of twelve (12) consecutive monthly installments payable on the 14th day of each month commencing on August 14, 2022, provided that where the latter amount exceeds the former amount, Canary will, by the end of such third year, pay CLI no less than the former amount and Canary will, within thirty (30) days following the end of such third year, pay CLI the balance of the such payments owing for such third year;
|
|
d)
|
In the fourth year of the Term, Canary will pay CLI the greater of $2,449,216 (CAD $3,080,000) and fifty percent (50%) of the Net Revenue, by way of twelve (12) consecutive monthly installments payable on the 14th day of each month commencing on August 14, 2023, provided that where the latter amount exceeds the former amount, Canary will Canary will, within thirty (30) days following the end of such fourth year, pay CLI the balance of such amount owing for such fourth year; and
|
|
e)
|
In the fifth year of the Term, Canary will pay CLI the balance owing under this Note, by way of twelve (12) consecutive monthly installments payable on the 14th day of each month commencing on August 14, 2024 for an amount calculated by dividing twelve (12) into the sum of all amounts owing under this Note at the beginning of the fifth year of the Term on account of Principal and Interest, provided that where there are further amounts owing under this Note at the end of such fifth year, Canary will pay CLI all such further amounts within five (5) days following the end of such fifth year.
|
For the purposes of this Note, “Net Revenue”
will mean any and all revenue generated from Canary’s Licensed Facility (hereinafter defined) to which it is entitled net of applicable
taxes and third-party expenses.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
The repayment of the Canary Debt, as amended,
is guaranteed by Visava and the Company’s wholly-owned subsidiary CannaKorp Inc. and secured by (i) a general security interest
in the assets of the Company, Canary, Visava and CannaKorp Inc., respectively; and (ii) a pledge by the Company of all of the issued
and outstanding common stock of Canary, Visava and CannaKorp Inc. held by the Company. In addition to the foregoing guarantees, security
interest and stock pledge, CLI has been granted an option, in lieu of repayment of the amended Canary Debt, to demand, in its sole and
absolute discretion the transfer, assignment and conveyance of 75% of the issued and outstanding capital stock of Visava and Canary. Furthermore,
the President and sole director of CLI has been granted an option to acquire the remaining 25% of the issued and outstanding capital stock
of Visava and Canary.
Effective August 14, 2020, the Agreement
was amended (“Amendment”) to provide that CLI will purchase from Rubin Schindermann, a director of the Company, 500,000 shares
of the Company’s Series A Preferred Stock in consideration of the payment by CLI to Rubin Schindermann of $79,520 (CAD $100,000)
and the issuance to Schindermann of 10,000,000 shares of the Company’s common stock. In consideration of the foregoing, Mr., Schindermann
resigned as a director of the Company and from any and all administrative and executive positions with the Company’s subsidiaries
Visava Inc., Canary Rx Inc. and CannaKorp Inc., respectively. In addition, the Company issued Common Stock Purchase Warrant for 10,000,000
shares of Target common stock to CLI as consideration for the Agreement. Refer to Note 11 for additional details on warrants. The combined
impact of both transactions resulted in debt issuance cost of $251,518. This debt issuance cost will be amortized over the term of the
debt on straight line basis.
The transactions contemplated by the Agreement
and the Amendment closed on August 14, 2020.
Going Concern and Management Plans
The Company has earned minimal revenue since
inception to date and has sustained operating losses during the three months ended March 31, 2021. The Company had working capital
deficit of $4,706,790 and an accumulated deficit of $29,226,803 as of March 31, 2021. 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.
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, 2021 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, 2020.
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.
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.
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. The cost is determined on the basis of the average cost
or first-in, first-out methods.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Fixed Assets
Fixed assets are reported at cost, less accumulated
depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of assets, commencing when the
assets become available for productive use, based on the following estimated useful lives:
Depreciation is calculated using the following
terms and methods:
Furniture & office equipment
|
|
Straight-line
|
|
7 years
|
|
Machinery & equipment
|
|
Straight-line
|
|
3-5 years
|
|
Software
|
|
Straight-line
|
|
3 years
|
|
Leasehold improvements
|
|
Straight-line
|
|
Lease period
|
|
An item of equipment is derecognized upon disposal
or when no future economic benefits are expected from its use. Any gain or loss arising from derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying value of the asset) is included in the profit or loss in the period
the asset is derecognized. The assets’ residual values, useful lives and methods of depreciation are reviewed at each reporting
date, and adjusted prospectively, if appropriate.
Fair Value of Financial Instruments
The Company follows guidance for accounting for
fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized
or disclosed at fair value in the unaudited condensed consolidated interim financial statements on a recurring basis. Additionally, the
Company adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the
unaudited condensed consolidated interim financial statements on a nonrecurring basis. The guidance establishes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving
significant unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:
|
·
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
|
|
·
|
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
|
|
·
|
Level 3 inputs are unobservable inputs for the asset or liability. The carrying amounts of financial assets such as cash approximate their fair values because of the short maturity of these instruments.
|
The estimated fair value of cash, accounts payable,
and accrued liabilities approximate their carrying values due to the short-term maturity of these instruments. The derivative liabilities
of the promissory convertible notes and warrant liabilities are valued Level 3, refer to Note 11 for further details.
TARGET GROUP INC.
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.
The Company did not generate any revenue during
three months ended March 31, 2021 as compared to $30,000 revenue during comparable period ended March 31, 2020. The revenue
represented the sale of Wisp™ vaporizer and pod units. Since the customer had received the units and there are no further obligations
as per the agreement, revenue was recognized.
In addition, Canary generated revenue of $197,607
(though its investment in JVCo) during the quarter ended March 31, 2021 (quarter ended December 31, 2020: $108,930) and is represented
as share of losses from joint venture on the unaudited condensed consolidated interim statement of operations. The revenue was concentrated
to three customers (2020: one). The revenue represents the sale of cannabis product. Since the customer have received the product and
there are no further obligations as per the agreement, revenue was recognized. Refer to Note 6 for additional details.
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. During the quarter ended March 31, 2021,
the Company was able to settle the payment for $27,500 leading to a gain of $15,219. The settlement amount was paid subsequent to the
quarter in April 2021.
Equity Method Investments
The Company uses the equity method of accounting
for investments when the Company has the ability to significantly influence, but not control, the operations or financial activities of
the investee. As part of this evaluation, the Company considers the participating and protective rights in the venture as well as its
legal form. The Company records the equity method investments at cost and subsequently adjust their carrying amount each period for the
Company’s share of the earnings or losses of the investee and other adjustments required by the equity method of accounting. Distributions
received from the equity method investments are recorded as reductions in the carrying value of such investments and are classified on
the unaudited condensed consolidated interim statements of cash flows pursuant to the cumulative earnings approach. Under this approach,
distributions received are considered returns on investment and are classified as cash inflows from operating activities unless the cumulative
distributions received, less distributions received in prior periods that were determined to be returns of investment, exceed the cumulative
equity in earnings recognized from the investment. When such an excess occurs, the current period distributions up to this excess are
considered returns of investment and are classified as cash inflows from investing activities.
The Company monitors equity method investments
for impairment and record reductions in their carrying values if the carrying amount of an investment exceeds its fair value. An impairment
charge is recorded when such impairment is deemed to be other-than-temporary. To determine whether an impairment is other-than-temporary,
we consider our ability and intent to hold the investment until the carrying amount is fully recovered. Circumstances that indicate an
impairment may have occurred include factors such as decreases in quoted market prices or declines in the operations of the investee.
The evaluation of an investment for potential impairment requires us to exercise significant judgment and to make certain assumptions.
The use of different judgments and assumptions could result in different conclusions. The Company has recorded impairment losses related
to our equity method investments of $nil during the three months ended March 31, 2021 and 2020.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Recently Issued Accounting Standards
The Company qualifies as an “emerging growth
company” (EGC) 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.
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 (for “emerging
growth company” beginning after December 15, 2020). The Company has adopted this standard effective from January 1, 2021
and the adoption of this standard did not have any significant impact on the unaudited condensed consolidated interim financial statements.
The FASB recently issued ASU 2020-06, Debt –
Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to reduce complexity in applying GAAP to
certain financial instruments with characteristics of liabilities and equity. The guidance in ASU 2020-06 simplifies the accounting for
convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion
and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately
from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded
conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments
revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that
are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for
equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification
(and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract.
The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings
per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for
purposes of calculating diluted EPS when an instrument may be settled in cash or shares. The amendments in ASU 2020-06 are effective for
public entities for fiscal years beginning after December 15, 2021 with early adoption permitted (for “emerging growth company”
beginning after December 15, 2023). The Company will be evaluating the impact this standard will have on the Company’s unaudited
condensed consolidated interim financial statements.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
At March 31, 2021, the inventory in the amount
of $99,000 (December 31, 2020: $99,000) consists of finished goods and is held at a third-party location.
In addition, the inventory in the amount of $99,000
(December 31, 2020: $99,000) is secured against the loan provided by the Company’s shareholder. Refer to Note 8 for further
details.
As at March 31, 2021, the Company had $115,110
of gross sales tax recoverable compared to $95,386 as at December 31, 2020. 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 in the amount
of $24,616 (December 31, 2020: $19,924) stemming from the potential uncollectible balances within the outstanding sales tax recoverable
amount.
The Company’s subsidiary, Canary, 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. 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. On October 8, 2019, the Company was granted licenses to
cultivate, process and sell cannabis pursuant to the Cannabis Act (Bill C-45).
Canary has recorded depreciation expense of $228,004
during the three months ended March 31, 2021 (March 31, 2020: $nil). Since the facility was not operating during the period
ended September 30, 2020 no depreciation had been charged on all assets of Canary during that period.
The Company’s other subsidiary, CannaKorp,
has been utilizing its assets throughout the period and accordingly, has recorded depreciation expense of $13,791 during the three months
ended March 31, 2021 (March 31, 2020: $21,989).
Below is a breakdown of the consolidated fixed
asset, category wise:
|
|
Furniture &
fixture
|
|
|
Machinery &
Equipment
|
|
|
Software
|
|
|
Leasehold
improvements
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cost
|
|
|
1,128,362
|
|
|
|
773,005
|
|
|
|
43,673
|
|
|
|
7,234,833
|
|
|
|
9,179,873
|
|
Accumulated depreciation
|
|
|
(60,629
|
)
|
|
|
(668,828
|
)
|
|
|
(41,685
|
)
|
|
|
(396,565
|
)
|
|
|
(1,167,707
|
)
|
|
|
|
1,067,733
|
|
|
|
104,177
|
|
|
|
1,988
|
|
|
|
6,838,268
|
|
|
|
8,012,166
|
|
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Effective May 14, 2020, Canary entered into
a Joint Venture Agreement (“Joint Venture”) with 9258159 Canada Inc., a corporation organized under the laws of the Province
of Ontario, Canada (referred to as “Thrive Cannabis”) and 2755757 Ontario Inc., a corporation organized under the laws of
the Province of Ontario, Canada (referred to as “JVCo”). Canary and Thrive Cannabis each hold 50% of the voting equity interest
in JVCo. The term of the Joint Venture is five (5) years from its effective date of May 14, 2020.
Under the Joint Venture, JVCo is permitted to
use all eight (8) rooms, of Canary’s licensed cannabis cultivation facilities located in Simcoe, Ontario, Canada ("Licensed
Site Portion”) for the purpose of operating and managing the Licensed Site Portion for the cultivation and process of cannabis pursuant
to Canary’s license issued by Health Canada. During the term of the Joint Venture, JVCo will be responsible for the administration,
operation and management of the Licensed Site Portion and all proceeds from the sale of the cannabis and related cannabis products cultivated
therein will be payable to the JVCo.
In addition, Canary, Thrive Cannabis, and JVCo
entered into a Unanimous Shareholder Agreement dated May 14, 2020 governing the management and administration of the business of
JVCo.
As per the Joint Venture, Canary will provide
the JVCo with a Hard Cost Loan with the maximum amount of $954,240 (CAD $1,200,000). This loan bears an interest rate of 7% per annum,
matures in 12 months from effective date, and is be secured against the personal property of the JVCo and Thrive will guarantee one-half
(1/2) of the outstanding balance of the loan. As at March 31, 2021, the loan advanced amounts to $266,392 (CAD $335,000) and interest
income charged for the three months ended in amount of $4,598 (CAD $5,782) is included in other income on the unaudited condensed consolidated
interim statement of operations and comprehensive loss and interest receivable in amount of $12,773 (CAD $16,063) is included in receivable
from joint venture on the unaudited condensed consolidated interim balance sheet.
The JVCo will reimburse Canary for certain expenses
incurred by Canary for the cultivation and processing of cannabis products. Below is the table which summarizes the activity of the period:
Period ended March 31,
|
|
2021
|
|
|
2020
|
|
|
|
CAD $
|
|
|
USD $
|
|
|
CAD $
|
|
|
USD $
|
|
Sales
|
|
|
248,500
|
|
|
|
197,607
|
|
|
|
—
|
|
|
|
—
|
|
Eligible recoverable expenses
|
|
|
675,991
|
|
|
|
537,548
|
|
|
|
—
|
|
|
|
—
|
|
Recoverable amount
|
|
|
677,125
|
|
|
|
538,450
|
|
|
|
—
|
|
|
|
—
|
|
Loss on equity
|
|
|
(14,305
|
)
|
|
|
(11,300
|
)
|
|
|
—
|
|
|
|
—
|
|
Due to reimbursement of an office and general expense during the current
quarter ended which had been expensed in the books of Canary in the prior period therefore leading to a credit (negative) expense on the
unaudited condensed consolidated interim statement of operations and comprehensive loss. During the period ended March 31, 2021, revenue
was sold to three customers (2020: N/A).
The JVCo shall make payments out of the revenues,
net of applicable taxes and expenses (“Net Income”), in accordance with the following order of priority:
|
a)
|
First, the payment of recoverable expenses;
|
|
b)
|
Second, to the repayment of the Hard Cost Loan until repaid in full;
|
|
c)
|
Third, to the repayment of the Soft Costs (costs of services and materials provide by Thrive Cannabis) until repaid in full;
|
|
d)
|
Finally, any remaining Net Income shall be distributed, on a monthly basis, as follows:
|
|
(i)
|
For the first two (2) years following execution of this Agreement, Canary shall receive 60% and Thrive Cannabis shall receive 40%; and
|
|
(ii)
|
For the three (3) years following such period, Canary shall receive 57.5% and Thrive shall receive 42.5%.
|
Below is the position of the JVCo as at:
As at March 31,
|
|
2021
|
|
|
2020
|
|
|
|
CAD $
|
|
|
USD $
|
|
|
CAD $
|
|
|
USD $
|
|
Assets
|
|
|
1,723,207
|
|
|
|
1,370,294
|
|
|
|
—
|
|
|
|
—
|
|
Liabilities
|
|
|
2,418,351
|
|
|
|
1,923,073
|
|
|
|
—
|
|
|
|
—
|
|
Equity
|
|
|
(695,144
|
)
|
|
|
(552,779
|
)
|
|
|
—
|
|
|
|
—
|
|
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
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.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
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.
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. During the quarter ended, March 31, 2021, all of the warrants
expired, none were exercised.
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
|
|
|
18,961
|
|
Accounts Receivable
|
|
|
2,068
|
|
Inventory
|
|
|
326,595
|
|
Prepaid and other receivables
|
|
|
89,585
|
|
Property and equipment, net
|
|
|
88,129
|
|
Total assets
|
|
|
525,338
|
|
|
|
|
|
|
Accounts payable
|
|
|
(1,365,790
|
)
|
Accrued expenses and other current liabilities
|
|
|
(286,435
|
)
|
Deferred revenue
|
|
|
(128,158
|
)
|
Payable to related parties
|
|
|
(753,738
|
)
|
Total liabilities
|
|
|
(2,534,121
|
)
|
Net liabilities
|
|
|
(2,008,783
|
)
|
Goodwill
|
|
|
6,071,627
|
|
Total net assets acquired
|
|
|
4,062,844
|
|
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
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%
|
During the quarter ended December 31, 2019,
the goodwill was revaluated after the completion of CannaKorp’s audit of the year ended December 31, 2018. This resulted in
changing the balance on acquisition date, March 1, 2019 thereby increasing the goodwill by $369,315 to $6,071,627.
During the year ended, December 31, 2019,
the Company identified circumstances which would call for evaluation of goodwill impairment and therefore impaired $1,485,925 reducing
the goodwill related to the CannaKorp to $4,585,702.
During the year ended, December 31, 2020, the Company identified
circumstances which would call for evaluation of goodwill impairment and therefore impaired the remaining balance of goodwill related
to the CannaKorp to $nil.
Refer to Note 11 for details on warrants.
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. During
the quarter ended, September 30, 2020, all of the warrants expired, none were exercised.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
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:
|
|
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
|
|
|
|
$
|
|
Number of Common Stock
|
|
|
25,500,000
|
|
Market price on the date of issuance
|
|
|
0.067
|
|
Fair value of Common Stock
|
|
|
1,695,750
|
|
|
|
$
|
|
Number of warrants
|
|
|
25,000,000
|
|
Fair value price per warrant
|
|
|
0.065
|
|
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%
|
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Refer to Note 11 for details on warrants.
During the period and year ended March 31,
2021 and December 31, 2020, respectively, the Company has identified no circumstances which would call for further evaluation of
goodwill impairment related to Canary.
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.
|
Related Party Transactions and Balances
|
During the period ended March 31, 2021, the
Company expensed $77,943 (March 31, 2020: $83,239) in management service fee for services provided by the current key officers of
the company.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
The breakdown of the related party balance as
at March 31, 2021 in the amount of $10,121,537 (December 31, 2020: $9,934,960) is below:
Debt purchase by CL Investors Inc.
On June 15, 2020, the Company and
its subsidiaries, entered into a Debt Purchase and Assignment Agreement (“Agreement”) with CL Investors Inc. (“CLI).
June 15th was preliminary date of the agreement and the agreement was not finalized until the later date as indicated below.
The CEO of the Company, is the Secretary
of CLI, a director of the Company, is a shareholder of CLI and the brother of CEO, is the President and sole director of CLI therefore
the loan from CLI is classified under related party transactions.
CLI purchased from the Company for the
sum of $2,306,080, (CAD $2,900,000) a debt obligation owing from Canary, the Company’s second tier subsidiary, to the Company in
the principal balance of $8,429,120 (CAD $10,600,000 (“Canary Debt”)). Upon receipt of the monetary consideration, the Company
loaned the full sum to Canary under terms of an unsecured, non-interest-bearing promissory note, subject to a covenant by the Company
not to take any collection action so long as the Canary Debt remains unpaid to CLI. As at March 31, 2021, $3,976 (CAD $5,000) is
still outstanding from CLI.
The Canary debt owed to CLI from Canary
bears an interest at 5% per annum and matures on August 14, 2025. The repayment of the debt is guaranteed by the Company and its
subsidiaries plus secured by a general security interest in the assets of the Company and its subsidiaries and a pledge by the Company
of all of the issued and outstanding common stock of Canary, Visava and CannaKorp Inc. held by the Company. In addition to the above,
CLI has been granted an option, in lieu of repayment of the amended Canary Debt, to demand, in its sole and absolute discretion the transfer,
assignment and conveyance of 75% of the issued and outstanding capital stock of Visava and Canary. Furthermore, the President and sole
director of CLI has been granted an option to acquire the remaining 25% of the issued and outstanding capital stock of Visava and Canary.
Interest expense charged for the year
ended in amount of $104,662 (CAD $132,500) is included in interest and bank charges on the unaudited condensed consolidated interim statement
of operations and comprehensive loss and accrued interest in amount of $265,751 (CAD $334,194) is included in accounts payable and accrued
liabilities on the unaudited condensed consolidated interim balance sheet.
The repayment schedule of the minimum
principal payments is shown below:
2021
|
|
$
|
1,039,648
|
|
2022
|
|
$
|
1,693,447
|
|
2023
|
|
$
|
2,269,022
|
|
2024
|
|
$
|
2,174,767
|
|
2025
|
|
$
|
1,252,236
|
|
Total
|
|
$
|
8,429,120
|
|
Current portion
|
|
$
|
(1,366,058
|
)
|
Non-current portion
|
|
$
|
7,063,062
|
|
Effective August 14, 2020, the
Agreement was amended (“Amendment”) to provide that CLI will purchase from Rubin Schindermann, a director of the Company,
500,000 shares of the Company’s Series A Preferred Stock in consideration of the payment by CLI to Rubin Schindermann of $79,520
(CAD $100,000) and the issuance to Mr. Schindermann of 10,000,000 shares of the Company’s common stock. In consideration of
the foregoing, Mr., Schindermann resigned as a director of the Company and from any and all administrative and executive positions with
the Company’s subsidiaries. In addition, the Company issued Common Stock Purchase Warrant for 10,000,000 shares of Target common
stock to CLI as consideration for the Agreement. Refer to Note 11 for additional details on warrants. The combined impact of both transactions
resulted in debt issuance cost of $251,518. This debt issuance cost will be amortized over the term of the debt on straight line basis.
As at March 31, 2021, the balance is $233,139 of which $53,357 is current while $179,782 is non-current.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Shareholder loan
On December 20, 2019, one of the
Company’s shareholders provided a loan up to $795,200 (CAD $1,000,000). The loan bears an annual interest rate of 16%, is secured
by all assets owned by the Company and its subsidiaries including leasehold improvements and matures in one year that is December 20,
2020. During the year ended December 31, 2020, the loan maximum was increased by $795,200 (CAD $1,000,000). This additional loan
bears an annual interest rate of 43% and has a lender fee of 10%. Due to above amendment, the maximum loan which the company can borrow
is $1,590,400 (CAD $2,000,000) which is also the outstanding balance as at March 31, 2021. Interest expense charged for the three
months ended March 31, 2020 in amount of $116,195 (CAD $146,121) is included in interest and bank charges on the unaudited condensed
consolidated interim statement of operations and comprehensive loss and accrued interest in the amount of $314,901 (CAD $396,002) is included
in accounts payable and accrued liabilities on the unaudited condensed consolidated interim balance sheet.
Shareholder promissory note
Effective April 20, 2020, the Company
issued its promissory note (“Note”) to one of the Company’s shareholders in the principal amount of $236,993. The Note
contained an original issue discount of $15,300 resulting in net proceeds to the Company of $221,693. The Note carries interest at the
rate of 12% per annum and the note matures on April 20, 2021. During the quarter ended, September 30, 2020, the Company paid
the outstanding balance and accrued interest in full, in the amount of $251,213.
Outstanding management service fee
The balance owing to key officers of
the Company is $270,155 (December 31, 2020: $217,359). The outstanding balance are primarily outstanding management service fee.
During the three months ended March 31, 2021, nil shares (March 31, 2020: nil shares) were issued for these services performed
as of and for the three months ended March 31, 2021.
Balances outstanding related to subsidiaries
On February 22, 2020, Randal MacLeod,
who is shareholder in the Company and former President of the subsidiary, Visava terminated his employment agreement and during the three
months ended March 31, 2021, $nil (December 31, 2020, $54,307) was paid as remuneration for management services included in
salaries and wages. As at March 31, 2021, the balance owing is $nil (December 31, 2020: $nil).
During the year ended December 31,
2019, the Company settled with the loan holders provided to the Company's subsidiary, CannaKorp. Total amount subject to settlement was
$817,876 which includes accrued interest and accrued payroll. The company settled by paying $954,374 as consideration of cash, 920,240
shares (recorded in shares to be issued) and warrants of 920,240 shares with an exercise price of $0.15 per share. This resulted in a
settlement loss of $136,498. Of the total settlement amount, as at March 31, 2021 and December 31, 2020, $65,000 was outstanding
to be paid. This amount includes late payment penalties of $25,000. During the quarter ended March 31, 2021, all of the warrants
expired, none were exercised.
During the three months ended March 31, 2021,
the Company has purchased $nil of consulting services from GTA Angel Group which is owned by the Company’s CEO’s brother.
The balance outstanding as at March 31, 2021 is $26,957 and is included in accounts payable and accrued liabilities.
During the three months ended March 31, 2021,
the Company has purchased consulting services amounting to $nil from BaK Consulting which is owned by one of the Company’s director.
The balance outstanding as at March 31, 2021 is $nil.
During the three months ended March 31, 2021,
the Company subleases its principal executive office premise from Norlandam Marketing Inc., a company owned by one of directors. During
quarter ended March 31, 2021, the premises were subleased to a third party which makes rent payments directly to Norlandam Marketing
Inc. The outstanding balance as at March 31, 2021 is balance of $nil.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
9.
|
Operating Lease Right-Of-Use Assets and Lease Liability
|
The Company adopted ASC 842 as of January 1,
2019, using a modified retrospective approach and applying the standard’s transition provisions at January 1, 2020, the effective
date. The Company made an accounting policy election to exclude from balance sheet reporting those leases with initial terms of 12 months
or less. The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement
conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange
for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and
to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease
and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets.
Lease expense for variable lease components is recognized when the obligation is probable.
Right-of-use assets and liabilities are recognized
at commencement date based on the present value of lease payments over the lease term. ASC 842 requires a lessee to discount its unpaid
lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing
rate. As an implicit interest rate is not readily determinable in the Company’s leases, the incremental borrowing rate is used based
on the information available at adoption date in determining the present value of lease payments. The lease term for all of the
Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option
to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate)
the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority
of the Company’s leases as the reasonably certain threshold is not met.
The Company does not own any real property and
it currently leases two locations. For accounting purposes, these leases are treated as operating leases. Upon adoption of ASC
842, the Company recognized $1,795,730 (CAD $2,258,212) of right-to-use assets as operating leases and operating lease obligations. The
right-to-use asset was reduced by $1,661,905 (CAD $2,089,921) due to recognition of the prior deferred rent liability which was eliminated
upon adoption of ASC 842. Details of these leases are detailed below:
During quarter ended March 31, 2021, the
Company subleased its executive premises to a third party. During quarter ended March 31, 2021, the Company subleased its executive
premises to a third party which makes rent payments directly to the landlord. However, if the sub-lessee cancels its sub-lease agreement
with the landlord during the Company’s lease term with the landlord (ending on August 30, 2023), the Company will be responsible
for making rent payments for the period from the date of cancellation by the sub-lessee to August 30, 2023.
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. The lease agreement
was amended effective January 1, 2020, where the amended 10-year term starts on May 1, 2020 and provides the Company an option
to extend for three (3) additional terms of ten (10) years. Additionally, effective January 1, 2020, the amended agreement
increased the minimum rent to $27,832 (CAD $35,000) plus applicable taxes per month and
on each anniversary date, commencing from January 1, 2021, the minimum rent will increase by 1.00%. Furthermore, only the current
10-year term has been factored into the calculation of the lease liability. Effective May 1, 2020, due to the implementation of the
new lease, $737,467 (CAD $988,293) was forgiven by the landlord and one vendor.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
These leases will expire between 2023 and
2030. The weighted average discount rate used for these leases were 16% (average borrowing rate of the Company). Maturities of
lease liabilities were:
2021
|
|
|
$
|
261,424
|
|
2022
|
|
|
|
352,175
|
|
2023
|
|
|
|
351,874
|
|
2024
|
|
|
|
347,545
|
|
Thereafter
|
|
|
|
1,913,533
|
|
Total lease payments
|
|
|
|
3,226,551
|
|
Less imputed interest
|
|
|
|
(1,519,544
|
)
|
Present value of lease liabilities
|
|
|
|
1,707,007
|
|
Current portion
|
|
|
|
(88,465
|
)
|
Non-current portion
|
|
|
$
|
1,618,542
|
|
Below is the reconciliation of the net operating
lease presented on the unaudited condensed consolidated interim statement of operations:
|
|
For the
|
|
|
|
three months ended
|
|
|
|
March 31, 2021
|
|
|
|
$
|
|
Gross operating lease expense
|
|
|
68,058
|
|
Gross rent and utilities expenses
|
|
|
150,525
|
|
Recoverable expenses from JVCo related to rent and utilities
|
|
|
(231,628
|
)
|
|
|
|
(13,045
|
)
|
As explained in Note 6, the JVCo reimburses certain
percentage of gross expenses incurred by Canary which includes rent and utilities. Due to this unique circumstance and since operating
lease expense are related to rent expenses, the Company has decided to group the operating lease expenses, all lease related expenses
and the recoverable amount from JVCo to show a net operating lease expense.
10.
|
Convertible Promissory Notes
|
Interest amounting to $82 was accrued for the
three months ended March 31, 2021 (March 31, 2020: $10,082).
Principal amount outstanding as at March 31,
2021 and December 31, 2020 was $480 and $3,128, respectively. At both period ends, the entire balance was current.
During the period ended March 31, 2021, the
Company converted the outstanding principal balance of Note K.
All notes maturing prior to the date of this report
are outstanding.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Derivative liability
During the three months ended March 31, 2021,
holders of convertible promissory notes converted principal amounting to $2,648 (March 31, 2020: $nil). The Company recorded and
fair valued the derivative liability as follows:
|
|
Derivative
liability as at
December 31,
2020
|
|
|
Conversions / Redemption
during the
period
|
|
|
Change due to
Issuances
|
|
|
Fair value
adjustment
|
|
|
Derivative
liability as at
March 31,
2021
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Note D
|
|
|
1,066
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,301
|
|
|
|
2,367
|
|
Note F
|
|
|
7,864
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,364
|
|
|
|
18,228
|
|
Note G
|
|
|
2,857
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,765
|
|
|
|
6,622
|
|
Note K
|
|
|
281
|
|
|
|
(227
|
)
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
—
|
|
|
|
|
12,068
|
|
|
|
(227
|
)
|
|
|
—
|
|
|
|
15,376
|
|
|
|
27,217
|
|
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, 2021:
|
•
|
Projected annual volatility of 234%;
|
|
•
|
Risk free interest rate of 0.11%;
|
|
•
|
Stock price of $0.025;
|
|
•
|
Liquidity term of 0.25 years;
|
|
•
|
Dividend yield of 0%; and
|
|
•
|
Exercise price of $0.0064 to $0.0151.
|
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Capitalization
Preferred Stock
|
•
|
Issued: 1,000,000 shares were outstanding as at March 31, 2021 and December 31, 2020
|
Common Stock
|
•
|
Authorized: 850,000,000
|
|
•
|
Issued: 573,452,193 shares are outstanding as at March 31, 2021 (December 31, 2020: 573,277,094)
|
As of March 31, 2021, convertible notes,
warrants and preferred stock outstanding could be converted into 3,889,376 (December 31, 2020: 6,928,486), 387,214,383 (December 31,
2020: 364,891,384) and 100,000,000 (December 31, 2020: 100,000,000) shares of common stock, respectively. These together will exceed
the authorized common share limit; however, majority of the warrants are unlikely to be exercised due to the depressed share price.
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.
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 Series A Stock holder shall not vote as a separate class but shall vote together with the common stock
on all matters, including any amendment to increase or decrease the authorized capital stock. Upon the voluntary or involuntary dissolution,
liquidation or winding up of the corporation, the assets of the Company available for distribution to its shareholders shall be distributed
to the holders of common stock and the holders of the Series A Stock ratably without any preference to the holders of the Series A
Stock. Shares of Series A Stock can be converted at any time into fully-paid and nonassessable shares of Common Stock at the rate
of One Hundred (100) shares of Common Stock for each One (1) share of Series A Stock.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
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.
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 therefore.
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.
2021
During the quarter ended March 31, 2021,
the Company issued 175,099 shares of common stock to an individual on conversion of a convertible promissory note amounting to $2,648.
In addition, 15,624 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 $504, based on the market price of the Company’s stock on the date of agreement.
These are currently recorded under shares to be issued and will be allocated between common stock and additional paid in capital once
the shares are issued.
During the quarter ended March 31, 2021,
the Company sold 38,183,326 shares of common stock as consideration for private placements. These were recorded at fair value of $904,833,
based on the cash proceeds received by the Company. These are currently recorded under shares to be issued and will be allocated between
common stock and additional paid in capital once the shares are issued. As part of consideration for the private placement, the Company
also agreed to issue warrants to purchase 38,183,326 shares of common stock.
2020
During the quarter ended December 31, 2019,
the Company had found an error in issuing in the incorrect private placement and therefore had recorded a subscription receivable in the
amount of $220,000 based on the cash proceeds of the private placement and this was offset by shares to be issued, therefore, a net zero
effect on equity. During quarter ended March 31, 2020, the incorrect number of shares, 11,000,000, were cancelled.
During the quarter ended March 31, 2020,
15,624 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 $193, based on the market price of the Company’s stock on the date of agreement.
These are currently recorded under shares to be issued and will be allocated between common stock and additional paid in capital once
the shares are issued.
During the quarter ended June 30, 2020, the
Company issued 3,131,126 shares of common stock to individual on conversion of a convertible promissory note amounting to $40,770 (including
principal balance and accrued interest). In addition, 5,208 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 $42, based on the market price
of the Company’s stock on the date of agreement. These are currently recorded under shares to be issued and will be allocated between
common stock and additional paid in capital once the shares are issued.
As explained in Note 8, during the quarter ended September 30,
2020, the Company issued 10,000,000 shares of common stock to a director of the company pursuant to Amendment to the Debt Purchase and
Assignment Agreement (“Agreement”) with CLI. These were recorded at fair value of $130,000, based on the market price of
the Company’s stock on the date of agreement. In addition, 26,040 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 $353, based on the market
price of the Company’s stock on the date of agreement. These are currently recorded under shares to be issued and will be allocated
between common stock and additional paid in capital once the shares are issued.
During the quarter ended December 31, 2020,
the Company issued 15,624 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 $215, based on the market price of the Company’s stock
on the date of agreement. These are currently recorded under shares to be issued and will be allocated between common stock and additional
paid in capital once the shares are issued.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
Shares to be issued include the following:
|
|
Shares
|
|
|
Amount
|
|
|
Description
|
Services
|
|
|
115,000
|
|
|
$
|
73,000
|
|
|
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 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 during year ended December 31, 2017.
|
Private placements
|
|
|
38,886,765
|
|
|
$
|
942,313
|
|
|
Consideration for private placements with the fair value based on cash proceeds received. 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.
During the period ended June 30, 2020, the Company found the allocation between shares to be issued and additional paid in capital was not performed correctly when the shares were issued for the past private placements. This has been corrected in this period and as a result of this reclassification, there was no impact on total equity.
|
Settlement of
CannaKorp's loans
|
|
|
930,240
|
|
|
$
|
80,838
|
|
|
Refer Note 8 for details.
|
Agreement with
Serious Seeds
|
|
|
78,120
|
|
|
$
|
1,307
|
|
|
As consideration for intellectual property rights granted by Smit. The fair value is based on the market price of the Company’s stock on the date of issue as per the agreement.
|
|
|
|
40,010,125
|
|
|
$
|
1,097,458
|
|
|
|
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Warrants
As further explained in Note 14, the warrants
(with exercise price in United States Dollar) were re-classified as liability as at December 31, 2019 and therefore have been revalued
on each period end. The fair value of the warrants was measured on reporting dates using the Black-Scholes option pricing model using
the following assumptions:
|
|
As at
March 31,
2021
|
|
|
As at
December 31,
2020
|
|
|
As at
September 30,
2020
|
|
|
As at
June 30,
2020
|
|
|
As at
March 31,
2020
|
|
Forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Stock price
|
|
$
|
0.025
|
|
|
$
|
0.014
|
|
|
$
|
0.011
|
|
|
$
|
0.018
|
|
|
$
|
0.010
|
|
Exercise price
|
|
$
|
0.023 to $0.250
|
|
|
$
|
0.023 to $0.200
|
|
|
$
|
0.023 to $0.200
|
|
|
$
|
0.023 to $0.200
|
|
|
$
|
0.023 to $0.200
|
|
Volatility
|
|
|
236% to 306%
|
|
|
|
238% to 293%
|
|
|
|
244% to 306%
|
|
|
|
215% to 298%
|
|
|
|
195% to 286%
|
|
Risk free interest rate
|
|
|
0.16% to 2.48%
|
|
|
|
0.13% to 2.48%
|
|
|
|
0.13% to 2.48%
|
|
|
|
0.16% to 2.66%
|
|
|
|
0.23% to 2.66%
|
|
Expected life (years)
|
|
|
0.01 to 1.93
|
|
|
|
0.15 to 1.93
|
|
|
|
0.01 to 1.93
|
|
|
|
0.01 to 2.12
|
|
|
|
0.24 to 2.37
|
|
Expected dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
The fair value of the warrants, which were issued
during the below quarters, were measured on issuance dates using the Black-Scholes option pricing model using the below assumptions.
2021
|
|
During quarter
ended
March 31,
2021
|
|
Forfeiture rate
|
|
|
0
|
%
|
Stock price
|
|
$
|
0.011 to $0.067
|
|
Exercise price
|
|
$
|
0.025 to $0.059
|
|
Volatility
|
|
|
306
|
%
|
Risk free interest rate
|
|
|
0.09% to 0.14%
|
|
Expected life (years)
|
|
|
2
|
|
Expected dividend rate
|
|
|
0
|
%
|
Fair value of warrants
|
|
$
|
2,152,191
|
|
2020
|
|
During quarter
ended
December 31,
2020
|
|
|
During quarter
ended
September 30,
2020
|
|
|
During quarter
ended
June 30,
2020
|
|
|
During quarter
ended
March 31,
2020
|
|
Forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Stock price
|
|
$
|
0.012 to $0.014
|
|
|
$
|
0.008 to $0.018
|
|
|
$
|
0.008
|
|
|
$
|
0.010 to $0.014
|
|
Exercise price
|
|
$
|
0.200
|
|
|
$
|
0.037 to $0.200
|
|
|
$
|
0.200
|
|
|
$
|
0.150 to $0.200
|
|
Volatility
|
|
|
293
|
%
|
|
|
295% to 753%
|
|
|
|
305
|
%
|
|
|
312
|
%
|
Risk free interest rate
|
|
|
0.14% to 0.16%
|
|
|
|
0.11% to 0.27%
|
|
|
|
0.27
|
%
|
|
|
1.61
|
%
|
Expected life (years)
|
|
|
2
|
|
|
|
2 to 5
|
|
|
|
2
|
|
|
|
2
|
|
Expected dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Fair value of warrants
|
|
$
|
545
|
|
|
$
|
132,357
|
|
|
$
|
177
|
|
|
$
|
3,137
|
|
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Breakdown of warrants outstanding as at March 31, 2021 and December 31,
2020 are details below:
|
|
Warrants outstanding as at
March 31,
2021
|
|
|
Warrants outstanding as at
December 31,
2020
|
|
|
Remaining contractual life term as at
March 31,
2021
(years)
|
|
|
Remaining contractual life term as at
December 31,
2020
(years)
|
|
Acquisition of CannaKorp
|
|
|
–
|
|
|
|
7,211,213
|
|
|
|
N/A
|
|
|
|
0.16
|
|
Private placements
|
|
|
376,747,711
|
|
|
|
346,233,258
|
|
|
|
0.01 to 1.92
|
|
|
|
0.15 to 1.62
|
|
Settlement of CannaKorp loans
|
|
|
–
|
|
|
|
930,240
|
|
|
|
N/A
|
|
|
|
0.24
|
|
Serious Seeds
|
|
|
466,672
|
|
|
|
416,671
|
|
|
|
0.77 to 1.93
|
|
|
|
1.01 to 1.26
|
|
CLI
|
|
|
10,000,000
|
|
|
|
10,100,002
|
|
|
|
4.37
|
|
|
|
4.62
|
|
Total
|
|
|
387,214,383
|
|
|
|
364,891,384
|
|
|
|
|
|
|
|
|
|
During
three months ended March 31, 2021, 15,810,326 warrants expired (related to private placements, acquisition of CannaKorp and settlement
of CannaKorp loans).
12.
|
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.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
13.
|
Contingencies and commitments
|
Contingencies
During the year ended December 31, 2019,
a terminated employee of Canary has filed a lawsuit against the Company amounting to approximately $1,669,920 (CAD $2,100,000) in Ontario,
Canada. Currently, the Company is defending its position and believes that the ultimate decision will be in favor of the Company. Due
to the uncertainty of timing and the amount of estimated future cash flows, if any, relating to this claim, no provision has been recognized.
A complaint for damages in the amount of $150,000
was lodged against CannaKorp by the former Chief Financial Officer of the CannaKorp for outstanding professional fees. No claim has been
registered and is working with management for a settlement. The Management are of the view that no material losses will arise in respect
of the legal claim at the date of these unaudited condensed consolidated interim financial statements. As at March 31, 2021, $188,865
has been recorded in the CannaKorp’s payable based on past accruals and outstanding invoices. Due to the uncertainty of timing and
the amount of estimated future cash flows, if any, relating to this claim, no further amount has been recognized.
As explained in Note 1, on July 27, 2020 (“Effective
Date”), the Company entered into a settlement agreement with cGreen, Inc., a Delaware corporation (“cGreen”). As consideration,
the Company paid $130,000 within 30 days of the Effective Date and will pay $100,000 in monthly installments of $10,000 commencing in
April 2021 to cGreen. During quarter ended March 31, 2021, the Company has paid its first installment. As at March 31, 2021, the outstanding
balance is $90,000 of which $90,000 (December 31, 2020: $90,000) is current and $nil (December 31, 2020: $10,000) is non-current.
In April 2020, an employee of Canary, who
had previously resigned from the company, filed a claim that their bonus, that had been promised in their employment agreement was unpaid
and had filled a claim with the Ministry of Labour in Ontario. While the Ministry of Labour deemed the bonus owed as a valid payment,
the matter has since progressed to the Ontario Labour Relations Board (OLRB) in which the company is disputing this bonus due to several
contractual factors that the company believes will allow this ruling to be overturned and revised in the company’s favor. During
quarter ended March 31, 2021, the Company settled with the employee in the amount of $15,904 (CAD $20,000).
A claim for damages in the amount of $1,481,302
(CAD $1,862,805) was lodged against Company and its directors by the former Chief Financial Officer of the Company for wrongful dismissal.
The management are of the view that no material losses will arise in respect of the legal claim at the date of these unaudited condensed
consolidated interim financial statements. As at March 31, 2021, $11,684 has been recorded in the Target’s payable based on
past accruals. Due to the uncertainty of timing and the amount of estimated future cash flows, if any, relating to this claim, no further
amount has been recognized.
During the year ended December 31, 2020,
a claim for damages in the amount of $103,995 (CAD $130,778) was lodged against Canary by a vendor for breach of contract. The management
are of the view that no material losses will arise in respect of the legal claim at the date of these unaudited condensed consolidated
interim financial statements. As at March 31, 2021, $109,857 (CAD $138,150) has been recorded in the Canary’s payable based
on past accruals. Due to the uncertainty of timing and the amount of estimated future cash flows, if any, relating to this claim, no further
amount has been recognized.
Covid-19 Pandemic
On March 11, 2020, the World Health Organization
declared the ongoing COVID-19 outbreak as a global health emergency. This resulted in governments worldwide enacting emergency measures
to combat the spread of the virus, including the closure of certain non-essential businesses.
During the period and year ended March 31,
2021 and December 31, 2020, respectively, the pandemic did not have a material impact on the Company’s operations. As at March 31,
2021 and December 31, 2020, the Company did not observe any material impairment of its assets or a significant change in the fair
value of assets due to the COVID-19 pandemic. The Company has taken steps to minimize the potential impact of the pandemic including safety
measures with respect to personal protective equipment, the reduction in travel and the implementation of a virtual office including regular
video conference meetings and participation in virtual customer meetings and other virtual events.
Due to the rapid developments and uncertainty
surrounding COVID-19, it is not possible to predict the impact that COVID-19 will have on the Company’s business, balance sheet
and operating results in the future. In addition, it is possible that estimates in the Company’s financial statements will change
in the near term as a result of COVID-19 and the effect of any such changes could be material, which could result in, among other things,
impairment of long-lived assets including goodwill. The Company is closely monitoring the impact of the pandemic on all aspects of its
business.
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Commitments
As per the Distribution, Collaboration and Licensing
Agreement (“Agreement”) entered with Serious Seeds B.V. (“Serious Seeds”), effective December 6,
2018, the Company will issue to Serious Seeds B.V. each month 5,208 shares of common stock, beginning on the thirteen (13th) month following
the effective date of the Agreement and continuing through the sixtieth (60th) month of the initial term. Furthermore, Serious Seeds will
be issued warrants in each of the foregoing months to purchase 16,667 shares of Target common stock at varying exercise prices ranging
from $0.20 to $0.35 per share. All of the warrants must be exercised on or before the two (2) year anniversary date of each of the
warrant issuance dates. As at March 31, 2021, none of the above shares have been issued.
In consideration of the Company’s appointment
as Serious’ exclusive distributor in Canada, the Company will pay Serious certain royalties as follows:
|
1st year:
|
2.00% of gross sales
|
|
2nd year:
|
2.25% of gross sales
|
|
3rd year:
|
2.50% of gross sales
|
|
4th year:
|
2.75% of gross sales
|
|
5th and following years:
|
3.00% of gross sales
|
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
During quarter ended March 31, 2020, the
Company identified that due to the change in functional currency of the Company from United States Dollar to Canadian Dollar during year
ended December 31, 2019, the outstanding warrants as at December 31, 2019 no longer meet the scope exception of ASC 815 and
therefore, should not be considered indexed to its own stock and as a result, these warrants should be re-classified from additional paid-in-capital
to liability as at December 31, 2019.
As a result of this restatement, the following
line items were restated in the comparative balance sheet as at December 31, 2019:
|
|
Balance as
previously
reported
|
|
|
Adjustments
|
|
|
Restated
balance
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Warrant liability
|
|
|
—
|
|
|
|
6,146,116
|
|
|
|
6,146,116
|
|
Total liability
|
|
|
6,529,359
|
|
|
|
6,146,116
|
|
|
|
12,675,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
29,846,004
|
|
|
|
(6,146,116
|
)
|
|
|
23,699,888
|
|
Total equity
|
|
|
9,935,137
|
|
|
|
(6,146,116
|
)
|
|
|
3,789,021
|
|
The Company’s management has evaluated subsequent
events up to May 7, 2021, the date the unaudited condensed consolidated interim financial statements were issued, pursuant to the
requirements of ASC 855 and has determined the below material subsequent event to report:
During April 2021, the Company paid the outstanding
settled amount of $27,500, disclosed as deferred revenue on unaudited condensed consolidated interim balance sheet, to a distributor to
release the inventory to the Company.