Item 1. Business
Historical background
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. On May 5, 2014, we issued 500,000 shares of common stock to Rubin Schindermann and 500,000 shares of Common Stock to Alexander Starr. With the issuance of these shares and the redemption of 19,500,000 shares of common stock issued to our original officers, directors and shareholders, we effected a change of control. Mr. Schindermann and Mr. Starr became our new officers and directors. They accepted the resignations of our original founding officers and directors. Effective May 13, 2014, the Company changed its name to Chess Supersite Corporation.
On July 23, 2014, we acquired certain assets (“Acquisition”) of Chess Supersite, Inc., a corporation existing under the laws of Ontario, Canada (“Chess Canada”). The Acquisition was consummated pursuant to the terms of the Asset Purchase Agreement and the issuance of 5,000,000 shares of our common stock to Chess Canada. In the Acquisition, we acquired all right, title and interest in and to the properties, assets, interests and rights of Chess Canada, including the contracts and intellectual property which are related to the business of developing, operating and maintaining a website focused on the game of chess. Chess Supersite, Inc. is under the common control of Rubin Schindermann and Alexander Starr.
Our original business comprised the operation of an extensive chess gaming website under the name ChessStars™. This comprehensive user-friendly web site www.chessstars.com, offered a state-of-the-art playing zone, broadcasts of the major tournaments, intuitive mega database, chess skilled contests and much more.
On July 3, 2018, we filed an amendment in our Certificate of Incorporation to change our name to Target Group Inc. Effective October 18, 2018, our common stock became eligible for quotation on the OTCQB platform operated by OTC Markets Group Inc, under the symbol “CBDY”.
Effective December 12, 2018, our Board of Directors approved the termination of our ChessStars™ online chess playing platform effective December 31, 2018. We will seek to sell all of the assets that comprise the ChessStars™ business. to a third-party buyer at the best possible price.
Cannabis Business-Canada
We are now engaged in the cultivation, processing and distribution of curated cannabis products for the adult-use medical and recreational cannabis market in Canada and, where legalized by state legislation, in the United States. We believe that there is 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 recreational use of cannabis.
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.
We intend to position ourselves with a core emphasis on 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.
Our 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.
Recent Acquisitions
To take advantage of the opportunity resulting from the legalization of adult-use cannabis in Canada, we completed several strategic acquisitions and entered into several significant agreements as follows:
Visava Inc./Canary Rx Inc.
On June 27, 2018, the Company entered into an Agreement and Plan of Share Exchange (“Exchange Agreement”) with Visava Inc., a private Ontario, Canada corporation (“Visava”). Visava owns 100% of Canary Rx Inc, (“Canary”), a Canadian corporation that operates a 44,000 square foot facility located in Ontario’s Garden Norfolk County for the production of cannabis. Canary is a late stage Canadian licensed cannabis producer under Health Canada’s Cannabis Act (“Bill C-45”). Canary expects to produce at least 3,600,000 grams of cannabis per year, beginning in the third quarter of 2020.
Pursuant to the Exchange Agreement, the Company issued to the Visava shareholders an aggregate of 25,500,000 shares of the Company’s Common Stock in exchange for all of the issued and outstanding common stock held by the Visava shareholders. In addition of its Common Stock, the Company issued to the Visava shareholders, prorata Common Stock Purchase Warrants to purchase an aggregate of 25,000,000 shares of the Company’s Common Stock at a price per share of $0.10 for a period of two years following the issuance date of the Warrants. The transactions contemplated by the Exchange Agreement closed effective August 2, 2018. Visava will continue its business operations as a first-tier wholly-owned subsidiary of the Company with Canary operating as our second-tier subsidiary.
Effective December 6, 2018, the Company and Canary entered into a Distribution, Collaboration and Licensing Agreement (“Agreement”) with Serious Seeds B.V. (“Serious Seeds”), incorporated in the Netherlands, and Simon Smit (“Smit”), President of Serious Seeds. Under the 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 Agreement Canary Rx and Serious will develop certain “Collaborative Products” defined as cannabis seed strains created collaboratively using Serious’ intellectual property. During the term of the Agreement, Canary will own all of the intellectual property related to the Collaborative Products.
Under the Agreement, Smit has 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 Agreement will be 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 will issue to Smit 250,000 shares of the Company’s common stock. In addition, beginning on the 13th month following the effective date of the Agreement and continuing through the sixtieth month of the initial term, the Company will issue to Smit each month 5,208 shares of common stock and warrants to purchase 200,000 shares of Target common stock at $0.15 per share. In addition, Smit will be issued warrants in each of the foregoing months to purchase 16,667 shares of Target common stock at varying exercise prices ranging from $0.20 to $0.35 per share. All of the warrants must be exercised on or before the two (2) year anniversary date of each of the warrant issuance dates.
In consideration of Canary Rx’s appointment as Serious’ exclusive distributor in Canada, Canary Rx will pay Serious certain royalties as follows:
1st year: 2.00% of gross sales
2nd year: 2.25% of gross sales
3rd year: 2.50% of gross sales
4th year: 2.75% of gross sales
5th and following years: 3.00% of gross sales
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 8 different strains at a time, within the facility’s 8 separate flower rooms.
Cannavolve Inc. Sales Agency Agreement
Effective December 13, 2018, the Company appointed Cannavolve Inc., an Ontario, Canada corporation based in Toronto (Cannavolve”), under the terms of a Licensed Producer/Licensed Processor Sales Agency Agreement (“Agency Agreement”), as the Company’s exclusive agent in Canada to market and sell the CannaKorp Wisp™ vaporizer, the Serious Seeds™ products and Canary branded cannabis in the recreational cannabis markets (collectively the “Products). Cannavolve is an independent recreational cannabis sales and marketing Company established to represent licensed producers and licensed processors in Canada of cannabis and cannabis accessories. Cannavolve operates in Canada with offices in Halifax, Montreal, Calgary and Vancouver.
Under the Agency Agreement, Cannavolve will be paid a commission of 6% of net sales based on the wholesale prices of the Products. The initial term of the Agency Agreement is two (2) years from December 13, 2018 subject to a renewal term of two (2) additional years. In addition to customary termination provisions based upon the material default of either the Company or Cannavolve, we can terminate the Agency Agreement without cause upon ninety (90) days prior written notice.
CannaKorp Inc.
Pursuant to the terms of an Agreement and Plan of Share Exchange dated January 25, 2019 (“Exchange Agreement”), on March 1, 2019 we completed the acquisition of Massachusetts -based CannaKorp Inc., a Delaware corporation (“CannaKorp”). CannaKorp has developed a single-use pre-measured pod and vaporizer system for consumers interested in vaporizing natural herbs, including cannabis. The patent-pending system is known as The Wisp™ and Wisp Pods™. The Wisp™ vaporizer system extracts the medically beneficial compounds more efficiently while simultaneously offering a much safer and enjoyable experience than other alternatives.
Under the terms of the Exchange Agreement, we issued 30,407,712 shares of our common stock to the exchanging CannaKorp shareholders in exchange for 99.8% of the outstanding common stock held by the CannaKorp shareholders. CannaKorp will continue to operate as our subsidiary.
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 grants to the Company an exclusive license to manufacture, and distribute the patent-pending THC antidote True Focus™ in the United States, Europe and the Caribbean. The term of the license is ten (10) years and four (4) months from the effective date of August 8, 2019. In consideration of the license, the Company will issue 10,000,000 shares of its common stock as follows: (i) 3.500,000 within ten (10) days of the effective date; (ii) 3,500,000 shares on January 10, 2020; and (iii) 3,000,000 shares not later than June 10, 2020. In addition, the Company will pay cGreen royalties of 7% of the net sales of the licensed products and 7% of all sublicensing revenues collected by the Company. The Company will pay cGreen an advance royalty of $300,000.00 within ten (10) days of the effective date; $300,000.00 on January 10, 2020; and $400,000.00 on or before June 10, 2020 and $500,000 on or before November 10, 2020. All advance royalty payments will be credited against the royalties owed by the Company through December 31, 2020.
As of the date of the report, the initial payment of royalty payable of $308,140 has been paid during the year ended December 31, 2019 while the remaining in the amount of $1,191,860 is recorded as royalty payable. No shares have been issued to date, however, the first tranche of 3,500,000 shares, in the amount of $260,050, have been recorded in shares to be issued as equity while the remaining 6,500,000 shares, in the amount of $482,950, are have been recorded in shares to be issued as liability.
Additionally, the Company is arbitration with cGreen for the above breaches as per License Agreement.
During the quarter ended December 31, 2019, the intangible asset was written off based on management’s review and evaluation of its recoverability.
Nabis Holding Sales Agreement
Effective September 17, 2019, the Company’s subsidiary, CannaKorp Inc. (“CannaKorp”), entered into a Purchase, Licensing and Distribution Agreement (“Agreement”) with Nabis Arizona Property LLC of Scottsdale, Arizona (“Nabis”) concerning the distribution of CannaKorp’s Wisp™ Vaporizer and Wisp™ Pods in Arizona. The term of the Agreement is three (3) years with automatic renewals for additional one-year periods unless the Agreement is terminated pursuant to its terms. Nabis is required to pay CannaKorp $45,000 for the equipment needed to manufacture the WISP™ Pods, of which $4,500 will be paid within three (3) calendar days of Nabis obtaining regulatory approval of its vertically integrated license and the balance of $40,500 within 180 days of the effective date of the Agreement.
Under the Agreement, Nabis is licensed to manufacture the WISP™ Pods and to sell the WISP™ Pods in conjunction with the sale of the WISP™ Vaporizer. Nabis is required to meet minimum quarterly orders of two hundred (200) WISP™ Vaporizers and five thousand (5,000) WISP™ Pods cartridges. Nabis is licensed to sell the WISP™ Vaporizer and the WISP™ Pods to end users in Arizona, excluding Amazon, eBay, Walmart or other multistate/national brick and mortar or online sales. CannaKorp has granted Nabis a right of first refusal to obtain an exclusive license in Michigan and in Washington for the same rights granted to Nabis in Arizona.
As of the date of this report, the equipment to Nabis has been shipped and the 180 days mark has not passed. Once when it does, we will invoice Nabis. Additionally, the first quarter of the Nabis agreement minimums were shipped and invoiced (200 Wisp Units and 5000 Pod Assemblies to enable Nabis to manufacture 5000 complete Wisp Pods) for online and retail distribution in the Arizona Market. Nabis has had delays in rolling out all the products for which they have exclusive licenses with, and we expect their next order will likely be in the next 45 to 60 days.
Item 1A
Item 1A Risk Factors.
In addition to all other information set out in this Report, including our consolidated financial statements and the related notes included elsewhere in this Report, our business is subject to a number of risks that are uniquely applicable to the cannabis business generally and specifically in the cannabis business in Canada. Other risks and uncertainties that we do not presently consider material, or of which we are not presently aware, may become important factors that affect our future financial condition and results of operations. Some of these risks include but are not limited to the developing situation globally surrounding COVID-19 and its impacts on the overall global economy. If any of the risks discussed below actually occur, our business, financial condition, results of operations and prospects could be materially affected.
Risks Related to Our Cannabis Business and the Cannabis Industry in the United States
Our proposed business is dependent on laws pertaining to the marijuana industry
Continued development of the marijuana industry is dependent upon continued legislative authorization and/or voter approved referenda at the state level. Any number of factors could slow or halt progress in this area. In addition, progress for the industry, while encouraging, is not assured. While there may be ample public support for legislative action, numerous factors impact the legislative process, any one of which could slow or halt the use of marijuana, which could negatively impact our business.
Cannabis remains illegal under U.S. federal law.
The possession and use of marijuana is illegal under U.S. federal and certain states’ laws, which may negatively impact our business. Use of marijuana is regulated by both the U.S. federal government and state governments and state and U.S. federal laws regarding marijuana are often in conflict. Federal law criminalizing the use of marijuana pre-empts state laws that legalize the possession and use of marijuana for medical and recreational purposes. The Trump Administration has made statements indicating that the Trump Administration intends to take a harsher stance on federal marijuana laws. Any such changes in the federal government’s enforcement of current federal laws could adversely affect our ability to possess or cultivate marijuana. Marijuana is a Schedule 1 controlled substance under the Controlled Substance Act (“CSA”) meaning that it has a high potential for abuse, has no currently “accepted medical use” in the United States, lacks accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. No drug product containing natural cannabis or naturally-derived cannabis extracts have been approved by the U.S. Food and Drug Administration for use in the U.S. or obtained registration from the United States Drug Enforcement Administration (“DEA”) for commercial production and the DEA may never issue the registrations required of the commercialization of such products. We will continue to assess potential strategic acquisitions of existing or new businesses in the cannabis industry, should we determine that such activities are in our best interests and in best interests of our stockholders. Any such pursuit would involve additional risks with respect to the regulation of cannabis, particularly, if the federal government determines to actively enforce all federal laws applicable to cannabis.
Laws and regulations affecting the cannabis industry are constantly changing, which could detrimentally effect are business.
Local, state and federal marijuana laws and regulations are broad in scope and subject to evolving interpretations, which require us to incur potentially substantial costs associated with compliance and could alter our business plans. In addition, violations of these laws or allegations of such violations could disrupt our business and materially affect our operations. In addition, it is possible that regulations may be enacted in the future that will be directly applicable to our business. We cannot predict the nature of any such future laws, regulations, interpretations or applications, nor can we determine what effect governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
Any potential growth in the cannabis industry continues to be subject to new and changing state and local laws and regulations.
Continued development of the cannabis industry is dependent upon continue legalization of cannabis at the state level and a number of factors could curtail or halt progress in this area, even where there is public support for legislative action. Any delay or halt in the passing or implementation of legislation legalizing cannabis use, or its sale and distribution, or the re-criminalization or restrictions on cannabis use at the state level could negatively impact our business. We cannot predict the nature of any future laws and regulations or their interpretations or applications. It is possible that regulations may be enacted in the future that will be materially adverse to our business.
Our potential customers, clients and companies with which we may elect to invest directly may have difficulty accessing the services of U.S. banks which may make it difficult for them to operate.
On February 14, 2014, the U.S. Financial Crimes Enforcement Network (“FinCen”) issued rules allowing banks to legally provide financial services to state-licensed cannabis businesses consistent with the Bank Secrecy Act obligations. A memorandum issued by the U.S. Justice Department to federal prosecutors reiterated the guidance previously given, this time to the financial industry that banks can do business with legal marijuana businesses and “may not” be prosecuted. However, the FinCen guidelines fall short of the explicit legal authorization that the banking industry had requested the government provide. To date, it is not clear if any banks have relied on the FinCen guidelines to take on legal cannabis companies as clients. Because the use, sale and distribution of cannabis remains illegal under U.S. federal law, many banks will not accept deposits from or provide other bank services to business involved with cannabis. The inability to open bank accounts may make it difficult for our existing and potential customers to operate.
Operational risks of the cannabis industry.
Companies involved in the cannabis industry face intense competition, may have limited access to services of banks, may have substantial burdens on company resources due to litigation, complaints or enforcement actions and are heavily dependent on receiving necessary permits and authorization to engage in the cultivation, possession or distribution of cannabis. Many of our current and potential competitors have longer operational histories, significantly greater financial, marketing and other resources and larger client bases than us and there can be no assurances that we will be able to successfully compete against these or other companies.
Risks Related to Our Cannabis Business and the Cannabis Industry in Canada
The effects of the legalization of recreational cannabis in Canada is unknown at this time.
The Government of Canada approved the Cannabis Act (Bill C-45) which went into effect on October 17, 2018. The Cannabis Act allows for regulated and restricted access to cannabis for recreational adult-use in Canada. Under the Cannabis Act, there are significant restrictions on the marketing, branding, product formats and distribution channels allowed under the law. Additional restrictions may be imposed at the provincial level. Any failure by us to comply with the applicable regulatory requirements at the federal and provincial level could require changes to our proposed operations; result in regulatory or agency proceedings or investigations, increase compliance costs, fines, penalties or restrictions on our operations or revocation of our licenses and other permits.
The recreational adult-use cannabis market in Canada may become over supplied following the implementation of the Cannabis Act.
As a result in the surge of demand for cannabis as a result of the implementation of the Cannabis Act, we and other cannabis producers in Canada may produce more cannabis that is needed to satisfy the market and we may not be able to export that oversupply into other markets where cannabis use is fully legal under all federal, state and provincial laws The available supply of cannabis could exceed demand, resulting in a decline in the market price for cannabis. If this were to occur, there is no assurance that we would be able to generate sufficient revenue to result in profitability.
We are required to comply with federal, state or provincial and local laws in each jurisdiction where we conduct our business
Various federal, state or provincial and local laws and regulations govern our business in the jurisdictions in which we operate and propose to operate. These laws and regulations include those relating to health and safety and the production, management, transportation and storage of cannabis. Compliance with these laws and regulations requires concurrent compliance with complex federal, state, provincial and local laws and regulations. Compliance with these laws and regulations requires significant financial and managerial resources. A determination that we are not in compliance with these laws and regulations could harm our business. It is impossible to predict the cost or effect of such laws and regulations on our current and future business.
We may seek to enter into strategic alliances or acquisitions with third parties that we believe will have a beneficial impact on our business and there are risks that such alliances or acquisitions will not enhance our business in the desired manner.
We may expand, or in the future enter into, alliances or acquisitions with third parties that we believe will complement or enhance our existing business. Our ability to take advantage of existing or new alliances or acquisitions is dependent upon a number of factors such as the availability of suitable candidates and working capital. Future strategic alliances or acquisitions could result in the incurrence of debt, costs and contingent liabilities. In addition, there can be no assurances that future alliances or acquisitions will achieve the expected benefits to our business or that we will be able to consummate future strategic alliances or acquisitions on satisfactory terms, or at all.
We may not be able to identify and execute future acquisitions or to successfully manage the impact of such transactions on our business.
Acquisitions and/or other strategic business combinations involve many risks including (i) disruption of our existing business; (ii) the distraction of management away from the ongoing oversight of our existing business operations; (iii) incurring additional indebtedness; and (iv) increasing the scope and complexity of our operations. A strategic transaction may result in unforeseen obstacles or costs in implementing the transaction or integrating any acquired business into our existing operations.
Our cannabis cultivation business is subject to risks associated with an agricultural business.
One of the major aspects of our business operations is cultivating cannabis which is an agricultural process. As such, that part of our business is subject to the risks associated with the agricultural business, including crop failure presented by weather, plant diseases, and similar agricultural risks. Although we will grow our cannabis products indoors under climate-controlled conditions, there can be no assurances that natural elements, such as insects and plant diseases, will not disrupt our production activities or have an adverse effect on our business.
We may not be able to attract or retain key personnel with sufficient experience in the cannabis industry and we may not be able to attract, develop and retain additional employees required for our development and future success.
Our success is dependent to a great extent on the performance of our management team and certain key employees and our ability to attract, develop, motivate and retain highly qualified and skilled employees who are in high demand. The loss of the services of any key personnel, or an inability to attract other suitably qualified persons when needed, could prevent us from executing our business plan and we may not be able to find adequate replacements on a timely basis, if at all. Currently, we do not maintain any key-person insurance on the lives of any of our key personnel. Furthermore, each director and officer of a company that holds a license is subject to the requirement to obtain and maintain a security clearance from Canada Health under the Cannabis Act. A security clearance is valid for not more than five years and must be renewed before the expiration of a current security clearance. There is no assurance that any of our existing personnel who presently or may in the future require a security clearance will be able to obtain or renew such clearance or that new personnel who require a security clearance be able to obtain one. A failure by an individual in a key operational position to maintain or renew a security clearance could result in a reduction or complete suspension of our operations.
Employees
As at December 31, 2019, we had three employees Rubin Schindermann, our Chief Executive Officer, Azmatali Mehrali, our Chief Financial Officer and Saul Niddam, Chief Innovation Officer, and also serves as our subsidiary, CannaKorp’s Chief Executive Officer. On January 9, 2020, Anthony Zarcone was named co-Chief Executive Officer to serve with Mr. Schindermann. On January 24, 2020, Mr. Schindermann submitted his resignation as co- Chief Executive Officer; however, he remains a director of the Company. On February 14, 2020, the Company terminated the employment of Azmatali Mehrali as Chief Financial Officer. At the present time, the Company has not appointed a new Chief Financial Officer. Alexander Starr, our former president, terminated his employment agreement effective February 22, 2019.
We have contracted with a number of 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
Our subsidiary CannaKorp Inc. 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 POD™; cPOD™; CANNACUP™; and WISP™. 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.
Corporate Facilities
We lease our administrative and executive offices at a minimum monthly rent of $876 plus applicable taxes located at 55 Administration Road, Unit 13, Vaughan, Ontario, Canada.
Emerging Growth Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act 0f 2012 (“JOBS Act”) and may take advantage of certain exemptions from certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” included but not limited to, not being required to comply with auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act and exemptions from the requirements of holding a nonbinding advisory vote of shareholders on executive compensation and any golden parachute payments not previously approved.
We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year during which our revenues exceed $1 billion; (ii) the date on which we issue more than $1 billion of non-convertible debt in a three year period; (iii) the last day of the fiscal year following the fifth anniversary of the date of our first sale of our common equity securities pursuant to an effective registration statement filed pursuant to the Securities Act of 1933,as amended; or (iv) when the market value of our common stock that is held by non-affiliated exceeds $700 million as of the last business day of our most recently completed second fiscal quarter.
To the extent we continue to qualify as a “smaller reporting company”, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, after we cease to qualify as an “emerging growth company”, certain of the exemptions available to us as an “emerging growth company” may continue to be available to us as “smaller reporting company” including (i) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; and (ii) scaled executive compensation disclosures; and (iii) the requirement to provide only two years of audited consolidated financial statements instead of three.
Item 2.
Item 2. Properties
We do not own any properties at this time and do not have presently any agreements to acquire any properties.
Our principal executive office is located at 55 Administration Road, Unit 13, Vaughan, Ontario, Canada, L4K 4G9.
Our subsidiary, Canary, leases a 44,000 square foot facility located in Norfolk County, Ontario to produce medical and recreational cannabis. Total minimum rent for the building is $1,925 (CAD $2,500) plus applicable taxes per month until the notification of the right to build under their application for approval as licensed producer under The Cannabis Act. Subject to the notification, as of January 1st 2019 the minimum rent increased to $19,248 (CAD $25,000) plus applicable taxes per month.
Our subsidiary, CannaKorp, leases executive and administrative offices in Stoneham, Massachusetts. The monthly minimum rent for those offices is $1,200 plus applicable taxes and utilities.
Item 3.
Item 3. Legal Proceedings
During the year, a terminated employee of Canary has filed a suit against the Company amounting to approximately $1,616,790 (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.
On January 3, 2020, cGreen Inc. filed a Complaint in Arbitration against the Company alleging a breach of the Exclusive License Agreement entered into with the Company effective August 8,2019. (“Agreement”). The Complaint alleges the Company failed to make royalty payments of $300,000 and failed to issue cGreen 7,000,000 shares of the Company’s Common Stock as called for under the Agreement.
During the year ended December 31, 2019, a terminated employee of Canary had delivered a demand letter claiming wrongful dismissal. A settlement was reached in the amount of $5,678 (CAD $7,375) which were due within 30 days of the execution of the settlement agreement. As of the date of this report, the Company has not made any payment and is in violation of the agreement.
During the year ended December 31, 2019, a terminated employee of Canary had delivered a demand letter claiming wrongful dismissal plus unpaid wages, expenses and vacation pay for a minimum amount of $53,440 (CAD $69,412). Currently, the Company is defending its position and believes that the ultimate decision will be in favor of the Company, however, the Company is open to a settlement.
Item 4.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is currently quoted on the OTCQB inter-dealer quotation service maintained by OTC Markets Group Inc. under the symbol “CBDY”. The following table sets forth the quarterly high and low sales prices of our common stock for the last two fiscal years. Such prices are inter-dealer quotations without retail mark-ups, mark-downs or commissions, and may not represent actual transactions.
Our common stock is subject to Rule 15g-9 of the Exchange Act, known as the Penny Stock Rule which imposes requirements on broker/dealers who sell securities subject to the rule to persons other than established customers and accredited investors. For transactions covered by the rule, brokers/dealers must make a special suitability determination for purchasers of the securities and receive the purchaser’s written agreement to the transaction prior to sale. The Securities and Exchange Commission (“SEC”) also has rules that regulate broker/dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in that security is provided by the exchange or system. The Penny Stock Rules requires a broker/dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker/dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. These disclosure requirements have the effect of reducing the level of trading activity in the secondary market for our common stock. As a result of these rules, investors may find it difficult to sell their shares.
As of the date of this report, we have 560,145,968 shares of common stock issued and outstanding held by 428 stockholders of record.
Dividend Policy
To date, we have not declared or paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock. It is anticipated that our future earnings will be retained to finance our continuing development. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors has the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and any other factors that our Board of Directors deems relevant.
Recent Sales of Unregistered Securities
During the quarter ended December 31, 2019, we sold the following securities without registration under the Securities Act of 1933, as amended.
In November, we issued 454,545 shares of common stock at prices of $0.022 per share to one (1) private investor.
In December, we issued 1,243,107 shares at a price of $0.0151 per share, respectively, upon the partial conversion of outstanding convertible promissory notes held by two note holders.
The foregoing issuances of unregistered securities were undertaken in reliance on the exemption from registration at Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering and in some instances in reliance on Regulation S under the Securities Act of 1933, as amended, for transactions with non-US residents residing abroad.
Item 6.
Item 6. Selected Financial Data.
There is no selected financial data required to be filed for a smaller reporting company.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
As of December 31, 2019, the Company had not generated significant revenues and had no income or cash flows from operations since inception. At December 31, 2019, the Company had sustained net loss of $10,367,670, and had an accumulated deficit of $19,462,624.
The Company’s independent auditors have issued a report raising substantial doubt about the Company’s ability to continue as a going concern. At present, the Company has no operations and the continuation of the Company as a going concern is dependent upon financial support from its stockholders, its ability to obtain necessary equity financing to continue operations and/or to successfully locate and negotiate with a business entity for the combination of the target company with the Company.
Balance sheet as at December 31, 2019 and 2018
Cash
At December 31, 2019 we had cash of $10,487 compared to $303,438 as at December 31, 2018. The decrease is primarily due to payment of capital work in progress, software development, consulting expenses and professional and legal expenses offset by proceeds received from private placements, note issuances and loan during the year.
Prepaid asset
At December 31, 2019 we had prepaid expenses of 37,702 compared to $35,145 as at December 31, 2018. The balance represents the retainer fees paid to our lawyer and security deposit for the leased land for the facility to produce Medical Marijuana.
Sales tax recoverable
At December 31, 2019, we had $48,744 of gross sales tax recoverable compared to $294,033 as at December 31, 2018. This is due to sales tax paid by the subsidiary on expenses incurred during the year which are recoverable from the government.
We recorded an allowance of 25% of the sales tax recoverable of $12,186 (2018 - $75,902) stemming from the potential uncollectible balances within the outstanding sales tax recoverable amount.
Goodwill and intangible assets
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.
In addition, intangible assets represent the Exclusive License Agreement entered with cGreen. The value of the license is based on 10 million common stock valued at the market rate of the stock prevailing on August 8, 2019 and the royalty payments in the amount of $2,243,000. The asset is amortized over the terms of license i.e. 10 years. During the quarter ended December 31, 2019, the intangible asset was written off based on our management’s review and evaluation of the intangible asset’s recoverability.
Fixed assets and capital work in progress
The Company initiated construction on its 44,000 square foot cannabis cultivation facility in September of 2017. Since then, extensive demolition and structural upgrades have been carried out at the site. As at December 31, 2019, the Company has capitalized $7,713,444 in payments to multiple vendors for the construction of the facility.
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).
For additional detail for breakdown in asset class, refer to Note 10 in consolidated financial statements.
Accounts payable and accrued liabilities
Accounts payable amounting to $2,494,588 as at December 31, 2019, primarily represents consulting and construction services related to capital work in progress amounting to $1,079,498, interest on promissory notes and loan amounting to $53,945, marketing services cost amounting to $18,115, valuation fee accrual of $3,500, accounting fee accrual of $2,500 and review fee accrual of $3,000, and outstanding professional fees of $942,000.
Accounts payable amounting to $1,739,765 as at December 31, 2018, primarily represents consulting and construction services related to capital work in progress amounting to $ 1,330,693, interest on promissory notes amounting to $133,082, advertising and promotion services amounting to $332, marketing services cost amounting to $13,650, valuation fee accrual of $3,500, accounting fee accrual of $2,500 and review fee accrual of $3,000, and outstanding professional fees of $54,391.
Payable to related parties
At December 31, 2019 we had $431,660 of amount payable to related parties as compared to $403,620 as at December 31, 2018. The balance represents management services fee outstanding to the managers of the company and non-interest bearing, unsecured loans from our officers including the outstanding amount of $40,000 to be paid to a former shareholder of CannaKorp as part of the settlement agreement.
The above balance also includes a loan provided by one of the Company’s shareholder up to $769,900 (CAD $1,000,000). The loan bears an annual interest rate of 16%, is secured by all assets owned by the Company and its subsidiaries and matures in one year that is December 20, 2020. As at December 31, 2019, the Company was advanced $269,465 (CAD $350,000). Interest expense charged in amount of $1,279 (CAD $1,688) is included in interest and bank charges on the consolidated statement of loss and comprehensive loss and accrued interest is included in accounts payable and accrued liabilities on the consolidated balance sheet.
For additional detail, refer to Note 13 in consolidated financial statements.
Shareholder advances
Shareholder advances represents expenses paid by the owners from their personal funds. The amount of advance as at December 31, 2019 and 2018 was $nil and $209,046, respectively. The amounts repaid during the years ended December 31, 2019 and 2018 were $203,945 and $281,927, respectively and $133,423 was settled through issuance of shares of common stock. Refer to Note 13 for details in the consolidated financial statements.
Convertible promissory notes payable
During quarter ended March 31, 2019, we entered into an agreement with an investor and issued them a convertible promissory note (Note Q) amounting to $103,000, respectively. The outstanding amount under the notes are due on or before August 16, 2020.
During quarter ended December 31, 2019, we entered into an agreement with an investor and issued them a convertible promissory note (Note R) amounting to $168,300, respectively. The outstanding amount under the notes are due on or before April 21, 2021.
During the year ended December 31, 2019, we settled five notes (Note M, N, O, P and Q) with cash payments and recorded a loss of $149,493 as a result of these settlements.
We accrued net interest on promissory notes during the year ended December 31, 2019 amounting to $75,348 (2018: $67,923).
Principal amount outstanding as at December 31, 2019 was $200,488 of which $32,188 is current portion while $168,300 is the non-current portion (2018: $479,079 - all current portion).
Income statement for the years ended December 31, 2019 and 2018
Revenues for the years ended December 31, 2019 and
We generated nil revenue during year ended December 31, 2019. Revenue of 263 during year ended December 31, 2018 which represents membership fee for the Company’s chess gaming website.
Expenses for the years ended December 31, 2019 and
Expenses amounting to $10,367,670 for the year ended December 31, 2019 are primarily comprised of advisory and consultancy fee of $639,611, management services fee of $1,481,284, salaries and wages of $1,333,729, legal and professional fee of $364,421, software development expense of $nil, marketing expenses of $16,592, rent of $183,105 and expenses related to office of $534,671 together with the fair valuation impact of convertible notes amounting to $(407,999) of the convertible promissory notes and accretion expense of $367,585. In addition, due to the number of settlements during the year, a loss on settlement of debt was $1,428,282 and impairment of intangible asset and goodwill in the amount of $2,149,613 and $1,485,925, respectively.
Expenses amounting to $1,900,341 for the year ended December 31, 2018 are primarily comprised of advisory and consultancy fee of $77,159, management services fee of $362,500, salaries and wages of $332,337, legal and professional fee of $314,482, software development expense of $32,246, website development and marketing expenses of $91,852, rent of $36,072 and expenses related to office of $34,440 together with the fair valuation impact of convertible notes amounting to $323,946 of the convertible promissory notes.
Liquidity and Capital Resources
At December 31, 2019, the Company had a working capital deficit of $4,922,069 and an accumulated deficit of $19,462,624 (2018: Working capital deficit of $2,877,445 and an accumulated deficit of $9,094,954). The Company is actively seeking various financing operations to meet the working capital requirements.
We have relied on equity financing and personal funds 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.
We will need capital to allow us to invest in development. The Company anticipates that its future operations will generate positive cash flows starting in 2021 provided that it is successful in obtaining additional financing in the foreseeable future.
Item 8.
Item 8. Consolidated Financial Statements and Supplementary Data
TARGET GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Target Group Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Target Group Inc. and Subsidiaries (“the Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive loss, changes in stockholder’s equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has generated minimal revenue since inception and has significant recurring operating losses. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
TARGET GROUP INC.
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
TARGET GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
The accompanying notes are an integral part of these consolidated financial statements.
TARGET GROUP INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
The accompanying notes are an integral part of these consolidated financial statements.
TARGET GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
The accompanying notes are an integral part of these consolidated financial statements.
TARGET GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS THEN ENDED DECEMBER 31, 2019 and 2018
1. NATURE OF OPERATIONS
Target Group Inc. (“Target Group” or “the Company”) was incorporated on July 2, 2013 under the laws of the state of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions.
Target Group Inc. is a diversified and vertically integrated, progressive company with focus on both national and international presence. The Company owns and operates Canary Rx Inc, a final-stage, Canadian licensed producer, regulated under The Cannabis Act. Canary Rx Inc, operates a 44,000 square foot facility located in Norfolk County, Ontario, and has partnered with Dutch breeder, Serious Seeds, to cultivate exclusive & world class proprietary genetics. The Company has begun structuring multiple international production and distribution platforms and intends to continue rapidly expanding its global footprint as it focuses on building an iconic brand portfolio whose focus aims at developing cutting edge Intellectual Property among the medical and recreational cannabis markets. Target Group is committed to building industry-leading companies that transform the perception of cannabis and responsibly elevate the overall consumer experience.
The Company’s current business is to produce, manufacture, distribute, and conduct sales of cannabis products. As of the current year end, the company has not produced, manufactured, distributed or sold any cannabis products.
In May, 2014, the Company effected a change in control by the redemption of the stock held by its original shareholders, the issuance of shares of its common stock to new shareholders, the resignation of its original officers and directors and the appointment of new officers and directors.
On July 6, 2015, the Company filed its form S-1/A, to amend its form S-1 previously filed on January 26, 2015 and December 11, 2014. The prospectus relates to the offer and sale of 1,500,000 shares of common stock (the “Shares”) of the Company, $0.0001 par value per share, offered by the holders thereof (the “Selling Shareholder Shares”), who are deemed to be statutory underwriters. The selling shareholders will offer their shares at a price of $0.50 per share, until the Company’s common stock is listed on a national securities exchange or is quoted on the OTC Bulletin Board (or a successor); after which, the selling shareholders may sell their shares at prevailing market or privately negotiated prices, including (without limitation) in one or more transactions that may take place by ordinary broker’s transactions, privately-negotiated transactions or through sales to one or more dealers for resale.
On July 13, 2015, the Company received a notice of effectiveness from the SEC for the registration of its shares.
On July 3, 2018, the Company filed an amendment in its Articles of association to change its name to Target Group Inc. The Company was able to secure an OTC Bulletin Board symbol CBDY from Financial Industry Regulatory Authority (FINRA).
On June 27, 2018, the Company entered into an Agreement and Plan of Share Exchange (“Exchange Agreement”) with Visava Inc., a private Ontario, Canada corporation (“Visava”). Visava owns 100% of Canary Rx Inc., a Canadian corporation that holds a leasehold interest in a parcel of property located in Ontario’s Garden Norfolk County for the production of cannabis.
The Exchange Agreement provides that, subject to its terms and conditions, the Company issued to the Visava shareholders an aggregate of 25,500,000 shares of the Company’s Common Stock in exchange for all of the issued and outstanding common stock held by the Visava shareholders. In addition of its Common Stock, the Company issued to the Visava shareholders, prorata Common Stock Purchase Warrants purchasing an aggregate of 25,000,000 shares of the Company’s Common Stock at a price per share of $0.10 for a period of two years following the issuance date of the Warrants. Upon the closing of the Exchange Agreement, the Visava shareholders held approximately 46.27% of the issued and outstanding Common Stock of the Company and Visava will continue its business operations as a wholly-owned subsidiary of the Company. The transaction was closed effective August 2, 2018.
Effective January 25, 2019, the Company entered into an Agreement and Plan of Share Exchange (“Exchange Agreement”) with CannaKorp Inc., a Delaware corporation (“CannaKorp”). Company had previously entered into a Letter of Intent with CannaKorp dated November 30, 2018 which was disclosed in the Company’s report on Form 8-K filed December 4, 2018.
The Exchange Agreement provides that, subject to its terms and conditions, the Company issued to the CannaKorp shareholders an aggregate of 30,407,412 shares of the Company’s common stock, based on a price per share of $0.10, in exchange for 100% of the issued and outstanding common stock of CannaKorp held by the CannaKorp shareholders. In addition, the Company will issue Common Stock Purchase Warrants (“Warrants”) in exchange for all outstanding and promised CannaKorp stock options. The Warrants will grant the holders thereof the right to purchase up to approximately 7,211,213 shares of the Company’s common stock. The Company will also assume all outstanding liabilities of CannaKorp. Upon the closing of the Exchange Agreement, CannaKorp will continue its business operations as a subsidiary of the Company. The transaction was closed effective March 1, 2019.
Effective August 8, 2019, the Company entered into an Exclusive License Agreement (“License Agreement”) with cGreen, Inc., a Delaware corporation (“cGreen”). The License Agreement grants to the Company an exclusive license to manufacture, and distribute the patent-pending THC antidote True Focus™ in the United States, Europe and the Caribbean. The term of the license is ten (10) years and four (4) months from the effective date of August 8, 2019. In consideration of the license, the Company will issue 10,000,000 shares of its common stock as follows: (i) 3,500,000 within ten (10) days of the effective date; (ii) 3,500,000 shares on January 10, 2020; and (iii) 3,000,000 shares not later than June 10, 2020. In addition, the Company will pay cGreen royalties of 7% of the net sales of the licensed products and 7% of all sublicensing revenues collected by the Company. The Company will pay cGreen an advance royalty of $300,000.00 within ten (10) days of the effective date; $300,000.00 on January 10, 2020; and $400,000.00 on or before June 10, 2020 and $500,000 on or before November 10, 2020. All advance royalty payments will be credited against the royalties owed by the Company through December 31, 2020. The Company is arbitration with cGreen for breach of the terms of the License Agreement, refer to Note 9 for additional details. In addition, during the quarter ended December 31, 2019, the intangible asset was written off based on management’s review and evaluation of its recoverability.
On September 17 2019, the CannaKorp has signed an agreement with Nabis Holding (Nabis), where Nabis will purchase 200 wisp unit and 5000 pods per quarter from the Company. CannaKorp hereby agrees to sell to Nabis, one CannaMatic. The purchase price for the one CannaMatic shall be $4,500 USD in cash to be paid by Nabis to CannaKorp within 3 calendar days of Nabis obtaining regulatory approval of its vertically integrated licenses and $40,500 or the balance owing to be paid by Nabis to CannaKorp, within 180 days of the Effective Date.
As of the date of this report, the equipment to Nabis has been shipped and the 180 days mark has not passed. Once when it does, the Company will invoice Nabis. Additionally, the first quarter of the Nabis agreement minimums were shipped and invoiced (200 Wisp Units and 5000 Pod Assemblies to enable Nabis to manufacture 5000 complete Wisp Pods) for online and retail distribution in the Arizona Market. Nabis has had delays in rolling out all the products for which they have exclusive licenses with, and the Company expects their next order will likely be in the next 45 to 60 days.
2. BASIS OF PRESENTATION AND CONSOLIDATION
The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing the accompanying consolidated financial statements.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Visava Inc. and CannaKorp, Inc. Significant intercompany accounts and transactions have been eliminated upon consolidation.
3. GOING CONCERN
The Company has minimal revenue since inception to date and has sustained operating losses during the year ended December 31, 2019. The Company had working capital deficit of $4,922,069 and an accumulated deficit of $19,462,624 as of December 31, 2019. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtaining additional financing from its members or other sources, as may be required.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The consolidated 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. However, the Company currently has no commitments from any third parties for the purchase of its equity. If the Company is unable to acquire additional working capital, it will be required to significantly reduce its current level of operations.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with 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 consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
CASH
Cash and cash equivalents include cash on hand and on deposit 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 December 31, 2019 and 2018.
ACCOUNTS RECEIVABLE
Accounts receivable consists of amounts due to the Company from customers as a result of the Company’s normal business activities. Accounts receivable is reported on the balance sheets net of an estimated allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts for estimated uncollectible receivables based on historical experience, assessment of specific risk, review of outstanding invoices, and various assumptions and estimates that are believed to be reasonable under the circumstances, and recognizes the provision as a component of selling, general and administrative expenses. Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a balance is uncollectible. As of December 31, 2019, the Company expects to collect these balances completely and therefore has not created any allowance for it.
INVENTORY
Inventory is stated at the lower of cost or net realizable value, cost being determined on a weighted average cost basis, and market being determined as the lower of cost or net realizable value. The Company records write-downs of inventory that is obsolete or in excess of anticipated demand or market value based on consideration of product lifecycle stage, technology trends, product development plans and assumptions about future demand and market conditions. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values. Inventory write-downs are charged to cost of revenue and establish a new cost basis for the inventory. The cost is determined on the basis of the average cost or first-in, first-out methods.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and other identifiable intangible assets with indefinite lives that are not being amortized, such as trade names, are tested at least annually for impairment and are written down if impaired. Identifiable intangible assets with finite lives are amortized over their estimated useful lives and are reviewed for impairment whenever facts and circumstances indicate that their carrying values may not be fully recoverable.
The Company evaluates the recoverability of the infinite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value.
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 nil revenue during year ended December 31, 2019. Revenue of 263 during year ended December 31, 2018 which represents membership fee for the Company’s chess gaming website.
Deferred revenue is due to a shipment sent to one of the Company’s distributors. However, since control has not been transferred and the performance obligation has not been completed, revenue has not been recognized and proceeds received are classified as deferred revenue.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company’s Canadian-based subsidiary is the Canadian dollar and the US-based parent is the U.S. dollar. In addition, effective April 1, 2019, the Company changed its functional currency from United States Dollar to Canadian Dollar thereby having an impact on additional paid in capital and accumulated comprehensive income (loss). The presentation currency of the Company has remained unchanged at United States Dollar. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. All exchange gains or losses arising from translation of these foreign currency transactions are included in net income (loss) for the year. In translating the consolidated financial statements of the Company and its Canadian subsidiaries from their functional currency into the Company’s reporting currency of United States dollars, balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during the reporting period. Adjustments resulting from the translation, if any, are included in cumulative other comprehensive income (loss) in stockholders’ equity. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
SOFTWARE DEVELOPMENT COSTS
The costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the application is substantially complete and ready for its intended use. These costs are amortized using the straight-line method over the estimated economic useful life of 5 years starting from when the application is substantially complete and ready for its intended use.
CONCENTRATION OF RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high quality banking institutions. The Company did not have a cash balances in excess of the Federal Deposit Insurance Corporation limit as of December 31, 2019 (December 31, 2018: The Company had excess cash balances in excess of the Federal Deposit Insurance Corporation limit).
INCOME TAXES
Under ASC 740, “Income Taxes,” deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2019, there were no deferred taxes due to the uncertainty of the realization of net operating loss or carry forward prior to expiration.
OPERATING LEASES
The Company leases office space and the production facility under operating lease agreements. The lease term begins on the date of initial possession of the leased property for purposes of recognizing lease expense on a straight-line basis over the term of the lease. Lease renewal periods are considered on a lease-by-lease basis and are generally not included in the initial lease term.
LOSS PER COMMON SHARE
Basic loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the loss of the entity. Convertible promissory notes, warrants and preferred stock as at December 31, 2019 are likely to be converted into shares of common stock, however, due to losses, their effect would be antidilutive. As of December 31, 2019, convertible notes, warrants and preferred stock warrants outstanding could be converted into 27,535,127 (2018: 9,125,002), 412,654,530 (2018: 88,094,634) and 100,000,000 (2018: 100,000,000) shares of common stock, respectively.
CONVERTIBLE NOTES PAYABLE AND DERIVATIVE INSTRUMENTS
The Company has adopted the provisions of ASU 2017-11 to account for the down round features of warrants issued with private placements effective as of January 1, 2017. In doing so, warrants with a down round feature previously treated as derivative liabilities in the consolidated balance sheet and measured at fair value are henceforth treated as equity, with no adjustment for changes in fair value at each reporting period. The Company accounted for conversion options embedded in convertible notes in accordance with ASC 815. ASC 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free-standing derivative financial instruments. ASC 815 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional, as defined by ASC 815-40. The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under ASC 815, in accordance with the provisions of ASC 470-20, which provides guidance on accounting for convertible securities with beneficial conversion features. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.
STOCK BASED COMPENSATION
The Company accounts for stock based payments in accordance with the provision of ASC 718, which requires that all share-based payments issued to acquire goods or services, including grants of employee stock options, be recognized in the statement of operations based on their fair values, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Compensation expense related to share-based awards is recognized over the requisite service period, which is generally the vesting period.
The Company accounts for stock based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the guidelines in ASC 505-50. The Company issues compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial and administrative consulting services.
MARKETING EXPENSES
Marketing and advertising expenditures are expensed in the annual period in which the expenditure is incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with ASC 360-10, the Company, on a regular basis, reviews the carrying amount of long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. The Company determines if the carrying amount of a long-lived asset is impaired based on anticipated undiscounted cash flows, before interest, from the use of the asset. In the event of impairment, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the asset. Fair value is determined based on appraised value of the assets or the anticipated cash flows from the use of the asset or asset group, discounted at a rate commensurate with the risk involved.
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 consolidated 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 consolidated financial statements on a nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy are as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability. The carrying amounts of financial assets such as cash approximate their fair values because of the short maturity of these instruments.
The estimated fair value of cash, accounts payable, and accrued liabilities approximate their carrying values due to the short-term maturity of these instruments. The derivative liabilities of the promissory convertible notes are valued Level 3, refer to Note 15 for further details.
5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company qualifies as an “emerging growth company” (CGC) under the 2012 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As an emerging growth company, management can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The management has elected to take advantage of the benefits of this extended transition period.
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date.
In July 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815).
I. Accounting for Certain Financial Instruments with Down Round Features
II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception
The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.
The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.
The amendments in this Update apply to all companies. Part I becomes effective for public business entities in the annual period ending after December 15, 2018, and interim periods within those fiscal years, with early application permitted. Management does not expect to have a significant impact of this ASU on the Company’s financial statements. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect.
In August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company will be evaluating the impact this standard will have on the Company’s consolidated financial statements.
In June 2018, the FASB issued an accounting pronouncement (FASB ASU 2018-07) to expand the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently in the process of evaluating the effects of this pronouncement on the consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance revises the accounting related to leases by requiring lessees to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions. This ASU is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently in the process of evaluating the effects of this pronouncement on the consolidated financial statements and will have material impact in the first quarter of year ending December 31, 2020.
6. PREPAID ASSET
At December 31, 2019, the Company had prepaid expenses of $37,702 compared to $35,145 as at December 31, 2018. The balance represents the retainer fees paid to the lawyer and security deposit for the leased land of the subsidiary’s facility.
7. SALES TAX RECOVERABLE
At December 31, 2019, the Company had $48,744 of gross sales tax recoverable compared to $294,033 as at December 31, 2018. This is due to sales tax paid by the subsidiary on expenses incurred during the year which are recoverable from the government.
The Company has recorded an allowance of 25% of the sales tax recoverable of $12,186 (2018: $75,902) stemming from the potential uncollectible balances within the outstanding sales tax recoverable amount.
8. INVENTORY
At December 31, 2019, the inventory in the amount of $124,000 consists of finished goods and is held at a third-party location as at December 31, 2019.
During the year ended December 31, 2019, the Company recorded a write-down of inventory to its net realizable value, in the amount of $51,640 due to decrease in inventory value and recorded an impairment in the amount of $150,954 due to obsolete inventory bringing the total inventory impairment amounting to $202,594.
In addition, the inventory in the amount of $124,000 is secured against the loan provided by the Company’s shareholder. Refer to Note 13 for further details.
9. INTANGIBLE ASSETS
Effective August 8, 2019, the Company entered into an Exclusive License Agreement (“License Agreement”) with cGreen, Inc., a Delaware corporation (“cGreen”). The License Agreement grants to the Company an exclusive license to manufacture, and distribute the patent-pending THC antidote True Focus™ in the United States, Europe and the Caribbean. The term of the license is ten (10) years and four (4) months from the effective date of August 8, 2019. In consideration of the license, the Company will issue 10,000,000 shares of its common stock as follows: (i) 3.500,000 within ten (10) days of the effective date; (ii) 3,500,000 shares on January 10, 2020; and (iii) 3,000,000 shares not later than June 10, 2020. In addition, the Company will pay cGreen royalties of 7% of the net sales of the licensed products and 7% of all sublicensing revenues collected by the Company. The Company will pay cGreen an advance royalty of $300,000.00 within ten (10) days of the effective date; $300,000.00 on January 10, 2020; and $400,000.00 on or before June 10, 2020 and $500,000 on or before November 10, 2020. All advance royalty payments will be credited against the royalties owed by the Company through December 31, 2020. The value of the license is based on 10 million common stock valued at the market rate of the stock prevailing on August 8, 2019 and the royalty payments. The asset is amortized over the terms of license.
During the quarter ended December 31, 2019, the intangible asset was written off in the amount of $2,149,613 based on management’s review and evaluation of its recoverability.
As at December 31, 2019, no shares have been issued, the first tranche of 3,500,000 shares, in the amount of $260,050, have been recorded in shares to be issued as equity while the remaining 6,500,000 shares, in the amount of $482,950, are have been recorded in shares to be issued as liability. The initial payment of royalty payable of $308,140 has been paid during the year ended December 31, 2019 while the remaining in the amount of $1,191,860 is recorded as royalty payable.
10. FIXED ASSETS AND CAPITAL WORK IN PROGRESS
The Company’s subsidiary, Canary, initiated construction on its 44,000 square foot cannabis cultivation facility in September of 2017. Since then, extensive demolition and structural upgrades have been carried out at the site. As at December 31, 2019, the Company has capitalized $7,713,444 in payments to multiple vendors for the construction of the facility.
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).
Since the facility is not operating during the year ended December 31, 2019, no depreciation has been charged on all assets of Canary.
The Company’s other subsidiary, CannaKorp, has been utilizing its assets throughout the year and accordingly, has recorded depreciation expense of $29,025 during the year ended December 31, 2019.
Below is a breakdown of the consolidated fixed asset, category wise:
11. 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.
CannaKorp Inc.
Effective January 25, 2019, the Company entered into an Agreement and Plan of Share Exchange (“Exchange Agreement”) with CannaKorp Inc., a Delaware corporation (“CannaKorp”). Company had previously entered into a Letter of Intent with CannaKorp dated November 30, 2018 which was disclosed in the Company’s report on Form 8-K filed December 4, 2018.
The Exchange Agreement provides that, subject to its terms and conditions, the Company issued to the CannaKorp shareholders an aggregate of 30,407,412 shares of the Company’s common stock, based on a price per share of $0.10, in exchange for 100% of the issued and outstanding common stock of CannaKorp held by the CannaKorp shareholders. In addition, the Company will issue Common Stock Purchase Warrants (“Warrants”) in exchange for all outstanding and promised CannaKorp stock options. The Warrants will grant the holders thereof the right to purchase up to approximately 7,211,213 shares of the Company’s common stock. The Company will also assume all outstanding liabilities of CannaKorp. Upon the closing of the Exchange Agreement, CannaKorp will continue its business operations as a subsidiary of the Company. The transaction was closed effective March 1, 2019.
Due to the publicly traded nature of the Company’s shares of the common stock, the equity issuance of the shares was considered to be a more reliable measurement of fair market value of the transaction compared to having a separate valuation of the net assets.
This acquisition was accounted for using the acquisition method of accounting. The fair value of assets, liabilities and intangible assets and the purchase price allocation as of March 1, 2019 was as follows:
The purchase consideration of 30,407,412 shares and 7,211,213 warrants of the Company’s common stock valued as detailed below:
The fair value of these warrants was measured at the date of acquisition using the Black-Scholes option pricing model using the following assumptions:
· Forfeiture rate of 0%;
· Stock price of $0.108 per share;
· Exercise price between the range of $0.13 to $0.15 per share
· Volatility at 635.49%
· Risk free interest rate of 2.55%;
· Expected life of 2 years; and
· Expected dividend rate of 0%
During the quarter ended December 31, 2019, the goodwill was revaluated after the completion of CannaKorp’s audit of the year ended December 31, 2018. This resulted in changing the balance on acquisition date, March 1, 2019 thereby increasing the goodwill by $369,315 to $6,071,627.
During the year ended, December 31, 2019, the Company identified circumstances which would call for evaluation of goodwill impairment and therefore impaired $1,485,925 reducing the goodwill related to the CannaKorp to $4,585,702.
As at December 31, 2019, there were 8,724,327 (2018: nil) warrants outstanding, fully vested and with a remaining contractual life term of 1.16 years (2018: nil).
Visava Inc./Canary Rx Inc.
On June 27, 2018, the Company entered into an Agreement and Plan of Share Exchange (“Exchange Agreement”) with Visava Inc., a private Ontario, Canada corporation (“Visava”). Visava owns 100% of Canary Rx Inc., a Canadian corporation that holds a leasehold interest in a parcel of property located in Ontario’s Garden Norfolk County for the production of cannabis.
Pursuant to the Agreement, the Company acquired 100% of the issued and outstanding shares of Visava Inc. in exchange for the issuance of 25,500,000 shares of the Company’s Common Stock and will issue to the Visava shareholders, prorata Common Stock Purchase Warrants purchasing an aggregate of 25,000,000 shares of the Company’s Common Stock at a price per share of $0.10 for a period of two years following the issuance date of the Warrants. As a result of this transaction, Visava Inc. became a wholly owned subsidiary of the Company and the former shareholders of Visava Inc. owned approximately 46.27% of the Company’s shares of Common Stock. The transaction was closed effective August 2, 2018.
This acquisition was accounted for using the acquisition method of accounting. The fair value of assets, liabilities and intangible assets and the purchase price allocation as of August 2, 2018 was as follows:
The fair value of these warrants was measured at the date of acquisition using the Black-Scholes option pricing model using the following assumptions:
· Forfeiture rate of 0%;
· Stock price of $0.067 per share;
· Exercise price of $0.10 per share
· Volatility at 329%
· Risk free interest rate of 2.66%;
· Expected life of 2 years; and
· Expected dividend rate of 0%
As at December 31, 2019, there were 25,000,000 (2018: 25,000,000) warrants outstanding, fully vested and with a remaining contractual life term of 0.59 years.
During the year ended December 31, 2019, the Company has identified no circumstances which would call for further evaluation of goodwill impairment related to Canary.
Goodwill
The Company tests for impairment of goodwill at the reporting unit level. In assessing whether goodwill is impaired, the Company utilize the two-step process as prescribed by ASC 350. The first step of this test compares the fair value of the reporting unit, determined based upon discounted estimated future cash flows, to the carrying amount, including goodwill. If the fair value exceeds the carrying amount, no further work is required and no impairment loss is recognized. If the carrying amount of the reporting unit exceeds the fair value, the goodwill of the reporting unit is potentially impaired and step two of the goodwill impairment test would need to be performed to measure the amount of an impairment loss, if any. In the second step, the impairment is computed by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of the goodwill. If the carrying amount of the reporting unit’s goodwill is greater than the implied fair value of its goodwill, an impairment loss in the amount of the excess is recognized and charged to statement of operations.
12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable amounting to $2,494,588 as at December 31, 2019, primarily represents consulting and construction services related to capital work in progress amounting to $1,079,498, interest on promissory notes and loan amounting to $53,945, marketing services cost amounting to $18,115, valuation fee accrual of $3,500, accounting fee accrual of $2,500 and review fee accrual of $3,000, and outstanding professional fees of $942,000.
Accounts payable amounting to $1,739,765 as at December 31, 2018, primarily represents consulting and construction services related to capital work in progress amounting to $ 1,330,693, interest on promissory notes amounting to $133,082, advertising and promotion services amounting to $332, marketing services cost amounting to $13,650, valuation fee accrual of $3,500, accounting fee accrual of $2,500 and review fee accrual of $3,000, and outstanding professional fees of $54,391.
13. RELATED PARTY TRANSACTIONS AND BALANCES
During the year ended December 31, 2019, $nil (December 31, 2018: $300,000) was recorded as management services fee payable to Rubin Schindermann and Alexander Starr, who are shareholders and former officers in the Company. The amount is included in the related party balance as at December 31, 2019.
They were issued 14,834,850 shares (December 31, 2018: 5,529,412 shares) for these services performed and to settle the shareholder advance as of and for the year ended December 31, 2019. These were recorded at fair value in the amount of $1,665,329. Rubin Schindermann received 3,000,000 shares in quarter ended June 30, 2019 as part of the Employee Stock Incentive Plan.
On February 22, 2019, Alexander Starr terminated his employment agreement and the Company has guaranteed to pay $180,000 within the next twelve months starting from March 1, 2019 with payments being made twice a month. As at December 31, 2019, the balance outstanding is $60,000.
In addition to the above, during the quarter ended June 30, 2019, out of the above mentioned 14,834,850 share issuance, 8,234,850 shares, fair valued at $885,329 were issued to Alexander Star to settle the outstanding management service fee payable of $162,019 and shareholder advances in amount of $14,032. The company recorded a loss on settlement in the amount of $709,278.
Amounts payable to Rubin Schindermann and Alexander Starr as at December 31, 2019 were $nil and $nil, respectively (December 31, 2018: $200,00 and $139,697, respectively).
During the year ended, December 31, 2019, Saul Niddam, Chief Innovation Officer of Target & CEO of the subsidiary, CannaKorp, purchased 1,666,667 shares (December 31, 2018: nil shares) as consideration for private placement. These were recorded at fair value in the amount of $37,385 based on the cash proceeds received by the Company. These shares were issued in settlement of accrued wages owing. As at December 31, 2019, the balance outstanding is $30,796.
During the year ended December 31, 2019, $196,991 (December 31, 2018: $60,000) was paid as remuneration for management services as salaries to Randal MacLeod, who is shareholder in the Company and President of the subsidiary, Visava. In addition, 3,000,000 shares were issued as a bonus for completing the facility’s construction, fair valued in the amount of $294,000 included in management fee. As at December 31, 2019, the balance owing is $18,582.
During the year ended December 31, 2019, the Company settled with the loan holders provided to the Company's subsidiary, CannaKorp. Total amount subject to settlement was $817,876 which includes accrued interest and accrued payroll. The company settled by paying $954,374 as consideration of cash, 920,240 shares and warrants of 920,240 shares with an exercise price of $0.15 per share. This resulted in a settlement loss of $136,498. Of the total settlement amount, $40,000 is still outstanding to be paid.
During the year ended December 31, 2019, the Company has purchased goods and services amounting to $500,000 from a Euro Horti Tech which is owned by a shareholder of the Company.
Additionally, on December 20, 2019, one of the Company’s shareholders provided a loan up to $769,900 (CAD $1,000,000). The loan bears an annual interest rate of 16%, is secured by all assets owned by the Company and its subsidiaries and matures in one year that is December 20, 2020. As at December 31, 2019, the Company was advanced $269,465 (CAD $350,000). Interest expense charged in amount of $1,279 (CAD $1,688) is included in interest and bank charges on the consolidated statement of loss and comprehensive loss and accrued interest is included in accounts payable and accrued liabilities on the consolidated balance sheet.
As at December 31, 2019, the remaining balance of $12,817 in payable to related parties are management fee accruals for services performed by key management personals (December 31, 2018: $62,500).
During the year ended December 31, 2019, the Company has purchased consulting services amounting to $26,100 from GTA Angel Group which is owned by the Company’s CEO. The balance is still outstanding as at December 31, 2019 and is included in accounts payable and accrued liabilities.
During the year ended December 31, 2019, the Company has purchased consulting services amounting to $26,100 from BaK Consulting which is owned by one of the Company’s director. The balance is still outstanding as at December 31, 2019 and is included in accounts payable and accrued liabilities.
During the year ended December 31, 2019, the Company leases its principal executive office premise from Norlandam Marketing Inc., a company owned by one of directors and rent expense amounted to $38,324. There is no balance outstanding as at December 31, 2019. Refer to Note 17 for the lease terms.
During the year ended December 31, 2019, the Company had advanced $130,883 to ProCanna Bioscience Inc. (“ProCanna”), a company owned by one of employees of the Company and expensed the entire amount as the employee’s management fee for management services provided by the employee. There is no balance owing or outstanding from ProCanna as at December 31, 2019.
During the year ended December 31, 2019, the Company expensed $1,481,284 (2018: $362,500) in management service fee for services provided by CEO, President, CFO and other key officers of the company.
During the year ended December 31, 2018, a loan owed to one of the Company’s shareholders in the amount of $72,570 (CAD $99,000) was extinguished in exchange of 15,800,100 Class A common shares of the Company’s subsidiary Visava Inc. Thereby, a gain on loan settlement in the amount of $74,933 (CAD $99,000) was recorded.
14. SHAREHOLDER ADVANCES
Shareholder advances represent expenses paid by the owners from personal funds. The amount is non-interest bearing, unsecured and due on demand. The amount of advance as at December 31, 2019 and December 31, 2018 was $nil and $209,046, respectively. Additionally, in the amount of $2,025 were receivable from a shareholder. The amounts repaid during the year ended December 31, 2019 and 2018 were $203,945 and $281,927, respectively, and during the year ended December 31, 2019, $133,423 was settled through issuance of shares of common stock. Refer to Note 13 for details.
15. CONVERTIBLE PROMISSORY NOTES
During the year ended December 31, 2019, the Company issued convertible promissory notes, details of which are as follows:
Convertible promissory note issued on October 18, 2019, amounting to $168,300 (Note R).
The key terms/features of the convertible note are as follows:
1. The maturity date of the Note is April 18, 2021.
2. Interest on the unpaid principal balance of this Note accrues at the rate of 12% per annum.
3. In the event the Note holder exercises the right of conversion, the conversion price will be equal to 75% of the lowest closing bid price of the Company’s common stock for the fifteen (15) trading days prior to the date of conversion.
4. The Company shall not be obligated to accept any conversion request before six months from the date of the note.
5. Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
Convertible promissory note issued on February 16, 2019, amounting to $103,000 (Note Q).
The key terms/features of the convertible note are as follows:
1. The maturity date of the Note is August 16, 2020.
2. Interest on the unpaid principal balance of this Note accrues at the rate of 12% per annum.
3. In the event the Note holder exercises the right of conversion, the conversion price will be equal to 61% of the lowest closing bid price of the Company’s common stock for the fifteen (15) trading days prior to the date of conversion.
4. The Company shall not be obligated to accept any conversion request before six months from the date of the note.
5. Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
During the quarter ended June 30, 2019, the Company settled the outstanding balance in full with a cash payment and recorded a loss of $35,173 as settlement of debt in the condensed consolidated statement of operations. The loss is due to the prepayment penalty as per the note agreement.
Convertible promissory note issued on December 24, 2018, amounting to $83,000 (Note P).
The key terms/features of the convertible note are as follows:
1. The maturity date of the Note is June 24, 2020.
2. Interest on the unpaid principal balance of this Note shall accrue at the rate of 12 % per annum.
3. In the event the Note holder exercises the right of conversion, the conversion price will be equal to 61% of the average of the three (3) lowest trading price of the Company’s common stock for the fifteen (15) trading days prior to the date of conversion.
4. The Company shall not be obligated to accept any conversion request before six months from the date of the note.
5. Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
During the quarter ended June 30, 2019, the Company settled the outstanding balance in full with a cash payment and recorded a loss of $36,085 as settlement of debt in the condensed consolidated statement of operations. The loss is due to the prepayment penalty as per the note agreement.
Convertible promissory note issued on November 28, 2018, amounting to $75,000 (Note O).
The key terms/features of the convertible note are as follows:
1. The maturity date of the Note is November 28, 2019.
2. Interest on the unpaid principal balance of this Note shall accrue at the rate of 10 % per annum.
3. In the event the Note holder exercises the right of conversion, the conversion price will be equal to 52% of the lowest trading price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion.
4. Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
During the quarter ended June 30, 2019, the Company settled the outstanding balance in full with a cash payment and recorded a loss of $27,526 as settlement of debt in the condensed consolidated statement of operations. The loss is due to the prepayment penalty as per the note agreement.
Convertible promissory note issued on September 5, 2018, amounting to $103,000 (Note N).
The key terms/features of the convertible note are as follows:
1. The maturity date of the Note is December 5, 2019.
2. Interest on the unpaid principal balance of this Note shall accrue at the rate of 12 % per annum.
3. In the event the Note holder exercises the right of conversion, the conversion price will be equal to 61% of the average of the three (3) lowest trading price of the Company’s common stock for the fifteen (15) trading days prior to the date of conversion.
4. The Company shall not be obligated to accept any conversion request before six months from the date of the note.
5. Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
During the quarter ended March 31, 2019, the Company settled the outstanding balance in full with a cash payment and recorded a loss of $27,368 as settlement of debt in the condensed consolidated statement of operations. The loss is due to the prepayment penalty as per the note agreement.
Convertible promissory note issued on August 9, 2018, amounting to $65,000 (Note M).
The key terms/features of the convertible note are as follows:
1. The maturity date of the Note is September 9, 2019.
2. Interest on the unpaid principal balance of this Note shall accrue at the rate of 10% per annum.
3. In the event the Note holder exercises the right of conversion, the conversion price will be equal to 52% of the lowest closing bid price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion.
4. Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
During the quarter ended March 31, 2019, the Company settled the outstanding balance in full with a cash payment and recorded a loss of $23,342 as settlement of debt in the condensed consolidated statement of operations. The loss is due to the prepayment penalty as per the note agreement.
Convertible promissory note issued on January 16, 2018, amounting to $28,000 (Note L).
The key terms/features of the convertible note are as follows:
1. The maturity date of the Note was October 30, 2018.
2. Interest on the unpaid principal balance of this Note accrues at the rate of 12 % per annum.
3. In the event the Note holder exercises the right of conversion, the conversion price will be equal to 58% of the lowest closing bid price of the Company’s common stock for the fifteen (15) trading days prior to the date of conversion.
4. As maturity date has passed, the Company is now obligated to accept all conversion requests on the note.
5. Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
During the year ended December 31, 2017, the Company issued convertible promissory notes, details of which are as follows:
Convertible Redeemable note issued on November 28, 2017, amounting to $33,000 (Note K).
The key terms/features of the convertible note are as follows:
1. The maturity date of the Note was March 10, 2019.
2. Interest on the unpaid principal balance of this Note shall accrue at the rate of 12 % per annum.
3. In the event the Note holder exercises the right of conversion, the conversion price will be equal to 58% of the lowest closing bid price of the Company’s common stock for the twenty (15) trading days prior to the date of conversion. During June 2018, an amendment to the note was executed where by the conversion price was fixed at $0.0151 per share.
4. As maturity date has passed, the Company is now obligated to accept all conversion requests on the note.
5. Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
Convertible promissory note issued on May 5, 2017 amounting to $23,000 (Note J).
The key terms/features of the convertible note are as follows:
1. The maturity date of the note was February 20, 2018
2. Interest on the unpaid principal balance of this note accrued at the rate of 12% per annum.
3. When the Note holder exercised the right of conversion, the conversion price was equal to 58% of the average of the three (3) lowest closing bid price of the Company’s common stock for the fifteen (15) trading days prior to the date of conversion.
4. The Company was not be obligated to accept any conversion request before six months from the date of the note.
5. Conversion was limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
Note J’s full principal amount and its associated accrued interest was converted during the year ended December 31, 2018.
Convertible promissory note issued on January 31, 2017 amounting to $33,000 (Note I).
The key terms/features of the convertible note are as follows:
1. The maturity date of the note was November 5, 2017
2. Interest on the unpaid principal balance of this note accrues at the rate of 12% per annum.
3. In the event the Note holder exercises the right of conversion, the conversion price will be equal to 58% of the average of the three (3) lowest closing bid price of the Company’s common stock for the fifteen (15) trading days prior to the date of conversion.
4. As maturity date has passed, the Company is now obligated to accept all conversion requests on the note.
5. Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
During the year ended December 31, 2016, the Company issued convertible promissory notes, details of which are as follows:
Convertible Redeemable note issued on October 18, 2016, amounting to $140,000 (Note H), representing commitment fee owed by the Company pursuant to Securities Purchase Agreement entered into by the Company dated October 18, 2016. The commitment fee was considered a prepaid asset. During the three months ended September 30, 2017, the pending S1 registration statement was withdrawn, removing the benefit associated with the prepaid asset. The amount was therefore written off as commitment fee in the statement of operations.
During the quarter ended March 31, 2018, the Company obtained forgiveness of the liability and the interest associated with the note payable and recorded a gain of $153,471 as forgiveness of debt in the consolidated statement of operations.
The key terms/features of the convertible note are as follows:
1. The maturity date of the Note was July 18, 2017.
2. Interest on the unpaid principal balance of this Note accrues at the rate of 7 % per annum.
3. In the event the Note holder exercises the right of conversion, the conversion price will be equal to 80% of the lowest trading price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion.
4. As maturity date has passed, the Company is now obligated to accept all conversion requests on the note.
5. Conversion is limited to the holder beneficially holding not more than 9.99% of the Company’s then issued and outstanding common stock after the conversion.
Convertible Redeemable notes issued on October 18, 2016, amounting to $100,000 and $25,000 (Notes F and G).
The key terms/features of the convertible note are as follows:
1. The maturity date of the Note was July 18, 2017.
2. Interest on the unpaid principal balance of this Note accrues at the rate of 7 % per annum.
3. In the event the Note holder exercises the right of conversion, the conversion price will be equal to 57.5% of the lowest trading price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion.
4. As maturity dates has passed, the Company is now obligated to accept all conversion requests on the note.
5. Conversion is limited to the holder beneficially holding not more than 9.99% of the Company’s then issued and outstanding common stock after the conversion.
During the six months ended June 30, 2018, the Company entered into a Debt Exchange Agreement with the holder of the convertible note F and G. The outstanding principal amounts of the notes were extinguished and settled by issuance of 2,500,000 common shares of the Company. The Company recorded a loss of $267,522 as a result of this settlement.
Convertible promissory note issued on May 13, 2016, amounting to $75,000 (Note D).
The key terms/features of the convertible note are as follows:
1. The maturity date of the note was May 13, 2017.
2. Interest on the unpaid principal balance of this note accrues at the rate of 8 % per annum.
3. In the event the Note holder exercises the right of conversion, the conversion price will be equal to 52% of the lowest closing bid price of the Company’s common stock for the twenty (20) trading days prior to the date of conversion.
4. As maturity date has passed, the Company is now obligated to accept all conversion requests on the note.
5. Conversion is limited to the holder beneficially holding not more than 4.99% of the Company’s then issued and outstanding common stock after the conversion.
Convertible promissory notes issued on March 1, 2016 amounting to $150,000 each to two investors (Notes B and C).
The key terms/features of the convertible notes are as follows:
1. The Holders have the right from six months after the date of issuance, and until any time until the Notes are fully paid, to convert any outstanding and unpaid principal portion of the Notes, into fully paid and non-assessable shares of Common Stock (par value $.0001).
2. The Notes are convertible at a fixed conversion price of 45% of the lowest trading price of the Common Stock as reported on the OTC Pink maintained by the OTC Markets Group, Inc. upon which the Company’s shares are currently quoted, for the four (4) prior trading days including the day upon which a Notice of Conversion is received by the Company. During June 2018, an amendment to the note was executed where by the conversion price was fixed at $0.0151 per share.
3. Interest on the unpaid principal balance of this Note accrues at the rate of twenty-four (24 %) per annum.
4. Beneficial ownership is limited to 4.99%.
5. The Notes may be prepaid in whole or in part, at any time during the period beginning on the issue date and ending on the maturity date September 1, 2016, beginning at 100% of the outstanding principal, accrued interest and certain other amounts that may be due and owing under the Notes.
Interest amounting to $75,348 was accrued for the year ended December 31, 2019 (2018: $67,923).
Principal amount outstanding as at December 31, 2019 was $200,488 of which $32,188 is current portion while $168,300 is the non-current portion (2018: $479,079 - all current portion).
All notes maturing prior to the date of this report are outstanding.
Derivative liability
During the year ended December 31, 2019, holders of convertible promissory notes converted principal and interest amounting to $159,908 and $77,353, (2018: $318,494 and $5,281) respectively. The Company recorded and fair valued the derivative liability as follows:
During the quarter ended December 31, 2018, the Company changed its valuation method from Black-Scholes Model to Multinomial Lattice Model. This is considered a change in the Company’s estimate and therefore, it has been accounted prospectively.
Key assumptions used for the valuation of convertible notes
Derivative element of the convertible notes was fair valued using multinomial lattice model. Following assumptions were used to fair value these notes as at December 31, 2019:
· Projected annual volatility of 170.5% to 208.1%;
· Discount rate of 1.55% to 1.59%;
· Stock price of $0.01976;
· Liquidity term of 0.25 to 1.38 years;
· Exercise price of $0.0072 to $0.0151 to and
· Dividend yield of 0%;
During the quarter ended December 31, 2018, the Company issued three (3) new notes, resulting in the initial derivative liability recognized in the amount of $322,668. As a result, the Company recorded an initial discount in the amount of $260,380 and a loss on issuance of notes (day one derivative) in the amount of $62,288. During the quarter, $2,923 of the discount has been amortized and the remaining portion expected to be amortized over the life of the notes in year ended December 31, 2019.
16. STOCKHOLDERS’ EQUITY
On July 3, 2017, the Company filed an amended Certificate of Incorporation in Delaware to increase its authorized common stock to 20,000,000,000 shares. The Company’s authorized preferred stock remained at 20,000,000 shares. 1,000,000 shares of Preferred Stock having a par value of $0.0001 per share shall be designated as Series A Preferred Stock (“Series A Stock”).
Effective September 25, 2018, the Company filed an amended Certificate of Incorporation in Delaware to decrease its authorized common stock to 850,000,000 shares. The Company’s authorized preferred stock remained at 20,000,000 shares.
Capitalization
The Company is authorized to issue 850,000,000 shares of common stock, par value $0.0001, of which 571,145,968 shares are outstanding as at December 31, 2019 (at December 31, 2018: 93,624,289 shares of common stock issued and outstanding). The Company is also authorized to issue 20,000,000 shares of preferred stock, par value $0.0001, of which 1,000,000 shares were outstanding as at December 31, 2019 and 2018.
As of December 31, 2019, convertible notes, warrants and preferred stock warrants outstanding could be converted into 27,535,127 (2018: 9,125,002), 412,654,530 (2018: 88,094,634) and 100,000,000 (2018: 100,000,000) shares of common stock, respectively. These together will exceed the authorized common share limit; however, majority of the warrants are unlikely to be exercised due to the depressed share price.
Preferred Stock
Shares of preferred stock may be issued from time to time in one or more series as may be determined by the board of directors. The board of directors may fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof without any further vote or action by the stockholders of the Company, except that no holder of preferred stock shall have pre-emptive rights. Any shares of preferred stock so issued would typically have priority over the common stock with respect to dividend or liquidation rights. The board of directors does not at present intend to seek stockholder approval prior to any issuance of currently authorized stock, unless otherwise required by law or otherwise.
Series A Preferred Stock (“Series A Stock”)
Dividends shall be declared and set aside for any shares of Series A Stock in the same manner and amount as for the Common Stock. Series A Stock, as a class, shall have voting rights equal to a multiple of 2X the number of shares of Common Stock issued and outstanding that are entitled to vote on any matter requiring shareholder approval. The Series A Stock holders shall not vote as a separate class, but shall vote together with the common stock on all matters, including any amendment to increase or decrease the authorized capital stock. Upon the voluntary or involuntary dissolution, liquidation or winding up of the corporation, the assets of the Company available for distribution to its shareholders shall be distributed to the holders of common stock and the holders of the Series A Stock ratably without any preference to the holders of the Series A Stock. Shares of Series A Stock can be converted at any time into fully-paid and nonassessable shares of Common Stock at the rate of One Hundred (100) shares of Common Stock for each One (1) share of Series A Stock.
Common Stock
Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative voting rights.
Subject to preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the board of directors in its discretion from funds legally available therefor.
Holders of common stock have no pre-emptive rights to purchase the Company’s common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the common stock. The Company may issue additional shares of common stock which could dilute its current shareholder's share value.
During the quarter ended March 31, 2018, the Company issued 5,529,412 shares of common stock to Rubin Schindermann and Alexander Starr as consideration to settle outstanding management fee recorded at fair value of $84,000, of which $9,000 had previously been recorded in Accounts Payable. Additionally, the Company issued 5,156,933 shares of common stock to individuals on conversion of convertible promissory notes amounting to $21,518 and 300,000 shares were issued as consideration for consulting services amounting to $3,600.
During the quarter ended June 30, 2018, the Company issued 3,140,506 shares of common stock to individuals on conversion of convertible promissory notes amounting to $47,826 and 500,000 shares were issued as consideration for consulting services amounting to $22,500. Furthermore, the Company issued 2,500,000 shares of common stock to the note holder for settlement of debt. See Note 15 for detail.
During the quarter ended September 30, 2018, the Company issued 4,551,990 shares of common stock to individuals on conversion of convertible promissory notes amounting to $85,695. In addition to that, the Company issued 25,500,000 shares of common stock to shareholders of Visava Inc. as per the Exchange Agreement mentioned in Note 11 and 750,000 shares were issued as consideration for marketing services amounting to $46,575.
During the quarter ended December 31, 2018, the Company issued 7,964,528 shares of common stock to individuals on conversion of convertible promissory notes amounting to $126,384.
During the year ended December 31, 2018, 63,094,634 shares of common stock to be issued as consideration for private placements. These were recorded at fair value of $2,735,545, based on the cash proceeds received by the Company. As part of consideration for the private placement, the Company also agreed to issue warrants to purchase 63,094,634 shares of common stock. Out of the total amount of shares to be issued, the Company issued 22,757,102 shares during quarter ended December 31, 2018. Refer below for additional details regarding the warrant issued under the subheading “Warrants”.
Additionally, $215,680 were received as partial consideration for private placements and since signed agreements were executed during December 2018, the remaining balance of $220,319 has been classified as a Stock subscription receivable under equity. During the quarter ended March 31, 2019, the remaining balance was collected.
During the quarter ended March 31, 2019, the Company issued 588,237 shares of common stock to individuals on conversion of convertible promissory notes amounting to $30,000. Additionally, the Company issued 30,407,412 shares of common stock to shareholders of CannaKorp Inc. as per the Exchange Agreement mentioned in Note 11.
During the quarter ended March 31, 2019, the Company sold 226,441,371 shares of common stock as consideration for private placements. These were recorded at fair value of $4,558,282, based on the cash proceeds received by the Company. As part of consideration for the private placement, the Company also agreed to issue warrants to purchase 226,554,129 shares of common stock.
Effective April 1, 2019, the Company changed its functional currency from United States Dollar to Canadian Dollar thereby having an impact on prepaid expenses, additional paid in capital and accumulated comprehensive income (loss) in the amount of $600, $339,007 and $339,607. The presentation currency of the Company has remained unchanged at United States Dollar.
During the quarter ended June 30, 2019, the Company issued 10,562,252 shares of common stock to individuals on conversion of convertible promissory notes amounting to $159,490.
250,000 shares of common stock to be issued as consideration of the intellectual property rights granted by Smit to the Company’s subsidiary, Canary. These were recorded at fair value of $27,000, based on the market price of the Company’s stock on the date of agreement. These were initially recorded under shares to be issued and allocated between common stock and additional paid in capital during the quarter ended June 30, 2019 when the shares were issued.
During the quarter ended June 30, 2019, the Company issued 6,600,000 and 8,234,850 shares of common stock to Rubin Schindermann and Alexander Starr, respectively, as consideration to settle outstanding management fee and shareholder advances recorded at fair value of $1,665,329. Plus, 3,000,000 shares of common stock were issued as a bonus for completing the facility’s construction, fair valued in the amount of $294,000. Refer to Note 13 for additional details. In addition, 500,000 shares were issued as consideration for consulting services amounting to $48,000.
During the three months ended, June 30, 2019, Saul Niddam, Chief Operating Officer of the subsidiary, CannaKorp purchased 1,666,667 shares (December 31, 2018: nil shares) as consideration for private placement. These were recorded at fair value in the amount of $37,385 based on the cash proceeds received by the Company.
During the quarter ended June 30, 2019, the Company sold 126,109,709 shares of common stock as consideration for private placements. These were recorded at fair value of $4,194,665, based on the cash proceeds received by the Company. As part of consideration for the private placement, the Company also agreed to issue warrants to purchase 81,139,987 shares of common stock.
During the quarter ended June 30, 2019, the Company issued 358,520,843 shares for past and current private placements. Refer below for additional details regarding the warrant issued under the subheading “Warrants”. Additionally, proceeds of $358,074 were received as consideration for private placements, however signed agreements were not executed as at June 30, 2019 and these have therefore been classified as a liability. Subsequently, during the quarter ended September 30, 2019, the agreements were executed and shares were issued, therefore, transfer to equity.
During the quarter ended September 30, 2019, the Company issued 1,324,503 shares of common stock to an individual on conversion of convertible promissory notes amounting to $20,000.
During the quarter ended September 30, 2019, the Company sold 3,879,524 shares of common stock as consideration for private placements. These were recorded at fair value of $229,545 based on the cash proceeds received by the Company. As part of consideration for the private placement, the Company also agreed to issue warrants to purchase 8,724,327 shares of common stock.
During the quarter ended September 30, 2019, the Company issued 18,459,885 shares for past and current private placements. Refer below for additional details regarding the warrant issued under the subheading “Warrants”.
During the quarter ended December 31, 2019, the Company issued 1,243,107 shares of common stock to two individuals on conversion of convertible promissory notes amounting to $18,771.
During the quarter ended September 30, 2019, the Company sold 454,545 shares of common stock as consideration for private placements. These were recorded at fair value of $7,576 based on the cash proceeds received by the Company.
During the quarter ended December 31, 2019, the Company issued 4,876,691 shares for past and current private placements. Refer below for additional details regarding the warrant issued under the subheading “Warrants”.
During the quarter ended December 31, 2019, the Company had found an error in issuing in the incorrect private placement and therefore had recorded a subscription receivable in the amount of $220,000 based on the cash proceeds of the private placement and this was offset by shares to be issued, therefore, a net zero effect on equity. Subsequent to the year end, during quarter ended March 31, 2020, the incorrect number of shares, 11,000,000, were cancelled.
Shares to be issued include the following:
4,006,832 numbers of shares outstanding as at December 31, 2019 amounting to $611,261 as details below:
80,000 shares of common stock to be issued as compensation to advisers and consultants. These were recorded at fair value of $52,000, based on the market price of the Company’s stock on the date of issue.
35,000 to be issued as settlement of amount due for website development services amounting to $247,306. The fair value of the shares on the date of settlement was $21,000, resulting in gain on settlement amounting to $226,306 during year ended December 31, 2017.
703,439 shares of common stock to be issued as consideration for private placements with a fair value of $37,840 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.
930,240 shares of common stock to be issued as consideration for settlement of loan based on a fair value of $80,838. Refer Note 13 for details.
3,500,000 shares of common stock to be issued as consideration for intangible assets based on a fair value of $260,050. Refer Note 9 for details.
Warrants
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:
As at December 31, 2019, related to private placements, there were 379,513,077 (2018: 63,094,634) warrants were outstanding, fully vested and with a remaining contractual life term of a range between 0.49 and 2.62 (2018: 1.49 and 2.98) years.
As at December 31, 2019, related to the acquisition of the Company’s subsidiaries, Visava Inc. and CannaKorp Inc, there were 25,000,000 (2018: 25,000,000) and 7,211,213 (2018: nil) warrants outstanding, fully vested and with a remaining contractual life term of 0.59 (2018: 1.59) and 1.16 (2018: N/A) years, respectively.
As at December 31, 2019, related to the settlement of the Company’s subsidiary, CannaKorp’s loan, there were 930,240 (2018: N/A) warrants outstanding, fully vested and with a remaining contractual life term of 1.24 (2018: N/A).
17.
COMMITMENTS
The Company is a party to a 5-year lease agreement (initiated on September 2018) with respect to its office premises. Total minimum rent for the premises is $838 (CAD $1,100) plus applicable taxes per month. On the first anniversary date, the minimum rent per month will increase to $876 (CAD $1,138) plus applicable taxes, on the second anniversary date, the minimum rent per month will increase to $897 (CAD $1,166) plus applicable taxes, on the third anniversary date, the minimum rent per month will increase to $919 (CAD $1,193) plus applicable taxes, on the fourth anniversary date, the minimum rent per month will increase to $940 (CAD $1,221) plus applicable taxes.
The Company’s subsidiary, Canary, is a party to a 10-year lease agreement (initiated on July 2014) with respect to its facility to produce Medical Marijuana. Total minimum rent for the building is $1,925 (CAD $2,500) plus applicable taxes per month. Effective January 1, 2019, the minimum rent was increased to $19,248 (CAD $25,000) plus applicable taxes per month. The lease agreement has three 10-year renewal options and on each anniversary date, commencing from January 1, 2020, the minimum rent will increase by the cumulative annual percentage increase in the Canadian Consumer Price Index.
Deferred rent is due to the amortization of the operating lease expense resulting from the use of straight-line method versus the non-level lease payments and tenant improvements being made in the Company’s production facility paid by the Company’s landlord in amount of $1,716,694 (CAD $2,331,063). As at December 31, 2019, The Company has recorded tenant improvement allowance incentive amount in work in progress. The Company will be amortizing these deferred rent charges on a monthly basis in the amount of $28,042 (CAD $36,423) over the remaining term ending on June 30, 2024 as a reduction in rent expense.
The Company’s subsidiary, CannaKorp, is a party to a monthly lease agreement (initiated on December 1, 2014) with respect to its facility, approximately 1,000 square feet of space located in a multi-tenant building. Total minimum rent for the premises is $1,200 plus applicable taxes per month, tenancy may be terminated by a sixty (60) days written notice by the Company or the landlord.
For the year ended December 31, 2019, rent expense was $183,105 (2018: $36,072).
Future minimum rent payments for above leases are as follows:
18. INCOME TAXES
Income taxes
The Tax Cuts and Jobs Act (the “Act”) enacted on December 22, 2017 reduces the US federal corporate tax rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of December 31, 2018, the Company has not completed the accounting for the tax effects of enactment of the Act; however, as described below, it has made a reasonable estimate of the effects on existing deferred tax balances. These amounts are provisional and subject to change.
The provision for income taxes is calculated at US corporate tax rate of approximately 21% (2018: 21%) as follows:
Deferred tax assets
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31:
At December 31, 2019, the Company performed a comprehensive analysis of its tax estimates and revised comparative figures accordingly, which had no net impact on deferred tax recorded. The Company had net operating loss carry forwards of approximately $9,748,843 (2018: $2,683,112) that may be offset against future taxable income from the year by 2039. No tax benefit has been reported in the December 31, 2019 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. The Company is taxed in the United States at the Federal level. All tax years since inception are open to examination because no tax returns have been filed.
19. CONTINGENCIES
During the year ended December 31, 2019, a terminated employee of Canary has filed a lawsuit against the Company amounting to approximately $1,616,790 (CAD $2,100,000) in Ontario, Canada. Currently, the Company is defending its position and believes that the ultimate decision will be in favor of the Company. Due to the uncertainty of timing and the amount of estimated future cash flows, if any, relating to this claim, no provision has been recognized.
During the year ended December 31, 2019, a terminated employee of Canary had delivered a demand letter claiming wrongful dismissal. A settlement was reached in the amount of $5,678 (CAD $7,375) which were due within 30 days of the execution of the settlement agreement. To date the Company has not made any payment and is in violation of the agreement. Due to the immaterial amount, no provision has been recognized.
During the year ended December 31, 2019, a terminated employee of Canary had delivered a demand letter claiming wrongful dismissal plus unpaid wages, expenses and vacation pay for a minimum amount of $53,440 (CAD $69,412). Currently, the Company is defending its position and believes that the ultimate decision will be in favor of the Company, however, the Company is open to a settlement. As at December 31, 2019, $33,424 (CAD $33,424) has been recorded in the Canary’s payable. Due to the uncertainty of timing and the amount of estimated future cash flows, if any, relating to this claim, no further amount has been recognized.
A complaint for damages in the amount of $150,000 was lodged against CannaKorp by the former Chief Financial Officer of the CannaKorp for outstanding professional fees. No claim has been registered and is working with management for a settlement. The Management are of the view that no material losses will arise in respect of the legal claim at the date of these financial statements. As at December 31, 2019, $96,480 has been recorded in the CannaKorp’s payable. Due to the uncertainty of timing and the amount of estimated future cash flows, if any, relating to this claim, no further amount has been recognized.
A complaint for damages was lodged against the Company by cGreen for missed payment of the January 2020, non issuance of 7 million shares as promised in the agreement and loss in the share value. No claim has been registered and is working with management for a settlement. The management are of the view that no material losses will arise in respect of the legal claim at the date of these financial statements. Refer to Note 9, for royalty payable and shares to be issued balance as at December 31, 2019. Due to the uncertainty of timing and the amount of estimated future cash flows, if any, relating to this claim, no further amount has been recognized.
20. SUBSEQUENT EVENTS
The Company’s management has evaluated subsequent events up to April 14, 2020, the date the consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined the following material subsequent events:
As disclosed in Note 16, during January 2020, the Company cancelled 11,000,000 shares.
During February 2020, Target and Canary settled with a vendor providing equipment to Canary for outstanding dues. The settlement agreement cleared the outstanding balance of $100,150 due to the vendor and the vendor removed the equipment from Canary’s premises.
Effective March 11, 2020, the Company and the Company’s shareholder, as mentioned in Note 13, (“Lender”) entered into a First Amending Agreement with the Lender pursuant to which the Lender agreed to lend the Company an additional $230,970 (CAD $300,000). The new loan carries interest at the rate of 3.0146% per month. The loan is payable upon demand of the Lender. The net proceeds to the Company is $207,873 (CAD $270,000) after the payment of a $23,097 (CAD $30,000) loan fee to the Lender. The remaining terms and conditions of the Original Loan remain in full force and effect.
During March 2020, Canary and 9258159 Canada Inc. (“Thrive”) signed a letter of intent (the "Letter of Intent") to create a joint venture which will enter into a Master Services Agreement (the “MSA”) with Canary in respect of the cultivation, processing and sale of cannabis at Canary’s licensed site.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no changes in or disagreements with accountants on accounting and financial disclosure for the period covered by this report.
Item 9A.
Item 9A. Controls and Procedures
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO Framework or COSO). Based on this evaluation, management has concluded that our internal control over financial reporting was not effective as of December 31, 2019. Management identified segregation of duties & maintenance of current accounting records as material weaknesses in internal control over financial reporting.
Management is in the continuous process of improving the internal control over financial reporting by engaging a Certified Public Accountant as a consultant to mitigate some of the identified weaknesses. The Company is still in its development stage and intends on bringing in necessary resources to address the weaknesses once full operations have commenced. Management concludes that internal control over financial reporting is ineffective at December 31, 2019.
Management’s Report of Internal Control over Financial Reporting
Our management carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, our chief executive officer and chief financial officer each concluded that as of the Evaluation Date, our disclosure controls and procedures are ineffective 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 time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting during its fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
Item 9B.
Item 9B. Other information
Not applicable.
PART III
Item 10.
Item 10. Directors, Executive Officers, and Corporate Governance;
The Directors and Officers of the Company are as follows:
Management of Target Group Inc.
Set forth below are the names of the directors and officers of the Company, all positions and offices with the Company held, the period during which they have served as such, and the business experience during at least the last five years:
Anthony Zarcone
Anthony Zarcone serves as the Chief Executive Officer and a director of the Company. He is an entrepreneur, property manager and co-founder of a food retail/wholesale business in southern Ontario, Canada.
Barry Alan Katzman
Barry Alan Katzman serves a director of the Company. Mr. Katzman was the President and CEO of Tidal Health Solutions, a licensed premium medical cannabis company based in New Brunswick, Canada specializing in hospital-grade medical cannabis.
Saul Niddam
Saul Niddam serves a director of the Company. He is the President of Norlandam Marketing Inc., a sales and marketing agency catering to national brands across North America. Mr. Niddam is also the Chief Executive Officer of the Company’s subsidiary, CannaKorp Inc.
Frank Monte
Frank Monte serves a director of the Company. He is the principal owner and managing director of Brands Gone Wild of Brampton, Ontario, Canada which operates retail outlets through Canada.
Rubin Schindermann
Rubin Schindermann serves as a director of the Company. Mr. Schindermann has been in the business community for over 30 years. In 2002 he established Rubin and Associates Financial Services where he provided services to several private and public companies while providing corporate governance and management direction to ensure complete transparency for shareholders. Since 2011, Mr. Schindermann has served as president and director of Hard Asset Capital Corp. Mr. Schindermann holds a Bachelor of Arts degree in science. Mr. Schindermann holds a BA from the University of Saratov USSR and a Degree in Accountancy from the University of Tel-Aviv.
Term of Office
Our director is appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our bylaws. Our officers, if any, are appointed by our board of directors and hold office until removed by the board. All officers and directors listed above will remain in office until the next annual meeting of our stockholders, and until their successors have been duly elected and qualified. There are no agreements with respect to the election of Directors. We have not compensated our Directors for service on our Board of Directors, any committee thereof, or reimbursed for expenses incurred for attendance at meetings of our Board of Directors and/or any committee of our Board of Directors. Officers are appointed annually by our Board of Directors and each Executive Officer serves at the discretion of our Board of Directors. We do not have any standing committees. Our Board of Directors may in the future determine to pay Directors’ fees and reimburse Directors for expenses related to their activities.
None of our Officers and/or Directors have filed any bankruptcy petition, been convicted of or been the subject of any criminal proceedings or the subject of any order, judgment or decree involving the violation of any state or federal securities laws within the past five (5) years.
Audit Committee
At the present time, we do not have a standing audit committee of the Board of Directors. Management has determined not to establish an audit committee at present because of our limited resources and limited operating activities do not warrant the formation of an audit committee or the expense of doing so. We do not have a financial expert serving on the Board of Directors or employed as an officer based on management’s belief that the cost of obtaining the services of a person who meets the criteria for a financial expert under Item 401(e) of Regulation S-B is beyond its limited financial resources and the financial skills of such an expert are simply not required or necessary for us to maintain effective internal controls and procedures for financial reporting in light of the limited scope and simplicity of accounting issues raised in its consolidated financial statements at this stage of its development. We have not formed a Compensation Committee, Nominating and Corporate Governance Committee or any other Board Committee as of the filing of this Annual Report.
Certain Legal Proceedings
No director, nominee for director, or executive officer of the Company has appeared as a party in any legal proceeding material to an evaluation of his ability or integrity during the past five years.
Compliance with Section 16(a) of the Exchange Act
Our common stock is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, (“Exchange Act”). Our officers, directors and persons who beneficially hold more than 10% of our issued and outstanding equity securities are required to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Except as noted below, as of the date of this report, all persons required to file report pursuant to Section 16 of the Exchange have filed the required reports.
Delinquent Section 16(a) Reports
As of the date of this report, our director Barry Katzman has not filed Form 3, Initial Statement of Beneficial Ownership of Securities.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics (“Code”) that applies to our officers, directors and employees including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. A copy of the Code will be provided to any person upon request, without charge. A request for a copy of the Code should be addressed in writing to the Company at 55 Administration Road, Unit 13, Vaughan, Ontario, Canada L4K 4G9.
Item 11.
Item 11. Executive Compensation
The Company has not to date paid any compensation to any officer or director. The Company intends to pay annual salaries to all its officers and will pay an annual stipend to its directors when, and if, it completes a primary public offering for the sale of securities and/or the Company reaches profitability, experiences positive cash flow and/or obtains additional funding. At such time, the Company anticipates offering cash and non-cash compensation to officers and directors. In addition, although not presently offered, the Company anticipates that its officers and directors will be provided with a group health, vision and dental insurance program at subsidizes rates, or at the sole expense of the Company, as may be determined on a case-by-case basis by the Company in its sole discretion. In addition, the Company plans to offer 401(k) matching funds as a retirement benefit, paid vacation days and paid holidays.
The Company accrues management fee amounting to $150,000 for Rubin Schindermann and Saul Niddam. During the year ended December 31, 2019, the Company issued 6,600,000, 8,234,850, 1,666,667 shares of common stock to Rubin Schindermann, Alexander Starr and Saul Niddam as consideration to settle outstanding management fee in the amount of $780,000, $885,329 and $37,385 respectively.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information as of April 14, 2020 regarding the beneficial ownership of our Common Stock by (i) our named executive officer, and (ii) each of our directors, (iii) each person we know to beneficially own more than 5% of our outstanding Common Stock. All shares of our Common Stock shown in the table reflect sole voting and investment power.
* indicates less than 1%.
(1) Based on 560,145,968 shares outstanding as of the date of this Report.
(2) 9,259,300 shares are held by The PJB Trust of which Anthony Zarcone is the Trustee.
(3) Chess Supersite, Inc., a corporation organized under the laws of Ontario, Canada, owns 2,000 shares of the Company. Fifty percent (50%) of the company is owned by Mr. Schindermann. Therefore, Mr. Schindermann may be deemed the beneficial owner of the shares held by such entity. As a result, 1,000 shares are included above.
Item 13.
Item 13. Certain Relationships and Related Transactions and Director Independence
Director Independence
Of our current directors, only Frank Monte and Barry Katzman are considered “independent directors” because they are not executive officers of the Company or any of its subsidiaries. Saul Niddam is not considered independent because he is the sole executive officer and director of CannaKorp. Inc., the Company’s wholly-owned subsidiary. In determining whether a director is “independent”, the Company’s follows the criteria established by NASDAQ.
Certain Relationships and Related Transactions
Effective December 20, 2019, Jerry Zarcone, the brother of Anthony Zarcone, the Chief Executive Officer and a director of the Company, entered into a loan agreement with the Company pursuant to which Jerry Zarcone agreed to loan the Company up to $769,900 (CAD $1 million) for working capital purposes. The loan agreement called for interest of 16% per annum for a term of one year. An initial tranche of $269,465 (CAD $350,000) was loaned upon the signing of the agreement. The full text of the loan agreement is included in this report as Exhibit 10.20.
Item 14.
Item 14. Principal Accounting Fees and Services.
Our auditor, Fruci & Associates II, PLLC, is the registered independent accounting firm.
Audit Fees
We were billed $30,000 and $17,000 for years ended December 31, 2019 and 2018 respectively for professional services rendered for the audit of our consolidated financial statements.
Audit Related Fees
Other audit related fee for years ended December 31, 2019 and 2018 was $12,000 and $10,000, respectively.
Tax Fees
There was no Tax Fees for years ended December 31, 2019 and 2018.
All Other Fees
There were no other fees for years ended December 31, 2019 and 2018.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
The following documents are filed as part of this Annual Report on Form 10-K
(a) Consolidated Financial Statements
(b) Exhibits
EXHIBIT INDEX
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
Chief Executive Officer and
/s/ Anthony Zarcone
Director
April 14, 2020
Anthony Zarcone
/s/ Barry Alan Katzman
Director
April 14, 2020
Barry Alan Katzman
/s/ Saul Niddam
Director
April 14, 2020
Saul Niddam
/s/ Frank Monte
Director
April 14, 2020
Frank Monte
/s/ Rubin Schindermann
Director
April 14, 2020
Rubin Schindermann