UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 20182019

OR

For the transition period from ________ to ________

Commission file number 000-55066

TARGET GROUP INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code +1 647-927-4644905-541-3833

Securities registered under Section 12(b) of the Act:

None

Securities registered under Section 12(g) of the Act:

Common Stock, Par Value $0.0001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨   Nox

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ Nox

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.

Yesx No¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yesx No¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, non-accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨

Accelerated filer  ¨

Non-accelerated filer  x

Smaller reporting companyx

Emerging growth company x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes¨ Nox

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $3,274,268$54,136,226 as of June 30, 2018.2019.

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of April 1, 2019,14, 2020, the registrant had 153,694,313560,145,968 shares of Common Stock issued and outstanding.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Annual Report on Form 10-K and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Annual Report on Form 10-K. All subsequent written and oral forward-looking statements concerning other matters addressed in this Annual Report on Form 10-K and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Annual Report on Form 10-K.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

USE OF CERTAIN DEFINED TERMS

Except as otherwise indicated by the context, references in this report to “we,” “us,” “our,” the “Company,” or “Target” are to Target Group Inc.

In addition, unless the context otherwise requires and for the purposes of this report only:

PART I

Item 1. Business

Historical background

Target Group Inc. (formerly known as Chess Supersite Corporation) (“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 friendlyuser-friendly web sitewww.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. IonIn 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:

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 2019.2020.

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-AKeilStrawberry-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 13^th 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 5,208.33335,208 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 16,666.666716,667 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:

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 stockto 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’sWisp™Vaporizer andWisp™ 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 theWISP™ 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 theWISP™ Pods and to sell theWISP™ Podsin conjunction with the sale of theWISP™ Vaporizer. Nabis is required to meet minimum quarterly orders of two hundred (200)WISP™ Vaporizers and five thousand (5,000)WISP™ Podscartridges. Nabis is licensed to sell theWISP™ Vaporizer and theWISP™ 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 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”(“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 controlledclimate-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

We currently haveAs at December 31, 2019, we had three employees Rubin Schindermann, our CEO,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 President and Saul Niddam, our CIO. 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 $1,298$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. Properties

The Company does

We do not own any properties at this time and has nodo not have presently any agreements to acquire any properties. The Company

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 Medicalmedical and Recreational Cannabis.recreational cannabis. Total minimum rent for the building is $1,833$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 1st1^st 2019 the minimum rent increased to $18,326$19,248 (CAD $25,000) plus applicable taxes per month.

Following the acquisition ofOur subsidiary, CannaKorp, we have assumed CannaKorp’s lease on itsleases executive and administrative offices located outside of Boston in Stoneham, MA.Massachusetts. The monthly minimum rent for those offices is $1,200 plus applicable taxes and utilities.

Item 3. Legal Proceedings

There is no litigation pending or threatened by orDuring 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. Mine Safety Disclosures.

Not applicable.

PART II

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, as adjusted for the 1 for 1,000 reverse effective October 31, 2017.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 153,694,313560,145,968 shares of common stock issued and outstanding held by 194428 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 prior three years,quarter ended December 31, 2019, we sold the following securities without registration under the Securities Act of 1933, as amended. The shares amounts shown for 2016 and 2017 do not take into account our reverse stock split of 1-for-1,000, effective November 1, 2017.

2016

In February, we issued 50,000 (50 - post reverse split) shares of common stock at a price of $0.50 per shares in payment of $25,000 of consulting services to a third-party unaffiliated consultant.

In March, we issued two convertible promissory notes in the principal amount of $150,000 each to two private investors. The note permits the holders thereof to convert the outstanding principal and interest balances into our common stock at a conversion price equal to 45% of the lowest trading price of our common stock on the date of conversion.

In March, we issued 65,000 (65 - post reverse split) shares of common stock at a price of $0.50 per share to two private investors in consideration of $32,500.00.

In May, we issued our convertible promissory note in the principal amount of $75,000.00 to a private investor. The note permits the holder to convert the outstanding principal and interest balance into our common stock at a conversion price equal to 52% of the lowest trading price of our common stock on the date of conversion.

In July, we issued 140,000 (140 - post reverse split) shares of common stock pursuant to an invoice for consulting services in the amount of $49,140. (24/7 Marketing). We issued 5,000,000 ((5,000 - post reverse split) shares to each of our two officers and directors in lieu of the payment of $50,000 of unpaid compensation owed to each of them.

In September, we issued 80,000 (80 - post reverse split) shares of common stock at a price $0.50 per share in payment of $40,000 of consulting services.

2017

In January, we issued a convertible promissory note in the principal amount of $33,000 to a private investor. The not permits the holder to convert the principal and accrued interest into common stock at a price equal to 58% of the trading price of the common stock on the date of conversion.

In January, we issued 1,264,423 (1,264 - post reverse split) shares of common stock at a price per share of $0.0042 upon the partial conversion of an outstanding promissory note.

In February, we issued 5,690,072 (5,690 - post reverse split) shares of common stock at a price per share of $0.0029 upon the partial conversion of an outstanding promissory note.

In March, we issued 20,000,000 (20,000 - post reverse split) shares of common stock in payment of accrued and unpaid executive compensation in the aggregate amount of $100,000. We also issued 6,962,246 (6,962 - post reverse split) shares of common stock at a price per share of $0.0012 upon the partial conversion of an outstanding promissory note.

In April, we issued 40,000,000 (40,000 - post reverse split) shares of common stock to each of our officers and directors at a price per share of $0.0025 in lieu of the payment of executive compensation in the aggregate amount of $100,000. We also issued an aggregate of 46,361,595 (46,362 - post reverse split) shares of common stock to three holders of convertible promissory notes at a price per share of $0.002.

In May, we issued an aggregate of 127,947,300 (127,947 - post reverse split) shares of common stock to three holders of convertible promissory notes at a price per share of $0.0001.

In June, we issued an aggregate of 60,149,599 (60,150 – post reverse split) shares of common stock to three holders of convertible promissory notes at a price per share of $0.0002.

In September, we issued 1,400,000,000 (1,400,000 – post reverse split) shares of common stock to each of our officers and directors at a price per share of $0.0001 in lieu of the cash payment of accrued executive compensation in the aggregate amount of $280,000.

In July, we issued an aggregate of 250,501,846 (250,502 – post reverse split) shares of common stock to three holders of convertible promissory notes at a price per share of $0.0002.

In August, we issued an aggregate of 425,125,384 (425,125 – post reverse split) shares of common stock to three holders of convertible promissory notes at a price per share of $0.0001.

In November, we issued we issued 10,000,000454,545 shares of common stock to our officers and directors at a priceprices of $0.022 per share of $0.01 in lieu of a cash payment of accrued executive compensation in the aggregate amount of $100,000. We also issued an aggregate of 1,555,784 shares of common stock to three holders of convertible promissory notes at a price per share of $0,008 per share.

2018one (1) private investor.

In January,December, we issued 750,0001,243,107 shares at a price of $0.003 per share and 741,000 shares at $0.0054$0.0151 per share, respectively, upon the partial conversion of outstanding convertible promissory notes held by two persons.

In February, we issued (a) 300,000 shares at a price of $0.0120 per shar pursuant to a consulting agreement; (b) 3,000,000 shares at a price of $0.0030 per share, 200,000 shares at a price of $0.0123 and 465,728 shares at a price of $0.00817 per share, respectively upon the conversion of an outstanding convertible promissory note.

In March, we issued an aggregate of 5,529,412 shares at a price of $0.017 per shares to our officers and directors in lieu of the payment of accrued and unpaid compensation in the aggregate amount of $84,000.

In April, we issued 500,000 shares of common stock at a price of $0.045 per shares in payment of $22,500 of consulting services to a third-party unaffiliated consultant.

In May, we issued 3,140,506 shares at a price of $0.0151 per share upon the partial conversion of two outstanding promissory notes.

In June, we issued 2,500,000 shares of common stock to the note holder for settlement of debt. Refer to Note 14 of the consolidated financial statements for further details.

In July, we issued 411,184 of common stock at a price of $0.00912 upon the conversion of an outstanding convertible promissory note. We also issued 750,000 shares of common stock at a price of $0.0621 per shares in payment of $46,575 of marketing services to a third-party unaffiliated consultant.

Effective in August, we issued 25,500,000 shares of common stock pursuant to the Agreement and Plan of Share Exchange dated June 27, 2018 with Visava Inc./Canary Rx Inc. As part of consideration for the above agreement, we also agreed to issue warrants to purchase 25,000,000 shares of common stock. In addition, we issued 2,740,806 shares at a price of $0.0292 per share upon the partial conversion of two outstanding promissory notes.

In September, we issued 19,365,807 shares of common stock at prices of $0.05; $0.07; and $0.10 per share and warrant to purchase up to an additional 19,365,807 shares of common stock for two years from the date of issuance at prices of $0.10 and $0.15 per share.

In October, we issued an aggregate of 4,677,164 and $1,250,000 shares of common stock at a price of $0.0151 and $0.20, respectively, per share upon the partial conversion of four convertible promissory notes. In addition, we issued an aggregate of 7,630,769 shares of common stock at prices of $0.05, $0.07 and $0.10 per share to sixteen (16) private investors plus warrants to purchase up to an additional 7,630,769 shares of common stock for two years from the date of issuance at prices of $0.10 and $0.15 per share.

In November, we issued an aggregate of 1,659,846 shares of common stock at prices of $0.05, $0.07 and $0.10 per share to seven (7) private investors plus warrants to purchase up to an additional 1,659,846 shares of common stock for two years from the date of issuance at prices of $0.10 and $0.15 per share. In addition, we issued 3,437,364 shares of common stock at a price of $0.151 per share upon the partial conversion of two convertible promissory note.

In December, we issued an aggregate of 34,438,212 shares to nine (9) private investors at a price of $0.02, $0.03, $0.06 and $0.07 per share plus warrants to purchase up to an additional 34,438,212 shares at a price of $0.15 per share.

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. Selected Financial Data.

There is no selected financial data required to be filed for a smaller reporting company.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As of December 31, 2018,2019, the Company had not generated significant revenues and had no income or cash flows from operations since inception. At December 31, 2018,2019, the Company had sustained net loss of $1,900,341,$10,367,670, and had an accumulated deficit of $9,094,954.$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.

Management will pay all expenses incurred by the Company and there is no expectation of repayment for such expenses.

Balance sheet as at December 31, 20182019 and 20172018

Cash

At December 31, 20182019 we had cash of $303,438$10,487 compared to $56$303,438 as at December 31, 2017.2018. The increasedecrease is primarily due to proceeds received from private placements and note issuances offset by 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

Prepaid asset amounting to $140,000 represented commitment fee owed by us to a certain investor in respect of a drawdown facility which is not yet active. The asset was written off in the statement of operations during the year ended December 31, 2017 because the benefit associated in form of the equity line of credit no longer exists.

At December 31, 20182019 we had prepaid expenses of $35,14537,702 compared to $nil$35,145 as at December 31, 2017.2018. The balance represents the retainer fees paid to our lawyer and security deposit for the leased land for the facility to produce MedicalMarijuana.

Sales tax recoverable

At December 31, 2018,2019, we had $294,033$48,744 of gross sales tax recoverable compared to $nil$294,033 as at December 31, 2017.2018. 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 $75,902$12,186 (2018 - $75,902) stemming from the potential uncollectible balances within the outstanding sales tax recoverable amount.

IntangibleGoodwill and intangible assets

IntangibleGoodwill 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 amount incurred by the Company related to the developmentExclusive License Agreement entered with cGreen. The value of the online chess gaming website.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 yearquarter ended December 31, 2017, after2019, the intangible asset was written off based on our management’s review and evaluation of its recoverability, the intangible asset was written off.asset’s recoverability.

Additionally, intangibleFixed assets represent goodwill acquired during the acquisition of our subsidiary.

Capitaland capital work in progress

Capital work in progress represents the ongoingThe Company initiated construction work of ouron its 44,000 square foot cannabis cultivation 44,000 square feet facility on the leased land which initiated duringin September of 2017. Since then, extensive demolition and structural upgrades have been carried out at the site. Construction remainsAs 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 scheduleMay 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 completion by mid-April 2019.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, 20182019 we had $403,620$431,660 of amount payable to related parties as compared to $123,697$403,620 as at December 31, 2017.2018. The balance represents management services fee outstanding to our two shareholder/the managers of the company and non-interest bearing, unsecured loans from other related parties.our officers including the outstanding amount of $40,000 to be paid to a former shareholder of CannaKorp as part of the settlement agreement.

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 2017 was $209,046, and $304,322, respectively. The amounts repaid during the years ended December 31, 2019 and 2018 were $203,945 and 2017 were $281,927, respectively and $48,236, respectively.$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

In January 2018,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 $28,000. The outstanding amount under the note was due on or before October 30, 2018. During the year ended December 31, 2018, we issued 2,990,806 shares of common stock upon the full conversion of the principal balance and the outstanding accrued interest of the promissory note.

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. During the year ended December 31, 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 period 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 condensed consolidated statement of operations.

During the quarter 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.

During quarter ended September 30, 2018, we entered into an agreement with two investors and issued them a convertible promissory note (Note M & N) amounting to $65,000 and $103,000, respectively. The outstanding amount under the notes are due on or before September 9, 2019 and December 5, 2019, respectively.August 16, 2020.

During quarter ended December 31, 2018,2019, we entered into an agreement with two investorsan investor and issued them a convertible promissory note (Note O & P)R) amounting to $75,000 and $83,000,$168,300, respectively. The outstanding amount under the notes are due on or before November 28,April 21, 2021.

During the year ended December 31, 2019, we settled five notes (Note M, N, O, P and June 24, 2020, respectively.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, 20182019 amounting to $67,923.$75,348 (2018: $67,923).

Principal amount outstanding as at December 31, 20182019 was $479,079.$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, 20182019 and 20172018

Revenues for the years ended December 31, 20182019 and 20172018

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.

Revenue of $15,434 during the year ended December 31, 2017 comprises an amount of $13,882, which we invoiced as consideration for the revenue earned from ticket sales for 2017 Orlando Sunshine Open and $1,552 as membership fee for the Company’s chess gaming website.

Expenses for the years ended December 31, 20182019 and 20172018

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.

Expenses amounting to $1,742,682 for the year ended December 31, 2017 are primarily comprised of a commitment fee of $140,000, advisory and consultancy fee of $36,000, management services fee of $300,000 to related parties, legal and professional fee of $109,739, software development expense of $86,088, impairment of intangible asset amounting to $124,357, website development and marketing expenses of $87,307 and rent of $14,849 together with the fair valuation impact of convertible notes amounting to $955,305 of the convertible promissory notes.

Liquidity and Capital Resources

At December 31, 2018,2019, 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 (2017: Working capital deficit of $2,062,258 and an accumulated deficit of $7,194,613)$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 20202021 provided that it is successful in obtaining additional financing in the foreseeable future.

Item 8. Consolidated Financial Statements and Supplementary Data

TARGET GROUP INC.

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 20182019 and 20172018

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, 20182019 and 2017,2018, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’stockholder’s equity, and cash flows for each of the years in the two-year period ended December 31, 2018,2019, 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, 20182019 and 2017,2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018,2019, 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 auditaudits 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 auditsaudit 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