| RELATED PARTY TRANSACTIONS |
NOTE 5 - RELATED PARTY TRANSACTIONS A related party is any individual or entity that can exercise significant influence over the Company, or over which the Company can exercise significant influence. Related parties include affiliates, principal owners, directors, executive management, their immediate family members, and entities under common control. The Company has a significant amount of related party balances and transactions. a) Key related party transactions A summary of the Company’s related party transactions is as follows: | | Three months ended March 31, | | | | 2026 | | | 2025 | | | | $ | | | $ | | Revenue | | | 627,462 | | | | - | | Lease expense due to Formosa included in cost of goods sold | | | 273,374 | | | | 261,285 | | Professional fees | | | 53,758 | | | | 112,363 | | Royalty expense | | | 131,220 | | | | - | | Interest expense | | | 360,188 | | | | 585,063 | | Imputed interest expense | | | 311,542 | | | | - | | Other expense | | | - | | | | 1,930,000 | |
Revenue During the three months ended March 31, 2026, the Company recognized all of its revenue of $627,462 (2025 - $nil) from related parties being D.N.S. CANTEK 2019 LTD (“Cantek”), an Israeli limited corporation owned 100% by Koze, and for which Mr. Tal serves as a financial advisor. Lease expense The Company has a lease with Formosa, which became a related party upon the appointment of its manager, Elliot Zemel, as a director of the Company on March 11, 2025. During the three months ended March 31, 2026, the Company recognized interest expense related to rent in default of $161,323 (2025 - $154,702), associated with unpaid lease payments. During the three months ended March 31, 2026, the Company incurred lease expense of $273,374 (2025 - $261,285) associated with the Formosa lease, which is included in cost of goods sold. Professional fees | · | During the three months ended March 31, 2026, the Company incurred professional expenses of $42,733 (2025 - $78,363) related to accounting fees payable to Invictus Accounting Group LLP (“Invictus”), a company which provides part-time CFO, financial reporting, and bookkeeping services to the Company. Mr. Oliver Foeste is the Managing Partner of Invictus. | | · | During the three months ended March 31, 2026, the Company incurred professional expenses of $11,025 payable to Fabian Vancott (2025 - $34,000) related to legal fees. Anthony Panek who is a partner in Fabian Vancott, is also a director of the Company. |
Royalty expense On March 17, 2025, the Company and Alberta Ltd., entered into a security and royalty agreement with Koze (the “Royalty Agreement”) (Note 2), pursuant to which the Company is required to pay a royalty of CAD $0.20 per gram on cannabis product sales, payable at the beginning of the month for the previous month, as additional consideration related to the lease with Formosa. Immediately upon failure to pay the royalty when due, the royalty rate increases to CAD $0.40 per gram sold for the applicable month. As of March 31, 2026, Alberta Ltd. was in default of its payment obligations, and Koze agreed to forbear from exercising its rights over the ownership interest until May 31, 2026. During the three months ended March 31, 2026, the Company sold 450,000 grams of cannabis products, and for the three months ended March 31, 2026, the Company incurred a royalty expense of $131,220 (2025 - $nil). Interest expense | · | During the three months ended March 31, 2026, the Company incurred interest expense on promissory and convertible notes with Mr. Tal of $11,153 (2025 - $14,425). | | · | During the three months ended March 31, 2026, the Company incurred interest expense on promissory and convertible notes with Koze of $160,108 (2025 - $415,936). | | · | During the three months ended March 31, 2026, the Company incurred interest expense on promissory note with Formosa of $27,604 (2025 - $nil). | | · | During the three months ended March 31, 2026, the Company incurred interest expense on rent in default with Formosa of $161,323 (2025 - $154,702). |
Imputed interest expense | · | During the three months ended March 31, 2026, the Company incurred imputed interest expense on promissory and convertible notes with Mr. Tal of $17,099 (2025 - $nil). | | · | During the three months ended March 31, 2026, the Company incurred imputed interest expense on promissory and convertible notes with Koze of $248,108 (2025 - $nil) | | · | During the three months ended March 31, 2026, the Company incurred imputed interest expense on promissory and convertible notes with Formosa of $46,335 (2025- $nil). |
Other expense During the three months ended March 31, 2025, the Company made a non-cash one-time adjustment of $1,930,000 to lease-related rent expense due to a clarification in the interpretation of the lease terms for the Facility, which is recorded as other expense. b) Amounts due to related parties A summary of the Company’s related party liabilities as at March 31, 2026 and December 31, 2025, is as follows: | | 2026 | | | 2025 | | | | | | | | | Accounts payable and accrued liabilities | | $ | 5,609,993 | | | $ | 5,416,889 | | Accrued interest | | | 1,675,619 | | | | 1,352,899 | | Loans payable to related parties | | | 13,563,723 | | | | 13,116,485 | | Royalty payable | | | 429,520 | | | | 305,492 | | Liability for right-of-use building | | | 5,914,605 | | | | 6,034,080 | | Obligation to issue shares | | | 1,849,155 | | | | 2,166,681 | | Total related party liabilities | | $ | 29,042,615 | | | $ | 28,392,526 | |
Accounts payable and accrued liabilities As at March 31, 2026, accounts payable and accrued liabilities include balances owing to related parties as follows: | · | As at March 31, 2026, $4,481,131 (December 31, 2025 - $4,283,706) was payable to Formosa for outstanding lease payments. As at March 31, 2026, accrued interest on unpaid lease payments on the Formosa lease was $1,178,602 (December 31, 2025 - $1,037,180). | | · | As at March 31, 2026, $141,896 (December 31, 2025 - $146,306) was payable to Invictus for part-time CFO, financial reporting, and bookkeeping services provided to the Company. | | · | As at March 31, 2026, $319,279 (December 31, 2025 - $319,279) was payable to Mr. Orman for unpaid directors’ fees for 2021 through 2023. |
| · | As at March 31, 2026, $542,727 (December 31, 2025 - $551,953) was payable to Dominic Colvin, a director of the Company, for unpaid salary and expense reimbursement amounts during Mr. Colvin’s employment with the Company as its CEO during the years 2019 through 2022. Mr. Colvin has disputed this amount and is asserting a claim for $1,679,060. As of March 31, 2026, the Company is in the process of reviewing the claim and remains in ongoing discussions with Mr. Colvin. No resolution has been reached with respect to this matter. | | · | As at March 31, 2026, $124,960 (December 31, 2025 - $115,645) was payable to Fabian Vancott in respect of unpaid legal fees. |
Loans payable to related parties On August 7, 2025, the Company entered into an agreement (the “Debt Modification”) with Mr. Tal, Koze and Formosa to amend the annual interest rates on all outstanding promissory and convertible notes held by them to 6%, compounding annually. This was deemed to be a substantial modification of the terms of the agreements and was accounted for as an extinguishment of the promissory and convertible notes and recognition of new notes at the new 6% rate. The term to maturity was unchanged. In connection with the issuance of the new notes resulting from the Debt Modification, the Company determined that the market interest rate for similar instruments was 15%. Accordingly, the debt was recorded at a discount to reflect this effective interest rate, with the discount amortized to imputed interest expense over the term of the debt using the effective interest method. As at March 31, 2026, the loans payable to related parties consists of the following: PLC International Investments Inc. (“PLC”) | · | A $13,223 interest-free loan from PLC, a company owned by Dominic Colvin, a director of the Company; |
Loans payable to Koze On March 11, 2025, Koze became a related party upon the appointment of its manager as a director of the Company. As a result, the balance owing on promissory notes was reclassified from notes payable to loans payable to related parties during the year ended December 31, 2025. On August 7, 2025, the Company entered into the Debt Modification agreement with Koze to amend the annual interest rates on all outstanding promissory and convertible notes held by Koze to 6%, compounding annually. | · | Koze Lucky Tackle Box Management, LLC (“LTB”): | | | | | | On November 22, 2023, the Company entered into promissory notes of $2,550,000 with Koze, as part of the LTB transaction, bearing interest at 13% per annum. Originally due on November 22, 2024, the maturity date for this note was extended to December 31, 2025, by agreement with Koze. On March 18, 2026, Mr. Tal and Koze agreed to extend the maturity date of the promissory notes to December 31, 2026. |
| | As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $2,550,000 and $555,406, respectively, were extinguished. A new note (“Koze LTB”) of $2,978,661 bearing 6% interest, compounding annually, was recognized resulting in a gain of $126,745 from extinguishment, recorded directly to additional paid-in capital. | | | | | | During the three months ended March 31, 2026, the Company recognized interest expense of $46,107 and imputed interest expense of $69,601 related to the note. As at March 31, 2026, the outstanding principal balance on the note was $3,163,079 (December 31, 2025 - $3,093,478) and accrued interest payable on the note was $122,169 (December 31, 2025 - $76,062). | | | | | · | Koze A: | | | | | | On May 25, 2023, the Company entered into a promissory note with Koze, bearing annual interest at 24% compounded monthly, to fund for certain documented expenses. |
| | As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $849,278 and $443,339, respectively, were extinguished. A new note (“Koze A”) of $1,134,669 bearing 6% interest, compounding annually, was recognized resulting in a gain of $157,949 from extinguishment, recorded directly to additional paid-in capital. | | | | | | During the three months ended March 31, 2026, the Company recognized interest expense of $22,026 and imputed interest expense of $34,489 related to the note. During the three months ended March 31, 2026, the Company had $161,813 in net additions to the promissory note. As at March 31, 2026, the outstanding principal balance on the note was $1,596,545 (December 31, 2025 - $1,400,243) and accrued interest payable on the note was $53,096 (December 31, 2025 - $31,070). | | | | | · | Koze B: | | | | | | On May 25, 2023, the Company entered into another promissory note with Koze, bearing annual interest at 24% compounded monthly, to fund the Company for certain documented expenses. | | | | | | As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $4,040,474 and $1,366,780, respectively, were extinguished. A new note (“Koze B”) of $4,767,106 bearing 6% interest, compounding annually, was recognized resulting in a gain of $640,148 from extinguishment, recorded directly to additional paid-in capital. | | | | | | During the three months ended March 31, 2026, the Company recognized interest expense of $84,794 and imputed interest expense of $132,769 related to the note. During the three months ended March 31, 2026, the Company made $84,182 in net repayments on the promissory note. As at March 31, 2026, the outstanding principal balance on the note was $5,652,377 (December 31, 2025 - $5,529,686) and accrued interest payable on the note was $213,594 (December 31, 2025 - $132,215). | | | | | · | Koze C: | | | | | | On February 8, 2024, the Company entered into another promissory note with Koze, bearing annual interest at 24% compounded monthly. | | | | | | As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $275,000 and $97,403, respectively, were extinguished. A new note (“Koze C”) of $330,551 bearing 6% interest, compounding annually, was recognized resulting in a gain of $41,852 from extinguishment, recorded directly to additional paid-in capital. | | | | | | During the three months ended March 31, 2026, the Company recognized interest expense of $5,196 and imputed interest expense of $8,140 related to the note. As at March 31, 2026, the outstanding principal balance on the note was $351,841 (December 31, 2025 - $343,701) and accrued interest payable on the note was $13,590 (December 31, 2025 - $8,394). |
| · | Koze convertible note (“Koze CN”): | | | | | | The Company has a convertible note with Koze, bearing annual interest at 24%. | | | | | | As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $68,555 and $75,714, respectively, were extinguished. A new note, Koze CN, of $126,275 bearing 6% interest, compounding annually, was recognized resulting in a gain of $17,995 from extinguishment, recorded directly to additional paid-in capital. | | | | | | During the three months ended March 31, 2026, the Company recognized interest expense of $1,985 and imputed interest expense of $3,109 related to the note. As at March 31, 2026, the outstanding principal balance on the note was $134,407 (December 31, 2025 - $131,298) and accrued interest payable on the note was $5,192 (December 31, 2025 - $3,207). |
During the three months ended March 31, 2026, Koze made payments of $519,531 directly to the Company’s suppliers. In addition, $516,021 was received directly by Koze, as collections from customers. Loans payable to Mr. Tal On August 7, 2025, the Company entered into the Debt Modification agreement with Mr. Tal to amend the annual interest rates on all outstanding promissory and convertible notes held by him to 6%, compounding annually. | · | Mr. Tal LTB: | | | | | | On November 22, 2023, the Company entered into a promissory note of $450,000 with Mr. Tal as part of the LTB transaction, bearing interest at 13% per annum. Originally due on November 22, 2024, the maturity date for this note was extended to December 31, 2025, by agreement with Mr. Tal. On March 18, 2026, Mr. Tal and Koze agreed to extend the maturity date of the promissory notes to December 31, 2026. | | | | | | As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $438,296 and $89,768, respectively, were extinguished. A new note (“Mr. Tal LTB”) of $507,422 bearing 6% interest, compounding annually, was recognized resulting in a gain of $20,641 from extinguishment, recorded directly to additional paid-in capital. | | | | | | During the three months ended March 31, 2026, the Company recognized interest expense of $6,518 and imputed interest expense of $9,844 related to the note. During the three months ended March 31, 2026, the Company made net repayments of $30,000 on the promissory note and accrued interest. As at March 31, 2026, the outstanding principal balance on the note was $441,659 (December 31, 2025 - $447,647) and accrued interest payable on the note was $4,237 (December 31, 2025 - $11,887). | | | | | · | Mr. Tal convertible note (“Mr. Tal CN”): | | | | | | The Company had a convertible note with Mr. Tal, bearing interest at 24%. | | | | | | As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $212,555 and $121,427, respectively, were extinguished. A new note, Mr. Tal CN, of $294,850 bearing 6% interest, compounding annually, was recognized resulting in a gain of $39,132 from extinguishment, recorded directly to additional paid-in capital. | | | | | | During the three months ended March 31, 2026, the Company recognized interest expense of $4,635 and imputed interest expense of $7,255 related to the note. As at March 31, 2026, the outstanding principal balance on the note was $313,826 (December 31, 2025 - $306,571) and accrued interest payable on the note was $12,128 (December 31, 2025 - $7,488). |
Promissory note with Formosa On January 1, 2025, the Company entered into a promissory note with Formosa in the amount of $1,930,000, bearing interest at 5% per annum, with respect to a one-time adjustment made to lease-related rent expense due to a clarification in the interpretation of the lease terms for the Facility. As a result of the Debt Modification, principal and accrued interest outstanding related to the note as of August 7, 2025 of $1,930,000 and $58,098, respectively, were extinguished. A new note of $1,775,707 bearing 6% interest, compounding annually, was recognized resulting in a gain of $212,391 from extinguishment, recorded directly to additional paid-in capital. During the three months ended March 31, 2026, the Company recognized interest expense of $27,604 and imputed interest expense of $46,335 related to the note. As at March 31, 2026, the outstanding balance on the note was $1,896,766 (December 31, 2025 - $1,850,431) and accrued interest payable on the note was $73,012 (December 31, 2025 - $45,396). A summary of the accrued interest of the Company’s loans payable to related parties as at March 31, 2026 and December 31, 2025 is as follows: | | 2026 | | | 2025 | | Koze LTB | | $ | 122,169 | | | $ | 76,062 | | Koze A | | | 53,096 | | | | 31,070 | | Koze B | | | 213,594 | | | | 132,215 | | Koze C | | | 13,590 | | | | 8,394 | | Koze CN | | | 5,192 | | | | 3,207 | | Mr. Tal LTB | | | 4,237 | | | | 11,887 | | Mr. Tal CN | | | 12,128 | | | | 7,488 | | Promissory note with Formosa | | | 73,012 | | | | 45,396 | | | | $ | 497,018 | | | $ | 315,719 | |
Royalty payable Pursuant to the Royalty Agreement, as of March 31, 2026, the royalty amount payable to Koze was $429,520 (CAD $598,708) (2025 - $nil). Obligation to issue shares As at March 31, 2026, the Company has an obligation to issue an additional 172,015 Class C preferred shares to each of Mr. Tal and Koze (December 31, 2025 - 166,668 each) as part of the LTB transaction, valued at $924,578 for each party (December 31, 2025 - $1,083,341 each). Liability for right-of-use building On March 11, 2025, Formosa became a related party upon the appointment of its manager as a director of the Company. As at March 31, 2026, the liability for right-of-use building was $5,914,605 (December 31, 2025 - $6,034,080). Under the terms of the agreement, a default occurs if Alberta Ltd. fails to make such payments or lease payments for three consecutive months or for any four months within any rolling six-month period. As collateral for the obligations under the agreement, the Company granted Koze a security interest in all of its ownership interest in Alberta Ltd. the security interest will remain in place until all obligations are fully satisfied. As of March 31, 2026, Alberta Ltd. has failed to make the payments under the agreement and Koze agreed to forbear from exercising his right of ownership interest in Alberta Ltd. until May 31, 2026 (Note 2).
|