Target Group Inc. [CBDY] Filings

10-Q 1 tmb-20240630x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

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: 000-55066

TARGET GROUP INC.

(Exact name of registrant as specified in its charter)


Delaware	46-3621499
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

20 Hempstead Drive Hamilton, Ontario, Canada	L8W 2E7
(Address of principal executive officers)	(Zip Code)

+1 905-541-3833

(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:

Common Stock, Par Value $0.0001

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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 ☐
Non-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, 2023.

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of August 8, 2024, the registrant had 617,025,999 shares of Common Stock issued and outstanding.

Table of Contents

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Interim Financial Statements (Unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12

Item 4.	Controls and Procedures	12

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	13

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13

Item 3.	Defaults Upon Senior Securities	13

Item 4.	Mine Safety Disclosures	13

Item 5.	Other Information	13

Item 6.	Exhibits	14

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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 June 30, 2024 (Unaudited) and December 31, 2023	F-1

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2024 and 2023 (Unaudited)	F-2

Condensed Consolidated Statements of Stockholders’ Deficit for the three and six months ended June 30, 2024 and 2023 (Unaudited)	F-3

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 (Unaudited)	F-7

Notes to Condensed Consolidated Interim Financial Statements (Unaudited)	F-8 - F-26

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TARGET GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


		June 30,	December 31,
		2024	2023
		$	$
		(unaudited)
ASSETS
Current assets
Cash		1,733,714	736,323
Restricted cash		8,402	8,696
Accounts receivable, net of allowance	Note 3	472,766	1,031,530
Inventory	Note 4	527,616	1,215,928
Prepaid asset		41,279	42,720
Other assets		—	55,268
Sales tax recoverable, net of allowance	Note 5	35,093	—
Other receivable	Note 9	3,653	3,781
Total current assets		2,822,523	3,094,246
Long term assets
Fixed assets	Note 6	4,810,856	5,430,260
Goodwill	Note 8	260,373	269,460
Operating lease right-of-use assets	Note 10	44,161	46,936
Total long term assets		5,115,390	5,746,656
Total assets		7,937,913	8,840,902

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current liabilities
Bank overdraft		506	506
Accounts payable and accrued liabilities		2,712,083	2,945,568
Deferred revenue	Note 1	41,644	43,098
Sales tax payable	Note 5	—	48,581
Payable to related parties, net	Note 9	10,316,351	11,415,557
Operating lease liability - Current portion	Note 10	134,811	127,478
Convertible promissory notes, net	Note 11	480	480
Derivative liability	Note 11	16,170	8,021
Total current liabilities		13,222,045	14,589,289

Long term liabilities
Operating lease liability - Non-current portion	Note 10	1,111,772	1,223,955
Warrant liability	Note 12	647	355
Total long term liabilities		1,112,419	1,224,310
Total liabilities		14,334,464	15,813,599

Stockholders’ deficiency
Preferred stock	Note 12	100	100
Common stock	Note 12	61,703	61,703
Shares to be issued	Note 12	175,439	175,439
Additional paid-in capital		24,985,697	24,985,697
Accumulated deficit		(30,633,852)	(31,107,348)
Accumulated comprehensive loss		(985,638)	(1,088,288)
Total stockholders’ deficiency		(6,396,551)	(6,972,697)
Total liabilities and stockholders’ deficiency		7,937,913	8,840,902
Contingencies and commitments	Note 14	—	—

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

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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	six months ended	six months ended
		June 30, 2024	June 30, 2023	June 30, 2024	June 30, 2023
		$	$	$	$

REVENUE		2,275,011	758,984	4,194,942	758,984
COST OF GOOD SOLD		(806,184)	(369,261)	(1,915,948)	(369,261)
Gross profit		1,468,827	389,723	2,278,994	389,723
OPERATING EXPENSES
Advisory and consultancy fee		67,971	15,883	142,514	16,106
Management services fee		90,173	77,191	187,534	155,515
Salaries and wages		—	(53,083)	—	(53,083)
Legal and professional fees		40,426	145,987	118,085	203,927
Depreciation expense		203,691	229,568	439,662	442,254
Operating lease expense	Note 10	55,138	28,400	109,610	17,310
Office and general		110,325	56,502	261,917	59,131
Travel expenses		(53)	—	7,362	—
Total operating expenses		567,671	500,448	1,266,684	841,160

OTHER EXPENSES (INCOME)
Change in fair value of derivative and warrant liability		8,189	4,301	8,441	1,326
Gain on settlement		(36,808)	(1,428,185)	(36,808)	(1,428,185)
Interest and bank charges		273,060	369,092	622,386	722,698
Exchange (income) loss		(22,314)	48,519	(71,545)	50,794
Other income	Note 7	—	(12,507)	—	(16,782)
(Recovery) Allowance of sales tax recoverable		244	—	(8,220)	—
Share of income from joint venture	Note 7	—	(68,115)	—	(24,152)
Debt issuance cost	Note 9	12,121	12,354	24,560	24,757
Total other expense (income)		234,492	(1,074,541)	538,814	(669,544)

Net income before income taxes		666,664	963,816	473,496	218,107
Income taxes		—	—	—	—
Net income		666,664	963,816	473,496	218,107

Foreign currency translation adjustment		9,423	(222,962)	102,650	(224,981)
Comprehensive income (loss)		676,087	740,854	576,146	(6,874)

Earnings per share - basic and diluted		0.0011	0.0016	0.0008	0.0004
Weighted average shares - basic and diluted		617,025,999	617,025,999	617,025,999	617,025,999

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

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TARGET GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED) FOR THE THREE MONTHS ENDED JUNE 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 March 31, 2024	1,000,000	100	617,025,999	61,703	1,641,520	175,439	—	24,985,697	(31,300,516)	(995,061)	(7,072,638)

Net income	—	—	—	—	—	—	—	—	666,664	—	666,664

Foreign currency translation	—	—	—	—	—	—	—	—	—	9,423	9,423

As at June 30, 2024	1,000,000	100	617,025,999	61,703	1,641,520	175,439	—	24,985,697	(30,633,852)	(985,638)	(6,396,551)

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

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TARGET GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED) FOR THE THREE MONTHS ENDED JUNE 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 March 31, 2023	1,000,000	100	617,025,999	61,703	1,594,648	175,245	—	24,985,697	(31,529,387)	(1,000,848)	(7,307,490)

Shares issued for consideration of the intellectual property rights [Note 12]	—	—	—	—	15,624	48	—	—	—	—	48

Net income	—	—	—	—	—	—	—	—	963,816	—	963,816

Foreign currency translation	—	—	—	—	—	—	—	—	—	(222,962)	(222,962)

As at June 30, 2023	1,000,000	100	617,025,999	61,703	1,610,272	175,293	—	24,985,697	(30,565,571)	(1,223,810)	(6,566,588)

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

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TARGET GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 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	1,000,000	100	617,025,999	61,703	1,641,520	175,439	—	24,985,697	(31,107,348)	(1,088,288)	(6,972,697)

Net income	—	—	—	—	—	—	—	—	473,496	—	473,496

Foreign currency translation	—	—	—	—	—	—	—	—	—	102,650	102,650

As at June 30, 2024	1,000,000	100	617,025,999	61,703	1,641,520	175,439	—	24,985,697	(30,633,852)	(985,638)	(6,396,551)

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

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TARGET GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 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	1,000,000	100	617,025,999	61,703	1,579,024	175,182	—	24,985,697	(30,783,678)	(998,829)	(6,559,825)

Shares issued as consideration for consideration of the intellectual property rights	—	—	—	—	31,248	111	—	—	—	—	111

Net income	—	—	—	—	—	—	—	—	218,107	—	218,107

Foreign currency translation	—	—	—	—	—	—	—	—	—	(224,981)	(224,981)

As at June 30, 2023	1,000,000	100	617,025,999	61,703	1,610,272	175,293	—	24,985,697	(30,565,571)	(1,223,810)	(6,566,588)

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

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TARGET GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	For the	For the
	six months ended	six months ended
	June 30, 2024	June 30, 2023
	$	$
OPERATING ACTIVITIES

Net income for the period	473,496	218,107

Adjustment for non-cash items
Change in fair value of derivative and warrant liability	8,441	1,326
Gain on settlement	(36,808)	(1,428,185)
Shares and warrants issued/to be issued for services	—	186
Allowance (recovery) of sales tax recoverable	(8,220)	—
Depreciation expense	439,662	442,254
Operating lease expense	102,346	119,562
Investment (income) loss from joint venture	—	(24,152)
Debt issuance cost	24,560	24,757

Changes in operating assets and liabilities:
Change in accounts receivable - net of allowance	528,025	—
Change in other assets	53,810	—
Change in inventory	652,221	—
Change in sales tax recoverable	(74,438)	(36,448)
Change in accounts payable and accrued liabilities	(246,704)	1,320,076
Change in operating lease liability, net	(160,868)	(160,553)
Net cash provided from operating activities	1,755,523	476,930

INVESTING ACTIVITIES
Amounts invested on fixed assets	(22,949)	5,821
Net proceeds from joint venture	—	(340,791)
Recoverable expense	36,808	—
Net cash provided (used) by investing activities	13,859	(334,970)

FINANCING ACTIVITIES
Proceeds from loans from related parties	—	667,846
Settlement of related party loan	(736,150)	—
Net cash (used) provided by financing activities	(736,150)	667,846

Net change in cash and restricted cash during the period	1,033,232	809,806
Effect of foreign currency translation	(36,135)	14,380
Cash and restricted cash, beginning of period	745,019	232,333
Cash and restricted cash, end of period	1,742,116	1,056,519

Shares issued on conversion of debt	—	—
Shares issued as consideration for services	48	114

SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest	941,062	—
Cash paid for taxes	—	—

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

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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 44,000 square foot facility located in Norfolk County, Ontario. The Company has an ongoing strategic partnership with Dutch breeder, Serious Seeds B.V. (“Serious Seeds”), to cultivate exclusive, world-class proprietary genetics. The Company has structured multiple international production and distribution platforms and continues to expand its global footprint, focused on building an iconic brand portfolio with cutting-edge intellectual property in both the medical and recreational cannabis markets. Target Group is committed to building industry-leading companies that transform the perception of cannabis and responsibly elevate the overall patient and consumer experience.

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 $4,194,942 (Period ended June 30, 2023: $758,984).

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 $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.

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 $2,118,740 (CAD $2,900,000) a debt obligation owing from Canary to the Company in the principal balance of $7,744,360 (CAD $10,600,000 (“Canary Debt”)). Upon receipt of the

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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 June 30, 2024, $3,653 (CAD $5,000) is still outstanding from CLI which is presented as other receivable on the unaudited condensed consolidated interim balance sheet.

As a condition of the closing of the Debt Agreement, the terms of the Canary Debt were amended to provide for interest at 5% per annum with a maturity date of 60 months from the date of the Debt Agreement (“Term”). The Canary Debt was to be repaid according to the following schedule:

In the first year of the Term, Canary will pay CLI the greater of $825,578 (CAD 1,130,000) and fifty percent (50%) of the Net Revenue (hereinafter defined), provided that where the latter amount exceeds the former amount, Canary will, by the end of such first year, pay CLI no less than the former amount and Canary will, within thirty (30) days following the end of such first year, pay CLI the balance of such amount owing for such first year;

In the second year of the Term, Canary will pay CLI the greater of $1,534,260 (CAD 2,100,000) and fifty percent (50%) of the Net Revenue, by way of twelve (12) consecutive monthly installments payable on the 14th day of each month commencing on August 14, 2021, provided that where the latter amount exceeds the former amount, Canary will, within thirty (30) days following the end of such second year, pay CLI the balance of such amount owing for such second year;

In the third year of the Term, Canary will pay CLI the greater of $2,352,532 (CAD 3,220,000) and fifty percent (50%) of the Net Revenue, by way of twelve (12) consecutive monthly installments payable on the 14th day of each month commencing on August 14, 2022, provided that where the latter amount exceeds the former amount, Canary will, by the end of such third year, pay CLI no less than the former amount and Canary will, within thirty (30) days following the end of such third year, pay CLI the balance of such payments owing for such third year;

In the fourth year of the Term, Canary will pay CLI the greater of $2,250,248 (CAD 3,080,000) and fifty percent (50%) of the Net Revenue, by way of twelve (12) consecutive monthly installments payable on the 14th day of each month commencing on August 14, 2023, provided that where the latter amount exceeds the former amount, Canary will, within thirty (30) days following the end of such fourth year, pay CLI the balance of such amount owing for such fourth year; and

In the fifth year of the Term, Canary will pay CLI the balance owing under this Note, by way of twelve (12) consecutive monthly installments payable on the 14th day of each month commencing on August 14, 2024, for an amount calculated by dividing twelve (12) into the sum of all amounts owing under this Note at the beginning of the fifth year of the Term on account of Principal and Interest, provided that where further amounts are owing under this Note at the end of such fifth year, Canary will pay CLI all such further amounts within five (5) days following the end of such fifth year.

For the 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 75% of the issued and outstanding capital stock of Visava and Canary. Furthermore, the President and sole director of CLI was granted an option to acquire the remaining 25% of the issued and outstanding capital stock of Visava and Canary.

Effective August 14, 2020, the Debt Agreement was amended (“Amendment”) to provide that CLI would purchase from Rubin Schindermann, a director of the Company, 500,000 shares of the Company’s Series A Preferred Stock in consideration of the payment by CLI to Rubin Schindermann of $73,060 (CAD $100,000) and the issuance to Schindermann of 10,000,000 shares of the Company’s common stock. In consideration of the foregoing, Mr. Schindermann resigned as a director of the Company and from any and all administrative and executive positions with the Company’s subsidiaries Visava, Canary and CannaKorp, respectively. In addition, the Company issued Common Stock Purchase Warrant for 10,000,000 shares of Target Group’s common stock to CLI as consideration for the Debt Agreement (“CLI Warrants”). Refer to Note 8 for additional details on the CLI Warrants. The combined impact of both

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TARGET GROUP INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

transactions resulted in debt issuance cost of $251,518. This debt issuance cost will be amortized over the term of the debt on a straight-line basis.

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 ten (10) years and four (4) months from the effective date of August 8, 2019. In consideration of the license, the Company would issue 10,000,000 shares of its common stock as follows: (i) 3,500,000 within ten (10) days of the effective date; (ii) 3,500,000 shares on January 10, 2020; and (iii) 3,000,000 shares not later than June 10, 2020. In addition, the Company would pay cGreen royalties of 7% of the net sales of the licensed products and 7% of all sublicensing revenues collected by the Company. The Company would pay cGreen an advance royalty of $300,000 within ten (10) days of the effective date; $300,000 on January 10, 2020; and $400,000 on or before June 10, 2020, and $500,000 on or before November 10, 2020. All advance royalty payments would be credited against the royalties owed by the Company through December 31, 2020. During the quarter ended December 31, 2019, the intangible asset was written off based on management’s review and evaluation of its recoverability.

During the quarter ended June 30, 2020, the Company was in arbitration with cGreen for the breaches of the terms of the License Agreement, however, through an early mediation, 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 10 million shares nor pay the outstanding royalty payable in the amount of $1,191,860. As consideration, the Company paid $130,000 within 30 days of the Effective Date and started paying $100,000 in monthly installments of $10,000 commencing in April 2021 to cGreen resulting in a gain on settlement in the amount of $1,704,860.

As at June 30, 2024, there was no outstanding balance, the balance was paid in full and the claim was closed during the quarter ended March 31, 2022.

Going Concern

In recent years the Company has earned significant revenue. The Company had a working capital deficit of $10,399,522 and an accumulated deficit of $30,633,852 as of June 30, 2024. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtaining additional financing from its members or other sources, as may be required.

The unaudited 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

Table of Contents

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 June 30, 2024 and June 30, 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 June 30, 2024 and 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	7 years
Machinery & equipment	Straight-line	3-5 years
Software	Straight-line	3 years
Leasehold improvements	Straight-line	Lease period

An item of equipment is derecognized upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising from 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

Table of Contents

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 6 and 7 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 $4,194,942 during the six months ended June 30, 2024 whereas $758,984 in June 30, 2023.

The Company revenue was concentrated to thirteen customers (June 30, 2023: eight customers). The revenue represents the sale of cannabis products. 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 six months ended June 30, 2024 (six months ended June 30, 2023: $791,285). Revenue generated through JVCo lasted till April 27, 2023. Refer to Note 7 for additional details.

F-12

Table of Contents

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 six months ended June 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 June 30, 2024, the companys allowance for doubtful accounts was $53,058.

4. Inventory

As of June 30, 2024, the inventory in the amount of $527,616 (2023: $1,215,928) consists of work-in-progress and finished cannabis goods which is transferred from JVCo to Canary as a result of the Joint Venture Settlement Agreement. Refer to Note 7 for additional detail.


		As at
Product		June 30, 2024
		$
Finished goods		271,386
WIP (Flowers and plants)		256,230
		527,616

5. Sales Tax Recoverable and Payable

As of June 30, 2024, the Company had $43,251 of gross sales tax recoverable compared to December 31, 2023 there was $nil, while the Company had $nil of gross sales tax payable as of June 30, 2024.

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 $8,158 (December 31, 2023: $nil) of allowance as of June 30, 2024.

F-13

Table of Contents

TARGET GROUP INC.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

6. Fixed Assets

The Company’s subsidiary, Canary, initiated construction on its leased 44,000 square foot cannabis cultivation facility in September of 2017. Since then, extensive demolition and structural upgrades have been carried out at the site. On May 1, 2019, the Company completed the construction of its 44,000 square foot cannabis cultivation facility and on May 14, 2019, the Company submitted a Site Evidence Package to Health Canada as part of the steps to obtain the license to cultivate cannabis at the Company’s facility. On October 8, 2019, the Company was granted licenses to cultivate, process and sell cannabis pursuant to the Cannabis Act (Bill C-45). Canary currently operates as a licensed producer/wholesaler of craft cannabis in Ontario and has since been granted its sales amendment from Health Canada to sell directly to provincial retail boards for consumer products.

Canary has recorded a depreciation expense of $416,706 during the six months ended June 30, 2024 (June 30, 2023: $426,631) while CannaKorp has recorded a depreciation expense of $84 during the six months ended June 30, 2024 (June 30, 2023: $252). JVCo recorded depreciation of $22,872 during the six months ended June 30, 2024 (June 30, 2023: $ 15,371 ).

Below is a breakdown of the consolidated fixed asset, category wise:


	Furniture &	Machinery &		Leasehold
	fixture	Equipment	Software	improvements	Total
	$	$	$	$	$
Cost	1,404,987	769,550	48,447	6,671,215	8,894,199
Accumulated depreciation	(657,295)	(757,233)	(43,617)	(2,625,198)

Target Group Inc. [CBDY] Filings
10-Q	[2024-08-08]
10-Q	[2024-05-08]
10-K	[2024-03-20]
10-Q	[2023-11-08]
10-Q	[2023-08-09]
10-Q	[2023-05-08]
10-K	[2023-03-17]
10-Q	[2022-11-07]
10-Q	[2022-08-08]
10-Q	[2022-05-06]
10-K	[2022-03-18]
10-Q	[2021-11-05]
10-Q	[2021-08-06]
10-Q	[2021-05-07]
10-K	[2021-03-30]
10-Q	[2020-11-10]
10-Q	[2020-08-10]
10-Q	[2020-06-05]
10-K	[2020-04-14]
10-Q	[2019-11-19]
10-Q	[2019-08-19]
10-Q	[2019-05-20]
10-K	[2019-04-01]
10-Q	[2018-11-14]
10-Q	[2018-08-14]
10-Q	[2018-05-15]
10-K	[2018-03-28]
10-Q	[2017-11-03]
10-Q	[2017-08-14]
S-1	[2017-06-13]
10-Q	[2017-05-15]
10-K	[2017-03-31]
10-Q	[2016-11-14]
10-Q	[2016-08-11]
10-Q	[2016-05-12]
10-K	[2016-03-22]
10-Q	[2015-11-16]
10-Q	[2015-08-14]
10-Q	[2015-05-13]
10-K	[2015-03-31]
S-1	[2014-12-11]
10-Q	[2014-11-17]
10-Q	[2014-08-14]
10-Q	[2014-05-15]
10-K	[2014-03-26]