Target Group Inc. - 10-K

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.

Risks Related to Our Cannabis Business and the Cannabis Industry in the United States

As of the date of this report, the Company and its subsidiaries do not have any operations, employees or corporate offices based in United States.

Our business is dependent on state laws pertaining to the marijuana industry, which are uncertain and subject to change

Our business depends on the continued legalization and regulation of marijuana at the state level through legislation, rulemaking and voter-approved ballot measures. The marijuana industry is subject to evolving laws, regulations and enforcement priorities, and there can be no assurance that current state-law protections and regulatory regimes will remain in place. Any repeal, amendment, delay in implementation, adverse regulatory development or change in enforcement priorities could restrict or eliminate our ability to conduct business in one or more jurisdictions, reduce demand for our products, increase compliance costs and materially adversely affect our business, financial condition and results of operations.

Cannabis remains illegal under U.S. federal law.

The possession and use of marijuana are illegal under U.S. federal and certain states’ laws, which may negatively impact our business. The 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. 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 not 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 the 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 affect our 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 continued 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, 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.

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Our potential customers, clients and companies with which we may elect to invest directly may have difficulty accessing the services of U.S. banks which may make it difficult for them to operate.

On February 14, 2014, the U.S. Financial Crimes Enforcement Network (“FinCen”) issued rules allowing banks to legally provide financial services to state-licensed cannabis businesses consistent with the Bank Secrecy Act obligations. A memorandum issued by the U.S. Justice Department to federal prosecutors reiterated the guidance previously given, this time to the financial industry that banks can do business with legal marijuana businesses and “may not” be prosecuted. However, the FinCen guidelines fall short of the explicit legal authorization that the banking industry had requested the government provide. To date, it is not clear if any banks have relied on the FinCen guidelines to take on legal cannabis companies as clients. Because the use, sale and distribution of cannabis remains illegal under U.S. federal law, many banks will not accept deposits from or provide other bank services to a 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.

Rescheduling Uncertainty

On May 21, 2024, DOJ published a proposed rule to reschedule marijuana from Schedule I to Schedule III. On December 18, 2025, President Trump signed an Executive Order directing the U.S. Department of Justice (“DOJ”) to expedite the rescheduling of cannabis from Schedule I to Schedule III under the CSA. The rescheduling process, which requires formal rulemaking under the Administrative Procedure Act (“APA”), is expected to include a public comment period and may be subject to legal challenge. There can be no assurance as to the timing or outcome of the rulemaking.

If finalized, rescheduling to Schedule III would not constitute federal legalization of cannabis, nor would it resolve the fundamental conflict between federal and state cannabis laws. The continued classification of cannabis as a controlled substance—even under Schedule III—means that cannabis operations in the United States remain subject to federal enforcement risk.

Rescheduling could lower barriers to entry for well-capitalized institutional competitors in both the United States and in Canada, including pharmaceutical and consumer-goods companies that have historically been unable or unwilling to participate in the cannabis industry due to its Schedule I status. Increased competition from such entrants could adversely affect our market share, pricing, and profitability in Canada, or in any future operations in the United States.

Hemp More Narrowly Defined

Impactful to licensees in the United States, on November 12, 2025, President Trump signed H.R. 5371, the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026, into law. Section 781, effective 365 days after enactment, amends Section 297A of the Agricultural Marketing Act of 1946 and narrows the federal definition of “hemp.” As amended, “hemp” is defined using a total tetrahydrocannabinols standard, including tetrahydrocannabinolic acid (“THCA”), rather than the prior delta-9 THC-only standard. In addition, the amended law excludes certain intermediate and final hemp-derived cannabinoid products from the definition of hemp, including final hemp-derived cannabinoid products containing more than 0.4 milligrams combined total per container of total tetrahydrocannabinols (including THCA) and other cannabinoids that have similar effects, or are marketed to have similar effects, as tetrahydrocannabinol, as determined by the Secretary of Health and Human Services.

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Risks Related to Our Cannabis Business and the Cannabis Industry in Canada

The Canadian cannabis market is subject to an evolving and complex regulatory framework that may adversely affect our business, results of operations, and financial condition.

The Cannabis Act (S.C. 2018, c. 16) has governed the legal production, distribution, and sale of cannabis for recreational adult use in Canada since October 17, 2018, and was amended effective October 17, 2019 to permit the sale of cannabis edibles, extracts, and topicals. Since legalization, the Canadian cannabis industry has experienced significant market maturation, including persistent oversupply conditions, sustained wholesale and retail price compression, consolidation among licensed producers, and ongoing competition from the illicit market, which continues to capture a material share of total cannabis sales in Canada.

The Cannabis Act imposes significant restrictions on the marketing, branding, packaging, product formats, potency, and distribution channels for cannabis products. Health Canada administers the federal regulatory framework and retains broad authority to modify the conditions of cultivation, processing, and sale licenses, impose additional compliance requirements, or amend the regulations under the Cannabis Act. Licensees are subject to ongoing inspection, audit, and compliance monitoring by Health Canada, which has enhanced its inspection capacity and enforcement focus as the industry has matured. Individual provinces and territories maintain separate regulatory frameworks governing retail distribution, pricing, and market access, resulting in a fragmented national market with varying competitive dynamics across jurisdictions. The Government of Canada has completed the legislative review required under the Cannabis Act, and any resulting amendments to the Cannabis Act, its regulations, or other applicable laws and policies could adversely affect our business.

The Canadian federal excise duty framework, which imposes the greater of a flat-rate duty or an ad valorem duty on cannabis products, has been a persistent source of margin pressure for licensed producers. Industry participants have advocated for reform of the excise duty structure, and the federal government has announced plans to explore a transition to a single national excise stamp to reduce administrative burden. However, no excise duty relief has been enacted for cannabis products.

Additionally, we are subject to the risk that our Canadian licenses may not be renewed on acceptable terms, that Health Canada may impose additional conditions on our licenses, or that regulatory enforcement actions may result in fines, penalties, suspension, or revocation of our licenses. Compliance with the evolving Canadian regulatory framework requires significant ongoing investment in regulatory affairs, quality assurance, and operational processes, and any failure to maintain compliance could have a material adverse effect on our business, financial condition, and results of operations.

The recreational adult-use cannabis market in Canada may experience periods of oversupply, which could adversely affect pricing, sales and profitability

The Canadian adult-use cannabis market is highly competitive and may, at times, experience excess production relative to consumer demand. If licensed producers cultivate or manufacture more cannabis than the market can absorb, and we are unable to redirect that supply to export or other permissible channels, the available supply of cannabis may exceed demand. Any such imbalance could result in lower market prices, increased price competition, inventory write-downs, higher storage or disposal costs, and reduced margins. In addition, our ability to export excess inventory is limited by applicable laws and regulations in Canada and in foreign jurisdictions, and there can be no assurance that export opportunities will be available on commercially reasonable terms, or at all. If oversupply occurs and persists, our revenues, results of operations and ability to achieve or maintain profitability could be materially adversely affected.

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.

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We may seek to enter into strategic alliances or acquisitions with third parties that we believe will have a beneficial impact on our business and there are risks that such alliances or acquisitions will not enhance our business in the desired manner.

We may expand, or in the future enter into, alliances or acquisitions with third parties that we believe will complement or enhance our existing business. Our ability to take advantage of existing or new alliances or acquisitions is dependent upon a number of factors such as the availability of suitable candidates and working capital. Future strategic alliances or acquisitions could result in the incurrence of debt, costs and contingent liabilities. In addition, there can be no assurances that future alliances or acquisitions will achieve the expected benefits to our business or that we will be able to consummate future strategic alliances or acquisitions on satisfactory terms, or at all.

We may not be able to identify and execute future acquisitions or to successfully manage the impact of such transactions on our business.

Acquisitions and/or other strategic business combinations involve many risks including (i) disruption of our existing business; (ii) the distraction of management away from the ongoing oversight of our existing business operations; (iii) incurring additional indebtedness; and (iv) increasing the scope and complexity of our operations. A strategic transaction may result in unforeseen obstacles or costs in implementing the transaction or integrating any acquired business into our existing operations.

Our cannabis cultivation business is subject to risks associated with an agricultural business.

One of the major aspects of our business operations is cultivating cannabis which is an agricultural process. As such, that part of our business is subject to the risks associated with the agricultural business, including crop failure presented by weather, plant diseases, and similar agricultural risks. Although we will grow our cannabis products indoors under climate-controlled conditions, there can be no assurances that natural elements, such as insects and plant diseases, will not disrupt our production activities or have an adverse effect on our business.

We may not be able to attract or retain key personnel with sufficient experience in the cannabis industry and we may not be able to attract, develop and retain additional employees required for our development and future success.

Our success is dependent to a great extent on the performance of our management team and certain key employees and our ability to attract, develop, motivate and retain highly qualified and skilled employees who are in high demand. The loss of the services of any key personnel, or an inability to attract other suitably qualified persons when needed, could prevent us from executing our business plan and we may not be able to find adequate replacements on a timely basis, if at all. Currently, we do not maintain any key-person insurance on the lives of any of our key personnel. Furthermore, each director and officer of a company that holds a license is subject to the requirement to obtain and maintain a security clearance from Canada Health under the Cannabis Act. A security clearance is valid for not more than five years and must be renewed before the expiration of the 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.

Industry Consolidation and Counterparty Risk

In recent years, a number of companies across the Canadian cannabis supply chain have sought creditor protection or other insolvency relief under the Companies’ Creditors Arrangement Act (R.S.C. 1985, c. C-36) (“CCAA”) or the Bankruptcy and Insolvency Act (R.S.C. 1985, c. B-3) (“BIA”). This trend reflects persistent structural challenges in the industry, including oversupply, wholesale price compression, elevated excise duty burdens, limited access to capital, and a timeline to profitability that has exceeded the expectations of many market participants.

We are exposed to counterparty credit risk through our third-party relationships in the industry, some or all of which may be experiencing financial distress or may file for creditor protection. In the event that a material customer, distribution partner, or supplier becomes insolvent, we may experience losses on accounts receivable, disruption to our supply chain or distribution channels, or inability to recover prepayments or deposits. In addition, continued industry consolidation and court-supervised sale processes may enable existing or new competitors to acquire assets, licenses, or production capacity on attractive terms, which could increase competitive pressure in our markets.

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There can be no assurance that market conditions will not deteriorate further or that the failure of one or more significant counterparties will not have a material adverse effect on our business, results of operations, and financial condition.

Employees

As of December 31, 2025, we had 40 employees which include Anthony Zarcone, Chief Executive Officer.

We have contracted several independent contractors and consultants to provide a range of information technology and marketing services who do not receive cash compensation but receive shares of our common stock as compensation. This mitigates any need for full or part-time employees for these services.

Intellectual Property Protection

Company subsidiary CannaKorp 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.

At present, CannaKorp has failed to meet its annuities payments as well as maintenance fees on the 2 referenced patents. Although there has been a lapse and these patents remain unmaintained, there remains the possibility of CannaKorp reinstating these patents if done so in a reasonable amount of time. At this time, management is determining the value maintaining these patents will provide the Company. Once management has completed their assessment, the Company will proceed accordingly and advance in that determined direction moving forward. Additionally, CannaKorp is actively seeking a joint venture partner and/ or a licensor to assist in both marketing and launching the Wisp Vaporizer and Wisp Pods in both the US and Canadian legal cannabis or hemp markets.

Corporate Facilities

Our principal executive office is located at 20 Hempstead Drive, Hamilton, Ontario, Canada.

Item 1C. Cybersecurity

Risk Management and Strategy

The Company invests in information technology systems for its operations. Such investments, including the implementation of technology updates, improves the Company’s customers’ experience, and supports both compliance and internal controls. The Company is actively engaged in attempting to identify and manage cybersecurity risks. Protecting company data, non-public customer and employee data, and the systems that collect, process, and maintain this information is a Company priority.

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Cybersecurity Risk

In recent years there has been an increased risk of information and security risks due to increased sophistication and activities of perpetrators of cyber attacks. The computers are used for our everyday business operations including mobile devices and other online means of activities to connect with our customers, employees, suppliers and other parties. This extensive use give rise to cybersecurity risks such as system disruption, theft and the release of confidential information. There are numerous sensitive information stored in the system and intellectual property, including employees, customers and other financial information.

In the future we may be required to expend additional resources to continue to enhance information security measures to investigate and remediate any information security vulnerabilities. We can provide no assurances that the measures we have implemented to prevent security breaches and cyber incidents will be effective in the event of a cyber-attack.

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

As of December 31, 2025, the Company generated revenue of $3,881,003 and had loss of $1,359,682. As of December 31, 2025, the Company had a working capital deficit of $11,052,097 and an accumulated deficit of $32,306,526.

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 is running its operations at its Simcoe Facility cultivating Premium Cannabis and started generating revenue (though its investment in JVCo) within the Canadian wholesale cannabis market. However, the continuation of the Company as a going concern is dependent upon these operations successfully generating cashflow for the Company, 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.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

Inventory is stated at the lower of cost or net realizable value in accordance with US GAAP. The determination of inventory cost involves significant estimates, primarily related to the cost per gram used to value inventory at the end of the reporting period. Small changes in these underlying assumptions can materially affect the unit cost and, consequently, the total inventory balance reported in the financial statements.

Balance sheet as of December 31, 2025 and 2024

Cash and restricted cash

On December 31, 2025, we had cash of $100,410 (excluding restricted cash of $8,390) compared to $1,869,767 (excluding restricted cash of $7,992) as of December 31, 2024. The decrease is due to decrease in revenue and the settlement of loans.

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, 2025, the companys allowance for doubtful accounts was $2,761.

The company recorded a bad debt expense of $nil for the year ended December 31, 2025 (December 31, 2024: $2,630).

Inventory

As of December 31, 2025, the inventory in the amount of $1,669,053 (2024: $882,279) consists of WIP and finished cannabis goods.

Prepaid asset

As of December 31, 2025, we had prepaid expenses of $41,222 compared to $39,268 as of December 31, 2024. The balance represents the security deposit for the leased land for the facility to produce Medical Marijuana.

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Sales tax recoverable and payable

As of December 31, 2025, the Company had $67,256 of gross sales tax recoverable compared to $59,469 as of December 31, 2024 while the Company had $nil of gross sales tax payable as of December 31, 2025 compared to $nil as of December 31, 2024.

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

Sales tax recoverable allowance on December 31, 2025 is $6,750 (December 31, 2024: $5,795).

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable assets of our subsidiaries at the date of acquisition.

Fixed assets

The Company had initiated construction on its leased 44,000 square foot cannabis cultivation facility in September of 2017. On May 1, 2019, the Company completed the construction of its 44,000 square foot cannabis cultivation facility and on May 14, 2019, the Company submitted a Site Evidence Package to Health Canada as part of the steps to obtain the license to cultivate cannabis at the Company’s facility. On October 8, 2019, the Company was granted licenses to cultivate, process and sell cannabis pursuant to the Cannabis Act (Bill C-45). On June 4, 2021, Canary received its Sales License amendment from Health Canada.

Accounts payable and accrued liabilities

Accounts payable amounting to $2,637,973 as of December 31, 2025, primarily represents consulting and construction services related to fixed asset additions amounting to $100,794, interest on promissory notes and loans amounting to $1,203,273, outstanding and accrued professional fees amounting to $940,235.

Accounts payable amounting to $3,092,563 as of December 31, 2024, primarily represents consulting and construction services related to fixed asset additions amounting to $96,599, interest on promissory notes and loans amounting to $1,605,103, outstanding and accrued professional fees amounting to $904,233.

Payable to related parties

As of December 31, 2025, we had $10,361,576 of the amount payable to related parties as compared to $9,854,719 as of December 31, 2024. The balance primarily represents loans provided by the Company’s shareholders and a related party, CLI, management services fee outstanding to the managers of the company, and outstanding amount of $65,000 to be paid to a former shareholder of CannaKorp as part of the settlement agreement.

For additional detail, refer to Note 14 in consolidated financial statements.

Convertible promissory notes payable

Interest amounting to $38 was accrued for the year ended December 31, 2025 (2024: $38).

The principal amount outstanding as of December 31, 2025 and 2024 was $480. At both reporting dates, the entire balance was current.

All notes maturing prior to the date of this report are outstanding.

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Income statement for the years ended December 31, 2025 and 2024

Revenues for the years ended December 31, 2025 and 2024

The Company generated revenue of $3,881,003 during the current year and $6,591,625 in the comparable year ended in 2024. The revenue represents the sale of cannabis product, and the entire revenue was sold to seventeen customers (2024: seventeen).

Expenses for the years ended December 31, 2025 and 2024

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, 2025 compared to 2024 is due to decrease in office and general, depreciation expense and operating lease expense.

Expenses for the year ended December 31, 2025 primarily represented consulting fees of $171,237 (2024: $256,206), management fees of $405,316 (2024: $476,994), legal and professional charges of $202,010 (2024: $218,801) comprising legal, review, accounting and Edgar agent fee, travel expenses of $nil (2024: $7,302), operating lease expenses of $193,947 (2024: $217,422) office and general of $418,618 (2024: $515,570) and depreciation expense amounting to $898,403 (2024: $916,213).

Changes in other income and expenses were due to: (1) the revaluation of the warrant and convertible debt liabilities on each quarter-end which reduced significantly in magnitude since a significant number of warrants expired during the current year ended; (2) increase in the principal balance of higher interest rate bearing loans led to increased interest expense; (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 negative $140 (2024: positive $374), gain on settlement of debt amounting to $nil (2024: Gain on settlement of debt $36,511), interest and bank charges amounting to $1,044,219, (2024: $1,153,574), exchange loss of $98,569 (2024: income of $172,564), interest income in the amount of $34,062 (2024: $30,821), impairment of goodwill in the amount of $nil (2024: $nil), recovery of sales tax recoverable $653 (2024: $6,089), and debt issuance cost $29,744 (2024: 48,997).

Liquidity and Capital Resources

As of December 31, 2025, the Company had a working capital deficit of $11,052,097 and an accumulated deficit of $32,306,526 (2024: Working capital deficit of $9,994,548 and an accumulated deficit of $30,946,844). The Company is actively seeking various financing operations to meet the working capital requirements.

The Company anticipated that its future operations will generate positive cash flows starting in 2026.

Statement of Cash Flow – For the years ended December 31, 2025 and 2024:

Operating activities

Operating activities used cash of $842,425 compared to the cash provided of $2,162,684 during the prior year. This is due to change in accounts receivable, accounts payable and accrued liabilities and inventory.

Investing activities

Investing activities provided cash of $81,379 compared to cash used of $178,978 during the prior year. This was because the company have received the proceeds back from convertible note.

Financing activities

Financing activities used cash of $1,064,814 compared to $730,225 for the corresponding period of the prior year. This is due to the settlement of related party loan.

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Item 8. Consolidated Financial Statements and Supplementary Data

TARGET GROUP INC.

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2025 and 2024

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID # 5525 )

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Target Group Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Target Group Inc. (“the Company”) as of December 31, 2025 and 2024, 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, 2025, 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, 2025, and 2024 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2025, 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 an accumulated deficit and a working capital deficit. These factors, among others, 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 audit 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 audits 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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. 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.

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Valuation of Inventory

Description of the Critical Audit Matter

As discussed in Notes 4 and 8 to the financial statements, the Company’s inventory consists of finished goods and work-in-process. The Company utilizes an average cost methodology which relies on assumptions related to yield estimates, as well accumulated costs including direct labor and materials, and an allocation of indirect labor, material, and overhead costs. The valuation of inventory 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

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 #05525

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

Spokane, Washington

March 31, 2026

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TARGET GROUP INC. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

December 31,

December 31,

ASSETS

Current assets

Cash

Restricted cash

Accounts receivable, net of allowance

Note 7

Inventory

Note 8

Prepaid asset

Note 9

Convertible note receivable

Note 6

Interest receivable

Note 6

Sales tax recoverable, net of allowance

Note 10

Other receivable

Note 14

Total current assets

Long term assets

Fixed assets

Note 11

Goodwill

Note 12

Operating lease right-of-use assets

Note 15

Total long term assets

Total assets

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

Current liabilities

Bank overdraft

Accounts payable and accrued liabilities

Note 13

Deferred revenue

Note 4

Payable to related parties, net

Note 14

Operating lease liability - Current portion

Note 15

Convertible promissory notes, net

Note 16

Derivative liability

Note 16

Total current liabilities

Long term liabilities

Operating lease liability - Non-current portion

Note 15

Warrant liability

Note 17

Total long term liabilities

Total liabilities

Stockholders’ deficiency

Preferred stock

Note 17

Common stock

Note 17

Shares to be issued

Note 17

Additional paid-in capital

Accumulated deficit

Accumulated comprehensive loss

Total stockholders’ deficiency

Total liabilities and stockholders’ deficiency

Contingencies and commitments

Note 18

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

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TARGET GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the

For the

year ended

year ended

December 31, 2025

December 31, 2024

REVENUE

COST OF GOOD SOLD

Gross profit

OPERATING EXPENSES

Advisory and consultancy fee

Management services fee

Legal and professional fees

Depreciation expense

Operating lease expense

Note 15

Office and general

Travel expenses

Total operating expenses

OTHER EXPENSES (INCOME)

Change in fair value of derivative and warrant liability

Gain on settlement

Interest and bank charges

Exchange loss (income)

Interest income

Recovery of sales tax recoverable

Debt issuance cost

Note 14

Total other expense

Net (loss) income before income taxes

Income taxes

Note 19

Net (loss) income

Foreign currency translation adjustment

Comprehensive (loss) income

loss per share - basic and diluted

Weighted average shares - basic and diluted

Earnings (loss) per share - diluted

Weighted average shares - diluted

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

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TARGET GROUP INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Additional

Preferred stock

Common stock

Shares to be issued

paid-in

Accumulated

Accumulated

Shares

Amount

Shares

Amount

Shares

Amount

capital

deficit

comprehensive

Total

loss

As at December 31, 2024

Net loss

Foreign currency translation

As at December 31, 2025

As at December 31, 2023

Net income

Foreign currency translation

As at December 31, 2024

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

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TARGET GROUP INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the

For the

year ended

year ended

December 31, 2025

December 31, 2024

OPERATING ACTIVITIES

Net (loss) income for the year

Adjustment for non-cash items

Change in fair value of derivative and warrant liability

Gain on settlement

Recovery of sales tax recoverable

Depreciation expense

Operating lease expense

Debt issuance cost

Changes in operating assets and liabilities:

Change in accounts receivable - net of allowance

Change in other assets

Change in inventory

Change in sales tax recoverable

Change in accounts payable and accrued liabilities

Change in operating lease liability, net

Changes in interest receivable

Change in deferred revenue

Net cash (used) provided from operating activities

INVESTING ACTIVITIES

Amounts invested on fixed assets

Advancement on convertible note

Recoverable expense

Net cash provided (used) by investing activities

FINANCING ACTIVITIES

Settlement of related party loan

Net cash (used) by financing activities

Net change in cash and restricted cash during the year

Effect of foreign currency translation

Cash and restricted cash, beginning of year

Cash and restricted cash, end of year

NON-CASH INVESTING AND FINANCING ACTIVITIES

Shares issued as consideration for services

SUPPLEMENTARY CASH FLOW INFORMATION

Cash paid for interest

Cash paid for taxes

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

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TARGET GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS THEN ENDED DECEMBER 31, 2025 AND 2024

1.   Nature of Operations

Target Group Inc. (“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 $ 3,881,003 (Period ended December 31, 2024: $ 6,591,625 ).

As of the date of this report, the Company and its subsidiaries do not have any operations, employees or corporate offices based in United States.

Joint Venture Agreement Termination; Consolidation of JVCo with Canary

Effective May 14, 2020, Canary entered into a Joint Venture Agreement (“Joint Venture”) with 9258159 Canada Inc., a corporation organized under the laws of the Province of Ontario, Canada (referred to herein as “Thrive Cannabis”) and 2755757 Ontario Inc., a corporation organized under the laws of the Province of Ontario, Canada (referred to herein as “JVCo”). Canary and Thrive each held 50% of the voting equity interest in JVCo. The term of the Joint Venture was five (5) years from its effective date of May 14, 2020.

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

Following the completion of the Settlement Agreement, Canary’s equity interest in JVCo increased from 50 % to 100 %. Effective April 28, 2023, the Company started consolidating results of operations of the JVCo and eliminated any intercompany transactions and balances between the Company (Target and Canary) and JVCo.

During the term of the Joint Venture, the Company accounted for the transactions using the equity method under ASC 323 Investments — Equity Method and Joint Ventures. As a consequence of the Settlement Agreement, as the JVCo becoming a wholly owned subsidiary of the company as of April 27, 2023, the Company now uses the acquisition method of accounting (using a step acquisition method) under ASC 805 Business Combination.

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

Effective June 15, 2020, the Company, entered into the Debt Agreement CL Investors Inc. (“CLI”), described in Item 1.

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2.   Basis of Presentation and Consolidation

The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects and have been consistently applied in preparing the accompanying consolidated financial statements.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Visava and CannaKorp, and BlueSky Logistics, LLC. Significant intercompany accounts and transactions have been eliminated upon consolidation.

3.   Going Concern

The Company has earned revenue during the year ended December 31, 2025. The Company had a working capital deficit of $ 11,052,097 and an accumulated deficit of $ 32,306,526 as of December 31, 2025. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtaining additional financing from its members or other sources, as may be required.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

In order to maintain its current level of operations, the Company will require additional working capital from either cash flow from operations, sale of its equity or issuance of debt. However, the Company currently has no commitments from any third parties for the purchase of its equity. If the Company is unable to acquire additional working capital, it will be required to significantly reduce its current level of operations.

4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Cash

Cash and cash equivalents include cash on hand and deposits at banking institutions as well as all highly liquid short-term investments with original maturities of 90 days or less. The Company did not have cash equivalents as of December 31, 2025 and 2024.

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.

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Accounts receivable

Account receivable consists of amounts due to the Company from customers as a result of the Company’s normal business activities. Account receivable is reported on the balance sheets net of an estimated allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts for estimated uncollectible receivables based on historical experience, assessment of specific risk, review of outstanding invoices, and various assumptions and estimates that are believed to be reasonable under the circumstances, and recognizes the provision as a component of selling, general and administrative expenses. Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a balance is uncollectible. The company records the allowance based on past history and if there are doubts on the recoverability. On December 31, 2025 amounts due from two customers totaled approximately 45 % and 21 % of accounts receivable.

Inventory

Inventory is stated at the lower of cost or net realizable value, cost being determined on a weighted average cost basis, and market being determined as the lower of cost or net realizable value. The Company records write-downs of inventory that is obsolete or in excess of anticipated demand or market value based on consideration of product lifecycle stage, technology trends, product development plans and assumptions about future demand and market conditions. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values. Inventory write-downs are charged to the cost of revenue and establish a new cost basis for the inventory. The cost is determined on the basis of the average cost. Overhead costs are also allocated to inventory including salaries and utilities.

Fixed Assets

Fixed assets are reported at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of assets, commencing when the assets become available for productive use, based on the following estimated useful lives:

Depreciation is calculated using the following terms and methods:

Furniture & office equipment

Straight-line

7 years

Machinery & equipment

Straight-line

3 - 5 years

Software

Straight-line

3 years

Leasehold improvements

Straight-line

Lease period

An item of equipment is derecognized upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising from the derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is included in the profit or loss in the period the asset is derecognized. The assets’ residual values, useful lives and methods of depreciation are reviewed at each reporting date, and adjusted prospectively, if appropriate.

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

Goodwill and other identifiable intangible assets with indefinite lives that are not being amortized, such as trade names, are tested at least annually for impairment and are written down if impaired. Identifiable intangible assets with finite lives are amortized over their estimated useful lives and are reviewed for impairment whenever facts and circumstances indicate that their carrying values may not be fully recoverable.

The Company evaluates indefinite-lived intangible assets for impairment in accordance with ASC 350. A qualitative assessment is first performed to determine whether it is more likely than not that the asset’s fair value is less than its carrying amount. If this assessment

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indicates potential impairment, a quantitative test is performed by comparing the asset’s carrying amount to the estimated future undiscounted cash flows. If the carrying amount exceeds the expected cash flows, an impairment loss is recognized for the amount by which the carrying value exceeds fair value.

Revenue Recognition

The Company adopted ASC 606 effective January 1, 2019, using the modified retrospective method after electing to delay the adoption of the accounting standard as the Company qualified as an “emerging growth company”. Since the Company did not have any contracts as of the effective day, therefore, there was no material impact on the consolidated financial statements upon adoption of the new standard. Revenue is recognized when performance obligations under the terms of the contracts with our customers are satisfied. Our performance obligation generally consists of the promise to sell our finished products to our customers, wholesalers, distributors or retailers. Control of the finished products is transferred upon shipment to, or receipt at, our customers’ locations, as determined by the specific terms of the contract. Once control is transferred to the customers, and the performance obligation is completed, revenue is recognized. Payment for the Company’s products is generally due upon delivery or as specified in the contract with the customer.

Amounts received in advance of product delivery, including customer prepayments or deposits, are recorded as deferred revenue. Deferred revenue is classified as a liability until the Company satisfies its performance obligations by delivering the related products to the customer.

The Company generated revenue of $ 3,881,003 during the year ended December 31, 2025, and $ 6,591,625 in 2024. There is one customers whose revenue is more than 32% of the total revenue.

The revenue was concentrated to seventeen customers (2024: seventeen ). The revenue represents the sale of cannabis products. Since the customers have received the product and there are no further obligations as per the agreement, revenue was recognized.

Foreign Currency Translation

The functional currency of the Company’s Canadian-based subsidiary is the Canadian dollar, and the US-based parent is the U.S. dollar. In addition, effective April 1, 2019, the Company changed its functional currency from United States Dollar to Canadian Dollar thereby having an impact on additional paid-in capital and accumulated comprehensive income (loss). The presentation currency of the Company has remained unchanged at United States Dollar. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. All exchange gains or losses arising from the translation of these foreign currency transactions are included in net income (loss) for the year. In translating the consolidated financial statements of the Company and its Canadian subsidiaries from their functional currency into the Company’s reporting currency of United States dollars, balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during the reporting period. Adjustments resulting from the translation, if any, are included in cumulative other comprehensive income (loss) in stockholders’ equity. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

Concentration of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high-quality banking institutions. The Company does no t have cash balances in excess of the Federal Deposit Insurance Corporation limit as of December 31, 2025 and December 31, 2024.

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Income Taxes

Under ASC 740, “Income Taxes,” deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2025 there were no deferred taxes due to the uncertainty of the realization of net operating loss or carry forward prior to expiration.

Operating Leases

The Company leases office space and the production facility under operating lease agreements. The lease term begins on the date of initial possession of the leased property for purposes of recognizing lease expense on a straight-line basis over the term of the lease. Lease renewal periods are considered on a lease-by-lease basis and are generally not included in the initial lease term.

Earnings (Loss) Per Common Share

FASB ASC 260, Earnings Per Share provides for calculations of “basic” and “diluted” earnings per share. Basic earnings (loss) per common share excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings (loss) per common share reflect the potential dilution of securities that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income (loss) of the Company. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

Year ended December 31,

Operations:

Net (loss) income

Net (loss) income used in EPS calculation

Share information:

Basic weighted average shares

Diluted weighted average shares

Basic EPS

Diluted EPS

For the year ended December 31, 2025, basic and diluted EPS are same due to net loss result.

For the year ended December 31, 2024, basic and diluted EPS are different due to income.

Convertible Notes Payable and Derivative Instruments

In accordance with ASU 2017-11, warrants with a down round feature are treated as equity, with no adjustment for changes in fair value at each reporting period. The Company accounted for conversion options embedded in convertible notes in accordance with ASC 815. ASC 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free-standing derivative financial instruments. ASC 815 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional, as defined by ASC 815-40. The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under ASC 815, in accordance with the provisions of ASC 470-20, which provides guidance on accounting for convertible securities with beneficial conversion features. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.

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Stock Based Compensation

The Company accounts for stock-based payments in accordance with the provision of ASC 718, which requires that all share-based payments issued to acquire goods or services, including grants of employee stock options, be recognized in the statement of operations based on their fair values, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Compensation expense related to share-based awards is recognized over the requisite service period, which is generally the vesting period.

The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable. The Company issues compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial and administrative consulting services.

Marketing Expenses

Marketing, advertising and promotion expenditures are expensed in the annual period in which the expenditure is incurred.

Impairment of Long-Lived Assets

In accordance with ASC 360-10, the Company, on a regular basis, reviews the carrying amount of long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. The Company determines if the carrying amount of a long-lived asset is impaired based on anticipated undiscounted cash flows, before interest, from the use of the asset. In the event of impairment, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the asset. Fair value is determined based on the appraised value of the assets or the anticipated cash flows from the use of the asset or asset group, discounted at a rate commensurate with the risk involved.

Fair Value of Financial Instruments

The Company follows guidance for accounting for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. Additionally, the Company adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the consolidated financial statements on a nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs for the asset or liability. The carrying amounts of financial assets such as cash approximate their fair values because of the short maturity of these instruments.

The estimated fair value of cash, accounts payable, and accrued liabilities approximate their carrying values due to the short-term maturity of these instruments. The derivative liabilities of the promissory convertible notes are valued Level 3, refer to Note 18 for further details.

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Segment Reporting

The Company operates as a single operating segment in accordance with FASB ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. All financial information is presented on a consolidated basis and reviewed by Chief Executive Officer as the Chief Operating Decision Maker (CODM). The CODM uses consolidated net loss, as presented in the consolidated statement of operations, to assess segment performance and allocate resources.

The following table presents the Company’s revenue by geographic region:

Canada

Israel

Germany

Australia

United Kingdom

Poland

The Company’s net (loss) income for the year ended is summarized in the table below.

For the

For the

year ended

year ended

December 31, 2025

December 31, 2024

Net (loss) income

5.   Recently Issued Accounting Pronouncements

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 2023-09, Income Taxes (Topic 740)

The FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures in December 2023 which amended income tax disclosure requirements for the effective tax rate reconciliation and income taxes paid (“ASU 2023-09”). The amendments in ASU 2023-09 are effective for public business entities for fiscal years beginning after December 15, 2025 and may be applied prospectively for interim reporting periods. The Company has adopted as of the first quarter of 2025 ASU No. 2023-09, which had no impact on its consolidated financial position or results of operations and statement disclosures.

6.   Convertible Note Receivable

On August 9, 2024, the Company signed an agreement with Alma Cannabis PTY LTD for a loan receivable amount of up to $ 103,712 . The loan bears interest at 59.99 % per annum and has a six month term. During the year ended December 31, 2025, the Company received all of the outstanding principal and interest amount.

7.   Accounts Receivable

Accounts receivable are recorded at the net value of the face amount less an allowance for doubtful accounts. As of December 31, 2025, the companys allowance for doubtful accounts was $ 2,761 .

The company recorded a bad debt expense of $nil for the year ended December 31, 2025 (December 31, 2024: $ 2,630 ).

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8.   Inventory

As of December 31, 2025, the inventory in the amount of $ 1,669,053 (2024: $ 882,279 ) consists of WIP and finished cannabis goods.

For the

Year ended

December 31, 2025

Product

Finished goods

WIP (Flowers and plants)

9.   Prepaid Asset

As of December 31, 2025, the Company had prepaid expenses of $ 41,222 compared to $ 39,268 as of December 31, 2024. The balance represents the security deposit for the leased land of the subsidiary’s facility. The change in is due to foreign exchange conversion of balances in Canadian Dollar into United States Dollar.

10.   Sales Tax Recoverable

As of December 31, 2025, the Company had $ 67,256 of gross sales tax recoverable compared to $ 59,469 as of December 31, 2024 while the Company had $ nil of gross sales tax payable as of December 31, 2025.

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.

The Company has recorded $ 6,750 of allowance as of December 31, 2025 (December 31, 2024: $ 5,795 ).

11.   Fixed Assets

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

Canary has recorded a depreciation expense of $ 809,081 during the year ended December 31, 2025 (2024: $ 825,317 ).

Target has recorded a depreciation expense of $ 384 during the year ended December 31, 2025 (2024: $ 33 ).

JVCo has recorded a depreciation expense of $ 88,938 during the year ended December 31, 2025 (2024: $ 90,752 ).

The Company’s other subsidiary, CannaKorp, has been utilizing its assets throughout the year and accordingly, has recorded depreciation expense of $ nil during the year ended December 31, 2025 (2024: $ 111 ).

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

Furniture &

Machinery &

Leasehold

fixture

Equipment

Software

improvements

Total

Cost

Accumulated depreciation

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12.   Goodwill

Business Acquisition

ASC Topic 805, “Business Combinations” requires that all business combinations be accounted for using the acquisition method and that certain identifiable intangible assets acquired in a business combination be recognized as assets apart from goodwill. ASC Topic 350, “Intangibles-Goodwill and Other” (“ASC 350”) requires goodwill and other identifiable intangible assets with indefinite useful lives not be amortized, such as trade names, but instead tested at least annually for impairment (which the Company tests each year end, absent any impairment indicators) and be written down if impaired. ASC 350 requires that goodwill be allocated to its respective reporting unit and that identifiable intangible assets with finite lives be amortized over their useful lives.

Visava/Canary

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

This acquisition was accounted for using the acquisition method of accounting. As of August 2, 2018, the fair value of the net liabilities was $ 275,353 and the purchase consideration was fair valued as $ 3,318,842 , shown below, leading to a goodwill allocation of $ 3,594,195 .

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 $ 0.067 per share;

Exercise price of $ 0.10 per share

Volatility at 329 %

Risk free interest rate of 2.66 % ;

Expected life of 2 years; and

Expected dividend rate of 0 %

During the year ended December 31, 2025, the Company has identified no circumstances which would call for further evaluation of goodwill impairment related to Canary (December 31, 2024 the Company has identified no circumstances which would call for further evaluation of goodwill impairment related to Canary). Only change in goodwill from 2023 to 2025 is due to exchange rate fluctuations.

During the year ended, December 31, 2025, all of the warrants expired, none were exercised.

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Goodwill

The Company tests for impairment of goodwill at the reporting unit level. In assessing whether goodwill is impaired, the Company utilizes the two-step process as prescribed by ASC 350. The first step of this test is qualitative analysis in which it compares the fair value of the reporting unit, to the carrying amount, including goodwill. In this step company assesses the likelihood of impairment by examining factors such as continued revenue growth, favorable regulatory developments, and market growth trends, overall financial performance of the Company. If the fair value exceeds the carrying amount, no further work is required, and no impairment loss is recognized. If the carrying amount of the reporting unit exceeds the fair value, the goodwill of the reporting unit is potentially impaired then step two that is quantitative analysis of the goodwill impairment test would need to be performed to measure the amount of an impairment loss, if any. In the second step, the impairment is computed by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of the goodwill. If the carrying amount of the reporting unit’s goodwill is greater than the implied fair value of its goodwill, an impairment loss in the amount of the excess is recognized and charged to the statement of operations. No impairment was recorded during the year ended December 31, 2025.

13.   Accounts Payable and Accrued Liabilities

Accounts payable amounting to $ 2,637,973 as of December 31, 2025, primarily represents consulting and construction services related to fixed asset additions amounting to $ 100,794 , interest on promissory notes and loans amounting to $ 1,203,273 , outstanding and accrued professional fees amounting to $ 940,235 .

Accounts payable amounting to $ 3,092,563 as of December 31, 2024, primarily represents consulting and construction services related to fixed asset additions amounting to $ 96,599 , interest on promissory notes and loans amounting to $ 1,605,103 , outstanding and accrued professional fees amounting to $ 904,233 .

14.   Related Party Transactions and Balances

During the year ended December 31, 2025, the Company expensed $ 405,316 (December 31, 2024: $ 476,994 ) in management service fee for services provided by the Vice president $ 182,128 , Controller $ 111,594 and the CEO $ 111,594 of the company.

The breakdown of the related party balance as of December 31, 2025, in the amount of $ 10,361,576 (December 31, 2024: $ 9,854,719 ) is below:

Debt purchase by CL Investors Inc.

On June 15, 2020, the Company and its subsidiaries, entered into a Debt Agreement with CLI explained in Note 1. The Canary Debt, Term, repayment schedule, security and options are set forth in Note 1.As of December 31, 2025, $ 3,648 (CAD $ 5,000 ) is still outstanding from CLI.

Interest expense charged for the year ended in the amount of $ 378,110 (CAD $ 528,364 ) 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 $ 824,738 (CAD 1,130,398 ) 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:

Total

Current portion

Non-current portion

During the year ended December 31, 2025, 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.

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The Debt Agreement Amendment and CLI Warrants are explained in Note 1. Refer to Note 17 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 at December 31, 2025, the balance is $ nil .

Shareholder loan

One of the Company’s shareholders provided a loan to the Company. The loan is secured by all assets owned by the Company and its subsidiaries including leasehold improvements and matures on May 31, 2025, and therefore is presented as current. The loan was provided in five tranches and the latest amendment increased the maximum loan amount by $ 656,640 (CAD 900,000 ) while the rest of terms remained unchanged. The specific details of each tranche of the loan are shown below:

Interest rate

Maximum loan

Outstanding loan

CAD

USD

CAD

USD

Tranche 1

Tranche 2

Tranche 3

Tranche 4

Tranche 5

Total

Interest expense charged for the twelve months ended December 31, 2025, in the amount of $ 659,022 (CAD 920,905 ) is included in interest and bank charges on the consolidated statement of operations and comprehensive loss and accrued interest in the amount of $ 338,707 (CAD 464,237 ) is included in accounts payable and accrued liabilities on the consolidated balance sheet.

A Eleventh Amending Agreement to the shareholder loan, previously filed as Exhibit 10.37, was executed on August 11, 2025, by and between Jerry Zarcone, the Company and its subsidiaries (“ Eleventh Amendment ”), which extends the term of each of the First, Second, Third, Fourth, and Fifth Tranche, to a maturity date of August 31, 2026, or such earlier date as demanded by Mr. Zarcone.

Outstanding management service fee

The balance owing to key officers of the Company is $ 659,189 (December 31, 2024: $ 610,266 ).

Balances outstanding related to subsidiaries

During the year ended December 31, 2019, the Company settled with the loan holders provided to the Company’s subsidiary, CannaKorp. The total amount subject to settlement was $ 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 . These warrants expired during the year ended December 31, 2021. Of the total settlement amount, as of December 31, 2025 and December 31, 2024, $ 65,000 was outstanding to be paid. This amount includes late payment penalties of $ 25,000 . During the year ended December 31, 2025, all of the warrants expired, none were exercised.

Balances outstanding related to directors

During the year ended December 31, 2025, the Company has purchased $ nil of consulting services from GTA Angel Group which is owned by the Company’s CEO’s brother. The balance outstanding as of December 31, 2025 is $ 24,733 and is included in accounts payable and accrued liabilities.

The Company subleases its principal executive office premise from Norlandam Marketing Inc., a company owned by one of the directors. During the quarter ended March 31, 2021, the premises were subleased to a third party that makes rent payments directly to Norlandam Marketing Inc. The balance outstanding as of December 31, 2025 is $ nil .

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15.   Operating Lease Right-Of-Use Assets and Lease Liability

The Company adopted ASC 842 as of January 1, 2019, using a modified retrospective approach and applying the standard’s transition provisions at January 1, 2020, the effective date. The Company made an accounting policy election to exclude from balance sheet reporting those leases with initial terms of 12 months or less. The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components is recognized when the obligation is probable.

Right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company’s leases, the incremental borrowing rate is used based on the information available at the adoption date in determining the present value of lease payments. The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met.

The Company does not own any real property. It currently leases two office/facility spaces. For accounting purposes, this lease is treated as an operating lease. Upon adoption of ASC 842, the Company recognized $ 1,647,591 (CAD $ 2,258,212 ) of right-to-use assets as operating leases and operating lease obligations. The right-to-use asset was reduced by $ 1,524,806 (CAD 2,089,921 ) due to recognition of the prior deferred rent liability which was eliminated upon adoption of ASC 842. Details of these leases are detailed below:

During the year ended December 31, 2021, the Company subleased its executive premises to a third party that makes rent payments directly to the landlord. However, if the sub-lessee cancels its sub-lease agreement with the landlord during the Company’s lease term with the landlord (ending on August 30, 2023), the Company will be responsible for making rent payments for the period from the date of cancellation by the sub-lessee to August 30, 2023.

The Company’s subsidiary, Canary, is a party to a 10-year lease agreement (initiated in July 2014) with respect to its facility to produce Craft Cannabis at Scale. 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 $ 25,536 (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. Effective May 1, 2020, due to the implementation of the new lease, $ 721,059 (CAD 988,293 ) was forgiven by the landlord and one vendor.

These leases will expire between 2023 and 2030. The weighted average discount rate used for these leases was 16 % (average borrowing rate of the Company). Maturities of lease liabilities were:

Thereafter

Total lease payments

Less imputed interest

Present value of lease liabilities

Current portion

Non-current portion

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Below is the reconciliation of the net operating lease presented on the consolidated statement of operations:

For the

For the

Year ended

Year ended

December 31, 2025

December 31, 2024

Gross operating lease expense

Gross rent and utilities expenses

The agreement with JVCo is terminated so there is no recoverable expenses from JVCo related to rent and utilities.

16.   Convertible Promissory Notes

Interest amounting to $ 38 was accrued for the year ended December 31, 2025 (December 31, 2024: $ 38 ).

Principal amount outstanding as of December 31, 2025 and December 31, 2024 was $ 480 . At both reporting dates, the entire balance was current.

All notes maturing prior to the date of this report are outstanding.

Derivative liability

During the year ended December 31, 2025, there were no conversion of principal balance of convertible promissory notes (2024: $ nil ), respectively. The Company recorded and fair valued the derivative liability as follows:

Derivative

Conversions /

Derivative

liability as at

Redemption

liability as at

December 31,

during the

Change due to

Fair value

December 31,

period

Issuances

adjustment

Note D

Note F

Note G

Key assumptions used for the valuation of convertible notes

The derivative element of the convertible notes was fair valued using the multinomial lattice model. Following assumptions were used to fair value these notes as of December 31, 2025:

Projected annual volatility of 246 % to 323 % ;

Risk free interest rate of 3.53 % to 3.77 % ;

Stock price of $ 0.002 to 0.002 ;

Liquidity term of 0.25 to 0.75 years;

Dividend yield of 0 % ; and

Exercise price in the range between $ 0.0007 to $ 0.0151 .

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17.   Stockholders’ Deficiency

Preferred Stock

Par value: $ 0.0001

Authorized: 20,000,000

Issued: 1,000,000 shares were outstanding as of December 31, 2025 and 2024

Common Stock

Par value: $ 0.0001

Authorized: 850,000,000

Issued: 617,025,999 shares are outstanding as at December 31, 2025 and 2024

As of December 31, 2025, convertible notes, warrants and preferred stock outstanding could be converted into 36,361,915 (December 31, 2024: 46,957,062 ), nil (December 31, 2024: 10,200,004 ) and 100,000,000 (December 31, 2024: 100,000,000 ) shares of common stock, respectively.

Preferred Stock

Shares of preferred stock may be issued from time to time in one or more series as may be determined by the board of directors. The board of directors may fix the designation, powers, preferences, and rights of the shares of each such series and the qualifications, limitations or restrictions thereof without any further vote or action by the stockholders of the Company, except that no holder of preferred stock shall have pre-emptive rights. Any shares of preferred stock so issued would typically have priority over the common stock concerning dividend or liquidation rights. The board of directors does not at present intend to seek stockholder approval prior to any issuance of currently authorized stock unless otherwise required by law.

Series A Preferred Stock (“Series A Stock”)

Dividends shall be declared and set aside for any shares of Series A Stock in the same manner and amount as for the Common Stock. Series A Stock, as a class, shall have voting rights equal to a multiple of 2X the number of shares of Common Stock issued and outstanding that are entitled to vote on any matter requiring shareholder approval. The Series A Stockholders shall not vote as a separate class but shall vote together with the common stock on all matters, including any amendment to increase or decrease the authorized capital stock. Upon the voluntary or involuntary dissolution, liquidation or winding up of the corporation, the assets of the Company available for distribution to its shareholders shall be distributed to the holders of common stock and the holders of the Series A Stock ratable without any preference to the holders of the Series A Stock. Shares of Series A Stock can be converted at any time into fully paid and nonassessable shares of Common Stock at the rate of One Hundred ( 100 ) shares of Common Stock for each One ( 1 ) share of Series A Stock.

Common Stock

Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock do not have cumulative voting rights.

Subject to preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to share ratable in dividends, if any, as may be declared from time to time by the board of directors in its discretion from funds legally available therefore.

Holders of common stock have no pre-emptive rights to purchase the Company’s common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the common stock. The Company may issue additional shares of common stock which could dilute its current shareholder’s share value.

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Shares to be issued include the following:

Shares

Amount

Description

Services

80,000 shares of common stock to be issued as compensation to advisers and consultants. These were recorded at fair value of $ 52,000 , based on the market price of the Company’s stock on the date of issue. 35,000 to be issued as settlement of the amount due for website development services amounting to $ 247,306 . The fair value of the shares on the date of settlement was $ 21,000 , resulting in a gain on settlement amounting to $ 226,306 during the year ended December 31, 2017.

Private placements

Consideration for private placements with the fair value based on cash proceeds received. Proper allocation between common stock and additional paid-in capital of the amount received will be completed in the period when the shares are issued.

Settlement of loans of CannaKorp

Refer to Note 14 for details.

Agreement with Serious Seeds

As consideration for intellectual property rights granted by Smit. The fair value is based on the market price of the Company’s stock on the date of issue as per the agreement.

Warrants

The warrants (with an exercise price in United States Dollar) were re-classified as a liability as of December 31, 2019, and therefore have been revalued on each quarter end. The fair value of the warrants was measured on reporting dates using the Black-Scholes option pricing model using the following assumptions:

December 31,

September 30,

June 30,

March 31,

Forfeiture rate

Stock price

Exercise price

Volatility

Risk free interest rate

Expected life (years)

Expected dividend rate

December 31,

September 30,

June 30,

March 31,

Forfeiture rate

Stock price

Exercise price

Volatility

Risk free interest rate

Expected life (years)

Expected dividend rate

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

During quarter

During quarter

During quarter

During quarter

ended

ended

ended

ended

December 31, 2025

September 30, 2025

June 30, 2025

March 31, 2025

Forfeiture rate

Stock price

Exercise price

Volatility

Risk free interest rate

Expected life (years)

Expected dividend rate

Fair value of warrants

During quarter

During quarter

During quarter

During quarter

ended

ended

ended

ended

December 31,

September 30,

June 30,

March 31,

Forfeiture rate

Stock price

Exercise price

Volatility

Risk free interest rate

Expected life (years)

Expected dividend rate

Fair value of warrants

Breakdown of warrants outstanding as of December 31, 2025 and 2024 are detailed below:

Remaining

Remaining

Warrants

Warrants

contractual life term

contractual life term

outstanding as at

outstanding as at

December 31,

December 31,

December 31,

December 31,

2025 (years)

2024 (years)

Private placements

Serious Seeds

CLI

Total

Movement of the warrants is detailed below:

Warrants

Warrants as at December 31, 2023

Issued

Expired

Warrants as at December 31, 2024

Issued

Expired

Warrants as at December 31, 2025

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Movement of the warrant liability is detailed below:

Warrant liability as at December 31, 2023

Warrant liability for new issuance

Change in fair value

Warrant liability as at December 31, 2024

Warrant liability for new issuance

Change in fair value

Warrant liability as at December 31, 2025

18.   Contingencies and Commitments

Contingencies

During the year ended December 31, 2019, a terminated employee of Canary has filed a lawsuit against the Company amounting to approximately $ 1,529,414 (CAD 2,100,000 ) in Ontario, Canada. Currently, the Company is defending its position and believes that the ultimate decision will be in favor of the Company. Due to the uncertainty of timing and the amount of estimated future cash flows, if any, relating to this claim, no provision has been recognized.

A complaint for damages of $ 150,000 was lodged against CannaKorp by the former Chief Financial Officer of CannaKorp for outstanding professional fees. No claim has been registered. The management is of the view that no material losses will arise in respect of the legal claim at the date of these consolidated financial statements. As of December 31, 2025, $ 188,865 has been recorded in CannaKorp’s payable based on past accruals and outstanding invoices. Due to the uncertainty of timing and the amount of estimated future cash flows, if any, relating to this claim, no further amount has been recognized.

During the year ended December 31, 2020, a claim for damages of $ 95,245 (CAD 130,778 ) was lodged against Canary by a vendor for breach of contract. The management is of the view that no material losses will arise in respect of the legal claim at the date of these consolidated financial statements. As of December 31, 2025, $ 100,795 (CAD 138,150 ) has been recorded in the Canary’s payable based on past accruals. Due to the uncertainty of timing and the amount of estimated future cash flows, if any, relating to this claim, no further amount has been recognized.

Commitments

As per the Distribution, Collaboration and Licensing Agreement (“ Serious Agreement ”) entered with Serious Seeds, effective December 6, 2018, the Company would issue to Serious Seeds each month 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. As of December 31, 2025, none of the above shares have been issued.

In consideration of the Company’s appointment as Serious’ exclusive distributor in Canada, the Company agreed to pay Serious certain royalties as mentioned below, but none of the royalties have been paid.

1 st year:

2.00 % of gross sales

2 nd year:

2.25 % of gross sales

3 rd year:

2.50 % of gross sales

4 th year:

2.75 % of gross sales

5 th and following years:

3.00 % of gross sales

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19.   Income Taxes

Income taxes

The Company’s income taxes is calculated at a US corporate tax rate of approximately 21 % (2024: 21 %).

Deferred tax assets

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Net deferred tax assets consist of the following components as of December 31:

Tax effect of NOL Carryover

Less valuation allowance

As of December 31, 2025, 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 $ 27,115,065 (2024: $ 25,720,808 ) that may be offset against future taxable income from the year by 2045 . No tax benefit has been reported as of December 31, 2025, consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. The Company is taxed in the United States at the Federal level. All tax years since inception are open to examination because no tax returns have been filed.

Reconciliation between the statutory rate and the effective tax rate is as follows for the years ended December 31, 2025 and 2024:

Statutory tax rate

Change in valuation allowance

Effective tax rate

20.   Subsequent Events

The Company’s management has evaluated subsequent events up to March 31, 2026, 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:

The Company entered into a Twelfth Amending Agreement with the Lender mentioned in note 14 pursuant to which the Lender agreed to lend the Company an additional $ 240,768 (CAD 330,000 ). 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.

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