Form 10-Q CANNAPHARMARX, INC. For: Mar 31

May 23, 2022 7:42 AM EDT

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Table of Contents

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 

        QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarter Ended March 31, 2022

 

        TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ___________ to _______________

  

Commission File Number: 333-251016

 

CANNAPHARMARX, INC.

(Exact name of small business issuer as specified in its charter)

 

Delaware   27-4635140
(State of other jurisdiction of incorporation)   (IRS Employer ID No.)

 

Suite 3600

888 – 3rd Street SW

Calgary, Alberta, Canada T2P 5C5

(Address of principal executive offices)

 

949-652-6838

(Issuer’s Telephone Number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock CPMD OTC Pink Sheets

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

 

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

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company    

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. ☐ Yes   ☒ No

 

The number of shares of the registrant’s only class of common stock issued and outstanding as of May 14, 2022, was 175,464,799 shares.

 

   

 

 

TABLE OF CONTENTS

 

      Page No.
       
PART I. FINANCIAL INFORMATION
     
Item 1. Financial Statements   4
       
  Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021   4
       
  Unaudited Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2022 and 2020   5
       
  Unaudited Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2022 and 2020   6
       
  Unaudited Condensed Consolidated Statements of Stockholders Equity (Deficit)   7
       
  Notes to Unaudited Condensed Consolidated Financial Statements   9
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations/Plan of Operation   25
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk   31
       
Item 4. Controls and Procedures   32
       
  PART II. OTHER INFORMATION    
       
Item 1. Legal Proceedings   33
       
Item 1A. Risk Factors   34
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   34
       
Item 3. Defaults Upon Senior Securities   34
       
Item 4. Mine Safety Disclosures   34
       
Item 5. Other Information   34
       
Item 6. Exhibits   34
       
  Signatures   35

 

 

 

 2 

 

 

Forward Looking Statements

 

This Report includes statements that are, or may be deemed to be, “forward-looking statements,” as defined in the Private Securities Reform Act of 1995. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “projects,” “expects,” “intends,” “may,” “will,” “seeks” or “should” or, in each case, their negative or other variations or comparable terminology, or in relation to discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include matters that are not historical facts. They appear in a number of places throughout this Quarterly Report and include statements regarding Issuer’s current intentions, beliefs or expectations concerning, among other things, the Issuer’s future plans for the Project, results of operations, financial condition, prospects, growth, strategies and the markets in which the Issuer intends to operate.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not an assurance of future performance. The Issuer’s actual results of operations and financial condition may differ materially from those suggested by the forward-looking statements contained in this document. In addition, even if the Issuer’s future results of operations and financial condition are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. The information in this Quarterly Report identifies important factors that could cause such differences (including, but not limited to, a change in overall economic conditions in the United States, a change in the Issuer’s financial condition, changes in tax law or the interpretation thereof, interest rate fluctuations and other market conditions, and the effect of new legislation or government directives).

 

Forward-looking statements include, but are not limited to, information concerning possible or assumed future results of the Issuer’s operations set forth under the section entitled “Business of the Issuer”. Such statements, estimates and projections reflect various assumptions by the Issuer concerning anticipated results and are subject to significant business, financing, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Issuer and are based upon assumptions with respect to future business decisions that are subject to change. Accordingly, there can be no assurance that such statements, estimates and projections will be realized or that actual results will not vary considerably from those anticipated, expected or projected. The Issuer, its accountants, its legal advisers and its agents or affiliates do not make any representations as to the accuracy or completeness of such statements, estimates and projections, or that any forecasts will be achieved.

 

The Issuer is not obliged to, and does not intend to, update or revise any forward-looking statements made in this Quarterly Report whether as a result of new information, future events or otherwise. All subsequent written forward-looking statements attributable to the Issuer, or persons acting on behalf of the Issuer, are expressly qualified in their entirety by the cautionary statements contained throughout this Quarterly Report. As a result of these risks, prospective investors of the Convertible Bonds should not place undue reliance on these forward-looking statements. Neither the forward-looking statements nor the underlying assumptions have been verified or audited by any third party.

 

 

 

 

 

 

 3 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CANNAPHARMARX, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

           
   March 31,   December 31, 
   2022   2021 
ASSETS          
Current assets          
Cash  $79,676   $27,767 
HST Receivable   5,895    1,771 
Total current assets   85,571    29,538 
Property, plant and equipment, net   21,756    6,032 
Right of use building, net   5,727,811     
Investments   78,760    78,760 
Total Assets  $5,913,898   $114,330 
           
LIABILITIES & STOCKHOLDERS' DEFICIT          
           
Current liabilities          
Accounts payable and accrued expenses  $3,693,470   $3,129,257 
Accrued interest   65,131    194,407 
Accrued legal settlement   190,000    190,000 
Liability for right of use building -short term   211,497     
Notes payable   8,339,578    8,223,888 
Convertible notes -net of discount   949,765    775,448 
Derivative liability   1,092,526    507,494 
Loan payable - related party   19,757    19,757 
Total current liabilities   14,561,724    13,040,251 
           
Liability for right of use building long-term   5,639,264     
           
Total Liabilities   20,200,988    13,040,251 
           
Commitments and contingencies        
           
Stockholders' Equity          
Preferred stock, Series A, $1.00 par value, 100,000 shares authorized, 58,180 and 67,191 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively   58,180    67,191 
Preferred Stock Series B, $1.00 par value, 3,000,000 shares authorized 475,000 and 475,000 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively   475,000    475,000 
Common stock, $0.0001 par value; 300,000,000 shares authorized, 168,460,301 and 125,509,810 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively   16,846    12,551 
Treasury stock, 133,200 and 133,200 shares as of March 31, 2022 and December 31, 2021, respectively   (13)   (13)
Additional paid in capital   73,891,856    73,055,579 
Retained earnings (deficit)   (88,236,301)   (86,164,319)
Accumulated other comprehensive income (loss)   (492,658)   (371,909)
Total Stockholders' Equity (Deficit)   (14,287,090)   (12,925,920)
Total Liabilities and Stockholders' (Equity)  $5,913,898   $114,330 

 

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

 

 

 

 

 

 4 

 

 

CANNAPHARMARX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

           
   Three Months   Three Months 
   Ended   Ended 
   March 31,   March 31, 
   2022   2021 
Revenue  $   $ 
           
Operating Expenses:          
General and administrative   139,435    42,848 
Amortization and depreciation   74,064    408 
Stock based compensation   45,245    96,700 
Rent   4,739    9,478 
Professional fees   177,404    418,603 
Payroll and consulting fees   274,671    153,309 
Total operating expenses   715,558    721,345 
Income (loss) from operations   (715,558)   (721,345)
           
Other income (expense)          
Interest (expense)   (451,148)   (428,872)
Gain or (loss) on the extinguishment of debt   (320,243)   (282,289)
Change in the fair value of derivative liability   (585,033)   2,630,480 
Other income (expense) net   (1,356,424)   1,919,319 
Income (loss) before provision for income taxes   (2,071,982)   1,197,974 
Provision (credit) for income tax        
Net income (loss)   (2,071,982)   1,197,974 
           
Basic earnings (loss) per common share  $(0.01)  $0.02 
Diluted earnings (loss) per common share  $(0.01)  $0.02 
           
Basic weighted average number of shares outstanding   149,215,596    48,043,065 
Diluted weighted average number of shares outstanding   149,215,596    48,043,065 
           
Comprehensive loss:          
Net income (loss)  $(2,071,982)  $1,197,974 
Foreign currency translation adjustment   (120,750)   (96,578)
Comprehensive income (loss)  $(2,192,732)  $1,101,396 

 

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

 

 

 

 5 

 

 

CANNAPHARMARX, INC.

UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(unaudited)

 

 

           
   Three Months   Three Months 
   Ended   Ended 
   March 31,   March 31, 
   2022   2021 
Cash Flows From Operating Activities:          
Net income (loss)  $(2,071,982)  $1,197,974 
Adjustments to reconcile net income to net cash provided by (used for) operating activities          
Stock-based compensation expense   45,245    96,700 
Amortization of debt discount   100,971    287,544 
Loss on the extinguishment of debt   320,243    282,289 
Beneficial conversion feature of convertible notes   227,386     
Change in the fair value of derivatives   585,033    (2,630,480)
Depreciation   942    408 
Changes in operating assets and liabilities          
(Increase)/decrease in prepaid expenses       (277,582)
HST Receivable   (4,098)   (922)
Accrued interest   16,633    54,945 
Right of use asset   (5,727,811)    
Loan payable related party        
Accrued expense related party   47,387    (93,618)
Lease liabilities for right of use asset   5,850,761     
Accounts payable and accrued expense   234,106    283,491 
Net cash provided by (used for) operating activities   (375,184)   (799,251)
           
Cash Flows From Investing Activities:          
Purchase of fixed assets   (16,578)   (6,314)
Purchase of private company equity       (39,490)
Net cash provided by (used for) investing activities   (16,578)   (45,804)
           
Cash Flows From Financing Activities:          
Proceeds from the sale of preferred stock       (39,441)
Proceeds from convertible loans, net of repayments       53,500 
Proceeds from notes payable, net of repayment   476,250    238,560 
Proceeds from the sale of common stock in private placements   40,015    244,104 
Net cash provided by (used for) financing activities   516,265    496,723 
           
Effect of exchange rates on cash and cash equivalents   (72,594)   43,441 
Net Increase (Decrease) In Cash   51,909    (304,891)
Cash At the Beginning of the Period   27,767    334,969 
Cash At the End of the Period   79,676    30,078 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $   $ 
Cash paid for income taxes  $   $ 
           
Supplemental disclosure of non-cash investing and financing activities:          
Common stock issued as a financing expense on convertible notes  $17,000   $ 
Common stock issued to convert convertible notes and accrued interest into equity  $501,905   $508,919 

 

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

 

 

 

 6 

 

 

CANNAPHARMARX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(unaudited)

 

                               
   Preferred Stock Series A   Preferred Stock Series B   Common Stock 
   Shares   Value   Shares   Value   Shares   Value 
Balance, December 31, 2020   60,000   $60,000    475,000   $475,000    46,986,794   $4,699 
                               
Net loss                              
                               
Change in foreign currency translation                              
                               
Conversion of Series A Preferred to common   (200)   (200)   -    -    250,000    25 
                               
Conversion of convertible notes to common shares                       1,442,101    144 
                               
Sale of common stock in a private placement                       860,000    86 
                               
Beneficial conversion feature of convertible notes                              
                               
Stock based compensation related to warrant issuance                              
                               
Balance, March 31, 2021   59,800   $59,800    475,000   $475,000    49,538,895   $4,954 

(continued)

 

                               
   Treasury Stock   Paid in   Accumulated   Accumulated other comprehensive   Equity/ 
   Shares   Value   Capital   deficit   income (loss)   Deficit 
Balance, December 31, 2020   133,200   $(13)  $68,336,249   $(77,331,820)  $(345,714)  $(8,801,601)
                               
Net loss                  1,197,974         1,197,974 
                               
Change in foreign currency translation                       (96,578)   (96,578)
                               
Conversion of Series A Preferred to common   -     -     175                
                               
Conversion of convertible notes to common shares             474,715              474,859 
                               
Sale of common stock in a private placement             244,018              244,104 
                               
Beneficial conversion feature of convertible notes             34,205              34,205 
                               
Stock based compensation related to warrant issuance             96,700              96,700 
                               
Balance, March 31, 2021   133,200   $(13)  $69,186,061   $(76,133,846)  $(442,293)  $(6,850,337)

 

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

 

 

 7 

 

 

CANNAPHARMARX, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)

(unaudited)

 

                               
   Preferred Stock Series A   Preferred Stock Series B   Common Stock 
   Shares   Value   Shares   Value   Shares   Value 
Balance at December 31, 2021   67,191   $67,191    475,000   $475,000    125,509,810   $12,551 
                               
Net income (loss)                              
                               
Change in foreign currency translation                              
                               
Conversion of Series A Preferred to common stock   (9,011)   (9,011)   -    -    11,263,750    1,126 
                               
Conversion of convertible notes to common shares                       28,186,741    2,819 
                               
Sale of common stock in private placement                       2,500,000    250 
                               
Issuance of common stock for services                              
                               
Commitment shares issued with convertible note                       1,000,000    100 
                               
Beneficial conversion feature of convertible notes                              
                               
Stock based compensation related to warrant issuances                              
                               
Balance, March 31, 2022   58,180   $58,180    475,000   $475,000    168,460,301   $16,846 

(continued)

 

                                
    Treasury Stock   Paid in   Accumulated   Other comprehensive   Equity/ 
    Shares   Value   Capital   Deficit   income (loss)   Deficit 
Balance at December 31, 2021    133,200   $(13)  $73,055,579   $(86,164,319)  $(371,909)  $(12,925,920)
                                
Net income (loss)                   (2,071,982)        (2,071,982)
                                
Change in foreign currency translation                        (120,750)   (120,750)
                                
Conversion of Series A Preferred to common stock              7,885               
                                
Conversion of convertible notes to common shares    -    -    499,096              501,915 
                                
Sale of common stock in private placement              39,765              40,015 
                                
Issuance of common stock for services                               
                                
Commitment shares issued with convertible note              16,900              17,000 
                                
Beneficial conversion feature of convertible notes              227,386              227,386 
                                
Stock based compensation related to warrant issuances              45,245              45,245 
                                
Balance, March 31, 2022    133,200   $(13)  $73,891,856   $(88,236,301)  $(492,658)  $(14,287,090)

 

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

 

 

 8 

 

 

CANNAPHARMARX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

 

 

NOTE 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

 

CannaPharmaRx, Inc. (the “Company”) is a Delaware corporation. In November 2018 it formed an Ontario corporation, Hanover CPMD Acquisition Corporation, to facilitate the acquisition described below. As of the date of this Report, the Company intends to engage in acquisitions or joint ventures with a company or companies that will allow it to become a national or internationally branded cannabis cultivation company, or otherwise engage in the cannabis industry. Management is engaged in seeking out and evaluating businesses for acquisition. However, if an opportunity in another industry arises the Company will review that opportunity as well.

 

History

 

The Company was originally incorporated in the State of Colorado in August 1998 under the name “Network Acquisitions, Inc.” It changed its name to Cavion Technologies, Inc. in February 1999 and subsequently to Concord Ventures, Inc. in October 2006. On December 21, 2000, the Company filed for protection under Chapter 11 of the United States Bankruptcy Code. In connection with the filing, on February 16, 2001, the Company sold its entire business, and all of its assets, for the benefit of its creditors. After the sale, the Company still had liabilities of $8.4 million and was subsequently dismissed by the Court from the Chapter 11 reorganization, effective March 13, 2001, at which time the last of the Company’s then remaining directors resigned. On March 13, 2001, the Company had no business or source of income, no assets, no employees or directors, outstanding liabilities of approximately $8.4 million, and had terminated its duty to file reports under securities law. In February 2008, after filing of a Form 10 registration statement pursuant to the Securities Exchange Act of 1934, as amended, we were re-listed on the OTC Bulletin Board.

 

In April 2010, the Company re-domiciled in Delaware under the name CCVG, Inc. (“CCVG”). Effective December 31, 2010, the Company completed an Agreement and Plan of Merger and Reorganization (the “Reorganization") which provided for the merger of two of the Company’s wholly-owned subsidiaries. As a result of this reorganization, the Company’s name became “Golden Dragon Inc.,” which became the surviving publicly quoted parent holding company.

 

On May 9, 2014, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with CannaPharmaRx, Inc., a Colorado corporation (“Canna Colorado”), and David Cutler, a former President, Chief Executive Officer, Chief Financial Officer, and director of the Company. Under the Share Purchase Agreement, Canna Colorado purchased 1,421,120 restricted shares of the Company’s common stock from Mr. Cutler and an additional 9,000,000 common shares directly from the Company.

 

In October 2014, the Company changed its legal name to “CannaPharmaRx, Inc.”

 

In April 2016, the Company ceased operations. As a result, the Company was then considered a “shell” company as defined under the Securities Exchange Act of 1934, as amended, as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

 

Effective December 31, 2018, the Company and Hanover CPMD Acquisition Corp. (“CPMD Hanover”) a newly formed, wholly-owned subsidiary, entered into a Securities Purchase Agreement with Alternative Medical Solutions, Inc., an Ontario, Canada corporation (“AMS”), its shareholders, wherein the Company acquired all of the issued and outstanding securities of AMS. AMS is a corporation organized under the laws of the Province of Ontario, Canada

 

 

 

 

 9 

 

 

As a result of the completion of the acquisition of AMS on December 31, 2019, the Company no longer fits the definition of a “shell company,” as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act. It filed the required disclosure on Form 8-K/A with the SEC on February 14, 2019, advising that it was no longer a shell company pursuant to the aforesaid Rule.

 

Effective February 25, 2019, the Company acquired 3,936,500 shares and 2,500,000 Warrants to purchase 2,500,000 shares of Common Stock of GN Ventures, Ltd., Alberta, Canada, f/k/a Great Northern Cannabis, Ltd. (“GN”), in exchange for an aggregate of 7,988,963 shares of its Common Stock, from a former shareholder of GN who is now the Company’s President and CEO. In May 2020, the Company exchanged 5,507,400 of its shares for 3,671,597 shares of GN.

 

GN owns a 60,000 square foot cannabis cultivation and grow facility located on 38 acres in Stevensville, Ontario, Canada. Because the Company is a minority shareholder of GN and GN is a privately held company, the Company cannot confirm that the information it currently has on GN’s operations is complete or fully reliable. GN estimates annual total production capacity from the Stevensville facility of up to 5,000 kilograms of cannabis. GN believes the Stevensville facility to be complete, and GN’s subsidiary, 9869247 Canada Limited, received a license to cultivate from the Canadian Ministry of Health on July 5, 2019. As a result, in October 2019, GN commenced cultivation activities and began generating revenues during the first calendar quarter of 2020.

 

On January 1, 2022, the Company entered into a 20 year finance lease with Formosa Mountain Ltd., for a cannabis production facility in Cremona, Alberta, Canada. The facility is a 55,000 square foot, 6,000 kg per year plant, built in 2015. The licensing process is currently underway, and production and sales are anticipated in Q3 of 2022.

 

COVID-19

 

The global pandemic related to an outbreak of the novel coronavirus disease (“COVID-19”) has cast uncertainty on each of these assumptions. There can be no assurance that they continue to be valid. The situation is dynamic and the ultimate duration and magnitude of the impact of COVID-19 on the economy and the financial effect on our business remain unknown at this time. These impacts could include, amongst others, an impact on our ability to obtain debt or equity financing, impairment of investments, net realizable value of inventory, impairments in the value of our long-lived assets, or potential future decreases in revenue or profitability of our ongoing operations.

 

Basis of Presentation

 

The accompanying financial statements have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) “FASB Accounting Standard Codification™” (the “Codification”) which is the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States. Certain amounts in prior periods have been reclassified to conform to the current presentation.

 

All figures are in U.S. dollars unless indicated otherwise.

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates relate to purchase price allocation of acquired businesses, impairment of long-lived assets and goodwill, valuation of financial instruments, income taxes, and contingencies. The Company bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

 

 

 

 

 10 

 

 

Cash and Cash Equivalents

 

The Company considers all highly liquid temporary cash investments with an original maturity of the year or less to be cash equivalents. On March 31, 2022, and December 31, 2021, the Company's cash and cash equivalents totaled $79,676 and $27,767 respectively.

 

Comprehensive Gain or Loss

 

ASC 220 “Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As of March 31, 2022, and December 31, 2021, the Company determined that it had items that represented components of comprehensive income and, therefore, has included a statement of comprehensive income in the financial statements.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.

 

 Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risk. Terms of convertible and other promissory notes are reviewed to determine whether they contain embedded derivative instruments that are required to be accounted for separately from the host contract and recorded on the balance sheet at fair value. The fair value of derivative liabilities is required to be revalued at each reporting date, with corresponding changes in fair value recorded in the current period operating results. These derivative liabilities arose in 2022 and 2021 due to the issuance of variably priced convertible notes. For the periods ended March 31, 2022, and December 31, 2021, the Company had derivative liabilities of $1,092,526 and $507,494 respectively.

 

Beneficial Conversion Features

 

In accordance with FASB ASC 470-20, “Debt with Conversion and Other Options” the Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt or preferred stock instruments that have conversion features at fixed rates that are in-the-money when issued. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The intrinsic value is generally calculated at the commitment date as the difference between the conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. If certain other securities are issued with the convertible security, the proceeds are allocated among the different components. The portion of the proceeds allocated to the convertible security is divided by the contractual number of the conversion shares to determine the effective conversion price, which is used to measure the BCF. The effective conversion price is used to compute the intrinsic value. The value of the BCF is limited to the basis that is initially allocated to the convertible security.

 

Foreign Currency Translation

 

The functional currency and the reporting currency of CannaPharmaRx’s US operations is United States dollars, (“USD”). The functional currency of the Company’s Canadian operations in Canadian dollars (“CAD”), Management has adopted ASC 830 “Foreign Currency Matters” for transactions that occur in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Average monthly rates are used to translate revenues and expenses.

 

 

 

 

 11 

 

 

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. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

 

Assets and liabilities of the Company’s operations are translated into the reporting currency, United States dollars, at the exchange rate in effect at the balance sheet dates. Revenue and expenses are translated at average rates in effect during the reporting periods. Equity transactions are recorded at the historical rate when the transaction occurred. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separate component of stockholders' equity in the statement of stockholders' equity. These translation adjustments are reflected in accumulated other comprehensive income, a separate component of the Company's stockholders' equity.

  

Harmonized Sales Tax

 

The Harmonized Sales Tax (“HST”) is a combination of the Canadian Goods and Services Tax (“GST”) and Provincial Sales Tax (“PST”) that is applied to taxable goods and services. By fusing sales tax at the federal level with sales tax at the provincial level, the participating provinces harmonized both taxes into a single federal-provincial sales tax. HST is a consumption tax paid by the consumer at the point of sale (POS). The vendor or seller collects the tax proceeds from consumers by adding the HST rate to the cost of goods and services. They then remit the total collected tax to the government periodically.

 

The HST is in effect in five of the ten Canadian provinces: New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island. The HST is collected by the Canada Revenue Agency (CRA), which remits the appropriate amounts to the participating provinces. The HST may differ across these five provinces, as each province will set its own PST rates within the HST. In provinces and territories which have not enacted the HST, the CRA collects only the 5% goods and services tax. The current rate in Ontario is 13%.

 

Stock-Based Compensation

 

The Company has adopted ASC Topic 718, (Compensation—Stock Compensation), which establishes a fair value method of accounting for stock-based compensation plans. In accordance with guidance now incorporated in ASC Topic 718, the cost of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option-pricing model. The resulting amount is charged to expense on a straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. The fair value of stock warrants was determined at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The Company had no stock options outstanding at March 31, 2022.

 

Goodwill and Intangible Assets

 

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of customer relationships and non-compete agreements. Their useful lives range from 10 to 15 years. The Company’s indefinite-lived intangible assets consist of trade names.

 

 

 

 

 12 

 

 

Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures, and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess.

  

Determining the fair value of a reporting unit is judgmental and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test before scheduled annual impairment tests.

 

The Company had no goodwill recorded at March 31, 2022.

 

Long-Lived Assets

 

The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value.

 

The Company evaluated the recoverability of its long-lived assets on March 31, 2022, and on December 31, 2021, respectively on its subsidiaries with material amounts on their respective balance sheets and determined that an impairment $146,084 in land had occurred.

 

The Company had a net balance at March 31, 2022 of $21,756 relating to plant and office equipment.

 

Fair Values of Assets and Liabilities

 

The Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value.

 

    Level 1:   Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
     

 

 

 

 13 

 

 

    Level 2:   Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. For example, Level 2 assets and liabilities may include debt securities with quoted prices that are traded less frequently than exchange-traded instruments.
     
    Level 3:   Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments and long-term derivative contracts.

 

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

The Company may also be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

 

Financial Instruments

 

The estimated fair value for financial instruments was determined at discrete points in time based on relevant market information. These estimates involve uncertainties and could not be determined with exact precision. The fair value of the Company’s financial instruments, which include cash, prepaid expenses, accounts payable, and the related party loan, each approximate their carrying value due either to their short length to maturity or interest rates that approximate prevailing market rates.

 

Income Taxes

 

The Company accounts for income taxes under the liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

 

Income (Loss) Per Share

 

Income (loss) per share is presented in accordance with Accounting Standards Update (“ASU”), Earning per Share (Topic 260) which requires the presentation of both basic and diluted earnings per share (“EPS”) on the income statements. Basic EPS would exclude any dilutive effects of options, warrants, and convertible securities but does include the restricted shares of common stock issued. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. Basic EPS calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted EPS calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding.

 

 

 

 14 

 

 

Recently Issued Accounting Pronouncements

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease standard. The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also in 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an optional transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. The amendments have the same effective date and transition requirements as the new lease standard On November 15, 2019, the FASB has issued ASU 2019-10, which amends the effective dates for three major accounting standards. The ASU defers the effective dates for the credit losses, derivatives, and lease standards for certain companies. Since the Company is classified as a small reporting company and has a calendar-year end companies the Company eligible for deferring the adoption of ASC 842 to December 15, 2021.

 

In the first quarter of fiscal 2022, we adopted ASU 2016-02 using the “Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption will be as originally reported under the previous standard – ASC 840, Leases. The effects of adopting the new standard (ASC 842, Leases) in fiscal 2022 were recognized as a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal first quarter. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification as operating or capital leases. We also elected to combine lease and non-lease components and to exclude short-term leases from our consolidated balance sheets. We did not elect the hindsight practical expedient in determining the lease term for existing leases as of February 3, 2019.

 

The most significant impact of adoption was the recognition of finance lease assets and finance lease liabilities of $5,727,811 and $5,850,761, respectively. We expect the impact of adoption to be immaterial to our consolidated statements of earnings and consolidated statements of cash flows on an ongoing basis. As part of our adoption, we also modified our control procedures and processes, none of which materially affected our internal control over financial reporting.

 

 

 

 

 

 

 

 

 

 

 

 

 15 

 

 

NOTE 2. GOING CONCERN AND LIQUIDITY

 

As of March 31, 2022, and December 31, 2021, the Company had $79,676 and $27,767 cash on hand, respectively, and no revenue-producing business or other sources of income. Additionally, as of March 31, 2022, the Company had negative working capital totaling $14,476,153 and an accumulated deficit of $88,236,301.

 

These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Based on its current financial projections, the Company believes it does not have sufficient existing cash resources to fund its current limited operations. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern.

 

It is the Company’s current intention to raise debt and/or equity financing to fund ongoing operating expenses. There is no assurance that these events will be satisfactorily completed or at terms acceptable to the Company. Any issuance of equity securities, if accomplished, could cause substantial dilution to existing stockholders. Any failure by the Company to successfully implement these plans would have a material adverse effect on its business, including the possible inability to continue operations.

 

 

NOTE 3. INVESTMENT

 

As of March 31, 2022, and December 31, 2021, the balance of investments was $78,760 and $78,760 respectively.

 

On February 25, 2019, the Company acquired 3,936,500 shares and 2,500,000 Warrants to purchase 2,500,000 shares of common stock at a price of CAD$1.00 of GN Ventures, Ltd., Alberta, Canada, f/k/a Great Northern Cannabis, Ltd. (“GN”), in exchange for an aggregate of 7,988,963 shares of the Company’s Common Stock from a former shareholder of GN. On the date of purchase, the Company’s Common Stock was trading at $1.41 which values the purchase at $11,264,438. For balance sheet purposes the Company has treated this purchase using the cost method because the purchase consists of an investment in a private company in which the Company does not have the ability to exercise significant influence over GN’s operating and financial activities. The Company conducted an impairment test on December 31, 2019, and determined that an impairment existed resulting in a write-down of the investment by $7,070,841 to its then-current value of $4,193,597.

 

On May, 2020, the Company exchanged 5,507,400 of its common shares for 3,671,597 common shares of GN. These shares were valued at $0.675 each which represents the value of the GN shares as determined by the Company’s year end impairment analysis and were recorded as an investment of $2,478,422. As of December 31, 2020, the Company’s investment in GN was $6,672,019. On December 31, 2021, the Company wrote down its entire investment in GN. This write-down occurred due to the lack of available information forthcoming from GN regarding its current operations.

 

On October 6, 2020, the Company invested $50,000 CAD ($39,270 USD) in exchange for 83,333 Class A Common Shares at $0.60 CAD per share. The Company entered into a cooperation agreement with Klonetics Plant Science Inc., a Company that engages in the business of genetics research and development, tissue culture propagation, plantlet production, ready to flower production within the cannabis industry throughout the world. The parties consider it advantageous to pool their respective experience, expertise, know-how and capabilities in the area of land acquisition, financing, development, operations, and respective areas of industry focus. The parties may wish to commence their intended long-term cooperation by pursuing projects in selected areas of focus initially before extending it to a larger scale merger between the parties, which may be discussed at a later date with terms to be determined and agreed to by the parties.

 

On January 15, 2021, the Company invested an additional $50,000 CAD ($39,490 USD) in exchange for an additional 83,333 Class A Common Shares at $0.60 CAD per share.

 

As of March 31, 2022, the Company’s investment in Klonetics was $78,760.

 

 

 

 16 

 

 

NOTE 4. PROPERTY, PLANT, AND EQUIPMENT

 

The following table sets forth the components of the Company’s property and equipment on March 31, 2022, and December 31, 2021:

                              
   March 31, 2022   December 31, 2021 
   Gross Carrying Amount   Accumulated Depreciation   Net Book Value   Gross Carrying Amount   Accumulated Depreciation   Net Book Value 
Computers, software, and office equipment  $11,316   $(6,138)  $5,178   $11,154   $(5,122)  $6,032 
Plant equipment   16,578        16,578             
                               
Total fixed assets  $27,894   $(6,138)  $21,756   $11,154   $(5,122)  $6,032 

 

For the years ended March 31, 2022, and 2021, the Company recorded depreciation expense of $942 and $408 respectively.

 

 

NOTE 5. ACCOUNT PAYABLE AND ACCRUED LIABILITIES

 

Accounts payables are recognized initially at the transaction price and subsequently measured at the undiscounted amount of cash or other consideration expected to be paid. Accrued expenses are recognized based on the expected amount required to settle the obligation or liability.

 

The following table sets forth the components of the Company’s accrued liabilities on March 31, 2022, and December 31, 2021.

          
  

March 31,

2022

  

December 31,

2021

 
         
Accounts payable and accrued expenses  $3,693,470   $3,129,257 
Accrued interest (a)   65,131    194,407 
Accrued legal settlement (b)   190,000    190,000 
Total accounts payable and accrued liabilities  $3,948,601   $3,513,664 

_____________________ 

(a) Represents interest accrued on the outstanding convertible notes and other notes - see Note 12, Notes Payables)

 

(b) The Company had previously been a party to an action filed by Gary M. Cohen, a former officer and director of the Company in 2014. In March 2015, the Company entered into a Settlement Agreement with Mr. Cohen wherein the Company agreed to repurchase 2,250,000 shares of its Common Stock from Mr. Cohen in consideration for $350,000. Mr. Cohen passed away while there was a remaining balance of $190,000 remaining to be paid in accordance with the Settlement Agreement. The Company has taken the position that his death has discharged any obligation the Company might have to make the balance of the payments. The Company has not received any demand for payment or otherwise been involved in any attempt to collect this balance for a period of greater than two years prior to the date of this Report.

 

 

 

 17 

 

 

NOTE 6. RELATED PARTY TRANSACTIONS

 

The following table sets forth the components of the Company’s related party liabilities on March 31, 2022 and December 31, 2021.

          
  

March 31,

2022

  

December 31,

2021

 
Loan payable, related parties(a)  $19,757   $19,757 
           
Total loan payable, related parties  $19,757   $19,757 

 

(a) Interest-free loan of $19,757 due to former directors.

 

Effective March 22, 2019, the Company established its principal place of business and leases offices at 3600, 888 – 3rd St SW, Calgary, Alberta, Canada, T2P 5C5. The lease may be terminated by either party on 30 days’ notice. Rent is $2,000 CAD per month effective October 1, 2020 (retroactively reduced from $4,000 per month). This space was provided by a company to which, Mr. Orman, one of the Company’s directors, serves as a Director.

 

 

NOTE 7. CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES

 

The following tables set forth the components of the Company’s, convertible debentures as of March 31, 2022, and December 31, 2021:

          
   March 31,
2022
   December 31,
2021
 
         
Principal value of convertible notes  $1,243,750   $943,017 
Note discount   (293,985)   (167,569)
Total convertible notes, net current  $949,765   $775,448 

 

During the 3 months ended March 31, 2022, and March 31, 2021, the Company received proceeds from convertible notes of $476,250 and $53,500, respectively.

 

December 31, 2021 Activity

 

During the year ended December 31, 2021, the Company received proceeds from convertible notes of $530,833.

 

During the year ended December 31, 2021 the Company recorded $76,196 in interest expense on its convertible notes and amortized $883,670 of note discount which was charged to interest expense. As of December 31, 2021, there was $48,488 in accrued interest on these notes, and $167,569 in unamortized note discount related to these notes. As of the date of this Report, there was one note for $100,000 that was past due its maturity date. The Company has not received any notice of default on these notes and continues to accrue interest on these notes past the maturity date.

 

During the year ended December 31, 2021, the Company issued 51,681,766 common shares upon the conversion of $1,303,316 in convertible notes and recorded a loss on conversion of $1,452,629.

 

 

 

 18 

 

 

March 31, 2022 Activity

 

During the three months ended March 31, 2022, the Company received proceeds from convertible notes of $476,250.

 

During the three months ended March 31, 2022, the Company recorded $22,787 in interest expense on its convertible notes and amortized $109,970.73 of note discount which was charged to interest expense. As of March 31, 2022, there was $65,131 in accrued interest on these notes, and $293,985 in unamortized note discount relating to these notes. As of the date of this Report, there were eight notes amounting to $698,017 that was past due its maturity date. The Company has not received any notice of default on these notes and continues to accrue interest on these notes past the maturity date.

 

During the three months ended March 31, 2022, the Company issued 28,186,741 common shares upon the conversion of $248,767 in convertible notes and recorded a loss on conversion of $246,994.

 

Derivative liability

 

As of March 31, 2022 and December 31, 2021, derivative liabilities were valued using a probability-weighted average Black-Scholes-Merton pricing model with the following assumptions:

          
   March 31, 2022  

December 31, 2021

 
Exercise Price   

$  0.006710.0110

    $  0.13420.0345 
Stock Price  $  0.017    $  0.0130.05 
Risk-free interest rate   0.04%    0.04% – 0.09% 
Expected volatility   194.2%    128.50227.10% 
Expected life (in years)   1.00    1.00 
Expected dividend yield   0%    0% 
Fair Value:   $  1,092,526    $  507,494 

 

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes. The expected dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future.

 

During the period ended March 31, 2022, the Company recognized a loss of $585,033 as “Other Expense” on its Consolidated Statements of Operations, which represented the net change in the value of the derivative liability.

 

 

NOTE 8. NOTES PAYABLE

 

The following tables set forth the components of the Company’s, convertible debentures as of March 31, 2022, and December 31, 2021:

          
   March 31,
2022
   December 31,
2021
 
Principal value of Promissory Note  $8,339,578   $8,223,888 
Loan discounts        
Promissory Note,  $8,339,578   $8,223,888 

 

 

 

 19 

 

 

Pursuant to the terms of the Securities Purchase Agreement with AMS, the Company issued a non-interest-bearing CAD $10,000,000 ($7,330,000 USD) promissory note secured only by the shares acquired in AMS. Principal payments under the Promissory Note are due quarterly commencing upon AMS receiving a license to cultivate and are computed based upon 50% of AMS' cash flow, defined as EBITDA less all capital expenditures, taxes incurred, non-recurring items, and other non-cash items for the relevant fiscal quarter, including the servicing of all senior debt payment obligations of the Company. The Promissory Note matures the earlier of two years from the date AMS receives a license to cultivate, or December 31, 2021. Since AMS had not received its cultivation license as of December 31, 2020, the Note Payable has a maturity date of December 31, 2021 and is past due.

 

The Company performed a valuation study as part of the AMS acquisition. The valuation study determined that the Promissory Note should be valued at $6,632,917 since it was non-interest bearing. As a result, the Company recorded a note discount of $697,083. The note discount will be amortized to interest expense over the three-year term of the Promissory Note. During the year ended December 31, 2021, the Company has recorded $186,610 in amortization expense related to this note discount.

 

On July 3, 2019, the Company entered into a 12% $1,000,000 Loan Agreement with Koze Investments LLC (“Koze”), payable in full on June 28, 2020. Under the terms of the 12% Note, Koze took a first security interest against the Company’s Hanover, Ontario cannabis facility in progress and required the Company to pay off its existing mortgage of approximately $650,000 CAD. Additionally, the Company agreed to pay a 3% origination fee, prepay the year of interest ($60,000) and to issue to Koze five-year warrants to purchase 1,001,000 shares of the Company’s Common Stock at an exercise price of $1.00 per share. After paying the origination fees, the prepayment and paying off the original mortgage, the Company used a portion of the remaining proceeds as payment against the SMI purchase price of CAD $1,000,000. During the period ended December 31, 2020, the Company recorded an additional amount of $890,570 relating to penalties for late payment. On July 9, 2021, the Company closed the sale of the Hanover property and used the proceeds from the sale to repay this note in full. The note was repaid for $1,600,000 which included the original principal of $1,000,000, accrued interest of $124,735 and penalties of $475,265. This mortgage has now been discharged.

 

On April 21, 2020, the Company received a loan from the Government of Canada under the Canada Emergency Business Account program (CEBA). This loan was in the amount of $40,000 CAD (USD $29,352). These funds are interest-free until December 31, 2022, at which time the remaining balance will convert to a 3-year term loan at an interest rate of 5% per annum. An additional amount of $20,000 CAD (USD $15,708) was received on December 29, 2020. If the Company repays the loan prior to December 31, 2022, there will be loan forgiveness of 33% or $20,000 CAD.

 

During the year ended December 31, 2021, the Company entered into Note Agreements with secured investors amounting to $238,560. These notes are non-interest bearing and mature in 12 months. Repayment includes principal amount plus $50,000 CAD settlement cash fee plus 58,140 Common Shares at $0.43 per share plus 59,524 Common Shares at $0.42 per share. These notes are secured by a General Security Agreement over all present and after acquired property, assets, and undertakings. These notes are past due.

 

 

NOTE 9. LEASES

 

Adopted Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease standard. The FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases in July 2018. Also in 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides an optional transition method whereby the new lease standard is applied at the adoption date and recognized as an adjustment to retained earnings. The amendments have the same effective date and transition requirements as the new lease standard On November 15, 2019, the FASB has issued ASU 2019-10, which amends the effective dates for three major accounting standards. The ASU defers the effective dates for the credit losses, derivatives, and lease standards for certain companies. Since the Company is classified as a small reporting company and has a calendar-year end companies the Company eligible for deferring the adoption of ASC 842 to December 15, 2021.

 

 

 

 

 20 

 

 

In the first quarter of fiscal 2022, we adopted ASU 2016-02 using the “Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption will be as originally reported under the previous standard – ASC 840, Leases. The effects of adopting the new standard (ASC 842, Leases) in fiscal 2022 were recognized as a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal first quarter. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification as operating or capital leases. We also elected to combine lease and non-lease components and to exclude short-term leases from our consolidated balance sheets. We did not elect the hindsight practical expedient in determining the lease term for existing leases as of February 3, 2019.

 

The most significant impact of adoption was the recognition of finance lease assets and finance lease liabilities of $5,727,811 and $5,850,761, respectively. We expect the impact of adoption to be immaterial to our consolidated statements of earnings and consolidated statements of cash flows on an ongoing basis. As part of our adoption, we also modified our control procedures and processes, none of which materially affected our internal control over financial reporting.

 

Leases

 

The majority of our lease obligations are real estate finance leases from which we conduct our business. For any lease with an initial term in excess of 12 months, the related lease assets and liabilities are recognized on the Condensed Consolidated Balance Sheets as either operating or finance leases at the inception of an agreement where it is determined that a lease exists. Leases with an initial term of 12 months or less are not recorded on our Condensed Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

 

Finance lease assets represent the right to use an underlying asset for the lease term, and finance lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at commencement date. We use a collateralized incremental borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. Our lease terms generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term.

 

The weighted average remaining lease term is 19.75 years and the weighted average discount rate is 16.9%.

 

Future lease payments under our non-cancellable leases as of March 31, 2022 were as follows ($CAD):

 
2022 $742,500
2023 $1,039,500
2024 $1,091,748
2025 $1,146,335
2026 $1,203,652

 

 

NOTE 10. INCOME TAXES

 

As of March 31, 2022, the Company has approximately $86,000,000 of federal net operating loss carryforwards (“NOLS”) in the United States. The federal net operating loss carryforwards begin to expire in 2030. State net operating loss carryforwards begin to expire in 2034. Due to the change in ownership provisions of the Internal Revenue Code, the availability of the Company’s net operating loss carryforwards could be subject to annual limitations against taxable income in future periods which could substantially limit the eventual utilization of such carryforwards. The Company has not analyzed the historical or potential impact of its equity financings on beneficial ownership and therefore no determination has been made whether the net operating loss carryforward is subject to any Internal Revenue Code Section 382 limitation. To the extent there is a limitation there could be a substantial reduction in the deferred tax asset with an offsetting reduction in the valuation allowance. As of March 31, 2022, the Company has no unrecognized income tax benefits.

  

 

 

 21 

 

 

The tax years from 2014 and forward remain open to examination by federal and state authorities due to net operating loss and credit carryforwards. The Company is currently not under examination by the Internal Revenue Service or any other taxing authorities. Since the company has never been profitable, the Company has established a full valuation allowance against the deferred tax asset associated with the NOLS.

 

 

NOTE 11. COMMITMENTS AND CONTINGENCIES

 

Effective March 22, 2019, the Company entered into a lease agreement to lease three offices at 3600 888 3 St SW, Calgary, Alberta, Canada, T2P 5C5. The lease may be terminated by either party on 30 days’ notice. Rent is $2,000 CAD per month. This space was provided by a company to which, Mr. Orman, one of the Company’s directors, serves as a director.

 

Effective January 1, 2022, the Company entered into a lease agreement with Formosa Mountain Ltd to lease a cannabis production facility in Cremona, Alberta, Canada. The facility is a 55,000 square foot, 6,000 kg per year plant, built in 2015. Rent is $82,500 CAD per month, and will increase by 5% each year. This lease has a 20 year term.

 

NOTE 12. STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company is authorized to issue up to 10,000,000 shares of one or more series of Preferred Stock, par value of $0.0001 per share. The Board of Directors may, without stockholder approval, determine the dividend rates, redemption prices, preferences on liquidation or dissolution, conversion rights, voting rights, and any other preferences.

 

Series A Preferred Stock

 

In April 2018, the Company issued 60,000 shares of its Series A Convertible Preferred Stock for $1.00 per share to certain investors who then became members of management and the board of directors. Each share of Series A Convertible Preferred Stock is convertible into 1,250 shares of Common Stock and vote on an as-converted basis. The rights and designations of these Preferred Shares include the following:

 

  entitles the holder thereof to 1,250 votes on all matters submitted to a vote of the shareholders:

 

  The holders of outstanding Series A Convertible Preferred Stock shall only be entitled to receive dividends upon declaration by the Board of Directors of a dividend payable on the Company’s Common Stock, whereupon the holders of the Series A Convertible Preferred Stock shall receive a dividend on the number of shares of Common Stock into which each share of Series A Convertible Preferred Stock is convertible;

 

  Each Series A Preferred Share is convertible into 1,250 shares of Common Stock;

 

  not redeemable.

 

The beneficial conversion (“BCF”) feature attributed to the purchase of Preferred Stock was deemed to have no value on the date of purchase because there was no public trading market for the Convertible Preferred Stock, and none is expected to develop in the future. Therefore, the BCF related to the Preferred Shares was considered to have no value on the date of issuance.

 

9,011 Preferred A shares were converted into common shares during the three months ended March 31, 2022 at 1250:1.

 

There were 58,180 shares and 67,191 shares of Series A Preferred Stock issued and outstanding as of March 31, 2022, and December 31, 2021, respectively.

 

 

 

 

 22 

 

 

Series B Preferred Stock / Common Stock

 

In February 2019, the Company commenced an offering of up to $3 million in principal amount of Units at a price of $1.00 per Unit, each Unit consisting of one share of Series “B” Convertible Preferred Stock, each Convertible Preferred Share convertible into one share of the Company’s Common Stock at the election of the holder and one Common Stock Purchase Warrant exercisable to purchase one share of Common Stock at an exercise price of $2.00 per share, which offering is to be offered only to “accredited investors,” as that term is defined in Rule 501 of Regulation D. This Offering was closed at the end of August 2019. As of December 31, 2020, the Company had accepted $475,000 in subscriptions in this offering.

 

There were 475,000 shares of Series B Convertible Preferred Stock issued and outstanding as of March 31, 2022, and December 31, 2021, respectively.

 

Common stock

 

The Company is authorized to issue 300,000,000 shares of Common Stock, par value $0.0001 per share. As of March 31, 2022, and December 31, 2021, there were 168,460,301 and 125,509,810 shares of Common Stock issued and outstanding, respectively.

 

Shares Reserved for Issuance

 

As of March 31, 2022, the Company had 159,459,346 Common Shares reserved for issuance. These shares are comprised of 72,725,000 Common Shares issuable upon the conversion of the Series A Preferred Stock; 475,000 Common Shares issuable upon the conversion of Series B Preferred Stock; 84,761,818 shares issuable upon a conversion of the convertible notes, and 1,497,528 Common Shares issuable upon the exercise of warrants. None of these shares were used in the calculation of earnings per share because their inclusion would be anti-dilutive since the Company is operating at a loss. There are no assurances that the conversion rights will be utilized or that the options or the warrants will be exercised.

 

Stock Options

 

During the period ended March 31, 2022, and December 31, 2021, the Company did not record any stock-based compensation expense related to stock options, as there were none outstanding.

 

Stock Purchase Warrants

 

The following table reflects all outstanding and exercisable warrants on March 31, 2022 and December 31, 2021:

               
   Number of Warrants Outstanding   Weighted Average Exercise Price   Average Remaining Contractual Life (Years) 
Warrants outstanding December 31, 2019   1,869,750   $0.92    .55 
Warrants exercised   (25,000)          
Warrants outstanding December 31, 2020   1,844,750   $0.92    .25 
Warrants issued (a)   477,778   $0.30    4.17 
Warrants forfeited   (825,000)          
Warrants outstanding December 31, 2021   1,497,778   $0.79    2.75 
Warrants outstanding March 31, 2022   1,497,778           

 

Stock purchase warrants are exercisable for two-five years from the date of issuance.

 

(a) The Company issued 477,448 common share purchase warrants during the second quarter ended June 30, 2021 to an accredited investor as part of a convertible debenture. These warrants are exercisable at $0.30 per share and expire at the end of five years.

 

 

 

 23 

 

 

NOTE 13. SUBSEQUENT EVENTS

 

On April 1, 2022, the Company entered into a convertible debenture with an accredited investor in the amount of $48,750. This debenture bears interest of 10% and is convertible into common shares at 61% of the lowest closing price during the previous 20 days to the date of the conversion. Prepayment of this note is authorized at 115% - 135% up to 180 days. In the event of default interest increases to 22%. This debenture matures April 1, 2023.

 

On April 18, 2022, the Company issued 4,615,385 common shares on partial conversion of a debenture dated September 29, 2021 at $0.0065 per share for a total of $30,000 principal.

 

On April 28, 2022, the Company entered into a $5,000,000 equity line of credit with Tysadco Partners, LLC, with a two-year term. The Company may draw down between $50,000 and $1,000,000. Settlement is common shares up to 9.99% after which preferred shares would be purchased. Purchase price is 75% of the average of the two lowest daily traded VWAP (volume weighted average price) prices during the valuation period. The Company has undertaken to register the securities on a form S-1 within 60 days from execution date. The Company received $250,000 on May 4, 2022 in exchange for 25,000,000 common shares at $0.01.

 

On May 2, 2022, the Company issued 4,264,113 common shares on remaining conversion of a debenture dated September 29, 2021 at $0.0062 per share for principal of $23,750 plus interest of $2,687.50.

 

 

 

 

 

 

 

 

 

 

 

 

 

 24 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q includes a number of forward-looking statements that reflect management's current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 14, 2021 any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation:

 

  · our ability to successfully commercialize our products and services on a large enough scale to generate profitable operations;

 

  · our ability to maintain and develop relationships with customers and suppliers;

 

  · our ability to successfully integrate acquired businesses or new brands;

 

  · the impact of competitive products and pricing;

 

  · supply constraints or difficulties;

 

  · the retention and availability of key personnel;

 

  · general economic and business conditions;

 

  · substantial doubt about our ability to continue as a going concern;

 

  · our need to raise additional funds in the future;

 

  · our ability to successfully recruit and retain qualified personnel in order to continue our operations;

 

  · our ability to successfully implement our business plan;

 

  · our ability to successfully acquire, develop or commercialize new products and equipment;

 

  · intellectual-property claims brought by third parties; and

 

  · the impact of any industry regulation.

 

 

 

 

 25 

 

 

During the three month period ending March 31, 2022 the Company had no revenues from operations. Loss from operations for the three months ended March 31, 2022 was $715,558 compared with a loss in the prior year of $721,345, for a net loss of $2,071,982 for the most recent quarter, compared with a prior year net income of $1,197,974.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.

 

As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “CannaPharmaRx,” “Company,” “we,” “us,” and “our” refer to CannaPharmaRx, Inc. and our wholly-owned subsidiaries. Unless otherwise specified, all dollar amounts are expressed in United States dollars.

 

The following discussion should be read in conjunction with our financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward-looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.

 

Overview and History

 

The Company was originally incorporated in the State of Colorado in August 1998 under the name “Network Acquisitions, Inc.” The Company changed our name to Cavion Technologies, Inc. in February 1999 and subsequently to Concord Ventures, Inc. in October 2006.

 

On December 21, 2000, the Company filed for protection under Chapter 11 of the United States Bankruptcy Code. In connection with the filing, on February 16, 2001, the Company sold our entire business, and all of our assets, for the benefit of our creditors. After the sale, the Company still had liabilities of $8.4 million and were subsequently dismissed by the Court from the Chapter 11 reorganization, effective March 13, 2001, at which time the last of the Company’s remaining directors resigned. On March 13, 2001, the Company had no business or other source of income, no assets, no employees or directors, outstanding liabilities of approximately $8.4 million and had terminated their duty to file reports under securities law. In February 2008, the Company was re-listed on the OTC Bulletin Board.

 

In April 2010, the Company re-domiciled in Delaware under the name CCVG, Inc. (“CCVG”). Effective December 31, 2010, CCVG completed an Agreement and Plan of Merger and Reorganization (the “Reorganization") which provided for the merger of two of their wholly-owned subsidiaries. As a result of this reorganization, the Company’s name was changed to “Golden Dragon Inc.”, which became the surviving publicly quoted parent holding company.

 

 

 

 

 26 

 

 

On May 9, 2014, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with CannaPharmaRx, Inc., a Colorado corporation (“Canna Colorado”), and David Cutler, a former President, Chief Executive Officer, Chief Financial Officer and director of the Company. Under the Share Purchase Agreement, Canna Colorado purchased 1,421,120 shares of our common stock from Mr. Cutler and an additional 9,000,000 restricted common shares directly from the Company.

 

On May 15, 2014, as amended and effective January 29, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger”) pursuant to which Canna Colorado became a subsidiary of our Company.

 

 In October 2014, the Company changed their legal name to “CannaPharmaRx, Inc.”

  

Pursuant to the Merger all of the shares of the Company’s common stock previously owned by Canna Colorado were canceled. As a result of the aforesaid transactions, the Company became an early-stage pharmaceutical company whose purpose was to advance cannabinoid research and discovery using proprietary formulation and drug delivery technology then under development. 

 

In April 2016, we ceased operations. The Company’s then management resigned their respective positions with our Company with the exception of Mr. Gary Herick, who remained one of the Company’s officers and directors until April 23, 2019.

 

Effective December 31, 2018, the Company and Hanover CPMD Acquisition Corp. (“CPMD Hanover”) a newly formed, wholly-owned subsidiary, entered into a Securities Purchase Agreement with Alternative Medical Solutions, Inc., an Ontario, Canada corporation (“AMS”), its shareholders, wherein the Company acquired all of the issued and outstanding securities of AMS. AMS is a corporation organized under the laws of the Province of Ontario, Canada.

 

As a result of the completion of the acquisition of AMS on December 31, 2019, the Company no longer fit the definition of a “shell company,” as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act. It filed the required disclosure on Form 8-K/A with the SEC on February 14, 2019, advising that it was no longer a shell company pursuant to the aforesaid Rule.

 

On January 6, 2021, the Company executed an Agreement of Purchase and Sale through its wholly-owned subsidiary, Alternative Medical Solutions Inc for the sale of the lands and premises located at Hanover, Ontario, Canada. The price was $2,000,000 CAD. As a result, and in anticipation of the closing, the Company recorded an impairment of goodwill and fixed assets relating to the property of $7,962,694 at December 31, 2020. This property was security for a $1,000,000 US Note with Koze Investments LLC by way of a first ranking charge. This transaction closed on July 9, 2021 and the note was repaid in full as principal of $1,000,000 plus accrued interest of $124,735 and penalties of $475,265. The note was discharged accordingly.

 

Effective February 25, 2019, the Company acquired 3,936,500 shares and 2,500,000 Warrants to purchase 2,500,000 shares of Common Stock of GN Ventures, Ltd, Alberta, Canada, f/k/a Great Northern Cannabis, Ltd. (“GN”), in exchange for an aggregate of 7,988,963 shares of its Common Stock, from a former shareholder of GN who is now the Company’s President and CEO. While no assurances can be provided, the Company believes this is the initial step in its efforts to acquire all or a significant portion of the issued and outstanding stock of GN. In May 2020, the Company exchanged 5,507,400 of its shares for 3,671,597 shares of GN.

 

GN owns a 60,000 square foot cannabis cultivation and grow facility located on 38 acres in Stevensville, Ontario, Canada. Because the Company is a minority shareholder of GN and GN is a privately held company, the Company cannot confirm that the information it currently has on GN’s operations is complete or fully reliable. GN estimates annual total production capacity from the Stevensville facility of up to 5,000 kilograms of cannabis. GN believes the Stevensville facility to be complete, and GN’s subsidiary, 9869247 Canada Limited, received a license to cultivate from the Canadian Ministry of Health on July 5, 2019. As a result, in October 2019, GN commenced cultivation activities and began generating revenues during the first calendar quarter of 2020.

  

On January 1, 2022, the Company entered into a 20 year finance lease with Formosa Mountain Ltd., for a cannabis production facility in Cremona, Alberta, Canada. The facility is a 55,000 square foot, 6,000 kg per year plant, built in 2015. The licensing process is currently underway, and production and sales are anticipated in Q3, 2022.

 

 

 

 

 27 

 

 

COVID-19

 

On March 11, 2020, the World Health Organization (“WHO”) declared the Covid-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most U.S. states and many countries have issued policies intended to stop or slow the further spread of the disease.

 

The global pandemic related to an outbreak of the novel coronavirus disease (“COVID-19”) has cast uncertainty on each of these assumptions. There can be no assurance that they continue to be valid. The situation is dynamic and the ultimate duration and magnitude of the impact of COVID-19 on the economy and the financial effect on our business remain unknown at this time. These impacts could include, amongst others, an impact on our ability to obtain debt or equity financing, impairment of investments, net realizable value of inventory, impairments in the value of our long-lived assets, or potential future decreases in revenue or profitability of our ongoing operations.

 

Wholly-Owned Subsidiaries

 

Our wholly-owned subsidiaries are:

 

CannaPharmaRx Canada Corp. (Alberta). CannaPharmaRx Canada Corp. is a wholly owned subsidiary of the Company. This subsidiary’s sole purpose and business is to hold the shares of Alternative Medical Solutions Inc. (Ontario).

 

Alternative Medical Solutions Inc. (Ontario). Alternative Medical Solutions Inc. (Ontario) is a wholly owned subsidiary of the CannaPharmaRx Canada Corp.

 

2323414 Alberta Ltd is a wholly owned subsidiary of CannaPharmaRx Inc. This subsidiary’s role is the business and operations of our Cremona, Alberta, Canada, production facility, currently being readied for operations anticipated in Q3 of 2022.

 

Our executive offices are located at Suite 3600, 888 3rd Street SW, Calgary, Alberta Canada, T2P 5C5 phone (949) 652-6838. Our website address is www.cannapharmarx.com.

 

We have not generated any revenues during the past five years. Following is our current Plan of Operation.

 

PLAN OF OPERATION

 

We are involved in the cannabis industry in Canada and are reviewing opportunities in other jurisdictions where cannabis has been legalized, including the US. Our principal business activities to date have been to negotiate, acquire and develop various cannabis cultivation projects throughout Canada. As of the date of this Report we do not own or operate any businesses in the US.

 

Following is a description of the projects we are pursuing as of the date of this Report:

 

Great Northern

 

In early 2019, we retained new members of management who are actively engaged in the Canadian cannabis industry, including former management of GN Ventures, Ltd, Alberta, Canada, f/k/a Great Northern Cannabis, Ltd. (“GN”). Not coincidentally, effective February 25, 2019, we acquired 3,712,500 shares and 2,500,000 Warrants to purchase 2,500,000 shares of Common Stock of GN in exchange for an aggregate of 7,988,963 shares of our Common Stock, from our current CEO, who is a former shareholder of GN.

 

 

 

 

 28 

 

 

We cannot state any definitive information concerning Great Northern because it is a privately held Canadian company who is keeping its business activities confidential. We expect that we will obtain additional information on the business activities of GN as we renew discussions to acquire additional interests and can perform our due diligence.

 

Based on information currently available in the marketplace we believe that GN owns a 60,000 square foot cannabis cultivation and grow facility located on 38 acres in Stevensville, Ontario, Canada. GN estimates annual total production capacity from the Stevensville facility of up to 5,000 kilograms of cannabis. GN advised that the Stevensville facility is complete, and GN’s subsidiary, 9869247 Canada Limited, received a license to cultivate from the Canadian Ministry of Health on July 5, 2019. As a result, in October 2019 GN commenced cultivation activities, with the initial harvest in the first quarter of 2020. Additionally, it is our current understanding that GN intends to increase cannabis production by building additional cannabis cultivation facilities on the excess land presently owned adjacent to the existing Stevensville facility, provided that additional funding can be obtained on commercially reasonable terms. Neither we nor GN have any firm commitment to provide any of the funds necessary for expansion as of the date of this report..

 

On May 8, 2020, we agreed to acquire an additional 3,671,597 shares of GN common stock in exchange for an aggregate of 5,507,400 shares of our Common Stock. We presently own 7,384,097 shares of GN common stock which we believe, based on information provided by the management of GN, equals approximately 10% of the total issued and outstanding shares of GN common stock. Additionally, we own Warrants to purchase an additional 2,500,000 shares of GN common stock with each Warrant having an exercise price of CAD$1.00 per share.

 

Cremona

 

On January 1, 2022, the Company entered into a 20 year finance lease with Formosa Mountain Ltd for a cannabis production facility in Cremona, Alberta, Canada. The facility is a 55,000 square foot, 6,000 Kg per year plant, built in 2015 as a state of the art facility. Retooling of the facility is currently underway, as is the licensing process. Production and sales are anticipated in Q3 of 2022.

 

Results of Operations

 

The Company does not currently sell or market any products and did not have any sales in the three months ended March 31, 2022 or 2021. The Company will commence actively marketing products after the products have been cleared or approved by Health Canada, but there can be no assurance, however, that we will be successful in obtaining Health Canada clearance or approval for our products.

 

Costs of Goods Sold

 

The Company did not have sales for the three months ended March 31, 2022 or 2021 and, accordingly, there were no cost of goods sold.

 

Gross Profit and Gross Margin

 

For the fiscal years ended March 31, 2022 and 2021, the Company had no gross profit or gross margin.

 

Operating Expenses

 

Our operating expenses consist primarily of general and administrative expenses, which include salaries, stock-based compensation expense and legal and professional fees associated with the costs for services or employees in finance, accounting, sales, administrative activities and the formation and compliance of a public company.

 

 

 

 

 29 

 

 

Overall operating expenses in three months ended March 31 2022 was $715,558 compared to $721,345 for the three months ended March 31, 2021, a decrease of $5,787. The decrease in the 2022 period is primarily attributable to increases in general and administrative, amortization and depreciation, and payroll from the ramp up of the Cremona facility, offset by a reduction in stock based compensation and professional fees.

 

Other income (expense)

 

Other expense was $1,356,424 for the three months ended March 31, 2022, compared to other income of $1,919,319, an increase of $3,275,743. The increase is primarily attributable to the change in fair value of derivative liability.

 

Net Income (Loss)

 

As a result of the foregoing, the Company had a net loss of $2,071,982, and a net income of $1,197,974, for the periods ended March 31, 2022, and March 31, 2021, respectively.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of March 31, 2022, we had $79,676 in cash as compared to $27,767 at December 31, 2021.

 

Cash flows from operating activities

 

The Company used $375,184 in operating activities for the first three months ended March 31, 2022 as compared to $799,241 during the prior year comparable quarter. During the first quarter ended March 31, 2022 the Company had a net loss of $2,071,982, stock-based compensation expense of $45,245, amortization of debt discount of $100,971, loss on the extinguishment of debt of $320,243, beneficial conversion feature of convertible notes of $227,386, change in the fair value of derivatives of $585,033, depreciation of $942, right of use asset, net of $122,950, and an increase to payables and accruals of $294,028. During the prior year quarter ended March 31, 2021 the Company had net income of $1,197,974, stock based compensation expense of $96,700, amortization of debt discount of $287,544, loss on extinguishment of debt of $282,289, change in fair value of derivatives of $2,630,480, depreciation of $408, an increase to prepaid expenses of $277,582 and an increase to accounts payable and accruals of $243,896.

 

Cash flows from investing activities

 

The Company used $16,758 during the first three months ended March 31, 2022 in investing activities as compared to using $45,804 during the three month period ended March 31, 2021. This included the right of use asset, offset slightly by the purchase of plant equipment in the current year, vs computer equipment and a further investment in Klonetics in the prior year.

 

Cash flows from financing activities

 

During the three months ended March 31, 2022, $516,265 was provided from financing activities, including $476,250 from convertible loans and notes payable and $40,015 from the sale of Common Stock. During the prior year quarter the Company received $292,060 from convertible loans and notes payable, $244,104 from the sale of common stock, offset slightly by $39,441 from the settlement of preferred stock

 

In general, based on historical losses, the Company will be required to continue raising operating capital through debt and equity.

 

 

 

 

 30 

 

 

Currently, we have no committed source for any funds to allow us to complete any of our proposed acquisitions or projects. No representation is made that any funds will be available when needed. In the event funds cannot be raised if and when needed, we may not be able to carry out our business plan. Our inability to obtain funding for our projects will have a negative impact on our anticipated results of operations.

 

SUBSEQUENT EVENTS

 

On April 1, 2022, the Company entered into a convertible debenture with an accredited investor in the amount of $48,750. This debenture bears interest of 10% and is convertible into common shares at 61% of the lowest closing price during the previous 20 days to the date of the conversion. Prepayment of this note is authorized at 115% - 135% up to 180 days. In the event of default interest increases to 22%. This debenture matures April 1, 2023.

 

On April 18, 2022, the Company issued 4,615,385 common shares on partial conversion of a debenture dated September 29, 2021 at $0.0065 per share for a total of $30,000 principal.

 

On April 28, 2022, the Company entered into a $5,000,000 equity line of credit with Tysadco Partners, LLC, with a two-year term. The Company may draw down between $50,000 and $1,000,000. Settlement is common shares up to 9.99% after which preferred shares would be purchased. Purchase price is 75% of the average of the two lowest daily traded VWAP (volume weighted average price) prices during the valuation period. The Company has undertaken to register the securities on a form S-1 within 60 days from execution date. The Company received $250,000 on May 4, 2022 in exchange for 25,000,000 common shares at $0.01.

 

On May 2, 2022, the Company issued 4,264,113 common shares on remaining conversion of a debenture dated September 29, 2021 at $0.0062 per share for principal of $23,750 plus interest of $2,687.50.

 

Inflation

 

Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the three-month period ended March 31, 2022.

 

Critical Accounting Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

 

 

 

 

 31 

 

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures - Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report.

 

These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2022 at the reasonable assurance level. We believe that our financial statements presented in this Form 10-Q fairly present, in all material respects, our financial position, results of operations, and cash flows for all periods presented herein.

 

Inherent Limitations - Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.

 

Changes in Internal Control over Financial Reporting - There were no changes in our internal control over financial reporting during the period ended March 31, 2022, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

 

 

 

 

 

 

 

 

 32 

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

As part of our acquisition of AMS, we assumed an action filed against AMS by Ataraxia Canada, Inc., alleging breach of contract, specifically, breach of a nonbinding term sheet providing for Ataraxia to acquire controlling interest in AMS and they are seeking $15 million in damages. A Statement of Claim was prepared by Ataraxia Canada, Inc., as plaintiff, and circulated to Alternative Medical Solutions Inc., as defendant, on August 2, 2018, under the Ontario Superior Court of Justice (Court file no. CV-17-580157). The parties have engaged in discussions with respect to a potential settlement of this matter. Counsel has advised that it believes it is premature to speculate on any outcome of this litigation, including the likelihood of a settlement or any potential liability at this time.

 

Our agreement to acquire AMS contained a provision requiring us to diligently defend against the claims brought forth in, and assume full and complete control of, the Ataraxia litigation, provided that we shall not enter into any compromise or settlement in respect of the Ataraxia litigation without the prior written consent of the sellers, which consent is not to be unreasonably withheld, conditioned or delayed. The sellers are obligated to cooperate fully and make available to us all pertinent information and witnesses under their control, make such assignments and take such other steps as in the opinion of our counsel are reasonably necessary to enable us to defend against the claims brought forth in the Ataraxia litigation.

 

We are currently reviewing two separate situations with our legal counsel in order to ascertain whether we have claims against Steven Barber arising out of his default of the Consulting Agreement we entered into as part of the AMS acquisition more fully described in” Part I, Item 1,” Business, above and various claims against Gary Herick, a former officer and director. In January 2020, we received correspondence from counsel for Mr. Barber demanding payment on amounts purported to be due pursuant to his Consulting Agreement with us. We are currently reviewing whether Mr. Barber has performed pursuant to the terms of the Consulting Agreement.

 

No decision on whether to proceed on either of these situations has been reached as of the date of this Report.

 

On July 9, 2020, we filed a lawsuit in the United States District Court for the District of Colorado (1:20-cv-01999-RM-GPG) against Gary Herick, Arrowhead Consulting, LLC, Whitemoon Energy LLC., Jamie Huttrer a/k/a Jamie Huttrer-Herick, and ZeroRMW, LLC (collectively, the “Herick Parties”). The lawsuit alleges, among other things, the Herick Parties engaged in various legal violations including breach of fiduciary duty, common law fraud, conversion, usurpation of corporate opportunities, securities violations pursuant to Section 10b-5 of the Securities Exchange Act of 1934, and civil conspiracy. Mr. Herick was a former officer and director of the Company. On September 8, the Herick Parties filed a Motion to Dismiss the Sixth Claim for Relief (§ 10b-5 Federal Securities Law). On September 28, 2020, we filed a First Amended Complaint. On October 10, 2020, the Herick Parties filed a Motion to Dismiss the Fourth and Fifth Claims for Relief. On October 30, 2020, the Parties filed a Stipulated Motion for an Extension of Time, through and including November 16, 2020, for us to respond to the Herick Parties’ Motion to Dismiss the Fourth and Fifth Claims for Relief.

 

On July 9, 2020, we made a demand of Gary Herick, Arrowhead Consulting, LLC, Whitemoon Energy LLC., Jamie Huttrer a/k/a Jamie Huttrer-Herick, and ZeroRMW, LLC (collectively, the “Herick Parties”) for a return of with seeking the return of profits made between the period of August 2018, to January 2019. During this period, Gary Herick was the Chief Financial Officer and Director of the Issuer. Gary Herick was also the owner of approximately twenty-six percent (26%) of the Issuer’s common stock. Pursuant to the Securities Exchange Act of 1934, §16(b), 15 U.S.C.S. § 78p(b), an issuer may recover any profits realized by a beneficial owner from the sale of the issuer's equity securities within a six (6) month period. All unlawful profits must be returned to the Issuer on or before Tuesday, September 8, 2020. If Herick does not return such profits by that date, the Company will file a lawsuit to recover such profits.

 

On February 17, 2021, a Settlement Agreement and Release together with a Lock Up Agreement were signed by all parties to the lawsuit. As a result, the litigation has been discontinued.

 

 

 

 

 33 

 

 

On April 15, 2021, Bristol Capital Investors, LLC (BCI) filed a lawsuit in the Superior Court of the State of California, County of Los Angeles against CannaPharmaRx Inc. and Does 1 – 50, inclusive (Case No. 21st CV1 3696). The lawsuit alleges that CannaPharmaRx Inc. (CPMD) breached the Amended and Restated Limited Liability Company Membership Purchase Agreement it had entered into with Bristol Capital Investors, LLC (BCI) to purchase BCI’s interest in Ramon Road Production Campus, LLC (RRPC), a single asset entity which owned an improved property, known as the Glass House, located in Cathedral City, California. BCI alleges causes of action for Fraud, Breach of Contract, Breach of the Implied Covenant of Good Faith and Fair Dealing, and Negligent Misrepresentation, and seeks compensatory and consequential damages in the amount of $10.5 millions dollars plus attorneys’ fees and costs. CPMD intends to vigorously defend against BCI’s lawsuit, going forward. The parties conducted a court-ordered mediation and the parties are engaging in on-going discussions.

 

We are not a party to any other legal proceeding or aware of any other threatened action as of the date of this Report.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

We did not issue any of our equity securities during the three months ended March 31, 2022, or subsequent thereto.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not Applicable

 

ITEM 5. OTHER INFORMATION

 

None

 

ITEM 6. EXHIBITS

 

Exhibit No. Description
   
31.1   Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH   Inline XBRL Taxonomy Extension Schema Document
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
104   Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101).

 

 

 34 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on May 23, 2022.

 

  CannaPharmaRx, Inc.
     
     
  By: /s/ Dominic Colvin
    Dominic Colvin,
    Principal Executive Officer
     
     
  By: /s/ John Cassels
   

John Cassels,

Principal Financial Officer and

    Principal Accounting Officer

 

 

 

 

 

 

 

 

 

 

 

 35 



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