What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-20 compared with 2023-03-17 · 212 added, 331 removed, 740 unchanged (42% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

As of December 31, 2022, the Company had not generated significant revenues and had no income or cash flows from operations since inception.

As of December 31, 2023, the Company generated revenue of $3,720,169 and had no income or cash flows from operations since inception.

As of December 31, 2023, the Company had a working capital deficit of $11,495,043 and an accumulated deficit of $31,107,348.

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On December 31, 2023, we had cash of $736,323 (excluding restricted cash of $8,696) compared to $223,843 (excluding restricted cash of $8,490) as of December 31, 2022.

The increase is due to increased cash being provided by investment in the joint venture which reflects net recovery of payments of salaries, rent, and other operating expenses of our subsidiary, Canary, and additional loan provided by a related party offset by payments of a loan to a different related party.

The increase is due to increase in addition loan provided by a related party.

The change in restricted cash is due to foreign exchange conversion of balances in Canadian Dollar into United States Dollar.

Accounts Receivable

Accounts receivable are recorded at the net value of the face amount less an allowance for doubtful accounts.

As of December 31, 2023, the companys allowance for doubtful accounts was $53,813.

The company recorded a bad debt expense of $53,812 for the year ended December 31, 2023 whereas no bad debt expense was recorded in the year ended December 31, 2022.

As of December 31, 2023, the inventory in the amount of $1,215,928 (2022:

$nil) consists of WIP and finished cannabis goods which is transferred from JVCo to Canary as a result of the Joint Venture Settlement Agreement, refer to Note 12 for additional details.

Prepaid asset

2 unchanged sentences

Sales tax recoverable and payable

As of December 31, 2022, the Company had $nil of gross sales tax recoverable compared to $22,146 as of December 31, 2021 while the Company had $35,254 of gross sales tax payable as of December 31, 2022.

As of December 31, 2023, the Company had $nil of gross sales tax recoverable compared to $nil as of December 31, 2022 while the Company had $48,581 of gross sales tax payable as of December 31, 2023 compared to $35,254 as of December 31,2022.

Recoverable is due to the sales tax paid by the Company on expenses incurred during the year which are recoverable from the government while payable is due to the sales tax received (after deducting sales tax paid on expenses incurred by the Company) during the year which are payable from the government due to sales conducted by the Joint Venture.

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Accounts payable amounting to $2,945,568 as of December 31, 2023, primarily represents consulting and construction services related to fixed asset additions amounting to $126,059, interest on promissory notes and loans amounting to $1,628,007, outstanding and accrued professional fees amounting to $945,615.

Accounts payable amounting to $2,885,909 as of December 31, 2021, primarily represents customer advance for sales amounting to $394,400, consulting and construction services related to fixed asset additions amounting to $163,101, interest on promissory notes and loans amounting to $952,376, outstanding and accrued professional fees amounting to $973,017.

Accounts payable amounting to $2,296,935 as of December 31, 2022, primarily represents consulting and construction services related to fixed asset additions amounting to $154,811, interest on promissory notes and loans amounting to $739,130, outstanding and accrued professional fees amounting to $906,596.

Payable to related parties

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Revenues for the years ended December 31, 2023 and 2022

The Company did not generate revenue during the current or the comparable year ended in 2021.

The Company generated revenue of $3,720,169 during the current year and $nil in the comparable year ended in 2022.

However, Canary generated revenues of $791,285 (though its investment in JVCo) during the current year ended (2022:

$3,916,539) and is represented as a share of income from joint venture on the audited consolidated statement of operations.

The revenue represents the sale of cannabis product, and the entire revenue was sold to thirteen customers (2021:

The revenue represents the sale of cannabis product, and the entire revenue was sold to twenty one customers (2022:

Expenses for the years ended December 31, 2023 and 2022

Our expenses are classified primarily into advisory and consultancy fees, management fees, salaries and wages, legal and professional fees, and depreciation expense.

The decrease in operating expenses for the year ended December 31, 2022 compared to 2021 is due to decrease in consulting expenses, management fees and depreciation and amortization expense.

The increase in operating expenses for the year ended December 31, 2023 compared to 2022 is due to increase in consulting expenses, management fees, office and general and depreciation and amortization expense.

Expenses for the year ended December 31, 2023 primarily represented consulting fees of $147,787 (2022:

1 unchanged sentence

$143,677), legal and professional charges of $212,427 (2022:

$232,151) comprising legal, review, accounting and Edgar agent fee, depreciation expense amounting to $885,229 (2021:

$243,670) comprising legal, review, accounting and Edgar agent fee, travel expenses of $706 (2022:

$nil), operating lease expenses of $190,185 (2022:

($74,059)) office and general of $410,576 (2022:

$22,071) and depreciation expense amounting to $811,649 (2022:

Changes in other income and expenses were due to:

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(2) increase in the principal balance of higher interest rate bearing loans led to increased interest expense;

(3) started to earning net income from the joint venture, as a result, the share of income has increased significantly;

(4) the recovery of interest expense charged on shareholder loan from JVCo operations caused a significant increase in other income;

(5) impairment of goodwill related to Canary’s acquisition and (6) significant increase in exchange income during the year due to favorable exchange rate.

(3) & (4) net income from the joint venture is only for two quarters as the agreement with JV is terminated, as a result, the share of income and other income has decreased significantly;

(5) no impairment of goodwill related to Canary’s acquisition and (6) significant decrease in exchange income during the year due to unfavorable exchange rate.

Other income and expenses comprised, change in fair value of derivative and warranty liability amounting to positive $7,238 (2022:

positive $2,930,894), (gain) loss on settlement of debt amounting to $nil (2021:

$(26,049)), interest and bank charges amounting to $1,121,595 (2021:

$985,634), exchange income of $126,314 (2021:

loss of $73,163) other income of $811,464 (2021:

30,769), impairment of inventory in the amount of $99,000 (2021:

$nil), impairment of goodwill in the amount of $3,315,749 (2021:

$nil) and share of income from joint venture of $354,736 (2021:

loss of $272,995).

positive $14,383), (gain) loss on settlement of debt amounting to $1,571,742 (2022:

$nil), interest and bank charges amounting to $1,429,215 (2022:

$1,121,595), exchange loss of $51,811 (2022:

income of $126,314) other income of $16,782 (2022:

811,464), impairment of inventory in the amount of $nil (2022:

$99,000), impairment of goodwill in the amount of $nil (2022:

$3,315,749) and share of income from joint venture of $24,152 (2022:

Liquidity and Capital Resources

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Operating activities

Operating activities used cash of $1,014,828 compared to the provided cash of $100,118 during the prior year.

This is primarily due to the payments of a number of outstanding balances in accounts payable and accrued liabilities.

Operating activities used cash of $589,612 compared to the cash used of $1,014,828 during the prior year.

This is due to managements efficient use of cash and the company has started to generate revenues.

Investing activities

Investing activities provided cash of $1,015,040 compared to usage of $1,405,966 during the prior year.

The current period cash generation represents the recovery of investment and increased revenue generated by the JVCo offset by improvements to Canary’s facility to increase its efficiency and increase cannabis production, and investment made in the JVCo by way of paying operating expenses such as salaries, rent, utilities, etc., which will be reimbursed by the JVCo in the future.

The switch from using cash to providing cash is due to the JVCo starting to generate sales leading to reduced funding towards JVCo.

Investing activities provided cash of $416,932 compared to cash provided of $1,015,040 during the prior year.

The cash generation represents the recovery of investment by JVCo.

The JVCo was part of the company for only two quarters of 2023 so the recovery represents only for the two quarters.

Financing activities

Financing activities provided cash of $666,900 compared to $122,674 for the corresponding period of the prior year.

During the current period, cash was provided by a loan advance from a related party offset by payment to another related party while in the prior period, cash was primarily provided by proceeds from private placements.

During the current period, cash was provided by a loan advance from a related party.

Consolidated Financial Statements and Supplementary Data

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Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

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To the Board of Directors and Shareholders of Target Group, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Target Group, Inc.

( “ the Company ” ) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, consolidated statements of stockholders ’ deficit, and consolidated statements of cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the financial statements).

and Subsidiaries ( “ the Company ” ) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, changes in stockholders ’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, 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, 2023 and 2022 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

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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 an accumulated deficit, net losses, and negative cash flows from operations.

As discussed in Note 3 to the financial statements, the Company has an accumulated deficit, net losses, and a working capital deficit.

These factors, among others, raise substantial doubt about the Company ’ s ability to continue as a going concern.

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Goodwill

Valuation of Inventory

Description of the Critical Audit Matter

As discussed in Note 12 to the consolidated financial statements, goodwill is tested for impairment annually, or more frequently if impairment indicators arise.

During the year ended December 31, 2022, an Impairment loss was recorded in the amount equal to the excess amount over goodwill carrying value.

Auditing management's goodwill impairment test was complex and highly judgmental due to the significant estimation required to determine the fair value of the goodwill and underlying business unit.

In particular, the fair value estimate was sensitive to significant assumptions, such as the Company ’ s financial forecast, discount rate, and operating costs, which are impacted by expectations about future market and economic conditions.

As discussed in Note 4 to the financial statements, company ’ s inventory consists of raw materials, finished goods and work-in-process.

Costs include direct and indirect labor, materials, utilities, facilities costs, quality and testing costs, production related depreciation and other overhead costs.

The valuation of inventory costs involves significant complexity and judgment in applying the relevant accounting standards when auditing management ’ s estimates and conclusions with regard to inventory balances.

How the Critical Audit Matter Was Addressed in the Audit

To test the estimated fair value of the Company ’ s goodwill and underlying business unit, we performed audit procedures that included, among other things, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis.

In addition, we assessed the current financial forecast in light of management ’ s current plans, and we assessed the historical basis of management ’ s estimates based on its current operating results that would result from changes in the assumptions.

Our principal audit procedures to evaluate management ’ s calculation of capitalized inventory costs included, among other procedures, the following:

● We evaluated the appropriateness and consistency of management's methods and assumptions used in the identification, recognition, and measurement of inventory costs.

● We tested the completeness and accuracy of inputs entered into the Company ’ s overhead calculations and performed recalculations of allocation methods utilized.

Fruci & Associates II, PLLC – PCAOB ID #0 5525

We have served as the Company ’ s auditor since 2017.

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Restricted cash

Accounts receivable, no allowance

Accounts receivable, net of allowance

Prepaid asset

Sales tax recoverable, net of allowance

Receivable from joint venture

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Accounts payable and accrued liabilities

Settlement payable

Deferred revenue

Sales tax payable

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December 31, 2022

COST OF GOOD SOLD

( 2,065,149 )

OPERATING EXPENSES

1 unchanged sentence

Management services fee

Salaries and wages

Legal and professional fees

2 unchanged sentences

Office and general

Travel & Entertainment

Total operating expenses

1 unchanged sentence

Change in fair value of derivative and warrant liability

( 2,930,894 )

Gain on settlement

( 1,571,742 )

Interest and bank charges

Exchange (income) loss

Recovery of sales tax recoverable

Exchange income

(Recovery) Allowance of sales tax recoverable

Impairment of inventory [Note 8]

Impairment of goodwill

Share of (income) loss from joint venture

Share of income from joint venture

Debt issuance cost

Total other expense (income)

( 1,622,576 )

Net (loss) income before income taxes

Net loss before income taxes

( 4,520,064 )

Net (loss) income

( 4,520,064 )

Foreign currency translation adjustment

Comprehensive (loss) income

Comprehensive loss

( 4,408,173 )

(Loss) earnings per share - basic and diluted

Loss per share - basic and diluted

Weighted average shares - basic and diluted

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( 6,559,825 )

( 2,152,112 )

Shares issued as consideration for consideration of the intellectual property rights [Note 11]

( 4,520,064 )

Foreign currency translation

2 unchanged sentences

( 1,088,288 )

( 6,972,697 )

As at December 31, 2021

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Cancellation of shares [Note 11]

( 1,000,001 )

Shares issued as consideration for consideration of the intellectual property rights

Shares issued on conversion of convertible promissory notes [Note 11]

Extinguishment of derivative liability upon conversion of notes

Shares issued for prior private placements

Shares issued as consideration for consideration of the intellectual property rights [Note 11]

( 4,520,064 )

Private placement held during the period

Foreign currency translation

2 unchanged sentences

( 6,559,825 )

( 2,152,112 )

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

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OPERATING ACTIVITIES

Net (loss) income for the year

Net (loss) for the period

( 4,520,064 )

1 unchanged sentence

Change in fair value of derivative and warrant liability

( 2,930,894 )

Gain on settlement

( 1,571,742 )

Shares and warrants issued/to be issued for services

Recovery of sales tax recoverable

Allowance (recovery) of sales tax recoverable

Depreciation expense

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Changes in operating assets and liabilities:

Change in prepaid asset

Change in accounts receivable - net of allowance

( 1,008,903 )

Change in other assets

Change in inventory

Change in sales tax recoverable

Change in other receivable

Change in accounts payable and accrued liabilities

Change in operating lease liability, net

Net cash (used in) provided by operating activities

Change in deferred revenue

Net cash used in operating activities

( 1,014,828 )

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Amounts invested on fixed assets

Proceeds from (investment in) joint venture

( 1,417,842 )

Net cash provided by (used in) investing activities

( 1,405,966 )

Net proceeds from joint venture

Net cash provided by investing activities

FINANCING ACTIVITIES

Utilization of bank overdraft facility

Proceeds from loans from related parties

Settlement of related party loan

Proceeds from private placements

Payment for settlement payable

Net cash provided by financing activities

Net increase (decrease) in cash and restricted cash during the year

Net cash provided (used) by financing activities

Net change in cash and restricted cash during the period

Effect of foreign currency translation

Cash and restricted cash, beginning of year

Cash and restricted cash, end of year

Cash and restricted cash, beginning of period

Cash and restricted cash, end of period

NON-CASH INVESTING AND FINANCING ACTIVITIES

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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 a focus on both national and international presence.

The Company owns and operates Canary Rx Inc, a Canadian licensed producer, regulated under The Cannabis Act.

Canary Rx Inc operates a 44,000 square foot facility located in Norfolk County, Ontario, and has partnered with Dutch breeder, Serious Seeds, to cultivate exclusive & world-class proprietary genetics.

The Company has begun structuring multiple international production and distribution platforms and intends to continue rapidly expanding its global footprint as it focuses on building an iconic brand portfolio whose focus aims at developing cutting-edge Intellectual Property among the medical and recreational cannabis markets.

Target Group is committed to building industry-leading companies that transform the perception of cannabis and responsibly elevate the overall consumer experience.

The Company’s current business is to produce, manufacture, distribute, and conduct sales of cannabis products.

As of the current year end, the company has produced and sold cannabis products in the amount of $ 3,916,539 (Year ended December 31, 2021:

$ 2,198,592 ) through its investment in a joint venture.

On July 3, 2018, the Company filed an amendment in its articles of incorporation 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).

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.

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 to its Common Stock, the Company issued to the Visava shareholders, pro rata 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 continues its business operations as a wholly-owned subsidiary of the Company.

The transaction was closed effective August 2, 2018.

During the year ended, December 31, 2020, all of the warrants expired, none were exercised.

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").The 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 provided 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 issued Common Stock Purchase Warrants ("Warrants") in exchange for all outstanding and promised CannaKorp stock options.

The Warrants granted the holders thereof the right to purchase up to approximately 7,211,213 shares of the Company's common stock.

The Company also assumed all outstanding liabilities of CannaKorp.

Upon the closing of the Exchange Agreement, CannaKorp continued its business operations as a subsidiary of the Company.

The transaction was closed effective March 1, 2019.

During the year ended, December 31, 2021, all of the warrants expired, none were exercised.

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(TM) in the United States, Europe and the Caribbean.

The term of the license was ten ( 10 ) years and four (4) months from the effective date of August 8, 2019.

In consideration of the license, the Company would issue 10,000,000 shares of its common stock as follows:

(i) 3,500,000 within ten (10) days of the effective date;

(ii) 3,500,000 shares on January 10, 2020;

and (iii) 3,000,000 shares not later than June 10, 2020.

In addition, the Company would pay cGreen royalties of 7 % of the net sales of the licensed products and 7 % of all sublicensing revenues collected by the Company.

The Company would pay cGreen an advance royalty of $ 300,000 within ten (10) days of the effective date;

$ 300,000 on January 10, 2020;

and $ 400,000 on or before June 10, 2020 and $ 500,000 on or before November 10, 2020.

All advance royalty payments would be credited against the royalties owed by the Company through December 31, 2020.

During the quarter ended December 31, 2019, the intangible asset was written off based on management’s review and evaluation of its recoverability.

During the quarter ended June 30, 2020, the Company was in arbitration with cGreen for the breaches of the terms of the License Agreement, however, through an early mediation, both companies reached a settlement agreement to settle the breaches of the contract on July 27, 2020 (“Effective Date”).

As per the settlement agreement, the License Agreement has been terminated and the Company does not have to issue the 10 million shares nor pay the outstanding royalty payable in the amount of $ 1,191,860 .

As consideration, the Company paid $ 130,000 within 30 days of the Effective Date and started paying $ 100,000 in monthly installments of $ 10,000 commencing in April 2021 to cGreen resulting in a gain on settlement in the amount of $ 1,704,860 .

As at December 31, 2022, there was no outstanding balance, the balance has been paid in full and the claim is closed during the quarter ended March 31, 2022 (December 31, 2021:

Joint Venture Agreement

Effective May 14, 2020, Canary entered into a Joint Venture Agreement (“Joint Venture”) with 9258159 Canada Inc., a corporation organized under the laws of the Province of Ontario, Canada (referred to as “Thrive”) and 2755757 Ontario Inc., a corporation organized under the laws of the Province of Ontario, Canada (referred to as “JVCo”).

Canary and Thrive each hold 50% of the voting equity interest in JVCo.

The term of the Joint Venture is five (5) years from its effective date of May 14, 2020.

(“Target Group” or the “Company”) was incorporated under the laws of the state of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions.

The Company is a diversified, vertically integrated, progressive company with a focus nationally and internationally .

The Company wholly owns and operates Canary Rx Inc, a Canadian licensed producer (“Canary”), regulated under The Cannabis Act (Bill C-45).

Canary, operates a 44,000 square foot facility located in Norfolk County, Ontario.

The Company has an ongoing strategic partnership with Dutch breeder, Serious Seeds B.V.

(“Serious Seeds”), to cultivate exclusive, world-class proprietary genetics.

The Company has structured multiple international production and distribution platforms and continues to expand its global footprint, focused on building an iconic brand portfolio with cutting-edge intellectual property in both the medical and recreational cannabis markets.

The Company is committed to building industry-leading companies that transform the perception of cannabis and responsibly elevate the overall patient and consumer experience.

The Company’s core business is producing, manufacturing, distributing, and selling of cannabis products, as further described in Item 1.

As of the current year to date period end, Company has produced and sold cannabis products of $ 3,762,406 (Period ended December 31, 2022:

Joint Venture Agreement Termination;

Consolidation of JVCo with Canary

Effective May 14, 2020, Canary entered into a Joint Venture Agreement (“Joint Venture”) with 9258159 Canada Inc., a corporation organized under the laws of the Province of Ontario, Canada (referred to herein as “Thrive Cannabis”) and 2755757 Ontario Inc., a corporation organized under the laws of the Province of Ontario, Canada (referred to herein as “JVCo”).

Canary and Thrive each held 50% of the voting equity interest in JVCo.

The term of the Joint Venture was five (5) years from its effective date of May 14, 2020.

On April 27, 2023, Canary and Thrive Cannabis entered into a Release and Settlement Agreement (“Settlement Agreement”) in which Thrive Cannabis transferred its shares in the capital of JVCo and rights of assets held by JVCo, paid Canary $ 1,051,000 to release Thrive Cannabis from any mortgages, charges, pledges, security interests, liens, encumbrances, writs of execution, actions, claims, demands and equities of any nature related to JVCo from their share of ownership of JVCo.

Following the completion of the Settlement Agreement, Canary’s equity interest in JVCo increased from 50 % to 100 %.

Effective April 28, 2023, the Company started consolidating results of operations of the JVCo and eliminated any intercompany transactions and balances between the Company (Target and Canary) and JVCo.

During the term of the Joint Venture, the Company accounted for the transactoins using the equity method under ASC 323 Investments — Equity Method and Joint Ventures.

As a consequence of the Settlement Agreement, as the JVCo becoming a wholly owned subsidiary of the company as of April 27, 2023, the Company now uses the acquisition method of accounting (using a step acquisition method) under ASC 805 Business Combination.

Serious Seeds Agreement

Effective December 6, 2018, the Company and Canary entered into the Serious Agreement described in Item 1.

CL Investors Debt Purchase and Assignment Agreement

On June 15, 2020, the Company, its first-tier subsidiaries Visava Inc.

(“Visava”) CannaKorp Inc.

(“CannaKorp”), and the Company’s second-tier subsidiary, Canary Rx Inc.

(“Canary”), entered into a Debt Purchase and Assignment Agreement (“Agreement”) with CL Investors Inc.

(“CLI”), a corporation organized under the laws of the Province of Ontario, Canada.

June 15th was the preliminary date of the agreement, and the agreement was not finalized until the later date as indicated below.

The CEO of the Company is the Secretary of CLI, a director of the Company, a shareholder of CLI and the brother of the CEO is the President and sole director of CLI therefore the below loan from CLI is classified under related party transactions.

Pursuant to the Agreement, CLI purchased from the Company for the sum of $ 2,141,070 , (CAD 2,900,000 ) a debt obligation owing from Canary to the Company in the principal balance of $ 7,825,980 (CAD 10,600,000 (“Canary Debt”)).

Upon receipt of the consideration, the Company loaned the full sum to Canary under terms of an unsecured, non-interest-bearing promissory note, subject to a covenant by the Company not to take any collection action so long as the Canary Debt remains unpaid to CLI.

As of December 31, 2022, $ 3,692 (CAD 5,000 ) is still outstanding from CLI which is presented as other receivable on the consolidated balance sheet.

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

The Canary Debt will be repaid according to the following schedule:

a) In the first year of the Term, Canary will pay CLI the greater of $ 834,279 (CAD 1,130,000 ) and fifty percent ( 50 % ) of the Net Revenue (hereinafter defined), provided that where the latter amount exceeds the former amount, Canary will, by the end of such first year, pay CLI no less than the former amount and Canary will, within thirty ( 30 ) days following the end of such first year, pay CLI the balance of such amount owing for such first year;

b) In the second year of the Term, Canary will pay CLI the greater of $ 1,550,430 (CAD 2,100,000 ) and fifty percent ( 50 % ) of the Net Revenue, by way of twelve ( 12 ) consecutive monthly installments payable on the 14th day of each month commencing on August 14, 2021, provided that where the latter amount exceeds the former amount, Canary will, within thirty ( 30 ) days following the end of such second year, pay CLI the balance of such amount owing for such second year;

c) In the third year of the Term, Canary will pay CLI the greater of $ 2,377,326 (CAD 3,220,000 ) and fifty percent ( 50 % ) of the Net Revenue, by way of twelve ( 12 ) consecutive monthly installments payable on the 14th day of each month commencing on August 14, 2022, provided that where the latter amount exceeds the former amount, Canary will, by the end of such third year, pay CLI no less than the former amount and Canary will, within thirty ( 30 ) days following the end of such third year, pay CLI the balance of such payments owing for such third year;

d) In the fourth year of the Term, Canary will pay CLI the greater of $ 2,273,964 (CAD 3,080,000 ) and fifty percent ( 50 % ) of the Net Revenue, by way of twelve ( 12 ) consecutive monthly installments payable on the 14th day of each month commencing on August 14, 2023, provided that where the latter amount exceeds the former amount, Canary will, within thirty ( 30 ) days following the end of such fourth year, pay CLI the balance of such amount owing for such fourth year;

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

For the purposes of this Note, “Net Revenue” will mean any and all revenue generated from Canary’s Licensed Facility (hereinafter defined) to which it is entitled to net of applicable taxes and third-party expenses.

The repayment of the Canary Debt, as amended, is guaranteed by Visava and the Company’s wholly-owned subsidiary CannaKorp Inc.

and secured by (i) a general security interest in the assets of the Company, Canary, Visava and CannaKorp Inc., respectively;

and (ii) a pledge by the Company of all of the issued and outstanding common stock of Canary, Visava and CannaKorp Inc.

held by the Company.

In addition to the foregoing guarantees, security interest and stock pledge, CLI has been granted an option, in lieu of repayment of the amended Canary Debt, to demand, in its sole and absolute discretion the transfer, assignment and conveyance of 75 % of the issued and outstanding capital stock of Visava and Canary.

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

Effective August 14, 2020, the Agreement was amended (“Amendment”) to provide that CLI will purchase from Rubin Schindermann, a director of the Company, 500,000 shares of the Company’s Series A Preferred Stock in consideration of the payment by CLI to Rubin Schindermann of $ 78,880 (CAD 100,000 ) and the issuance to Schindermann of 10,000,000 shares of the Company’s common stock.

In consideration of the foregoing, Mr., Schindermann resigned as a director of the Company and from any and all administrative and executive positions with the Company’s subsidiaries Visava Inc., Canary Rx Inc.

and CannaKorp Inc., respectively.

In addition, the Company issued Common Stock Purchase Warrant for 10,000,000 shares of Target common stock to CLI as consideration for the Agreement.

Refer to Note 17 for additional details on warrants.

The combined impact of both transactions resulted in debt issuance cost of $ 251,518 .

This debt issuance cost will be amortized over the term of the debt on a straight-line basis.

The transactions contemplated by the Agreement and the Amendment closed on August 14, 2020.

Effective June 15, 2020, the Company, entered into the Debt Agreement CL Investors Inc.

(“CLI”), described in Item 1.

Basis of Presentation and Consolidation

2 unchanged sentences

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 subsidiaries, Visava Inc.

and CannaKorp, Inc.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Visava and CannaKorp, and BlueSky Logistics, LLC.

Significant intercompany accounts and transactions have been eliminated upon consolidation.

Going Concern

The Company has earned minimal revenue since inception to date and has sustained operating losses during the year ended December 31, 2022.

The Company has earned minimal revenue since inception and has sustained operating losses during the year ended December 31, 2023.

The Company had a working capital deficit of $ 11,495,043 and an accumulated deficit of $ 31,107,348 as of December 31, 2023.

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Restricted cash represents deposits made to the Company’s bank as a requirement to use the bank’s credit card which is not available for immediate or general business use.

ACCOUNT RECEIVABLE

Accounts receivable

Account receivable consists of amounts due to the Company from customers as a result of the Company’s normal business activities.

2 unchanged sentences

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, 2022, the Company expects to collect these balances completely and therefore has not created any allowance for it.

The company records the allowance based on past history and if there are doubts on the recoverability.

As of December 31, 2023, the Company has recorded an allowance for those balances which it expects to be not recoverable.

On December 31, 2023 amounts due from two customers totaled approximately 59 % and 70 % of accounts receivable.

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.

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Inventory write-downs are charged to the 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.

The cost is determined on the basis of the average cost.

Overhead costs are also allocated to inventory including salaries and utilities.

Fixed assets are reported at cost, less accumulated depreciation.

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The assets’ residual values, useful lives and methods of depreciation are reviewed at each reporting date, and adjusted prospectively, if appropriate.

Shipping and Handling Cost

Payments by customers to us for shipping and handling costs are included in revenue on the consolidated statements of operations, while our expense is included in cost of goods sold.

Shipping and handling for inventory, if any, are included as a component of inventory on the consolidated balance sheets, and in cost of goods sold in the consolidated statements of operations when the product is sold.

Goodwill and Intangible Assets

5 unchanged sentences

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.

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Once control is transferred to the customer, we have completed our performance obligation, and revenue is recognized.

The Company did not generate any revenue during the year ended December 31, 2022, and 2021.

The Company generated revenue of $ 3,720,169 during the year ended December 31, 2023, and S nil in 2022.

There are three of the customers whose revenue is more than 10% of the total revenue.

In addition, Canary generated revenue of $ 791,285 (though its investment in JVCo) during the year ended December 31, 2023 (2022:

$ 3,916,539 ) and is represented as a share of income (losses) from joint venture on the consolidated statement of operations.

The revenue was concentrated to thirteen customers (2021:

The revenue was concentrated to twenty one customers (2022:

The revenue represents the sale of cannabis products.

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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.

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.

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The Company places its cash with high-quality banking institutions.

The Company did not have cash balances in excess of the Federal Deposit Insurance Corporation limit as of December 31, 2022 and 2021.

The Company has cash balances in excess of the Federal Deposit Insurance Corporation limit as of December 31, 2023 whereas cash balances were not in excess of FDIC limit as of December 31, 2022.

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.

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, 2023 there were no deferred taxes due to the uncertainty of the realization of net operating loss or carry forward prior to expiration.

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For the year ended December 31, 2023, basic and diluted EPS are the same due to net loss result.

For the year ended December 31, 2021, diluted EPS excludes the change due in fair value of derivative value and gain on settlement of debt which is causing the operating loss to turn into a net income, resulting in the basic and diluted EPS being the same for this period.

For the year ended December 31, 2022, basic and diluted EPS are the same due to net loss result.

Convertible Notes Payable and Derivative Instruments

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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.

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.

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The use of different judgments and assumptions could result in different conclusions.

The Company has not recorded any impairment losses related to our equity method investments during the year ended December 31, 2022.

The Company has not recorded any impairment losses related to our equity method investments during the year ended December 31, 2023 or in December 31, 2022.

Recently Issued Accounting Pronouncements

The FASB recently issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to reduce complexity in applying GAAP to certain financial instruments with characteristics of liabilities and equity.

The guidance in ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt:

Debt with Conversion and Other Options, which requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock.

The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives.

In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification.

These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract.

The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method.

In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.

The amendments in ASU 2020-06 are effective for public entities for fiscal years beginning after December 15, 2021, with early adoption permitted (for “emerging growth company” beginning after December 15, 2023).

The Company will be evaluating the impact this standard will have on the Company’s consolidated financial statements.

As of December 31, 2022, the inventory in the amount of $ nil (2021:

$ 99,000 ) consists of finished goods and is held at a third-party location.

During the year ended December 31, 2022, the Company recorded a write-down of inventory to its net realizable value, in the amount of $ 99,000 due to decrease in inventory value and recorded an impairment in the amount of $ 99,000 due to obsolete inventory.

From time to time, new accounting pronouncements are issued by FASB or other standard setting bodies that are adopted by the Company as of the specified effective date.

ASU 2016-13 Current Expected Credit Loss (ASC326)

In December 2021, the FASB issued an update to ASU No.

2016-13 the Current Expected Credit Losses (CECL) standard (ASC 326), which is designed to provide greater transparency and understanding of credit risk by incorporating estimated, forward-looking data when measuring lifetime Estimated Credit Losses (ECL) and requires enhanced financial statement disclosures.

This guidance was adopted on January 1, 2023, and as a result allowance of $ 54,909 was recorded.

Accounts Receivable

Accounts receivable are recorded at the net value of the face amount less an allowance for doubtful accounts.

As of December 31, 2023, the companys allowance for doubtful accounts was $ 54,909 .

The company recorded a bad debt expense of $ 53,813 for the year ended December 31, 2023 whereas no bad debt expense was recorded in the year ended December 31, 2022.

As of December 31, 2023, the inventory in the amount of $ 1,215,928 (2022:

$ nil ) consists of WIP and finished cannabis goods which is transferred from JVCo to Canary as a result of the Joint Venture Settlement Agreement, refer to Note 12 for additional details.

December 31,2023

Finished goods

WIP (Flowers and plants)

Prepaid Asset

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Sales Tax Recoverable

As of December 31, 2022, the Company had $ nil of gross sales tax recoverable compared to $ 22,146 as of December 31, 2021 while the Company had $ 35,254 of gross sales tax payable as of December 31, 2022.

As of December 31, 2023, the Company had $ nil of gross sales tax recoverable compared to $ nil as of December 31, 2022 while the Company had $ 48,581 of gross sales tax payable as of December 31, 2023.

1 unchanged sentence

Intangible Assets

Effective August 8, 2019, the Company entered into an Exclusive License Agreement ("License Agreement") with cGreen, Inc., a Delaware corporation ("cGreen").

Effective August 8, 2019, the Company entered into an Exclusive License Agreement (“License Agreement”) with cGreen, Inc., a Delaware corporation (“cGreen”).

The License Agreement granted the Company an exclusive license to manufacture and distribute the patent-pending THC antidote True Focus(TM) in the United States, Europe and the Caribbean.

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This resulted in a gain on settlement of $ 1,704,860 .

As at December 31, 2022, there was no outstanding balance, the balance has been paid in full and the claim is closed during the quarter ended March 31, 2022 (December 31, 2021:

As at December 31, 2023, there was no outstanding balance, the balance has been paid in full and the claim is closed during the quarter ended March 31, 2022.

The Company’s subsidiary, Canary, initiated construction on its leased 44,000 square foot cannabis cultivation facility in September of 2017.

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Joint Venture

Effective May 14, 2020, Canary entered into a Joint Venture Agreement (“Joint Venture”) with 9258159 Canada Inc., a corporation organized under the laws of the Province of Ontario, Canada (referred to as “Thrive Cannabis”) and 2755757 Ontario Inc., a corporation organized under the laws of the Province of Ontario, Canada (referred to as “JVCo”).

Canary and Thrive Cannabis each hold 50 % of the voting equity interest in JVCo.

The term of the Joint Venture is five ( 5 ) years from its effective date of May 14, 2020.

Under the Joint Venture, JVCo is permitted to use the rooms of Canary’s licensed cannabis cultivation facilities located in Simcoe, Ontario, Canada ("Licensed Site Portion”) to operate and manage the Licensed Site Portion for the cultivation and process of cannabis pursuant to Canary’s license issued by Health Canada.

During the term of the Joint Venture, JVCo will be responsible for the administration, operation and management of the Licensed Site Portion and all proceeds from the sale of the cannabis and related cannabis products cultivated therein will be payable to the JVCo.

In addition, Canary, Thrive Cannabis, and JVCo entered into a Unanimous Shareholder Agreement dated May 14, 2020 governing the management and administration of the business of JVCo.

Historical information

Effective May 14, 2020, Canary entered into the Joint Venture explained in Note 1.

Under the Joint Venture, JVCo was permitted to use the rooms, of Canary’s licensed cannabis cultivation facilities located in Simcoe, Ontario, Canada (“Licensed Site Portion”) to operate and manage the Licensed Site Portion for the cultivation and process of cannabis pursuant to Canary’s license issued by Health Canada.

During the term of the Joint Venture, JVCo was responsible for the administration, operation and management of the Licensed Site Portion and all proceeds from the sale of the cannabis and related cannabis products cultivated therein will be payable to the JVCo.

Canary, Thrive Cannabis, and JVCo entered into a Unanimous Shareholder Agreement dated May 14, 2020, governing the management and administration of the business of JVCo.

During the year ended December 31, 2023, the Joint Venture partners, Canary and Thrive Cannabis entered into an agreement.

1 unchanged sentence

Also refer to shareholder loan in Note 15.

As per the Joint Venture, Canary will provide the JVCo with a Hard Cost Loan with the maximum amount of $ 885,960 (CAD 1,200,000 ).

This loan bears an interest rate of 7 % per annum, matures in 12 months from the effective date, and is secured against the personal property of the JVCo and Thrive will guarantee one-half ( 1/2 ) of the outstanding balance of the loan.

As of December 31, 2022, the loan advanced amounts to $ 247,331 (CAD 335,000 ) and interest income charged for the year ended in the amount of $ 18,033 (CAD 23,450 ) is included in other income on the consolidated statement of operations and comprehensive loss and interest receivable in the amount of $ 42,216 (CAD 57,180 ) is included in receivable from joint venture on the consolidated balance sheet.

The JVCo will reimburse Canary for certain expenses incurred by Canary for the cultivation and processing of cannabis products.

Below is the table which summarizes the activity of the year:

Year ended December 31,

As per the Joint Venture, Canary provided the JVCo with a Hard Cost Loan with the maximum amount of $ 907,320 (CAD 1,200,000 ).

This loan bore an interest rate of 7 % per annum, matured in 12 months from the effective date, and was secured against the personal property of the JVCo and Thrive had guaranteed one-half ( 1/2 ) of the outstanding balance of the loan.

As of April 27, 2023, the loan advanced amounts to $ 253,294 (CAD 335,000 ) and interest income charged for the nine months ended in the amount of $ 17,376 (CAD 23,450 ) is included in other income on the unaudited condensed consolidated interim statement of operations and comprehensive loss and interest receivable in the amount of $ 60,965 (CAD 80,630 ) was included in receivable from joint venture on the unaudited condensed consolidated interim balance sheet.

After April 27, 2023, as mentioned above and further discussed below, JVCo become a subsidiary of the company as result the above loan and interest receivable were eliminated upon consolidation.

The Company recorded JVCo’s results through April 27, 2023 using the equity method and below is the table which summarizes the activity of the period (through April 27, 2023):

January 1 to April 27, 2023

Cost of goods sold

Operation expenses

Net income (loss)

Eligible recoverable expenses

Recoverable amount

Income (loss) on equity

During the year ended December 31, 2022, revenue was sold to thirteen customers (2021:

The JVCo shall make payments out of the revenues, net of applicable taxes and expenses (“Net Income”), in accordance with the following order of priority:

a) First, the payment of recoverable expenses, explained below;

b) Second, to the repayment of the Hard Cost Loan until repaid in full;

c) Third, to the repayment of the Soft Costs (costs of services and materials provided by Thrive Cannabis) until repaid in full;

d) Finally, any remaining Net Income shall be distributed, on a monthly basis, as follows:

(i) For the first two ( 2 ) years following the execution of this Agreement, Canary shall receive 60 % and Thrive Cannabis shall receive 40 % ;

(ii) For the three ( 3 ) years following such period, Canary shall receive 57.5 % and Thrive shall receive 42.5 % .

Below is the position of the JVCo as at:

December 31, 2022

December 31, 2021

( 1,190,089 )

Income on equity

Termination of joint venture agreement during quarter ended June 30, 2023

On April 27, 2023, Canary and Thrive Cannabis entered into a Release and Settlement Agreement (“Settlement Agreement”) in which Thrive Cannabis has transferred its shares in the capital of JVCo and rights of assets held by JVCo.

Pursuant to the above Settlement Agreement, Thrive Cannabis paid Canary $ 1,051,000 to release Thrive Cannabis from any mortgages, charges, pledges, security interests, liens, encumbrances, writs of execution, actions, claims, demands and equities of any nature related to JVCo from their share of ownership of JVCo.

During the term of the Joint Venture, the Company accounted for the transactoins using the equity method under ASC 323 Investments — Equity Method and Joint Ventures.

Consolidation of JVCo into Canary

Following the completion of the Settlement Agreement, Canary’s equity interest in JVCo increased from 50 % to 100 %.

Effective April 28, 2023, the Company started consolidating result’s of operations of the JVCo and eliminated any intercompany transactions and balances between the Company (Target and Canary) and JVCo.

As a consequence of the above Settlement Agreement and after obtaining 100 % shares of the JVCo, the Company acquired the following assets:

Investment in JV

Receivable from JV

Payable to JV

Cash received from Thrive

Assets acquired:

Accounts receivable

Net gain as per reconciliation

As of April 27, 2023, the Company had a carrying value of the investment in Joint Venture and receivable from Joint Venture on the consolidated balance sheets amounting to $ 1,023,608 and $ 706,598 , respectively.

Pursuant to the above Settlement Agreement, the Company received $ 776,382 against these balances.

Accordingly, the remaining balance of $ 953,824 was compared to the fair value of the net assets acquired and this resulted in net recognition of $ 1,571,742 as a non-operating gain reported in the Consolidated Statement of Operations as net gain from termination of the Joint Venture.

Business Acquisition

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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”).

The 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 issued Common Stock Purchase Warrants (“Warrants”) in exchange for all outstanding and promised CannaKorp stock options.

The Warrants granted the holders thereof the right to purchase up to approximately 7,211,213 shares of the Company’s common stock.

The Company also assumed all outstanding liabilities of CannaKorp.

Upon the closing of the Exchange Agreement, CannaKorp continued 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 the 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.

As of March 1, 2019, the fair value of the net liabilities was $ 2,534,121 and the purchase consideration was fair valued as $ 4,062,844 , shown below, leading to a goodwill allocation of $ 6,071,627 .

The purchase consideration of 30,407,412 shares and 7,211,213 warrants of the Company’s common stock are valued as detailed below:

Number of Common Stock

Market price on the date of issuance

Fair value of Common Stock

Number of warrants

Fair value price per warrant

Fair value of warrant

Fair value of Common Stock

Fair value of warrant

Purchase consideration

The fair value of these warrants was measured at the date of acquisition using the Black-Scholes option pricing model using the following assumptions:

● Forfeiture rate of 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 ;

● Expected dividend rate of 0 %

During the year 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 the acquisition date, March 1, 2019, thereby increasing the goodwill by $ 369,315 to $ 6,071,627 .

However, during the same year the Company identified circumstances that would call for an evaluation of goodwill impairment and therefore impaired $ 1,485,925 reducing the goodwill related to the CannaKorp to $ 4,585,702 .

Further, during the year ended December 31, 2020, the Company identified circumstances that would call for an evaluation of goodwill impairment and therefore impaired the remaining balance of goodwill related to the CannaKorp to $ nil .

During the year ended December 31, 2021, all of the warrants expired, none were exercised.

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 issued to the Visava shareholders, pro rata Common Stock Purchase Warrants purchasing an aggregate of 25,000,000 shares of the Company’s Common Stock at a price per share of $ 0.10 for a period of two years following the issuance date of the Warrants.

As a result of this transaction, Visava Inc.

became a wholly-owned subsidiary of the Company and the former shareholders of Visava Inc.

owned approximately 46.27 % of the Company’s shares of Common Stock.

The transaction was closed effective August 2, 2018.

During the year ended, December 31, 2020, all of the warrants expired, none were exercised.

Visava/Canary

On June 27, 2018, the Company entered into the Visava Exchange Agreement described in Item 1.

This acquisition was accounted for using the acquisition method of accounting.

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● Expected dividend rate of 0 %

During the year ended December 31, 2022, the Company identified circumstances that would call for an evaluation of goodwill impairment and therefore impaired $ 3,315,749 reducing the goodwill related to the Canary to $ 263,117 (December 31, 2021:

the Company has identified no circumstances which would call for further evaluation of goodwill impairment related to Canary).

During the year ended December 31, 2023, the Company has identified no circumstances which would call for further evaluation of goodwill impairment related to Canary (December 31, 2022:

the Company identified circumstances that would call for an evaluation of goodwill impairment and therefore impaired $ 3,315,749 reducing the goodwill related to the Canary to $ 263,117 ).

Only change in goodwill from 2022 to 2023 is due to exchange rate fluctuations.

During the year ended, December 31, 2023, all of the warrants expired, none were exercised.

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Accounts payable amounting to $ 2,945,568 as of December 31, 2023, primarily represents consulting and construction services related to fixed asset additions amounting to $ 126,059 , interest on promissory notes and loans amounting to $ 1,628,007 , outstanding and accrued professional fees amounting to $ 945,615 .

Accounts payable amounting to $ 2,885,909 as of December 31, 2021, primarily represents customer advance for sales amounting to $ 394,400 , consulting and construction services related to fixed asset additions amounting to $ 163,101 , interest on promissory notes and loans amounting to $ 952,376 , outstanding and accrued professional fees amounting to $ 973,017 .

Accounts payable amounting to $ 2,296,935 as of December 31, 2022, primarily represents consulting and construction services related to fixed asset additions amounting to $ 154,811 , interest on promissory notes and loans amounting to $ 739,130 , outstanding and accrued professional fees amounting to $ 906,596 .

Related Party Transactions and Balances

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Debt purchase by CL Investors Inc.

On June 15, 2020, the Company and its subsidiaries, entered into a Debt Purchase and Assignment Agreement (“Agreement”) with CL Investors Inc.

June 15th was the preliminary date of the agreement, and the agreement was not finalized until the later date as indicated below.

The CEO of the Company is a director of the Company, the Secretary of CLI, a shareholder of CLI and the brother of the CEO is the President and sole director of CLI, therefore, the loan from CLI is classified under related party transactions.

As of December 31, 2022, $ 3,692 (CAD 5,000 ) is still outstanding from CLI which is presented as other receivable on the consolidated balance sheet.

The Canary debt owed to CLI from Canary bears an interest rate of 5 % per annum and matures on August 14, 2025.

The repayment of the debt is guaranteed by the Company and its subsidiaries plus secured by a general security interest in the assets of the Company and its subsidiaries and a pledge by the Company of all of the issued and outstanding common stock of Canary, Visava and CannaKorp Inc.

held by the Company.

In addition to the above, CLI has been granted an option, in lieu of repayment of the amended Canary Debt, to demand, in its sole and absolute discretion the transfer, assignment and conveyance of 75 % of the issued and outstanding capital stock of Visava and Canary.

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

Interest expense charged for the year ended in the amount of $ 426,872 (CAD 555,100 ) is included in interest and bank charges on the consolidated statement of operations and comprehensive loss and accrued interest in the amount of $ 252,223 (CAD 341,627 ) is included in accounts payable and accrued liabilities on the audited consolidated balance sheet.

On June 15, 2020, the Company and its subsidiaries, entered into a Debt Agreement with CLI explained in Note 1.

The Canary Debt, Term, repayment schedule, security and options are set forth in Note 1.As of December 31, 2023, $ 3,781 (CAD $ 5,000 ) is still outstanding from CLI.

Interest expense charged for the year ended in the amount of $ 373,283 (CAD $ 503,756 ) is included in interest and bank charges on the unaudited condensed consolidated interim statement of operations and comprehensive loss and accrued interest in the amount of $ 621,682 (CAD 822,222 ) is included in accounts payable and accrued liabilities on the unaudited condensed consolidated interim balance sheet.

The repayment schedule of the minimum principal payments is shown below:

2 unchanged sentences

Non-current portion

Schindermann of 10,000,000 shares of the Company’s common stock.

In consideration of the foregoing, Mr., Schindermann resigned as a director of the Company and from any and all administrative and executive positions with the Company’s subsidiaries.

In addition, the Company issued Common Stock Purchase Warrant for 10,000,000 shares of Target common stock to CLI as consideration for the Agreement.

Refer to Note 17 for additional details on warrants.

The combined impact of both transactions resulted in debt issuance cost of $ 251,518 .

During the year ended December 31, 2023, the Company could not make repayments of certain debt owed to a related party in accordance with the agreed repayment schedule, and is therefore in breach of the loan agreement as at year end.

Consequently, the Company has reclassified the entire outstanding balance of the loan to current liabilities.

At this stage the Company is under discussions to formalize the arrangements with the lender to revise the terms of the loans.

The Debt Agreement Amendment and CLI Warrants are explained in Note 1.

Refer to Note 12 for additional details on the CLI Warrants.

The combined impact of both transactions resulted in a debt issuance cost of $ 251,518 .

This debt issuance cost will be amortized over the term of the debt on a straight-line basis.

As of December 31, 2022 the balance is $ 129,764 of which $ 49,539 is current while $ 80,225 is non-current.

As at December 31, 2023, the balance is $ 82,159 of which $ 50,733 is current while $ 31,426 is non-current.

Shareholder loan

1 unchanged sentence

The loan is secured by all assets owned by the Company and its subsidiaries including leasehold improvements and matures on June 30, 2024, and therefore is presented as non-current.

The loan was provided in three tranches and the latest amendment increased the maximum loan amount by $ 258,405 (CAD 350,000 ) while the rest of terms remained unchanged.

The loan was provided in five tranches and the latest amendment increased the maximum loan amount by $ 665,640 (CAD 900,000 ) while the rest of terms remained unchanged.

The specific details of each tranche of the loan are shown below:

Outstanding loan

Interest rate

Outstanding loan

Interest expense charged for the twelve months ended December 31, 2023, in the amount of $ 991,091 (CAD 1,337,504 ) is included in interest and bank charges on the consolidated statement of operations and comprehensive loss and accrued interest in the amount of $ 996,565 (CAD 1,265,164 ) is included in accounts payable and accrued liabilities on the consolidated balance sheet.

A Ninth Amending Agreement to the shareholder loan, previously filed as Exhibit 10.35, was executed on November 7, 2023, by and between Jerry Zarcone, the Company and its subsidiaries (“ Ninth Amendment ”), which extends the term of each of the First, Second, Third, Fourth, and Fifth Tranche, to a maturity date of June 30, 2024, or such earlier date as demanded by Mr.

Outstanding management service fee

The balance owing to key officers of the Company is $ 689,360 (December 31, 2022:

The outstanding balance is primarily the outstanding management service fee.

Balances outstanding related to subsidiaries

During the year ended December 31, 2019, the Company settled with the loan holders provided to the Company's subsidiary, CannaKorp.

Total amount subject to settlement was $ 817,876 which includes accrued interest and accrued payroll.

During the year ended December 31, 2019, the Company settled with the loan holders provided to the Company’s subsidiary, CannaKorp.The total amount subject to settlement was $ 817,876 which includes accrued interest and accrued payroll.

The company settled by paying $ 954,374 as consideration of cash, 920,240 shares (recorded in shares to be issued) and warrants of 920,240 shares with an exercise price of $ 0.15 per share.

This resulted in a settlement loss of $ 136,498 .

Of the total settlement amount, as of December 31, 2022 and 2021, $ 65,000 was outstanding to be paid.

These warrants expired during the year ended December 31, 2021.

Of the total settlement amount, as of December 31, 2023 and December 31, 2022, $ 65,000 was outstanding to be paid.

This amount includes late payment penalties of $ 25,000 .

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The lease agreement was amended effective January 1, 2020, where the amended 10 -year term starts on May 1, 2020 and provides the Company with an option to extend for three (3) additional terms of ten ( 10 ) years.

Additionally, effective January 1, 2020, the amended agreement increased the minimum rent to $ 25,841 (CAD 35,000 ) plus applicable taxes per month and on

each anniversary date, commencing from January 1, 2021, the minimum rent will increase by 1.00 %.

Additionally, effective January 1, 2020, the amended agreement increased the minimum rent to $ 26,464 (CAD 35,000 ) plus applicable taxes per month and on each anniversary date, commencing from January 1, 2021, the minimum rent will increase by 1.00 %.

Furthermore, only the current 10 -year term has been factored into the calculation of the lease liability.

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The weighted average discount rate used for these leases was 16 % (average borrowing rate of the Company).

As of December 31, 2023 the weighted average remaining lease term was 6.33 years.

Maturities of lease liabilities were:

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Due to this unique circumstance and since operating lease expenses are related to rent expenses, the Company has decided to group the operating lease expenses, all lease related expenses and the recoverable amount from JVCo to show a net operating lease expense.

At the year ended December 31, 2023 the recoverable amount is through April 27, 2023.

Convertible Promissory Notes

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Preferred Stock

● Authorized:

1,000,000 shares were outstanding as of December 31, 2023 and 2022

● Authorized:

617,025,999 shares are outstanding as at December 31, 2023 and 2022

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The board of directors does not at present intend to seek stockholder approval prior to any issuance of currently authorized stock unless otherwise required by law.

Series A Preferred Stock ("Series A Stock")

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.

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These are currently recorded under shares to be issued and will be allocated between common stock and additional paid-in capital once the shares are issued.

During the quarter ended June 30, 2022, the Company issued 15,624 shares of common stock to be issued as consideration of the intellectual property rights granted by Smit to the Company’s subsidiary, Canary.

During the quarter ended June 30, 2023, the Company issued 15,624 shares of common stock to be issued as consideration of the intellectual property rights granted by the President of Serious Seeds, Smit, to the Company’s subsidiary, Canary.

These were recorded at a fair value of $ 48 , based on the market price of the Company’s stock on the date of the agreement.

These are currently recorded under shares to be issued and will be allocated between common stock and additional paid-in capital once the shares are issued.

During the quarter ended September 30, 2022, the Company issued 15,624 shares of common stock to be issued as consideration of the intellectual property rights granted by Smit to the Company’s subsidiary, Canary.

During the quarter ended September 30, 2023, the Company issued 15,624 shares of common stock to be issued as consideration of the intellectual property rights granted by the President of Serious Seeds, Simon Smit (“Smit”), to the Company’s subsidiary, Canary.

These were recorded at a fair value of $ 99 , based on the market price of the Company’s stock on the date of the agreement.

These are currently recorded under shares to be issued and will be allocated between common stock and additional paid-in capital once the shares are issued.

During the quarter ended December 31, 2022, the Company issued 15,624 shares of common stock to be issued as consideration of the intellectual property rights granted by Smit to the Company’s subsidiary, Canary.

During the quarter ended December 31, 2023, the Company issued 15,624 shares of common stock to be issued as consideration of the intellectual property rights granted by the President of Serious Seeds, Simon Smit (“Smit”), to the Company’s subsidiary, Canary.

These were recorded at a fair value of $ 47 , based on the market price of the Company’s stock on the date of the agreement.

These are currently recorded under shares to be issued and will be allocated between common stock and additional paid-in capital once the shares are issued.

During the quarter ended March 31, 2021, the Company issued 175,099 shares of common stock to an individual on the conversion of a convertible promissory note amounting to $ 2,648 .

In addition, 15,624 shares of common stock are to be issued as consideration of the intellectual property rights granted by Smit to the Company’s subsidiary, Canary.

During the quarter ended March 31, 2022, the Company issued 15,624 shares of common stock to be issued as consideration of the intellectual property rights granted by Smit to the Company’s subsidiary, Canary.

These were recorded at a fair value of $ 153 , based on the market price of the Company’s stock on the date of the agreement.

These are currently recorded under shares to be issued and will be allocated between common stock and additional paid-in capital once the shares are issued.

During the quarter ended March 31, 2021, the Company sold 38,183,326 shares of common stock as consideration for private placements.

These were recorded at a fair value of $ 904,833 , based on the cash proceeds received by the Company.

These are currently recorded under shares to be issued and will be allocated between common stock and additional paid-in capital once the shares are issued.

As part of the consideration for the private placement, the Company also agreed to issue warrants to purchase 38,183,326 shares of common stock.

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These are currently recorded under shares to be issued and will be allocated between common stock and additional paid-in capital once the shares are issued.

In addition, 5,033,333 shares of common stock as consideration for private placements.

These were recorded at a fair value of $ 122,974 , based on the cash proceeds received by the Company.

As part of the consideration for the private placement, the Company also agreed to issue warrants to purchase 5,033,333 shares of common stock.

Furthermore, the Company issued 44,216,664 shares for the past and current private placements.

Moreover, the Company had found an error in issuing in the incorrect number of shares for a private placement and therefore had recorded a subscription receivable in the amount of $ 23,697 based on the calculated fair value of the additional shares of the private placement and this was offset by shares to be issued, therefore, a net-zero effect on equity.

These additional shares were cancelled in July 2021.

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These were recorded at fair value of $ 215 , based on the market price of the Company’s stock on the date of the agreement.

These were recorded at a fair value of $ 73 , based on the market price of the Company’s stock on the date of the agreement.

These are currently recorded under shares to be issued and will be allocated between common stock and additional paid-in capital once the shares are issued.

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Risk free interest rate

0.16 % to 2.48 %

Expected life (years)

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Exercise price

$ 0.025 to $ 0.061

$ 0.025 to $ 0.059

Risk free interest rate

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Change in fair value

( 2,930,402 )

Warrant liability as at December 31, 2022

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Covid-19 Pandemic

On March 11, 2020, the World Health Organization declared the ongoing COVID-19 outbreak as a global health emergency.

On March 11, 2020, the World Health Organization declared the ongoing coronavirus (“COVID-19”) outbreak as a global health emergency.

This resulted in governments worldwide enacting emergency measures to combat the spread of the virus, including the closure of certain non-essential businesses.

During the year ended December 31, 2022 and 2021, the pandemic did not have a material impact on the Company’s operations.

As of December 31, 2022 and 2021, the Company did not observe any material impairment of its assets or a significant change in the fair value of assets due to the COVID-19 pandemic.

The Company has taken steps to minimize the potential impact of the pandemic including safety measures with respect to personal protective equipment, the reduction in travel and the implementation of a virtual office including regular video conference meetings and participation in virtual customer meetings and other virtual events.

Due to the rapid developments and uncertainty surrounding COVID-19, it is not possible to predict the impact that COVID-19 will have on the Company’s business, balance sheet and operating results in the future.

In addition, it is possible that estimates in the Company’s financial statements will change in the near term as a result of COVID-19 and the effect of any such changes could be material, which could result in, among other things, impairment of long-lived assets including goodwill.

The Company is closely monitoring the impact of the pandemic on all aspects of its business.

As per the Distribution, Collaboration and Licensing Agreement (“Agreement”) entered with Serious Seeds B.V.

(“Serious Seeds”) , effective December 6, 2018, the Company will issue to Serious Seeds B.V.

each month 5,208 shares of common stock, beginning on

the thirteen (13 th ) month following the effective date of the Agreement and continuing through the sixtieth (60 th ) month of the initial term.

Furthermore, Serious Seeds B.V.

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.

Despite the WHO’s declaration, on or about May 5, 2023, of the end of the COVID-19 global pandemic, the lasting impacts of COVID-19 on the United States, Canada, and the broader global economy, including supply chain disruption, may have a significant continuing negative effect on the Company and may materially impact the Company in the future.

During the year ended December 31, 2023 and December 31, 2022, the pandemic and its lasting impacts did not have a material impact on the Company’s operations.

As of December 31, 2023 and December 31, 2022, the Company did not observe any material impairment of its assets or a significant change in the fair value of assets due to the COVID-19 pandemic or its lasting impacts.

The Company has taken, and will again, as necessary, continue to take, steps to minimize the potential impact of the pandemic and its lasting impacts, including safety measures with respect to personal protective equipment, the reduction in travel and the implementation of a virtual office including regular video conference meetings and participation in virtual customer meetings and other virtual events.

It is not possible to predict the lasting impacts that COVID-19 will have on the Company’s business, balance sheet and operating results in the future.

In addition, it is possible that estimates in the Company’s Financial statements will change in the near term as a result of the lasting impacts of COVID-19, and the effect of any such changes could be material, which could result in, among other things, impairment of long-lived assets including goodwill.

The Company is closely monitoring the lasting impacts of the pandemic on all aspects of its business.

As per the Distribution, Collaboration and Licensing Agreement (“ Serious Agreement ”) entered with Serious Seeds, effective December 6, 2018, the Company would issue to Serious Seeds each month 5,208 shares of common stock, beginning on the thirteen (13th) months following the effective date of the Serious Agreement and continuing through the sixtieth (60th) month of the initial term.

Furthermore, Serious Seeds would 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.

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( 5,020,076 )

As of December 31, 2022, the Company performed a comprehensive analysis of its tax estimates and revised comparative figures accordingly, which had no net impact on deferred tax recorded.

As of December 31, 2023, the Company performed a comprehensive analysis of its tax estimates and comparative figures accordingly, which had no net impact on deferred tax recorded.

The Company had net operating loss carry forwards of approximately $ 25,807,517 (2022:

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Subsequent Events

The Company’s management has evaluated subsequent events up to March 17, 2023, the date the consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has determined the below material subsequent event to report:

In February 2023, the Company and the Company’s shareholder, as mentioned in Note 8, (“Lender”) entered into a Seventh Amending Agreement with the Lender pursuant to which the Lender agreed to lend the Company an additional $ 184,575 (CAD 250,000 ).

The new loan carries interest at the rate of 3.0146 % per month.

The remaining terms and conditions of the Original Loan remain in full force and effect.

The Company’s management has evaluated subsequent events up to March 20, 2024, the date the consolidated financial statements were issued, pursuant to the requirements of ASC 855 and has no subsequent event to report.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis