CBDY 10-Q
Target Group Inc. (CBDY)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
or | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
(State or Other Jurisdiction of | (I.R.S. Employer |
(Address of principal executive officers) | (Zip Code) |
+
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered under Section 12(b) of the Act:
None
Securities registered under Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Smaller reporting company | |
| Emerging growth company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class |
| Trading symbol |
| Name of each exchange on which registered |
N/A | N/A | N/A |
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $4,627,695 as of June 30, 2024.
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 7, 2024, the registrant had
2
PART I – FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS.
TARGET GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
INDEX
Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023 | F-1 |
F-2 | |
F-3 | |
F-7 | |
Notes to Condensed Consolidated Interim Financial Statements (Unaudited) | F-8 - F-27 |
3
TARGET GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, |
| December 31, | ||
2024 | 2023 | ||||
$ | $ | ||||
(unaudited) |
| ||||
ASSETS |
|
| |||
Current assets |
|
| |||
Cash | | | |||
Restricted cash | | | |||
Accounts receivable, net of allowance | Note 3 | | | ||
Inventory | Note 4 | | | ||
Prepaid asset | | | |||
Convertible note receivable | Note 5 | | — | ||
Interest receivable | Note 5 | | — | ||
Other assets | — | | |||
Sales tax recoverable, net of allowance | Note 6 | | — | ||
Note 10 | | | |||
Total current assets | | | |||
Long term assets | |||||
Fixed assets | Note 7 | | | ||
Goodwill | Note 9 | | | ||
Operating lease right-of-use assets | Note 11 | | | ||
Total long term assets | | | |||
Total assets | | | |||
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY |
|
| |||
Current liabilities |
|
| |||
Bank overdraft | | | |||
Accounts payable and accrued liabilities | | | |||
Deferred revenue | Note 1 | | | ||
Sales tax payable | Note 6 | — | | ||
Note 10 | | | |||
Operating lease liability - Current portion | Note 11 | | | ||
Convertible promissory notes, net | Note 12 | | | ||
Derivative liability | Note 12 | | | ||
Total current liabilities | | ||||
Long term liabilities | |||||
Operating lease liability - Non-current portion | Note 11 | | | ||
Warrant liability | Note 13 | | | ||
Total long term liabilities | | | |||
Total liabilities | | | |||
Stockholders’ deficiency | |||||
Preferred stock | Note 13 | | | ||
Common stock | Note 13 | | | ||
Shares to be issued | Note 13 | | | ||
Additional paid-in capital | | | |||
Accumulated deficit | ( | ( | |||
Accumulated comprehensive loss | ( | ( | |||
Total stockholders’ deficiency | ( | ( | |||
Total liabilities and stockholders’ deficiency | | ||||
Contingencies and commitments | Note 15 |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
F-1
TARGET GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
|
| For the |
| For the |
| For the |
| For the | |
| three months ended | three months ended | nine months ended | nine months ended | |||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||
| $ | $ | $ | $ | |||||
| |||||||||
REVENUE | | | | | |||||
COST OF GOOD SOLD | ( | ( | ( | ( | |||||
Gross profit | | | | | |||||
OPERATING EXPENSES |
|
|
| ||||||
Advisory and consultancy fee | | | | | |||||
Management services fee | | | | | |||||
Salaries and wages | — | — | — | ( | |||||
Legal and professional fees | | | | | |||||
Depreciation expense | | | | | |||||
Operating lease expense | Note 11 | | | | | ||||
Office and general | | | | | |||||
Travel expenses | ( | — | | ||||||
Total operating expenses | |||||||||
OTHER EXPENSES (INCOME) |
|
|
| ||||||
Change in fair value of derivative and warrant liability | ( | | | | |||||
Gain on settlement | | — | ( | ( | |||||
| | | | ||||||
Exchange (income) loss | | ( | ( | ( | |||||
Interest income | ( | — | ( | — | |||||
Other income | Note 8 | — | — | — | ( | ||||
(Recovery) Allowance of sales tax recoverable | ( | ( | ( | ( | |||||
Share of income from joint venture | Note 8 | — |
| — |
| — |
| ( | |
Debt issuance cost | Note 10 | | | | | ||||
Total other expense (income) | | | | ( | |||||
Net loss before income taxes | ( | ( | ( | ( | |||||
Income taxes | — | — | — | — | |||||
Net loss | ( | ( | ( | ( | |||||
Foreign currency translation adjustment | ( | | | ( | |||||
Comprehensive loss | ( | ( | ( | ( | |||||
Earnings per share – basic and diluted | ( | ( | ( | ( | |||||
Weighted average shares – basic and diluted | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
F-2
TARGET GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024
| Stock | Additional | Accumulated |
| ||||||||||||||||||
Preferred stock | Common stock | Shares to be issued | subscription | paid-in | Accumulated | comprehensive | ||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | receivable | capital | deficit | loss | Total | ||||||||||||
| # |
| $ |
| # |
| $ |
| # |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | |
As at June 30, 2024 |
| | | | | | |
| — |
| |
| ( |
| ( |
| ( | |||||
Net loss |
| — | — | — | — | — | — |
| — |
| — |
| ( |
| — |
| ( | |||||
Foreign currency translation |
| — | — | — | — | — | — |
| — |
| — |
| — |
| ( |
| ( | |||||
As at September 30, 2024 |
| | | | | | |
| — |
| |
| ( |
| ( |
| ( | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
F-3
TARGET GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023
Additional | Accumulated | |||||||||||||||||||||
Preferred stock | Common stock | Shares to be issued | Stock | paid-in | Accumulated | comprehensive | ||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| subscription |
| capital |
| deficit |
| loss |
| Total | |
| # | $ | # | $ | # | $ | receivable | $ | $ | $ | $ | |||||||||||
As at June 30, 2023 |
| |
| |
| |
| |
| |
| |
| — |
| |
| ( |
| ( |
| ( |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Shares issued for consideration of the intellectual property rights [Note 12] | — | — | — | — | | | — | — | — | — | | |||||||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Foreign currency translation | — | — | — | — | — | — | — | — | — | | | |||||||||||
As at September 30, 2023 |
| |
| |
| |
| |
| |
| |
| — |
| |
| ( |
| ( |
| ( |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
F-4
TARGET GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024
Additional | ||||||||||||||||||||||
Preferred stock | Common stock |
| Shares to be issued | Stock | paid-in | Accumulated | Accumulated | |||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount | Shares |
| Amount |
| subscription |
| capital |
| deficit |
| comprehensive |
| Total | |
| $ | $ | $ | receivable | $ | $ | loss | $ | ||||||||||||||
As at December 31, 2023 |
| |
| |
| |
| | | | — | | ( | ( | ( | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net loss | — | — | — | — | — | — | — | — | ( | — | ( | |||||||||||
| ||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | — | — | — | — | | | |||||||||||
| ||||||||||||||||||||||
As at September 30, 2024 |
| | | | | | | — | | ( | ( | ( | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
F-5
TARGET GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023
| Additional | |||||||||||||||||||||
Preferred stock | Common stock | Shares to be issued | Stock | paid-in | Accumulated | Accumulated | ||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | subscription | capital | deficit | comprehensive | Total | ||||||||||||
|
| $ |
|
| $ |
|
| $ |
| receivable |
| $ |
| $ |
| loss |
| $ | ||||
As at December 31, 2022 |
| | | | | | |
| — |
| |
| ( |
| ( | ( | ||||||
Shares issued as consideration for consideration of the intellectual property rights | — | — | — | — | | | — | — | — | — | ||||||||||||
Net loss |
| — | — | — | — | — | — |
| — |
| — |
| ( |
| — | ( | ||||||
Foreign currency translation |
| — | — | — | — | — | — |
| — |
| — |
| — |
| ( | ( | ||||||
As at September 30, 2023 |
| | | | | | |
| — |
| |
| ( |
| ( | ( | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
F-6
TARGET GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| For the |
| For the |
| nine months ended | nine months ended | ||
| September 30, 2024 | September 30, 2023 | ||
| $ | $ | ||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
| |
Net loss for the period |
| ( | ( | |
|
| |||
Adjustment for non-cash items |
|
| ||
Change in fair value of derivative and warrant liability |
| | | |
Gain on settlement | ( | ( | ||
Shares and warrants issued/to be issued for services |
| — | | |
Allowance (recovery) of sales tax recoverable |
| ( | ( | |
Depreciation expense | | | ||
Operating lease expense |
| | | |
Investment (income) loss from joint venture | — | ( | ||
Debt issuance cost | | | ||
|
| |||
Changes in operating assets and liabilities: |
|
| ||
Change in accounts receivable - net of allowance | | ( | ||
Change in other assets | | — | ||
Change in inventory | | ( | ||
Change in sales tax recoverable | ( | ( | ||
Change in accounts payable and accrued liabilities |
| ( | | |
Change in operating lease liability, net |
| ( | ( | |
Changes in interest receivable | ( | — | ||
Net cash provided (used) from operating activities |
| | ( | |
|
| |||
INVESTING ACTIVITIES |
|
| ||
Amounts invested on fixed assets | ( | ( | ||
Net proceeds from joint venture | — | | ||
Advancement on convertible note | ( | — | ||
Recoverable expense | | — | ||
Net cash (used) provided by investing activities |
| ( | | |
|
| |||
FINANCING ACTIVITIES |
|
| ||
Proceeds from loans from related parties | — | | ||
Settlement of related party loan | ( | — | ||
Net cash (used) provided by financing activities |
| ( | | |
|
| |||
Net change in cash and restricted cash during the period |
| | | |
Effect of foreign currency translation |
| ( | ( | |
Cash and restricted cash, beginning of period |
| | | |
Cash and restricted cash, end of period |
| | | |
|
| |||
NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||
Shares issued as consideration for services |
| — | | |
SUPPLEMENTARY CASH FLOW INFORMATION | ||||
Cash paid for interest |
| | | |
Cash paid for taxes |
| — |
| — |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
F-7
TARGET GROUP INC.
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. On July 3, 2018, the Company filed an amendment in its Certificate of Incorporation to change its name to Target Group Inc., and the Company secured the OTC Bulletin Board symbol CBDY from the Financial Industry Regulatory Authority (FINRA).
Target Group is a diversified, vertically integrated, progressive cannabis company with a focus nationally and internationally . The Company wholly owns and operates Canary Rx Inc, a Canadian licensed cannabis producer (“Canary”), regulated under The Cannabis Act (Bill C-45). Canary, operates a
The Company’s core business is producing, manufacturing, distributing, and selling of cannabis products. As of the current year to date period end, Canary has produced and sold cannabis products of $
Joint Venture Agreement Termination; Consolidation of JVCo with Canary
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 herein as “Thrive Cannabis”) and 2755757 Ontario Inc., a corporation organized under the laws of the Province of Ontario, Canada (referred to herein as “JVCo”). Canary and Thrive each held 50% of the voting equity interest in JVCo. The term of the Joint Venture was five (5) years from its effective date of May 14, 2020.
On April 27, 2023, Canary and Thrive Cannabis entered into a Release and Settlement Agreement (“Settlement Agreement”) in which Thrive Cannabis transferred its shares in the capital of JVCo and rights of assets held by JVCo, paid Canary $
Following the completion of the Settlement Agreement, Canary’s equity interest in JVCo increased from
During the term of the Joint Venture, the Company accounted for the transactions using the equity method under ASC 323 Investments — Equity Method and Joint Ventures. As a consequence of the Settlement Agreement, as the JVCo becoming a wholly owned subsidiary of the company as of April 27, 2023, the Company now uses the acquisition method of accounting (using a step acquisition method) under ASC 805 Business Combination.
CL Investors Debt Purchase and Assignment Agreement
On June 15, 2020, the Company, its first–tier subsidiaries Visava Inc. (“Visava”) CannaKorp Inc. (“CannaKorp”), and the Company’s second-tier subsidiary, Canary entered into a Debt Purchase and Assignment Agreement (“Debt Agreement”) with CL Investors Inc. , a corporation organized under the laws of the Province of Ontario, Canada (“CLI”). While June 15, 2023 was the preliminary date of the Debt Agreement, it was not finalized until the later date as indicated below. The CEO and director of the Company is a shareholder and the Secretary of CLI, and the brother of the CEO is the President and sole director of CLI therefore the below loan from CLI is classified under related party transactions.
Pursuant to the Debt Agreement, CLI purchased from the Company for the sum of $
F-8
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
consideration, the Company loaned the full sum to Canary under terms of an unsecured, non-interest-bearing promissory note (“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 of September 30, 2024, $
As a condition of the closing of the Debt Agreement, the terms of the Canary Debt were amended to provide for interest at
| a) | In the first year of the Term, Canary will pay CLI the greater of $ |
| b) | In the second year of the Term, Canary will pay CLI the greater of $ |
| c) | In the third year of the Term, Canary will pay CLI the greater of $ |
| d) | In the fourth year of the Term, Canary will pay CLI the greater of $ |
| e) | In the fifth year of the Term, Canary will pay CLI the balance owing under this Note, by way of twelve ( |
For the purpose of the Note, “Net Revenue” means any and all revenue generated from Canary’s Licensed Facility (hereinafter defined) to which it is entitled to net of applicable taxes and third-party expenses.
The repayment of the Canary Debt, as amended, was guaranteed by the Company’s wholly-owned subsidiaries Vivasa and CannaKorp. and secured by (i) a general security interest in the assets of the Company, Canary, Visava and CannaKorp, respectively; and (ii) a pledge by the Company of all of the issued and outstanding common stock of Canary, Visava and CannaKorp, held by the Company. In addition to the foregoing guarantees, security interest and stock pledge, CLI was 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
Effective August 14, 2020, the Debt Agreement was amended (“Amendment”) to provide that CLI would purchase from Rubin Schindermann, a director of the Company,
F-9
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
transactions resulted in debt issuance cost of $
The transactions contemplated by the Debt Agreement and the Amendment closed on August 14, 2020.
cGreen, Inc. Exclusive License Agreement
Effective August 8, 2019, the Company entered into an Exclusive License Agreement (“License Agreement”) with cGreen, Inc., a Delaware corporation (“cGreen”). The License Agreement granted to the Company an exclusive license to manufacture and distribute the patent-pending THC antidote True Focus(TM) in the United States, Europe and the Caribbean. The term of the license was (10) years and four (4) months from the effective date of August 8, 2019. In consideration of the license, the Company would issue
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, the parties reached a settlement of their claims and counterclaims on July 27, 2020 (“Effective Date”). As per the settlement agreement, the License Agreement was terminated, and the Company did not have to issue the
As at September 30, 2024, there was
Going Concern
During the nine months ended September 30, 2024, the company has generated revenue but has also incurred operating losses for the nine months ended September 30, 2024. The Company had a working capital deficit of $
The unaudited accompanying 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, sale of its equity or issuance of debt. If the Company is unable to acquire additional working capital, it will be required to significantly reduce its current level of operations.
F-10
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, 2024, 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, 2023.
The unaudited condensed consolidated interim financial statements include the accounts of the Company and its wholly-owned subsidiaries, Visava, Canary, CannaKorp, and JVCo. 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 differ from those estimates.
Cash
The Company places its cash with high-quality banking institutions. The Company have cash balances in excess of the Federal Deposit Insurance Corporation (FDIC) limit as of September 30, 2024 and December 31, 2023.
Cash and cash equivalents include cash on hand and deposits at banking institutions as well as all highly liquid short-term investments with original maturities of 90 days or less. The Company did not have cash equivalents as of September 30, 2024 and December 31, 2023.
Restricted cash represents deposits made to the Company’s bank as a requirement to use the bank’s credit card which is not available for immediate or general business use.
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 |
| |
Machinery & equipment |
| Straight-line |
| |
Software | Straight-line | |||
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 the 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.
F-11
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Shipping and Handling Cost
Payments by customers to us for shipping and handling costs are included in revenue on the consolidated statements of operations, while our expense is included in cost of goods sold. Shipping and handling for inventory, if any, are included as a component of inventory on the consolidated balance sheets, and in cost of goods sold in the consolidated statements of operations when the product is sold.
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 and 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 7 and 8 for further details.
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 consolidated 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 generated revenue of $
The Company revenue was concentrated to thirteen customers (September 30, 2023: eight customers). The revenue represents the sale of cannabis products. During the period the revenue has significantly fallen due to the delays in shipments to israel because of the ongoing situation in the region, Other than this since the customers have received the product and there are no further obligations as per the agreement, revenue was recognized.
Though its investment in JVCo and represented on the line item “Share of income from joint venture” on the unaudited condensed consolidated interim statement of operations, Canary generated revenue of $nil during the nine months ended September 30, 2024 (nine months ended September 30, 2023: $
F-12
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
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 records 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 the 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 no impairment losses related to our equity method investments during the nine months ended September 30, 2024, and 2023.
3. Accounts Receivables
Accounts receivable are recorded at the net value of the face amount less an allowance for doubtful accounts. As of September 30, 2024, the company’s allowance for doubtful accounts was $
4. Inventory
As of September 30, 2024, the inventory in the amount of $
| As at | |
Product | September 30, 2024 | |
| $ | |
Finished goods | ||
WIP (Flowers and plants) | ||
5. Convertible Note Receivable
On August 9, 2024, the Company signed an agreement with Alma Cannabis PTY LTD for a loan receivable amount of up to $
F-13
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
6. Sales Tax Recoverable and Payable
As of September 30, 2024, the Company had $
Recoverable is due to the sales tax paid by the Company on expenses incurred during the year which are recoverable from the government while payable is due to the sales tax received (after deducting sales tax paid on expenses incurred by the Company) during the year which are payable from the government due to sales conducted through the Joint Venture.
The Company has recorded $
7. Fixed Assets
The Company’s subsidiary, Canary, initiated construction on its leased
Canary has recorded a depreciation expense of $
Below is a breakdown of the consolidated fixed asset, category wise:
| Furniture & |
| Machinery & |
|
| Leasehold |
| |||
fixture | Equipment | Software | improvements |
| Total | |||||
$ | $ | $ | $ | $ | ||||||
Cost | | |
| |
| | | |||
Accumulated depreciation | ( | ( |
| ( |
| ( | ( | |||
| |
| |
| | |
8. Joint Venture
Historical information
Effective May 14, 2020, Canary entered into the Joint Venture explained in Note 1. Under the Joint Venture, JVCo was permitted to use the rooms, of Canary’s licensed cannabis cultivation facilities located in Simcoe, Ontario, Canada (“Licensed Site Portion”) to operate and manage 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 was 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.
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.
During the period ended September 30, 2024, the Joint Venture partners, Canary and Thrive Cannabis entered into an agreement. Pursuant to this agreement the Company received a total of $
F-14
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As per the Joint Venture, Canary provided the JVCo with a Hard Cost Loan with the maximum amount of $
The Company recorded JVCo’s results through April 27, 2023 using the equity method and below is the table which summarizes the activity of the period (through April 27, 2023):
Period ended | January 1 to April 27, 2023 | |||
| CAD |
| USD | |
Sales |
| |
| |
Cost of goods sold | | | ||
Gross profit | | | ||
Operation expenses | | | ||
Net income | | | ||
Eligible recoverable expenses |
| |
| |
Recoverable amount |
| |
| |
Income on equity |
| |
| |
Termination of joint venture agreement during quarter ended June 30, 2023
On April 27, 2023, Canary and Thrive Cannabis entered into the “Settlement Agreement explained in Note 1 and Note 8”.
During the term of the Joint Venture, the Company accounted for the transactions using the equity method under ASC 323 Investments — Equity Method and Joint Ventures. As a consequence of the Settlement Agreement, as the JVCo becoming a wholly owned subsidiary of the company as of April 27, 2023, the Company now uses the acquisition method of accounting (using a step acquisition method) under ASC 805 Business Combination.
Consolidation of JVCo into Canary
Following the completion of the Settlement Agreement, Canary’s equity interest in JVCo increased from
F-15
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As a consequence of the above Settlement Agreement and after obtaining
USD | ||
| ||
Investment in JV | ||
( | ||
Cash received from Thrive | ||
Net amount | ||
Assets acquired: | ||
Accounts receivable | ||
Inventory | ||
Fixed asset | ||
Net gain as per reconciliation | |
As of April 27, 2023, the Company had a carrying value of the investment in Joint Venture and receivable from Joint Venture on the consolidated balance sheets amounting to $
9. Goodwill
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.
Visava/Canary
On June 27, 2018, the Company entered into an Agreement and Plan of Share Exchange (“Exchange Agreement”) with Visava, then a private Ontario, Canada corporation. Visava owns
Pursuant to the Agreement, the Company acquired
F-16
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
This acquisition was accounted for using the acquisition method of accounting. As of August 2, 2018, the fair value of the net liabilities was $
|
| $ |
Number of Common Stock |
| |
Market price on the date of issuance |
| |
Fair value of Common Stock |
| |
|
| $ |
Number of warrants |
| |
Fair value price per warrant |
| |
Fair value of warrant |
| |
|
|
|
Fair value of Common Stock |
| |
Fair value of warrant |
| |
Purchase consideration |
| |
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 |
| ● | Stock price of $ |
| ● | Exercise price of $ |
| ● | Volatility at |
| ● | Risk free interest rate of |
| ● | Expected life of |
| ● | Expected dividend rate of |
During the year ended December 31, 2023, the Company has identified no circumstances which would call for further evaluation of goodwill impairment related to Canary (December 31, 2022: the Company identified circumstances that would call for an evaluation of goodwill impairment and therefore impaired $
During the quarter ended, September 30, 2024, all of the Visava Warrants expired,
Goodwill
The Company tests for impairment of goodwill at the reporting unit level. In assessing whether goodwill is impaired, the Company utilizes 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 the statement of operations.
F-17
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
10. Related Party Transactions and Balances
During the nine months ended September 30, 2024, the Company expensed $
The breakdown of the related party balance as of September 30, 2024 of $
Debt purchase by CL Investors Inc.
On June 15, 2020, the Company and its subsidiaries, entered into a Debt Agreement with CLI explained in Note 1. The Canary Debt, Term, repayment schedule, security and options are set forth in Note 1.As of September 30, 2024, $
Interest expense charged for the nine months ended in the amount of $
The repayment schedule of the minimum principal payments is shown below:
2024 |
| $ | |
2025 | | ||
Total | | ||
Current portion | ( | ||
Non-current portion | $ | — |
During the period ended September 30, 2024, the Company could not make repayments of certain debt owed to a related party in accordance with the agreed repayment schedule, and is therefore in breach of the loan agreement as at period end.
Consequently, the Company has reclassified the entire outstanding balance of the loan to current liabilities. At this stage the Company is under discussions to formalize the arrangements with the lender to revise the terms of the loans.
The Debt Agreement Amendment and CLI Warrants are explained in Note 1. Refer to Note 8 for additional details on the CLI Warrants. The combined impact of both transactions resulted in a debt issuance cost of $
Shareholder loan
One of the Company’s shareholders provided a loan to the Company. The loan is secured by all assets owned by the Company and its subsidiaries including leasehold improvements and matures on September 30, 2024 and therefore is presented as current. The loan was provided in five tranches and the latest amendment increased the maximum loan amount by $
Interest rate | Maximum loan | Outstanding loan | ||||||||
|
| CAD |
| USD |
| CAD |
| USD | ||
Tranche 1 |
| | % | |
| | |
| | |
Tranche 2 |
| | % | |
| | |
| | |
Tranche 3 | | % | | | | | ||||
Tranche 4 | | % | — | — | — | — | ||||
Tranche 5 | | % | | | — | — | ||||
Total |
| | ||||||||
F-18
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Interest expense charged for the nine months ended September 30, 2024 in the amount of $
The Seventh Amending Agreement, dated February 16, 2023 (“Seventh Amendment”), previously filed as Exhibit 10.34, memorializes Tranche 4 of the subject shareholder loan, and is the subject of Form 8-K Report and subsequent Form 8-K/A Reports, dated February 22, March 13, and August 4, 2023, respectively. The amount of the Advance in the Seventh Amendment was incorrectly reported on February 22 and March 13, 2023, and Exhibit 10.32 was also inaccurate with respect to the amount of the Advance. The amount of the Advance is CDN$
Effective March 28, 2023, the Company and Lender entered into a Eighth Amending Agreement pursuant to which the Lender advanced the Company an additional CDN$
Effective August 16, 2024, the Company and Lender entered into a Tenth Amending Agreement (“Tenth Amendment”), filed herewith as Exhibit 10.36, extending the maturity date of the Original Loan to May 31, 2025, or such earlier date as demanded by Lender. The remaining terms and conditions of the Original Loan, as amended, remain in full force and effect.
Outstanding management service fee
The balance owing to key officers of the Company is $
Balances outstanding related to subsidiaries
During the year ended December 31, 2019, the Company settled with the loan holders provided to the Company’s subsidiary, CannaKorp. The total amount subject to settlement was $
Balances outstanding related to directors
During the nine months ended September 30, 2024, the Company has purchased $
The Company subleases its principal executive office premise from Norlandam Marketing Inc., a company owned by one of the directors. During the quarter ended March 31, 2021, the premises were subleased to a third party that makes rent payments directly to Norlandam Marketing Inc. The balance outstanding as of September 30, 2024 and December 31, 2023 is $nil.
11. 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
F-19
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
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 the 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 the 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. It currently leases
During the quarter ended March 31, 2021, the Company subleased its executive premises to a third party that 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 (ended 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. This sub-lease has matured and not been renewed.
The Company’s second-tier subsidiary, Canary, is a party to a
These leases will expire between 2023 and 2030. The weighted average discount rate used for these leases was
2024 |
| $ | |
2025 | | ||
2026 | | ||
2027 | | ||
Thereafter | | ||
Total lease payments | | ||
Less imputed interest | ( | ||
Present value of lease liabilities | | ||
Current portion | ( | ||
Non-current portion | $ | |
F-20
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Below is the reconciliation of the net operating lease presented on the unaudited condensed consolidated interim statement of operations:
| For the |
| For the |
| For the |
| For the | |
three months ended | three months ended | nine months ended |
| nine months ended | ||||
September 30, 2024 | September 30, 2023 | September 30, 2024 |
| September 30, 2023 | ||||
$ | $ | $ | $ | |||||
Gross operating lease expense | | | | | ||||
Gross rent and utilities expenses | ( | | | | ||||
Recoverable expenses from JVCo related to rent and utilities | — | — | — | ( | ||||
| | | |
As explained in Note 8, the agreement with JVCo is terminated so there is no recoverable expenses from JVCo related to rent and utilities.
12. Convertible Promissory Notes
Interest amounting to $
Principal amount outstanding as of September 30, 2024 and December 31, 2023 was $
All notes maturing prior to the date of this report are outstanding.
Derivative liability
During the nine months ended September 30, 2024, there were
|
| Derivative |
| Conversions / |
|
|
| Derivative | ||
liability as at | Redemption | liability as at | ||||||||
December 31, | during the | Change due to | Fair value | September 30, | ||||||
2023 | period | Issuances | adjustment | 2024 | ||||||
$ | $ | $ | $ | $ | ||||||
Note D |
| |
| — |
| — |
| |
| |
Note F |
| |
| — |
| — |
| ( |
| |
Note G |
| |
| — |
| — |
| ( |
| |
| |
| — |
| — |
| ( |
| |
Key assumptions used for the valuation of convertible notes
Derivative element of the convertible notes was fair valued using a multinomial lattice model. Following assumptions were used to fair value these notes as of September 30, 2024:
| ● | Projected annual volatility of |
| ● | Risk free interest rate of |
| ● | Stock price of $ |
| ● | Liquidity term of |
| ● | Dividend yield of |
| ● | Exercise price of $ |
F-21
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
13. Stockholders’ Equity
Capitalization
Preferred Stock
| ● | Par value: $ |
| ● | Authorized: |
| ● | Issued: |
Common Stock
| ● | Par value: $ |
| ● | Authorized: |
| ● | Issued: |
As of September 30, 2024, convertible notes, warrants and preferred stock outstanding could be converted into
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 concerning 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.
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 Stockholders 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 ratable 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 (
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 ratable 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.
F-22
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
2024
During the quarter ended March 31, 2024, the Company issued
During the quarter ended June 30, 2024, the Company issued
During the quarter ended September 30, 2024, the Company issued
2023
During the quarter ended March 31, 2023, the Company issued
During the quarter ended June 30, 2023, the Company issued
During the quarter ended September 30, 2023, the Company issued
During the quarter ended December 31, 2023, the Company issued
F-23
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Shares to be issued include the following:
Disclosure for shares to be issued :
| Shares |
| Amount |
| Description | ||
| |||||||
Services | | $ | | ||||
Private placements |
| | $ | |
| 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. | |
Settlement of loans of CannaKorp |
| | $ | |
| Refer to Note 10 for details. | |
Agreement with Serious Seeds |
| | |
| 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. | ||
| | $ | | ||||
Warrants
The warrants (with an exercise price in United States Dollar) were re-classified as a liability as of December 31, 2019, and therefore have been revalued on each quarter end. The fair value of the warrants was measured on reporting dates using the Black-Scholes option pricing model using the following assumptions:
2024
As at | As at | As at | ||||
| September 30, 2024 |
| June 30, 2024 |
| March 31, 2024 | |
Forfeiture rate |
| |||||
Stock price | $ | $ | $ | |||
Exercise price | $ | $ | $ | |||
Volatility | ||||||
Risk free interest rate | ||||||
Expected life (years) | ||||||
Expected dividend rate |
2023
| As at |
| As at |
| As at |
| As at | |
December 31, | September 30, | June 30, | March 31, | |||||
2023 | 2023 | 2023 | 2023 | |||||
Forfeiture rate |
| |||||||
Stock price | $ | $ | $ | $ | ||||
Exercise price | $ | $ | $ | $ | ||||
Volatility | ||||||||
Risk free interest rate | ||||||||
Expected life (years) | ||||||||
Expected dividend rate |
F-24
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
The fair value of the warrants issued during the year issued was measured at the date of acquisition using the Black-Scholes option pricing model using the following assumptions:
2024
During quarter | During quarter | During quarter | ||||
ended | ended | ended | ||||
| September 30, 2024 |
| June 30, 2024 |
| March 31, 2024 | |
Forfeiture rate | ||||||
Stock price | $ | $ | $ | |||
Exercise price | $ | $ | $ | |||
Volatility | ||||||
Risk free interest rate | ||||||
Expected life (years) | ||||||
Expected dividend rate | ||||||
Fair value of warrants | $ | $ | $ |
2023
During quarter | During quarter | During quarter | During quarter | |||||
ended | ended | ended | ended | |||||
| December 31, 2023 |
| September 30, 2023 |
| June 30, 2023 |
| March 31, 2023 | |
Forfeiture rate |
| |||||||
Stock price | $ | $ | $ | $ | ||||
Exercise price | $ | $ | $ | $ | ||||
Volatility | ||||||||
Risk free interest rate | ||||||||
Expected life (years) | ||||||||
Expected dividend rate | ||||||||
Fair value of warrants | $ | $ | $ | $ |
Breakdown of warrants outstanding as of September 30, 2024 and December 31, 2023 are detailed below:
Remaining | Remaining | |||||||
|
| contractual life | contractual life | |||||
| Warrants |
| Warrants |
| term as at |
| term as at | |
| outstanding as at |
| outstanding as at |
| September 30, |
| December 31, | |
| September 30, |
| December 31, |
| 2024 |
| 2023 | |
| 2024 |
| 2023 |
| (years) |
| (years) | |
Serious Seeds |
| |
| |
|
| ||
CLI | | | ||||||
Total |
| |
| |
|
|
|
|
During the nine months ended September 30, 2024,
Movement of the warrant liability is detailed below:
Warrant liability as at December 31, 2023 |
| |
Warrant liability for new issuance | | |
Change in fair value | ( | |
Warrant liability as at September 30, 2024 | |
F-25
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
14. Earnings (Loss) Per Share
FASB ASC 260, Earnings Per Share provides for calculations of “basic” and “diluted” earnings per share. Basic earnings per share include 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.
15. 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 $
A complaint for damages of $
A claim for damages of $
During the year ended December 31, 2020, a claim for damages of $
As explained in Note 1, on July 27, 2020, the Company entered into a License Agreement with cGreen. As consideration, the Company paid $
Covid-19 Pandemic
On March 11, 2020, the World Health Organization declared the ongoing coronavirus (“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. Despite the WHO’s declaration, on or about May 5, 2023, of the end of the COVID-19 global pandemic, the lasting impacts of COVID-19 on the United States, Canada, and the broader global economy, including supply chain disruption, may have a significant continuing negative effect on the Company and may materially impact the Company in the future.
During the period and year ended September 30, 2024 and December 31, 2023, respectively, the pandemic and its lasting impacts did not have a material impact on the Company’s operations. As of September 30, 2024 and December 31, 2023, 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 or its lasting impacts. The Company has taken, and will again, as necessary, continue to take, steps to minimize the potential impact of the pandemic and its lasting impacts, 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.
F-26
TARGET GROUP INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
It is not possible to predict the lasting impacts that COVID-19, or any future epidemic or pandemic, 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 the lasting impacts of COVID-19, or any future epidemic or pandemic, 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 lasting impacts of the pandemic, or any future epidemic or pandemic, on all aspects of its business.
Commitments
As per the Distribution, Collaboration and Licensing Agreement (“Serious Agreement”) entered with Serious Seeds, effective December 6, 2018, the Company would issue to Serious Seeds each month
In consideration of the Company’s appointment as Serious’ exclusive distributor in Canada, the Company will pay Serious certain royalties as follows:
1st year: |
| |
2nd year: | ||
3rd year: | ||
4th year: | ||
5th and following years: |
16. Subsequent Events
The Company’s management has evaluated subsequent events up to November 7, 2024, the date the unaudited condensed consolidated interim financial statements were issued, pursuant to the requirements of ASC 855 and has none of the subsequent events to report.
F-27
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information and financial data discussed below is derived from the unaudited condensed consolidated interim financial statements of the Target Group Inc. (“we,” “us” or the “Company”) for the nine months ended September 30, 2024 and were prepared and presented in accordance with generally accepted accounting principles in the United States.
Forward Looking Statements
Some of the statements contained in this Quarterly Report on Form 10-Q that are not historical facts are “forward-looking statements” which can be identified by the use of terminology such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Quarterly Report, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements to differ materially from those contemplated by such forward-looking statements include without limitation:
| ● | Our ability to raise capital when needed and on acceptable terms and conditions; |
| ● | Our ability to attract and retain management; |
| ● | Our ability to enter into long-term supply agreements for the mineralized material; |
| ● | General economic conditions; and |
| ● | Other factors are discussed in Risk Factors herein, or on the Company’s Annual Report on Form 10-K |
All forward-looking statements made in connection with this Quarterly Report are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.
Overview
Target Group Inc. (“Target Group” or the “Company”) was incorporated in the State of Delaware on July 2, 2013, under our original name of River Run Acquisition Corporation. Effective May 13, 2014, the Company changed its name to Chess Supersite Corporation. On July 3, 2018, the Company filed an amendment in its Certificate of Incorporation to change its name to Target Group Inc.
Effective October 18, 2018, the Company’s common stock became eligible for quotation on the OTCQB platform operated by OTC Markets Group Inc, under the symbol “CBDY”.
During the third quarter of 2024, the lasting impacts of (COVID-19) continued to have an impact on the Canadian and global economy and customer purchasing behavior. However, these factors have not impacted the Company’s operations, or financial results for the quarter.
Business and Plan of Operations
Cannabis Business-Canada
The Company is engaged in the cultivation, processing and distribution of curated cannabis products for the medical and adult-use recreational cannabis market in Canada and, where legalized by state legislation, in the United States. The Company sees a shift in the public’s perception of cannabis from a state of prohibition to a state of legalization. In October 2018, Canada became the first major industrialized nation to legalize adult-use cannabis at the national federal level. Cannabis is still heavily regulated, however, the medical use of cannabis is now permitted in up to 29 countries and many more countries have reformed, or are considering reforming, their cannabis uses laws to include the medical and/or recreational use of cannabis.
4
In the 2016 publication by Deloitte, Insights and Opportunities Recreational Marijuana, the project size of the Canadian adult-use market ranged from CDN$4.9 billion to CDN$8.7 billion annually. In the 2018 publication by Deloitte, A Society in Transition, an Industry Ready to Boom, the projected size of the Canadian adult-use market in 2019 ranged from CDN$1.8 billion to CDN$4.3 billion. The Canadian medical cannabis industry experienced substantial growth since 2014. Health Canada projects the Canadian cannabis market will reach CDN$1.3 billion in annual value by 2024.
To the Company is positioning itself with a core emphasis on wholesale and co-packaging services to accommodate all consumer-packaged goods required for the sophisticated cannabis market in Canada and internationally. This will integrate cannabinoid research, analytical testing, product development and manufacturing.
Target Group’s product manufacturing will include, but will not be limited to the following:
| ● | Cannabis flower pods for vaporizer use |
| ● | Cannabis extract pods for vaporizer use |
| ● | Cannabis pre-rolls |
| ● | K-Cup infused coffee and tea pods |
| ● | Infused cannabis beverages |
| ● | Infused cannabis edibles |
| ● | Infused topical products and CBD wellness products. |
As of the date of this report, the Company and its subsidiaries do not have any operations, employees or corporate offices based in United States.
Agreements
Serious Seeds
As explained and referenced in Note 1 and Note 15, effective December 6, 2018, the Company and Canary entered into a Distribution, Collaboration and Licensing Agreement (“Serious Agreement”) with Serious Seeds, incorporated in the Netherlands, and Simon Smit, President of Serious Seeds. Under the Serious Agreement, Canary was appointed the exclusive distributor in Canada and all other legal markets globally of Serious’ proprietary cannabis seed strains and Serious’ cannabis cuttings, dried flowers, extracts and seeds. In addition, under the Serious Agreement, Canary and Serious will develop certain “Collaborative Products” defined as cannabis seed strains created collaboratively using Serious’ intellectual property. During the term of the Serious Agreement, Canary owns all of the intellectual property related to the Collaborative Products.
Under the Serious Agreement, Smit granted Canary an exclusive license in Canada and all legal markets globally to Serious’ intellectual property including the right to use the service mark of Serious Seeds and all of the names of Serious’ proprietary cannabis seed strains including but not limited to Chronic, AK-47, White Russian, Bubble Gum, Kali Mist, Warlock, Double Dutch, Biddy, Early, Motavation and Strawberry-AKeil.
The initial term of the Serious Agreement five (5) years and will be automatically renewed for consecutive five (5) terms subject to rights of termination upon one hundred and eighty (180) days prior notice. In consideration of the intellectual property rights granted by Smit to Canary, the Company would issue to Smit 250,000 shares of the Company’s common stock on the effective date of the Serious Agreement. In addition, on the thirteenth (13) month following the effective date of the Serious Agreement of the initial term, the Company would issue to Smit 5,208 shares of common stock and warrants to purchase 200,000 shares of Target common stock at an exercise price of $0.15 per share. Thereafter, from the fourteenth (14) month following the effective date of the Serious Agreement and continuing through the sixtieth (60) month of the initial term, the Company would issue Smit 5,208 shares of common stock and warrants to purchase 16,667 shares of Target common stock, each month, at varying exercise prices ranging from $0.20 to $0.35 per share. All of the above warrants must be exercised on or before the two (2) year anniversary date of each of the warrant issuance dates. As of September 30, 2024, none of the above shares have been issued.
5
In consideration of Canary’s appointment as Serious’ exclusive distributor in Canada, Canary will pay Serious Seeds 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 |
On October 8, 2019, Canary was granted licenses to cultivate, process and sell cannabis pursuant to the Cannabis Act (Bill C-45). These Standard Licenses enable Canary to produce approximately 3,600kg of dried cannabis flower per year. Canary has curated a bank of 3,500 seeds, comprised of more than 125 strains, including the entire Serious Seeds collection. The Company has the capacity to grow eight (8) different strains at a time, within the facility’s eight (8) separate indoor flower rooms.
Joint Venture Agreement
Historical information
Effective May 14, 2020, Canary entered into a Joint Venture explained in Note 1 and Note 8.
Under the Joint Venture, JVCo was permitted to use all eight (8) rooms, of Canary’s licensed cannabis cultivation facilities located in Simcoe, Ontario, Canada (“Licensed Site Portion”) to operate and manage 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 was 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.
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 $876,720 (CAD $1,200,000). This loan bears an interest rate of 7% per annum, matures in 12 months from the effective date, and is secured against the personal property of the JVCo and Thrive will guarantee one-half (1/2) of the outstanding balance of the loan. After April 27, 2023, as mentioned below, JVCo became a subsidiary of the company as result the loan and interest receiveable were eliminated upon consolidation.
The JVCo reimbursed 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 | January 1 to April 27, 2023 | |||
| CAD |
| USD | |
Sales |
| 1,068,799 |
| 791,285 |
Cost of goods sold |
| 620,344 |
| 459,271 |
Gross profit |
| 448,455 | 332,014 | |
Operation expenses | 383,358 | 283,819 | ||
Net income | 65,097 | 48,195 | ||
Eligible recoverable expenses | 1,437,054 | 1,060,833 | ||
Recoverable amount | 1,437,054 | 1,060,833 | ||
Income on equity | 32,549 | 24,098 | ||
6
Termination of joint venture agreement during quarter ended June 30, 2023
On April 27, 2023, Canary and Thrive Cannabis entered into a Release and Settlement Agreement (“Settlement Agreement”) in which Thrive Cannabis has transferred its shares in the capital of JVCo and rights of assets held by JVCo.
Pursuant to the above Settlement Agreement, Thrive Cannabis paid Canary $1,051,000 to release Thrive Cannabis from any mortgages, charges, pledges, security interests, liens, encumbrances, writs of execution, actions, claims, demands and equities of any nature related to JVCo from their share of ownership of JVCo.
Following the completion of the Settlement Agreement, Canary’s equity interest in JVCo increased from 50% to 100%. Effective April 28, 2023, the Company started consolidating results of operations of the JVCo and eliminated any intercompany transactions and balances between the Company (Target and Canary) and JVCo.
During the term of the Joint Venture, the Company accounted for the transactions using the equity method under ASC 323 Investments - Equity Method and Joint Ventures. As a consequence of the Settlement Agreement, as the JVCo becoming a wholly owned subsidiary of the company as of April 27, 2023, the Company now uses the acquisition method of accounting (using a step acquisition method) under ASC 805 Business Combination.
As a consequence of the above Settlement Agreement and after obtaining 100% shares of the JVCo, the Company acquired the following assets:
| USD | |
Investment in JV | 1,023,608 | |
Receivable from JV | 698,645 | |
Payable to JV | (129,185) | |
1,593,068 | ||
Cash received from Thrive | 776,382 | |
Net amount | 816,686 | |
Assets acquired: | ||
Accounts receivable | 163,244 | |
Inventory | 1,690,368 | |
Fixed asset | 534,816 | |
2,388,428 | ||
Net gain as per reconciliation | 1,571,742 |
As of April 27, 2023, the Company had a carrying value of the investment in Joint Venture and receivable from Joint Venture on the consolidated balance sheets amounting to $1,023,608 and $706,598, respectively. Pursuant to the above Settlement Agreement, the Company received $776,382 against these balances. Accordingly, the remaining balance of $953,824 was compared to the fair value of the net assets acquired and this resulted in net recognition of $1,571,742 as a non-operating gain reported in the Consolidated Statement of Operations as net gain from termination of Joint Venture.
CL Investors Debt Purchase and Assignment Agreement
On June 15, 2020, the Company and its subsidiaries entered into the Debt Agreement with CLI explained in Note 1 and Note 9. The Canary Debt, Term, repayment schedule, security and options are set forth in Note 1.
As of September 30, 2024, $3,704 (CAD $5,000) is still outstanding from CLI which is presented as other receivable on the consolidated balance sheet.
The Debt Agreement Amendment and CLI Warrants are explained in Note 1. Refer to Note 8 for additional details on the CLI Warrants. The combined impact of both transactions resulted in a debt issuance cost of $251,518. This debt issuance cost will be amortized over the term of the debt on a straight-line basis.
7
The transactions contemplated by the Debt Agreement and the Amendment closed on August 14, 2020.
Forward Looking Relating to Future Operations of the Company.
Currently, the Company and its senior management are is exploring several new, additional opportunities at its Simcoe, Ontario cultivation facility to expand the Company’s product offerings in other cannabis-related consumer packaged goods (“CPG”) product categories.
Employees
As of September 30, 2024, the Company had 40 employees which include Anthony Zarcone, Chief Executive Officer.
The Company has contracted several independent contractors and consultants to provide a range of information technology and marketing services who do not receive cash compensation but receive shares of our common stock as compensation. This mitigates any need for full or part-time employees for these services.
Intellectual Property Protection
Company subsidiary CannaKorp, holds the following patents:
International Patent Application No. PCT/US20115/013778
Title: METHODS AND APPARATUS FOR PRODUCING HERBAL VAPO
Filing Date: January 30, 2015
Ref. No.: B1411.70000WO00
U.S. Provisional Application No.: 61/934.255
Title: CONTAINER POD AND DELIVERY SYSTEM
Filing Date: January 31, 2014
Ref. No.: B1411.70000US00
In addition, CannaKorp has proprietary rights to certain trade names, trademarks and service marks which include WISP PODTM; cPODTM; CANNACUPTM; and WISPTM. CannaKorp also has certain proprietary formulas and processes involving herbal formulas and flavors, proprietary herbal production processes and an herbal base developed to suspend active ingredients for optimal vaporization.
At present, CannaKorp has failed to meet its annuities payments as well as maintenance fees on the 2 referenced patents. Although there has been a lapse and these patents remain unmaintained, there remains the possibility of CannaKorp reinstating these patents if done so in a reasonable amount of time. At this time, management is determining the value maintaining these patents will provide the Company. Once management has completed their assessment, the Company will proceed accordingly and advance in that determined direction moving forward. Additionally, CannaKorp is actively seeking a joint venture partner and/ or a licensor to assist in both marketing and launching the Wisp Vaporizer and Wisp Pods in both the US and Canadian legal cannabis or hemp markets.
Results of Operations
The Company has not generated significant revenue to date and consequently, its operations are subject to all of the risks inherent in the establishment of a new business enterprise. Analysis on the performance of the Company is as follows:
Balance sheet – As of September 30, 2024 and December 31, 2023
Cash and Restricted Cash
On September 30, 2024, the Company had cash of $1,284,480 (excluding restricted cash of $8,520) compared to $736,323 (excluding restricted cash of $8,696) as of December 31, 2023. The increase is because the company revenue generating activity now included the newly acquired JVCo.
The change in restricted cash is due to foreign exchange conversion of balances in Canadian Dollars into United States Dollar.
8
Accounts Receivable
Accounts receivable are recorded at the net value of the face amount less an allowance for doubtful accounts. As of September 30, 2024, the company’s allowance for doubtful accounts was $53,798 compared to $53,813 at December 31, 2023.
Inventory
As of September 30, 2024, the inventory in the amount of $1,010,292 (2023: $1,215,928) consists of WIP and finished cannabis goods which is transferred from JVCo to Canary as a result of the Joint Venture Settlement Agreement. Refer to Note 8 for additional details.
| As at | |
Product | September 30, 2024 | |
| $ | |
Finished goods | 540,053 | |
WIP (Flowers and plants) | 470,239 | |
1,010,292 |
Prepaid asset
On September 30, 2024, the Company had prepaid expenses of $41,855 compared to $42,720 as of December 31, 2023. The balance represents the security deposit for the leased land for the facility to produce medical marijuana.
Sales tax recoverable and payable
On September 30, 2024 the gross sales tax recoverable is $95,851 compared to December 31, 2023 $nil while the gross sales tax payable as of September 30, 2024 is $nil compared to $48,581 as at December 31, 2023.
Recoverable is due to the sales tax paid by the Company on expenses incurred during the year which are recoverable from the government while payable is due to the sales tax received (after deducting sales tax paid on expenses incurred by the Company) during the year which are payable from the government due to sales conducted by the Joint Venture.
Sales tax recoverable allowance on September 30, 2024 is $11,646 (December 31, 2023: $nil).
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable assets of our subsidiaries at the date of acquisition.
Fixed assets
The Company initiated construction on its 44,000 square foot cannabis cultivation facility in September of 2017. 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). On June 4, 2021, Canary received its Sales License amendment from Health Canada.
Accounts payable and accrued liabilities
Accounts payable amounting to $2,836,129 as of September 30, 2024, primarily represents consulting and construction services related to capital work in progress amounting to $104,102, interest on promissory notes and loans amounting to $1,536,003, and outstanding, accrued professional fees amounting to $877,760.
Accounts payable amounting to $2,945,568 as of December 31, 2023, primarily represents consulting and construction services related to fixed asset additions amounting to $126,059, interest on promissory notes and loans amounting to $1,628,007, outstanding and accrued professional fees amounting to $945,615.
9
Payable to related parties
As of September 30, 2024, the Company had $10,461,829 payable to related parties as compared to $11,415,557 as of December 31, 2023. The balance primarily represents loans provided by the Company’s shareholder and a related party, CLI, management services fee outstanding to the managers of the company, and outstanding amount of $65,000 to be paid to a former shareholder of CannaKorp as part of the settlement agreement.
For additional details, refer to Note 9 in the unaudited condensed consolidated interim financial statements.
Convertible promissory notes payable
Interest amounting to $9 was accrued for the nine months ended September 30, 2024 (September 30, 2023: $10).
The principal amount outstanding as of September 30, 2024 and December 31, 2023 was $480. At both reporting dates, the entire balance was current.
Statement of Operations – For the three months ended September 30, 2024 and 2023:
Revenue
The Company generated revenue of $541,113 during the quarter ended in 2024 while $1,046,227 in the comparable period of 2023. However, Canary generated revenues of $nil (through its investment in JVCo) during the quarter ended September 30, 2024 (quarter ended September 30, 2023: $nil ) and is represented as a share of income from joint venture on the unaudited condensed consolidated interim statement of operations. The Company revenue represents the sale of cannabis product and the revenue was concentrated to eight customers.
Expenses
The Company’s expenses are classified primarily into advisory and consultancy fees, management fees, salaries and wages, legal and professional fees, and depreciation expense. The decrease in operating expenses during the current quarter ended compared to comparable prior quarter ended is due to significant decrease in management fees and operating lease expenses in the current period.
Expenses primarily represented consulting fees of $40,730 (2023: $31,779), management fees of $75,831 (2023: $78,352), legal and professional charges of $32,067 (2023: $27,799) comprising legal, review, accounting and Edgar agent fee, depreciation expense amounting to $206,628 (2023: $237,789), operating lease expense of $56,286 (2023: $119,729) and office and general expenses of $194,356 (2023: $153,041).
Changes in other income and expenses were due to: (1) the revaluation of the warrant and convertible debt liabilities on each quarter-end which increased in magnitude because none of the warrants expired during the current period ended; (2) decrease in the principal balance led to decreased interest expense; and (3) and significant decrease in exchange income during the quarter due to unfavorable exchange rate.
Other income and expenses comprised, change in fair value of derivative and warranty liability amounting to positive $8,427 (2023: negative $8,988), interest and bank charges amounting to $268,186 (2023: $337,675), exchange loss of $31,194 (2023: gain of $50,995 ), and debt issuance cost of $12,300 (2023: $12,509).
Statement of Operations – For the nine months ended September 30, 2024 and 2023:
Revenue
The Company generated revenue of $4,736,055 during the nine months ended in 2023 while $1,805,211 in the comparable period of 2023. However, Canary generated revenues of $nil (though its investment in JVCo) during the nine months ended September 30, 2024 (nine months ended September 30, 2023: $791,285) and is represented as a share of income from joint venture on the unaudited condensed consolidated interim statement of operations. The revenue represents the sale of cannabis product and the revenue was concentrated to thirteen customers (2023: eight).
10
Expenses
Our expenses are classified primarily into advisory and consultancy fees, management fees, salaries and wages, legal and professional fees, and depreciation expense. The increase in operating expenses during the current quarter ended compared to comparable prior quarter ended is due to significant increase in consulting fee and management fees in the current period. Other than that, the expense level has remained similar on an overall level due to the management’s continuous efforts to control expenses.
Expenses primarily represented consulting fees of $183,244 (2023: $47,885), management fees of $263,365 (2023: $233,867), legal and professional charges of $150,152 (2023: $231,726) comprising legal, review, accounting and Edgar agent fee, depreciation expense amounting to $646,290 (2023: $680,043), operating lease expense of $165,896 (2023:137,039) and office and general amounting to $456,273 (2023: $212,172).
Changes in other income and expenses were due to: (1) the revaluation of the warrant and convertible debt liabilities on each quarter-end which increased in magnitude because none of the warrants expired during the current period ended; (2) decrease in the principal balance led to decreased interest expense; and (3) and significant increase in exchange income during the quarter due to favorable exchange rate.
Other income and expenses comprised, change in fair value of derivative and warranty liability amounting to negative $14 (2023: negative $10,314), interest and bank charges amounting to $890,572 (2023: $1,060,373), exchange gain $40,351 (2023: gain of $201), and debt issuance cost of $36,860 (2023: $37,266).
Liquidity and Capital Resources
As of September 30, 2024, the Company had a working capital deficit of $10,900,226 (December 31, 2023: $11,495,043). The Company is actively seeking various financing opportunities to meet the deficit capital requirements.
Target Group has relied on equity financing and related party debt financing for our operations. The proceeds may not be sufficient to effectively develop our business to the fullest extent to allow us to maximize our revenue potential, in which case, we will need additional capital.
The Company will need capital to allow us to invest in development, and it anticipates that its future operations will generate positive cash flows provided that it is successful in obtaining additional financing in the foreseeable future.
Statement of Cash Flow – For the nine months ended September 30, 2024 and 2023:
Operating activities
Operating activities provided cash of $1,426,247 compared to cash used of $879,280 for the corresponding period of the prior year. This is primarily due to the change in accounts receivable and inventory.
Investing activities
Investing activities used cash of $128,884 for the nine months ended September 30, 2024 compared to $434,998 cash provided in the corresponding period of the prior year. This is due to amount invested in fixed assets and the amount given for the convertible note during the period.
Financing activities
Financing activities used cash of $735,167 for the nine months ended September 30, 2024 compared to cash provided of $ 668,940 during the nine months of 2023 this was due to the payment made towards the principal of related party loan. During the period, no cash was received from any related party.
11
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
All critical accounting policies are described in the Company’s Form 10-K for the year ended December 31, 2023.
Subsequent Events
The Company’s management has evaluated subsequent events up to November 7, 2024, the date the unaudited condensed consolidated interim financial statements were issued, pursuant to the requirements of ASC 855 and has no subsequent events to report.
Description of Property
The Company does not own any properties at this time, nor any agreements to acquire any properties.
The Company’s principal executive office is located at 20 Hempstead Drive, Hamilton, Ontario, Canada.
The Company’s subsidiary, Canary, leases a 44,000 square foot facility located in Norfolk County, Ontario to produce medical and recreational cannabis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Smaller reporting companies are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), we have carried out an evaluation, with the participation of our management, including the Company’s principal executive officer and principal financial officer of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of September 30, 2024 to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in internal controls
No change in our system of internal control over financial reporting occurred during the nine months ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
12
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the year ended December 31, 2019, a terminated employee of Canary filed a lawsuit against the Company amounting to approximately $1,555,680 (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.
A complaint for damages of $150,000 was filed against CannaKorp by the former Chief Financial Officer of CannaKorp for outstanding professional fees. No claim has been registered. The management is of the view that no material losses will arise in respect of the legal claim at the date of this report.
A claim for damages of $1,379,966 (CAD $1,862,805) was filed against Company and its directors by the former Chief Financial Officer of the Company for wrongful dismissal. The management was of the view that no material losses would arise in respect of the legal claim at the date of prior reports. The matter was settled for a nominal amount by and among the parties, including a full and final release of all employment related claims and counterclaims, effective on or about May 2024, and pursuant to the settlement terms the parties subsequently filed a dismissal of all subject claims.
During the year ended December 31, 2020, a claim for damages of $96,880 (CAD $130,778) was filed against Canary by a vendor for breach of contract. The management is of the view that no material losses will arise in respect of the legal claim at the date of this report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
13
ITEM 6. EXHIBITS
Exhibits:
Incorporated by Reference | ||||||||
Exhibit |
| Description |
| Form |
| Exhibit |
| Filing |
2.1 | 8-K | 2.1 | 12/11/14 | |||||
2.1.1 | Agreement and Plan of Share Exchange dated June 27, 2018 with Visava Inc. | 8-K | 2.1 | 07/03/18 | ||||
2.1.2 | 8-K | 2.1 | 01/29/19 | |||||
3(i)(a) | 10-12G | 3.1 | 09/30/13 | |||||
3(i)(a) | 10-K | 3(i)(a) | 03/18/22 | |||||
3(i)(a) | 8-K | 3(i) | 10/20/16 | |||||
3(i)(a) | 8-K | 3(i) | 04/12/17 | |||||
3(i)(a) | 8-K | 3(i) | 07/03/17 | |||||
3(i)(a) | 8-K | 3(i) | 11/01/17 | |||||
3(i)(a) | 8-K | 3(i) | 09/25/18 | |||||
3.2 | 10-12G | 3.2 | 09/30/13 | |||||
4.1 | 10-K | 4.1 | 04/14/20 | |||||
10.1 | Form of Securities Purchase Agreement-Blackbridge Capital Growth Fund, LLC | 10-K | 10.1 | 03/31/17 | ||||
10.2 | 10-K | 10.2 | 03/31/17 | |||||
10.3 | 10-K | 10.3 | 03/31/17 | |||||
10.4 | 10-K | 10.4 | 03/31/17 | |||||
10.5 | Form of Securities Purchase Agreement-Crown Bridge Partners, LLC | 10-K | 10.5 | 03/31/17 | ||||
10.6 | 10-K | 10.6 | 03/31/17 | |||||
10.10 | 10-K | 10.10 | 03/28/18 | |||||
10.11 | 10-K | 10.11 | 03/28/18 | |||||
10.12 | 10-K | 10.12 | 03/28/18 | |||||
10.13 | 10-K | 10.13 | 03/28/18 | |||||
10.14 | Securities Purchase Agreement-Power Up Lending Group Ltd. dated December 24, 2018 | 10-K | 10.14 | 04/01/19 | ||||
14
10.15 | Convertible Promissory Note-Power-Up Lending Group Ltd. dated December 24, 2018 | 10-K | 10.15 | 04/01/19 | ||||
10.16 | 10-K | 10.16 | 04/01/19 | |||||
10.17 | 10-K | 10.17 | 04/01/19 | |||||
10.18 | Exclusive License Agreement dated August 8, 2019 with cGreen Inc. | 8-K | 2.1 | 08/13/19 | ||||
10.19 | 8-K | 10.1 | 09/19/19 | |||||
10.20 | 10-K | 10.20 | 04/14/20 | |||||
10.21 | First Amending Agreement dated March 11, 2020 with Jerry Zarcone | 10-Q | 10.21 | 06/05/20 | ||||
10.22 | Second Amending Agreement dated April 30, 2020 with Jerry Zarcone | 10-Q | 10.22 | 08/10/20 | ||||
10.23 | Third Amending Agreement dated May 15, 2020 with Jerry Zarcone | 10-Q | 10.23 | 08/10/20 | ||||
10.24 | 10-Q | 10.24 | 08/10/20 | |||||
10.25 | Joint Venture Agreement between Canary Rx Inc. and 9258159 Canada, Inc. dated May 14, 2020 | 10-Q | 10.25 | 08/10/20 | ||||
10.26 | 8-K | 10.1(i) | 08/18/20 | |||||
10.27 | Amendment dated August 14, 2020 to Debt Purchase and Assignment Agreement | 8-K | 10.1(ii) | 08/18/20 | ||||
10.29 | 10-Q | 10.29 | 11/7/22 | |||||
10.30 | 10-Q | 10.30 | 11/7/22 | |||||
10.31 | 10-Q | 10.31 | 11/7/22 | |||||
10.32 | 10-Q | 10.32 | 5/8/23 | |||||
10.33 | 10-Q | 10.33 | 5/8/23 | |||||
10.34 | Seventh Amending Agreement dated February 16, 2023 (corrected) | 10-Q | 10.34 | 8/9/23 | ||||
10.35 | 10-Q | 10.35 | 11/08/23 | |||||
10.36 | ||||||||
31.1* | ||||||||
15
31.2* | ||||||||
32.1* |
101.INS |
| XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| ||
101.SCH | XBRL Taxonomy Extension Schema Document | |
| ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
Exhibit 104 | Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
* | Filed herewith. |
16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TARGET GROUP INC. | ||
Dated: November 7, 2024 | By: | /s/ Anthony Zarcone |
Chief Executive Officer, and Director | ||
Dated: November 7, 2024 | By: | /s/ Barry Alan Katzman |
Director | ||
Dated: November 7, 2024 | By: | /s/ Saul Niddam |
Director | ||
17