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CPMD Cannapharmarx

Filed: 17 May 21, 2:20pm

Table of Contents

 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 

Quarterly Report Under

the Securities Exchange Act of 1934

 

For Quarter Ended: March 31, 2021

 

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, CanadaT2P 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 classTrading Symbol(s)Name of each exchange on which registered
Common StockCPMDOTC 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 þ  No o

 

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 þ No o

 

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 fileroAccelerated filero
Non-accelerated filerþSmaller reporting companyþ
Emerging growth companyþ  

 

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.  o Yes   þ No

 

The number of shares of the registrant’s only class of common stock issued and outstanding as of May 12, 2021, was 50,163,895 shares.

 

 

 

   

 

 

TABLE OF CONTENTS

 

   Page No.
PART I. FINANCIAL INFORMATION
   
Item 1.Financial Statements 1
    
 Unaudited Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 1
    
 Unaudited Consolidated Statement of Operations for the Three Months Ended March 31, 2021 and 2020 2
    
 Unaudited Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2021 and 2020 3
    
 Unaudited Consolidated Statements of Stockholders Equity (Deficit) 4
    
 Notes to Unaudited Consolidated Financial Statements 6
    
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations/Plan of Operation 24
    
Item 3.Quantitative and Qualitative Disclosures About Market Risk 30
    
Item 4.Controls and Procedures 30
    
 PART II. OTHER INFORMATION  
    
Item 1.Legal Proceedings 31
    
Item 1A.Risk Factors 32
    
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds 32
    
Item 3.Defaults Upon Senior Securities 32
    
Item 4.Mine Safety Disclosures 32
    
Item 5.Other Information 32
    
Item 6.Exhibits 32
    
 Signatures 33

 

 

 

 i 

 

 

 

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.

 

 

 ii 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CANNAPHARMARX, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

 

  March 31,  December 31, 
ASSETS 2021  2020 
Current assets        
Cash $30,078  $334,969 
HST Receivable  1,480   551 
Prepaid expenses  409,638   132,031 
Total current assets  441,196   467,551 
Construction in progress  1,585,860   1,566,316 
Office equipment  8,368   2,435 
Investments  6,750,779   6,711,289 
Total Assets $8,786,203  $8,747,591 
         
         
LIABILITIES & STOCKHOLDERS' DEFICIT        
Current liabilities        
Accounts payable and accrued expenses $2,733,393  $2,447,848 
Accounts payable related party  376,019   380,413 
Accrued interest  152,189   96,477 
Accrued legal settlement  190,000   190,000 
Accrued expense - related party  804,126   756,738 
Notes payable current  9,138,619   8,728,749 
Convertible Notes -net of discount  1,053,133   997,558 
Derivative liability  1,046,169   3,676,649 
Loan payable - related party  142,893   274,758 
Total current liabilities  15,636,540   17,549,190 
Total Liabilities  15,636,540   17,549,190 
         
Commitments and contingencies      
         
Stockholders' Equity        
Preferred stock, Series A, $1.00 par value, 60,000 shares authorized, 59,800 and 60,000 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively  59,800   60,000 
Preferred Stock Series B, $1.00 par value, 3,000,000 shares authorized 475,000 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively  475,000   475,000 
Common stock, $0.0001 par value; 300,000,000 shares authorized, 49,538,895 and 46,986,794 issued and outstanding as of March 31, 2020 and December 30, 2020, respectively  4,954   4,699 
Treasury stock, 133,200 shares as of March 31, 2021 and December 31, 2020, respectively  (13)  (13)
Additional paid in capital  69,186,061   68,336,249 
Retained earnings (deficit)  (76,133,846)  (77,331,820)
Accumulated other comprehensive income (loss)  (442,293)   (345,714) 
Total Stockholders' Equity (Deficit)  (6,850,337)  (8,801,599)
Total Liabilities and Stockholders' (Equity) $8,786,203  $8,747,591 

 

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

 

 

 

 1 

 

 

CANNAPHARMARX, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

 

  Three Months  Three Months 
  Ended  Ended 
  March 31,  March 31, 
  2021  2020 
       
Revenue $  $ 
         
Operating Expenses:        
General & administrative  42,848   42,328 
Acquisition expenses     1,881,126 
Amortization and depreciation  408   31,664 
Stock based compensation  96,700   206,579 
Travel and entertainment     6,537 
Rent  9,478    
Professional fees  418,603   153,729 
Consulting fees and payroll-related parties  153,309   248,046 
Total operating expenses  721,345   2,570,009 
Income (loss) from operations  (721,345)  (2,570,009)
         
Other income (expense)        
Interest (expense)  (428,872)  (719,325)
(Loss) on conversion of convertible notes  (282,289)  (925,484)
Change in the fair value of derivative liability  2,630,480    
Other income (expense) net  1,919,319   (1,644,809)
Income (loss) before provision for income taxes  1,197,974   (4,214,818)
Provision (credit) for income tax      
Net income (loss)  1,197,974  $(4,214,818)
         
Basic and diluted earnings(loss) per common share $0.02  $(0.12)
         
Weighted average number of shares outstanding  48,043,065   36,486,999 
         
Comprehensive loss:        
Net income (loss) $1,197,974  $(4,214,818)
Foreign currency translation adjustment  (96,578)  (145,898)
Comprehensive income (loss) $1,101,396  $(4,360,716)

 

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

 

 

 

 2 

 

 

CANNAPHARMARX, INC.

UNAUDITED STATEMENTS OF CONSOLIDATED CASH FLOWS

 

  Three Months
Ended
March 31,
2021
  Three Monts
Ended
March 31,
2020
 
Cash Flows From Operating Activities:        
Net income (loss) $1,197,974  $(4,214,818)
Adjustments to reconcile net income to net cash provided by (used for) operating activities        
Stock-based compensation expense  96,700   206,579 
Amortization of intangible assets     31,664 
Amortization of debt discount  287,544   634,378 
Loss on the extinguishment of debt  282,289    
Change in the fair value of derivatives  (2,630,480)  925,484 
Depreciation  408   385 
Changes in operating assets and liabilities        
(Increase)/decrease in prepaid expenses  (277,582)  1,839,953 
HST Receivable  (922)  7,030 
Accrued interest  54,945   24,220 
Notes payable     (31,549)
Accounts payable/loan payable related party  (84,477)   
Accrued expense related party  (9,141)  142,951 
Accounts payable and accrued expense  283,491   68,044 
Net cash provided by (used for) operating activities  (799,251)  (365,680)
         
Cash Flows From Investing Activities:        
Purchase of fixed assets  (6,314)   
Purchase of private company equity  (39,490)   
Changes in intangible assets     (1,676)
Net cash provided by (used for) investing activities  (45,804)  (1,676)
         
Cash Flows From Financing Activities:        
Proceeds from the sale of preferred stock  (39,441)  438,000 
Proceeds from convertible loans, net of repayments  53,500    
Proceeds from notes payable, net of repayment  238,560    
Proceeds from the sale of common stock in private placement  244,104    
Proceeds (repayment of related party loans), net      (95,000)
Net cash provided by (used for) financing activities  496,723   343,000 
         
Effect of exchange rates on cash and cash equivalents  43,441   106,006 
Net Increase (Decrease) In Cash  (348,332)  (24,356)
Cash At The Beginning Of The Period  334,969   1,547 
Cash At The End Of The Period $30,078   83,197 
         
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 to convert convertible notes and accrued interest into equity $508,919  $130,849 

 

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

 

 

 

 3 

 

 

CANNAPHARMARX, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

 

 

Preferred Stock Series A

 

Preferred Stock Series B

 Common Stock Treasury Stock Paid in Retained earnings Other Comprehensive Equity/ 
 Shares Value Shares Value Shares Value Shares Value Capital (Deficit) income (loss) Deficit 
Balance, December 31, 2019 60,000 $60,000  475,000 $475,000  36,486,999 $3,649  133,200 $(13)$61,619,415 $(57,441,549)$137,696 $4,854,198 
                                     
Net loss                            (4,214,818)    (4,214,818)
                                     
Change in foreign currency translation                               (145,898) (145,898)
                                     
Common stock issued in connection with convertible notes             153,940  15        130,834        130,849 
                                     
Beneficial conversion features of convertible notes                         438,000        438,000 
                                     
Stock-based compensation related to warrant issuances                         206,579        206,579 
                                     
Balance, March 31, 2020 60,000 $60,000  475,000 $475,000  36,640,939 $3,664  133,200 $(13)$62,394,828 $(61,656,367)$(8,202)$1,268,909 

 

 

 

 

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

 

 

 

 4 

 

 

CANNAPHARMARX, INC.

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

 

 

Preferred Stock Series A

 

Preferred Stock Series B

 Common Stock Treasury Stock Paid in Retained earnings Other Comprehensive Equity/ 
 Shares Value Shares Value Shares Value Shares Value Capital (Deficit) income (loss) Deficit 
Balance at December 31, 2020 60,000 $60,000  475,000 $475,000  46,986,794 $4,699  133,200 $(13)$68,336,249 $(77,331,820)$(345,714)$(8,801,601)
                                     
Net income (loss)                            1,197,974     1,197,974 
                                     
Change in foreign currency translation                               (96,578) (96,578)
                                     
Conversion of Series A Preferred to common stock (200  (200        250,000  25        175         
                                     
Conversion of convertible notes to common shares             1,442,101  144        192,426        192,570 
                                     
Sale of common stock in private placement             860,000  86        244,018        244,104 
                                     
Loss on loan conversions                         282,289        282,289 
                                     
Beneficial conversion feature of convertible notes                         34,205        34,205 
                                     
Stock based compensation related to warrant issuances                         96,700        96,700 
                                     
                                     
Balance, March 31, 2021 59,800 $59,800  475,000 $475,000  49,538,895 $4,954  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.

 

 

 

 5 

 

 

CANNAPHARMARX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Month Interim Periods Ended March 31, 2021 and 2020

 

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 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. It is a late-stage marijuana licensed producer applicant in Canada. It is currently in the Pre-License Inspection and Licensing phase, which is Stage 5 of 6, with a fully approved license. Upon completion of the final construction of the facility, Health Canada will inspect the facility and relevant operating procedures to ensure it meets the standards that have been approved in the application. There can be no assurances that the Company will receive this license.

 

 

 

 6 

 

 

The facility is a 48,750 square foot marijuana grow facility built on a 6.7-acre parcel of land located in Hanover, Ontario Canada. To date, the exterior construction of the building has been completed. However, no interior construction has begun. Upon full completion, the facility will contain up to 20 separate growing rooms which we believe will provide an annual production capacity of 9,500 kilos of marijuana (20,900 lbs.). Completion of the build-out of the facility is expected to take an estimated 20 weeks. Together with the remaining equipment needed to complete the grow the Company estimates that it will require approximately CAD$20.0 million in additional financing which it may seek to raise via equity and debt. There can be no assurances that the Company will successfully raise the financing required to complete the construction of the facility and begin cultivation.

 

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.

 

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 is $2,000,000 CAD and the closing is expected to be on May 28, 2021. 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 is security for a $1,000,000 US Note with Koze Investments, LLC by way of a first-ranking charge. At closing the Note will be retired with the proceeds from the sale. Should the transaction not close, the Company will re-evaluate the potential to develop the property as originally planned in light of current market conditions in the industry.

 

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 12,500 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. The Company expects that it will obtain additional information on the business activities of GN as it has renewed discussions to acquire additional interests and is performing its due diligence procedures.

 

Effective June 11, 2019, the Company entered into a Securities Purchase Agreement with Sunniva, Inc, a British Columbia, Canada corporation (“Sunniva”) wherein the Company agreed to acquire all of the issued and outstanding securities of Sunniva’s wholly-owned subsidiaries Sunniva Medical Inc. (“SMI”) and 1167025 B.C. LTD (“1167025”) for CAD $16.0 million in cash and a note in the principal amount of CAD $4.0 million. These companies are the current owners of the Sunniva Canada Campus, which includes construction assets for a planned 759,000 square-foot greenhouse located on an approximately 114-acre property in Okanagan Falls, British Columbia.

 

On June 8, 2020, the Company received a notice of termination of this Purchase Agreement, as amended, from Sunniva. As a result, the Company incurred a charge of $1,881,126 due to the write-off of its deposit to Sunniva, banking fees, and prepaid expenses associated with the failed acquisition of Sunniva. The Company is in discussions with Sunniva, as well as an investment banker who received deposits from the Company, about recovering all or a portion of its deposits, banking fees, and prepaid expenses. The accompanying financial statements as of December 31, 2020, do not reflect potential recovery amounts related to Sunniva and other parties if any.

 

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 US states and many countries have issued policies intended to stop or slow the further spread of the disease.

 

 

 

 7 

 

 

Covid-19 and the U.S’s response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the Covid-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our 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.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. On March 31, 2021, and December 31, 2020, the Company cash and cash equivalents totaled $30,078 and $334,969 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, 2021, and December 31, 2020, 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 current period operating results. For the periods ended March 31, 2021, and December 31, 2020, the Company had derivative liabilities of $1,046,169 and $3,676,649, respectively. These derivative liabilities arose in 2020 due to the issuance of variably priced convertible notes.

 

 

 

 8 

 

 

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.

 

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%.

 

Capital Assets- Construction In Progress

 

As of March 31, 2021, and December 31, 2020, the Company had $1,585,860 and $1,566,316 in construction in progress (“CIP”), respectively, comprised entirely of the building acquired relating to the acquisition of AMS. The Company did not record any depreciation expense on CIP for the periods ended March 31, 2021, and March 31, 2020.

 

 

 

 9 

 

 

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 the 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, 2021.

 

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.

 

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 performed its annual fair value assessment on December 31, 2020, on its subsidiaries with material goodwill and intangible asset amounts on their respective balance sheets and determined an impairment had arisen at its Hanover facility. As a result of its assessment, the Company recorded an impairment of goodwill, intangible assets, and amounting to $7,815,891 on its Consolidated Statements of Operations for the year ended December 31, 2020. The Company had no goodwill recorded at March 31, 2021.

 

 

 

 10 

 

 

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 December 31, 2020 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, 2021 of $8,368 relating to 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.
  
 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. During the period ended December 31, 2020, the Company wrote down its fixed assets at the Hanover facility of approximately $186,000 which was included in the impairment charge of goodwill and intangibles noted above.

 

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.

 

 

 

 11 

 

 

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.

 

Business Segments

 

The Company’s activities during the three months ended March 31, 2021 and the year ended December 31, 2020, comprised a single segment.

 

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. The Company adopted ASC 842 on January 1, 2019. However, the adoption of the standard had no impact on the Company’s financial statements since all Company leases are month to month or short-term rental.

 

NOTE 2.GOING CONCERN AND LIQUIDITY

 

As of March 31, 2021 and December 31, 2020, the Company had $30,078 and $334,969 cash on hand, respectively, and no revenue-producing business or other sources of income. Additionally, as of March 31, 2021, the Company had negative working capital totaling $15,195,364 and a retained earnings deficit of $76,133,846.

 

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.

 

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.

 

 

 

 12 

 

 

NOTE 3.DEPOSITS

 

As of March 31, 2021, and December 31, 2020, the Company had deposits of $39,768 and $0, respectively. On June 8, 2020, the Company received a notice of termination of from Sunniva. The $1,308,830 deposit related to this potential Sunniva acquisition, which was not consummated, was non-refundable and was subsequently written off.

 

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 lands and premises located at Hanover, Ontario, Canada. A description of the property is detailed in Note 1 of these financial statements. The purchase price is $2,000,000 CAD and the closing of this transaction is expected to be on May 28, 2021. As a result, and in anticipation of the closing, the Company has recorded an impairment of goodwill and fixed assets relating to the property of $7,962,694 at December 31, 2020. This property is the security for a $1,000,000 US Note with Koze Investments, LLC by way of a first-ranking charge. At closing, the Note will be retired with the proceeds for the sale. Should the transaction not close, the Company will re-evaluate the potential to develop the property as originally planned when it was acquired, in light of current market conditions in the industry. The Company has received a deposit of $39,768 towards the purchase of this property.

 

NOTE 4.PREPAID EXPENSES

 

The following table sets forth the components of the Company’s prepaid expenses on March 31, 2021, and December 31, 2020:

 

  

March 31,

2021

  

December 31,

2020

 
       
Prepaid expenses  160,370   132,031 
Prepaid financing (a)  209,500    
Prepaid deposits (b)  39,768     
Total $409,638  $132,031 

 

 1.

This prepayment remains in trust, from proceeds of the Astor Street, LLC promissory notes, currently being held with the intention of forming part of the initial payment of the pending Cremona acquisition. On March 29, 2021, the Company received the acceptance our Offer to Purchase certain assets and facilities located in Cremona, Alberta, Canada. The purchase price is $12,550,000 CAD. The Company has paid a $200,000 CAD deposit and closing is expected on April 29, 2021. The 55,200 square foot facility is capable of producing 5,200 kilograms of cannabis biomass per year. The facility previously held Health Canada licenses for cultivation and sales of medical dried flower, as well as extract and edible sales. After closing of the transaction, the Company intends to apply for new Health Canada licenses. Funding for this acquisition is in the due diligence phase.

   
 2.This is the Hanover deposits – see note 3 above

 

NOTE 5.INVESTMENT

 

As of March 31, 2021, and December 31, 2020, the balance of investments was 6,750,779 and $6,711,289, 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 a current value of $4,193,597.

 

 

 

 13 

 

 

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 October 6, 2020, the Company invested $50,000 CAD 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, knowhow and capabilities in the area of land acquisition, financing, development, operations, and respective areas of industry focus. The parties 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. CannaPharmaRx will invest up to a maximum percentage of Thirty Percent (30%) of the issued and outstanding shares of Klonetics.

 

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

 

NOTE 6.PROPERTY, PLANT, AND EQUIPMENT

 

The following table sets forth the components of the Company’s property and equipment on March 31, 2021, and December 31, 2020:

 

  March 31, 2021  December 31, 2020 
  Gross Carrying Amount  Accumulated Depreciation  Net Book Value  Gross Carrying Amount  Accumulated Depreciation  Net Book Value 
                   
Computers, software, and office equipment $11,244  $(2,876) $8,368  $4,869  $(2,435) $2,435 
Land                  
Construction in progress  1,585,860      1,585,860   1,566,316      1,566,316 
Total fixed assets $1,597,104  $(2,876) $1,594,228  $1,571,185  $(2,435) $1,566,316 

 

For the periods ended March 31, 2021, and 2020, the Company recorded depreciation expense of $408 and $385 respectively.

 

As of March 31, 2021 and December 31, 2020, the Company had $1,585,860 and $1,566,316 respectively, in construction in progress. The facility acquired as part of the AMS acquisition is a 48,750 square foot marijuana grow facility built on a 6.7-acre parcel of land located in Hanover, Ontario Canada. To date, the exterior construction of the building has been completed, however, no interior construction has begun.

 

For construction in-progress assets, no depreciation is recorded until the asset is placed in service. When construction is completed, the asset should be reclassified as building, building improvements, or land improvement and should be capitalized and depreciated. Construction in progress includes all costs related to the construction of a medical cannabis facility. Cost also includes soft costs such as loan fees and interest and consulting fees and related expenses. The facility is not available for use and therefore not being amortized. The Company entered into a Purchase and Sale Agreement with a prospective buyer on January 6, 2021.

 

 

 14 

 

 

NOTE 7.GOODWILL AND INTANGIBLE ASSETS

 

As of March 31, 2021 and December 31, 2020, the Company had $-0- and $-0- in goodwill, respectively. Additionally, the Company had $-0- and $-0- in intangible assets, respectively, for the same periods, ended March 31, 2021 and December 31, 2020, respectively. The goodwill and intangible assets arose as a result of the acquisition of AMS. On December 31, 2020, the Company conducted an impairment test at AMS and determined that all of the goodwill, intangible assets, and the land had been impaired, resulting in a charge of $7,962,694 to the Company’s consolidated statements of operations for the period ended December 31, 2020. Amortization expense for the three month periods ended March 31, 2021 and March 31,2020 were $-0- and $31,349 respectively.

 

NOTE 8.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, 2021 and December 31, 2020.

 

  

March 31,

2021

  

December 31,

2020

 
       
Accounts payable and accrued expenses $2,733,393  $2,447,848 
Accrued interest (a)  152,189   96,477 
Accrued legal settlement (b)  190,000   190,000 
Total accounts payable and accrued liabilities $3,075,582  $2,734,325 

 

 (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.

 

 

 

 15 

 

 

NOTE 9.RELATED PARTY TRANSACTIONS

 

The following table sets forth the components of the Company’s related party liabilities on March 31, 2021 and December 31, 2020.

 

  

March 31,

2021

  

December 31,

2020

 
       
Accounts payable and accrued payroll, related party(a) $518,912  $655,171 
Accrued expense - related party(b)  804,126   756,738 
Total accounts payable and accrued liabilities $1,323,038  $1,411,909 

 

 (a)Accounts payable and accrued payroll-related parties as of March 31, 2021, is comprised of the following:
   
  Interest-free loans of $123,135 from the Company’s CEO and a director, respectively, amounting and $19,758 due to former directors to a total of $142,893, accrued salaries for officers and employees and other payables amounting to $376,019.
   
 (b)Accrued expense related parties of $804,126 is comprised of bonuses and fees due to current and former directors and officers of the Company. As of March 31, 2021, and December 31, 2020, there was $150,000 due to claims received from two former directors, which was purported to be accrued salaries arising out of services provided in 2015 and 2016. Management is in the process of reviewing these claims.

 

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 $4,000 CAD per month. This space was provided by a company to which, Mr. Orman, one of the Company’s directors, serves as a Director.

 

See Note 16, Subsequent Events, below, for additional related party transactions.

 

NOTE 10.CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES

 

The following tables set forth the components of the Company’s, convertible debentures as of March 31, 2021 and December 31, 2020:

 

  March 31,
2021
  December 31,
2020
 
       
Principal value of convertible notes $1,493,050  $1,662,000 
Note discount  (439,917)  (664,442)
Total convertible notes, net current $1,053,133  $997,558 

 

 

 

 16 

 

 

On July 8, 2019, the Company commenced a private offering of Units at a price of $50,000 per Unit, each Unit consisting of 50,000 shares of the Company’s Common Stock and one $50,000 unsecured Convertible Note (“a Convertible Note”), which mature one year from the date of issuance and accrue interest at 5% per annum. These Convertible Notes are convertible into shares of the Company’s Common Stock at a conversion price of $1.00 per share. During the year ended December 31, 2019, the Company issued 31 Units in this offering for and received proceeds of $1,550,000 from six accredited investors. Since the Company’s stock price exceeded the conversion feature of the Convertible Notes and was immediately exercisable, the Company recorded a beneficial conversion feature (“BCF”) and expense of $1,550,000 which was charged to interest expense with an offset to paid-in capital.

 

In addition, the 5,505,530 shares of Common Stock included in the Units were valued at $5,075,000. The excess above the $1,550,000 face value of the Convertible Notes or, $3,525,000, was charged to interest expense with an offset to paid-in capital. The remaining $1,550,000 was recorded as a Note discount of $1,550,000 to be amortized over the three years from the date of the Note to the maturity date. The Company recorded $552,602 in interest expense related to the amortization of note discount during the year ended December 31, 2019.

 

During the year ended December 31, 2020, the Company issued a total of 24 notes to accredited investors of which $582,500 was in the form of unsecured 5% convertible notes, and $595,500 was in unsecured 8% convertible notes, and $1,000,500 at 10%. Under the terms of each convertible note, the investors received the right to convert their to common stock commencing the year after the date of issuance ranging from 55%-75%, respectively, of the lowest closing price for the Company’s common stock measured 20 business days prior to conversion. One of the noteholders also received 153,940 “returnable” shares in connection with issuance of the convertible notes. These shares are returnable to the Company if the underlying convertible note ($160,000) is redeemed before the passage of 180 days. During the three months ended September 30, 2020 the Company repaid the $160,000 Note, received the 153,940 shares back from the noteholder, and converted a $100,000 note plus accrued interest into 135,000 Common Shares of the Company.

 

During the year ended December 31, 2020 the Company recorded $257,345 in interest expense on these Notes and amortized $1,690,933 of note discount which was charged to interest expense. As of December 31, 2020, there was $35,048 in accrued interest on these notes, and $664,442 in unamortized note discount related to these notes. As of the date of this Report, there was one note for $100,000 that past due its maturity date. The Company has not received any notice of default on these note and continues to accrue interest on these notes past the maturity date.

 

During the year ended December 31, 2020 the Company issued 4,067,332 common shares upon the conversion of $1,984,000 in convertible notes and recorded a gain of $566,408.

 

March 31, 2021 Activity

 

During the three month period ended March 31, 2021, the Company received proceeds from convertible notes of $53,500.

 

During the three months ended March 31, 2021 the Company recorded $28,004 in interest expense on its convertible notes and amortized $224,525 of note discount which was charged to interest expense. As of March 31, 2021, there was $59,620 in accrued interest on these notes, and $439,917 in unamortized note discount related to these notes. As of the date of this Report, there was one note for $100,000 that past due its maturity date. The Company has not received any notice of default on these note and continues to accrue interest on these notes past the maturity date.

 

During the three months ended March 31, 2021 the Company issued 1,442,101 common shares upon the conversion of $222,450 in convertible notes and recorded a loss on conversion of $282,289.

 

 

 

 17 

 

 

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

 

  

March 31,

2021

 
Exercise Price $0.132 – 0.18 
Stock Price $0.25 
Risk-free interest rate  .06% 
Expected volatility  121.90% 
Expected life (in years)  1.00 
Expected dividend yield  0% 
Fair Value: $1,046,169 

 

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 three months ended March 31, 2021 and March 31, 2020, the Company recognized a gain of $2,630,480, and $-0- respectively as “Other Expense” on its Consolidated Statements of Operations, which represented the net change in the value of the derivative liability.

 

NOTE 11.NOTES PAYABLE

 

The following tables set forth the components of the Company’s, notes payable as of March 31, 2021 and December 31, 2020:

 

  March 31,
 2021
  December 31,
 2020
 
Principal value of Promissory Note $9,327,678  $8,977,721 
Loan discounts  (189,059)  (248,972)
Promissory Note, long term net of discount $9,138,619  $8,728,749 

 

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 will have a maturity date of December 31, 2021.

 

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 three months ended March 31, 2021, the Company has recorded $287,544 in amortization expense related to Note discount.

 

 

 

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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. The Company is currently in discussions with Koze to extend the maturity date of the Note. While the Company believes it will be successful in extending the maturity date, there are no assurances this will occur. 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. As of the date this Report the Company has continued to accrue interest on the Koze Note and is in discussion to renegotiate the final payout amount, which is anticipated to occur when the property is sold. Koze has not asserted that a default has occurred.

 

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 three months ended March 31, 2021 the Company entered into Note Agreements with a secured investor 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 GSA over all present and after acquired property, assets, and undertakings.

 

NOTE 12.INCOME TAXES

 

As of March 31, 2021, the Company has approximately $75,600,000 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, 2021, the Company has no unrecognized income tax benefits.

 

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 13.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 $4,000 CAD per month. This space was provided by a company to which, Mr. Orman, one of the Company’s directors, serves as a Director.

 

On March 29, 2021, the Company received the acceptance our Offer to Purchase certain assets and facilities located in Cremona, Alberta, Canada. The purchase price is $12,550,000 CAD. The Company has paid a $200,000 CAD deposit and closing is expected on April 29, 2021. The 55,200 square foot facility is capable of producing 5,200 kilograms of cannabis biomass per year. The facility previously held Health Canada licenses for cultivation and sales of medical dried flower, as well as extract and edible sales. After closing of the transaction, the Company intends to apply for new Health Canada licenses. Funding for this acquisition is in the due diligence phase.

 

 

 

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NOTE 14.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.

 

There were 59,800 shares of Series A Preferred Stock issued and outstanding as of March 31, 2021 and 60,000 shares outstanding at December 31, 2020, respectively.

 

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, 2021, and December 31, 2020, respectively.

 

The Company is authorized to issue 300,000,000 shares of Common Stock, par value $0.0001 per share. As of March 31, 2021, and December 31, 2020, 49,538,895 and 46,986,794 shares of Common Stock were issued and outstanding, respectively.

 

 

 

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In January 2019, the Company closed a private offering of 12% Convertible Debentures where it accepted subscriptions in the aggregate amount of $2,072,000 from 35 accredited investors, as that term is defined in Rule 501 of Regulation D. Each Convertible Debenture is convertible into shares of common stock at the lesser of $0.40 or 50% of the closing market price on the date a business combination valued at greater than $5,000,000 is completed., The Company used the proceeds from this offering for the purchase of AMS, as well as working capital, including costs associated with the preparation of over three years of reports that had not been filed with the SEC. During the three-month period ended June 30, 2019, the Company entered into a Qualified Financing with its minority purchase of GN stock and warrants described in Note 4 “Investment.” As a result on June 30, 2019, the convertible notes amounting to $2,072,000 along with $130,212 of accrued interest were converted, pursuant to the automatic conversion terms described above, to equity at $0.40 per share, or a total of 5,505,530 shares.

 

Unit Offering

 

On July 8, 2019, the Company commenced a private offering of Units at a price of $50,000 per Unit, each Unit consisting of 50,000 shares of the Company’s Common Stock and one $50,000 unsecured Convertible Note (“Unit Convertible Note”), which mature in one year from the date of issuance and accrue interest at 5% per annum. These Unit Convertible Notes are convertible into one share of the Company’s Common stock at a conversion price of $1.00 per share. During the year ended December 31, 2019, the Company issued $1,200,000 in Unit Convertible Notes to two accredited investors. Since the Company’s stock price exceeded the conversion feature of the Unit convertible Notes and was immediately exercisable, the Company recorded a beneficial conversion feature (“BCF”) and expense of $1,200,000 which was charged to interest expense with an offset to paid-in capital.

 

Additionally, 1.2 million shares of Common Stock were issued in connection with the sale of the Units which were valued at $2,598,000. The excess above the $1,200,000 face value of the Unit Convertible Notes or, $1,398,000 was charged to interest expense with an offset to paid-in capital. The remaining $1,200,000 was recorded as a Note discount of $1,200,000 to be amortized over one year at the rate of $100,000 per month. $200,000 in interest expense related to this discount was recorded during the year ended December 31, 2019.

 

Shares Issued in Connection with the Assignment Agreement with Great Northern Ltd

 

On September 28, 2018, Great Northern Cannabis, Ltd (“GN”), entered a Letter of Intent with P2P Green Power Energy Solutions and certain individuals to acquire all of the issued and outstanding shares of AMS. On October 10, 2018, the Company entered into an Assignment and Assumption Agreement (“the AA Agreement”) with GN. Under the terms of the AA Agreement, the Company essentially purchased the right to acquire AMS from GN for the following consideration:

 

 ·A refundable payment of CAD $200,000
 ·An accountable reimbursement of GN expenses and fees related to the AMS acquisition not to exceed CAD $300,000
 ·In the event that we didn’t enter into a management agreement with GN post-closing, we agreed to issue GN, 2,500,000 shares of our Common Stock trading under symbol “CPMD”

 

All of the above consideration was expressly contingent upon the closing of the AMS acquisition which was consummated by the Company on December 31, 2019. The payments of $200,000 and $300,000 were made to GN. On August 30, 2019, the parties determined that no management agreement had been entered into so the Company issued 2,500,000 shares to GN valued at $5,800,000 as required pursuant to the Agreement. Under the guidelines of ASC 805, Business Combinations, since we disclosed that the AMS transaction was complete, the goodwill re-measurement period ended and therefore we could not adjust goodwill for this transaction. As a result, we recorded an acquisition expense on the Company’s income statement for $5,800,000.

 

 

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Shares Reserved for Issuance

 

As of March 31, 2021, the Company had 85,353,320 Common Shares reserved for issuance. These shares are comprised of 75,000,000 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; 7,558,570 shares issuable upon a conversion of the convertible notes, and 2,319,750 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, 2021 and December 31, 2020, 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, 2021 and December 31, 2020:

 

  Number of Warrants Outstanding (a)  Weighted Average Exercise Price  Average Remaining Contractual Life (Years) 
Warrants outstanding, January 1, 2018    $    
Warrants issued  350,000   0.57   1.50 
Warrants exercised         
Warrant forfeited         
Warrants outstanding, December 31, 2018  350,000  $0.57   .12 
Warrants issued (a)  1,519,750  $1.01   .59 
Warrants outstanding December 31, 2019  1,869,750  $0.92   .80 
Warrants exercised  (25,000)      
Warrants outstanding December 31, 2020  1,844,750  $0.92   .50 

 

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

 

(a)The number of warrants reflected in this table does not include 475,000 warrants that were issued at various times during 2019 in connection with the issuance of the Company’s Series B Preferred stock. These warrants are exercisable for three years at a strike price of $2.00 per share. The Company accounts for warrants issued to purchase shares of its common stock or preferred stock as equity in accordance with FASB ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity. Therefore, no stock-based compensation expense was recorded for the issuance of these 475,000 warrants.

 

 

 

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The value of the stock purchase warrants for the periods ended March 31, 2021, and December 31, 2020, was determined using the following Black-Scholes methodology:

 

Expected dividend yield (1)0.00%
Risk-free interest rate range (2)1.75 - 2.91%
Volatility range (3)1.23% - 442.92%
Expected life (in years)2.00 - 5.00

_____________

(1)The Company has no history or expectation of paying cash dividends on its Common Stock.
(2)The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant.
(3)The volatility of the Company’s Common Stock is based on trading activity for the previous three year period ended at each stock purchase warrant contract date.

 

During the three month period ended March 31, 2021 and March 31, 2020, the Company recorded $96,700 and $206,759, respectively, in stock-based compensation.

 

NOTE 15.SUBSEQUENT EVENTS

 

On April 14, 2021, the Company issued $53,500 in new convertible debentures to a secured investor, bearing interest at 10%, for net proceeds of $50,000, maturing April 14, 2022. This debenture is convertible into common shares at any time after 180 days at 61% of market price during the previous 20 day trading period. This debenture is elibible for repayment between 0 – 180 days between 115% and 135%. In the event of default interest increases to 22%.

 

On April 22, 2021, the Company issued $45,500 in new convertible debentures to a secured investor, bearing interest at 5%, for net proceeds of $40,000. This debenture matures April 22, 2022. This debenture is convertible into common shares at any time at 39% discount to the lowest trading price in the prior 20 days. Repayment authorized between 0 – 180 days between 110% and 135%. In addition, 25,000 commitment shares are to be granted.

 

On May 6, 2021, the Company issued 400,000 Common Shares to an accredited investor at $0.15 per share for gross proceeds of $60,000, less fees of $13,040, for net proceeds of $46,960.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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, 2020 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.

 

 

 

 

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During the three month period ending March 31, 2021 the Company had no revenues from operations. Loss from operations for the three months ended March 31, 2021 was $721,345 compared with a loss in the prior year of $2,570,009, for a net income of $1,197,974 for the most recent quarter, compared with a prior year loss of $4,214,818.

 

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

 

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

 

On December 21, 2000, we filed for protection under Chapter 11 of the United States Bankruptcy Code. In connection with the filing, on February 16, 2001, we sold our entire business, and all of our assets, for the benefit of our creditors. After the sale, we 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 our remaining directors resigned. On March 13, 2001, we had no business or other source of income, no assets, no employees or directors, outstanding liabilities of approximately $8.4 million and had terminated our duty to file reports under securities law. In February 2008, we were re-listed on the OTC Bulletin Board.

 

In April 2010, we 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 our wholly owned subsidiaries. As a result of this reorganization our name was changes to “Golden Dragon Inc.”, which became the surviving publicly quoted parent holding company.

 

On May 9, 2014, we 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 our 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 us.

 

 

 

 

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

 

Pursuant to the Merger, all of the shares of our common stock previously owned by Canna Colorado were cancelled. As a result of the aforesaid transactions we 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.

 

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.

 

Our activities to date have centered around three projects, including (i) the Hanover Project; (ii) the Great Northern Project; (iii) and (iii) the acquisition of Ramon Road Production Campus LLC

 

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

 

Hanover

 

Effective November 19, 2018, we entered into a Securities Purchase Agreement with Alternative Medical Solutions, Inc., an Ontario, Canada corporation (“AMS”), its shareholders and Hanover CPMD Acquisition Corp., wherein we acquired all of the issued and outstanding securities of AMS. As part of the material terms of this transaction, we also agreed to acquire all of the outstanding shareholder loans held by the principal shareholder of AMS. The purchase price was CAD$12,700,000, of which CAD$1,012,982 was paid at closing and we assumed debt of approximately CAD$650,000. The principal shareholders of AMS elected to receive 971,765 shares of our Common Stock in lieu of CAD$985,000 in additional cash. We granted the holders of these shares “piggyback” registration rights but we have not yet filed a registration statement to cause us to register these shares with the SEC. The balance of approximately CAD$10,000,000 is to be paid pursuant to the terms of a relevant subordinated non-interest bearing promissory note, secured only by the shares acquired in AMS Principal payments under the Promissory Note, are due quarterly 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. As of the date of this report, we are not producing any cannabis on this property. We are currently reviewing our proposed activities on this project.

 

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 is $2,000,000 CAD and the closing is expected to occur by the end of the second quarter ending on June 30, 2021. 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 during the year ended December 31, 2020. This property is security for a $1,000,000 US Note with Koze Investments, LLC by way of a first-ranking charge. At closing the Note will be retired with the proceeds from the sale. Should the transaction not close, the Company will re-evaluate the potential to develop the property as originally planned in light of current market conditions in the industry.

 

 

 

 

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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. We believe this is the initial step in our efforts to acquire all of the issued and outstanding stock of GN. Based upon various discussions that have taken place we anticipate making additional purchases of stock from other shareholders of GN during 2020 but there are no assurances this will occur.

 

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 12,500 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. We intend to continue to acquire the common stock of GN in one or multiple additional transactions.

 

Sunniva Acquisition

 

Effective June 11, 2019, the Company entered into a Securities Purchase Agreement with Sunniva, Inc, a British Columbia, Canada corporation (“Sunniva”) wherein the Company agreed to acquire all of the issued and outstanding securities of Sunniva’s wholly-owned subsidiaries Sunniva Medical Inc. (“SMI”) and 1167025 B.C. LTD (“1167025”) for CAD $16.0 million in cash and a note in the principal amount of CAD $4.0 million. These companies are the current owners of the Sunniva Canada Campus, which includes construction assets for a planned 759,000 square-foot greenhouse located on an approximately 114-acre property in Okanagan Falls, British Columbia.

 

On June 8, 2020, the Company received a notice of termination of this Purchase Agreement, as amended, from Sunniva. As a result, the Company incurred a charge of $1,881,126 due to the write-off of its deposit to Sunniva, banking fees and prepaid expenses associated with the failed acquisition of Sunniva. The Company is in discussions with Sunniva, as well as an investment banker who received deposits from the Company, about recovering all or a portion of its deposits, banking fees, and prepaid expenses.

 

 

 

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Other

 

On March 29, 2021, the Company received the acceptance our Offer to Purchase certain assets and facilities located in Cremona, Alberta, Canada. The purchase price is $12,550,000 CAD. The Company has paid a $200,000 CAD deposit and closing is expected on April 29, 2021. The 55,200 square foot facility is capable of producing 5,200 kilograms of cannabis biomass per year. The facility previously held Health Canada licenses for cultivation and sales of medical dried flower, as well as extract and edible sales. After closing of the transaction, the Company intends to apply for new Health Canada licenses. Funding for this acquisition is in the due diligence phase.

 

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, 2021 or 2020. 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, 2021 or 2020 and, accordingly, there were no cost of goods sold.

 

Gross Profit and Gross Margin

 

For the fiscal years ended March 31, 2021 and 2020, 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.

 

Overall operating expenses in three months ended March 31 2021 was $721,345 compared to $2,570,009 for the three months ended March 31, 2020, a decrease of 1,848,664. The decrease in the 2021 period is primarily attributable to acquisition expenses of $1,881,126 in the 2020 with zero acquisition expenses during the three months ended March 31, 2021.

 

Other income (expense)

 

Other income was $1,919,319 for the three months ended March 31, 2021, compared to other expense of $1,644,809, an improvement of $3,564,128. The increase in other income is primarily attributable to a reduction in the derivative liability of $2,630,480 in the 2021 period compared to zero in the prior year, and a reduction in interest expense in in three months ended March 31, 2021 of $290,453 compared to the 2020 period due to a reduction in amortization of note discount.

 

Net Income (Loss)

As a result of the foregoing, the Company had a net profit of 1,197,974, and a net loss of $4,214,818, for the periods ended March 31, 2021, and March 31, 2020, respectively.

 

 

 

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LIQUIDITY AND CAPITAL RESOURCES

 

As of March 31, 2021, we had $30,078 in cash as compared to $334,969 at December 31, 2020.

 

Cash flows from operating activities

 

The Company used $779,251 in operating activities for the first three months ended March 31, 2021 as compared to $365,680 during the prior year comparable quarter. During the first 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 the extinguishment of debt of $282,289, change in the fair value of derivatives of $2,630,480, an increase to prepaid assets of $277,582 and an increase to payables and accruals of $243,896. During the prior year quarter ended March 31, 2020 the Company had a net loss of $4,214,818, stock based compensation expense of $206,579, amortization of intangible assets and debt discount of $666,042, change in fair value of derivatives of $925,484, a decrease to prepaid expenses of $1,839,953 and an increase to accounts payable and accruals of $210,696.

 

Cash flows from investing activities

 

The Company used $45,804 during the first three months ended March 31, 2021 in investing activities as compared to $1,676 during the three month period ended March 31, 2020. This included the purchase of office equipment and a further investment in Klonetics.

 

Cash flows from financing activities

 

During the three months ended March 31, 2021, $496,723 was provided from financing activities, including $292,060 from convertible loans and notes payable, $244,104 from the sale of Common Stock, offset by $39,441 from the sale of Preferred Stock. During the prior year quarter the Company received $438,000 from the sale of Preferred Stock, offset by $95,000 repayment of related party loans.

 

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

 

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 14, 2021, the Company issued $53,500 in new convertible debentures to a secured investor, bearing interest at 10%, for net proceeds of $50,000, maturing April 14, 2022. This debenture is convertible into common shares at any time after 180 days at 61% of market price during the previous 20 day trading period. This debenture is elibible for repayment between 0 – 180 days between 115% and 135%. In the event of default interest increases to 22%.

 

On April 22, 2021, the Company issued $45,500 in new convertible debentures to a secured investor, bearing interest at 5%, for net proceeds of $40,000. This debenture matures April 22, 2022. This debenture is convertible into common shares at any time at 39% discount to the lowest trading price in the prior 20 days. Repayment authorized between 0 – 180 days between 110% and 135%. In addition, 25,000 commitment shares are to be granted.

 

On May 6, 2021, the Company issued 400,000 Common Shares to an accredited investor at $0.15 per share for gross proceeds of $60,000, less fees of $13,040, for net proceeds of $46,960. The Company filed an S-1which was declared effective.

 

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, 2021.

 

 

 

 

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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.

 

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, 2021 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, 2021, 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.

 

 

 

 

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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.

 

 

 

 

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Subsequent Events

 

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.

 

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, 2021, 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 XBRL Instances Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

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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 17, 2021.

 

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

John Cassels,

Principal Financial Officer and

 
  Principal Accounting Officer 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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