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CPMD Cannapharmarx

Filed: 16 Aug 21, 3:12pm

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

 

Quarterly REPORT PURSUANT to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2021

or

  Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transaction period from _____________ to _____________

 

 

For Quarter Ended: June 30, 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, Canada T2P 5C5 

(Address of principal executive offices)

 

949-652-6838

(Issuer’s Telephone Number)

 

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

 

None

 

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

 

Title of each 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   No ☐

 

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

 

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

  

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company  

 

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

 

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

 

The number of shares of the registrant’s only class of common stock issued and outstanding as of August 12, 2021, was 89,124,710 shares.

 

   

 

 

 

TABLE OF CONTENTS

 

   Page No.
PART I. FINANCIAL INFORMATION
   
Item 1.Financial Statements 1
    
 Unaudited Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 1
    
 Unaudited Consolidated Statement of Operations for the Six Months Ended June 30, 2021 and 2020 2
    
 Unaudited Consolidated Statement of Cash Flows for the Six Months Ended June 30, 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 22
    
Item 3.Quantitative and Qualitative Disclosures About Market Risk 28
    
Item 4.Controls and Procedures 28
    
 PART II. OTHER INFORMATION  
    
Item 1.Legal Proceedings 29
    
Item 1A.Risk Factors 30
    
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds 30
    
Item 3.Defaults Upon Senior Securities 30
    
Item 4.Mine Safety Disclosures 30
    
Item 5.Other Information 30
    
Item 6.Exhibits 30
    
 Signatures 31

 

 

 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.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

         
  June 30,  December 31, 
ASSETS 2021  2020 
Current assets        
Cash $110,158  $334,969 
HST Receivable  1,996   551 
Prepaid expenses  369,154   132,031 
Total current assets  481,308   467,551 
         
Construction in progress  1,608,994   1,566,316 
Office equipment  7,717   2,435 
Investments  6,750,779   6,711,289 
Total Assets $8,848,798  $8,747,591 
         
LIABILITIES & STOCKHOLDERS' DEFICIT        
         
Current liabilities        
Accounts payable and accrued expenses $4,116,507  $3,585,000 
Accrued interest  152,238   96,477 
Accrued legal settlement  190,000   190,000 
Notes payable  9,331,658   8,728,749 
Convertible Notes -net of discount  812,790   997,558 
Derivative liability  598,676   3,676,649 
Loan payable - related party  41,219   274,758 
Total current liabilities  15,243,088   17,549,190 
         
Total Liabilities  15,243,088   17,549,190 
         
Commitments and contingencies      
         
Stockholders' Equity        
Preferred stock, Series A, $1.00 par value, 100,000 shares authorized, 58,180 and 60,000 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively  58,180   60,000 
Preferred Stock Series B, $1.00 par value, 3,000,000 shares authorized, 475,000 and -0- shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively  475,000   475,000 
Common stock, $0.0001 par value; 300,000,000 shares authorized, 73,760,595 and 46,986,794 issued and outstanding as of June 30, 2021 and December 31, 2020, respectively  7,376   4,699 
Treasury stock, 133,200 and -0- shares as of June 30, 2021 and December 31, 2020, respectively  (13)  (13)
Additional paid in capital  71,383,756   68,336,249 
Retained earnings (deficit)  (77,799,255)  (77,331,820)
Accumulated other comprehensive income (loss)  (519,334)  (345,714)
Total Stockholders' Equity (Deficit)  (6,394,290)  (8,801,599)
Total Liabilities and Stockholders' (Equity) $8,848,798  $8,747,591 

 

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

 

 1 

 

 

CANNAPHARMARX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

                 
  Three Months  Three Months  Six Months  Six Months 
  Ended  Ended  Ended  Ended 
  June 30,  June 30,  June 30,  June 30, 
  2021  2020  2021  2020 
             
Revenue $0  $0  $0  $0 
                 
Operating Expenses:                
General and administrative  359,377   183,926   508,146   226,254 
Acquisition expenses  0   (18,488)  0   1,862,638 
Amortization and depreciation  776   31,477   1,184   63,141 
Stock based compensation  96,700   206,579   193,399   413,158 
Travel and entertainment  0   1,405   0   7,942 
Rent  (4,664)  17,597   4,814   17,597 
Professional fees  295,753   118,394   714,356   272,123 
Board of Directors’ fees  48,138   246,594   95,526   494,640 
Total operating expenses  796,080   787,484   1,517,425   3,357,493 
Income (loss) from operations  (796,080)  (787,484)  (1,517,425)  (3,357,493)
                 
Other income (expense)                
Interest (expense)  (609,848)  (641,377)  (1,038,720)  (1,360,702)
(Loss) on extinguishment of debt  (706,974)  0   (989,263)  0 
Change in the fair value of derivative liability  447,493   (43,618)  3,077,973   (969,102)
Other income (expense) net  (869,329)  (684,995)  1,049,990   (2,329,804)
Income (loss) before provision for income taxes  (1,665,409)  (1,472,479)  (467,435)  (5,687,297)
Provision (credit) for income tax  0   0   0   0 
Net income (loss)  (1,665,409) $(1,472,479)  (467,435) $(5,687,297)
                 
Basic and diluted earnings(loss) per common share $(0.03) $(0.04) $(0.01) $(0.15)
                 
Weighted average number of shares outstanding  57,235,013   40,002,473   52,664,431   38,273,494 
                 
Comprehensive loss:                
Net income (loss) $(1,665,409) $(1,472,479) $(467,435) $(5,687,297)
Foreign currency translation adjustment  (77,042)  13,481   (173,620)  (53,793)
Comprehensive income (loss) $(1,742,451) $(1,458,998) $(641,055) $(5,741,090)

 

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

 

 

 2 

 

 

CANNAPHARMARX, INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)

 

       
  Six Months  Six Months 
  Ended  Ended 
  June 30,  June 30, 
  2021  2020 
Cash Flows From Operating Activities:        
Net income (loss) $(467,435) $(5,741,090)
Adjustments to reconcile net income to net cash provided by (used for) operating activities        
Stock-based compensation expense  193,399   413,158 
Amortization of intangible assets  0   62,384 
Advertising expense paid with common stock  189,000   153,000 
Common stock issued in connection with financing  50,085   130,834 
Amortization of debt discount  735,949   1,009,149 
Loss on the extinguishment of debt  989,263   0 
Change in the fair value of derivatives  (3,077,973)  969,102 
Depreciation  1,190   758 
Changes in operating assets and liabilities        
(Increase)/decrease in prepaid expenses  (238,498)  1,788,111 
HST Receivable  (1,430)  25,991 
Accrued interest  54,087   54,671 
Notes payable  0   121,132 
Accounts payable and accrued expense  516,659   339,443 
Net cash provided by (used for) operating activities  (1,055,704)  (673,357)
         
Cash Flows From Investing Activities:        
Purchase of fixed assets  (6,406)  0 
Purchase of private company equity  (39,490)  0 
Changes in intangible assets  0   62,435 
Net cash provided by (used for) investing activities  (45,896)  62,435 
         
Cash Flows From Financing Activities:        
Proceeds from the sale of preferred stock  55,000   0 
Proceeds from convertible loans, net of repayments  388,083   534,000 
Proceeds from notes payable, net of repayment  238,560   (3,490)
Proceeds from the sale of common stock in private placements  291,064   0 
Proceeds (repayment of related party loans), net  (233,539)  (83,259)
Net cash provided by (used for) financing activities  739,168   447,251 
         
Effect of exchange rates on cash and cash equivalents  137,621   165,917 
Net Increase (Decrease) In Cash  (224,811)  2,246 
Cash At The Beginning Of The Period  334,969   1,547 
Cash At The End Of The Period  110,158   3,793 
         
Supplemental disclosure of cash flow information:        
Cash paid for interest $0  $0 
Cash paid for income taxes $0  $0 
         
Supplemental disclosure of non-cash investing and financing activities:        
Common stock issued as a financing expense on convertible notes $50,085  $130,849 
Common stock issued for advertising expense $189,000  $153,000 
Common stock issued related to investment in Great Northern Cannabis $0  $2,478,422 
Common stock issued to convert convertible notes and accrued interest into equity $764,353  $0 

 

 

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

 

 3 

 

 

CANNAPHARMARX, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

 

                                     
  Preferred Stock
Series A
  Preferred Stock
Series B
  Common Stock  Treasury Stock  Paid in  Retained earnings  Accumulated other comprehensive  Equity/ 
  Shares  Value  Shares  Value  Shares  Value  Shares  Value  Capital  (Deficit)  income (loss)  Deficit 
Balance at 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                                (67,273) $(67,273)
                                                 
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) $70,423  $1,347,534 
                                                 
Change in foreign currency translation                                13,481   13,481 
                                                 
Net loss                             (1,472,479)     (1,472,479)
                                                 
Shares issued for services              300,000   30         152,970         153,000 
                                                 
Stock-based compensation related to warrant issuances                          206,579         206,579 
                                                 
Shares received from share exchange with GN              5,507,400   551         2,477,871         2,478,422 
Balance, June 30, 2020  60,000  $60,000   475,000  $475,000   42,448,339  $4,245   133,200  $(13) $65,232,248  $(63,128,846) $83,904  $2,726,536 

 

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

 

 4 

 

 

CANNAPHARMARX, INC.

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) $(8,801,599)
                                                 
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)
                                                 
Net income (loss)                             (1,665,409)     (1,665,409)
                                                 
Change in foreign currency translation                                (77,042)  (77,042)
                                                 
Purchase of Series A Preferred  1,760   1,760                     53,240         55,000 
                                                 
Conversion of Series A Preferred to common stock  (3,380)  (3,380)        4,225,000   423         2,958          
                                                 
Conversion of convertible notes to common shares              17,531,700   1,753         762,600         764,353 
                                                 
Sale of common stock in private placement              400,000   40         46,920         46,960 
                                                 
Loss on loan conversions                          706,974         706,974 
                                                 
Issuance of common stock for services              1,800,000   180         188,820         189,000 
                                                 
Commitment shares issued with convertible note              265,000   27         50,059         50,085 
                                                 
Beneficial conversion feature of convertible notes                          289,426         289,426 
                                                 
Stock based compensation related to warrant issuances                          96,700         96,700 
                                                 
Balance, June 30, 2021  58,180  $58,180   475,000  $475,000   73,760,595  $7,376   133,200  $(13) $71,383,756  $(77,799,255) $(519,334) $(6,394,290)

 

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

 

 5 

 

 

CANNAPHARMARX, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Month Interim Periods Ended June 30, 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. 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. This transaction closed on July 9, 2021 and the note was repaid in full as principal of $1,000,000 principal plus accrued interest of $124,735 and penalties of $475,265. The note was discharged accordingly.

 

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

 

GN owns a 60,000 square foot cannabis cultivation and grow facility located on 38 acres in Stevensville, Ontario, Canada. Because the Company is a minority shareholder of GN and GN is a privately held company, the Company cannot confirm that the information it currently has on GN’s operations is complete or fully reliable. GN estimates annual total production capacity from the Stevensville facility of up to 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.

 

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. 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 June 30, 2021, and December 31, 2020, the Company cash and cash equivalents totaled $110,158 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 June 30, 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 June 30, 2021, and December 31, 2020, the Company had derivative liabilities of $598,676 and $3,676,649, respectively. These derivative liabilities decreased in 2021 due to price movement of the Company’s common stock.

 

 

 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 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 June 30, 2021, and December 31, 2020, the Company had $1,608,994 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 June 30, 2021, and June 30, 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 June 30, 2021.

 

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 June 30, 2021 of $7,717 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.

 

 

 10 

 

 

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 June 30, 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. The Company adopted ASU 2019-12, Income Taxes, Topic 740 on January 1, 2021. There is no material impact on the Company’s financial statements.

 

 

NOTE 2.GOING CONCERN AND LIQUIDITY

 

As of June 30, 2021 and December 31, 2020, the Company had $110,158 and $334,969 cash on hand, respectively, and no revenue-producing business or other sources of income. Additionally, as of June 30, 2021, the Company had negative working capital totaling $14,761,780 and a total stockholders’ deficit of $6,394,290.

 

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.

 

 

 

 11 
 

  

 

NOTE 3.DEPOSITS

 

As of June 30, 2021, and December 31, 2020, the Company had deposits of $80,680 and $0, respectively, which are included in Accounts Payable and Accrued Expenses. 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. 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, which occurred on July 9, 2021, the Note was retired in full with repayment of $1,000,000 principal plus accrued interest of $124,735 plus $475,265 in penalties and as such fully discharged. The Company has received a deposit of $80,680 towards the purchase of this property included in Accounts Payable and Accrued expenses at June 30, 2021.

 

NOTE 4.PREPAID EXPENSES

 

The following table sets forth the components of the Company’s prepaid expenses on June 30, 2021, and December 31, 2020:

Schedule of prepaid expenses

  

June 30,

2021

  

December 31,

2020

 
Prepaid expenses(a)  159,654   132,031 
Prepaid financing(b)  209,500   0 
Total $369,154  $132,031 

 

 a)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.
 b)The Company has paid $209,500 in commitment fees to two arms length parties to arrange financing for pending Cremona acquisition. This financing is currently in the due diligence phase.

 

 

NOTE 5.INVESTMENT

 

As of June 30, 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. 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 recorded a write-down of the investment by $7,070,841 to a current value of $4,193,597.

 

On May, 2020, the Company exchanged 5,507,400 of its common shares for 3,671,597 common shares of GN. These shares were valued at $0.675 each which represents the value of the GN shares as determined by the Company’s year end impairment analysis and were recorded as an investment of $2,478,422. As of December 31, 2020 the Company’s investment in GN was $6,672,019.

 

 

 

 12 
 

 

 

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 June 30, 2021, and December 31, 2020: 

Property and Equipment                        
  June 30, 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 $11,408  $(3,691) $7,717  $4,869  $(2,435) $2,435 
Land  0   0   0   0   0   0 
Construction in progress  1,608,994   0   1,608,994   1,566,316   0   1,566,316 
Total fixed assets $1,620,402  $(3,691) $1,616,711  $1,571,185  $(2,435) $1,566,316 

 

For the periods ended June 30, 2021, and 2020, the Company recorded depreciation expense of $1,184 and $758 respectively.

 

As of June 30, 2021 and December 31, 2020, the Company had $1,608,994 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. This transaction closed on July 9, 2021 for proceeds of $2,000,000 CAD. Proceeds were used to retire and discharge the note for a repayment of principal of $1,000,000, interest of $124,735 and penalties of $475,265.

 

 

 

 

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NOTE 7.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 June 30, 2021 and December 31, 2020.

 

Schedule of accounts payable and accrued liabilities        
  

June 30,

2021

  

December 31,

2020

 
Accounts payable and accrued expenses $4,116,507  $3,585,000 
Accrued interest (a)  152,238   96,477 
Accrued legal settlement (b)  190,000   190,000 
Total accounts payable and accrued liabilities $4,458,745  $3,871,477 

 

 (a)Represents interest accrued on the outstanding convertible notes and other notes - see Note 11, 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.

 

 

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NOTE 8.RELATED PARTY TRANSACTIONS

  

The following table sets forth the components of the Company’s related party liabilities on June 30, 2021 and December 31, 2020.

Schedule of related party transactions

  

June 30,

2021

  

December 31,

2020

 
Loan payable, related parties $41,219  $274,758 
         
Total loan payable, related parties $41,219  $274,758 

  

  Interest-free loans of $41,219 from the Company’s CEO and a director, respectively, amounting to $21,461 and $19,758 due to former directors.

 

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

 

See Note 14, Subsequent Events, below, for additional related party transactions.

 

 

NOTE 9.CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES

 

The following tables set forth the components of the Company’s, convertible debentures as of June 30, 2021 and December 31, 2020: 

Components of convertible debentures        
  June 30,
2021
  December 31,
2020
 
Principal value of convertible notes $1,093,728  $1,662,000 
Note discount  (280,938)  (664,442)
Total convertible notes, net current $812,790  $997,558 

 

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.

 

 

 15 

 

 

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 notes 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.

 

June 30, 2021 Activity

 

During the six-month period ended June 30, 2021, the Company received proceeds from convertible notes of $388,083.

 

During the six months ended June 30, 2021 the Company recorded $43,030 in interest expense on its convertible notes and amortized $735,949 of note discount which was charged to interest expense. As of June 30, 2021, there was $27,503 in accrued interest on these notes, and $280,938 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 six months ended June 30, 2021 the Company issued 18,973,801 common shares upon the conversion of $956,355 in convertible notes and recorded a loss on conversion of $989,263.

 

As of June 30, 2021, derivative liabilities were valued using a probability-weighted average Black-Scholes-Merton pricing model with the following assumptions:

Schedule of assumptions used    
  

June 30,

2021

 
Exercise Price $0.0276 – 0.0345 
Stock Price $0.05 
Risk-free interest rate  .08% 
Expected volatility  128.50% 
Expected life (in years)  0.50 - 1.00 
Expected dividend yield  0% 
Fair Value: $598,676 

 

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 six months ended June 30, 2021 the Company recognized a gain of $3,077,973, and a loss for the six months ended June 30, 2020 of $969,102 as “Other Expense” on its Consolidated Statements of Operations, which represented the net change in the value of the derivative liability.

 

 

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NOTE 10.NOTES PAYABLE

 

The following tables set forth the components of the Company’s, notes payable as of June 30, 2021 and December 31, 2020: 

Schedule of notes payable        
  June 30,
 2021
  December 31,
 2020
 
Principal value of Promissory Note $9,459,536  $8,977,721 
Loan discounts  (127,878)  (248,972)
Promissory Note, long term net of discount $9,331,658  $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 six months ended June 30, 2021, the Company has recorded $735,949 in amortization expense related to Note discount.

 

On July 3, 2019, the Company entered into a 12% $1,000,000 Loan Agreement with Koze Investments LLC (“Koze”), payable in full on June 28, 2020. 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 six months ended June 30, 2021 the Company entered into Note Agreements with secured investors amounting to $238,560. These notes are non-interest bearing and mature in 12 months. Repayment includes principal amount plus $50,000 CAD settlement cash fee plus 58,140 Common Shares at $0.43 per share plus 59,524 Common Shares at $0.42 per share. These notes are secured by a GSA over all present and after acquired property, assets, and undertakings.

 

 

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NOTE 11.INCOME TAXES

 

As of June 30, 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 June 30, 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 12.COMMITMENTS AND CONTINGENCIES

 

Effective March 22, 2019, the Company entered into a lease agreement to lease three offices at 3600 888 3 St SW, Calgary, Alberta, Canada, T2P 5C5. The lease may be terminated by either party on 30 days’ notice. Rent is $2,000 CAD per month (reduced from $4,000 per month effective October 1, 2020 retroactively adjusted). 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.

 

NOTE 13.STOCKHOLDERS’ EQUITY

 

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.

 

 

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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.

 

The Company is authorized to issue up to 100,000 shares of Series A Preferred Stock, par value of $1.00.

 

There were 58,180 shares of Series A Preferred Stock issued and outstanding as of June 30, 2021 and 60,000 shares outstanding at December 31, 2020, respectively.

 

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 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.

 

The Company is authorized to issue 3,000,000 shares of Series B Preferred Stock, par value of $1.00.

 

There were 475,000 shares of Series B Convertible Preferred Stock issued and outstanding as of June 30, 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 June 30, 2021, and December 31, 2020, 73,760,595 and 46,986,794 shares of Common Stock were issued and outstanding, respectively.

 

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.

 

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”

 

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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.

 

Shares Reserved for Issuance

 

As of June 30, 2021, the Company had 272,654,379 Common Shares reserved for issuance. These shares are comprised of 72,725,000 Common Shares issuable upon the conversion of the Series A Preferred Stock; 475,000 Common Shares issuable upon the conversion of Series B Preferred Stock; 197,131,851 shares issuable upon a conversion of the convertible notes, and 2,322,528 Common Shares issuable upon the exercise of warrants. None of these shares were used in the calculation of earnings per share because their inclusion would be anti-dilutive since the Company is operating at a loss. There are no assurances that the conversion rights will be utilized or that the options or the warrants will be exercised.

 

Stock Options

 

During the period ended June 30, 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 June 30, 2021 and December 31, 2020: 

Warrant activity            
  Number of Warrants Outstanding (a)  Weighted Average Exercise Price  Average Remaining Contractual Life (Years) 
Warrants outstanding, January 1, 2018  0  $0    
Warrants issued  350,000   0.57   1.50 
Warrants exercised  0   0    
Warrant forfeited  0   0    
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)  0    
Warrants outstanding December 31, 2020  1,844,750  $0.92   .50 
Warrants issued (b)  477,778  $0.30   5.00 
 Warrants outstanding June 30, 2021  2,322,528   -     

 

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

 

 

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The value of the stock purchase warrants for the periods ended June 30, 2021, and December 31, 2020, was determined using the following Black-Scholes methodology: 

Assumptions used 
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 six month period ended June 30, 2021 and June 30, 2020, the Company recorded $193,399 and $413,158, respectively, in stock-based compensation.

 

NOTE 14.SUBSEQUENT EVENTS

 

On July 2, 2021, the Company issued 1600 Preferred A shares to an accredited investor at $31.25 per share for net proceeds of $49,997.

 

On July 9, 2021, the Company closed the sale of the Hanover property originally executed on January 6, 2021 to an arms-length party for proceeds of $2,000,000 CAD. These proceeds were used to repay the Koze mortgage against the property for $1,600,000 USD which included the original principal of $1,000,000 USD plus accrued interest of $124,735 USD and penalties of $475,265. This mortgage has now been discharged.

 

On July 13, 2021, the Company issued 2400 Preferred A shares to an accredited investor at $31.25 per share for net proceeds of $75,000.

 

On July 23, 2021, the Company issued 2400 Preferred A shares to an accredited investor at $31.25 per share for net proceeds of $75,000.

 

 

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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 six-month period ending June 30, 2021 the Company had no revenues from operations. Loss from operations for the six-months ended June 30, 2021 was $1,517,425 compared with a loss in the prior year of $3,357,493, for a net loss of $467,435 for the most recent six month period, compared with a prior year loss of $5,687,297.

 

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 of this transaction occurred on July 9, 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 was retired with the proceeds from the sale by repayment of the principal of $1,000,000, accrued interest of $124,735 and penalties of $475,265. The note was discharged as of the date of this report.

 

 

 

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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.

 

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.

 

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

 

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.

 

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. . 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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Results of Operations

 

The Company does not currently sell or market any products and did not have any sales in the six-months ended June 30, 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 six-months ended June 30, 2021 or 2020 and, accordingly, there were no cost of goods sold.

 

Gross Profit and Gross Margin

 

For the six month periods ended June 30, 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.

 

Operating expenses for the three months ended June 30, 2021 was $796,080 compared to the same quarter in the prior year of $787,484, with an increase to general and administrative expenses and professional fees, offset by decreases to stock based compensation and director fees.

 

Operating expenses in the six-months ended June 30, 2021 was $1,517,425 compared to $3,357,493 for the six months ended June 30, 2020, a decrease of $1,840,048. The decrease in the 2021 period is primarily attributable to acquisition expenses of $1,862,638 in the 2020 with zero acquisition expenses during the six-months ended June 30, 2021.

 

Other income (expense) for the three months ended June 30, 2021 was $869,329 compared to the prior year quarter of $684,995, an increase of $184,334 due to loss on extinguishment of debt of $706,974 offset by the change in fair value of derivative liabilities.

 

Other income was $1,049,990 for the six-months ended June 30, 2021, compared to other expense of $2,329,804, an improvement of $3,379,794. The increase in other income is primarily attributable to a reduction in the derivative liability of $3,077,973 in the 2021 period compared to an expense of $969,102 in the prior year,the loss on extinguishment of debt of $989,263, and a reduction in interest expense in six-months ended June 30, 2021 of $321,982 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 loss of $467,435, and a net loss of $5,687,297, for the periods ended June 30, 2021, and June 30, 2020, respectively.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of June 30, 2021, we had $110,158 in cash as compared to $334,969 at December 31, 2020.

 

Cash flows from operating activities

 

The Company used $1,055,704 in operating activities for the first six-months ended June 30, 2021 as compared to $673,357 during the prior year comparable six month period. During the six months ended June 30, 2021 the Company had a net loss of $467,435, stock based compensation expense of $193,399, advertising expense of $189,000, common stock issued in connection with financing of $50,085, amortization of debt discount of$735,949, loss on the extinguishment of debt of $989,263, change in the fair value of derivatives of $3,077,973, an increase to prepaid assets of $238,498 and an increase to payables and accruals of $569,316. During the prior year six months ended June 30, 2020 the Company had a net loss of $5,741,090, stock based compensation expense of $413,158, amortization of intangible assets and debt discount of $1,071,533, common stock issued for finance and advertising expenses of $283,834, change in fair value of derivatives of $969,102, a decrease to prepaid expenses of $1,768,111 and an increase to accounts payable and accruals of $541,237.

 

 

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Cash flows from investing activities

 

The Company used $45,896 during the first six-months ended June 30, 2021 in investing activities as compared to net cash provided of $62,435 during the six-month period ended June 30, 2020. This included the purchase of office equipment and a further investment in Klonetics.

 

Cash flows from financing activities

 

During the six-months ended June 30, 2021, $739,168 was provided from financing activities, including $55,000 from the sale of Preferred Stock, $626,643 from convertible loans and notes payable, $291,064 from the sale of Common Stock, offset by $233,539 from the repayment of related party loans. During the prior year six month period the Company received $534,000 from convertible debentures, offset by $83,259 repayment of related party loans, and a further $3,490 from notes payable.

 

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 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 detailed description of the property is in Note 1 of the financial statements. The purchase price is $2,000,000 CAD..The property is the security for a $1,000,000 US Note with Koze Investments, LLC by way of a first-ranking charge. The transaction closed on July 9, 2021 and proceeds were used to repay the $1,000,000 note plus interest of $124,735 and penalties of $475,265. The note has been discharged as of the date of this report. See Subsequent Event Note 14.

 

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 six-month period ended June 30, 2021.

 

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. A comprehensive summary of our critical accounting policies which can be found on Form 10-K dated December 31, 2020 filed on April 14, 2021 , That Report contains 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.

 

 

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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 June 30, 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 June 30, 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. On March 22, 2021, the Court issued a notice that the case had been terminated pursuant to the Notice of Discontinuance of Proceedings with Prejudice that had been filed in the case on March 19, 2021

 

As a result, the litigation has been discontinued.

 

 

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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 million dollars plus attorneys’ fees and costs. On May 5, 2021, CPMD filed a Notice of Removal from the Superior Court of the State of California, County of Los Angeles to the United States District Court for the Central District of California. On May 25, 2021, BCI filed a Notice of Motion and Motion for an Order remanding the case back to the Superior Court of the State of California, County of Los Angeles. On June 4, 2021, CPMD filed a Motion to Dismiss the First, Third and Fourth Causes of Action filed by BCI. On June 4, 2021, CPMD filed a Memorandum in Opposition to BCI’s Notice of Motion and Motion to Remand the case back to the Superior Court of the State of California, County of Los Angeles. On June 10, 2021, BCI filed a Reply in Support of a Motion to remand the case back to the Superior Court of the State of California, County of Los Angeles. On June 24, 2021, the Court granted BCI’s Motion to remand the case back to the Superior Court of the State of California, County of Los Angeles. 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 six-months ended June 30, 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 Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101).

 

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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 August 16, 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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